Towards a framework for identifying and evaluating business opportunities Master of Science Thesis in the Management and Economics of Innovation Programme FREDRIK BERGLUND JULIUS LINDECRANTZ Department of Technology Management and Economics Division of Innovation Engineering and Management CHALMERS UNIVERSITY OF TECHNOLOGY Göteborg, Sweden, 2012 Report No. E 2012:072 MASTER’S THESIS E 2012:072 Towards a framework for identifying and evaluating business opportunities FREDRIK BERGLUND JULIUS LINDECRANTZ Examiner. Chalmers: Henrik Berglund Tutor, Chalmers: Anne Elerud-Tryde Tutor, Ericsson AB: Johan Larsson, Haidar Ali, Carmith Fäldt Department of Technology Management and Economics Division of Innovation Engineering and Management CHALMERS UNIVERSITY OF TECHNOLOGY Göteborg, Sweden 2012 Towards a framework for identifying and evaluating business opportunities Fredrik Berglund and Julius Lindecrantz © Fredrik Berglund, 2012 Julius Lindecrantz, 2012 Master’s Thesis E 2012: 072 Department of Technology Management and Economics Division of Innovation Engineering and Management Chalmers University of Technology SE-412 96 Göteborg, Sweden Telephone: + 46 (0) 31-772 1000 Chalmers Reproservice Göteborg, Sweden 2012 Acknowledgements We would like to thank all employees at Ericsson’s Linholmen office who have contributed to our work with this thesis. Especially our tutors, Johan Larsson, Haidar Ali and Carimith Fälth have contributed with invaluable input and guidance for our thesis. Thank you, Johan for giving us the opportunity to write our master thesis at Ericsson and to support us through the entire process. Thank you, Haidar for bringing new ideas and interesting areas to investigate. Thank you, Carmith for always being available with your help and answering our questions. Towards a framework for identifying and evaluating business opportunities FREDRIK BERGLUND JULIUS LINDECRANTZ Department of Technology Management and Economics Division of Innovation Engineering and Management Chalmers University of Technology ABSTRACT Identifying and evaluating attractive business opportunities is the first step towards success in the innovation process and launch of new products. Being successful in new product development is becoming increasingly important, particularly for technology companies because of today’s global market place with accelerating speed of technological change. The aim of this master thesis is to develop a framework that can be used to identify and evaluate business opportunities for technology companies. A conceptual framework, called the business opportunity framework (BOF), was first developed from a literature review, which was revised and improved based on two separate studies at Ericsson AB. The first was a case study aiming to understand how a technology company identify and evaluate business opportunities. The second was an action research oriented study where the BOF was applied on two areas of interest in collaboration with Ericsson employees. The case study at Ericsson revealed that they use a structured approach for identification and evaluation of business opportunities, which is similar to the first version of the BOF. The action research oriented study revealed that the BOF is applicable and can help technology companies identify and evaluate business opportunities. The result from the two studies showed that the BOF can be a valuable tool but a few additions would increase the accuracy when selecting which opportunities to invest in. A second and updated BOF was therefore proposed. The authors suggest that the BOF is further tested through a cross sectional study to test if it can be generalized to other industries and complemented with an experimental study or a longitudinal study. Key words: business opportunity, technology company, opportunity identification, and opportunity evaluation Table of Content 1. INTRODUCTION ............................................................................................................................ 1 1.1. BACKGROUND TO THE STUDY ............................................................................................................. 1 1.2. AIM .......................................................................................................................................................... 2 1.3. RESEARCH QUESTIONS ........................................................................................................................ 2 1.4. SCOPE OF THE THESIS .......................................................................................................................... 3 1.5. DISPOSITION .......................................................................................................................................... 4 2. LITERATURE REVIEW ................................................................................................................. 6 2.1. BUSINESS OPPORTUNITY DEFINITION ............................................................................................... 6 2.2. THE FRONT END OF INNOVATION – “FUZZY FRONT END” ............................................................ 6 2.3. OPPORTUNITY IDENTIFICATION ........................................................................................................ 9 2.4. OPPORTUNITY EVALUATION............................................................................................................. 10 2.5. METHODS FOR OPPORTUNITY IDENTIFICATION AND EVALUATION .......................................... 11 2.5.1. Porter’s five forces ...................................................................................................................... 11 2.5.2. PEST-Analysis ............................................................................................................................... 13 2.5.3. Technology analysis .................................................................................................................. 14 2.6. PROCESSES FOR EVALUATING BUSINESS OPPORTUNITIES ........................................................... 16 2.6.1. Stage Gate Model ........................................................................................................................ 16 3. THE CONCEPTUAL FRAMEWORK ......................................................................................... 18 3.1. INTRODUCTION TO THE FRAMEWORK ............................................................................................ 18 3.2. OPPORTUNITY IDENTIFICATION ...................................................................................................... 19 3.2.1. Formal Search .............................................................................................................................. 19 3.2.2. Accidental Discovery ................................................................................................................. 20 3.3. OPPORTUNITY EVALUATION............................................................................................................. 20 3.3.1. Opportunity Analysis ................................................................................................................ 21 3.4. GATES ................................................................................................................................................... 21 3.5. THE BUSINESS OPPORTUNITY FRAMEWORK ................................................................................. 23 4. METHOD ........................................................................................................................................ 25 4.1. THE RESEARCH PROCESS ................................................................................................................... 25 4.2. STUDY 1: CASE STUDY ....................................................................................................................... 27 4.2.1. Research Strategy ...................................................................................................................... 27 4.2.2. Research design ........................................................................................................................... 27 4.2.3. Sampling ......................................................................................................................................... 28 4.2.4. Research methods ...................................................................................................................... 28 4.2.5. Data analysis ................................................................................................................................ 29 4.3. STUDY 2: APPLYING THE FRAMEWORK .......................................................................................... 29 4.3.1. Opportunity identification ..................................................................................................... 30 4.3.2. Opportunitet evaluation.......................................................................................................... 31 4.3.3. Research Strategy ...................................................................................................................... 32 4.3.4. Research Design .......................................................................................................................... 32 4.3.5. Research Methods ...................................................................................................................... 32 4.3.6. Data analysis ................................................................................................................................ 33 4.4. QUALITY OF THE STUDY ..................................................................................................................... 33 5. STUDY 1 – CASE STUDY ............................................................................................................ 35 5.1. BUSINESS OPPORTUNITY IDENTIFICATION AND EVALUATION AT SEVERAL LEVELS ................ 35 5.2. THE STRATEGIC LEVEL ....................................................................................................................... 35 5.3. NEW PRODUCT DEVELOPMENT ........................................................................................................ 37 6. STUDY 2 – APPLYING THE FRAMEWORK ........................................................................... 39 6.1. APPLYING THE FRAMEWORK TO CABLE TV .................................................................................. 39 6.1.1. Opportunity identification ..................................................................................................... 39 6.1.2. Results from the opportunity identification................................................................... 43 6.1.3. Opportunity analysis ................................................................................................................. 43 6.2. APPLYING THE FRAMEWORK TO CLOUD TV .................................................................................. 45 6.2.1. Opportunity identification ..................................................................................................... 46 6.2.2. Result from opportunity identification ............................................................................ 49 6.2.3. Opportunity Analysis ................................................................................................................ 50 7. ANALYSIS AND DISCUSSION .................................................................................................... 53 7.1. STUDY 1 – CASE STUDY ..................................................................................................................... 53 7.2. STUDY 2 – APPLYING THE FRAMEWORK ........................................................................................ 