Strategic Choices 9: Innovation and Entrepreneurship

Learning Outcomes (1) Identify and respond to key innovation dilemmas, such as the relative emphases to place on technologies or markets, product or process innovations, and the broad business model Anticipate key issues facing entrepreneurs as they go through the stages of growth from start-up to exit 9-2

Learning Outcomes (2) Anticipate and to some extent influence the diffusion or spread of innovations Decide when being a first-mover or follower is most appropriate in innovation, and how an incumbent organisation should respond to innovative challengers Evaluate opportunities and choices facing social entrepreneurs as they create new ventures to address social problems 9-3

Exhibit 9.1 The Innovation-Entrepreneurship Framework Timing Innovation Entrepreneurship Relationships 9-4

What is Innovation? Innovation involves the conversion of new knowledge into a new product, process, or service and the putting of this new product, process, or service into use, either via the marketplace or by other processes of delivery. 9-5

Sole Technology For what reasons is it important to be ‘authentic’ in the skateboarding shoe market? If a big company like Nike or Adidas was looking to grow in this market, what would you advise it to do? 9-6

Implications of Product/ Process Innovation Model New developing industries favour product innovation Maturing industries favour process innovation Small new entrants have greatest opportunities in early stages of an industry Large incumbent firms have advantage in later stages 9-7

What is a Business Model? A business model describes the structure of product, service, and information flows and the role of participating parties. 9-8

What is Diffusion? Diffusion is the process by which innovations spread amongst users, varying in pace and extent. 9-9

Supply Side Determinants of Pace Diffusion Degree of improvement Compatibility Complexity Experimentation Relationship management 9-10

Demand Side Determinants of Pace Diffusion Market awareness Observability Customer innovativeness Use ebay video: start at 5:50 to 6:13. This is the section on how surprised ebay was that people are selling cars on ebay. 9-11

Exhibit 9.3 The Diffusion S-Curve 9-12

Decision Points Indicated by S-Curve Timing of the tipping point Timing of the plateau Extent of diffusion Timing of the tripping point 9-13

The MySpace Snowball How should potential advertisers have interpreted the upwards blip in daily reach in late 2004 and downwards blip in early 2006? How would you forecast future demand for MySpace? 9-14

What is a First-Mover Advantage? A first-mover advantage exists where an organisation is better off than its competitors as a result of being first to market with a new product, process, or service. 9-15

First-Mover Advantages Experience curve benefits Scale benefits Pre-emption of scarce resources Reputation Buyer switching costs 9-16

Late-Mover Advantages Free-riding Learning 9-17

What is a Disruptive Innovation? A disruptive innovation creates substantial growth by offering a new performance trajectory that, even if initially inferior to the performance of existing technologies, has the potential to become markedly superior. 9-18

Lush Cosmetics, A Disruptive Innovator? What are the advantages and disadvantages of a fixed rule such as discontinuing one-third of a product range annually? What are the limits and dangers of customer-driven innovation as at Lush? 9-19

Exhibit 9.6 Stages of Entrepreneurial Growth 9-20

What is Social Entrepreneurship? Social entrepreneurship involves individuals and groups who create independent organisations to mobilise ideas and resources to address social problems, typically earning revenues but on a not-for-profit basis. 9-21

Social Entrepreneurship Decisions Social mission Organisational form Business model 9-22

Chapter Summary (1) Three fundamental decisions in innovation facing strategists include the relative emphasis to put on technology push or market pull, whether to focus on product or process innovation, and how far to concentrate on technological innovation or business model innovation Innovations often diffuse into the market following an S-curve model Managers have a choice to enter first or enter later 9-23

Chapter Summary (2) Incumbents must be careful of being victim to disruptive innovations Entrepreneurs face characteristic dilemmas as their businesses go through the entrepreneurial life cycle of start-up, growth, maturity, and exit Social entrepreneurship offers a flexible way of addressing social problems 9-24

Key Debate: Are Large Firms Better Innovators Than Small Firms? What kinds of managerial action might you consider if you were trying to increase the innovativeness of a large firm in a high-technology manufacturing industry? 9-25

Case Example: Skype (1) 9-26

Case Example: Skype (2) Skype’s software allows people to use the Internet to make free calls to other Skype users Skype’s costs are very low. Customers use their own computers and marketing is accomplished via word of mouth It earns revenues on ancillary services 9-27

Case Example: Skype (3) 9-28

Case Example: Skype (4) eBay purchased Skype There are similarities in the business models eBay plans to leave Skype to manage its own business 9-29