Ch. 10: Innovative Strategies

Innovation

Conversion of invention into a product, process, or business model To succeed in the market: - Novel - Useful - Successfully implemented

Free business/revenue models

Offering prod/serv for "free" Ex: Google Docs, Skype, AT&T bundling free phones w/ contracts Ex: Wikipedia (v. Britannica)

Disintermediation

Reconfigure VC to eliminate activities Ex: Amazon eliminated distributors and stores to sell books over Internet (v. Barnes & Noble)

Introduction

Try to get early adopters willing to try out latest Get reference customers Product > process innovation Ex: Google Glass

Disruptive innovation

Companies find the innovation so radical that they can no longer do business as usual Ex: Netflix v. Blockbuster

Hypercompetition

Competitive intensity has increased Periods of competitive advantage has decreased

Incremental innovation

Builds on firm's established knowledge base and steadily improves the prod/serv offered Minor improvements Ex: Gillette offering razor with 5 instead of 4 blades

3 ways business models differ

1) Customer segments 2) Activities and resources 3) Revenue model (approach/pricing strategy)

6 categories innovative strategies

1) Disintermediation 2) Low-end disruptive innovations 3) High-end disruptive innovations 4) Reconfigure VC for mass customization 5) Blue ocean strategy 6) Free business models

S-Curve (industry life cycle)

1) Intro 2) Growth 3) Maturity 4) Decine

4 discovery skills

1) Questioning 2) Observing 3) Networking 4)Experimenting "The Innovator's DNA"

Blue ocean strategy

Creating new demand in an uncontested market space Offering value extremely different from anything on the market Target non-consumers with offering that may induce purchase Ex: Cirque du Soleil

Invention

Creation of unique/novel concept, method, or process turned into tangible outcome

Radical innovation

Draws on different knowledge base, tech, or methods to deliver unique value Ex: Computer (v. typewriter), CT scanner (v. x-ray)

Freemium (cross-sell) strategy

Free basic product to gain widespread initial use, then paid premium version Large-scale success requires: 1) Free product appealing to very large product user base 2) High conversion rate Ex: Zynga games, Skype, Adobe

High conversion rate

High % of free users willing to convert to paid customers for premium features

Decline

Initiated by new products entering market causing demand to fall Ex: PCs initiated decline of typewriters

Innovative strategy

Introduces fundamentally different business model than rivals

Bundling

Offering free w/ paid Works well when array of prod/serv are offered Ex: HP printer w/ computer, Verizon phone w/ contract

Mass customization

Mass-producing various modules allowing customer to select combo of modules Work best when customers have variety of needs and want personalization Ex: Build-A-Bear, Dell, Timbuk2

High-end/top-down disruptive innovations

Outperforming existing products when introduced and sold for premium (v. discount) Initial purchase by most discriminating, least price-sensitive buyers --> mainstream Costs gradually decline Radical, leap-frog tech innovations Ex: iPod, Starbucks, flash drives

Low-end disruptive innovations

Producing low-cost prod/serv for low-end (price sensitive) segments thru different activities/tech Gradual upmarket movement with tech/process improvements Ex: Nucor mini-mills Ex: Honda started at low-end of motorcycles but became tech-advanced as Harley Ex: Skype phone service

3rd party pay strategy (two-sided market)

Provide free products to product users to generate revenue from 3rd party who pay for access to users Provide valuable freebies attracting: 1) Very large community of users that can be segmented 2) Customer segment Ex: Google's free Internet search services (companies pay Google to advertise)

Growth

Sales accelerate Increased market acceptance Demand increased as early majority is convinced by adopters Dominant design (standard) emerges Giving way to process innovation Ex: Tablets and smartphones

Maturity

Slowed growth as total market penetration increases Late majority enters --> little growth Increased rivalry Cost determinant of success Ex: Laptops