54 8. REFLECTIONS ON THE FRAMEWORK .................................................................................. 56 8.1. IDENTIFICATION OF OPPORTUNITIES .............................................................................................. 56 8.2. EVALUATION OF OPPORTUNITIES .................................................................................................... 57 8.3. THE GATES ........................................................................................................................................... 58 8.4. GENERAL REFLECTIONS ON THE FRAMEWORK .............................................................................. 58 9. REVISING THE FRAMEWORK ................................................................................................. 59 10. CONCLUSIONS .............................................................................................................................. 61 11. SUGGESTIONS FOR FURTHER RESEARCH .......................................................................... 63 REFERENCES ............................................................................................................................................ I BOOKS AND ARTICLES ............................................................................................................................................ I ELECTRONIC SOURCES ....................................................................................................................................... III APPENDIX A – INTERVIEW SCHEDULE .......................................................................................... V APPENDIX B – INTERVIEW GUIDES ............................................................................................. VII CHALMERS, Technology Management and Economics, Master Thesis E2012:000 1 1. Introduction This chapter will first introduce the reader to the background of the study and the company where it has been conducted, Ericsson AB. The aim and research questions will also be presented followed by an illustration of the disposition. 1.1. Background to the study The development and launch of new products has become increasingly important in a global competition, which is becoming tougher for every year (Cooper, 1990). Preceding the launch of new products is the innovation process (Hüsig et al, 2005). The early stages of the innovation process, often referred to as front end of innovation, are particularly interesting since this is where the foundation of successful innovation is built. It is during this phase that new opportunities are identified and evaluated, ideas for new concepts and products are created (Koen et al, 2001). One of the earliest steps in the front end of innovation is the identification and evaluation of business opportunities. Business opportunities are according to Koen et al (2002) a business or technology gap that a company or individual realizes, that exists between the current situation and an envisioned future. Business opportunities are thus the very first phase of the new innovation process. Identifying and evaluating business opportunities are thus a very important part in order to develop new products and stay competitive (Koen et al, 2001). Even though the business opportunity identification and evaluating is very important for the innovation process, no scholar has presented a structured framework to guide the process. Instead the theory is scattered and mostly focus on a specific field of the identification and evaluation process. Porter’s five forces for example describe how business opportunities could be identified in five different domains (Porter, 2008). However, it doesn’t take technological change into consideration and wouldn’t fully cover all business opportunities that emerge, especially in technology intense industries. Another example is Koen et al (2001) who propose a range of concepts that could be used in order to identify business opportunities. However, they provide only few explanations on how these analyses should be carried out and in what order. It is also not clear whether a structured process facilitates or inhibits the business opportunity identification and evaluation process. Nobelius & Trygg (2001) argue that it does not make sense to develop a best practice process for identification and evaluation of opportunities since every case is different from the other. However, according to Hüsig et al (2005), a structured process in the front end of innovation does promote success. The history, further points to the fact that the business opportunity process isn’t always working properly and is full of examples where companies have failed to identify and evaluate business opportunities. Nokia for example was once the world’s largest manufacturer of mobile phones. However, in 2007 when smartphone sales took off CHALMERS, Technology Management and Economics, Master Thesis E2012:000 2 Nokia failed to recognize that open-operating-systems where the most prominent and instead focused on their own closed system. Five years later was Nokia only number three in terms of market size and had been surpassed by both Samsung and Apple. In 2012 the Nokia’s market share was further falling and they had to layoff every fifth employee. (Sorell, 2011; Times, 2011; Grundberg, 2012) This example shows that it is of great importance to identify and evaluate business opportunities and failing to do so may result in the failure of the company. Given this problem description, two gaps in the literature have been identified. The first gap is whether a structured approach facilitates business opportunity identification and evaluation. The second gap is a structured framework that can be used in order to identify and evaluate business opportunities. This thesis tries to mitigate these gaps in the literature by providing a structured process for how business opportunities can be identified and evaluated. This is done by the development of the Business Opportunity Framework, which is the authors’ synthesis of past research and best practice at a technology company. The study is carried out at Ericsson AB, which is a large multinational technology company. The reason to the selection of Ericsson as the case study is that it is a company that faces rapid technological change and where failing to invest in the right business opportunities may result in failure such as the case for Nokia. 1.2. Aim The two gaps in the literature that were identified where whether a structured approach facilitates the business opportunity process and how a framework that guides this process could look like. The following research aim has thus been formulated to mitigate this gap: Develop a framework that can be used to identify and evaluate business opportunities for technology companies. 1.3. Research Questions In order to fulfill the aim of this thesis three research questions where developed. RQ 1: How do technology companies identify and evaluate business opportunities? RQ 2: How can a framework help identify and evaluate business opportunities? RQ 3: What should be included in a framework that can be used for identifying and evaluating business opportunities? These research questions will be addressed through the development of a framework. This framework will be created through two different studies at Ericsson AB. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 3 1.4. Scope of the thesis This thesis will focus on Ericsson AB an their business unit Multimedia. Ericsson is a provider of technologies and services to telecom operators. The company has about 90,000 employees and annual sales of 203 billion SEK (Ericsson, 2011). In 2007, Ericsson started a new business area called Multimedia. Multimedia focuses on delivering technologies that enable the telecom operator to distribute video or other media content to its users. The business unit was initially started as Ericsson’s new growth area and they invested 40 billion SEK in acquisitions in order to gain a market leader position. However, the growth has been slow and far below expectations (Ahlbom, 2012). This could be of several reasons but to ensure further growth Ericsson needs to be able to identify and invest in the business opportunities that give the highest return on investment. (Larsson, 2012) One area within Multimedia faced with rapid technology change is Ericsson’s TV business, which this thesis will further focus on. The TV business has the largest share of Multimedia’s sales and Ericsson delivers technologies that allow the telecom operator to deliver IPTV to its users (Larsson, 2012). IPTV is the technology of delivering TV signals over an IP enabled network. This could be for example a fiber-, cable or telecom network. The technology was first developed in 1995 and is today used by over 50 million homes worldwide. However, IPTV remains a diminutive TV technology and only 2,1% of the households worldwide are currently getting their TV from IPTV. The largest TV delivery technology is currently terrestrial, which transmits the TV signals over radio waves, and accounts for 46% of the total households. (Informa, 2010) The TV industry as a whole is also facing rapid change and during the past few years, several new TV technologies have been introduced. Such examples are High Definition and 3D. Manufacturer of TV’s such as Samsung and Phillips have also made efforts to integrate the Internet into the TV, which gives raise to both threats and new opportunities (Larsson, 2012). According to Johan Larsson (2012), manager at Ericsson’s TV business, the market for Ericsson’s TV solutions are also changing. He argues that in the past there were many new customers that haven’t yet installed an IPTV system, while today the market is saturated with most of the telecom operators already having a system. This changes Ericsson’s selling efforts from installing new solutions to replacing and upgrading old. However, to drive further growth, which is of great importance for both Ericsson as a whole and its business unit Multimedia, Ericsson needs to find new business opportunities and customers for its TV solution. Given the high technology change that the TV industry is facing it will put even more importance on the identification and evaluation of new business opportunities in order to become successful. Ericsson has further recently divided its operations into ten regions. One of these regions that are of especially interest for Ericsson is northern Europe and central Asia. The countries that are included in this region are Armenia, Azerbaijan, Belarus, CHALMERS, Technology Management and Economics, Master Thesis E2012:000 4 Denmark, Estonia, Faraoe Islands, Finland, Georgia, Greenland, Iceland, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Mongolia, Norway, Russia, Sweden, Tajikistan, Ukraine and Uzbekistan The region is especially interesting since it involves many developing countries such as Russia and Ukraine where heavy investments in TV delivery technologies give raise to new business opportunities (Larsson, 2012). 