CH 6 Strategy and Entrepreneurship

Entrepreneurship

describes the process by which change agents undertake economic risk to innovate - to create new products, processes, and sometime new organizations

-the act of taking economic risks to innovate, leading to new products, processes, or organizations

-agents who introduce change

Strategic entrepreneurship

uses strategic management principles to innovate for the purpose of achieving competitive advantage

-uses afi framework

-how to combine entrepraneial actions, how to create new opportunities, how to exploit existing opportunities in the pursuit of competitive advantage

social entrepreneurship

focuses on social goals, assessing performance through a triple bottom line approach

invention

descovery of new ideas and products

innovation

involves discovering and developing new knowledge through a four step process

1. Idea

2. invention

3. commercialization

4. imitation

-It starts with a creative idea, which leads to an invention - the transformation of the idea into a new product or process

-commercialization is the process of bringing the invention to a market, and if its successful, it will eventually be imitated by competitors

-competition is driven by innovation

first mover advantage

the innovation process brings this

-competitive benefits that accrue to the successful innovator

—> experiance and learning curve effects

—. locking in key suppliers

—> build switching costs

Product/Industry life cycle stages (strategic view)

Introduction stage: awareness is crucial for adoption. Companies may use skimming pricing if competition is limited or penetration pricing in a competitive market. Initial sales are low and slotting fees to retailers are common

Growth stage: characterized by rapid customer adoption and high advertising costs. companies may lower prices in response to competition and seek exclusive distribution arrangement

Maturity stage: sales growth slows and eventually plateaus. Strategies focus on cost leadership or differentiation. Industry consolidation occurs, with larger companies acquiring smaller ones

Decline stage: sales significantly drop due to various factors. Prices may increase due to reduced competition. Companies may innovate to restart growth or limit advertising dollars

Introduction

at this stage, people are likely to be completly unaware that a product even exists

-need to build awareness

-companies invest in advertising to make customers aware of their offerings and the benefits of becoming a customer

-the early adopters are people who value newness and innovation

-if a company faces only limited competition, it might use a skimming approach to pricing because people who want to be among the first to have the product will generally be willing to pay a higher price

-the company will then lower prices to appeal to the next layer of consumers - those who wanted the product but were unwilling to pay the high introductory price

-the company will continue to gradually lower prices, until the price is low enough to appeal to the mass market

-if the company has or expects a low of competiton it might decide to use penetration pricing and capture a lot of market share, which may discourage some potential competitors from entering the market at all

-the higher the price, the more likely competitors will enter the market

-during the introductory stage, the industry as a whole will sell only a relatively small quantity of the product, so competitors will distribute the product through just a few channels. Most retailers charge what is called a slotting fee which is a payment the manufacturer makes to persuade the retailer to stock the item.

-if the product fails, they do not offer refunds on these charges, ot the produccers will want to be confident that a product will draw enough customers before they pay these fees and so many limitits initial distribution. Because slaes at this stage are low while advertizing and other costs are high, all competitors tend to lose money during this stage

-successful products will enter a stage of rapid customer adoption, which is not surprisingly called the growth stage in the product life cycle

-depending on how innovative a d attractive a product is, the industry might reach the growth stage relativly quickly or it could take many months or longer if it even happens

-in order for industry salesto increase rapidly, advertising costs will generally be very high during the growth stage

-if compeittion appears, companies may respond by lowering prices to retain their market shares. competitors will also be looking for channels in which to distribute their products. where porssible, they will try to establish exclusive arrangements with distributors, at least for a period of time, so that their product may be the only one avaliable in a product category at a particular retail outlet. The buyers in this stage are known as early adaptors

Growth stage

-companies should invest in making improvements to their products so as to maintain any advantage that they may have established over their competitors

-since sales are rising rapidly duringt he growth stage, many products begin to turn aprofut here, even through they are still investing heavilty in advertising, establishing distrobution, and refining the product itself

-the buyers in this stage are the early majority

-dominant design needs to be established

-product innovation: represents a new way of solving a problem a high number of customers have

process innovation: new ways to produce existing products or deliver existing services

-after the industry standard is established, process innovations become more important

maturity stage

-if a product survives the gowth stage, it will probably remian in the maturity stage for a long time.

-oligopoly is domonitant industry structure in this phase

-sale still grow in the initial part of this stage, though at a decreasing rate. Later in the maturity stage, sales will plateau and eventually begin to move in a slightly downward direction. By this stage, if not sooner , compeitots will have settled on a strategy intended to deliver them a sustainable competitive advantage - either by being the cost leader of a product, or by successfully differentiating their product from the competitiion.

-since at least one competitor will generally move towards a low-cost strategy, after initially peaking, price levels begin to decline during the maturity stage

-price wars may even occur, but profits still tend to be strong because sales volume remains high

-as the product becomes outdated, the company may make changes in keeping with changeing consuemr preferences, but usually not as rapidly as in their earlier stages of the life of a product

-branding becomes a key aspect of success in the maturiy stage, particually for those companies seeking to differentiate their products as their source of competitive advantage

-industry consolidation is high, so larger competitors will buy up smaller compeitors in order to find synergies an dbuild share and scale economies

-some models of the product life cycle reflect a stage called shakeout which occurs towards the end of the growth and hte beginning of the maturity stages

-the term shakeout reflects this trend towards industry consolidation. some competitors survived and other get shaked out,either by going out of business or by being acquired by a stronger competitor (greatest competitive weapon in the shakeout phase is price)

-buyers are known as the late majority

Decline stage

-the point at which sales drop significantly (virtually every product will reach this stage)

-products with a short life cycle are fads

-many products, particularly those which have experianced a long period in maturity may stay in the decline phase for years

-price levels in the decline stage mihgt actually increase, becuase the number of competitors are low

-new product ddevelopment is limitedunless a company beleives that innovation can restrt growth in the catrogy

-advertising is limited or nonexistant

-many companies make a lot of money while they are riding the downward shape of the product lige cycle curve during the decline stage

-buyers in this stage are laggards

strategic options are exit (get out of industry), harvest (stay with limited investments), maintain (stay and continue marketing), consolidate (buy rivals, near monopoly)

types of innovations

there are four kinds we need to know

Radical innovation

They are innovations that are very different or even revolutionary and they replace existing ideas, products, services, or processes and perhaps lead to markets that were previously nonexistent.

-can lead to massive changes in an industry and to what is referred to as creative destruction in the marketplace

-draws on novel methods or materials and is derived either from an entierly different knowlegde base or from the recombination of the existing knowledge base with a new stream of knowledge (new market / new technology)

-novel methods or materials serving new markets

Incremental innovations

involve smaller improvements in ideas, products, services

-adding unique features to a product or service

-can have a radical effect on the marketplace

-existing market/existing tech

-steady improvement of a product or service based on established technology

-economical invesntives to help them focus on defending their position

-organizational inertia (resistant to changes in status quo)

-established innovation ecosystem

Architectural innovation

-as embodied new product in which known components, based on existing technologies are reconfigured in a novel way to attach new markets

-new market / existing technology

-leveraged existing technoogy

-new product with known components used in a novel way

Disruptive innovation

-leverages new technologies to attack existing markets from the bottom up (existing markter / new technology)

-example is what digital phatography did to the old days for taking pics and having film developed