B222 B: Technology and Innovation Management

Arab Open University

Faculty of Business Studies

B222 B: Technology and Innovation Management

Fall 2014-2015

Version B

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)

<Q NUM="10"<P<INST>Capabilities are skills that a firm develops. These Capabilities are the building blocks for the firm's strategy because it is at the level of Capabilities that the business develops its competitive advantage

What are the two classes of capabilities of a firm?

Marking Guidelines of Question 1
Chapter 2 “Strategic foundation”, pp. 34-36
ITEM / MARKS
Technical Capabilities / 3*5 marks= 15 marks
Market Capabilities / 10 marks
Total / 25 marks

</INST>What are

Technical Capabilities

Technical capabilities address how the firm approaches technology it already has or wishes to have in the future.

The firm's approach to these capabilities can be classified in one of three ways: destroy, preserve, or develop.

Destroying is concerned with eliminating certain technological capabilities in the organization and replacing them with others. Because the technology that has been employed is flawed, and improvement must take place. E.g. after the Exxon Valdez accident, many tanker companies viewed the old technology of single-hull design as too risky to continue using. Therefore, many old, still usable tankers were taken out of commission and replaced with ones with double-hull technology.

Developing new technology capabilities can give a firm a competitive leap over others in the industry. These capabilities can be purchased externally or developed internally. An example of this includes retailers who pursue new Internet capabilities to complement their existing store locations, such as Sears, Walmart, and Target.

A firm may seek to preserve its technology. In these situations, the technology may be old, but the firm believes it still has utility. Crayolas are still a viable product even though new technologies have emerged, the makers of Crayola, have improved the product with new colors, washability, and so on, but the fundamental technology has been preserved.

Market Capabilities

The firm must also have market-relevant skills that indirectly impact the technology of the firm. Engineers may develop tremendous new products but may have ignored issues such as how to distribute those products.

In summary, technology should be considered a central component of the firm's strategy. The firm's capabilities, including technology, provide the firm with its sustainable competitive advantage.

A competitive advantage is what the firm does better than any of its competitors. However, this will lead to a sustainable competitive advantage only if the activity is something that the customers value.

Question 2: (25 marks)

<Q NUM="10"<P<INST>A firm can employ technology in either an offensive or defensive manner. Explain both manners while giving examples for both (25 marks)?

Marking Guidelines of Question 2
Chapter 2 “Strategic foundation”, pp. 40-41
ITEM / MARKS
Offensive technology / 7.5 marks
Defensive technology / 7.5 marks
Examples / 10 marks
Total / 25 marks

The firm uses an offensive technology in a way that is not being used by competitors so that it gains a competitive advantage

For example, Sotheby's and Christie's are two of the leading auction houses in the world, in late 2002, Sotheby's was able to gain competitive advantage by signing a partnership with eBay.

Alternatively, a firm can have a defensive technology and obtain technology that others already employ.

This use of technology will not give the firm an advantage, but it allows the business to match its competitors.

Johnson & Johnson was the world's largest provider of surgical stitches and wound bandages. However, Closure Medical Corporation patented a completely new technology developed to glue the skin back together

Johnson & Johnson realized that it was at a competitive disadvantage Therefore; they obtained a license for this technology.

Question 3: (25 marks)

List and explain the six forces of porter’s modelused to analyze the external overall industry during the information gathering process (25 marks)

Marking Guidelines of Question 3
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 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 chang

•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 2014 for Osta Corporation: (15 marks)

These accounts are for Osta Corporation at year-end, December 31, 2014.
Motor Vehicle running expenses / 4,800 / Sales / 400,000
Loan Interest paid / 8,000 / Salaries and wages / 40,000
Cost of goods sold / 224,000 / Insurance / 5,200
Taxes paid / 20,000 / Heat and light / 4,800
Rent paid / 20,000 / Telephone and Postage / 2,000
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) / 400,000
-COGS (1 marks) / (224,000)
= Gross Profit (1 marks) / 176,000
Less:
Salaries and wages (1 mark) / 40,000
Motor Vehicle running expenses (1 mark) / 4,800
Rent paid (1 mark) / 20,000
Telephone and Postage (1 mark) / 2,000
Insurance (1 mark) / 5,200
Heat and light (1 mark) / 4,800
= EBIT ( operating income)(1 mark) / 99,200
- Loan interest(1 mark) / (8,000)
= EBT (Earning before Tax) (1 mark) / 91,200
- Taxes (1 mark) / 20.000
Net Income (2 mark) / $ 71,200

[END OF MARKING GUIDELINES]

B222B – MTA MG – Fall 2014Page 1