1.5. Disposition The first chapter of this thesis is the Introduction. This chapter introduced the reader to the topic and identifies the gap in the literature for which this study intends to mitigate. The reader is also provided with a background to Ericsson AB, which is the case company for which this thesis is based on. In the second chapter the Literature review is presented. This chapter provides an examination of the previous research on the topic. The reader is presented with a detailed description of business opportunity identification and evaluation as described by Koen et al (2001) and Hüsig et al, 2005. Several methods for identifying business opportunities such as Porter’s five forces and S-curve are also described. The findings from the initial literature review were then synthetized in the chapter: The Conceptual Framework. In this chapter the author’s current perspective on the literature is presented along with a conceptual framework. This conceptual framework then worked as a base for the further data collection. The fourth chapter is the Method chapter. This chapter gives the reader a detailed description of the two studies that have been carried out in order to answer the research questions. The reader is further presented with a description of the research process and considerations regarding the quality of the study. The fifth chapter is, study 1, the Case study. In this chapter the findings from the case study at Ericsson are presented. This involves the different methods that Ericsson is using in order to identify and evaluate business opportunities. This chapter is followed by the chapter Study 2 - Applying the framework. This chapter presents the findings from the second study which was designed as an action research. The thesis is then finalized with the chapters: Analysis and discussion, Revising the framework, Conclusions and Suggestion for further research. In these chapters the findings from the two different studies are analyzed and an updated conceptual framework is developed. The conclusions regarding the research questions are also presented together with the finalized framework. The thesis is ended with some proposals for further research. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 5 Figure 1. The disposition of the thesis 11) Suggestion for further research 10) Conclusions 9) Revising the framework 8) Reflections on the framework 7) Analysis and discussion 6) Study 2 - Applying the framework 5) Study 1 - Case study 4) Method 3) The Conceptual Framework 2) Litterature review 1) Introduction CHALMERS, Technology Management and Economics, Master Thesis E2012:000 6 2. Literature Review This chapter will review previous research and literature on the front end of innovation, opportunity identification and evaluation. Tools and processes for identifying and evaluating business opportunities are also part of the literature review. 2.1. Business opportunity definition Many authors write about business opportunity as a concept; however there exist very few complete definitions. A business opportunity is, according to McGrath (2010), something that has the potential to create value for the company. Business opportunity could also be decomposition into the two words; business and opportunity. A business is, according to Sheffrin & Sullivan (2003), an organization engaged in trade of goods, services or both to consumers. An opportunity is according to the English dictionary is (2012) a favorable or advantageous circumstance or combination of circumstances. If we merge these two definitions, a business opportunity is thus a favorable or advantageous circumstance that allows a company to engage in trade of goods, services or both. Moran & Ghoshal (1999) also touches on business opportunities when they present their concept of productive opportunities. A productive opportunity is according to them the intersection of perceived possibilities and productive possibilities. Productive possibilities are the possible combinations of resources that the company can identify and perceive. However, the company will only be able and motivated to exploit some of the opportunities. These opportunities are called productive possibilities. They may be motivated to perform a resource combination based on e.g. profit possibilities and ability to patent the solution. The productive opportunities are thus the resource combinations that the company is both able to perceive and is able to perform. Koen et al (2002) probably provides one of the most extensive definitions of a business opportunity. According to them is a business opportunity, a business or technology gap, that a company or individual realizes, that exists between the current situation and an envisioned future in order to capture competitive advantage, respond to a threat, solve a problem, or ameliorate a difficulty.” This definition is perceived by the authors of the thesis to be more specific and less likely to be misinterpreted. It is also related to many of the theories about the innovation process and business opportunities that is used in this thesis. For this reason Koen et al (2002) presents a definition that is coherent with how this thesis and corresponding literature relates to business opportunities and will thus be used in this thesis. 2.2. The Front end of Innovation – “Fuzzy Front End” The front end of innovation also known as the fuzzy front end (FFE) play an important role for success in innovation initiatives and potentially presenting one of the best opportunities for enhancing the entire innovation process (Lichtenthaler et al, 2004), CHALMERS, Technology Management and Economics, Master Thesis E2012:000 7 (Koen et al, 2002). This is the very first stage in an innovation process and takes place before development of new products or concepts has even started. It is during this phase that new opportunities are identified and evaluated, ideas for new concepts and products are created. The innovation process can be divided in three different stages; front end of innovation, new product process development and commercialization (Koen et al, 2001). Figure 2. The innovation process (Koen et al, 2001) The reason that the front end of innovation is also called the fuzzy front end is because the process is perceived as unstructured and not sequential as the later stages in development (Hüsig et al, 2005). Hüsig & Kohn (2003) concludes that much research has been done on the innovation process but more often focusing on the later stages leaving a knowledge gap in the FFE process. For this reason there is a need for further research since there is much room for improvements. However, there are some frameworks and models describing the process of front end innovation. One, the New Concept Development Model, is presented by Koen et al (2001), aiming to provide a common language and defining the key components of the FFE process, see figure 3. As illustrated in figure 3, the model has three main components; the engine, the five elements of FFE and influencing factors. The model also illustrates, through its circular shape, that the process is not a linear flow but rather unstructured and going in several directions (Koen et al, 2001). CHALMERS, Technology Management and Economics, Master Thesis E2012:000 8 Figure 3. The New Concept Model (Source: Koen et al (2001)) In the center of the wheel, the engine represents leadership and culture, which are important for success in development projects. The influencing factors represent organizational capabilities, business strategy, the outside world and enabling science. (Koen et al, 2002) Opportunity identification is the element where companies search for technology- or business opportunities that might be interesting for further investigation. An opportunity can be presented by, e.g. a new technology, a possibility to gain competitive advantage or new markets. The opportunity analysis aims to assess the attractiveness of the opportunity before investing any major resources. Idea genesis is the process of transforming the opportunities into ideas that can help taking advantage of the opportunities that have been identified. Idea selection is also an important element in the FFE process since companies usually have more ideas than they can possibly pursue. The purpose with idea selection is to invest in the ideas that will create most value for the company. The last element in the FFE process is concept and technology development. This is where the concept is defined and business case is built before initiating a new process product development project (Koen et al, 2001). A different model for describing the FFE process has been developed by Hüsig et al (2005) which consists of three stages with corresponding gates. Although only having three stages the content is similar to the model presented by Koen et al (2001): Stage 1: Environmental Screening Gate 1: Opportunity Screening Stage 2: Idea generation Gate 2: Idea Evaluation Stage 3: Concept, Project and Business Planning CHALMERS, Technology Management and Economics, Master Thesis E2012:000 9 Gate 3: Go/no-Go for Development Figure 4. Fuzzy front-end process (Source: Hüsig et al (2005)) In this model, the environmental screening corresponds to opportunity identification and the opportunity screening corresponds to opportunity evaluation. The opportunities are identified by analyzing the environment to find changes and trends that can be exploited. The major difference between the New Concept Model (Koen et al, 2001) and the model presented by Hüsig et al (2005) is the use of stage gates in the latter. Reviewing the literature reveals that the fuzzy front end is not a rigid process but rather a set of activities without predetermined order (Koen et al, 2001), (Hüsig et al, 2005). Nobelius & Trygg (2001) even suggests that it is not relevant to develop an optimal or best practice process for the fuzzy front end. Because different projects require different types of activities, task sequence and relative importance of tasks, the front end process needs to be specific for each project and company. This was concluded after a case study on three different development projects in Swedish companies. However, a study conducted by Hüsig et al (2005) indicates that using a structured process in the fuzzy front end does promote front end success. Testing the model of three stages (figure 6) and gates on 79 companies indicated that having a structured process provided better market information, technical information, better front end portfolio and higher chance of success in the product development process. 2.3. Opportunity Identification Opportunity identification is the element where companies search for technology- or business opportunities that might be interesting for further investigation (Koen et al, 2002). The identification of an opportunity may occur either through a systematic search or by accidental discovery. Research has shown that accidental discovery is more common than systematic search and often results in higher financial return (Ardichvili, 2003). CHALMERS, Technology Management and Economics, Master Thesis E2012:000 10 There are a few factors that play an important role when recognizing business opportunities. According to Baron (2006) there are three factors that are especially important in opportunity recognition: 1. Active search for opportunities 2. Alertness to opportunities 3. Prior knowledge of the market industry or customers that are targeted Active search for opportunities is generally performed by consciously gathering information from different sources and by doing this coming across business opportunities. Being alert to opportunities relates to opportunities that are found by accident which means that some individuals may identify opportunities without actually searching. Prior knowledge has also proved to be an important factor when identifying business opportunities, for example life experience and knowledge about customer needs (Baron, 2006). Ardichvili et al (2003) describes the concept of opportunity recognition as a three stage process. 1. Perception – “Sensing or perceiving a market need and/or underemployed resources” 2. Discovery – “Recognizing or discovering a “fit” between particular market needs and specified resources” 3. Creation – “Creating a new “fit” between heretofore separate needs and resources in the form of a business concept” The perception of business opportunities depends on several factors. Personal background, experience and availability of information are examples that will significantly impact the outcome. Also personal characteristics, such as creativity and optimism will influence if an opportunity is recognized or not which means that some persons will find opportunities that others miss. Some persons will recognize opportunities simply by observing the environment or situation (Ardichvili, et al, 2003). Discovery is the identification of a fit between market needs and available resources. A discovery could be that some resources may be better used for producing other products or targeting other customer segments that could bring higher income compared to the current state. Companies rarely allocate their resources in a perfect way and discovery is about redistributing resources to a better configuration. The perception and discovery processes leads up to the creation of new business concepts in order to produce more value (Ardichvili, et al, 2003). 