Mba Strategic Management Unit 5 2020

STRATEGIC MANAGEMENT COURSE
Master in Management Program
OPERATIONAL STRATEGIES. INNOVATIONS.
UNIT 5
Professor Maria Nikishina

Term II Year 2020
Strategic management Unit5
Importance of Technological Innovation
Technological innovation is now the single most important driver of competitive
success in many industries.
• Many firms earn over one-third of sales on products developed within last five years.
• Product innovations help firms protect margins by offering new, differentiated features.
• Process innovations help make manufacturing more efficient.
Importance of Technological Innovation

Advances in information technology have enabled faster innovation.
• CAD/CAM systems enable rapid design and shorter production runs.
Importance of innovation and advances in information technology have lead to:

• Shorter product lifecycles (more rapid product obsolescence).
• More rapid new product introductions.
• Greater market segmentation.
Impact on Society
Innovation enables a wider range of goods and services to be delivered to people
worldwide.
• More efficient food production, improved medical technologies, better transportation, etc.
• Increases Gross Domestic Product by making labor and capital more effective and efficient.
However, may result in negative externalities.
For example, pollution, erosion, antibiotic-resistant bacteria.

Innovation by Industry: The Importance of Strategy

Successful innovation requires carefully crafted strategies and implementation processes.
Innovation funnel.
• Most innovative ideas do not become successful new products.
• For example, The New Product Development Funnel in Pharmaceuticals.
Strategic Management of Technological Innovation

Part One: The foundations of technological Innovation.
• Sources of innovation.
• Types and patterns of innovation.
• Standards battles and design dominance.
• Timing of Entry.

Part Two: Formulating Technological Innovation Strategy.
• Defining the organization’s strategic direction.
• Choosing innovation projects.
• Collaboration strategies.
• Protecting innovation.

Part Three: Implementing Technological Innovation Strategy.
• Organizing for innovation.
• Managing the new product development process.
• Managing new product development teams.
• Crafting a deployment strategy.
Discussion Questions
1. Why is innovation so important for firms to compete in many industries?
2. What are some of the advantages of technological innovation? Disadvantages?
3. Why do you think so many innovation projects fail to generate an economic return?
Part One: Industry Dynamics of Technological Innovation

 The sources from which innovation arises, including the role of individuals,
organizations, government institutions, and networks.
 Types of innovations, and common industry patterns of technological evolution and

diffusion.
 The factors that determine whether industries experience pressure to select a

dominant design, and what drives which technologies dominate others.
 Effects of timing of entry, and how firms can identify (and manage) their entry
options.
Innovating in India: The Chotukool Project

In rural India up to 90% of families cannot afford appliances, have no electricity, and have no refrigeration.
Appliance manufacturer Godrej & Boyce decided to make a smaller, cheaper refrigerator to tap this
market.
Many of their assumptions turned out to be wrong; they ended up making a lightweight portable battery
operated refrigerator with customizable skins to make them cool and aspirational, and sold to multiple
market segments, including the urban affluent.
Godrej & Boyce also pioneered a novel distribution system: the Chotukool would be sold at the post
office.
The Chotukool won several design awards and FastCompany gave Godrej its “Most Innovative Company”
award.
Innovating in India: The Chotukool Project

Discussion Questions:
1. What were the pros and cons of attempting to develop a refrigerator for India’s rural poor?
2. What product and process innovations did the Chotukool entail? Would you consider these
incremental or radical? Architectural or component? Competence enhancing or competence
destroying?
3. Did the Chotukool pose a threat of disrupting the traditional refrigerator market? Why or why not?
4. Is there anything you think Godrej should have done differently to penetrate the market of rural
poor families in India?
5. What other products might the lessons Godrej learned with Chotukool apply to?
Overview
Several dimensions are used to categorize innovations.
• These dimensions help clarify how different innovations offer different opportunities (and pose
different demands) on producers, users, and regulators.
The path a technology follows through time is termed its technology trajectory.
• Many consistent patterns have been observed in technology trajectories, helping us understand
how technologies improve and are diffused.
Types of Innovation
Product versus Process Innovation:
• Product innovations are embodied in the outputs of an organization –
its goods or services.
• Process innovations are innovations in the way an organization
conducts its business, such as in techniques of producing or
marketing goods or services.
• Product innovations can enable process innovations and vice versa.
• What is a product innovation for one organization might be a process
innovation for another.
• For example, UPS creates a new distribution service (product
innovation) that enables its customers to distribute their goods more
widely or more easily (process innovation).
Types of Innovation
Radical versus Incremental Innovation:
• The radicalness of an innovation is the degree to which
it is new and different from previously existing products
and processes.
• Incremental innovations may involve only a minor
change from (or adjustment to) existing practices.
• The radicalness of an innovation is relative; it may
change over time or with respect to different
observers.
• For example, digital photography a more radical
innovation for Kodak than for Sony.
Types of Innovation
Competence-Enhancing versus Competence-Destroying Innovation:
• Competence-enhancing innovations build on the firm’s existing knowledge base (Intel’s
Pentium 4 built on the technology for Pentium III).
• Competence-destroying innovations renders a firm’s existing competencies obsolete
(electronic calculators rendered Keuffel & Esser’s slide rule expertise obsolete).
• Whether an innovation is competence enhancing or competence destroying

