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CHAPTER-7-Business-Strat-Innovation-and-Entrepreneurship.pptx
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- 2. Competition Driven byInnovation Competition is a process driven by the “perennial gale of creative destruction,” in the words of famed economist Joseph Schumpeter. The continuous waves of market leader- ship changes in the TV industry, detailed in the ChapterCase, demonstrate the potency of innovation as a competitive weapon: It can simultaneously create and destroy value.
- 4. The “4 I’s” 1.Idea – An idea is a thought or concept that forms the basis for new possibilities. It is the starting point for innovation but may not yet be developed into something practical. 2.Invention – An invention is a unique creation or discovery that introduces something completely new. It often results from scientific or technical research and can be protected by patents.
- 5. The “4 I’s 3.Innovation --Innovation is the process of improving or applying inventions to create value. It involves turning new ideas into practical solutions that benefit society or businesses. 4. Imitation – Imitation is the act of copying or adapting existing inventions or innovations. It allows businesses to improve upon existing products and compete in the market.
- 7. 1. Invention –An invention is a novel creation, process, or device that did not previously exist. 2. Patent – A patent is a legal right granted to an inventor, giving them exclusive control over their invention for a set period. 3. Trade Secret – A trade secret is confidential business information that gives a company a competitive edge.
- 8. 4. Innovation –Innovation is the process of improving or applying new ideas to create value. 5. First-Mover Advantage – First-mover advantage is the competitive edge gained by being the first to introduce a product or service in a market.
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- 10. The three keyelements of a successful innovation: novelty, usefulness, and successful implementation. It uses P&G's razor-razorblade business model and the Swiffer as examples of successful innovations. The text also highlights that the innovation process ultimately ends with imitation by competitors, using Netflix and Amazon as examples of companies facing this challenge. Amazon's Instant Video service and Hulu Plus are mentioned as examples of competitive imitations.
- 11. Entrepreneurship- The processby which people undertake economic risk to innovate-to create new products, processes, and sometimes new organization. Strategic and Social Entrepreneurship
- 12. 1. Reed Hastings Founderof Netflix, Hasting grew up in Cambridge, Massachusetts
- 13. 2. Jeff Bezos– The founder of Amazon.com (featured in ChapterCase 8) , the world's largest online retailer. The stepson of a Cuban immigrant, Bezos graduated from Princeton and then worked as a financial analyst on Wall Street.
- 14. 3. Oprah Winfrey Asuccessful entrepreneur and business person in many areas including as talk show, host actress producer, media proprietor, and philanthropist.
- 15. 4. Elon Husk Anengineer and serial entrepreneur with a deep passion to “ solve environmental, social, and economic challenges.
- 16. Entrepreneurs - theagents that introduce change into the competitive system. Strategic entrepreneurship - the pursuit of innovation using tools and concept from strategic management. Social entrepreneurship - the pursuit of social goals while creating profitable business.
- 17. INNOVATION AND THEINDUSTRY LIFE CYCLE Innovations frequently lead to the birth of new industries. Innovative advances in IT and logistics facilitated the creation of the overnight express delivery industry by FedEx and that of big- box retailing by Walmart. The Internet set online retailing in motion, with new companies such as Amazon and eBay taking the lead, and it revolutionized the advertising industry first through Yahoo, and later Google and Facebook. Advances in nanotechnology are revolutionizing many different industries, ranging from medical diagnostics and surgery to lighter and stronger airplane components.
- 18. Industries tend tofollow a predictable industry life cycle: As an industry evolves over time, we can identify five distinct stages: introduction, growth, shakeout, maturity, and decline.31 We will illustrate how the type of innovation and resulting strategic implications change at each stage of the life cycle as well as how innovation can initiate and drive a new life cycle.
- 19. The number andsize of competitors change as the industry life cycle unfolds, and different types of consumers enter the market at each stage. That is, both the supply and demand sides of the market change as the industry ages. Each stage of the industry life cycle requires different competencies for the firm to perform well and to satisfy that stage’s unique customer group. We first introduce the life cycle model before discussing different customer groups in more depth when introducing the crossing-the-chasm concept later in this chapter.
