great mistakes in technology commercialization

Strat. Change 10: 383–390 (2001)DOI: 10.1002/jsc.560

Great mistakes in technologycommercializationKevin Parker and Michael Mainelli∗Z/Yen Limited, London, UK

• Annual global investment in technology is enormous. Research & Development (R&D)alone is 1 to 3% of gross domestic product (GDP) in OECD countries, approximately$250 to $350 billion in the 300 largest multinationals and uncounted billions in smallorganizations.

• Advancement in technology transforms lives and without it improvements inproductivity and GDP would be limited to increasing labour and materialproficiency — finite sources of improvement.

• Global GDP per person over the past millennium has risen thirty times and by seventimes in the last century alone. This rise has been fuelled by the communication andinformation age technologies of the last 50 years but, just as importantly, includevaccines, remote sensing, biotechnology, antibiotics, power devices, optics and manyothers.

Copyright 2001 John Wiley & Sons, Ltd.

Introduction

The compelling argument that improving liv-ing standards requires improved technologyhas been augmented by recent increasinginterest in technology investment. Todaythere is more interest in and funding aimed atthe exploitation of the science base. Further,increasing private investment in technologyhas not dented or displaced other tradi-tional technology interest groups. Govern-ment, universities, research establishments,think tanks and even trades unions talk confi-dently about turning nations into knowledgeeconomies.

However, the statistics of new technologycommercialization make for sobering reading(Cooper, 1989):

* Correspondence to: Michael Mainelli, Z/Yen Limited,5-7 St. Helens Place, London, EC3 6AU, UK.E-mail: michael [email protected]

• It takes about a hundred research ideas togenerate about ten development projectsof which two will usually make it throughto commercialization. Only one will actu-ally make money when launched.• In Britain and the USA around half of allcompanies’ development money is spenton projects that never reach the market.

As people who have worked in technologycommercialization for some twenty years,we recently counted the failure factors on ahundred projects we had reviewed, assessed,or been otherwise involved with. Only three1

of 100 failures were related to the science‘not working’, the rest were essentiallymanagerial failures.

1 A semiconductor memory that due to quantum effectsturned out to be write-only: a controlled releasechemical whose release became uncontrollable: acustom-built software suite which had no discernibleadvantage over off-the-shelf software.

Copyright 2001 John Wiley & Sons, Ltd. Strategic Change, November 2001

384 Kevin Parker and Michael Mainelli

The Research and Developmentprocess

The scientific development process has beenthe subject of many investigations and thereis constant interest in more effective R&D(Roussell et al., 1991; Chisholm, 1995).While improving the process is important,we contend that an essential problem is aninability to recognize that objectives changemarkedly at different phases. There areat least three phases with three differentobjectives:

• In the scientific phase — finding some-thing novel of potential use• In the development phase — finding andenhancing the benefit• In the exploitation phase — deliveringthe benefit to customers.

From a strategic perspective, these phasesmake good sense. However, in practicethey are often compartmentalized. For exam-ple, research is segregated from devel-opment that in turn is separated fromthe business, or phases occur over longperiods of time. The strategic perspec-tive is often lost in the laboratory, themanufacturing plant or the sales office.We summarize the strategic perspective inFigure 1.

Injections of external business informa-tion increase as R&D progresses through

the research, development and exploitationphases. Similarly, misinformation needs to beremoved from the process but not always suc-cessfully. Common examples are typically.‘This is a world-leading establishment — sotherefore our work is world class’, ‘This isthe only sensible way to tackle the prob-lem of. . .’. The information/misinformationarrows in the risk/reward strategy in Figure 1force the assessments of R&D projectsand therefore the strategic choices andactions. The R&D process is sensitive tochanges in information/misinformation ortechnology assessment. As technology moves

The R&D process issensitive to changes in

information andmisinformation or

technologyassessment

through the research, development andexploitation phases the emphasis of infor-mation/misinformation changes from tech-nology issues to benefit issues and then tomarket and business issues.

