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Please read the two attached files for “model 2” and answer the questions on the “case study 2” and follow the instructions of that mentioned in the end of the case study.
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Technology Management
(ENGM 514)
Module 02: Technology Acquisition
2.3: Acquisition Decision
Outline
Outline
• Nonlinearity of TM Activities
• Acquisition Reasons and Types
• Internal Technology Acquisition
• External Technology Acquisition
• Collaborative Technology Acquisition
• Acquisition Decision
Technology
Activities
Technology Activities
• Individual processes
• Jigsaw puzzle aims to avoid
enforcing a hierarchy of processes
• Not a linear relationship
• No ‘one model fits all’
• Not all TM activities must exist in
an organization
• TM as an art, where technology
managers need to identify which
processes are required and find
ways of making them work
properly together
• Process: the input-output
relationships
Technology Activities
Identification
Selection
Business
strategy
Acquisition
Internal acquisition:
R&D
External acquisition
Collaborative R&D
New product
dev.
Purchase
New process
dev.
M&A
Other projects
Outputs
new product / service equipment / solutions
Protection
Exploitation
Learning
Acquisition
Reasons and
Types
Acquisition
• Acquisition relates to how the company obtain the
technologies needed for its business.
• Reasons to acquire technology?
• Where to get the technology?
Reason to Acquire Technology
• Developing Technological Capabilities
• Competitive Environment
• Increase Efficiency
Reason to Acquire Technology
Developing Technological Capabilities
• Create new products: This allows companies to enter
new markets, tap into new customer segments, and
unlock additional revenue streams. Acquiring VR
technology, for example, could enable a smartphone
manufacturer to offer a new VR headset.
• Fill the capacity of technology gap: This addresses
internal shortcomings by acquiring essential technology
they lack in-house. A car manufacturer acquiring a
semiconductor company could reduce reliance on
external suppliers and gain more control over
production.
Reason to Acquire Technology
Competitive Environment
• Gaining an edge: Acquiring cutting-edge
technology can differentiate products, attract new
customers, and solidify market leadership. This
could involve acquiring innovative features or
functionalities to stay ahead of competitors.
• Keeping up with rivals: Rapid technological change
demands constant adaptation. Acquiring
technology preemptively can neutralize threats
from competitors adopting similar innovations and
maintain market relevance
Reason to Acquire Technology
Increase Efficiency
• Faster: Acquiring automation technology can
streamline production processes, reducing time to
market and increasing output. This could involve
acquiring software to automate specific tasks in a
manufacturing line.
• Cheaper: Acquiring technologies that optimize
resource usage or reduce waste can lower
production costs and improve profit margins. This
could involve acquiring software that helps
optimize logistics and supply chain management.
New Products
New Products
• New-to-the-world products: These are
groundbreaking products that create entirely new
markets. Examples include the iPod, which created
the market for portable digital music players, and
the smartphone, which created the market for
mobile computing devices.
• New product lines: These are products that are
new to a company, but not new to the market. For
example, a company that makes computers might
introduce a new line of tablets.
New Products
• Product line additions: These are new products
that are added to an existing product line. For
example, a company that makes laundry detergent
might introduce a new scent or formula.
• Improvements or revisions: These are products
that are existing products that have been improved
in some way. For example, a car manufacturer
might introduce a new model year of a car with
new features or a more powerful engine.
New Products
• Repositioned products: These are existing products
that are targeted to a new market or market
segment. For example, a beer company might
reposition a beer that was originally targeted to
young adults as a premium beer for older adults.
• Lower-priced products: These are products that
are designed to be more affordable than existing
products. For example, a clothing retailer might
introduce a new line of clothing that is made from
lower-cost materials.
Types of technology Acquisition
• Internal Acquisition (Make): through internal R&D
• External Acquisition (Buy): through purchasing from
external developers
• Collaboration: with external partners
Internal
Technology
Acquisition
Internal Acquisition
• Internal technology acquisition refers to the
process of acquiring technology within your own
organization instead of relying on external sources.
Internal Acquisition Channels
• Research and Development (R&D): The primary
channel for internal technology acquisition,
involving the creation of new technologies or the
improvement of existing ones through dedicated
research efforts in-house.
R&D Goals
• Doing research to generate new knowledge and
technical ideas aim at developing new and
enhanced product and manufacturing services and
processes.
• Developing activities where ideas are transformed
into working prototypes and embodies into new
product and services
Internal Acquisition Process
1. Identify Needs: Determine the technology needs based on the
company’s strategic goals and market demands.
