It hurts when IP Flashcards
Which are Porter’s Five Forces? Explain them shortly.
- Degree of existing rivalry
- In general, the more firms competing that are of comparable size, the more competitive the industry will be. Rivalry is also influenced by the degree to which competitors are differentiated from each other. - Bargaining power of buyers
- The degree to which the firm is reliant on a few customers will increase the customer’s bargaining power and vice versa. - Bargaining power of suppliers
- The degree to which the firm relies on one or a few
suppliers will influence the ability to negotiate good terms. The amount the firm purchases
from the suppliers is also relevant. - Threat of potential entrants
- Is influenced by both the degree of which the industry is likely to attract new entrants (i.e. is it profitable, growing?) and the height of entry barrier (conditions that makes it difficult or expensive for new firms to enter the industry, i.e. brand loyalty, governmental regulations and difficulties to gain access to suppliers or distributors). - Threat of substitutes
- Substitutes are products or services that are not considered competitors, but fulfill a strategically equivalent role for the customers. The more potential substitutes and the closer they are in function to the firm’s product or service, the greater the threat of substitution. The threat of substitution will also be shaped by the relative price.
Describe three factors that affect the degree of existing rivalry in P5F?
- Number and relative size of competitors.
More firms of comparable size competing –> more competitive industry - The degree to which competitors are differentiated from each other.
Highly differentiated –> less direct rivalry because the product their products are likely to appeal to different market segments - Demand
Increasing demand –> more revenues to go around and thus less competitive pressure
Describe factors that affect the degree of threat of potential entrants in P5F?
- Degree to which the industry is likely to attract new entrants (i.e. is it profitable, growing or otherwise alluring?)
- Height of entry barriers (e.g. start-up costs, brand loyality, difficulty in gaining access to suppliers or distributors, government regulation, threat of retaliation by existing competitors).
Profitability and growth attracts whereas entry barriers deters.
Describe factors that affect the bargaining power of suppliers in P5F?
- Amount of suppliers: Few suppliers –> much bargaining power of supplier
- The degree to which suppliers are differentiated from each other. Highly differentiated suppliers –> the firm may have little choice in its buying decision, and thus have little leverage over the supplier to negotiate price etc.
- Switching costs. Higher –> More bargaining power of suppliers
- The amount the firm purchases from the supplier.
If firms purchases constitute the bulk of the supplier’s sales –> supplier has little bargaining power.
If suppliers sales constitute a large portion of the firms purchases, the firm will be heavily reliant upon the supplier –> supplier has more bargaining power
- The firm can backward vertically integrate (i.e. produce its own supplies) –> supplier has little bargaining power. If the supplier, on the other hand, vertically integrate into the firm –> increase supplier’s bargaining power
Describe factors that affect the bargaining power of buyers in P5F?
- Degree to which the firm is reliant on few customers will increase the customer’s bargaining power, and vice versa.
- If firms product is highly differentiated –> buyers will experience less bargaining power, and vice versa
- Switching costs for buyer. High –> lower bargaining power
- The buyer can backward vertically integrate (i.e. produce its own supplies) –> buyer has higher bargaining power. If the firm, on the other hand, vertically integrate into the buyer –> increase firm’s bargaining power
Describe what Porter means by Threat of substitutes in P5F?
- Substitutes are products or services that are not considered competitors, but fulfill a strategically equivalent role for the customer.
The more potential substitutes there are, and the closer they are in function to the firm’s product or service, the greater the threat of substitution.
- The relative price will also shape the threat of substitution. For example, while traveling by bus vs. air is not particularly comparable in terms of speed, traveling by bus is often less expensive. Thus, it poses a threat of substitution, particularly for shorter distances to be traveled.
NOTE: distinguishing between competitors and substitutes depends on how the industry is defined.
Airline industry: Buses are substitutes for airlines
Transportation industry: Buses are competitors of airlines
How does complements affect the competition according to Porter?
The availability, quality and price of complements will influence the threats and opportunities posed by the industry.
Ask yourself:
i) how important are complements in the industry?
ii) are complements differentially available for the products of various rivals? (impacting the attractiveness of their goods)
iii) who captures the value offered by the complements?
