Making Manufacturing Decisions

There exist different business policies and strategies in the technology sector

There exist different business policies and strategies in the technology sector which is rapidly evolving changing most of the spheres of the modern businesses. As a result, innovation has become a business. Independent investors come up with new products which they get the regal protection for ownership in the form of patents, copyrights, trademarks and trade secrets. They then sell off the right to use, ownership or sale of the products to other parties upon a consideration that they earn a certain proportion of income for granting the rights of usage. The privileges to access the protected rights is achieved through licensing among other methods. Licensing provides both risks and opportunities making it critical to conduct due diligence before committing to the business arrangement. The research follows a case study of electrolytic solutions, LLC.

Factors to Consider in Making Manufacturing Decisions

Manufacturing is a complicated process that requires strategic planning by before commitment to any manufacturing exercise. The decision to manufacture rather than contract other manufacturing entities follows a strict financial analysis both in the long run and the short run. Traditionally, it has always been thought that in-house manufacturing is better and guarantees higher levels of success a philosophy which is not always correct. In the modern business environment, understanding that other business entities with resources and experience are more suited to manufacturing more efficiently is critical in making manufacturing decisions. However, the success of a manufacturing program is determined by how well the manufacturing program is structured. Before deciding to manufacture the hydrogen-producing devices, George should have considered the following factors:

Capital

Due to the complexity of the manufacturing exercise, the processes involved are capital intensive. The highest proportion of the costs is in the acquisition of fixed assets that aid in the manufacturing process for example machinery. George should, therefore, have considered the financial capacity before committing his life savings in the establishment of Electrolytic Solutions, LLC. Sources of capital is a major consideration where it is advisable to only source capital from cheap sources of finance. It would not be advisable to invest all the life savings as there should be a provision in cases of unforeseen circumstances. The manufacturing process follows the business cycle model where at the beginning of a business, profits are likely to be low, nil or sometimes negative. Investors should, therefore, ensure that before forming a manufacturing entity, there is sufficient capital to aid in daily operations before a company attains a competitive advantage.

Skills and Experience

Experience is a crucial consideration in making manufacturing decisions. Firms with a manufacturing history are likely to possess a clear understanding of the market, networking and marketing trends thereby higher chances of attaining success. Before starting Electrolytic Solutions, LLC. George lacked exposure to manufacturing experience since his experience related to the invention, obtaining patents and licensing his technology to interested players in the respective industries. Partnering with a firm that had been in the manufacturing industry would have guaranteed clear anticipation of the company performance in both the long-term and the short term. Experience also helps in the administration of proper governance in ensuring that the various manufacturing g functions run in a smooth way to guarantee success.

Market

Every business operating in the free entry market should consider the forces of supply and demand before making investment decisions. A market feasibility study should be conducted first to ensure that the products manufactured meet the needs of the prospective customers (Dodgson, 2018). New Product assimilation in the market faces several shortcomings including competitions, barriers to entry, and the threat of substitutes among others. The need for hydrogen-producing devices is high, but that doesn’t mean that a ready demand existed. Barriers to change affected the popularity of the devices since before the innovations, schools, government labs and industrial labs had a hydrogen production mechanism and therefore were likely to resist changes in the short run.

Opportunities and risks of Technology licensing

Technology licensing is an agreement whereby an owner of the intellectual property of a given technological innovation allows another party to modify, use, and or resell the property in exchange for consideration (Dodgson, 2018). The original owner is referred to as the licensor while the party allowed the privilege is known as the licensee. In the case study under review, George is an expert in the licensing arrangements types of business whereby he invents new technologies, obtains the legal rights for ownership and then sells the rights to other interested parties. George being an expert in licensing has managed to achieve returns from his business model. However, despite his success stories, there areas risks associated with the technology licensing business model.

Opportunities

Creation of Win-Win Relationships Between Licensor and Licensee

Developers of new technologies act as suppliers while the licensee’s acts as the buyers in the market. The technological licensing presents the inventors with the opportunity to sell their products to a wide range of market that the licensor would not have been able to supply acting alone. Single technological advancement can be licensed to different parties in different market segments thereby developing a competitive advantage for the technology. On the other hand, the licensee is presented with the opportunity to use the technology to build their operations through improved efficiency. The distribution of technology provides an opportunity for the end users of the technology to access the services cost-effectively as it promotes competition. The existence of multiple providers of a given commodity in the market ensures an increase in supply leading to reduced costs. George as an independent investor, for example, is exposed to returns from his innovations through licensing to organizations who use the technology to develop their functions.

