Strategic Planning of R&D Outline  Risk Factors in R&D  Strategic Focus  Stage-Gate Process  Technology Choice Case MASSACHUSETTS INSTITUTE OF TECHNOLOGY -2- Company Births and Deaths*  1995: 594,000 births & 497,000 deaths  2002: 580,900 births & 576,200 deaths  2005: 670,058 births & 599,333 deaths * SBA Office of Advocacy MASSACHUSETTS INSTITUTE OF TECHNOLOGY -3- Attrition Rate of New-Product Ideas For every 11 serious ideas * 3 enter development * 1.3 are launched * 1 succeeds MASSACHUSETTS INSTITUTE OF TECHNOLOGY -4- Attempts to Start New Business  One success in ten  The odds are much poorer for new ideas MASSACHUSETTS INSTITUTE OF TECHNOLOGY -5- The Business Plan Funnel* Business Plan Received (600) Listen to presentation (60) Visit (20) Due Diligence / Negotiation (12) Investment (3) * Brookwood Partners MASSACHUSETTS INSTITUTE OF TECHNOLOGY -6- Causes of New Product Failure Inadequate Market Analysis Product Problems or Defects Lack of Effective Marketing Effort Higher Costs than Anticipated Competitive Strength or Reaction Poor Timing of Initiative 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% MASSACHUSETTS INSTITUTE OF TECHNOLOGY Technical or Production Problems All Other Causes -7- Failures not merely negligence  Attributable to lack of − understanding customer requirements − creating dramatic differences in current capabilities − understanding additional capabilities MASSACHUSETTS INSTITUTE OF TECHNOLOGY -8- The Suicide Square Increased Risk New Technology MASSACHUSETTS INSTITUTE OF TECHNOLOGY -9- The Suicide Square Increased Risk New Technology New Product MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 10 - The Suicide Square Increased Risk New Technology New Product MASSACHUSETTS INSTITUTE OF TECHNOLOGY New Market - 11 - The Suicide Square Increased Risk New Technology New Product MASSACHUSETTS INSTITUTE OF TECHNOLOGY New Market - 12 - Risk Matrices New Markets Market Risk Ordinary Returns Market and Tech Risk “The Death Zone” Low Risk Low Returns Technology Risk High Returns Existing Existing New Technology MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 13 - CD Risk Matrix 1981 Sony, Philips, Matsushita Markets New Sell floppy disks to the PC market Sell CD’s to the PC market Vinyl records to audio market Sell CD’s to the Audio market Existing Existing New Technology MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 14 - CD Risk Matrix 1985-1996 Sony, Philips, Matsushita Markets New Sell CD’s to the PC market Sell DVD’s to the Video Game market Sell CD’s to the Audio market Sell DVD’s to the Video market Existing Existing New Technology MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 15 - Technology Management  Strategic focus  Business process MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 16 - Strategic Focus  Choose attractive strategic markets or market segments to participate in.  Find “Beacons” in selected markets and market segments.  Identify core competencies needed to address products, markets and applications.  Plan a product, market, application / competency succession strategy. MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 17 - Business PRODUCT MARKET APPLICATION Product: What we supply to add value. Market: Who we supply the value to. Application: How customers use the product to realize value. MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 18 - Business PRODUCT MARKET Automotive MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 19 - APPLICATION Business PRODUCT MARKET Hose &Tubing Assemblies VW Group GM/ Opel BMW/ Rover Ford MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 20 - APPLICATION Business PRODUCT MARKET Hose &Tubing Assemblies VW GM BMW Ford MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 21 - APPLICATION AC Systems Technology Strategy vs. Corporate Strategy  Identify the firm’s “Core Competency”  Specify the types of products, markets, applications and technologies for focus  Specify the role technology innovation plays in achieving the firm's overall objectives MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 22 - Strategic Resources: Focus and Risk  Assign resources to reflect strategic focus.  Assign resources according to the acceptable level of risk.  Reconcile differences between the stated strategy and specified resources. MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 23 - Stage – Gate Process Go/ No-Go Screen Go/ No-Go Screen Investigate Develop Go/ No-Go Screen Develop Launch Ideas 1st MASSACHUSETTS INSTITUTE OF TECHNOLOGY 2nd STAGE 3rd - 24 - nth Modified Stage-Gate with Continuous Customer Interaction Customer Strategic focus IDEA Customer Development n-th Development New product Concurrent Business Development  Cross-disciplinary teams  Knowledge must broaden − Engineers are “technical” experts; but must understand the business − Managers are “business” experts; but must understand the technology MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 26 - Case Study: Technology Choice  Grumman Corporation MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 27 - Basic Factors in Evaluating a Technology  Will the technology satisfy a market sometime in the future (Market Need)? − Does it provide improved performance? − Does it reduce costs? − Is its market penetration rate acceptable?  When will the product become significant (Timing)? MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 28 - Basic Factors in Evaluating a Technology (cont.)  Will the technology be commercially viable (Economics)? − Does the market exist or will it be created? − Does the potential market size justify the investment? − Is the production process feasible and practical? − Is the product profitable to manufacture? MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 29 - Solar grid parity is close MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 30 - MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 31 - Solar’s Challenge: Scale Global Cell Production 9,000 7,910 8,000 7,000 MWs 6,000 5,000 4,279 4,000 2,536 3,000 2,000 1,000 202 287 401 560 750 1,256 1,815 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008  Despite record growth, generation from PV still is only 0.2% of total global electricity MASSACHUSETTS INSTITUTE OF TECHNOLOGY - 32 - Our energy supply will change and PV will play a big role 100% Renewables: • Hydro • Solar Electric • Wind • Bio-fuels • Geothermal Wood 80% Coal 60% Oil 40% Gas 20% Hydro Nuclear 0% 1800 1850 1900 1950 Year Source: Energy Information Agency MASSACHUSETTS INSTITUTE OF TECHNOLOGY 2000 - 33 - 2050 2100 MIT OpenCourseWare http://ocw.mit.edu 2.96 / 2.961 / 6.930 / 10.806 / 16.653 Management in Engineering Fall 2012 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.