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Entrance Strategy and the Competitive Terrain. Three Phases of Entrepreneurship. Choosing Your Competitive Terrain. Each new business model will demand shifts in your firm ’ s capabilities to allow you to compete in new markets with unfamiliar competitors
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Choosing Your Competitive Terrain • Each new business model • will demand shifts in your firm’s capabilities • to allow you to compete in new markets • with unfamiliar competitors • You will need to decide how ‘best’ to: • Choose your competitive terrain • To enter your chosen market(s) • And to marshal your assets, investments and competencies
Two Questions • How do low-cost and differentiated products come about? • Why is it that some firms can offer them better than others?
Trajectory of your Markets and Capabilities • ‘Vision’ • Where you think your firm, product and market will be at some point in the future • Is how you summarize your view of the competitive trajectory you will take
TrajectoriesWhat is actually happening to Markets and Capabilities • Market trajectories are defined by whether • Firms competing in that market • Find competences obsolete • Or Assets obsolete • (capabilities = assets + competences)
Competition in multiple products/services/markets May be ranked on different metrics Decide what is important to your firm And why What is Your Commitment to a ProductBusiness segment portfolio ranking
What’s Different about Innovation • Innovations distinguish themselves from more conventional investments in three ways: • (1) technology development and marketing both need intense, adaptive management; • (2) there is no history of investment performance which might yield insights in the value of the innovation; and • (3) the potential value of the innovation depends on future events and managerial decisions which cannot be foreseen. • This sets up impediments to commercializing an innovation that can make resource planning and investment extremely difficult. • Innovations are inherently riskier, with added risk compensated for by high returns • research suggests on average about three to four times as great as traditional products and services, but significantly higher for ‘blockbusters.’
Adaptive Execution • Where the competition changes rapidly • Firms cannot compete with a static strategy that will remain valid for years • Rather strategy must be stated in terms of: • Condition Response • Each competitive event needs to be met with a managerial response • These responses are the ‘Real Options’ that a manager has to respond to competition
Real Options Commonly Found in Innovation Strategy • Real options provide a richer language for innovators than their financial counterparts • Because real options take into account the manner in which management learns about their innovation, and • The particular steps that are taken to manage that risk of the life of the product or service • Real options in innovation come in three different forms • positioning, • scouting, and • stepping-stone options.
Positioning Options • Positioning options create the right to wait and see. • Investments that put the company in a position to capitalize on uncertain external events, should they occur • such as the emergence of a new market on the Internet or of a successful technology that has been competing for market dominance • Are positioning options • Such options are useful when the uncertainty you face is mostly out of your control but you need to be positioned to act in case fortune turns your way.
Positioning Option Example • AT&T, from about 1998 to 2003, spent billions of dollars on taking attractive positions, • Acquiring cable companies such as Tele-Communications and MediaOne; • Entering into joint ventures with British Telecom and Japan Telecom, and • Working with Microsoft for set-top box software • All in pursuit of a convergence of telephone, internet, gaming and television services on top of one technological platform • This is a market that AT&T could possible dominate with their network position; • but Microsoft, Sony and Nintendo may be in a better consumer position with their game consoles. • For AT&T, billions of dollars is a reasonable price to pay for a positioning option when you consider the size of the potential industry, which may represent $100 billions of dollars in annual revenue.
