It hurts when IP Flashcards
1
Q
Which are Porter’s Five Forces? Explain them shortly.
A
- Degree of existing rivalry
- In general, the more firms competing that are of comparable size, the more competitive the industry will be. Rivalry is also influenced by the degree to which competitors are differentiated from each other. - Bargaining power of buyers
- The degree to which the firm is reliant on a few customers will increase the customer’s bargaining power and vice versa. - Bargaining power of suppliers
- The degree to which the firm relies on one or a few
suppliers will influence the ability to negotiate good terms. The amount the firm purchases
from the suppliers is also relevant. - Threat of potential entrants
- Is influenced by both the degree of which the industry is likely to attract new entrants (i.e. is it profitable, growing?) and the height of entry barrier (conditions that makes it difficult or expensive for new firms to enter the industry, i.e. brand loyalty, governmental regulations and difficulties to gain access to suppliers or distributors). - Threat of substitutes
- Substitutes are products or services that are not considered competitors, but fulfill a strategically equivalent role for the customers. The more potential substitutes and the closer they are in function to the firm’s product or service, the greater the threat of substitution. The threat of substitution will also be shaped by the relative price.
2
Q
Describe three factors that affect the degree of existing rivalry in P5F?
A
- Number and relative size of competitors.
More firms of comparable size competing –> more competitive industry - The degree to which competitors are differentiated from each other.
Highly differentiated –> less direct rivalry because the product their products are likely to appeal to different market segments - Demand
Increasing demand –> more revenues to go around and thus less competitive pressure
3
Q
Describe factors that affect the degree of threat of potential entrants in P5F?
A
- Degree to which the industry is likely to attract new entrants (i.e. is it profitable, growing or otherwise alluring?)
- Height of entry barriers (e.g. start-up costs, brand loyality, difficulty in gaining access to suppliers or distributors, government regulation, threat of retaliation by existing competitors).
Profitability and growth attracts whereas entry barriers deters.
4
Q
Describe factors that affect the bargaining power of suppliers in P5F?
A
- Amount of suppliers: Few suppliers –> much bargaining power of supplier
- The degree to which suppliers are differentiated from each other. Highly differentiated suppliers –> the firm may have little choice in its buying decision, and thus have little leverage over the supplier to negotiate price etc.
- Switching costs. Higher –> More bargaining power of suppliers
- The amount the firm purchases from the supplier.
If firms purchases constitute the bulk of the supplier’s sales –> supplier has little bargaining power.
If suppliers sales constitute a large portion of the firms purchases, the firm will be heavily reliant upon the supplier –> supplier has more bargaining power
- The firm can backward vertically integrate (i.e. produce its own supplies) –> supplier has little bargaining power. If the supplier, on the other hand, vertically integrate into the firm –> increase supplier’s bargaining power
5
Q
Describe factors that affect the bargaining power of buyers in P5F?
A
- Degree to which the firm is reliant on few customers will increase the customer’s bargaining power, and vice versa.
- If firms product is highly differentiated –> buyers will experience less bargaining power, and vice versa
- Switching costs for buyer. High –> lower bargaining power
- The buyer can backward vertically integrate (i.e. produce its own supplies) –> buyer has higher bargaining power. If the firm, on the other hand, vertically integrate into the buyer –> increase firm’s bargaining power
6
Q
Describe what Porter means by Threat of substitutes in P5F?
A
- Substitutes are products or services that are not considered competitors, but fulfill a strategically equivalent role for the customer.
The more potential substitutes there are, and the closer they are in function to the firm’s product or service, the greater the threat of substitution.
- The relative price will also shape the threat of substitution. For example, while traveling by bus vs. air is not particularly comparable in terms of speed, traveling by bus is often less expensive. Thus, it poses a threat of substitution, particularly for shorter distances to be traveled.
NOTE: distinguishing between competitors and substitutes depends on how the industry is defined.
Airline industry: Buses are substitutes for airlines
Transportation industry: Buses are competitors of airlines
7
Q
How does complements affect the competition according to Porter?
A
The availability, quality and price of complements will influence the threats and opportunities posed by the industry.
Ask yourself:
i) how important are complements in the industry?
ii) are complements differentially available for the products of various rivals? (impacting the attractiveness of their goods)
iii) who captures the value offered by the complements?
8
Q
Explain Radical Innovations.
A
The radicalness of an innovation is the degree to which it is
new and different from previously existing products and
processes.
–The radicalness of an innovation is relative; it may change
over time or with respect to different observers.
E.g., digital photography a more radical innovation for
Kodak than for Sony.
9
Q
Explain Incremental Innovations.
A
Incremental innovations may involve only a minor change
from (or adjustment to) existing practices.
10
Q
What is a Competence Enhancing Innovation?
A
Competence-enhancing innovations build on the firm’s
existing knowledge base
• E.g., Intel’s Pentium 4 built on the technology for Pentium III.
Whether an innovation is competence enhancing or
competence destroying depends on the perspective of a
particular firm.
11
Q
What is a Competence-Destroying Innovation?
A
Competence-destroying innovations renders a firm’s existing
competencies obsolete.
• E.g., car industry is transformed from primarily mechanical
engineering into IT, electronics, etc
Whether an innovation is competence enhancing or
competence destroying depends on the perspective of a
particular firm.
12
Q
Explain radical innovations.
A
The radicalness of an innovation is the degree to which it is new and different from previously existing products and processes.
The radicalness of an innovation is relative; it may change over time or with respect to different observers.
E.g. digital photography a more radical innovation for Kodak than for Sony.
13
Q
Explain incremental innovations.
A
Incremental innovations may involve only a minor change from (or adjustment to) existing practices.
14
Q
What does Sailing Effect refer to?
A
Often when incumbent firms sponsoring the old technology perceive the threats from a new
technology, they respond vigorously by improving the old technology.
This pattern has been observed in several industries, the classic example being the rapid improvements in sailing ships when motor ships were introduced, hence the concept of “sailing effect”.
15
Q
Explain Competence-enhancing innovations.
A
Competence-enhancing innovations build on the firm’s existing knowledge base
- Mostly incremental.
- E.g. Intel’s Pentium 4 built on the technology for Pentium III.
