*Due to confidentiality, this version has been adjusted to be able
to publish it. The subject and names used in this version are
invented by the author and do not have any meaning, what so
ever.*
Open Water Dredging…
…a New Challenge
by
1
“Open Water Dredging, a New Challenge”
The influence of market pull and technology push on the investment decision for a new maritime dredge service.
Author
Student reference Wiebe Jan Emsbroek 1271423 University
Faculty Study
University of Groningen Management & Organization
Industrial Engineering & Management Science University supervisors Dr. ir. R. de Graaf
Prof. dr. ir. F.P.J. Kuijpers Company Dredging International Company supervisor X
Amsterdam, May 2007
© W.J. Emsbroek
‘The author is responsible for the content of the thesis; all rights regarding this thesis are reserved for the author’
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Acknowledgements
Open Water Dredging, a New Challenge. In the first place this title refers to all the minerals that are lying on the seabed. The existence of those minerals has been an astonishing discovery for me and for the people that I’ve confronted with this information. The conversations that have originated from this have therefore been very interesting and have given my research a broader relevance.A New Challenge also refers to the past eight months, which it took me to produce this report. The process leading up to this final report had its troubles, as writing an extensive report like this is not easy and has its ups and downs. However, the discussions with my supervisors from university have always been of great value to me. Therefore I would like to sincerely thank Mr. de Graaf for the many hours that we have used to discuss my research. Also I would like to thank Mr. Kuijpers for reading my concept versions and provide me with helpful advice.
The time that I’ve spend at Dredge International has been very pleasant. The industry in which it is active is something that I only knew from TV documentaries. Being part of a company that is actually performing these unique dredge operations and being able to experience this from close by has been a great experience.
The people at Dredge International have made my stay worth while. Therefore I would like to thank everyone from Dredge International Dredge for their great help and support. In particular I would like to thank the Business Development Department, as they gave me the opportunity to really participate in their daily activities. And Mr. X for being my direct sparring partner.
Not only do I finish my study with this report, it also makes an end to six great years in Groningen. It has been a period in which I’ve gained a lot of knowledge through my study and because of all the other activities that have kept me busy. This could not have been possible without the help of my parents and therefore I would like to thank them for their confidence and support.
Furthermore I would like to thank everyone who has taken the time to read parts of my concept versions and provided me with helpful advice.
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Executive Summary
The focus of the dredge industry in which Dredge International Dredge (DI) is active, is changing from sand- to mineral dredging. This development, together with a new strategy introduction, has made DI consider offering new dredge services. Multiple requests for so called ‘Open Water Dredging’ (OWD) operations, to which DI could not respond positively, have led to the following goal of this research:“Give Dredge International recommendations, to what extent they should invest in Open Water Dredging and offer it as a service.”
The problem that arises from this goal is whether OWD has the potential to become a viable service for DI and whether a required investment in technology can be earned back by future cash flow. It has become clear that a growing and steady demand for OWD operations can be expected in the future, but that the decision to suck minerals from a seabed remains a cost-benefit tradeoff. The ‘Hard Minerals’ segment offers a big potential market but is not feasible on a short notice. Therefore the ‘Soft Minerals’ segment, which consists of the present demand, is considered as attractive for the near future. OWD operations, in both segments, consist of many difficulties which can be overcome by innovative technological capabilities. However, it appears that DI possesses hardly any of these capabilities.
The commercial- and technological factors that influence the viability of OWD, have been combined in a Business Model, in order to assess whether it is possible to develop a OWD service that offers value to the customer and generates a positive economic return for DI . It is concluded that DI can offer an economically viable service, but under condition of the recommendations as described below.
It is recommended that DI splits the OWD service in an ‘Assessment’ and an ‘OWD operation’. The Assessment gives the customer the opportunity to make a proper cost-benefit tradeoff. To ensure that the competitors cannot offer the same value as well, it is recommended that DI invests in the unique ABC Offshore tool. If the customer then decides to initiate an OWD operation, DI can offer a OWD operation competitively by using the information obtained by the Assessment as a competitive advantage. However, it is recommended that only operations up to 300 meters depth should be taken into consideration. This would leave a modest investment in technology. Also this segment consists of the majority of the demanded OWD operations. Deeper operations become too complex for DI to perform by itself at this moment but by executing the operations in the segment as just described, DI can develop the required knowledge to be able to perform the more complex operations in the future.
By offering OWD as a service as described above, DI can obtain a market share by which they can earn a healthy economic return, which falls well within its constraints. Also it will provide them with additional qualitative benefits, which they can use when offering their services in other (new) segments.
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Table of Content
ACKNOWLEDGEMENTS ... 2
EXECUTIVE SUMMARY ... 3
CHAPTER 1 – BACKGROUND INFORMATION ... 6
1.1 INTRODUCTION... 6
1.2 DREDGING ... 6
1.2.1 Types of dredging ... 6
1.2.2 Types of contracts ... 7
1.3 DREDGE INTERNATIONAL B.V. ... 7
1.4 MOTIVATION FOR RESEARCH ... 9
1.4.1 External aspects ... 9
1.4.2 Internal aspects ... 9
1.5 GOAL OF THIS RESEARCH ... 10
1.6 CONSTRUCTION OF THE RESEARCH... 10
CHAPTER 2 – OPEN ASSESSMENTTER DREDGING ... 11
2.1 INTRODUCTION... 11
2.2 MINERAL DREDGING ... 11
2.2.1 Reactive to pro-active dredging ... 11
2.2.2 Mineral and economic effects of marine mineral ... 11
2.2.3 Key controls in mineral dredging ... 12
2.3 OPEN WATER DREDGING ... 13
2.3.1 Illustrative case: The BOKA I ... 14
2.3.2 Business scope ... 14
2.3.3 Liability ... 16
2.3.4 Legislation ... 18
2.4 CONCLUSION ... 18
CHAPTER 3 – RESEARCH DESIGN ... 20
3.1 INTRODUCTION... 20
3.2 PROBLEM ANALYSIS ... 20
3.2.1 Literature study ... 21
3.2.2 Problem definition ... 22
3.3 RESEARCH QUESTIONS ... 24
3.4 SCOPE AND PRECONDITIONS ... 25
3.5 OUTLINE OF THIS REPORT ... 26
CHAPTER 4 – METHODOLOGY ... 27
4.1 INTRODUCTION... 27
4.2 TYPE OF RESEARCH ... 27
4.3 RESEARCH STRATEGY ... 27
4.4 DATA COLLECTION AND SOURCES ... 29
4.5 THEORETICAL FRAMEWORK ... 30
