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Chapter 7 Outline
7.1 Competition Driven by Innovation
– The Innovation Process
7.2 Strategic and Social Entrepreneurship
7.3 Innovation and the Industry Life Cycle
– Introduction Stage
– Growth Stage
– Shakeout Stage
– Maturity Stage
– Decline Stage
– Crossing the Chasm
7.4 Types of Innovation
– Incremental vs. Radical Innovation
– Architectural vs. Disruptive Innovation
– Open Innovation
7.5 Implications for the Strategist
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Learning Objectives
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Competition Driven by Innovation
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Dominant Positions Can Quickly Change Due to Innovation
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Exhibit 7.1 Accelerating the Speed of Technological Change
SOURCE: Depiction of data from the U.S. Census Bureau, the Consumer Electronics
Association, Forbes, and the National Cable and Telecommunications Association.
Jump to Appendix 2 long image
description
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What Causes Rapid Technological Diffusion and Adoption
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Exhibit 7.2 The Innovation Process
• Idea
• Invention
• Innovation
• Imitation
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Idea, Invention, Innovation, and Imitation
• Idea
– Abstract concepts or research findings
• Invention
– Transformation of an idea into product or process
– The modification and recombination of existing ones
• Innovation
– Commercialization of an invention by entrepreneurs
• Imitation
– Copying a successful innovation
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Exhibit 7.3 What Is Innovation?
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Strategic and Social Entrepreneurship
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Entrepreneurship
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Strategic Entrepreneurship
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Social Entrepreneurship
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Innovations Can Lead to New Industries
• IT and Logistics:
– Created overnight express deliveries (Fed Ex)
– Created big-box retailing (Walmart)
• The Internet:
– Online retailing (Amazon & eBay)
– Revolutionized advertising (Yahoo, Google, Facebook)
• Nanotechnology:
– Medical diagnostics and surgery
– Lighter and stronger airline components
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The Five Phases of an Industry Lifecycle
1. Introduction
2. Growth
3. Shakeout
4. Maturity
5. Decline
• Supply and demand changes as industries age
• Each stage requires different competencies
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Exhibit 7.4 Lifecycle of the Smartphone Industry
in Emerging and Developed Economies
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Introduction Stage
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Exhibit 7.5 Introduction Stage: Network Effects
• The positive effect that one user has on the value of a product
for other users
• Example: Apple’s iPhone
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Exhibit 7.6 Growth Stage: Product vs. Process Innovation
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Shakeout Stage
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Maturity Stage
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Decline Stage
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Exhibit 7.7 Crossing the Chasm
SOURCE: Adapted from G.A. Moore (1991), Crossing the Chasm: Marketing and
Selling Disruptive Products to Mainstream Customers (New York: HarperCollins), p. 17.
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description
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Technology Enthusiasts
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Early Adopters
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Early Majority
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Late Majority
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Laggards
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Exhibit 7.8 Crossing the Chasm:
Applied to the Mobile Phone Industry
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Exhibit 7.9 Features and Strategic Implications
of the Industry Life Cycle (1 of 2)
Life Cycle Stages
Introduction Growth Shakeout Maturity Decline
Type of Buyers Technology Early adopters Early majority Late majority Laggards
enthusiasts
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Markets and Technology Framework
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Exhibit 7.10 Types of Innovation
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Incremental vs. Radical Innovation
• Incremental Innovation:
– Builds on established knowledge base
– Results from steady improvement
– Targets existing markets with existing technology
– Example: Gillette blades: from one to six!
• Radical Innovation:
– Draws on novel methods & materials
– Forms from an entirely new knowledge base, or
– Forms from a recombination of existing knowledge
– Targets new markets with new technology
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Examples of Radical Innovation
• The iPhone
• The Ford Model T
• The X-Ray
• The Airplane
• Genetic engineering
• Decoding of the human genome
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Why Are Incumbent Firms Focused On
Incremental Innovation?