2. Allocate Resources: Dedicate financial, human, and material resources
to research and development (R&D) activities.
3. Conduct R&D: Engage in research and development efforts to create
new technologies or improve existing ones. This may involve basic
research, applied research, and development activities.
4. Prototype and Test: Develop prototypes of the technology and conduct
testing to ensure it meets required specifications and standards.
5. Evaluate and Refine: Assess the technology’s performance and make
necessary refinements or adjustments based on feedback and test
results.
6. Implement: Integrate the technology into products, services, or
processes and deploy it within the organization.
7. Protect Intellectual Property (IP): Secure intellectual property rights
through patents, trademarks, or copyrights to protect the technology
from unauthorized use.
Internal R&D Strengths and Weaknesses
• Strengths:
• Maintain control over intellectual property (IP) and
development process.
• Deep understanding of existing capabilities and
organizational needs.
• Potential for long-term cost savings through internal
ownership.
• Builds internal capabilities and knowledge.
• Weaknesses:
• Time-consuming and risky, with uncertain success.
• Longer time to market compared to acquiring or partnering.
• Requires significant investment in resources and expertise.
• May lack access to cutting-edge technologies or external
knowledge.
Internal Acquisition Assessment
• Identify internal technical expertise and available
resources.
• Evaluate existing R&D capabilities and track record
of innovation.
• Estimate time, cost, and risk associated with
internal development.
External
Technology
Acquisition
External Acquisition
• External technology acquisition involves obtaining
technology from outside the organization.
The reasons for External Technology
Acquisition
• Limited resources
• Time pressure
• Complementary assets
• Protecting image
• Diversification
• Supporting internal technologies
• Avoid development risks
The reasons for External Technology
Acquisition
• Limited resources: Internal R&D is often resourceintensive, requiring substantial manpower,
expertise, and infrastructure. Acquiring technology
externally allows companies to access needed
capabilities without investing heavily in building
them from scratch.
• Time pressure: In a fast-paced world, rapidly
evolving technologies and competitive landscapes
demand quick adaptation. External acquisitions can
offer an expedited way to obtain necessary
technology, saving valuable time compared to
internal development.
The reasons for External Technology
Acquisition
• Complementary assets: Sometimes, the most
valuable technology lies outside a company’s core
competencies. Acquiring companies with
complementary assets (e.g., patents, expertise,
software) can fill critical gaps and accelerate
innovation.
• Protecting image: External acquisitions can be
strategic moves to counter negative perceptions or
address potential threats. For example, a company
facing environmental concerns might acquire clean
technology to bolster its sustainability image.
The reasons for External Technology
Acquisition
• Diversification: Expanding into new markets, products, or
customer segments can mitigate risk and unlock new
revenue streams. Acquiring technology relevant to these
new ventures can be a springboard for diversification.
• Supporting internal technologies: External acquisitions can
supplement and enhance existing internal initiatives by
providing additional technological resources, talent, or
knowledge. This can accelerate progress and strengthen the
overall technology portfolio.
• Avoiding development risks: Developing technology
internally carries inherent risks of failure, delays, and cost
overruns. Acquisitions offer a way to mitigate these risks by
acquiring proven technology with a lower chance of
unexpected setbacks.
External Acquisition Channels
• Sponsoring university research:
• External R&D centers
• Consultants
• Licensing agreements
• Vendors/ suppliers
• Acquiring machinery or the firm
External Acquisition Channels
• Sponsoring university research:
• External R&D centers
• Consultants
• Licensing agreements
• Vendors/ suppliers
• Acquiring machinery or the firm
External Acquisition Channels
• Sponsoring university research: Provide financial
support to universities for research projects aligned
with your technology needs. You might have some
influence on the research direction or gain early
access to findings.
• External R&D centers: Establish or partner with
independent research centers focused on specific
technologies relevant to your needs.
External Acquisition Channels
• Consultants: Hire consultants with specialized
expertise in a specific technology you need help
with.
• Licensing agreements: Gain access to another
company’s technology through a legal agreement,
paying fees or royalties for its use.
External Acquisition Channels
• Vendors/ suppliers: Purchase technologies or
equipment from vendors specializing in the desired
area.
• Acquiring machinery or the firm: Purchase
machinery or equipment embodying the desired
technology or acquire the entire company owning
the technology.
