Chapter 7 - Business Strategy: Innovation, Entrepreneurship, and Platforms

network effects

The positive effect (externality) that one user of a product or service has on the value of that product for other users

Markets-and-technology framework

A conceptual model to categorize innovations along the market (existing/new) and technology (existing/new) dimensions

Technology enthusiasts

A customer segment in the introductory stage of the industry life cycle. Often have engineering mind-set and pursue new technology proactively, frequently seeking out new products before they are officially introduced to the market

Innovation ecosystem

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

Standard

An agreed-upon solution about a common set of engineering features and design choices

strategic entrepreneurship

The pursuit of innovation using tools and concepts from strategic management

Patent

a form of intellectual property that 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

Firs-mover advantages

Competitive benefits that accrue to the successful innovator

Product innovation

New or recombined knowledge embodied in new products

Platform business

an enterprise that creates value by matching external producers and consumers in a way that creates value for all participants, and that depends on the infrastructure or platform that the enterprise manages

Innovation

the commercialization of any new product or process, or the modification and recombination of existing ones

Trade secret

valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy

Early majority

Customers coming into the market in the shakeout stage of the industry life cycle. Pragmatists that are mainly concerned with whether adopting a new technological innovation serves a practical purpose or not.

laggards

Customers entering the market in the declining stage of the industry life cycle. Will adopt a new product only if absolutely necessary, generally don't want new technology, and are generally not a customer segment worth pursuing.

Early adopters

Customers entering the market in the growth stage of the industry life cycle that are eager to buy early into a new technology or product concept. Their demand is driven by recognizing and appreciating the possibilities the new technology can afford them in their professional and personal lives.

Social entrepreneurship

The pursuit of social goals while creating a profitable business

Invention

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

Architectural innovation

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

Incremental innovation

an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service

Industry life cycle

the five different stages - introduction, growth, shakeout, maturity, and decline - that occur in the evolution of an industry over time

Platform ecosystem

The market environment in which all players participate relative to the platform

Winner-take-all markets

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

Process innovation

New ways to produce existing products or deliver existing services

LO - 7.4 - Derive strategic implications of the crossing-the-chasm framework

- 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 - 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 late during the growth stage - This distinct difference between customer groups leads to a big gulf or chasm, which companies and their innovations frequently fall into - To overcome the chasm, managers need to formulate a business strategy guided by the who, what, why, and how questions of competition

Long tail

A business model in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choice

Crossing-the-chasm framework

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

LO - 7.5 - Categorize different types of innovations in the markets-and-technology framework

- Four types of innovation emerge when applying the existing versus new dimensions of technology and markets: incremental, radical, architectural and disruptive innovations - An incremental innovation squarely builds on an established knowledge base and steadily improves an existing product or service offering (existing market/existing technology) - 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) - 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) - A disruptive innovation is an innovation that leverages new technologies to attack existing markets from the bottom up (existing market/new technology

LO - 7.3 - Describe the competitive implications of different stages in the industry life cycle

- Innovation frequently lead to the birth of new industries - Industries generally follow a predictable industry life cycle with five distinct stages: introduction, growth, shakeout, maturity, and decline - Exhibit 7.10 details features and strategic implications of the industry life cycle

Radical innovation

An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge.

Disruptive innovation

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

Reverse innovation

An innovation that was developed for emerging economies before being introduced in developed economies. Sometimes also called frugal innovation

Late majority

Customers entering the market in the maturity stage of the industry life cycle that are less confident about their ability to master new technology. Will wait until standards have emerged and become firmly entrenched so as to ensure reduction in uncertainty. Tend to buy from well-established firms with strong brand image.

LO - 7.2 - Apply strategic management concepts to entrepreneurship and innovation

Entrepreneurship describes the process by which change agents undertake economic risk to innovate - to create new products, processes, and sometimes new organizations - 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

Entrepreneurs

The agents that introduce change into the competitive system

Entrepreneurship

The process by which people undertake economic risk to innovate—to create new products, processes, and sometimes new organizations.

LO - 7.1 - Outline the four-step innovation process from idea to imitation

- 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 innovation process begins with an idea - An invention describes the transformation of an idea into a new product or process, or the modification and recombination of existing ones - 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

LO - 7.6 - Explain why and how platform businesses can outperform pipeline businesses

- Platform businesses scale more efficiently than pipeline businesses by eliminating gatekeepers and leveraging digital technology. Pipeline businesses rely on gatekeepers to manage the flow of value from end to end of the pipeline. Platform businesses leverage technology to provide real-time feedback - Platforms unlock new sources of value creation and supply. Thus they escape the limits faced by a pipeline company working within an existing industry based on physical assets - Platforms benefit from community feedback. Feedback loops from consumers back to the producers allow platforms to fine-tune their offerings and to benefit from big data analytics