• Economic Incentives:
– Established companies are focused on defending their
position
• Organizational Inertia:
– Established companies rely on formalized business
processes and structures
• Innovation Ecosystem:
– Established companies are part of an ecosystem:
• Suppliers, buyers, complementors
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Architectural vs. Disruptive Innovation
• Architectural Innovation:
– Leverages existing technology into new markets
– Alters the architecture of a product
– A new product, with known components, used in a novel
way
• Disruptive Innovation:
– Leverages new technologies in existing markets
– New product / process meets existing customer needs
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Exhibit 7.11 Characteristics Required of a Disruptive Force
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Examples of Disruptive Innovation
• Digital photography
– Improved over time
– Higher definition pictures
– Has largely replaced film photography
• Laptops disrupted desktops
– Now tablets / large screen phones are disrupting laptops
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Strategy Highlight 7.1
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How to Respond to Disruptive Innovation
• Continue to innovate
– Stay ahead of the competition
• Guard against disruptive innovation
– Protect the low end of the market
• Disrupt yourself
– Rather than wait for others to disrupt you
– Called reverse innovation
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Strategy Highlight 7.2
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Closed vs. Open Innovation
• Closed Innovation
– New products discovered, developed, and commercialized
internally
• Open Innovation
– Ideas and innovation can originate from external sources
• Customers
• Suppliers
• Universities
• Start-ups
• Competitors
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What Caused the Shift from Closed to Open Innovation?
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Exhibit 7.12 Closed Innovation vs. Open Innovation
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Exhibit 7.13 Contrasting Principles:
Closed vs. Open Innovation
SOURCE: Adapted from H. W. Chesbrough (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology (Boston: Harvard Business School Press).
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Absorptive Capacity
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Implications for the Strategist
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Innovation Drives Competition
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To Overcome the Chasm, You Must
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How to Develop Innovation
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Chapter 7 Summary
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Take Away Concepts (1 of 6)
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Take Away Concepts (2 of 6)
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Take Away Concepts (3 of 6)
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Take Away Concepts (4 of 6)
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Take Away Concepts (5 of 6)
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Take Away Concepts (6 of 6)
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Key Terms
• Absorptive capacity • Network effects
• Architectural innovation • Open innovation
• Crossing-the-chasm framework • Organizational inertia
• Disruptive innovation • Patent
• Entrepreneurs • Process innovation
• Entrepreneurship • Product innovation
• First-mover advantages • Radical innovation
• Incremental innovation • Reverse innovation
• Industry life cycle • Social entrepreneurship
• Innovation • Standard
• Innovation ecosystem • Strategic entrepreneurship
• Invention • Trade secret
• Markets-and-technology framework • Winner-take-all markets
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Chapter 7 Cases & Exercises
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Chapter Case 7: Consider This… (1 of 2)
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Chapter Case 7: Consider This… (2 of 2)
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My Strategy Exercise Do You Want to Be an
Entrepreneur? (1 of 2)
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My Strategy Exercise Do You Want to Be an
Entrepreneur? (2 of 2)
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Small Group Exercise #1
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Small Group Exercise #2
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End of Chapter 7
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Strategy Smart Videos
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Strategy Smart Videos (1 of 6)
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Strategy Smart Videos (2 of 6)
• CNet
• A Short History Of Smartphone Design
– (Crossing the Chasm, the Smart Phone Industry)
• Link:
– https://www.youtube.com/watch?v=bxCKeFSXI44
• 2:12 Minutes
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Strategy Smart Videos (3 of 6)
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Strategy Smart Videos (4 of 6)
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Strategy Smart Videos (5 of 6)
• Steve Jobs
• Steve Jobs Talks Innovation at his 2005 Stanford
Commencement Address
• Link:
– https://www.youtube.com/watch?v=UF8uR6Z6KLc
• 15:05 Minutes
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Strategy Smart Videos (6 of 6)
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Chapter Case 7
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Chapter Case 7: Netflix (1 of 2)
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Chapter Case 7: Netflix (2 of 2)
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Appendix 1 The AFI Strategy Framework
The important inside circle is titled "Gaining and Sustaining a Competitive Advantage" that is at the very center of the image, with
five different circles on the outside of it. Arrows go back and forth from the center circle to each of the five outer circles. The five
outer circles are labeled: (1) Getting Started, (2) External and Internal Analysis, (3) Formulation: Business Strategy, (4)
Formulation, Corporate Strategy, and (5) Implementation.
