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Please read carefully through the slides and do some research about Tesla motors, especially on disrupting innovation and 5 forces analysis.

Jeff Dyer
Third Edition
Chapter 10
Innovative Strategies That Change the Nature of
Competition
Strategic Management
Types of Innovation
1
Incremental Innovations
2
Radical (Disruptive) Innovations
Copyright ©2020 John Wiley & Sons, Inc.
2
Incremental Innovations
• Better offerings that generate better profits from
current customers
• New features
• Important for success but they don’t create growth
because they are replacements of existing products
Copyright ©2020 John Wiley & Sons, Inc.
3
Incremental Innovations
LED TVs
3D TVs
Copyright ©2020 John Wiley & Sons, Inc.
4
Categories of Innovative Strategies Based
on Radical Innovations
• Reconfigure the Value Chain to Eliminate Activities
• Low End Disruptive Innovations
• High End Disruptive Innovations
• Reconfigure the Value Chain to Allow for Mass
Customization
• Blue Ocean Strategy—Creating New Markets by
Targeting Non-Consumers
• Create a platform to share assets
• Free Business Models
Copyright ©2020 John Wiley & Sons, Inc.
5
Reconfigure Value Chain to Eliminate
Activities
Process innovations that typically create
an efficient new business model; allow
companies to create, deliver, sell, or
service a product more efficiently.
Copyright ©2020 John Wiley & Sons, Inc.
6
Comparing Value Chains
Film Studios
Film
Distributors
Film Studios
Film
Distributors
Blockbuster’
Warehouses
Blockbuster
Stores
Netflix
Copyright ©2020 John Wiley & Sons, Inc.
Customer
Customer
7
Low-End Disruptive Innovations
• Target customers whose needs are over-served in
the mainstream market
• Product performance is “good enough” on basic
features to attract low-end customers of the
mainstream market
• Entrant uses a new low cost business model;
performs different activities which allows the firm
to earn profits even at deeply discounted prices
Copyright ©2020 John Wiley & Sons, Inc.
8
High End Disruptive Innovations
• Leapfrog technology with premium price comes
from top-down.
• Apple iPod vs. Sony Discman
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9
Reconfigure the Value Chain to allow for
Mass Customization
• The mass production of customized goods.
• Build-A-Bear (mass produce components of stuffed
animals and customize them at stores)
• Nike ID (customize/design your own shoe.
Copyright ©2020 John Wiley & Sons, Inc.
10
Blue Ocean Strategy
• Create new demand in an uncontested market
space.
– Cirque de Soleil (combination of circus, acrobatic
troupe, music, Broadway).
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11
Platform to Coordinate and Share Assets
• The sharing economy
• Airbnb – personal homes for lodging
• Uber – personal vehicles for transportation
• Must overcome two-sided market paradox
Copyright ©2020 John Wiley & Sons, Inc.
12
Competing with FREE
1. Cross-Sell Strategy (“Freemium”):
Offer a free version to gain attention and widespread use; then offer a
premium product with advanced features for customers willing to pay.
Skype, Flickr, Zynga
Requirements:
â–ª A free product that appeals to a very large user base
so that even a low conversion rate of free users to
paying customers will generate substantial revenues
OR
â–ª A high percentage of users willing to pay for the
premium version
Copyright ©2020 John Wiley & Sons, Inc.
13
Competing with FREE
2. Free Third Party Pay (Advertising) Strategy:
• Make the product/service free to generate a
community (network externality) for which you get paid
by a third party company who desires access to that
community.
Google, Hulu, Craigslist, Blyk, Ryanair
Requirements:
â–ª A free offering that attracts either many users who can be
segmented for advertisers or a targeted group that comprises a
customer segment
AND
â–ª Third parties willing to pay to reach these customers
Copyright ©2020 John Wiley & Sons, Inc.
14
Competing with FREE
3. Free Bundling Strategy (Direct cross subsidy):
• Bundle the free product with non-free products and
derive revenues from non-free products; can’t get the
one without the other.
Requirements:
â–ª Products or services that can be bundled with the free offering
OR
â–ª A free product that needs regular maintenance or complementary
products (e.g., free printer but costly ink).
Copyright ©2020 John Wiley & Sons, Inc.
15
Innovation And The Product/Business/Industry Life Cycle
(S-CURVE)
Introduction – Early adopters
Growth – Early majority
Maturity – Late majority
Decline – Falling demand
Copyright ©2020 John Wiley & Sons, Inc.
