Mgt' 711 Management of Technology

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Mgt. 711 Management of Technology

• Dr. Steven Walsh
• GA
• Japji Hundal

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Outline

• Session 1
• Review concepts from week 4 5
• Using the Learning Curves
• Readings
• Case III-9 3M Optical Systems Managing Corporate
  Entrepreneurship
• (written case due today)
• A case discusion
• Session 2
• Eclipse Aviation?
• GM?

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Week 4 Enacting Innovation and Technology
Strategy

• Portfolio management
• Value Chain (internal)
• Value Chain (industrial)

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Portfolio Management

• What does it mean?
• Can mean as little as a managing a number of
  things along one parameter
• Management not usually so simple
• Usually a number of success parameters to
  optimize rather than maximize one
• Usually a number of projects
• We already have one tool

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Portfolio
Technology
Existing Expanded New
New Expanded Existing
Market
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Industry Value Chain
Customer
Waste 50 Mn Solution
Final Product Byproduct
Production of Raw Materials
Example The Chemical Industry
Magnesium Nitrate 400 lb. Drum
Shipping and Warehousing
Point of Use
User QC Lot for Inventory
User needs 40,000 lbs/year all the same lot
Internal Production ways out and adds 42lbs. On
100 Mn basis to batch
QC and Inventory
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Firms Internal Value Chain
Firm Infrastructure
Human Resource Management
Margin
Support Activities
Technology development
Procurement
Inbound Logistics
Outbound Logistics
Marketing Sales
Service
Operations
Margin
Primary Activities
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Week 5 Session 1 Enacting Global Innovation and
Intellectual Property

• Learning Curves (Performance and Cost)
• Profit Maximizing and the Learning Curve
• Competitor Minimization and Learning Curve
• Design to Cost / Design to Performance
• Trend Analysis

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The Traditional Learning Curve
/Units
1.00
.90
.81
of Units
2X
x
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Profit Maximization and the Learning Curve
Set Price at a point higher than the cost
learning curve at all times
/Units
1.00
.90
of Units
x
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Competitor Minimization and Learning Curve
/Units
Initial Price is set at a future point on the
Learning curve
1.00
Ex semiconductor devices
.90
x
of Units
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Design To Cost Vs. Design To Performance

• Lowest cost design to produce
• When do you redesign?
• When you can make it cheaper
• When industry Standards Change
• upping the hurdle or
• allowing you to make it cheaper

• Highest Performing Design along specific Critical
  Dimensions
• When do you redesign?
• When you can make it perform better along a
  specific critical dimension

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Popular Approaches to Forecasting Qualitative
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Popular Approaches to Forecasting Quantitative
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Trend Analysis of Health Care in US
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(No Transcript)
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Week 6 readings

• Reading IV-1 Communication between Engineering
  and Production A Critical Factor
• Reading IV-7 Accelerating the Design-Build-Test
  Cycle for Effective New Product Development

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Case III-5 Innovation at 3M Corporation

• How has innovation of 3M evolve over time ?
• Is 3M a hothouse ? Why?
• Their use of lead user process Vs traditional
  marketing research
• How about medical-surgical lead user team?

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Case Discussion

• Case IV -2 Eli- Lilly and Company Drug
  Development Strategy

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Week 6 Session 1 Internal and External Sources
of Technology

• Using the Learning curves as a support tool

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Learning Curve and RD Decision Making Dynamic
Disruptive Learning

• Jonathan D. Linton, Jules D. Prendergast, Steven
  T. Walsh and Barry Keys

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Outline

• Understanding Learning Curves value
• By focusing on the different characteristics of a
  product, still at the RD stage
• Identify the likely effect that these
  characteristics have on the rate of future
  learning
• Identifying different types of learning
• Go beyond incrementalism
• We include the duality of the learning curve and
  physical limits

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Learning Curve as a RD tool

• Using LC theory to discuss cost, go/no go and
  pricing strategies
• Early integration of suppliers in the product
  creation process is widely considered beneficial
  for both partners
• We doubt that this is true for every industry
  sector, every product and every technology.
• We address the difference between learning and
  experience curves and review the associated
  terminology
• Introduce Dynamic Disruptive Technology

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Learning Experience Curves

• The Phenomena
• Wright 1938
• Aircraft manufacturing
• The Commercializer
• Bruce Henderson BCG
• 10- 30

