BU481 Ch. 7, 8, 9

[Ch 7] What is innovation?

The successful commercial introduction of a new product, process, or business model.

[Ch 7] What sequence describes the four stages of the innovation process?

Idea, invention, innovation, and imitation.

[Ch 7] How does an invention differ from an innovation?

An invention creates something new; an innovation commercializes it successfully.

[Ch 7] What is the main trade-off between patents and trade secrets?

Patents provide temporary legal exclusivity through disclosure; trade secrets depend on continued confidentiality.

[Ch 7] What can create a first-mover advantage?

Scale economies, learning effects, network effects, patents, supplier relationships, and switching costs.

[Ch 7] What are the five stages of the industry life cycle?

Introduction, growth, shakeout, maturity, and decline.

[Ch 7] What is the main strategic priority during introduction?

Achieving market acceptance through product innovation and experimentation.

[Ch 7] What becomes increasingly important during growth?

Scaling, distribution, reliability, and process innovation.

[Ch 7] What is the main strategic priority during shakeout?

Surviving consolidation through scale, efficiency, brand strength, and distribution.

[Ch 7] What characterizes maturity?

Limited growth, replacement demand, slower innovation, and greater emphasis on efficiency and loyalty.

[Ch 7] What four strategies are available during decline?

Exit, harvest, maintain, and consolidate.

[Ch 7] What are the five adopter groups in order?

Technology enthusiasts, early adopters, early majority, late majority, and laggards.

[Ch 7] Where is the main adoption chasm?

Between early adopters and the early majority.

[Ch 7] Why is crossing the chasm difficult?

The early majority demands reliability, proof, support, and lower risk rather than novelty and potential.

[Ch 7] How are incremental, radical, architectural, and disruptive innovation distinguished?

Incremental is existing technology/existing market; radical is new/new; architectural is existing technology/new market; disruptive is new technology/existing market.

[Ch 7] What defines disruptive innovation?

A simpler low-end entry that improves until it can challenge mainstream incumbents.

[Ch 7] What three responses can incumbents use against disruption?

Continue innovating, protect the low end, and disrupt themselves.

[Ch 7] How does a pipeline differ from a platform?

A pipeline controls a linear value chain; a platform facilitates interactions between external producers and consumers.

[Ch 7] What four roles make up a platform ecosystem?

Platform owner, platform provider, producer, and consumer.

[Ch 7] What is a positive network effect?

An increase in value to participants as the number or quality of platform users and interactions grows.

[Ch 8] How does corporate strategy differ from business strategy?

Corporate strategy determines where the firm competes; business strategy determines how it competes in one market.

[Ch 8] What three dimensions define the boundaries of the firm?

Vertical integration, horizontal diversification, and geographic scope.

[Ch 8] What is the make-or-buy decision?

The choice between performing an activity inside the firm and obtaining it through the market.

[Ch 8] What are transaction costs?

All internal and external costs of completing and governing an economic exchange.

[Ch 8] When should a firm generally internalize an activity?

When the costs and risks of market exchange exceed those of internal organization.

[Ch 8] What is vertical integration?

Ownership of production inputs or of the channels through which outputs reach customers.

[Ch 8] How do backward and forward vertical integration differ?

Backward integration moves toward suppliers and inputs; forward integration moves toward distribution and customers.

[Ch 8] What are specialized assets?

Assets worth substantially more in their intended transaction than in their next-best use.

[Ch 8] What is the hold-up problem?

Exploitation of a party's dependence after it commits a specialized investment.

[Ch 8] What are the main benefits of vertical integration?

Lower transaction costs, greater quality control, better coordination, protected investment, and secure supply or distribution.

[Ch 8] What are the main risks of vertical integration?

Higher internal cost, weaker discipline, reduced flexibility, greater complexity, and legal exposure.

[Ch 8] What is taper integration?

Performing part of an activity internally while continuing to use outside suppliers or distribution.

[Ch 8] What is strategic outsourcing?

Moving internal value-chain activities to outside firms while protecting activities tied to core advantage.

[Ch 8] What is diversification?

An increase in the variety of products, services, or geographic markets served.

[Ch 8] What revenue thresholds distinguish single and dominant businesses?

Single business exceeds 95% from one business; dominant business earns 70% to 95% from one business.

[Ch 8] How do related-constrained and related-linked diversification differ?

Related-constrained portfolios share tight links throughout; related-linked portfolios contain selected links.

[Ch 8] What defines unrelated diversification?

The businesses have few meaningful strategic links and less than 70% of revenue comes from the main business.

[Ch 8] What relationship exists between diversification and performance?

Performance usually peaks with moderate related diversification and declines with excessive complexity.

[Ch 8] How can diversification create value?

Through economies of scale or scope, shared activities, competency transfer, cross-selling, restructuring, or better capital allocation.

[Ch 8] What are the four BCG categories and their usual strategies?

Cash cow—hold; star—invest or hold; question mark—invest selectively or harvest; dog—harvest or divest.

[Ch 9] What is a strategic resource gap?

The difference between the resources or capabilities a firm has and those required by its strategy.

[Ch 9] What three options make up the Build-Borrow-Buy framework?

Internal development, contracts or alliances, and acquisition.

[Ch 9] When should a firm build?

When its existing resources are relevant and sufficiently strong to develop the capability internally.

[Ch 9] When should a firm borrow?

When an external resource is accessible through a contract or alliance without requiring full ownership.

[Ch 9] When should a firm buy?

When the resource cannot be built or borrowed effectively and the target can be integrated successfully.

[Ch 9] What four questions guide Build-Borrow-Buy?

Resource relevance, tradability, required closeness, and integration feasibility.

[Ch 9] What is a strategic alliance?

A voluntary arrangement in which firms share knowledge, resources, or capabilities to develop an offering or process.

[Ch 9] What five motives drive strategic alliances?

Competitive position, market entry, uncertainty hedging, complementary assets, and capability learning.

[Ch 9] What is a real option?

The right, but not the obligation, to make further investment after uncertainty is reduced.

[Ch 9] What are complementary assets?

Manufacturing, marketing, distribution, service, or other resources required to commercialize an innovation.

[Ch 9] How do the three alliance governance forms differ?

Non-equity uses contracts; equity adds partial ownership; a joint venture creates a separate jointly owned organization.

[Ch 9] Which alliance forms best fit explicit and tacit knowledge?

Non-equity alliances fit explicit knowledge; equity alliances and joint ventures better support tacit knowledge.

[Ch 9] What are the three phases of alliance management?

Partner selection and formation, alliance design and governance, and post-formation management.

[Ch 9] What is a learning race?

An alliance in which both firms seek knowledge but one partner absorbs and applies it faster.

[Ch 9] How does a merger differ from an acquisition?

A merger combines independent companies; an acquisition transfers control of one company to another.

[Ch 9] What is horizontal integration?

Combining with a competitor operating at the same stage of the industry value chain.

[Ch 9] What benefits can horizontal integration create?

Lower rivalry, economies of scale, greater market access, and stronger differentiation.

[Ch 9] Why do acquisitions often destroy buyer value?

Premiums, winner's curse, vague synergies, agency problems, hubris, and integration failure.

[Ch 9] What is the winner's curse?

The winning bidder pays more than the value it can realistically obtain from the target.

[Ch 9] What is managerial hubris?

Leaders' unjustified belief that their ability will overcome the normal risks of an acquisition.