16
Innovation And The Product/Business/Industry Life Cycle
(S-CURVE)
Copyright ©2020 John Wiley & Sons, Inc.
17
Chapter 13
Jeff Dyer
Third Edition
Corporate Governance and Ethics
Strategic Management
Governance: Boards and Incentives
Agency Problem- A consequence of the separation of ownership (shareholders/principals)
and control (managers/agents) in the corporation. Agency problems occur when the goals
or principals differ from those of agents.
Principals- The owners of a resource or piece of property. In the corporation, shareholders
are considered principles.
Agents- Individuals or groups hired to administer the property or resources of principals.
The managers of a corporation are considered to be agents of the
shareholders.
Copyright ©2020 John Wiley & Sons, Inc.
19
The agency problem
Natural Environment:
Sustainable Practices
Shareholders:
Return on Investment
?
Customers:
Reliable Products
Managers:
Maximize Utility
Government:
Good Citizen
Employees:
Stable Jobs
Suppliers:
Reliable partner
Copyright ©2020 John Wiley & Sons, Inc.
20
One solution: The board of directors
• Appointed by principles
• Two fiduciary duties
• Loyalty
• Care
• Inside directors bring expertise
• Outside directors bring expertise and objectivity
Copyright ©2020 John Wiley & Sons, Inc.
21
Another solution: Incentives
• Agents will act like principles if they have the same
interests
• Pay for performance, compensation at risk
• Bonuses
• Stock Options
• Stock Grants
Copyright ©2020 John Wiley & Sons, Inc.
22
Corporate Ethics
Ethical Values- Values that define for an individual, group, or society things that
are morally right or wrong.
1. A good society creates the greatest good for the greatest number of people.
2. The good society ensures a basic set of rights for its citizens.
3. The good society creates the most freedom for people to act as they please.
4. In a good society, individuals care for each other, exhibit empathy with
others, and focus on meaningful relationships.
Copyright ©2020 John Wiley & Sons, Inc.
23
4 ethical concerns
• Avoiding harm to individuals
• Fairness and honesty
• Recognition of sacred/ transcendent
• Liberty and overcoming oppression
Copyright ©2020 John Wiley & Sons, Inc.
24
Ethics along the value chain
Value Chain element
Ethical Challenges
Moral Dimension
Example
Firm Infrastructure
Honest accounting and record
keeping
Fairness/cheating
Financial fraud at Enron, and
World Com (2001)
Human Resources
Whistle blower policies
Liberty/ Oppression
Brad Birkenfeld reporting tax
fraud at UBS (2005)
Technology Development
Electronic monitoring,
information security
Liberty/oppression
Cisco selling routers to China
(2011)
Procurement
Working conditions at
subcontractors
Fairness/ Avoiding harm
Nike and working conditions
in Vietnam (1996)
Logistics
Transportation safety
Sanctity/degradation
Exxon Valdez oil spill (1989)
Operations
Working hours and housing
Fairness/ Avoiding harm
Worker housing at Foxconn
(Apple) (2012)
Marketing/sales
Truth in advertising
Fairness/cheating
Horse meat in hamburgers at
Burger King (2013)
After Sales Service
Product recalls
Avoiding Harm
Toyota recall for braking
systems (2009)
Copyright ©2020 John Wiley & Sons, Inc.
25
Chapter 14
Jeff Dyer
Third Edition
Strategy and Society
Strategic Management
Three types of value
• Economic Value—increases in income, wealth, or
profit
• Social Value—Increases in well-being in non-economic
areas
• Literacy
• Health and sickness
• Housing
• Shared value–when creating economic value also
creates social value
Copyright ©2020 John Wiley & Sons, Inc.
27
Sustainable stakeholder advantages
• Social value organizations rely on repeat transactions
• Universities and legacies
• Community agencies and ongoing partners
• The ability to consistently gather resources from, or
provide services to, key stakeholders such as donors,
volunteers, students, clients, etc. that allow them to
fulfill their social mission over time
Copyright ©2020 John Wiley & Sons, Inc.
28
Value Net
Value Net- A model of value creation that describes how an organization
interacts with others in its environment to create value.
• Customers- Individuals or groups that purchase, or receive, the outputs of the
organization.
• Suppliers- Individuals, groups, or organizations that provide important inputs
for the organization.
• Competitor- An individual or organization that makes customers value the
organization’s output less because it offers its own product or service.
• Complementor- An individual or organization that makes customers value the
organization’s output more because of its product or service.
Copyright ©2020 John Wiley & Sons, Inc.