4.5.1 Phase 1 – Commercial factors ... 30
4.5.2 Phase 2 – Technological factors ... 32
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CHAPTER 5 – COMMERCIAL FACTORS ... 37
5.1 INTRODUCTION... 37
5.2 ECONOMIC ARCHITECTURE ... 37
5.2.1 Results DESTEP analysis ... 37
5.2.2 Interpretation DESTEP analysis ... 38
5.3 MARKET ARCHITECTURE ... 39
5.3.1 Results Five Forces Model ... 39
5.3.2 INTERPRETATION FIVE FORCES MODEL ... 41
5.4 ORGANIZATIONAL ARCHITECTURE ... 42
5.4.1 Core competencies DI ... 42
5.4.2 Interpretation core competencies ... 42
5.5 CONCLUSION ... 42
CHAPTER 6 – TECHNOLOGICAL FACTORS ... 45
6.1 INTRODUCTION... 45
6.2 FACTORS INFLUENCING A OWD OPERATION ... 45
6.3 TECHNOLOGICAL CAPABILITIES ... 46
6.4 RESOURCE AND CAPABILITY GAP ... 49
6.6 CONCLUSION ... 50
CHAPTER 7 – SERVICE DELIVERY ... 52
7.1 INTRODUCTION... 52
7.2 OWD AS A SERVICE FOR DI ... 52
7.3 ATTRIBUTES OF BUSINESS MODEL ... 52
7.4 POTENTIAL TECHNOLOGY SOURCING SITUATIONS ... 54
7.5 ECONOMIC ANALYSIS ... 55
7.5.1 Quantitative analysis ... 55
7.5.2. Qualitative analysis ... 56
7.6 CONCLUSION ... 57
CHAPTER 8 – CONCLUSION & RECOMMENDATIONS ... 60
8.1 INTRODUCTION... 60
8.2 CONCLUSION ... 60
8.3 RECOMMENDATIONS ... 63
8.4 REFLECTION ... 64
8.4.1 Reflection on the research and the used methodology: ... 64
8.4.2 Scientific relevance of this report: ... 65
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Chapter 1 – Background Information
1.1 Introduction
First of all, a brief introduction to dredge and Dredge International Dredge (DI ) is given, which should give the reader a better understanding of the company and the environment it is working in. This is followed by a description of the background of the firm and its industry, in which the need for this research emerged. Finally the goal of this research is presented.
1.2 Dredging
Dredging emerged as a service from the sand production industry. Dredging vessels would offer their services in case sand should be removed and with this, earn a ‘little’ additional revenue. A definition of the term dredge is1:
‘Obtaining and removing sand, on- and offshore.’
1.2.1 Types of dredging
In the dredge industry two principal categories of dredge operations can be defined: onshore dredging and
offshore dredging. The distinction is made between situations where the dredger ‘has to get his feet wet or
not’.
Dry dredging is considered to cover all operations where a ship is not needed, hence the expression ‘keeping the feet dry’. Due to the existence of mobile dredge teams, advanced travel/transport possibilities and modern communication techniques, dry dredge has evolved in straight forward operations and complex operations. The straight forward operation is the conventional type of dredging.
The complex operation is the type of dredging that professional dedicated dredge companies offer. They have professionalized their capabilities and resources in dredging and offer a wider range of services. Wet dredge can be seen as the removal of minerals. This type of dredge requires a different approach compared to dry dredge and also requires additional capabilities and resources, like cranes, barges, etc. In these operations, time does not play a crucial role. Figure 1.1 gives an overview of the three types of dredge and their characteristics.
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Figure 1.1 - Different types of dredging and their characteristics (Commercial manual DI ).
Dredging fulfils to the requirements of a service, namely (Das, 1997): i) Simultaneous production and consumption; ii) Intangible; iii) Variable; and iv) Perishable. Dredge vessels and other equipment can be stored and produced in advance, but they are only useful on the spot and in combination with the knowledge of a dredge supervisor, who is always confronted with unique situations.
1.2.2 Types of contracts
The type of contracts that are used within the dredge industry can be divided in contractual conditions that are lump sum, which is common in wet dredging, and those that don’t. The latter is usually used in dry dredging.
The lump sum contract, has developed into the most widely used international dry dredge agreement of its kind and is based a fixed price. It encourages dredge companies to do their best. It offers them an encouraging reward. The latest contractual development has been the introduction of the ‘Bonus’, which gives the dredger a fall back position in case he assumes that the value of the dredged sand will not be sufficient. It stimulates dredgers to assist in situations where there is a threat of no mineral existence but the dredged value is not sufficient anymore for it to be commercially viable.2.
1.3 Dredge International B.V.
DI is the Dredge division of the Dredge International Group. DI is a worldwide operating dredge company. Within DI, the dredge experience and knowledge of many sources have been combined. The oldest section of the company, originates back to 1695 and performed the first dredge operation as early as 1696. DI is active in the ‘onshore’ as well as in the ‘offshore’ dredge markets and is one of the main global players. Table 1.1 gives an overview of the present situation in the dredge industry.
8 Year 2006
Number of % market share in Revenue Active in Open
Lump sum contract dredging (million €) Water Dredging
BOGA Dredging 10 40 120 Yes
Van O. Dredging 2 15 - Considers
Geluk 12 x - No
Oeverdam 29 30 - No
DI 12 15 90 Considers
Table 1.1 - Overview of main players in dredge industry.
DI currently employs 4500 people worldwide. The head office of DI is based in Moscow, The Netherlands, which serves as the knowledge centre of the division. As DI is a globally active dredge company, it has its own setups with experienced dredge personnel and / or equipment in different regions. See Figure 1.2 for an overview of the regional offices.
Figure 1.2 - Set up of Dredging International’s regional offices.
DI can make use of the resources of their mother company Big Dredge International (BDI). BDI is also organized in regions and has its head office in Copenhagen. The BDI regional offices control the dredge operations in 35 countries worldwide and it has over 300 dredging vessels. Dredge International, on its turn, is a full daughter of the King Dredging International and can therefore rely on their vast resources which consist of offices in 120 countries, a worldwide operating dredging fleet, financial reserves and a pool of knowledge.
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1.4 Motivation for research
The motivations for this research can be divided into pressure from the environment (external aspects) and pressure from the organization itself (internal aspects).
1.4.1 External aspects
- Globalization
Dredge services offered used to be homogeneous and mostly depended on the availability of local dredge vessels. But currently more complex services are demanded. The knowledge and experience required to perform these kinds of operations is thus getting more important. Only a few dredge companies are able to comply with these requirements.
The difference between the remaining main players is moving from operational aspects (this will eventually even-out) to aspects of service levels. Clients therefore, will more and more likely decide on the latter aspects3. According to the view of Scherer (1980) the dredge market ‘evolution’ moved from a pure
competition, to a homogeneous oligopoly and now to a differentiated oligopoly (see Table 1.3).