depends on the perspective of a particular firm.
Types of Innovation
Architectural versus Component Innovation:
• A component innovation=modular innovation entails changes to one or more components of
a product system without significantly affecting the overall design (adding gel-filled material to a
bicycle seat).
• An architectural innovation entails changing the overall design of the system or the way
components interact (transition from high-wheel bicycle to safety bicycle).
• Most architectural innovations require changes in the underlying components also.

Diffusion of Innovation and Adopter Categories

Everett M. Rogers created a typology of adopters:
• Innovators are the first 2.5% of individuals to adopt an innovation. They are adventurous, comfortable
with a high degree of complexity&uncertainty, typically have access to substantial financial resources.
• Early Adopters are the next 13.5% to adopt the innovation. They are well integrated into their social
system, and have great potential for opinion leadership. Other potential adopters look to early
adopters for information and advice, thus early adopters make excellent "missionaries" for new
products or processes.
• Early Majority are the next 34%. They adopt innovations slightly before the average member of a social
system. They are typically not opinion leaders, but they interact frequently with their peers.
• Late Majority are the next 34%. They approach innovation with a skeptical air, and may not adopt the
innovation until they feel pressure from their peers. They may have scarce resources.
• Laggards are the last 16%. They base their decisions primarily on past experience and possess almost
no opinion leadership. They are highly skeptical of innovations and innovators, and must feel certain
that a new innovation will not fail prior to adopting it.
Research Brief
Diffusion of Innovation
and Adopter Categories
Theory In Action
“Segment Zero” – A serious threat to Microsoft?
• Technologies often improve faster than customer requirements demand.
• This enables low-end technologies to eventually meet the needs of the mass market.
Theory in Action
From 1980 to 2011, Microsoft was the dominant personal computer operating system.
However, operating systems for smartphones and tablets were improving to the point
where they could replace many personal computer functions.
In 2015, Apple’s iPhone operating system and Google’s Android collectively controlled
over 90% of the market for smartphone purchases. Microsoft’s Windows Phone held a
share of only 3%.
As tablets based on these systems became fully functional computers, would
Microsoft’s dominance evaporate?
Technology Cycles
Technological change tends to be cyclical:
• Each new s-curve ushers in an initial period of turbulence, followed by rapid
improvement, then diminishing returns, and ultimately is displaced by a new
technological discontinuity.
• Utterback and Abernathy characterized the technology cycle into two phases:
• The fluid phase (when there is considerable uncertainty about the technology and its
market; firms experiment with different product designs in this phase).
• After a dominant design emerges, the specific phase begins (when firms focus on
incremental improvements to the design and manufacturing efficiency).
Technology Cycles
Anderson and Tushman also found that technological change proceeded cyclically.
• Each discontinuity inaugurates a period of turbulence and uncertainty (era of ferment) until a
dominant design is selected, ushering in an era of incremental change.
Technology Cycles
Anderson and Tushman found that:
• A dominant design always rose to command the majority of market share unless the next
discontinuity arrived too early.
• The dominant design was never in the same form as the original discontinuity, but was also not on
the leading edge of technology. It bundled the features that would meet the needs of the majority of
the market.
During the era of incremental change, firms often cease to invest in learning about
alternative designs and instead focus on developing competencies related to dominant
design.
This explains in part why incumbent firms may have difficulty recognizing and reacting to
a discontinuous technology.
Ending HIV? Sangamo Biosciences and Gene Editing

