Technology Management
Vasos Panagiotopoulos
Objectives
- How to manage technology in business
- Will learn all aspects of management as applied to technology
- For scientists/engineers as well as managers/financiers to
learn how to deal with technology in business.
- Team up with someone who complements not emulates your background
Technology Management
- Change the rules
- Sometimes unexpected results
- Risk & Uncertainty
- Need for integrated coordination
- Need for combinatorial diversity
- Complexity (ie RFPs, matrix management..)
- disempowering
- arbitraged, not obeyed
Technology
Management
IS
- Minimising steps for robotic assembly then making it even
cheaper by hand.
- Designing drug molecules then making them.
- Using mammalian cultures instead of just fermentation.
ISN'T
- Replacing typewriter with a PC, without changing work habits.
- Putting the same forms on a computer screen.
- Cross-testing every possible resulting molecule the way you
looked for new antibiotics
Groupthink
doesn't question dominant function
- Big Firm : Finance dominates
- late PLC mentality (cost cutting)
- ignores paradigm shifts
- Mid Firm: Marketing Dominates
- Emphasis on incr. sales
- Ignores scale-up, inventory, dim'g returns
- Small Firm: Tek Dominates
- Thinks biz skills unintellectual
- Ignores timing of payables and inventory
- Emphasis on discovery
Product vs Process
Research & Design
- Freeze design as late as possible
- Include order-winning goals early in process & rewards
- Develop concepts, processes, platforms and product families
before developing products (ie Intel 80x86).
- Speeding a strategic product to market will only accelerate
commoditisation
- Scale-up capability before demand builds
- Improving processes keeps your competitive advantage.
- Knowing when to stop & redesign process model all over
again
Order Winner/Qualifier
Decision Modeling
(Interorganisational)
- Tek Sales or Licensing -- same method
- Tune perfrmc measures to customers & strategy
- Search the decision tree & the org chart
- Relationship or Attribute selling?
- Relationship might be heuristic abbrevn of attributes
- Who REALLY decides/influences/approves/uses?
- Is it price, quality, time, or some hidden agenda?
- Central buying or tek decentalisation
- Stage of budget/procure/design cycle, gating, benchmarking
cf HBS-9-582-117, 9-489-084
Chosing Financing Vehicles
- M&A: get quickly, might lose people
- Licence: internal usability/fit
- JV: share, learn but conflicts
- VC: access but entrepereneurial
- Option: (warrant): unproven, modest risk
- Grant: expand R&D, poor incentive
The Licensing Deal
- Research Presntation...........3 Months
- Deal Structuring..................1 Week
- Deal Pricing.........................1 Month
- Due Dilligence.....................3 Months
- Termsheet/Ltr Intent............2 Weeks
- Development Visit...............1 Month
- Corporate Approval..............2 Weeks
- Legal Negotiation..................2 Months
Typical Royalties & Strategies
- 25% of Profits or 5% of Sales
- 1-4% of Sales: Semiconductors, Chemicals (Chem per kg, too)
- 5-15% of Sales: Spec Chem, Drugs, Med Devices
- If you publish, you perish (novelty, prior art)
- Maybe the guy in Sweden wants the Korean to make it but would
get billed double royalties. Allow collab betw your licensees.
- All JVs to learn.. are all temporary
- License the demo in case a rejected vendor takes it to your
competitors.
- Cash flow valuatn:(mkt shar change,royalty relief, resid income,cost
savngs)
- DEFINE: Strategic product identity criteria, royalty base, non
cash consideration, income exemptions (tax, ship, commiss), min perf
rqmt for licensee, triggering & terminating events, derivative
products tol modifcns, field of use, need to know, inspxn of records,
tol currency risk, tol sales-rel disclosures, indemnification for breach
Hi Tek Finance
(for example)
- Beta = 4 not 1
- P:E= 40 not 12
- r= 20% not 5%
beta = covar(x,market)/var(market)
Venture Capital Method
And Overvaluation in the "New" Economy
INTEREST = REAL + RISK + INFLATION = BASERATE * (1+ BETA)
(Cash Flow, Value Added, Liquidity and Risk make capital more
costly in early ventures.)