Whether an innovation is competence enhancing or competence destroying depends on the perspective of a particular firm.
16
Q
Explain Competence-destroying innovations
A
Competence-destroying innovations render a firm’s existing competencies obsolete.
Takes longer time.
E.g. car industry is transformed from primarily mechanical engineering into
IT, electronics etc.
Whether an innovation is competence enhancing or competence destroying depends on the perspective of a particular firm.
17
Q
Explain component innovations
A
A component innovation (or modular innovation) entails changes to one or more
components of a product system without significantly affecting the overall design.
E.g. adding gel-filled material to a bicycle seat.
18
Q
Explain Architectural Innovations
A
–An architectural innovation entails changing the overall
design of the system or the way components interact.
• E.g., transition from high-wheel bicycle to safety bicycle.
–Most architectural innovations require changes in the
underlying components also.
19
Q
What is the NIH-syndrome?
A
The NIH-syndrome – “Not Invented Here”. It means that larger firms didn’t want to use something that someone else invented. It is starting to disappear now, but in some areas it is still this way. E.g.
Wildberry, high speed data transfer by laser.
20
Q
What is included in a technology’s stand-alone value?
A
• Includes such factors as: –The functions the technology enables customers to perform –Its aesthetic qualities –Its ease of use, etc.
A new technology that has significantly more standalone
functionality than the incumbent technology may offer less
overall value because it has a smaller installed base or
poor availability of complementary goods.
–E.g., NeXT Computers were extremely advanced
technologically, but could not compete with the installed
base value and complementary good value of Windowsbased
personal computers.
21
Q
What is included in a technology’s Network Externality Value?
A
Network Externalities = when the value of a good to a user increases with the number of other users of the same or similar good.
Includes the value created by:
–The size of the technology’s installed base
–The availability of complementary goods
A new technology that has significantly more standalone
functionality than the incumbent technology may offer less
overall value because it has a smaller installed base or
poor availability of complementary goods.
–E.g., NeXT Computers were extremely advanced
technologically, but could not compete with the installed
base value and complementary good value of Windowsbased
personal computers.
- PS4 had not enough complementary goods (new invention) while PS3 had (it had a blue-ray).
22
Q
What do you have to do to successfully overthrow an existing dominant technology?
A
• To successfully overthrow an existing dominant technology, new technology often must either offer:
– Dramatic technological improvement (e.g., in videogame consoles, it has taken 3X performance of incumbent)
– Compatibility with existing installed base and complements
It could be easier to build from something that already exists, from a business perspective.
Spotify – When it started it was free and you needed an invitation. Invites made the growth slower, which could be good from a quality point of view.
23
Q
Mention some first-move advantages
A
Being a first mover can have the advantages of:
–Brand loyalty and technological leadership
–Preemption of scarce assets
–Exploiting buyer switching costs
–Reaping increasing returns advantages. (First mover may rise in market power through increased returns and eventually make it the dominant design)
24
Q
Mention some first-move disadvantages
A
First movers often bear disadvantages, such as:
–High research and development expenses
–Undeveloped supply and distribution channels
–Immature enabling technologies and complements
–Uncertainty of customer requirements
25
Which factor's influence the optimal timing of entry?
1. How certain are customer preferences?
• If customer needs are well understood, it is more feasible to enter the market earlier.
–Compare PDA vs IP telephony (Skype)
2. How much improvement does the innovation provide
over previous solutions?
• An innovation that offers a dramatic improvement over previous generations will accrue more rapid customer acceptance.
3. Does the innovation require enabling technologies,
and are these technologies sufficiently mature?
• If the innovation requires enabling technologies (such as longlasting batteries for cell phones), the maturity of these
technologies will influence optimal timing of entry.
4. Do complementary goods influence the value of the
innovation, and are they sufficiently available?
• Not all innovations require complementary goods, but for those that do (e.g., games for video consoles), availability of
complements will influence customer acceptance.
5. How high is the threat of competitive entry?
• If there are significant entry barriers, the may be less need to rush to market to build increasing returns ahead of others.
6. Are there increasing returns to adoption?
• If so, allowing competitors to get a head start can be very risky.
7. Can the firm withstand early losses?
• The first mover bears the bulk of R&D expenses and may
endure a significant period without revenues; the earlier a firm enters, the more capital resources it may need. An example is Toyota Prius generating returns first on the second generation.
8. Does the firm have resources to accelerate market
acceptance?
• Firms with significant capital resources can invest in aggressive marketing and supplier and distributor development, increasing
the rate of early adoption.
9. Is the firm’s reputation likely to reduce the uncertainty
of customers, suppliers, and distributors?
• Innovations from well-respected firms may be adopted more rapidly, enabling earlier successful entry.
26
Which actors are included in a stakeholder analysis?
- Customers
- Employees
- Shareholders
- Rivals
- Lenders
- Suppliers
- Government/authorities
- Local community
1. Who are the stakeholders?
2. What does each stakeholder want?
3. What resources do they contribute to the organization?
4. What claims are they likely to make on the organization?
27
Describe the different primary activities in an internal analysis
- Inbound logistics – All activities required to receive, store and disseminate inputs.
- Operations – Activities involved in the transformation of inputs into outputs.
- Outbound logistics – Activities required to collect, store and distribute outputs.
- Marketing and sales – Activities to inform buyers about products and services and to induce their purchase.
- Service – After-sales activities required to keep the products or service working effectively.
28
Describe the different support activities in an internal analysis
Procurement
– The acquisition of inputs, but not their physical transfer.
Technology development
– Activities involved in developing and managing equipment, hardware, software, procedures, and knowledge necessary to transform inputs to outputs.
Human resource management
– Activities such as recruitment, hiring, training and
compensating personnel.
Firm infrastructure
– Functions such as accounting, legal counsel, finance, planning, public affairs, government relations, quality assurance and general management necessary to ensure smooth functioning of the firm.
29
Name four strengths of an asset that together constitute sustainable competitive advantage
- Rare
- Valuable
- Durable
- Inimitable
Competitive advantage = ability to outperform a competitor
30
When are resources difficult or impossible to imitate?