Sangamo Biosciences had developed zinc-finger nucleases (ZFNs), a technology that could edit the
genes of a living individual.
The technology had enormous potential, but it required a significant amount of R&D work to ensure
that it was both precise enough, and would penetrate enough of an individual’s cells to make a
difference.
One of Sangamo’s ZFN programs was to develop a way to give people a mutation that would cure HIV.
This was obviously a HUGE opportunity. Drug development, however, is extremely expensive and risky,
and Sangamo did not yet have revenues to fund its programs.
Sangamo thus had to decide whether to partner with another organization on the HIV program, and if
so, how and with whom.
Ending HIV? Sangamo Biosciences and Gene Editing

1. What were the pros and cons of Sangamo pursuing its gene editing programs alone
versus working with a partner?
2. Does the HIV program offer any special opportunities or challenges?
3. What do you think Sangamo should do regarding the HIV program? Should it license
the technology to a large pharmaceutical? Should it form a joint venture with another
biotech or pharma company? If so, who?
Overview
1. Firms must often choose between performing innovation activities alone or in
collaboration.
2. Collaboration can enable firms to achieve more, at a faster rate, and at less cost and
risk.
3. However, collaboration also entails sharing control and rewards, and may risk partner
malfeasance.
4. The advantages of going solo are compared with those of collaborating, and then
different forms of collaboration are compared.
Reasons for Going Solo

Whether a firm chooses to engage in solo development or collaboration will be influence
by:
• Availability of capabilities (does firm have needed capabilities in house? Does a potential
partner?)
• Protecting proprietary technologies (how important is it to keep exclusive control of the
technology?)
• Controlling technology development and use (how important is it for firm to direct
development process and applications?)
• Building and renewing capabilities (is the project key to renewing or developing the firm’s
capabilities?)
Types of Collaborative Arrangements

There are numerous types of collaborative arrangements, each with its own advantages or
costs.
• Strategic Alliances: formal or informal agreements between two or more organizations (or other
entities) to cooperate in some way.
• Doz and Hamel note that a
firm’s alliance strategy
might emphasize
combining complementary
capabilities or transferring
capabilities. It might also
emphasize individual alliances or
a network of alliances.
Types of Collaborative Arrangements

Joint Ventures: A particular type of strategic alliance that entails significant equity
investment and often establishes a new separate legal entity.
Licensing: a contractual arrangement that gives an organization (or individual) the
rights to use another’s intellectual property, typically in exchange for royalties.
Outsourcing: When an organization (or individual) procures services or products from
another rather than producing them in-house.
Collective Research Organizations: Organizations formed to facilitate collaboration
among a group of firms.
Choosing a Mode of Collaboration

Firms should match the trade-offs of a collaboration mode to their needs.
NA Speed Cost Control Potential for Potential for Potential for
Leveraging Developing New Accessing Other
Existing Competencies Firms’
Competencies Competencies
Solo Internal Low High High Yes Yes No

Development
Strategic Varies Varies Low Yes Yes Sometimes

Alliances
Joint Ventures Low Shared Shared Yes Yes Yes
Licensing In High Medium Low Sometimes Sometimes Sometimes

Choosing a Mode of Collaboration

NA Speed Cost Control Potential for Potential for Potential for
Leveraging Developing New Accessing Other
Existing Competencies Firms’
Competencies Competencies
Licensing Out High Low Medium Yes No Sometimes
Outsourcing Medium/Hi Medium Medium Sometimes No Yes

gh
Collective NA NA NA NA NA NA
Research
Organizations Low Varies Varies Yes Yes Yes

Choosing and Monitoring Partners

Partner Selection
• Resource fit: How well does the potential partner fit the resource needs of the project? Are
resources complementary or supplementary?
• Strategic fit: Does the potential partner have compatible objectives and styles?
• Impact on Opportunities and Threats: How would collaboration impact bargaining power of
customers and suppliers, degree of rivalry, threat of entry or substitutes?
• Impact on Internal Strengths and Weaknesses: Would collaboration enhance firm’s strengths?
Overcome its weaknesses? Create a competitive advantage?
• Impact on Strategic Direction: Would the collaboration help the firm achieve its strategic intent?
Choosing and Monitoring Partners

