CHAPTER
7
Business Strategy:
Innovation and Strategic
Entrepreneurship
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Part 2 Strategy Formulation
LO 7-1
Define innovation and describe its role in the competitive process.
LO 7-2
Describe the competitive implications of different stages in the
industry life cycle.
LO 7-3
Apply strategic management concepts to entrepreneurship and
innovation.
LO 7-4
Evaluate different types of innovation and derive their strategic
implications.
LO 7-5
Describe the long-tail concept and derive strategic implications.
LO 7-6
Evaluate discontinuities and describe the dynamics of paradigm changes.
LO 7-7
Identify the process leading to hypercompetition, and explain why
competitive advantage can often be sustained through continuous
innovation.
Innovation Funnel
TThhee DDeeve
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IM IT AT IO N
S u p p ly s id e
B a s ic
K n o w le d g e
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In n o va tio n
D iffu s io n
D e m a n d s id e
A D O P T IO N
TThhee DDeevveelo
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meerc
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tionn
B A S IC
KNOW LEDG E
X e ro g ra p h y
la te 1 9 th a n d
F IR S T
P ATENTS
PRODUCT
IM IT A T IO N
LAUNCH
1940
1958
1974
1930
1957
1959
1981
1987
1988
e a rly 2 0 th
c e n tu rie s
J e t E n g in e s
1 7 th -- e a rly
2 0 th c e n tu rie s
F u zz y lo g ic
c o n tro lle rs
1 9 6 0 ’s
AAppppro
roppria
riatio
tionn ooff VVaalu
luee:-:- HHoow
w aare
re th
thee
BBeenneefits
fits fro
from
m In
Innnoova
vatio
tionn DDis
istrib
tribuute
tedd??
C u s to m e rs
S u p p lie rs
In n o va to r
Im ita to rs a n d
o th e r
“fo llo w e rs ”
TThhee PPro
rofita
fitabbility
ility ooff In
Innnoova
vatio
tionn
P ro fits
fro m
In n o va tio n
V a lu e o f th e
in n o va tio n
• L e g a l p ro te c tio n
• C o m p le m e n ta r y
In n o va to r’s
a b ility to
a p p ro p ria te th e
v a lu e o f th e
in n o va tio n
re s o u rc e s
• Im ita b ility o f th e
te c h n o lo g y
•L e a d tim e
LLeeggaall PPro
rote
tecctio
tionn ooff In
Inte
telle
llecctu
tuaall PPro
roppeerty
rty
•
P a te n ts
— e x c lu s iv e rig h ts to a n e w p ro d u c t,
p ro c e s s , s u b s ta n c e o r d e s ig n .
•
C o p yrig h ts
— e x c lu s iv e rig h ts to a rtis tic , d ra m a tic ,
a n d m u s ic a l w o rk s .
•
T ra d e m a rk s
— e x c lu s iv e rig h ts to w o rd s , s ym b o ls
o r o th e r m a rk s to d is tin g u is h g o o d s
a n d s e rvic e s ; tra d e m a rk s a re
re g is te re d w ith th e P a te n t O ffic e .
•
T ra d e S e c re ts
— p ro te c tio n o f c h e m ic a l fo rm u la e ,
re c ip e s , a n d in d u s tria l p ro c e s s e s .
A ls o , p riva te c o n tra c ts b e tw ee n firm s a n d b e tw e e n a firm an d its
ie m p lo ye e s c a n re s tric t th e tra n s fe r o f te c h n o lo g y a n d k n o w h o w .
