Chapter 7 Lecture and Book

Invention

The discovery of new products and ideas

(Stages of Industry Development) 3rd Stage: Decline

-Laggards are buyers and market size shrinks -Four Strategic Options: ~Exit: Get out of the industry ~Harvest: Stay with limited investments ~Maintain: Stay and Continue marketing ~Consolidate-Buy rivals, near monopoly

Absorptive Capacity

A firm's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones.

Architectural Innovation (book def)

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

Crossing the chasm framework

Conceptual model that shows how each stage of the life cycle is dominated by a different customer group.

How to respond to disruptive innovation?

Continue to innovate -Stay ahead of the competition Guard against disruptive innovation -Protect the low end of the market Disrupt yourself -Rather than wait for others to disrupt you, called Reverse Innovation

Innovation Process

Describes the discovery, development, and transformation of new knowledge in a four-step process captured in the four I's: Idea, Invention, Innovation, and Imitation

Laggards

Finally, laggards are the last consumer segment to come into the market, entering in the declining stage of the industry life cycle. These are customers who adopt a new product only if it is absolutely necessary, such as first-time cell phone adopters in the United States today.

Competitive attack

Offensive Tactics -Price Cutting Offensive (After you've achieved a cost advantage) -Leapfrogging to market (1st mover advantage after shift of next generation tech) -Hit and Run or Guerrila Warfare Tactics (Occasional low balling to steal major buyer, Surprise rivals with intense marketing/promotional campaign) -Launching a preemptive strike to secure an advantageous position that discourages rivals (Securing the best distributors in a region, Secure a favorable site at new intersection, Establish exclusive partnerships with high quality suppliers, move swiftly to buy bankrupted rivals)

Strategic Entreprenurship

Pursuit of innovation using tools and concepts from strategic management IN THE PURSUIT OF COMPETITIVE ADVANTAGE

Early Adopters

The customers enter- ing the market in the growth stage are early adopters. They make up roughly 13.5 percent of the total market potential. Early adopters, as the name suggests, are eager to buy early into a new technology or product concept. Unlike technology enthusiasts, however, their demand is driven by their imagination and creativity rather than by the technology per se.

Process Innovation

are new ways to produce existing products or to deliver existing services. Process innovations are made possible through advances such as the Internet, lean manufacturing, Six Sigma, biotechnology, nanotechnology, and so on.

Product Innovation

as the name suggests, are new or recombined knowledge embodied in new products—the jet airplane, electric vehicle, smartphones, and wearable computers.

Radical Innovation (book def)

draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of existing knowledge bases with a new stream of knowledge. It targets new markets by using new technologies.

Incremental Innovation (Book def)

squarely builds on an established knowledge base and steadily improves an existing product or service offering. It targets existing markets using existing technology.

Idea

terms of abstract concepts or as findings derived from basic research.

Maturity Stage

After the shakeout is completed and a few firms remain, the industry enters the maturity stage. During the fourth stage of the industry life cycle, the industry structure morphs into an oligopoly with only a few large firms. Most of the demand was largely satisfied in the prior shakeout stage. Any additional market demand in the maturity stage is limited. Demand now consists of replacement or repeat purchases. The market has reached its maximum size, and industry growth is likely to be zero or even negative going forward.

Disruptive Innovation (book def)

An innovation that leverages new technologies to attack existing markets from the bottom up.

(Stages of Industry Development) 2nd Stage: Growth Stage

-Early Majority Buyers increase growth rapidly -Dominant design is set -IBM PC: Wintel -QWERTY Keyboards -Government influence -GSM Standard for mobile phones -Core competencies move to manufacturing and marketing

Hypercompetition

-NO single strategy sustains competitive advantage -Must be series of short term advantages -Radical innovation shift to to incremental

Organizational Interia

Resistance to changes in the status quo Incumbent firms tend to favor Incremental Innovations that reinforce the existing organizational structure and power distribution

Many firms find it strategically beneficial to NOT patent their technology....Instead they use TRADE SECRETS

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

Entrepreneurship

Undertake economic risk to innovate Results in new products, processes and new innovations Agents who introduce change

Radical Innovation

-Novel methods or materials serving new materials -Mass Production

Innovation Ecosystem

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

First-Mover Advantages

Competitive Benefits that accrue to the successful innovator First moves may also benefit from network effects

Innovation

Commercialization of any new invention, product or process, or the Modification and recombination of existing ones

Social Entrepreneurship

Describes the pursuit of social goals while creating profitable businesses SE evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution Use a tripe bottom line approach to assess performance

(Stages of Industry Development) 1st Stage: Introduction

Early Adopters will pay a premium Only a few innovators in the market -differentiated and high barriers -Strategy here-market acceptance and seeds for growth -Network effects (Very Helpful) -Positive Effects ONE user has for other users.