Partner Monitoring and Governance
• Successful collaborations require clear yet flexible monitoring and governance
mechanisms.
• May utilize legally binding contractual arrangements.
• Helps ensure partners are aware of rights and obligations.
• Provides legal remedies for violations.
• Contracts often include:
1. What each partner is obligated to contribute.
2. How much control each partner has in arrangement.
3. When and how proceeds of collaboration will be distributed.
4. Review and reporting requirements.
5. Provisions for terminating relationship.
Research Brief
Strategic Positions in Collaborative Networks
A firm’s position within a collaborative

network influences its access to information
and other resources, and its influence over
desired outcomes. Some of the key aspects
of a firm’s position include centrality and
opportunities for brokerage. For example, in
this graph, though PPD Inc. has only three
alliances, it serves as an important bridge
between the two lobes of the network,
which should give it important opportunities
for brokerage.
The Digital Music Distribution Revolution

In 1991, Fraunhofer IIS of Germany invents the MP3 format; by late 1990’s the format is wildly popular.
In 1999, Shawn Fanning releases Napster, a free software program that allows users to easily share
MP3 files (“peer-to-peer”)
The RIAA starts to worry about illegal trade of copyrighted music. In 2001 it gets a court ruling against
Napster, taking it offline.
However, new peer-to-peer music services began to sprout up to meet the demand of the large
population of “music pirates.”
In 2003, Apple opens its iTunes Music Store – a one-stop-shop for music files from the five major
record labels. Now record industry is earning significant revenues from MP3s.
In 2006, France pushes Apple to loosen its restrictions on iTunes music and iPods. Should Apple use a
more “open” model?
By 2016 digital music sales exceeded physical music sales in roughly half of the major music markets of
the world. Rapidly growing music streaming services enabled many users to give up owning music
altogether, and instead to pay for music subscriptions.
The Digital Music Distribution Revolution

1. What industry conditions lead to the revolution in audio distribution? Which
stakeholders stand to benefit most (or least) from this revolution?
2. Why did the music stores created by the record labels fail to attract many
subscribers? What, if anything, should the record labels have done differently?
3. What factors led iTunes to be successful?
4. How do you think a move away from owning music led to record-setting music
revenues?
Overview
1. Firms must decide whether and how to protect their technological innovations.
2. Protecting innovation helps a firm retain control over it and appropriate the rents
from it.
3. However, sometimes not protecting a technology is to the firm’s advantage – it may
encourage others to support the technology and increase its likelihood of becoming
dominant.
Appropriability
Appropriability: The degree to which a firm is able to capture the rents from its
innovation.
• Appropriability is determined by how easily or quickly competitors can copy the
innovation.
• Some innovations are inherently difficult to copy (tacit, socially complex, etc.).
• Firms may also attempt to protect innovations through patents, trademarks, copyrights or
trade secrets.
Patents, Trademarks and Copyrights

Patents, trademarks and copyrights each protect different things.
• Patents: rights granted by the government that excludes others from producing,
using, or selling an invention.
• Must be useful, novel, and not be obvious.
• Utility patents protect new and useful processes, machines, manufactured items or
combination of materials.
• Design patents protect original and ornamental designs for manufactured items.
• Plant patents protect distinct new varieties of plants.
• In 1998, many software algorithms became eligible for patent protection.

Patent Laws Around the World.
• Countries have their own laws regarding patent protection. Some treaties seek to
harmonize these laws.
• Paris Convention for the Protection of Industrial Property
• Foreign nationals can apply for the same patent rights in each member country as that country’s own
citizens.
• Provides right of “priority” – once inventor has applied for protection in one member country, they can
(within certain time period) apply for protection in others and be treated as if they had applied on same
date as first application.
• Patent Cooperation Treaty (PCT)
• Inventor can apply for patent in a single PCT receiving office and reserve right to apply in more than 100
countries for up to 2 ½ years. Establishes date of application in all member countries simultaneously.
Also makes results of patent process more uniform.