UU.S
.S.. M
Maannaaggeers
rs’’ PPeerc
rceepptio
tionnss ooff th
thee EEffe
ffecctive
tivenneessss ooff
DDiffe
iffere
renntt M
Meecchhaannis
ism
mss fo
forr PPro
rote
tecctin
tingg In
Innnoova
vatio
tionn
P ro c e s s e s
P ro d u c ts
P a te n ts to p re v e n t d u p lic a tio n
3 .5 2
4 .3 3
P a te n ts to s e c u re ro ya lty in c o m e
3 .3 1
3 .7 5
S e c re c y
L e a d tim e
4 .3 1
5 .1 1
3 .5 7
5 .4 1
M o vin g q u ic k ly d o w n th e le a rn in g
c u rv e
5 .0 2
5 .0 9
S a le s o r s e rv ic e e ffo rts
4 .5 5
5 .5 9
1 = n o t a t a ll e ffe c tiv e
7 = v e ry e ffe c tiv e
S o u rc e : L e v in , K le v o ric k, N e ls o n & W in te r. B ro o k in g s P a p e rs o n E c o n o m ic A c tiv ity , 1 9 8 7.
The Technology Transfer Process
Research
$29.5
billion
Disclosure
IP Decision
13,039
disclosures
6,375 patent
applications
IP Protection
3,764 issued
patents
Commercialization Strategy
Source: AUTM
Licensing Survey:
FY 2000
4,362 licenses
454 new companies
Licensing
AAlte
ltern
rnaativ
tivee SStra
trate
teggie
iess fo
forr EExxpplo
loitin
itingg In
Innnoova
vatio
tionn
L ic e n s in g
R is k &
R e tu rn
S m a ll ris k, b ut
lim ite d retu rn s
a ls o (u nle s s
p a te n t p o sitio n
v e ry s tro n g
Few
C o m p e tin g
R e s o u rc e s
E x a m p le s
K o n ic a
lic e n s in g its
d ig ital
c a m e ra to
HP
O u ts o u rc in g
c e rta in
fu n c tio n s
S tra te g ic
A llia n c e
J o in t
V e n tu re
L im its
in v e s tm e n t, b ut
dependence on
s u p p lie rs &
p a rtn e rs
B e n e fits of
fle x ibility;
ris k s o f
in fo rm a l
s tru c tu re
S h a re s
in v e s tm e n t &
ris k . R is k o f
p a rtn e r
c o n flict &
c u ltu re cla s h
A llo w s o uts id e
re s o u rc e s &
c a p a b ilitie s
To be accessed
P e rm its p o o lin g of th e
re s o u rc e s /c a p a b ilitie s of
m o re th a n o n e firm
P ix a r’s m o v ie s (e.g .
“ T o y S to ry” )
m a rk e te d &
d is trib ute d b y
D is n e y.
A p p le a n d
S h a rp b u ild
th e
“ N e w to n ”
PDA
M ic ro s o ft
and NBC
fo rm e d
M SNBC
In te rn a l
C o m m e rc ia liz a tio n
B ig g e s t ris k s &
b e n e fits.
A llo w s c o m ple te
c o n tro l
S u b s ta n tia l
re s o u rc e
re q u ire m e n ts
T I’s
d e v e lo p m e n t of
D ig ita l S ig n a l
P ro c e s s in g
C h ip s
TThhee CCoom
mppaara
rative
tive SSuucccceessss ooff LLeeaaddeers
rs aanndd
FFoollo
llowweers
rs
PRO DUCT
IN N O V A T O R
FO LLO W ER
W IN N E R
J e t A irlin e rs
D e H a v illa n d (C o m e t)
B o e in g (7 0 7 )
F o llow e r
F lo a t gla s s
P ilk in g to n
C o rn in g
Leader
X -R a y S c a n n e r
EM I
G e n e ra l E le ctric
F o llow e r
O ffic e P .C .
X e ro x
IB M
F o llow e r
VCRs
A m p e x /S o n y
M a ts u s h ita
F o llow e r
D ie t C o la
R .C . C o la
C o c a C o la
F o llow e r
In s ta n t C a m e ra s
P o la ro id
Kodak
Leader
P o c k e t C a lc u la to r
Bow m ar
T e x a s In s tru m e nts
F o llow e r
