Strategic Management Concepts and

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Strategic Management Instructor’s Manual Chapter 10: Innovative Strategies

Chapter 10
Innovative Strategies and Business Models

Learning Objectives

Studying this chapter should provide you with the knowledge to:
 Discuss the difference between an invention and innovation, and incremental
versus radical innovations.
 Describe how companies create an innovative strategy by eliminating steps in the
value chain.
 Explain the difference between “low end” and “high end” disruptive innovations.
 Define what “mass customization” means and how companies use this approach
to succeed in the market.
 Describe what it means to target “non-consumption” and create new markets with
a blue ocean strategy.
 Identify the four behaviors of business innovators that help generate ideas for
innovative strategies.

Purpose

The purpose of this chapter is to expose students to the notion of innovative strategies.
While there is no specific strategy tool, students will learn to differentiate between an
incremental versus radical innovation and various types of innovative strategies.

The role innovation plays in strategy will be explored through the text, mini cases, end-
of-chapter questions, and the New Business Models Case regarding home entertainment.

Please note that the “Presenters Notes” in the PowerPoint slide deck giv e a
brief script for lecture and can be used as a guide.

Outline

Innovative Strategies in Home Movie Entertainment

WHAT IS AN INNOVATIVE STRATEGY?
Incremental versus Radical Innovation

Copyright ©2015 John Wiley & Sons, Inc. IM 10 - 1

Strategic Management Instructor’s Manual Chapter 10: Innovative Strategies

Strategy in Practice: Understanding Business Models

CATEGORIE S OF INNOVATIVE STRATEGIE S
Reconfiguring the Value Chain to Eliminate Activities (Disintermediation)
Strategy in Practice: The Internet as a “Disruptive” Technology
Low-End Disruptive Innovations
High-End/Top-Down Disruptive Innovations
Strategy in Practice: Why Incumbents Don’t Respond Effectively to Low-End
Disruptions
Reconfiguring the Value Chain to Allow for Mass Customization
Blue Ocean Strategy—Creating New Markets by Targeting Nonconsumers
Free Business/Revenue Models
Strategy in Practice: Where Do Innovative Strategies Come From?
HYPERCOMPETITION: THE ACCELERATING PACE OF INNOVATION
INNOVATION AND THE PRODUCT/BUSINESS/INDUSTRY LIFE CYCLE (S-
CURVE)
Introduction Stage
Growth Stage
Maturity Stage
Decline Stage

• Summary • Key Terms • Review Questions • Application Exercises • References

Answers to Review Questions

1. What is the difference between an invention and innovation? What are the
differences between incremental versus radical innovations?
Invention is the creation of a unique or novel concept, method or process, whereas
innovation is the conversion of a novel concept into a product, process, or business
model that generates revenues and profits. Incremental innovation builds on a firm’s
established knowledge base and steadily improves the product or service it offers,
whereas radical innovation draws on a different knowledge base, technologies, or
methods to deliver value in a truly unique way.

2. How do companies create an innovative strategy by eliminating steps in the value

chain?
Companies who eliminate steps in the value chain are able to offer lower prices for
similar products and services. One example is that of Amazon offering books online.

3. What is the difference between “low end” and “high end” disruptive innovations?

Copyright ©2015 John Wiley & Sons, Inc. IM 10 - 2

Strategic Management Instructor’s Manual Chapter 10: Innovative Strategies

“Low end” disruptive innovations offer a low cost product or service with less
technology or ability, whereas “high end” disruptive innovations offer products that
outperform existing products and are sold for a premium price rather than a discount.

4. What does “mass customization” mean? How do companies use mass

customization to succeed in the market?
Mass customization means to provide provides or services that are customized for
individual customers but on a large scale, such as Build-A-Bear Workshop. This works
in markets that have customers with a variety of different needs and many want a product
that is personalized to those needs.

5. What does it mean to target “non-consumption?” How does a company create

new markets with a Blue Ocean Strategy?
Targeting “non-consumption” means looking for individuals who do not currently
purchase a product or service and offering a product or service that might induce
consumption. A company creates new markets by creating new demand in an
uncontested market space.

6. What are four behaviors of business innovators that help them generate ideas for
innovative strategies?
Observing, questioning, experimenting, and associating.

Copyright ©2015 John Wiley & Sons, Inc. IM 10 - 3