Chapter 7:Business Strategy: Innovation and Entrepreneurship

Question 1

Define innovation

Answer 1

concerns the commercialization of any new product or process, or the modification and recombination of existing ones.

Question 2

What are the 4 “i’s” in the innovation process?

Answer 2

Idea, Invention, Innovation, Imitation

Question 3

Define invention

Answer 3

the transformation of an idea into a new product or process, or the modification and recombination of existing ones.

Question 4

Define patent

Answer 4

A form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specific period of time in exchange for public disclosure of the existing idea.

Question 5

Define trade secret

Answer 5

Valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy. ex: Coca Cola recipe. Used over patents so companies will not have to reveal secrets.

Question 6

How are patents a double edged sword

Answer 6

on one hand, patents provide a temporary monopoly as they bestow exclusive rights on the patent owner to use a novel technology. However, they have to disclose all the underlying technology.

Question 7

Define first-mover advantages

Answer 7

competitive benefits that accrue to a successful innovator.

Question 8

How does the innovation process end?

Answer 8

With imitation. If an innovation is successful, competitors will copy it.

Question 9

Define entrepreneurship

Answer 9

the process by which people undertake economic risk to innovate.

Question 10

Define strategic entrepreneurship

Answer 10

the pursuit of innovation using tools and concepts from strategic management.

Question 11

Define social entrepreneurship

Answer 11

The pursuit of social goals while creating a profitable business- evaluate their performance not only financially, but ecologically and for the social contribution that they make.

Question 12

What is intrapreneurship?

Answer 12

the process of innovating with existing companies.

Question 13

What are the five stages of the industry life cycle?

Answer 13

1. ) introduction
2. ) growth
3. ) shakeout
4. ) maturity
5. ) decline

Question 14

What is the inventor’s core competency in the introductory phase of the industry life cycle?

Answer 14

Research and Development

Question 15

How can a first-mover be at a disadvantage?

Answer 15

They have to educate potential consumers about the product’s intended benefits, find distribution channels and complementary assets, etc.

Question 16

Define network effects

Answer 16

the positive effect (externality) that one user of a product or service has on the value of that product for other users. The value increases with the number of users.

Question 17

What signifies that a company has entered the growth stage of the industry life cycle?

Answer 17

market growth accelerates

Question 18

As the market expands, what is set?

Answer 18

a standard

Question 19

What is a standard?

Answer 19

An agreed-upon solutions about a common set of engineering features and design choices. Ensures that all components of a system work well together no matter who develops them.

Question 20

After a standard has been set, the basis of competition shifts from ____ to ____.

Answer 20

product innovation to process innovation

Question 21

What is product innovation?

Answer 21

new or recombined knowledge embodied in new products.

Question 22

What is process innovation?

Answer 22

New ways to produce existing products or deliver existing services.

Question 23

During the growth stage, industries choose between these 2 important strategies.

Answer 23

continue differentiation strategy or use cost-leadership as competition increases.

Question 24

What happens in the shakeout stage of the industry life cycle?

Answer 24

Firms begin to compete with each other directly, only the strongest competitors survive.

Question 25

What happens in the maturity stage of the industry life cycle?

Answer 25

After the shakeout is completed and a few firms remain, the industry structure morphs into an oligarchy with only a few large firms. The market has reached its maximum size and industry growth is likely to be zero or negative going forward.

Question 26

What often takes industries from the maturity stage to the decline stage?

Answer 26

changes in the external environment (PESTEL).

Question 27

What happens in the decline stage of the industry life cycle?

Answer 27

the size of the market contracts as demand falls, often rapidly. Innovation efforts cease.

Question 28

What are the 4 strategic options managers have at the end of an industry’s life cycle?

Answer 28

1. ) Exit: bankruptcy or liquidation
2. ) Harvest: reduce investments to maximize profits
3. ) Maintain: support efforts despite decline
4. ) Consolidate: buy up rivals despite a declining market to gain a small monopoly

Question 29

Define the crossing the chasm framework

Answer 29

conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group.

Question 30

Define the markets and technology framework

Answer 30

A conceptual model to categorize innovations along the market (existing/ new) and technology (existing/new) dimensions.

Question 31

Define incremental innovation

Answer 31

an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service.

Question 32

Define radical innovation

Answer 32

An innovation that draws on novel methods or materials, is derived either from an entirely different knowledge base or from a recombination of the existing knowledge bases with a new stream of knowledge. Targets new markets with new tech.

Question 33

Radical innovation leads to what kind of advantage

Answer 33

a temporary competitive advantage

Question 34

Why is radical innovation usually followed by incremental innovation

Answer 34

Radical innovation creates a temporary competitive advantage and then incremental innovation allows them to sustain it.

Question 35

Define winner-take-all markets

Answer 35

Markets where the market leader captures almost all the market share and is able to extract a significant amount of the value created.

Question 36

What is organizational inertia

Answer 36

resistance to changes in the status quo- as firms become more established they rely more heavily on formalized processes.

Question 37

Define innovation ecosystem

Answer 37

a firm’s embededness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making.

Question 38

Define architectural innovation

Answer 38

a new product in which known components, based on existing tech, are reconfigured in a novel way to attack new markets.

Question 39

Define disruptive innovation

Answer 39

an innovation that leverages new tech to attack existing markets from the bottom up. Ex- laptops disrupted desktops.

Question 40

How can firm’s respond to disruptive innovation (2)?

Answer 40

1. ) continue to innovate to stay ahead of the competition

2. ) protect the lower end of the market

Question 41

Define reverse innovation

Answer 41

an innovation that was developed for emerging economies before being introduced in developed economies. allows a firm to disrupt itself.

Question 42

Define open innovation

Answer 42

A framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas, but also from external ones. Some external ideas and inventions are absorbed, and others are spun out.

Question 43

Define absorptive capacity

Answer 43

A firm’s ability to understand external tech developments, evaluate them, and integrate them into current products or create new ones.