M ic row a v e O v e n
R a yth e o n
Sam sung
F o llow e r
P la in P a p e r C o p ie rs
X e ro x
Canon
N o t c le a r
F ib e r O ptic C a b le
C o rn in g
m a n y c o m p a n ie s
Leader
V id e o G a m e s P la ye rs
A ta ri
N in te n d o /S e g a /S o n y
F o llow e rs
D is p o s a b le D ia p e rs
P ro c to r & G a m b le
K im b e rly-C la rk
Leader
W e b b row s e r
N e ts c a p e
M ic ro s o ft
F o llow e r
PDA
P s io n , A p p le
P a lm
F o llow e r
M P 3 m u s ic pla ye rs
D ia m o n d M u ltim e dia
S o n y (& o th e rs )
F o llow e rs
UUnncceerta
rtain
inty
ty && RRis
iskk MMaannaaggeem
meenntt in
in TTeecchh-b
-baasseedd In
Indduusstrie
triess
T e c h n o lo g ic a l
u n c e rta in ty
S o u rc e s o f
u n c e rta in ty
M a rk e t
u n c e rta in ty
S e lec tio n p ro c es s fo r s ta n da rd s a n d
d o m in a n t d e s ig n s e m e rge is c o m p le x
a n d d iiffic u lt to p re d ic t, e .g . fu tu re o f 3 G
C u s to m e r a cc e p ta nc e a n d a d o p tio n ra te s
o f in n o va tio n s n o to rio u s ly d iffic u lt to
p re d ic t, e .g . P C , X e rox c o p ie r, W a lk m a n
C o o p e ra tin g w ith le a d u s e rs
e a rly id e n tific a tio n o f c u s to m e r re q u ire m e n ts
– a s s is ta n ce in n ew p ro d uc t d e ve lop m e n t
S tra te g ie s fo r
m a n a g in g ris k
F le x ib ilility
— k e e p o p tio n s o pe n
— u s e s pe e d o f res p o n se to a d a pt
q u ic k ly to n e w in fo rm a tio n
— le a rn fro m m is ta ke s
L im itin g ris k e x p o s u re
— a vo id m a jo r c a p ita l c o m m itm e nts
(e .g . le a se d o n ’t b u y)
— o u ts o u rc e
— a llia n ce s to ac ce ss o th e r firm s ’
re s o u rce s & c a pa b ilitie s
— k e e p de b t lo w
SSoouurc
rceess ooff NNeetw
twoork
rk EExxte
tern
rnaalitie
litiess
•
U s e r lin k a g e s , e .g .
– T e le p h o n e s ys te m s — o n ly va lu e o f te le p h o n e is c o n n e c tio n to
o th e r u s e rs
– V id e o g a m e c o n s o le s — s a m e p la tfo rm a llo w s u s e rs to
e x c h a n g e g a m e s a n d p la y in te ra c tive ly
– O n -lin e a u c tio n — va lu e o f a u c tio n d e p e n d s o n n u m b e r o f
b u ye rs a n d s e lle rs p a rtic ip a tin g
A ls o , s o c ia l id e n tific a tio n — lis te n in g to s a m e m u s ic , w a tc h in g
s a m e T V s h o w s , w e a rin g s a m e c lo th e s in o rd e r to c o n fo rm
•
A v a ila b ility o f c o m p le m e n ta ry p ro d u c ts , e .g .
– M o s t P C a p p lic a tio n s s o ftw a re w ritte n fo r W in d o w s , n o t M ac .
– In e c o n o m y a u to s , e a s ie r to g e t p a rts a n d re p a ir fo r a F o rd
F o c u s th a n fo r a M a ru ti o r P ro to n
•
E c o n o m izin g o n s w itc h in g c o s ts , e .g .
– In s u ite s o f o ffic e s o ftw a re , u s e rs o f M ic ro s o ft O ffic e m o re
lik e ly to a vo id s w itc h in g c o s ts th a t u s e rs o f L o tu s S m a rtS u ite