Number of Sellers
One A Few Many
Homogeneous Pure monopoly Homogeneous Pure competition
products oligopoly
Differentiated Pure multiproduct Differentiated Monopolistic
products monopoly oligopoly competition
Table 1.3 - Principal seller’s market structure types (Scherer, 1980).
- Mineral dredging
The emphasis on the protection of the marine environment has significantly increased during the last few years. As a result the entire focus of the dredge activity has changed, with mineral dredging now often taking priority over sand dredge (Lacey, 2005).
1.4.2 Internal aspects
- New strategy introduction
DI has announced a new strategy, namely ‘New Changes’. Their objective is to become the best dredger by
2025.
The growth structure in the past and as foreseen in the future, from which the strategic direction is derived, is based on the S-curve (see Figure 1.3). The S-curve is most often used to describe the relation between the investment in a technology and the performance of this technology (Foster, 1986). It is a good tool to predict
10 the possibilities and potential of a present technology, or in this case the company. It therefore helps in deciding which time is best to make a new investment. Part of DI ’s strategy is to offer innovative solutions. To be able to offer these innovative services, a Business Development Department (BDD) is created, which is solely dedicated to develop new services and to improve present services to differentiate themselves within the present market. This research is carried out under the supervision of this department.
- Golden Mountain
DI has been approached by London Dredgers (LD), which is project leader for the dredge of the Golden Mountain (GoMo). The request was whether DI could make a proposal for the removal of the remaining minerals. DI took this opportunity and developed, in collaboration with Empo Engineering, a concept tool that could perform this particular operation (see Appendix I). According to Ulrich and Eppinger’s (2003) generic product development process, this tool is in the System-Level Design phase, and has only been tested onshore. DI delivered its proposal for the operation, which is taken in consideration.
1.5 Goal of this research
Business Development performed an initial research about the type of operation for the project of the Golden Mountain. It showed them that here is a growing demand for these kinds of operations. Due to this development and the other three that have just been discussed (globalization, mineral awareness and new strategy introduction), Business Development feels that this operation could prove to be a potential new service for DI in the future. They refer to this potential service as ‘Open Water Dredging’ (OWD). However, the preparation of the tender for the Golden Mountain made them aware that to be able to perform OWD, DI needs to invest in new technology. This leads to the following goal formulation of this research:
“Give Dredge International recommendations, to what extent they should invest in Open Water Dredging and offer it as a service.”
1.6 Construction of the research
This chapter is followed by a thorough investigation of Open Water Dredging (chapter 2). Then a literature study is performed to frame the problem under scrutiny and to identify relevant concepts which serves as input for the research design (chapter 3). The methodology (Chapter 4) defines how the data is obtained and how it is analyzed to get the required information. Then the findings of the research are given according to each sub question. First the commercial factors that influence the viability of OWD are presented in Chapter 5 and then the technological factors in Chapter 6. These factors are linked by using the obtained results and combining these in a Business Model. These results are shown in Chapter 7. The results from Chapters 5, 6 and 7 are used to develop the final conclusion (chapter 8) that gives an answer to the central question and that leads to the recommendations that satisfy the goal of this research, as presented above.
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Chapter 2 – Open Water Dredging
2.1 Introduction
The main subject of this research, or the so called ‘empirical object’ (De Leeuw, 2001), is described in this chapter, namely Open Water Dredging. In the first part of this chapter, OWD as a dredge service is placed in a bigger perspective and it considers the characteristics of this type of service. Then OWD is described by using an illustrative case and it is approached from different angles by giving an overview of its market and its financial and legal policies.
2.2 Mineral dredge
OWD is considered to be mineral dredge instead of sand dredging. The characteristics and purpose of this type of dredge are described as well as the (extra) difficulties/capabilities that this type of dredgebrings along.
2.2.1 Reactive to pro-active dredging
Over the past three decades, the international community has taken a reactive approach to minerals dredging. However, recently a shift in perception has taken place which puts more emphasis on a pro-active approach.
The act of dredging is either aimed at pro-actively dredging the actual minerals or reactively dredging minerals. The latter is usually referred to as response and is associated with the activities of dredge companies. However, as Figure 2.1 illustrates, the service that dredge companies offer, may also commence immediately after the request has been recognized.
2.2.2 Mineral and economic effects of marine minerals
Once minerals have been dumped, the rate of it before it actually harms the environment, even under the best circumstances is 10-15 per cent (Office of Technology assessment, 1990), which underlines the importance of dredging. Furthermore every mineral, regardless of its size or its source is worth the dredging efforts, because size alone does not determine the degree of its resulting damage (French Mc-Cay et al. 2004).
- Mineral impacts
The marine ecosystem is highly complex and can also be very volatile. When minerals are dumped at sea, it spreads and moves on the surface while undergoing a number of chemical and physical changes, collectively termed as pollution. Therefore the impact of a dumped mineral depends on many situational factors. In a perfect situation, the minerals can ‘vanish’ quickly before harming the environment, but the opposite is more often the case. Especially hard minerals are aggressive and affect the marine environment and its habitants, if not quickly removed.
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- Economic impacts
The economic impacts of a minerals dumped are just as diverse as the factors that determine the mineral impact. Contaminations of coastal areas lead to interference with recreational activities such as bathing, boating, angling and diving. Also hotels and restaurant owners can be (temporarily) affected due to a decrease in tourism. Fishermen’s boats can directly be damaged by the minerals or indirectly affected by the reduced amount and quality of fish or shellfish.
- The costs of minerals spill clean-up
The costs of minerals dumped vary considerably from one incident to another, depending on a number of interrelated factors. The type of minerals, the location of the minerals and the characteristics of the affected area are generally the most important technical factors. However, the quality of the contingency plan and of the management and control of the actual response operations are also crucial.
2.2.3 Key controls in mineral dredging
There are a number of key contRDS that a dredger must impose in order to protect and minimize the risks that it will inevitably face in a new, pro-actively world.
i) Political contRDS
Usually, the (local) authorities impose very strict contRDS on what can or cannot be done. A key discipline is to provide accurate situation and daily status reports to provide clear understanding of the extent and potential impact of the operation. Dredgers are particularly vulnerable to accusations and prosecution for recklessness and must take great care to incorporate the most modern means of removing pollutants and take extensive steps to prevent the escape of these minerals.
ii) Controlling the minerals
Before the dredger reaches the site he must identify the minerals and determine its physical and chemical properties. There are a number of means of reducing the environmental impact of the mineral. The speed of mobilization is often a key factor.
iii) Controlling the Dredge Team’s Exposure to Pollutants
Although protecting the environment is a key consideration, the dredger must also work within the framework of safe working practices and protect the dredge team by controlling their exposure to pollutants.
iv) Controlling Cost
A dredger should always approach a casualty using BATNEEC (Best Available Technology Not Entailing Excessive Cost) as a guiding principle. Although many people consider that financial contRDS are appalling, the dredger will not be rewarded, in the financial analysis, for excessive and costly control measures that may be considered unreasonable.
