BUS 498 Ch 7

Industries generally follow a predictable industry life cycle, with five distinct stages:

introduction, growth, shakeout, maturity, and decline.

A radical innovation draws on

novel methods or materials and, is derived either from an entirely different knowledge base or from the recombination of the existing knowledge base with a new stream of knowledge (new market / new technology).

Early Adopters

13.5% of the total market potential Demand is driven by: -Imagination and creativity -Intuition and imagination -"What can this new product do for me / my business?" Firm needs to communicate the product's potential applications in a more direct way. Example: people in line at Apple Stores waiting for the Apple Watch

Laggards

16% of total market potential Adopt a new product only if necessary Generally don't want new technology Typically not pursued as future customers Their demand is small

Technology Enthusiasts

2.5% of the total market potential Often have an engineering mind Pursue new technology proactively Enjoy using beta versions Tinker with the product's imperfections -Often provide (free) feedback and suggestions Example: 8,000 beta testers of Google Glass

Early Majority

34% of the total market potential Main consideration: "Is this practical?" Weigh the benefits and costs carefully. Observe early adopters using the product. -Rely on endorsements This group is key to catching the growth wave. Example: Fisker vs. Tesla

Late Majority

34% of the total market potential Not as confident in their ability to master the technology Prefer to wait until standards have emerged Prefer to buy from well-established firms

Markets and Technology Framework

A conceptual model to categorize innovations: -Market (existing/new) dimension -Technology (existing/new) dimension Four types of innovation emerge: Each type of innovation has different strategic implications

What Is Innovation

A novel and useful idea that is successfully implemented

Absorptive Capacity

A firm's ability to: Understand external technology developments Evaluate them Integrate them into current products or create new ones

Radical Innovation:

Draws on novel methods & materials Forms from an entirely new knowledge base, or Forms from a recombination of existing knowledge Targets new markets with new technology

What Caused the Shift from Closed to Open Innovation?

Increasing supply and mobility of skilled workers Exponential growth of venture capital Availability of options to commercialize ideas -Ex. Spinning out new ventures Increasing capability of suppliers globally

Four types of innovation emerge:

Incremental Radical Architectural Disruptive

How to Develop Innovation

Induce it through structures and systems. Allow for autonomous behavior. Champion it through supporting new projects. Cooperative strategies -Licensing, strategic alliances, joint ventures, and acquisitions

What Causes Rapid Technological Diffusion and Adoption

Initial innovations are foundational for other rapid innovation. New business models make innovation possible. -Ex: Dell's direct to consumer model Satellite and cable distribution systems -Enable mass media such as radio and TV The emergence of the internet -Social networking -Viral messaging

Innovation Drives Competition

Innovation helps drive strategy. Innovation results in a temporary monopoly. Entrepreneurs are agents that introduce change. -New inventions -New products & services -New production processes -New forms of organization

The Five Phases of an Industry Lifecycle

Introduction Growth Shakeout Maturity Decline -Supply and demand changes as industries age -Each stage requires different competencies

Architectural Innovation:

Leverages existing technology into new markets Alters the architecture of a product A new product, with known components, used in a novel way

Disruptive Innovation:

Leverages new technologies in existing markets New product / process meets existing customer needs

Crossing the Chasm

Many innovators do not successfully transition from one stage of the industry life cycle to the next.

Closed innovation is a framework for

R&D that proposes impenetrable firm boundaries. Key to success in the closed innovation model is that the firm discovers, develops, and commercializes new products internally.

Open innovation is 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 in-sourced while others are spun-out.

Examples of Radical Innovation

The iPhone The Ford Model T The X-Ray The Airplane Genetic engineering Decoding of the human genome

Strategic Entrepreneurship

The pursuit of innovation using tools & concepts from strategic management Fundamental question is: -How to combine entrepreneurial actions... -How to create new opportunities... -How to exploit existing opportunities... -...in the pursuit of competitive advantage Example: Apple -Innovation in mobile devices

Invention

Transformation of an idea into product or process The modification and recombination of existing ones

Entrepreneurship describes the process by which

change agents undertake economic risk to innovate—to create new products, processes, and sometimes new organizations.

Innovation concerns the

commercialization of an invention by entrepreneurs (within existing companies or new ventures).

If an innovation is successful in the marketplace,

competitors will attempt to imitate it.

Innovation describes the

discovery and development of new knowledge in a four-step process captured in the Four I's: idea, invention, innovation, and imitation.

The core argument of the crossing-the-chasm framework is that

each stage of the industry life cycle is dominated by a different customer group, which responds differently to a new technological innovation.

An architectural innovation is an

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

There exists a significant difference between the customer groups that

enter early during the introductory stage of the industry life cycle and customers that enter later during the growth stage.