Resources are difficult (or impossible) to imitate when they are:
- Tacit (i.e. they cannot be readily codified in written form)
- Path dependent (i.e. they are dependent on a particular historical sequence of events)
- Socially complex (i.e. they arise through the complex interaction of multiple people)
- Causally ambiguous (i.e. it is unclear how the resources gives rise to value)
31
Explain core competencies/capabilities
A set of integrated and
harmonized abilities that distinguish the firm in the marketplace.
* Competencies typically combine multiple kinds of abilities.
* Several core competencies may underlie a business unit.
* Several business units may draw from same competency.
• Core competencies should:
–Be a significant source of competitive differentiation
–Cover a range of businesses
–Be hard for competitors to imitate
32
What Apple strengths do you see were introduced into the company Apple through the Apple II process that you today would see have helped Apple have a sustainable competitive advantage over the years?
* FOCUS: Focus on a few products that actually creates value for the customer. "In order to do a good job of those things that we decide to do, we must eliminate all of the unimportant opportunities."
* EMPATHY - "We will truly understand our customer's needs better than any other company."
* IMPUTE - People DO judge a book by its cover. We may have the best product, the highest quality, the most useful software etc.; if we present them in a slipshod manner, they will be perceived as slipshod; if we present them in a creative, professional manner, we will impute the desired qualities.
- Product passion
- Packaging passion
- Holistic experience
- Mastering product push
- Ease of use
- Sustainable
- Market philosophy (empathy, focus, impute≈halo effect)
- User friendliness
- Symbiotic Jobs and
Wozniak relationship
- Bringing in competence – staying in control
- Absorptive capacity (ability to attract talent)
- Impressive launches
- Risk taking – entering new areas where no one has been before
- Appealing brand heritage
(garage, underdog, fight “big brother”)
- Top tech solutions (e.g. power, color chip)
- Lock in effect – products are connected
- Products in the pipe (doing Apple II at the same time as launching Apple I)
- Integrated design (hardware, software, etc.)
- Perfectionist – making ugly things beautiful
- Pushing people to excel
- Marketing (friendly and personal, avoid tech language)
- Absorbing (going to Japan to get memory).
33
How does Genzyme’s focus on orphan drugs affect the degree of competition if faces? How
does it affect the bargaining power of customers?
By focusing on orphan drugs, Genzyme dramatically reduces the degree of competition it faces.
First, most other biotech (and pharma) companies are not pursuing orphan drugs because of their limited market size.
Second, if the company succeeds in getting a drug approved as an orphan drug for a particular disease, it is shielded from competition in the US for seven years.
Furthermore, because Genzyme’s drug target a very underserved market and the drugs provide an alternative to debilitating pain or death, Genzyme’s end consumers (the patients) have little bargaining power, and the insurance companies have little incentive to wield their bargaining power against the company.
34
How would you describe Genzyme’s competitive position using Porter’s five forces?
Blue Ocean concerning the Degree of existing rivalry. It is also a very low bargaining power for buyers.
The threat from potential entrants is non-existent for the first 7 years, and it will be hard to establish a competing product after 7 years since Genzyme’s drug will be well established by then.
For the threat of substitutes it must be something completely different, like ease the pain with heat or something, which is unlikely.
Since Genzyme is doing their own supplying, the bargaining power for suppliers is not relevant in this case.
35
Explain the concept of Strategic Intent
–A long-term goal that is ambitious, builds upon and stretches firm’s core competencies, and draws from all levels of the organization.
* Typically looks 10-20 years ahead, establishes clear milestones
* Firm should identify resources and capabilities needed to close gap between strategic intent and current position.
36
What is the aim of C-K Theory?
C-K theory aims to model activities and notions associated with innovative design - the creation of new knowledge and the transformation or renewal of the identity of an object.
C-K theory:
- Combines creativity and rule-based design methods
- Is described as an expansion logic – a tool to think and act collectively in a systematic way
- Utilizes 2 spaces: “concept” and knowledge” and plays on the interaction between those two
- Design starts from a concept that is partly unknown and indeterminable and advances it into an object that can be decided and realized
- A design process adapted to radical innovation and conceptual breakthrough
It is an iterative process where you go from something unknown to something known, when you connect your concept with knowledge. Design is a process of reasoning emerging from the interaction of known and unknown.
37
Explain the C-space and K-space
The C-space
- The C-space is a space where proposal have no logical status in the K-space (concepts)
- This means that when a concept is formulated, it is impossible to prove that this statement is
either true or false in K: the concept is unknown regarding the existing knowledge in the K- space
- For example: “a car without wheels” or “a flying boat”
- Using iterations (operators) between C and K means expanding concepts with new attributes
until satisfactory definitions emerge
Try to challenge it, but still keep it within the companies’ ability.
The K-space
- The K-space represent current knowledge
o It is a space where proposals have a logical status, meaning that any proposal can be
either true or false
- The K-space includes all knowledge that is available; it could be technical, regulatory, social, ethical or market-related
- An example: “All the cars I know have wheels”
- Testing concepts generates new knowledge, or can bring forth new links between existing knowledge (re-ordering)
38
Explain with basic steps how to do a CK-diagram
1. From existing knowledge – formulate a c0 (something different and potentially ambiguous).
Use word such as better, cheaper.
2. Add attributes to initial concepts – create partitions.
3. Partitions may generate the need for more knowledge/new knowledge to be added in the K-space.
4. Added knowledge may result in the identification of additional attributes that can refine your
concept.
5. Continue the iteration until satisfactory definition has been reached.
39
What is a business model?
The plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs.
In other words: “a model that describes the rationale of how an organization creates, delivers and captures value”.
40
What is included in a business plan?
The business plan includes topics such as:
- Background
- Problem to be solved
- The solution
- The team
- The external environment
- The business model
- Action plans for implementation
- Risks and mitigation plan
- Financial analysis and funding requests
The time perspective is not included in a business model, but in a business plan
41
Why has the business model become such a buzz word?
An ever increasing number of ways of how to create and capture value:
- Globalization
- Specialization
- Digitalization
- Communication/Internet
- Collaboration/Open innovation
- Internet of things/M2M
- Automation/AI/Robots
- Sharing economy
- Circular economy
42
Explain Alex Osterwalder's Business Model Canvas and its different components
- Customer segments:
All the people and organizations for which you are creating value. This includes simple users and paying customers.
