Ch7

Introduction Stage

1st Stage of Industry Life Cycle Individual inventor or company launches a successful innovation a new industry may emerge. INnovator's core competency is R&D which is necessary to creating a new product category that will attract customers. Capital intensive process in which the innovator is investing in designing a unique products, trying new ideas to attract customers and producing small quantities - which contribute to a high price when the product is launched. Market size is small and growth is low. Emphasize unique product features and performance rather than price. Encounter first mover disadvantages. Educate potential customers about product's intended benefits, find distribution channels.

Growth Stage

2nd Stage of Industry Life Cycle Market growth accelerates in this stage. After innovation has gained market acceptance, demand increases rapidly as first time buyers rush to enter the a market. As market expands, standard signals the markets agreement on a common set of engineering features and design choices. Process innovation ramps up (increasing marginal returns) as firms attempt to keep up with rapidly rising demand while bring down costs at the same time. Core competency in this stage tend to shift toward manufacturing and marketing capabilities.

Shakeout Stage

3rd Stage of Industry Life Cycle Rapid industry growth and expansion can't go on indefinitely Firms begin to compete directly against one another for market share, rather than to capture a share of increasing pie. As competitive intensity increases, the weaker firms are forced out of the industry. Only the strongest survive as firms begin to cut prices and offer more services to attempt to gain more of a market that grows slowly. .

Innovation

3rd Step in Innovation Process Commercialization of any new product or process, or the modification and recombination of existing ones. Successful commercialization of a new product or service allows a firm to extract temporary monopoly profits. Sustain advantage, a firm must continuously innovate, product a string of successful new products or services over time. Need not be high tech to be a potent competitive weapon. Novel Useful Implemented

Maturity Stage

4th Stage of the Industry Life Cycle Oligopoly - only a few large firms. Most demand was largely satisfied with prior shakeout stage. Demand now consists of replacement or repeat purchases. Market has reached its maximum size and industry growth is likely to be zero or even negative going forward

Decline Stage

5th Stage of the Industry Life Cycle Changes in the external environment (PESTEL) often take industries from maturity to decline. The size of the market contracts further as demand falls, often rapidly. If a technological or business model breakthrough emerges that opens up a new industry, this dynamic starts anew. Exit Harvest Maintain Consolidate

Open Innovation

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. Increasing supply and mobility of skilled workers Exponential growth of venture capital Increasing availability of external options Increasing capability of external suppliers globally.

Entrepreneurs

Agents who introduce change into competitive system innovate by commercializing ideas and inventions. They seek out or create new business opportunities and then assemble the resources necessary to exploit them. Drive innovation need just as much skill, commitment, and daring as the inventors who are responsible for the process of invention. Succesful Entrepreneurs: Reed Hastings Jeff Bezos Oprah Winfrey Elon Musk

Standard

Agreed-upon solution about a common set of engineering features and design choices in growth stage Emerge bottom up through competition in the market place Imposed top down by government or other standard setting agencies

Organizational Inertia

As firms become established and grow they rely more heavily on formalized business processes and structures. The firm may experience organizational inertia - resistance to changes in the status quo. Tend to favor incremental innovations that reinforce the existing organizational structure and power distribution while avoiding radical innovation that could disturb existing power distribution.

Absorptive Capacity

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

Innovation Process

Idea, Invention, Innovation, Imitation Begins with an idea. The idea is presented in terms of abstract concepts or as findings derived from basic research. Basic research is conducted to discover new knowledge and is often published in academic journals. Enhance fundamental understanding of nature without commercial application or benefit in mind. Long run research is transformed into applied research with commercial applications.

Innovation Ecosystem

Incumbent firms tend to be incremental rather than radical is that they become embedded in this. A network of suppliers, buyers, complementors, and so on. NO longer make independent decisions but must consider the ramifications on other parties in their innovation ecosystem.

Industry life Cycle

Industries tend to follow a predictable one life cycle that include 5 stages that occur in the evolution of an industry over time. Each stage has different strategic implications for competing firms 5 Stages: 1) Introduction 2) Growth 3) Shakeout 4) Maturity 5) Decline Some industries may never go through the entire life cycle, others continually renewed through innovation Things that can change externally can be captured in PESTEL framework on fads in fashion, change in demographics, deregulation

Radical Innovation

Innovation ;that draws on novel methods or materials, is derived either from an entirely different knowledge base or from recombination of the existing knowledge bases with a new stream of knowledge. Targets markets by using new technoologies

Disruptive Innovation

Innovation that leverages new technologies to attack existing markets from the bottom up. Disruptive force: 1) begins 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 the rate of performance increases required by different market segments.

