take home open book exam
- (7 points) Describe your working industry (in case you have no working experience, describe one industry that you are familiar with). If you want to seek for innovation signals and opportunities, what are the top 3 major sources you would like to target on? Do you think those sources are sustainable in generating innovation ideas in a longer time period? If yes, why? If no, then how can you ensure a stable flow of innovation ideas? Justify your answers.
- (7 points) (a) What are the limitations of choosing innovation projects purely based on positive NPV or short payback period criteria? Why projects of shortterm incremental improvement or purely product diversification within existing platforms tend to be favored by such criteria? How about using them to select radical innovations? Justify your answers.
(8 points) (b) Recall the BackBay simulation game, how to select potential innovation opportunities for both the AGM and SC technologies from portfolio management perspective? How do various factors, including current market share, future market potential, existing technology features, affect such portfolio management? Justify your answers.
- (10 points) What is disruptive innovation? Pickup a mature industry, and describe what are the potential disruptive technologies for this chosen industry? Outline future business models capitalizing on such technologies that might disrupt the industry (outline at least one such business model if you can).What are your suggestions for existing incumbent firms in this industry to take in order to prepare for the potential disruptive threats? Justify your answers.
- (8 points) (a) Why Lego prefers to crowdsource design ideas from end users whereas Apple Inc. chooses to restrict its R&D projects within the firm’s boundary? What are the contributing factors that may lead to the aforementioned choices? Why? Justify your answers.
(5 points) (b) Explain the differences between exploration and exploitation. How can firms use the insights of exploration and exploitation in designing their innovation strategies? What are the contributing factors that favor the strategy of exploration and that of exploitation? Justify your answers.
- (10 points) For your working industry/company (in case you have no working experience, describe one industry or company you are familiar with), what is the major sources of inefficiency in the overall process (e.g., overall operations and management process)? Which of the underlying principles of process innovation we discussed in class would be most helpful in improving your previously identified sources of inefficiency? How to improve? Justify your answer.
- (30 points) This question is customized based on your student ID. Suppose your student ID is “………ABG”, where AB are the last two digits and G refers
to “graduate”. Then, the last digit of your ID is B, and the second-to-last digit is A
You are a manager at a startup company, which is specialized in designing and producing drone. You are considering two product innovation options. Option A is to produce a cheap model with basic function, and option B is to product an expensive model with superior camera and stability functions. The design team estimates that the initial investment (in Year 0) for option A is $2M and for option B is $4M, and it would take one year to develop the drone of each option with a development cost of $1M (in Year 1). There exist technical risk and commercial risk for both options. The probability of technical success for option A is 0.9 and for option B is 0.8. If it is a technical failure, the innovation will end up with no successful drone in the end of Year 1 and the company is not able to earn any revenue; if it is a technical success, the company is able to launch the developed drone to the market in Year 2 at an estimated launching cost $1.X million, where X is the last digit of your student ID number.
The developed drone could be commercially success or failure. Commercial success means the demand of the developed drone is high, whereas commercial failure means the demand of the developed drone is low. The probability of commercial success for basic drone (option A) is 0.7 and for advanced drone (option B) is 0.85. If it is a commercial success, the company expects to earn net revenue of $3.Y M per year from selling the basic drone and $4.Y M per year from selling the advanced drone for 3 years (from Year 2 to Year 4), where Y is the second-to-last digit of your ID number; if it is a commercial failure, the company expects to only earn net revenue of $0.6M per year from selling the basic drone for 2 years and $1.3M per year from selling the advanced drone for 2 years (from Year 2 to Year 3). The required rate of return is 10%. You want to choose one of the two options as product innovation. The detailed information is summarized in the following table.
Option A Basic Model | Option B Advanced Model | |
Initial Investment | $2M (at Year 0) | $4M (at Year 0) |
Development Cost | $1M in Year 1 | $1M in Year 1 |
Technical Success Rate | 0.9 | 0.8 |
Commercial Success Rate | 0.7 | 0.85 |
Launching Cost | $1.X M (at Year 2) | $1.X M (at Year 2) |
Net Revenue of Commercial Success | $3.Y M (per year) | $4.Y M (per year) |
From Year 2 to Year 4 | From Year 2 to Year 4 | |
Net Revenue of Commercial Failure | $0.6M (per year)
From Year 2 to Year 3 |
$1.3M (per year)
From Year 2 to Year 3 |
- (7 points) Consider the case in which you make selection based on preactive planning, under which you will for sure launch the drone regardless of whether it is a commercial success or failure. Based on the above financial information only, will you choose option A or option B? Why? Justify your answer.
- (8 points) Consider the case in which you make selection based on re-active planning, under which you are able to test the market response and know whether it is a commercial success or failure (in the beginning of Year 2) before officially launching the drone and incurring the launching cost. That is, if you find out it will be a commercial failure, you have the option to decide whether to launch the drone or not. Based on the above financial information only, will you choose option A or option B? Why?
- (5 points) It is argued that the real option approach (ROA) always leads to a weakly higher value assessment of innovation options, compared to that obtained via the expected commercial value (ECV) approach. Do you agree with this statement or not? Justify your answer.
- (10 points) Beyond the context of the above questions, discuss in general the advantages and disadvantages of using either the rationalist or the incrementalist way to manage innovation, and their respective impacts on the selection and implementation of innovation. Justify your answers.
- (10 points) What are the potential opportunities and risks a firm may face when expanding its business into global markets? How does the trend of globalization affect firms’ innovation strategy? Discuss possible innovation strategies from both the perspective of a firm entering into a foreign market and that of a local firm defending its market from foreign competitors. In particular, how does the recent outbreak of COVID-19 affect the above issues? Justify your answers.
- (5 points) Choose one of the following two and provide a detailed response.
- Which part of the course you find most useful? What insights you can get from the chosen part? Justify your answer with your experience?
- What are your suggestions and criticism to this course? Do you have any suggestions for the instructor to improve the course?