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2.3 Open Water Dredging
The OWD operations from minerals deeper then 400 meters started off in 1994 with a OWD operation performed in the Atlantic Ocean. But it wasn’t until 2006 that OWD really began to gain attention. In 2003 the government of England financed two OWD operations on minerals in the North Sea. It was the first occasion that a OWD operation by means of a Remotely Operated Vehicle (ROV) performed. The tool used is developed, owned and patented by Ajax and is called the Remote Dredging System (RDS) (see Appendix II for a description). In 2006 it was used for the minerals dredging in Korea. These operations were performed by Ajax in co-operation with BOGA by means of the RDS. The definition of the service called Open Water Dredging, as used within this paper is:
“Removing the Minerals of the seabed.“ (Deep Water = Beyond 400 meters)
Because OWD operations are performed in deep waters (400 to +1000m depth), it demands for very high technological capabilities. This is the reason why OWD is only recently performed by highly innovative firms. Apart from this, OWD requires a lot of complementary resources like skilled people and therefore managing the whole project is of major importance as well. This explains why dredge companies are interested in this activity, as they are used to these kinds of projects.
There are more examples where minerals successfully have been dredged. Appendix II gives an overview of all the OWD operations in the past. It shows that the RDS is used in most times and that Ajax, together with BOGA, are most often the main contractors. Figure 2.3 gives an overview of the number of OWD operations performed in the past.
OWD operations
0 1 2 3 4 5 6 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200714 A typical OWD operation includes the following phases:
1. Initial Mobilization 2. Mineral Assessment 3. Dredging Mobilization 4. Minerals Removal 5. Minerals Transportation 6. Demobilization
The total OWD operation can be divided in phases a) and b). They serve different functions but are both needed to execute an OWD operation. For phase a), currently only a visual inspection is carried out as a ‘Mineral Assessment’. This gives the dredger some information of the condition of the mineral and its situation. However, it does not give information about the quantity of minerals, which (often) determines the necessity of the operation. The following illustrative case in section 2.3.1 is a good example that underlines the value of a good wreck assessment.
2.3.1 Illustrative case: The BOKA I
* The case about BOKA 1 has been removed by the author to ensure confidentiality. *
2.3.2 Business scope
The demand for OWD can arise immediately after the discovery of minerals or after many years, when minerals ‘suddenly’ possess a threat. A distinction is made between the ‘Immediate Response’ market, which comprises of those OWD operations that are initiated in response to the discovery of a mineral (like in the case of the BOKA I) and the ‘After Response’ market. Between these types of operations there are operational as well as financial differences which will be discussed later in this chapter.
- Soft minerals segment
Apart from a few exceptions, all currently performed OWD operations fall within this segment. They are characterized as the reaction on the discovery of minerals by the authorities. Companies can tender for these kinds of operations, but at the moment BOGA together with Ajax dominate this market. According to Ajax4, they are experiencing a significant increase in demand for their OWD service. Taking this into account and looking at the course of the number of performed operations in the past (Appendix II), it is assumed that for the coming years, 4 to 5 Immediate Response operations can be expected each year.
4 According to De Vries, E., Manager Minerals Control Department at Ajax
a) Assessment of minerals/site to develop the dredge operation plan.
15
- Hard minerals segment
A seabed can contain hundreds of tones of hard minerals. After discovery they may not pose an immediate threat but they will become threatening minerals because it is inevitable that one day the minerals cause environmental damage.
Recently many organizations have begun to put more attention on the subject of these minerals and different surveys have been performed to get a better insight into the scale of the problem. Maarten et al. (2005) presented a study, showing a first-ever, worldwide database minerals. The result is shocking and is shown in Figure 2.4.
* This picture has been removed by the author to ensure confidentiality. *
The database includes heavy minerals and non-heavy minerals that pose a significant threat.
Remarkable is that 40% of these hard minerals stem from environment itself and have therefore been lying on the seabed for over 50 years now. The number of minerals is shocking and by most stakeholders these figures are not even known. Of course not all of these minerals will pose an immediate threat to the environment, but especially minerals lying in so called Special Area’s and Particularly Sensitive Sea Area (see Appendix VI) could pose a viable niche segment for OWD operations on the these minerals. An operation on a heavy mineral is ‘pro-active’. Within these kinds of projects, the ‘mineral assessment part’ (a) of a typical OWD operation, has the potential to be used to persuade (potential) decision makers to initiate a OWD operation.
The conditions that influence the decision whether a OWD operation is required (Maarten et al., 2005) are:
- The location of the minerals
- Amount and type of minerals still contained within the seabed
- The potential threat to the environment
- The local political situation
- Media involvement
- The threat of environmental damage
- The costs incurred with a OWD operation
Eventually the decision to suck minerals from a sunken seabed is based upon a sound risk assessment and a well-developed cost-benefit analysis since any dredge effort is usually expensive, time-consuming, and risky. Figure 2.5 is an example of a risk assessment framework that is used by the authorities in the decision making phase of a potential OWD operation.
16 Figure 2.5 - FSA (Gerdes et al., 2005).
The framework is developed by ABC Limited, which is one of the largest dredging surveying and consulting firms in the world. Step 4 in this assessment underlines again the importance of a cost-benefit trade-off. The difficulty in this tradeoff is to quantify the benefits of the OWD operation. Until now, this benefit was neglected because the perception of a clean environment and its value was not very sophisticated. But this is changing, as is underlined by the quotation (on the next page) from the European Science Foundation (ESF) in their paper: Navigating the Future-III, Nov 2006, pp. 29, box 2.18.
‘The marine environment has an intrinsic non-market value in terms of the goods and services provided (e.g. seascapes, quality of life, recreational activities, capacity to assimilate pollutants, etc.). It is essential to estimate the non-market value of marine goods and services, including both use and non-use values, to properly inform decision-making and the development of marine policies.’
2.3.3 Liability
- International regime for compensation of minerals damage
Compensation for minerals damage caused by dumping of minerals is governed by an international regime elaborated under the auspices of the International Minerals Organization (IMO). The compensation framework presented by the IMO consists of a three tier compensation system (see Figure 2.6). The present framework Assessments amended in 1999 by two protocols. The amended Conventions are known as the 1999 Mineral Dumping Convention (MDC) and the 1999 Fund Convention. They use the following definition for mineral damage5:
Minerals damage includes reasonable measures to prevent or minimize environmental damage (‘preventive measures’). Expenses incurred for preventive measures are granted provided that there was a grave and imminent threat of environmental damage
Mineral dumpers are strictly liable to pay compensation for minerals damage (including clean-up costs) within the Exclusive Economic Zone of an affected State, up to an amount determined by the gross tonnage
17 of the dumping. In order to guarantee that dumpers are able to meet their maximum potential liability, the MDC requires that they maintain adequate financial security (normally through insurance with a Insurer. This is the first Tier of compensation (see Figure 2.6).