Incremental Innovation

Innovation that squarely builds on an established knowledge base and steadily improves on existing product or service Targets existing markets using technology

Reverse Innovation (frugal innovation)

Innovation that was developed for emerging economies before being introduced in developed economies.

Early Majority

Main consideration is a sense practicality. Pragmatists and most concerned with the question of what the new technology can do for them. Weigh the benefits and costs carefully. Aware that many hyped new products introductions will fade away

Winner take all markets

Many markets where network effects are important become this. Markets where the market leader captures almost all the new market share and is able to extract a significant amount of the value created.

Product Innovation

New or recombined knowledge embodied in new products jet airplane electric vehicle smartphones wearable computers

Architectural Innovation

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

Process Innovation

New ways to produce existing products or deliver existing services Made possible through internet, lean manufacturing, Six Sigma, Biotechnology, nanotechnology Must not be high tech to be impactful, like the standardized shipping container Just in time (JIT) operations management

Not invented here syndrome

Not invented or crated at the firm it cant be good enough there

Network Effects

Positive effect (externality) that one user of a product or service has on the value of that product for other users. Helpful in introduction stage

Entrepreneurship

Process by which change agents (entrepreneurs) undertake economic risk to innovate - to create new products, processes, and sometime new organizations. Successful = derives competitive process and creates value for the individual entrepreneurs and society at large.

Technology Enthusiasts

Smallest market segment, often have an engineering mind set and pursue new technology proactively. Frequently seek out new products before the products are officially introduced into the market. Enjoy using beta versions.

Invention

Step two of the innovation process Transformation of an idea into a new product or process or the modification and recombination of existing ones. If an invention if useful, novel, and non-obvious it can be patented.

Economic Incentives

Strategic choice Once an innovator has become an establish incumbent firm, it has strong incentives to defend its strategic position and market power. A focus on incremental innovation is attractive once an industry standard has emerged and technological uncertainty is reduced

Strategic Entrepreneurship

The pursuit of innovation using tools and concepts from strategic management Leverage innovation for competitive advantage by applying strategic Entrepreneurship

First-mover Advantages

Competitive benefits that accrue to the successful innovator Benefit from network effects May hold important intellectual property such as critical patents. They may also be able to lock in key suppliers as well as customers through increasing switching costs.

Crossing the chasm framework

Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group. Technology Enthusiasts Early Adopters (The Chasm) Early Majority Late Majority Laggards

Markets and Technology Framework

Conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions Horizontal axis we ask whether the innovation builds on existing technologies or creates a new one Vertical axis we ask whether the innovations emerge: incremental, radical, architectural, and disruptive innovations.

Trade Secrets

Valuable proprietary info that is not in the public domain and where the firm makes every effort to maintain its secrecy. (Coca-Cola recipe, Nutella recipe)

Social Entrepreneurship

describes the pursuit of social goals while creating profitable businesses. Evaluate the performance of their ventures not only by financial metrics but by ecological and social contributions (profits, planet, people) Use triple bottom line approach to asses performance.

Patent

form of intellectual property and gives the inventor exclusive rights to benefit from commercializing a technology for specified time period in exchange for public disclosure of the underlying idea. Exclusive rights translate to temporary monopoly position until the patent expires. Double edged sword - temporary monopoly thus form the basis for competitive advantage

Exit

Decline Stage By bankruptcy or liquidation.

Maintain

Decline Stage Continuing to support to support marketing efforts at a given level

Harvest

Decline Stage firm reduces investment in product support and allocates only a minimum of human and other rescues.

Crossing the Chasm

Each stage of the industry life cycle is dominated by a different customer group. Different customer groups with distinctly different preferences enter the industry Only companies that recognize these differences are able to apply the appropriate competencies at each stage.

Laggards

Entering in declining stage Adopt a new product only if it is absolutely necessary.

Late Majority

Entering the market in maturity stage. Large customer segment Lion's share of the market potential Demand drives most industry growth and firm profitability. Not confident in their ability to master new technology. Prefer to wait until standards have emerged.

Respond to Disruptive Innovation

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

Consolidate

Decline Stage Buying rivals, strong position, approaching monopolistic market power, albeit in declining industry.