- Value proposition:
The bundle of products and services that create value for your customers.
- Channels:
A company can deliver its value proposition to its targeted customers through different channels. Effective channels will distribute a company’s value proposition in ways that are fast, efficient and cost effective.
- Customer relationships: Outline what type of relationship you are establishing with your
customers.
- Revenue streams:
Makes clear how and through which pricing mechanisms your business model is capturing value. In other words, the way a company makes income from each customer segment-
- Key resources:
The resources that are necessary to create value for the customer. They are considered an asset to a company, which are needed in order to sustain and support the business. These resources could be human, financial, physical and intellectual.
- Key activities:
The most important activities in executing a company's value proposition.
- Key partners:
Shows who can help leverage your business model, since you won’t have all key resources yourself nor you perform all key activities.
- Cost structure:
Once you understand your business model’s infrastructure you will also have an idea of its cost structure, i.e. the most important monetary consequences while operating.
43
Explain "Profitability"
The firm’s ability to earn income and sustain growth in both short- and long-term.
44
Explain "Liquidity"
The firm’s ability to maintain positive cash flow, while satisfying immediate obligations.
45
Explain "Stability"
The firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business
46
What is the purpose of the income statement and what does it describe?
The income statement gives one important perspective on the health of a business – its profitability
The purpose of the income statement is to make an estimation of how the company performs over a period of time
* It describes what’s sold, what it costs to make, selling &; general expenses for the period which constitutes the income for the period
* The sales is matched with its associated costs to determine profits in a given period of time
* In order to present it in this way, it requires that all expenses and costs are allocated properly which might be challenging and effect decision
* Most business model considerations will have an impact on the income statement
47
What is the purpose of the balance sheet and what does it describe?
The purpose of the Balance Sheet is to get a snapshot in time of what the company have, what it owes and what it is worth.
The Balance Sheet present the financial picture of the company on one particular day, an instant in time, the date it was written
48
What is a firm's working capital?
Working capital is a financial metric measuring the short term funding of the company
The company’s working capital is the amount of money left over after you subtract current liabilities from current assets.
49
What is Days Inventory Outstanding (DIO or DII)?
DIO is the average number of days the company holds its inventory before selling it.
The average Days In Inventory (DII) can be estimated by dividing the Inventory on the Balance sheet in an annual report by the Cost of Goods Sold (COGS) for the year and multiplying it by 365 days
From a cash point perspective, less days in inventory is better.
50
What is Days Sales Outstanding (DSO)?
DSO is the average number of days it takes the company to collect cash from its sales.
The average DSO can be estimated by dividing Accounts Receivable on the Balance sheet in an annual report by the Net Sales for the year and multiplying it by 365 days.
From a cash point perspective, less days in sales outstanding is better.
51
What is Days Payable Outstanding (DPO)?
DPO is the average number of days it takes the company to pay its suppliers.
The average DPO can be estimated by dividing the Accounts Payable on the Balance sheet in an
annual report by the Cost of Goods Sold (COGS) for the year and multiplying it by 365 days.
From a cash point perspective, more days in payables outstanding is better.
52
What is meant by Total Market Potential?
Definition: The potential sales value of a particular product or service within a specific target segment over a specified time frame.
Total Market Potential = (# of Opportunities) x (Average Selling Price of Opportunities)
53
What is meant by Total Addressable Market?
Definition: The potential sales value of a specific target segment over a specified time frame that takes into consideration the available demand for a particular product or service.
TAM = (#of Opportunities) x (%Target Opportunities) x (Average Selling Price of Opportunities)
54
What is meant by Serviceable Available Market?
Definition: The potential sales value of a specific target segment over a specified time frame that is limited to available demand for a particular product or service that can be addressed via a specific
business model.
SAM = (#of Opportunities) x (%Target Opportunities) x (%Opportunities Targeted as Part of Business Model) x (Average Selling Price of Opportunities)
55
What is meant by Target Market?
Definition: The potential sales value of a specific target segment over a specified time frame that can be addressed via a specific business model, that a company has decided to aim its sales toward.
Target Market = (#of Opportunities) x (%Target Opportunities) x (%Opportunities Targeted as Part of
Business Model) x (%Opportunities Targeted as Part of Business Development Strategy) x (Average Selling Price of Opportunities)
56
What is meant by Top-Down when speaking of estimation of market size?
Starts with an estimate of the overall market (often from research reports, analyst data or government statistics) and then evaluates the limited successive proportions that the product or service intends to reach.
Use top-down analysis to estimate the market opportunity for your company - to decide whether you want to try in the first place.
Example:
1. There are a billion people in China
2. 70% of them do not have 20/20 vision
3. Eyeglasses sell for $20 a pair
4. The TAM for selling eyeglasses in China is $14 billion
Example 2:
- We want to sell high-speed internet access in Qatar.
- There are 2 million people.
- 5% want high-speed internet access.
- We’ll get 20% of that potential market.
- Each account will yield $300 per customer and year.
```
2 million people
x 5% addressable market
x 20% success rate
x $300/customer and year
= $6 million/year
```
57
What is meant by Bottom-Up when speaking of estimation of market size?
Starting from a small sample and using projections to estimate actual serviceable market size.
Use bottom-up analysis to get a realistic estimate of what you can achieve within the first years.
Example:
1. Our retail location in Beijing gets 2 500 visitors each weekday.
2. Average conversion rates for retail opticians are 0.8%.
3. Eyeglasses sell for $20 a pair.
4. We can open 20 locations in a year.
5. By year’s end our annual revenue will be $1.7 million.
Example 2:
Bottom-up forecasts
- Each salesperson can make 10 phone sales calls a day that get through to a prospect.
- There are 240 working days per year.
- 5% of the sales calls will convert.
- Each successful sale will bring in $300 worth of business.
- We can bring on board 5 sales people.
```
10 calls/day
x 240 days/year
x 5% success rate
x $300/sale
x 5 sales people
= $180 000 in sales in the first year
```
58
How do you calculate the Future Value of money?
To calculate Future Value (FV):
𝐹𝑉𝑛 = 𝑃𝑉(1 + 𝑖)^𝑛
Present value (PV) and interest rate (i).