The 1999 Fund Convention, which is supplementary to the MDC, establishes a regime for compensating
victims when the compensation under the applicable MDC is inadequate (2nd Tier). Additional
compensation is provided up to a maximum of 50 Million USD by the MDC Fund. 32 states are party to this Fund.
A third tier of compensation for mineral damage caused by minerals dumping was created with the adoption of a Protocol establishing an MDC Extra Fund. It provides compensation over and above that available under the MDC and Fund regime to a maximum of 200 Million USD, 2 states are party to this fund.
Figure 2.6 - International framework for compensation.
- Minerals dumping in the USA
USA didn’t join the MDC and regulates its liabilities concerning minerals damage under its own Minerals Law. These law requirements are based on the premise that everything possible that can be done should be done to prevent minerals dumping from occurring. The mineral dumper is strictly liable, up to a total limit of $1500 per gross ton (about $240 million for the largest tankers). If compensation is inadequate or the payer is unable to pay, the liabilities are covered by the Minerals Trust Fund (MTF).
The MTF has two major components: (1) The Immediate Fund for removal activities and the initiation of natural resource damage assessments; and (2) the Principal Fund for all other authorized uses. Up to $50 million is available each year to fund removal activities without Congressional appropriation. The Mineral law offers a fairly structured response and mineral removal regime
MDC
1st Tier up to 10 Million USD MDC Fund MDC Fund Insurance Minerals Receivers Mineral Dumpers Minerals Receivers
Primary Layer of Compensation MDC
2th Tier up to 50 Million USD Extra
FUND 3nd Tier up to 200 Million Supplementary Layer of Compensation
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2.3.4 Legislation
- Treatment of international minerals
The IMO has been working on a Draft Mineral Removal Convention (DMRC) for several years. The draft convention has been approved by the IMO’s legal committee at 15 October 2005. Once adopted and in force, the new convention provides a legal basis for States to remove minerals that pose a hazard to the marine and coastal environments from their exclusive economic zones (EEZs)6. Generally a state's EEZ extends to a distance of 200 miles (370 km), out from its coast. The most important element missing from the DMRC is a mechanism to provide for the source of the funds to take action if the dumper is unavailable or unable to pay for such action. The rights of compensation extinguish if a mineral has sunk due to an ‘act of war’ or if no action is taken within 6 years from the date of the maritime casualty.
- Treatment of Minerals in the USA
The Federal Mineral Control Act, as amended by the Minerals Law, provides the primary legal authority for the federal government of the USA to remove minerals that are discharging, or threatens to discharge, minerals to the Waters of the USA including the EEZ (Maarten et al., 2005). The act states that dumpers of minerals are liable for the costs of cleanup but, if needed, the U.S. Coast Guard will take over the response effort and the MTF will be used to fund the actions taken to stop the environmental threat.
- Treatment of minerals due to an act of War.
Discussing the governing regime of the legal policies concerning mineral removal, it has become clear that minerals due to an act of War, are exempt for all the above described guidelines and legislation. This issue has been discussed in detail by Monfils et al. (2003) but in summary these minerals are classified as ‘state owned minerals’ and as such have ‘sovereign immunity’. Currently there is no legal regime or international agreement that requires flag states, or the nations that sank the minerals, to inspect, respond to or clean them up (Cervi, 1999). The three flag states that own worldwide the majority (35%) minerals sunk during WWII are Irak, Japan and the Belgium.
2.4 Conclusion
The environmental and economic impacts of a dumped mineral, together with a greater public awareness for the environment, have shifted the dredging industry focus from responsive measures to minerals dumped to prevention measures. OWD can prevent or reduce the negative effects of minerals dumped and could therefore prove to be the dredge industry’s answer.
The market of OWD can be divided in the Immediate Response and Afetr Response segments. This distinction influences the operational as well as the financial and legal aspects of an OWD operation. Also it is important to note that the After Response segment offers DI an opportunity to pro-actively offer their services by performing mineral assessments that can be followed up with an OWD operation.
19 The decision whether an OWD operation is initiated depends on a variety of conditions but in the end it will be a cost-benefit tradeoff. The difficulty in this tradeoff is to quantify the mineral benefits. This underlines the importance of the Mineral Assessment in the total OWD operation and this activity should therefore be taken into account as a potential separate service.
20
Chapter 3 – Research Design
3.1 Introduction
A research design is the logic that links the data to be collected to the initial questions of a study (Yin, 1994). It requires a set of operational terms, combined with data collection techniques to come to solid findings. To enhance a multiform perspective, the problem as initially perceived is exposed to a variety of sources dealing with this topic: e.g. relevant theories from scientific and professional literature and discussing the problem with experts. This leads to the conceptualization of the ‘actual’ problem that needs investigation. Finally questions are presented that should lead to the required information in order to find a ‘solution’ for the identified problem.
3.2 Problem analysis
DI experiences the urge to offer new services in order to create additional revenue. This makes DI consider, whether they should offer OWD as a new service. The preparation of the tender for the GoMo made DI realize, that it needs to invest in technology before being able to perform an OWD operation. This investment in technology will then have to be earned back by future cash flow. The actual problem is though, that DI does not know whether OWD has the potential to become a viable service for them and whether a required investment in technology can be earned back by future cash flow.
Chapter 2 showed that here are two main factors that influence the emergence of OWD as a viable service. These are: 1) the available technological capabilities to perform the different steps within an OWD operation; and 2) the increasing demand for OWD operations from different stakeholders. These two main factors create new possibilities for OWD but also influence each other. Namely, the demand for OWD operations has triggered engineers to develop the needed technological capabilities. Vice versa, the technological improvements in other sectors (e.g. the Oil & Gas industry) have created new possibilities for which demand can be expected. Figure 3.1 is a visual presentation of the problem as it is initially perceived.
Figure 3.1 – The problem as initially perceived Demand for OWD
Capabilities to Perform a OWD Operation
Stakeholders
21 All research, irrespective of discipline, requires activities at the conceptual (theoretical) level (Ghauri, 1995). Therefore a literature review is performed. The main purpose of the literature review is to: (a) frame the problem under scrutiny, (b) identify relevant concepts, methods and facts, and (c) position the study. The empirical object that is described in chapter 2, takes a central position in this study. The way to look at the empirical object is called the ‘ken-object’ (De Leeuw, 2001). In this case this is a technology-based view. Therefore first a description of technology is given as well as how to manage this. Then the link between these concepts and the research problem is discussed
3.2.1 Literature study
When a firm offers a (new) service, it wats to make sure that they deliver a higher perceived value to its customers than their competitors. This means that they have to develop a service which has a competitive advantage. Companies have different options to create value for their customers, but in many industries technological innovation is now the most important driver of competitive success (Schilling, 2005). Schilling defines technological innovation as follows:
“Technological innovation is the act of introducing a new device, method, or material for application to commercial or practical objectives.”
