MGT 499 w5 responses and discussion on innovative firms

MGT 499 w5 responses
Paige Obriot
1. An example of a value chain using cost leadership is Ikea.
Ikea revolutionized the furniture industry by offering cheap but
stylish furniture. Ikea is able to keep its prices low by offering
a very basic level of service. An example of a firm using
differentiation is Nike. Nike differentiates its athletic shoes
through its iconic “swoosh” as well as an intense emphasis on
product innovation through research and development. An
example of a firm that uses a value innovation business-level
strategy is Apple. Apple uses this strategy by pairing each
product line they have with a streaming service that is available
for their customers. For example, iPod with iTunes, iPhone with
App Store, and iPad with Apple TV.
2. A firm I personally think that is highly innovative is Uber.
Uber rapidly changed the taxi business by offering services that
include peer-to-peer ridesharing, ride service hailing, food
delivery and a system with electric bikes and scooters. Uber’s
firm has used a radical form of innovation by changing the link
between concepts and components and overturning the core
concepts of getting from point A to point B. The services Uber
offers has been radical the entire time the firm has been in
business making it hard for competitors to compete.
Leandra Estep
An example of a value chain using cost leadership is to look at
the use of technology within a firm. A company could use a
computer program to conduct employee evaluations, employee
training, or processing job applications. These can reduce the
amount of human resources personnel necessary to effectively
run the human resource department. There are many ways a firm
can make changes in a value chain using differentiation

strategy. For instance, a firm can look to see how they can
provide their customers with marketing sales which are better
than their competition. This could help include improving the
order process so it is more efficient and convenient than the
competition. The last example is a value chain using integration
business level strategy. A firm may choose to use technology in
the processing of customers orders to reduce costs and increase
efficiency but also increase the customers overall satisfaction in
the sales process as being a firm which is both convenient and
efficient in comparison with the competition.
An example of a highly innovative firm which used new and
upcoming innovation is DoorDash. DoorDash is a form of food
delivery that uses a disruptive innovation style. DoorDash has
taken the food delivery service and changed the way people get
food from various locations that don't deliver food. It is
technology offering an application on mobile phones to request
and DoorDash food and allows for one flat rate and is known for
being able to pick up a large variety of places that don't usually
deliver.
MKT 310 Week 7 Responses
Joseph Smolboski
1. I believe that three different public relation activities that
Spirit Airlines most apparently performs are corporate image
advertising, public opinion research, and miscellaneous
activities in the form of educational efforts. Spirit Airlines
utilizes corporate image advertising to differentiate themselves
from the competition. One aspect of corporate image advertising
is increasing a firm’s name recognition. There is no doubt that
Spirit has grown to a massive scale and consumers recognize the
brand wen shopping for flights. The company has worked hard
to ensure that when their brand is recognized, it is associated

with the cheapest fares around. Although there is also a
negative connotation when consumers see a Spirit flight, they
will always know that that is where they will find the lowest
cost. For better or worse, Spirit is very easily recognizable, and
their brand image is recognized for exactly what it is. Coming
to public opinion research, it was obvious in the podcast that
when interviewing Spirit’s CEO, he was very familiar with the
market research that ranked his company at the very bottom.
Public opinion research is a very powerful tool that allows a
company to track where they rank in the industry as well as
current consumer opinions about their products or services.
Although Spirit was ranked extremely low amongst airlines in
the data, the CEO did not seem concerned as he was familiar
with the market research and believed it to be flawed. Without
the survey including low costs as a factor, the very selling point
for Spirit, the results were going to be skewed. along with that,
it is easy to not put too much stock in that survey as the stated
opinions on that survey do not properly reflect how the
consumers will truly act. With full flights, it is obvious that the
same consumers that are complaining about the flights are
coming back for the low costs. Lastly, the airline is
participating in the miscellaneous activity of educational
efforts. As the CEO of Spirit mentioned, if a consumer does not
know about the lack of amenities on the flight or the upcharges
that come with that, it is a sign of a problem on the company’s
side. The podcast stated that some of the consumers that were
on the Spirit flight were not aware of all of the additional
upcharges that kept the initial prices so low. With the CEO
stating that he wants this to be readily apparent, an important
public relations activity for the company will be educational
efforts. If the airline puts more of an emphasis on this aspect of
their public relations campaign, consumers will most likely
have a more positive image of the airline as they will always
know what they are getting themselves into when purchasing
those cheap tickets.
2. Spirit Airlines uses a reactive marketing public relations

strategy. a proactive strategy is when a company seeks to form
good publicity on their own terms. An example of this could be
an executive statement noting the release of a new product that
will be featured in the news section of a newspaper. Reactive
public relations on the other hand deal with resolving an issue
once it has already happened. An example of this is the story
noted in the book of The KFC and Taco Bell having rodents
running around the establishments. The interview with the CEO
made it obvious that the company is not trying to be something
it is not or really provide anything besides cheap flights. The
company most likely is aware that it would struggle trying to
proactively create goodwill in competition with the other large
airline brands. Due to this, they take a reactive approach when
things do end up going wrong. One example of this happened in
2018 when a college student returning home for break attempted
to bring an emotional support hamster on a Spirit flight. Before
she arrived, she called to ensure that this would be fine, and a
Spirit employee mistakenly informed her that it would be okay.
Upon arrival, she was told that she could not bring the rodent
onto the flight and had to make a decision. As she saw a lack of
options, she reportedly flushed her hamster down a toilet after
an alleged suggestion to do so from a Spirit employee and then
threatened legal action. In response to this, a spokesperson from
Spirit and the public relations team dealt with it in a few
different ways. The spokesperson stated that it was unfortunate
that the initial phone call mislead her to believe that she could
bring the hamster but there is no way that any of their
employees directed her to flush the hamster down the toilet. He
added that it is unfortunate that she decided to end her own
pet’s life in this way, even after the company offered her a later
flight free of charge as well as a flight voucher later. This is an
example of reactive public relations as Spirit had to come out
and make a statement to correct a situation that was shining a
negative light on them.
References:
Chp. 21

https://www.nbcnews.com/storyline/airplane-mode/hamster-
flushed-down-toilet-after-college-student-s-pet-denied-n846116
Megan Sandven
Public Relations (PR) is an organizational activity involved in
fostering goodwill between a company and its various
publics (e.g., employees, suppliers, stockholders, governments,
the public, labor groups, citizen action groups, and
consumers). Some of the public relations activities and
functions listed in chapter 21 are advice and counsel,
publications, publicity, relationships with other publics,
corporate image advertising, public opinion research and other
miscellaneous activities.
Proactive MPR are dictated by a company’s marketing
objectives, offensively oriented and opportunity seeking,
credibility accounts for the effectiveness and can take the form
of product releases, executive statement releases, and feature
articles. Reactive MPR is the conduct of public relations in
response to outside influences and attempt to repair company’s
reputation, prevent market erosion, and regain lost sales. When
it comes to reactive MPR, quick and positive responses are
imperative
Teaching by Example: Discussion Board Rubric (Grade
Assessment)
The objective is the DB Rubric is give clear direction on DB
grading outcomes. The rubric gives examples of what is
expected to earn an A, B, C, or failing grade on the DB’s each
week. Of course most students want to earn an A! So, if an A is
your goal, aim for ‘Outstanding’ and complete all of the criteria
for an outstanding grade!
Criteria
A (25 points)