2.4. Opportunity Evaluation Opportunities are evaluated through all stages of development starting already during identification. In the early stages of development, evaluation is often an informal process. An informal evaluation can for example be pursued by one individual CHALMERS, Technology Management and Economics, Master Thesis E2012:000 11 informally investigating market needs before asking for resources to initiate a formal evaluation (Ardichvili et al, 2003). Formal evaluation often starts with a feasibility analysis to determine whether or not the company has the required resources and if value can be created through the considered opportunity. Either the feasibility analysis is conducted on a specified concept, which is not necessarily well defined, or it can be conducted based on market needs and available resources to specify some feasible concepts (Ardichvili, 2003). According to Koen et al (2002) the purpose of an opportunity analysis is to evaluate the appropriateness and attractiveness of the opportunity. Ardichvili et al (2003) suggest that the stage-gate model can be a useful tool for the formal evaluation of business opportunities. The criteria for evaluation in each stage may vary from case to case depending on requirements for return on investment, available resources and the willingness to take risks (Ardichvili et al, 2003). 2.5. Methods for Opportunity Identification and Evaluation According to Koen et al (2002) predicting the future is an important component for being successful in opportunity identification. There are several methods for this purpose; road mapping, technology trend analysis and forecasting, competitive intelligence analysis, customer trend analysis, market research, and scenario planning (Koen et al, 2002). When evaluating a business opportunity many of the same methods as in the identification stage could be used but they are usually performed in more detail. Koen et al (2002) suggests that an opportunity analysis should contain the following components; strategic framing, market segment assessment, competitor analysis and a customer assessment. The strategic framing will determine how the specific opportunity fits within the company. A market segment assessment should be performed in order to determine the attractiveness of the market by estimating market size, growth rate and market share of competitors. By conducting a competitor analysis it should be possible to determine what is necessary in order to gain a competitive advantage. The customer assessment will determine the customer unmet needs (Koen et al, 2002). Some other methods for identifying and evaluating business opportunities are: Porter’s five forces, PEST analysis and technology analysis tools such as the S-curve and the hype cycle. 2.5.1. Porter’s five forces When having defined the market and the industry that are of interest, Porter’s five forces model could be used to identify opportunities and threats (Hill & Jones, 2010). Porter (2008) argues that by understanding the underlying forces of an industry, companies can assess the profitability of the industry that they are competing in and identify actions that can strengthen their position. When a company has understood how CHALMERS, Technology Management and Economics, Master Thesis E2012:000 12 these factors affect them, they can also monitor changes and thus quickly identify emerging opportunities and threats. There are, according to Porter, five forces that are especially important for an industry’s profitability. These are presented below in figure 5. Figure 5. Porter’s five forces model. (Source: Porter (2008)) Threat of new entrants New entrants are new companies or actors that are entering the industry and adds to the current level of competition. New entrants could range from small actors such as entrepreneurs to large multinational companies that are diversifying their operations. If the threat of new entrants is high profitability will be low since the incumbent firms then must lower their prices. New entrants could also bring new concepts and capabilities to the industry, which could provide both an opportunity and an advantage. (Porter, 2008) The threat of new entrants is, however, regulated by how strong the barriers to entry are. Barriers to entry could for example be high switching costs for customers, high fixed costs, importance of economies of scale and unequal access to distribution channels. (Porter, 2008) Bargain power of suppliers This factor relates to how strong the suppliers are when it comes to negotiating supplier prices. If the suppliers have a strong bargain power they can use their power in order to push up the prices. Changes and innovations on the supplier side could also give raise to opportunities due to e.g. new products. The bargain power of suppliers depends on several factors such as access to a scarce resource, few suppliers and high switching costs. (Porter, 2008) Bargain power of customers Powerful customers are important to profitability since these can force down prices. Customers are also an important source for new innovations since a change in e.g. demographics and customer needs can give rise to opportunities. The strength of the customers increase by several factors such as buying in large volumes, few customers, the industry’s product has little effect on the customer’s quality. (Porter, 2008) Rivalry among existing firms Threat of new entrants Bargain power of suppliers Bargain power of customers Threat of substitute products and services CHALMERS, Technology Management and Economics, Master Thesis E2012:000 13 Threat of substitutes products and services A substitute is something that performs the same function as the industry’s product but with other means. If there are several substitutes to an industry’s product profitability will be low since the customer then has many different alternatives that satisfies their needs. The threat of substitutes is especially high if there are several substitutes, if these substitutes are attractively priced and if the buyer’s switching costs are low. (Porter, 2008) Rivalry among existing competitors The rivalry among existing competitors is the level of competition between the companies that compete in the industry. The effect that this factor gives on profitability depends on the intensity and the basis that the actors compete. The intensity of rivalry is high if there are plenty of actors that compete, if industry growth is slow and if exit barriers are high. The profitability is also affect by the base of competition. If for example competition only is based on price this will drive down the profitability. (Porter, 2008) 2.5.2. PEST-Analysis A PEST analysis is used to analyze the broader environment of a company or industry in order to identify trends, opportunities and threats. The PEST analysis examines the Political, Economic, Social and Technological environment. (Level of Achievement, 2004) Political This factor includes the regulatory framework as well as how stable the political system is and how government organizations are changing. (Level of Achievement, 2004) Economic The economic factor relates to the broader macroeconomic environment of an industry or firm. Things that should be considered under this factor are the economic growth, exchange rates, consumer confidence etc. (Level of Achievement, 2004) Social Changes in social factors could give raise to both opportunities and threats. Social factors could be for example demographics, lifestyle changes, education and income distribution. (Level of Achievement, 2004) Technological Technological change can sometimes change how firms compete in an industry and create both opportunities and threats. Technological factors include the life cycle of a technology, new emerging technologies and rate of technology transfer. (Level of Achievement, 2004) CHALMERS, Technology Management and Economics, Master Thesis E2012:000 14 2.5.3. Technology analysis Technological change is an important factor in opportunity identification and evaluation. Especially in high-technology industries where technological change may happen fast it is important to monitor and analyze how new technologies are evolving. Some important technology analysis methods are: S-curve analysis, adoption curve and the hype cycle. S-curve analysis The rate of which an innovation both progress in performance and number of adopters could be described by an S-curve (Shilling, 2010). A typical S-curve is illustrated in figure 6. Figure 6. The S-curve. (Source: Shilling (2010)) When a technology’s performance is plotted against the effort and resources that have been invested in the technology it usually shows slow initial improvement then accelerating and finally diminishing improvement. Opportunities could exist during the whole S-curve. In the first period the technology is new and poorly understood. The market that exists is mostly for innovators that have the time and knowledge to experiment with the technology. (Shilling, 2010) As the performance improves, new customer groups are able and willing to adopt the technology. The second customer group to adopt the technology is the early adaptors. These are often customers that seek after breakthrough technologies and are willing to take the risk in investing in a new technology. When the technology progress even further it becomes easier to use, cheaper and more reliable. This opens up for the mainstream customers called the early- and late adaptors. These are customer groups that seek after well-proven technologies that they know what they get from and satisfy their needs without demanding much knowledge or time. (Shilling, 2010) After a while the technology’s performance exhibits diminishing improvements. This is in many cases because of the natural limit of the technology has or is about to become fulfilled. This usually opens up for several opportunities as some customers now seek for new alternatives that can better satisfy their needs and increase their performance. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 15 Such innovations are called discontinuous innovations. A discontinuous innovation is an innovation that fulfills the same need as an old technology but builds on a new base of knowledge. If the discontinuous innovation has a steeper performance curve it might overthrow the old technology and take the place as the new incumbent technology. (Shilling, 2010) According to Benkenstein & Bloch (1993), the S-curve should, however, be used with some caution since the S-curve is according to the two authors, ignoring some important aspects. First the S-curve is rather one-dimensional and doesn’t take into consideration other performance parameters that may be important for the adoption. Secondly, it ignores the aspects of other technologies that are competing. Benkenstein & Bloch argues, however, that if the S-curve is used in conjunction with other methods it could provide some valuable insights. Hype-cycle The hype cycle was first introduced by Gartner, a technology-consulting firm, in 1995 and describes how emerging technologies are progressed to their domain and market position (Fenn & Linden, 2003). The model and its different stages are presented in figure 7. Figure 7. The five phases of Gartner’s hype cycle. (Source: Fenn & Linden (2003)) As seen in the figure, the hype cycle consists of five phases, which are: Technology trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment and plateau of productivity. Technology trigger During the technology trigger phase the technology is developed and public demonstrations, press events and other events generates significant publicity. Usually no finished product exists during this phase, only prototypes and experiments. (Fenn & Linden, 2003) Peak of Inflated Expectations After the first phase the first version of the product is released. Also more vendors that are offering the technology are increasing. This together with even more publicity creates both high visibility and expectations. However, the problems with the first- CHALMERS, Technology Management and Economics, Master Thesis E2012:000 16 generation products become visible which creates negative publicity and drives down the expectations to the next phase of the cycle. (Fenn & Linden, 2003) Trough of Disillusionment Since the first generation of the technology doesn’t live up to Media’s high expectations it is rapidly discredited. However, in this phase extensive trials are carried out which provide the vendors with important information about problems and how to solve them. In this stage it is mostly early adaptors that buy the technology. However, to be able to take the technology to the mainstream it must be developed into a second-generation with ease of use and without problems. (Fenn & Linden, 2003) Slope of Enlightenment During the slope of enlightenment, the technology goes towards mainstream adoption. The technology is during this phase better developed to meet the needs of its customers. Due to the ease of use and the larger market that sees the benefits with the technology the adoption rate increases rapidly during this phase. (Fenn & Linden, 2003) Plateau of Productivity When the technology enters the plateau of productivity it is becoming widely accepted by suppliers and users. Often a full ecosystem of products and services evolves around the technology during this phase. The technology can then evolve into full adoption and gaining a position as the standard or evolve into a niche market. (Fenn & Linden, 2003) 2.6. Processes for evaluating business opportunities According to both Hüsig et al (2005) and Ardichvili et al (2003), a structured process in the fuzzy front end could improve success. Both of the authors further argue that a stage gate model could be a useful tool for this purpose. Ardichvilli et al (2003) also suggest that the stage gate model could be very useful when evaluating business opportunities. However, the stage gate model have been criticized for being too rigid which can create problems in fast changing environments such as in the environment surrounding high technology companies (Cooper, 2008). In this chapter is therefore Cooper’s (1990) Stage Gate Model presented. 2.6.1. Stage Gate Model The idea behind different stage-gate systems is not new but still a relevant tool for managing innovation (Cooper, 1990) (Cooper, 2008). Many companies have developed their own stage-gate process and a study by Cooper (1990) show that those companies have been more successful compared to companies who do not use a structured process. Although they are slightly different, the idea behind is the same and they are very similar in practice (Cooper et al, 1990). The Stage-Gate model is simply a roadmap for how to manage development projects and was created by observing successful development initiatives. A stage-gate process includes two main components; a series of stages and after each stage is a gate. The CHALMERS, Technology Management and Economics, Master Thesis E2012:000 17 actual work is performed during the stages, which may include information gathering, analyzing the information and some kind of output, which is delivered to the gate. A gate is basically a decision point where it is decided if the project will continue to the next stage, needs to be looped back to the previous stage or if it should be killed. The decision is generally based on a set of evaluation criteria, which are decided by the company (Cooper, 2008). The idea behind the stage-gate model is to invest only in the projects that will become successful and projects that will fail are killed in an early stage to avoid investing more money than necessary. To reduce risk, the stages should be designed so that information is gathered about the uncertainties to consider in next stage. The stages are usually more expensive in the later stages of development when availability of information is higher which reduces the uncertainties and risks. (Cooper, 2008) Figure 8. The Stage-Gate process. (Source: Cooper (2008)) CHALMERS, Technology Management and Economics, Master Thesis E2012:000 18 3. The conceptual framework This chapter will introduce the reader to a framework that brings together best practices, tools and guidelines from literature about opportunity identification and evaluation. The purpose of the framework is to act as a roadmap and provide a structured way of finding and evaluating new and profitable business opportunities. 3.1. Introduction to the Framework By reviewing literature it is possible to draw conclusions about the components that need to be included in the framework. Obviously, the most important components in such a framework have to be the identification and evaluation of opportunities. It is also possible to conclude that an opportunity to some extent has to be identified before it can be evaluated which means that the first stage in a framework has to be include opportunity identification. However, as Ardichvili et al (2003) states, the evaluation of an opportunity starts already during the identification of an opportunity and continues through all stages of development. This means that opportunity identification and evaluation are not separate but are actually performed concurrently. The evaluation of an opportunity usually starts informally, before a decision is made to invest resources in a formal evaluation. Informal evaluation means that the opportunity is evaluated spontaneously without any plan or goal and maybe even unconsciously. When identifying an opportunity it is almost impossible to avoid informally evaluating the specific opportunity. In order to start a formal opportunity evaluation there has to be a defined opportunity to evaluate. Hence, the formal evaluation cannot start until after a potential opportunity is already identified. However, opportunities are informally evaluated during the process of identification. The framework so far, consists of the first stage, which is opportunity identification concurrent with informal evaluation, followed by the first gate, a decision point initiating the formal evaluation. The first stage and gate is presented in figure 9. Figure 9. The first stage and gate in the framework The formal opportunity evaluation aims to determine whether or not a certain opportunity is feasible and attractive for the company to pursue. This stage is initiated in the first gate where it is decided whether or not to invest resources in further evaluation or if the opportunity. If the opportunity appears to be interesting, it passes the first gate and enters the second stage, which is a deeper opportunity analysis. The objective with CHALMERS, Technology Management and Economics, Master Thesis E2012:000 19 this stage is to analyze the feasibility and attractiveness to proceed with a specific opportunity. After the analysis it should be decided whether or not the opportunity is feasible and if it is attractive enough to invest more resources. This decision point is the second gate in the framework. The Framework now consists of two stages, opportunity identification and opportunity analysis, each followed by a gate. The opportunities are evaluated through all stages and gates, starting with informal evaluation followed by a formal evaluation (see figure 10). Figure 10. The foundation of the framework If the opportunity passes the second gate, the development continues with generation of ideas, concepts and business models that can be used to exploit the opportunity. The processes that come after the second gate is briefly described in the literature review but are otherwise outside the scope of this thesis. It should also be noted that idea and concept generation to some extent can be performed simultaneously as the opportunity identification and evaluation. 3.2. Opportunity Identification The literature review has revealed that there are two ways of identifying opportunities, either through formal search or by accidental discovery. This chapter will provide the reader with an understanding for the concepts and tools for guiding the process. 3.2.1. Formal Search Formal search basically means that opportunities are actively sought after. Active search for opportunities is generally performed by consciously gathering information from different sources and by doing this coming across business opportunities. Koen et al (2003) has suggested a number of components to be included in the search for opportunities, for example a competitor analysis, customer analysis and a technology trend analysis. The PEST analysis is also an appropriate tool for identifying business opportunities by analyzing the environment of a company or an industry. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 20 Figure 11. The formal search and its constituting parts The purpose of the competitor analysis is to gather information about what kind of products and markets they are currently developing and investigating if any current competitor activity might present opportunities. The purpose of the customer analysis is to see if there are any trends in the customer behavior that could present new opportunities. For example some type of product is increasing in popularity or the customer behavior is changing in another way. New technologies can also present opportunities, which is why it is interesting to analyze technology trends. S-curves and the Gartner’s Hype cycle are methods that can be used to analyze technology trends. Analyzing the macro environment with a PEST analysis may reveal opportunities that arise due to political change and changes in the macroeconomic environment. 3.2.2. Accidental Discovery Accidental discovery means that some opportunities are identified without actually searching. This kind of opportunity identification is harder to control but a couple of factors increase the chances of accidentally discovering business opportunities. Having prior knowledge about the industry, experience and customer needs are examples that will facilitate identification of opportunities. Being alert to new opportunities is another factor that can help. Some persons are also more likely to find opportunities than others, which relates to different personal characteristics. 3.3. Opportunity Evaluation When having identified opportunities Ardichvili et al (2003) argues that these need to be evaluated. These evaluations are, according to Ardichvili, often done on an informal basis in the beginning and then proceed to more formal methods. In this framework, the formal evaluation of opportunities will be performed through an opportunity analysis and two gates. Figure 12. Accidental discovery and its constituting parts CHALMERS, Technology Management and Economics, Master Thesis E2012:000 21 3.3.1. Opportunity Analysis If the first gate is passed a formal analysis will be initiated aiming to assess the attractiveness and feasibility to exploit a particular opportunity. The feasibility and attractiveness and their constituting parts are presented in figure 13. Figure 13. The feasibility and attractiveness analysis In the feasibility analysis five factors are investigated. The feasibility analysis first examines if the opportunity is technically possible. It then moves on to investigate whether the opportunity is economic affordable, if it is legal, if the organization has the resources and capabilities and how long time the opportunity will take to carry out. Deciding whether these factors are reasonable mostly depends on the goal and characteristics of the organization that undertakes the business opportunity evaluation. In the attractiveness analysis the profitability is first examined, which is done by examining potential price, cost and margin. After the profitability analysis a market size analysis is carried out. This analysis aims to decide the market size of the opportunity. Market size could be estimated through investigating potential customers and estimating their purchase volumes. Finally is an industry analysis performed. This analysis could include several aspects such as competitive landscape, suppliers and substitutes. 