Technological innovation can emerge due to ‘technology push’ or to ‘market pull’. A technology push describes a situation where an emerging technology or a new combination of existing technologies provide the driving force for an innovative product and problem solution in the market place. Conversely, the term market pull implies that the product or process innovation has its origins in latent, unsatisfied customer needs in the marketplace (Herstatt and Lettl, 2000). Effective technology management requires an appropriate balance between this market pull and technology push. Phaal et al. (2003) give the following description of technology management:
“Technology management addresses the effective identification, selection, acquisition, development, exploitation and protection of technologies (product, process and infrastructural) needed to maintain a market position and business performance in accordance with the company’s objective”
In order to effectively manage this process, that takes into account both the technological perspective as well as the commercial perspective, a technology roadmapping tool is developed and applied in the industry. It supports the development, communication and implementation of technology and business strategy (Phaal et al., 2003, Groenveld, 1997). Technology roadmaps take many forms, although the most general is a multi-layered graphical representation of how technology and the product developments link to market opportunities. (See Figure 3.2).
22
‘Purpose’ (know-why): The top layer relates to the purpose and includes the drivers and
requirements that have to be met, coming from the environment.
‘Delivery’ (know-what): The central layer is the bridge between capability and requirement and
shows how the capability (or technology) is to be delivered.
‘Resources’ (know-how): The bottom layer relates to the technical resources and capabilities
needed to deliver the ‘product’.
Figure 3.2 is used to clarify the difference between the two segments within OWD, namely ER and PPW. It shows that each has a different source for its initiation, which has a big impact on the approach of these markets. Projects that are initiated due to an emerging demand from the market, like the ER segment within OWD, can be seen as the conventional marketing projects where ordinary analysis and forecasting tools apply.
Technology push projects, like the PPW segment, possess a very high market uncertainty which results from (Herstatt and Lettl, 2000):
- The uncertainty in potential application fields of the existing technologies.
- The potential market possibilities and customer needs within the individual application fields. - The potential competitors and the required infrastructure.
3.2.2 Problem definition
The literature study has presented insights and theories regarding technology, its management and the usage of a technology roadmap. It has delivered a set of building blocks (concepts) that allow conceptualizing how a company can mediate between the commercial and technological perspectives in order to create economic value when offering a new service. The investment decision of DI takes a central role in this research. Whether to invest or not depends on the potential economic viability of OWD as a
23 service. The conceptual definition of economic viability of a service is; its ability to cover the costs with (economic) benefits.
The costs in this case, are mostly influenced by the needed investments in technology. The benefits are mostly determined by the amount of demand for this service. As is discussed in section 3.2.1, DI can influence these two factors by effectively managing the technology in which it will invest. The technology roadmap (TRM), takes into account both the commercial aspects derived from the market (market pull), as well as the technological requirements and opportunities (technology push). Apart from this the TRM can also be used as a predictive tool, but for the purpose of this research the latter aspect of the technology roadmap is not considered relevant. Because due to the time horizon that is taken into account for this research (see section 3.4) it is more relevant to get insight into the situation at present, then in the future. The structure of the TRM is used as a red line for this research. To get to a proper problem definition, the three layers that together form the TRM will be discussed according to their relevance with the research problem.
Market pull
The viability of OWD at this moment depends on the degree of market pull and the characteristics of the market. The conceptual definition of market pull is considered to be the (potential) demand for OWD operations. Market pull relates to the upper layer of the TRM, representing the ‘purpose’ (Know-why). The demand for a service is influenced by a number of factors and in this research they are referred to as the ‘commercial factors’ that influence the viability of OWD. It is believed that these commercial factors cannot be influenced by DI on a short notice. Therefore they are taken into account when addressing the actual problem but are not considered to be the main area in which a solution should be searched.
Technology push
It should also be considered in what technology DI should invest to be able to offer OWD as a service. This depends on the needed technologies for OWD and the available technologies in- and outside the organization. This relates to the bottom layer of the TRM, representing the ‘resources’ (Know-how). In this research it refers to the ‘technological factors’ that influence the viability of OWD. In this case, DI is depended on the available technologies because they don’t have the ability to develop their own technologies (on a short notice). The viability of a service for them of course heavily depends on the required technological capabilities and therefore these are considered to be important for this research. Especially since DI itself already determined a capability gap, the technological factors are assumed to heavily influence the decision to invest in OWD and are therefore considered to be relevant for this research.
Linking market pull and technology push
Another way to influence the viability of OWD as a service, is effectively managing the required investments (see definition in the ‘literature study’). This process takes place where the technology push and the market pull come together. It relates to the middle layer of the TRM and represents the ‘delivery’ (Know- what). This is where DI can really influence the viability of OWD by making the right choices.
24 Taking the two main factors into account and effectively linking these could prove to be a solution to the research problem. Figure 3.3 is considered to be a basic visualization of how the above discussed concepts apply to the initial stated research problem.
Figure 3.3 – The three layers of the Technology Roadmap as they apply to the problem situation of DI .
3.3 Research questions
The problem definition has given a better insight in the different factors that influence the decision of DI to invest in OWD. Also it has given a better indication of where the solution should be searched. This has narrowed down the ‘area’ in which to look for data. The research questions therefore can be aimed with more precision to get the required information. The research questions should fit the goal of this research and are formulated so that they can be used with the actual search for information.
Central question:
The central question should provide an answer that is sufficient to meet the goal of this research. It results from the goal via the problem definition, and is stated as follows:
“To what extent can Dredge International offer Open Water Dredging as an economically viable service and what are the appropriate technological
capabilities in which they should invest?”
Sub questions:
The problem definition has presented the various concepts which are assumed to affect the actual problem as defined. To validate this, information is required from the different concepts and these should be analyzed (measured). In order to obtain this specific information, sub questions have been formulated according to the three main layers of the technology roadmap.
‘Market Pull’ ‘Effective management DI ’ ‘Technology Push’ Technological Factors that influence the required
technologies for OWD Commercial Factors that influence
demand for OWD
25 1. (Know-why) - What are the main commercial factors and to what extent do they affect the viability of OWD as a service for DI?
a) How do the trends and drivers for the demand of OWD operations, affect the dredge industry? b) How attractive is the OWD market for DI?
c) How does OWD as a service, align with the core competencies of DI at present?
