we will do same last topic which is Google Glass.As you did last time …Goal: Review of the state of your technology with respect to
both organizational capabilities (to the extent that you can) and of evaluation
of the innovation or technology.
Please add this content to the growing body of your homework
assignments, making updates to the preceding elements as needed, and maintaining
the reference list at the end of the combined document. Continue the conversion
into a coherent analysis document, and not a collection of homework items, if
you haven’t already done that.
Topics to be addressed relative to your technology for this
week include:
The
impact of this innovation in relation to Porter’s Five-Forces model.
Consider using a diagrammatic form to show this impact. Look at http://www.mindtools.com/pages/article/newTMC_08.htm
as one source for a drawing tool that allows you to fill in explanatory
text for your thoughts on impacts of the innovation on the various forces.
What
core competencies will be required to make each player in the market
successful? Include both the primary creator of the technology, as well as
references to creators or makers of complementary technologies or
capabilities. For those various players, what core rigidities might impede
them?
Project
selection considerations – imagine you are presenting this innovation for
consideration by the primary market player as to whether they should enter
(or remain in) this market. Choose one of the evaluation methods outlined
in Chapter 7 and work through it. Most likely, since we don’t have access
to much quantitative information, the Screening Questions model laid out
in Chapter 7 will be most appropriate. Use a reasonable selection of the
Screening Questions, if you use that model.
This should add 2-3 pages (single-spaced, about 800-1300
words) to your document to cover all the topics requested.
References should, again, include pointers to any source you
referenced (whether you quoted it or just used its ideas). Be consistent with
your citation style.
** I attached Chapter 6-7 as ppt it will help you .Thanks
chap6_7___cn.ppt
Unformatted Attachment Preview
Chapter 6
DEFINING THE
ORGANIZATION’S
STRATEGIC
DIRECTION
McGraw-Hill/Irwin
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Genzyme’s Focus on
“Orphan Drugs”
• Genzyme was founded in 1981 by scientists studying
genetically inherited enzyme diseases
• Adopted a very unusual strategy of developing drugs for
rare diseases rather than “blockbuster” drugs.
– Smaller markets, but fewer competitors
– Requires less advertising, smaller sales force
• In 1983, the FDA established the “Orphan Drug Act,”
giving seven years market exclusivity to developers of
drugs for rare (<200,000 patients) diseases.
• Also chose unusual strategy of doing its own
manufacturing and sales rather than licensing to a
pharmaceutical company.
• Diversified into side businesses to fund its R&D.
• By 2006, was the world’s third largest biotech company.
6-2
Genzyme’s Focus on
“Orphan Drugs”
Discussion Questions:
1. How does Genzyme’s focus on orphan drugs affect the
degree of competition it faces? How does it affect the
bargaining power of customers?
2. How does focusing on orphan drugs affect the types of
resources and capabilities a biotech firm needs to be
successful?
3. Does Genzyme’s focus on orphan drugs make sense? Do
you think Genzyme has a long-term strategic intent?
4. Why do you think Genzyme has diversified into other
areas of medicine? What are the advantages and
disadvantages of this?
5. What recommendations would you offer Genzyme for the
6-3
Overview
• Technological innovation strategy should
– Leverage existing competitive position and
– Provide direction for future development
• Formulating strategy requires:
–Appraising firm’s environment,
–Appraising firm’s strengths, weaknesses,
competitive advantages, and core
competencies,
–Articulating ambitious strategic intent
6-4
Assessing the Firm’s Current
Position – External Analysis
• Porter’s Five-Force Model
Complements
Source: Baltzan & Phillips
6-5
Five Forces Model Complements
Must consider:
a) Importance of complements in industry
b) Whether complements are differentially
available for rivals’ products
c) Who captures value offered by complements
6-6
Assessing the Firm’s Current
Position
• Five-Force Model
6-7
External Analysis:
Stakeholder Analysis
1. Who are
stakeholders?
2. What does each
stakeholder want?
3. What resources do
they contribute?
4. What demands are
they likely to make?
6-8
Assessing the Firm’s Current
Position – Internal Analysis
1. Identify firm’s strengths and weaknesses. Helpful to consider
each element of value chain.
6-9
Assessing the Firm’s Current
Position
2. Assess which strengths have potential to be
sustainable competitive advantage
•
•
•
•
Rare
Valuable
Durable
Inimitable
Competitive
Advantage
Sustainable
Competitive
Advantage
–Resources difficult (or impossible) to imitate
when they are:
–
–
–
–
Tacit
Path dependent
Socially complex
Causally ambiguous
6-10
Identifying Core Competencies
and Capabilities
• Core Competencies
– Set of integrated and harmonized abilities that
distinguish firm
–Typically combine multiple kinds of abilities
–Biz unit may rely on several core competencies
–Several biz units may rely on same core
competency
–Core competencies should:
• Be significant source of competitive differentiation
• Cover range of businesses
• Be hard for competitors to imitate
6-11
Identifying Core Competencies
and Capabilities
6-12
Research Brief
Identifying Firm’s Core Competencies
– Module 1 -- Steering committee; program manager;
communication of goals across firm
– Module 2 – Inventory and categorize capabilities; assess
strength, importance, and criticality
– Module 3 – Organize capabilities by criticality and current
expertise
– Module 4 – Identify possible core competencies to focus
on; reject none yet
– Module 5 – Test proposed core competencies against
Prahalad and Hamel's criteria.
