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The Innovation Case
Introduction
The audio music industry is a diverse and dynamic environment where innovations take place rapidly. The record music labels found themselves faced with fierce competition when Fraunhofer in Germany developed an algorithm that enabled music to be compressed and distributed as MP3.
Later, Shawn Fanning, a student, developed Napster that enabled people to share music files through the internet. This led to high levels of music piracy. The record companies had to delve into the technology using iTunes where customers would purchase and buy music legally. The record companies had to decide whether to make iTunes technology open for use by other companies.
Innovation
There were certain audio innovations that took place in the industry. These innovations were spurred on by the customers increasing demand to share music. In 1991, a German called Fraunhofer IIS invented the MP3, a technology that enabled music to be compressed to a tenth of its size.
The compression did not have an adverse effect on the quality of the record. This enabled the people to share and distribute music easily. As people shared their music online, the use of the MP3, grew by huge numbers. Many other companies aiming to cash in on the innovation decided to produce different variants of the MP3. Fraunhofer had two choices, to patent the innovation in order to prevent other companies from cashing in on his profits or let the companies use the innovation.
The consumers are the major stakeholders who benefited from the innovation as they were able to share music online. In 1999, Shawn Fanning, a student at Northeastern campus of Boston, came up with a software program that enabled customers with internet access to share the mp3 files.
The software was very friendly having a search box enabling someone to look for another person in the network with whom to share music. The software did not have a database filled with the mp3 music rather it was filled with people who were in possession of different kinds of music. The consumers demanded the interchange of music over the net.
People had started trading the copyright materials via the internet. When Napster was shut down through legal action by the record companies, parallel companies cropped up. The music companies had no choice but to respond to market demand.The music labels teamed up to provide Music tunes and Press play. These services enabled people to download music from the net legally.
However the people preferred the illegal sites that had cropped up after Napster was shut down. The music labels did not have a great selection of music like the unauthorised sites. Furthermore the music labels used digital rights management systems that were not user friendly. ITunes came to be developed where the people could play music in MP3 formats in iPods made by the Apple Company. Later other companies wanted to play ITunes in their iPods.
Apple had to decide whether to work with other companies. By entering into contracts with these companies, they would get to sell their music and receive some commission from the companies. In playing non-iTunes music the Apple Company gets to get exposure to other markets and in the process they may get to sell their music.
The success of the iPod and iTunes will depend on how the company keeps innovation, providing different and improved products as the market demand changes and the frequency of competitors offering different and improved products. The musicians by selling their copyright rights allowing their music to be downloaded and freely distributed see the advantages of getting a fan base and publicity as better than retaining their copyrights.
Podcasting has had a great impact on the radio industry. The consumers now have the power of choice to determine what they will listen to, either traditional radio stations or podcasts. This will definitely cause the radio stations be more innovative in order to retain their customers.
Lessons Learnt
A firm in any technological market must make a decision whether to protect their innovation or not. There are advantages in protecting the innovation as one gets rent from its use.
However not protecting the technology can also be advantageous since other companies in using the technology market the firms products((Hurmelinna-Laukkanen and Ritala, 2010). It is wiser to protect technologies that are not easily copied. The company has to analyse whether protecting the technology is appropriate for protection or not (Hurmelinna-Laukkanen and Puumalainen, 2007)
A company may use patents, copyrights and trademarks and trade secret to protect its innovation (Karjala, 2011). In Patenting, other companies are prevented from using the innovation or technology. Getting a trademark prevents other companies from using the symbol or name that the firm uses in its trading activities. Copyrights on the other hand helps artists protect their music, writings or art from illegal use and distribution (King, 2002).
In a trade secret, the firm decides to conceal their manufacturing process or details that usually would be mandatory to reveal while registering a patent. Fraunhofer in Germany decide to work with other companies in the marketing and selling of MP3. He did not patent the technology recognising that other companies could easily produce their version of the software. Sometimes it is better when other people imitate the innovation since they can make software that is an improvement (Shenkar, 2011)
The music record companies worked with other companies enabling their non-iPods to support the iTunes music. At times open innovation markets turn out to be profitable in terms of marketing and sales (OECD, 2008) .The musicians decided to sell their copyrights in open forums to their fans to get publicity and cut marketing costs.
Defining Strategy
Introduction
Genzyme is a huge company in the biotechnical industry. In 2008, it had revenues of over $4,6 Billion. It has over 10,000 employees in over 40 countries. Its portfolio of companies includes 17 manufacturing and several genetic laboratory testing facilities. The reason for the companys success is its choice to focus on the production of drugs that treat very rare but life threatening diseases. The companys strategic choice made it grow and earn high profits. The work before them was hard but they managed to do it and excel to get very high returns.