Patent Strategies:
• It is typical to assume that an inventor seeks a patent because they desire to make and sell
the invention themselves.
• However, inventors and firms may monetize patents in a range of different ways, including
licensing the technology to others, or selling the patent rights to another firm that can
better utilize the technology.
• Sometimes firms seek patents just to limit the options of competitors, or to earn revenues
through aggressive patent lawsuits. These actions are sometimes referred to as "patent
trolling."
• Apple claims to be the #1 target for patent trolls, having faced nearly 100 lawsuits between 2011
and 2014.

Dense webs of “patent thickets” can make it hard for firms to compete, and stifle
innovation.
• Firms sometimes buy bundles of patents just to create a “war chest” to defend themselves from
lawsuits by offering a credible threat of retaliation.
• For example, in 2011, the bankrupt Nortel auctioned off its massive patent portfolio. A consortium
called Rockstar Bidco that included Microsoft, Apple, RIM, Sony, and Ericsson, won the auction for $4.5
billion, beating out Google which bid $4.4 billion. Google subsequently bought 1,030 IBM patents that
covered a range of technologies. These patents were not necessary for Google's business directly;
rather they provided a retaliation threat to others that might attack them through patent suits.

Trademarks and Service Marks: a word, phrase, symbol, design, or other indicator that
is used to distinguish the source of goods form one party from goods of another (for
example, Nike “swoosh” symbol).
• Rights to trademark are established in legitimate use of mark; do not require registration.
• However, marks must be registered before suit can be brought over use of the mark.
• Registration can also be used to establish international rights over trademark.
Two treaties simplify registration of trademarks in multiple countries: Madrid

Agreement Concerning the International Registration of Marks, and the Madrid
Protocol. Countries that adhere to either or both are in Madrid Union (85 members).

Copyright: a form of protection granted to works of authorship.
• Copyright prohibits others from:
• Reproducing the work in copies or phonorecords.
• Preparing derivative works based on the work.
• Distributing copies or phonorecords for sale, rental, or lease.
• Performing the work publicly.
• Displaying the work publicly.
• Work that is not fixed in tangible form is not eligible.
• Copyright is established in first legitimate use.
• However, “doctrine of fair use” stipulates that others can typically use copyrighted material for
purposes such as criticism, new reporting, teaching research, etc.
• Copyright for works created after 1978 have protection for author’s life plus 70 years.

Copyright Protection Around the World.
• Copyright law varies from country to country.
• However, the Berne Union for the Protection of Literary and Artistic Property
(“Berne Convention”) specifies a minimum level of protection for member countries.
• Berne convention also eliminates differential rights to citizens versus foreign
nationals.
Trade Secrets
Trade Secret: information that belongs to a business that is generally unknown to others.
• Firm can protect proprietary product or process as trade secret without disclosing
detailed information that would be required in patent.
• Enables broad class of assets and activities to be protectable.
• To qualify:
• Information must not be generally known or ascertainable.
• Information must offer a distinctive advantage to the firm that is contingent upon its secrecy.
• Trade secret holder must exercise reasonable measures to protect its secrecy.
Theory In Action
IBM and the Attack of the Clones
• In 1980, IBM was in a hurry to introduce a personal computer (PC). It used off-
the-shelf components such as Intel microprocessors an operating system from
Microsoft, MS DOS.
• It believed that its proprietary basic input/output system (BIOS) would protect the
computer from being copied.
• However, Compaq reverse engineered the BIOS in a matter of months without
violating the copyright, and quickly introduced a computer that behaved like an
IBM computer in every way. Compaq sold a record-breaking 47,000 IBM-
compatible computers its first year, and other clones were quick to follow.
Part Three: Implementing Technological Innovation Strategy
1. Structuring the firm to improve its likelihood of innovating, its effectiveness at new
product development, and its speed of new product development.
2. Managing new product development processes to maximize fit with customer needs,
while simultaneously minimizing development cycle time and controlling
development costs.
3. Composing, structuring, and managing new product development teams to
maximize new product development effectiveness.
4. Crafting a strategy for effectively deploying the innovation into the marketplace,
including timing, licensing strategies, pricing strategies, distribution, and marketing.
Crafting a Deployment Strategy
Deployment Tactics in the Global Video Game Industry

