2. Breakthrough Innovation and Blue Ocean Strategy Flashcards
When is an innovation a breakthrough innovation?
Innovations that are unique or state-of-the-art technological advances in a product category that significantly alter the consumption patterns of a market
Breakthrough product innovator
Firm that first commercializes a breakthrough product innovation
Innovation incumbency
Whether firm participated in the previous generation of products in the industry preceding the breakthrough innovation
What works against breakthrough innovation?
Internal: • Conservative strategy • Core business • Risk-averse culture • Rigid stage gate process
External:
• Closed firm boundaries
•Out of tune with the market
Technology life cycle (TLC)
TLC describes the evolution of the time, costs and profits of a technology through the expense of research and development and the return during its commercialization
Product life cycle
- Introduction / Market development: Gradual adoption of the new product
- Growth: Acceleration of sales
- Maturity: Peak, tail off and flattering
- Decline: Product is made obsolete
Technology s-curve
Cumulative R&D effort - application of effort that leads to progress
Emergent:
• R&D effort into basic knowledge, little effort
Growth:
• Knowledge is diffused and applied, accelerating improvement, high returns to R&D effort
Maturity:
•Decreasing returns to R&D investment as it reaches the natural or technical limits of the technology
Technology life cycle analysis - basic assumptions
Basic assumptions:
• each technology reaches a performance frontier over time
• new technologies initially show low performance increases
• performance increases decrease over the development cycle
• reaching performance frontiers the likelihood of new technologies emerging increases
Technology life cycle analysis - implications
Implications
• Requires to establish clear measures of technical progress
• need to understand and observe technical limits
• patience for ground work required
• search for and invest in alternative technologies in time
Technology life cycle analysis - limitations
- shape and characteristics of the curve and the role of external factors
- Uncertainty about the technology reaching its limit
Blue ocean strategy
- do not outperform competition in the existing industry
- create new market space and make competition irrelevant
- offers systematic and reproductible methodologies and processes
Blue vs. red ocean firms
Red ocean firms: • compete in existing market space • beat the competition • exploit existing demand • make the value-cost trade-off • differentiation or low costs
Blue ocean strategies: • create uncontested market space • make the competition irrelevant • create and capure new demand • break the value-cost trade-off • differentiation and low costs
Analytic tool: strategic canvas
Helps getting clear on the current business landscape and biuling a compelling blue ocean strategy
• lays out the factors the industry competes on in product service and delivery
• helps to focus from competitors to alternatives and from customers to noncustomers
Analytic tool: four action framework
Framework to identify the actions towards creating a new value curve:
- Eliminitate: Which of the factors that the industry takes for granted should be eliminated?
- Reduce: Which factors should be reduced below the industry standard?
- Raise: Which factors should be raised above the industry standard?
- Create: Which factors should be created that the industry has never offered?
Characteristics of strong value curves
Focus:
• no diffusion across all key factors of competition (no zigzag curves)
Divergence:
• shape of value curve diverges from that of the other players
Compelling tagline:
• clear and relevant punchline that summarizes value innovation