Example:3 years, 5%
115,76 = 100 * (1+0,05)3
59
How do you calculate the Present Value of money?
To calculate Present Value (PV)
𝑃𝑉𝑛 = 𝐹𝑉/(1 + 𝑖)^𝑛
Future Value (FV) and interest rate (i).
Example: 3 years, 5%
100 = 115,76 / (1+0,05)^3
60
How do you calculate the Net Present Value of money?
When we have more than one future value we need to calculate and sum up the present value of each one.
To calculate Net Present Value (NPV):
𝑁𝑃𝑉 = 𝐹𝑉1/(1 + 𝑖)^1 + 𝐹𝑉2/(1 + 𝑖)^2 + 𝐹𝑉3/(1 + 𝑖)^3
61
How do you calculate the Value of asset?
In discounted cash flow valuation, the value of an asset is the present value of the expected cash flows on the asset.
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡 = 𝐶𝐹1/(1 + 𝑟)^1 + 𝐶𝐹2/(1 + 𝑟)^2 + ⋯ + 𝐶𝐹𝑛/(1 + 𝑟)^𝑛
Discount rate (r).
62
What is meant by Asset-Based Valuation?
Uses the current value of assets that are marketable or reproducable.
63
What is meant by Intrinsic Valuation? When should you use this valuation model?
Relates the value of an asset to the present value of expected future cash flows on that asset.
(usually but not always Discounted Cash-Flow valuation)
ADVANTAGES: Based upon fundamentals, less exposed to market moods and perception. Forces investors to think about underlying characteristics of firm and forces investors to think about assumptions made.
DISADVANTAGES: Requires a lot of input and information and the input is difficult to estimate, noisy and can be manipulated.
WHEN TO USE?: For businesses that derive their value from their capacity to generate cash flows in the future.
64
What is meant by Relative Valuation? When should you use this valuation model?
Description: Estimates the value of a business by looking at comparable businesses.
Uses comparable assets relative to a common variable such as earnings, cash flows or sales.
WHEN TO USE?
- When there are a large number of comparable assets, when these assets are priced in a market and there exists some common variable that can be used to standardize the prices.
65
What is meant by Real Option
| Valuation?
Uses option pricing models to measure the value of assets that share option characteristics
66
What are the pros and cons of Relative Valuation?
Advantages:
- Much more likely to reflect market perceptions and moods than DCF valuation
- Requires less information than DCF valuation.
Disadvantages:
- Built on the assumptions that markets are correct in the aggregated “dot.com
- Implicit assumptions are made about variables.
67
What are the pros and cons of DCF valuation?
ADVANTAGES:
- Based upon fundamentals, less exposed to market moods and perception.
- Forces investors to think about underlying characteristics of firm
- Forces investors to think about assumptions made.
DISADVANTAGES:
- Requires a lot of input and information
- Input is difficult to estimate, noisy and can be manipulated.
68
Name some reasons for having high discount rates for startups
* Startups face high risks
* Reduced marketability of ownerships because stocks are not publicly traded
* Limited number of investors willing to invest
* Over-optimistic forecasts by enthusiastic founders
69
What force(s) is/are driving the Circular Economy? Why now?
The growing population, the urbanization and the rise of the middle class can be explanations to why this comes now.
Forces:
- There is a shift in consumer values from OWNERSHIP to ACCESS. This enables the creation to new market segments
Rebeccas notes:
- If you have a company that is B2B, then the middle man (B2C) is just a contact maker.
There is also C2C now, for example Blocket, Craigslist, Ebay and Tradera.
There is also C2B, for example People per hour, CrowdFlower and Article One. Here, companies put tasks that they want done up on the internet and then customers help them and get paid for it.
70
Enabling Technologies?
(Lol, couldn't come up with a good question, but here is info from the lecture slides)
- Wireless web connection is rapidly growing, leading to for example the creation of virtual
networks.
- Connecting machines and products to the connected world by use of for example sensor technology. Here we have for example Google Nest (Home climate) and Philips (Control lights with your phone).
- The developments of advanced materials are increasingly leading to new materials with incredible attributes such as self-cleaning and self-healing materials. For example Graphene and bio-degradable materials that are made from fungus.
- Renewable energy sources are enabling energy supply with zero or very low emissions.
- Since clean energy is not always available, energy storage is a necessary technology to enable the circular economy to function.
71
How is the circular economy driven by Business Model Innovation? (Explain the six action areas for businesses wanting to towards the circular economy)
o Regenerate:
• shift to renewable resources.
• reclaim, retain and restore health of ecosystems
• return recovered biological resources to the biosphere
o Share:
• Share products.
• Reuse.
• Prolong life through maintenance.
o Optimize:
• increase performance of a product
• remove waste in production and supply chain
• leverage big data, automation, remote steering
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o Loop:
• keep components and materials in closed loops
• remanufacture
• recycle materials
• extract value from waste
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o Visualize:
• dematerialize resource use by delivering utility virtually (e.g. Spotify, Netflix)
• directly (e.g. e-books, online music streaming)
• indirectly (e.g. online shopping)
o Exchange:
• replace old with advanced non-renewable materials, apply new technologies
• choose new product/services
72
Why is it so difficult to invest in start-ups according to Sebastian?
o Agency problems
o Information asymmetries
o Market risks/uncertainties
73
Give examples of different sources of early funding. What are the pros and cons with the different sources?
- Self-financing
• Pro: get all benefits yourself
• Con: risk own funds, lack of knowledge, no stakeholders but yourself
- Friends and family
• Con: puts relationship at risk
• Pro:
- Grant-funding and Univeristy seed funding
Pros:
• Little expectations to give anything back
• Covers companies in early stages where there is no other ways of receiving funds
Cons:
- Crowd funding
• Pro: Many stakeholders → word of mouth → good PR
• Con: exposing product
- Angel investors
o Often ex-entrepreneurs and want to invest with their own funds.
o Good network, early stages of funding.
o Could be in it for the experience.
- Corporations
o Often VC within companies.
- Venture Capital
74
Venture Capital?