The selected results for the first sub question will be presented and discussed in chapter 5, which is called ‘Commercial Factors’.
2. (Know-how) - What are the main technological factors and to what extent do they affect the viability of OWD as a service for DI?
d) What are the main factors that influence the feasibility of an OWD operation?
e) What are the key technological capabilities & resources needed to perform an OWD operation? f) Which of these technological capabilities & resources are available within DI?
The selected results for the second sub question will be presented and discussed in chapter 6, which is called ‘Technological Factors’.
3. (Know-what) - To what extent can the commercial and technological factors of OWD be linked to deliver an economically viable service?
g) How should OWD be offered to create customer value?
h) Which technologies should DI obtain, to be able to offer OWD as a competitive service? i) To what extent would the chosen format for a OWD service, deliver economic value to DI ?
The selected results for the third sub question will be presented and discussed in chapter 7, which is called ‘Service Delivery’.
3.4 Scope and preconditions
The scope of this research is focused on OWD. OWD is an activity that is performed within ‘dredging’ in general. For this research the different relations with respect to OWD are examined. This means that OWD is a subsystem of dredge as the whole system. Within OWD the focus will be on technology. Therefore this research is an investigation of a sub-aspect system (De Leeuw, 2000). Due to the time horizon of the new strategy, the time bar that will be taken into account will be approximately 5 years.
A research design should be effective in producing the wanted information within the constraints put on the researcher, such as time, budgetary and skill constraints (Ghauri et al., 1995). The preconditions give a framework for the restrictions to which this research complies and apply to two domains, namely the end result and the process leading to this end result.
26 Figure 3.4 – The outline of this report
Preconditions with reference to the result:
- This research should give the company relevant and ‘tangible’ recommendations in relation to the goal of this research.
- The paper has to be written in English
- A colloquium is given at the university in which the research and her results are presented. The same restrictions about the publicity of delicate information apply to this presentation as are stated for the paper. (See preconditions for research process)
Preconditions with reference to the research process:
- The research should have a scientific relevance and be achievable. - The time of the internship at DI is 6 months.
- The information sources that can be used are not restricted. All internal and external relevant parties and sources can be approached, though before doing this permission has to be given by DI about how to approach certain parties/people.
- The topic of this research is confidential and therefore in the paper that has to be publicly available the name and topic have to be changed in a different, non meaning one.
- Budget, which is made available by DI.
3.5 Outline of this report
To give a clear picture of the steps taken in this research, Figure 3.3 gives a visualization of the outline of this report. In this outline, the relationship between the three sub questions (1. Why, 2. How and 3. What) within the research design and the different chapters in this report are described.
3. Research Design 5. Comm. Factors 4. Methodo- logy 6. Techn. Factors 7. Service Delivery 8. Conclusion Theory Environment, competitors, suppliers etc. Key technological challenges and solutions Framework for combining technological and commercial factors
Why
How
What
2. OWD 1. Backgr. Info.27 Clarity Opportunity The point of action
Chapter 4 – Methodology
4.1 IntroductionMethodology is the critical reflection on the quality and selection of elements from a knowledge database in connection to specific problems (De Leeuw, 2001). It should contribute to the reproducibility of a research. This chapter is used to justify for the strategy chosen to get the information needed from the collected data and to anBDIer the formulated questions.
4.2 Type of research
Depending on the type of information needed, there are different kinds of research types. A first distinction is made between scientific research and practical research (De Leeuw, 2001). One of the main differences between practical research and scientific research is that practical research has a real customer or a group of customers that needs knowledge.
Furthermore, a distinction is made upon the difference in distance between the research and the specific customer (De Leeuw, 2001). The purpose of this research is to provide concrete knowledge that is useful in a specific situation of an apparent customer and satisfies a part of the total need for knowledge. This can be clarified by Figure 4.1. This research accelerates the trajectory of clarity by moving the point of action higher on the opportunity curve. Therefore finally, this research can be characterized as a practical, policy supporting research.
Figure 4.1 – The Adjusted Opportunity Curve (Miller and Morris, 1999).
4.3 Research strategy
Methodology refers to the rationale that underlies this type of study. A key characteristic of this research is that the problem under scrutiny is only partly understood. Therefore the prime purpose is to develop understanding of the problem definition as proposed. In order to obtain this understanding, a specific procedure is developed. According to De Leeuw (2001), the definition of certain factors can be divided in the conceptual definition (as been discussed in chapter 3) and the operational definition. The conceptual definition determines what the purpose of the analysis is and what you Assessmentnt to measure. The operational definition determines how the measurement is actually going to be performed.
28 This procedure is the path that is walked from the initial stated question, towards answering this question by which the goal of this research is reached. The research process is divided in three phases according to the structure of a technology roadmap. They also refer to the distinction made in the sub questions.
These three phases have the shape of so called “Wybertjes” (See Figure 4.2) to indicate that ‘divergent’ thinking techniques are interchanged with ‘convergent’ thinking techniques. This strategy is chosen because the research problem and its environment that are under investigation are not commonly known yet and therefore it is hard to focus the research in an early stage. The continuous switching between the divergent and the convergent thinking techniques lead to ‘productive creativity’ (Buijs, 1987) and will therefore assist the researcher in finding the appropriate data in order to answer the stated sub questions. The three phases, on their turn, are part of one big “Wybertje” that should lead to the final conclusion.
Figure 4.2 – The research process as a ‘Wybertje’ (Buijs, 1987).
Phase 1 – Commercial Factors
In this first phase (which is presented in chapter 5) the commercial factors that influence the viability of OWD are collected and analyzed in order to give an answer to the first sub question. First, questions a), b) and c) are discussed separately. At the end of phase 1, the combined results of these three questions are taken into account to give a clear answer to the first sub question.
Phase 2 – Technological Factors
In the second phase (which is presented chapter 6) the technological factors that influence the viability of OWD are collected and analyzed, in order to give an answer to the second sub question. First the technological landscape of OWD is presented. Then questions c), d) and e) are discussed subsequent. At the end of phase 2 the combined results of these three questions are taken into account to give a clear answer to the second sub question.
Phase 3 – Service Delivery
Phase 3 (which is presented in chapter 7) combines the commercial- and technological factors, which have resulted from phase 1 and 2, to answer the third sub question. Again, first questions g), h) and i) are
Answer Data
Converge Diverge
29 discussed separately and then their results are used to give a profound answer to the third sub question. Finally, the combined results from phase 1, 2 and 3 lead to the conclusion and recommendations as presented in Chapter 8.