Explain Radical Innovations.
The radicalness of an innovation is the degree to which it is
new and different from previously existing products and
processes.
–The radicalness of an innovation is relative; it may change
over time or with respect to different observers.
E.g., digital photography a more radical innovation for
Kodak than for Sony.
Explain Incremental Innovations.
Incremental innovations may involve only a minor change
from (or adjustment to) existing practices.
What is a Competence Enhancing Innovation?
Competence-enhancing innovations build on the firm’s
existing knowledge base
• E.g., Intel’s Pentium 4 built on the technology for Pentium III.
Whether an innovation is competence enhancing or
competence destroying depends on the perspective of a
particular firm.
What is a Competence-Destroying Innovation?
Competence-destroying innovations renders a firm’s existing
competencies obsolete.
• E.g., car industry is transformed from primarily mechanical
engineering into IT, electronics, etc
Whether an innovation is competence enhancing or
competence destroying depends on the perspective of a
particular firm.
Explain radical innovations.
The radicalness of an innovation is the degree to which it is new and different from previously existing products and processes.
The radicalness of an innovation is relative; it may change over time or with respect to different observers.
E.g. digital photography a more radical innovation for Kodak than for Sony.
Explain incremental innovations.
Incremental innovations may involve only a minor change from (or adjustment to) existing practices.
What does Sailing Effect refer to?
Often when incumbent firms sponsoring the old technology perceive the threats from a new
technology, they respond vigorously by improving the old technology.
This pattern has been observed in several industries, the classic example being the rapid improvements in sailing ships when motor ships were introduced, hence the concept of “sailing effect”.
Explain Competence-enhancing innovations.
Competence-enhancing innovations build on the firm’s existing knowledge base
- Mostly incremental.
- E.g. Intel’s Pentium 4 built on the technology for Pentium III.
Whether an innovation is competence enhancing or competence destroying depends on the perspective of a particular firm.
Explain Competence-destroying innovations
Competence-destroying innovations render a firm’s existing competencies obsolete.
Takes longer time.
E.g. car industry is transformed from primarily mechanical engineering into
IT, electronics etc.
Whether an innovation is competence enhancing or competence destroying depends on the perspective of a particular firm.
Explain component innovations
A component innovation (or modular innovation) entails changes to one or more
components of a product system without significantly affecting the overall design.
E.g. adding gel-filled material to a bicycle seat.
Explain Architectural Innovations
–An architectural innovation entails changing the overall
design of the system or the way components interact.
• E.g., transition from high-wheel bicycle to safety bicycle.
–Most architectural innovations require changes in the
underlying components also.
What is the NIH-syndrome?
The NIH-syndrome – “Not Invented Here”. It means that larger firms didn’t want to use something that someone else invented. It is starting to disappear now, but in some areas it is still this way. E.g.
Wildberry, high speed data transfer by laser.
What is included in a technology’s stand-alone value?
• Includes such factors as: –The functions the technology enables customers to perform –Its aesthetic qualities –Its ease of use, etc.
A new technology that has significantly more standalone
functionality than the incumbent technology may offer less
overall value because it has a smaller installed base or
poor availability of complementary goods.
–E.g., NeXT Computers were extremely advanced
technologically, but could not compete with the installed
base value and complementary good value of Windowsbased
personal computers.
What is included in a technology’s Network Externality Value?
Network Externalities = when the value of a good to a user increases with the number of other users of the same or similar good.
Includes the value created by:
–The size of the technology’s installed base
–The availability of complementary goods
A new technology that has significantly more standalone
functionality than the incumbent technology may offer less
overall value because it has a smaller installed base or
poor availability of complementary goods.
–E.g., NeXT Computers were extremely advanced
technologically, but could not compete with the installed
base value and complementary good value of Windowsbased
personal computers.
- PS4 had not enough complementary goods (new invention) while PS3 had (it had a blue-ray).
What do you have to do to successfully overthrow an existing dominant technology?
