Ch. 7 MGT 491

When a firm pursues a harvest strategy, it:

reduces investments in product support.

Which of the following reasons led to the launch of Procter & Gamble's "Connect + Develop," a web-based interface that connects the company's internal-innovation capability with the distributed knowledge in the global community?

The company was no longer able to generate adequate growth through closed innovation.

The key objective for firms during the growth phase is to:

stake out a strong strategic position not easily imitated by rivals.

In a radical innovation, a firm targets:

new markets by using new technologies.

As a start-up company, Virtue Mobiles Inc. entered the low end of the highly competitive cell phone industry with its low-cost smartphones. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartphones in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?

Disruptive innovation

In the introductory stage, the level of product innovation is at a maximum. Elaborate. FILL IN

In the introductory stage, the level of product innovation is at a maximum because new features increasing perceived consumer value are critical to gaining traction in the market. In contrast, process innovation is at a minimum in the introductory stage because companies only produce a small number of products, often just prototypes or beta versions. The main concern is to commercialize the invention—that is, to demonstrate that the product works and that a market exists.

How has the long tail business model affected eBay as an online retailer?

It has helped overcome the problem of thin markets, at no cost to the buyer.

What are the economic incentives associated with incumbent firms? FILL IN

Once an innovator has become an established incumbent firm, it has strong incentives to defend its strategic position and market power. An emphasis on incremental innovations strengthens the incumbent firm's position and thus maintains high entry barriers. A focus on incremental innovation is particularly attractive once an industry standard has emerged and technological uncertainty is reduced. As a result, the incumbent firm uses incremental innovation to extend the time it can extract profits based on a favorable industry structure.

In emerging economies, the LCD television industry is in that phase of the industry life cycle in which the previously increasing market demand becomes limited. The competitive intensity within the industry is high, and inefficient firms have begun to exit the industry. This has allowed only a few major companies to come out as cost leaders and hold the shrinking market. Which of the following stages of the industry life cycle is the LCD television industry currently in?

Shakeout stage

Georgia Ray is the founder of the departmental stores chain, Ether Inc. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and manufactured from recycled material. Also, her company purchases handicrafts from non-profit organizations supporting the aged. Georgia's belief is that her company should be able to support the community at large. Which of the following terms best describes Georgia Ray?

Social entrepreneur

Which of the following statements accurately describes social entrepreneurs?

Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm's performance.

Which of the following is a drawback of Wikipedia's business model?

The user-generated content may be unreliable and unauthoritative.

Which of the following statements is true of the early majority section of consumers?

They weigh the benefits and costs carefully when adopting a new product.

What opportunities does online digitalization provide to businesses? FILL IN

To harness the power of the Internet, firms digitize their offerings. This process acts as an especially disruptive force. In the physical world of brick-and-mortar retail stores, product selections are often the only choice on display because there are significant costs to carrying broader inventory to meet a wider variety of consumer needs. The disruptive force of the Internet provides an opportunity to online retailers to benefit from marketing the long tail. Online retailers can "sell less of more" by taking advantage of low-cost virtual shelf space, which is basically unlimited. The Internet, combined with sophisticated search engines and inventory-management software, allows firms to drive down transaction costs to match individual consumer demand with supply. The Internet as a disruptive innovation enables companies to solve important strategic trade-offs. It lowers the costs of shelf space, inventory, and distribution to near zero and enables firms to aggregate non-hits and match unique consumer preferences to supply.

While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?

While the industry for cell phones with holographic keyboards will focus on product innovation, the tablet industry will focus on process innovation.

Large companies, such as AT&T, IBM, and GE, have been shifting their knowledge landscape from closed innovation to open innovation because of the:

increasing supply and mobility of skilled workers.

Incumbent firms favor incremental innovation over radical innovation because:

radical innovation will disturb the existing power distribution within the firms.

The strategic objective of businesses during the shakeout phase of the industry life cycle will primarily be to:

survive by drawing on "deep pockets."

In the U.S., the time period for the right to exclude others from the use of a patented technology is _____ from the filing date of a patent application.

20 years

How was Wikipedia able to outperform both Encyclopedia Britannica and Microsoft Encarta?

