MGT 499 Exam 3

Intrapreneur

(intraorganizational + entrepreneur): a person who innovates within existing companies established firms also try to innovate by fostering entrepreneurial spirits within the organizations

Laggards

- tend to enter the market after it is completely mature and frequently during the decline stage. - They are customers who adopt a new product only if it is absolutely necessary.

Types of Innovation

--Incremental --Radical ***but need to factor in the how the market influences innovation and business - will add 2 more types of innovation later***

Global Expansion: Where and How??

--the costs of distance are high and should be considered --a decision framework based on the RELATIVE distance between home and a foreign target country helps determine the attractiveness of foreign target --use the CAGE distance framework *the closer the distance the more attractive the foreign country is to enter want to choose a country that is close/similar to you

Early Adopters

-The early adopters are excited by the possibilities of the product. -Early adopters often enter the market in the growth stage

Mode of Foreign Entry - Investment and Control = HIGH

1) Acquisition and Greenfield HIGHEST 2) Joint Venture

3) Innovation

the commercialization of an invention by entrepreneurs MASS PRODUCTION

2) Invention

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

Cost Reduction

• Cost reduction: - MNEs attempt to reap significant cost reductions by leveraging economies of scale and by managing global supply chains to access the lowest-cost input factors - Belief that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous • Ex: Coke, Toyota's hybrid cars, iPhones, Hollywood movies, Greek Salad

Root Cause of Kittyhawk Case Mistakes:

• Emphasis on Short-term Financial Performance Disk Memory Division Needed Boost • Culture: Couldn't sacrifice high level of technical sophistication for market needs (low cost & small size), while the incentive system was focus on success (more suitable for incremental innovation) • Market Uncertainty: Followed the Hype Instead of Less Risky Opportunities

Kittyhawk Case Mistakes:

• Fail to consider complementary technologies needed for the success of PDA • Originally target "small, cheap and dumb"..? - Ended up with small, expensive, smart! Technology (shock resistant technology) - Nintendo liked the size, but it was too expensive and too smart • Market research: listened to whom? - Themselves !! (not end users) • Sales Targets/Payback Period - Too ambitious, too short

Second Example of Disruptive Innovation

• GE as a leader in diagnostic devices. • A local GE team in China developed an inexpensive portable ultrasound device (a high-end ultrasound machine in the US or Europe: approx. $230,000) - launched first in rural China - In 2009, GE unveiled the new medical device in the US at a price of < $30,000 - Due to the high demand for the product in the US, Vscan, an even smaller ultrasound machine was launched priced only at $12,000

Innovation Types Take Aways

• Options facing corporations: - #1: Accept the market as it exists, and sell them new technology. - #2: Accept the technology as it is, and sell it to new (or ignored) markets. - Most winners pursue #2, but a lot of existing firms often opt instinctively for #1 • Customer input can be misleading in an emerging or uncertain environment (e.g. Steve Jobs) • Consider yours as well as others' complementary technology (ecosystem matters!) PDA's werent successful because software developing wasn't happening in this industry = ecosystem • Be patient, but pro-active in incubating new, disruptive technologies.

Early Majority

• The critical early majority base purchasing decisions on PRACTICALITY - They weigh the benefits and costs carefully when adopting a new product • However, many firms find it difficult to create early majority from early adopters (thus, 'the chasm').

At the End of the Industry Life Cycle - during Decline Stage

• The level of process innovation reaches its MAXIMUM as firms attempt to lower cost as much as possible • The interplay between product and process innovation starts again when the next generation innovation opens up a new industry

Stages of industry development - Maturity Stage

• The market reaches its maximum size • Customer: Late majority buyers • Cost leadership firms tend to drive industry - Weaker firms will exit • A dominant industry structure in this stage is often oligopoly

Example of Disruptive Innovation

• When Japanese carmakers attacked the existing U.S. automobile market - Their first offering was small, fuel-efficient cars - Then, later, they entered into high-end luxury segments by leveraging their low-cost and high-quality advantages By the time the Big Car companies realized Toyota was a threat there was no way to eliminate it

Stages of industry development - Decline Stage

• market size shrinks • Customer: Laggards are buyers • Four strategic options for firms: - Exit - get out of the industry - Harvest - stay with limited investments - Maintain - stay & continue marketing - Consolidate - buy rivals, near monopoly

Successful Implementation needs...