• To successfully overthrow an existing dominant technology, new technology often must either offer:
– Dramatic technological improvement (e.g., in videogame consoles, it has taken 3X performance of incumbent)
– Compatibility with existing installed base and complements
It could be easier to build from something that already exists, from a business perspective.
Spotify – When it started it was free and you needed an invitation. Invites made the growth slower, which could be good from a quality point of view.
Mention some first-move advantages
Being a first mover can have the advantages of:
–Brand loyalty and technological leadership
–Preemption of scarce assets
–Exploiting buyer switching costs
–Reaping increasing returns advantages. (First mover may rise in market power through increased returns and eventually make it the dominant design)
Mention some first-move disadvantages
First movers often bear disadvantages, such as:
–High research and development expenses
–Undeveloped supply and distribution channels
–Immature enabling technologies and complements
–Uncertainty of customer requirements
Which factor’s influence the optimal timing of entry?
- How certain are customer preferences?
• If customer needs are well understood, it is more feasible to enter the market earlier.
–Compare PDA vs IP telephony (Skype) - How much improvement does the innovation provide
over previous solutions?
• An innovation that offers a dramatic improvement over previous generations will accrue more rapid customer acceptance. - Does the innovation require enabling technologies,
and are these technologies sufficiently mature?
• If the innovation requires enabling technologies (such as longlasting batteries for cell phones), the maturity of these
technologies will influence optimal timing of entry. - Do complementary goods influence the value of the
innovation, and are they sufficiently available?
• Not all innovations require complementary goods, but for those that do (e.g., games for video consoles), availability of
complements will influence customer acceptance. - How high is the threat of competitive entry?
• If there are significant entry barriers, the may be less need to rush to market to build increasing returns ahead of others. - Are there increasing returns to adoption?
• If so, allowing competitors to get a head start can be very risky. - Can the firm withstand early losses?
• The first mover bears the bulk of R&D expenses and may
endure a significant period without revenues; the earlier a firm enters, the more capital resources it may need. An example is Toyota Prius generating returns first on the second generation. - Does the firm have resources to accelerate market
acceptance?
• Firms with significant capital resources can invest in aggressive marketing and supplier and distributor development, increasing
the rate of early adoption. - Is the firm’s reputation likely to reduce the uncertainty
of customers, suppliers, and distributors?
• Innovations from well-respected firms may be adopted more rapidly, enabling earlier successful entry.
Which actors are included in a stakeholder analysis?
- Customers
- Employees
- Shareholders
- Rivals
- Lenders
- Suppliers
- Government/authorities
- Local community
- Who are the stakeholders?
- What does each stakeholder want?
- What resources do they contribute to the organization?
- What claims are they likely to make on the organization?
Describe the different primary activities in an internal analysis
- Inbound logistics – All activities required to receive, store and disseminate inputs.
- Operations – Activities involved in the transformation of inputs into outputs.
- Outbound logistics – Activities required to collect, store and distribute outputs.
- Marketing and sales – Activities to inform buyers about products and services and to induce their purchase.
- Service – After-sales activities required to keep the products or service working effectively.
Describe the different support activities in an internal analysis
Procurement
– The acquisition of inputs, but not their physical transfer.
Technology development
– Activities involved in developing and managing equipment, hardware, software, procedures, and knowledge necessary to transform inputs to outputs.
Human resource management
– Activities such as recruitment, hiring, training and
compensating personnel.
Firm infrastructure
– Functions such as accounting, legal counsel, finance, planning, public affairs, government relations, quality assurance and general management necessary to ensure smooth functioning of the firm.
Name four strengths of an asset that together constitute sustainable competitive advantage
- Rare
- Valuable
- Durable
- Inimitable
Competitive advantage = ability to outperform a competitor
When are resources difficult or impossible to imitate?
Resources are difficult (or impossible) to imitate when they are:
- Tacit (i.e. they cannot be readily codified in written form)
- Path dependent (i.e. they are dependent on a particular historical sequence of events)
- Socially complex (i.e. they arise through the complex interaction of multiple people)
- Causally ambiguous (i.e. it is unclear how the resources gives rise to value)
Explain core competencies/capabilities
A set of integrated and
harmonized abilities that distinguish the firm in the marketplace.