External Acquisition Process
1. Identify Technology: Identify potential technologies, patents, or
companies that possess desired technological capabilities.
2. Due Diligence: Conduct thorough assessments of the technology’s
feasibility, compatibility, and the credibility of the external parties.
3. Negotiation: Engage in negotiations for licensing agreements,
technology purchase, or terms of acquisition, including pricing and
terms of use.
4. Acquisition: Complete the transaction to acquire the technology or
rights to use it. This could involve licensing, purchasing, or merging with
another company.
5. Integration – Technology Transfer: Integrate the acquired technology
into the company’s existing products, services, or processes, ensuring
compatibility and efficiency.
6. IP Management: Manage intellectual property rights transferred during
the acquisition to ensure compliance and protection of the technology.
External Acquisition Strengths and
Weaknesses
• Strengths:
• Faster access to proven technology and market
potential.
• Reduced R&D risk and investment compared to internal
development.
• Gain new expertise and capabilities through acquisition.
• Weaknesses:
• High upfront costs for purchase, licensing, or royalties.
• Potential integration challenges and cultural differences.
• Risk of acquiring outdated or unproven technology.
External Acquisition Assessment
Techniques
• Identify potential target technologies and
vendors.
• Conduct due diligence on technology maturity,
market potential, and vendor capabilities.
• Evaluate acquisition costs, integration challenges,
and risk mitigation strategies.
Collaborative
Technology
Acquisition
Collaborative Technology Acquisition
• Technology acquisition through collaboration
entails partnering with other firms, research
institutions, or other organizations to jointly
develop or share technologies.
Collaborative Technology Acquisition
Channels
• Consortia: A group of companies or organizations join forces
to collectively fund and develop technology, sharing
resources, expertise, and risks.
• Joint ventures: Two or more companies create a separate
entity to jointly develop and own specific technology.
• Sub-contracting: Hiring another company to develop
specific components or functionalities of the desired
technology.
• University-Industry Partnerships: Collaborating with
universities or research institutions to access cutting-edge
research, expertise, and resources.
• Open Innovation Platforms: Engaging with external
innovators, startups, and the public to co-develop
technologies through challenges, competitions, or
crowdsourcing.
Open Innovation
• Open innovation refers to how companies make
sense of their vast networks and base of knowledge
and leverage them in unique ways by absorbing
external ideas, technologies, trends, business
models, and new approaches into a company’s own
business.
Open Innovation Platforms
• Idea management platforms: source ideas and
knowledge from a diverse group of people.
• Crowdsourcing platforms: collective intelligence of a
large group of people, often from outside an
organization, to solve problems or generate new ideas.
• Scouting platforms: Identify technologies and connect
with other organizations and third parties that can
provide the technology, services, or expertise that you
are missing.
• Open data platforms: provide access to large sets of
data that help you identify trends that occur in the
industry, market, economy, or society at large.
Open Innovation Platforms
Idea Management Platforms:
• Focus: Capture, share, and evaluate ideas internally
and externally.
• Examples: IdeaScale, Qmarkets, Brightidea, Viima
HYPE Ideation solution
• Benefits: Democratize innovation, encourage
employee participation, gather diverse
perspectives.
• Drawbacks: Managing large volumes of
ideas, filtering irrelevant submissions, motivating
participation.
Open Innovation Platforms
Open Innovation Platforms
Crowdsourcing Platforms:
• Focus: Solve specific problems or challenges by
engaging a large, external audience.
• Examples: InnoCentive, Topcoder, NineSigma
• Benefits: Access diverse expertise, tap into global
talent pool, cost-effective solutions.
• Drawbacks: Intellectual property
protection, finding qualified participants, managing
large submissions.
Open Innovation Platforms
Open Innovation Platforms
Scouting Platforms:
• Focus: Discover and connect with external
innovators, startups, and research institutions.
• Examples: Google Patents and the USPTO
database, PatSeer, Derwent Innovation,
Gust, Crunchbase, AngelList
• Benefits: Identify promising technologies and
partnerships, access external innovation pipelines.
• Drawbacks: Time-consuming research, evaluating
credibility of innovators, negotiating partnerships.
Open Innovation Platforms
Open Innovation Platforms
Open Data Platforms:
• Focus: Share and collaborate on data sets to
generate insights and develop new solutions.
• Examples: Data.gov, Kaggle, Google Cloud Public
Datasets
• Benefits: Access valuable data sources, enable
collaborative analysis, foster data-driven
innovation.