w h e n th e y m o ve jo b s
CCoom
mppeetin
tingg fo
forr SSta
tannddaard
rdss::
VVaalu
luee AAppppro
roppria
riatio
tionn vs
vs.. M
Maark
rkeett AAcccceeppta
tannccee
M a x im ize
m a rk e t
a c c e p ta n c e
VHS
B e ta m a x
LO O SE
M a x im ize
v a lu e
a p p ro p ria tio n
T IG H T
IB M -P C
M ac
TThhee CCoonndditio
itionnss fo
forr CCre
reaativity
tivity::
“O
“Oppeera
ratin
tingg”” aanndd “In
“Innnoovvaatin
tingg”” OOrg
rgaanniza
izatio
tionnss
O p e ra tin g O rg a n iz a tio n
In n o v a tin g O rg a n iz a tio n
S tru c tu re
B u re a u c ra tic . S p e c ia liz a tio n a n d
d ivis io n o f la b o r. H ie ra rc h ic a l
c o n tro l
F la t o rg a n iz a tio n w ith o u t
h ie ra rc h ic a l c o n tro l. T a s k -o rie n te d
p ro je c t te a m s .
P ro c e s s e s
O p e ra tin g u n its c o n tro lle d a n d
c o o rd in a te d b y to p m a n a g e m e n t
w h ic h u n d e rta k e s s tra te g ic
p la n n in g , c a p ita l a llo c a tio n a n d
o p e ra tio n a l p la n n in g .
P ro c e s s e s d ire c te d to w a rd
g e n e ra tio n , s e le c tio n , fu n d in g a n d
d e ve lo p m e n t o f id e a s . S tra te g ic
p la n n in g fle x ib le , fin a n c ia l a n d
o p e ra tin g c o n tro ls lo o s e .
R e w a rd
F in a n c ia l c o m p e n s a tio n , p ro m o tio n
u p th e h ie ra rc h y, p o w e r a n d s ta tu s
s ym b o ls .
A u to n o m y, re c o g n itio n , e q u ity
p a rtic ip a tio n in n e w ve n tu re s
R e c ru itm e n t a n d s e le c tio n b a s e d
u p o n th e n e e d s o f th e o rg a n iz a tio n
s tru c tu re fo r s p e c ific s k ills :
fu n c tio n a l a n d s ta ff s p e c ia lis ts ,
g e n e ra l m a n a g e rs , a n d o p e ra tive s .
K e y n e e d is fo r id e a g e n e ra to rs
w h ic h c o m b in e re q u ire d te c h n ic a l
k n o w le d g e w ith c re a tive
p e rs o n a lity tra its . M a n a g e rs m u s t
a c t a s s p o n s o rs a n d o rc h e s tra to rs .
S y s te m s
P e o p le
SStra
trate
teggyy Im
Impple
lem
meennta
tatio
tionn::
In
Inve
venntio
tionn to
to In
Innnoova
vatio
tionn
•
W h ile in v e n tio n d e p e n d s u p o n c re a tivity, s u c c e s s fu l
in n o va tio n re q u ire s in te g ra tin g n e w k n o w le d g e w ith
m u ltip le b u s in e s s fu n c tio n s .
•
N e e d to lin k R & D d e p a rtm e n ts w ith o th e r fu n c tio n s (th e
p ro b le m o f X e ro x ’s P A R C )
•
T h e ro le o f c ro s s -fu n c tio n a l n e w p ro d u c t d e v e lo p m e n t
te a m s a s v e h ic le s fo r in te g ra tio n
•
T h e ro le o f p ro d u c t c h a m p io n s --in a c h ie v in g in te g ra tio n
a n d c o u n te ra c tin g o rg a n iz a tio n a l in e rtia .
Chapter Case 7
From Encyclopedia Britannica to
Encarta to Wikipedia
• 18th century Scottish Enlightenment creates
Encyclopedia Britannica (E.B.)
 65,000 topics by 4,000 scholars
 In 1991, E. B. sales $650M (market was $1.2 billion annually)

