Presentation is loading. Please wait.

Presentation is loading. Please wait.

Institute for Manufacturing 1 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session.

Similar presentations


Presentation on theme: "Institute for Manufacturing 1 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session."— Presentation transcript:

1 Institute for Manufacturing 1 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 3 2004 External Pressures and E xit Resources on: http://www.eng.cam.ac.uk/teaching/courses/y 4/lecnotes/4E7-Index.html Dr E. Garnsey http://www.eng.cam.ac.uk/teaching/courses/y 4/lecnotes/4E7-Index.html

2 Institute for Manufacturing 2 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Aims Last week - Internal dimensions of technology enterprise growth Today External dimensions of the growth challenges facing technology- based enterprises : –sustaining growth in a fast changing environment –how product, market and technology evolution create threats and opportunities Apply understanding of industry dynamics and business models to specific cases

3 Institute for Manufacturing 3 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering AGENDA 2 - 3.30 Dynamic environment for high tech products Pointcast Acorn Computers ARM Why acquisition? (if time; if not, see notes on website) 3.40 Rick Mitchell on Domino Printing Sciences: Expansion in a Dynamic Environment and Implementing a technology-based acquisition

4 Institute for Manufacturing 4 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Introductory review

5 Institute for Manufacturing 5 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Business Idea Secure returns Secure and create resources for start-up Create value reinvest distribute exit Set up new activity Entrepreneurial project - start up. Early revenue generation Early resource mobilization Easily short circuited

6 Institute for Manufacturing 6 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering SWOT analysis StrengthsOpportunities WeaknessesThreats

7 Institute for Manufacturing 7 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering New cycle Productive/ commercial base 3. Exit Output sold 1. Reinvest over recurrent production & return cycles Returns recovered Asset Base In a new company, a resource base can be developed - a cumulative process 2. Distribute returns

8 Institute for Manufacturing 8 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Do a SWOT analysis on BioRobotics in 2000 Strengths (front rows)Opportunities (next row) Weaknesses (next row)Threats (back row)

9 Institute for Manufacturing 9 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering SWOT analysis on BioRobotics in 2000 Scarce skills Commitment Specialist equipment, good suppliers Premises Excellent customer relations with labs Limited development capital Inexperience Marketing limitations Few economies of scale & scope Cannot protect IP Large competitors may move in Market saturation may be near Company is founders’ main asset - much to lose Biotech lab market expanding Further applications possible

10 Institute for Manufacturing 10 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering BioRobotics business model (business basics) Productive/ commercial base exit Output sold reinvest returns recovered Asset Base Inputs Productive activity creates economic value distribute Model may change Soft to hard, etc

11 Institute for Manufacturing 11 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Business Model Assessed What resources are needed? How mobilised? What kind of productive activity? How organized? In-house/out-source? Can it be scaled up? How does it/ will it/ deliver value to users/ attract more custom? How will returns be secured? Scaled up? Protection from competition? Scope to exit and realize investment? Productive/ commercial base exit Output sold reinvest Returns recovered Asset Base

12 Institute for Manufacturing 12 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Resources: University workshop Student project Design skills Small personal funds Productive base developed for output of lab automation equipment Exit Flow of output sold (uneven: NPs required) Reinvest retained earnings No VC High profit margin Asset Base BioRobotics: business model and activity Designs, prototypes tested on user Outsourcing to specialist suppliers Value delivered to lab customers No registered IP Skill barriers to entry High valuation of company - trade sale

13 Institute for Manufacturing 13 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Internal & external influences on growing company? Distinction for purposes of analysis In practice internal and external influences closely connected –Interplay between the firm’s internal resources and its market opportunities –Strategic and organizational issues are interwoven Choice of high tech activity –High level tech skills, business inexperience likely –Emergent industry, taken off? Fast moving? Uncertainty

14 Institute for Manufacturing 14 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Survival affected by activity and environment Cambridge high tech survival rates by sector

15 Institute for Manufacturing 15 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ‘High Tech’ activity and environment 1.Firm 2.Industry / sector 3.Technology 1. Firm can be classed as high tech by its inputs R&D intensive: e.g., R&D spend = >15% of sales, Sci. Eng. Tech. staff = >10% of all staff 2. Sectors currently include: advanced electronics, computing, instrumentation, R&D, advanced materials, advanced renewable technologies, biotech. 3. Technology: immature and knowledge intensive (railways once high tech)

16 Institute for Manufacturing 16 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Selecting a high tech activity Potential to create value in new ways High level of uncertainty Market unpredictable

