BUS 345 EXAM 2 QUESTIONS AND ANSWERS
Why do incumbents often fail in the face of new technology? - Answers - They prioritize
sustaining innovations for existing, profitable customers over high-risk disruptive
technologies.
What is Schumpeter's concept of 'Creative Destruction'? - Answers - A process of
industrial mutation that incessantly revolutionizes the economic structure from within,
destroying the old while creating the new.
What are the four steps of the innovation process? - Answers - 1. Idea, 2. Invention, 3.
Innovation, 4. Imitation.
How does 'Invention' differ from 'Innovation'? - Answers - Invention is the transformation
of an idea into a product; Innovation is the commercialization of that invention.
List four common sources of innovation. - Answers - Existing firms, prior employees,
academic scientists, and users.
What are the five phases of the industry lifecycle? - Answers - Introduction, Growth,
Shakeout, Maturity, and Decline.
What is a 'Network Effect'? - Answers - The positive effect that one user has on the
value of a product for other users.
What are the four strategic options for firms in the Decline stage? - Answers - Exit,
Harvest, Maintain, and Consolidate.
What does the 'Harvest' strategy entail in the Decline stage? - Answers - Reducing
further investments to milk remaining profits from the business.
What is the 'Innovator's Dilemma'? - Answers - The situation where successful firms fail
because they are managed rationally, focusing on core customers and ignoring
disruptive threats.
What is the difference between a sustaining technology and a disruptive technology? -
Answers - Sustaining technology improves performance for mainstream customers;
disruptive technology initially offers worse performance but appeals to fringe/low-end
customers.
Which type of technology typically favors new entrants? - Answers - Disruptive
technology.
, Which type of technology typically favors incumbents? - Answers - Sustaining
technology.
What is demand-side disruption? - Answers - Disruption occurring when an incumbent's
core customers have no need for a new, low-end product, allowing a new entrant to
gain a foothold.
What is supply-side disruption? - Answers - Disruption caused by shifts in business
model architecture, organizational structure, or incentives.
Why do rational incumbents often ignore disruptive innovations? - Answers - They are
often lower margin, negative NPV, and incumbents are incentivized to listen to their
existing core customers who demand better performance, not worse.
What core competency is required during the Introduction stage of an industry? -
Answers - R&D.
What happens during the Shakeout stage of an industry? - Answers - Growth rates
decline, competition becomes intense, weaker firms are forced out, and industry
consolidation occurs.
Can an industry lifecycle be reversed? - Answers - Yes, products can be revitalized, as
seen in the re-emergence of vinyl records.
What was a key reason for Blockbuster's failure regarding Netflix? - Answers -
Blockbuster failed to recognize the threat of disruptive technology and passed on the
opportunity to buy Netflix for $50 million.
What is the primary competitive weapon during the Shakeout stage? - Answers - Price.
What characterizes the Maturity stage of an industry? - Answers - Process innovation is
maximized, only a few large firms remain, and the market is at its maximum size.
What is the definition of 'Imitation' in the innovation process? - Answers - Copying a
successful innovation.
What is the core tension of the Innovator's Dilemma? - Answers - Choosing between
ignoring disruptive threats to serve profitable core customers or investing in low-end
technology/business models.
What is the definition of 'Disruptive Innovation' in the context of the exam? - Answers - It
is not simply changing the market; it is a process where a firm faces destruction
because the choices that once drove success become rigidities.
Why do incumbents often fail in the face of new technology? - Answers - They prioritize
sustaining innovations for existing, profitable customers over high-risk disruptive
technologies.
What is Schumpeter's concept of 'Creative Destruction'? - Answers - A process of
industrial mutation that incessantly revolutionizes the economic structure from within,
destroying the old while creating the new.
What are the four steps of the innovation process? - Answers - 1. Idea, 2. Invention, 3.
Innovation, 4. Imitation.
How does 'Invention' differ from 'Innovation'? - Answers - Invention is the transformation
of an idea into a product; Innovation is the commercialization of that invention.
List four common sources of innovation. - Answers - Existing firms, prior employees,
academic scientists, and users.
What are the five phases of the industry lifecycle? - Answers - Introduction, Growth,
Shakeout, Maturity, and Decline.
What is a 'Network Effect'? - Answers - The positive effect that one user has on the
value of a product for other users.
What are the four strategic options for firms in the Decline stage? - Answers - Exit,
Harvest, Maintain, and Consolidate.
What does the 'Harvest' strategy entail in the Decline stage? - Answers - Reducing
further investments to milk remaining profits from the business.
What is the 'Innovator's Dilemma'? - Answers - The situation where successful firms fail
because they are managed rationally, focusing on core customers and ignoring
disruptive threats.
What is the difference between a sustaining technology and a disruptive technology? -
Answers - Sustaining technology improves performance for mainstream customers;
disruptive technology initially offers worse performance but appeals to fringe/low-end
customers.
Which type of technology typically favors new entrants? - Answers - Disruptive
technology.
, Which type of technology typically favors incumbents? - Answers - Sustaining
technology.
What is demand-side disruption? - Answers - Disruption occurring when an incumbent's
core customers have no need for a new, low-end product, allowing a new entrant to
gain a foothold.
What is supply-side disruption? - Answers - Disruption caused by shifts in business
model architecture, organizational structure, or incentives.
Why do rational incumbents often ignore disruptive innovations? - Answers - They are
often lower margin, negative NPV, and incumbents are incentivized to listen to their
existing core customers who demand better performance, not worse.
What core competency is required during the Introduction stage of an industry? -
Answers - R&D.
What happens during the Shakeout stage of an industry? - Answers - Growth rates
decline, competition becomes intense, weaker firms are forced out, and industry
consolidation occurs.
Can an industry lifecycle be reversed? - Answers - Yes, products can be revitalized, as
seen in the re-emergence of vinyl records.
What was a key reason for Blockbuster's failure regarding Netflix? - Answers -
Blockbuster failed to recognize the threat of disruptive technology and passed on the
opportunity to buy Netflix for $50 million.
What is the primary competitive weapon during the Shakeout stage? - Answers - Price.
What characterizes the Maturity stage of an industry? - Answers - Process innovation is
maximized, only a few large firms remain, and the market is at its maximum size.
What is the definition of 'Imitation' in the innovation process? - Answers - Copying a
successful innovation.
What is the core tension of the Innovator's Dilemma? - Answers - Choosing between
ignoring disruptive threats to serve profitable core customers or investing in low-end
technology/business models.
What is the definition of 'Disruptive Innovation' in the context of the exam? - Answers - It
is not simply changing the market; it is a process where a firm faces destruction
because the choices that once drove success become rigidities.
