Ch 7 - Innovation Strategies

Question 1

Learning Objectives

Answer 1

1. What is entrepreneurial orientation?
2. Why should companies innovate?
3. What are the 4 types of innovation?
4. What are the 4 stages of the product life cycle and crossing the chasm?
5. What are the ways firms might cooperate with competitors?

Question 2

Entrepreneurial Orientation (EO) - “just do it”

3 (or 5) Characteristics of EO

Answer 2

1. Innovativeness
2. Proactiveness
3. Risk-taking
4. *Competitive aggressiveness
5. *Autonomy

Question 3

Innovativeness

Answer 3

The tendency to pursue: novel ideas, creative processes, and experimentation

Question 4

Proactiveness

Answer 4

The tendency to anticipate and act on future opportunities rather than rely solely on existing products and services.

Question 5

Risk-taking

Answer 5

the tendency to take bold actions rather than being cautious.

Question 6

intrapreneurship

Answer 6

entrepreneurship within an organization

Question 7

Entrepreneurs or “undertakers”

Answer 7

1. Innovators of new ideas
2. Find and promote new combinations of factors of production
3. Exploit opportunistic ideas to expand small enterprises

Question 8

Entrepreneurial Orientation (EO) definition

Answer 8

EO refers to the processes, practices, and decision-making styles of organizations that act entrepreneurially

Question 9

Gauges of organization’s

level of autonomy

Answer 9

1. Employee satisfactions
2. Low employee turnover

Question 10

Gauges of innovativeness

Answer 10

1. # of new products/services created in the year
2. Number of patents obtained for innovations

Question 11

Blue ocean strategies

Answer 11

Creating new, untapped markets instead of competing with rivals in existing markets.

“It is best to win without fighting” - Sun Tzu - Art of War

Question 12

First Mover Advantage

Answer 12

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.”

Question 13

Potential issues with being the first mover

Answer 13

1. Risky
2. Bears the costs of developing the product and educating consumers

3.

Question 14

The 4 types of innovation

Answer 14

1. Incremental
2. Disruptive
3. Architectural
4. Radical

Question 15

The 2 factors that determine the type of innovation

Answer 15

1. Market - does it create a new market, or address an existing market?
2. Technology - does the innovation use a new technology, or an existing technology?

Question 16

Incremental innovation

Answer 16

occurs when the innovation uses existing technology to improve a product or service that addresses the existing market

Question 17

Disruptive Innovation

Answer 17

—an innovation that conflicts with, and threatens to replace, traditional approaches to competing within an industry

Question 18

Architectural Innovation

Answer 18

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.

Question 19

Radical Innovation

Answer 19

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.

Question 20

Footholds in business

Answer 20

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

Question 21

Product Life Cycle

4 Stages

Answer 21

1. Introduction - low sales, high cost per cust., financial losses, few (if any) competitors.
2. Growth - increasing sales, cost per cust. falls, profits rise, increasing # of cust. and competitors.
3. Maturity - Peak sales, cost per cust. at lowest, profits high, mass market.
4. Decline - falling sales, cost per cust. low, profits fall, customer base contracts.
5. *Product extension - incremental innovation

Question 22

Profits tendencies observed in

Product Life Cycle

Answer 22

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.

Question 23

What is “Crossing the chasm”?

Answer 23

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.

Question 24

Crossing the chasm graph

Answer 24

Question 25

4 Types of Cooperative Moves

Answer 25

1. Joint Ventures
2. Strategic Alliances
3. Mergers
4. Acquisitions

Question 26

Joint ventures

Answer 26

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.

Question 27

Strategic Alliances

Answer 27

Strategic alliances are cooperative arrangements governed by contract between two or more organizations that do not involve creating new entities.

Question 28

Mergers

Answer 28

Mergers and Acquisitions combine two organizations into one. Mergers typically occur between like-size firms.

Question 29

Acquisitions

Answer 29

Acquisitions usually are done by larger companies acquiring smaller ones, as when Google acquired Fitbit.

Question 30

Internal Development

Answer 30

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.

Question 31

Multi-point competition

Answer 31

facing the same rival in more than 1 market.

Game theory is primordial in such cases

Question 32

3 Ways to respond to disruptive innovations

Answer 32

1. Ignoring the disruption - seeing it as non-consequential
2. Counter - attacking along a different dimension
3. Match - match the competitor’s moves

Question 33

Fighting brands

Answer 33

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)

Question 34

Co- location

Answer 34

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.

Question 35

Co-opetition

Answer 35

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