CH 7 Business Strategy: Innovation, Entrepreneurship, and Platforms

decline stage

- demand falls rapidly (innovation efforts cease, if a breakthrough emerges it leads to a new industry or sets the life cycle, and strong pressure on prices)

maturity stage

- only a few large firms remain (they enjoy economies of scale, and process innovation has reached a maximum) - demand: replacement or repeat purchases - market has reached maximum size (industry growth is zero or negative)

shakeout stage

- the rate of growth declines - firms begin to intensely compete (weaker firms forced out, industry consolidation, and only the strongest competitors survive - price is an important competitive weapon

entrepreneurship

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

the strategic objective during the introductory stage is to:

achieve market acceptance and seed future growth

Advantages of the Platform Business Model

1. platforms scale more efficiently than pipelines by eliminating gatekeepers 2. platforms unlock new sources of value creation and supply 3. platforms benefit from community feedback

intrapreneurs

innovating within existing companies (corporate entrepreneurship)

maintain

support at a given level

harvest strategy

the firm reduces investments in product support and allocates only a minimum of human and other resources

exit

bankruptcy/liquidation

consolidate

buy rivals

to capture early adopters:

directly communicate the product's potential

four types of innovations

incremental, radical, architectural, and disruptive

idea `

abstract concepts of research finding s

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. (34%) "What Can This Do For Me?" • Weigh the benefits and costs carefully. • Rely on endorsements of others. This group is key to catching the growth wave.

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. (16%) • Demand is small. • Early and late majority are at this time moving on to different products and services.

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. (13.5%) Demand is driven by imagination and creativity. • Ask themselves, "What can this new product do for me or my business?"

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. Represent the majority of the market. (34%)

innovation often comes in waves:

Many firms dominated an early wave of innovation and are challenged by the next wave. Traditional networks vs. cable providers. Cable providers vs. streaming content. Typewriters to PC's to mobile devices.

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.

product innovations

New or recombined knowledge embodied in new products.

process innovations

New ways to produce existing products or deliver existing services

platform ecosystem

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

the industry lifecycle over time:

The number and size of competitors change. Different types of consumers enter the market. The supply and demand sides of the market change. Different competencies are needed for the firm to perform well.

Moving from the traditional pipeline business to a platform business model implies three important shifts in strategy focus:

1. from resource control to resource orchestration 2. from internal optimization to external interactions 3. from customer value to ecosystem value

to be a disruptive force, this new technology has to have additional characteristics:

1. it begins as a low-cost solution to an existing problem 2. initially, its performance is inferior too the existing technology, but its rate of technological improvement over time is faster than the rate of performance increases required by different market segments

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.

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 an engineering mind-set and pursue new technology proactively, frequently seeking out new products before they are officially introduced to the market. - enjoy using beta versions - tinker with product imperfections - provide free feedback and suggestions (2.5%)

innovation ecosystem

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

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. (invention that is useful, novel, and non-obvious)

architectural innovation

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

imitation

copying a successful innovation

innovation can _________ and _________ value

create and destroy

Pipeline Business

Linear transformation through the value chain R&D, then design, then manufacture, then sell

strategic entrepreneurship

The pursuit of innovation using tools and concepts from strategic management. Combining entrepreneurial actions. Creating new opportunities. Exploiting existing opportunities.

growth stage

- demand increases rapidly (first-time buyers rush to purchase, proof of concept has been demonstrated) - product/service standards emerge (a common set of features and design choices, & can emerge from competition or imposed by government or agencies) - product & process innovation

social entrepreneurship

The pursuit of social goals while creating a profitable business. (TOMS) Evaluate performance by financial, ecological and social contribution metrics.

strategic initiatives to counter disruptive innovations:

1. continue to innovate in order to stay ahead of the competition 2. guard against disruptive innovation by protecting the low end of the market 3. disrupt yourself, rather than wait for others to disrupt you

platforms can be defined along three dimensions:

1. a platform is a business that enables value-creating interactions between external produces and consumers 2. the platform's overarching purpose is to consummate matches among users and facilitate the exchange of goods, services, or social currency, thereby enabling value creation for all participants 3. the platform provides an infrastructure for these interactions and sets governance conditions for them

standard

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

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.

incremental innovation

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

reverse innovation

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

first-mover advantages

Competitive benefits that accrue to the successful innovator.

crossing-the-chasm framework

Conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group. (the chasm is btw the early adopters and the early majority)

introduction stage

Core competency: research and development. • Necessary to create a product category that will attract customers. • Can be very capital-intensive (high costs). Barriers to entry are high. Strategic objective: market acceptance & future growth. One firm

Why Incumbent Firms Tend to Focus on Incremental Innovation:

Economic Incentives: • They must defend their position. Organizational Inertia: • They have formalized processes and structures. Innovation Ecosystem: • They rely on certain suppliers, buyers, complementors.

platform business

Enables interaction between producers and consumers. Its overarching purpose is to enable matches among users. Provides infrastructure and sets governance conditions.

industry life cycle

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

entrepreneurs

The agents that undertake economic risk to innovate (create new products, processes, and organizations; create value for society, and commercialize ideas and inventions)

innovation

The commercialization of any new product or process, or the modification and recombination of existing ones. class: commercialization of an invention

invention

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

network effects

The value of a product or service for an individual user increases with the number of total users.

trade secrets

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

organizational inertia

a firm's resistance to changes in the status quo

in the decline stage, leaders generally have four strategic options:

exit, harvest, maintain, or consolidate

the players in a platform ecosystem

from a value chain perspective: - producers create or make available a product or service that consumers use - the owner of the platform controls the platform IP address and controls who may participate and in what ways - the providers offer the interfaces of the platform, enabling its accessibility online - consumers

the four I's

idea, invention, innovation, imitation