Business Strategy: INNOVATION & STRATEGIC ENTREPRENEURSHIP
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 Wiki3 in E.B.
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
Schumpeters gale of creative destruction
Encyclopedias to Wikipedia Typewriters to PCs to ??? Pharmaceuticals to
custom treatments (individualized medicine)
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 2. Growth 3. Maturity 4. Decline
Product and Process Innovation and the Emergence of an Industry Standard
After an industry standard is established, process innovations become more important.
7-5
Strategic Entrepreneurship
Entrepreneurs are the change agents for creative destruction.
Create new opportunities & 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
TYPES OF INNOVATION
Incremental
Steady improvement of a
Radical
Novel methods or
product or service Examples:
Gillette
razors Intel 386 to 486 processors
materials serving new markets Examples:
Mass
Often from incumbent firms
Stronger
production Ford MRI radiology
position for incumbents
Higher entry barriers
Often from new firms Airplanes
De
Organizational
inertia Reinforce supplier/buyer networks
Havilland 1st commercial jet
Boeing took idea to industry dominance
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 (Fusion power)
Top selling blades today! Over $1 billion in sales
Prices steady to higher for the blades!
TYPES OF INNOVATION (contd)
Architectural
Reconfigure known
Disruptive
Novel technologies serving
components to create new markets
Example:
Canon
existing markets Examples:
Japanese
user-friendly
autos Digital photography Data storage media
copiers GPS to handheld consumer devices
Stealth attack
Captures
current customers typically with initially lower cost & performance Protection against it. Disrupt yourself
Intel Celeron chip
General Electrics Reverse Innovation
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
110
The Internet as Disruptive Force: The Long Tail Long tail in a digital world
Both opportunity & 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
HYPERCOMPETITION
No single strategy sustains competitive advantage
Must be a series of short-term advantages
Radical innovation shifts to incremental
Each subsequent innovation has a short timespan
Example:
Intel 286 through Dual Cores
Michael Porter NOT inevitable
Caused by imitation rather than differentiation
