Draft
Design of a Technology Strategy
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Design of a Technology Strategy
Simon Ytzen de Vries Supervisors:
Rijksuniversiteit Groningen: Prof. Dr. Ir. F.P.J. Kuijpers Ir. J. Slagter
Purac: Ir. Aart van den Dool
Groningen, 26 May 2003
The author is responsible for the contents of the thesis;
The author holds the copyright of the thesis
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Executive Summary
The research is started with a short introduction to Purac. Next the project frame was explored in order to determine the problem.
The Problem
A first decision was made when the business goal for Purac was determined. Purac’s goal is to be business leader in the year A. This goal is to be reached through product leadership.
An assessment of how Purac rates as product leader was made next. This revealed the problem of Purac’s time-to-market being considerably longer than normal in the process industry.
The cause for the difference in time-to-market was diagnosed to be the inclusion of invention within Purac’s development projects. Since the separation of invention from the development projects is a critical issue in technology strategy the real problem was determined to be the lack of a technology strategy within Purac.
Research Design
The lack of a technology strategy within Purac leads to the following research objective:
The objective of the research is to give recommendations to reduce the difference between Purac’s time-to-market and the average time-to-market in the chemical industry to zero, by providing insight in the design of a technology strategy based on platforms, and an
analysis of Purac’s development projects and production processes.
To reach this goal the following questions have to be answered:
1. “Which are the requirements for the design of a technology strategy?”
a. Which are the criteria for a technology strategy?
b. Which are the critical issues in a technology strategy?
c. How does the type of product influence the technology strategy?
2. “What role can platforms play in a for Purac suitable technology strategy?”
a. Which types of platforms exist?
b. What is the underlying logic of platforms?
c. Which benefits and risks are associated with platforms?
3. “What does a for Purac suitable technology strategy look like?”
a) What is the starting point for the design of the technology strategy?
b) Where must the focus in a suitable technology strategy be?
c) How does the chosen solution influence the development process?
d) Which are the preconditions for the chosen solution to be effective?
e) Which advantages and disadvantages are associated with the chosen solution?
f) How does roadmapping help overcome the disadvantages?
4. “Which technology baselines can be distinguished in Purac’s production processes and development projects?”
a. On which part of Purac does the analysis concentrate?
b. Which products does Purac produce for the chosen part?
c. What do the production processes in the chosen part look like?
d. Which development projects can be distinguished in the chosen part?
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Conclusions
Time-to-market is a problem for Purac for two reasons. The first is increased competition due to the rise of bulk poly lactic acid. Time-to-market determines how fast Purac can react to the moves of competitors. The second reason is that the chemical industry strives to shorten the time-to-market for a completely new product and production process to less then three years in 2020.
The lack of a technology strategy causes Purac’s time-to-market to be considerably longer than normal in the process industry. This manifests itself through the critical issue of inclusion of invention in the development projects.
The first central question was: Which are the requirements for the design of a technology strategy? The first requirement is that the design must give clarity about the focus of the technology strategy, about the sources of technological capability, and about the timing and frequency of implementation of new technological capabilities.
The second requirement is to make sure that the technology strategy avoids the critical issues in technology strategy: the separation of invention from the development projects, and the integration of product and manufacturing process technology paths.
The third requirement is that the technology strategy fits with the type of product Purac produces.
The second central question was: “What role can platforms play in a for Purac suitable technology strategy?” From the type of product we can see that the focus in a suitable technology strategy must be on the production process. This leaves the process platform as the only suitable type of platform. As a consequence of the fact that the use of platforms until now has concentrated on assembly processes the role of platforms is limited to the use of the concept of architecture.
The third central question was: “What does a for Purac suitable technology strategy look like?” As we already have concluded a for Purac suitable technology strategy focuses on the technologies used in the production processes, and from platforms we have the concept of architecture available. Each production process has an architecture. The solution is to focus on the core building block in the production process architecture, called the technology baseline.
Through the use of technology baselines a planning phase in the development process becomes necessary. The planning phase precedes the actual development project. The primary goal of this phase is to establish the technology baseline for the development project. The decisions made in this phase are written down in the project mission statement, which acts as a contract between the functional areas involved in the development project.
Finally roadmapping is a tool that can help overcome the disadvantages of technology baselines: uncertainty whether the right technology baselines are chosen, renewal of technology baselines, and coordination between the marketing, development and production functions in the firm.
The overall conclusion is that technology baselines are a suitable basis for a technology strategy. They give clarity about the focus for research and technology development, allow the separation of invention from the development projects, and fit the type of product.
When combined with roadmapping, technology baselines also give clarity about the timing and frequency of implementation of new technological capability, and the integration of product and process technology paths.
