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

Markets and Technology Framework

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

Introduction

Core Competency: R&D - necessary to create a new product category First-Mover advantages v. first move disadvantages

Shake Out Stage

Firms begin to intensely compete - Weaker firms forced out - Industry consolidation - Only the strongest competitors survive Price is an important competitive weapon - Firms fall back to cost-leadership strategies

How does an industry begin?

Innovation

First Customers

Technology Enthusiasts: - proactively pursue new technology - enjoy using beta versions Early Adopters: In order to capture these customers... - directly communicate the product;s potential

Industrial Life Cycle

The 5 different stages that occur in the evolution of an industry over time: 1. Introduction 2. Growth 3. Shakeout 4. Maturity 5. Decline

What leads to the next stage?

Things are good But at some point, growth slows What should we expect in the industry?

First Mover Advantage

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 *many innovators do not successfully transition from one stage of the industry life cycle to the next

Patent

if the invention is useful, novel, and non-obvious, it can be patented gives the inventor exclusive rights for a specified time period in exchange for public disclosure of the underlying idea commercialization of any new product or process "Double Edge Sword"

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

In order to overcome the chasm, managers...

need to formulate a business strategy guided by the who, what, why, and how the questions of competition

Product Innovations

new or recombined knowledge embodied in new products

Process Innovations

new ways to produce existing products or deliver existing services

Idea

often presented in terms of abstract concepts or as findings derived from basic research

Entrepreneurs

the agents that introduce change into the competitive system

Innovation

the commercialization of any new products or process, or modification and recombination of existing ones is a process characterized by the "perennial gale of creative destructive," in the words of Schumpeter - Innovation often comes in waves - innovation can simultaneously create and destroy value challenge is to innovate and fend off imitation at the same time

Network Effects

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

Strategic Entrepreneurship

the pursuit of innovation using tools and concepts from strategic management

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 and recombination of existing ones

Difference between early and late entering customers

there is a 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 this distinct difference between customer groups leads to a big gulf or chasm, which companies and their innovations frequently fall into

Laggards

- Enter the market during the decline stage - Adopt a new product only if necessary - Generally don't want new technology

Why the focus on incremental innovation?

1. Economic Incentives: - Established companies are focused on defending their position 2. Organizational Inertia: - Established companies rely on formalized business processes and structures 3. Innovation Ecosystem: - Established companies are part of an ecosystem: suppliers, buyers, complementors

Incremental Innovation

- builds on established knowledge - results from steady improvement - targets existing markets and technology an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service

Platform Ecosystems

- enables interaction between producers and consumers - enables matches among our users - provides infrastructure and governance the market environment in which all players participate relative to the platform

Architectural Innovation

- existing technology leveraged into a new market - known components, used in a novel way a new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets

Disruptive Innovation

- leverages new technologies in existing markets - new product / process meets existing customer needs an innovation that leverages new technologies to attack existing markets from the bottom up

Pipeline Businesses

- linear transformation through the value chain - R&D, then design, then manufacture, then sell rely on gatekeepers to manage the flow of value from end to end of the pipeline

Radical Innovation

- novel methods & materials - entirely new knowledge base (or a recombination of existing knowledge) - targets new markets and technology 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.

How to Respond to Disruptive Innovation

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 (e.g., reverse innovation)

The Four I's

1. Idea 2. Invention 3. Innovation 4. Imitation

Appropriation Methods

1. Patenting 2. Secrecy 3. First Mover Advantages: - economies of scale - learning curves - network effects - lock key suppliers and customers through increasing switching costs

The Crossing the Charm Framework list:

1. Technology Enthusiasts 2. Early Adopters 3. Early Majority 4. Late Majority 5. Laggards

Advantages of the Platform Business Model

1. They scale more efficiently. - There are no gatekeepers. 2. They unlock new sources of value creation and supply. 3. They benefit from community feedback. 4. Success occurs when positive network effects are realized.

Reverse Innovation

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

Decline Stage: 4 Strategic Options

Demand falls rapidly - strong pressure on prices 4 Strategic Options: 1. Exit: bankruptcy / liquidation 2. Harvest: reduce further investments 3. Maintain: support at a given level 4. Consolidate: buy rivals

Majority

Early Majority: - "What Can This Do For Me?" - Weigh the benefits and costs carefully Late Majority: - Not as confident in their ability to master the technology

Growth

Emergence of dominant design - a common set of features and design choices Unlocks demand growth! What should we expect in the industry? - Entry

Maturity Stage

Only a few large firms remain. - They enjoy economies of scale. - Process innovation has reached a maximum Demand: replacement or repeat purchases Market has reached maximum size. - Industry growth is zero or negative

Entrepreneurship

The process by which people undertake economic risk to innovate—to create new products, processes, and sometimes new organizations. EX: Reed Hastings (Netflix), Dr. Dre (Beats), Jeff Bezos (Amazon), Elon Musk (Tesla)

Innovation Ecosystems

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

Platform Businesses

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

Trade Secrets

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