MGMT 478 Iowa State University Cost Leadership Video Essay 1. watch video half page Reflection Paragraph: Write a reflection paragraph over one or both of

MGMT 478 Iowa State University Cost Leadership Video Essay 1. watch video half page

Reflection Paragraph: Write a reflection paragraph over one or both of the videos posted below. Please include the following three items of information:

1.) Something you learned or thought was interesting from the YouTube/information presented

2.) A question you have about the topic or something additional you would like to learn because of the information presented.

3.) How you might use this information in your career or future.

The purpose of writing brief reflection paragraphs is for you to think about what you learned from an assignment and how you might practically apply the knowledge to your career.

Cost leadership: When a company sells cheap and makes money (Links to an external site.)

6 1/2 minutes

Talking Innovation and Entrepreneurship with Amazon Founder and CEO, Jeff Bezos (Links to an external site.)

11 minutes

2. read power point half page

Reflection Paragraph – should include 1) something you learned from the presentation(s), 2) a question you have about topic or something additional you would like to learn because of the information presented and 3) how you might use the information learned in your future.

This reflection is over chapters 6 and 7

3. One paragraph,

Share with us a firm you think has been highly innovative. Which of the four types of innovation – radical, incremental, disruptive, or architectural – did it use? Why do you think this and do you believe the firm used different types over time?