Scouting Options • Scouting options, can be considered as entrepreneurial experiments • They are investments made with the intention of discovering and/or creating markets for products and services • by deploying capabilities that you have (perhaps recently) developed in potential new arenas • They help you explore new terrain from your current competence base
Scouting Option Example • By staking out several contrasting positions in a market, • you can systematically pretest the market acceptance of an innovation • and test your coverage for adverse contingencies • Scouting options can also provide you information concerning what data needs to be tracked, and • Helps develop the scanning and intelligence systems that will ultimately be needed when the product or service comes to market
Stepping-Stone Options • Stepping-stone options are a series of small investments that lead you towards a larger goal one small step at a time (3M’s ‘small steps’ • They are consciously staged attempts to sequentially discover new competences to pursue highly promising but very uncertain potential markets or technologies • You choose stepping-stone options when you want to expose your company to opportunities • in which there is high uncertainty both about the final shape of a high-potential market and • about the likelihood of being able to develop the necessary competences to serve it
Stepping-Stone Option Examples • Kyocera – a Japanese ceramics company – used stepping-stone options to pursue the industrial ceramics business in the 1960s • Instead of investing to crack high-level applications like automobile engine cylinders or turbine blades • as did many other smart companies, General Electric included • Kyocera initially invested in low-end applications for known niche markets • For instance, the company developed ceramic scissor blades for the textile industry • Through this initial effort, the company resolved considerable technical uncertainty, such as how to process clays and how to make precise edges with consistent quality • This created an initial technological competence which, as it evolved, took Kyocera along a trajectory of increasing technical sophistication • The firm is now a major global supplier of semiconductor chip substrates and other materials for the digital age
For example: One firm’s Project PortfolioMapped in Technology -Operations and Market Space • Eight e-Marketing projects • , , , , , , , and • Where they fit • Why we are spending money on them • What they do • When do we stop them
The most important sales are your first three sales • Your first three sales of any particular combination of features that you envision for your innovation should be seen as qualitatively different from all other sales • They not only provide you with your first real feedback on the innovation; • but they also provide the basis for word-of-mouth and viral marketing, both good and bad
Lead-steer customers • Who should you choose as your first three customers? • Lead-steer customers are opinion leaders in their industry, who are likely to be well regarded by their peers. • Corporations like those on the "most-admired" lists published in magazines such as Business Week are prime candidates for lead-steer customers. • Individuals who represent a segment that is highly desirable to you might be more appropriate for your particular innovation. • The objective is to use these customers' enthusiasm about your innovation and business model to
Adaptive Execution • Where the competition changes rapidly • Firms cannot compete with a static strategy that will remain valid for years • Rather strategy must be stated in terms of: • Condition Response • Each competitive event needs to be met with a managerial response • These responses are the ‘Real Options’ that a manager has to respond to competition
First 3 Customers • Lead-steer customers • Opinion leaders in their industries • Highly regarded by peers • Customers with blogs, review or other sites
When to be a ‘First Mover’ • Many dot-com investments were predicated on getting the money to become a ‘first mover’ in a field • In order to compete for ‘eyeballs’ (network effects) • Faith in the ‘first mover advantage’ is usually misplaced
Who are your Competitors?How do you expect them to respond to your entry? • Other firms in your market, or producing substitutes for your product • Will try to limit your success in the best way they can. • Depending on the scale of their business • And their commitment to this market
What Entry Tactics should you Choose? • Objective: Avoid debilitating competitive interaction • By using speed, skill and surprise • Rather than your scarce resources • Assets should be bought only as a last resort • As in war, there are a limited set of battle proven tactics available for entry
Your first 3 Customers are your Most Important! • They should be Lead-steer customers • Opinion leaders in their industries • Highly regarded by peers • Customers with blogs, review or other sites • These will help you to test your assumptions about attribute maps and consumption chains
When to be a ‘First Mover’ • Many dot-com investments were predicated on getting the money to become a ‘first mover’ in a field • In order to compete for ‘eyeballs’ (network effects) • Faith in the ‘first mover advantage’ is usually misplaced
Competitors cannot let your Entry go Uncontested • Other firms in your market, or producing substitutes for your product • Will try to limit your success in the best way they can. • Depending on the scale of their business • And their commitment to this market
Who are your Competitors?How do you expect them to respond to your entry? • State why you categorize them as such • Usually because of their market power, the coreness of the product to their capabilities, and their interest in this market
What Entry Tactics should you Choose? • Objective: Avoid debilitating competitive interaction • By using speed, skill and surprise • Rather than your scarce resources • Assets should be bought only as a last resort • As in war, there are a limited set of battle proven tactics available for entry
Entrance TacticsAnalogies from Warfare Offensive tactics • Rapid dominance • Planned attack / frontal assault • Flanking maneuver • Pincer movement • Double envelopment • Attrition warfare • Interdiction / control of lines of communication and supply • Preemptive attack • Raiding • Divide and Conquer • Guerrilla Warfare Defensive tactics • Mutual support • Scorched earth policy • Booby traps • Center Peel • Trench warfare • Hedgehog defense Deception Tactics • Stealth and Camouflage • Disinformation • Feint • Force multiplication
