class2of 4

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Innovation &

Entrepreneurship

Luc BEAL, 2009-10 MME3

Assignment : look up definition of the following terms and names;

1.Invention versus Innovation2.Inventor versus entrepreneur3.Joseph Schumpeter4.Destructive creation (provide examples)5.Animal spirit6.Innovation cluster / national innovation system

Invention MarketR&D

Innovation

INNOVATION INNOVATION LIFE CYCLE LIFE CYCLE : : from its entry on the market to its obsolescence from its entry on the market to its obsolescence

CREATIVE DESTRUCTIONHow innovations compete

with each other

ADOPTION by MARKETHow fast can we penetrate the market

(before obsolescence, before competition enters)

2 forces

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CREATIVE DESTRUCTION, more than just an oxymoron :

Introduced by Austrian School economist Joseph Schumpeter.

Describes the process of transformation that accompanies radical innovation. Innovative entry by entrepreneurs destroys the value of established companies that enjoyed monopoly power.

Companies that once revolutionized and dominated new industries ( Xerox in copiers, Polaroid in instant photography) have seen :

- their profits fall - their dominance vanish as rivals launched improved designs or cut manufacturing costs.

It’s an eternal cycle : the cassette tape replaced the 8-track only to be replaced in turn by the compact disc , itself being undercut by MP3 players… This is the process of creative destruction.

Both the "prepared mind" and "systematic searching out of opportunities" that may arise from "creative destruction" anticipated down the road will favor companies that have understood Schumpeter's real message.

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CREATIVE DESTRUCTION

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Destructive creation in the press industry

CREATIVE DESTRUCTION

1. Paper media : - Declining nb of paying issues- Fails to seduce advertisers

2. Online - Fit for ‘eyeball’ advertising model

- Faster to report on news

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CREATIVE DESTRUCTION

3. Fast food news: (« no more than 20mns »)

Paper + online formats

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CREATIVE DESTRUCTION

4. Participative news

Another example …

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In the French case, the rising importance of Viadeo and Linkedin is overshadowing Alumni associations …

« I receive 10 times more interesting infos (job opportunities…) from Viadeo+linkedin than from my alumni association » ?

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http://www.youtube.com/watch?v=Z2X7eadOcDw&feature=channel

http://www.youtube.com/watch?v=Z2X7eadOcDw&feature=channel

http://www.youtube.com/watch?v=m6gaj6huCp0

http://www.youtube.com/watch?v=m6gaj6huCp0

How does innovation fit into the company’s marketing strategy ?

the Ansoff Matrix

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The Product-Market Growth Matrix

A marketing tool created by Igor Ansoff ; "Strategies for Diversification" Harvard Business Review (1957).

The ANSOFF matrix allows marketers to consider ways to grow the business via existing and/or new products, in existing and/or new markets – there are 4 possible product/market combinations.

This matrix helps companies decide what course of action should be taken given current performance.

The matrix consists of four strategies:

Strategy #1 : Market penetration (existing markets, existing products):

when a company enters/penetrates a market with current products. The best way : gain competitors' customers (part of their market share). Other ways : attract non-users of your product or convincing current clients to use more of your product/service, with advertising or other promotions. Market penetration is the least risky way for a company to grow. :

Market penetration (cont’d): Examples : Mobile phones :

http://www.connexion-mobile.net/2009/03/indicateurs-telephonie-mobile-2008.html

Market penetration

Young Children

Market penetration

Elderly

http://www.youtube.com/watch?v=pHG3EeCXu-8

Intensify usage

SATURATION

a. More voice trafficb. More data traffic (internet, MMS, TV)c. …

Market penetration

Take mkt share from competitors

SATURATION

Market penetration

Take mkt share from competitors

SATURATION

Market penetration

Strategy #2 : market development

http://kongossalive.com/2009/09/21/la-penetration-des-smartphones-est-fulgurante/

When person to person mobile communication is saturated …

M2M mobile market …

Information System

objects in motion vehicles

Containers

Still objects: Vending machines

sensors

Applications : reporting (monitoring of plant, remote device ), supervision (inventoriy level, condition of machine…)

advantages on traditional mobile market : …

‘churn’ close to zero

trafic volume + usage tend to increase over time

Strategy # 3 : Product development (existing markets, new products): A firm with a market for its current products might embark on a strategy of developing other products catering to the same market (although these new products need not be new to the market; the point is that the product is new to the company). For example, McDonald's is always within the fast-food industry, but frequently markets new burgers. --------------------------------------------------------------------------------------Pros : cost effective strategy (no need to enter new market, no need to innovate significantly, possibility to capitalize on brand and image)

Cons : 1. risk of cannibalism (compete with oneself), 2. competition might have stronger product range

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Strategy # 4 : Diversification (new markets, new products): Virgin Cola, Virgin Megastores, Virgin Airlines, Virgin Telecommunications are examples of new products created by the Virgin Group of UK to leverage the Virgin brand. This resulted in the company entering new markets where it had no presence before. -------------------------------------------------------------------------------------- Cons : Large number of risk factors : - new markets = new rules - brand image deficit in new market - technology and industrial risks associated to new product…

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The Ansoff matrix illustrates that the element of risk increases the further the strategy moves away from known quantities - the existing product and the existing market.

Product development (requiring, in effect, a new product) and market extension (a new market) typically involve a greater risk than `penetration' (existing product and existing market).

For this reason, most marketing activity revolves around penetration.

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Beyond the Ansoff Matrix,

The mobile phone industry’s original innovation ecosystem

Mobile industry : the traditional industry structure

Telco(T-Mobile, Vodafone)

Manufacturer (Nokia, Sony ericsson…)

- Mass Production (OEM) -Innovation structured by major OS (symbian, Windows CE…).

-Costly infrastructure -Oligopoly industry-Innovation structured by major OS (symbian, Windows CE…).

Final User -High price-Little innovation benefit (voice, SMS, some internet, very little content delivery)

The traditional structure kills innovation

Innovators (Game developersIM applications… )

http://www.mobile-distillery.com/home.htm

High complexity (number of models, various O.S.) make innovation difficult

… a new ecosystem

Manufacturer creates : 1. an A.P.I.

2. A content delivery platform

Innovators (no matter how small) : -create new services

- market them immediately worldwide

Telcos have no role in the innovation system

A powerful tool matching invention and market

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VALUE ENGINEERING

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VALUE ENGINEERING