• Drawbacks: Data security and privacy
concerns, ensuring data quality and
consistency, integrating diverse data sets.
Open Innovation Platforms
Open Innovation
Research
Development
Commercialisation
IP in-licensing
Products in-sourced
(e.g. Co-branding)
Company
Boundaries
Core Market Focus
Technology
Spin-outs
IP out-licensing
Ideas &
Technologies
Tech Spinout
• A tech spinout is where an existing organization
forms an independent business by transferring
technology, assets, distribution or people to the
new business; the new business is focused on
technology as its primary revenue source or
competitive advantage.
• Examples:
• Agilent from HP
• Expedia from Microsoft
Collaborative Acquisition Process
1. Partner Identification: Identify potential partners with complementary skills,
technologies, or resources that align with the company’s innovation goals.
2. Agreement Formation: Negotiate and establish collaboration agreements that
define the scope of the partnership, roles and responsibilities, resource
contributions, and IP rights.
3. Joint Planning: Develop a joint plan or roadmap for the collaborative technology
development project, including objectives, timelines, and milestones.
4. Collaborative Development: Work together with partners to develop or cocreate the technology. This often involves shared research efforts, joint
development teams, and combined resources.
5. Testing and Refinement: Jointly test the developed technology and make
necessary adjustments based on collaborative feedback and evaluation.
6. Commercialization and Deployment: Agree on how to commercialize the
technology and deploy it within each partner’s operations or markets, according
to the collaboration agreement.
7. IP and Revenue Sharing: Manage and share intellectual property rights and
revenues or benefits derived from the collaborative technology, as agreed upon
in the partnership agreement.
Collaborative Acquisition Strengths and
Weaknesses
• Strengths:
• Combine resources and expertise from multiple parties.
• Share development risks and costs, potentially leading
to faster innovation.
• Access diverse perspectives and knowledge networks.
• Flexibility in terms of scale and scope of the project.
• Weaknesses:
• Complexities in managing partnerships and intellectual
property rights.
• Potential for conflicting priorities and delayed decisionmaking.
• Difficulty in ensuring equitable benefits for all partners.
Collaborative Acquisition Assessment
Techniques
• Identify potential partners with complementary
expertise and resources.
• Evaluate the collaborative structure, agreement
terms, and risk-sharing mechanisms.
• Assess the communication and coordination
capabilities of potential partners.
Acquisition
Decision
Acquisition Decision
1) strength of the organization’s own capabilities
(relative costs)
2) respective transaction and governance costs
• contract price, cost of information, monitoring
performance, committing specific assets, handling
complexity in reaching agreements
3) dynamic transaction costs
• costs of persuading, negotiating, coordinating, and
teaching outside suppliers
Fundamental Tool
• SWOT Analysis (Strengths, Weaknesses,
Opportunities, Threats): evaluating the internal
strengths and weaknesses of the technology, as
well as the external opportunities and threats it
faces in the market.
• Align with Corporate Strategy and Technology
Strategy
Financial Tools
Cost-Benefit Analysis (CBA)
• Purpose: Assess financial viability.
• Application: Aids in decision-making by quantifying
the financial return, guiding towards the most costeffective acquisition type.
Financial Tools
Return on Investment (ROI) Analysis
• Purpose: Calculate expected returns.
• Application: Determines the financial justification
for the acquisition type based on ROI expectations.
Financial Tools
Total Cost of Ownership (TCO) Analysis
• Purpose: Examine all associated costs.
• Application: Influences the decision based on longterm cost efficiency, potentially leading to internal
development if long-term costs are lower, external
acquisition if upfront costs are justified by benefits,
or collaboration to distribute costs.
Risk Assessment
Risk Assessment
• Purpose: Identify potential acquisition risks.
• Application: Guides towards the acquisition type
with manageable risks, considering operational,
technical, and financial factors.
Due Diligence
• Due Diligence: A comprehensive assessment that
covers legal, financial, and operational aspects of
the technology and the entity being acquired. This
includes intellectual property rights, compliance
with regulations, and any liabilities.
During Acquisition
• Negotiation: Evaluate proposals, negotiate terms
(price, delivery, support), and ensure alignment
with your needs.
Post-Acquisition:
• Implementation Plan: Define clear steps, timelines,
resources, and responsibilities for integrating the
technology.
• Performance Monitoring: Track key metrics, user
satisfaction, and compliance with established goals.