BOTH Management and Leadership Good leaders need to be supported/surrounded by good MGMT

Different Types of Global Strategy

Cost Reduction vs. Local Responsiveness MNEs attempt to gain profits by pursuing either cost reduction versus local responsiveness -Similar to business-level strategy (cost leadership vs. differentiation)

Takeaway of Wilmor Case

Crux of the problem - Each partner assumed the other had similar objectives, which was not the case - Mixing firms from different systems of capitalism of the two different countries The relationship can be viewed as a 'race to learn' - Morota's increased learning--> Decreased dependency on Wilson -->increased the Morota's relative bargaining power - Joint venture (or strategic alliances in general) are inherently unstable because of partner firm's different learning rates and changing dependencies

Cultural Distance

Different languages, ethnicities, religions, social norms, and disposition US-Canada = Close US-Finland = Not Close

Industry life cycle and Customer Group

Different types of Customers at each stage of industry life cycle --Tech Enthusiasts --Early adopters --**The chasm** --Early Majority --Late Majority --Laggards

Is innovation just about New Tech?

Firms can also be innovative by leveraging existing technology but thinking differently about the market. Also about Market!

FDI

Foreign Direct Investment - a firm's investment in VALUE CHAIN ACTIVITIES abroad (NOT EXPORT)

Global Strategy as one type of Corporate Strategy

GEOGRAPHIC SCOPE - regional, national, global markets

Benefits of Global Expansion

Gain access to a larger market -MNE's have opportunities for economies of scale and scope - firms in smaller countries benefit from larger markets in other countries ie Samsung = capitalize on foreign market potential Gain access to low-cost input factors - labor, natural resources, tech, logistics Develop new competencies (learning) - FDI's from developing countries to developed countries ie. Samsung and LG to the US in 1990's. Companies entering US for Biotech industry to benefit from specialized local economies

The Chasm

Gap that is hard to jump between Early Adopters and Early Majority

Transnational Strategy

HIGH responsiveness HIGH cost reduction ie P&G Combination of localization strategy (high responsiveness) with global standardization strategy (lowest cost position attainable) - Seeks to achieve both global efficiency and local responsiveness - Thus, often called as 'glocalization' strategy - A popular slogan for this strategy is "Think globally and act locally" • Besides the benefit of economies of scale and location, a transnational strategy also aims to benefit the best practices, ideas and innovations from global learning, which they want to diffuse throughout the world • However, it is often difficult to implement this strategy successfully because of high cost, simultaneous requirements and organizational complexity (similar to the challenge of integration strategy..)

MultiDomestic Strategy

HIGH responsiveness LOW cost reduction Products and services are tailored to local markets (often large, idiosyncratic market e.g. Japan, Saudi Arabia) • also called as 'localization' strategy • Common in the consumer products and food industries e.g. Unilever with a variety of brand names (cultures and markets in Europe) e.g. McDonald teriyaki burger in Japan • Business unit in one country is independent of BU in another country (e.g. BU in the US, BU in Japan are independent)

Product and Process Innovation and the Emergence of an Industry Standard

In the beginning the most important focus for firms is product innovation where the product is being fleshed out Then once it enters and moves through the growth stage the firms focus moves to process innovation After an industry standard is established, process innovations become more important. • Why: as market demands for the new product increases, companies increase their productions and economies of scale start to play

Onico Inc., a luxury car company, sells the same cars and offers the same superior services in both its home country and foreign markets. The market it operates in faces low pressures for both local responsiveness and cost reductions. Which of the following strategies within the integration-responsiveness framework does Onico Inc. most likely pursue?

International Strategy

Beauty Hair Inc. is a company that operates in 30 countries around the globe. The company clearly understands that the hair type of customers varies from one country to another. Thus, its products are customized to suit local needs and preferences of customers, even though the strategy increases production cost. In this scenario, which of the following strategies does Beauty Hair Inc. most likely implement?

MultiDomestic Strategy

MNE

Multinational Enterprise - a company that deploys resources and capabilities in the procurement (sourcing of raw materials), production and distribution of goods and services in at least TWO COUNTRIES **if you sell outside the country NOT MNE this is exporting! **Must source, make (produce), and sell (distribute) to be MNE

Innovations often create =

NEW INDUSTRIES - e.g. Internet--> whole industry of e-commerce - e.g. advanced IT technology-->express delivery industry - e.g. Nanotechnology growing in medical and aircraft industries

Radical Innovations

NEW MARKETS + NEW TECH - Novel methods or materials serving new markets - Examples: • Mass production - Ford • MRI radiology - Often from new firms