Disinformation

RISK

REWARD

High

Low

HighLow

Tactical

StrategicObvious

StrategicAssumptions

Information

(assessment, mitigation,severity, likelihood)

(impact, ease,safety/regret,

certainty)

Figure 1. R&D strategy.


Great mistakes in technology commercialization 385

Great mistakes

We have consistently found five GreatMistakes in technology commercializationprojects:

• Assuming features will be benefits• Using top-down market analysis• Ducking the chicken gun test• Failing to put someone in charge• Not valuing new technology fully.

The following examines these mistakes inmore detail.

1. Assuming features will be benefits

The first and probably greatest mistake wealso call the No discernible user benefits orthe So What? error. Technologists are jus-tifiably proud and excited by the advancescreated by their efforts but what makes anadvance valuable to its users or customers?Not the advance itself but rather the newcapabilities it brings. The transistor was valu-able because its size enabled the invention ofthe portable radio, not because semiconduc-tors were a new and exciting technology. Thepersonal computer is useful because it let’sus write articles like this, manipulate the text,add diagrams, perform relevant calculationsand send the results around the world, notbecause it has a 1 GHz chip and 500 Mb ofRAM.

The marketing fraternity has developeda useful advance in that it distinguishesthe features of a product from its benefits.Features are intrinsic properties such ascolour, size, and capacity whereas benefitsare the advantages conferred by the producton the user. Features of a lathe mayinclude hydraulic actuation and a 10-micronsurface finish whereas benefits may be lessrework, fewer manufacturing steps and lowerproduction costs. New technology by itselfis useless unless it generates new benefitsfor its users. Few really cared whether theWankel engine was a novel and ingeniouspiece of engineering — it performed thesame function as existing motor engines. Nonew and significant user benefits meant that

the Wankel engine was never likely to be ahuge commercial success.

Spotting potential benefits of a new pieceof technology is not always easy. It usuallyinvolves asking actual or potential users anddifferent users often need different things.When we review a technology for potentialbenefits, there are two useful tools. Ourfirst tool is a child-like, repeated use of thequestion So What?2

‘‘We’re introducing a new range of silicaon silicon opto-electronic devices.’’So What?‘‘Well, they can operate in OC48 or evenOC192 networks.’’So What?‘‘They’re broader-band networks.’’So What?‘‘They’ll increase the bandwidth of theweb.’’So What?‘‘So more people will get much faster andmore reliable access to the Internet.’’

And finally, a benefit! One typically endsup with one of three types of benefit (oursecond tool):

• Giving people a new capability (e.g. aportable radio)• Enabling them do something much better(e.g. a lathe that saves rework)• Saving money (usually spending capital toreduce revenue costs).

It never fails to surprise us just how manytechnology projects fail to ask the So What?question. Asking the question involves notjust some thinking time in the laboratorybefore handing the technology to thoseresponsible for marketing, but research inits own right. Creative research on potentialbenefits and analysis of the potential value tousers is often termed market research. Marketresearch should be aimed at identifying fea-tures and replacing them with benefits. Users

2 First expounded to us by Tony Aldous, Head ofTechnology, Grampian Enterprise Ltd.



Market researchshould be aimed atidentifying benefits

are constantly bombarded with featuresrather than succinct benefits. A particularlyrich source of feature overkill can be foundin most product literature and particularly inthe Information Technology sector. Classicand frequently misunderstood examples are:

16 valve turbo power1 Mb of backside cache3D shifting perspective and realistic depic-tion of exit wounds.Our research institute has 1,000 practis-ing scientists, 500 with PhDs.We are clearly the biggest intellectualproperty resource in Scotland.

We are afraid that all of these statements canonly be responded to with a resounding SoWhat? because we cannot see the benefit.

2. Using top-down market analysis

If Great Mistake number one is essentially afailure to do market research about benefitsrather than technology, number two is doingmarket research badly or misreading theresults. We call it top-down market research.Suspicious top-down phrases often appearin business plans, such as The market is $10billion a year and we can get 5% or Themarket is growing hugely and we must getin on the act. To which the only response isReally? Statements like this assume that themarket is some kind of collective institutionthat decides to give 30% of its businessto Microsoft, 20% to IBM and 5% to anexisting market incumbent, just for beingthere! Markets do not work like that. Eachact of purchase is a consensual act betweencustomer and supplier. What is required isthe need to know: How many customerswill benefit from our product: by how much:How many can afford it and how many canwe get to in our first year? In other words

market research needs to be undertakenfrom the bottom-up and not the top-down.

