(Article) Spieth, P., Schneckenberg, D., & Matzler, K. (2016). Exploring the linkage between business model (&) innovation and the strategy of the firm. R&D Management, 46(3), 403-413
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Key insights
1. Difference between business model innovation and firm’s strategy
This article is about exploring the linkage between business model innovation and the strategy of the firm in extant literature. First, we can acknowledge that there seems to be a lack of clarity regarding these concepts, and it is difficult to differentiate the notion of the business model from related managerial concepts. There have been some conceptual works, but very limited empirical attempts to theoretically differentiate and/or relate constructs and relationships which relate to either strategy or business model phenomena.
Some say that strategy and business model are related but different concepts, whereby the business model is the reflection and the result of the realized firm strategy. Zott and Amit (2008), in contrast, argue that ‘a firm’s product market strategy and its business model are distinct constructs that affect the firm’s market value’. They describe the strategy, and the business model of the firm as complements rather than as substitutes.
2. Business model becomes an innovation
Following the acknowledgement of its importance for corporate strategy and firm performance, the business model has itself become a subject to innovation. Firms start to realize that in the context of accelerating environmental dynamics, even a long-time established business model does not permanently guarantee successful performance.
3. Relationship between ownership type and business model innovation
In order to explore the linkage between the business model, innovating the business model, and firm strategy, the article addresses 5 different papers. One of them kept our attention. It is about the relationship between ownership type and business model innovation. The ownership type of the firm affects a range of strategic decisions, such as its investment horizons. Different owners differ regarding their strategic expectations, which leads to different strategic choices and outcomes. It is safe to consider innovation as a corporate activity, which falls into the strategic decision-making of the firm. As a result, we can infer those different types of owners make different innovation decisions.
Managerial implications
1. Previous research on innovation management informs us that your organizational culture influences your propensity to innovate. It also works for business model innovation: managers should establish an organizational culture that is conducive to innovation. In the case of business model innovation, 3 important capabilities firms should have stood out in the paper: strategic sensitivity, collective commitment, and resource fluidity.
2. If the owner and the manager are different persons, the manager should try to find common ground with the owner. Managers are less willing to take risks than owners of the firm: the problem is that business model innovation contains a certain level of risk and uncertainty. This problem is fixed in highly competitive markets because the market aligns the interests of owners and managers BUT in low competitive settings, managers tend to enjoy moral hazard and their interests may be different from owners which hampers innovation. It can be problematic because as we said before even a long-time established business model does not permanently guarantee successful performance.
3. How can a firm enter an emerging market? Differences in purchasing power, needs, and infrastructure make it almost impossible to sell the same product in emerging markets. Firms have to avoid falling into “competency traps” which is when firms tend to exploit existing competencies rather than developing new ones. A manager should then develop a new business model adapted to the emerging market rather than adapting to the existing one. The problem is that managing dual business models is very challenging. A solution proposed in the paper is to separate the firm into two entities that have their own business models.
Limitations
1. The paper recommends not using glocalization when entering an emerging market. But what is glocalization? Glocalization is the specific adaptation of a product or a service to each of the places where it is sold, or to each of the cultures to which it is addressed without changing the business model. Simply put, in business terms, glocalizing refers to customizing and adapting global or standard business patterns to local conditions. According to the paper, this strategy is likely to fail in emerging markets. But several firms have succeeded in this task. At the beginning of the 90’s in India, there was no fast food and India was an emerging country. One day, McDonalds decided to make it its mission to launch its chain in this country (1996). McDonald’s is well known for its classic BigMac with its 2 meats 100% pure beef. The problem is that India has a great deal of vegetarians and non-beef eaters thanks to the preponderance of Hindus and Buddhists. As a result, McDonald’s has had to change its menus to meet local requirements. McDonalds have now opened more than 200 restaurants in India.
2. Regarding the business model innovation for emerging markets, the paper says it is a very challenging task because strategy, competencies, process, culture, and leadership tend to be not compatible. The paper recommends separating the firm into different entities. However, a limitation of this separation is that it can inhibit the potential of the firm to exploit synergies. The company loses the possibility of pooling its resources.
Further references
1. Molina-Castillo, F.-J., Meroño-Cerdan, A.-L., López-Nicolás, C. (2022). Impact of business model objectives on marketing innovation activities: A comparison between manufacturing and service firms. European Journal of Innovation Management. 23(1). Doi : 10.1108/EJIM-12-2018-0259
2. Heidenreich, S., Freisinger, E., Landau, C. (2022). The dark side of business model innovation: An empirical investigation into the evolvement of customer resistance and the effectiveness of potential countermeasures. 39(6). doi : 10.1111/jpim.12627
(Article) Martin, R. L. (2011). The innovation catalysts. Harvard Business Review, 89(6), 82-87.
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The first key point of the article is the importance for companies of stimulating the innovation by focusing on its employees and not by relying on a powerful leader. The second key point is about solving user’s problems. You always want to ask yourself: “Is our product/service solving our customer’s problems?”. And to do that, you need to encourage experimentations, which is the last key point. The article encourages companies to try prototypes and put them in customers hands as soon as possible. This allows to learn directly from customers by talking to them and observing them rather than trying to imagine what they need.
Regarding the implication part, we have two different tools to foster innovation inside a company.
Firstly, companies could create a mindset among the employees called the “Design for Delight (D4D) “. It is a concept based on three principles. The first one called “Painstorm” is to find the pain points of the customers. The second principle (Sol-jam) focuses on selecting the best solution for the problem. And for the last one, “Code-jam”, the company should prototype the solution and quickly make experimentations with the customer to get feedback and iterate if needed.
The NPS is a very effective measurement tool to estimate customer satisfaction. It provides a core measurement for customer experience management programs. It is based on a simple question: “How likely is it that you would recommend the brand to a friend or a colleague?” The answer is measured on a scale of 0 to 10. This indicator has the advantage to be clear and explicit for employees and manager so they can see concretely the results of a campaign or measures taken for client’s satisfaction. But it is significant only if it is used on a certain period of time (before & after). Measuring the NPS allows you to get closer to your target and to obtain a source of information and ideas to better understand the needs and expectations of your buyers.