17 Institute for Manufacturing 17 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Online Information Services : Pointcast Pointcast - founded in the early 1990s - developed "push technology” for the Internet. Users could specify areas of special interest on subscribing. Pointcast supplied information of that type to the user. Necessary software was provided to users by Pointcast. In partnership with Reuters News Service Praised by Schapiro and Varian in 1999 - how to add value to information by personalizing it and the accompanying ads ( Information Rules 1999 p. 32) News International interested in buying Pointcast

18 Institute for Manufacturing 18 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Why was Pointcast a failure? $84m Pointcast Inc. ( founded 1996) Sales ($) Year 92 9697989900 $2m $18m $5m $8m $24m Yahoo! Inc. ( founded 1995) We placed a bet. In hindsight, it was a poor bet because the Web allowed people to innovate more quickly than we could.- A Pointcast founder Hugo 2000

19 Institute for Manufacturing 19 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering External pressures - there are some regularities: Can apply understanding of underlying dynamics –Business cycle –Industry evolution - structure, competition –Technology evolution: Rick Mitchell, Domino –Market evolution

20 Institute for Manufacturing 20 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Start by understanding wider business ecosystem - evolving fast Political and Macro-economic Environment Regulators Natural Environment Customers and Consumers Social Environment Suppliers Of all inputs Complementary Firms (may be Competitors) Knowledge, Technical Environment FIRM

21 Institute for Manufacturing 21 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering New company in transaction with others labour Suppliers Sub-contractors Funders Sources of Regulators Research base Distrib- utors Final customers Inter-mediate customers Competitors Complementary producers Intermediate output Competitors Firm’s activities

22 Institute for Manufacturing 22 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Suppliers Sub-contractors Funders Labour Sources New Business Regulators Competitors Research base Distributors Final customers Intermediate Customers Complementary producers New business:input-output system in sector value chain Impact of supply and demand conditions exerted via firm’s transaction environment

23 Institute for Manufacturing 23 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Information technology - supply/demand conditions Supply: –Expensive to produce initially High fixed cost, low marginal cost –Low reproduction cost Cheap for originators - high profit margin? But also cheap for competitive imitators Demand: – Strong network effects - value of product affected by how many use it

24 Institute for Manufacturing 24 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Suppliers Foundations Scientists Regulators Competitors Complement -ary producers Large Pharmaceuticals Dedicated VC Research base Final customers are not users (NHS, insurance, HMOs) Biopharm venture in transaction with other parties Impact of supply and demand conditions comes via transaction environment BIO-PHARM VENTURE Intermediaries

25 Institute for Manufacturing 25 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Who could be partners - to grow the company? Productive/ commercial base exit Output sold reinvest Returns recovered Financial assets Resource providers,e.g knowledge base Co-producers (suppliers etc ) Customers Investors

26 Institute for Manufacturing 26 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Example - Acorn Computers A new enterprise has been performing well, though only five years old. Growth record is impressive (sales and revenues employee numbers). Early success makes it possible to expand further through retained earnings and externally obtained funds. Investors view its prospects favourably. Morale is high among its members their prospects are excellent in the expanding enterprise. One of its members is taken ill. After 6 months hospital and recovery he returns to work. He finds: Sales are down and unsold stocks have built up. The banks have withdrawn loan facilities. Creditors are demanding payment. There have been lay-offs and more are expected. The enterprise faces an enforced sell-out or bankruptcy. How could this happen?

27 Institute for Manufacturing 27 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Internal problems at Acorn, Cambridge PC pioneer Rapid growth: “victim of success syndrome” –Acorn overcame early problems, but: Bottlenecks, shortages Communications problems Jobs no longer suit early recruits Entrepreneurs inexperienced managers Time pressures impair decision making

28 Institute for Manufacturing 28 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Rapid growth

29 Institute for Manufacturing 29 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Growth Reversal at Acorn

30 Institute for Manufacturing 30 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Acorn saved from bankruptcy by sale to Olivetti in 1984 Olivetti buys 49% of Acorn’s shares in Spring 1985 –and 79% by September l985 –for £14.4 million. Acorn had been valued at £100m in 1983 Acorn - becomes business unit of Olivetti European partner of AT&T

31 Institute for Manufacturing 31 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Acorn did not regain position under Olivetti Sales Pre-tax profit

32 Institute for Manufacturing 32 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Acorn as part of Olivetti missed further opportunities to innovate in PC sector Visualizing Innovation in HBR Sept-Oct 99, p.16

33 Institute for Manufacturing 33 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering External Pressures on Acorn from: Business cycle Industry evolution: structure, competition Technology evolution - network effects Market evolution

34 Institute for Manufacturing 34 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Business Cycle: Change in the UK market for electronic consumer goods 1980-1984 (£m at 1985 prices) Year19801981198219831984 ____________________________________________________ Sales8601216147317341515 % change100141171201176 (base =1980) % change on-+41+21+17 -13 previous year ____________________________________________________ Source:NEDC ReportonElectronicssector (1985) 36.