– Module 6 – Evaluate firm’s position in each core
competency.
Source: Gallon, Stillman and Coates
6-13
Risk of Core Rigidities
• Firms can become rigidly attached to their
best capabilities
• New competencies may be limited in favor
of current strengths
–Dynamic capabilities enable firm to quickly
respond to change
• E.g., org structure may allow rapid creation of new
product teams
• May also build partnerships with key players to allow
access to needed knowledge
6-14
Strategic Intent
• Strategic Intent
– Long-term goal that is
• Ambitious - builds on core competencies
- leverages all parts of org
– Typically 10-20 years out, establishes clear milestones
– Identify resources and capabilities needed to reach strategic intent
6-15
Theory In Action
The Balanced Scorecard
Effective performance
measurement should
incorporate:
– Financial perspective
– Customer perspective
– Internal perspective
– Innovation and learning
Source: Kaplan and Norton
6-16
Discussion Questions
1. What is the difference between a strength, a competitive
advantage, and a sustainable competitive advantage?
2. What makes an ability (or set of abilities) a core competency?
3. Why is it necessary to perform an external and internal analysis
before the firm can identify its true core competencies?
4. Pick a company you are familiar with. Can you identify some of its
core competencies?
5. How is the idea of “strategic intent” different from models of
strategy that emphasize achieving a fit between the firm’s
strategies and its current strengths, weaknesses, opportunities and
threats (SWOT)?
6. Can a strategic intent be too ambitious?
6-17
Chapter 7
CHOOSING
INNOVATION
PROJECTS
McGraw-Hill/Irwin
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Boeing’s Sonic Cruiser
• Boeing was developing a new midsized jet, the
“Sonic Cruiser,” which would travel 15-20%
faster than existing commercial jets. It was
expected to cost $10 billion to develop.
• However, in 2002 air ticket sales were down,
several airlines faced bankruptcy, and aircraft
were put into storage to reduce capacity.
• Despite this, Boeing forecasted that worldwide
aircraft fleet would double by 2021. Boeing also
noted that developing the aircraft was necessary
to renew the company’s skills and experience.
7-19
Boeing’s Sonic Cruiser
Discussion Questions:
1. What factors must go into Boeing’s decision
about whether to continue developing – and
launching – the Sonic Cruiser?
2. What are some of the challenges with
estimating the potential returns of the project?
3. What method, or combination of methods, do
you think Boeing should have used to evaluate
the project?
4. Should Boeing have developed the Sonic
Cruiser?
7-20
Choosing Innovation Projects
• Methods range from informal to highly
structured
• May be entirely qualitative to strictly
quantitative
• Variety of methods give full picture of
potential (and risk)
7-21
Development Budget
• Capital is not infinite!
• Capital rationing: Fixed R&D budget;
rank order projects
–R&D budget – often percentage of prior year’s
sales
–Typically determined through industry or
historical benchmarking
7-22
The Development Budget
• R&D Intensity varies considerably across and
within industries.
Industry
Software & Internet
R&D as a Percent of Sales
12.7%
Health
11.2
Computing & Electronics
7.6
Technology
4.3
Aerospace & Defense
4.1
Automotive
4.1
Industrials
2.3
Consumer Products
2.1
Telecom
1.9
Chemicals & Energy
1.5
7-23
The Development Budget
• Top 20 Global R&D Spenders, 2004
Company
R&D
Expenditures
($billions)
R&D as
percent of
sales
Microsoft
$7.8
21%
Pfizer
7.7
Ford
Company
R&D
Expenditure
s ($billions)
R&D as
percent of
sales
GlzxoSmithKline
5.2
14%
15%
Intel
4.8
14%
7.4
4%
Volkswagen
4.7
4%
DaimlerChrysler
7.0
4%
Sony
4.7
7%
Toyota
7.0
4%
Nokia
4.6
13%
General Motors
6.5
3%
Honda
4.4
5%
Siemens
6.2
7%
Samsung
Electronics
4.3
6%
Matsushita
Electric
5.7
7%
Novartis
4.2
15%
IBM
5.7
6%
Roche Holding
4.1
17%
Johnson &
Johnson
5.2
11%
Merck
4.0
18%
7-24
Theory In Action
Financing New Technology Ventures
– Fund innovation internally – if sufficient cash
– Early stage entrepreneurs – family, friends, and
credit cards.
