Arab Open University

Faculty of Business Studies

B222 B: Technology and Innovation Management

Spring 2014-2015

MTA MARKING GUIDELINES

Time Allowed: 2 hours

Instructions:

  • This examination consists of FIVE (5) questions, and you are required to mark only FOUR (4) of these questions.
  • Answers are expected to be essay-format, except where calculations are required.
  • Any form of cheating should not be tolerated, and should be subject to AOU cheating policy.
  • These marking guidelines are general, and they show how grades should be distributed. Markers are supposed to use their academic judgment, as in many instances there isn’t one right answer for these questions.

Question 1: (25 marks)

During the information gathering process, one means to analyze the external overall industry is referred to as Porter's Industry Model. List and explain the six forces of porter’s model (25 marks)

Marking Guidelines of Question 1
Chapter 2 “Strategic foundation”, pp. 50-54
ITEM / MARKS
Buyers / 4 marks
Suppliers / 4 marks
New entrants / 4 marks
Substitutes / 4 marks
Rivalry / 4 marks
Complementors / 4 marks
Total / 25 marks

bargaining power of buyers: Buyers are individuals who actually buy the output of the industry being analyzed

The characteristics that determine if a buyer of an industry's output is strong include:

Percentage of the industry's output the buyer purchases

Costs of switching to competing brands

Number of Sellers available

If the technology of an industry is relatively mature and there are few buyers, then the buyers' power will tend to be high. This is because the technology will be relatively the same across the industry, and the number of buyers will be less than the number of sellers

bargaining power of suppliers: Suppliers are firms or individuals that provide input into the ultimate output of the industry

The inputs will include widely recognized items such as raw materials, fixed assets, and financial support

The factors that make suppliers powerful include:

High demand for supplier's products

Quality and performance of product supplied are unique

Inability of customer to vertically integrate

new entrants: If an industry is experiencing high returns, then others will wish to enter that industry

The power of new entrants includes:

Brand loyalty by consumers

Economies of scale increase the size at which a firm must enter the industry

Capital requirements make it more expensive to enter the market

Inability to access distribution channels

Proprietary process technology from patents

Existing firms in the industry may invest in structural barriers to entry that discourage potential new rivals. For example, firms may expand into new regions of the country or market niches to discourage other firms from entering those market

substitutes: Substitutes are products that perform a similar function but not in the exact same way

Substitutes form a ceiling on the price that can be charged for a given product. In the pharmaceutical industry, the substitutes would be herbal medicines

The factors that impact the power of substitutes include:

Ability of customers to compare quality, performance, and price

Switching costs, or the cost of switching from the industry's product to a substitute

Rivalry: The rivalry is among firms in the industry

The higher the rivalry, the more likely firms are to cut prices. This negatively affects profitability

The factors that increase rivalry include:

An increasing number of competitors

A growing demand for the product

Producing an increased volume to obtain economies of scale

Low Switching costs to the customer

 Complementors: Complementors, a sixth force that has been added to Porter's original model, are products that sell well with another product.

The two products complement each other. For technology firms, such complementary activities are increasingly important

The complementors can come from the same parent company, or can be from different companies. For example, Microsoft software runs on Intel's chips. The two firms help each other. Success, or failure, in one will impact the other

The characteristics that influence the power of complementors are:

  1. Ability to integrate backward or forward to replace the complement
  2. Availability of substitute complements
  3. Buyer or supplier switching costs
  4. Relative concentration

Question 2: (25 marks)

Select one car innovation that would be considered more incremental (continuous) in nature and one that would be considered more radical in nature (15marks). Explain which of the characteristics of radical versus continuous innovation your examples exhibit (10 marks).

Marking Guidelines of Question 2
Chapter 2 “Strategic foundation”, pp. 36-38
ITEM / MARKS
Examples of incremental and radical innovations / 15 marks
Explaining the characteristics / 10 marks
Total / 25 marks

The following innovations are mere examples the students can use other examples as long as they are relevant

One car innovation that would be more incremental in nature would be an iPod dock.

Incremental innovations are those that are characterized by:

  • an extension of an existing product or process
  • The innovation is aimed at improving performance, function, or quality at a lower cost.
  • Are often developed in response to specific market (customer) needs, also known as a demand-side or customer-pull market.

People already listen to music in their cars; customers have purchased “jacks” to connect their iPods to the car’s music/stereo system. In that sense, adding factory-installed iPod stations to a car is developed in response to specific customer needs.

Another incremental innovation would be innovations in internal combustion engines that improve fuel efficiency.

Other incremental innovations in the automotive industry might include styling/design changes in the car’s appearance, new safety features inside the car that don’t require customers to learn new behaviors or drive in different ways, or other attributes such as large cup holders, rear-passenger temperature controls, etc.

Certainly, a large part of competitive advantage in the existing car industry is low-cost production that allows manufacturers to earn sufficient profit margin to be profitable (witness the problems of American car companies in the late 2008 time period with their lack of competitive advantage not only in low-cost production, but also in design and car models that are desired by a large segment of the auto market.

A breakthrough or radical innovation in the car industry would be the flying SkyCar offered by Moller ( The characteristics of a breakthrough innovation are:

  • causes a dramatic change in the way things are done
  • New technology creates new market

Certainly, people have not been clamoring for flying cars (or jet packs, for that matter). But astute scientists in the lab have created a machine that can both drive and fly. The question is who will buy it. These aspects of flying cars correspond to the characteristics of breakthrough innovations.