- 22. GROWTH STAGE Standards canemerge bottom-up through competition in the marketplace or be imposed top- down by government or other standard-setting agencies such as the Institute of Electrical and Electronics Engineers (IEEE) that develops and sets industrial standards in a broad range of industries, including energy, electric power, biomedical and health care technology, IT, telecommunications, consumer electronics, aerospace, an nanotechnology.
- 23. In the 1980s,the Wintel standard (a portmanteau of Windows and Intel) marked the beginning of exponential growth in the personal computer industry; it still holds some 90 percent of market share in personal computers. In the 2000s we saw a standards war between the HD- DVD format and the higher-definition rival, the Blu-ray Disc (BD). Blu-ray, backed by an association of electronics companies including Sony, Panasonic, and others, bested the HD-DVD format backed by Toshiba. Some argue that Sony’s PlayStation 3 acted as a catalyst for adopting the Blu-ray format.
- 24. A tipping pointin favor of the Blu-ray format may have been the decision in 2008 by Warner Bros. to release discs only in Blu-ray format. Leading retailers such as Walmart and Best Buy began carrying DVDs in Blu-ray format and did not stock as large a selection in the HD- DVD format; Netflix and Blockbuster also fell in line. As a consequence, many companies stopped making HD-DVD players.
- 25. The invention ofthe standardized shipping container : Before containerization was invented some 60 years ago, it cost almost $6 to load a ton of (loose) cargo, and theft was rampant. After containerization, the cost for loading a ton of cargo had plummeted to $0.16 and theft all but disappeared (because containers are sealed at the departing factory). Before containerization, dock labor could move 1.7 tons per hour onto a cargo ship.
- 26. After containerization, thishad jumped to 30 tons per hour. Ports are now able to accommodate much larger ships, and travel time across the oceans has fallen in half. GSM (Global System for Mobile Communications ) - standard cell phones for Europe determined by European Union. CDMA (Code Division Multiple Access)- The uniter States relied instead on a market based-approach and developed by Qualcomm. However, 80% of the global mobile market uses the GSM standard.
- 27. Product innovations- asthe name suggests, are new or recombined knowledge embodied in new products—the jet airplane, electric vehicle, smart-phones, and wearable computers. 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.
- 29. As market demandincreases, economies of scale kick in: Firms establish and optimize standard business processes through applications of lean manufacturing, Six Sigma, and so on. As a consequence, product improvements become incremental, while the level of process innovation rises rapidly. During the growth stage, process innovation ramps up (at increasing marginal returns) as firms attempt to keep up with rapidly rising demand while attempting to bring down costs at the same time. The core competencies for competitive advantage in the growth stage tend to shift toward manufacturing and marketing capabilities
- 30. At the sametime, the R& D emphasis tends to shift to process innovation for improved efficiency. Competitive rivalry is somewhat muted because the market is growing fast. Since market demand is robust in this stage and more competitors have entered the market, there tends to be more strategic variety: Some competitors will continue to follow a differentiation strategy, emphasizing unique features, product functionality, and reliability. Other firms employ a cost-leadership strategy in order to offer an acceptable level of value but lower prices to consumers. They realize that lower cost is likely a key success factor in the future, because this will allow the firm to lower prices and attract more consumers into the market.
- 31. SHAKEOUT STAGE Firms beginto compete directly against one another for market share, rather than trying to capture a share of an increasing pie. As competitive intensity increases, the weaker firms are forced out of the industry. This is the reason this phase of the industry life cycle is called the shakeout stage: Only the strongest competitors survive increasing rivalry as firms begin to cut prices and offer more services, all in an attempt to gain more of a market that grows slowly, it at all. This type of cut-throat competition erodes profitability of all but the most efficient firms in the industry. As a consequence, the industry often consolidates, as the weakest competitors either are acquired by stronger firms or exit through bankruptcy.