Disruptive Innovation

NEW Tech serving EXISTING Market • Novel technologies serving existing markets • Seek customers typically in low-end segment initially that requires low cost and performance • Attack the existing market first from the bottom up (because often low-end requires low cost and performance) • However, later, firms with disruptive technology enter into high-end segment by leveraging new technologies ("stealth attack") **Low-end is overlooked by Big Companies **Companies developing radical tech don't want to compete with the big firms in the beginning so start out in existing market at bottom and stealth to the top **they DISRUPT the market when they reach the top - big firms cant compete

Stage of Industry Development - Introduction

Only a few innovators in the market - It might be costly and risky to enter such kind of new industry, but if attempts are successful, they might be able to enjoy first mover advantages. - Customer: technology enthusiasts who pay a premium for the innovation

Ultimately Strategy Implementation is really about....

PEOPLE

Example of a firm pursuing global strategy

PepsiCo - FritoLay North America - PepsiCo Europe - etc.

Which Innovation Type is the Valley of death?

Radical Innovation

If Strategies are successfully implemented....

Resources and Capabilities make up Distinctive Competencies--->which shape Strategies and if the strategies are successfully implemented....then they BUILD on the companies resources and capabilities creating a feedback loop.

How to Enter a Foreign Market?

Strategic Alliances!! Exporting Licensing and Franchising Joint Ventures Acquisition and Greenfield **which mode to choose depends on the level of Investment and control

Holfstede's National Cultural research regarding 5 dimensions:

a useful proxy of cultural distance *Individualism ---Collectivism *Low Power Distance---High Power Distance *Achievement Oriented---Nurturing Oriented *Low Uncertainty Avoidance---High Uncertainty Av *Short term Orientation---Long term Orientation

Administrative and Political Distance

absence of shared currency, monetary, political association or legal/financial institutions France-Germany = Close France-US = Not Close

4) Imitation

copying a successful innovation IMITATION

Entrepreneurship usually involves

creation of a new firm

Economic Distance

different consumer incomes, different costs and quality of natural resources, financial and human resources, different information or knowledge US-Japan = Close US-Russia = Not Close

Geographic Distance

lack of common border, waterway access, adequate transportation or communication links, physical remoteness, different climates and time zones US-Mexico = Close US-Spain = Not Close

1) Idea

may be presented in terms of abstract concepts or as findings derived from basic research INTANGIBLE

What is Innovation?

a novel and useful idea that is successfully implemented

Strategy Implementation

- How to design organizational structure/processes (i.e. how to coordinate and integrate) to fulfill organizational goals effectively - It is really about translating formulated strategy into strategic "actions"and business models.

Local Responsiveness

- The need to tailor product and services to fit local consumer preferences and host-country requirements - E.g. localized items of McDonald's (use mutton instead of beef in India, offer a teriyaki burger in Japan) - However, local responsiveness generally entails higher cost, and sometimes even outweighs cost advantages from economies of scale and lower cost input factors **Realize NATIONAL DIFFERENCES REMAIN ie. meters/miles on spedometers **one-size fits all strategy does NOT always work

Mode of Foreign Entry - Investment and Control = LOW

1) Exporting LOWEST 2) Licensing and Franchising

Given the 2 opposing Pressures of Cost Reduction vs. Local Responsiveness there can be FOUR different Global Strategies!

1) Global Standardization Strategy 2) International Strategy 3) Transnational Strategy 4) MultiDomestic Strategy

Industry Life Cycle - 5 Distinct Stages

1) Introduction 2) Growth 3) Shakeout 4) Maturity 5) Decline The number and size of firms (i.e. competitors) change with each stage. • Different types of consumers appear at each stage. • Thus, both the supply and demand sides of the market change as the industry ages.

Stages of industry development - Growth Stage

A standard, or dominant design is decided • As the size of a market expands, a standard emerges, signaling the market's agreement on a common set of engineering features and design choices. • e.g. HD-DVD vs. Blu-Ray (high definition optical disc format war) between 2006-2008. Blu-ray won. - Customer: early adopter/early majority buyers increase growth rapidly - As consumer demand increases, focus of core competencies move to manufacturing & marketing (product innovation-->process innovation)

What defines a US company?

