Chapter 7:Business Strategy: Innovation and Entrepreneurship Flashcards
Define innovation
concerns the commercialization of any new product or process, or the modification and recombination of existing ones.
What are the 4 “i’s” in the innovation process?
Idea, Invention, Innovation, Imitation
Define invention
the transformation of an idea into a new product or process, or the modification and recombination of existing ones.
Define patent
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.
Define trade secret
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.
How are patents a double edged sword
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.
Define first-mover advantages
competitive benefits that accrue to a successful innovator.
How does the innovation process end?
With imitation. If an innovation is successful, competitors will copy it.
Define entrepreneurship
the process by which people undertake economic risk to innovate.
Define strategic entrepreneurship
the pursuit of innovation using tools and concepts from strategic management.
Define social entrepreneurship
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.
What is intrapreneurship?
the process of innovating with existing companies.
What are the five stages of the industry life cycle?
- ) introduction
- ) growth
- ) shakeout
- ) maturity
- ) decline
What is the inventor’s core competency in the introductory phase of the industry life cycle?
Research and Development
How can a first-mover be at a disadvantage?
They have to educate potential consumers about the product’s intended benefits, find distribution channels and complementary assets, etc.
Define network effects
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.
What signifies that a company has entered the growth stage of the industry life cycle?
market growth accelerates
As the market expands, what is set?
a standard
What is a standard?
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.
After a standard has been set, the basis of competition shifts from ____ to ____.
product innovation to process innovation
What is product innovation?
new or recombined knowledge embodied in new products.
What is process innovation?
New ways to produce existing products or deliver existing services.
During the growth stage, industries choose between these 2 important strategies.
continue differentiation strategy or use cost-leadership as competition increases.
What happens in the shakeout stage of the industry life cycle?
Firms begin to compete with each other directly, only the strongest competitors survive.
What happens in the maturity stage of the industry life cycle?
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.
What often takes industries from the maturity stage to the decline stage?
changes in the external environment (PESTEL).
What happens in the decline stage of the industry life cycle?
the size of the market contracts as demand falls, often rapidly. Innovation efforts cease.
What are the 4 strategic options managers have at the end of an industry’s life cycle?
- ) Exit: bankruptcy or liquidation
- ) Harvest: reduce investments to maximize profits
- ) Maintain: support efforts despite decline
- ) Consolidate: buy up rivals despite a declining market to gain a small monopoly
Define the crossing the chasm framework
conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group.
Define the markets and technology framework
A conceptual model to categorize innovations along the market (existing/ new) and technology (existing/new) dimensions.
Define incremental innovation
an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service.
Define radical innovation
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.
Radical innovation leads to what kind of advantage
a temporary competitive advantage
Why is radical innovation usually followed by incremental innovation
Radical innovation creates a temporary competitive advantage and then incremental innovation allows them to sustain it.
Define winner-take-all markets
Markets where the market leader captures almost all the market share and is able to extract a significant amount of the value created.
What is organizational inertia
resistance to changes in the status quo- as firms become more established they rely more heavily on formalized processes.
Define innovation ecosystem
a firm’s embededness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making.
Define architectural innovation
a new product in which known components, based on existing tech, are reconfigured in a novel way to attack new markets.
Define disruptive innovation
an innovation that leverages new tech to attack existing markets from the bottom up. Ex- laptops disrupted desktops.
How can firm’s respond to disruptive innovation (2)?
- ) continue to innovate to stay ahead of the competition
2. ) protect the lower end of the market
Define reverse innovation
an innovation that was developed for emerging economies before being introduced in developed economies. allows a firm to disrupt itself.
Define open innovation
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.
Define absorptive capacity
A firm’s ability to understand external tech developments, evaluate them, and integrate them into current products or create new ones.