From 1985 to 1989 Nintendo had a near monopoly in video games. In 1989, Sega was able to
overthrow Nintendo’s dominance by introducing a 16-bit system 1½ years before Nintendo.
Sony was able to break into the video game industry by introducing a 32-bit system, investing
heavily in game development, and leveraging its massive clout with distributors.
In late 2001, Microsoft entered with a 128-bit system. It had an advanced machine, and spent a lot
on marketing and games, but Playstation2 already had an installed base of 20 million. The console
did well, but never overtook Playstation2.
In late 2005, Microsoft was first to introduce the next generation console: Xbox 360. Nintendo’s
Wii and Sony’s Playstation 3 would not debut until 2006. Both the Xbox 360 and Playstation 3
incorporated high definition DVD players, and were expensive. The Wii was much simpler and
cheaper, but had an innovative motion-sensing remote.
Deployment Tactics in the Global Video Game Industry

In 2010, Sony and Microsoft both also introduced their own motion-based controllers, the Move and
Kinect. By early 2015, Sony had sold 22.3 million Playstation 4s, Microsoft had sold 10 million Xbox
Ones, and Nintendo had sold 9.54 million Wii Us.
In the eighth generation, mobile device platforms such as Android and iOS began to account for
significantly more gaming. By 2018 there were more than 800,000 mobile games available, and
mobile gaming accounted for more than half of the $138 billion in global gaming revenues.
In 2018 Microsoft also ceased releasing unit sales figures, arguing that it was no longer the right
metric of success; instead it noted that it had 59 million active users of Xbox Live.
Deployment Tactics in the U.S. Video Game Industry

1. What factors do you think enabled Sega to break Nintendo’s near monopoly of the U.S. video game
console market in the late 1980s?
2. Why did Nintendo choose to not make its video game consoles backward compatible? What were
the advantages and disadvantages of this strategy?
3. What strengths and weaknesses did Sony have when it entered the video game market in 1995?
4. In what ways did Nintendo’s Wii break with the norms of competition in the video game industry?
How defensible was its position?
5. Comparing the deployment strategies used by the firms in each of the generations, can you identify
any timing, licensing, pricing, marketing, or distribution strategies that appear to have influenced
firms’ success and failure in the video game industry?
Overview
1. A large part of the value of a technological innovation is determined by the degree

to which people understand and use it.
2. An effective deployment strategy is thus a key element in a technological innovation
strategy.
3. Some of the key elements of an effective deployment strategy include timing,
licensing and compatibility, pricing, distribution, and marketing.
Timing
The timing of a market launch can be an important
deployment strategy.
• Strategic Timing of Entry.
• Firms can use timing of entry to take advantage of business cycle
or seasonal effects (video game consoles are always launched
just before Christmas).
• Timing also signals customers about the generation of
technology the product represents (if too early, may not be seen
as “next generation”).
• Timing must be coordinated with production capacity and
complements availability, or launch could be weak.
Timing
• Optimizing Cash Flow versus Embracing Cannibalization.
• Traditionally firms managed product lifecycles to optimize cash flow and return on
investment  would not introduce new generation while old generation selling well.
• However, in industries with increasing returns this is risky.
• Often better for firm to invest in continuous innovation and willing cannibalize its own
products to make it difficult for competitors to gain a technological lead.
• Cannibalization: when a firm’s sales of one product (or at one location) diminish its sales of another (or
another location).
Licensing and Compatibility

• Protecting a technology too little can result in low quality complements and clones;
protecting too much may impede development of complements. Firm must carefully
decide:
• How compatible to be with products of others.
• If firm is dominant, generally prefers incompatibility with others’ platforms but may use controlled
licensing for complements.
• If firm is at installed base disadvantage, generally prefers some compatibility with others and aggressive
licensing for complements.
• Whether to make product compatible with own previous generations (“backward compatibility”).
• If installed base and complements are important, backward compatibility usually best – leverages
installed base and complements of previous generation, and links generations together. Can be combined
with incentives to upgrade.
Pricing
Price influences product positioning, rate of adoption, and cash flow.
• What are firm’s objectives?
• Survival.
• Maximize current profits.
• Maximize market share.
• Typical pricing strategies for new innovations:

• Market skimming strategy (high initial prices).
• Signals market that innovation is significant.
• Recoup development expenses (assuming there’s demand).
• Attracts competitors, may slow adoption.
Pricing
• Penetration Pricing (very low price or free).
• Accelerates adoption, driving up volume.
• Requires large production capacity be established early.
• Risky; may lose money on each unit in short run.
• Common strategy when competing for dominant design.
• Can manipulate customer’s perception of price.