4. one paragraph same company as number 3 question

Each student will submit a brief summary of an article or event which relates somehow to the area of strategic management to the discussion board in Canvas. It does not have to be related with the chapter(s) we are studying that week. If it is your week to post, I ask that summaries be posted by Wednesday of the week in which they are assigned. This will give everyone a chance to respond to at least one article post by Sunday at midnight. Because learning changes everything.®
Chapter 7
Business Strategy:
Innovation,
Entrepreneurship, and
Platforms
© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
Learning Objectives
1. Outline the four-step innovation process from idea to
imitation.
2. Apply strategic management concepts to
entrepreneurship and innovation.
3. Describe the competitive implications of different stages
in the industry life cycle.
4. Derive strategic implications of the crossing-the-chasm
framework.
5. Categorize different types of innovations in the marketsand-technology framework.
6. Explain why and how platform businesses can outperform
pipeline businesses.
© McGraw Hill
Innovation Is a Competitive Weapon
Innovation can create and destroy value.
Innovation often comes in waves:
• Many firms dominated an early wave of innovation, and are
challenged by the next wave.
• Traditional networks vs. cable providers.
• Cable providers vs. streaming content.
• Typewriters to PC’s to mobile devices.
Initial innovations are foundational for other rapid
innovation.
© McGraw Hill
Accelerating Speed of Technological Change
Exhibit 7.1
Source:. Depiction
of data from the
U.S. Census
Bureau, the
Consumer
Electronics
Association, Forbes,
and the National
Cable and
Telecommunication
s Association.
Access the text alternate for the slide
image.
© McGraw Hill
The Four I’s: Idea, Invention, Innovation, and
Imitation
Exhibit 7.2
© McGraw Hill
Idea, Invention, Innovation and Imitation
Idea:
• Abstract concepts or research findings.
Invention:
• Transformation of an idea into a product.
• The modification and recombination of products.
Innovation:
• Commercialization of an invention.
Imitation:
• Copying a successful innovation.
© McGraw Hill
Innovation: A Novel and Useful Idea That Is
Successfully Implemented
Exhibit 7.3
© McGraw Hill
Entrepreneurs
The process by which
change agents
undertake economic risk
to innovate.
• Create new products,
processes, and
organizations.
• Create value for society.
• Commercialize ideas and
inventions.
© McGraw Hill
Examples:
• Reed Hastings: Netflix.
• Elon Musk: Tesla Motors,
Solar City, SpaceX,
PayPal.
Strategic and Social Entrepreneurship
Strategic
Entrepreneurship:
Social
Entrepreneurship:
• Pursuit of innovation using
strategic tools and
concepts.
• The pursuit of social goals
while creating profitable
businesses.
• Combining entrepreneurial
actions.
• Evaluate performance by
financial, ecological and
social contribution metrics.
• Creating new
opportunities.
• Exploiting existing
opportunities.
© McGraw Hill
The Industry Lifecycle
Over time:
The stages:
• The number and size of
competitors change.
1. Introduction.
• Different types of
consumers enter the
market.
• The supply and demand
sides of the market
change.
• Different competencies
are needed for the firm to
perform well.
© McGraw Hill
2. Growth.
3. Shakeout.
4. Maturity.
5. Decline.
Industry Life Cycle: The Smartphone Industry
in Emerging and Developed Economies
Exhibit 7.4
Access the text alternate for slide image.
© McGraw Hill
Introduction Stage
Core competency: research and development.
• Necessary to create a product category that will attract
customers.
• Can be very capital-intensive (high costs).
Barriers to entry are high.
Strategic objective: market acceptance & future
growth.
© McGraw Hill
Leveraging Network Effects to Drive Demand:
Apple’s iPhone
Exhibit 7.5
Access the text alternate for slide image.
© McGraw Hill
Growth Stage
Demand increases rapidly.
• First-time buyers rush to purchase.
• Proof of concept has been demonstrated.
Product / service standards emerge.
• A common set of features and design choices.
• Can emerge from competition or imposed by government
or agencies.
Product innovation:
• New / recombined aspects of a product.
Process innovation:
• New ways to produce a product.
© McGraw Hill
Product and Process Innovation throughout an
Industry Life Cycle
Exhibit 7.7
Access the text alternate for slide image.
© McGraw Hill
Shakeout Stage
The rate of growth declines.
Firms begin to intensely compete.
• Weaker firms forced out.
• Industry consolidation.
• Only the strongest competitors survive.
Price is an important competitive weapon.
© McGraw Hill
Maturity Stage
Only a few large firms remain.
• They enjoy economies of scale.
• Process innovation has reached a maximum.
Demand: replacement or repeat purchases.
Market has reached maximum size.
• Industry growth is zero or negative.
© McGraw Hill
Decline Stage
Demand falls rapidly.
• Innovation efforts cease.
• If a breakthrough
emerges, it leads to a new
industry or resets the life
cycle.
• Strong pressure on prices.
Four strategic
options to pursue:
1. Exit: bankruptcy /
liquidation.
2. Harvest: reduce further
investments.
3. Maintain: support at a
given level.
4. Consolidate: buy rivals.
© McGraw Hill
The Crossing-the-Chasm Framework
Exhibit 7.8
Source: Adapted from G.A. Moore (1991), Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers (New York:
HarperCollins), 17.
Access the text alternate for slide image.
© McGraw Hill
Technology Enthusiasts
Enter the market during the introductory stage.
• Smallest market segment, 2.5% of the total market
potential.
Have an engineering mind.
Proactively pursue new technology.
Enjoy using beta versions.
Tinker with product imperfections.
Provide free feedback and suggestions.
© McGraw Hill
Early Adopters
Enter the market during the growth stage.
