Strategic Management Concepts and Cases 1st Edition Rothaermel Solutions Manual

Strategic Management Concepts And
Cases 1st Edition Rothaermel Solutions

Manual
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Strategic Management 4e Instructor Manual
CHAPTER 7
Business Strategy: Innovation, Entrepreneurship,
and Platforms
CHAPTER CONTENTS
Teacher’s Resource Manual: Implementation Guide
Learning Objectives
ChapterCase 7: Netflix: Disrupting the TV Industry
7.1 Competition Driven by Innovation (LO 7-1)
7.2 Strategic and Social Entrepreneurship (LO 7-2)
CONNECT INTEGRATION
Case Analysis: Elon Musk Entrepreneurship Zip2 to Tesla
7.3 Innovation and the Industry Life Cycle (LO 7-3, LO 7-4)
CONNECT INTEGRATION
Case Analysis: Innovation and the Industry Life Cycle
7.4 Types of Innovation (LO 7-5)
CONNECT INTEGRATION
Interactive Labeling: Types of Innovation
7.5 Platform Strategy ( LO 7-6)

7.6 Implications for Strategic Leaders
End of Chapter:
Discussion Questions
Small Group Exercises
Strategy Term Project
CONNECT APPLICATION EXERCISE

HP Running Case: Module 7
myStrategy
7-1
Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Teacher’s Resource Manual:

Implementation Guide
This improved Teacher’s Resource Manual (TRM), formerly the Instructor’s Manual (IM), supports delivery of your
chosen curriculum and pedagogy. This manual contains more than just guidance on how to cover concepts discussed in the
fourth edition of Strategic Management; it also provides tips and best practices for how to utilize the full product suite (from
the textbook to SmartBook® to Connect®). In addition, this manual includes a variety of supplemental teaching resources to
enhance your ability to create an engaging learning experience for your students. Regardless of whether you teach in face-to-
face traditional classrooms, blended (flipped) classrooms, online environments, or hybrid formats, you’ll find everything you
need in this improved resource.
The TRM follows the order of the textbook outline for each chapter and is divided into sections for each learning objective.
Each section identifies the relevant PowerPoint slides from both the Lecture slides and the Supplemental Lecture slides (more
on this below). This eases your preparation time for class as you can adjust slides as needed to ensure your students stay
actively engaged throughout each session.
W HAT INSTRUCTOR RESOURCES ARE AVAILABLE ?

Within each section of the TRM you will find an assortment of examples, exercises, Connect ® Integration assignments,
updates on the latest research, Strategy Smart Video discussions, and end-of-chapter discussion questions and exercises from
which you can choose to enhance your students’ learning and engagement. Where the activities are related to program-level
learning objectives established by AACSB 2015 Standard 9, the learning objective has been identified for you.
Within the Instructor Resources Tab, located in the Connect® Library, the following Instructor Resources can be found:
▪ Teacher’s Resource Manual

▪ PowerPoints (Accessible)
▪ Test Bank
▪ Create™ Case Support
▪ MiniCase Support
▪ Strategy Term Project
▪ Video Resources
▪ Capsim’s Capstone Simulation
1) This Teacher’s Resource Manual is posted by chapter.

2) Two sets of ADA-accessible PowerPoints are available with each chapter:
a. Lecture slides cover chapter concepts and exhibits.
b. Supplemental Lecture slides cover:
i. ChapterCases
ii. Strategy Highlights
iii. Implications for Strategic Leaders
iv. End-of-chapter myStrategy and Small Group Exercises
v. Take-Away Concepts
vi. Key Terms
vii. Strategy Smart Video selections (not part of the book, but an additional resource found here)
3) Test Bank questions are posted by chapter. You will find a variety of question types within the test bank such as
Matching, Ranking, Multiple Choice, Select-All-That-Apply, True/False, Short Answer, and Essays to test student
mastery across Bloom’s Taxonomy (i.e. Understand, Apply, and Analyze). Due to the evolving needs around
generating high-quality print test experiences, McGraw-Hill Education provides a free copy of the industry-leading
test generation software TestGen® to users (more details can be found within the Instructor Resources tab under
“Test Bank”). Furthermore, due to its limitations to function with the latest browsers and operating systems,
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McGraw-Hill Education has discontinued EZ-Test Online. Some of the robust new features present in TestGen®,
include:
▪ Cross-platform software compatibility with Windows and Mac
▪ Multiple LMS export formats, including Blackboard, Moodle, Desire2Learn, and Sakai
▪ Highly customizable formatting and editing option
4) Create™ Case Support (all cases are available in Create™ and selected ones in HBS)
a. A case matrix that identifies the industry sector covered by each case, as well as the primary and secondary
chapter alignments
b. One-page case abstract for quick overview of each case
c. Case Teaching Notes for instructor use only
d. Case Financials in Excel files for the exhibit data in the most popular cases
e. Case Strategic Financial Analysis template
f. Instructions on How to Download SEC Financial Data into Excel Spreadsheets
5) MiniCase Support (all MiniCases are located in Part Four of the book)
a. MiniCase Matrix that identifies chapter alignment
b. MiniCase Teaching Notes comprising suggested answers to the MiniCase discussion questions. In some
instance, they also provide specific additional article and video resources to accompany each MiniCase.
6) Strategy Term Project
a. Modules for students on how to conduct a strategic management analysis of a company of their choosing;
there is one module per chapter so that students can build upon their analysis and tie each section of their
analysis to specific chapter concepts.
b. Running Case Teaching Notes that cover the strategy term project found in Connect ®. HP is used as the
example firm to demonstrate how pieces of the term project align with each chapter.
7) Video Resources
a. The Video Grid and Guide provides links to supplemental video resources to accompany both the
MiniCases and full-length Create™ cases.
b. The Video Library provides links to all the assignable videos in Connect®.
8) A link to Capsim’s Capstone Simulation is provided; this simulation allows students to apply their knowledge of
key strategy concepts.
How can SmartBook ® enhance my students’ performance?

The LearnSmart®-powered SmartBook® is assignable through Connect®, McGraw-Hill’s online assignment and assessment
system. One of the first fully adaptive and individualized study tools designed for students, it creates for them a personalized
learning experience, giving them the opportunity to practice and challenge their understanding of core strategy concepts. The
reporting tools within SmartBook® show where students are struggling to understand specific concepts.
Typically, SmartBook® is assigned by module (chapter), and instructors can set which learning objectives to cover as well as
the number of probes the student will see for each assignment. Instructors also set the number of points a SmartBook ®
module is worth in the course. Usually, applying a minimal number of points for completion of each module is enough to
encourage students to read the chapter. Many instructors assign these modules to be completed before the class or online
session.
SmartBook® provides several diagnostic tools for instructors to gauge which concepts their students struggle to understand.
Below is the set of adaptive assignment reports available in SmartBook ®:
▪ Progress Overview: View student progress broken down by module