By allowing any person, expert or novice, to generate and edit content

How is process innovation different from product innovation? FILL IN

Product innovations, as the name suggests, are new or recombined knowledge embodied in new products—the jet airplane, electric vehicle, MP3 player, smartphones, and tablet computers. On the other hand, process innovations are new ways to produce existing products or to deliver existing services. Process innovations are made possible through advances such as the Internet, lean manufacturing, Six Sigma, biotechnology, nanotechnology, and so on.

Explain architectural innovation with the help of a real world example. FILL IN

Student answers may vary. 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. Example: By applying an architectural innovation, the Japanese entry Canon was able to redesign the copying machine so that it didn't need professional service—reliability was built directly into the machine, and the user could replace parts such as the cartridge. What Xerox had not envisioned was the possibility that the components of the copying machine could be put together in an altogether different way that was more user-friendly. More importantly, Canon addressed a need in a specific consumer segment—small and medium-sized businesses and individual departments or offices in large companies—that Xerox neglected.

Digital photography replacing film photography would be an example of a(n) _____.

disruptive innovation

When Japanese carmakers attacked the existing U.S. automobile market by first offering small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in _____.

disruptive innovation

ModelLife Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?

Architectural innovation

Briefly discuss the strategic implications of the crossing-the-chasm framework. FILL IN

Based on empirical observations, Geoffrey Moore's core argument is that each stage of the industry life cycle is dominated by a different customer group. Different customer groups with distinctly different preferences enter the industry at each stage of the industry life cycle. Each customer group responds differently to a technological innovation. This is due to differences in the psychological, demographic, and social attributes observed in each unique customer segment. Moore's main contribution is that the significant differences between the customer groups that enter early during the introductory stage of the industry life cycle versus customers that enter later during the growth stage make a firm's smooth transition between the different parts of the industry life cycle difficult. That is, these distinct differences between customer groups lead to a big gulf or chasm into which companies and their innovations frequently fall. Only companies that recognize these differences and are able to apply the appropriate competencies at each stage of the industry life cycle will have a chance to transition successfully from stage to stage.

It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they:

Correct enter into the market in large numbers, creating a herding effect.

A factor favoring the success of disruptive innovation is that:

Correct incumbent firms are slow to change.

On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?

Each stage of the industry life cycle is dominated by a different customer group.

Briefly discuss the steps in the innovation process. FILL IN

Innovation describes the discovery and development of new knowledge in a four-step process captured in the 4 - I's: idea, invention, innovation, and imitation. 1. The innovation process begins with an idea. The idea is often presented in terms of abstract concepts or as findings derived from basic research. 2. In a next step, invention describes the transformation of an idea into a new product or process, or the modification and recombination of existing ones. 3. Innovation concerns the commercialization of an invention by entrepreneurs. 4. The innovation process ends with imitation. If an innovation is successful in the marketplace, competitors will attempt to imitate it.

Who are technology enthusiasts? FILL IN

The customer segment in the introductory stage of the industry life cycle is called technology enthusiasts. This is the smallest market segment, and makes up no more than 2.5 percent of the total market potential. Technology enthusiasts often have an engineering mindset and pursue new technology proactively. They frequently seek out new products before the products are officially introduced into the market. Technology enthusiasts enjoy using beta versions of products, tinkering with the product's imperfections and providing (free) feedback and suggestions to companies. Moreover, technology enthusiasts are often willing to pay a premium price to have the latest gadget. The endorsement by technology enthusiasts validates the fact that the new product does in fact work.

What are the additional characteristics that a new product or technology must have to be a disruptive force? FILL IN

The dynamic process of disruptive innovation begins when a firm, frequently a startup, introduces a new product based on a new technology to meet existing customer needs. To be a disruptive force, however, this new product or technology has to have additional characteristics: 1. It 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.

In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?

The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.

Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?

Unlike technology enthusiasts, early adopters' demand is fueled more by intuition and vision rather than technology concerns.

While the industry for 3D televisions is in the introduction stage of the industry life cycle, the CRT (Cathode ray tube) television industry is in its decline stage. Which of the following statements will be true in this scenario?

While product innovation will be at its maximum for the 3D television industry, process innovation will be more crucial for the CRT television industry.

When firms innovate by leveraging existing technologies into new markets, they are said to be involved in _____.

architectural innovations

To be successful and to survive the shakeout stage of the industry life cycle, a firm should:

gain economies of scale.

General Electric (GE) disrupted itself in the healthcare industry by:

introducing inexpensive and smaller diagnostic devices in developing countries.