Outstanding
B (20 points)
Proficient
C (15 points)
Basis)
D/F (10 points and below)
Below Expectations
Critical Thinking
· rich in content
· full of thought, insight, and analysis
· substantial information
· thought, insight, and analysis has taken place
· generally competent
· information is thin and commonplace
· rudimentary and superficial
· no analysis or insight is displayed
Connections
Clear connections
· to previous or current content
· to real-life situations
· connections are made,
· not really clear or too obvious
· limited, if any connections
· vague generalities
· no connections are made

· off topic
Uniqueness
· new ideas
· new connections
· made with depth and detail
· new ideas or connections
· lack depth and/or detail
· few, if any new ideas or connections
· rehash or summarize other postings
· no new ideas
· “I agree with …” statement
Timeliness
· 1 post, 2 replies, 2 different days
· early in discussion
· throughout the discussion
· post/reply, same day
· some not in time for others to read & respond
· 1 post or 1 reply
· most at the last minute without allowing for response time
· some, or all, required postings missing
· very little content
Stylistics
· few grammatical or stylistic errors
· key ideas are in bold font
· proper references when needed (or page numbers to text)

· several grammatical or stylistic errors
· key ideas in bold font
· obvious grammatical or stylistic errors
· errors interfere with content
· no bold font
· obvious grammatical or stylistic errors
· makes understanding impossible
Discussion Board Rubric
Original: Lynnda L. Brown, October 2002, amended by Deborah
M. Gray, Ph.D,(2015)
MKT 310 Week 7 Discussion
Please listen to Planet Money Podcast Episode #517 The Fastest
Growing Least Popular Airline in America and answer the
following:
1. Identify the public relations activities and functions from
Table 21.1 in Chapter 21 that Spirit Airlines performs as
evidenced by the planet money podcast
2. Does spirit airlines use a proactive or reactive Marketing
Public Relations, provide an example of MPR at Spirit
(google or news sites will likely yield some results).
Ideas for a second post include posts that dig deeper into PR at
Spirit or at other companies and how these relate to the PR
concepts in Chapter 21.
CHAPTER 6

Business Strategy: Differentiation, Cost Leadership,
and Blue Oceans
©ISerg/iStock/Getty Images RF
©McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
©McGraw-Hill Education.
Be sure to see the NEW integrated Teacher’s Resource Manual
located in the Connect Library under Instructor’s Resources.
1
The AFI Strategy Framework
Exhibit 1.3
Jump to Appendix 1 long image description
2
Learning Objectives
LO 6-1 Define business-level strategy and describe how it
determines a firm’s strategic position.
LO 6-2 Examine the relationship between value drivers and
differentiation strategy.
LO 6-3 Examine the relationship between cost drivers and the
cost-leadership strategy.
LO 6-4 Assess the benefits and risks of differentiation and

cost-leadership strategies vis-à-vis the five forces that shape
competition.
LO 6-5 Evaluate value and cost drivers that may allow a firm
to pursue a blue ocean strategy.
LO 6-6 Assess the risks of a blue ocean strategy, and explain
why it is difficult to succeed at value innovation.
What Is Business Level Strategy?
Goal-directed actions:
To achieve competitive advantage
In a single product market
“How should we compete?”
Who: which customer segments?
What: customer needs will we satisfy?
Why: do we want to satisfy them?
How: will we satisfy our customers’ needs?
Instructors:
The digital companion to this book McGraw-Hill Connect has
an application exercise on this section of the textbook. It builds
student confidence on business level strategy (LO 6-1).
4
Industry and Firm Effects Jointly
Determine Competitive Advantage
Exhibit 6.1

5
Strategic Position
Profile based on value creation and cost
In a specific product market
A valuable and unique position, which:
Meets customer needs
At the highest possible product value
For the lowest possible product cost
Strategic Trade-Offs
Choices between a cost OR value position
Tension between:
Value creation and
Pressure to keep cost in check
Purpose to maximize the firm’s:
Economic value creation
Profit margin
7
Generic Business Strategies
Differentiation
Seeks to create higher value vs. competitors
Offers unique features
Charges higher prices
Cost Leadership

Seeks to create similar value vs. competitors
Charges lower prices
These two business strategies are called generic strategies
because they can be used by any organization—manufacturing
or service, large or small, for-profit or nonprofit, public or
private, domestic or foreign—in the quest for competitive
advantage, independent of industry context. Differentiation and
cost leadership require distinct strategic positions, and in turn
increase a firm’s chances to gain and sustain a competitive
advantage.
8
Focused Business Strategies
Narrower competitive scope
Focused Differentiation
Ex: Mont Blanc: exquisite pens at several hundred dollars
Focused Cost Leadership
Ex: BIC: disposable pens and lighters at low cost
The automobile industry provides an example of the scope of
competition. Alfred P. Sloan, longtime president and CEO of
GM, defined the carmaker’s mission as providing a car for
every purse and purpose. GM was one of the first to implement
a multidivisional structure in order to separate the brands into
strategic business units, allowing each brand to create its unique
strategic position (with its own profit and loss responsibility)
within the broad automotive market. For example, GM’s product
lineup ranges from the low-cost-positioned Chevy brand to the
differentiated Cadillac brand. In this case, Chevy is pursuing a
broad cost-leadership strategy, while Cadillac is pursuing a

broad differentiation strategy. The two different business
strategies are integrated at the corporate level at GM.
9
Strategic Position and Competitive Scope:
Exhibit 6.2
SOURCE: Adapted from M.E. Porter (1980), Competitive
Strategy. Techniques for Analyzing Industries and Competitors
(New York: Free Press).
JetBlue attempts to combine a focused cost-leadership position
with a focused differentiation position. Although initially
successful, JetBlue has been consistently outperformed for
several years by airlines that do not attempt to straddle different
strategic positions, but rather have a clear strategic profile as
either a differentiator or a low-cost leader. For example,
Southwest Airlines competes clearly as a broad cost leader (and
would be placed squarely in the upper-left quadrant. The legacy
carriers—Delta, American, and United—all compete as broad
differentiators (and would be placed in the upper-right quadrant.
Regionally, we find smaller airlines that are ultra low cost, such
as Allegiant Air, Frontier Airlines, or Spirit Airlines, with a
very clear strategic position. These smaller airlines would be
placed in the lower-left quadrant because they are pursuing a
focused cost-leadership strategy.
10
Differentiation Strategy
Unique features that increase value
Consumers pay a higher price
The focus of competition:

Unique product features
Service
New product launches
Marketing and promotion
Competitive advantage achieved when:
Value – Cost > competitors
Several competitors in the bottled-water industry provide a
prime example of pursuing a successful differentiation
strategy. As more and more consumers shift from carbonated
soft drinks to healthier choices, the industry for bottled water is
booming—growing about 10 percent per year. In the United
States, the per person consumption of bottled water surpassed
that of carbonated soft drinks for the first time in 2016. Such a
fast-growing industry provides ample opportunity for
differentiation. In particular, the industry is split into two broad
segments depending on the sales price. Bottled water with a
sticker price of $1.30 or less per 32 ounces (close to one liter)
is considered low-end, while those with a higher price tag are
seen as luxury items. For example, PepsiCo’s Aquafina and
Coca-Cola’s Dasani are considered low-end products, selling
purified tap water at low prices, often in bulk at big-box
retailers such as Walmart. On the premium end, PepsiCo
introduced Lifewtr with a splashy ad during Super Bowl LI
(2017), while Jennifer Aniston markets Smartwater, Coca-
Cola’s premium water.
Instructors:
The digital companion to this book McGraw-Hill Connect has a
brief case analysis exercise on this section of the textbook. It
builds student confidence on understanding the value drivers of
a differentiation strategy (LO 6-2).

