Management of Technology OM476

1
Management of Technology (OM476)

• Project Selection
• March 20, 2006
• S. Fisher

2
Agenda

• Methods for choosing RD projects
• Financial
• Economic
• Strategic
• Customer-based

3
In-class writing

• Which product development project(s) should
  Microsoft focus on, and why?
• Improving security across the board
• Next version of Windows (Vista)
• Developing next version of Office
• New search engine
• New version of Xbox
• New games for Xbox
• Windows mobile software (for cell phones, PDAs)
• Another project?

4
Net Present Value

• Will this project make money? Is it worth the
  investment?
• Discounting future cash flows to account for risk
  and time value of money
• NPV Present value of cash inflow Present
  value of cash outflows
• If NPV gt 0, project is predicted to have positive
  value
• Can compute multiple NPV scenarios based on
  various levels of risk, discount rates
• IRR is the discount rate that results in NPV 0

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NPV Example
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Real Options

• Investment in RD purchase of real call option
  on the technology
• Options include
• Right to commercialize technology
• Right to acquire partner
• Differences in key assumptions between stock
  market and RD applications?

7
More Qualitative Analysis of Costs and Benefits

• Screening questions (some quantitative data in
  these questions)
• Role of customer
• Role of capabilities (e.g., maintaining knowledge
  stocks)
• Project timing and cost
• Mapping RD portfolio
• Q-sort

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Some screening questions for the Microsoft
projects

• How many customers would the upgrades affect?
  What is the size of the installed base?
• Are there alternatives to which customers could
  switch?
• Does the project leverage the firms core
  competencies?
• Will the project help the firm build new
  capabilities that will allow it to achieve its
  strategic intent?

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Portfolio Management

• Alignment with business strategy
• Balance in project types
• Long term and short term
• High risk and low risk
• Radical and incremental
• Project stages, product lifecycles

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Balancing Across Business Segments

• Allows the company to balance risk
• Look at product portfolios for
• W.L. Gore
• 3M
• How does a company like Boeing balance its risk?

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Project Selection at Gore

• Project champion recruits other employees to work
  on a project If you cant find enough people
  to work on it, maybe its not really a good
  idea.
• Real, Win, Worth exercise
• Is the opportunity real? Will someone buy this?
• Can we win? What do the economics look like?
• Is it unique and valuable? Can we have a
  sustained advantage?

Source Harrington, A. (2003). Whos afraid of a
new product? Fortune, 148(10), p. 189.
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Googles Project List

• Used to maintain a prioritized list of Top 100
  projects
• When the list grew to 270 projects, they stopped
  using the list
• Googles decision making guidelines include
• Dont be evil beneficial social impact
• Fearlessness launch early and often
• What allows Google such freedom in NPD?

Source Elgin, B. (October 3, 2005). Managing
Googles Idea Factory. Business Week.
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Conjoint Analysis

• Estimating value placed on certain attributes of
  a choice
• Collect data about preferences using interviews,
  surveys, etc.
• Estimate relative importance using
  regression-based techniques
• Could be used at the project level or the product
  feature level

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Data Envelopment Analysis

• Typically used in operations research, hence the
  focus on efficiency
• Allows firms to compare across different types of
  measures
• Can use it to find the best linear combination of
  project attributes and compare all other projects
  to this efficiency frontier
• An efficient NPD project would maximize returns
  based on minimal inputs

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Example Efficiency Frontier
Source http//people.brunel.ac.uk/mastjjb/jeb/or
/dea.html
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Common Errors in Project Selection

• Picking too many projects
• Lack of focus
• Leads to insufficient resources (money, staff)
  for any one project
• Picking too many low risk projects
• Mediocre, small projects are low risk, low return

Source Cooper and Edgett ( 2003). Overcoming
the crunch in resources for new product
development. Research Technology Management,
46(3), 48-58.
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Back to Microsoft

• Winning the web seen as their biggest strategic
  challenge
• Over 80 of revenues come from old products
  (Windows, Office)
• Xbox and Windows Mobile are still losing money
• Does this change your initial answer at all?

18
For next class

• Enterprise case discussion
• Team 6 presenting
• Team 2 review/questions
• All others exec summary
• On Monday, March 27 Eli Lilly case