This might not be right, but it is what he said at the lecture:
* Raise funds from institutional and individual investors
* Finance growing companies in different stages (Not so much in seed stages. More in early stages.)
* Purchase equity and take board positions
* Add value to the company through active participation. (Contributing with networks. Both from a customer perspective and future funding activities.)
75
What do VC’s look for in early tech start-ups?
* Market – emerging and fast growing addressable market (market risk). Is there an existing market? Will it be?
* Team – proven management team with domain expertise (execution /mgmt. risk. Since the start-up has a low value of other assets, the know-how/skills of team are of greater interest. Furthermore, a passionate and skilled team is more likely to overcome different barriers)
* Technology – IP or other assets that create high barriers (product/technology/IP risk)
* Business model – the ability to profit from the solution (financing risk)
* Exit opportunities
76
Give examples of deal terms used by VC's in investment contracts.
* Board representation
* Liquidation preference
* Participation rights
* Anti-dilution rights
* Element of vesting
* Certain control and veto rights
77
How does Google’s culture influence the kind of employees it can attract and retain?
Independent and creative people will be attracted to the flexibility and autonomy enabled by Google’s culture. For these people, the shared offices with couches, etc. will provide a form of non-monetary reward that they appreciate and are less likely to find in a more traditional corporate environment, thus Google will have an advantage in recruiting and retaining such people.
Furthermore, because rewards are allocated based on the quality of the work rather than seniority or hierarchical status, Google is more likely to attract and retain people who are highly capable and confident.
78
What is the difference between a strength, a competitive advantage, and a sustainable competitive advantage?
If two competitors share the same strength then that strength does not afford either firm a competitive advantage (i.e. ability to outperform a competitor). A sustainable competitive advantage enables a firm to outperform its competitors for an extended period of time because the advantage is not imitable and has no ready substitutes that competitors can adopt.
79
What makes an ability (or set of abilities) a core competency?
A core competency differentiates a company strategically from its competitors and is most often comprised of a unique combination of different abilities that makes the core competency difficult to imitate. Core competencies often transcend a single business thereby increasing its value to the organization.
80
Why is innovation so important for firms to compete in many industries?
Innovation enables firms to:
- introduce more product and service variations, enabling better market segmentation and penetration;
- improve existing products and services so that they provide better utility to customers;
- improve production processes so that products and services can be delivered faster and at better prices.
81
What are some of the ways a firm can try to increase the overall value of its technology, and its likelihood of becoming the dominant design?
Firms can increase the likelihood that their technology will become the dominant design by:
a. increasing the technologies’ standalone value to the customer (e.g. superior functionality at a competitive cost),
b. increasing the technologies’ network externalities value by
- encouraging developers of complementary assets to create products for their technologies,
- advertising heavily to create a perception that the installed base is larger than it is or that a new product with superior capabilities will be launched soon (so that consumers do not buy a product already available),
- leveraging an incumbent technology’s complementary assets and installed base by making their technology compatible with the incumbent technology.
82
What are some of the advantages of entering a market early? Are there any advantages to entering a market late?
Early entry can afford the first mover the opportunity to establish brand loyalty and technological leadership, both of which can increase its installed base. And if the market is characterized by increasing returns to adoption the first mover can garner two additional benefits from 1) moving up the learning curve before their competitors and 2) building an installed base that keeps increasing due to the self-reinforcing nature of network externality processes.
Entering a market late, however, can be cheaper, easier, and more certain. The late mover can avoid much of the development expense and risk borne by the early movers, and can fine-tune the product to fit customer needs (which are now more certain) better.
83
How is the idea of “strategic intent” different from models of strategy that emphasize achieving a fit between the firm’s strategies and its current strengths, weaknesses, opportunities and threats (SWOT)?
Strategic intent is distinguished by its forward-looking orientation. Models of strategy that emphasize fit between a firm’s strategies and its strengths, weaknesses, opportunities and threats focus the firm’s attention on its immediate and short term competitive dynamics and customer demands. A firm’s strategic intent encourages all parts of the organization to think “outside-the-box” in anticipating (and hopefully) shaping customer demands and in developing the competencies needed to meet those demands. In addition, a firm’s strategic intent is designed to stretch the firm’s capabilities while these other models of strategy focus on the effective application of current capabilities.
84
What are the advantages and disadvantages of discounted cash flow methods such as NPV and IRR?
The main advantage of these methods is their ability to support rigorous mathematical and statistical comparisons of innovation projects. Though these methods look good on the surface their accuracy relies on the accuracy of the assumptions made by managers and these assumptions can be inaccurate and lead to misleading results. This is especially true in the realm of technological innovation because it is often next to impossible to know a technology’s trajectory before it unfolds.
Another significant disadvantage of these methods is that they do not incorporate information regarding the strategic important of a project.
85
What are some of the advantages and disadvantages of collaborating on a development project?
Advantages of collaboration are the opportunity to share the costs and risks of development, to access and possibly develop skills and resources not available in house, increased flexibility because of reduced need to commit assets to a particular project, and the possibility of establishing a shared standard.
Disadvantages include the possibility of exposing proprietary knowledge, the potential loss of control over development, the need to share rewards, and the loss of possible opportunities to develop skills and resources that may prove useful in future projects.
86
What are some of the advantages and disadvantages of having formalized procedures for improving the effectiveness or efficiency of innovation?
Formalized procedures and standardize activities provide employees with clear expectations of behavior and criteria for decision-making. The clear procedures and guidelines can substitute for managerial oversight and generally make the process more efficient. The downside of formalization is the possibility the firm may become less nimble or responsive to change, and thus less effective. When an organization has many layers of authority an organization is likely to develop bureaucratic inertia (i.e. difficulty processing the information needed to effectively react to change).
87
What are the differences between R&D and product development?
• R&D is primarily about acquiring exploitable intellectual assets
• Product development is ONE way of exploiting intellectual
assets
• Product development focuses on INTEGRATION:
– optimizing a whole product life cycle: design, sales, use,
maintenance, recycling and environmental impact
– it is thus about different specialists integrating their
expertise into the development of the product
– and it is about design
88
Explain Failure Modes and Effects
| Analysis (FMEA)
FMEA is a method by which firms identify potential failures in a system, classify them according to their severity, and create a plan to prevent them.