11
Differentiation Strategy:
Achieving Competitive Advantage
Exhibit 6.3
SOURCE: Adapted from M.E. Porter (1980), Competitive
Strategy. Techniques for Analyzing Industries and Competitors
(New York: Free Press).
Under a differentiation strategy, firms that successfully
differentiate their products enjoy a competitive advantage. Firm
A’s product is seen as a generic commodity with no unique
brand value. Firm B has the same cost structure as Firm A but
creates more economic value, and thus has a competitive
advantage over both Firm A and Firm C because (V − C)B > (V
− C)C > (V − C)A. Although, Firm C has higher costs than Firm
A and B, it still generates a significantly higher economic value
than Firm A.
12
Economies of Scale and Scope
Economies of Scale
Decreases in cost per unit
Achieved as output increases
Economies of Scope
Producing two outputs at less cost
Shares resources or technology
Economies of Scale:
Reaping economies of scale and learning is critical for the

airframe-manufacturing industry in order to ensure cost-
competitiveness. The market for commercial airplanes is often
not large enough to allow more than one competitor to reach
sufficient scale to drive down unit cost. Boeing chose not to
compete with Airbus in the market for superjumbo jets; rather,
it decided to focus on a smaller, fuel-efficient airplane (the 787
Dreamliner, priced at roughly $250 million) that allows for
long-distance, point-to-point connections. By 2017, it had built
over 530 Dreamliners with more than 1,200 orders for the new
airplane. Boeing can expect to reap significant economies of
scale and learning, which will lower per-unit cost. At the same
time, Airbus had delivered 210 A-380 superjumbos (sticker
price: $430 million) with more than 100 orders on its books. If
both companies would have chosen to compete head-on in each
market segment, the resulting per-unit cost for each airplane
would have been much higher because neither could have
achieved significant economies of scale (overall their market
share split is roughly 50–50).
13
Three Drivers That Increase Perceived Value
Product features
Enables differentiation
Customer service
Complements
Example of customer service: Zappo’s offers free shipping both
ways, they do not outsource customer service, and they don’t
use pre-determined scripts for service. Trader Joe’s stores stock
local products as requested by the community.
Example of complements: smartphones and cellular services. A
smartphone without a service plan is much less useful than one
with a data plan. Traditionally, the providers of phones such as

Apple, Samsung, and others did not provide wireless services.
AT&T and Verizon are by far the two largest service providers
in United States, jointly holding some 70 percent of market
share. To enhance the attractiveness of their phone and service
bundles, phone makers and service providers frequently sign
exclusive deals. When first released, for instance, service for
the iPhone was exclusively offered by AT&T. Thus, if you
wanted an iPhone, you had to sign up for a two-year service
contract with AT&T.
14
Differentiation Strategies: Summary
Focused on adding value
Unique features
Customer service
Effective marketing
Can increase costs
R&D / innovation needed
Customers willing to pay a premium
Cost Leadership Strategy
Goal:
Reduce cost below competitors
Offer adequate value
Reduce prices for customers
Optimize the value chain for low cost
As an example, GM and Korean car manufacturer Kia offer
some models that compete directly with one another, yet Kia’s
cars tend to be produced at lower cost, while providing a similar
value proposition.

16
Cost Leadership Strategy:
Exhibit 6.4
Under a cost-leadership strategy, firms that can keep their cost
at the lowest point in the industry while offering acceptable
value are able to gain a competitive advantage. Firm A has not
managed to take advantage of possible cost savings, and thus
experiences a competitive disadvantage. The offering from Firm
B has the same perceived value as Firm A but through more
effective cost containment creates more economic value (over
both Firm A and Firm C because (V − C)B > (V − C)C > (V −
C)A. The offering from Firm C has a lower perceived value than
that of Firm A or B and has the same reduced product cost as
with Firm B; as a result, Firm C still generates higher economic
value than Firm A.
17
Cost Drivers That Keep Costs Low
Cost of input factors
Raw materials, capital, labor, and IT services
Economies of scale
Decreases in cost per unit as output increases
Learning-curve effects
Less time to produce output with experience
Experience-curve effects
Improvements to technology and production processes

Cost of input: In the market for international long-distance
travel, the greatest competitive threat facing U.S. legacy
carriers—American, Delta, and United—comes from three fast-
growing airlines located in the Persian Gulf states—Emirates,
Etihad, and Qatar. These airlines achieve a competitive
advantage over their U.S. counterparts thanks to lower-cost
inputs—raw materials (access to cheaper fuel), capital (interest-
free government loans), labor—and fewer regulations (for
example, regarding nighttime takeoffs and landings, or in
adding new runways and building luxury airports with
swimming pools, among other amenities).
Learning curve effects: Learning drives down cost, because it
takes less time to produce the same output. Professionals learn
how to be more efficient with cumulative experience, for
example: writing computer code, developing new medicines and
building submarines.
18
Economies of Scale
Exhibit 6.5
Firms with greater market share might be in a position to reap
economies of scale, decreases in cost per unit as output
increases. This relationship between unit cost and output is
depicted in the first (left-hand) part of this image. Cost per unit
falls as output increases up to point Q1. A firm whose output is
closer to Q1 has a cost advantage over other firms with less
output. In this sense, bigger is better.

The output range between Q1 and Q2 in the figure is considered
the minimum efficient scale (MES) to be cost-competitive.
Between Q1 and Q2, the returns to scale are constant. It is the
output range needed to bring the cost per unit down as much as
possible, allowing a firm to stake out the lowest-cost position
achievable through economies of scale.
Benefits to scale cannot go on indefinitely, though. Bigger is
not always better; in fact, sometimes bigger is worse. Beyond
Q2, firms experience diseconomies of scale—increases in cost
as output increases. As firms get too big, the complexity of
managing and coordinating the production process raises the
cost, negating any benefits to scale.
19
Economies and Diseconomies of Scale
Economies of Scale:
Spreads fixed costs over a larger output
Employs specialized systems and equipment
Takes advantage of certain physical properties
Diseconomies of Scale:
Firms too big
Complexities of too much coordination
Inflexible and slow
Spread fixed costs over a larger output example: Microsoft
spent $25 billion on R&D for Windows 7 before a single copy
was sold
Employ specialized systems and equipment example: Demand
for Tesla’s Model S sedan allowed it to employ cutting-edge
robotics
Take advantage of certain physical properties example: Big box
stores can stock more merchandise and handle inventory

efficiently
20
Gaining Competitive Advantage Through Learning Curve and
Experience Curve Effects
Exhibit 6.7
Firm A produces eight aircraft and reaches a per-unit cost of
$73 million per aircraft. Firm B produces 128 aircraft using the
same technology as Firm A (because both firms are on the same
[90 percent] learning curve), but given a much larger
cumulative output, its per unit-cost falls to only $48 million.
Thus, Firm B has a clear competitive advantage over Firm A,
assuming similar or identical quality in output. Firm C realizes
a positive impact of change due to technology and process
innovation.
21
Cost Leadership Strategies: Summary
Focus on:
Offering lower costs than competitors
Maintaining acceptable quality
Appeals to the bargain-conscious buyer
Attracts an increased sales
Can be profitable over a long period of time
Benefits & Risks of Competitive PositioningCompetitive
ForceDifferentiation BenefitsDifferentiation RisksCost
Leadership BenefitsCost Leadership RisksThreat of

