1. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 1 Fraunhofer IAO, Germany Developing Integrated Business and Technology Strategies NITM International Seminar Series A series of Seminars for Executives & Managers NITM, Dublin, September 17th, 2003 Frank Wagner & Flavius Sturm Fraunhofer Institute for Industrial Engineering

2. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 2 Agenda Introduction Strategic Management for SMEs “Navigating in Turbulent Times” Business and Technology Strategies Portfolio, Balanced Scorecards and other Tools How Scenarios and Roadmaps can help (Cases) Business and Technology Scouting

3. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 3 Core Competencies Portfolio Integrated Scorecards Technology Fields Planning Simulation & Cockpit Tools

4. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 4 External Analysis CompetitorsStakeholdersCustomers Scenario Development Scenario I Scenario II Scenario III Markets Environ- ment Customers Society Competitors Gap Analysis & Options Development Business Today Internal Analysis - Technologies - Markets - Products - Competencies Technology Delphi Study Continuous Technology Scouting Process Technology Assessment Chances & Risks External Technology Roadmaps Technology Portfolios Technology Strategy Internal Technology Roadmaps x x x xx Project Portfolios Make & Buy Integrated Business & Technology Strategy Development PROCESS

5. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 5 Technology Fields Planning

6. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 6 Introduction to Portfolio Techniques: Budget allocation with the BCG MATRIX Market growth rate Relative market share (share relative to largest competitor) ? Cash cow Star Dog Question mark B C D A 20% High 10% Low 0% 10xHigh1xLow0.1x

7. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 7 Definition of Technology Fields Technology Fields: -are an extract of the current and potential technological area of activity -can be planned relatively independently from other Technology Fields -incorporate technologies that have an independent problem solution potential Source: Bullinger, 1994, p.95 and Ewald, 1989, p.168

8. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 8 Pfeiffer Technology Portfolio Model Pfeiffer Technology Portfolio Model McKinseyTechnology Portfolio Model McKinseyTechnology Portfolio Model Arthur D. Little Technology Portfolio Model Arthur D. Little Technology Portfolio Model Represents the analysis of the technological attractiveness and the technological position for the R&D department. It looks to the integration of market and technology dimensions left out in Pfeiffer‘s portfolio model. Represents the analysis of the technological attractiveness and the reource capabilities, for the investment and the strategy selection areas. Represents the analysis of technology and competition position and the lifecycle of the technology, taking into account the risk exposure. Portfolio Techniques: Technology Portfolios

9. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 9 TECHNOLOGY PORTFOLIOS – Arthur D. Little PRIORITIES R&D RISK FORMATIONGROWTHMATURITY STRONG CONVINIENT WEAK RelativeTechnology Position Technology Cycle Arthur D. Little Technology Portfolio (Source: Eschenbach, 1994)

10. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 10 TECHNOLOGY PORTFOLIOS - McKinsey Technology Priorities Relative Market Position Relative Technology Position Market Attractiveness Technology Attractiveness Market Priority Technology Priority Agressive R&D Applications Selective R&D Applications Defensive R&D Applications McKinseyTechnology Portfolio (Eschenbach, 1994)

11. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 11 medium low mediumhighlow high Technology Resource Strength Technology Field 8 Technology Field 4 Technology Field 7 Technology Field 1 Technology Field 5 Technology Field 3 Technology Field 6 Technology Field 2 Technology Attractiveness Allocated Resources TECHNOLOGY PORTFOLIOS - Pfeiffer

12. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 12 Criteria for the evaluation of technology attractiveness Technology Attractiveness  Possibility to attain competitive advantage with technology  Market-Volume opened by technology  Span of applications opened by technology  Potential for further development of technology  Effort and Risk of further development  Performance of technologies in comparison to alternative technologies  Possibility to protect technology from being copied  The threat of substitution technologies

13. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 13 Criteria for the evaluation of technological resource strength Technological Resource Strength  Competencies of R&D Staff in comparison with competition  Velocity of technological realization in comparison with competition  Amount and Quality of registered patents in comparison with competition  Quality of own technological solution in comparison with competition  Availability of internal and external financial resources in comparison with competition

14. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 14 TECHNOLOGY PORTFOLIOS - Pfeiffer INVESTMENT SELECTION DISNVESTMENT LOWMEANSHIGH MEANS LOW Technology Attractiveness Resource Strength Acceptance Further development potential Application possibility Compatibility Acceptance Further development potential Application possibility Compatibility Technical-qualitative controlling degree (Re-) Action Speed Patents/ Licences Technical-qualitative controlling degree (Re-) Action Speed Patents/ Licences (Eschenbach, 1994) Pfeiffer Technology Portfolio

15. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 15 Core Competencies Portfolio Technology Fields Planning

16. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 16 What are competencies? – IAO Definition In general the definitions on competencies follow the same four characteristics (Source: Symphony, 2002):  Competencies are related to Action  Competencies are related to Performance  Competencies are Contextualized Competencies are capacities and capabilities of individuals, groups, whole organizations or networks that allow them to act in fulfillment of the organization’s objective COMPETENCE RELATED TO ACTION RELATED TO PERFORMANCE CONTEXTUALIZED

17. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 17 Corporate key competence: is generic to a company and it is generated and used in several business processes. It is strongly linked to the vision of the company. Business key competence: is generally dedicated to selected business process and add value to a category of customers. What are competencies? – Key Competencies Key competencies are competencies generated by a company, linked to its history, its products and its processes. This competence is essential to practice; it has an impact on a results and on clients satisfaction. However, key competencies do not cover the entire spectrum of useful or existing competences within a company and do not fulfill the criteria of a core competence (see later).

18. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 18 Core competencies are collective capacities and capabilities of an organization that allow them to act and: 1. Provide potential access to a wide variety of markets, 2. Enhance the end product significantly and add a value perceivable to customers, 3. Make it difficult for competitors to imitate perceived customer benefits. When are competencies core? – Definition Source: Prahalad/Hamel (1990)

19. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 19 SONY - Capacity to miniaturise devices Big company Service company High tech company Capacity to networks and compose ad hoc teams in order to answer with a perceivable added value to customers ’needs Capacity to develop systems for measuring fluid in micro-dose Examples of Core Competencies

20. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 20 Competence oriented innovation and strategy development -Value added- structure -Product/ Technology -Processes/ Organisation -Goal criteria -Best Practices- -Information sources -value analysis- -definition of gaps Elaboration of relative competence strength Elaboration of customer value Company- analysis Definition of metrics Evaluation of Competences Elaboration of Competences Benchmarking of competences Elaboration of Competence strength Environment- analysis Competition Sector analysis Customer analysis Identification of Critical success factors "Competence Deployment": Elaboration and evaluation of competences Positioning of Competences in Portfolio Relative Competence strength Customer value low high lowhigh Competence- Gaps Core Competences Standard Competencies Competence potentials Source: Hensle, 1993 (FhG-IAO)

21. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 21 Proposition of action for the optimisation of the added value chain Relative Competence strength Relative Customer Value 9 8 7 6 5 4 3 2 1 712345689 Competence-Potentials Standard Competences Competence-GapsCore Competencies Make Investment Buy Outsourcing marginal buy marginal make selective strategic alliances Learn marginal buy marginal make selective Supllier development New markets Adapt Competences Source: Hensle, 1993 (FhG-IAO)

22. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 22 Evolution of Competencies Today‘s Competencies Technological competence Production competence Service competence R&D competence Sales competence Marketing competence... Tomorrow‘s Competencies Technological competence Production competence Service competence R&D competence Sales competence Marketing competence... Competencies to adapt Organisational learning Employees adaptability... Today‘s Core Competencies can become Core Rigidities (Leonard-Barton, 1992)

23. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 23 1. Identify Competencies Today‘s Competencies Technological competence Production competence Service competence R&D competence Sales competence Marketing competence... Tomorrow‘s Competencies Technological competence Production competence Service competence R&D competence Sales competence Marketing competence... Competencies to adapt Organisational learning Employees motivation... Focus of Workshop Methodology: Writing cards

24. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 24 2. Definition of success factors Success factors are the reason that the customers are buying from you and not from your competitors Typical success factors are:  Price  Quality  Date  Technology  Service Needs to be defined to evaluate the competencies from a customer point of view

25. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 25 3. Weighting of success factors Weighting of success factors:  Price most important0,23  Quality very important0,20  Date most important0,23  Facility Propertiesnot important0,07  Technology very important0,20  Service not important0,07 How important is each success factor for the customer ? Methodology: use Customer Satisfaction information

26. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 26 4. Evaluation of the relative customer value Finding the relative customer values Methodology: Evaluation in groups... R&D competence Sales competence Marketing competence...

27. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 27 5. Evaluation of the absolute competence strengths Methodology: Evaluation in groups Strengths in each competence relative to each other Sales competence

28. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 28 6. Evaluation of the relative competence strengths Methodology: Evaluation in groups Display strengths in each competence relative to competition Sales competence

29. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 29 Strategy Development: Competence-Portfolio “Inquiry and Offer Handling“ 1 Inquiry gathering 2 Offer Management 3 Technical Feasibility 4 Process Structuring 5 Process Planning/Scheduling 6 Offer calculation 7 contract Arrangement 8 Arrangement of the Sales Organisation

30. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 30 Strategy Development: Competence-Portfolio “Order Handling” 1 Arrangement of the project organisation 2 Order structuring 3 Order Planning 4 Time and Resource Management 5 Cost Management 6 Supplier Management 7 Customer Management

31. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 31 Core Competencies Portfolio Integrated Scorecards Technology Fields Planning

32. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 32 Financial perspective objectives perfomance figures requirements measures Customer perspective objectives perfomance figures requirements measures Learn and development objectives perfomance figures requirements measures Process perspective objectives perfomance figure requirements measures Converting the strategy into operational measures: The Balanced Scorecard (BSC) of Kaplan & Norton Vision and Strategy Outline: traditional, finance performance figures give only information about a company‘s past performance, but rarely give answers about the future. For the purpose of steering a company additional performance figures have to be used, representing further factors that determine a company‘s success. The BSC uses four perspectives which allow a balanced performance measurement.

33. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 33 Financial perspective How do we look to our financiers? Survive Succeed Prosper PV of R&D accomplish-ments%/ R&D expenditure % of sales from new products Market share gained due to R&D Vision and Strategy Customer perspective High customer satisfaction Anticipation of external customers‘ needs High design for manufacturability R&D hit rate Score on customer Satisfaction audit % of customer driven projects Engineering hours on projects /engineering hours on Projects and troubleshooting % of projects terminated Before implementation Internal business perspective Productivity Speed to market Technology/design re-use Reliable delivery of outputs Quality of output Hours spent on projects/ total hours R&D Current ttm/reference ttm Rate of re-use of standard Designs/proven technology Sum of revised project durations/sum of planned durations Amount of rework Innovation and learning perspective Technology leadership Long-term focus High absorptive capacity Learning organisation No. Of patentable discoveries per $ spent on R&D % of budget spent internally And externally on basic and applied research % of projects in cooperation With third party % of project evaluation ideas Applied in new projects Can we continue to improve and create R&D value? How do internal and external customers perceive us? Source: Kerssens-van Drongelen/Bilderbeck, 1999 What must we excel at? Integrated R&D Scorecard

34. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 34 Financial Advisory company 7000 employees, world known because of their innovative knowledge and intellectual capital management approaches Distributed and highly dynamic value chain ("new economy") Intensive competitive environment Service provider Baseline Problem Measurement of knowledge transfer and creation between different, distributed local business units faces the problem of missing process transparency and missing infrastructures and tools. The performance of the organisational knowledge basis is only measured on corporate high level (intellectual capital balance sheet) without operative implications on the derivation of concrete actions and the measurement of the actions on operative level. Case Study Skandia Knowledge based performance management Source: EU project NIMCube

35. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 35 Approach: Development of a local and global Skandia reuse and invention bank (GOLD - Global objects Local development) Build and implement of a new, reuse and invention oriented performance management system on basis of the Skandia navigator Development of processes, organisational structures and IT- support for distributed communities of practices through the world Global Objects… (business logic) Local Development... (customization) Case Study Skandia Knowledge based performance management Source: EU project NIMCube

36. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 36 Israeli high-tech company 4000 employees, Israel’s most innovative company Distributed, complex software- and hardware development process Extremely competitive market, particularly in the telecommunication sector Baseline Problem ”We were very proud of our efficient mechanical design process, based heavily on reuse of shared platforms. In a users meeting in April some customers told us off the record that some of our competitors offer other products with more ‘innovative’ mechanical design” Source: ECI Telecom Ltd, 2000. Case Study ECI Telecom Reuse of knowledge versus invention Source: EU project NIMCube

37. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 37 Approach: Modelling of the NPD process Development of reuse and invention structure Build and implement of the NIMCube software application with connectivity's to ECI’s EDM- and ERP system to use existing information structures Build and implement of the NIMCube PMS regarding reuse and invention of knowledge assets with integration in ECI’s Balanced Scorecard Case Study ECI Telecom Reuse of knowledge versus invention Source: EU project NIMCube

38. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 38 Infrastructure Oriented Results / Bottom line Oriented Effect on business results:e.g. time delay, cost of re-inventing the wheel Re-use level: e.g. % of re-used content in the product Re-use tools utilisation level:e.g. # of calls to the reuse object library Objects Re-usability:e.g. # of re-usable SW modules Re-use Process: e.g. % projects with systematic re-use process e.g. % engineers participating in a re-use training program Quantitative Metrics Re-use Infrastructure: e.g. # of objects types catalogued in a library Re-use Awareness: Knowledge Infrastructure Source: EU Project MaKe-IT SME Fallstudie: ECI Telecom

39. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 39 Functions Single point of access Highlighting of critical indicators (Automatic generation where applicable) Feed indicators into NIMMeasure Cross repository searching Customisation and personalisation Additional Information Workplans users feedback More resources Tips Case Study ECI Telecom Reuse of knowledge versus invention Source: EU project NIMCube

40. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 40 Performance Measurement Frameworks, e.g. NIMCube NIMCube: Measurement cube Presenting a multi-dimensional measurement framework showing the six measurement facets stakeholder contribution, NPD performance, reuse, invention, exploitation and enabling context. Source: EU project NIMCube

41. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 41 è based on existing Controlling Frameworks e.g. Skandia Navigator, Balanced Scorecard or Performance Prism. è It’s deduced from the company’s R&D strategy è Combines bottom-up and top-down evaluation processes Innovation = (Invention + Reuse) X Commercialisation Exploitation Ability to commercialise the product and add value to customers Reuse Recurring application of existing knowledge. Knowledge includes tangible and intangible objects, such as ideas, modules, documents etc.. Contributions from Stakeholders Contributions from Stakeholders to product development performance Development-Performance Fulfilment of expectation of the people involved in product development, the performance level of a development process and the potential for improvements. Invention Creation of new knowledge and its application. Ecology The environment enabling or hindering the product development (Human Factors, IT, Organisational Form, Market situation). Perspectives of a re-use and new-use oriented Engineering Performance Management System

42. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 42 NimCube: Knowledge-based performance management system NIMCUBE and NIMSoft Source: EU project NIMCube

43. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 43 Stakeholder Contributions Customer Performance Supplier Performance Performance # Orders Turnover Construction Efforts Pending Orders # Complaints/Product Delivery time Customer Satisfaction Failure Costs Supplier Satisfaction #Problems / Module Re-use Product Quality Age of Knowledge Objects Re-use Rate Exploitation Construction Efforts # Offers / # Orders # Client Visits Sales Efforts Invention # New Customers / Time # New Products Age of Products Quality of Products Ecology Accident statistics Employee Satisfaction Personnel Turnover Employee Training NimCube in Action – Overview on Sample Key Indicators

44. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 44 The NIMCube software application - Navigation Source: EU project NIMCube

45. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 45 The NIMCube software application Source: EU project NIMCube

46. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 46 Core Competencies Portfolio Integrated Scorecards Technology Fields Planning Simulation & Cockpit Tools

47. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 47 Advanced Strategy Tools: SAP Strategic Enterprise Management™ Source: http://www.sap.com/solutions/financials/sem/brochures/ Integration of multiple perspectives Integration of various data Sources Advanced Visualisation (Cockpit Functionality) Dynamic Forecasting with Simulation tools

48. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 48 CIM Software (Sample Screenshots), Source: ANTARES Informationssysteme GmbH © Advanced Strategy Tools: Visualise Corporate Performance with Cockpit Tools

49. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 49 Advanced Strategy Tools: Modelling System Dynamics with PowerSim Example: Optimising Marketing expenditure according to product life-cycle

50. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 50 Advanced Strategy Tools: Modelling System Dynamics with PowerSim Modeling the System dynamics: What are the premises the simulation is build on?

51. © Fraunhofer IAO Stuttgart / IAT Universität Stuttgart Slide: 51