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Preface
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Contents
EXECUTIVE SUMMARY ...I THE PROBLEM...I
RESEARCH DESIGN...I
CONCLUSIONS...II
1 INTRODUCTION ... 1
1.1 PURAC... 1
1.1.1 CSM... 1
1.2 PRODUCTS AND PRODUCTION... 1
1.2.1 Markets and Applications... 1
1.3 ORGANIZATIONAL STRUCTURE... 2
2 THEORETICAL FRAMEWORK FOR THE EXPLORATION OF THE PROJECT FRAME... 5
2.1 ECONOMIC ARCHITECTURE... 5
2.2 MARKET ARCHITECTURE... 5
2.3 ORGANIZATIONAL ARCHITECTURE... 6
2.3.1 Mission and Vision... 7
2.3.2 Core Values ... 7
2.3.3 Core Competencies ... 7
2.3.4 Customer Value Orientation... 8
3 EXPLORATION OF THE PROJECT FRAME ... 9
3.1 ECONOMIC ARCHITECTURE... 9
3.2 MARKET ARCHITECTURE... 9
3.2.1 Purac’s Business Goal ... 10
3.3 ORGANIZATIONAL ARCHITECTURE... 10
3.3.1 Mission and Vision... 11
3.3.2 Core Values ... 11
3.3.3 Core Competencies ... 12
3.3.4 Customer Value Orientation... 12
4 THEORETICAL FRAMEWORK FOR PRODUCT LEADERSHIP... 13
4.1 BASIC PRINCIPLES FOR PRODUCT LEADERSHIP... 13
4.2 BEST POSSIBLE PRODUCT... 13
4.3 TIME-TO-MARKET... 13
4.3.1 Advantages of a Short Time-to-Market ... 14
4.3.2 The Chemical Industry and Time-to-Market ... 15
5 PURAC AS PRODUCT LEADER... 17
5.1 BASIC PRINCIPLES... 17
5.2 PURAC’S TIME-TO-MARKET... 17
5.3 THE PROBLEM... 18
6 THEORETICAL FRAMEWORK FOR THE PROBLEM DIAGNOSIS... 19
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6.1 GENERIC DEVELOPMENT PROCESS AND VARIANTS...19
6.2 DEVELOPMENT STRATEGY...20
6.2.1 Critical Issues in Technology Strategy...20
6.3 RESEARCH QUESTIONS...22
7 PROBLEM DIAGNOSIS ...23
7.1 PURAC’S DEVELOPMENT PROCESS...23
7.1.1 Development Funnel...23
7.1.2 Other Characteristics ...23
7.2 TYPE OF DEVELOPMENT PROCESS...23
7.3 PORTFOLIO OF DEVELOPMENT PROJECTS...24
7.4 CRITICAL ISSUES IN PURAC’S DEVELOPMENT PROCESS...25
7.5 CONCLUSION...25
8 RESEARCH DESIGN ...27
8.1 RESEARCH OBJECTIVE...27
8.1.1 Research Kind ...27
8.1.2 Summary of the Project Frame ...27
8.1.3 Research Type ...27
8.1.4 Research Objective...27
8.2 RESEARCH MODEL...28
8.3 RESEARCH QUESTIONS...29
8.4 DEFINITIONS...29
8.4.1 Technology Strategy ...30
8.5 RESEARCH DATA...30
9 RESEARCH POINT OF VIEW ...31
9.1 CRITERIA FOR A TECHNOLOGY STRATEGY...31
9.2 CRITICAL ISSUES IN TECHNOLOGY STRATEGY...31
9.3 TYPE OF PRODUCT...32
9.4 REQUIREMENTS FOR THE DESIGN...32
10 PLATFORMS AND ROADMAPPING ...33
10.1 TYPES OF PLATFORMS...33
10.2 PRODUCT ARCHITECTURE...34
10.2.1 Process architecture ...35
10.2.2 Component Standardization...35
10.3 BENEFITS AND RISKS...35
10.3.1 Benefits...35
10.3.2 Risks...36
10.4 ROADMAPPING...37
10.4.1 Definition ...37
10.4.2 Time Period...37
10.4.3 Benefits...37
10.5 THE ROLE OF PLATFORMS IN TECHNOLOGY STRATEGY...38
11 DESIGN OF A TECHNOLOGY STRATEGY...39
11.1 STARTING POINT FOR THE DESIGN...39
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11.2 PRODUCTION PROCESS ARCHITECTURE AND TECHNOLOGY BASELINES... 39
11.3 INFLUENCE ON THE DEVELOPMENT PROCESS... 40
11.3.1 Research and Technology Development ... 40
11.3.2 Planning Phase ... 40
11.3.3 Project Mission Statement... 41
11.4 PRECONDITIONS... 42
11.5 BENEFITS AND RISKS... 42
11.5.1 Benefits ... 42
11.5.2 Risks ... 42
11.6 ROADMAPPING FOR TECHNOLOGY BASELINES... 42
12 ANALYSIS OF PURAC’S TECHNOLOGY BASELINES ... 45
12.1 CHOSEN MARKET... 45
12.2 PRODUCTS FOR THE FOOD & PHARMACEUTICALS MARKET... 45
12.2.1 Puracal and Purac Powders... 45
12.2.2 Purasal ... 45
12.2.3 Puramex... 45
13 ORGANIZATIONAL CONSEQUENCES ... 47
13.1 CORE COMPETENCIES... 47
13.2 CORE VALUES... 47
13.2.1 Striving for Continuous Improvement... 47
13.2.2 Encouragement of Innovation... 48
13.2.3 Openness... 48
13.3 PRODUCT LEADERSHIP... 48
13.3.1 Product Leadership and the other Customer Value Orientations ... 48
13.3.2 Involving the Customer in Development ... 49
13.3.3 Value and Profit... 49
13.4 DEVELOPMENT PROCESS... 50
13.5 BENCHMARKING... 50
13.5.1 Benchmarking against “Best in Class” ... 51
13.5.2 Competitive Benchmarking ... 51
14 CONCLUSIONS AND RECOMMENDATIONS ... 53
14.1 SUPPLEMENT TO THE PROJECT FRAME... 53
14.2 CONCLUSIONS... 53
14.3 RECOMMENDATIONS... 54
14.3.1 Technology Baselines... 54
14.3.2 Development Strategy ... 55
14.3.3 Roadmapping... 55
LITERATURE ... 57
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1 Introduction
In this chapter we will give a short introduction of Purac, the organization where this research is conducted.
