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Problem definition: Firms developing novel and innovative products regularly face a canonical product development and introduction problem: introduce a proven and immediately available product or delay product introduction until the successful development of an advanced version. Academic/practical relevance: Limited access to resources for the development of an advanced version adds another wrinkle to this problem, particularly for cash-constrained start-ups. For such start-ups, the introduction of an on-hand product can generate additional funds to support the development of an advanced product. However, the lower performance of the on-hand product can negatively impact the perception of the firm’s future products and lower future profitability. Methodology: We study the trade-off between revenues that an on-hand product generates for research and development funding and the negative effect it has on future profits. We characterize the optimal introduction timing of the on-hand product as a function of the financial resource constraints, the interdependence between these sequential products and the cost of development. Results: We identify important differences between the optimal product introduction strategies of a start-up and an established firm. Specifically, although it is always optimal for an established firm to accelerate the launch of a better-quality on-hand product, a start-up might find it optimal to delay its launch. The impact of technological failure and different forms of learning on the optimal strategy of the start-up are also explored. We translate our analytical findings into a managerial framework and illustrate these results using examples from the pharmaceutical and medical devices industries.

Firms that operate in high-velocity markets must configure and utilize diverse technological innovation capabilities (TICs). TICs provide the firm with technological strength and adaptability to manage technological changes with respect to demand changes on the customer value trajectory. In this paper, we examine the configuration of a high tech firm’s TICs involving R&D, manufacturing and marketing capabilities to develop technology exploring or market exploiting activities in response to shifts in the customer value trajectory. We analyze the cases of micro, electrical, mechanical systems (MEMS) accelerometer innovators, and identify strategic configuration of TICs that has been necessary to trace the customer value trajectory with technological changes. We further show how the stability of the customer value trajectory plays a role for the firm in market transition to configure and utilize its TICs for exploring or exploiting the market. Based on our findings, we offer a managerial decision-making framework regarding strategic management of TICs with respect to the customer value trajectory in high-velocity markets.

In growing recognition that the business community must play a key role in the global issues encapsulated by the United Nations Sustainable Development Goals, Babson College, which has a business-focused curriculum, has striven first to reinvent its teaching of ethics and then, particularly over the past decade, to enhance its focus on sustainability, social responsibility, and social entrepreneurship. As previous initiatives did not build sufficient linkages between the liberal arts, natural sciences, and business curriculum, the College is now engaged in a far more comprehensive effort to educate our undergraduate business students in “integrated sustainability,” which it defines as “systems thinking that integrates ecological integrity, social responsibility, and value creation simultaneously.” By examining the meaning, skills, and pedagogical opportunities in systems thinking within the context of larger discussions on humanistic management, this article shows how systems thinking is a particularly fruitful way to ground business students in the natural sciences and the liberal arts, develop their complex problem-solving skills, and thereby reinvigorate management education in ways that prepares students to “render service to humanity.” Our hope is that sharing Babson College’s experience in this regard – both our successes and challenges - may provide useful insights to other faculty and academic leaders seeking to enhance humanistic management within their own higher education institutions.

High market uncertainty impedes an entrepreneur's ability to evaluate the state of the market for a business opportunity. For many entrepreneurial ventures, data collection and analysis techniques and technologies are becoming an important source to manage uncertainty. This trend is often referred to as “data-driven entrepreneurship.” We consider a dynamic approach using data to overcome market uncertainty for business opportunity-related evaluations. In particular, we examine the entrepreneur's investment portfolio in which each investment generates expected returns and some information about a specific aspect of the market for a single business opportunity. We develop a model that analyzes imperfect market data (e.g., financial, social, regulatory), while factoring in the entrepreneur's risk preference and operational shortages of resources, routines, reputation, and regulations. Our numerical findings show that, rather than pursuing the highest expected returns, an entrepreneur may choose perfect information, risk hedging, or market-controlling investments based on his/her cash level and risk preference. Hence, the entrepreneur, fueled by the availability of data analysis, could overcome uncertainties and obtain better insights for business opportunity decisions.

