Managing Innovation and Entrepreneurship - Assignment Example

MANAGING INNOVATION AND ENTREPRENEURSHIP Question 1 Barriers to imitation Introduction Once one starts exploiting an entrepreneurial idea, it is usually difficult to keep the information related to the opportunity secret. In addition, such an entrepreneur cannot be able to create causal ambiguity concerning the way the idea is exploited (Crawford & Di Benedetto, 2003, p. 45-46). Thus, it is often difficult to use secrecy as a strategy to prevent imitation of an entrepreneurial idea. Thus to be able to prevent imitation, entrepreneurs employ barriers to imitation which prevent others from exploiting their newly innovated or invented opportunity. This paper will discuss different types of barriers to imitation used by entrepreneurs, their effectiveness and their necessity. Types of barriers to imitation used by entrepreneurs There are four main barriers to imitation employed by entrepreneurs to bar others from exploiting their innovative ideas (Gorchels, 2003, p. 123-124). These include acquiring control of the resources required for the exploitation of the opportunity, being involved in establishment of legal obstacles which bar imitation, development of a reputation and continue being involved in innovation to remain more competitive. When an entrepreneur gains control over the main resources needed for exploitation of an opportunity, he/she is able to build a barrier to competition. For instance if a university student comes up with a business idea to begin selling food at sporting event on the university, he can take control of resources required for this business to avoid competition. Since there are few stadiums and arenas where sporting events take place, the student can sign a contract to lease all the space reserved for food service in the sporting arenas and stadium to stop potential competitors from exploiting the same opportunity (Crawford & Di Benedetto, 2003, p. 55). One can also gain control of resources to avoid competition by contracting providers of key resources and taking control of them. This can only apply where the resources required to exploit an opportunity have limited suppliers. For instance, a company like De Beer which sells diamond rings can take control of resources by buying all diamond mines with quality diamond games around the world since they are few. This can prevent any competition since no new company can gain access to such resources (Timmons & Spinelli, 2004, p. 113-117). Entrepreneurs can also obtain a legal monopoly on the process required for exploiting the opportunity to bar others from using it. This can include patents or government permits. Patents allow inventors and innovators to exploit a certain opportunity monopolistically for a certain specified period of time (Gorchels, 2003, p. 131-133). For instance the inventor of a heart pacemaker can patent its design to prevent others from exploiting the same ideas in making same pacemaker. A permit is given to an individual by the government to allow him as the only person to provide certain goods or services in certain geographical region. One can also bar others from exploiting an opportunity by establishing a reputation. This can involve creation of goodwill among entrepreneur’s customers to make them remain loyal to his products (Timmons & Spinelli, 2004, p. 80-81). Advertisement which promotes attributes of a certain product can also be used to establish a reputation. For instance, if one develops a new mountain bike design which is accepted as an excellent one, he can keep competitors at bay by advertising and creating excellent customer service to create a competitive advantage. Innovation can be used as a barrier to competition by entrepreneurs. This keeps the products of an entrepreneur ahead of other alternatives. To do this an entrepreneur needs to make continuous modification on his product ahead of his competitors to meet the changing needs of the customers. An example of a firm which used innovation to keep competitors at bay was Daddy’s Junk Music Stores Inc. the business was founded in New England by Fred Bramante to sell music equipments (Crawford & Di Benedetto, 2003, p. 56-8). With the establishment of eBay, people begun buying and selling their music equipments via eBay hence profits of Daddy’s dropped drastically. Fred came up with mail order business which was innovative that enabled his stores to improve, expand its network, enhanced compensation of employees and improved marketing via the launch of a TV program. This allowed Daddy’s to grow in spite the competition from eBay. Effectiveness of these barriers in protecting innovation IBM effectively used innovation as a barrier to imitation. When IBM initially became reluctant to innovate, many of its competitors came up with low priced computers which utilized IBM’s operating system (Gorchels, 2003, p. 136-138). To bar this imitation, IBM innovatively came up with new improved technological innovations which enabled it to offer its products at competitive prices. New features were incorporated on their products and hence were able to shake of competition through employment of innovation to bar imitation. Thus IMB managed to remain both competitive and profitable taking up a large junk of market