EntryProtection against entry due to intangible resources such
as a reputation for innovation, quality, or customer
serviceErosion of margins
ReplacementProtection against entry due to economies of
scaleErosion of margins
ReplacementPower of SuppliersProtection against increase in
input prices, which can be passed on to customersErosion of
marginsProtection against increase in input prices, which can be
absorbedErosion of marginsPower of BuyersProtection against
decrease in sales prices, because well-differentiated products or
services are not perfect imitationsErosion of marginsProtection
against decrease in sales prices, which can be absorbedErosion
of marginsThreat of SubstitutesProtection against substitute
products due to differential appealReplacement, especially when
faced with innovationProtection against substitute products
through further lowering of pricesReplacement, especially when
faced with innovationRivalry Among Existing
CompetitorsProtection against competitors if product or service
has enough differential appeal to command premium priceFocus
of competition shifts to price
Increasing differentiation of product features that do not create
value but raise costs
Increasing differentiation to raise costs above acceptable
thresholdProtection against price wars because lowest-cost firm
will winFocus of competition shifts to non-price attributes
Lowering costs to drive value creation below acceptable
threshold
Reference section 6.4 for additional details.
23
Successful Business Strategy
Leverages the firm strengths
Mitigates firm weaknesses

Helps the firm:
Exploit external opportunities
Avoid external threats
There is no single correct business strategy for a specific
industry. The deciding factor is that the chosen business
strategy provides a strong position that attempts to maximize
economic value creation and is effectively implemented.
24
What Is Blue Ocean Strategy?
Differentiation and cost-leadership activities
Uses value innovation to reconcile trade-offs
Blue oceans represent:
Untapped market space
Creation of additional demand
Opportunities for highly profitable growth
In red oceans the rivalry among existing firms is cut-throat
because the market space is crowded and competition is a zero-
sum game. Products become commodities, and competition is
focused mainly on price. Any market share gain comes at the
expense of other competitors in the same industry, turning the
oceans bloody red.
Instructors:
The digital companion to this book McGraw-Hill Connect has
an application exercise on this section of the textbook. It builds
student confidence on blue ocean strategy and value innovation
(LO 6-5).

25
Value Innovation Accomplished Through Pursuing
Differentiation and Low Cost
Exhibit 6.9
Source: Adapted from C.W. Kim and R. Mauborgne (2005),
Blue Ocean Strategy: How to Create Uncontested Market Space
and Make Competition Irrelevant (Boston, MA: Harvard
Business School Publishing).
Lowering a firm’s costs is primarily achieved by eliminating
and reducing the taken-for-granted factors that the firm’s rivals
in their industry compete on. Perceived buyer value is increased
by raising existing key success factors and by creating new
elements that the industry has not offered previously.
26
To Achieve Successful Value Innovation
Lower costs
Eliminate: Which of the factors should be eliminated?
Reduce: Which of the factors should be reduced?
Increase perceived consumer benefits
Raise: Which of the factors should be raised?
Create: Which factors should be created?
Consider IKEA:
Eliminated: sales people, and after sales service

Reduced: warranties
Raised: offers tens of thousands of home furnishing items
Created: a new way to shop for furniture
27
Value Innovation vs. Stuck In the Middle
Exhibit 6.10
Being stuck in the middle leads to inferior performance and a
resulting competitive disadvantage.
28
The Strategy Canvas
Graphical depiction of a company’s performance
Relative to its competitors
Shows focus or divergence
Viewed across the industry’s key success factors
Provides insights into strategy
JetBlue’s Strategy Canvas
Exhibit 6.11
Legacy carriers tend to score highly among most competitive
elements in the airline industry, including different seating
class choices (such as first class, business class, economy

comfort, basic economy, and so on), a high level of in-flight
amenities such as Wi-Fi, personal video console to view movies
or play games, complimentary drinks and meals, coast-to-coast
coverage via connecting hubs, plush airport lounges,
international routes and global coverage, high customer service,
and high reliability in terms of safety and on-time departures
and arrivals. As is expected when pursuing a generic
differentiation strategy, all these scores along the different
competitive elements in an industry go along with a relative
higher cost structure.
In contrast, the low-cost airlines tend to hover near the bottom
of the strategy canvas, indicating low scores along a number of
competitive factors in the industry, with no assigned seating, no
in-flight amenities, no drinks or meals, no airport lounges, few
if any international routes, low to intermediate level of
customer service. A relatively lower cost structure goes along
with a generic low-cost leadership strategy.
JetBlue value curve follows a zigzag pattern. JetBlue attempts
to achieve parity or even out-compete differentiators in the U.S.
airline industry along the competitive factors such as different
seating classes (e.g., the high-end Mint offering discussed in the
ChapterCase), higher level of in-flight amenities, higher-quality
beverages and meals, plush airport lounges, and a large number
of international routes (mainly with global partner airlines).
JetBlue, however, looks more like a low-cost leader in terms of
the ability to provide only a few connections via hubs
domestically, and it recently has had a poor record of customer
service, mainly because of some high-profile missteps as
documented in the ChapterCase
30
Appendices
Descriptions of Visual Graphics to Support
Student Accessibility Needs

Appendix 1 The A F I Strategy Framework
The graphic shows the interdependent relationships in the A F I
strategy framework. The specifics follow.
The important inside circle is titled "Gaining and Sustaining a
Competitive Advantage" that is at the very center of the image,
with five different circles on the outside of it. Arrows go back
and forth from the center circle to each of the five outer circles.
The five outer circles are labeled: (1) Getting Started, (2)
External and Internal Analysis, (3) Formulation: Business
Strategy, (4) Formulation, Corporate Strategy, and (5)
Implementation.
Each of these outer five circles have a brief description beside
them to explain what the circle means:
Under the first outer circle titled "Getting Started," it says: Part
1, Strategy Analysis, "What is Strategy (Chapter 1)" and
"Strategic Leadership: Managing the Strategy Process (Chapter
2)."
Under the second outer circle titled "External and Internal
Analysis," it says: Part 1, Strategy Analysis, "External
Analysis: Industry Structure, Competitive Forces and Strategic
Groups (Chapter 3)," "Internal Analysis: Resources,
Capabilities and Core Competencies (Chapter 4)," and
"Competitive Advantage, Firm Performance, and Business
Models (Chapter 5)."
Under the third outer circle titled "Formulation: Business
Strategy," it says: Part 2, Strategy Formulation, "Business
Strategy: Differentiation, Cost Leadership and Integration
(Chapter 6)" and "Business Strategy, Innovation and
Entrepreneurship (Chapter 7)."
Under the fourth outer circle titled "Formulation: Corporate
Strategy," it says: Part 2, Strategy Formulation, "Corporate

