Chapter 7: Business Strategy: Innovation, Entrepreneurship, and Platforms

markets-and-technology framework

A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions.

reverse innovation

An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation (allows a firm to disrupt itself)

winner-take-all markets

Markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created.

entrepreneurship

The process by which people undertake economic risk to innovate—to create new products, processes, and sometimes new organizations

strategic entrepreneurship

The pursuit of innovation using tools and concepts from strategic management.

invention

The transformation of an idea into a new product or process, or the modification and recombination of existing ones.

trade secrets

Valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy.

Four-Step Innovation Process (Four I's)

-Idea -Invention -Innovation -Imitation

customer groups

-technology enthusiasts -early adopters -early majority -late majority -laggards

innovation ecosystem

A firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making.

early majority

Customers coming into the market in the shakeout stage of the industry life cycle. Pragmatists that are mainly concerned with whether adopting a new technological innovation serves a practical purpose or not. (make up about 34% of the total market potential)

laggards

Customers entering the market in the declining stage of the industry life cycle. Will adopt a new product only if absolutely necessary, generally don't want new technology, and are generally not a customer segment worth pursuing (make up no more than 16% of the total market potential)

early adopters

Customers entering the market in the growth stage of the industry life cycle that are eager to buy early into a new technology or product concept. Their demand is driven by recognizing and appreciating the possibilities the new technology can afford them in their professional and personal lives; driven by imagination and creativity (make up roughly 13% of the total market potential)

late majority

Customers entering the market in the maturity stage of the industry life cycle that are less confident about their ability to master new technology. Will wait until standards have emerged and become firmly entrenched so as to ensure reduction in uncertainty. Tend to buy from well-established firms with strong brand image (make up about 34% of the total market potential)

industry life cycle

The five different stages—introduction (core competency is R&D), growth (Demand is strong; core competencies shift toward manufacturing and marketing capabilities), shakeout (only the strongest competitors survive; cost is important; importance of process innovation increases), maturity (industry cycle morphs into an oligopoly with only a few large firms), and decline (4 strategic options for leaders: exit, harvest, maintain, & consolidate)—that occur in the evolution of an industry over time (S-curve)

platforms

business model innovations that use technology to connect organizations, resources, information, and people in an interactive ecosystem where value-generating transactions can be created and exchanged

platform ecosystem

The market environment in which all players participate relative to the platform.

technology enthusiasts

A customer segment in the introductory stage of the industry life cycle. Often have an engineering mind-set and pursue new technology proactively, frequently seeking out new products before they are officially introduced to the market (makes up 2% of total market potential)

architectural innovation

A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets. (new market/existing technology)

organizational inertia

a firm's resistance to changes in the status quo

standard

An agreed-upon solution about a common set of engineering features and design choices.

imitation

what the innovation process ends with; if an innovation is successful in the marketplace, competitors will attempt to imitate it; success attracts attention and with it competition

four types of innovations that emerge from the markets-and-technology framework

-incremental -radical -architectural -disruptive

Moving from the traditional pipeline business to a platform business model implies three important shifts in strategy focus:

1. from resource control to resource orchestration 2. from internal optimization to external interactions 3. from customer value to ecosystem value

first-mover advantages

Competitive benefits that accrue to the successful innovator

crossing-the-chasm framework

Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group (bell curve)

product innovation

New or recombined knowledge embodied in new products.

process innovation

New ways to produce existing products or deliver existing services.

how to respond to disruptive innovation

1. Continue to innovate in order to stay ahead of the competition. 2. Guard against disruptive innovation by protecting the low end of the market. 3. Disrupt yourself, rather than wait for others to disrupt you (e.g., reverse innovation)

three dimensions of platforms

1. a platform is a business that enables value-creating interactions between external producers and consumers 2. the platform's overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation of all participants 3. the platform provides an infrastructure for these interactions and sets governance conditions for them

advantages of the platform business model

1. platforms scale more efficiently than pipelines by eliminating gatekeepers 2. platforms unlock new sources of value creation and supply 3. platforms benefit from community feedback

long tail

A business model in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choice.

innovation

The commercialization of any new product or process (invention), or the modification and recombination of existing ones. a novel and useful idea that is successfully implemented

patent

A form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea (20 years)

platform businesses

An enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages.

radical innovation

An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge (it is used to create a temporary competitive advantage); new market/new technology

disruptive innovation

An innovation that leverages new technologies to attack existing markets from the bottom up (favorable because it relies on a stealth attack and because incumbent firms are often slow to change); existing market/new technology

incremental innovation

An innovation that squarely builds on an established knowledge base and steadily improves an existing product or service (it targets existing markets using existing technology); it is used to sustain an existing lead (existing market/existing technology)

entrepreneurs

The agents that introduce change into the competitive system; they innovate by commercializing ideas and inventions; they seek to create new business opportunities and then assemble the resources necessary to exploit them

social entrepreneurship

The pursuit of social goals while creating a profitable business; evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution (profits, planet, and people); use a triple-bottom-line approach to assess performance

network effects

The value of a product or service for an individual user increases with the number of total users.

lion's share of the market potential

formed by the early majority and late majority (demand coming from these two groups make up 68% of the total market potential and these two groups drive most industry growth and firm profitability)

idea

often presented in terms of abstract concepts or as findings derived from basic research