The innovation has been recognized as a competitive advantage for almost all organizations. Yet, it has been a rather elusive topic when it comes to implementation. Operations design and strategy are mostly concerned about effective implementation of ideas. Hence, in this paper we marry these two fields (operations design and innovation), and identify three key areas for evaluating the innovation strategy, based on our previous research on innovation management. We further offer three prescriptions for practical implementation, which may be of value to managers with their assessment of the value of their innovation strategies.

The purpose of this paper is to examine sustainability-oriented innovations within the electric and energy utility industry in US through the lens of innovation theory and obtain insights on the development and commercialization of sustainability-oriented utility innovations. This research focuses on the top MSCI ESG-rated U.S. utility companies and explores a mix of innovations and strategies that differentiate these top companies. The three emerging propositions from this study are the importance for companies to diversify their innovation portfolio, engage their customers, and establish an intrapreneurial culture. The conjoining of these three propositions offers an evaluation and decision making framework for the companies to maximize the efficacy of profitable and sustainable innovations at all levels and gain a competitive edge against their competitors.

When colleges commit to responsible management education (RME), they begin a journey of integrating a potentially transformative pedagogy into an established academic culture. This process can be challenging as academic institutions are notoriously difficult to change, particularly when it comes to faculty-led processes such as pedagogy. In this paper, we explore an eight-year period in which one academic institution, Babson College, transitions from signing the PRME to integrating RME into the college's operations and pedagogy. This case study analysis shows that the same factors that facilitated widespread, early adoption of RME have also hindered the college from fully achieving its desired impact on student learning and the broader community. This case contributes to the growing body of research on RME by providing a longitudinal perspective that highlights the complexity of aligning an academic institution with this transformative pedagogy.

While innovation is on the agenda of almost all organizations, successful innovation management remains quite elusive for many managers. This paper on innovation management strategy identifies four key interrelated areas that an innovator needs to concurrently define and organize for a systemic and effective innovation: the innovation concept, the consumer context, the competitive context, and the collaborative context. We refer to the framework involving these four areas as the 4Cs of innovation. Careful consideration of each of these four areas addresses specific issues, regarding operations, marketing, finance, and regulations, for the organization to enhance the effectiveness of the innovation strategy. We offer a practical diagnostic tool to implement the 4Cs of innovation framework. Further, we discuss our research on 99 highly innovative clean technology projects funded by the Advanced Research Projects Agency-Energy as an example of how to utilize the 4Cs of innovation framework. Our analysis brings out important insights for managers of established firms and startups on how to prioritize innovation activities and highlights the effective use of 4Cs of innovation for guiding successful innovation strategies.

We draw upon stewardship theory to formally derive bounds on the investment amount in a business prospect, and to characterize ownership sharing when investors offer two-stage financing along with know-how to increase the prospect’s valuation. In the early-development stage, we show that the direct effect of investor know-how increases the entrepreneur’s share while the indirect effect from that know-how due to its interaction with the investment size, decreases it. In the subsequent growth stage, the direct effect decreases the entrepreneur’s share while the indirect effect increases it. These tradeoffs offer theoretical and practical implications for writing investment contracts involving investor know-how.

Developing technologies for a transfer from science to market is a key element of research-intensive organizations such as innovation management centers that work closely with inventors to commercialize their technological innovations. To advance the commercial viability of technological innovations, this paper proposes a framework that integrates topic modeling, survival analysis, and judgment of subject matter experts to forecast promising technologies using patents as data resources. Regarding the commercial viability of identified technologies, our empirical analysis focuses on patents and licensing data from a prominent innovation management center over a 20-year period. We are able to identify technologies that are statistically significant for predicting the likelihood and the time until a patent is commercialized, and suggest a way to assess their scope of technological impact. Our results contribute to the understanding of promising healthcare technologies and help R&D managers to develop the knowledge they need to advocate technologies in support of commercial returns.