1.1 Purac
Purac is the world’s largest manufacturer of lactic acid and lactic acid derivatives. In 2001 Purac’s net turnover was € 229 million (CSM, Jaarverslag 2000-2001).
Purac is the successor of CCA, the “Chemie Combinatie Amsterdam” which was founded in 1969. In 1982 CCA became Purac. Purac’s history however goes even further back, in 1935 was already started with the small-scale production of lactic acid.
1.1.1 CSM
Purac is one of the five divisions of CSM, the “Centrale Suiker Maatschappij”, a Dutch company active in food ingredients and foodstuffs. The five divisions of CSM are: CSM Bakery Supplies Europe, CSM Bakery Supplies America, CSM Sugar Confectionery, CSM Sugar and CSM Biochemicals. Purac is the biochemicals division of CSM.
1.2 Products and Production
Purac’s production can be divided in two different areas. The first is the production of lactic acid in different grades and levels of purity. Purac produces lactic acid through fermentation of sugar (figure 1-1).
The second area is the production of lactic acid derivatives. These lactic acid derivatives are produced in a variety of ways depending on the type of derivative.
1.2.1 Markets and Applications
Lactic acid and lactic acid derivatives have four major markets: food, pharmaceuticals, technical applications and cosmetics. The largest part of Purac’s products finds its way to the food market. Applications in this area include mineral fortification, pH regulation, flavoring, improving food quality, and improving microbial quality.
For the pharmaceutical market the major applications are tabletting, mineral preparations, parenteral/I.V. solutions and dialysis solutions.
Technical application areas include the metal industry, the electronics industry, household
Figure 1-1 Production of Lactic Acid
Fermentation Downstream Processing
Metal lactates Lactic Acid
Raw Materials
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and I&I cleaning, the paints and inks industry and the chemical industry.
In the cosmetics market lactic acid and derivatives are applied in skin care products, toiletries, anti-perspirants, oral care products, and hair care products.
1.3 Organizational Structure
Figure 1-2 shows Purac’s organizational diagram. Purac’s organization is divided into three functional areas: Marketing & Sales, Development, and Operations.
Marketing & Sales is responsible for the marketing and sales of Purac’s products. This is done through six sales offices around the world. A second responsibility of Marketing &
Sales is the development of applications. The development of applications is primarily the development of lactic acid derivatives or new grades of lactic acid.
Development is responsible for research, development and technology; intellectual
property; and quality assurance/regulatory affairs. Research, Development and Technology is responsible for more long-term development activities such as the development of new production technologies. Intellectual Property has the task of defending Purac’s intellectual
Purac division Managing Director
Financial Director
Marketing & Sales Director
Purac bioquimica Southern Europe, Middle East & Africa
Purac America North America
Purac sínteses Latin America
Purac Japan Japan Purac Far East
Asia-Pacific Purac Biochem Northern Europe Marketing &
Application
Operations Director
Production Brazil
Production Netherlands
Production Spain
Production U.S.A Development
Director
Research, Development
& Technology
Quality Assurance/
Regulatory Affairs Intellectual Property
Figure 1-2 Purac’s Organizational Diagram
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property such as patents, and checking if Purac violates intellectual property of others when developing new technologies. Quality Assurance/Regulatory Affairs is responsible for the quality of the products, meeting production standard such as GMP, and certification of products.
Operations is responsible for the day-to-day activities such as the production of lactic acid and derivatives. Purac has four production locations: the Netherlands, Spain, Brazil and the United States of America.