▪ Student Details: View student progress details plus completion level breakdown for each module
▪ Module Details: View information on how your class performed on each section of their assigned modules
▪ Practice Quiz: This gives you a quick overview of the quizzes results for your students
▪ Missed Questions
▪ Metacognitive Skills
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By selecting “Module Details” the instructor finds the results for the students in the class overall. These details reveal where
in the chapters students might be struggling. The module gives the chapter section, average time spent, average questions per
student correct/total, and the percentage of correctness (number of assigned items). Information about the most challenging
sections for students can help instructors refine the focus of the next classroom or online session.
For more detailed analysis, SmartBook® captures students’ confidence in their competency using the “Metacognitive Skills”
report. Below (a recreation of the Metacognitive Skills report), we find the second student is confident and mostly correct
(91% in the correct & aware column) while the first student “doesn’t know what she doesn’t know” (39% in the far-right
column).
STUDENT CORRECT CORRECT and INCORRECT INCORRECT

and UNAWARE and AWARE and UNAWARE
AWARE
Student 1 61% 0% 0% 39%
Student 2 91% 0% 3% 5%
Student 3 81% 0% 0% 19%
Student 4 83% 0% 0% 17%
Student 5 76% 0% 3% 21%
Student 6 66% 0% 9% 25%
Student 7 77% 0% 3% 12%
Student 8 91% 0% 2% 7%
Student 9 93% 0% 2% 5%
Student 10 70% 0% 6% 25%
Application Exercises, Quizzes, and Test Bank

What resources are available at the book level?
Connect® offers a wealth of content for both students and instructors. Application Exercises require students to apply key
concepts to close the knowing and doing gap, while providing instant feedback for the student and progress tracking for the
instructor. Before getting into chapter-level assignments, let’s look at the book-level assignments available.
Four exercises are available for instructors to assign beyond the chapter materials. These are 1) MiniCase Case Analyses, 2)
Case Strategic Financial Analyses (SFAs), 3) Financial Ratio Reviews, and 4) Case Exercises.
1) To encourage analytical thinking, each MiniCase from Part Four of the book is also an assignable application
exercise (MiniCase Case Analysis). Each MiniCase is followed by four to five multiple-choice questions that
assess students’ understanding of the key issues presented in the MiniCase.
2) The Case SFA provides assignable key ratio comparisons for the Create ™-only full-length cases available with the
textbook. These require the student to analyze the case financial statements and calculate answers to several ratios in
the spreadsheet. The Case SFAs engage students’ financial analysis skills—skills many professors have identified as
requiring more practice among their students.
3) Financial Ratio Reviews give students the opportunity to further hone their financial analysis skills; review
exercises cover each type of financial ratio (activity, leverage, liquidity, market and profitability).
4) Case Exercises, which are new to this edition of Strategic Management, focus on the key symptoms and influences
of a problem a firm might be facing, followed by a series of questions that help students understand how the firm
eventually achieves a solution to that problem (or asks students to suggest a solution). Case Exercises for this edition
accompany the most popular full-length cases: Amazon, Apple, BestBuy, Facebook, McDonald’s, and Tesla.
What resources are available for each chapter and how should I integrate them in my course?
Consider assigning one or two Application Exercises per chapter. They are built around chapter learning objectives, so the
instructor can choose based on his/her focus for each specific chapter. Several types of application exercises are available in
each chapter. The newest addition is the Whiteboard Animation series, comprising four- to five-minute videos on key
concepts or concepts that tend to challenge students the most. Each animation is accompanied by three to four multiple-
choice questions to check student attention and comprehension. Comprehensive Case Analyses and Video Cases each
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feature firms and industries different than those discussed in the textbook. Finally, Click-and-Drag exercises help students
actively demonstrate their understanding of the associated learning objectives. Application Exercises can be assigned as
preparatory exercises due before class (this is especially good for flipped classrooms), or after class as concept
comprehension checks. Applications Exercises will generally be assigned as homework or practice as part of the overall class
grade. A general rule of thumb would be to make application exercises worth 5 to 10 points each since these require time and
thought.
To find the Applications in Connect®, go to “Add Assignment” and then select “Question Bank.” Application Exercises are
organized by chapter. Instructors have the option to select for one attempt only, but they may want to give students unlimited
or multiple attempts on the first few assignments to give students a chance to learn and navigate the system. (As the course
progresses, instructors may want to tighten up the time on task and reduce the number of attempts to complete each exercise).
Chapter quizzes and full chapter test banks are available for assignment, and like the Application Exercises, are organized
by chapter. The value applied to each question should be relatively low because numerous questions are usually assigned for
each chapter. As such, make these questions worth 1 or 2 points each. The feedback given to students is time-flexible.
Selecting feedback to be displayed after the assignment due date helps to keep students from giving the correct answers to
other students while the questions are still available. For this reason, it is suggested that no feedback to quizzes and test bank
exams be made available until after the assignment is due.
When should I assign these digital components?

To fully utilize the power of the digital components, instructors will often assign the SmartBook ® reading and adaptive
learning probes before class meets. Application Exercises can be completed either before or after class; if they are completed
before class, they can sometimes serve as good springboards for class discussions. The chapter quiz makes a good check on
comprehension of the material and may work best if assigned after each class period. The test bank serves as a good resource
for building mid-term or final exams.
More detailed information on SmartBook® and Connect® is available through several resources at McGraw-Hill. A good
starting point is your local Learning Technology Representative, who can be found here:
http://www.mheducation.com/highered/platforms/connect/features-educators.html
Course Preparation
Helpful Suggestions Regarding Assignment Policies: Connect® gives instructors a wide array of flexibility in making
assignments and creating grading policies. Instructors may choose to:
• assign as many assignments as appropriate given the level and time commitment expected for the class,
• determine point values for each question/application that works within the total course percentages,
• make available multiple attempts per assignment with options of accepting the highest score or averaging all the
attempts together (several attempts are particularly good for homework assignments),
• deduct points for late assignment submissions (percentage deduction per hour/day/week/etc.) or create hard deadlines
thus accepting no late submissions,
• show feedback on application/questions immediately upon submission or at the time the assignment is due for the whole
class, create new assignments or questions from scratch, or edited versions from a variety of provided resources.
Throughout the TRM for each chapter, we will integrate materials from the Lecture PowerPoint slides, Supplemental
Lecture slides, Connect® Application Exercises, end-of-chapter activities, and MiniCases. This integration of resources will
allow for a cohesive presentation of the relevant resources at your disposal, helping you to convey these topics effectively
and efficiently to your students.
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CHAPTER 7
Learning Objectives
LO 7-1 Outline the four-step innovation process from idea to imitation.
LO 7-2 Apply strategic management concepts to entrepreneurship and innovation.
LO 7-3 Describe the competitive implications of different stages in the industry life cycle.
LO 7-4 Derive strategic implications of the crossing-the-chasm framework.
LO 7-5 Categorize different types of innovations in the markets-and-technology framework.
LO 7-6 Explain why and how platform businesses can outperform pipeline businesses.
In this chapter, we turn our attention to innovation. We start by defining innovation and reviewing how it can affect
competition. Then, we look at the creation of new businesses with strategic or social entrepreneurship. We bring in a dynamic
perspective by discussing how innovation changes over the industry life cycle and the challenges of “crossing the chasm.”
We review a typology of innovation, with an emphasis on disruptive innovations and their role in changing an industry’s
landscape. Changes driven by technologies related to the Internet and the increasing availability of broadband access are a
pervasive theme of this chapter and are highlighted in a discussion of platform versus pipeline businesses. We close with a
discussion of the practical implications of these ideas for strategists.
A chapter opening case on Netflix and two strategy highlights are included in the chapter for tangible applications of the
theoretical frameworks discussed.
ChapterCase 7 Netflix: Disrupting the TV

