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Chapter 7 Case Analysis

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Graciela Aguilarleon

on 3 November 2015

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Transcript of Chapter 7 Case Analysis

Why is it difficult for Bug Labs to use NPV or IRR in its development project decisions?
What are the advantages and disadvantages of Bug Labs use of qualitative screening questions to make project decisions?
What are the advantages and disadvantages of focusing on the demands of current customers?
How are Bug Labs project selection choices influenced by its strategy of focusing on the “long tail”?
Could Bug Labs use any of the other project selection methods described in the chapter? If so, which would you recommend?

NPV or IRR couldn't be used due to inconsistent cash flows
The bug modules were quite expensive to produce and their future sales were highly uncertain, making it very difficult to achieve positive NPV estimates

Advantages
:
These questions push Bug’s executives to think about how each project contributes to the firm’s
competitive advantage, while also looking for opportunities to reduce risk (e.g., if they know a
customer is demanding the module already, if a sponsor is willing to pay for the development of it)
They look at marketing, customer demand, engineering, and logistics

Disadvantages
:
Very subjective, does not provide concrete answers
Does not consider or provide financial data about the project
These questions could also become easy prey to escalating commitment
They may be overlooking operational concerns while screening to see if the product is feasible
to manufacture

Advantages
:
Maintain low inventory
There will be revenue for the module right away
If current customers are a good indicator of the market, these customers help to focus the firm
on modules that the market finds desirable
Less money tied up in inventory
Creating to customer demand creates a pull operational strategy. Implementing a push strategy
can hurt long tail markets by having excess inventory creating additional cost and complexity
Disadvantages:
Focus might become narrow, i.e. not much scope for new development
Lack of product differentiation
Firms can easily get trapped in the demands of current customers, leading them to miss a major
shift in the market
Leaning on the customer demand is hard to market innovative products

BugLabs were focused on producing extreme personalized products
They were working towards a shift in control from producers to
consumers by manufacturing products based on customer needs
It doesn't focus on high volume sales or big hit products
However, Bug Labs is now in the IoT (Internet of Things) market with products Dweet & Freeboard, they are no longer a long tail type
company
Yes, Bug Labs could use Q-Sort or conjoint analysis method for
project selection
Q-Sort method can be used to select projects based on criteria such
as technical feasibility, impact on the market and fit with strategic
intent
Conjoint analysis method combines both qualitative and quantitative information for projects selection


Case Background
Image by Tom Mooring
Chapter 7 Case Analysis
Long tail:
Strategy of firms that sell a large number of unique items to penetrate many market niches
Long tail has become common in digital markets:
Netflix
Amazon
iTunes
Bug Labs wanted to bring this into a physical
market:
Provide consumers with highly customizable
electronic devices by creating dozens of
“modules” that can easily fit together
Group 6: Monika Yerra, Bo Yuan, Jamar Williams, Graciela Aguilarleon, Ashish Tomar
Case Background
Modules proved to be very expensive to design and manufacture
Only a few projects at a time could be chosen and it was difficult to predict which modules customers would react to
Target market changed from individuals to large businesses
After several modules were cancelled, R&D was shut down as they searched for a large customer to keep them afloat
Problem Statement
How can Bug Labs successfully implement their innovative business model of serving the long tail for electronics by providing custom devices?
Analysis of Problem
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Porter's Five Forces Model
Rivalry Among Competitors
Threat of New Entrants
Bargaining Power of Buyers
Threat of Substitutes
Bargaining Power of Suppliers
Alternative Solutions
Alternative Solution 1
Alternative Solution 2
Alternative Solution 3
Evaluation of Alternatives
Final Proposed Solution
Recommendations
Recommendations
Implementation of
Recommendations
Discussion Questions
First to market to the long tail in a physical
space
Strong vision of company goals: To eventually produce approx. 80 highly modular pieces to click together and make readily available to the everyday consumer
Customization
Small batch production
Diverse products
Better customer service: Main focus on customer demands

Uncertain customer preferences
Cut off of R and D
Very expensive to produce modules
Insufficient capital to advertise
Lack of large company customers
Lack of installed base
HIGH

There are several companies which offer similar open-source computer hardware and software products at competitive prices
There are user communities and DIY tutorials which are offered by companies like Arduino and Adafruit Industries, which encourages individuals to design their own custom devices

HIGH

There are many open source hardware communities, complementary goods producers and big companies which might aim at manufacturing their own custom made devices or versions of modules to fit on the BUGBase.
Companies which are planning to develop their own modular devices

Example: Google’s Ara Project
MEDIUM-HIGH

Large companies: High - Can create devices in house or easily contract a large electronics supplier
Bug Labs relies on these companies for its sales which gives the large companies a higher bargaining power

Tech savvy consumers: High - Popularity of at home modification of electronics and widespread tutorials, can cost effectively fulfill their own custom device needs

Everyday consumers: Medium - It is more difficult for the average consumer to be able to attain a single custom device
LOW

Right now we don’t really have a substitute which can totally replace hardware devices
With advancement in technology and network externalities, buyers might be influenced to switch to software solutions
HIGH

BugLabs produces smaller batches of products for which they require less quantity of supplies
The hardware required to build these modules is expensive
Team up with a large electronics producer: Become a subsidiary

Advantages:
Large brand backing lends credibility
Can utilize an already existing infrastructure
Larger base of knowledge to decipher consumer needs and buying habits

Make to order by customer demand:
1.) Customers will put report a need for a certain custom device
2.) Develop a project plan and timeline to production 3.) Advertise the proposed new product and gain interest from more consumers
4.) If popular enough, begin production

Advantages:
Find out customer needs
before
funds are used to produce
Advertising the product allows you to obtain funding from multiple customers, rather than one
Large retailers extending their brand to
provide similar services
Large potential clients choosing in house development for electronics needs
Early followers imitating the model
Find a large company with high demand to
subsidize other projects
Pair with other companies to create complementary products
Merger/acquisition with another company:
Large electronics company
Another startup
Open Source Hardware: Make the hardware open source and foster an online community to create exchange about the product lines and popular modifications

Advantages:
Increase popularity through the community involvement
Monitor the forums for product ideas and be able to see which products are most popular
Create more personal brand support and loyalty
1=Good, 2=Average, 3=Poor
Alternative 3-Open Source Hardware

Profitability: More popularity within the tech savvy demographic will lead to more sales
Customer Satisfaction: Since we are letting our customers take the lead, we are more able to serve their needs
Risk: Consumers or competitors could use our open source information to imitate our offerings
Scalability: Community involvement will help us forecast sales and growth so we can expand as needed
Innovation Level: Allowing users to be such an active part of our processes is a newer business model
Make development kits available to public
Marketing adjustment to enthuse innovators
Host hackathons and competitions
Compatibility with other long tail electronic products like Arduino & Rasberry Pi
Contribute to open source community
Short-Term:
Hire marketing specialist
Release development kit
Long-Term:
Build brand recogntion through open source and development community
Full transcript