The first limitation of the article is that it looks a lot like a story telling that looks very specific and not applicable to everyone. Another limitation concerns the Design for delight. It emphasizes interacting with the customers and doing experiments with the customers to understand the customer opinion. Naturally therefore the big question would be who is your customer. Because no amount of research will be able to pinpoint exactly who your customer is. And the design for delight is to have one size fits all approach therefore it lacks the framework to define your customers. This is because the feedbacks that will be received from the supposed customers is done through the one size fits all approach due to that it would be difficult to please will your customers all the time. thus, a need for a frame work that would help the users of his approach to find the middle ground.
We believe that the following two articles are relevant to the analysis of the article:
– Marina Candi,Ahmad Beltagui,Johann C. K. H. Riedel. (2012). Innovation through Experience Staging: Motives and Outcomes. https://onlinelibrary.wiley.com/doi/10.1111/j.1540-5885.2012.00999.x
– Hessam Sarooghi, Sanwar Sunny, Jeffrey Hornsby & Stephanie Fernhaber. (2019). Design Thinking and Entrepreneurship Education: Where Are We, and What Are the Possibilities? https://www.tandfonline.com/doi/full/10.1111/jsbm.12541
(Article) Baden-Fuller, C., & Haefliger, S. (2013). Business models and technological innovation. Long Range Planning, 46(6), 419-426.
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The article “Business models and technological innovation” by Charles Baden-Fuller and Stefan Haefliger mainly talks about the link between the business model and technological development.
The classification of the business model can be divided in 4 main points : the customer identification (differentiate the user and the one who pays is important), the customer engagement (identify customer’s need, establish of a value proposition using 2 techniques ; the project approach or the pre-designed approach), the delivery of value and the monetization (price, timing and efficiency).
When the model is defined, the authors analyse the role of the business model in linking technological innovation and competitive advantage.
It is important to note that different technologies affect each other. The choice of business model has a great influence on the profits realized because it analyzes the complementarity between business model, technology and monetization.
We give 3 recommendations to managers in order to integrate the interplay between innovation, business model and technology.
Firstly, they should make a good business model where the needs of the consumers are integrated (by market research and why not a prototype). A way to include customers is crowdsourcing, this is a marketing tool that puts the client in the center of the decisions. This can be made through voting, prize competition, forum, surveys etc. (limitation: great power given to consumer, consumers surveyed not representative of all target population & crucial info may leak)
Secondly, managers need to be creative in dealing with this interaction between innovation and business model elements. Design systems that can identify, evaluate and develop technology-based opportunities. The company must be able to sense what is coming. To do this, bring in young people with a dynamic vision, in touch with current technologies but also with an outside eye. (limitation: difficult to integrate young people, especially in a company with majority of old employees)
Finally, to integrate new people, the company must use good change management processes. The company needs to put things in place to make it fit for everyone. What could be done is to involve employees in the process. Regarding the intercomplementarity between technologies, it would be interesting for employees to analyze their behavior, the technology they use and draw conclusions about the strengths or weaknesses to be implemented in the product. (limitation: difficult to make a program adapted for all kind of people)
There are also some general limitations. Firstly, there is not yet a common language among different researchers in terms of business model. Therefore, we can ask ourselves if the definition the article uses for the business model is compatible with the definitions of previous work and if not, how does it build on the work of others?
Secondly, some elements were missing like the limitation section and a section of advices for other researchers.
Finally, 3 interesting scientific articles that provide additional information about the topic would be :
1) Sonia Ben Slimane (2021), Absorption – Technological Absorptive Capacity and Innovation: The Primacy of Knowledge, Innovation Economics, Engineering and Management Handbook 2, 43-49.
2) Santos A. C. O., da Silva C. E. S., Braga R. A. D. S., Corrêa J. E., & de Almeida F. A. (2019), Customer value in lean product development: Conceptual m odel for incremental innovations, Systems Engineering, 23(3), 281-293.
3) Angelo Bonomi (2021), Theoretical Model of Technology for Innovation, Innovation Economics, Engineering and Management Handbook 1, 363-369.
(Article) Gans, J., Scott, E. L., & Stern, S. (2018). Strategy for Start-ups. Harvard Business Review, 96(3), 44-51.
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We can all agree that innovating is a complex process that takes time, creativity and dedication to come up with new business ideas. However it’s only the first step. Once you have your idea you must find a way to implement it on the market and make it profitable. In order to do so you need a good business strategy. This term designate a plan that includes your customers, the technologies you have, your identity and the competitors.
This is a critical phase where a lot of entrepreneurs get stuck. They tend to be overwhelmed by the infinite amount possibilities that exist. On the other hand some firms don’t want to waste time in the exploration phase and go directly on the market with the first strategy that come to their mind. This is not advised because they might miss better opportunities and let it to the competitors. Moreover the more an entrepreneur knows about the market, the more he is going to be convincing toward potential investors.
In order to be more efficient during this phase, Harvard searchers created a framework that simplifies the task. Business strategy opportunities can be categorized following 4 criteria. First either you want to collaborate or compete with the key players. Secondly, do you want maintain on control on your innovation, or go on the market as soon as possible (build the moat or storm the hill)? The combination of this traits help us create the business strategy compass, with 4 different categories: intellectual property, value chain, disruption and architectural strategies.
The main key to surviving for a startup is to make the right decisions but to do that the manager should define well the environment, then choose the strategy and be open mind to adapt the path of the company in the way.
First, the manager must define the customers, technology, identity and competitor of the startup in order to guide future decisions and goals. For customers is necessary to dentify who are the people involved and understand their needs and have in consideration that the target customer is not necessarily the first customer. (i.e. start with epileptic people and then expand to all the population). For technology is necessary to identify which equipment I need to satisfy those needs. For identity is necessary to identify for what the startup will stand (values and mission), what behavior expect (collaborate or compete? Defend or attack?), and capabilities it will develop (skills). And for competitors is necessary to identify where and against who inside the value chain I will compete (different is compete against the retailer-production rather providers-logistic).
Secondly, choose the best strategy. Once the basis is defined, the manager should choose which strategy fits better with the company. Would it be better to compete or to collaborate? Would it be better to “Build a moat” or “storm a hill”? If these strategies are combined, we have the IP strategy that is an idea factory, concentrated on the incumbent and not in the final customers. The architectural strategy that is designing the entire value chain and control the bottleneck, so create a platform, not a product. The Value Chain strategy that is focused on differentiation and prefer competence rather than strong competition. Finally, the Disruption strategy that controls the market but not the idea, so get ahead and keep ahead focusing on growth.