Top-down market analysis is exemplifiedby statements like: We think we will only sellsix computers a year — after all we knowhow many calculations one of our machinescan do and there just are not that manypeople who do that many. This statementignores the fact that many people might find acomputer useful even though they never useits full capabilities. In the 1980s top-downmarket research led five or six companiesin the USA to believe simultaneously thatthey would get 30 to 40% of the marketfor hard disc drives — and 30 to 40% ofthe funding. Top-down research has fuelledvarious manias and speculative bubbles fromDutch tulips in the 1600s to the dot.comcraze in 2000.

3. Ducking the chicken gun test

In 1970 Rolls-Royce, perhaps the mostfamous name in British manufacturing,became effectively bankrupt. This state wasthe end of a convoluted chain of events thatstarted when their new aircraft engine, theRB 211, failed a bird-strike test. Jet aircraftengines sometimes suffer from ingestingbirds and the results are usually catastrophic(sometimes for both parties). The enginefan blades can disintegrate. The task of thedesigner is to ensure that debris is containedand does not puncture the aircraft fuselage.Testing for bird-strike containability is donefairly simply. An engine is fired up on atestbed, whereupon a (dead) chicken isfired into the blades using a catapult. Rolls-Royce’s problem was in assuming that theirnew carbon-fibre blades would withstandthe test and regarding it as somethingto be looked at towards the end of thedevelopment programme. It did not pass andtheir considerable investment was virtuallyworthless. Management guru Tom Peterspicked up on this story and commented thatthe chicken gun test was a kind of metaphorfor new product development (Peters andMag, 1986). It was the ultimate practical testof user operability.



To summarize, inventors should alwaystry to imagine what real human beings(or birds) will do with their precioustechnology once they are let loose withit. That essentially is the chicken gun test.Invariably, all development projects haveone. The trick is to spot it and address it earlyin the development programme. Failing thechicken gun test can be disastrous. Examplesinclude the Titanic and the space shuttleChallenger.

More prosaically, things get dropped andput into unstable and vibrating environ-ments. Items can catch fire and have cupsof coffee spilt over them. Industrial pro-cesses fail because the catalyst cannot copewith impurities in the feedstock, becausepeople do not change the oil frequentlyenough, or do not pay attention in thelast few minutes before finishing work forthe day.

A smart development team will try toanticipate what the chicken gun test of theirproduct might be and check whether itcan passes early in the development. Oncemanagement has embraced the concept, thebrainstorming of potential chicken gun testsand deciding ways to pass them is actuallyone of the most enjoyable parts of the wholedevelopment process.

4. Failing to put someone in charge

Who was in charge? Well, I suppose I wasreally! (Quoted by five different managers ina post-project appraisal)

The Who was in charge? mistake is acommon characteristic of large organizationswhere the project often involves interde-partmental cooperation. There might be anR&D laboratory, a business technical team, aproduction department, a marketing depart-ment, perhaps even a customer test site.Someone needs to be in charge in order toensure that these activities are still directedat the objectives set.

There is a fairly well-established if slightlydull area of business science that addressesthe needs and requirements of multi-disciplinary interdepartmental projects —

project management. There are numerousgood and usable project management meth-ods that can be used to monitor andcontrol quite complex projects. But orga-nizations do not always use them andif they do, only parts of the projectteam use them so that the developmentteam (for example) delivers on time andon budget the wrong product becausethe market research group did not com-municate changing market requirementsto them.