industry
The TV industry has experienced several waves of innovation that completely reshaped its competitive landscape. Until the
1980s, TV in the United States was dominated by three broadcast networks: ABC, CBS, and NBC. By law they were
required to broadcast at no charge to viewers. The business model of early TV networks was to create large audiences by
offering programming such as quiz shows, news, and soaps; and in turn make money by selling spots to advertisers. By 2015,
the audience for the old-line broadcast networks had shrunk by two-thirds. The first wave of disruption came in the form of
cable-television such CNN, ESPN, Nickelodeon (and dozen other channels) as well as HBO. Cable operators such Time
Warner and Comcast charged high monthly subscription fees (between $75–$100). Although the broadcast networks lost a
large part of their audiences to cable channels, which in turn reduced their advertising income, they made up the difference in
charging cable providers for carrying their content. A second wave of disruption in the TV industry is now gaining huge
momentum: Streaming content over the Internet.
Also important was the way that Netflix distributed content. Hulu, coming from existing television networks, saw the Internet
as just another way to distribute shows. They released one episode at a time, over the period of a season. Netflix understood
that in the mobile Internet age, subscribers view their devices as a way shift time. Subscribers do not want to be tied to being
at one website at a particular time every week to receive the latest instalment. So Netflix offered subscribers the ability to
download an entire season of episodes at once. This gave rise to the phenomenon of “binge watching,” where subscribers
would download a series and then spend a weekend watching the entire season. This proved to be extremely successful for
Netflix, and was quickly copied by competitor Amazon Instant Video. Now, thanks to Netflix, viewers can literally watch
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whatever they want, wherever they want, whenever they want. The technology of streaming video has cleared the chasm, and
is quickly being adopted by late majority users and even laggards.
DISCUSSION TOPICS
The television content delivery industry is changing dramatically (see “What Netflix’s ‘House of Cards’ Means for the Future
of TV,” Forbes, March 4, 2013, and “The Future of Television Is Here: Can Cable Survive?” Forbes, June 6, 2015). Old
business model: For decades, the TV business was a fairly orderly affair. You had a clear potential market that you could
technically cover and predictable ad rates. The value of the programming market was driven by what those market conditions
could bear and the calculation was reasonably simple: audience × ad rates – margin = programming budget. The pecking
order followed the market structure. Big networks would invest in original programming in order to win audience share as
well as some lesser fare that could pad margins. Local stations would buy the rights to reruns and old movies. There was a
level playing field where everyone knew who they were competing with and why. New business model: Digital convergence
= industry borders dissolve. Players: The Networks: While it’s easy to write off the old traditional networks, their business
remains surprisingly strong, maintaining impressive operating margins and steady growth. They continue to play an
important gatekeeper role, curating high budget content. Cable Companies: Much like the TV networks, old-line cable
companies remain a power in their own right, controlling access to consumers through both set top boxes and Internet
service. However, even here the playing field shouldn’t be considered static. Comcast acquired NBC from General Electric
and is now a major player in both cable and programming (as is Time Warner). Paid Networks: Traditional paid networks
continue to develop some of the most highly acclaimed programming on TV, such as HBO’s Game of Thrones and
Showtime’s Homeland. HBO also offers an app, HBO GO, that could conceivably evolve into a competitor to Netflix,
although it currently requires a cable subscription to use. Apple: While rumors of a full-fledged Apple TV abound, they still
haven’t released a product. Moreover, although Steve Jobs thought that he had cracked the TV problem before he died, even
if he were still alive it is unlikely he would be able to repeat the coup he pulled off with the music industry. The TV players
remain highly vibrant and profitable and are unlikely to be bowed, which is why Apple has had trouble inking content deals
and, with their hard-nosed approach, will most likely continue to falter.
Netflix continues to create headlines as in the fall of 2017 it essentially fired House of Cards star Kevin Spacey due to
numerous sexual misconduct allegations. After an extended hiatus the production company announced it would complete the
6th and final season with only Robin Wright in the leading role continuing as Claire Underwood. (See “Netflix Confirms
‘House of Cards’ Will Return Starring Robin Wright,” The Washington Post, December 4, 2017).
INSTRUCTOR SUPPLEMENT SLIDES 2–4
CONSIDER THIS DISCUSSION QUESTIONS

INSTRUCTOR SUPPLEMENT SLIDES 5-6
1. Netflix started to pay ISPs to ensure fast and seamless access to its end users. Does this violate net
neutrality (the rule that Internet service providers should treat all data equally, and not charge
differentially by user, content, site, etc.)? Why or why not? Do you favor net neutrality? Explain why. As
ISPs will extract more fees from Netflix, the company continues to invest heavily in its proprietary “Open
Connect” network, which allows Netflix to connect its servers directly to those of Internet service
providers (via peering). Since most users upgrade their Internet connections to faster broadband in order
to watch video, are the incentives of broadband providers aligned with Netflix, or will the broadband
providers continue to extract significant value from this industry? Apply a five forces analysis.
Students will have different opinions on this question based on their perspective on net neutrality. For example, does net
neutrality mean that broadband suppliers do not slow down large users of bandwidth, does it mean that any firm that is
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willing to pay for “peering” is allowed to do it, or does it mean that all sites are treated equally? Frankly, if Netflix is using a
huge chunk of broadband capacity during prime hours, then what net neutrality might mean to some people is that broadband
suppliers should not slow down or otherwise limit video streaming nor should they charge fees to video streaming sites or
consumers for providing unlimited access to broadband (lest video streaming sites become as expensive for consumers as
cable TV). Broadband providers are likely to have very different incentives than Netflix. The case identifies Comcast as
having incentives to favor its own NBC Universal content. All broadband providers are likely to see Netflix growth as
requiring continued increase in capital investment for them, in order to manage increasing volumes of video at peak load
times.
2. Netflix growth in the United States seems to be maturing. What other services can Netflix offer that
might increase demand in the United States?
This part of the discussion can be organized into a few different categories: diversification of streaming products—leveraging
their subscriber base to expand into streaming music, radio, or online education seminars; diversification of content—talk
shows, sports coverage, or audio books; diversification to other parts of the ecosystem extending their platform—broadband
networks, TV set top boxes, or apps.
3. International expansion appears to be a major growth opportunity for Netflix. Elaborate on the
challenges Netflix faces going beyond the U.S. market. Do you think it is a good idea to rapidly expand to
190 countries in one fell swoop, or should Netflix follow a more gradual international expansion? What
are some of the challenges Netflix is likely to encounter internationally? What can Netflix do to address
these? Explain.
You may want to revisit this question when you are covering global expansion in Chapter 10. International expansion
presents challenges to Netflix in two areas: ecosystem infrastructure and content. Content will need to be adjusted for
language, for cultural preferences, and in some cases for government censorship. Infrastructure problems relate to availability
and access to the broadband Internet connections necessary for effective video streaming. Students will have many ideas on
how Netflix can solve these challenges. One answer that may come up on the broadband issue is that Netflix could follow
Google’s lead by diversifying into broadband systems and building its own systems in selected high population cities, for
example Beijing, Hong Kong, São Paulo, Moscow, or Mumbai. If that does come up, you might take the conversation into
Chapter 8 territory by asking students what skills Netflix would need to develop or acquire to do this. On the content issue
you might group your international students by the region that they come from and ask them to brainstorm ideas on how
Netflix’s content would need to be adapted for their market.
7.1 Competition Driven by Innovation