Strategy: Vertical Integration and Diversification (Chapter 8),"
"Corporate Strategy: Strategic Alliances, Mergers and
Acquisitions (Chapter 9)," and "Global Strategy: Competing
Around the World (Chapter 10)"
Under the fifth outer circle titled "Implementation," it says: Part
3, Strategy Implementation, "Organizational Design: Structure,
Culture and Control (Chapter 11)," and "Corporate Governance
and Business Ethics (Chapter 12)."
Return to slide
Appendix 2 Exhibit 6.1 Industry and Firm Effects Jointly
Determine Competitive Advantage
Both industry and firm effects go through a process that leads to
competitive advantage.
Exhibit 6.1 shows the interdependence of industry and firm
effects. The process map begins with Industry Effects and Firm
Effects, which are both linked with a two-direction arrow.
Industry effects points to another box titled "Industry
Attractiveness" (Five Forces Model, and Complements), which
points to a box titled "Within Industry" (Strategic Groups).
Firm Effects points to two boxes, one titled "Value Position"
(relative to competitors) and the other is titled "Cost Position"
(relative to competitors). Both of these boxes point to a box
titled "Business Strategy" (Cost Leadership, Differentiation,
Value Innovation). Both the "Within Industry" box from the
Industry Effects side and the "Business Strategy" box from the
Firm Effects side point to a final box titled "Competitive
Advantage.“
Return to slide
Appendix 3 Exhibit 6.2 Strategic Position and Competitive
Scope:

The image shows how combining a firm’s strategic position
with the scope of competition results in the two major broad
business strategies: cost leadership and differentiation.
This image shows four squares: Cost Leadership (broad scope
and focused on cost), Differentiation (broad scope and focused
on differentiation), Focused Cost Leadership (narrow scope and
focused on cost), and Focused Differentiation (narrow scope
and focused on differentiation).
Return to slide
Appendix 4 Exhibit 6.3 Differentiation Strategy:
On the left, at a disadvantage, is Firm A that offers the lowest
amount of value. On the right are two companies that are at an
advantage. Both firm B and firm C have higher value than Firm
A, however firm B extracts higher value because it has lower
costs.
Firm A in this image produces a generic commodity. Firm B and
Firm C represent two efforts at differentiation. Firm B not only
offers greater value than Firm A, but also maintains cost parity,
meaning it has the same costs as Firm A. However, even if a
firm fails to achieve cost parity (which is often the case because
higher value creation tends to go along with higher costs in
terms of higher-quality raw materials, research and
development, employee training to provide superior customer
service, and so on), it can still gain a competitive advantage if
its economic value creation exceeds that of its competitors.
Firm C represents just such a competitive advantage. For the
approach shown either in Firm B or Firm C, economic value
creation, (V - C)B or (V – C)C, is greater than that of Firm A
(V - C)A. Either Firm B or C, therefore, achieves a competitive
advantage because it has a higher value gap over Firm A [(V -
C)B > (V - C)A, or (V – C)C > (V – C)A], which allows it to

charge a premium price, reflecting its higher value creation. To
complete the relative comparison, although both companies
pursue a differentiation strategy, Firm B also has a competitive
advantage over Firm C because although both offer identical
value, Firm B has lower cost, thus (V - C)B > (V - C)C.
Return to slide
Appendix 5 Exhibit 6.4 Cost Leadership Strategy:
On the left, at a disadvantage, is Firm A that offers higher cost
and lower value. On the right are two companies that are at an
advantage. Both firm B and firm C have lower costs than Firm
A, however firm B extracts higher value.
In both approaches to cost leadership in this image, Firm B’s
economic value creation is greater than that of Firm A and Firm
C. Yet, both firms B and C achieve a competitive advantage
over Firm A. Either one can charge prices similar to its
competitors and benefit from a greater profit margin per unit, or
it can charge lower prices than its competition and gain higher
profits from higher volume. Both variations of a cost-leadership
strategy can result in competitive advantage. Although Firm B
has a competitive advantage over both firms A and C, Firm C
has a competitive advantage in comparison to Firm A.
Return to slide
Appendix 6 Exhibit 6.5 Economies of Scale
In the Economies of Scale phase, cost per unit falls as output
increases up to a certain point. A firm whose output is closer to
this point has a cost advantage over other firms with …
CHAPTER 7

Business Strategy:
Innovation, Entrepreneurship, and Platforms
©ISerg/iStock/Getty Images RF
©McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
Be sure to see the NEW Teacher’s Resource Manual located in
the Connect Library under Instructor’s Resources.
1
The AFI Strategy Framework
Exhibit 1.3
2
Learning Objectives
LO 7-1 Outline the four-step innovation process from idea to
imitation.
LO 7-2 Apply strategic management concepts to
entrepreneurship and innovation.
LO 7-3 Describe the competitive implications of different
stages in the industry life cycle.
LO 7-4 Derive strategic implications of the crossing-the-
chasm framework.

LO 7-5 Categorize different types of innovations in the
markets-and-technology framework.
LO 7-6 Explain why and how platform businesses can
outperform pipeline businesses.
Innovation Is a Competitive Weapon
Innovation can create and destroy value.
Traditional networks vs. cable providers
Cable providers vs. streaming content
Typewriters to PC’s to mobile devices
Innovation often comes in waves.
The Speed of Technological Change Accelerates
Exhibit 7.1
Source: Depiction of data from the U.S. Census Bureau, the
Consumer Electronics Association, Forbes, and the National
Cable and Telecommunications Association.
5
What Causes Rapid Technological
Diffusion and Adoption
Initial innovations are foundational for other rapid innovation.
New business models make innovation possible.
Ex: Dell’s direct to consumer model
Satellite and cable distribution systems
Enable mass media such as radio and TV

The emergence of the internet
Social networking
Viral messaging
This image shows how many years it took for different
technological innovations to reach 50 percent of the U.S.
population (either through ownership or usage). As an example,
it took 84 years for half of the U.S. population to own a car, but
only 28 years for half the population to own a TV. The pace of
the adoption rate of recent innovations continues to accelerate.
It took 19 years for the PC to reach 50 percent ownership, but
only 6 years for MP3 players to accomplish the same diffusion
rate.
6
The Innovation Process
Idea
Invention
Innovation
Imitation
Exhibit 7.2
7
Idea, Invention, Innovation, and Imitation
Idea
Abstract concepts or research findings
Invention
Transformation of an idea into a product

The modification and recombination of products
Innovation
Commercialization of an invention
Imitation
Copying a successful innovation
What Is Innovation?
A novel and useful idea that is successfully implemented
Exhibit 7.3
9
Entrepreneurs
Agents who introduce change
Undertake economic risk to innovate
Create new products, processes, & organizations
Create value for society
Examples:
Reed Hastings: Netflix
Elon Musk: Tesla Motors, Solar City, SpaceX, PayPal
Reed Hastings – Netflix
Volunteered in the Peace Corps for 2 years
Educated at Stanford where he first learned about the
entrepreneurial model, net worth is now $1B
Elon Musk – Tesla Motors, Solar City, SpaceX, PayPal

An engineer and serial entrepreneur
Deep passion to solve environmental, social, and economic
challenges
10
Strategic and Social Entrepreneurship
Strategic Entrepreneurship
Pursuit of innovation using strategic tools
Combining entrepreneurial actions
Creating new opportunities
Exploiting existing opportunities
Social Entrepreneurship
The pursuit of social goals AND a profitable business
Example: Jimmy Wales at Wikipedia
Goal: provide knowledge on very large-scale
Instructors:
The digital companion to this book McGraw-Hill Connect has a
brief case exercise about Elon Musk on this section of the
textbook. It builds student confidence on strategic
entrepreneurship (LO 7-2).
11
The Five Phases of an Industry Lifecycle
Introduction
Growth
Shakeout
Maturity
Decline
Supply and demand changes as industries age