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2 Theoretical Framework for the Exploration of the Project Frame
In this chapter we will describe the theoretical framework that will be used to explore the project frame. To structure the exploration we will use the concept of competitive
architecture (Miller and Morris, 1999). The competitive architecture consists of three parts:
the economic, the market and the organizational architecture. Each will be defined and further specified in the next sections.
2.1 Economic Architecture
The economic architecture is the first part of the competitive architecture (figure 2-1) and forms the world in which the market and organizational architecture are embedded. As a consequence of the globalization the economic architecture deals at a global level. The most important development within the economic architecture is currently the shift from the industrial age to the knowledge age (Miller & Morris, 1999, pp. 34; Weggeman, 1999, pp. 11).
2.2 Market Architecture
The second part of the competitive architecture is the market architecture, which describes the level of industries, firms, and their markets. Porter’s five forces model (figure 2-2;
Douma, 1993) is a tool that can be used to describe the market architecture. The internal competition is the competition between current competitors. The negotiation power of suppliers and customers taken together is the external competition. The threat of substitutes and potential new entrants together form the potential competition.
Organizational Architecture
Market Architecture
Economic Architecture
Figure 2-1 Competitive Architecture
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2.3 Organizational Architecture
The organizational architecture describes the level of the individual organization. Figure 2-3 shows the model that will be used to describe the organizational architecture. In this research we will concentrate upon the mission, vision, core values, core competencies, and customer value orientation.
Business Process
Influence of Surroundings
Opportunities & Threats
SWOT Confrontation Matrix
New Business
Customer Value
(Mission) Core Competencies
Vision
Core Values
Customer Value Orientation
Customer Loyalty Strengths & Weaknesses
Figure 2-3 Model for the Organizational Architecture Figure 2-2 Five Forces Model
Internal Competition
Threat of Potential New
Entrants Threat of Substitutes
Negotiation Power of Suppliers
Negotiation Power of Customers
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2.3.1 Mission and Vision
An organizations mission defines the reason for the existence of an organization. There is only one mission per organization.
The vision shows where the organization is heading in the long-term. It is based upon the mission and the influences of the environment of the organization. The economic and market architecture describe the environment and its influences upon an organization.
There is only one vision per part, business unit, of an organization, but each part can have its own vision (Weggeman, 1999).
The combination of mission and vision forms the collective ambition of an organization.
Together they show why an organization exists and where the organization is heading.
There are two conditions for the mission and vision to become a collective ambition. The first is that as many people as possible must be involved in the formulation of the mission and vision. The second is that the mission and vision must be communicated to the entire organization.
The mission and vision together with the core competencies form the foundation for the choice of an organizations customer value orientation.
2.3.2 Core Values
Leonard (1998, pp. 24) distinguishes two kinds of values: generic values and
knowledge-base-specific values. Generic values apply to human interactions within the corporation in general or to a general outlook on life. Knowledge-base-specific values are more limited in scope; they are concerned with the choice of technology, the value placed on types of knowledge, or the way in which generic values are operationalized.
2.3.3 Core Competencies
We will start by showing a number of definitions for the concept of core competencies.
Hamel & Prahalad (Twynstra Gudde, 2001) define a core competence as:
“Core competencies are the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology.”
Stalk, Evans and Shulman have widened the concept of core competencies from technology and production skills to include all core processes from all functional areas within an organization (Weggeman, 1999, pp. 56).
Quinn (Twynstra Gudde, 2001) defines a core competence as:
“The corporation should concentrate its own resources and energies internally on those activities where it can be best-in-world, where it can create unique value, and where it must have strategic control to maintain dominance.”
Leonard (1998, pp. 4) not only defines core capabilities but distinguishes three levels of capabilities:
“Core capabilities constitute a competitive advantage for a firm; they have been built up over time and cannot be easily imitated. Supplemental capabilities are those that add value to core capabilities but that could be imitated. Enabling capabilities are necessary but not sufficient in themselves to competitively distinguish a firm.”
The above definitions can be used to derive a working definition for a core competence.
This working definition is formulated as a list of characteristics a competence must posses
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to be considered a core competence. Shown in italics are the elements of the definitions where the characteristics are derived from.
The competence is anchored within the history of an organization (a core capability is built up over time).
The competence shows where an organization excels (where it [the corporation]
can be best-in-world).
The competence is contained within in the heads and hands of people (core competencies are the collective learning in the organization).
The competence is an explanation for success in current product market combinations (core capabilities constitute a competitive advantage).
The competence defines skills in terms of processes (all core processes from all functional areas within the organization).
The competence creates unique values (where it [the corporation] can create unique value).
The competence is hard to copy or buy (a core capability cannot be easily imitated).
The competence is hard to split in factors (Twynstra Gudde, 2001).
2.3.4 Customer Value Orientation
An organizations customer value orientation shows how an organization distinguishes itself in the addition of value to others. Treacy and Wiersema (1995) define the following customer orientations:
Operational Excellence. Cost leaders are dedicated to offering their products for the lowest possible costs to customers.