Price ~$2,000 per set of books
• Microsoft launches Encarta in 1993 for $99 ea.
 By 1996 Encarta U.S. sales over $100M & E.B. ~$300M
• Mr. Wales launches Wikipedia in 2001 for $0 ea.
 3.6 million articles in English ( 40X E.B. !)

18 million total in 281 languages
 In ‘09 Microsoft shut down Encarta
 Peer-reviewed study of 42 topics found 4 errors in Wiki…3 in E.B.
Chapter Case 7
From Encyclopedia Britannica to
Encarta to Wikipedia
• The innovation of CD-based encyclopedia
 Destroyed more than ½ the revenue of encyclopedias
• Technology allowed Wikipedia to increase value
and decrease costs
• The innovative business model:
 "Crowd wisdom" for big value

But NO revenue

Wikipedia is funded by donations of time and money
Competition Driven by Innovation
• Invention is discovery of new ideas/products
 Wright brothers – airplane flight
• Innovation is the commercialization of invention
 Boeing & Airbus – selling the airplanes
• Schumpeter’s “gale of creative destruction”
 Encyclopedias to Wikipedia…
 Typewriters to PCs to ???
 Pharmaceuticals to custom treatments
(individualized medicine)
EXHIBIT 7.1
Innovation: A Novel and Useful Idea that Is
Successfully Implemented
Innovation is an invention that is implemented in the marketplace
Innovation and the Industry Life Cycle
• Innovations create new industries
 Big box retailing
 Express delivery
 Nanotechnology still evolving
• Four stages of industry development
1. Introduction
Early adopters will pay a premium
 Only a few innovators in the market – differentiated
 Strategy here — market acceptance & seeds for growth
– Network effects helpful

• Positive effects ONE user has for other users
EXHIBIT 7.2
The Industry Life Cycle and ConsumerAdoption Categories
STRATEGY HIGHLIGHT 7.1
Apple Leverages Network
Effects to Propel Growth
• Apple launched iPhone in summer ‘07
 Launched app store a year later

Small programs but BIG business!
-
Over $4 billion in 2012
 Virtuous cycle of 10 billion Apple apps downloaded by 2011

Apps increase value of the iPhone (& iPad too!)

More devices sold, incentivizes software developers

Recent iBook store likely to grow the network effects still more
1–25
EXHIBIT 7.3
Leveraging Network Economics: Apple’s iPhone
Virtuous Cycle for iPhone (& iPad)
Innovation and the Industry Life Cycle
• Four stages of industry development (cont'd)
2. Growth Stage
Early majority buyers increase growth rapidly
 Dominant design is set
– IBM PC: Wintel
– Government influence – GSM standard for mobile phones
– QWERTY keyboards
 Core competencies move to manufacturing & marketing

 An example of growth stage

Women’s shapeware industry
– Spanx started in 1998
• Sold over 5M units & over $750 million in sales by 2008
– Maidenform, Body Wrap, & Miraclesuit are competitors
EXHIBIT 7.4
Product and Process Innovation and the
Emergence of an Industry Standard
After an industry standard is established, process innovations become more important.
STRATEGY HIGHLIGHT 7.2
Some Standards Die Hard:
QWERTY vs. DSK
• QWERTY introduced in 1870s
 Slowed down typing to avoid jamming keys
• Dvorak introduced in 1930s
 Minimized finger reach to speed up typing
Innovation and the Industry Life-Cycle
• Four stages of industry development (cont'd)
3. Maturity
Late majority buyers & more limited market growth
– Increased competitive rivalry
 Cost leadership firms tend to drive industry
– Weaker firms will exit
 Oligopoly is dominant industry structure in this stage

