Transcript Slide 1

Chapter 7
Business Strategy:
Innovation and Entrepreneurship
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Chapter Outline
7.1 Competition Driven by Innovation
• The Innovation Process
7.2 Strategic and Social Entrepreneurship
7.3 Innovation and the Industry Life Cycle
7.4 Types of Innovation
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Incremental vs. Radical Innovation
Architectural vs. Disruptive Innovation
The Internet as Disruptive Force: The Long Tail
Open Innovation
7.5 Implications for the Strategist
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ChapterCase 7
Wikipedia: The Free Encyclopedia
For 250 years, Encyclopedia Britannica was the leader
• In the early 1990s, annual encyclopedia sales were $1.2
billion. Encyclopedia Britannica was the market leader with
over 50% of sales.
Enter innovation and the Internet:
• Microsoft launched its electronic encyclopedia Encarta in
1993 for $99.
• Within only three years, the market for printed encyclopedias
had shrunk by half, along with Britannica’s revenues, while
Microsoft sold over $100 million worth of Encarta CDs.
The Wikipedia logo is a registered trademark of the Wikimedia Foundation.
Photo of Jimmy Wales by Lane Hart-well/Licensed under CC BY-SA 3.0/ http://commons.wikimedia.org/wiki/File:Jimmy_Wales_July_2010.jpg
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7.1 Competition Driven by Innovation
 Innovation is a big driver in the competitive process.
 “Gale of Creative destruction” – Joseph Schumpeter
• Typewriters to computers
 Wang Labs, a computer company, helped to kill the typewriter
industry.
 IBM & Compaq defeated Wang Labs for the computer market.
 Lenovo bought the remains of the IBM personal computer market.
 HP bought Compaq and is under threat from mobile devices itself.
• TV viewing options
 “Big 3” networks struggling against cable & satellite providers
 Customized online content (Hulu, Netflix, etc.) now rising
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Exhibit 7.1 Accelerating Speed of
Technological Change
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The Innovation Process
 Discovery and development of new knowledge
captured by the 4 I’s:
• Idea – may be presented in terms of abstract concepts or
as findings derived from basic research
• Invention – transformation of an idea into a new product,
process, or the modification and recombination of existing
ones
• Innovation – concerns the commercialization of an
invention by entrepreneurs
• Imitation – copying a successful innovation
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Exhibit 7.3 Innovation: A Novel and
Useful Idea That is Successfully Implemented
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7.2 Strategic and Social
Entrepreneurship
 Entrepreneurs are the change agents for creative
destruction.
• Create new opportunities & exploit them
 Jeff Bezos – Amazon
 Saw growth of Internet in 1994
 Now the world’s largest online retailer
 Oprah Winfrey – Harpo Productions
 Rose from abuse & poverty to over $2 billion net worth
 Ended talk show to devote time to OWN TV channel
 Elon Musk – Tesla Motors, Solar City, SpaceX, PayPal
 An engineer and serial entrepreneur
 Deep passion to solve environmental, social, and economic challenges
• How to combine entrepreneurial with strategic actions?
 Example: Samsung’s innovations in mobile devices
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7.3 Innovation and the Industry
Life Cycle
 The five different stages:
introduction, growth, shakeout, maturity, and decline
 Innovations create new industries.
• Express delivery
• Internet retailing and advertising
• Nanotechnology growing in medical and aircraft industries
 Competitors
• The number and size of competitors change with each stage.
 Consumers
• Different types of consumers enter the market at each stage.
Both the supply and demand sides of the market change as the
industry ages.
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Exhibit 7.4 Industry Life Cycle: The Smartphone
Industry in Emerging and Developed Economies
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Strategy Highlight 7.1
Apple Leverages Network Effects to Propel Growth
 Apple launched iPhone in summer ’07.
• Launched App store a year later
• Small programs but BIG business!
 50 billion Apple app downloads by spring ‘13
• Apps increase value of the iPhone (& iPad too!)
• More devices sold; incentivizes software developers
 The availability of apps, in turn, leads to network
effects that increase the value of the iPhone for its
users.
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Crossing the Chasm
 Life cycle for products/services that need different
customer behaviors. (Geoffrey Moore’s book)
 Many innovators fail to get from early adopters to
majority. (15% to 50% of market).
 The early adopters are excited by the possibilities of
the product rather than the “cool technology” of
technology enthusiasts.
 The critical early majority base purchasing decisions
on practicality.
• This group can generate a herding effect.
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Exhibit 7.8 Crossing the Chasm:
The Smartphone Industry
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7.4 Types of Innovation
 Incremental
 Radical
• Steady improvement of a
product or service
• Examples:
 Gillette now 6 \-bladed razors
 Intel 386 to 486 processors
• Often from incumbent firms
 Economic incentives
• Higher entry barriers
 Organizational inertia
 Innovation ecosystem
• Novel methods or
materials serving new
markets
• Examples:
 Mass production − Ford
 Genetic engineering
• Often from new firms
• Airplanes’ predictable
pattern of innovation
 De Havilland 1st
commercial jet
 Boeing, Airbus leaders
 CRJ, Embraer rising up
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TYPES OF INNOVATION (cont’d)
 Architectural
• Reconfigure known
components to create
new markets.
• Example:
 Canon user-friendly
copiers
 GPS to handheld
consumer devices
 Disruptive
• Novel technologies serving
existing markets from bottom up
• Examples:
 Japanese autos
 Digital photography
 Data storage media
• “Stealth” attack
 Captures current customers
typically with initially lower cost
& performance
 Protection against it…. “Disrupt
yourself”
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Strategy Highlight 7.2
GE’s New Innovation Mantra: Disrupt Yourself!
 Ultrasound (US) machine for research hospitals −
$250,000
• No major market for these in developing countries
 2002 local team at GE China developed portable US
• Laptop based technology- Under $30,000 for U.S. rollout
 2009 introduced a handheld US for under $10,000
• Vscan – “21st-century stethoscope”
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Exhibit 7.12 The Short Head and
the Long Tail
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Open Innovation
 20th century mostly …closed innovation – internal
SHIFT FROM CLOSED TO OPEN INNOVATION
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Mobility of skilled workers
Exponential growth of venture capital
Wider “marketplace of ideas” options
Better capabilities in external suppliers
Open innovation – leverages both internal ideas and
inventions, and external ones; 2-way sharing
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7.5 Implications for the Strategist
 The most innovative companies in 2013:
• Nike, Amazon, Square, Uber, Pinterest, and Target
• All these firms use continuous innovations.
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Life cycle and chasm frameworks- major implications
Many successful firms are moving to open innovation
Internal and external innovation must be managed.
Externally, innovation is managed through cooperative
strategies such as licensing, strategic alliances, joint
ventures, and acquisitions.
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ChapterCase 7
Consider This…
• WIKIPEDIA leverages technological innovation
 Combined with crowdsourcing
 For content development and maintenance
• Keys to success:
 Attract legions of contributors – over 32 million registered
 Utilize these interested individuals – over 300,000 users edit
content each month
 Proper servers, interfaces and bandwidth
 Perceived “neutral point of view” for continued growth
The Wikipedia logo is a registered trademark of the Wikimedia Foundation.
Photo of Jimmy Wales by Lane Hart-well/Licensed under CC BY-SA 3.0/ http://commons.wikimedia.org/wiki/File:Jimmy_Wales_July_2010.jpg
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