In order to choose the manager should give an option or hypothesis to every strategy considering the feasibility, lack of alignment capabilities-team and the capital. This means, that for every strategy is necessary to identify the four keys.
It is also important for the manager to be open to adapt the strategies because, in the end, the manager has a big picture of the environment and the possible scenarios that will face. It is important to know that every scenario has risks and therefore most information the manager has, better decisions can make. However, choose one strategy could create new opportunities to innovate or keep developing the business, so the manager must be open to adapt, modified, add or eliminate strategies.
Two big limits have been identified regarding the key insights and the four strategies.
The first one is the uncertainty. The main subject covered here is strategy and it stays theoretical. We never know how it will be in the future and we cannot predict 100% behavior of other incumbents (such as competitors but also consumers, and workers).
We cannot predict trends or even what kind of innovation will appear. These theories are here to help and identify the best approach but it’s not an exact science. It is not because you choose the best strategy that fits with your company that it will necessarily work.
Finally, it does not eliminate or reduce the uncertainty in launching a start-up.
The second limit that has been identified is the infeasibility. Paths are not all plausible.
Sometimes, before going deep into details you can already dismiss some alternatives. This can be the result of multiple reasons: lack of information about the market,
the lack of alignment with capabilities of the team and the lack of capital, with for example the architectural Strategy (that requires a lot of resources).
Further references :
(Book) Mosey, S., Noke, H. and Kirkham, P. (2017). “Building an entrepreneurial organization”. Florence: Taylor and Francis, 2017, Chapter 2.
(Article) Aithal, P. S. (2016). “The concept of Ideal Strategy & its realization using White Ocean Mixed Strategy”. International Journal of Management Sciences and Business Research (IJMSBR), DOI: http://doi.org/10.5281/zenodo.161108.
(Video) Reeves, M. (2014, October). “Martin Reeves: Your Strategy Needs a Strategy”. [Video file]. Retrieved from: https://www.ted.com/talks/martin_reeves_your_strategy_needs_a_strategy#t-109808
Show lessKulins, C., Leonardy, H., & Weber, C. (2016). A configurational approach in business model design. Journal of Business Research, 69(4), 1437-1441
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A configurational approach in business model design
Key Points :
A previous study suggests 4 important design themes for business models design : complementarities, efficiency, novelty and lock-in. But, it showed that only 2 out of 4 were important in the business model design to have a positive impact on financial performance.
The study of this article find new results : there are combinations of the 4 design themes that have positive impact on financial performance. A combination is the fact that a design theme is a value driver only if it appears in parallel with an other one.
The study introduces a configurational (set-theoretic) approach for business models design, and demonstrates that it’s very useful to incorporate it into the discussion about business model design.
Implications:
The study led in this article analyses the impact of the four dimensions (4 business model design themes) that can be implemented in the business model (complementarities, efficiency, lock-in and novelty) on the firm’s performances and creation of value. The complementarities refer to synergies between product/service offerings in the business model. The minimization of transaction costs among all stakeholder groups orchestrates efficiency-based business models. Lock-in builds on the imposition of switching costs on different participants in the business model. And finally, novelty describes new ways of organizing transaction flows between stakeholders.
However, among these four themes orchestrating the business model designs, only two have a significant positive impact on the financial performance of the firm and create market value: the novelty and the efficiency. That is why novelty and efficiency should be present in the business model design, not necessarily together in the same business model, but at least one of them. Indeed, innovation (so novelty) in business models is a driver for success if it is supported with another value driver, here efficiency. Novelty is very powerful and could be the antecedent that will allow to find new ways to implement the other dimensions in the business model, such as efficiency, in order to increase the performances. As we can see, novelty and so innovation is a crucial dimension and being the first mover helps to strengthen your position and build a fence by regrouping a good customer base to fight competition when it will arrive. Therefore, by using efficiency alone, a firm could have some difficulties to protect its market share against the competition.
However, being the first mover and so ensure novelty in your business process is not always possible. But it is still feasible to create and capture value without novelty. Even if it is real advantage, novelty is not necessary to create value. When novelty is no longer possible, the solution is to use the three remaining dimensions together: efficiency, complementarities and lock-in, and implement them in the business model. This configuration is easier to defend in the long term because the company doesn’t have to be always more innovative than its competitors. The efficiency, complementarities and lock-in of the firm don’t decrease after improvements of the competitors whereas being the only one to provide a product and protect this position of innovator is difficult and require a lot of efforts. The complex configuration of this business model in which there is a high interrelation of these three dimensions that make each of them unreplaceable, allows the creation and capture of value, even if the business model loses its novelty when the competitors arrive.
Finally, the study shows that the lock-in dimension relies on the imposition of switching costs on stakeholders. It is therefore difficult for the customers and partners to switch to competitors because none of the rivals can offer the same combination of product and services and this particular business model. The switching costs are too important to change from the firm to its competitors. If the customers perceive this dimension, it could have a negative effect. This dimension is therefore the only one that doesn’t necessarily benefit to the customers, but it remains important because it helps to keep them. The firm should thus combine this dimension of lock-in with other dimensions in order to make it a significant value driver. For instance, the lock-in theme is more likely to have a positive impact if it is coupled with the novelty dimension and so if the firm is introducing an entirely new business model that deliver a unique value proposition to its customers.
Limitations:
The study concerns only four factors and their interactions, without considering any else. The set of firms is de-contextualised from any references from the original contexts. For example, what about the industries? The characteristics of companies are directly connected to their industries, so the four factors must be considered in relationship with firms. Also, firms are different from each other, and their conditions play a role in the success or failure of a business. This approach does not take them into account.
It admits that data have not found a correlation between the four factors and the outcomes. However, it does not explain why there is not. The presence of all four factors does not give the highest outcome, and the complete absence does not give the lowest. So, the study would have to do to analyse this lack because the entire approach is based on the four factors classification.
The usage of a configuration approach is useful to collect data, but it cannot explain the success or failure of a business. It can be useful to detect trends, but it does not give answers. This kind of approach does not consider the peculiarities of each company: a business success is often caused by a unique combination of factors.