• Free initial trial or introductory pricing.
• Initial product free but pay for monthly service.
• Razor and razorblade model: Platform is cheap but complements are expensive (as in video games).
• For example, computer games and services often have a “freemium” model, where the base product
is free, but additional features or capacity have a price.
Distribution
Selling Direct versus Using Intermediaries
• Selling direct:
• Gives firm great control over selling process, price and service.
• Can be expensive and/or impractical.
• Intermediaries may include:
• Manufacturers’ representatives: independent agents that may promote and sell the product lines
of one or a few manufacturers.
• Useful for direct selling when its impractical for manufacturer to have own direct sales force for all
markets.
• Wholesalers: firms that buy manufacturer’s products in bulk then resell them (typically in smaller,
more diverse bundles).
• Provide bulk breaking and carry inventory.
• Handles transactions with retailers and provides transportation.
Distribution
• Retailers: firms that sell goods to public.
• Provide convenience for customers.
• Enable on-site examination and service.
• Original equipment manufacturers (OEMs):
• A company that buys products (or components) from other manufacturers and assembles them or
customizes them and sells under its own brand name. For example, Dell Computer.
• Aggregates components from multiple manufacturers.
• Provides single point-of-contact and service for customer.
Distribution
These factors help determine whether and what types of intermediaries the firm should
use:
1. How does the new product fit with the distribution requirements of firm’s existing
product lines?
2. How numerous and dispersed are customers, and how much product education or
service will they require? Is prepurchase trial necessary? Is installation or
customization required?
3. How are competing products or substitutes sold?
Distribution
Strategies for Accelerating Distribution:
• Alliances with distributors.
• Providing distributor with stake in product’s success/exclusivity contract can motivate them to promote more.
• Bundling relationships.
• Sell in tandem with product already in wide use.
• Contracts and sponsorship.
• Provide price discounts, special service contracts or advertising assistance to distributors, complementary
goods providers or large and influential end users.
• Guarantees and consignment.
• Reduces risk to intermediaries and complements providers.
Marketing
Major marketing methods include advertising, promotions, and publicity/public
relations.
• Advertising:
• Requires effective message.
• Requires media that conveys message to appropriate target market.
• Varies in match to audience, richness, reach, and cost.
• Must strike appropriate balance between entertainment or aesthetics (to make memorable) versus
information content (to make useful).
Marketing
Major Advertising Media
Media Advantages Disadvantages
Online Advertising: Can be highly targeted to a particular audience; pay only for Vulnerable to click-through fraud (for example, clicks by a
Pay-per-click (search results (clicks); fast to deploy, and can be adjusted or deleted just competitor or an unhappy customer or employee), which
engines) as quickly; enables rapid and efficient tracking of responses for could result in wasted advertising spend
analyzing effectiveness of the ad
Online Advertising: Can connect with customers in a rich way; potential for broad Conversion of visitors to customers is often low; can be
Social Media reach and viral marketing; can be highly targeted to a particular difficult to build awareness and traffic to social media site
audience; relatively inexpensive; can be quickly deployed and
adjusted; can track visitors in real-time
Television High sensory richness that combines sight, sound, and motion; Increasingly fragmented audience due to proliferation of
high geographic and demographic reach; independent stations stations; increasing use of DVR’s enables viewers to skip
offer new opportunities to more directly target specific audiences the advertising; high absolute cost; fleeting exposure
Radio High geographic and demographic selectivity; medium reach; Audio presentation only; advertisers may need to buy ads
relatively low cost with multiple stations to achieve desired audience reach;
fleeting exposure
Marketing
Major Advertising Media
Media Advantages Disadvantages
Newspaper Timeliness; good local market coverage; broad acceptance; Newspaper audiences are decreasing; easy for audience to
high believability; audience can keep or revisit the skip over ad; relatively poor production quality; high
advertisement; wide price ranges available advertising clutter; may be difficult to selectively target a
particular audience
Magazine High geographic and demographic selectivity; high quality Slow deployment (long ad purchase lead times); some
visual production; long life; can enable significant technical waste circulation; may require advertising in multiple
content; good pass-along readership magazines to achieve desired reach
Direct Mail High audience selectivity; no ad competition within the Relatively high cost; “junk mail” image; requires access to
same medium; personalization; enables communication of good mailing lists; requires relatively long lead times for
significant technical content; may be passed along to others; printing and mailing
responses can usually be efficiently tracked
Outdoor (for example, High repeat exposure; low cost; low competition Limited audience selectivity; very limited technical content
billboards, banners)
Telephone High audience selectivity; can give personalized message Relatively high cost; can be perceived as an annoyance
Marketing
• Promotions.
• Temporary selling tactics that include:
• Samples or free trial.
• Cash rebates after purchase.
• Including an additional product (a “premium”) with purchase.
• Incentives for repeat purchase.
• Sales bonuses to distributor or retailer sales representatives.
• Cross promotions between two or more non-competing products to increase pulling power.
• Point-of-purchase displays to demonstrate the product’s features.
• Publicity and Public Relations.
• Attempt to generate free publicity and word-of-mouth (mention in articles, television programs, etc.).
• Produce own internally generated publications.
• Sponsor special events.
• Viral marketing is an attempt to capitalize on social networks by “seeding” information to well-connected
individuals.
Theory In Action
Generating Awareness for Domosedan
• Farmos wanted to build awareness of its new innovation in animal painkillers.
• Asked university professors and advanced practitioners to help with testing process
for drug – acted as premarketing tool.
• Drug was featured in conferences, articles, dissertations.
• Farmos also hosted a large dinner party for all practicing veterinarians at the drug’s
launch.
• Domosedan was adopted rapidly around the world and became a commercial
success.