It is interesting to speculate why manyorganizations fail to use project managementtechniques. For a start, many R&D orga-nizations claim a special exemption fromproject management on the grounds of adifferent culture. Sensitive application ofproject management is often needed but,under examination, exempt cultures typi-cally underperform. In other organizations,managers clearly have problems with theidea of staff from their department work-ing on a project subordinate to a man-ager from another department. Still othersfind project protocols and responsibilitiesrather uncomfortable. If you are the only liq-uid crystal display scientist on the projectthen any failure in liquid crystal displaysis down to you. Another reason is thatprojects do not fit comfortably into annu-alized budget processes. One stage might bea two-week feasibility study, while anothermight be a three-year phase three clinicaltrial. An organization wedded to annualbudgets may be effectively applying thewrong logic.

Commercialization projects that do nothave someone in charge tend to fail becausethey also make one of the other mistakesmentioned in this paper — that it was notmy job to check that those mistakes werebeing addressed. Examples are legion in thedefence industry: in government IT projects:in numerous university developments andin large companies with corporate R&D lab-oratories. Danger signs in a business planinclude the words consortium, steering com-mittee, the importance of liaison, technology



RESEARCH

TECHNOLOGY

COMMERCIAL PROJECTS

Figure 2. Technology can create multiple commercial values.

handover, or the importance of workingtogether.

5. Not valuing new technology fully

This is the perhaps the most subtle of all thegreat mistakes. But it is worth expoundingbecause it lies at the heart of the great There isnot enough money for development — Thereare not enough good projects to invest indebate between inventors and investors. Webelieve that the problem is actually one ofmutual misunderstanding about the natureof commercialization and can be summed upin a simple statement, illustrated in Figure 2.A single project does not capture the fullvalue of most technologies.

This statement is obvious when thoughtis applied it. Carbon fibre could be usedfor aircraft wings, disc brakes, golf clubs andfishing rods. The steam engine could be usedfor ships as well as trains. Micro-encapsulatedcoatings can be used for staining stolenbanknotes or putting scratch and sniffperfume advertisements into magazines. Buthow do some investors value technology?Many, by performing discounted cash flowanalysis on the first commercial project.In other words, investors ignore otherpotential or subsequent applications ofthe technology. On the other hand, mostinventors are only too aware of potentialapplications but sometimes need a littleencouragement to start developing the firstproject. There is not really a fundinggap as such but there often is a severemisunderstanding between the two parties,

because they are actually valuing differentthings.

The true value of a technology should becalculated as:

• The net present value (NPV) of the currentproject arising from that technology: Plus• An option to invest in all the other poten-tial projects enabled by that technology.

Traditional financial analysis based on thecapital asset pricing model (CAPM) empha-sizes the importance of discounted cash flow.Technology is often undervalued becausepotential projects are ignored in the valua-tion process in favour of the current project,usually because there is not a way to do it.However there is a way. The clue is in theword ‘option’. It is possible to value a finan-cial option (e.g. a call or put on a share)provided four things are known, in additionto general financial information such as theprevailing risk-free interest rate:

• The current value of the underlying asset• The strike price, also known as theexercise price• The volatility in the price of that asset• The length of time before expiry of theoption.

In technology commercialization:

• The value is the expected NPV of the cashresulting from implementing the projectsin question (often done as a Monte Carlosimulation of several scenarios).



• The strike price is the capital investmentwhich needs to be made (for example,building an early stage manufacturingplant).• The volatility can be approximated by theend-product price of the investment (forexample, the price volatility of memorychips from a semiconductor plant) orthe share price beta of companies in thetarget industry or sometimes estimatedby the effect on commodities used suchas copper (although good estimation ofvolatility is fraught with difficulties).• The length of time before expiry of theoption is related to the technical lead (arewe two years ahead of the opposition orfive?) minus the time taken to exercise theoption (finish product development work,build the factory, etc).

Although this may sound rather esoteric,it basically requires a feasibility study foreach option and readily available maths.Neither is it terribly novel. We have used so-called risk/reward option theory since 1992in valuing television franchises. Merck, thepharmaceutical giant, has been using optiontheory in R&D since at least 1993 (Nichols,1994; Dixit and Pindyck, 1995).