Each of these outer five circles have a brief description beside them to explain what the circle means:
Under the first outer circle titled "Getting Started", it says: Part 1, Strategy Analysis, "What is Strategy (Chapter 1)" and "Strategic
Leadership: Managing the Strategy Process (Chapter 2)".
Under the second outer circle titled "External and Internal Analysis", it says: Part 1, Strategy Analysis, "External Analysis: Industry
Structure, Competitive Forces and Strategic Groups (Chapter 3)", "Internal Analysis: Resources, Capabilities and Core
Competencies (Chapter 4)", and "Competitive Advantage, Firm Performance, and Business Models (Chapter 5)".
Under the third outer circle titled "Formulation: Business Strategy", it says: Part 2, Strategy Formulation, "Business Strategy:
Differentiation, Cost Leadership and Integration (Chapter 6)" and "Business Strategy, Innovation and Entrepreneurship (Chapter
7)".
Under the fourth outer circle titled "Formulation: Corporate Strategy", it says: Part 2, Strategy Formulation, "Corporate Strategy:
Vertical Integration and Diversification (Chapter 8)", "Corporate Strategy: Strategic Alliances, Mergers and Acquisitions (Chapter
9)", and "Global Strategy: Competing Around the World (Chapter 10)".
Under the fifth outer circle titled "Implementation", it says: Part 3, Strategy Implementation, "Organizational Design: Structure,
Culture and Control (Chapter 11)", and "Corporate Governance and Business Ethics (Chapter 12)".
Return to slide
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Appendix 2 Exhibit 7.1 Accelerating the Speed of
Technological Change
Return to slide
©McGraw-Hill Education.
Appendix 3 Exhibit 7.4 Lifecycle of the Smartphone Industry
in Emerging and Developed Economies
Return to slide
©McGraw-Hill Education.
Appendix 4 Exhibit 7.5 Introduction Stage:
Network Effects
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Appendix 5 Exhibit 7.7 Crossing the Chasm
This image shows a traditional bell curve, that is similar to the Industry
Lifecycle, however, there are different phase names and there is a space
between the Early Adopters and the Early Majority, titled The Chasm.
The chasm framework breaks down the 100 percent market potential into
different customer segments, highlighting the incremental contribution each
specific segment can bring into the market.
Technology Enthusiasts: 2.5%
Early Adopters: 13.5%
Early Majority: 34%
Late Majority: 34%
Laggards: 16%
Return to slide
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Appendix 6 Exhibit 7.8 Crossing the Chasm:
Applied to the Mobile Phone Industry
Blackberry, while it was accepted by the early adopters and early majority,
the iPhone was also able to capture the late majority and laggards as well.
In 2007, RIM’s dominance over the smartphone market began to erode
quickly. The main reason was Apple’s introduction of the iPhone. Although
technology enthusiasts and early adopters argue that the iPhone is an inferior
product to the BlackBerry based on technological criteria, the iPhone enticed
not only the early majority, but also the late majority to enter the market. For
the late majority, encrypted software security was much less important than
having fun with a device that allowed users to surf the web, take pictures,
play games, and send and receive e-mail.
Return to slide
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Appendix 7 Exhibit 7.11 Characteristics Required of a
Disruptive Force
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Appendix 8 Exhibit 7.12 Closed Innovation vs. Open
Innovation
In the closed innovation model (Panel A), the firm is conducting all research
and development in-house, using a traditional funnel approach. The
boundaries of the firm are impenetrable. Outside ideas and projects cannot
enter, nor does the firm allow its own research ideas and development
projects to leave the firm.
The open innovation model (Panel B), depicts a firm that allows information
and innovation to be shared outside of the firm. In the open innovation
model, a company attempts to commercialize both its own ideas and research
from other firms. It also finds external alternatives such as spin-out ventures
or strategic alliances to commercialize its internally developed R&D. The
boundary of the firm has become porous, allowing the firm to spin out some
R&D projects while in-sourcing other promising projects.
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