Actually RETURN = RISKFREE + beta*RskPrem
P:E = 12 (G&D) = NPV(E):E = NPV(1) = (1/r) for a perpetuit or consol
P:E =(1-growth/(ROI(1+beta))/(WACC-growth))
P:E=(ROE-DivddGro)/(DisctRt-DivddGro)/ROE
Sloppy Fudge: P:E=NPV([1...1],-4%*(1-beta)), 4%=MargPrdxvtCptl
HBS VC Method 9-288-006 p12; HBS Valn Models 9-281-067 p5;
Copeland, Valuation, Wiley, 1990, p79
Options Pricing
(Contingent Claims Analysis)
- Hi r diminishes NPV input from distant earnings
- Discounted Binomial Probabilistic Decision Tree
- matches milestone structure common in tek xfr
- Merck & J&J use Options for R&D budgets
(Lewent HBR 2/94; HBS Contngt Clms 9-286-114;Trigeorgis,Real Options,MIT
- Crudely with Black-Scholes:
- S= PV( proj fin val); X= Launch Cost; t=Time to Launch
- r=WACC for proj; Dividend Yield = zero
- sigma= est from publ-trad compar proj (subtract for attributn)
- Russ Parr of AUS says can't measure Excercise price
- Volatility also hard to Guage
- Complexity is disempowering
- Look good if suggest but not if implement
- Hire an expert to do it; for strategic initiatives only
Hi Tek Proj Management
Intellectual-Process PERT/CPM
- Teks are lousy estimators of cost and time
- they simplify in order to think thru
- good for tek
- lousy for biz
- rough fudge is 2.3 times their estimate
- Gurus do 80% of work for team
- gurus overestimate not underestimate
- never hesitate to grant gurus overtime
- go out of your way to keep them for life
Tek Life Cycle
Sales=a*tanh(b*t)+c
- Idea, plan, identify customers
- Prove concept, feasibility, id enabling tek
- Design, protoype, patent
- Validation, test
- Scaleup, commercialise
- Build up market share
- Maintenance, Creative destructn/substitn
Pr Nelson Fraiman's
17 Step Tek Change
(Columbia B9811x95,8827x96)
- Champion of Key Processes
- Team-centered Approach with Diverse Composision & Information
Shared across Functional Lines
- Management Leadership, Committment and Involvement at All
Levels
- Agreement of Vision by All
- Implementation Supported with Sufficient Training
- Environment That is Supportive of Quality and Continuous Improvement
- Strong Communication and Documentation
- Simple (Common Sense) Solutions
- Challenge Conventional Wisdom
- Appropriate Measurment System
- Change Sold to All Constituencies
- Schedule-based (details are paramount) Process
- Culturally Sensitive Solution
- Enough Focused Resources for Implementation
- Use Facts with Scientific Methodology
- Do It Again and Make Sure All 17 Elements are Done
INFORMATION TECHNOLOGY
- Info is dear, data is cheap
- Longterm firm-wide intercompatibility
- Vendor reliability or source code in escrow
- INVARIANT:1 man-hr per line of code (fully debugged, documented,tested,
maintained)
- Dominant design (microchannel vs AT)
- Other issues: data-flow, work-flow, requirements, prototype,
recovery, distrib contention/integrity..
Regulatory Effects
eg, Drug Discovery and Approval $200-500 MM
Dollars below are minimal prepartnering budgets, valuation reward
Difference is because failures aren't counted and attributed
- Discovery (5 yrs) (10,000 compounds: Screening leads, rational synthesis)
- Preclin (lab & animal,pharmacology, toxicology) (6.5 yrs)
(250 lead candidates) $.6MM
- IND (Investig New Drug applxn); Corporate IND vs Physician's IND
- GMP (Good Mfgg Proc) pilot plant built & subseq scale-up
- Phase I (25 non-ill voltrs for safety & dosage)
(1.5 yr) (80% of 5 candidates pass) $.7MM, $25MM
- Phase II (200 vol patients for efficacy & side-effects)
(2 yrs) (30% pass) $1.4MM,$75MM
- Phase III (2500 vol patients to mon long-t rxn)
(3.5 yrs) (80% pass) $7MM,$250MM
- NDA (New Drug Application, 100,ooo+ pages!)
- FDA Review & approval (2yrs)
(one drug passes from orig 10,000) $.1MM
- Post-Marketing & Phase IV Testing (1.5 yr)
- Orphan Drug - fewer than 200,ooo potl pt - 7yr exclusivity
Where to get more information