Michael porter developed his five force model based on the competitive environment for each industry within a nation. One of the forces is barriers to entry, another is threat of substitutes. Each provides a potential threat to a firm’s competitive advantage in the market place. How can value innovation off set each of these threats? Provide specific examples.
Each response written is labeled “Essay Response 1, Essay Response 2. Write a response to each essay, adding additional insight/info they didn’t include or your own thoughts backed up with either the textbook or other scholarly sources related to the topic. Do not respond to the initial essay, respond to these responses. Each reply should be 300 words and use at least 2 sources, one of which should be the attached pdf textbook. Please don’t throw in words like, For Instance or For example or Foremost or Firstly, Secondly, In Conclusion or any other words that are pointless and unnecessary and meant to just add to the word count. Just write the responses as best as you can.
This is the info to cite/reference the attached pdf textbook: Strategic Management, 5th Edition by Frank Rothaermel (9781260261288)
Essay Response 1 – S.
The textbook states that value innovation is achieved by “aligning innovation with total perceived consumer benefits, price, and cost” (Rothaermel, 2021, p. 216). This can overcome barriers to entry simply by creating its own market where it can thrive uncontested. This new market is often low cost and consumer focused. Consider the disruptive innovation of the Uber car sharing platform. This platform was created out of the desire to make car hailing easier and cheaper and now accounts for 25% of global driving (Chevalier-Roignant, Flath, & Trigeorgis, 2019, p. 1641).
Disruptive innovations often give a narrow window of opportunity where the threat of substitutes is virtually nonexistent. For years car manufacturers like Ford, Toyota, and Volkswagen overlooked the potential of electric vehicles. Instead, they chose to focus on product design and marketing to net economies of scale from product sales (Chevalier-Roignant, Flath, & Trigeorgis, 2019, p. 1641). Tesla, known as a player in the luxury electronic vehicle category is now poised to become a mass producer of electric vehicles while other manufactures rush to catch up.
It is worth noting that the entry of value innovations will erode existing market shares. Tesla and to some extent Uber will reduce the market share for gas powered vehicles as a whole.
Chevalier-Roignant, B., Flath, C. M., & Trigeorgis, L. (2019). Disruptive Innovation, Market Entry, and Production Flexibility in Heterogeneous Oligopoly. Production and Operations Management Vol. 28, No. 7, 1641-1657.
Rothaermel, F. T. (2021). Strategic Management. New York: McGraw Hill.
Essay Response 2 – J.
Businesses need to compete successfully and the fact that value innovation is therefore of utmost a necessity. The creation of driving costs down while at the same time driving up value that leads to a competition-based strategy at the end. According to Sjodin et al. (2020) found that “Accordingly, a key contribution of this study is showing how continuous adjustment and innovation is necessary for business model innovation if the goals of the provider–customer relationship are to be aligned over time” (p. 179). However, businesses are always in a fast moving business landscape being drowned with innovation causing the strategy to be replaced by something new. It is already difficult to identify the existence of substitute products but being able to red flag customer substitutes is a valued indication that a business has lost market power. An intriguing example in regards to our course discussion would be the company Ikea for which it used value innovation based on eliminate-reduce-raise-create framework. The ideal in using eliminate was for lowering costs such as liquidating salespeople. It used the reduce element also for lowering costs such as few to none staff employees in store. The element of raise was to have a high perceived consumer benefits for which the experience of customers are able to fully view and “try out” in sampling a furniture piece they are interested in. The element of create also pertained to a high perceived consumer benefit in providing a house cafeteria for customers to enjoy in the store. These steps that Ikea took helped them achieve value innovation.
References:
Messeni Petruzzelli, A., Ardito, L., & Savino, T. (2018). Maturity of knowledge inputs and innovation value: The moderating effect of firm age and size. Journal of Business Research, 86, 190–201. https://doi.org/10.1016/j.jbusres.2018.02.009
Rothaermel, F.T. (2021). Strategic Management. (5th edition). New York, NY: McGraw-Hill Education.
Sjödin, D., Parida, V., Jovanovic, M., & Visnjic, I. (2020). Value Creation and Value Capture Alignment in Business Model Innovation: A Process View on Outcome‐Based Business Models. The Journal of Product Innovation Management, 37(2), 158–183. https://doi.org/10.1111/jpim.12516
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