Further references:
-Fiss, P. C., Marx, A., & Cambré, B. (2013). Chapter 1 configurational theory and methods in organizational research: Introduction. In Configurational theory and methods in organizational research (pp. 1-22). Emerald Group Publishing Limited.
-Kung, L., Kung, H. J., Jones-Farmer, A., & Wang, Y. (2015). Managing big data for firm performance: a configurational approach.
Weerawardena, Jay. “The role of marketing capability in innovation-based competitive strategy.” Journal of strategic marketing 11.1 (2003): 15-35
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In this study, entrepreneurship, commercialization capacity, organizational innovation, and sustainable competitiveness were tested to develop theoretical relationships. Based on the results, he found that marketing capacity plays a dual role and has an impact on both the economy and the organizational innovation and sustainable competitive advantage environment. Moreover, it has been shown that decision-makers play a key role in the development of marketing.
Based on this, we highlighted implications. First, companies should focus on having innovation-based competitive strategies: By doing so, they will be able to give value to their customers and have good positioning in the market. Second, entrepreneur decision-makers are important in order to get distinctive capabilities: the entrepreneur administration behavior model suggests deeply analyzing the market, taking risks and brave decisions to get a sustainable competitive advantage.
The first limit is about first implication who said that companies should focus on having innovation-based competitive strategies. The problem of this recommendation is that there is a risk to go straight into the wall by innovating in the wrong way and so lose time, money, etc. Indeed.companies must be careful to remain innovative in sectors that are interesting for their customers. For example, In 2011, Google launched its new social network Google+. However, it never met their expectations to become a Facebook competitor.
The second limitation concerns the risk advised for innovation by the second implication. As small companies and startups do not have a lot of financial resources, it is more complicated for them to take risks to manufacture and launch innovative products on the market. Indeed, they will rather seek to produce something safe.
If you want to go further, we suggest you these three articles;
1. The role of marketing-enabled data analytics capability and organizational agility for innovation: Empirical evidence from German firms. Giorgi Shuradze, Yevgen Bogodistov, Heinz-Theo Wagner (2018). https://www.worldscientific.com/doi/abs/10.1142/S1363919618500378
2. How do marketing, research and development capabilities, and degree of internationalization synergistically affect the innovation performance of small and medium-sized enterprises (SMEs)? A panel data study of Chinese SMEs. Shengce Ren, Andreas B.Eisingerich, Huei-Ting Tsai (2015). https://www.sciencedirect.com/science/article/pii/S0969593114001851
3. When marketing and innovation interact: The case of born-global firms. Kalanit Efrat, Shaked Gilboa, Moshe Yonatany (2017). https://www.sciencedirect.com/science/article/pii/S0969593116301688
(Article) Liedtka, J. (2015). Perspective: Linking design thinking with innovation outcomes through cognitive bias reduction. Journal of Product Innovation Management, 32(6), 925-938.
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The main purpose of the article is to bring solutions to bias reduction thanks to design thinking. In fact, there are 9 different kinds of biases developed in the article but sorting in 3 categories. The first category is “Mitigating biases in idea generation”, then the second category is “Mitigating biases introduced by customers” and the last category is “Mitigating biases in testing”.
The first one category is related to the trend of decision makers to become trapped in their own view and to make decisions based on their experience and not on the information they have. The second category is related to the inability of their customers to clearly express their future needs and provide accurate feedback on new ideas, making it difficult to develop ideas that create value for them. It is called the say/do gap. The third category is related to problems in decision-makers hypothesis testing abilities.
As different managerial implications, regarding the first category, decision makers must improve their perspective taking skills to not be trapped in their own world. A second remedy is the use of ethnography, which is a tool in the design thinking process that help understanding perspectives of others. For the second category, they can use qualitative methodologies questioning customers about their behaviour and not their preferences and desires. It helps them identify their own needs more successfully than simply asking them what their needs are. Regarding the last category, teaching decision-makers how to be better hypothesis testers. Design thinking mitigates the effects of the planning fallacy, confirmation, endowment, and availability biases. It does this by insisting that they prototype, surface unarticulated assumptions, and actively seek disconfirming data.
As we have seen design thinking try to improve the performance of the manager in innovation by reducing three kind of bias. In order to do that design thinking, recommend the use of different tools. To avoid the first category of bias, managers will collect data on others, improve their empathy skill and work in teams. But this could be useless if they work with the same kind of people. To avoid the second category of bias, managers gave to propose to the customers to do some journey mapping and managers could also take part in the observation. Finally, to avoid the third category of bias, design thinking proposes to work with multiple options, and conduct reflection on of real experiment.
Further references:
– (Book) Martin, R., & Martin, R. L. (2009). The design of business: Why design thinking is the next competitive advantage. Harvard Business Press.
– (Article) Lindberg, T., Köppen, E., Rauth, I., & Meinel, C. (2012). On the perception, adoption and implementation of design thinking in the IT industry. In Design thinking research (pp. 229-240). Springer, Berlin, Heidelberg.
– (Article) Toscani, P. (2019). Cognitive biases: Between necessity and danger. Futuribles, (1), 73-80.
Show less(Article) Christensen, C. M. (2001). The past and future of competitive advantage. MIT Sloan Management Review, 42(2), 105-109.
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To begin this article talks about the competitve advantage. the author highlights two characteristics of the competitive advantage on the one hand the origin or sources of the compettitive advantages and on the other hand the changes in the competitive advantage over time
There are several types of sources of competitive advantage. Some companies gain a competitive advantage through economies of scale, when you produce a lot and are able to reduce your costs. Other companies find their competitive advantage through economies of scale, when you manufacture a large number of different products, which creates synergies between products. And the other two sources are vertical integration, when you buy your customers or suppliers and the other is core competence, when you can manage tacit knowledge.
The other important point to understand is the variation of competitive advantage over time.
Companies tend to imitate the strategies of the leading companies in term of competitive advantage. They think that if it works for a company, it will work for everybody. However, we can see that over the time opposite factors could be source of competitive advantage. In fact, what constitute advantages for today’s most successful companies, confer those benefices only because of particular factors under particular conditions in a particular time. So, we can’t reproduce the strategies of other companies. By understanding the circumstances that cause the competitive advantage, companies could adapt their sources and predict new origins which could emerge in the future.
The article also explains how to set up different mechanisms to create a competitive advantage.