Poker provides a good analogy. If playershad to place their final bets right as thefirst hand is dealt (as the CAPM requiresthem to), most would (reasonably) optout quickly. Instead, they merely putdown a small initial stake to stay in thegame. Depending on the next card, theythen pass, match or raise and so on. (TheEconomist, 1999)

It is probably as good a way as any to puta realistic valuation on high-potential buthighly diverging income estimate projects inmany biotechnology and Internet businesses.

What, then, are the consequences of notvaluing technology options? Groundbreak-ing technologies rarely get unqualified sup-port and development. Examples include,Trevithick’s steam engine and Whittle’s jetengine: non-defence applications of carbonfibre: the laser: the graphical user interface

(GUI): many biotechnology companies andall inventions funded by one party but com-mercialized elsewhere.

Conclusions

Those who cannot remember the past arecondemned to repeat it. (George Santayana)

Those who cannotremember the past are

condemned torepeat it

It is painful, particularly in the relent-lessly optimistic field of R&D, to dwell onour mistakes. Of course the five listed aboveare not the only mistakes made in technol-ogy commercialization projects. Others thatcome close are:

• The devoted one-product firm with cul-ture to match• The organization that does not recognizethe power of existing systems and• Ventures that don’t own the intellectualproperty often seen in university spin-outs.

Every project will have its own set of spe-cific risks and potential mistakes and thereare straightforward ways of identifying them.However, this article has sought to move thebaseline of the process somewhat. If man-agement are at least aware of the GreatMistakes, then they have a better chanceof avoiding them. Figure 3 emphasizes theimmense savings gained by reducing uncer-tainty in projects early on. We recommendan approach that uses staged gateways whereintense critique is used to reduce uncertaintybefore authorizing the next stage. We believeorganizations should test projects againstGreat Mistakes at such gateways. If not thefive Great Mistakes detailed here, then per-haps the organization should develop GreatMistakes tales of its own.



Unc

erta

inty

CumulativeCost

Typical

Staged

Time

Figure 3. Uncertainty reduction through staged gateways.

Biographical notes

Dr Kevin Parker trained as a researchchemist. Kevin has a varied career in interna-tional technology management with BritishPetroleum, as a freelance consultant and withZ/Yen Limited since 1994. Kevin has workedin each part of the technology commercializa-tion process — R&D, business specification,feasibility studies, market research, projectmanagement, financial appraisal, and marketlaunch and sales.

Michael Mainelli originally carried outaerospace and computing research, includ-ing such things as building laser line-following digitizers. Michael led the firstsuccessful commercial project to create adigital map of the world, MundoCart, in theearly 1980s. He was a partner in a largeinternational accountancy practice for sevenyears before a term as Corporate Develop-ment Director of in one of Europe’s largestR&D organizations, the UK’s Defence Eval-uation and Research Agency (now QinetiQ)and latterly becoming a director of Z/Yen.

Z/Yen Limited is a risk/reward managementfirm working to improve business perfor-mance through successful technology com-mercialization and use. Z/Yen undertakesstrategy, systems, marketing and organiza-tional projects in a wide variety of fields

(www.zyen.com) as well as enterprise ven-turing work in technology.

References

Cooper R. 1989. Winning at New Products.Kogan Page: London.

Chisholm J. 1995. Why are we doing all this?Strategic Change 4: 245–262.

Dixit AK, Pindyck RS. 1995. The options approachto capital investment. Harvard BusinessReview May June: 105–115.

The Economist. 1999. All options open. 14August.

Peters T, May J. 1986. The mythology of inven-tion: A ‘skunk works’ tale. ChemTech 270–276;August 1986, 472–477. Thanks to Dr PaulFreund, Technico-economic Appraisal, BPResearch, Sunbury-on-Thames, for pointing outthis reference. The legend has grown over theyears. There are web sites claiming that thereason the test failed was that the chicken wasfrozen or that the test occurred with lunarlanding modules, high-speed trains or aircraftcockpits and even buses.

Nichols NA. 1994. Scientific management atMerck. Harvard Business Review. January/Feb-ruary: 89–99.

Roussel PA, Saad KN, Erickson TJ. 1991. ThirdGeneration R&D: Managing the Link to Corpo-rate Strategy. Harvard University Press: Cam-bridge, Mass.


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