Each stage requires different competencies
Industry Life Cycle: The Smartphone Industry
Exhibit 7.4
13
Introduction Stage
Core competency: R&D
Strategic objective: market acceptance & future growth
Capital-intensive
Designing a unique product
Trying new ideas to attract customers
Producing small quantities
The emphasis is on uniqueness and performance in this stage.
The initial market size is small, growth is slow, and barriers to
entry are high.
14
Network Effects in the Introduction Stage
The positive effect that one user has on the value of a product
for other users
Example: Apple’s iPhone and the creation of apps
Exhibit 7.5

Network effects occur when the value of a product or service
increases, often exponentially, with the number of users. If
successful, network effects propel the industry to the next stage
of the life cycle, the growth stage.
The explosive growth of the iPhone is due to the fact that the
Apple App Store offers the largest selection of apps to its users.
The 1.5 million apps available were downloaded 75 billion
times as of spring 2015. Apple argues that users have a better
experience because the apps take advantage of the tight
integration of hardware and software provided by the iPhone.
The availability of apps, in turn, leads to network effects that
increase the value of the iPhone for its users.
15
Growth Stage
Demand increases rapidly.
First-time buyers rush to purchase.
Proof of concept has been demonstrated
Product / service standards emerge
A common set of features and design choices
Product innovation
New / recombined aspects of a product
Process innovation
New ways to produce a product
Core competencies of focus during this stage are in
manufacturing and marketing.

Process innovations are made possible through advances such as
the internet, lean manufacturing, Six Sigma, biotechnology,
nanotechnology, and so on.
16
Product vs. Process Innovation During Growth
Exhibit 7.7
Frequently, a standard emerges during the growth stage of the
industry life cycle. At that point, most of the technological and
commercial uncertainties about the new product are gone. After
the market accepts a new product, and a standard for the new
technology has emerged, process innovation rapidly becomes
more important than product innovation. As market demand
increases, economies of scale kick in: Firms establish and
optimize standard business processes through applications of
lean manufacturing, Six Sigma, and so on. As a consequence,
product improvements become incremental, while the level of
process innovation rises rapidly.
17
Shakeout Stage
The rate of growth declines.
Firms begin to intensely compete.
Weaker firms forced out
Industry consolidation
Only the strongest competitors survive.
Price is an important competitive weapon.
The winners in this increasingly competitive environment are

often firms that stake out a strong position as cost leaders. Key
success factors at this stage are the manufacturing and process
engineering capabilities that can be used to drive costs down.
The importance of process innovation further increases (albeit
at diminishing marginal returns), while the importance of
product innovation further declines.
18
Maturity Stage
Only a few large firms remain.
They enjoy economies of scale.
Process innovation has reached a maximum
Demand: replacement or repeat purchases
Market has reached maximum size.
Industry growth is zero or negative
The domestic airline industry has been in the maturity stage for
a long time. The large number of bankruptcies as well as the
wave of mega-mergers, such as those of Delta and Northwest,
United and Continental, and American Airlines and US
Airways, are a consequence of low or zero growth in a mature
market characterized by significant excess capacity.
19
Decline Stage
Demand falls rapidly.
Innovation efforts cease
Strong pressure on prices
Four strategic options to pursue.
Exit: bankruptcy / liquidation
Harvest: reduce further investments
Maintain: support at a given level
Consolidate: buy rivals

Exit. Some firms are forced to exit the industry by bankruptcy
or liquidation.
Harvest. In pursuing a harvest strategy, the firm reduces
investments in product support and allocates only a minimum of
human and other resources.
Maintain. Philip Morris, on the other hand, is following a
maintain strategy with its Marlboro brand, continuing to support
marketing efforts at a given level despite the fact that U.S.
cigarette consumption has been declining.
Consolidate. Although market size shrinks in a declining
industry, some firms may choose to consolidate the industry by
buying rivals.
20
Crossing the Chasm Framework
Many innovators do not successfully transition from one stage
of the industry life cycle to the next.
Exhibit 7.8
Source: Adapted from G.A. Moore, Crossing the Chasm:
Marketing and Selling Disruptive Products to Mainstream
Customers, New York: HarperCollins, 1991, 17.
21
Technology Enthusiasts
Enter the market during the introductory stage
2.5% of the total market potential
Have an engineering mind
Proactively pursue new technology

Enjoy using beta versions
Tinker with product imperfections
A recent example of an innovation that appeals to technology
enthusiasts is Google Glass, a mobile computer that is worn like
a pair of regular glasses. Instead of a lens, however, one side
displays a small, high-definition computer screen. Google Glass
allows the wearer to use the Internet and smartphone-like
applications via voice commands (e.g., conduct online search,
stream video, and so on).
22
Early Adopters
Enter the market during the growth stage
13.5% of the total market potential
Demand is driven by imagination and creativity
Not technology
To capture these customers:
Directly communicate the product’s potential
Early adopters’ demand is fueled more by intuition and vision
rather than technology concerns. These are the people that lined
up at Apple Stores in the spring of 2015 when it introduced
Apple Watch.
23
Early Majority
Enter the market during the shakeout stage
34% of the total market potential
“What Can This Do For Me?”
Weigh the benefits and costs carefully

Rely on endorsements of others
This group is key to catching the growth wave.
Fisker Automotive, a California-based designer and
manufacturer of premium plug-in hybrid vehicles, fell into the
chasm because it was unable to transition to early adopters, let
alone the mass market. Between its founding in 2007 and 2012,
Fisker sold some 1,800 of its Karma model, a $100K sports car,
to technology enthusiasts. It was unable, however, to follow up
with a lower-cost model to attract the early adopters into the
market. In addition, technology and reliability issues for the
Karma could not be overcome. By 2013, Fisker had crashed into
a chasm, filing for bankruptcy. The assets of Fisker Automotive
were purchased by Wanxiang, a Chinese auto parts maker.
In contrast, Tesla Motors, the maker of all-electric vehicles, and
a fierce rival of Fisker at one time, was able to overcome some
of the early chasms.
24
Late Majority
Enter the market during the maturity stage
34% of the total market potential
Not as confident in their ability to master the technology
Wait until standards have emerged
Represent the majority of the market
Buy from well-established firms
Laggards
Enter the market during the decline stage
16% of total market potential
Adopt a new product only if necessary
Generally don’t want new technology

Typically not pursued as future customers
Demand small
Crossing the Chasm Framework: Mobile Phones
Exhibit 7.9
In 2007, RIM’s dominance over the smartphone market began to
erode quickly. The main reason was Apple’s introduction of the
iPhone. Although technology enthusiasts and early adopters
argue that the iPhone is an inferior product to the BlackBerry
based on technological criteria, the iPhone enticed not only the
early majority, but also the late majority to enter the market.
For the late majority, encrypted software security was much less
important than having fun with a device that allowed users to
surf the web, take pictures, play games, and send and receive e-
mail.
27
Features and Strategic Implications
of the Industry Life Cycle (1 of 2)Life Cycle
StagesIntroductionGrowthShakeoutMaturityDeclineCore
competencyR&D, some
marketingR&D, some
manufacturing,
marketingManufacturing,
process
EngineeringManufacturing,
process
engineering,
marketingManufacturing,

process
engineering,
marketing, serviceType and level of innovationProduct
innovation at
a maximum;
process
innovation at a
minimumProduct
innovation
decreasing;
process
innovation
increasingAfter emergence
of standard:
product innovation
decreasing rapidly;
process innovation
increasing rapidlyProduct
innovation
low; process
innovation highProduct innovation
at a minimum;
process innovation
at a maximumMarket growthSlowHighModerate and
slowing downNone to moderateNegativeMarket
sizeSmallModerateLargeLargestSmall to
moderatePriceHighFallingModerateLowLow to highNumber of
competitorsFew, if anyManyFewerModerate but largeFew if any
Exhibit 7.10
28
Features and Strategic Implications
of the Industry Life Cycle (2 of 2)Life Cycle

