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Technology Management Class 4: Valuing Product Development and R&D

Technology Management Class 4: Valuing Product Development and R&D. John A. Hengeveld. Subjects to Hit today. Written Assignment for “midterm” Eli Lilly Case Analysis and Discussion Eli Lilly Case Part B W&C Chapter 8 Articles: Strategy as a Portfolio of Real Options

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Technology Management Class 4: Valuing Product Development and R&D

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  1. Technology ManagementClass 4: Valuing Product Development and R&D John A. Hengeveld

  2. Subjects to Hit today • Written Assignment for “midterm” • Eli Lilly Case Analysis and Discussion • Eli Lilly Case Part B • W&C Chapter 8 • Articles: • Strategy as a Portfolio of Real Options • Strategy under Uncertainty • Managing Ambidextrously

  3. Individual Written assignment for May 12 • I have given you an article from MIT Technology Review on 10 oncoming technologies. • Skim the whole article. • Pick 1(one) of these technologies are write a paper on the technology development risks and issues associated with that technology. Key topics to cover should include at least. • The potential value of the technology • Propose a development policy and structure to bring these technologies to market. • An understanding of the key risks to manage. • Strategic implications of uncertainties • How would you approach the R&D of this technology? • It will probably take 5+ pages to cover the topic.. Maybe more, maybe a little less. Check out the grading criteria for written assignments. • Be prepared to discuss your analysis and recommendations in class

  4. Eli Lilly Case Discussion Oh man,What a headache!

  5. Strategy under Uncertainty 1: IdentifyNature and Extent Of Residual Uncertainties • 4: Actively manage the strategy • Trigger Events • Short Cycle Review ofPortfolio 2: Define Strategic Posture 3: Build a Portfolio of Actions

  6. Nature of Uncertainty • 4 types of uncertainty • Pretty Clear Future • Future Alternatives • A Range of Future • True Ambiguity • Give me examples of each….

  7. Strategic Posture • Shape the future • Adapt to the future • Reserve the right to play

  8. Portfolio of Actions • No Regret Moves • Options • Big Bet

  9. Strategy as a portfolio of Real Options • Harvest those tomatoes…. Value to cost 6: Invest Never 1: Invest Now! lower 5: probably never 2: Maybe Now Volatility NPV=0 4: maybe later 3: Probably Later higher 1.0

  10. Unrelated investments • Fairly straight forward to place in the 6 regions • Where it complicated is when options are created as a byproduct of an investment!!!

  11. Nested options • Value of strategy =PV { product intro + Call value(first expansion + call value(2nd))} • (Weatherize is a typical analysis case) • Frequently the value of the options created by the investment is IGNORED by the analysis process. The call value can usually be calculated and should be considered in assessing the value of strategy! • This type of analysis is frequently valuable in considering platform or architectural investments.

  12. Managing Development Flexibility • In today’s fast moving environments, the ability of business processes is key to competitive success. • In high product complexity situations, traditional management approaches for forecasting future needs is reduced. • “Development flexibility” is the turning radius of a firm. Managers can be more responsive to change and become less reliant on accurate long term forecasting

  13. Flexibility Defined • Development flexibility can be expressed as a function of the incremental cost of modifying a product as a response to external (Customer needs) and internal change(better solutions) • High cost-> low flexibility • (extra door on minivan) See Agile Product Development: Managing Development Flexibility in Uncertain Environments, CMR vol 41 no 1, Fall 1998

  14. Uncertainty Cost Matrix Invest inFlexibility Create andPreserveOptions Cost of Change High Low Low High Uncertainty

  15. Steps in Managing Flexibly • Adopt Flexible Technologies • Find technologies that allow for fast and los cost design changes • Adopt Flexible Management Processes: • Progressively lock down requirements • Keep multiple back-up approaches and have a rapid decision making model • Measure Reaction Time • Make piecewise commitments versus binary choices • Adopt Flexible Design Architecture • Use Modular Product Structures • Isolate Volatile elements See Agile Product Development: Managing Development Flexibility in Uncertain Environments, CMR vol 41 no 1, Fall 1998

  16. Dell Product Development Assignment Questions: (ie: be prepared to discuss, and make sure these are covered in your case writeup) • What are the competitive forces shaping the computer industry in 1993? • What is the state of Dell Computer prior to and including 1993? Financially? Market Strategy? Products? Development Processes? • Why has Dell Senior Management introduced the 18 month process? What problem were they trying to solve? • What battery option should the Holliday team select?

  17. Next Week: • Read Articles: • Managing Ambidextrous Organizations • How Architecture Wins Technology Wars • Team Assignment due: • Dell Product Development • Team Writeup only • Strong Suggestion: • GET STARTED ON SGI Case: • Team Writeup • Team Presentation

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