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Histogram of a Accumulated Learning Curves
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A Table of Selected Firms
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Different learning curve rates from 85-98 (2-15
savings per year)
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Production Volume

• are associated with reduction in total labor
  costs
• Dompere and Nti, 1991
• Boucher, 1987
• Roser and Sundby, 1985
• Yelle, 1979
• Liao and Noftsinger, 1977

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Other Savings

• Materials
• BCG
• Labor and Processing
• Argote and Eppel, 1990
• Fauber, 1989
• Camm et al., 1987

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Learning Curve vs Experience Curve

• Bruce Henderson (BCG, 1973, 1974a) and the
  difference between Learning Experience Curves
• Terminology subtle differences such as the use
  of the word experience as opposed to the
  originally used term learning.
• Experience curves are based on all costs
  associated with a product.
• Learning curves typically consider only the labor
  costs associated with a product.
• Learning curve studies offer more conservative
  numbers lower potential savings than experience
  curves.

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Experience Curves Limits

• Hall and Howells (1985)
• Found Experience Curves have limits
• Physical limits
• Linton and Walsh (2004)
• Reverse learning
• Success
• Different paradigms

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Costs can be modelled

• LHm LH1mC
• LHm is the labour hours required to produce m
• LH1hours required to produce the first unit
• C is the learning curve slope is expressed
  by
• C (log of the learning rate/ log2) where log2
  is used due to the strategic intent of a savings
  associated to each doubling of production
• Advocates of learning and experience curves also
  agree on the reduction of cost by the percentage
  of the learning rate for every doubling of
  production experience

.
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Implementing Dynamic Disruptive Learning

• How does one define the actual physical first
  product which will identify the initial cost?
• How does one select the learning rate?
• How low can the cost of a product go before
  levelling off?

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At what point is the first product being
produced?

• First product on the product line
• In the case of these products being semi-custom
  capital products, there are no delays between the
  development of a functional product and the
  consideration of a starting point for a learning
  curve.
• First product ready for field use

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How does one select a learning curve?

• For determining what rate of learning is the most
  suitable, choose comparable situations/products
• the type of processes and/or activities and the
  propensity or drive for a firm to learn
• As a product may involve different components or
  subsystems, it is recommended that the costs
  associated with each subcomponent be considered
  separately

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Considerations of Learning Limitations

• Direct-labor, indirect-labor, and managers learn.
  
• Specialization, standardization and methods
  improve.
• Small routine innovations drive incremental
  learning.
• Capital learning - as production increases
  manufacturing equipment is more fully exploited,
  thereby lowering fully accounted unit costs.
• As a company acquires experience, it can alter
  its mix of inputs.
• As experience increases minor design improvements
  are identified.
• Suppliers and distributors will also obtain
  learning curve benefits, thereby, improving the
  supply chain.
• As a product use increases, the consumer uses it
  more efficiently and effectively.
• Spill over effects suggests that efficiencies
  gained from one product can be applied to other
  similar products, between people and between
  organizations. The latter being especially true
  with information technology.

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Learning Curve Jumping
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Understanding and Modeling the Rate of Learning
and Cost Reduction

• LRP (S Cs x LRs)/CP
• Where,
• LRP is the Learning Curve rate for the complete
  product
• LRs is the Learning Curve rate for a sub-system
  or part of the product
• CP is the Cost of the product

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The Final element of Dynamic Disruptive Learning
is the introduction of new architectures
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Conclusion

• We presented a model of Dynamic Disruptive
  Learning which
• Provides an understanding of skipping on a
  Learning Curve
• Limits poor decisions by providing a more
  accurate experience curve

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Readings

• Reading IV-1 Communication between Engineering
  and Production A Critical Factor
• Reading IV-7 Accelerating the Design-Build-Test
  Cycle for Effective New Product Development

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Week 6 Session 2

• Eclipse Aviation
• GM
• etc

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For Next Time July 24, 2009

• Session 1 Creating and Developing a Development
  Strategy
• Readings
• Reading IV-5 Creating Project Plans to Focus
  Product Development
• Reading V-2 The Power of Strategic Integration
• Session 2 Innovation Challenges in Established
  Firms
• Readings
• Reading V-1 Building a Learning Organization
• Reading IV-3 Organizing and Leading Heavyweight
  Development Teams
•  Case IV-6 Intel Centrino in 2007 A New
  Platform Strategy for Growth