Shakeout

Firms begin to compete more intensely -Weaker firms forced out -The industry consolidates Only strongest competitors survive -Biggest competitive weapon: LOW PRICE

Decline Stage

In this final stage of the industry life cycle, the size of the market contracts further as demand falls, often rapidly. At this final phase of the industry life cycle, innovation efforts along both product and process dimensions cease At this final stage of the industry life cycle, managers generally have four strategic options: exit, harvest, maintain, or consolidate

Industry Life Cycle:

Introduction Growth Shakeout Maturity Decline ***Development of most industries follow an S Curve: Initial demand for a new product or service is often slow to take off, then accelerates, before decelerating, and eventually turning to zero, and even becoming negative as a market contracts.

(Stages of Industry Development) 3rd Stage: Maturity

Late Majority buyers and more limited market growth -Increased competitive rivalry -Cost Leadership firms tend to drive industry -Weaker firms will exit -Oligopoly is dominant industry structure in this stage

Industry Life Cycle Graph

Market Size is Y Axis Time is X Axis

Growth Stage

Market growth accelerates in the growth stage of the industry life cycle (see Exhibit 7.4). After the initial innovation has gained some market acceptance, demand increases rapidly as first-time buyers rush to enter the market, convinced by the proof of concept demonstrated in the introductory stage. As the size of the market expands, a standard signals the market's agreement on a common set of engineering features and design choices. Standards can emerge bottom- up through competition in the marketplace or be imposed top-down by government or other standard-setting agencies such as the Institute of Electrical and Electronics Engineers (IEEE) that develops and sets industrial standards in a broad range of industries, including energy, electric power, biomedical and health care technology, IT, telecommunications, consumer electronics, aerospace, and nanotechnology

Winner take all Market

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

Disruptive Innovation

Novel technologies serving existing markets -Japanese Automobile

Shakeout Stage

Rapid industry growth and expansion cannot go on indefinitely. As the industry moves into the next stage of the industry life cycle, the rate of growth declines. Firms begin to compete directly against one another for market share, rather than trying to capture a share of an increasing pie. As competitive intensity increases, the weaker firms are forced out of the industry. This is the reason this phase of the industry life cycle is called the shakeout stage: Only the strongest competitors survive increasing rivalry as firms begin to cut prices and offer more services, all in an attempt to gain more of a market that grows slowly, it at all.

Architectural Innovation

Reconfigure known components to create new markets -Canon user friendly copiers vs. xerox

Defensive Tactics

Signaling challengers that retaliation is likely -Publicly announce management commitment to maintain firms present market share -Publicly committing the company to a policy of matching competitions terms/prices -Maintaining a war chest of cash/marketable securities

Incremental Innovation

Steady improvement of a product or service -Economic Incentives -**Organizational Inertia: Can turn core competencies into core rigidities -Innovation Ecosystem -Reinforce supplier/buyer networks

Technology Enthusiasts

The customer segment in the introductory stage of the industry life cycle The smallest market segment, it makes up some 2.5 percent of total market potential.

Early Majority

The customers coming into the market in the shakeout stage are called early majority. Their main consideration in deciding whether or not to adopt a new technological innovation is a strong sense of practicality.

Late Majority

The next wave of growth comes from buyers in the late majority enter- ing the market in the maturity stage. Like the early majority, they are a large customer segment, making up approximately 34 percent of the total market potential. Combined, the early adopters and early majority make up the lion's share of the market potential. Demand coming from just two groups—early and late majority—drives most industry growth and firm profitability.

INTRODUCTION STAGE

When an individual inventor or company launches a successful innovation, a new indus- try may emerge. In this introductory stage, the innovator's core competency is R&D, which is necessary to creating a new product category that will attract customers. This is a capital-intensive process, in which the innovator is investing in designing a unique product, trying new ideas to attract customers, and producing small quantities—all of which contribute to a high price when the product is launched. The initial market size is small, and growth is slow. In this introductory stage, when barriers to entry tend to be high, generally only a few firms are active in the market. In their competitive struggle for market share, they emphasize unique product features and performance rather than price.

Strategic Entrepreneurship

describes the pursuit of innovation using tools and concepts from strategic management.

Invention (Book Definition)

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

Patent

form of intellectual property, and gives the inventor exclu- sive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea

Open Innovation

■ The increasing supply and mobility of skilled workers. ■ The exponential growth of venture capital. ■ The increasing availability of external options (such as spinning out new ventures) to commercialize ideas that were previously shelved or insource promising ideas and inventions. ■ The increasing capability of external suppliers globally. DEF: A framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are insourced while others are spun out.