– Start-ups - government grants and loans.
– Promising start-ups – “angel investors” or venture
capitalists
7-25
Quantitative Methods for
Choosing Projects - DCF
• Discounted cash flow methods, or real options
– Discounted Cash Flow (DCF), Net Present Value (NPV):
• Expected cash inflows are discounted and compared to outlays.
7-26
Quantitative Methods for
Choosing Projects - DCF
–Internal Rate of Return (IRR): Discount rate
that makes investment’s NPF = 0
– Calculators and computers perform by trial and error.
– Potential for multiple IRR if cash flows vary
–Strengths and Weaknesses of DCF Methods:
• Strengths
– Concrete financial estimates
– Timing of investments/returns, and time value of money
both considered explicitly
• Weaknesses
– May be deceptive; GIGO!
– May fail to capture strategic importance of project
7-27
Quantitative Methods for
Choosing Projects – Real Options
–Real Options: Applies stock option model to
nonfinancial resource investments
• Call Price: Cost of R&D program
• Exercise Price: Cost of future investment required to
capitalize on R&D program
– E.g., cost of commercializing a new technology
• Returns to R&D investment analogous to value of
stock purchased with call option
7-28
Quantitative Methods for
Choosing Projects
–Examples of real call options
7-29
Quantitative Methods for
Choosing Projects
• Options valuable in uncertainty
• Real options models have limitations:
– Innovation projects don’t follow same capital market
assumptions as options
• May not be able to acquire option at small price: may require
full investment before its known whether technology will be
successful.
• Value of stock option is independent of call holder’s behavior,
but value of R&D investment is shaped by the firm’s
capabilities, complementary assets, and strategies.
7-30
Qualitative Methods of
Choosing Projects
• Decision factors may be difficult or misleading to
quantify.
• Qualitative methods also used, e.g.,
– Screening Questions
• Role of customer (market, use, compatibility and ease of use,
distribution and pricing)
• Role of capabilities (existing capabilities, competitors’
capabilities, future capabilities)
• Project timing and cost
7-31
Qualitative Methods of
Choosing Projects
– Aggregate Project Planning Framework
• R&D projects mapped by levels of risk, resource commitment and
timing of cash flows
7-32
Qualitative Methods of
Choosing Projects - Categories
– Advanced R&D Projects: cutting-edge technologies;
often no immediate commercial application.
– Breakthrough Projects: revolutionary new
technologies in commercial application.
– Platform Projects: not revolutionary; fundamental
improvements over preceding generations
– Derivative Projects: incremental improvements and
variety in design features.
– Compare actual balance of projects with desired
balance.
Derivative projects
Fast Payoff
Positive cash flow
Advanced R&D
Indefinite Payoff
Tech Leadership
7-33
Qualitative Methods of
Choosing Projects
–Q-Sort - simple method for ranking ideas on
different dimensions.
• Ideas put on cards.
• Cards stacked in order of their performance on
specific dimension.
• Re-sorting for different dimensions used to achieve
consensus about projects
7-34
Combining Quantitative and
Qualitative Information
• Often multiple methods in combination.
• May convert qualitative information into
quantitative form
– Similar risks as discussed with quantitative methods)
– Conjoint Analysis – estimates relative value
individuals place on attributes of a choice.
• Individuals given card with products (or projects) with different
features and prices.
• Individuals rate each in terms of desirability or rank them.
• Multiple regression used to assess the degree to which an
attribute influences rating.
• Weights quantify trade-offs of providing different features.
7-35
Theory In Action
Courtyard by Marriot
– Used conjoint analysis to help it develop a midprice
hotel line
– Used focus groups to identify customer segments and
attributes they cared about in a hotel.
– Then created potential multiple hotel profiles; asked
participants to rate profiles.
– Regression identified most-valued features
– Result: Courtyard concept
•
•
•
•
•
•
Relatively small hotels
Limited amenities
Small restaurants and meeting rooms
Courtyards
High security
Low rates
7-36
Combining Quantitative and
Qualitative Information - DEA
– Data Envelopment Analysis - linear programming
combines measures of projects into efficiency
frontier.
• Projects ranked by assessing distance from frontier
• DEA results only as good as data utilized
• Choice and accuracy of measures important
Source: prodtools.com
7-37
Discussion Questions
1. What are the advantages and disadvantages of
discounted cash flow methods such as NPV and IRR?
2. For what kind of development projects might a real
options approach be appropriate? For what kind of
projects would it be inappropriate?
3. What are some of the reasons that a firm might use both
qualitative and quantitative assessments of a project?
4. Identify a particular development project you are familiar
with. What kinds of methods do you believe were used to
assess the project? What kinds of methods do you
believe should have been used to assess the project?
5. Will different methods of evaluating a project typically
yield the same conclusions about whether to fund its
development? Why or why not?
7-38
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