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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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subjects to hit today
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
individual written assignment for may 12
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
eli lilly case discussion

Eli Lilly Case Discussion

Oh man,What a headache!

strategy under uncertainty
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

nature of uncertainty
Nature of Uncertainty
  • 4 types of uncertainty
    • Pretty Clear Future
    • Future Alternatives
    • A Range of Future
    • True Ambiguity
  • Give me examples of each….
strategic posture
Strategic Posture
  • Shape the future
  • Adapt to the future
  • Reserve the right to play
portfolio of actions
Portfolio of Actions
  • No Regret Moves
  • Options
  • Big Bet
strategy as a portfolio of real options
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

unrelated investments
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!!!
nested options
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.
managing development flexibility
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
flexibility defined
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

uncertainty cost matrix
Uncertainty Cost Matrix

Invest inFlexibility

Create andPreserveOptions

Cost of

Change

High

Low

Low High

Uncertainty

steps in managing flexibly
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

dell product development
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?
next week
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