Chapter 10- Innovation Strategies


Terms in this set (...)

the creation of an idea or method; a novel concept
the conversion of a novel concept ( an invention) into a precut, process or business model that generates revenues and profits
incremental innovation
building on a firm's established knowledge base to create minor improvements to the product or service a firm offers
incremental innovation
also called sustaining innovation b/c sustains a company's current product offerings and revenues
radical innovation
innovation that draws on a different knowledge base, technologies or methods to deliver value in a truly unique way
lean manufacturing
flexible production technique that is considered a radical innovation due to minimizing inventories and waste despite being designed for rapid product changeovers
radical innovations
strategies that draw on these often use new technologies or employ a fundamentally different business model than rivals. create, deliver and capture value through different resources and capabilities
innovative strategy
a strategy that introduces a fundamentally different business model than rivals
business models
these differ on one of following 3:
1. choice of customer segments to serve and unique value (value proposition) offered by the company
2. choice of activities the company performs and the resources used to deliver value to customers
3. way a company generates revenue streams to get paid for the value it delivers
revenue model
the approach, or pricing strategy, a company uses to get paid for the value it delivers through its business model
disruptive innovation
innovative strategies based on radical innovations in which companies in the same industry find the innovation so ground-breaking that they can no longer do business as usual
disruptive innovation
type of innovation/strategies that offer value that is attractive to incumbent's customers and are delivered through a business model that is difficult for incumbent's to imitate
dominant logic
the same tactics and patterns that allow innovative strategies to enable disruptive innovation
1. value chain reconfiguration- eliminate activities
2. value chain reconfiguration- mass customization
3. low-end disruptive innovations
4. high-end disruptive innovations
5. blue ocean strategy- new markets by targeting non-customers
6. create a platform to share assets
7. free business models
7 categories of innovative strategies
value chain reconfiguration- eliminate activities
category of innovative strategies that:
allows firm to offer lower prices for similar products and services. typically includes taking out a step in the path from production to customer.
low-end disruptive innovation
category of innovative strategies that:
is producing a low-cost product or service for the low-end or most price-sensitive market segment, and then gradually moving upmarket as the product or service improves its technology and processes
high-end disruptive innovations
category of innovative strategies that:
producing product or service that outperform existing products and sell of premium price to least price-sensitive buyers and moves steadily downward into mainstream markets
high-end innovations
radical types of these usually rely on expensive technological innovations whose cost is gradually reduced as there are improvements in technology and the product is produced on a wider scale
high end disruptions
are new products or service that offer either superior performance on some existing product features or offer new features customers are willing to pay for. usually only possible through innovations in technology
value chain reconfiguration- mass customization
category of innovative strategies that:
is based on concept of mass producing individually customized goods and services
mass customization
when a company mass-produces the various modules of the product and then allows the customers to select which modules will be combined together
reconfiguration of value chain- mass customization
category of innovative strategies that works best when:
1. markets have customers with variety of needs
2. many customers in market want product that is personalized to their needs
3. product can be broken down into parts that offer different features or performance
blue ocean strategy
creating new demand in an uncontested market space
blue ocean strategy- creating new markets by targeting nonconsumers
category of innovative strategies that:
creates new demand in an uncontested market space. offers value that is very different from anything on the market. target nonconsumption individuals with an offering that might induce consumptions.
non consumption individuals
individuals who do not currently purchase a product or service
create a platform to coordinate and share private assets
category of innovative strategies that:
created by sharing economy through building coordination apps that help consumers coordinate and share private assets. (Uber, AirBnb). must target specific pockets of consumption
creating a platform to coordinate and share private assets
category of innovative strategies that needs following to work:
1. asset value is high, but use of that asset is low. high value is combined with way to manage risk
2. ability to build scale in network itself through set of buyers and sellers using platform
3. brands and communities appeal to millennial culture
free business/revenue models
category of innovative strategies that:
offers products or services for free
1. cross-sell (freemium) strategy
2. third-party pay strategy
3. budding strategy
3 free business/revenue model strategies that companies use
cross-sell (freemium) strategy
offering a free basic product to gain widespread initial use, after which users are offered a non-free, premium version or are sold products not directly tied to the free product (like most apps), or offering free version for customers to use at home, but paid version with additional features to enterprise market
cross-sell (freemium) strategy
strategy that requires following to be successful:
1. free precut appeals to very large product users base
2. high conversion rate, or free users willing to convert to paying customers for premium features
high conversion rate
when a high percentage of free users are willing to convert to paid customers for premium features
third-party pay strategy
sometimes called a two-sided market, providing free products to a community of product users as a method of generating revenue from a third party that pays to access those users
third-party pay strategy
secret to this free business strategy is:
offering a valuable service that either
1. a very large community of product users can then be segmented in a particular way for advertisers
2. a targeted community of users that comprises a customer segment
customer segment
groups of people who share similar needs and thus are likely to desire the same features in a product
bundling strategy
involves offering a free product with a paid product or service
bundling strategy
free business strategy that works well when:
1. product requires ongoing maintenance or complementary goods
2. company offers a broad array of products
argument that competitive intensity has increased and that periods of competitive advantage have decreased. term coined by Professor Rich D'Aveni
term that means products will mature and decline after the growth phase. means that companies must continue to offer innovative products and services to experience continued growth
1. introduction stage
2. growth stage
3. maturity stage
4. decline stage
4 stages of product life cycle
introduction stage
stage in which companies try ot get early adopters to test potential of new product. primary goal is to get reference cusomters who will seed future gowth to increase market acceptance
product innovation
more important than process innovation in introduction stage and requires R&D and product development and design to be key competencies
growth stage
stage in which sales accelrate as initial innovation gains traction and increased market acceptance. early majority group of buyers cause demand to increase as thye are convince that the product concept works as demonstrated by early adopters
early adopters
types of buyers who are willing to try out latest gadget
standard/dominant design
what is adopted during the growth stage as product gains acceptance and signals the market's agreement about a common set of engineering and design features
process innovation
what product innovation gives way to during the growth stage
maturity stage
stage in which growth starts to slow as market penetration increases. late majority of buyers are the source of any growth that comes
late majority
people who want not only a proven concept but a low price. the buyer group that is source of growth during maturity stage
process innovation and operational efficiency
become highly important during maturity stage as there is increase in competitive rivalry and cost starts to become more important as a determinant of success
decline stage
stage that is often initiated by new products entering the market that causes demand to fall. leads to some companies trying to minimize competitin and consolidate the industry by buying rivals