Technological Advancements

Majority of the technological advancements take place in developed countries with developed infrastructure. Many developing countries lack the innovative capacity and act as consumers of already developed technologies. Licensing of the invented technologies to countries with limited knowledge, skills, and infrastructure to develop the technology get the opportunity to experience technology advancement. The developing nations end up using the technology to create business models that promote economic growth leading to overall economic growth in the global scale. The progress in technology leads to the establishment of problems solving model through imitation, reconfiguration, absorption, improvement, and rebranding. When George issues the rights for use, sale or custody of his technologies, the licensees are presented with the opportunity to carry out further research about the technology in the endeavor to improve on the innovations.

Job Creation

Technology provides the required infrastructure to develop successful business models that offer job opportunities. New and improved products depend on sustainable technology and therefore leads to the establishment of many industries as a result of technology licensing. The employment opportunities improve the living standards of the employed population which directly translates to economic growth. Technological advancement also provides numerous employment opportunity online as people all over the world use the internet-based technology to source services they may be required cost-effectively (Dodgson, 2018). As a result, many people are exposed to online job opportunities reducing the unemployment rate thereby promoting economic growth. For example; if George silences different entities to operate using his tabletop device, many businesses would access the product from the licensed entities and therefore end up creating job opportunities for operators.

Competitive Advantage

Technology is one of the critical parameters that guarantee business sustainability. When technology is confined in one of a few parties, a monopolistic form of market is established where only a few players control the market conditions. Monopoly is associated with customer exploitation as buyers lack the freedom of choice. Technological licensing therefore provides business entities with the opportunity to acquire the necessary technology used in the production process and thereby to be able to compete favorably. Small businesses are thus able to compete favorably with the established entities as no specific entity in the market has the monopoly of technology.

Risks

Technology licensing despite having several merits also poses risks to both the licensor and the licensee. Individual investors and business firms are therefore obliged to ensure that adequate preparations are made to ensure that the risks are minimized through management. The business arrangement is complicated due to the contractual issues involved in the methods. If licensing agreements are not drafted properly, either of the parties entering into a contract are likely to suffer losses at the expense of another. Despite the fact that George has fared exemplary in the past in the technology licensing business, he should be able to understand the possible risks in the industry to mitigate against potential loss in the future. The risks associated with technology licensing include but not limited to:

Fabrication

Technology licensing allows the general public to gain access to a given technology through the licensees. The exposure presents a risk of forgery were different parties in the market strive to develop similar products based on the licensed technology. The copying of one\u2019s technology increases competition in the market that affects the overall cost of the technology to the end users. As a result, the income generated decreases, and the originality of the technology is tainted. Licensing agreements should, therefore, incorporate the provisions for confidentiality where possible. The licensees are not supposed to manipulate the technology or develop another version using the inventor’s technology with the objective of avoiding the adherence to the terms of the contract.

Accountability

Licensees are not the original owners of the technology. As a result, the parties allowed the right to use or transact using a given technology do not develop the sense of ownership to the acquired technology. The licensee, therefore, lacks accountability putting the licensors technology at risk of inadequate maintenance. The licensee operates with the notion that he or she has paid for the technology and is therefore obliged to acquire maximum returns leading to overexploitation of the innovation without a conscious consideration to the adverse implications emanating from an unethical application of the technology. If an inventor operates a given technology, the sense of accountability promotes identification of areas of improvement leading to further developments unlike when another party without the details of how the technology was initially developed.

Negotiation Complexity

The negotiations involving technology licensing are a complex function that requires both skills and experience. George seems to be doing fine since he has extemporary skills and expertise in technology licensing. It is, however, critical to note that new complexities are evolved with changes in business operations. Close attention to details is therefore crucial to avoid deals that do not guarantee value to the inventor and at the same time, licensing agreements should not jeopardize the operations of the licensee. Since technology licensing is a business arrangement, every party in the negotiation seeks to minimize risks on their end and maximize returns. In cases where the drafting of technology under consideration is complex, expert advice and guidance are necessary to arrive at win-win business arrangements. George should, therefore, learn to take time before committing to the licensing agreement to avoid exploitations by business entities.

Losing Control

Technology licensing leads to a transfer of legal rights of usage from the inventor to another party. The licensor, therefore, loses the control over the technology. As a result, the licensee is presented with the opportunity to become a potential competitor as he or she is granted access to private information about the technology. It is also possible that the licensee will lower the technology standards and produce inferior quality products using the technology thereby tainting the image of the technology to the general public. When the licensing agreement restricts the inventor to license the technology to other companies, the returns from the technology decreases and is controlled by the single licensee. Some licensing agreements also grant the licensee the right to assign the license to someone else. If the licensee is declared bankrupt, they can easily assign the license to creditors.