- Competencies typically combine multiple kinds of abilities.
- Several core competencies may underlie a business unit.
- Several business units may draw from same competency.
• Core competencies should:
–Be a significant source of competitive differentiation
–Cover a range of businesses
–Be hard for competitors to imitate
What Apple strengths do you see were introduced into the company Apple through the Apple II process that you today would see have helped Apple have a sustainable competitive advantage over the years?
- FOCUS: Focus on a few products that actually creates value for the customer. “In order to do a good job of those things that we decide to do, we must eliminate all of the unimportant opportunities.”
- EMPATHY - “We will truly understand our customer’s needs better than any other company.”
- IMPUTE - People DO judge a book by its cover. We may have the best product, the highest quality, the most useful software etc.; if we present them in a slipshod manner, they will be perceived as slipshod; if we present them in a creative, professional manner, we will impute the desired qualities.
- Product passion
- Packaging passion
- Holistic experience
- Mastering product push
- Ease of use
- Sustainable
- Market philosophy (empathy, focus, impute≈halo effect)
- User friendliness
- Symbiotic Jobs and
Wozniak relationship - Bringing in competence – staying in control
- Absorptive capacity (ability to attract talent)
- Impressive launches
- Risk taking – entering new areas where no one has been before
- Appealing brand heritage
(garage, underdog, fight “big brother”) - Top tech solutions (e.g. power, color chip)
- Lock in effect – products are connected
- Products in the pipe (doing Apple II at the same time as launching Apple I)
- Integrated design (hardware, software, etc.)
- Perfectionist – making ugly things beautiful
- Pushing people to excel
- Marketing (friendly and personal, avoid tech language)
- Absorbing (going to Japan to get memory).
How does Genzyme’s focus on orphan drugs affect the degree of competition if faces? How
does it affect the bargaining power of customers?
By focusing on orphan drugs, Genzyme dramatically reduces the degree of competition it faces.
First, most other biotech (and pharma) companies are not pursuing orphan drugs because of their limited market size.
Second, if the company succeeds in getting a drug approved as an orphan drug for a particular disease, it is shielded from competition in the US for seven years.
Furthermore, because Genzyme’s drug target a very underserved market and the drugs provide an alternative to debilitating pain or death, Genzyme’s end consumers (the patients) have little bargaining power, and the insurance companies have little incentive to wield their bargaining power against the company.
How would you describe Genzyme’s competitive position using Porter’s five forces?
Blue Ocean concerning the Degree of existing rivalry. It is also a very low bargaining power for buyers.
The threat from potential entrants is non-existent for the first 7 years, and it will be hard to establish a competing product after 7 years since Genzyme’s drug will be well established by then.
For the threat of substitutes it must be something completely different, like ease the pain with heat or something, which is unlikely.
Since Genzyme is doing their own supplying, the bargaining power for suppliers is not relevant in this case.
Explain the concept of Strategic Intent
–A long-term goal that is ambitious, builds upon and stretches firm’s core competencies, and draws from all levels of the organization.
- Typically looks 10-20 years ahead, establishes clear milestones
- Firm should identify resources and capabilities needed to close gap between strategic intent and current position.
What is the aim of C-K Theory?
C-K theory aims to model activities and notions associated with innovative design - the creation of new knowledge and the transformation or renewal of the identity of an object.
C-K theory:
- Combines creativity and rule-based design methods
- Is described as an expansion logic – a tool to think and act collectively in a systematic way
- Utilizes 2 spaces: “concept” and knowledge” and plays on the interaction between those two
- Design starts from a concept that is partly unknown and indeterminable and advances it into an object that can be decided and realized
- A design process adapted to radical innovation and conceptual breakthrough
It is an iterative process where you go from something unknown to something known, when you connect your concept with knowledge. Design is a process of reasoning emerging from the interaction of known and unknown.
