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Chapters7bbuss498.pptxChapter 7 Outline Business Strategy: Innovation and Entrepreneurship
7.1 Competition Driven by Innovation
The Innovation Process
7.2 Strategic and Social Entrepreneurship (please skip this)
7.3 Innovation and the Industry Life Cycle
Introduction Stage
Growth Stage
Shakeout Stage
Maturity Stage
Decline Stage
Crossing the Chasm
7.4 Types of Innovation
Incremental vs. Radical Innovation
Architectural vs. Disruptive Innovation
Open Innovation
7.5 Implications for the Strategist
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Exhibit 7.1 Accelerating the Speed of Technological Change
Jump to Appendix 2 long image description
SOURCE: Depiction of data from the U.S. Census Bureau, the Consumer Electronics Association, Forbes, and the National Cable and Telecommunications Association.
Dominant Positions Can Quickly Change Due to Innovation
From Typewriters to PCs to Mobile devices
From Encyclopedia Britannica to Encarta to Wikipedia
Causes of rapid technological diffusion and adoption:
- Initial innovations are foundational
- New business models
- Satellite and cable distribution systems
- The emergence of the internet
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Exhibit 7.2 The Innovation Process
Abstract concepts or research findings
Transformation of an idea into product or process , or the modification and recombination of existing ones
Commercialization of an invention by entrepreneurs – New industries
Copying a successful innovation
Patent vs. trade-secret
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Exhibit 7.4 Lifecycle of the Smartphone Industry in Emerging and Developed Economies
Jump to Appendix 3 long image description
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Exhibit 7.10 Features and Strategic Implications of the Industry Life Cycle (1 of 2)
| Life Cycle Stages | |||||
| Introduction | Growth | Shakeout | Maturity | Decline | |
| Core competency | R&D, some marketing | R&D, some manufacturing, marketing | Manufacturing, process Engineering | Manufacturing, process engineering, marketing | Manufacturing, process engineering, marketing, service |
| Type and Level of innovation | Product innovation at a maximum; process innovation at a minimum | Product innovation decreasing; process innovation increasing | After emergence of standard: product innovation decreasing rapidly; process innovation increasing rapidly | Product innovation low; process innovation high | Product innovation at a minimum; process innovation at a maximum |
| Market growth | Slow | High | Moderate and slowing down | None to moderate | Negative |
| Market size | Small | Moderate | Large | Largest | Small to moderate |
| Price | High | Falling | Moderate | Low | Low to high |
| Number of competitors | Few, if any | Many | Fewer | Moderate but large | Few if any |
©McGraw-Hill Education.
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Exhibit 7.10 Features and Strategic Implications of the Industry Life Cycle (2 of 2)
| Life Cycle Stages | |||||
| Introduction | Growth | Shakeout | Maturity | Decline | |
| Mode of Competition | Non-price competition | Non-price competition | Shifting from non-price to price competition | Price | Price or non-price competition |
| Type of Buyers | Technology enthusiasts | Early adopters | Early majority | Late majority | Laggards |
| Business-Level Strategy | Differentiation | Differentiation | Differentiation, or integration strategy | Cost-leadership or integration strategy | Cost-leadership, differentiation, or integration strategy |
| Strategic Objective | Achieving market acceptance | Staking out a strong strategic position; generating “deep pockets” | Surviving by drawing on “deep pockets” | Maintaining strong strategic position | Exit, harvest, maintain, or consolidate |
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Exhibit 7.5 Introduction Stage: Network Effects
The positive effect that one user has on the value of a product for other users
Example: Apple’s iPhone
Jump to Appendix 4 long image description
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Exhibit 7.7: Product and Process Innovation
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Exhibit 7.9 Crossing the Chasm: Applied to the Mobile Phone Industry
Jump to Appendix 6 long image description
Many innovators do not successfully transition from one stage of the industry life cycle to the next.
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Exhibit 7.11 Types of Innovation
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Incremental vs. Radical Innovation
Incremental Innovation:
Builds on established knowledge base
Results from steady improvement
Targets existing markets with existing technology
Example: Gillette blades: from one to six!