Product Leadership. Product leaders are dedicated to offering new and groundbreaking products to their customers.
Customer Intimacy. These organizations are dedicated to full-filling specific customer needs. They are the only ones capable of full-filling these needs because of their relation with and knowledge of the customer.
Treacy and Wiersema also posit that an organization must choose one of the customer orientations. There are two reasons for this. The first is the lack of resources within an organization to please all customers looking for totally different value offerings. The second is that the underlying philosophies are opposites. Most people aren’t able to function when they have to work simultaneously with opposite philosophies. Since organizations consist of people this also applies to organizations.
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3 Exploration of the Project Frame
In this chapter we will take a first look at Purac using the theoretical framework from the previous chapter as point of view. This is done to determine the customer value orientation Purac chooses.
3.1 Economic Architecture
An important part of the economic architecture for Purac is the growing concern for the environment. The implications hereof are twofold. Firstly it affects the production processes employed by Purac, forcing Purac to work in a more environmentally friendly way. Secondly it affects the application of lactic acid as a more environmentally friendly alternative for other chemicals.
Another change in the economical architecture affecting Purac is the growing concern people have for their health. One of the consequences is a decline in the use of glucose.
How this affects Purac will be explained in the following section, the description of the market architecture.
3.2 Market Architecture
The tool we will use to describe the market architecture is Porter’s five forces model (figure 3-1; Douma, 1993). The central part of the model is the internal competition and we will start with describing this. In the introduction it has already been said that Purac is the largest manufacturer of lactic acid and derivatives in the world. This is also reflected in the number of current competitors. Purac has only a very limited number of competitors (Van den Dool, 2002). We can conclude that the internal competition is not very strong on Purac’s markets.
The second part of the model is the external competition, consisting of the negotiation power of suppliers, and the negotiation power of customers. The negotiation power of suppliers is not very important to Purac. The main raw material is sugar, which is provided
Internal Competition
Threat of Potential New
Entrants Threat of Substitutes
Negotiation Power of Suppliers
Negotiation Power of Customers
Figure 3-1 Five Forces Model
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by one Purac’s sister companies, CSM Sugar.
The negotiation power of customers is a larger concern for Purac. Purac’s products are used as ingredients in the products of large multinationals.
The final part of the model is the potential competition, consisting of the threat of substitutes, and threat of potential new entrants. The threat of substitutes for Purac’s products is a concern. Citric acid for example is a well-known substitute for lactic acid.
This threat is offset in part by the specific characteristics of lactic acid such as its flavor and in part by the fact that lactic acid is a niche in the market of food acids.
The biggest threat to Purac’s market position are new entrants, who have a chance to enter Purac’s markets as a consequence of the rise of bulk poly lactic acid. Bulk poly lactic acid is a biologically degradable plastic based upon renewable resources. Applications for bulk poly lactic acid are clothing, carpets, packaging, plastic bags and as a replacement for PET.
The rise of bulk poly lactic acid is directly connected to the developments in the economic architecture. Firstly the concern for the environment and the depletion of natural resources such as oil, the raw material for most plastics, forces producers to find alternatives. Bulk poly lactic acid seems to be one of the most promising alternatives. Secondly the decline in the use of glucose forces glucose producers, such as Cargill, to find an alternative use for abundant glucose. The most important new competitor is the joint venture X, which is busy developing the technology to produce cheap lactic acid that can act as raw material for bulk poly lactic acid.
3.2.1 Purac’s Business Goal
The changes in the market architecture have lead to the following business goal for Purac:
Purac wants to be business leader in the year A.∗.
This goal is based upon the assumption that the joint venture X, the most important new competitor, will have its technology to produce cheap lactic acid ready in the year A. For Purac it is essential to be ready to compete at that moment, because it will be difficult to regain lost ground when the market architecture has shifted. With this business goal in mind we will now take a look at Purac’s organizational architecture.
3.3 Organizational Architecture
Figure 3-2 shows the model that will be used to describe the organizational architecture.
We will not describe all the parts of the model. In this research we will concentrate upon the mission, vision, core values, core competencies, and customer value orientation.
The influence of the surroundings has been described in the previous sections. Purac’s business process has already been described in the first chapter. A SWOT analysis has recently been conducted by Purac and is therefore not repeated here. But one major threat has been identified and that is increased competition. What this means for Purac’s
organizational architecture is explored here.
∗ The year has been disguised for reasons of confidentiality
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3.3.1 Mission and Vision
Purac has the following mission and vision:
It is Purac’s mission to continue her leadership in the development, production, and worldwide marketing of natural lactic acid and –derivatives for the food, pharmaceutical, technical, cosmetical, and feed applications. Purac strives for operational excellence, that is to maximize customer satisfaction, while the costs are kept at the lowest possible level.
The attention of our business activities will primarily go to an active market development of lactic acid derivatives. The customer is our first responsibility: the promise to anticipate their needs and to fulfill these. To do this Purac has to enter a complete partnership with her customers: foresee their problems, and provide superior, high-quality products with added value and service.