LO 7- 1 Outline t he f our - st ep innovati on process f rom idea to
i mit ati on.
LECTURE SLIDES 4–9
EXAMPLES
There are many examples of creative destruction that you might offer to supplement those in the text. One that will resonate
with students is the way that phones have killed the market for point-and-shoot cameras (see “Smartphones Expose Camera
Maker to Trouble.” The Wall Street Journal, August 13, 2013). Others to consider: video streaming and kiosks have displaced
video rental stores, e-books and e-mags are replacing paper books and magazines, tablets are replacing PCs, and K-cup-style
machines are replacing standard coffee pots. Biologics are displacing chemical drugs in that established pharmaceutical
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companies, like Merck and Pfizer, brought major new drugs to market in the past, using a chemical-based drug discovery and
development paradigm. These same companies are struggling to maintain their dominance as relative newcomers like Amgen
and Genentech are leveraging advances in genomics, genetic engineering, and biotechnology to produce drugs that are better
targeted to treat diseases and that eventually can be designed for individual patients.
DISCUSSION TOPICS
Discussion of the innovation process shown in Exhibit 7.2 is worth spending a few moments on in class. Many students will
come into the classroom confused over the difference between inventions and innovations. It is important to set the
framework here at the start of the chapter for a better understanding of the concepts to follow.
Apple disrupted the phone market with the first iPhone and created the tablet market with the first iPad. Why do they still
hold a commanding share of the tablet market, while Android makers lead in cell phones? Students will have a variety of
ideas on this topic, but the goal will be to get them to build from the theoretical drivers of first-mover advantage, rather than
intuitive ideas as consumers. Apple launched the tablet with great content; they designed the iPad and negotiated supply
contracts that gave them a cost leadership position for that level of features and priced the product aggressively.
✓ AACSB 2015 Standard 9 Integrating knowledge across fields
Innovation rates benefit from gender diversity on new product development (NPD) teams and yet the number of women
entering STEM fields has declined steeply over the last few decades. Tell students to imagine that they ran a large Silicon
Valley tech firm or a Boston biotech firm and discuss how they might attract and retain more female engineers, programmers,
and scientists to their NPD teams and how they might improve the gender diversity of the future applicant pool. (Suggested
reading to prepare for this discussion: “Recruiting and Retaining More Women in Technology Organizations,” McKinsey
Quarterly, November 2015 and “Wanted: More Women in Technology,” McKinsey Quarterly, October 2015. Alternatively,
you can show one or more of the video clips from the interviews described in these articles in class or post links to these
videos in an online class as preparation for a discussion board assignment.)
✓ AACSB 2015 Standard 9 Analytical thinking
7.2 Strategic and Social Entrepreneurship

LO 7- 2 Appl y strategi c management concept s t o
ent repreneurship and i nnovati on .
LECTURE SLIDES 10-11
The textbook describes a few serial entrepreneurs, as well as a Connect® exercise that focuses on serial entrepreneur Elon
Musk. However, as firms mature, they often need different skill sets in their CEO than the entrepreneurial expertise of the
founder. According to “Success after Founders’ Exit,” (The Wall Street Journal, October 3, 2013), fewer than half of the
firms that go public still have a founder as CEO. One that did however is Tesla under the leadership of CEO Elon Musk. Find
out more about his background and prior businesses in the Connect ® activity noted below.
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INTEGRATION
Case Analysis: Elon Musk Entrepreneurship: Zip2 to Tesla
This case analysis extends the example of successful entrepreneur Elon Musk from the textbook. The case covers Musk’s
diversity of startup experiences, including the social dimensions which are often prominent in his vision for the business.
Students will read the case and then answer the four questions following it.
Follow-Up Activity: The instructor can expand on the concepts in this case analysis by comparing the three example
entrepreneurs discussed in the textbook (Jeff Bezos, Dr. Dre, and Elon Musk) with Reed Hastings from the ChapterCase
opener. What are the major differences in how these individuals have approached entrepreneurship? How have these
differences impacted the organizations they have founded?
✓ Difficulty: Medium
✓ Blooms: Apply
✓ AACSB: Analytic
DISCUSSION TOPICS
Beyond starting and running new businesses, entrepreneurs are change agents who transform innovation into reality. Apple
Inc. is known as one of the world’s most innovative companies, and its co-founder Steve Jobs was credited with Apple’s
most important breakthrough innovations. Steve Jobs also founded Pixar, one of the most successful film studios of all time.
Leveraging 3D computer animation, Pixar has created blockbuster hits such as Toy Story 1, 2, and 3, A Bug’s Life, Monsters
Inc., Finding Nemo, and The Incredibles, among others. Steve Jobs was clearly an entrepreneur extraordinaire, and created
continuous innovation in his quest to create value through new products or services. Students may have read a biography on
Steve Jobs or seen the movie about him. Invite a discussion on his traits and behaviors that might have contributed to the
outstanding record of innovation in these two companies he led.
CLASS EXERCISES
To illustrate how difficult it is for firms to be innovative in their thinking when they have a great deal of experience in an
area, I bring 10 items to class and arrange them in order on a table. The only requirement for these items is that they be varied
(banana, shoe, pencil, book, coffee cup, chair, etc.). Then I tell students that they are being asked to develop a new name for
each of these items and write it on a piece of paper. I hold up each item in order, then I add an eighth item—a verb—by
jumping or skipping. I give them only about 2–3 seconds between showing each item, then I go through them a second time.
At the end, I ask them to score themselves, giving themselves zero points if their new name is the same as the old name in a
different language than English, 1 point if the name is a noun in the same family (for example, apple for banana), 2 points if
the name is a noun in an unrelated family (for example chair for banana), 3 points if the new name is not the same part of
speech (happy for banana), and 4 points if the new name is not an existing word. Then I ask students to raise their hands if
they scored more than 10, 20, or 30. (I have only had one student over the years who got all 4s—a manager for the Girl
Scouts.) I use this exercise to initiate a discussion of how challenging innovation is because organizations often limit it with
risk aversion, incentives for incremental innovation, discouragement of experimentation, and focus on short-term profit.
However, an equally big challenge for firms is that even when they do not limit employees’ innovation, the employees limit
themselves by imagining non-existent constraints and the inability to break from their own mental models. As an option for
extending the exercise, you can follow this discussion with a second phase in which you ask students to form small teams and
assume that they are the managers of an R&D team. What processes, culture, or incentives might they use to facilitate higher
levels of creativity in their team? This humorous Onion video, “CEO Has Special Knack for Recognizing Great Ideas and
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Ruining Them,” would be a good jumping off point for such a discussion. It describes the boss who excelled at killing good
ideas.
✓ AACSB 2015 Standard 9 Thinking creatively
7.3 Innovation and the Industry Life Cycle