The economy of scale exists when there are high fixed costs and low variable cost in the core business. In this case, large companies can amortize the fixed costs over big volumes, taking the lead over its competitors.
But Many fixed costs are not caused by nature but are due to specific technological and managerial solutions to problems. Thanks to innovation, we are now able to flatten scale economies by reducing the production cost.
Each product is composed of a value-added chain of activities; if the company wants to outsource its weaknesses, it must first find them in the value-added chain of activities. the advantage of outsourcing to a specialized company is that it can often give a better quality to the product, which is a source of competitive advantage, and at the same time it will give more time to the outsourcing company to focus on its strengths and growth. Unfortunately it is not always possible to have all the information in order to determine the weakness of the value-added chain of activities. For example, if the product is new or in the test phase
Economies of scope are cost advantages that result when firms provide a variety of products rather than specializing in the production of a single product or service. The average costs are reduced by introducing another product that can share the existing infrastructure, thus reducing cost per product. But if you have a too large range of products, there is a risk of losing side of your goal. You need a link between your products so that it become an advantage. Otherwise it will be a disadvantage because you customers will lose themselves in your brand.
Further reference :
• SALAVOU, H. (2015), “Competitive strategies and their shift to the future”, European Business Review, Vol. 27 No. 1, pp. 80-99.
• Brem, A., Maier, M. and Wimschneider, C. (2016), “Competitive advantage through innovation: the case of Nespresso”, European Journal of Innovation Management, Vol. 19 No. 1, pp. 133-148.
Show lessGans, J., Scott, E. L., & Stern, S. (2018). Strategy for Start-ups. Harvard Business Review, 96(3), 44-51.
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In today’s changing world, it seems essential for entrepreneurs to choose a strategy that will prepare them for the entrance of their innovation on the market but that will also help them to face tough market competition. In fact, by considering the possible strategic routes, founders are able to better evaluate the potential of their idea and to confirm its possible strengths. This analysis can be of value for stakeholders. Thus, to choose a strategy, managers could use the so called “Entrepreneurial Strategy Compass”, a tool that delineates four generic go-to-market strategies and that should help them to move from an idea to the launch stage. Whether a company decides to collaborate or compete and whether it decides to build a moat or storm a hill, will define a unique strategy offering a distinct way to create and capture value.
The first strategy is the “Intellectual Property Strategy”. It lies in the alignment of a start-up innovation with incumbent’s occupation. In this collaboration, the entrepreneur will focus on the idea generation and control to create value to the incumbent’s customer and keep bargaining power.
In contrast to this, the “Disrupting strategy” centers its attention on the commercialization of the innovation and the quick market share growth that will follow. So, the established value chain is completely redesigned and the entrepreneur has no fear to compete against incumbents, even if start-up still have the incentive to develop themselves as quick as possible or to choose a niche segment before the already established companies notice it in order to avoid conflict.
The third strategy is the “Value Chain Strategy” focusing on the existing value chain instead of trying to modify it. It means that companies will try to build a profitable partnership with established ventures of the value chain. In order to do so, they will stay focus on only one layer of the chain so that they are able to create value by developing the greatest expertise and capabilities. Consequently, it will allow all the companies of the chain to benefit from enhanced differentiation or cost advantage.
The last one is the “Architectural Strategy”: by reorganizing an entire value chain and supervising its key bottlenecks, entrepreneurs will bring innovation to a mass market and will gather data on customers.
Nevertheless, those different strategic routes face some limitations. First of all, despite the access to great tools such as the entrepreneurial strategy compass, the uncertainty linked to the creation of a start-up is definitely still present. Actually, the success of a start-up does not lie only in the fact that it chooses the coherent framework but more that it took into account all its environmental factors in order to implement it. One of those factors is time. Timing is crucial and an entrepreneur has to find the right balance between launching its innovation too soon or too late. Indeed, start-ups that spend too much time focusing on strategy can expect some delay as the market entry will be postponed and might therefore lose an opportunity while precipitating into the entrance of the market might be risky. For example, if the chosen route was not the most profitable one or if important aspects have been overlooked. Concerning the architectural strategy, controlling the value chain and taking part in competition is a very risky choice that could quickly lead to failure. In fact, such a strategy could be chosen only by high public profiles that benefit from great funding.
To go even further, the TedxTalk “The single biggest reason why startups succeed” by Bill Gross presents the different factors that could lead a startup to success. Nevertheless, whatever strategy it decides to adopt, if it did not choose the right timing to enter the market, it will certainly end up in a failure.
Also, the book “The Lean Startup” from Eric Ries brings an interesting additional view on the matter of startups willing to launch an innovation. However, the author seems to think that defining a strategy is important but should not delay the commercialization too much and proposes an alternative approach with its Minimum Viable Product.
Show less(Article) Johnson, M.W., Christensen, C.M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, 86(12), 57-68.
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1. Key insights
There are two main topics addressed in this article.
A. Firstly, the author defines a business model as four interlocking elements that can create value for a business.
• Customer value proposition: As a company, you need to find a way to create value for your customers.
• Profit formula: It is also important to understand how your business creates value for itself while creating value for the customers.
• Key resources: Key assets required in order to create value for your customers.
• Key processes: Processes allowing you to keep delivering value in a way that will increase in scale.
B. The second point raised by the author consists in the importance of spotting the need for business model innovation. The author identified four strategic circumstances when such a change is required.
• The opportunity to address a new disruptive product to a large group that cannot afford the basic product.
• The opportunity to capitalize on a new technology by wrapping a new business model around it.
• The opportunity to reach unmet customers’ needs.
• The need to respond to a shifting basis of competition.
2. Implications
A. The theory implies that managers should extensively understand the principles behind the business model definition to know whether the existing model could be useful to fulfil a different customer value proposition and what should be done to construct a new one.
B. However, business models sometimes need changes. As a consequence, it is important to keep a proactive and vigilant behaviour towards opportunities. We propose three behaviours to capture major strategic circumstances. (1) Listen to the current customers and to potential clients, (2) Closely monitor your competitors, (3) Look at the industry trends and insights.
C. Nevertheless, it is possible that reinventing a new business model is not necessary or beneficial as such. Pursuing a business model that is not totally new or game changing to the industry is a waste of time and money.
3. Limitations
When applying the previous concept, managers should pay a particular attention to the following limitations.