for computer products. Are barriers to imitation necessary? Barriers to imitation are necessary in the sense that they help the innovator to recover and earn profit from his or her investment in innovation. In addition, it is useful in encouraging innovation in a country since people will be assured of earning returns on their efforts of innovating and inventing (Crawford & Di Benedetto, 2003, p. 61-62). Furthermore, patented processes and products enable a country of origin of the inventor or innovator to earn foreign exchange from investors who want to use the patented process or product. However, barriers to imitation can make products to be much expensive. For instance, patenting of drugs used for life threatening diseases make those who are unable to afford high prices of such products to suffer and even die earlier than expected. If such barriers were not in existence generic drugs could be devised at a low cost to alleviate such sufferings and death. Conclusion There are four main barriers to imitation used by entrepreneurs to protect their innovation. These are acquiring control of the resources required for the exploitation of the opportunity, being involved in establishment of legal obstacles which bar imitation, development of a reputation and continue being involved in innovation to remain more competitive. They help an entrepreneur to reap returns from his investment in innovation and to remain competitive. Reference Crawford, C.M. & Di Benedetto, C.A. 2003. New products management, 7th Ed. Boston: McGraw-Hill, p. 44-70 Gorchels, L. 2003. The product manager’s Field. New York: McGraw-Hill, p. 121-141. Timmons, J.A. & Spinelli, S. 2004. New venture creation : entrepreneurship for the 21st century, New York: McGraw-Hill/Irwin, p. 79-117 Question 2 Emergence of a blue ocean strategy and occurrence of value innovation when an organization is able to develop a new value curve that is different from the one that is traditionally used in the industry they compete in Introduction The blue ocean strategy assumes that the market is made up of red oceans and blue oceans. The existing industries represent red oceans while industries which are not in existence at present represent blue oceans. Red oceans have defined and accepted boundaries and have known competitive rules. Red oceans have companies competing to outperform one another in order to take a greater share of demand that is in existence (Chan, 2005, p. 116-117). Red ocean based strategies are based on competition. This strategy is characterized with reduction of profits and growth as the market become crowded. As the competition become stiff, products become commodities and competition becomes cutthroat hence turning the red ocean bloody. On the other hand blue oceans have market space that is untapped, requires creation of demand and opportunity exists for highly profitable growth (Chan and Mauborgne, 1996, p. 102). Some blue oceans are usually created beyond boundaries of the existing industries while others result from the existing red oceans. In blue oceans rules of competition are yet to be set hence competition is insignificant. Blue Ocean is used in describing the great potential of market space which is not yet exploited but is vast and deep. Thus creation of blue oceans enables firms to accrue new returns and increase their growth opportunities. Blue ocean strategy Most of blue ocean strategy emerges from line extension of e3xisting red oceans via their incremental improvements. However, returns accrued from extension of existing Red Ocean firms are lower than those accrued from blue ocean firms created from scratch. The creation of blue oceans is as a result of increased technological advances (Chan, 2005, p. 106-110). These advances have improved industrial productivity and suppliers are now able to produce unique products and services. Price wars resulting from declining demand and population have been another contributing factor to emergence of blue ocean firms. Thus as red oceans are increasingly becoming bloody many managers are shifting their concern to creation of blue oceans via line extensions. Research has shown an increase in the creation of blue oceans. However, the success of these emerging blue oceans is low especially those venturing beyond the industry space that is in existence. Blue ocean strategy does not use competition as their benchmark. Creation of blue oceans makes competition irrelevant and instead creates a leap in value for the company and its customers (Chan and Mauborgne, 1996, p. 109-110). Blue ocean strategy is based on the fact that boundaries of the market and the structure of the industry are not defined. The strategy believes that these market boundaries and industry structure can be build by the beliefs and actions of the players in that particular industry. These reconstructions of beliefs and actions constitute re-constructionist view of blue ocean strategy. Instead of employing competition based on value/cost trade off, blue oceans in the re-constructionist world aims at creating new rules by dismantling the value/cost trade off that exists and creates blue oceans. Reconstructionist practitioners’ thinking is not limited by market structures that are in existence. They belief that there exist a vast amount