LO 7- 3 Descri be the competitive i mpli cations of diff erent
stages in t he i ndust ry lif e cycle .
Apple’s ability to leverage network effects is shown in Exhibit 7.5. Most students will immediately recognize that they do
indeed often value the apps more than the actual phone features. Yet so often they have not thought through the strategic
implications of this. Link back to Porter’s five forces and recall the idea of switching costs. The access to unique apps not
only can drive consumer value and therefore volumes, but it also increases the “stickiness” of customers. If a customer is
comfortable with the Apple app store products and the interface with iTunes to purchase and organize their apps, they are far
less likely to explore Android (from Google) or Windows 10 (from Microsoft) even if these latter firms introduce a really
attractive hardware/software phone package or features
INTEGRATION
Case Analysis: Innovation and the Industry Life Cycle
This case analysis uses the typewriter-to-computer transition to discuss some of the major factors involved in industry life
cycle and innovation. The brief case complements the textbook and students should read the textbook before completing this
activity. Students will read the case and then answer the five questions following it.
Follow-Up Activity: The industry life cycle is closely related to the next section of the textbook on crossing the chasm. The
textbook adroitly uses the smartphone industry as an application example tying together these two frameworks. Discussion
question 1 in the end of chapter material asks the students to use these concepts for a different industry. This could be the
basis for some small group discussions, and the instructor may want to assign industries or in some other way assure a variety
of chosen industries across the classroom.
✓ Blooms: Analyze
✓ AACSB: Analytic
7-12
Education.
END OF CHAPTER SMALL GROUP EXERCISE 1

INSTRUCTOR SUPPLEMENT SLIDE 17
Your group works for Warner Music Group (www.wmg.com), a large music record label whose sales are declining
largely due to digital piracy. Your supervisor assigns you the task of developing a strategy for improving this
situation.
1. What are the key issues you must grapple with to improve the position of Warner Music Group (WMG)?
Students will have a variety of answers to this question. It is difficult to prevent the piracy of music, especially in this digital
age. Thus, WMG should determine a strategy that capitalizes upon this growing digital trend. WMG can partner (or buy out)
with several net-labels and online music stores (iTunes) to claim some of the lost revenue from piracy. Additionally, to
further improve their position, WMG should look to draft deals with artists that give the label additional control and potential
for revenue from tours, merchandising, and endorsements.
2. In what phase of the life cycle is the record-label industry?
The record-label industry is in the decline stage. The increase in file sharing and drop in music sales have required record
labels to reconsider their strategies.
3. How does this life cycle phase affect the types of innovation that should be considered to help WMG be
successful?
The decline stage of the life cycle suggests four strategic options: exit, harvest, maintain, or consolidate. None of these
strategies recommend a firm should invest heavily in future innovation. However, to extend the “long tail” the record-label
industry could identify a disruptive innovation that would aid in the collection of revenue from legitimate and illegitimate
music sales.
LECTURE SLIDE 17
Standards as discussed in the growth stage and Strategy Highlight 7.1, are extremely important because they represent a
common set of engineering features and design choices. Standards reduce industry uncertainty and confusion and ensure
product quality, performance, and safety. As standards become dominant, the competitive nature of an industry intensifies.
Firms begin to reap economies of scale and learning, prices begin to fall, and distribution channels are expanded. As shown
in Exhibit 7.7, the basis of competition transitions more toward process innovation (lean manufacturing, Six Sigma, and
others) instead of product innovation. Though the emergence of a dominant design fosters the development of
complementary assets, firms sometimes choose not to support certain new standards or applications. As an example, the
QWERTY keyboard, named for the sequence of the first six letters on the upper-left row, was introduced in the 1870s as a
way to slow typists in order to avoid jamming the type bars in mechanical typewriters. While generally considered an
inefficient arrangement of the most frequently used letters, the QWERTY keyboard remains the standard today, but not for
lack of alternatives. In the 1930s, August Dvorak, designed and patented an alternative keyboard (DSK) intended to speed up
typing by locating the most frequently used letters in the center row. But given the cost people had invested in learning the
QWERTY keyboard, the DSK did not catch on. Today, however, every personal computer comes with an optional DSK
setting that requires only a minor software modification. Even though most people have never heard about it, the DSK has a
passionate core of devotees. They were quite surprised to learn that when smartphones with virtual keyboards, like the iPhone
and the BlackBerry Storm, and the media tablet iPad were introduced, they came only with the traditional QWERTY
keyboard layout. A software developer created an iPhone app to allow users to add the Dvorak layout. But since it is not an
“approved Apple App,” users must hack into their systems to install the unofficial program. (Caution: Such “jail breaking”
voids the iPhone’s warranty.) This example shows how hard it can be to overthrow entrenched standards, even when they are
inferior and the cost of alternative options is quite low.
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Strategy Highlight 7.1

INSTRUCTOR SUPPLEMENT SLIDE 8: STANDARDS BATTLE: WHICH AUTOMOTIVE TECHNOLOGY WILL WIN?
This is a useful example of a current standards question about the future of the automotive industry. Are we near a point
when the standard of gasoline-powered cars will yield to a new standard propulsion such as electric motors or hydrogen?
END OF CHAPTER ETHICAL/SOCIAL ISSUES 1

You are a co-founder of a start-up firm making electronic sensors. After a year of sales, your business is not growing
rapidly, but you have some steady customers keeping the business afloat. A major supplier has informed you it can no
longer supply your firm because it is moving to serve large customers only, and your volume does not qualify.
Through you have no current orders to support an increased commitment to this supplier, you do have a new version
of your sensor coming out that you hope will increase the purchase volume by over 75 percent and qualify you for
continued supply. This supplier is important to your plans. What do you do?
This can be a common issue for a start-up firm, and students will have a variety of opinions on what the firm should do. The
co-founder could consider a cost-benefit analysis when evaluating this problem. If the firm can identify another supplier(s)
who will produce the sensors and mitigate the risk of losing the current supplier, then this should be considered an option.
Likewise, the co-founder could elect to continue with the current supplier, but just increase the purchase volume to account
for the anticipated sales. In this instance, the startup can be confident that the sensor quality is maintained. Additionally,
he/she could negotiate a new sensor price, with the current supplier assuming economies of scale will be achieved during
production. Would the startup go ahead and purchase the increased quantity even if their sales don’t justify it, thus creating
an inventory problem? Students will come up with other factors to consider, with the general theme that this is not an easy
decision to make.
✓ AACSB 2015 Standard 9 Ethical understanding and reasoning
LO 7- 4 Derive st rat egi c i mpli cations of t he crossi ng - the- chasm

f ramework.
LECTURE SLIDES 21–27
CLASS EXERCISES
Ask student teams to draw a projected industry life cycle for self-driving cars. When they have had a few minutes to discuss
this, guide a group discussion on what uncertainties auto makers are experiencing in this area. This discussion should lead to
an identification of PESTEL factors, such as technology developments, societal attitudes, legal barriers, and consumer
behaviors that are highly uncertain. How might the firms reduce their risk? Students may suggest alliances or staged
investments. You can extend that discussion further in the future by talking about what it would take for autonomous driving
cars to cross the chasm. (See “Automakers Accelerate Efforts to Develop Self-Driving Cars,” The Wall Street Journal,
September 10, 2013 and this video, “Nissan Aims for Driverless Cars on the Road by 2020,” from The Wall Street Journal,
October 29, 2015.)
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Education.
✓ AACSB 2015 Standard 9 Making sound decisions & using good judgment under uncertainty
EXAMPLES
To expand on the Google Glass example in the text, mention that GM and BMW are developing smart windshields for cars
that can display location-based information, as well as social media updates (see “A Computer for Your Car’s Windshield,”
The Wall Street Journal, December 4, 2012).
STRATEGY SMART VIDEO EXAMPLES

This brief video illustrates the concept of “crossing the chasm” by offering examples of smartphones that succeeded and did
not succeed in capturing the mass market.