A. It is difficult to identify a precise CVP and invest in the real customers need. Companies often confuse accurate innovative investments with R&D defending the historical business.
B. Deep-rooted rules, norms and metrics stand in the way of business model innovation. For instance, firms obviously need to fulfil several financial and operational requirements such as keeping a gross margin of at least X %.
4. Further references
A. Johnson, M. W. (2010). Seizing the white space: Business model innovation for growth and renewal. Harvard Business Press.
B. Pisano, P., Pironti, M., & Rieple, A. (2015). Identify innovative business models: can innovative business models enable players to react to ongoing or unpredictable trends?. Entrepreneurship Research Journal, 5(3), 181-199.
C. Frankenberger, K., & Zott, C. (2018, July). The role of differentiation, integration, and governance in developing innovative business models. In Academy of Management Proceedings (Vol. 2018, No. 1, p. 18658). Briarcliff Manor, NY 10510: Academy of Management.
Show lessLeonard, D., & Rayport, J. (1997). ‘Spark innovation through empathic design
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Key points
As you’ve probably understood through the video, a set of techniques we call empathic design can help resolve those dilemmas. If we had to define in one sentence what empathic design is, we could say it is the innovation process of producing the same thing as before but in a better way and by putting us into the eyes of the customer. As Mr. Wattelet told us this morning, the aim of this process is not to work for the users but to work with the users.
A lot of these infos are developed in the article and we encourage you to read them because it would take too much time to develop each of them. But we think the most important is the fact that empathic design permit us to know what are the triggers of use of our product. Indeed, by observing the customer while he’s using your product you can understand better why and when he uses your product. For instance, the producers of Cheerios found out that their product was not used only for breakfast but also during any moment of the day when users were a little bit hungry.
Managerial implications : Empathic design : the process
Step One: Observation: Unarticulated User Needs. The application of empathic design that holds the greatest potential benefit is the observation of current or possible customers encountering problems with your products or services that they don’t know can be addressed and may not even recognize as
problems.
Step Two: Capturing Data: In addition to the observation of the non-verbal language it is also useful to help yourself with other means like photos or videos.
Step Three: Reflection and Analysis: After gathering data in many forms, the team members return to reflect on what they have observed and to review their visual data with other colleagues.
Step Four: Brainstorming for Solutions: Consultants at the Chicago-based Doblin Group, observed individuals creatively combining beepers and cell phones so they could be just as available as they wished-and no more. These consumers gave special beeper codes to friends and relatives to screen out undesired interruptions. By brainstorming these observations, they suggested to the firm the need for filtering capabilities on cell phones.
Step Five: Developing Prototypes of Possible Solutions: After visiting the homes of Kimberly-Clark customers, consultants at the Palo Alto, California-based design firm GVO recognized the emotional appeal of pull-on diapers to parents and toddlers, who saw them as a step toward “grown- up” dress. Diapers were clothing, the observers realized, and had highly symbolic as well as functional meaning. Huggies Pull-Ups were launched as prototypes and were rapidly rolled out nationally in 1991, and by the time competitors caught on, the company was selling $400 million worth of the product annually.
Limitations
1. Privacy
A) Companies observing in cyberspace face the issue of where to draw the line between what they can see and when it comes to privacy. We cannot observe all the products or services.
B) Moreover, because observation can be perceived as invasive, it could thus lead to biased behavior. Observed individuals might change the way they use to live routine just because of an abusive monitoring.
2. Collecting data : How do we know we have a considerable amount of data to draw conclusion ? How much people do we observe? How long should we monitoring them ? Some problem or new innovation with can arise after a while. Then we could draw conclusion to early or it could be unfeasible to monitor people so long in order to collect the right datas (e.g. wood pallet)
Further references
• Veryzer, R., Borja de Mozota, B., (2005). The Impact of User-Oriented Design on New Product Development: An Examination of Fundamental Relationships, The journal of product innovation management, 2, 128-143.
• Potsma, C., Zwartkruis-Pelgrim, E., Daemen, E., Du, J., (2012). Challenges of Doing Empathic Design: Experiences from Industry, IJDesign, 6.
• Visser, F., van der Lugt, R., Stappers, P. (2007).Sharing user experiences in the Product Innovation Process: Participatory Design Needs participatory Communication, Creativity and innovation management, 16, 35-45.
Show lessMitchell, D., & Coles, C. (2003). The ultimate competitive advantage of continuing business model innovation
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The main idea of the paper is that a continuing business model innovation is source of competitive advantage. A competitive advantage is what allows you to generate higher profit, higher sales and higher cash-flows than a competitor could.
A continuous business model innovation is when a company pursues an ongoing process of developing and installing business model improvements, replacements and innovations.
Business model replacement entails improving at least 4 of these elements:
1. What
2. Where
3. When
4. Who
5. Why
6. How
Most effective companies do this changes every 2 to 4 years.
The implication is clear, managers should always keep in mind the following question: “How to implement the continuing business model innovation?”. Managers should think over the 7 pillars of their business model. But, the more people think about it, the more likely good ideas and answers can be found. The business model shouldn’t be reserved to members of the board. Employees should be involved. Asking employees, that are closer to the field than top manager, what they think the 7 pillars are and if they have ideas of how they could change would help understand how the business is seen through the eyes of the employees and where the organization wants to go. This could be done on a regular basis.
Nevertheless, in a world where some companies are desperate to know what competitors are doing, involving employees in strategic decisions could be a problem. They could be reached by competitors and leak information about business model changes, diminishing drastically the value of surprise when shifting business model.
Business model improvement can be disabled by cost reduction policies. Companies are looking for efficiency and sometimes they think that the only way to do so is by decreasing costs. Companies leading in operating cost reduction activities were less likely to become continuing business model innovators. Managers can work with that by not focusing only on cost reduction on the existing model, but always pay attention to see if the business model needs any improvement. They also should spend more resources (like time and money) in the business model management and, for example, designate a business model innovation manager per department.
Limitations come with this theory:
First, focusing too much on optimizing one process can create or sustain inefficiencies/weaknesses in other activities and processes. For example, google focus too much on the HR aspect of innovation and actually do not come up with internal innovations.
Secondly, even with better processes, an obsolete business model is usually ineffective against a better one. For example, Kodak which was focused on improving their numeric camera while the digital camera development increased. This lead to Kodaks failure.