35 Institute for Manufacturing 35 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering As new industry matures, competition increases; number of competing producers may decline (illustrative data) 0 10 20 30 05101520 Time Number of Competitors

36 Institute for Manufacturing 36 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Increasing competition threw out sales forecasts 19781981198219831984 1987 TIME DEMAND ACORN'S 1984 SALES FORECAST ENTRY OF IBM AND COMMODORE BBC CONTRACT LIQUIDATION OF SMALL COMPANIES ACTUAL SALES

37 Institute for Manufacturing 37 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering External Pressures: Competitive Conditions Porter 1980

38 Institute for Manufacturing 38 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Competitive forces bearing on Acorn SuppliersRetailers Funders Competitors

39 Institute for Manufacturing 39 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Market evolution affected Acorn Markets segmented, segments grow unevenly time Time to adoption of innovation by adopter group Rogers E, Diffusion of Innovations

40 Institute for Manufacturing 40 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Innovator- Enthusiasts Early Adopters Early Majority Late Majority Laggards Mind the Gap Market segments are discontinuous; market evolves: chasm to cross to reach mainstream market

41 Institute for Manufacturing 41 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Industry and technology evolution - impact on Acorn Acorn: non-standard operating system Did not foresee dominance of MS-DOS, rising standard In industries where users and producers interact - connectivity is a critical product attribute

42 Institute for Manufacturing 42 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering PC market tipped in favour of IBM PC and MS-DOS OS 0 1 01 Probability the next consumer chooses to buy A A’s share of installed base adapted from R. Henderson, MIT R Henderson seminar 2003

43 Institute for Manufacturing 43 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Exposure Contract R&D Consultancy Design studies Testing reports Analytical reports Acorn’s Product Mass Market OEM's Niche Market In house manufacture Manufacturing sub- contracted Low Hard Model Soft Model Resource commitment License IP High Create infrastructure Technical services Comparing business models

44 Institute for Manufacturing 44 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering When assessing business model, take into account the nature of the firm’s innovation Product innovation Production process innovation Marketing innovation Business process innovation

45 Institute for Manufacturing 45 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Assessing Acorn Identify strengths and weaknesses of Acorn’s business model

46 Institute for Manufacturing 46 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering SWOT analysis on Acorn in 1984 (before crisis) Scarce skills Commitment 80% share UK educational market Limited development capital Inexperience Marketing limitations Few economies of scale & scope underway Cannot protect IP Large competitors have entered market Acorn’s technology is proprietary, not standard Price war and industry shakeout imminent Company is founders’ main asset - much to lose Market expanding Further applications of their competence possible

47 Institute for Manufacturing 47 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Hindsight on Acorn "We should have really analysed how we compared to competing computers around the world. … we had a real lead in terms of speed, price, operating system and expansion slots compared to our nearest rivals.. The BBC Micro was twice as fast as the Apple II … it had built-in networking which no other computer had at the time... We should have gone around the world persuading people to adopt Acorn's products as the industry standard. Then we should have licensed our hardware and software to anyone that wanted them.” Hermann Hauser, The Guardian 2001

48 Institute for Manufacturing 48 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ARM, A SPIN OUT from ACORN Acorn ARM RISC Chip designed for Acorn’s product to reduce reliance on suppliers Acorn in alliance with Apple to produce hand held computer 12 Acorn engineers led by Robin Saxby - Motorola experience

49 Institute for Manufacturing 49 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ARM origins ARM created by 12 Acorn engineers to specialize in RISC chips Joint venture with Apple and others: provide chips for Apple’s Newton Hand Held Computer Newton failed. ARM lost main customer

50 Institute for Manufacturing 50 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ARM business model Target Markets: Mobile devices, but also Automotive controllers Multi-media License technology and provide extensive customer support.