Reluctance by senior Management to Adopt disruptive Technologies

Disruptive technologies lead to worse product performance in the short run. They bring a different value proposition to the market that has been lacking previously. Generally, disruptive technologies underperform as compared to the existing technologies. However, the disruptive technology has several features that specific parties in the market value. Products based on this form of technology are more convenient to use, smaller, simpler and cheaper (Christensen, 2013). In the case study of electrolytic solutions, LLC. The tabletop device invented by George is a disruptive technology since it is capable of producing hydrogen cheaply and in large quantities as compared to the already existing technologies in the market. When George approached major chemical companies with the intention of seeking backing for his devices, the top management of the two entities he approached rejected the technology on the basis that existing customers see no value in the technology and the income generation forecasts predict lagging revenue.

The levels of success achieved by salvation technology prove that the demand for tabletop devices existed in the market despite the top management of the two companies opposing the technology adoption in their organizations. According to Christensen (2013), every company operates under certain forces that define what a company can and cannot do. Managers who succumb those forces, often fail their companies when faced with disruptive technologies. Lack of understanding of the principles of disruptive technology alludes management to make wrong decisions when faced with the challenge of disruptive technology. The principles entail

Dependency on Investors and Customers for Resources

The companies George approached were conscious about technology sustenance that they believed that their customers depended on. As a result, they oppose any disruptive ones. According to the theory of resource dependence, management assumes that they control the resources flow in their organizations. The truth is, investors and customers are the ones who have the real power of dictating how organizations spend their resources because companies with patterns that do not meet the needs of the customers rarely succeed. Management of various companies is therefore very cautious in committing funds to programs that do not guarantee customer satisfaction until the time the customers accepts the disruptive technology (Christensen, 2013).

Small Markets do not solve Growth needs for Big Companies

Disruptive technologies lead to the establishment of new markets. Businesses getting into the emerging markets at an early stage are more advantaged than those that adopt the market later. In the case study under review, the management of the hydrogen-producing company considered the new market resulting from the adoption of tabletops devices as small and therefore not economically attractive. The management, therefore, considered waiting for the market to become large enough. After three years of operations with the technology, salvation enterprises only made $10 annually, but with time, the company is likely to increase the revenue fivefold.

Introduction and Implementation of disruptive Technology

During the onset phase of disruptive technology, it is difficult and sometimes impossible to see how the technology is a threat to the ongoing business of a significant competitor. In Christensen’s’ (2013) illustration of the mechanical shovel, disc drive, and steel industries. The disruptive technology of mini-mills was not regarded as a competitive threat to the major producers of steel in the USA (Christensen, 2013). However, the mini-mills were able to take over steel production business gradually. About the case study under review, salvation technology’s adoption of the tabletop hydrogen device presented the leading hydrogen producing companies with a competitive threat.

Markets that do not exist cannot be analyzed. However, the markets present two probable outcomes, success or failure, as such, the management of the organizations that opposed George’s proposal were wrong in carrying out an analysis of a nonexistence market. Due to the time constraints in adoption of a change in the market, it is difficult for new technology to attain acceptance in the short run. However, demand and supply patterns keep on changing making the market to change. Even though customers are reluctant to changes in the in the market, the ideology of quality standards and cost reduction remains a reality. However, a majority of customers are unwilling to adopt a given technology until the technology has substantial success stories. The ideology explains why George was not able to hedge himself a competitive advantage in the initial phase of the new technology introduction. In the long run, new and improved technology overtakes the old technology upon gaining competitive advantage.

Conclusion

Technology licensing is a business strategy that requires individual investors who engage in innovations to carry out due diligence in forging licensing policies to get profit from their innovations. Sometimes, innovators participate in the manufacturing process of their innovations but hardly succeed. Success in the manufacturing process is determined by capital availability and the experience in the production function at this moment making licensing of innovations to experts feasible decisions. Technology licensing provides an opportunity for the new technology to spread to a broader market through a win-win arrangement between licensor and licensee, promotes technological advancement, job creation and guarantee competitive advantages. Technology licensing is a risky arrangement as the licensor loses control of their innovation creating room for fabrication and diminishing accountability. Management of already established business entities falls victim to innovators dilemma through the belief that they control the organizational resources and that innovations are more interesting if allowed time to grow. Disruptive technologies if allowed time proves to be more effective and eventually takes over businesses in the long run, and thus management should reconsider the investment notion of disruptive technologies.

References

Dodgson, M. (2018). Technological collaboration in industry: strategy, policy, and internationalization in innovation (Vol. 11). Routledge.

Christensen, C. (2013). The innovator’s dilemma: when new technologies cause great firms to fail. Harvard Business Review Press.