3.4. Gates The framework includes two gates or decision points. In the first gate it is decided whether or not to invest resources in a formal evaluation. The second gate concerns the decision to proceed to development of new ideas and concept related to the opportunity. If the opportunity does not pass the gate, it can either be looped back for further analysis or the project can be killed if it is discovered that the opportunity will never be able to meet the requirements to pass the gates. The requirements to include in the gates may depend on company specific objectives regarding profitability, willingness to take risk and other factors related to the overall strategy. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 22 Figure 14. Illustration of the two gates. The requirements to pass a gate have to be adapted for every specific company but the authors recommend that they are linked to the analyses that are performed in opportunity identification. Table 1. Examples of selection criteria for gate 1 Gate 1: Examples of selection criteria - Can we compete in the new market? - Is there an interest among customers? - Does the new technology have the potential to deliver value? - Is the macro environment favorable? Table 2 illustrates how opportunities may be selected in gate 1. The sample questions have been developed related to the analyses that are performed in the opportunity identification stage. The opportunities that give the most positive answers should be selected for further analysis. Table 2. Examples of selection criteria for gate 2 Gate 2: Examples of selection criteria Is it feasible for us to develop concepts related to the opportunity? - Can we develop the technology? - Is there room in our budget? - Are there any legal hurdles? - Can we make the necessary organizational changes? - Can we develop the market or product in time? Is it attractive for us to develop concepts related to the opportunity? - Is the profit potential high enough? - Is the market big enough? - Is the market growing? - Is the industry attractive enough? Table 3 illustrates how opportunities can be selected in gate 2. The sample questions have been developed related to the feasibility and attractiveness analyses that have been performed. The first step in the gate is to sort out the opportunities that are not feasible. The reaming opportunities should be selected based on their attractiveness. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 23 3.5. The Business Opportunity Framework The complete framework can now be created by assembling all the components that have been described in this chapter. The framework will from now on be called the business opportunity framework (BOF). The process will start with the identification of opportunities either by formal search or by accidental discovery. In the first gate it is decided which opportunities are interesting enough analyze further. Those opportunities are analyzed in terms of feasibility and attractiveness. In gate 2 it is decided which opportunities that are interesting enough to continue with development of ideas and new concepts. Figure 15. The complete framework for opportunity identification and evaluation When applying the BOF, the first step is to define an area where the search for opportunities will be focused. For example, the search can be focused on a specific market or a business area. When having defined an area where interesting opportunities may be found, the BOF can be applied to help guide the process. The first stage is opportunity identification which will be initiated by a formal search for opportunities. The formal search for opportunities is conducted by collecting and analyzing information about competitors, customers, technology trends and the macro CHALMERS, Technology Management and Economics, Master Thesis E2012:000 24 environment. At the same time, opportunities may be identified by accident by someone who is not actively searching for opportunities. During the search for opportunities they are also informally evaluated but only some will be selected for formal evaluation. This selection is made in gate 1 where all opportunities are compared to choose some that will go through a structured analysis in terms of feasibility and attractiveness. The first step in the opportunity analysis should be to evaluate the feasibility of every opportunity in terms of technological, economical, legal, organizational, and time factors. The opportunities that are feasible to develop will be assessed in terms of attractiveness regarding profitability, market size, market growth and industry attractiveness. After completing the opportunity analysis the most promising ones shall be selected in gate 2. Those opportunities will be exploited by developing new ideas and concepts and finally a new product or offering. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 25 4. Method This chapter introduces the reader to the research methods used for this thesis. An overview is first given of the research process where iteration between data and theoretical work has produced the framework. The two studies are then presented and a detailed description of the research design, sampling and research methods is given. The chapter is concluded with a reflection of the quality of the research. 4.1. The research process This thesis is theory orientated and aims to contribute to the theory building regarding how technology companies identify and evaluate business opportunities. To be able to fulfill this aim and answer the research questions, this thesis followed a circular research process as described by Eisenhardt (1989). In this process, the researcher is iterating between data and theoretical work in order to create theory. The process for this thesis is presented in figure 16 below. Figure 16. The research process of the thesis A literature review was first performed in order to provide a theoretical background to the topic. After the literature review a conceptual framework was developed which represented the author’s current perspective on the topic. A study of Ericsson’s business unit Multimedia then provided empirical data on the topic. After this study, the data was analyzed and the conceptual framework was updated with the findings until theoretical saturation was achieved. The second conceptual framework was then used in study two in collaboration between the authors and employees at Ericsson in order to identify and evaluate business opportunities. This study thus provided data about areas of improvement for the framework, which was analyzed and resulted in a second version of the framework. An overview of the two studies that were carried out in order to gather empirical data and develop the framework is presented below. Study 1: Case study The first study was carried out as a case study of Ericsson’s business unit Multimedia and aimed to provide a description of how a typical technology company identifies and evaluates business opportunities. Literature review 1:st conceptual framework Study 1: Case study of Ericsson Analytical work 2:nd Conceptual Framwork Study 2: Testing the framework Analytical work Final Framework CHALMERS, Technology Management and Economics, Master Thesis E2012:000 26 Study 2: Applying the framework The second study was designed as an action research where the proposed framework was used by the authors in order to identify and evaluate business opportunities at Ericsson. By using the framework in a real-life situation, valuable insights could be drawn regarding the usage and pitfalls of the proposed framework. A summary of the research methods used for the two studies is presented in table 3 below. Table 3. Summary of research strategy and research methods used for the two studies. Study 1 – Case study Study 2 – Applying the framework Research questions investigated RQ1, RQ2 RQ2, RQ3 Research Strategy Qualitative Qualitative & Quantitative Research Design Case study Action research Research Methods Semi-structured interviews Secondary data Secondary data These studies and how they relate to the research questions are shown in figure 17 below. The aim thus provided the base for the three different research questions. The two studies were then developed in order to answer the three research questions. The first research question is answered by the first study, the second by both study one and two and the third research question is answered by study two. The two studies together with the literature review then provided the necessary data, which formed the framework. Below follows a detailed description of the research strategy, design and methods for the two different studies. A im RQ 1 RQ 2 RQ 3 Study 1: Case study Study 2: Applying the framework F ra m ew o rk Figure 17. The relation between aim, research questions and the two studies CHALMERS, Technology Management and Economics, Master Thesis E2012:000 27 4.2. Study 1: Case study The aim of the first study was to describe and explore how a technology company identified and evaluated business opportunities. This was important in order to develop the framework and provide an insight into the topic. The first study was performed as a case study as this design allowed to probe deeper and build theory. 4.2.1. Research Strategy A qualitative research strategy was used for the first study. According to Bryman & Bell (2011), using a qualitative research strategy is preferable when the researcher takes an inductive view of the relationship between theory and data and is interested in understanding a topic from the view of its participants. This study aimed at providing a description of how a technology company is identifying and evaluating business opportunities. It also aimed at describing what practices and methods that could be used and how its users perceived them. A quantitative research strategy would thus have made it unable to generate a thick description of the methods and a qualitative research strategy was therefore used. A qualitative research strategy also emphasizes understanding what the actors who perform the business identification and evaluation perceive the main problems with their current methods are, which was desirable in order to fulfill the aim. Also, the overall aim of this thesis was to build theories rather than test them. An inductive approach is therefore used in order to generate a conceptual framework based on the findings from the study. An inductive view also makes it possible to generate new theories from data by examining pattern of association, which was in line with the aim of the first study. 