51 Institute for Manufacturing 51 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ARM: distinctive type of market (OEMs) ARM licenses power-efficient RISC micro-processors Licensing partners sell ARM processors into markets they know well ARM began with innovative managers who are Early Adopters Now sells industry standard to Early Majority

52 Institute for Manufacturing 52 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ARM’s Business Model Expansion through Networks Mobile devices Automotive products Multi-media

53 Institute for Manufacturing 53 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ARM Partnerships Source: Warren East, ARM

54 Institute for Manufacturing 54 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering ARM : continuous steady growth of inputs & outputs

55 Institute for Manufacturing 55 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Degree of Risk Contract R&D Consultancy Design studies Testing reports Analytical reports Product Mass Market OEM's Niche Market In house manufacture Manufacturing sub- contracted Low Hard Model Soft Model Resource commitment License IP + services High Create infrastructure Technical services Exposure of Business Models

56 Institute for Manufacturing 56 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Partnerships can be hard to manage Productive/ commercial base exit Output sold reinvest Returns recovered Financial assets Resource providers,e.g knowledge base Co-producers (suppliers etc ) Customers Investors

57 Institute for Manufacturing 57 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Who could be partners? ARM solution Productive/ commercial base exit Output sold reinvest Returns recovered Financial assets Resource Providers Included Acorn, Olivetti Co-producers (manufacturing partners etc ) Customers - innovators Investors: Joint Venture ‘91 IPO in ‘98

58 Institute for Manufacturing 58 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Markets and Technology Policy BioRobotics: science base, grants Acorn: educational spending on IT Ionica: deregulation in telecommunications ARM: mobile phone expansion in Europe (EU) Domino: product packaging regulations (sell by) Market forces, structured by institutions and policy, create selection environment for new ventures.

59 Institute for Manufacturing 59 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Part Two 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 3 2004 See notes on acquisition in http://www.eng.cam.ac.uk/teaching/courses/y4/lec notes/4E7-Index.html http://www.eng.cam.ac.uk/teaching/courses/y4/lec notes/4E7-Index.html

60 Institute for Manufacturing 60 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Problems of growth for new business Hard to fund growth from retained earnings Development capital often needed –for new product stream –to extend markets Delays before expansion brings in revenues; - resource shortages Risks in growth: strain on capacity Enlarge capacity: market downturn? Risks in non-growth Delay capacity: competitor squeeze

61 Institute for Manufacturing 61 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Supply chains rapidly reconfiguring, mergers occur, mainly through acquisition merger

62 Institute for Manufacturing 62 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Acquisition http://www.eng.cam.ac.uk/teaching/courses/y4/le cnotes/4E7-Index.html http://www.eng.cam.ac.uk/teaching/courses/y4/le cnotes/4E7-Index.html May be no alternative to selling the enterprise May be a strategic choice Success depends on strategic fit and on sensitive implementation - alertness to people issues in merging two organizations.

63 Institute for Manufacturing 63 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering For the economy, acquisition is viewed as –a phase in business life cycle –a process of innovation diffusion –keeping business competitive

64 Institute for Manufacturing 64 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Acquisition types Autonomous : acquired unit becomes separate business unit in the corporate group Assimilated : acquired unit is drawn into the corporate group and reshaped to fit corporate structures and procedures Combined : new organisational form is created which combines features of both organisations Need good match and appropriate acquisition type

65 Institute for Manufacturing 65 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Advantages to the acquired group The acquired enterprise should have access to: –Managerial experience –Resources for investment –More extensive reserves –Market in parent co. + marketing capacity Making possible –IP protection –Volume production as product matures

66 Institute for Manufacturing 66 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Benefits to founders Financial incentives Relief of responsibility Career prospects in large group Funds and freedom to start up again

67 Institute for Manufacturing 67 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Potential disadvantages for Acquired Loss of independence and entrepreneurial culture Procedural controls may be oppressive Control over strategy lost Effects on innovation ? Acquirer may not understand potential of acquired unit Continuing threat of divestment Loss of closeness to market Relational assets may be destroyed.

68 Institute for Manufacturing 68 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Advantages to the Acquiring firm Acquire technology Acquire competence Improve innovative capability Expansion, e.g. vertical integration, market entry or geographic positioning

69 Institute for Manufacturing 69 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering Disadvantages to Acquiring firm Costs of merger Costs of turnaround Post integration problems Culture clash Distraction from in-house R & D

70 Institute for Manufacturing 70 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering The clash of cultures Culture (Schein): "Values, underlying assumptions and social practices" Cultural clash may prevent assimilation of innovative capability of acquired unit Clashes may include strains and conflict around: technology organisation nationality


Download ppt "Institute for Manufacturing 1 ELIZABETH GARNSEY Centre for Technology Management Department of Engineering 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session."

Similar presentations


Ads by Google