Finally, focussing in the wrong way can be a mistake. Most successful business model innovations are in place within a year of beginning the implementation. We can take the example of Bic, they tried to launch a range of perfume but it was a total flop so they stopped.
Annexes: Further references
The literature about this topic is quite recent so there are a lot of articles not yet peer reviewed.
Nevertheless we found some of them:
Mitchell, D. W., & Carol, B. C. (2004). Establishing a continuing business model innovation process. The Journal of Business Strategy, 25(3), 39-49.
It’s in fact the continuation of the article we have discussed, written by the same authors. It explains how to establish the continuing business model in order to gain the competitive advantage that is supposed to come.
Matzler, K., Bailom, F., Stephan Friedrich von, d. E., & Kohler, T. (2013). Business model innovation: Coffee triumphs for nespresso. The Journal of Business Strategy, 34(2), 30-37.
Describe here again the concept of business model innovation, and explain how it can be successful, taking the case of Nespresso which is one of the famous users of it, as an example
Clauss, T. (2017). Measuring business model innovation: Conceptualization, scale development, and proof of performance. R & D Management, 47(3), 385-403.
Quite a few cited despite the date of release. It brings the proof of the performance of business model innovation and define how to measure it
Verhoeven, B., & Johnson, L. W. (2017). Business model innovation portfolio strategy for growth under product-market configurations. Journal of Business Models, 5(1), 35-50
.
This one is recent but it sounds good (2017) à combine the concepts of product market growth strategy, magnitude of innovation and business model innovation to lead to dynamic business model innovatoin strategy, linked to the continuous business model innovation
Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage.
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The authors address the issue of asset stocking in firms. As they point out, a firm’s assets may be (1) tangible, such as equipment, and therefore acquired in product markets, or (2) intangible, such as know-how or reputation, and therefore accumulated in “strategic factor markets” (Barney, 1986).
More, the law of diminishing returns creates an obstacle on the efficient management of assets that require long time-frames to become fully valuable. This creates Time Compression Diseconomies: there is a limit to growth speed; twice as hard does not correlate into twice the benefits (Allegory: 9 women cannot give birth to a baby in 1 month). Due to innovations and the fact that time eventually turns specific know-how less valuable or even obsolete, the level stock of assets changes over time. Hence, firms have to capitalize on the flow of new assets in a stock.
Lastly, due to the untradeable nature of some assets, a crucial point for a firm to capitalize on their competitive advantage is to protect them from imitation. This potential replication is related to key features of asset accumulation: “time compression diseconomies, asset mass efficiencies, inter-connectedness, asset erosion and causal ambiguity” (Dierickx and Cool, 1989).
We found that this article’s findings imply:
1) Time Compression Diseconomies: Managers should exploit on early-mover advantage. Growth efforts can be spread out through a timeline if a manager is prepared in advance. If diseconomies are large, they provide a bulky protection for the first-mover.
Limitation: If second-movers need fewer break time than pioneers, these diseconomies will be equal to zero. More, some assets may be protected with an expiration date, such as patents. Resources and work put forward by the first-mover may be exploited by follower at little cost. Since the expiration of Nespresso’s capsule patent, other firms from the coffee industry, such as Starbucks, have profited from producing capsules compatible with Nespresso’s machines.
2) Asset Mass Efficiencies: Managers should know it is easier to increase the stock of an already large stock of assets (“success breeds success”). E.g. the vast stock of R&D at Google allows them to take rapid steps on innovation to make larger additions to their stock of know-how.
Limitation: Pursuing rises to stocks by itself creates no tangible value to a firm unless leveraged with a strong business plan. Tesla and Uber have been able to accumulate tremendous stocks of networks, know-how or brand image, but have yet to realize profits on their investments.
3) Interconnectedness: It may be that scarcity of resources limits the maximization of levels of all stocks at a given time. Managers should prioritize increments on the flow of the most relevant stocks without prejudice to others (Pareto Efficiency: optimal allocation of the flow of stocks).
Limitation: (1) Even with macro-trend analysis and provisions for long-term industry changes there is always the least of uncertainty in which stocks will best complement each other. (2) Convincing shareholders to allocate resources on raising the flow of a stock without empirical proof of profits’ realization may be hard. (3) Smaller firms (by money, human capital, or global scale) have more barriers to counter the devaluation of existing stocks. Symbian, once the most used mobile OS, suffered from: intense competition of new entrants; not being user-friendly outside Western Europe; constant malware issues. Symbian Ltd. may have been too small to battle all fronts at once. Google optimized the flow of different intertwined stocks to tackle all issues, and turn the Android OS into the dominant design.
watch?v=y0wf7gq76s4
Gretler, C. and Weiss, R. (2017). Nespresso Is Loosening Its Grip on Coffee Pods. Bloomberg. Available at: https://www.bloomberg.com/news/articles/2017-07-12/nespresso-adds-retail-partners-for-pods-as-knockoffs-encroach
Kwong, R. (2009). HTC calls for more user-friendly smartphones. Financial Times. Available at: https://www.ft.com/content/bcea82c6-fc51-11dd-aed8-000077b07658
Starbuckscapsules.co.uk. (2017). Starbucks Espresso Capsules. Available at: http://www.starbuckscapsules.co.uk/
Statista. (2017). Number Global market share held by smartphone operating systems from 2009 to 2016. Available at: https://www.statista.com/statistics/263453/global-market-share-held-by-smartphone-operating-systems/
Vermeulen, F. (2008). “Time compression diseconomies” – too much, too fast. [Blog] FREEKY BUSINESS. Available at: http://freekvermeulen.blogspot.be/2008/02/time-compression-diseconomies-too-much.html
Watkins, M. (2011). Threat of mobile cybercrime on the increase. Financial Times. Available at: https://www.ft.com/content/5a4ed514-32e5-11e0-9a61-00144feabdc0
New sources identified:
For in depth analysis on the topic of “strategic factor markets” (article that serves as basis for Dierickx and Cool, 1989):
Barney, J. (1986). Strategic Factor Markets: Expectations, Luck, and Business Strategy. Management Sciences, 32(10), 1231-1241.
For further insights on the resource-based view of competitive advantage, and the proposal of model with four necessary conditions for competitive advantage:
Peteraf, M. (1993). The Cornerstones of Competitive Advantage: A Resource-Based View. Strategic Management Journal, 14(3), 179-191.