demand that is yet to be tapped and the only problem is the creation of this demand. Thus there is a shift from supply to demand and from focusing on competition to focus in discarding competition (Chan, 2005, p. 106-107). Thus these practitioners look systematically across competition boundaries that are already established and re-orienting elements that exist into different markets for reconstructing a new market space to generate new level of demand. Reconstructionists believe that attractiveness of an industry can be altered via reconstruction. Thus there is no attractive or unattractive industry according to these practitioners (Chan and Mauborgne, 2002, p. 77-79). The change in market structure is accompanied with change in rules governing the game. As competition is rendered irrelevant, blue ocean strategy stimulates demand and hence existing markets are expanded and new ones are created. Blue oceans strive to drive costs down and at the same time ensuring that the value for buyers go up. Thus blue ocean strategy is only achieved when the price, utility and cost activities of the firm are aligned properly. Occurrence of value innovation An effective blue ocean strategy is characterized by three qualities when expressed via a value curve, that is, focus, compelling tagline and divergence. This qualities ensures that the strategy of the firm is clearly differentiated, easily communicated and has cost structure (Chan and Mauborgne, 1996, p. 102-103). These qualities determine the viability of blue ocean ideas. They are used for guiding reconstruction process to attain value for both the firm and its customers. Value innovators look for blockbuster ideas in addition to quantum leaps in value (Chan and Mauborgne, 2002, p. 77-79). For instance, CNN focused on creation of quantum leaps in value and this enabled it to emerge as a leader in global news broadcasting. Under value innovation logic conditions of the industry can be shaped and managers usually come up with new innovative ideas. In addition, value innovation focuses on what the customer needs and goes out to find a total solution (Des Dearlove & Stuart, 2003). There are four actions used to create a new value curve in value innovation. These are based on ERRC Model which involves elimination, reduction, raising and creation. These actions are in the form of questions. The first question requires the firm to eliminate factors that it has been using for long to compete. The second question requires the company to determine the level of product or service design in order to enable it to reduce cost structure (Chan, 2005, p. 109-112). The third questions require the firm to reveal and eliminate any compromises that are forced on the customer by the firm. The last question enables the firm to discover new avenues for value for its customers and helps it to create demand and to shift the strategic pricing of its products. The first two questions enable the firm to reduce cost structures (Chan and Mauborgne, 2002, p. 81-84). The next two factors enable the firm to improve buyer value and at the same time create new demand. Thus the four questions are essential in enabling the firm to systematically explore an innovative way of restructuring the buyer value elements. This ensures that buyers are offered new experience and at the same time keeping cost structure low. References Chan K. 2005. Blue Ocean Strategy: From Theory to Practice. California Management Review, vol. 47, no. 3 p. 105-121 Chan, K. and Mauborgne, R. 1996. Value Innovation: The strategic logic of high growth. Harvard business review, p. 102-112. Chan, W. and Mauborgne, R. 2002. Charting your company’s future. Harvard Business Review, p. 77-84 Des Dearlove & Stuart, C. 2003. Flouting Conventional Wisdom. Chief Executive, vol. 188. Question 3 What an entrepreneur needs to be successful is luck as much as great technology and good ideas. When pitching to venture capitalists it is important that you have a highly detailed business plan. The more detail about the product or service and how it has features that are more sophisticated than those currently in the market the better. Being charming is also essential. Required: Do you agree or disagree with that this statement on what an entrepreneur needs to be successful? Justify your answer by using concepts and models covered in the course? In what way is this statement consistent or not consistent with how your group approached the business planning assignment? Successful entrepreneurs Most successful entrepreneurs are involved in comprehensively learning activities in addition to avoiding a postmortem on failed business ventures. This implied that they use mistakes experienced by failed firms and capitalize on them to be successful. Given that entrepreneurs have to learn and carry out postmortem analysis of failed firms, we cannot say that successful entrepreneurs require luck for them to be successful (Pricewaterhousecoopers, 1997). For instance, even though Future Beef Company had a brilliant idea of controlling beef market, failure to implement the idea made it fail though those involved had all the required resources. On closure of this firm, Crcekstone Farms Premium Beef was launched and it comprised mainly of the bankrupt Future beef company which