Protecting Business Innovations Via Strategy Watch Course Overview: https://youtu.be/mUja4iwbrTE Strategy can be useful for protecting business innovation when no other form of protection exist (e.g. copyright, patent & trademark). Strategy can also compliment and strengthen other forms of innovation protection. Understanding how to use strategy to protect innovation and limitation of strategy as a form of protection will be useful for business managers. This course is one part of a four course series focusing on protection of business innovations using copyright, patent, trademark and strategy, and these four courses may be taken in any order that is most beneficial to students interested in learning about protecting innovation.
1.3 Economies of Scale
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來自 The Hong Kong University of Science and Technology 的課程
Protecting Business Innovations via Strategy
12 個評分
The Hong Kong University of Science and Technology
12 個評分
從本節課中
Resource based Strategy
How could we use a variety of resources within a business to create a virtual fortress to prevent other firms from copying our innovations. Using a combination of case examples and lectures, we will examine the role of economies of scale, network externalities, access to customers, access to raw materials or other resources and unique knowledge to create competitive barriers.
與講師見面
Theodore Henry King CLARKAssociate Professor
Information Systems, Business Statistics and Operations Management Department
Welcome back. In today's session,
we're going to talk about economies of scale as a way of protecting
innovations and building a competitive advantage as a type of strategy.
Basically, what we're saying with economies of scale is,
being big has benefits.
It can give you production cost advantages
to scale of operations that you have some benefits.
As you get larger,
your unit costs may go down,
your production cost overall may be more
efficient due to what are called economies of scale,
the benefits of being bigger.
Now, you might think, wow,
that works for making cars or consumer goods but what about software,
what about computers, what about high tech?
And the answer is, economies of scale also matter for biomedical products.
They matter for distribution of software.
They matter for software development and research and development.
They matter for smartphones.
They matter for semiconductor chips.
Economies of scale are important and are a source of potential advantage.
You can get benefits as a large firm from economies of scale and procurement in
negotiating better contracts, relationships, agreements.
You can have better negotiating power.
If you are a large buyer,
you can go to a major outsourcing company and say,
"Give me a better price."
You can go to a law firm and say,
"I don't want your normal price.
I want a better price.
I want a better deal because I'm big and maybe I can do things
in-house or maybe I'll go with you but give me a better deal."
You might have a lower cost production due to your scale advantages.
You can have better machinery, better equipment,
better utilization of equipment so you may have better cost advantages in production.
And economies of scale can be true and provide benefits
in hospital services as well as in car manufacturing.
You can have the economies of scale that benefit you in R&D.
It may cost you the same to do the R&D for a driver-less car whether you're making
100 cars with Ferrari for a high end car or a million cars as Toyota.
And so, there are economies of scale of expensive difficult R&D.
So, if you're Ferrari,
you may have to join with other firms or license
because you don't have the scale to be able to benefit from,
as a niche player,
the cost of doing the R&D the large firm would have.
So, large firms benefit from scale for procurement, production, or research.
There are examples in procurement and production of partnering with trusted suppliers,
getting better prices, being able to utilize your factory
more efficiently in a variety of industries.
So many different examples of economies of scale.
In research, sometimes your economies of scale can also
become economies of scope or benefits across a variety of product lines.
What you've done for
graphical user interface for your Windows application may also help you with an Xbox,
or you may be able to generate some benefits of app providers or technology of leveraging
other markets that you're in and benefiting from
scale across a variety of products both in R&D and in marketing that can help you.
In terms of these economies of scale,
they are to some extent offset by some inefficiencies due to scale.
Scale is not always good or being big is not always better.
In Fintech, for example,
many startup companies are more entrepreneurial,
creative, aggressive, inventive than established companies.
And that may be because of tradition or culture.
It may be that they've got high cost labor like
a major airline having high cost labor contracts or
General Motors having high cost versus
a startup company that can strike better deals with new employees.
So, a startup airline may be more efficient than a major traditional airline.
Your install base may be a limitation.
If you're a bank, you've got to deal with a million customers or 100,000 customers,
and everything you're doing is an invention has to work for the install base.
That's a big barrier.
So, that can be a disadvantage and some kinds of innovation or change.
Culture can also be a disadvantage in that as you become big,
you may be complacent or you may become comfortable with the old way of doing
things and that may have cultural issues that slow down innovation.
Regulations can slow down your ability to respond.
A startup may not have the same regulatory hurdles or
requirements that a large player has and that can be a disadvantage to them.
An innovation may be antithetical or in opposition
to traditional hierarchy and cultures that
make it harder to sell innovations up the organization.
Whereas, a smaller company or a more flexible agile company may say, "Hey, look.
Let's do it. That's a great idea. Let's do it."
It may be hard to get anybody to even listen in a large organization.
An example of scale creating a barrier or
a problem was the success of Microsoft and Windows is phenomenal.
They have a huge market share and Nokia was a major player in the cellphone business.
But Apple came in with an innovative product that really surprised
Nokia and made Microsoft sit up and take note and say,
"Whoa, we missed this."
And so Microsoft decided to partner with Nokia and develop a Windows phone,
a phone that would take the leverage of Windows app and
Windows environment and mobile Windows and come up with a phone
that would run that and would be lower cost than Apple's phone and
good for users and established base would be leveraged by building on scale.
It turns out the apps for Windows don't work well in a mobile environment
particularly when Nokia is trying to
starve this mobile environment for processor speed or memory.
They're trying to develop something which is
a modest enhancement of a phone and you're competing with
an iPhone which basically took the Macintosh and throw it
inside a small case and you got huge computing power.
Microsoft didn't have that.
The environment wasn't right.
The mix wasn't right.
The combination wasn't right.
Google did a better job with Android.
Google has been a viable competitor to Apple.
Microsoft has not.
They have not been able to build on their advantages and
they were actually harmed by their strength in other markets.
And so, Windows plus Nokia failed.
Their R&D failed, their products failed.
Android and Apple's iOS
knocked out the Windows competitors and Windows tried a couple of times.
So far, they have not been able to penetrate
any significant meaningful share in the mobile business.
Why do economies of scale matter?
They can keep your costs down.
They can give you a cost advantage.
By being a large scale producer,
Apple can have the lowest cost of any tablet manufacturer and the highest price.
What a nice combination.
They are a low cost producer and get a premium.
No wonder they're profitable.
That's a nice mix.
You can create barriers to new entrants.
These barriers may have to do with research.
They may have to do with cost advantages.
They may have to do with controlling your production processes.
Apple makes enough products that they can choose to make
their own chips instead of buying
somebody else's standard that a smaller competitor may have to go with.
That's leveraging economies of scale to create barriers.
So, economies of scale matter as a potential source of competitive advantage and
they can help big firms protect and leverage their inventions. Thank you.