4.2.2. Research design The first study was designed as a case study. A case study is, according to Tharenou (2007) an in-depth empirical investigation of a single instance or setting to explain the processes of a phenomenon in context. The case study is, according to Yin (2009) used for “Why” and “How” research question. The reason for designing this study as a case was that it gave the possibility to examine in detail the methods used for identifying and evaluating business opportunities. The research topic is also rather unexplored and a case study is thus more preferable than other designs as it gives the possibility to explore and probe deeper into the topic. The research questions were also aimed at investigating how business opportunities are identified and evaluated. This type of question is according to Yin (2009) well suited for case studies. A case study is, according to Capeda & Martin (2005) appropriate when the researcher wants to iterate between data collection and theoretical work in order to create theory. This was the aim of the study as the first conceptual framework was to be compared to CHALMERS, Technology Management and Economics, Master Thesis E2012:000 28 empirical data in order to improve the framework and the case study is therefore preferable as a research design. 4.2.3. Sampling Ericsson was chosen as the case using purposive sampling. Purposive sampling is a non-probability sampling method where the goal is to select cases in a strategic way so that the cases are relevant to the research question (Bryman & Bell, 2011). The reason to the usage of purposive rather than random sampling was that a purposive selection of a case provided the possibility to choose a case where business opportunity identification and evaluation are of great importance. Ericsson and their business unit Multimedia were selected for this case study. Several reasons to this selection exist. First their products are very technologically intense, which fitted our research question and scope well. Secondly, the industry is dynamic with much change, which creates a need for constant business opportunity identification and evaluation. The business unit mostly consists of technologies that can deliver TV signals and this is a field faced with rapid technological- and competitive change. Also, Ericsson is a company that has well-established processes for identifying and evaluation business opportunities and thus performing an in depth case study would give a detailed description of how different methods are used in a technology company. Using a purposive sampling can, according to Bryman & Bell (2011) make it more difficult to generalize the findings. However, since describing rather than generalizing was the primary goal of the first study, random sample would have created uncertainty regarding the outcome of the study. Purposive sampling thus made it possible to choose a case that would provide us with a detailed description of the research topic. 4.2.4. Research methods The main method to obtain data for the first study was semi-structured interviews. Semi-structured interviews are often used when flexibility is wanted while a focus is also preferable (Bryman & Bell, 2011). This was suitable for this study as the aim was to describe and explore how business opportunities are identified and evaluated. However, most of our interviewees weren’t used to discussing business opportunity identification and evaluation. A semi-structured interview was therefore used because it gave us the flexibility to probe deeper while it also ensured a clear focus, which would have been difficult to obtain with an unstructured interview method. The interviewees where sampled using a combination of purposive and snowball sampling. Some interviewees where identified by an examination of their position and past experience. These were chosen due to their insight into the topic and possibility to triangulate the data. Snowball sampling was also used to identify some interviewees as each interview was ended with the question “do you know any other person that might have further knowledge about this field”. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 29 Each interview was carried out in the interviewees’ own offices during working hours. This provided a familiar environment for the interviewees, which was important in order to get as detailed answers as possible. The interview started with a brief introduction of the thesis and then followed the interview guides presented in appendix B. Each interview lasted for 30-90 minutes and was performed by two interviewers. These were arranged as one interviewer asking the questions while the other were observing and taking notes. This made it possible to get different perspectives on the interview and thus achieve investigator triangulation. Every interview guide was also pretested on two persons before being used. This made it possible to improve the interview guide to better fit the respondents’ level of knowledge. The interviews were also recorded and transcribed. The main reason to this selection was that it allowed the interviews to be transcribed in detail and thus made it possible to compare the findings from the different interviews. The drawback of using a recording device is according to Bryman & Bell (2011) that it can be off-putting for the interviewee and thus limit their answers. This potential problem was mitigated with the usage of a very small recording device and offering the interviewees to read and change the transcript after the interview. Secondary data was also examined in order to triangulate and complement the findings from the interviews. These secondary data was mostly in the form of documents that were available at Ericsson’s intranet. 4.2.5. Data analysis When the data had been collected it was analyzed by comparing the findings from the interviews in order to see patterns and understand what methods Ericsson used for identifying and evaluating business opportunities. This resulted in a list of methods and concepts that Ericsson used during their identification and evaluation. The list was then compared with the theories and concept in the literature review in order to understand similarities and differences between concepts proposed by the literature and how Ericsson worked. This gave the possibility to identify gaps and areas of improvement. The last step was to compare the findings with the conceptual framework. Differences and similarities were then listed and areas of improvement for the conceptual framework were identified based on this analysis. The conceptual framework was then updated with some of the findings from the case study. 4.3. Study 2: Applying the framework The aim of the second study was to answer research questions two and three. This was done by using action research as the design and was performed in collaboration between the research team and Ericsson employees. The framework was used on two examples in order to identify differences and compare the outcome when using the framework in different situations. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 30 The framework was applied to cable TV and cloud TV. These are two areas within Ericsson’s business unit Multimedia, which are of particular interest since these are two dynamic areas where several business opportunities exist The process for the action research is presented in figure 18. This was performed for both cable TV and cloud TV. Figure 18. The research process for the action research The different stages are in more detailed explained in the following two chapters. 4.3.1. Opportunity identification The first stage in applying the framework is to identify business opportunities. According to the BOF framework the identification can be divided into a formal search and accidental discovery. Only the formal search, which involves a competitor-, customer-, technology and macro environment analysis, was used during the application. Accidental discovery was thus excluded since this area is done on an occasional basis and thus is very difficult to obtain during a research. Customers Data for the customer analysis was gained by semi-structured interviews of customers and Ericsson employees. Also secondary sources such as customer surveys were used in order to understand the needs of the customers. The interviewees were selected based on their understanding of the customer and was focused on sales persons who has a regular contact with the customer. Competitors Data regarding competitors where gained by examining secondary resources such as the Internet and internal documents at Ericsson. Data regarding competitors where also gained by semi-structured interviews of Ericsson employees. Interviewees where selected based on their understanding of the competitors. Data collection 1 Business opportunity identification Review by Ericsson employees Final set of identified business opportunities Data collection 2 Business opportunity evaluation Review by Ericsson employees Final evaluation CHALMERS, Technology Management and Economics, Master Thesis E2012:000 31 Technology Data regarding technology trends was gained trough semi-structured interviews of Ericsson employees and by examining secondary resources. Interviewees for the interviews where focused on the R&D department since these had the most knowledge of the field. Macro-environment Secondary sources were the main source for data collection in the macro environment. This was mainly done by searches on the Internet, which focused on government reports on the area and the overall macro environment. It could for example be government reports focusing on the regulatory framework for cloud TV and government statements on future investments in telecom infrastructure. Based on the data collected from the four different areas, the data was then compared and analyzed by the research team in order to identify irregularities, areas of improvement and areas where possible opportunities could exist. This analysis then resulted in a list with a range of possible opportunities. Based on the list with possible opportunities, employees at Ericsson made a selection of which opportunities to proceed to the evaluation phase. This selection was based on their subjective opinion and prior knowledge of the field. 4.3.2. Opportunitet evaluation The identified business opportunities proceeded then to the business evaluation phase of the BOF framework. This phase consisted of a feasibility analysis and an attractiveness analysis. Feasibility analysis In the feasibility analysis is technology, economic, legal, organization and time evaluated. These were assessed on a scale low, medium high based on the semi- structured interviews performed by the research team. These semi-structured interviews aimed at employees at Ericsson who had prior knowledge of the field and thus could make reasonable estimations. Ericsson employees then reviewed the assessment in order to find areas where the assessment could be improved. A drawback of using this method is that it then reflects the subjective opinions of the authors. However, this was mitigated to some extent by having several employees at Ericsson reviewing the rating. Attractiveness analysis The attractiveness analysis consists of an analysis of the opportunities’ profitability, market size, market growth and industry. These analyses were performed by examining patterns in the collected data from the semi-structured interviews and the secondary sources. Based on the subjective opinion of the research team these criteria were then rated on a scale of low, medium or high. However, in order to triangulate and make the assessment more objective, Ericsson employees also reviewed the assessment. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 32 4.3.3. Research Strategy The second study used a qualitative research strategy. The reason to this selection was that the aim of the second study was to gather data regarding how the framework could be used and what advantages and pitfalls it might have. This involves the perceptions and subjective impressions from its participants, which fits the qualitative research strategy well. Also, the second study takes an inductive view of theory and data where theory is generated from the usage of the framework. 