Radical Innovation:
Draws on novel methods & materials
Forms from an entirely new knowledge base, or
Forms from a recombination of existing knowledge
Targets new markets with new technology
The iPhone, The Ford Model T, The X-Ray, The Airplane
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Why Are Incumbent Firms Focused On Incremental Innovation?
Economic Incentives:
Established companies are focused on defending their position
Organizational Inertia:
Established companies rely on formalized business processes and structures
Innovation Ecosystem:
Established companies are part of an ecosystem:
Suppliers, buyers, complementors
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Architectural vs. Disruptive Innovation
Architectural Innovation:
Leverages existing technology into new markets
Alters the architecture of a product
A new product, with known components, used in a novel way
Disruptive Innovation:
Leverages new technologies in existing markets
New product / process meets existing customer needs
Digital photography, Laptops
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Exhibit 7.12 Characteristics Required of a Disruptive Force
Begins as a low cost solution to existing problem
The rate of technological improvement increases
Jump to Appendix 7 long image description
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How to Respond to Disruptive Innovation
Continue to innovate
Stay ahead of the competition
Guard against disruptive innovation
Protect the low end of the market
Disrupt yourself
Rather than wait for others to disrupt you
Called reverse innovation
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Strategy Highlight 7.2
GE’s Innovation Mantra: Disrupt Yourself!
Typical high end ultrasound machine: $250,000
GE first developed a $30,000 device
GE then developed a $5,000 device
Called the Vscan
It’s a cross between an iPod and a flip phone
Doctors can hang it around their neck
http://www.youtube.com/watch?v=Ry3w6fbT7rY
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Pipeline vs. Platform Businesses
Pipeline Business
Linear transformation through the value chain
R&D, then design, then manufacture, then sell
Platform Business
Enables interaction between producers and consumers
Enable matches among users
Provides infrastructure and governance
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The five most valuable companies globally (Apple, Alphabet, Microsoft, Amazon, and Facebook) all run platform business models.
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The Platform Ecosystem
Exhibit 7.13
SOURCE: Adapted from Marshall W. Van Alstyne, Geoffrey G. Parker, and Sangeet Paul Choudary, “Pipelines, Platforms, and the New Rules of Strategy,” Harvard Business Review, April 2016.
©McGraw-Hill Education.
From a value chain perspective, producers produce or create a product or service that consumers consume. The owner of the platform controls the platform IP address and controls who may participate and in what ways. The providers provide the interfaces for the platform, enabling its accessibility online.
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Advantages of the Platform Business Model
They scale more efficiently.
There are no gatekeepers.
They unlock new sources of value creation and supply.
They benefit from community feedback.
Success occurs when positive network effects are realized.
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New sources of value creation and supply - To grow, traditional competitors such as Marriott or Hilton would need to add additional rooms to their existing stock. To add new hotel room inventory to their chains, they would need to find suitable real estate, develop and build a new hotel, furnish all the rooms, and hire and train staff to run the new hotel. This often takes years, not to mention the multimillion-dollar upfront investments required and the risks involved. In contrast, Airbnb faces no such constraints because it does not own any real estate, nor does it manage any hotels. Just like Marriott or Hilton, however, it uses sophisticated pricing and booking systems to allow guests to find a large variety of rooms pretty much anywhere in the world to suit their needs.
Community feedback - TripAdvisor, a travel website, derives significant value from the large amount of quality reviews (including pictures) by its users of hotels, restaurants, and so on. This enables TripAdvisor to consummate more effective matches between hotels and guests via its website, thus creating more value for all participants.
Network effects - Growing its user base is critical for Netflix to sustain its competitive advantage. Netflix has been hugely successful in attracting new users: As of 2017 it had some 95 million subscribers worldwide. Yet, while providing a large selection of high-quality streaming content is a necessity of the Netflix business model, this element can and has been easily duplicated by others such as Amazon, Hulu, and premium services on Google’s YouTube. To lock in its large installed base of users, however, Netflix has begun producing and distributing original content such as the hugely popular shows House of Cards and Orange Is the New Black. To sustain its competitive advantage going forward, Netflix needs to rely on its core competencies, including its proprietary recommendation engine, data-driven content investments, and network infrastructure management.
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