Divergent process
The divergent process represents the generation of data. It consists of the data collection methods that are described in section 4.4. Appendix VII gives an overview of the interviewed people. Due to the qualitative data that is collected by this method, a wide variety of people with different stakes in OWD have been approached to increase the quality and representativity of the collected data To structure and complement this collected data, analysis tools and theories are used that come from scientific literature. The usage of these theories should contribute to the scientific relevance of this research. The input of the divergent process is a (sub) question(s) and the output is data.
Convergent process
The convergent process represents the synthesis of the generated data and is used to form conclusions that give answer(s) to the initial stated question. The method used for the synthesis of the obtained data is the ‘Inference Ladder’ as described in Peter Senge’s book (1990). What the inference ladder implies (see Figure 4.3) is that the synthesis begins with available data, the kind that would be captured by a movie camera that didn't lie. Then a set of selected
data is chosen to which attention is paid. This selected data is interpreted to give it a certain meaning. Then
assumptions are made and conclusions are drawn. The conclusion should answer the initial stated question. However, these conclusions on their turn initiate actions which create additional data. This process therefore has a circular nature (reflexive loop).
4.4 Data collection and sources
To perform business research there are several methods for data collection from several sources. A first distinction is made between primary and secondary data sources (Ghauri et al., 1995). Primary data are original data collected by the researcher self for the research at hand. Secondary data are information collected by others for the purposes which can be different then for this research.
The primary data used in this research consists of:
- Observations (participation in daily business DI )
30 Organizational Architecture Market Architecture Economic Architecture
- Unstructured interviews: mail, phone and personal (see Appendix VII for a list with personal details of the people interviewed).
The secondary data used in this research consists of:
Scientific data:
- Scientific articles from the electronic database of the University of Groningen - Relevant literature (books and articles) from several libraries
- Discussions with the mentor of the university
Professional / practical data:
- Internet
- News papers and business magazines
- Internal documents of DI
- International Minerals Dumping Federation’s library and electronic database
4.5 Theoretical framework
In this part of the research design, the used theories from the scientific literature are discussed and justified per phase according to their relevance and their practical usage within this research.
4.5.1 Phase 1 – Commercial factors
The first phase in this research refers to the ‘know-why’ layer of the technology roadmap and relates to the ‘purpose’. It includes the commercial factors that influence the viability of OWD as a service for DI . The operational definition of the commercial factors used in this research, is that it consists of the drivers/trends and requirements that determine the number of demanded OWD operations coming from the environment. According to Miller and Morris (1999), a distinction can be made between three categories in the environment. They present the concept of the Competitive Architecture (Figure 4.4).
Figure 4.4 - The Competitive Architecture (Miller and Morris, 1999). Economic architecture
31 The economic architecture consists of the world in which the market and organization architecture are embedded. Because the factors coming from this level are outside the firm’s control, it provides an important source of organizational contingencies (Miller and Morris, 1999). Thompson (1967) divides these factors according to the DESTEP method, which is commonly used with strategic decision making. It identifies the most important developments and influences from the macro environment. DESTEP is an acronym for the following factors: i) Demographic; ii) Economical; iii) Social; iv) Technological; v) Ecological; and vi) Political / Legal.
Market architecture
The market architecture is that level of the organization’s external environment with components that normally have relatively specific and immediate implications for managing the organization (Miller and Morris, 1999). Porter has presented one of the most widely used tools to assess the market characteristics. He developed a framework, named Porter’s Five Forces Model. It suggests that the intensity of industry competition and an industry’s profit potential (as measured by the long-run return on invested capital) are a function of five competitive forces (Porter, 1980). However, according to Schilling (2005) Porter recently has acknowledged a sixth force: the role of complements (see Figure 4.5). Complements are products or services that enhance the usefulness or desirability of a good.
Figure 4.5 - Five-Forces Model according to Schilling (2005)
Organizational architecture
Unlike the factors of the economic- and market architecture, the factors of the organizational architecture come from the organization itself. Porter’s Five Forces model enables mangers to formulate a strategy, but it is simultaneously important to know whether the organization has the requisite core competencies to implement the chosen strategy. According to Hamel and Prahalad (1990), the firm is ‘a unique complex of resources and knowledge that create sustainable competitive advantage and growth’. The firm performance is a function of ‘how well managers build their organizations around resources that are valuable, rare, inimitable, and lack substitutes’ (Hamel and Prahalad, 1990).
Bargaining power of buyers Bargaining power of suppliers Rivalry among existing competitors Threat of substitute products or services Threat of new entrants
32
Justification of theory phase 1
The first main consideration for this phase has been to use a ‘market-based view’ to approach the research problem. This view is based on the assumption that value is created outside of the firm. Because this phase takes into account the ‘market pull’, this view is considered to be most appropriate. Because the demand for OWD is affected by factors from various levels in the environment, the model that Morris and Miller propose is considered appropriate, because it takes these different levels into account. In their book they clearly explain what factors each level consists of which makes it easy to apply. The DESTEP analysis has been chosen instead of the more conventional PEST analysis. The latter does not incorporate the ecological and demographic factors, which are considered relevant for this research as well. Porter’s Five Forces model is generally accepted and therefore easy to interpret by a wide variety of people. Furthermore, Porter is one of the main founders of the market-based view approach to strategic management, which is chosen to analyze the commercial factors. The suggested variant of the Five Forces Model by Schilling (2005) is finally applied because of the big influence of ‘complements’ in this market. Because it is determined in chapter 3, that the technological capabilities of DI are assumed to be more important then other organizational processes, a shallow analysis of the organizational architecture should suffice in this phase. An example of a more thorough analysis would be Porter’s Value Chain (1985). However, it is decided to only focus on the (core) competencies that the organization possesses, since it is not required to get in to more detail for the purpose of this research.
4.5.2 Phase 2 – Technological factors
The second phase of this research refers to the bottom layer of the technology roadmap, namely ‘know-how’. It relates to the technological factors that influence the viability of OWD as a service for DI . The operational definition of the technological factors is that it consists of the technological resources and capabilities needed to deliver OWD as a service. Because technology consists of a tangible and intangible part, the needed technologies are divided in (tangible) technologies and resources and (intangible) knowledge to be able to perform a OWD operation. To be able to give an anBDIer to this part of the research, a description of the technological landscape will be given. First an overview of the technological difficulties of a OWD operation is given and then the available capabilities and resources to overcome these difficulties are discussed.
Resource and capability gap
Once it is clear what the needed technological capabilities are to perform OWD, these can be compared with those available within the organization. This will show whether there is a so called resource and capability gap. Identifying any technological gap, enables a firm to focus its development efforts and choose the investments necessary to develop strategic technologies and incorporate them into the company’s new products/services (Marino, 1996). Schilling (2005) has presented a clear model in her book that visualizes the cause of a resource and capability gap of a firm (See Figure 4.6). It should be helpful in doing the same for a desired service.