Purac’s mission and vision don’t meet the requirements for a collective ambition. The biggest issue is the lack of communication to the entire organization. Only the higher- ranking people within in Purac have a reasonable knowledge about the mission and vision (De Groene, 1998).
3.3.2 Core Values
Purac’s core values are the same as CSM’s core values. These core values are the following:
Striving for continuous improvement in everything Purac does.
Being stakeholder driven. The interests of shareholders, employees, customers and consumers, suppliers and financers must be balanced in the right way.
Business Process
Influence of Surroundings
Opportunities & Threats
SWOT Confrontation Matrix
New Business
Customer Value
(Mission) Core Competencies
Vision
Core Values
Customer Value Orientation
Customer Loyalty Strengths & Weaknesses
Figure 3-2 Model for the Organizational Architecture
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Fostering intrapreneurship. This means rating at its true value and stimulating entrepreneurship amongst employees directed at the development of the organization.
Openness. Openness to create the circumstances for a creative working environment and optimal performance. (CSM nv, 2001)
Purac has added a core value to the above core values: being innovative.
3.3.3 Core Competencies
Van den Dool (2002, pp. 4) identifies the following core competencies for Purac:
Purac’s world wide sales organization.
Purac’s market knowledge and the possibilities to use this knowledge for the development of derivatives.
Purac’s knowledge about purifying technologies.
Purac’s knowledge about lactic acid and the use of this knowledge in the production of lactic acid.
A number of things can be noticed about these core competencies. Firstly there are no links between them; they do not constitute a whole. Secondly it is noticeable that there are no technological competencies in the development and production of derivatives, only knowledge about the market and the possibilities to use this knowledge. How the knowledge should be used technologically is not a part of the core competences. This despite the fact that derivatives are highly important for Purac and are becoming more important, because these derivatives are very profitable.
3.3.4 Customer Value Orientation
Purac’s mission and vision show Purac trying to be everything to all customers. Purac wants to do all three customer orientations, which is shown in the following quotes:
Operational excellence. This is explicitly named in the mission and vision.
Product leadership. “Provide superior, high-quality products with added value and service.”
Customer intimacy. “To do this Purac has to enter a complete partnership with her customers.”
Van den Dool (2002) develops a number of scenarios for Purac’s future. The most likely outcome he posits is the choice for product leadership as customer orientation. The following reasons provide the basis for this choice.
The choice for product leadership is based upon the fact that the step to become a product leader is the smallest, a better financial outlook, and the small chance to win as a cost leader (operational excellence). Throughout the rest of this research it is assumed that Purac will indeed choose to become a product leader. Purac will be business leader in the year A through product leadership.
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4 Theoretical Framework for Product Leadership
In the previous chapter it was stated that Purac chooses to become a product leader to fulfill its business goal of being business leader in the year A. It was also stated that Purac has a long way to go before she can be considered a true product leader. In this chapter we will explore part of the theory about product leadership, starting with the definition given by Treacy and Wiersema (1995):
A product leader is an organization dedicated to delivering the best possible products from the perspective of the properties and benefits offered to customers.
4.1 Basic Principles for Product Leadership
Product leadership is based upon the following basic principles.
Encouragement of innovation.
A risk oriented management style. Management needs to be aware of risks without this awareness leading to risk avoidment.
Recognition that current success and future prospects lie in talented product development people and those who support them.
Recognition of the need to educate and lead the market regarding the use and benefits of new products.
4.2 Best Possible Product
Being a product leader is defined as being dedicated to delivering the best possible products. Here we will explore what the ‘best possible product means’. The ‘best possible product’ is measured through the quality of the product, which is defined as:
Quality is the degree to which a whole of characteristics complies with stated demands (ISO, 2000).
The ‘best possible product’ means for the aspect of quality the highest quality.
A product is only the ‘best possible product’ for a certain amount of time. A moment will come that a competitor is able to offer a better product, because a new customer benefit has become apparent which is addressed by the competitor’s product and not by the firm’s product. This makes time a source of value for a product leader (Treacy & Wiersema, 1995, pp. 15). Ideally when the product is surpassed by a competitor the product leader will be ready to introduce a successor to the original product, strengthening its leading position. This makes time-to-market an important aspect of being a product leader.
4.3 Time-to-Market
We will now take a closer look at the importance of time-to-market. Wheelwright and Clark (1992, pp. 2) mention three critical forces driving development:
1. Intense international competition.
2. Fragmented, demanding markets.
3. Diverse and rapidly changing technologies.
These driving forces create a set of development imperatives. Three of these imperatives are speed, efficiency and quality (Wheelwright and Clark, 1992, pp. 4). To succeed firms
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must be responsive to changing customer demands and the moves of their competitors.
This means they must be fast (Wheelwright and Clark, 1992, pp. 4).
