I. Innovation & Competitive Advantage

Question 1

Competitive Advantage

Answer 1

• Difference between the firm’s profitability and the average profitability of other firms competing in the same industry
• Competitive Advantage = Firm’s Profitability – Competitors Average Profitability
• Innovation has positive impact on Competitive Advantage

Question 2

Value Added

Answer 2

• Value Added = Value captured by the firm + Consumer surplus (WTP = Same + Cost)
• Firms will generate a positive profit if the value added is positive -> If it implements a new business idea for increasing WTP or reducing costs

Question 3

Innovation process

Answer 3

• Ressources/ Capabilites -> Firm’s value chain -> Idea -> Value proposition (If good idea)

Question 4

Porter Generic Strategies

Answer 4

• Both are Margin strategies (The other strategy is Share Strategy by increasing the sales with the same price)
• Differentiation = Company is introducing unique features of a product or service/ Results in price premium/ Provides attributes that are perceived important from consumers in an industry
• Cost Advantage = Low cost producer in its industry/ Can be e.g. EOS, Protected technology, Efficient Marketing
• Focus Strategy = Focus on narrow competitive scope within an industry/ Tailored strategy for target segment

Question 5

Different types of innovation

Answer 5

• 1. Product innovation -> Differentiation
• 2. Process innovation -> Cost Advantage (Can induce BMI)
• 3. Business model innovation -> Reshaping the value chain

Question 6

Porters value chain

Answer 6

• Margin can be increased either by providing value at lower costs or by delivering more value and therefore increasing the WTP of consumers

Question 7

Porter primary activities

Answer 7

• Inbound activities = Relationships with suppliers and activities to store/receive inputs
• Operations = All activities to transform inputs into outputs
• Outbound activities = All activities to store/collect the output
• Marketing & Sales = Inform about/ induce/ facilitate the buying process for consumers
• Service = All activities to keep product working after it is sold

Question 8

Porter secondary activities

Answer 8

• Infrastructure = Functions and departments (Legal, Finance, Planning, Public Affairs, Government relations..)
• Procurement = Acquisition of resources
• Technology Development = Includes e.g. software, hardware and equipment applied in transformation of inputs and outputs
• Human Resources = All activities involved in e.g. recruiting, training, developing personnel

Question 9

Substitution

Answer 9

• Satisfaction of an existing customer need in a novel way
• Introduction of a new customer need that makes existing needs obsolete
• Substitution is always bad (Imitation is bad, but can be good)?
• Managerial utopia = Focus on existing customers (needs evolve over time)

Question 10

Disruptive Innovations

Answer 10

• Satisfaction of a new performance dimension (even though it possibly underperforms existing products in in current performance dimensions e.g. Laptop vs. PC)
• Low end disruptive technologies = lower price
• New market disruptive technologies = completely new performance metrics
• Have the potential to substitute existing products

Question 11

Digital transformation and substitution

Answer 11

• Data-based substitution of some of the typical sources of advantage (Network, Reputation, Proximity, Customization, Experience)
• Introduction of new sources of advantage (Description, prediction, prescription)

Question 12

Responding to digital disruption

Answer 12

• 1. Status quo (No embrace new BM/ No drop old BM)
• 2. Straddle (Yes embrace new BM/ No drop old BM)
• 3. Start over/scoot (No embrace new BM/ Yes drop old BM)
• 4. Strengthen/ Synthetize/ Switch (Yes embrace new BM/ Yes drop old BM)

Question 13

Responding to digital disruption - 1. Status quo

Answer 13

• Retaining the existing business model
• Rejecting the new business model
• Works best if customers of old and new model don’t overlap
• Will markets stay separate or will they merge/convert?
• Blockburster’s chose status quo -> Should have switched

Question 14

Responding to digital disruption - 2. Straddle

Answer 14

• Retaining the existing business model
• Simultaneously adopting the new one (Dual strategy mode)
• Works best if customers of old and new model don’t overlap
• Works best if there are no diseconomies of scale

Question 15

Responding to digital disruption - 3. Start over/ scoot

Answer 15

• Dropping the existing business model
• Redeploying assets in a different business
• Assets = Real Estate, Human Capital..
• Works best if customers of old and new model overlap
• Works best if there are diseconomies of scale

Question 16

Responding to digital disruption - Strengthen/ Synthetize/ Switch

Answer 16

• Incorporating components of new BM
• Strengthening components of old BM
• Then creating a hybrid version or switching to new BM
• Works best if customers of old and new model overlap
• Works best if there are no diseconomies of scale or even EOS