Slides 19 Flashcards
What creates new industries?
Radical Innovations
Radical innovations are entrepreneurial ideas that solve unique problems or render existing technologies obsolete.
What is the Industry Life Cycle?
The stages through which industries are born, grow, mature, and decline
The lifecycle is categorized based on the number of customers in a market.
What impacts the stage of an industry in its life cycle?
The type of innovation, the type of investors/investment, the number of competitors
The stage of a lifecycle affects all these factors.
Define innovation.
Innovation is the multi-stage process whereby organizations transform ideas into new/improved products, services, or processes
This definition is from Baregheh, Rowley, & Sambrook (2009).
What are the types of innovation?
- Architectural Innovation
- Radical Innovation
- Incremental Innovation
- Disruptive Innovation
These types vary in their impact and the level of technological innovativeness.
What is Architectural Innovation?
Reconfiguring existing technology and components in new ways
This can create new markets or applications.
What is Radical Innovation?
A fundamentally new technology or process leading to the creation of entirely new markets
This type of innovation has a significant impact on existing markets.
What is Incremental Innovation?
Small, gradual improvements or adjustments to existing products
It is the most common type of innovation.
What defines Disruptive Innovation?
Innovations that disrupt an existing market with a radically better product
These products are often more affordable or of better quality.
What are the types of investors in an industry?
- Angel Investors
- Venture Capital Funds
- Hedge Funds
- Private Equity Funds
Each type of investor focuses on different stages of company growth and risk levels.
What characterizes Angel Investors?
Wealthy individuals who invest in very early stage, small startups
These investments are considered extremely risky.
What do Venture Capital Funds focus on?
Investing in the most promising startups with growth potential
These funds are high-risk investments.
What is the startup stage of an industry?
An industry is born with the introduction of a new product or technology
Technology is new and few understand how to commercialize it.
What defines the growth stage of an industry?
Customers become interested and market size increases significantly
Companies focus on scaling and gaining market share.
What happens during the maturity stage of an industry?
Market size reaches its maximum; all potential customers have been reached
Top firms become established, and smaller firms begin to exit.
What leads to the decline stage of an industry?
Changing customer preferences lead to a decline in market size
Some firms may exit the market through diversification.
What are contestable markets?
Industries with low barriers to entry where unmet customer demand exists
These markets allow new entrants to gain market share easily.
What is a common example of contestable markets?
Airline routes
Established airlines can easily open new routes if they find them underserved.
What are the ways firms enter markets?
- Internal Development
- Mergers and Acquisitions
- Strategic Alliances
Each method has its own risks and benefits.
How do firms enter markets through Internal Development?
Investing in R&D to create a new product
This method is time-consuming and risky.
What is the easiest way for a firm to enter a market?
Mergers and Acquisitions
This approach allows firms to skip the R&D phase.
Give an example of a successful acquisition.
Google’s acquisition of DeepMind for $500 million
This acquisition made Google a leader in AI and machine learning.
What are strategic alliances?
Partnerships formed to enter new markets in a low-risk way
This can include joint ventures or franchises.
Why do firms exit a market?
- Declining profitability
- Financial constraints or liquidity problems
These factors may force firms to sell or exit less profitable markets.
What is bankruptcy?
A company’s profits are unable to cover monthly debt payments
This leads to a firm exiting the market entirely.
What is a spin-off?
A corporation can create a new independent company by selling or distributing new shares
Spin-offs can help focus on core businesses.
What does it mean for a company to exit a market?
A company stops producing a product and ceases research in that area.
Example: The Apple Car
What is a spin-off in business?
A corporation splits into multiple companies, where one retains the original management and branding, while the other becomes a new company.
Example: Fiat spins off Ferrari
What is a business unit?
A part of a company that operates in a specific market, either geographic or product-focused.
Why did GM exit Europe and Australia?
Due to costly government regulations requiring a transition to electric vehicles and struggles with profitability.
Example: GM sold Southeast Asia factories to a Chinese auto manufacturer.
What are exit barriers?
Situations where firms want to leave a market but are contractually or financially forced to stay.
What might prevent a firm from exiting a market?
Inability to sell fixed assets, fulfilling long-term contracts, or potential management repercussions.
What advantages do incumbent firms have?
Established relationships with customers, customer loyalty, and better industry knowledge.
What are barriers to entry?
External and internal factors that increase or decrease the likelihood of a new firm entering a market.
What are structural barriers to entry?
Natural cost advantages or government regulations that hinder new entrants.
What are strategic barriers to entry?
Tactics like strategic pricing moves to discourage new entrants.
When are barriers to entry lowest?
During the startup and growth phases.
What is vertical integration?
Maintaining significant control over essential resources in production to create entry barriers.
How long do patents provide exclusive rights?
20 years.
What are economies of scale?
Producing a large quantity of products at the lowest per unit cost.
What is limit pricing?
Charging a low price to discourage new firms from entering the market.
What is predatory pricing?
Setting a low price to drive smaller rivals out of the market.
What are wars of attrition?
Price wars that hurt all firms in the market, where financially stronger firms have an advantage.
What is strategic bundling?
Combining products to discourage competition and increase switching costs for customers.
What is disruptive innovation?
Innovating new products or methods that reduce production costs and challenge incumbents.