29
Figure 14.1: The value net
Customer
Competitor
Organization
Complementor
Supplier
Copyright ©2020 John Wiley & Sons, Inc.
30
Corporate Social Responsibility
Corporate Social Responsibility- Activities of companies designed to further some social
objective and that lie beyond the direct economic interests of the organization.
• Economic Responsibility- A firm’s obligation to generate economic profits.
• Legal Responsibility- A firm’s obligation to obey the written and codified laws of the
countries in which it operates.
• Ethical Responsibility- A firm’s obligation to abide by the unwritten ethical standards,
norms, and values of the communities in which it operates.
• Philanthropic Responsibility- A firm’s obligation to contribute to the enhancement of
the communities in which it operates.
Copyright ©2020 John Wiley & Sons, Inc.
31
Figure 14.2:
CSR: A firm’s social obligations
Philanthropic
Responsibilities
Ethical
Responsibilities
Legal Responsibilities
Economic Responsibilities
Copyright ©2020 John Wiley & Sons, Inc.
32
Social Entrepreneurship
• Social Entrepreneurship- The use of innovative organizations and business models to
create shared value.
• Social entrepreneurs create value in one of three ways: they attempt to build capacity,
they sell products or services, or they drive institutional change:
✓ Capacity Building- The transfer of skills and abilities from one organization to
another.
✓ Institutional Change- When entrepreneurs strive to change the way people and
groups think about problems and they work to create or change social
institutions—from government policies to social values and norms.
Copyright ©2020 John Wiley & Sons, Inc.
33
Sustainable Development Goals for 2030
Social Enterprise Success Stories
â–£ Lucky Iron Fish
â–£ Square Roots
Skills of Social Entrepreneurs
• Social Bricoleur – A social entrepreneur who creates
something new through the combination of diverse
and different elements.
• Social Constructor- A social entrepreneur who builds
something that did not exist before.
• Social Engineer- A social entrepreneur who designs
and creates new social systems to create large-scale
change.
Copyright ©2020 John Wiley & Sons, Inc.
36
Summary
• Strategy matters for social value organizations
• Pressure for socially responsible behavior will
continue to increase as you enter the workforce
• Social entrepreneurship represents a new way to
make a difference in the world
Copyright ©2020 John Wiley & Sons, Inc.
37
h
8
n
W
e
y
&
S
o
n
n
Understanding Perception
1. Global climate experts believe that, over the next 100
years, the average temperature will:
A. Get Warmer
B. Remain stable
C. Get colder
2. In all low-income countries across the world today,
how many girls finish primary school?
A. 20 percent
B. 40 percent
C. 60 percent
3. Where does the majority of the world population live?
A. Low-income countries
B. Middle- income countries
C. High-income countries
4. In the last 20 years, the proportion of the world
population living in extreme poverty has . . .
A. Almost doubled
B. Remained more or less the same
C. Almost halved
5. What is the life expectancy of the world today?
A. 50 years
B. 60 years
C. 70 years
6. There are 2 billion children in the world today, aged 0
to 15 years old. How many children will there be in the
year 2100, according to the United Nations?
A. 4 billion
B. 3 billion
C. 2 billion
7. How did the number of deaths per year from natural
disasters change over the last hundred years?
A. More than doubled
B. Remained about the same
C. Decreased to less than half
8. How many of the world’s 1-year-old children today
have been vaccinated against some disease?
A. 20 percent
B. 50 percent
C. 80 percent
9. Worldwide, 30-year-old men have spent 10 years in
school, on average. How many years have women of the
same age spent in school?
A. 9 years
B. 6 years
C. 3 years
10. How many people in the world have some access to
electricity?
A. 20 percent
B. 50 percent
C. 80 percent
An Average Monkey?
1. Global climate experts believe that, over the next 100
years, the average temperature will:
A. Get Warmer
B. Remain stable
C. Get colder
1. Global climate experts believe that, over the next 100
years, the average temperature will:
A. Get Warmer
B. Remain stable
C. Get colder
2. In all low-income countries across the world today,
how many girls finish primary school?
A. 20 percent
B. 40 percent
C. 60 percent
2. In all low-income countries across the world today,
how many girls finish primary school?
A. 20 percent
B. 40 percent
C. 60 percent
3. Where does the majority of the world population live?
A. Low-income countries
B. Middle- income countries
C. High-income countries
3. Where does the majority of the world population live?
A. Low-income countries
B. Middle- income countries
C. High-income countries
4. In the last 20 years, the proportion of the world
population living in extreme poverty has . . .
