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