StagesIntroductionGrowthShakeoutMaturityDeclineMode of
competitionNon-price
competitionNon-price
competitionShifting from
non-price to price
competitionPricePrice or non-price
competitionType of buyersTechnology
enthusiastsEarly adoptersEarly majorityLate
majorityLaggardsBusiness-level
StrategyDifferentiationDifferentiationDifferentiation, or
integration strategyCost-leadership
or integration
strategyCost-leadership,
differentiation,
or integration
strategyStrategic
objectiveAchieving
market
acceptanceStaking out a
strong strategic
position;
generating “deep
pockets”Surviving by
drawing on “deep
pockets”Maintaining
strong strategic
positionExit, harvest,
maintain, or
consolidate
Exhibit 7.10
29
Innovation: Markets and Technologies

This is called the Each type of innovation has different strategic
implications.
30
Incremental vs. Radical Innovation
Incremental Innovation:
Builds on established knowledge
Results from steady improvement
Targets existing markets and technology
Radical Innovation:
Novel methods & materials
Entirely new knowledge base
Or, recombination of existing knowledge
Targets new markets and technology
In 1903, entrepreneur King C. Gillette invented and began
selling the safety razor with a disposable blade. This radical
innovation launched the Gillette Co. (now a brand of Procter &
Gamble). To sustain its competitive advantage, Gillette not only
made sure that its razors were inexpensive and widely available
by introducing the “razor and razor blade” business model, but
also continually improved its blades.
In a classic example of a string of incremental innovations,
Gillette kept adding an additional blade with each new version
of its razor until the number had gone from one to six! Though
this innovation strategy seems predictable, it worked. Gillette’s

newest razor, the Fusion ProGlide with Flexball technology, a
razor handle that features a swiveling ball hinge, costs $11.49
(and $12.59 for a battery-operated one) per razor!
Examples of radical innovation: the iPhone, the Ford Model T,
the x-ray machine, the airplane, genetic engineering, and
decoding of the human genome.
31
Why Incumbent Firms Tend to
Focus Only On Incremental Innovation
Economic Incentives:
They must defend their position
Organizational Inertia:
They have formalized processes and structures
Innovation Ecosystem:
They rely on certain suppliers, buyers, complementors
Architectural vs. Disruptive Innovation
Architectural Innovation:
Existing technology leveraged into a new market
Known components, used in a novel way
Disruptive Innovation:
Leverages new technologies in existing markets
New product / process meets existing customer needs
Examples of Disruptive Innovation include digital photography
(which has improved over time to result in higher definition
pictures, and has largely replaced film photography) and
laptops, (which disrupted desktops…although now tablets and
large screen phones are disrupting laptops).
33

Disruptive Innovation: Riding the Technology Trajectory to
Invade Different Market Segments
Begins as a low cost solution to existing problem
The rate of technological improvement increases
Exhibit 7.12
The dashed lines represent different market segments, from
Segment 1 at the low end to Segment 4 at the high end. Low-end
market segments are generally associated with low profit
margins, while high-end market segments often have high profit
margins.
34
How to Respond to Disruptive Innovation
Continue to innovate
Stay ahead of the competition
Guard against disruptive innovation
Protect the low end of the market
Disrupt yourself
Don’t wait for others to disrupt you
Called “reverse innovation”
Reverse Innovation: An innovation that was developed for
emerging economies before being introduced in developed
economies. Sometimes also called frugal innovation.
Strategy Highlight 7.2 describes how GE Healthcare invented
and commercialized a disruptive innovation in China that is now

entering the U.S. market, riding the steep technology trajectory
of disruptive innovation.
35
Pipeline vs. Platform Businesses
Pipeline Business
Linear transformation through the value chain
R&D, then design, then manufacture, then sell
Platform Business
Enables interaction between producers and consumers
Enable matches among users
Provides infrastructure and governance
The five most valuable companies globally (Apple, Alphabet,
Microsoft, Amazon, and Facebook) all run platform business
models.
36
The Platform Ecosystem
Exhibit 7.13
SOURCE: Adapted from Marshall W. Van Alstyne, Geoffrey G.
Parker, and Sangeet Paul Choudary, “Pipelines, Platforms, and
the New Rules of Strategy,” Harvard Business Review, April
2016.
From a value chain perspective, producers produce or create a
product or service that consumers consume. The owner of the
platform controls the platform IP address and controls who may
participate and in what ways. The providers provide the
interfaces for the platform, enabling its accessibility online.

37
Advantages of the Platform Business Model
They scale more efficiently.
There are no gatekeepers.
They unlock new sources of value creation and supply.
They benefit from community feedback.
Success occurs when positive network effects are realized.
New sources of value creation and supply - To grow, traditional
competitors such as Marriott or Hilton would need to add
additional rooms to their existing stock. To add new hotel room
inventory to their chains, they would need to find suitable real
estate, develop and build a new hotel, furnish all the rooms, and
hire and train staff to run the new hotel. This often takes years,
not to mention the multimillion-dollar upfront investments
required and the risks involved. In contrast, Airbnb faces no
such constraints because it does not own any real estate, nor
does it manage any hotels. Just like Marriott or Hilton,
however, it uses sophisticated pricing and booking systems to
allow guests to find a large variety of rooms pretty much
anywhere in the world to suit their needs.
Community feedback - TripAdvisor, a travel website, derives
significant value from the large amount of quality reviews
(including pictures) by its users of hotels, restaurants, and so
on. This enables TripAdvisor to consummate more effective
matches between hotels and guests via its website, thus creating
more value for all participants.
Network effects - Growing its user base is critical for Netflix to
sustain its competitive advantage. Netflix has been hugely
successful in attracting new users: As of 2017 it had some 95
million subscribers worldwide. Yet, while providing a large

selection of high-quality streaming content is a necessity of the
Netflix business model, this element can and has been easily
duplicated by others such as Amazon, Hulu, and premium
services on Google’s YouTube. To lock in its large installed
base of users, however, Netflix has begun producing and
distributing original content such as the hugely popular shows
House of Cards and Orange Is the New Black. To sustain its
competitive advantage going forward, Netflix needs to rely on
its core competencies, including its proprietary recommendation
engine, data-driven content investments, and network
infrastructure management.
38
Appendices
Descriptions of Visual Graphics to Support
Student Accessibility Needs
Appendix 1 The AFI Strategy Framework
The important inside circle is titled "Gaining and Sustaining a
Competitive Advantage" that is at the very center of the image,
with five different circles on the outside of it. Arrows go back
and forth from the center circle to each of the five outer circles.
The five outer circles are labeled: (1) Getting Started, (2)
External and Internal Analysis, (3) Formulation: Business
Strategy, (4) Formulation, Corporate Strategy, and (5)
Implementation.
Each of these outer five circles have a brief description beside
them to explain what the circle means:
Under the first outer circle titled "Getting Started," it says: Part
1, Strategy Analysis, "What is Strategy (Chapter 1)" and
"Strategic Leadership: Managing the Strategy Process (Chapter
2)."
Under the second outer circle titled "External and Internal
Analysis," it says: Part 1, Strategy Analysis, "External