• 13.5% of the total market potential.
Demand is driven by imagination and creativity.
• Ask themselves, “What can this new product do for me or
my business?”
To capture these customers:
• Directly communicate the product’s potential.
© McGraw Hill
Early Majority
Enter the market during the shakeout stage.
• 34% of the total market potential.
• Decision criteria, a strong sense of practicality.
“What Can This Do For Me?”
• Weigh the benefits and costs carefully.
• Rely on endorsements of others.
This group is key to catching the growth wave.
© McGraw Hill
Late Majority
Enter the market during the maturity stage.
• 34% of the total market potential.
Not as confident in their ability to master the
technology:
• Wait until standards have emerged.
• Do not like uncertainty.
Represent the majority of the market.
Buy from well-established firms with a strong brand.
© McGraw Hill
Laggards
Enter the market during the decline stage.
• 16% of total market potential.
Adopt a new product only if necessary (reluctant).
Generally don’t want new technology.
Typically not pursued as future customers.
• Demand is small.
• Early and late majority are at this time moving on to
different products and services.
© McGraw Hill
Crossing the Chasm: The Mobile Phone
Industry
Exhibit 7.9
Access the text alternate for slide image.
© McGraw Hill
Types of Innovation: Combining Markets and
Technologies
Exhibit 7.11
Access the text alternate for slide image.
© McGraw Hill
Incremental vs. Radical Innovation
Incremental Innovation:
Radical Innovation:
• Builds on established
knowledge.
• Novel methods &
materials.
• Results from steady
improvement.
• Entirely new knowledge
base or recombination of
existing knowledge.
• Targets new markets and
technology.
© McGraw Hill
Why Incumbent Firms Tend to Focus on
Incremental Innovation
Economic Incentives:
• They must defend their position.
Organizational Inertia:
• They have formalized processes and structures.
Innovation Ecosystem:
• They rely on certain suppliers, buyers, complementors.
© McGraw Hill
Architectural vs. Disruptive Innovation
Architectural Innovation:
Disruptive Innovation:
• Existing technology
leveraged into a new
market.
• Leverages new
technologies in existing
markets.
• Known components,
existing technology, used
in a novel way.
• New product / process
meets existing customer
needs.
© McGraw Hill
Disruptive Innovation: Riding the Technology
Trajectory to Invade Different Market Segments
from the Bottom Up
Exhibit 7.12
Access the text alternate for slide image.
© McGraw Hill
How to Respond to Disruptive Innovation
Continue to innovate to stay ahead of the
competition.
Guard against disruptive innovation by protecting
the low end of the market.
Disrupt yourself rather than wait for others to disrupt
you.
© McGraw Hill
Platform vs. Pipeline Businesses
Platform Business:
Pipeline Business:
• Enables interaction
between producers and
consumers.
• Linear transformation
through the value chain.
• Its overarching purpose is
to enable matches among
users.
• Provides infrastructure
and sets governance
conditions.
© McGraw Hill
• Research and
development, then design,
then manufacture, then
sell.
The Players in a Platform Ecosystem
Exhibit 7.13
Access the text alternate for slide image.
© McGraw Hill
Advantages of the Platform Business
Model
They scale more efficiently by eliminating
gatekeepers.
They unlock new sources of value creation and
supply.
They benefit from community feedback.
© McGraw Hill
Netflix Business Model: Leveraging Network
Effects to Drive Demand
Exhibit 7.14
Access the text alternate for slide image.
© McGraw Hill
Uber’s Business Model: Leveraging Network
Effects to Increase Demand
Exhibit 7.15
Access the text alternate for slide image.
© McGraw Hill
Uber’s Network Effects with Feedback Loop
Exhibit 7.16
Access the text alternate for slide image.
© McGraw Hill
Because learning changes everything.
www.mheducation.com
© 2019 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
®
Because learning changes everything.®
Chapter 6
Business Strategy:
Differentiation, Cost
Leadership and Blue
Oceans
© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
Learning Objectives
1. Define business-level strategy and describe how it
determines a firm’s strategic position.
2. Examine the relationship between value drivers and
differentiation strategy.
3. Examine the relationship between cost drivers and costleadership strategy.
4. Assess the benefits and risks of differentiation and costleadership strategies vis-vis the five forces that shape
competition.
5. Evaluate value and cost drivers that may allow a firm to
pursue a blue ocean strategy.
6. Assess the risks of a blue ocean strategy and explain why
it is difficult to succeed at value innovation.
© McGraw Hill
What Is Business Level Strategy?
Goal-directed actions:
• To achieve competitive
advantage in a single
product market.
“How should we
compete?”
• Who: which customer
segments?
• What: customer needs will
we satisfy?
• Why: do we want to satisfy
them?
• How: will we satisfy our
customers’ needs?
© McGraw Hill
Industry and Firm Effects Jointly Determine
Competitive Advantage
Exhibit 6.1
Access the text alternate for slide image.
© McGraw Hill
Strategic Position
A strategic profile based on value creation and cost
in a specific product market.
A valuable and unique position, which:
• Meets customer needs.
• Maximizes product value.
• Lowest possible product cost.
© McGraw Hill
Strategic Trade-Offs
Choices between a cost OR value position.
Tension between value creation and pressure to
keep cost in check.
Purpose to maximize the firm’s:
• Economic value creation.
• Profit margin.
© McGraw Hill
Generic Business Strategies
Differentiation:
Cost Leadership:
• Seeks to create higher
value vs. competitors.
• Seeks to create similar
value vs. competitors.
• Offers unique features.
• Charges lower prices.
• Charges higher prices.
© McGraw Hill
Focused Business Strategies