A. Almost doubled
B. Remained more or less the same
C. Almost halved
4. In the last 20 years, the proportion of the world
population living in extreme poverty has . . .
A. Almost doubled
B. Remained more or less the same
C. Almost halved
5. What is the life expectancy of the world today?
A. 50 years
B. 60 years
C. 70 years
5. What is the life expectancy of the world today?
A. 50 years
B. 60 years
C. 70 years
6. There are 2 billion children in the world today, aged 0
to 15 years old. How many children will there be in the
year 2100, according to the United Nations?
A. 4 billion
B. 3 billion
C. 2 billion
6. There are 2 billion children in the world today, aged 0
to 15 years old. How many children will there be in the
year 2100, according to the United Nations?
A. 4 billion
B. 3 billion
C. 2 billion
7. How did the number of deaths per year from natural
disasters change over the last hundred years?
A. More than doubled
B. Remained about the same
C. Decreased to less than half
7. How did the number of deaths per year from natural
disasters change over the last hundred years?
A. More than doubled
B. Remained about the same
C. Decreased to less than half
8. How many of the world’s 1-year-old children today
have been vaccinated against some disease?
A. 20 percent
B. 50 percent
C. 80 percent
8. How many of the world’s 1-year-old children today
have been vaccinated against some disease?
A. 20 percent
B. 50 percent
C. 80 percent
9. Worldwide, 30-year-old men have spent 10 years in
school, on average. How many years have women of the
same age spent in school?
A. 9 years
B. 6 years
C. 3 years
9. Worldwide, 30-year-old men have spent 10 years in
school, on average. How many years have women of the
same age spent in school?
A. 9 years
B. 6 years
C. 3 years
10. How many people in the world have some access to
electricity?
A. 20 percent
B. 50 percent
C. 80 percent
10. How many people in the world have some access to
electricity?
A. 20 percent
B. 50 percent
C. 80 percent
Instinct?
• Who relies on it?
• Is it effective?
10 DRAMATIC INSTINCTS
GAP
GENERALIZATION
www.gapminder.org/factfulness
NEGATIVITY
STRAIGHT
SIZE
DESTINY
SINGLE
BLAME
FEAR
URGENCY
Free to use under Creative Common License CC BY 4.0
The Gap Instinct
1. Define 1st world countries versus 3rd world countries
2. Rich versus poor with a gap in between
3. Mostly we are in the middle
WORLD POPULATION (billion)
by four income levels
L1
Low
Income
(Extreme poverty)
L2
L3
Middle
Income
L4
High
Income
The Negativity Instinct
• Take more notice of bad
than good
The Straight Line Instinct
1. Just because something is moving forward doesn’t
mean that it is not getting better
Imagine lines that are not straight
It just continues
Why would it?
www.gapminder.org/factfulness
Free to use under Creative Common License CC BY 4.0
The Fear Instinct
1. We focus on dramatic dangers
• Mosquitoes – 800,000
• Flu – 646,000
• Tripping – 6000
• Lunch – 3000
• Hippos – 2900
• Being Left Handed – 2500
• Sharks – 2
Control your fears
It’s scary!
Is it dangerous?
www.gapminder.org/factfulness
Free to use under Creative Common License CC BY 4.0
The Size Instinct
1. Makes us misjudge the size or proportion of things
2. “I’ll be there in 5 minutes”
Check proportions
It’s big!
Big compared to what?
www.gapminder.org/factfulness
Free to use under Creative Common License CC BY 4.0
The Generalization Instinct
1. We tend to generalize about groups
2. We clump things together for ease
3. What generalizations do you make?
The Destiny Instinct
1. Innate qualities determine people’s fate
2. Misconception the people and cultures are not
constantly changing
3. Mistake slow rate of change for no change
The Single Perspective Instinct
1. We love simple ideas, simple explanations and
solutions
2. Blind to perspectives that do not fit
The Blame Instinct
1. Something bad – The Culprit
2. Something good – The Hero
3. Makes us simplify the world
The Urgency Instinct
1. Now or Never….or a job for future Michael
2. Leads to lack of critical thinking
Strategic Management
Jeff Dyer
Third Edition
Tesla Motors:
Disrupting the Auto Industry?
Tesla Motors
1. Why would Tesla enter such an unattractive (relatively
unprofitable) industry? (Do a five forces analysis first
to show that it is unattractive before formulating your
argument)?
2. Is Tesla a disruptive innovation? Why or why not?
Due August 14th @ 5:00pm
Copyright ©2020 John Wiley & Sons, Inc.
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