To overcome the chasm, managers need to

formulate a business strategy guided by the "who, -what, -why, -and -how" questions of competition.

Four types of innovation emerge when applying the existing versus new dimensions of technology and markets:

incremental, radical, architectural, and disruptive innovations

A disruptive innovation is an innovation that

leverages new technologies to attack existing markets from the bottom up (existing market / new technology).

Idea

Abstract concepts or research findings

Incremental Innovation:

Builds on established knowledge base Results from steady improvement Targets existing markets with existing technology Example: Gillette blades: from one to six!

Innovation

Commercialization of an invention by entrepreneurs

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

Imitation

Copying a successful innovation

Introduction Stage

Core competency: R&D Strategic objective: market acceptance & future growth Emphasis: uniqueness & performance Capital-intensive -Trying new ideas -Producing small quantities Initial market size: small Growth: slow Barriers to entry: high

To Overcome the Chasm, You Must

Formulate a business strategy guided by: -The who, what, why, and, how questions of competition (Chapter 6) Meet customer needs. -Needs are different for each industry life cycle stage. Bring competencies and capabilities to the table. -Needs are different for each industry life cycle stage.

Innovations Can Lead to New Industries

IT and Logistics: -Created overnight express deliveries (Fed Ex) -Created big-box retailing (Walmart) The Internet: -Online retailing (Amazon & eBay) -Revolutionized advertising (Yahoo, Google, Facebook) Nanotechnology: -Medical diagnostics and surgery -Lighter and stronger airline components

The Innovation Process

Idea Invention Innovation Imitation

Open Innovation

Ideas and innovation can originate from external sources -Customers -Suppliers -Universities -Start-ups -Competitors

Closed Innovation

New products discovered, developed, and commercialized internally

This distinct difference between customer groups leads to

a big gulf or chasm, which companies and their innovations frequently fall into.

Innovations frequently lead to

the birth of new industries.

Strategic entrepreneurship describes

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

Social entrepreneurship describes

the pursuit of social goals by using entrepreneurship. Social entrepreneurs use a triple-bottom-line approach to assess performance.

An invention describes

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

Characteristics Required of a Disruptive Force

Begins as a low cost solution to existing problem The rate of technological improvement increases

Decline Stage

Demand falls, often rapidly. Strong pressure on prices Four strategic options to pursue: -Exit: bankruptcy / liquidation -Harvest: reduce further investments -Maintain: support at a given level -Consolidate: buy rivals

Growth Stage

Demand increases rapidly. -First-time buyers rush to purchase. -Proof of concept completed Competitive rivalry: muted (due to growth) Product / service standards emerge -A common set of features and design choices Basis of competition: process innovation Core competencies: -Manufacturing -Marketing

Examples of Disruptive Innovation

Digital photography -Improved over time -Higher definition pictures -Has largely replaced film photography Laptops disrupted desktops -Now tablets / large screen phones are disrupting laptops

Why Are Incumbent Firms Focused On Incremental Innovation?

Economic Incentives: Organizational Inertia: Innovation Ecosystem:

Why Are Incumbent Firms Focused On Incremental Innovation? Economic Incentives:

Established companies are focused on defending their position

Why Are Incumbent Firms Focused On Incremental Innovation? Innovation Ecosystem:

Established companies are part of an ecosystem: -Suppliers, buyers, complementors

Why Are Incumbent Firms Focused On Incremental Innovation? Organizational Inertia:

Established companies rely on formalized business processes and structures

Maturity Stage

Few large firms remain. -They enjoy economies of scale. Additional market demand is limited. Market has reached maximum size. Competitive intensity: increases

Shakeout Stage

Firms begin to compete more intensely. -Weaker firms forced out -The industry consolidates -Only the strongest competitors survive. Biggest competitive weapon: low price

Social Entrepreneurship

The pursuit of social goals AND Creation of a profitable business Example: Jimmy Wales -Founder of Wikipedia --500 million users per month -One of the first to grasp the power of an open source method -Goal: provide knowledge on very large-scale -Wikipedia supports via donations not advertising --Typifies a sense of idealism

Dominant Positions Can Quickly Change Due to Innovation

Traditional networks vs. cable providers Cable providers vs. streaming content Typewriters to PC's to mobile devices Innovation can be a powerful strategic weapon to gain and sustain competitive advantage.

Entrepreneurship

Undertake economic risk to innovate -Results in new products, processes, & organizations Agents who introduce change Examples: -Reed Hastings: Netflix -Oprah Winfrey: Harpo Productions -Elon Musk: Tesla Motors, Solar City, SpaceX, PayPal

An incremental innovation squarely builds on

an established knowledge base, and steadily improves an existing product or service offering (existing market / existing technology).

The innovation process begins with

an idea.