Analysis: Industry Structure, Competitive Forces and Strategic
Groups (Chapter 3)," "Internal Analysis: Resources,
Capabilities and Core Competencies (Chapter 4)," and
"Competitive Advantage, Firm Performance, and Business
Models (Chapter 5)."
Under the third outer circle titled "Formulation: Business
Strategy," it says: Part 2, Strategy Formulation, "Business
Strategy: Differentiation, Cost Leadership and Integration
(Chapter 6)" and "Business Strategy, Innovation and
Entrepreneurship (Chapter 7)."
Under the fourth outer circle titled "Formulation: Corporate
Strategy," it says: Part 2, Strategy Formulation, "Corporate
Strategy: Vertical Integration and Diversification (Chapter 8),"
"Corporate Strategy: Strategic Alliances, Mergers and
Acquisitions (Chapter 9)," and "Global Strategy: Competing
Around the World (Chapter 10)."
Under the fifth outer circle titled "Implementation," it says: Part
3, Strategy Implementation, "Organizational Design: Structure,
Culture and Control (Chapter 11)," and "Corporate Governance
and Business Ethics (Chapter 12)."
Return to slide
Appendix 2 The Speed of Technological Change Accelerates
As an example, it took 84 years for half of the U.S. population
to own a car, but only 28 years for half the population to own a
TV. The pace of the adoption rate of recent innovations
continues to accelerate. It took 19 years for the PC to reach 50
percent ownership, but only 6 years for MP3 players to
accomplish the same diffusion rate.
Return to slide
Appendix 3 The Innovation Process

This image is of an upward facing arrow, at the bottom is the
word idea, and then moving sequentially upward are the words
invention, innovation and imitation. This image is intended to
convey that broadly viewed, innovation describes the discovery,
development, and transformation of new knowledge in a four-
step process captured in the four I’s: idea, invention,
innovation, and imitation.
Return to slide
Appendix 4 What Is Innovation?
This image has three overlapping circles which each read:
novel, useful, implemented. In the middle of the three circles is
the word “innovation.” This image is meant to convey that
innovation needs to be novel, useful, and successfully
implemented to help firms gain and sustain a competitive
advantage.
Return to slide
Appendix 5 Industry Life Cycle: The Smartphone Industry
In a stylized industry life cycle model, the horizontal axis
shows time (in years) and the vertical axis market size. This
image takes a snapshot of the global smartphone industry in the
year 2016. This implies that we are joining two different life
cycles (one for emerging economies and one for developed
economies) in the same exhibit at one point in time. In
emerging economies, smartphones are in the Growth stage. In
developed economies however, they are in the Maturity stage.
Return to slide
Appendix 6 Network Effects in the Introduction Stage

This image demonstrates how the installed base of users for the
iPhone result in more use of apps, which increase the value of
the iPhone, which thus increases the demand for the iPhone.
Return to slide
Appendix 7 Product vs. Process Innovation During Growth
This image shows a graph with two axes: time on the X axis,
and level of innovation on the Y axis. As you move from left to
right on the graph, the phases of the industry life cycle are
listed: introduction, growth, shakeout, maturity and decline.
There are two main lines on the graph. The first line, titled
Product Innovation, has a very high level of innovation during
the introduction and growth stages, and begins a sharp decline
during the shakeout phase.
The second line, titled Process Innovation, starts out very low at
the beginning of the life cycle, and increases rapidly during
shakeout and maturity, only to decline again during decline.
Return to slide
Appendix 8 Crossing the Chasm Framework
This image shows a traditional bell curve, that is similar to the
Industry Lifecycle, however, there are different phase names
and there is a space between the Early Adopters and the Early
Majority, titled The Chasm.
The chasm framework breaks down the 100 percent market
potential into different customer segments, highlighting the
incremental contribution each specific segment can bring into
the market.
Technology Enthusiasts: 2.5%
Early Adopters: 13.5%
Early Majority: 34%
Late Majority: 34%

Laggards: 16%
Return to slide
Appendix 9 Crossing the Chasm Framework: Mobile Phones
Blackberry, while it was accepted by the early adopters and
early majority, the iPhone was also able to capture the late
majority and laggards as well.
In 2007, RIM’s dominance over the smartphone market began to
erode quickly. The main reason was Apple’s introduction of the
iPhone. Although technology enthusiasts and early adopters
argue that the iPhone is an inferior product to the BlackBerry
based on technological criteria, the iPhone enticed not only the
early majority, but also the late majority to enter the market.
For the late majority, encrypted software security was much less
important than having fun with a device that allowed users to
surf the web, take pictures, play games, and send and receive e-
mail.
Return to slide
Appendix 10 Innovation: Markets and Technologies
This image shows a large square, imbedded within it are four
other squares. The two characteristics that differentiates each
square are its technology and market:
New market and new technology = radical innovation
New market and existing technology = architectural innovation
Existing market and new technology = disruptive innovation
Existing market and existing technology = incremental
innovation
Return to slide

Appendix 11 Disruptive Innovation: Riding the Technology
Trajectory to Invade Different Market Segments
This image shows …
Discussion Board Instruction & Rubric
IMPORTANT! Read the following discussion board instructions
and grading criteria as a rubric.
'Quality' (10 points), 'Quantity' (5 points), and 'Frequency' (10
points) are the primary evaluation criteria:
Quality is demonstrated by your ability to “carry” the insights
of the respective Chapter into your posts.
Quantity: No maximum number of posting. However, three is
the minimum number of posts to get minimum points.
Frequency is also one of the primary evaluation criteria as
a week-long participation assignment. Participate as often as
possible throughout each week. For example, ‘3 postings in one
day’ will get a lower frequency grade than ‘3 postings over the
multiple days’.
The initial post is due by Wednesday each week and at least two
reply messages to others are due by Sunday at 11:59 p.m.
each week.
Do not post at the last minute; you will not receive the max
points. Also, you must give depth to the discussion to receive
the points.
Related examples from the industry that illustrates these
concepts and current events issues/commentaries are highly
encouraged.
Participate as often as possible throughout each week as a
week-long participation assignment.
MGT 499 Week 5 Discussion
Chapter 6
In Chapter 4, we discussed the internal value chain activities a

firm can perform in its business model (see Exhibit 4.7). The
value chain priorities can be quite different for firms taking
different business strategies. Create examples of value chains
for three firms: one using cost leadership, another using
differentiation, and a third using a value innovation business-
level strategy.
Chapter 7
Describe a firm you think has been highly innovative. Which of
the four types of innovation—radical, incremental, disruptive,
or architectural—did it use? Did the firm use different types
over time?
IMPORTANT! Read the following discussion board instructions
and grading criteria as a rubric.
'Quality'(10 points),'Quantity'(5 points), and 'Frequency'(10
points) are the primary evaluation criteria:
Quality is demonstrated by your ability to “carry” the insights
of the respective Chapter into your posts.
Quantity: No maximum number of posting. However, three is
the minimum number of posts to get minimum points.
Frequency is also one of the primary evaluation criteria as
a week-long participation assignment. Participate as often as
possible throughout each week. For example, ‘3 postings in one
day’ will get a lower frequency grade than ‘3 postings over the
multiple days’.
The initial post is due by Wednesdayeach week and at least two
reply messages to others are due by Sunday at 11:59 p.m.
each week.
Do not post at the last minute; you will not receive the max
points. Also, you must give depth to the discussion to receive
the points.
Related examples from the industry that illustrates these
concepts and current events issues/commentaries are highly

encouraged.
Participate as often as possible throughout each week as a
week-long participation assignment.

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