Chapter 7: Business Strategy: Innovation and Entrepreneurship

Innovation "Idea"

presented interms of abstract concepts or findings derived form basic research. Basic research is conducted to discover new knowledge and is often published in academic journals. This may be done to enhance the fundamental understanding of nature, without any commercial application or benefit in mind. In the long run, however, basic research is often transformed into applied research with commercial applications. For example, wireless communication technology today is built upon the fundamental science breakthroughs Albert Einstein accomplished over 100 years ago in his research on the nature of light.8

Innovation "Imitation"

Copying a successful innovation. Amazon now offering streaming video services, Hulu, etc. Only time will tell whether Netflix will be able to sustain its competitive advantage given the imitation attempts by a number of potent competitors.

Crossing the Chasm:

he different customer segments. The industry life cycle model (shown in Exhibit 7.4) follows an S-curve leading Page 236up to 100 percent total market potential that can be reached during the maturity stage. In contrast, the chasm framework breaks down the 100 percent market potential into different customer segments, highlighting the incremental contribution each specific segment can bring into the market. This results in the familiar bell curve. Note the big gulf, or chasm, separating the early adopters from the early and late majority that make up the mass market. Social network sites have followed a pattern similar to that illustrated in Exhibit 7.8. Friendster was unable to cross the big chasm. Myspace was successful with the early majority, but only Facebook went on to succeed with the late majority and laggards. Each stage customer segment, moreover, is also separated by smaller chasms. Both the large competitive chasm and the smaller ones have strategic implications.

Strategic entrepreneurship

describes the pursuit of innovation using tools and concepts from strategic management.27 We can leverage innovation for competitive advantage by applying a strategic management lens to entrepreneurship. The fundamental question of strategic entrepreneurship, therefore, is how to combine entrepreneurial actions, creating new opportunities or exploiting existing ones with strategic actions taken in the pursuit of competitive advantage

Innovation "Invention"

describes the transformation of an idea into a new product or process, or the modification and recombination of existing ones. The practical application of basic knowledge in a particular area frequently results in new technology. If an invention is useful, novel, and non-obvious as assessed by the U.S. Patent and Trademark Office, it can be patented. A patent is a form of intellectual property, and 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. In the United States, the time period for the right to exclude others from the use of the technology is 20 years from the filing date of a patent application. Exclusive rights often translate into a temporary monopoly position until the patent expires. For instance, many pharmaceutical drugs are patent protected.

Incremental innovation

squarely builds on an established knowledge base and steadily improves an existing product or service offer. It targets existing markets using existing technology. To sustain its competitive advantage, Gillette not only made sure that its razors were inexpensive and widely available by introducing the "razor and razor blade" business model, but also continually improved its blades. In a classic example of a string of incremental innovations, Gillette kept adding an additional blade with each new version of its razor until the number had gone from one to six!

Innovation "Innovation"

Concerns the "commercialization" of an invention. The successful commercialization of a new product or service allows a firm to extract temporary monopoly profits. EX:Netflix gained its early lead by applying big data analytics to its user preferences to not only predict future demand but also to provide highly personalized viewing recommendations. The success of the latter is evident by the fact that movies that were recommended to viewers scored higher than they were scored previously. To sustain a competitive advantage, however, a firm must continuously innovate—that is, it must produce a string of successful new products or services over time. In this spirit, Netflix further developed its business model innovation, moving from online DVD rentals to directly streaming content via the internet. Moreover, it innovated further in creating proprietary content such as House of Cards and Orange Is the New Black. Successful innovators can benefit from a number of "first move advantages" and "network effects". Moreover, first movers may hold important intellectual property such as critical patents.

Innovation

Concerns the commercialization of an invention. The successful commercialization of a new product or service allows a firm to extract temporary monopoly profits. 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.