4. Decline


Laggards are buyers and market size shrinks
Four strategic options:
– Exit – get out of the industry
– Harvest – stay with limited investments (Olivetti)
– Maintain – stay & continue marketing (Marlboro)
– Consolidate – buy rivals, near monopoly (IBM mainframes)
EXHIBIT 7.5
Features of the Industry Life Cycle
Not all industries emerge through these stages and some can rejuvenate
such as the steel industry with mini-mills.
LO 7-1 Define innovation and describe its role in the competitive process.
LO 7-2 Describe the competitive implications of different stages in the
industry life cycle.
LO 7-3 Apply strategic management concepts to entrepreneurship
and innovation.
LO 7-4 Evaluate different types of innovation and derive their
strategic implications.
LO 7-5 Describe the long-tail concept and derive strategic implications.
LO 7-6 Evaluate discontinuities and describe the dynamics of paradigm
changes.
LO 7-7 Identify the process leading to hypercompetition, and explain why
competitive advantage can often be sustained through continuous
innovation.
Strategic Entrepreneurship
• Entrepreneurs are the change agents for creative
destruction.
 Create new opportunities and exploit them
Jeff Bezos – Amazon.com
– Saw growth of Internet in 1994
– Chose books as the first product for online sales
 Oprah Winfrey – Harpo Productions
– Rose from abuse & poverty to over $2 billion net worth
– Ended talk show to devote time to OWN TV channel
 Jeff Hawkins – Palm Computing (founded in 1992)
– PalmPilot and Treo products

 How to combine entrepreneurial with strategic actions?
 Example: P&G continued innovations in detergent
EXHIBIT 7.6
Types of Innovation:
Combining Markets and Technologies
GPS to handheld
consumer devices
MRI radiology
Intel 386 to 486 processors
Digital photography
Categorizing according to technology and markets yields 4 quadrants
STRATEGY HIGHLIGHT 7.3
1930s
From King Gillette to King
of Incremental Innovation
2011
1–35
STRATEGY HIGHLIGHT 7.3
From King Gillette to King
of Incremental Innovation
• Gillette invented the safety razor in 1903
 A radical innovation at the start
 Innovative business model

Make money from the blades NOT the razors
 Incremental innovation

Moved from 1 to six blades (so far…)
 Top selling blades today! Over $1 billion in sales

Prices steady to higher for the blades!
1–36
EXHIBIT 7.7
Disruptive Innovation Invading Different
Market Segments from the Bottom Up
Google’s Chrome OS could be a disruptor of traditional Microsoft operating
systems for computers…
STRATEGY HIGHLIGHT 7.4
GE’s Reverse Innovation:
Disrupt Yourself!
• GE Healthcare – global leader in diagnostics
 Ultrasound machine for research hospitals – $230,000

Limited market for these in developing countries
 2002 local team at GE China – developed portable US

Laptop-based technology – Under $30,000 for U.S. rollout
 2009 introduced a handheld US – about $10,000

Vscan - large cell phone – shaped device
GE Vscan Video
1–38
LO 7-1
Define innovation and describe its role in the competitive process.
LO 7-2
Describe the competitive implications of different stages in the industry
life cycle.
LO 7-3
Apply strategic management concepts to entrepreneurship and
innovation.
LO 7-4
Evaluate different types of innovation and derive their strategic
implications.
LO 7-5
Describe the long-tail concept and derive strategic implications.
LO 7-6
Evaluate discontinuities and describe the dynamics of paradigm changes.
LO 7-7
Identify the process leading to hypercompetition, and explain why
competitive advantage can often be sustained through continuous
innovation.
The Internet as Disruptive Force: The Long Tail
• Long tail in a digital world
 Both opportunity and threat
 80% sales in a given category are NOT “hits”

Pareto principle
 Technology enables easier access to the ‘tail’
Selling “less of more”
 Online firms can gain a large share of revenue from
selling a small number of nearly unlimited choices

