Ch 7 - Innovation Strategies Flashcards
Learning Objectives
- What is entrepreneurial orientation?
- Why should companies innovate?
- What are the 4 types of innovation?
- What are the 4 stages of the product life cycle and crossing the chasm?
- What are the ways firms might cooperate with competitors?
Entrepreneurial Orientation (EO) - “just do it”
3 (or 5) Characteristics of EO
- Innovativeness
- Proactiveness
- Risk-taking
- *Competitive aggressiveness
- *Autonomy
Innovativeness
The tendency to pursue: novel ideas, creative processes, and experimentation
Proactiveness
The tendency to anticipate and act on future opportunities rather than rely solely on existing products and services.
Risk-taking
the tendency to take bold actions rather than being cautious.
intrapreneurship
entrepreneurship within an organization
Entrepreneurs or “undertakers”
- Innovators of new ideas
- Find and promote new combinations of factors of production
- Exploit opportunistic ideas to expand small enterprises
Entrepreneurial Orientation (EO) definition
EO refers to the processes, practices, and decision-making styles of organizations that act entrepreneurially
Gauges of organization’s
level of autonomy
- Employee satisfactions
- Low employee turnover
Gauges of innovativeness
- # of new products/services created in the year
- Number of patents obtained for innovations
Blue ocean strategies
Creating new, untapped markets instead of competing with rivals in existing markets.
“It is best to win without fighting” - Sun Tzu - Art of War
First Mover Advantage
Being the first to capitalize on an opportunity can be a blessing or a curse.
A first-mover advantage exists when making the initial move into a market allows a firm to establish a dominant position that other firms struggle to overcome
“the early bird gets the worm.”
Potential issues with being the first mover
- Risky
- Bears the costs of developing the product and educating consumers
3.
The 4 types of innovation
- Incremental
- Disruptive
- Architectural
- Radical
The 2 factors that determine the type of innovation
- Market - does it create a new market, or address an existing market?
- Technology - does the innovation use a new technology, or an existing technology?
Incremental innovation
occurs when the innovation uses existing technology to improve a product or service that addresses the existing market
Disruptive Innovation
—an innovation that conflicts with, and threatens to replace, traditional approaches to competing within an industry
Architectural Innovation
Architectural innovation occurs when new products or services use existing technology to create new markets and/or new consumers that did not purchase that item before
Firms can innovate by using and adapting existing technology to create new products or services that address new markets and consumers. This type of innovation is called Architectural Innovation, since the architecture of a product is changed to create a new product to reach new markets.
Radical Innovation
innovation that uses new technology to reach new consumers is radical innovation. Firms who are successful with a new product of service using radical innovation may then employ a strategy of incremental innovation to continually improve the product or service and generate more sales.
Footholds in business
Within the context of business, a foothold is a small position that a firm intentionally establishes within a market in which it does not yet compete
Example: IKEA in Japan (1 store) till it gained brand recognition
Product Life Cycle
4 Stages
- Introduction - low sales, high cost per cust., financial losses, few (if any) competitors.
- Growth - increasing sales, cost per cust. falls, profits rise, increasing # of cust. and competitors.
- Maturity - Peak sales, cost per cust. at lowest, profits high, mass market.
- Decline - falling sales, cost per cust. low, profits fall, customer base contracts.
- *Product extension - incremental innovation
Profits tendencies observed in
Product Life Cycle
Profits generated during the product life cycle also usually follow a traditional pattern. During the research and development phase of the product, the firm is investing funds into the product, generating a negative profit. Losses continue during the introduction phase, when sales are low and marketing expenses are high. Firms tend to recoup their investment in R&D and marketing during the growth phase, with maximum profits at the beginning of the maturity phase. Once competition heats up in the maturity phase, price competition kicks in, and lower prices mean lower profits.
What is “Crossing the chasm”?
Another phenomenon that occurs in the innovation process with new technology is called “crossing the chasm.” When a new technology is launched, often there are technology innovators/enthusiasts who will purchase the new technology to check it out. A few more, called early adopters, will also want to try out the new product. But how does the firm get the product into the mainstream market? How do they get it to catch on? This can often be challenging. Can the product make the leap to the mainstream? This is called “crossing the chasm,” and often requires a different marketing approach.
Crossing the chasm graph
4 Types of Cooperative Moves
- Joint Ventures
- Strategic Alliances
- Mergers
- Acquisitions
Joint ventures
Joint ventures involve two or more organizations that contribute to the creation of a new entity
The partners in a joint venture share decision-making authority, control of the operation, and any profits that the joint venture earns.
Strategic Alliances
Strategic alliances are cooperative arrangements governed by contract between two or more organizations that do not involve creating new entities.
Mergers
Mergers and Acquisitions combine two organizations into one. Mergers typically occur between like-size firms.
Acquisitions
Acquisitions usually are done by larger companies acquiring smaller ones, as when Google acquired Fitbit.
Internal Development
method to expand a firm is through internal development. If a firm wants to add a new product or service line, rather than acquire that expertise by buying a company, the firm can develop that capability themselves.
Multi-point competition
facing the same rival in more than 1 market.
Game theory is primordial in such cases
3 Ways to respond to disruptive innovations
- Ignoring the disruption - seeing it as non-consequential
- Counter - attacking along a different dimension
- Match - match the competitor’s moves
Fighting brands
A fighting brand is a lower-end brand that a firm introduces to try to protect the firm’s market share without damaging the firm’s existing brands.
(useful to not hurt brand when engaging in price undercutting of competitors)
Co- location
Co-location refers to a situation when goods and services offered under different brands are located very close to each other. Noting one common example of co-location, a comedian once joked that La Quinta was Spanish for “Next to Denny’s.” Both hotels and restaurants are often co-located alongside freeway exits to allow numerous choices for road-weary travelers.
Co-opetition
Co-opetition is a term that refers to the blending of competition and cooperation between two firms. Toyota and General Motors’ creation of jointly owned New United Motor Manufacturing incorporated (NUMMI) allowed for collaboration on automobile designs while Toyota and GM continued to compete for market share worldwide. The NUMMI experience also inspired the comedy Gung Ho