The question of whether flying cars offer superior functional performance is probably yet to be seen. Certainly, they can avoid traffic jams and get places more quickly. However, fuel efficiency and the prices make the price/performance ratio of the breakthrough potentially questionable at this early stage of the technology’s development.

An interesting breakthrough or radical innovation to discuss would be the new electric cars offered by the company. Although some could argue that electric cars are no longer “breakthrough innovations,”

Question 3: (25 marks)

  1. Innovate or not to innovate? Discuss this concept and elaborate on the first mover issue (25 points)

Marking Guidelines of Question 3
Chapter 3 “Planning for Innovation”, pp. 77-79
ITEM / MARKS
Factors that favor innovation / 10 marks
First mover / 5 marks
Factors that discourage innovation / 10 marks
Total / 25 marks

•Factors That Favor, Innovation :

1. Greater control of the process and the outcomes

2. Greater understanding of the technology produced and how to apply it

3. Greater ability to potentially develop the next generation of technology

4. Greater profit potential as a first mover

•A first mover is a firm that is first to market in some manner

•Being first often leads to competitive advantages, such as customer loyalty and brand recognition. These advantages can be difficult for competitors to match or overcome

•It was this factor that helped establish IBM's competitive advantage in computer mainframes for many years.

•In some settings, it can be more beneficial to be a follower in an industry. The first mover can spend many resources educating the market about the product. Additionally, the follower can learn from the mistakes of the first mover

•Typically, if not a first mover, then a fast follower, will perform best in an industry

•Factors That Discourage Innovation

1. Time required for an internal development strategy is greater. If a new product is purchased, it is almost immediately available to the firm. However, if it is developed internally, it may take years to develop the new product.

2. There is a greater risk of failure to develop the right product at the right time.

3. Keeping a pipeline of new products is difficult at best. There is always the danger that another firm will enter the market first.

•Therefore, there can be strong negative implications to pursuing an innovation strategy. Managers must clearly understand both the benefits and drawbacks to internal innovation as they move forward. This understanding requires not only technological understanding but also an understanding of the market and the customer.

Question 4: (25 marks)

A-Define:technology, management of technology.

B-state the reasons behind the importance of managing technology

Marking Guidelines of Question 4
Chapter 1 “Strategic perspectives”, pp. 14-17
ITEM / MARKS
Definition of technology / 5 marks
Definition of management of technology / 5 marks
Importance of managing technology ( students need to list 3 reasons) / 3*5= 15 marks
Total / 25 marks

A-Definition of technology

•We define technology as: the practical implementation of learning and knowledge by individuals and organizations to aid human endeavor. Technology is the knowledge, products, processes, tools, and systems used in the creation of goods or in the provision of services.(5 marks )

Definition of management of technology

•We define the management of technology as:The management of technology is the linking of different disciplines to plan, develop, implement, monitor, and control technological capabilities to shape and accomplish the strategic objectives of an organization.(5 marks )

B-5 Reasons for the importance of managing technology: student’s needs to list 3 reasons with 5 marks each (3 * 5 = 15 marks)

•The rapid pace of technological change, to take advantage of technological opportunities

•The rapid pace of technological developmenthave shortened product life cycles, organizations should be more proactive in the management of technology

•There is a need to cut product development times, The lead-time from idea to market is being reduced by the emergence of new or altered technologies

•Increasing international competition demands that organizations must maximize competitiveness by effectively using new technologies

•As technology changes, the tools of management must change

Question 5: (25 marks)

  1. What is the purpose of the income statement? And what is the income statement formula. (10 marks)
  2. Using the following information, draw the income statement of the year 2011 for Brava Corporation: (15 marks)

These accounts are for Brava Corporation at year-end, December 31, 2011.
Motor Vehicle running expenses / 1,200 / Sales / 100,000
Loan Interest paid / 2,000 / Salaries and wages / 10,000
Cost of goods sold / 56,000 / Insurance / 1,300
Taxes paid / 5,000 / Heat and light / 1,200
Rent paid / 5,000 / Telephone and Postage / 500
Marking Guidelines of Question 5
Chapter 2 “Strategic foundation”, pp. 45-46
ITEM / MARKS
Purpose of the income statement / 5 marks
Formula of the income statement / 5 marks
Solving the income statement / 15 marks
Total / 25 marks

A:Purpose of the income statement (5 marks)

•Information from the income statement can be used to determine more than retained earnings, including:

  1. How profitable the firm is
  2. The nature of the expenses of the business
  3. If the firm has sufficient resources to conduct other strategic activities that may arise

Formula (5 marks) Net Sales

- Cost of goods sold

= Gross Margin

- operating expenses

= EBIT (operating income)

- Interest

= EBT (Earnings before taxes)

- Taxes

= Net Profit

B. (15 marks)

Brava Corporation
Income Statement of the year ended 31 December 2011 (1 mark)
Sales (1 mark) / 100,000
-COGS (1 marks) / (56,000)
= Gross Profit (1 marks) / 44,000
Less:
Salaries and wages (1 mark) / 10,000
Motor Vehicle running expenses (1 mark) / 1,200
Rent paid (1 mark) / 5,000
Telephone and Postage (1 mark) / 500
Insurance (1 mark) / 1.300
Heat and light (1 mark) / 1,200
= EBIT ( operating income)(1 mark) / 24,800
- Loan interest(1 mark) / (2,000)
= EBT (Earning before Tax) (1 mark) / 22,800
- Taxes (1 mark) / 5.000
Net Income (2 mark) / $ 17,800

[END OF MARKING GUIDELINES]

B222B – MTA MG – Spring 2015Page 1