Defining Strategy
Genzyne strategic decision has enabled it to face few or hardly any competitors. There are very few companies that are willing to focus on the research and sale of drugs that can be used to treat rare and life threatening diseases. Secondly the company will be able to do target small scale marketing since the patients were few.
The company would be able to cut the marketing costs considerably. Pharmaceutical companies incur high marketing costs in large sales labour force and promotion costs while selling their drugs. The number of physicians who treated these rare diseases are also few so the company can market and sell the drugs directly to the customers therefore cutting costs.
The insurance companies would also not be able to resist at all on any grounds the reimbursement of the costs to its patients since the patients are few. First of all since the process of developing a drug in the industry took around ten to fourteen years. The research costs were more than $800 to conduct trials in the clinic, get the approval of FDA and bring to the customers the drugs. Most companies wanted to focus on the common chronic diseases since the sales would be in billions. The companies wanted a mass market.
The customer do have less or no bargaining power when buying orphan drugs since the companies that sell such drugs are very few. Focusing on the orphan drugs definitely affects the kind of resources and capabilities that a company may need. The highest costs will be research since it will take a longer time to develop these drugs. The company need also highly skilled engineers and bio technicians to develop the drugs.
The biggest investment will be research and labour costs. Genzyme strategic focus on orphan drugs is a great idea and sustainable in the long term. The statistics for their drug, Cerezyne is astounding. The patients in the country who take the drug pay over $ 170,000 in a year. 4,500 patients take the drug for life leading to sales of over $800 million. Competitors and marketing costs are reduced efficiently ensuring they will always have high sales for their products.
The company diversified into other areas of medicine so that they could remain independent and get all the profits from the sale of their drugs. The company therefore decided to do its own testing, manufacturing and sales of the drugs. To fund the costs the company strategically started a genetic counselling centre, chemical supplies and diagnostic testing businesses.
The company went public to raise money through the stock exchange and they were able to get over $27Million. Ever since the orphan drug act was passed, more companies have entered into this market to take advantage of tax allowances offered by the government. The company in the future will need to analyse and develop drugs for diseases that are extremely rare so as to be able to have few competitors and survive.
Lessons Learnt
For a company to have a competitive advantage in the industry, it must appraise its market and the competition. It has to appraise its core capabilities, strengths, weaknesses, competitive advantages, threats and opportunities. It has to carry out a SWOT analysis. Porter has proposed five things that a company needs to look at.
This is the degree of existing rivalry, threats of potential entrants, bargaining power of suppliers, threats of substitutes and bargaining power of the buyers (Mindtools Editors, n,d). There are three generic models a company can use.
The company may differentiate products, target to lower costs of production or do both in a niche market(Proven models Editors, n,d) Genzyme opted to produce differentiated products. Genzyme was able to analyse its market and its sustainable core competencies. It chose a market where the competition was low, the entrants in the market were also consistently low and the buyers did not have high bargaining power to affect the sales prices. Their strategic analysis and actions paid off.
Comparison of the two cases
The two case studies focus on innovation management. The audio companies are forced with choices on innovation management while Genzyme has to choose which technology to invest. In whatever category a company is in, it has to be strategic in making decisions.
References
Hurmelinna-Laukkanen, P & Ritala, P (2010) Protection for profiting from collaborative service innovation . Journal of Service Management, Vol. 21, Iss 1, pp.6 24.
Hurmelinna-Laukkanen, P & Puumalainen, Kaisu (2007) Formation of the appropriability regime: Strategic and practical considerations . Innovation,Management, Policy & Practice Journal, Vol 9, Iss 1,pp 28-45.
Karjala, D (2011) Protecting Innovation in Computer Software, Biotechnology, and Nanotechnology . Virginia Journal Of Law & Technology, Vol 6, No1. Web.
King, K (2002). The Value of Intellectual Property, Intangible Assets and Goodwill . Journal of Intellectual Property Rights, Vol 7, No 3, pp 245-249.
Mind Tools Editors (n.d) Porters Five Forces: Assessing the Balance of Power in a Business Situation . Mind tools. Accessed from <https://www.mindtools.com/pages/article/newTMC_08.htm>
Organisation For Economic Co-Operation And Development (2008) Open Innovation in Global Networks . Web.
Proven Models Editors (n,d) Porters three generic strategies . Proven Models. Accessed from <https://www.provenmodels.com/27>
Shenkar, O (2011) The Challenge Of Imovation . Ivey Business Journal. Web.
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