Explain the C-space and K-space
The C-space
- The C-space is a space where proposal have no logical status in the K-space (concepts)
- This means that when a concept is formulated, it is impossible to prove that this statement is
either true or false in K: the concept is unknown regarding the existing knowledge in the K- space - For example: “a car without wheels” or “a flying boat”
- Using iterations (operators) between C and K means expanding concepts with new attributes
until satisfactory definitions emerge
Try to challenge it, but still keep it within the companies’ ability.
The K-space
- The K-space represent current knowledge
o It is a space where proposals have a logical status, meaning that any proposal can be
either true or false
- The K-space includes all knowledge that is available; it could be technical, regulatory, social, ethical or market-related
- An example: “All the cars I know have wheels”
- Testing concepts generates new knowledge, or can bring forth new links between existing knowledge (re-ordering)
Explain with basic steps how to do a CK-diagram
- From existing knowledge – formulate a c0 (something different and potentially ambiguous).
Use word such as better, cheaper. - Add attributes to initial concepts – create partitions.
- Partitions may generate the need for more knowledge/new knowledge to be added in the K-space.
- Added knowledge may result in the identification of additional attributes that can refine your
concept. - Continue the iteration until satisfactory definition has been reached.
What is a business model?
The plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs.
In other words: “a model that describes the rationale of how an organization creates, delivers and captures value”.
What is included in a business plan?
The business plan includes topics such as:
- Background
- Problem to be solved
- The solution
- The team
- The external environment
- The business model
- Action plans for implementation
- Risks and mitigation plan
- Financial analysis and funding requests
The time perspective is not included in a business model, but in a business plan
Why has the business model become such a buzz word?
An ever increasing number of ways of how to create and capture value:
- Globalization
- Specialization
- Digitalization
- Communication/Internet
- Collaboration/Open innovation
- Internet of things/M2M
- Automation/AI/Robots
- Sharing economy
- Circular economy
Explain Alex Osterwalder’s Business Model Canvas and its different components
- Customer segments:
All the people and organizations for which you are creating value. This includes simple users and paying customers. - Value proposition:
The bundle of products and services that create value for your customers. - Channels:
A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost effective. - Customer relationships: Outline what type of relationship you are establishing with your
customers. - Revenue streams:
Makes clear how and through which pricing mechanisms your business model is capturing value. In other words, the way a company makes income from each customer segment- - Key resources:
The resources that are necessary to create value for the customer. They are considered an asset to a company, which are needed in order to sustain and support the business. These resources could be human, financial, physical and intellectual. - Key activities:
The most important activities in executing a company’s value proposition. - Key partners:
Shows who can help leverage your business model, since you won’t have all key resources yourself nor you perform all key activities. - Cost structure:
Once you understand your business model’s infrastructure you will also have an idea of its cost structure, i.e. the most important monetary consequences while operating.
Explain “Profitability”
The firm’s ability to earn income and sustain growth in both short- and long-term.
Explain “Liquidity”
The firm’s ability to maintain positive cash flow, while satisfying immediate obligations.
Explain “Stability”
The firm’s ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business
What is the purpose of the income statement and what does it describe?
The income statement gives one important perspective on the health of a business – its profitability
The purpose of the income statement is to make an estimation of how the company performs over a period of time
- It describes what’s sold, what it costs to make, selling &; general expenses for the period which constitutes the income for the period
- The sales is matched with its associated costs to determine profits in a given period of time
- In order to present it in this way, it requires that all expenses and costs are allocated properly which might be challenging and effect decision
- Most business model considerations will have an impact on the income statement
What is the purpose of the balance sheet and what does it describe?
The purpose of the Balance Sheet is to get a snapshot in time of what the company have, what it owes and what it is worth.
The Balance Sheet present the financial picture of the company on one particular day, an instant in time, the date it was written
What is a firm’s working capital?
Working capital is a financial metric measuring the short term funding of the company
The company’s working capital is the amount of money left over after you subtract current liabilities from current assets.
What is Days Inventory Outstanding (DIO or DII)?
DIO is the average number of days the company holds its inventory before selling it.
The average Days In Inventory (DII) can be estimated by dividing the Inventory on the Balance sheet in an annual report by the Cost of Goods Sold (COGS) for the year and multiplying it by 365 days
From a cash point perspective, less days in inventory is better.