Problem definition: We examine how the presence of capital market frictions influences the decision to invest in production cost reduction and the resultant production volume. This investment can increase the firm’s cash flow by increasing the profit margin, but it can also decrease the firm’s risk-free cash reserves and thus affect its exposure to capital market frictions. Academic/practical relevance: Process improvement aimed at production cost reduction has generated myriad of theoretical questions about efficient investment options and capacity choices. From a managerial perspective, process improvement is a fundamental concern in operations strategy. Nevertheless, its analysis typically excludes financial constraints by assuming a perfect capital market. Methodology: We formulate a two-stage profit maximization model in which a capital-constrained firm commits to a cost-reduction investment in the first stage in anticipation of its production decision in the second stage of this two-stage decision process. The firm considers capital market frictions when making decisions at each stage, while considering uncertainty in demand for its offering and in reducing its unit production cost. Results: When a firm faces small initial capital and low preinvestment unit production costs, it can benefit from investing in production cost reduction in the presence of capital market frictions more so than in their absence. Moreover, uncertainty in the production cost reduction mitigates the impact of market frictions on the net benefit (i.e., additional profit), whereas demand uncertainty decreases the feasible parameter space, where investing in production cost reduction is optimal. Managerial implications: A firm’s decision to invest in production cost reduction affects its operational and financial capabilities. Managers should thus consider this investment as an operational hedge not only against the uncertainty of matching supply and demand but also against exposure to capital market frictions and the resultant financial risk.

The economic and social outcomes of mining development can be enhanced by positioning local communities central to development activities. Conventional approaches have failed to respond to the needs of the community without this involvement in decision making. Accordingly, novel development approaches for community involvement and sustainability have to recognize the complex nature of social systems in which mining sector exists. The objective of this paper is to develop a community-centered approach by integrating rapid and participatory nature of design thinking with multi-criteria decision analysis (MCDA) in order to support sustainable development. While design thinking engages multiple stakeholders for generating alternatives, MCDA provides metrics for assessing these alternatives. Drawing on an example from a small scale mining development in Central America, this paper shows that early community involvement and rigorous impact assessment on a regular basis motivate community involvement and give value to the social outcome of mining development.

This chapter describes the contribution of the operations management (OM) field to entrepreneurship and startup practices in terms of extant knowledge, emergent trends and research opportunities. To characterize the extant knowledge, we review relevant literature in the first half of the chapter and highlight the notion that startup operations are subject to three distinctive operational constraints on, or lack thereof, resources, routines (or processes), and reputation — also referred to as 3Rs in this chapter — that are affected by the capabilities of entrepreneurs as well as the uncertain, dynamic and complex environment they face. We codify these ideas in terms of five 3R principles that are uniquely tied to startup operations. In the second half of the chapter, we draw upon anecdotal evidence from connectivity based analytics and low cost intelligent robotics to identify emergent trends in terms of unique operational innovations that are enabling, and co-evolving with, business model innovation in startup settings. The chapter ends with a discussion of managerial implications and promising research avenues.

The climate change debate and economic recovery strategies in various industries demand highly innovative projects featuring stretched performance goals for developing clean technology. These projects face multiple sources of uncertainty in high risk situations, and require specialized know-how and longer periods for revenue growth than their counterparts in other industries. We use data from 207 clean technology projects funded by the U.S. Advanced Research Projects Agency-Energy to conduct a comparative study of how operations design can hedge risk and enhance project valuation in technology development and deployment stages. We find that deployment feasibility is significantly and positively related to project valuation. On the other hand, stretched technical performance goals, development feasibility and market growth targets are associated with lower valuation. We also find some significant differences for these results across institution types: mature firms, start-ups, universities, and research centers. We examine the risk profile of these projects by technology and institution type, and discuss the managerial and policy implications for these findings.

How can you get undergraduate students more interested and engaged with business cases? Instead of using the traditional case teaching format, turn the case into a consulting exercise. Give students only the managerial dilemma and some starting information, form them into consulting teams, and then have each team requests additional case information by submitting a restricted number of questions. Through successive rounds, teams will gather enough information and data to analyze the situation and develop a set of recommendations. This approach transforms case-based learning from a passive analysis of case details to an active process of discovery through smart questioning.

