ENTREPRENEURIAL MANAGEMENT

MGT246 Introduction to

Entrepreneurship

Professor Haibo LIU

Manufacturing vs Service Economies

Manufacturing vs Service Economies

 Manufacturing, construction, mining and agriculture

 Retail, finance, transportation, healthcare, communication & IT, entertainment, professional and public services

 Is manufacturing or service more important in most developed countries?

 In USA and UK, services create up to three-quarters of the wealth and 85% of employment.

Differences between products and services  Smart phone Flight from NYC to Singapore

Differences between products and services

•Tangibility: o Product is tangible

• Perceptions of quality: o Service quality is based on customer experience

• Simultaneity: o Service is produced and immediately consumed

• Storage: o Services usually cannot be stored for later consumption, eg. seats on an

airline o Create problem of matching supply with demand o Solutions: discounts at off-peak time, employ part-time works at peak time

• Customer contact: o service has proximity to customers o service usually has direct contact with customers, eg. medical treatment

What makes a successful product/service?

Diffusion of innovations

• Diffusion is the means by which innovations are translated into social and economic benefits.

• However, the benefits of innovations can take 10–15 years to be fully effected, and in practice most innovations fail to be adopted widely, and so have limited social or economic impact.

Rogers’ definition

 It is the process by which an innovation is communicated through certain channels over time among members of a social system. It is a special type of communication, in that the messages are concerned with new ideas.

~ Everett Rogers 2003

Adoption Curve

The S-curve

Assumption: all potential adopters are similar And have the same needs

https://www.youtube.com/watch?v=NiNoNYLBabA

Breakout room

 You will be randomly assigned to a room.

 Your tasks as a team:

 Q: What are the things you can do to push your product over the chasm of innovation diffusion?

 List the approach and give a specific example

 You have 5 minutes

Network externality

 Network externality has been defined as a change in the benefit, or surplus, that an agent derives from a good when the number of other agents consuming the same kind of good changes.

 As mobile phones increase in popularity, for example, your mobile phone becomes increasingly valuable since you will have greater use for it.

Network externality

 The value received by consumers to be separated into two distinct parts.

o The first component is the value generated by the product even if there are no other users.

o The second component is the additional value derived from being able to interact with other users of the product, and it is this latter value that is the essence of network effects.

Bandwagon Effect

 It occurs where an innovation is adopted because of pressure caused by the sheer number of those who have already adopted an innovation, rather than by individual assessments of the benefits of an innovation

 Beyond a certain threshold, diffusion continues despite no clear advantage of the innovation

 The more ambiguous the benefits of an innovation, the more influential the bandwagon effects is

Factors Affecting Diffusion In predicting the rate of adoption of an innovation, five factors explain 49–87% of the variance:

• Relative advantage • Compatibility • Complexity • Trialability • Observability

©2015 John Wiley and

Sons Innovation & Entrepreneurship 3e by Bessant & Tidd

Relative Advantage

 Relative advantage is the degree to which an innovation is perceived as better than the product it supersedes, or competing products.

 Typically measured in narrow economic terms, for example cost or financial payback

 Non-economic factors such as convenience, design, satisfaction and social prestige may be equally important.

Compatibility

 Compatibility is the degree to which an innovation is perceived to be consistent with the existing values, experience and needs of potential adopters.

 Two distinct aspects of compatibility: o Existing skills and practices o Values and norms

Who Invented Incandescent Light?

What was the main source of lighting before the Incandescent Light?

Who Invented Incandescent Light?

 Edison was not the first man to create incandescent light.

 The English scientist Humphrey Davy built a powerful electric lamp in the early 1800s.

 The Englishman Joseph Swan received a patent on a bulb in 1878 that Edison studied while building his own.

 What are the reasons for adoption of Edison’s electric lighting?

Poll from Socrative

 Go to https://b.socrative.com/login/student/

 Room number: UCRINNOV8

 Name: (First name) space (Last name initial). For example: Haibo L.

 There is only one question

 Click “finish quiz” after you finish

21

Innovations Meet Institutions

 It is not a simple story of one innovation’s technical and economic superiority over an incumbent rival.

 The evidence suggests that for its initial success (adoption), Edison’s system of electric lighting depended on the concrete details of its design to invoke public’s familiarity with existing gas and water utilities (existing institutions).

 Edison’s design, which exploited past understanding but also preserved the flexibility to evolve and build new institutions

Complexity

 Complexity is the degree to which an innovation is perceived as being difficult to understand or use.

 In general, innovations which are simpler for potential users to understand will be adopted more rapidly than those which require the adopter to develop new skills and knowledge.

 Who assess the level of complexity?

Trialability

 Trialability is the degree to which an innovation can be experimented with on a limited basis.

 An innovation that is trialable represents less uncertainty to potential adopters, and allows learning by doing. Innovations which can be trialled will generally be adopted more quickly than those which cannot.

 Sometimes called ‘divisibility’ – how far can the risk of adoption be down into small steps rather than requiring a fullbroken commitment at the outset

Observability

 Observability is the degree to which the results of an innovation are visible to others.

 The easier it is for others to see the benefits of an innovation, the more likely it will be adopted.

 The simple epidemic model of diffusion assumes that innovations spread as potential adopters come into contact with existing users of an innovation.

Early Days of Airbnb

 The 2008 Democratic National Convention was coming to Denver, but there were only 28,000 hotel rooms available.

 But the city wasn't ready to host 80,000 out-of-town attendees.

 Airbnb blasted bloggers in Denver with its marketing.

 Airbnb received news coverage for its alternative solution to the lodging crisis in Denver.

Summary

• Services and products are different in a number of ways, especially intangibility and perceived benefits, and so will demand the adaptation of the standard models and prescriptions for new product development. •The relative advantage, compatibility, complexity, trialability and observability of an innovation all affect the rate of diffusion.

Innovation & Entrepreneurship 3e by Bessant & Tidd

Success factors in new ventures

• Product/service advantage • Market knowledge • Clear product definition • Risk assessment • Project organization • Project resources • Proficiency of execution • Top management support

©2015 John Wiley and

Sons Innovation & Entrepreneurship 3e by Bessant & Tidd