This “Dancing Sasquatch” video allows you to offer a more humorous example of crossing the chasm that is just as effective
in conveying the key ideas, but might offers a nice break in a serious lecture.
EXAMPLES
LECTURE SLIDE 21
Social network sites have followed a pattern similar to that illustrated in Exhibit 7.8. Friendster was unable to cross the
chasm. Myspace was successful with the early majority, but only Facebook went on to succeed with the late majority and
laggards.
3D printers had great success with early adopters, but the leading products are having trouble crossing the chasm. What is
causing this stall in the industry life cycle? Technology barriers that are preventing the development of machines that are fast
enough and easy enough for the mass market in either industrial or consumer customers. Learning curves and economies of
scale have not brought the costs down yet to a point attractive to mass market consumers. (See “3D Printer Firms Fall Flat as
Buyers Wait for New Models,” The Wall Street Journal, August 7, 2015.)
7.4 Types of Innovation

LO 7- 5 Cat egoriz e di ff erent t ypes of i nnovations in t he
markets- and-t echnol ogy f ramework .
LECTURE SLIDES 30 – 35
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Education.
EXAMPLES
Below are some additional examples beyond those discussed in the text that can be used to bring out the elements of
technology and markets for the framework in Exhibit 7.11.
Radical innovation (Exhibit 7.11):
iPad
iPhone
Coffee in K-cups
Space Shuttle
Bluetooth connection
Incremental innovation (Exhibit 7.11):
The many flavors of Oreos

Diet Decaf Cherry Coke
Tide with bleach, fabric softener, improved stain removing power, etc.
New sizes of Samsung Galaxy products,
“Spinner” suitcases
Architectural innovation (Exhibit 7.11):
We find many students are not familiar with the older “furniture-sized” photocopy machines that were heavily centralized in
large offices and required nearly constant maintenance to keep running. This same shift in copiers can also be seen with
computer printers as well.
The global positioning system (GPS) technology and satellite infrastructure was originally developed for military
applications. After several years in operation there, the government opened up the satellite feeds for commercial uses. Today,
running on those existing technologies, we have a variety of new and inexpensive consumer products incorporating GPS
technology.
Disruptive innovation (Exhibit 7.11 and 7.12):
VoIP (Skype is one example) is challenging the traditional landline technology.

Propeller airplanes to supersonic jets
Branch-based brick-and-motor banking to online banking (and the same for stock brokerage)
Large (tube-based) computer and TV screens to high-definition flat-panel displays
Data storage products advanced from the floppy disk to the hard disk to the CD, then to the ZIP drive, and now to flash
drives. Each new memory device invaded the market from the bottom up and performance improved over time.
The vinyl record player to the cassette tape to the CD, and then to digital MP3 players like the iPod
The emergence of electric arc furnaces, for example, was a disruptive innovation that allowed so-called mini-mills like Nucor
and Chaparral to produce steel in small batches and at lower cost compared with fully integrated steel mills such as U.S. Steel
or Bethlehem Steel. Initially, though, the quality of steel produced by mini-mills was poor and could compete only in the
lowest tier of the market: steel used to reinforce construction concrete (rebar steel). Once the mini-mills entered segment 1 of
the steel market, the integrated mills could no longer be cost-competitive given their high fixed cost; the incumbents happily
ceded segment 1 of the market to the new entrants because it was a low-margin business to begin with. However, invading
segment 1 of a market creates a beachhead for a new technology, which the new entrant uses to gain more market expertise,
build economies of scale, lower cost, and further improve quality.
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Education.
A non-U.S. example of disruptive innovation is Japanese seafood sales and distribution. Ask your supply chain management
majors to lead a discussion on why the industry is ripe for a disruption and whether they think Hachimenroppi will be
successful in disrupting the industry incumbents, challenging them to identify both pros and cons (see “Startups Upend
Japan’s Seafood Industry,” The Wall Street Journal, May 16, 2015).
Strategy Highlight 7.2

INSTRUCTOR SUPPLEMENT SLIDE 9: GE’S INNOVATION MANTRA: DISRUPT YOURSELF!
Given the global demographic shifts, health care will be of increasing concern in coming years. This brief strategy highlight
may be useful in helping students consider how to provide better health care less expensively in the decades to come, but it
raises a number of ethical issues in strategy formulation. A two-minute video, “Meet Vscan,” produced by GE shows the
Vscan handheld device in use. We have found students relate best to seeing it used rather than viewing just a photo of it
END OF CHAPTER SMALL GROUP EXERCISE 2

INSTRUCTOR SUPPLEMENT SLIDES 18
The text discusses the pros and cons of pipeline businesses and platform businesses. Several examples of new platform
businesses are mentioned (Uber, Airbnb, Facebook, and Alibaba, for example). Yet it is noted that these multi-sided markets
have actually been around much longer.
1. What are some of the biggest differences in the historical way to view platform markets and the more modern
business incarnation?
Traditional city marketplaces and other multi-sided markets are places where buyers and sellers meet under a set of rules and
conduct business. Today with digital platforms, the technology dramatically reduces the barriers for business and thus the
scale and geographic coverage is non-linear in growth potential.
2. In your group, discuss a company that could be moving toward a platform business or a new firm that is
developing as a platform. Sketch out a business model for this firm and the network loop it could be utilizing
to drive demand.
Instructors may want to point students to Exhibit 7.13 in thinking about this question. The chapter notes hotels, taxis, and
online shopping as examples of new platforms. Media provides several examples as well the students make want to think
about. Other ideas could be in clothes sharing (Rent the Runway). Student teams can find new examples as technology
advances with new impacts for consumers and businesses.
3. Can you identify a pipeline business that is likely to be disrupted by the firm you discussed in question 2
above? What could this pipeline business do to improve its long-term viability?
Here students are encouraged to consider how business models have changed with digital platforms. Traditional taxis and
rental cars are impacted by ride-hailing platforms like Uber and Lyft. Hotels and rental markets are affected by Airbnb and
VRBO platforms.
CLASS EXERCISES
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Education.
The new Vscan is self-disrupting in that it may cannibalize sales of other ultrasound equipment where GE is a major industry
leader in market share. This would cause job losses in other parts of GE that make sophisticated, large ultrasound machines.
As a manager, how would you present this issue to employees in a positive manner?
INTEGRATION
Interactive Labeling: Types of Innovation
This drag-and-drop activity helps students connect various types of innovation to market and technology opportunities.
Students will answer three multiple choice questions after this interactive labeling is completed.
Follow-Up Activity: The instructor can expand on this topic by drawing the 2X2 innovation framework on the board and
asking students to provide products and services that would fit in each of the four categories. While this seems simple, we
have found students will disagree about the placement of several well-known products and the class discussion can help bring
out the need to understand the industry perspective used for analysis for optimal placement into the framework. Discussion
question 2 in the end of chapter material also addresses this subject.
✓ Blooms: Apply
✓ AACSB: Analytic
7.5 Platform Strategy

