Innovation For Competitive Rivalry And Dynamics Lecture Slides PDF

MGT 489 Strategic Management Special Innovation for Competitive Topic Rivalry and Dynamics Dr. Jeongho J. Choi Learning Objectives  Define innovation and describe its role in the competitive process - VRIO: In...

MGT 489 Strategic Management Special Innovation for Competitive Topic Rivalry and Dynamics Dr. Jeongho J. Choi Learning Objectives  Define innovation and describe its role in the competitive process - VRIO: Innovation as a driver of competitive advantage  Identify different types of innovation and their strategic implications - Incremental, Architectural, Disruptive and Radical Innovation  Understand discontinuities and the dynamics of paradigm changes What is Innovation? Source: Baregheh et al., (2009) :Towards a multidisciplinary definition of innovation What is Innovation? (1) Innovation: a novel and useful idea that is successfully implemented (2) The implications of innovation to the company’s core competencies - V: Mass production through economies of scale - R: First to market - I: Costly to imitate due to the complexity of tech. (3) Differences between innovation and a format (or standardization) (4) Benefits of standards - Production cost - The minds of consumers What is Innovation? (5) When can the innovation be adopted as a standard? - Market demand should be ready to use the innovation, but also when no other more effective and efficient substitutes are available (e.g., PC-QWERTY and Mobile Phone- GSM and CDMA) - Some connections with the government *Dvorak simplified Keyboard* Identifying different types of Innovation  Types of Innovation and their strategic implications  The better we understand different types of innovation, the more accurately we can assess their strategic implications  Two dimensions: Technology and Market (Thursby, J. and Thursby, M. 2006) NEW Architectural Radical Innovation Innovation Markets EXISTING Incremental Disruptive Innovation Innovation EXISTING NEW Technologies Identifying different types of Innovation  Types of Innovation (cont’d)  Incremental: it builds on the firm’s established knowledge base and steadily improves the product or service it offers (e.g., i-phone and Drugs, except those breakthrough medicines)  Radical: an innovation that draws on novel methods or materials, is derived from entirely different knowledge base or from the recombination of the firm’s existing knowledge base with a new stream of knowledge (e.g., Air conditioner, www- internet and Mobile phone)  Architectural: a new product in which known components are reconfigured in a novel way to attack new markets (e.g., Flying car and Sony-Walkman)  Disruptive: an innovation that leverages new technologies to attack existing markets from the bottom up (e.g., CD, USB flash memory and LCD)  Identifying different types of Innovation  Strategic Implications  Reasons for Incremental innovation - The linear model of Innovation - Cost of Innovation  Reasons for Disruptive innovation - Allows innovators to outperform against the incumbent firms - Creates threats  Strategies to guard against disruptive innovations - Use reverse innovation - Introduce low-cost innovation Innovation and its implications for strategy  Industry life cycle Entrants Industry Output Firm Survival & Competition First Movers 0 net entry Growth Maturity Decline Introduction Time Product Innovation Process Innovation Fundamental Fundamental  Market entry with innovative technology and its products - When to enter the market? First mover, early follower or late mover Innovation and its implications for strategy  Advantages of being a first mover Timing of market entry and possible strategies ? Innovativeness First Mover High - Entry barrier - Test a market - Monopolize - Premium price market Early Follower Late Mover LOW - Product (Imitator) innovation - Enter Niche Market LOW (or unsure) HIGH (or quite sure)  First-mover disadvantages Demand  Any strategic implications for early followers? - Product Innovation and low-cost strategy Innovation and its implications for strategy  Apple TV vs. Google Chromecast Innovation and its implications for strategy  An Example  Terrafugia (a flying car manufacturer; http:// www.terrafugia.com/aircraft/transitionR) Is the company a first mover or a standard setter? - Price for the “transition®”: $279,000 - Release date: 2015 or 2016 (USA TODAY, 2013) Discontinuities and the dynamics of paradigm changes  Technological Paradigm Shifts occur when: - New technologies revolutionize the structure of the industry - Maturity stage - Architectural, Radical and disruptive innovation  Discontinuity: a period of time in which the underlying technological standard changes  Discontinuities can lead to a paradigm shift, a situation in which a new technology revolutionizes an existing industry and eventually establishes itself as the new standard Discontinuities and the dynamics of paradigm changes  Discontinuities and strategic implications Performance Time  How can a company predict when innovation leads to a discontinuity? - All technologies eventually reach a physical limit due to laws of nature - Fuel price, availability of natural resources, environmental issues, etc. Discontinuity and strategic implications  Discontinuities create opportunities as well as threats  Discontinuities favor new entrants with new replaced technologies  Technological paradigm shifts can be predictable unless it is triggered by radical innovation (e.g., Kodak knew that film cameras will be replaced by digital cameras)  Technological and organizational transformation is required as Fuji film has done to cope with the technological paradigm shift