- 32. MATURITY STAGE After theshakeout is completed and a few firms remain, the industry enters the maturity stage. During the fourth stage of the industry life cycle, the industry structure morphs into an oligopoly with only a few large firms. Most of the demand was largely satisfied in the prior shakeout stage. Any additional market demand in the maturity stage is limited. Demand now consists of replacement or repeat purchases. The market has reached its maximum size, and industry growth is likely to be zero or even negative going forward. This decrease in market demand increases competitive intensity within the industry. In the maturity stage, the level of process innovation reaches its maximum as firms attempt to lower cost as much as possible, while the level of incremental product innovation sinks to its minimum (see Exhibit 7.6).
- 33. DECLINE STAGE Changes inthe external environment often take industries from maturity to decline. In this final stage of the industry life cycle, the size of the market contracts further as demand falls, often rapidly. At this final phase of the industry life cycle, innovation efforts along both product and process dimensions cease (see Exhibit 7.6). If a technological or business model breakthrough emerges that opens up a new industry, however, then this dynamic interplay between product and process innovation starts anew.
- 34. Exit. Somefirms are forced to exit the industry by bankruptcy or liquidation. The U.S. textile industry has experienced a large number of exits over the last few decades, mainly due to low-cost foreign competition. Harvest. In pursuing a harvest strategy, the firm reduces investments in product support and allocates only a minimum of human and other resources. While several companies such as IBM, Brother, Olivetti, and Nakajima still offer typewriters, they don’t invest much in future innovation. Instead, they are maximizing cash flow from their existing typewriter product line. FOUR STRATEGIC OPTIONS
- 35. Maintain. PhilipMorris, on the other hand, is following a maintain strategy with its Marlboro brand, continuing to support marketing efforts at a given level despite the fact that U.S. cigarette consumption has been declining. Consolidate. Although market size shrinks in a declining industry, some firms may choose to consolidate the industry by buying rivals. This allows the consolidating firm to stake out a strong position—possibly approaching monopolistic market power, albeit in a declining industry.
- 36. CROSSING THE CHASMFRAMEWORK The Crossing the Chasm framework, introduced by Geoffrey Moore, describes how new technologies or products move through different stages of adoption. It highlights the challenge (the “chasm”) that exists between early adopters and the early majority, where many innovations fail to gain mainstream success.
- 38. Explanation of KeyTerms 1. Chart – The framework is often represented as a bell curve, showing different groups of adopters. 2. Technology Enthusiasts – These are innovators and tech-savvy individuals who are excited to try new technologies first. 3. Early Adopters – This group is open to new ideas and willing to adopt innovations before they become mainstream.
- 39. 4. Early Majority– These adopters wait until a product is proven successful before embracing it. 5. Late Majority – This group is more skeptical and adopts new technology only after it has become a standard in the market. 6. Laggards – Laggards are the last to adopt a new product, often resisting change for as long as possible.
- 40. Application to themobile phone industry- In the mobile phone industry, new technologies like 5G, foldable screens, and AI-powered features initially attract tech enthusiasts and early adopters.
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- 45. INCREMENTIAL VS. RADICAL IncrementialInnovation - squarely builds on an established knowledge base and steadily improves an existing product or service offering. Radical Innovation - radical innovation draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of existing knowledge bases with a new stream of knowledge. It targets new markets by using new technologies.
- 46. ECONOMIC INCENTIVES Economists highlightthe role of incentives in strategic choice. Once an innovator has become an established incumbent firm (such as Google has today), 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.
- 47. ORGANIZATIONAL INERTIA From anorganizational perspective, as firms become established and grow, they rely more heavily on formalized business processes and structures. In some cases, the firm may experience organizational inertia— resistance to changes in the status quo. Incumbent firms, therefore, tend to favor incremental innovations that reinforce the existing organizational structure and power distribution while avoiding radical innovation that could disturb the existing power distribution.
- 48. INNOVATION ECOSYSTEM A finalreason incumbent firms tend to be a source of incremental rather than radical innovations is that they become embedded in an innovation ecosystem: a network of suppliers, buyers, complementors, and so on.64 They no longer make independent decisions but must consider the ramifications on other parties in their innovation ecosystem.
- 49. ARCHITECTURAL VS DISRUPTIVEINNOVATION Architectural Innovation - A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets. Disruptive Innovation - An innovation that leverages new technologies to attack existing markets from the bottom up
- 53. Thank you forlistening!