LO 7- 6 Ex plai n why and how platf orm busi nesses can
outperf orm pi peli ne busi nesses.
When the world’s top five most valuable firms are operating in a platform business model it says we need to understand this
digital era of running companies. These platforms or multi-sided markets have several dimensions they can work within as
illustrated in Exhibit 7.13.
INTEGRATION
Interactive Labeling: Platform Strategy
This drag-and-drop activity helps students connect the platform versus the pipeline business models. This is an important
concept for students given the increasing importance of entire ecosystems in several surprising industries such as media and
ride hailing services.
✓ Blooms: Apply
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Education.
✓ AACSB: Understand
EXAMPLES
Students, particularly in the United States, may not be familiar with the Chinese based firm Alibaba. The firm is likely to
continue growing its global footprint in several different directions. As part of its effort to expand into new avenues, Alibaba
has announced it is opening new research & development (R&D) labs around the world including one in the San Francisco
area and another near Seattle. (“Alibaba Sizes Up Facebook, Amazon with R&D Splurge,” The Wall Street Journal, October
11, 2017.). It may be interesting for students to run a comparison of the multi-sided markets that Alibaba and Amazon are
both operating with and make some judgements on the trajectory for each of their businesses.
7.6 Implications for Strategic Leaders

INSTRUCTOR SUPPLEMENT SLIDES 10-13
CLASS EXERCISES
Ask small teams of students to assume that they have an idea for a radical new type of phone charger (show this video
“Nature Powered Gadgets for Outdoor Adventure,” The Wall Street Journal, August 21, 2013). What things would you need
to consider as a new entrant with a radical innovation seeking a competitive advantage? Topics that should be brought up in
the discussion would be effectively communicating with the early adopters, identifying influencers, reducing cost structure
and improving ease of use to cross the chasm, and creating barriers to imitation. What role might open innovation play in
R&D to improve and develop the product? Tying back to Chapter 4, what competencies would the innovator need to succeed
in this industry?
✓ AACSB 2015 Standard 9 Thinking creatively and Application of knowledge (able to translate knowledge of business
and management into practice)
RELATED MINICASES
Instructors may want to consider assigning and discussing any of the following MiniCases that cover topics found in this
chapter. All MiniCases have assignable McGraw-Hill Connect® case questions available.
MiniCase 5: Apple: The iPhone Turns 10, So What’s Next?

MiniCase 9: Business Model Innovation: How Dollar Shave Club Disrupted Gillette
MiniCase 10: Competing on Business Models: Google vs. Microsoft
MiniCase 14: Wikipedia: Disrupting the Encyclopedia Business
END OF CHAPTER DISCUSSION QUESTIONS

1. Patents are discussed as part of the invention phase of the innovation process in Exhibit 7.2. Describe the
trade-offs that are made when a firm decides to patent its business processes or software. Is this same
trade-off applicable to tangible hardware products made by a firm?
As the text notes, patents can help create entry barriers and slow down imitators in some product categories. However, the
advantages are balanced by the requirement to fully disclose often proprietary information in order to file a valid patent
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Education.
claim. Thus, there are several different tradeoffs in softer business advantages such as algorithms and business models
compared to more traditional hardware.
2. Select an industry and consider how the industry life cycle has affected business strategy for the firms in
that industry over time. Detail your answer based on each stage: introduction, growth, shakeout,
maturity, and decline.
Refer the students to the comprehensive overview of industry life cycle in Exhibit 7.9. The industry life cycle significantly
affects a firm’s business strategy. Strategies for each phase are discussed below:
Introduction—In this phase, a firm’s objective is to achieve market acceptance and seed future growth. Firms typically invest
heavily in R&D and some in marketing, emphasizing unique product features and performance (differentiation). Network
effects are leveraged to propel a firm to the next stage.
Growth —In this phase, a firm’s objective is to stake out a strong strategic position. This is done through a shift toward
manufacturing and marketing capabilities, with an R&D emphasis on process innovation instead of product innovation. Some
firms continue to follow a differentiation strategy, but others determine that a cost-leadership strategy is imperative.
Maturity —Growth primarily comes from the late majority and the firm’s focus should be on maintaining a strong strategic
position. Improved manufacturing and process engineering capabilities drive down the costs, which leads to intense price
competitions. Typically, a firm uses either a cost-leadership or an integration strategy.
Decline—As the size of the market contracts, firms consider four options in this stage: exit, harvest, maintain, or consolidate.
Firms can claim market share through a cost-leadership, a differentiation, or an integration strategy.
3. Describe a firm you think has been highly innovative. Which of the four types of innovation—radical,
incremental, disruptive, or architectural—did it use? Did the firm use different types over time?
When describing the chosen firm, the key principle is that the student understands the differences between the four types of
innovation. A sample company is Samsung, who has been innovative in the TV industry and has utilized several of these
innovation types. Each year, Samsung makes incremental innovation improvements to its LED TV line: improved contrast
ratios, more HDMI inputs, thinner screens, and so on. Samsung also created two new technologies in this market: a bendable
OLED screen and the 3D TV. Both of these are classified as disruptive innovations. This is just one example as the number
of innovative firms is limitless.
4. The chapter discussed the Internet as a disruptive innovation that has facilitated online retailing. It also,
however, has presented challenges to brick-and-mortar retailers. How might retailers such as Nordstrom,
Neiman Marcus, or Macy’s need to change their in-store experience in order to continue to attract a flow
of customers into their stores to expand sales using direct selling and store displays of the actual
merchandise? If the Internet continues to grow and sales of brick-and-mortar retailers decline, how
might the retailers attract, train, and retain high-quality employees if the industry is perceived as in
decline?
Students are likely to come up with some creative ideas in response to this question. One technique that brick-and-mortar
stores have been using is to build an e-commerce presence and then offer same day pickup in stores. This allows them to
leverage their distributed inventory to give them a customer service advantage over pure Internet retailers. The reverse is also
used, i.e., computers in stores from which a consumer can order “long tail” items for home delivery. Other options might
include offering exclusive products that are available only in store, offering flash sales only in store, using RFD tags to send
messages to mobile phones to promote products in stores that a person passes, or using smart advertising displays in front of
restaurants to promote products in stores in the same shopping center. If stores are going to compete with Internet retailers,
they are going to have to offer something special that online retailers would find difficult to imitate. Some options are
expanding their personal shopper offering, innovative merchandising, and outstanding customer service. To attract the best
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Education.
people, they will need to gain a reputation for being “leading edge” in creativity and innovation in these three areas and
create prestige by who and how they recruit and through career development ladders.
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Education.
INTEGRATION
HP Running Case: Module 7