became successful owing to those involved in the management having learnt from mistakes made by those in the Future Beef company (Allen, 2006). Most investors are often interested in the founding team of a business and businesses which are already in place and running. Thus entrepreneurs do not necessarily require a comprehensive business plan for them to be successful. With an idea already implemented in a running business such entrepreneurs can get funding to realize the full potential of their innovative ideas. Ideas which are already incorporated in an existing business make feasibility of the concept to be easy since it has already been tested (Pricewaterhousecoopers, 1997). This ensures that plans that are constructed are based on reality. Entrepreneurs can still get investment resources if they can convey a compelling story to potential investor and be able to provide a management team that can be able to execute the idea effectively. This implies that the plan ought not to be comprehensive and detailed to enable effective and efficient execution of the idea (Vivian, 2000, p. 96). All the entrepreneurs need to be successful in relation to plan is being able come up with a compelling story to lure investors to provide investment resources and a management team capable of implementing the idea. The entrepreneur will have to explain to potential investors what he has accomplished in starting his venture prior to being awarded required resources (Allen, 2006). This implies that the previously used mode where entrepreneurs had to craft detailed plans and submitting them for consideration by potential investors is irrelevant. The entrepreneur will have to demonstrate that his models being proposed work. Investors are interested in rate of growth, degree of risk, return on investment and protection of a new venture. They have no interest in technology or product driven firms but instead they are interested in market oriented firms. Thus technology is not a determinant of the success of an entrepreneur (Pricewaterhousecoopers, 1997). One can have great technology and be unable to create demand and market for his products. Thus the firm will not be able to grow and returns on investment will be very low making the firm to fail in the market. In addition such a firm will not ensure protection of the investors’ money and will be highly risk. Thus, even though technology is important for the success of a firm, this technology should be directed toward increasing demand for products of the firm. Thus entrepreneurship is all about selling a dream and getting done using limited resources available. Thus, good technology, luck, or detailed business plans are not essential for the success of an entrepreneur. Product differentiation is however essential for the success of an entrepreneurial venture. However, most products present currently in the market are identical and consumers in most cases are not swayed by certain brands (Allen, 2006). Thus for entrepreneurs who strive to differentiate their products find themselves being aped by competitors and thus lack something to boast about. Therefore, what is required is value of the product for buyers and the entrepreneur in addition to cost cutting that will ensure products are bought at relatively low prices but not compromising quality of the product. Thus product differentiation should involve creation of value and reduction of costs if it will have to help the firm to be successful. Consistent with my groups approach on the business planning assignment From our group approach, one does not have to be lucky to be a successful entrepreneur. Our venture came about as a result of thorough research and reading and it was thus not out of sheer luck. Thus, the fact that an entrepreneur needs luck to be successful is not consistent with our approach. Our entrepreneurial ideas do not need great technology for them to be successful. Given our analysis of the market and trends in the styles of women our venture is bound to be successful without the need for great technology. Even though good ideas can help a business venture to be successful, not all ideas are great (Allen, 2006). Like our idea is not that great since we have just reconstructed the market to create value for our buyers who are out to go along changing trends in clothing industry at a low cost. We are entering textile industry that is saturated but our restructuring concept has created a demand for our products to increase the need for our goods (Vivian, 2000, p. 95). Thus simple ideas can be manipulated to create demand that can increase returns on investment and make an entrepreneur successful. Our plan is comprehensive hence is consistent with the fact that when pitching to venture capitalists it is important that you have a highly detailed business plan. Our group assignment is also in agreement with detailed features about the product and its differentiation is required to make the firm competitive. The products also ought to be charming. Reference Allen, K. 2006. Launching new ventures: an entrepreneurial approach. California: The University of Southern California Pricewaterhousecoopers. 1997. Developing a business plan for your growing company. Vivian M. 2000. Get planning. Sydney: Venture capital p. 93-97. Read More