This is repeated by Ulrich and Eppinger (2000, pp.3), who mention development time as one of the dimensions used to asses the performance of a product development effort. The question to ask is: “How quickly did the development team complete the product
development effort?” Development time determines how responsive the firm can be to competitive forces and to technological developments, as well as how quickly the firm receives the economic returns from the team’s efforts.
4.3.1 Advantages of a Short Time-to-Market
The question is: What advantages does a short time-to-market have? Korbijn (1999, pp.
48-50) states five advantages of a short time-to-market; four of them apply for product leaders. We will discuss those here.
Profitability. Wheelwright and Clark (1992, pp. 22) show the influence of product introduction timing on the lifetime profits for a product. Introducing a product at the same time as the competitors (0 on the horizontal axis in figure 4-1) leads to average profits over the lifetime of the product (1x on the vertical axis). Introducing a product six months ahead of the competition may mean tripling the profits over the lifetime of the product. Introducing a product six months behind the
competition may mean simply breaking even.
Korbijn (1999, pp. 48) gives another example of the impact of time-to-market on profit. In one situation within six months different manufacturers introduced similar
Figure 4-1 Impact of Market Introduction Timing on Lifetime Product Profit
0 6 months
late 6 months
early 3x
2x
1x
Time (months)
Time of Market Introduction relative to Competitors Cumulative Profits over
Life of Product (relative to average for the
industry)
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products, and the rapid growth of the number of product caused prices to drop quickly. The first manufacturer on the market was able to demand a higher margin because of this. The first competitor introduced a similar product six months later, and lost 33% of his income. A second competitor introduced at a similar time as the first manufacturer on the market, but introduced a not sufficiently developed product, causing a higher cost price, and lost 22% of his income. The third
competitor introduced on time but went 50% over the development budget, and lost only 4% of income.
Flexibility. Fast product development means the ability to faster capitalize upon the newest customer demands. This allows more flexible reaction and the possibility to employ new technologies faster, thereby increasing the product performance even more.
Less risk. A short time-to-market gives an organization the opportunity to introduce a product at the same time as their competition while development can be started later. This opens up opportunities to collect more information about customer demands and possible technologies, thereby reducing risks.
This is shown in figure 4-2, which shows the opportunity curve (Miller and Morris, 1999, pp. xv). The opportunity curve shows that while clarity grows over time the number of opportunities declines. With a short time-to-market more information can be collected, thus more clarity is achieved, while the same point of action can be reached.
Reliability of market research. Most organizations base their product development upon market research aimed at determining customer needs at the moment of introduction. A short time-to-market means that market research does not have to look as far into the future, leading to increased reliability.
4.3.2 The Chemical Industry and Time-to-Market
Vision 2020 (Aiche, 1996) is a roadmap for the chemical industry showing the goals for the chemical industry in 2020. In the New Chemical Science and EngineeringTechnology section two goals directly connected to time-to-market are mentioned. The first goal is
Figure 4-2 The Opportunity Curve
Clarity Opportunity
Time Point of Action
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reduction of the commercialization process for new products and processes to less than three years (from product synthesis through plant construction). The second goal is rapid product and process development that optimizes technology options, manufacturability, environmental and safety issues, and financial performance (pp. 31).
A supplementing document to the Process Science and Engineering Technology and Chemical Synthesis sections of Vision 2020 gives another two goals connected to time-to-market. The first is to accelerate the introduction of new products by 15%. The second is to reduce lead-times and time-to-market for new products and technologies by 30%.
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5 Purac as Product Leader
The exploration of the project frame ended with the choice of Purac for product leadership to achieve its business goal of being business leader in the year A. It was also stated that Purac has a long way to go before she can be considered a true product leader. A way to asses how long a way Purac has to go is to look at how Purac rates on the aspects of product leadership mentioned in the previous chapter.
5.1 Basic Principles
The basic principles for product leadership are mentioned in the previous chapter. In order to asses the way Purac has to go before being a true product leader it is interesting to see how Purac rates on these basic principles.
The assessment of how Purac rates on the basic principles of product leadership has been deleted for reasons of confidentiality.
5.2 Purac’s Time-to-Market
In the previous chapter it was also argued that the fastest product development was one of the aspects of being a product leader.
This makes it interesting to look at Purac’s time-to-market in comparison to the average time-to-market in the chemical industry. Table 5-1 shows the time-to-market for Purac and the chemical industry.
The table clearly shows that Purac’s time-to-market is about average when no process changes are needed in the development of a new product. However when either process adaptation or a new process is needed Purac’s time-to-market is considerably longer than the average in the chemical industry. Since Purac has chosen to focus on product
leadership the worst case for Purac (the longest time-to-market) has been compared with the shortest time-to-market for the chemical industry.
The table also shows that in case of capacity expansions Purac also needs considerably more time than the chemical industry. The conclusion that can be drawn from these
numbers is that the difference in performance between Purac and the chemical industry has something to do with adapting or building a new process.