Many durable products provide value only when used together with contingent services or consumable components, e.g. light fixtures (bulbs), printers (ink), electronics (batteries). Consumers need only have access to the contingent consumable components to continue to derive service from a durable. In fact, many firms rely primarily upon the revenues generated from the contingent services or consumables as the primary source of profitability, e.g. giving away the razors to make money on the blades. Such firms often invest considerable effort into making sure that consumers of their durables are held captive to their own branded consumables by impeding their access to generically available consumables. They do so by designing their products in such a way that they are not readily compatible with the generic consumables. We consider the implications of competition from third-party manufacturers that can provide generic consumables and the manufacturer’s production decisions of a durable good under such contingencies. This allows us to draw managerial insights about how a firm should decide on his product compatibility and production quantity when the generic contingent consumables enter the market.

For many entrepreneurial ventures, data collection and analysis techniques and technologies are becoming an important source that can foster new businesses. This trend is often referred to as “data...

Open innovation through collaboration could be beneficial for various reasons, but participating firms must also consider the strategic consequences of their formation on the supply chain. This study is concerned with how open innovation through inter-firm collaboration and strategic alliances may generate value for competing suppliers by stimulating the adoption of the new component innovation by the downstream supply chain. The analysis specifically examines three types of firm interaction representing different levels of open innovation. First, in the joint venture, fully integrated suppliers would develop and market the component. Second, in the development alliance, partially integrated suppliers share the development outcome, but compete in marketing. Finally, independent suppliers do not form any kind of collaborative formation. The findings reveal that the value of open innovation comes not only from technology development, but also how well it stimulates the downstream OEM to invest.

Despite the existing challenges in the capital market, technological and market uncertainties, the current business environment may be fertile for innovative firms that could find affordable and scalable clean technology innovations. Navigating innovation management process for any clean technology project is a practical issue that requires attention of financial and non-financial factors affecting technology development and deployment. Such endeavor has precipitated many of the complex questions involved with clean technology industry. This article surveys literatures on resource-based view of the firm, operations management, innovation and technology management, and clean technology. The article identifies key drivers – operations, market and regulatory – of clean technology projects, and further demonstrates their interrelatedness within a comprehensive integrated conceptual framework of development and deployment. This integrated framework contributes to our understanding of innovation management process for clean technology firms, including supply and demand sides.

Start-up firms, which are by nature cash-constrained, often consider launching an immediately available product to generate funds for developing more advanced products. However, this release could have an adverse effect on the perception of the firm’s future products. A key decision for the start-up firm in such an environment is: when should the first product be released? In this paper we consider the product development and introduction decisions for a start-up which has a product that is ready to launch and is also developing a more advanced product, whose launch readiness is uncertain. We model the tradeoff between the adverse effect of a first version on overall profitability and the valuable stream of revenue it generates for R&D funding. We characterize an optimal policy with cash thresholds to determine when the firm should launch the first version and whether it should continue development. We derive managerial insights by studying these cash thresholds under various technological and market scenarios. Our analysis underscores a fundamental difference between how a start-up and an established firm view commercialization: a start-up would delay the launch of a good first version longer while an established firm (without bankruptcy considerations) would accelerate its launch.

The climate change debate and economic recovery strategies in various industries demand transformational projects in clean technology. Transformation in this context refers to a nearly tenfold improvement in a key technical performance indicator that is typically conditioned upon making high risk scientific breakthroughs. These projects face multiple sources of uncertainty in high risk situations, and require specialized knowhow and longer periods for revenue growth than their counterparts in other industries. The risk profile of such projects makes them unattractive investments to conventional financiers like banks and venture capital funds. We use data from 36 clean technology projects funded by the U.S. Advanced Research Projects Agency-Energy, to examine how operations design can hedge risk and enhance project valuation during early start-up stages. For start-up managers who are attempting to develop transformational technologies, our findings clarify the valuation criteria in high risk, high reward circumstances and offer strategies for securing and assigning resources. We find that firms with an operations design to reduce business risk receive more project funding. On the other hand, the choice of market segments for deployment remains uncertain for such start-ups, and design choices related to market competitiveness show a negative correlation to the level of funding.