• Short head is the mainstream
 Available at brick & mortar stores

Significant inventory costs
Ray Kurzwiel Video
EXHIBIT 7.8
The Short Head and the Long Tail
The Internet and inventory management software drive down costs to
match customer demand, increasing the tail to the black dotted line.
EXHIBIT 7.9 The Long-Tail Consequences: Selling Less of More
25% to 45% of sales for online retailers is from products
NOT available in traditional retail stores.
LO 7-1 Define innovation and describe its role in the competitive process.
LO 7-2 Describe the competitive implications of different stages in the
industry life cycle.
LO 7-3 Apply strategic management concepts to entrepreneurship and
innovation.
LO 7-4 Evaluate different types of innovation and derive their strategic
implications.
LO 7-5 Describe the long-tail concept and derive strategic implications.
LO 7-6 Evaluate discontinuities and describe the dynamics of
paradigm changes.
LO 7-7 Identify the process leading to hypercompetition, and explain
why competitive advantage can often be sustained through
continuous innovation.
Discontinuities: Periods of Paradigm Change
• Periods when underlying standard changes
 Paradigm shift
New technology revolutionizes existing industries
– New standard is established
 Technology “S-curve”
– Physical limits nearing or reached

 Incumbents need absorptive capacity

Existing firms must place “good bets” on new
technologies
 Examples of Discontinuities
Airplanes: propellers to jets
 Cameras: film to digital
 TV screens: vacuum tube to flat panel
 Music storage: vinyl to CDs to MP3 storage

Steven Chu
Plant Energy Video
EXHIBIT 7.10
Likelihood of Discontinuity Increases as
Technology Approaches Physical Limit
The Internet and inventory management software drive down costs to
match customer demand, increasing the tail to the black dotted line.
Rate of Technological Progress
(reduction in emissions)
Ex: Hybrid as Intermediate Step for Autos
Electric
Hybrid
Combustion
Time
Combustion has been automobile standard for over 100 years…
Is it time for a new standard? This is one scenario from the “swarm”
(for more discussion, see MiniCase 7).
EXHIBIT 7.11
Hypercompetition Driven by
Continuous Innovation
Subsequent innovations sustain competitive advantage
for a shorter time frame.
Take-Away Concepts
LO 7-1 Define innovation and describe its role in the competitive
process.
 Continuous innovation is the engine behind successful companies.
 Innovation is a potent competitive weapon; it enables firms to redefine the
marketplace in their favor and achieve much-needed growth.
 The successful commercialization of a new product or service allows a firm
to extract temporary monopoly profits.
LO 7-2 Describe the competitive implications of different stages in the
industry life cycle.
 Innovations frequently lead to the birth of new industries.
 Industries generally follow a predictable industry life cycle, with four distinct
stages: introduction, growth, maturity, and decline.
 Different life-cycle stages have different consumer adoption rates and
different competitive implications (see Exhibit 7.4).
Take-Away Concepts
LO 7-3 Apply strategic management concepts to entrepreneurship and
innovation.
 Strategic entrepreneurship focuses on generating integrated insights
pertaining to innovation and change using the concepts available in
strategic management.
LO 7-4 Evaluate different types of innovation and derive their strategic
implications.
 Four types of innovation emerge when applying the existing versus new
dimensions of technology and markets: incremental, radical, architectural,
and disruptive innovations.
LO 7-5 Describe the long-tail concept and derive strategic implications.
 The Internet is a strongly disruptive force that digitizes any industry that
can be digitized.
 The long tail describes a business model in which companies can obtain
a significant part of their revenues by selling a small number of units from
among almost unlimited choices.
Take-Away Concepts
LO 7-6 Evaluate discontinuities and describe the dynamics of paradigm
changes.
 Discontinuities can lead to a paradigm shift, in which a new technology
revolutionizes an existing industry and eventually establishes itself as the
new standard.
 Technologies follow a predictable technology S-curve, improving in
performance over time as a consequence of continued R&D effort.
 The probability of a discontinuity increases when a given technology
approaches its physical limit.
Take-Away Concepts
LO 7-7 Identify the process leading to hypercompetition and explain
why competitive advantage can be sustained through
continuous innovation
 Competitive intensity has increased and periods of competitive
advantage have shortened, especially in newer, technology-based
industries.
 No single strategy can sustain competitive advantage over time.
 Any competitive advantage must be a string of short-lived advantages.
This is achieved through a constant escalation of competition in the
areas of price, quality, timing and know-how, capital commitments, and
supply-chain management.
 Hypercompetition can result from a lack of strategic positioning.
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Strategic Management 1e - UIUC College of Business