Narrower competitive scope.
Focused Differentiation:
• Example of Mont Blanc: exquisite pens at several
hundred dollars.
Focused Cost Leadership:
• Example of BIC: disposable pens and lighters at
low cost.
© McGraw Hill
Strategic Position and Competitive Scope:
Generic Business Strategies
Exhibit 6.2
Source: Adapted from M.E. Porter (1980), Competitive Strategy. Techniques for Analyzing Industries and
Competitors (New York: Free Press).
© McGraw Hill
Access the text alternate for slide image.
Differentiation Strategy
Unique features that increase value, so that
consumers pay a higher price.
The focus of competition:
• Unique product features.
• Service.
• New product launches.
• Marketing and promotion.
Competitive advantage achieved when:
• Value – Cost > Competitors.
© McGraw Hill
Differentiation Strategy: Achieving Competitive
Advantage
Exhibit 6.3
Access the text alternate for slide image
© McGraw Hill
Economies of Scale and Scope
Economies of Scale:
Economies of Scope:
• Decreases in cost per
unit.
• Savings that come from
producing two outputs at
less cost.
• Achieved as output
increases.
© McGraw Hill
• Shares the same
resources or technology.
Three Drivers That Increase Perceived
Value
Product features.
• Increase the perceived value of the product or service
offering.
Customer service.
Complements.
• Add value to a product or service when they are consumed
in tandem.
© McGraw Hill
Differentiation Strategies: Summary
Focused on adding value:
• Unique features.
• Customer service.
• Effective marketing.
Can increase costs, for example, if R and D /
innovation needed.
Customers willing to pay a premium.
© McGraw Hill
Cost Leadership Strategy
Goals:
1. Reduce cost below competitors.
2. Offer adequate value.
3. Reduce prices for customers.
4. Optimize the value chain for low cost.
A cost leader can achieve a competitive advantage
as long as its economic value created (V − C) is
greater than that of its competitors.
© McGraw Hill
Cost-Leadership Strategy: Achieving
Competitive Advantage
Exhibit 6.4
Access the text alternate for slide image.
© McGraw Hill
Drivers That Keep Costs Low
Cost of input factors:
• Raw materials, capital, labor, and IT services.
Economies of scale:
• Decreases in cost per unit as output increases.
Learning-curve effects:
• Less time to produce output with experience.
Experience-curve effects:
• Improvements to technology and production processes.
© McGraw Hill
Economies of Scale, Minimum Efficient Scale,
and Diseconomies of Scale
Exhibit 6.5
Access the text alternate for slide image.
© McGraw Hill
Economies and Diseconomies of Scale
Economies of Scale:
• Spreads fixed costs over a
larger output.
• Employs specialized
systems and equipment.
• Takes advantage of
certain physical
properties.
© McGraw Hill
Diseconomies of
Scale:
• Firms too big.
• Complexities of too
much coordination.
• Inflexible and slow.
Tesla’s Learning Curve Producing the
Model S
Exhibit 6.6
Source: Depiction of functional relationship estimated in J. Dyer and H. Gregersen (2016, Aug. 24), “Tesla’s innovations are
transforming the auto industry,” Forbes
© McGraw Hill
Access the text alternate for slide image.
Gaining Competitive Advantage through
Leveraging Learning- and Experience-Curve
Effects
Exhibit 6.7
Access the text alternate for slide image.
© McGraw Hill
Cost Leadership Strategies: Summary
Focus on:
• Offering lower costs than competitors.
• Maintaining acceptable quality.
Appeals to the bargain-conscious buyer:
• Attracts increased sales.
Can be profitable over a long period of time.
© McGraw Hill
Successful Business Strategy
A successful strategy:
• Leverages the firm internal strengths.
• Mitigates internal firm weaknesses.
• Exploits external opportunities.
• Avoids external threats.
There is no single correct business strategy for a
specific industry.
Choose a strategy that:
• Provides a strong position that attempts to maximize
economic value creation.
• Is effectively implemented.
© McGraw Hill
What Is Blue Ocean Strategy?
A strategy that combines both differentiation and
cost-leadership activities.
• A firm offers a differentiated product or service at a low
cost.
• Examples: Trader Joe’s, Cirque du Soleil.
Uses value innovation to reconcile trade-offs.
Blue oceans represent:
• Untapped market space.
• Creation of additional demand.
• Opportunities for highly profitable growth.
(Red oceans are the known market space of
existing industries)
© McGraw Hill
Value Innovation Accomplished through
Simultaneously Pursuing Differentiation (V ↑)
and Low Cost (C ↓)
Exhibit 6.9
Source: Adapted from C.W.
Kim and R. Mauborgne
(2005), Blue Ocean
Strategy: How to Create
Uncontested Market Space
and Make Competition
Irrelevant (Boston, MA:
Harvard Business School
Publishing).
Access the text alternate for slide image.
© McGraw Hill
To Achieve Successful Value Innovation
Lower costs:
• Eliminate: Which of the factors should be eliminated?
• Reduce: Which of the factors should be reduced?
Increase perceived consumer benefits:
• Raise: Which of the factors should be raised?
• Create: Which factors should be created?
It is difficult to succeed at value innovation
© McGraw Hill
Value Innovation vs. Stuck in the Middle
Exhibit 6.10
Access the text alternate for slide image.
© McGraw Hill
The Strategy Canvas
Graphical depiction of a company’s performance:
• Relative to its competitors.
• Shows focus or divergence.
Viewed across the industry’s factors of competition.
Reveals key strategic insights.
© McGraw Hill
Strategy Canvas of JetBlue vs. Low-Cost
Airlines and Legacy Carriers
Exhibit 6.11
Access the text alternate for slide image.
© McGraw Hill
Because learning changes everything.
www.mheducation.com
© 2019 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
No reproduction or further distribution permitted without the prior written consent of McGraw Hill.
®

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