While offering each student the opportunity to explore and analyze the company of his/her choice can add interest to the
exercise, there are many advantages for an instructor when the entire class works on the same firm. Connect® allows you to
do this with a running case for a single firm that encompasses every chapter in the textbook and tracks the Strategy Term
Project. Hewlett-Packard is provided as an example firm your students can use to see what information and analysis would be
helpful to cover this portion of the term project.
Strategy Term Project: Business Level

Strategies: Innovation, Entrepreneurship,
and Platforms
TERM PROJECT MODULE 7
In this section, you will study the innovation strategy of the firm you have previously selected for this project. Be sure to
instruct the students to focus only on ONE business unit if they have selected a larger firm with several operations.
Where is your firm’s industry on the life cycle as shown in Exhibit 7.4? What are the strategic implications?
The firm’s industry has already been well documented, especially in Module 3. This question should be largely answered by
using previous research and careful study of the relevant section of this chapter.
What is the firm’s innovation strategy? Does it rely on incremental or radical innovations? Disruptive or architectural? What
are the competitive implications of the firm’s innovation strategies?
This may be an opportunity for the student to apply the productivity frontier model from Chapter 6. Ask them to consider
how close the firm has been to the frontier over the past few years. What product or process innovations have enabled them
to achieve that performance?
Are intellectual property rights important for your firm? Can you find what strategies the firm is implementing to protect its
proprietary position? Identify a recent innovation by your firm. What is your firm’s strategy to cross the chasm(s) to achieve
mass market adoption of their innovation?
Intellectual property and other ways of protecting your firm’s current position can be helpful in staving off hyper-competition
and disruptive forces if the value your firm produces for its customers is not superseded by some new innovation.
What attributes describe the current major customer segment for your firm? Are these changing? If so, is your firm prepared
to meet these new customer demands?
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Education.
The point of reviewing customer segments here is to think through what a “bottoms-up” disruption in the industry might look
like. This can be an area where students demonstrate some creativity. Ask them to reflect on how other industries may
influence theirs or discuss events that are happening in other industries that could spur changes in theirs with some creative
business models. What will be the role for custom-designed clothes or cars, for example, that are realistically becoming
available in areas where mass production has been the standard for decades. Students should also be considering how the firm
is monitoring and developing absorptive capacity in emerging technologies.
How does your firm organize for innovation? Does it use a closed or an open innovation approach? Is its current approach
working out well, or does it need changing? If yes, how?
Encourage the students to go beyond the issue of open versus closed innovation. What can they learn about the firm’s new
product pipeline? For a U.S. firm innovation performance can be roughly measured with a count of new patents over recent
years. Has the innovation productivity been rising or falling? How has the firm performed on this measure versus rivals?
Does the firm have a practice, like Google or 3M, of allowing employees some free time to work on projects of their choice?
Where does the firm do its research: a separate lab to develop a separate creative culture or integrated with manufacturing
and engineering, a lab located in a knowledge cluster or near headquarters, at several locations around the globe (close to
customers), or only in the headquarters company?
myStrategy
INSTRUCTOR SUPPLEMENT SLIDES 15-16: DO YOU WANT TO BE AN ENTREPRENEUR?
Here, we encourage the student to take what he/she has learned about entrepreneurial companies and apply it to his/her
personal career. Encourage students to spend a few minutes looking at themselves to discover their own desire to work in
innovative environments.
✓ AACSB 2015 Standard 9 Reflective thinking (able to understand oneself in the context of society)
1. Thinking about today’s business climate, would you say that now is a good time to start a business? Why or
why not?
Interest rates, real estate leases, and an abundance of qualified applicants for many jobs are all favorable factors. Reduced
bank lending for small businesses is a negative. Availability of great human capital is high when jobs are scarce. Also, with
recent low interest rates, investors may be more willing to accept the risks of investing in startups since other avenues are
producing very small returns.
2. Do you see higher education as a benefit or detriment to becoming a successful entrepreneur? Why or why
not?
Students might have varying opinions on this, although they are likely to view higher education as useful since they made the
choice to pursue a degree. You might point out the importance of business classes in providing the knowledge to develop an
effective business plan and the finance and accounting courses helping to avoid the biggest risk of failure for small
businesses—failure to manage cash flow.
3. Identify both the up and down sides of taking on personal debt to finance a higher education.
If subsidized student loans are available, they are likely to have a lower finance cost than car loans, personal loans, or new
business loans. They also have more favorable repayment terms.
Does it matter where (in terms of geography) you start your business? Why or why not?
A location near key suppliers or customers needs to be considered. Also, varying regulator environments can play a role in
some locations being better than others in some industries.
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Education.
4. Explain how you would apply the strategic management framework to enhance your startup’s chances to
gain and sustain a competitive advantage.
Students will have a variety of answers. Ask them to consider the role of innovation, the industry life cycle, and whether the
industry is in a platform ecosystem to frame an answer to this question.
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Education.

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Teacher’s Resource Manual: Implementation Guide

7.4 Types of Innovation (LO 7-5)

7.5 Platform Strategy ( LO 7-6)

CONNECT APPLICATION EXERCISE

Teacher’s Resource Manual:

W HAT INSTRUCTOR RESOURCES ARE AVAILABLE ?

▪ Teacher’s Resource Manual

1) This Teacher’s Resource Manual is posted by chapter.

How can SmartBook ® enhance my students’ performance?

▪ Progress Overview: View student progress broken down by module

STUDENT CORRECT CORRECT and INCORRECT INCORRECT

Application Exercises, Quizzes, and Test Bank

When should I assign these digital components?

LO 7-2 Apply strategic management concepts to entrepreneurship and innovation.

LO 7-4 Derive strategic implications of the crossing-the-chasm framework.

LO 7-5 Categorize different types of innovations in the markets-and-technology framework.

ChapterCase 7 Netflix: Disrupting the TV

INSTRUCTOR SUPPLEMENT SLIDES 2–4

CONSIDER THIS DISCUSSION QUESTIONS

7.1 Competition Driven by Innovation

✓ AACSB 2015 Standard 9 Integrating knowledge across fields

✓ AACSB 2015 Standard 9 Analytical thinking

7.2 Strategic and Social Entrepreneurship

✓ AACSB 2015 Standard 9 Thinking creatively

7.3 Innovation and the Industry Life Cycle

END OF CHAPTER SMALL GROUP EXERCISE 1

2. In what phase of the life cycle is the record-label industry?

Strategy Highlight 7.1

LECTURE SLIDES 18-20

END OF CHAPTER ETHICAL/SOCIAL ISSUES 1

✓ AACSB 2015 Standard 9 Ethical understanding and reasoning

LO 7- 4 Derive st rat egi c i mpli cations of t he crossi ng - the- chasm

STRATEGY SMART VIDEO EXAMPLES

INSTRUCTOR SUPPLEMENT SLIDE 30

7.4 Types of Innovation

The many flavors of Oreos

Disruptive innovation (Exhibit 7.11 and 7.12):

VoIP (Skype is one example) is challenging the traditional landline technology.

Strategy Highlight 7.2

END OF CHAPTER SMALL GROUP EXERCISE 2

7.5 Platform Strategy

7.6 Implications for Strategic Leaders

MiniCase 5: Apple: The iPhone Turns 10, So What’s Next?

END OF CHAPTER DISCUSSION QUESTIONS

HP Running Case: Module 7

Strategy Term Project: Business Level

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