4.3.4. Research Design The second study was designed as an action research. An action research is, according to Bryman & Bell (2011) a research design where the action researcher and a client collaborate in the diagnosis of a problem and then in the development of a solution. Action research is appropriate when the researcher wants to link theory and practice and gain insights that wouldn’t be able to gain from observing or interviewing (Backerville, 1996). This type of design allowed the researchers to draw conclusions regarding how the framework is applied and if the framework is possible to use in practice. This would have been difficult to do with a case study, which is more focused on describing rather than test how new methods could be used, and their benefits. Also the action research allowed the research team to understand what difficulties that might exists when using the framework and possible areas where it might be too time consuming to use the framework. The design was selected also since in order to create a fully functional framework for identifying and evaluating business opportunity it must be well anchored in practice. This helps to mitigate the problem with theories built from cases being too complex (Eisenhardt, 1989). The action research thus allowed the research team to test whether the framework was too complex and identify areas of improvement. Action research is often criticized for its lack of repeatability and for concentrating too much on organizational action at the expenses of the research finding (Bryman & Bell, 2011). However, using the action research provides insight that would have been very difficult to obtain by only observing or interviewing users. It is a risk that participants wouldn’t express if the framework were too complex because of being afraid to loose face. 4.3.5. Research Methods In order to identify and evaluate the possible business opportunities in the two selected fields, the conceptual framework was used as a basis for the data collection. The main method for collecting data for the framework was semi-structured interviews. Semi structured interviews were used in order to collect data for the action research. The reason that semi-structured interviews were used was that it provided the flexibility CHALMERS, Technology Management and Economics, Master Thesis E2012:000 33 needed to explore the fields and identify business opportunities while it also provided a focus for the interview. Flexibility was important to achieve since a too structured approach might have made it impossible to identify all possible opportunities. A total of 15 interviews were carried out in order to apply the framework to the two areas. Each interview lasted for about 60 minutes and followed the interview guides presented in appendix B. The interviews were recorded and transcribed using a small recording device. The interview questions were pretested on two persons with different backgrounds before being used. The interviews were sampled using a purposive sampling where interviewees where identified based on their potential knowledge of the field. Also snowball sampling was used in order to identify others that were of potential interest for the study. Secondary data was also used extensively during the second study. This made it possible to triangulate the data gained from the interviews and get different perspectives on certain business opportunities. This was important in order evaluate the business opportunities. The secondary data was obtained by examining Ericsson internal databases as well as webpages. 4.3.6. Data analysis Based on the finding from the data collection and applying the framework, the research team made an analysis of the strengths and weaknesses of the framework. Questions that the were asked during the analysis phase was:  What difficulties where experienced during the application?  How applicable was the framework?  Did it produce desirable outcome? By reflecting on these question after the action research areas of improvement could be identified. These areas of improvement where then listed and finally incorporated in the framework. 4.4. Quality of the study Several different opinions exists on how qualitative research should be evaluated since qualitative research such as case studies involve unique features that are very difficult to replicate (Bryman & Bell, 2011). The methods used in this thesis have been evaluated using the quality measures: external validity, construct validity and reliability. External validity refers to the generalizability of the studies. High external validity is, according to Bryman & Bell (2011) difficult to achieve for qualitative studies since it would require the social setting and external circumstances to freeze. However, some generalizability has been achieved through the extensive link with general theories throughout the development of the framework. The findings from the study have for example been linked with theories such as Porter’s five forces, which are well tested CHALMERS, Technology Management and Economics, Master Thesis E2012:000 34 theories and thus have a high degree of generalizability. The framework could thus be generalized to other companies in technology industries. However, the findings from the two studies have a lower degree of external validity as these refer to the specific situation of one company. Construct validity measures whether the concepts and measures actually measures what they intend to measure (Bryman & Bell, 2011). High construct validity was achieved by triangulating the findings by using both method and data triangulation. Data triangulation was achieved for the both studies by using both interviews and secondary data. This was achieved by using the same interview guide for several interviews and checking the findings with secondary sources of information such as webpages and documents. Method triangulation was achieved for the second research question as the findings for this question came from both the first and second study. Further construct validity was also achieved by letting the interviewees review the transcripts and the report before finalizing. The reliability of the study relates to whether the results are repeatable. Reliability is according to Bryman & Bell (2011) especially an issue in qualitative research. Reliability for the case study could be assessed to be adequate. In order to ensure reliability, the interview guides are presented in appendix B together with at tick description of the methods used in the method chapter. Reliability for the action research can be assessed to be low due to the highly changing nature of business opportunity. It would for example be difficult to evaluate the business opportunities with the same people and methods without being affected by the prior identification. However, some reliability have been ensured by a throughout description of the research process together with the interview guides presented in appendix B. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 35 5. Study 1 – Case study This chapter presents the findings from the case study that was performed at Ericsson AB. The data was mostly gathered with semi-structured interviews but secondary sources such as documents were also used. The chapter is divided into two parts depending on where in the organization that business opportunities are evaluated. 5.1. Business opportunity identification and evaluation at several levels After some initial interviews it could be seen that business opportunity identification and evaluation is performed on several levels and instances at Ericsson. To give an overview of how business opportunities are identified and evaluated at different parts of the company this chapter has been divided into two different sections. The first section deals with how business opportunities are evaluated on a strategic level. The second section shows how business opportunities are evaluated in the new product development process. The information in this chapter, if otherwise not is stated, comes from the interviews presented in appendix A. 5.2. The strategic level Ericsson uses a structured approach to identify and evaluate business opportunities for its long-term strategy. The strategy is updated annually and the CEO initiates the process in January with an executive leadership team kick off. During the process new business opportunities are identified in a phase called business intelligence scanning where intelligence about e.g. main competitors, partners and customers analyzed and compiled. The outcome of the phase is also an annual report called Business Environment Outlook. In this report are the following data included: Competitors – The development of Ericsson’s main competitors is monitored. Both competitor’s strategic direction as well as their offering is analyzed in detail. Customers – Customers’ development and strategies are also analyzed in order to understand e.g. their issues, financial status and market position. Macroeconomics – In this section is the macro environmental development analyzed. Issues that are included in this part are e.g. infrastructure investments, GDP growth and currency movements. Regulation / Standardization – A major factor that is affecting the players in the telecom industry is the adoption of standards and regulations. Ericsson therefore monitors closely the development of standards and regulations. Technology – The development of technologies are also monitored. This includes e.g. the adoption rate of major technologies and upcoming technological shifts. CHALMERS, Technology Management and Economics, Master Thesis E2012:000 36 Users – The development of social factors and other end-user trends are important to monitor since this can change the demand for certain products. New players – New players could be suppliers, competitors and customers. These are important to monitor since a new player can change the basis for competition in the industry. The Business Environment Outlook and the business intelligence scanning then act as the basis for the strategy discussions that are held during the year. Those business opportunities those are considered as potentially attractive and in line with Ericsson’s core business proceed to an evaluation process. Those business opportunities that aren’t considered as a part of Ericsson’s current core business but could provide substantial value for Ericsson and its shareholders proceeds to a process called New Business Development and Innovation (NBDI). The main focus for this process is to identify, select, fund and executive business opportunities that have a substantial growth potential but are out of Ericsson’s current core business. For a business opportunity to be considered by the NBDI process it should fulfill the following criteria.  Significant revenue potential (over 500 MUSD seen in a 5 year perspective) and good profitability potential, or equivalent potential value contribution to Ericsson  Strategic relevance at Ericsson-level and a differentiating competitive advantage by leveraging key Ericsson assets and capabilities  Feasible to pursue the opportunity in terms of timing, engaging internal stakeholders and ability to secure the right people Also, each of the three business units has a specific function called Business Intelligence. The aim of this function is to analyze e.g. competitors’ activities, emerging technologies and changing trends in the business environment. These analysis and reports are then used as basis for decisions in the business unit’s management team. However, the reports are also made available at Ericsson’s intranet and could be used by all Ericsson employees in their daily work. This analysis usually follows a schedule with for example the competitor analysis updated every quarter. The Business Intelligence also produces monthly a document called market briefs that are made available at Ericsson’s intranet. These documents contain information about changes in the competitive lands