Exam 3 Practices

• Innovation process


  1. Idea

  2. Invention

  3. Innovation

  4. Imitation
• Incremental innovation


  Small improvements to existing products/services
• Radical innovation

  Completely new products/services that disrupt the market
• Architectural innovation


  Changing the overall system design
• Disruptive innovation


  New products/services that start off with lower quality/performance but eventually displace existing solutions
• Reverse innovation


  Innovations developed in emerging markets that then get adopted in developed markets
• Product innovation

  Developing new products/services
• Process innovation

  Improving production/delivery processes
• Industry life cycle


  1. Introduction

  2. Growth

  3. Shakeout

  4. Maturity

  5. Decline
• Network effects

  When the value of a product/service increases as more people use it
• Industry standard

  A dominant design or technology that becomes widely adopted
• Platform business model


  A business model that facilitates interactions between producers and consumers
• Pipeline business model

  A traditional linear business model
• Platform ecosystem


  The network of producers, providers, and consumers that interact on a platform
• Key players in a platform ecosystem

  • Platform owner
  • Platform provider
  • Platform producer
  • Platform consumer
• Corporate strategy


  The overall strategy of a diversified company
• Three dimensions of corporate strategy

  • Industry value chain (vertical integration)
  • Range of products and services (diversification)
  • Where in the world to compete (geographic scope)
• Core competencies

  The key capabilities that give a firm a competitive advantage
• Economies of scale

  Cost advantages from producing larger volumes
• Economies of scope

  Cost advantages from producing a wider range of products/services
• Transaction cost economics

  The study of the costs of doing business
• Internal transaction costs


  Costs of coordinating activities within a firm
• External transaction costs

  Costs of using the market to acquire goods/services
• Make-or-buy decision

  Whether to produce in-house or outsource
• Information asymmetry

  When one party has more information than another, a disadvantage of outsourcing
• Principal-agent problem

  When the interests of the principal (owner) and agent (manager) are misaligned, a disadvantage of in-house production
• Vertical integration

  Owning or controlling multiple stages of the industry value chain
• Backward vertical integration

  Integrating upstream towards raw materials/components
• Forward vertical integration

  Integrating downstream towards distribution/retail
• Specialized assets


  Assets that have limited use outside a specific context
• Taper integration

  Partial vertical integration, combining in-house and outsourced production
• Strategic outsourcing

  Outsourcing key activities to specialized suppliers
• Single-business firm

  A firm that operates in only one industry
• Dominant-business firm


  A firm that derives most of its revenue from one core business
• Related diversification


  Expanding into businesses related to the firm's core competencies
• Unrelated diversification


  Expanding into businesses unrelated to the firm's core competencies
• BCG growth-share matrix


  A framework for evaluating a firm's business portfolio
• Strategic alliance


  A cooperative agreement between two or more firms to achieve a shared objective
• Relational view of competitive advantage


  The idea that a firm's relationships and networks can be a source of competitive advantage
• Reasons for strategic alliances

  • To strengthen competitive position
  • To enter new markets
  • To hedge against uncertainty