Entrepreneurship

Describes the process by which change agents (entrepreneurs) undertake economic risk to innovate to create new products, processes, and sometimes new organizations. Entrepreneurs innovate by commercializing ideas and inventions. They seek out or create new business opportunities and then assemble the resources necessary to exploit them. Indeed, innovation is the competitive weapon entrepreneurs use to exploit opportunities created by change, or to create change themselves. In order to commercialize new products, services, or business models. If successful, entrepreneurship not only drives the competitive process, but it also creates value for the individual entrepreneurs and society at large. EX: Dr. Dre.

Architectural Innovation:

Firms can also innovate by leveraging "existing technologies" into "new markets" Doing so generally requires them to reconfigure the components of a technology, meaning they alter the overall "architecture" of the product. An architectural innovation, therefore, "is a new product in which known components, based on existing technologies are reconfigured in a novel way to create new markets. Canon printers coming in and offering cheaper printers for sale that didn't require software and they addressed the needs of small to medium size business segments, something that Xerox neglected.

Disruptive Innovation

Leverages "new technologies" to attack "existing marketings". It invades an existing market from the bottom up,. Here, technology refers to the methods and materials used to achieve a commercial objective.59 For example, Amazon integrates different types of technologies (hardware, software, big data analytics, cloud computing, logistics, and so on) to provide not only the largest selection of retail goods online, but also an array of services and mobile devices To be disruptive, the new technology has to have additional characteristics: 1.) it beings as a low-cost solution to an existing problem. 2.) initially, its performance is inferior to the existing technology, but its rate of technological improvement over time is faster than rate of performance increases required by different market segments. EX: Japanese carmakers successfully followed a strategy of disruptive innovation by first introducing small fuel-efficient cars and then leveraging their low-cost and high-quality advantages into high-end luxury segments, captured by brands such as Lexus, Infiniti, and Acura. More recently, the South Korean carmakers Kia and Hyundai have followed a similar strategy.

Industry life cycle "Growth Stage"

Market growth accelerates in the growth stages of the industry life cycle. 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 concept demonstrated in the intro 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.35 Standards can emerge from the bottom up through competition in the marketplace or be imposed from the 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. Strategy Highlight 7.1 discusses the unfolding standards battle in the automotive industry.

radical innovation

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. well-known examples of radical innovations include the introduction of the mass-produced automobile (the Ford Model T), the X-ray, the airplane, and more recently biotechnology breakthroughs such as genetic engineering and the decoding of the human genome. Many firms get their start by successfully commercializing radical innovations, some of which, such as the jet-powered airplane, even give birth to new industries. EX: Gillette creating the disposal razor

Industry life cycle

evolves over time, we can identify five distinct stages: 1.) introduction 2.) growth, 3.) shakeout 4.) maturity 5.) decline The number and size of competitors change as the industry life cycle unfolds, and different types of consumers enter the market at each stage. That is, both the supply and demand sides of the market change as the industry ages. Each stage of the industry life cycle requires different competencies for the firm to perform well and to satisfy that stage's unique customer group.

Industry life cycle "Introduction Stage"

the innovators core competency is R&D, which is necessary to creating a 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 the introduction 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. Although there are some benefits to being early in the market (as previously discussed), innovators also may encounter first-mover disadvantages. They must educate potential Page 229customers about the product's intended benefits, find distribution channels and complementary assets, and continue to perfect the fledgling product. Although a core competency in R&D is necessary to create or enter an industry in the introductory stage, some competency in "marketing" also is helpful in achieving a successful product launch and "market acceptance". Competition can be intense, and early winners are well-positioned to stake out a strong position for the future. As one of the main innovators in software for mobile devices, Google's Android operating system for smartphones is enjoying a strong market position and substantial lead over competitors. The strategic objective during the introductory stage is to achieve market acceptance and seed future growth. One way to accomplish these objectives is to initiate and leverage network effects,34 the positive effect that one user of a product or service has on the value of that product for other users. Network effects occur when the value of a product or service increases, often exponentially, with the number of users. If successful, network effects propel the industry to the next stage of the life cycle, the growth stage