Table 5-1 Time-to-Market for Purac compared with the Chemical Industry
The table has been deleted for reasons of confidentiality
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5.3 The Problem
We now know the problem this research will contribute to solve. This problem was determined to be the difference in time-to-market between Purac and the chemical industry. This difference is considerable when compared with the average time-to-market in the chemical industry.
This is a problem for two reasons. The first is that time-to-market determines how fast a company can react to competitors. This is important for Purac for two reasons: competition is expected to rise due to the growth of poly lactic acid, and Purac has decided to become a product leader. To stay in the leading position it is necessary to be able to respond quickly to the moves of competitors.
The second reason the difference in time-to-market is a problem is that the chemical industry strives to shorten the time-to-market for a completely new product and production process to less than three years in 2020 (section 4.3.2). This means that the gap in
time-to-market will only get wider, making it harder for Purac to catch up.
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6 Theoretical Framework for the Problem Diagnosis
In this chapter we will describe the theoretical framework that will be used for the diagnosis of the problem we have signalized.
6.1 Generic Development Process and Variants
Ulrich and Eppinger (2000, pp. 14) give a general development process. This generic development process consists of six phases:
0. Planning. The planning phase begins with corporate strategy and includes assessment of technology developments and market objectives.
1. Concept Development. In the concept development phase, the needs of the target market are identified, alternative product concepts are generated and evaluated, and one or more concepts are selected for further development and testing.
2. System-level Design. The system-level design phase includes the definition of the product architecture and the decomposition of the product into subsystems and components.
3. Detail Design. The detail design phase includes the complete specification of the geometry, materials, and tolerances of all the unique parts in the product and the identification of all the standard parts to be purchased from suppliers.
4. Testing and Refinement. The testing and refinement phase involves the construction and evaluation of multiple preproduction versions of the product.
5. Production Ramp-up. In the production ramp-up phase the product is made using the intended production system. The purpose of the ramp-up is to train the work force and to work out any remaining problems in the production processes.
More important is that Ulrich and Eppinger distinguish four variants on this generic development process. These variants and their distinctions with respect to the generic
Market pull
products
Technology push products
Platform products
Process intensive products
Customized products Description The firm begins
with a market opportunity, then finds appropriate technologies to meet customer needs.
The firm begins with a new technology, then finds an appropriate market.
The firm assumes that the new product will be built around an established technological sub- system.
Characteristics of the product are highly constrained by the production process.
New products are slight variations of existing configurations.
Distinctions with respect to generic process
Planning phase
involves matching technology and market.
Concept development assumes a given technology.
Concept development assumes a technology platform.
Both process and product must be developed together from the very beginning, or an existing production process must be specified from the beginning.
Similarity of projects allows for a highly structured development process.
Ulrich & Eppinger, 2000, pp. 21
Table 6-1 Development Process Variants
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development process are shown in table 6-1. We will now give the definitions for each of the types, starting with market-pull products.
For market-pull products a firm begins product development with a market opportunity and then uses whatever available technologies are required to satisfy the market need.
The second type that is distinguished are technology-push products, which are defined as:
For technology-push products the firm begins development with a new proprietary technology and looks for an appropriate market in which to apply this technology.
The third type that is distinguished are platform products, which are defined as:
A platform product is built around a preexisting technological subsystem (a technology platform). The development effort is started with the assumption that the product concepts will embody a certain technology platform, that has already demonstrated its usefulness in the marketplace in meeting customer needs.
The fourth type that is distinguished are process-intensive products, which are defined as:
For process-intensive products, the production process places strict constraints on the properties of the product, so that the product design cannot be separated, even at the concept phase, from the production process design (Ulrich & Eppinger, 2000, pp. 22).
The fifth and last type that is distinguished are customized products, which are defined as:
Customized products are slight variations of standard configurations and are typically developed in response to a specific order by a customer.
6.2 Development Strategy
A development strategy consists of two parts: a technology strategy, and a product/market strategy.
6.2.1 Critical Issues in Technology Strategy
The second sub question is: “Which are the critical issues in a technology strategy?”
Wheelwright and Clark (1992, pp. 38, 39) discuss two critical issues in technology strategy. The first is the separation of technology invention from technology application, and the second is the integration of product and manufacturing process technology paths.
When invention (research and advanced development), for which the timing, prerequisites, resources and specific outcomes of invention are largely unpredictable is included in a development project it invariably causes delays, backtracking and disappointment
(Wheelwright & Clark, 1992, pp.38). However when invention is done in advance so that its results are available for application, development of new technology can contribute substantially to project success. The implication is that required inventions should be proven, that is: their feasibility is demonstrated beforehand, off the critical path of commercial development (Wheelwright & Clark, 1992). This issue is the reason why research and advanced development, which is concerned with invention, is placed outside the border of the diagram in figure 6-2.
The second issue is the integration of product and manufacturing process technology paths.
This issue arises when a firm develops a narrow technology strategy, a technology strategy
