1. TMitTI 1 © Sakari Luukkainen Timetable 20.9. Introduction, Sakari Luukkainen 27.9. Solution Business, Case Sun Microsystems, Topi Talonen 4.10. Market Dynamics of Telecom Industry, Sakari Luukkainen 11.10. Standardization Strategy, Sakari Luukkainen 18.10. Case GSM, Sakari Luukkainen 25.10. R & D Management, Sakari Luukkainen 1.11. Linking Business Thinking with Research, Teppo Paavola 8.11. Product Strategy, Sakari Luukkainen 15.11. Platform Leadership, Sakari Luukkainen 22.11. Case Nokia Symbian Product Platforms, Lea Lahti 29.11 Technology Foresight, Sakari Luukkainen 14.12. Examination

2. TMitTI 2 © Sakari Luukkainen Product management is business process management Product Manager R&D Top Management Sales Finance Purchasing Production CustomersLegal Marketing

3. TMitTI 3 © Sakari Luukkainen R&D process in firms Technology Assessment and Forecasting Market Assessment and Forecasting Idea generation and screening Diversified portofolio of Project Plans Project execution and evaluation Technological change Market change

4. TMitTI 4 © Sakari Luukkainen R&D Life Cycle Science base Generic technologies Production scale-up Proprietary technologies € Time R&D investment

5. TMitTI 5 © Sakari Luukkainen R&D Life Cycle Science base Generic technologies Production scale-up Proprietary technologies € Time Commercialization investment R&D investment

6. TMitTI 6 © Sakari Luukkainen R&D Life Cycle Science base Generic technologies Production scale-up Proprietary technologies € Time Cash flow Sales R&D investment Market penetration Commercialization investment

7. TMitTI 7 © Sakari Luukkainen Classification of R&D Source: adapted from Pitkänen 2000, ADL 1991 Type of R&DIncrementalDiscontinuousFundamental Probability of technical success 40-80%20-40%Small, difficult to assess Time to completion0,1-2 years2-4 years5-10 years Competitive potentialModest, but necessary LargeLarge, difficult to assess Durability of competitive advantage Short, imitable by competitors Long, protectable by patents Long but risky

8. TMitTI 8 © Sakari Luukkainen Technology strategy process in firms Autonomous strategic action Induced strategic action Strategic context Structural context Concept of corporate strategy Source: Burgelman & Rosenbloom

9. TMitTI 9 © Sakari Luukkainen Technology strategy enactment in firms Induced applied research on new technologies opportunities and threats to support existing and emerging businesses standardization, alliances product development joint ventures acquisitions Autonomous science-based research internal corporate venturing external corporate venturing: VC, venturing alliances and if they fail the last change is followership by copying / contracting / licensing without timing and cost advantage

10. TMitTI 10 © Sakari Luukkainen ProductionValue added ICT investment GDPInnovationScience base Generic technologies Proprietary technologies R&D investment Sales, profit Goals of R&D Management

11. TMitTI 11 © Sakari Luukkainen Goals of Technology Policy 2001 R&D investments in Finland were 5 billion € of which was publicly financed 28 %, major R&D performed in telecom sector Technology policy differs from the other policies, because it tryis to "increase the cake" instead of sharing it The most important reasons for too low a level of the private R&D investments are due to the high technical and commercial risks involved The government´s initiative is thus emphasized in the case of R&D underinvestment in the private sector In order to redress this kind of market failure the industrial countries have contributed to their technological infrastructure to support the long-term competitiveness of domestic companies

12. TMitTI 12 © Sakari Luukkainen Companies make their decisions of the R&D investments aiming at maximizing profits Therefore, at least in big companies, the risk is divided into the portfolios of many different R&D projects, all of which are required greater profitability than other less risky projects like the expansion of the present production facilities This all results in the companies beginning to favour R&D projects with a short time to market influence. Therefore the goal of technology policy is to maximize the influence of such R&D investments on the growth of GDP, which would not be realised without support, but would greatly benefit society Goals of Technology Policy

13. TMitTI 13 © Sakari Luukkainen Spillover means practically a situation where investment in the technology of an innovator also benefits other companies Economists have demonstrated that R&D performed by the original innovating company generates widespread value in the economy through spillovers The key factor in the development of the industrial structure and advancement of spillovers is the efficiency of the whole domestic value chain (cluster) Concrete technology policy occurs in the selection of publicly financed R&D projects Goals of Technology Policy

14. TMitTI 14 © Sakari Luukkainen R&D Investment Profitability Evaluation        m t t t p p p mt t i H i JA i S t 1 )1()1()1( Net Present Value (NPV, DCF) Internal Rate of Return (RoR, IRR)

15. TMitTI 15 © Sakari Luukkainen RoR calculation formula m = the length of the R&D project n = the length of the product life-cycle p = m + n S t = net cash flow after the market introduction RoR = rate of return H t = annual R&D expenditure JA p = residual value

16. TMitTI 16 © Sakari Luukkainen A B Innovator hurdle rate Social hurdle rate Innovator rate of return Social rate of return D C R&D financing by type of project Source: Tassey 1997 E

17. TMitTI 17 © Sakari Luukkainen Innovator hurdle rate Social hurdle rate Innovator rate of return Social rate of return A t1 A t21 A t3 R&D management by milestones A t22 Source: Tassey 1997 Evaluation of - profitability - technical risk - delay Decisions on - continue - modify - kill / freeze

18. TMitTI 18 © Sakari Luukkainen Real options R&D valuation Valuation MethodNPV 1993 1994 1995 DCF #1: Use most likely values - $11.4 - 6 -(15/1.12) + (10/1.12 2 ) DCF #2: Consider market uncertainty - $9.0 - 6 -(15/1.12) + (0.3*20+0.7*10)/1.12 2 DCF #3: Consider all uncertainties - $5.4 - 6 -(15/1.12) + 0.3(0.8*….)/1.12 2 Options Thinking Valuation + $2.2 - 6 -0.3*(15/1.12)+0.3*((0.8*60+0.2*15)/1.12 2 )) Initial R&DCommercialization Market R&D Outcome Decision Outcome Investment Decision Source: Faulkner 1996 Yes No -$6M 0.3 0.6 0.1 Excellent Good Poor Yes No -$15M 0.8 0.3 0.2 0.7 0.1 0.9 +$60M +$15M +$20M +$10M -$15M -$60M

19. TMitTI 19 © Sakari Luukkainen QFD-method Source: Lowe & Ridgway, University of Sheffield

20. TMitTI 20 © Sakari Luukkainen R&D Intensity by Country Source: Tekes, OECD

21. TMitTI 21 © Sakari Luukkainen Finnish Innovation System Source: Tekes

22. TMitTI 22 © Sakari Luukkainen Evaluation of the Innovation System R&D investments of industry has been successfull - R&D expenditures correlate highly with growth of sales of new products i.e. innovations The support of GSM development has created a lot of direct success as well as spillovers in the telecluster The role of basic research has been low in the ICT business so far The effect of public financing has had a significant but limited effect, it works in firms that already have high R&D intensity – successful R&D requires process knowledge (Niininen 1999)

23. TMitTI 23 © Sakari Luukkainen Evaluation of the Financing System Subsidized loans have better effect on productivity than direct support – easy money effect (Niininen 1999) The role of liquidity constraints was negligible in determining R&D investment – steady R&D spending (Niininen 1999) Venture capital financing has so far resulted in a very few new success stories Financing by own cashflow puts more pressures to allocate R&D according to market need