Clean technology startups face multiple sources of uncertainty, and require specialized knowhow and longer periods for revenue growth than their counterparts in other industries. These startups require large investments and have been hit hard during the current credit squeeze. On the other hand, clean technologies create important positive externalities for the economy. Hence, loan guarantees and other incentive schemes are being developed that are conditioned upon operational benchmarks. The authors offer a framework to establish the extent wherein operational hedging can reduce risk and increase the probability of obtaining financing. They examine a variety of evidence, ranging from production outsourcing to creation of joint ventures, to posit that operational hedging may affect both the marginal cost of capital and the marginal return on investment through mitigating the informational problems in the market. However, operational hedging may not be an effective strategy in all settings: the decision for creation of such hedges ought to weigh the benefits of reduced marginal cost of capital and the opportunity cost of reduced future growth potential against a status quo.

Whether to invest in process development that can reduce the unit cost and thereby raise future profits or to conserve cash and reduce the likelihood of bankruptcy is a key trade-off faced by many startup firms that have taken on debt. We explore this trade-off by examining the production quantity and cost reducing R&D investment decisions in a two period model wherein a startup firm must make a minimum level of profit at the end of the first period to survive and operate in the second period. We specify a probabilistic survival measure as a function of production and investment decisions to track and manage the risk exposure of the startup depending on three key market factors: technology, demand, and competitor's cost. We develop managerial insights by characterizing how to create operational hedges against the bankruptcy risk: if a startup makes a "conservative" investment decision, then it also selects an optimal quantity that is less than the monopoly level and hence sacrifices some of first period expected profits to increase its survival chances. If it decides to invest "aggressively," then it produces more than the monopoly level to cover the higher bankruptcy risk. We also illustrate that debt constraint shrinks the decision space, wherein such process investments are viable.

This article addresses the challenge of generating cash investment and business knowhow through the design of a contingent contract between an investor and an entrepreneur. We first develop a two-s...

The price of professional portfolio management provided by the mutual fund adviser depends not only on the fund characteristics but also on the fund objective, the adviser's portfolio related and management based decisions, and the portfolio performance. We analyze the advisory fee, using a survivorship bias free data set of 176 equity funds managed by 125 different advisers. Advisers benchmark the objective average but this benefit the shareholders only when the objective trend is descending. Advisers tend to reduce the cost of their marginal product through the use of derivatives or manipulate by engaging in soft dollar agreements. We find that the advisers actively manage the advisory fee contracts responding to the outcome of their management decisions. The advisory fee increases after voluntary fee reimbursement or if the adviser is not fully reimbursed for the compensation of independent directors and officers. Risk taking behavior is the main motivation behind the structure of the advisory contracts. Advisers who adopt more linear contracts that would motivate them to take on more risk tend to use derivatives arguably for better risk management and are less likely to engage in research agreements that would require a reduction in the advisory fee.

The impact of an investor’s cash and knowhow on an entrepreneur’s performance has been debated. Investors may argue that their knowhow can substitute for cash, whereas entrepreneurs view knowhow to be a complement for cash, asking for more knowhow when they seek more cash. We model the impact of cash and knowhow in two-stage contingent contracts, subject to the entrepreneur meeting performance goals at the end of the first stage. Analytical findings are tested using angel investment data. Results reveal a nuanced relationship between cash and knowhow. Increasing the level of knowhow provision in the first stage of the contract makes the investor’s offer more attractive to the entrepreneur. However, contracts for such knowhow can create a capability trap, such that insufficient knowhow transfer results in failure to secure second stage financing. Analyzing contract parameters illustrates a tradeoff between the capability trap risk and the amount of second stage investment.

Start-up firms, which are by nature cash-constrained, might consider launching an immediately available product to generate funds for developing more advanced products. However, this release may ha...