Address OR Investment Address - IBM, GE and others are US companies despite the fact that a majority of their employees work outside the US Investment - Carmakers from Japan (Toyota, Honda) and South Korea (KIA) and engineering companies (Siemens) *all have made SIGNIFICANT investments in US * also created a large number of good jobs

Stages of industry development - Shakeout Stage

After growth stage, demand doesn't increase at the same speed (i.e. additional market demand is limited) - This increases competitive intensity within the industry - Consequently, weak, under performing firms get forced out, ("shake-out") - on the contrary, the larger firms enjoying economies of scale are the ones that survive the shakeout phase successfully

Late Majority

Also bases on practicality just gets to the game later.

CAGE FRAMEWORK

CAGE = Cultural Distance Administrative and political Distance Geographic Distance Economic Distance

What framework do you use to gauge distance between countries?

CAGE Framework

What is the MOST Salient distance?

CULTURAL DISTANCE

Types of Innovation: Technologies + Markets

Categorizing according to technology and markets yields 4 quadrants 1) Architectural Innovation 2) Radical Innovation 3) Incremental Innovation 4) Disruptive Innovation

Incremental Innovation

EXISTING Tech applied to EXISTING Market Gradual, steady innovation - existing markets - happens in large established firms -Steady improvement of a product or service - Examples: • Intel 386 to 486 processors - Often from incumbent firms

Architectural Innovation

EXISTING Tech serving NEW MARKET • Reconfigure known components to create new markets. • e.g. GPS (originally developed for military) applied for handheld consumer devices • e.g. Canon's copier (originally for business use) for small, medium size companies & individual consumers

Which 2 groups make up the mass markets??

Early Majority and Late Majority - this is why it is important to jump the chasm to get to the early majority customers

Entrepreneurship

Entrepreneurs innovate by commercializing ideas and inventions • e.g. Jeff Bezos - Amazon • e.g. Elon Musk - Tesla Motors, Solar City, SpaceX, PayPal

Innovation Process

FOUR STEP PROCESS (4 I's) Idea Invention Innovation Imitation

Global Standardization Strategy

LOW pressure for responsiveness HIGH pressure for cost reduction *spreading out value chain across the globe to get benefit of cheapest cost *products are standardized Attempt to reap significant economies of scale and location economies • By pursuing an international division of labor based on wherever best-of-class capabilities reside at the lowest cost - e.g. components (Taiwan) - intermediary goods (Japan) - assembly (Vietnam) - sales in various countries - customer service (India) • Products are standardized across national markets • Because there is little or no local responsiveness, price is its main competitive weapon • MNEs that manufacture commodity products (computer hard ware) or offer services (business process outsourcing) pursue this strategy

International Strategy

LOW pressure for responsiveness LOW pressure for cost reduction ie Harley Davidson, Rolex, Starbucks Selling the same products or services in both domestic and foreign markets • Allows firms to leverage home-based core competencies in foreign market • Oldest type of global strategy and often the first step of global expansion • Capitalizing on the fact that foreign customers want to buy the original product • Companies with strong reputation and brand name Tends to rely on exporting or licensing of products or franchising

Disadvantages of Global Expansion

Liability of Foreignness - Additional Cost of doing business in an unfamiliar cultural and economic environment Globalizing a supply chain can have unintended effects - Can loose good reputation (apple and suicides) - Low wages, long hours, poor working and living conditions - this challenge directly concerns the MNE's corporate social responsibility Difficulty in protecting intellectual property or intangilbe assets - large scale infringement in software, music, etc

Managing vs. Leading

MGMT: - Coping with COMPLEXITY - like a steam engine on a fixed rail **Involves - Planning and Budgeting - Organizing and Staffing - Control and Problem Solving Leadership: - Coping with CHANGE - like training a wild horse = unpredictable **Involves - Setting a direction - Aligning People - Motivating and Inspiring

Key Constructs

MNE (Multinational Enterprise) FDI (Foreign Direct Investment)

Tech Entusiasts

Technology enthusiasts are excited about the 'cool technology' itself, often in introduction stage

What is the Key Question of Strategic MGMT?

Why are some businesses more successful than others?

Wilmor Case - Why was Joint Venture Formed?

Wilson - - Short term solution to changing market (sales to the BIG 3 decrease..) - Access the Japanese automakers ("transplants") and sell parts to them Morota- - Satisfy Toyota (the biggest customer to Motora) - Lack of international experience (c.f. Korea) - "Scared to death" to come to the US • Esp. deal with the American workforce

Social entrepreneur:

start their companies for social cause and evaluate the performance of their ventures not only by financial metrics but also by ecological and social contribution. • e.g. Blake Mycoskie, Chief Shoe Giver of TOMS • e.g. Salima Visram, Founder of Soular Backpack