– Potential failure modes are evaluated on three criteria of risk: severity, likelihood, and inability of controls to detect the failure.
– Each criteria is given a score (1-lowest, 5-highest)
– Composite score is used to prioritize development efforts
89
How should you tailor your market plan when trying to reach Innovators and Early Adopters?
Innovators and Early Adopters respond to marketing that offers significant technical content and emphasizes
leading-edge nature of product.
–Need media with high content and selective reach
90
How should you tailor your market plan when trying to reach the segment of Early Majority?
Early Majority responds to marketing emphasizing product’s completeness, ease of use, consistency with customer’s life, and legitimacy.
–Need media with high reach and high credibility
91
How should you tailor your market plan when trying to reach the segment of Late Majority and Laggards?
Late Majority and Laggards respond to marketing emphasizing reliability, simplicity, and cost-effectiveness.
–Need media with high reach, high credibility, but low
cost.
92
Different forms of R&D Collaborations?
SOLO INTERNAL DEVELOPMENT
- Speed: Low
- Cost: High
- Control: High
- Potential for Leveraging Existing Competencies: Yes
- Potential for Developing New Competencies: Yes
- Potential for Accessing Other Firms Competencies: No
STRATEGIC ALLIANCES
- Speed: Varies
- Cost: Varies
- Control: Low
- Potential for Leveraging Existing Competencies: Yes
- Potential for Developing New Competencies: Yes
- Potential for Accessing Other Firms Competencies: Sometimes
JOINT VENTURE
- Speed: Low
- Cost: Shared
- Control: Shared
- Potential for Leveraging Existing Competencies: Yes
- Potential for Developing New Competencies: Yes
- Potential for Accessing Other Firms Competencies: Yes
LICENSING IN
- Speed: High
- Cost: Medium
- Control: Low
- Potential for Leveraging Existing Competencies: Sometimes
- Potential for Developing New Competencies: Sometimes
- Potential for Accessing Other Firms Competencies: Sometimes
LICENSING OUT
- Speed: High
- Cost: Low
- Control: Medium
- Potential for Leveraging Existing Competencies: Yes
- Potential for Developing New Competencies: No
- Potential for Accessing Other Firms Competencies: Sometimes
OUTSOURCING
- Speed: Medium/high
- Cost: Medium
- Control: Medium
- Potential for Leveraging Existing Competencies: Sometimes
- Potential for Developing New Competencies: No
- Potential for Accessing Other Firms Competencies: Yes
COLLECTIVE RESEARCH ORGANIZATIONS
- Speed: Low
- Cost: Varies
- Control: Varies
- Potential for Leveraging Existing Competencies: Yes
- Potential for Developing New Competencies: Yes
- Potential for Accessing Other Firms Competencies: Yes
93
GE management values and change?
GE management values and change
- set aggressive targets, stretch concepts
- hating bureaucracy and all the nonsense that comes with it
- self confidence to empower others
- stimulate and relish change not be frightened and paralysed by it
- have enormous energy and the ability to energise others
+ another mechanism: the GE workout [workshop]: if an employee asks for a workout, you as a manager have to do it. Quick management response demanded.
Manager focused - 3 successor thing
94
Examples of managerial techniques improving
| business and product development
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1 Rule-Breaking
2 Visualization
3 Delayed Decision Model
4 Multi-Perspective Teams
5 Task Focused Team
6 Opportunity-Driven Resource Attraction
7 Incremental Integration Driven Development
8 System Alert
9 Project Newspaper
10 Stand-Up Meetings
11 Common Set of Values
12 Dual Leadership
13 Continual Education
14 Software Bank
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95
What is Integration Driven Development?
Looking at “what key functionality needs to be solved” in order to make this product? Give everyone an image of what they need to integrate into the product
96
What are Core competencies/capabilities?
A set of integrated and harmonised abilities that distinguish the firm in the market place
97
What is a Value Chain, according to Porter?
Porter: A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.
Not Porter: An industry value-chain is a physical representation of the various processes involved in producing goods (and services), starting with raw materials and ending with the delivered product (also known as the supply chain). It is based on the notion of value-added at the link
98
What are the key questions in a Stakeholder Analysis?
1. Who are the stakeholders?
2. What does each stakeholder want?
3. What resources do they contribute to the organization?
4. What claims are they likely to make on the organization?
99
According to Schilling, what is Internal Strategy focusing on Sustainable Competitive Strengths?
Internal analysis according to Schilling:
step 1: assessing the firm’s strengths and weaknesses
step 2: evaluate strengths
→ determine if it’s a core competency or not.
(core competency = differentiates the firm from the competition)
→ determine if the strength is the basis of a sustainable competitive advantage or not.
100
What is External Strategy?
Doing analysis of the environment in order to position the firm accordingly - Compare with Porter's Five Forces
101
What are the reasons as to why one particular technology is chosen as the Dominant Design?
Reasons for why one particular technology is chosen as the dominant design:
- The technology has the greatest total value (=standalone value + network externalities)
Value is created in two ways
- Technology creates value by its functionality (stand-alone value)
- Value created by network externalities (related to market shares)
specific actions a firm can take to encourage the adoption of its technology as the dominant design
102
What are key factors that makes an industry adopt a dominant design?
They key factors that make industries adopt a (1) dominant technology is:
- returns to adoption
- path dependency
- government regulation
- (network externalities)
network externalities arise when complementary goods and investments in training are important to customers.
Usually there is an increase in number of actors in the industry, until a dominant design has been adopted ("shake out dominant design") - after this the number of actors diminishes.
103
What is Increasing Returns to Adoption?
Arthur (1988): This means that the more a product is adopted, the more new adopters have an incentive to adopt this product. Arthur (1988) distinguishes five type of increasing returns
Learn more in: A Historical Analysis of the Emergence of Free Cooperative Software Production
104
Describe some sources of innovation
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Individuals,
Firms,
Universities,
Government funded research,
Non-profit organisations
→ all of these are linked to eachother!
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105
How does the Interactive Model of Innovation work?
There is a "common" sequence that describes a product's creation:
Idea → R&D → Manufacturing → Marketing → Commercial Product
This chain is influenced by to major factors:
1) Latest sciences and advances in society,
2) Needs in society and the marketplace.
