Innovation and Entrepreneurship– BB
Session: L5
Entrepreneurship
Proponents and
Theories
Peter Drucker’s 1985 book on ‘innovation and entrepreneurship’
championed
“specifically entrepreneurial” strategies that Drucker described as
important, distinct and different
Resistance to change was a company’s worst enemy in the 1980s,
yet change was becoming increasingly unavoidable.
“entrepreneurial strategies”
1. Being Fastest with the Mostest
• Aim from the start to eventually land a leadership position being the first with
the most.
• The entrepreneur aims at leadership if not at dominance of a new market or
industry.
• Blackberry provides a good example.
• With the undeniably compelling nature of mobile e-mail, it was no big surprise
that the (RIM)Blackberry unit became popular so fast. Being first-to-market, its
premium pricing didn’t seem as expensive as it does in today’s much more
competitive landscape.
• But, now the company is being squeezed and needs to redefine its marketing
strategy.
2. Hit Them Where They Aint
• In this strategy the innovator doesn’t create a major
new product or service.
• Instead it takes something just created by somebody
else and improves upon it.
• Drucker called it “creative imitation” because the innovator reworks the product or
service, coming up with a slightly more desirable option.
• Take the iPhone for example.
• Apple entered the market of mobile phones at a time when it was mature and
saturated. But, the difference was found in the iPhone’s revolutionary product
design.
• As a cross between a mobile phone and a lap top computer, the iPhone took the
market standard and turned it on its head.
3. Entrepreneurial Judo
• In this case, the strategy’s success feeds on what is unfortunately
highly common among American companies: complacency.
• It takes what the market leader considers its strengths and
turns those strengths into the very weaknesses that defeat it.
• When the Japanese became the leaders in numerous U.S. markets
(e.g., copiers, machine tools, consumer electronics, automobiles, etc.)
they always used the same strategy.
• If, for example, an American company saw its high profitability as its greatest strength, then it
probably meant the firm focused on the high end of the market, leaving the mass market
undersupplied and underserviced.
• The Japanese moved in with low-cost products that had minimum features and the American
companies didn’t even put up a fight.
• However, because the Japanese had taken over the mass market, they soon had the cash flow
to then move in on the high-end market, too. It didn’t take long before they dominated both.
4. Changing Economic Characteristics
• Under all of the other strategies presented by Drucker, the innovator has to create an
innovative product or service.
• In this one, the strategy itself is the innovation.
• Using this strategy, the company actually converts an existing product or service into
something new by changing its utility, its value and its economic characteristics.
• Post conversion, there is new economic value and new customers, but no new product or
service.
• It’s a commonly used strategy in the high-tech industry.
• Pricing is one of the most successful ways to change the economic characteristics of a
product or service.
• Drucker used the example of Yahoo’s situation a few years back. With the internet designed
as an information network, most providers charged access for it, (e.g. hosting an e-mail
address). But, Yahoo, among others, gave away internet access because it was paid for by
advertisers who ran ads the customers would see when they went online. Yahoo asked, “Who
is the customer?” The answer was that the customer is the supplier who wants access to a
potential customer. This changed the characteristics of the industry
5. Ecological Niche
• This strategy aims at control.
• It obtains a practical monopoly in a small area.
• In the most successful of the ecological niche strategies, the whole point is to be so
inconspicuous (not easily seen) that despite the product’s being essential to a process; no one
will likely try to compete, making them virtually immune to competition.
• Three distinct niche strategies fall under this category.
- One of these is called the “toll-gate” strategy. Being in a toll-gate position means once
the product is developed and patented, it is in such high demand no one will do without it.
- An example comes from Givun Imaging, an Israeli company that developed the first
ingestible video camera at a size so small it fits inside a pill. The device enables doctors to view
the small intestine from the inside, helping medical professionals to diagnose cancer and
digestive disorders. Used across the world, doctors couldn’t do without it.
• More importantly, price was not an issue.
• Givun Imaging was the first, putting itself in one of the most desirable positions a company
could occupy.
Drucker emphasized the connection between
‘entrepreneurial strategy and innovation’
Some entrepreneurial strategies fit better in certain situations, while other
strategies work better in combination with another. One entrepreneur may combine
two or even three into one strategy.
These are his guidelines:
• The strategies are not mutually exclusive.
• The strategies are not always sharply differentiated.
• Each strategy fits certain kinds of innovation and does not fit others.
• Each strategy requires specific behaviour on the part of the entrepreneur.
• Each strategy has its own limitations and carries its own risks.
End of Session L5