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STRATEGIC MANAGEMENT COURSE

Master in Management Program

OPERATIONAL STRATEGIES. INNOVATIONS.

Professor Maria Nikishina

Importance of Technological Innovation

Importance of innovation and advances in information technology have lead to:

However, may result in negative externalities.

For example, pollution, erosion, antibiotic-resistant bacteria.

Innovation by Industry: The Importance of Strategy

Strategic Management of Technological Innovation

Strategic Management of Technological Innovation

Strategic Management of Technological Innovation

1. Why is innovation so important for firms to compete in many industries?

2. What are some of the advantages of technological innovation? Disadvantages?

Part One: Industry Dynamics of Technological Innovation

 Types of innovations, and common industry patterns of technological evolution and

 The factors that determine whether industries experience pressure to select a

Innovating in India: The Chotukool Project

Innovating in India: The Chotukool Project

• Whether an innovation is competence enhancing or competence destroying

• Most architectural innovations require changes in the underlying components also.

Diffusion of Innovation and Adopter Categories

Ending HIV? Sangamo Biosciences and Gene Editing

Ending HIV? Sangamo Biosciences and Gene Editing

Reasons for Going Solo

Types of Collaborative Arrangements

Types of Collaborative Arrangements

Choosing a Mode of Collaboration

Solo Internal Low High High Yes Yes No

Strategic Varies Varies Low Yes Yes Sometimes

Joint Ventures Low Shared Shared Yes Yes Yes

Licensing In High Medium Low Sometimes Sometimes Sometimes

Choosing a Mode of Collaboration

Licensing Out High Low Medium Yes No Sometimes

Outsourcing Medium/Hi Medium Medium Sometimes No Yes

Organizations Low Varies Varies Yes Yes Yes

Choosing and Monitoring Partners

Choosing and Monitoring Partners

A firm’s position within a collaborative

The Digital Music Distribution Revolution

The Digital Music Distribution Revolution

Patents, Trademarks and Copyrights

Patents, Trademarks and Copyrights

Patents, Trademarks and Copyrights

Patents, Trademarks and Copyrights

Patents, Trademarks and Copyrights

Patents, Trademarks and Copyrights

Two treaties simplify registration of trademarks in multiple countries: Madrid

Patents, Trademarks and Copyrights

Patents, Trademarks and Copyrights

Part Three: Implementing Technological Innovation Strategy

Deployment Tactics in the Global Video Game Industry

Deployment Tactics in the Global Video Game Industry

Deployment Tactics in the U.S. Video Game Industry

1. A large part of the value of a technological innovation is determined by the degree

Licensing and Compatibility

• Typical pricing strategies for new innovations:

• Can manipulate customer’s perception of price.

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