For an expanded study on how market-based assets can be capitalized through customer’s wants and needs or effective managerial coordination of a firm’s units, to achieve competitive advantage:
Srivastava, R. & Fahey, L. & Christensen, H. (2001). The resource-based view and marketing: The role of market-based assets in gaining competitive advantage. Journal of Management, 27(6), 777-802.
Slater, S. F., & Mohr, J. J. (2006). Successful development and commercialization of technological innovation: insights based on strategy type
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Key insights:
This paper explains how firms can successfully develop and commercialize technological innovations in order to retain their leadership position and according to it, there are two reasons why firms don’t succeed in commercializing their technological innovation.
The first raison is called the innovator’s dilemma. Firms typically become industry leaders by having a broad base of customers in the marketplace and by continually meeting their needs for value over time. These firms develop sustaining innovations based on their customer’s feedbacks with as goal to stay the leader. Paradoxically, they put themselves in danger because the industry newcomers become more innovative.
The second raison is cross the chasm. The success of an innovation depends on different categories of adopters, which have different characteristics and needs. They all belong to one of the market categories: the early market or the mainstream market. According to Moore, the marketer should focus on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries (early adopters) and pragmatists (early majority). This is the chasm that he refers to.
Understand the customer needs is the second purpose of this article. Studies has shown that having a proactive market-oriented culture will increase the ability to successfully develop and commercialize technological innovation. That implies to adopt a set of behaviors like discovering, understanding and satisfying the potential needs of customers.
Managerial Implications & limitations:
First implication is that marketers may also need to ignore feedback about what customers say they do not want in order to counter innovator’s dilemma. Indeed, customers are not always able to articulate their needs and are not always aware of them. Based on this belief, useful information can be gleaned through observation of what customers do under normal, natural and conditions.
This one implies if firms always ignore what customers do not want can lead to failure.
Example: In 2011, Netflix effectively increased the price of their products by 40% even if the customer advised not to do it. The result was that 800 000 subscribers cancelled their service and in a survey Netflix was rated as one of the 10 most hated companies in the US.
The second implication is about the overcoming the chasm problem. Firms could be an option to ally with another organization that already possess the capabilities to go deep in the market.
The limitation links with it, some alliance can turn very badly because when you do an alliance, you have different culture of enterprises. That collapse and if it doesn’t fit, the company put themselves in danger.
Example: When Daimler merged with Chrysler in the late 1990s it didn’t go well because of the difference in culture. By 2000, major losses were projected. In 2007, Daimler sold Chrysler to Cerberus Capital Management for $6 billion.
Further references:
1. Helping us to understand the chasm problem:
Bath, W. (s.d). Crossing the Chasm – Disruptive Innovation – Technology Adoption Life Cycle. Retrieved from: https://www.youtube.com/watch?v=Y-97AXOPzJo
2. Corso, M & Pellegrini, L. (2007). Continuous and Discontinuous Innovation: Overcoming the Innovator Dilemma, Volume 16, Issue 4, pp 333–347. Retrieved from: http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8691.2007.00459.x/full
3. Bates, D. (2007). Effect of Organizational Cultures on Mergers and Acquisitions: The Case of DaimlerChrysler. International Journal of Management. Vol. 24, Issue 2, pp 303-317. Retrieved from: https://search.proquest.com/openview/0a2f5d0f48a8c4b2a6d1e5696efef9c3/1?pq-origsite=gscholar&cbl=5703
Gans, J., Scott, E. L., & Stern, S. (2018). Strategy for start-ups. Harvard Business Review, 96(3), 44-51.
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Key insights: The goal of this article is to present a framework, called the entrepreneurial strategy compass, that helps to overcome the existing strategic environment and define possible new environ- ments to choose from. Firstly, startups should not take the first strategic opportunity that looks obvious to them. This can be misleading and destroy potential for creating value and market share. Competitors who can look “beyond” that and consider all strategic opportunities would quickly surpass the startup. Secondly, the “Entrepreneurial Strategy Compass” allows us to know what our strategic opportunities may be for start-ups along two dimensions, creating four different strategic approaches. The horizontal dimension of the compass analyzes the attitude towards current players (collaborate vs. compete). Collaboration with other companies allows to enter markets easier but limits market expansion. The vertical dimension describes the attitude towards innovation. Companies can either try to protect in- tellectual property and increase transaction costs or storm the market by being the first company to release a certain product and speeding up commercialization.
Show lessImplications: The first implication is to invest time upfront to think about strategic options. Since in- vesting into market screening upfront can be financially difficult for startups, time investment will pay off in the long-term. To find the best path for commercialization and customer access, startups should fill as many quadrants of the compass as possible with strategic options. To consider all possible op- portunities, this should be done by the founders and people with broad knowledge of the underlying technology. Only then, entrepreneurs can start eliminating options that do not fit with their idea and resources. Reasons for this could be a lack of feasibility (e.g. regulations) aor a lack of alignment with the capabilities (e.g. financing and enforcing patents). Another implication is to decide among the re- maining options that have not been eliminated along the process. The most crucial here is to choose options that keep the best alignment between the strategy and the initial purpose of the business. It is also important to persuade relevant stakeholders (like investors) and communicate / inform early adopters.
Limitations: The first limitation regards the implication of necessary upfront time investment to be- come competitive, which does not apply in all innovation situations. In some cases, quickly entering the market and short-term actions are required, while over-analyzing might take too much time and possible first-mover advantages might be lost (e.g. when other companies work on the same product simultaneously; network effects of competing products increase entry-barriers quickly). Secondly, the concept does not apply to uncontested markets. If a startup is the first one on the market, there is no real competition yet and rules are about to be set. In that case, both dimensions become irrelevant (How would you collaborate? How would you “storm” a non-existent market?). Indeed, most markets cannot be defined as completely new “blue oceans” because they already face some kind of competi- tion/substitutes, but the framework can only be applied very broadly.
Further References:
– Gans, J. (2020). To disrupt or not to disrupt? MIT Sloan Management Review, 61(3), 40–45.
– Szerb, L., Vörös, Z. (2021). The changing form of overconfidence and its effect on growth
expectations at the early stages of startups. Small Business Economics, 57, 151–165.