1 is called "Technology Push"
2 is called "Market Pull"
106
According to De Soto, what is Property?
Property is not the house itself but an economic concept about the house, embodied in legal representations. This means that a formal property asset itself.
(slides lecture 1, De Soto p. 48)
107
What is "Capturing the innovation"?
The successful interplay of Functionality (what the innovation does), Utility (for the customer) and Control (IPR) over an innovation.
Mats usually describes this with a Venn diagram comprising three circles.
This model shows the bridge between innovation- and firm strategy, as well as recognising the role of IP in a startup.
(Summing up lecture)
108
What is Entrepreneurship?
“...when you act upon opportunities and ideas and transform them into value for others. The value that is created can be financial, cultural or [and] social.”
(slides lecture 1)
“Innovation without entrepreneurship is like a car without a driver”
109
What is Innovation?
Something that creates new value (for the customer or the producing firm) when it is implemented/reaches the market
(slides lecture 1)
“Innovation without entrepreneurship is like a car without a driver”
110
What is Discount Rate?
The discount rate in DCF analysis takes into account not just the time value of money, but also the risk or uncertainty of future cash flows; the greater the uncertainty of future cash flows, the higher the discount rate.
(Discount rate can be used with several meanings, but this definition is in the context of business valuation)
111
What is DCF?
Discounted Cash Flow
112
What is FV of a cash flow?
The future value of a cash flow - you have to take the risk and the time into consideration. The future value is less the farther away it is and the more risk is connected to it.
113
What is PV of a cash flow?
Present value of a cash flow - i.e. what you have in the wallet now
114
What is Best Practice?
A best practice or best practise is a method or technique that has consistently shown results superior to those achieved with other means, and that is used as a benchmark.
In addition, a "best" practice can evolve to become better as improvements are discovered. Best practice is considered by some as a business buzzword, used to describe the process of developing and following a standard way of doing things that multiple organizations can use.
Best practices are used to maintain quality as an alternative to mandatory legislated standards and can be based on self-assessment or benchmarking.
115
What are necessary components of a collaboration agreement?
If a collaboration is initiated, it must be
- monitored (flexibly)
- governed
- have evaluation mechanisms
- have enforcement mechanisms
- ensured that both partners understand their rights and obligations
Gold star for arguing about trust in the relationship.
116
What are the main types of Collaborations?
Types of collaborations:
- strategic alliances
- joint ventures
- licensing
- outsourcing
- collective research
(How does M&A fit into this? Can it be discussed as an alternative to collaboration?)
117
What is important to think about when going solo instead of entering into a research collaboration?
- Availability of capabilities (does firm have needed capabilities in the house? Does a potential partner have that?)
- Protecting proprietary technologies (How important is it to keep exclusive control of the technology?)
- Control of the actual development process (and use of technology) (how important is it for the firm to direct development process and applications?)
- Building and renewing capabilities (is the project key to renewing or developing the firm’s capabilities?) - using too much collaboration might lead to loss of future insight and knowledge. For instance, if you rely too heavily on consultants for developing your next car model, you can’t do the model after that by yourself because you haven’t tied the relevant knowledge to the company)
- Does firm have needed capabilities in the house? Does a potential partner have that?
118
What is meant by Installed Base?
Installed base = the number of users of a particular good. For instance, the installed base of a particular video game console refers to the number of those consoles that are installed in homes worldwide
119
What is meant by Complementary Goods?
Complementary Goods = Additional goods and services that enable or enhance the value of another good. For example, the value of a video game console is directly related to the availability of complementary goods. such as video games, peripheral devises and services such as online gaming.
120
Give examples of when first-mover have won over the follower and vice versa.
INSTANT CAMERA
First mover: Polaroid
Follower: Kodak
Winner: Polaroid (first-mover)
8 MM VIDEO CAMERA
First mover: Kodak
Follower: Sony
Winner: Sony (Follower)
121
What characterizes i) EXTERNAL STRATEGY, ii) INTERNAL STRATEGY and iii) STRATEGIC INTENT and how do they differ from one another?
External thinking analyzes the environment in order to position the firm
Internal analysis draws from the strength of resources/competencies/capabilities/etc.
Strategic intent draws from resources but stretches this into a long term vision of the future. Strategic intent can (and arguably should) draw from both external and internal thinking while attempting to “create the future instead of predicting it.
122
What are some of the reasons that both technology improvement and technology diffusion exhibit s-shaped curves?
The dynamics underlying the s-curve shape of technology performance improvement and rate of diffusion are related but also different.
For example, improvements in a technology’s performance are likely to translate into faster adoption rates. In both processes, performance improvement and diffusion, the initial phase is characterized by a poor understanding of the technology.
- In the case of technology improvement firms are just beginning to understand the technology and the processes needed to support it.
- In the case of diffusion, adopters vary in their degree of risk aversion and excitement over new products (e.g. laggards will wait until all the “bugs” have been worked out and the price has decreased to buy a new product).
The second phase is characterized by a deeper understanding of the technology, both on the part of firms and consumers, resulting in rapid process improvements and adoption.
Finally, the technology reaches its inherent technological limits which flattens out the performance improvement curve and on the diffusion front most consumers have either adopted the new product or never will.
123
Asterix?
Established Methods
- INTEGRATION driven DEVELOPMENT
Complementary Methods
- VISUALIZATION : Physical Attributes of Asterix - PRODUCT MANAGER was the one who decided how it will look like: thinking about how to easily explain functions of the product to the consumers. reducing complexity, and from this, the engineers could mock around with the components
(ex) Simplistic, Easy - to become innovative (Steve Jobs example)
- DECISION MODEL: "JUST IN TIME":
Reducing uncertainties, increase knowledge regarding the product, delaying the certain critical decisions to optimise the product
- RESOURCE ATTRACTION:
Saying that the senior manager has to accept that if the engineers are attracted to another project, you have to follow that decision (Silicon Valley structure) to try to attract more engineers to join! - someone that is allocated to something is usually less motivated, but by looking to new opportunities you drive attraction and motivation which will lead to followers (the team/board also become more motivated to accomplishing the task)
Effective Versions and Integration Driven Development