• Post-Implementation Review: Evaluate the overall
success of the acquisition, identify lessons learned,
and inform future technology adoption decisions.
Technology Management
Technology Acquisition Decision
SWOT Analysis:
A SWOT analysis is a strategic planning tool used to identify and understand the Strengths, Weaknesses,
Opportunities, and Threats related to a business or project. In the context of corporate and technology
strategy, it can help determine whether to pursue internal development, external acquisition, or
collaborative partnerships for technology solutions. Here’s an example of how a SWOT analysis might be
applied to evaluate the technology strategy of a company:
Strengths (Internal, Positive Factors)
•
•
In-house Expertise: The company has a strong team of engineers and developers with extensive
knowledge in developing proprietary technology. This internal expertise is a significant asset in
innovation and maintaining a competitive edge.
Proprietary Technology: The company owns unique technology that offers superior
performance or cost advantages over competitors, making it a valuable asset for further
development and innovation.
Weaknesses (Internal, Negative Factors)
•
•
Limited Resources: Despite having a talented team, the company might face limitations in
resources (financial, human, or technological) that could hinder the pace of in-house
development or the scope of projects it can undertake.
Technology Gaps: There could be gaps in the company’s current technology portfolio, requiring
skills or technologies that are not present internally, which might slow down innovation or lead
to missed market opportunities.
Opportunities (External, Positive Factors)
•
•
Emerging Technologies: New technologies emerging in the market present opportunities for the
company to either develop new products or enhance existing ones. By staying ahead of
technological trends, the company can maintain or achieve a leadership position.
Strategic Partnerships: Opportunities for collaboration with other companies or research
institutions can provide access to new technologies, markets, and expertise, enabling the
company to expand its technological capabilities and market reach more quickly and efficiently.
Threats (External, Negative Factors)
•
•
Competitive Advancements: Competitors might develop or acquire advanced technologies that
could make the company’s offerings obsolete or less competitive.
Regulatory Changes: New regulations related to technology standards, privacy, or security could
impact the deployment of the company’s technology or necessitate costly adjustments.
ENGM 413: Technology Management
Technology Acquisition Decision
Technology Strategy Decision:
Based on this SWOT analysis, the company might decide on a strategy that leverages its strengths while
addressing its weaknesses and capitalizing on opportunities. For example:
•
•
•
Internal Development: Continue to invest in in-house development to build on existing
strengths and proprietary technology, especially in areas where the company already has a
competitive edge.
External Acquisition: Consider acquiring external technologies or companies that fill the
identified technology gaps or provide a quick entry into new markets. This approach can address
internal resource limitations and accelerate the pace of innovation.
Collaborative Partnerships: Engage in strategic partnerships or joint ventures with other
companies or research institutions to access new technologies, expertise, and markets. This can
be particularly effective in areas where opportunities for innovation are high but internal
capabilities are limited.
Page 2 of 14
ENGM 413: Technology Management
Technology Acquisition Decision
Align with Corporate and technology strategy:
Google Example:
A real-world example that illustrates the decision-making process regarding internal development,
external acquisition, or collaborative technology acquisition is Google’s approach to expanding its
capabilities and services in artificial intelligence (AI) and machine learning (ML).
Corporate and Technology Strategy
Google has long positioned itself as a leader in innovation, with a corporate strategy focused on
harnessing cutting-edge technology to improve and expand its offerings. The company’s technology
strategy has emphasized staying at the forefront of AI and ML technologies to enhance its products and
services, drive efficiency, and create new market opportunities.
Internal Development: Google Brain
•
•
Strength: Google has heavily invested in internal development through initiatives like Google
Brain, its deep learning artificial intelligence research team. This internal team has been
instrumental in developing technologies that have significantly improved Google’s search
algorithms, advertising systems, and new products like Google Photos and Google Translate.
Strategy Alignment: This approach aligns with Google’s strategy to maintain competitive
advantage through innovation and proprietary technology development, ensuring that it
remains a market leader in AI and ML.
External Acquisition: DeepMind Technologies
•
•
•
Acquisition: In 2014, Google acquired DeepMind Technologies, a London-based company
specializing in artificial intelligence, for more than $500 million.
Rationale: This acquisition provided Google with cutting-edge AI research and a talented team,
accelerating its capabilities in areas like health, energy efficiency (reducing cooling costs in data
centers), and more.
Strategy Alignment: The acquisition of DeepMind aligned with Google’s strategy to quickly
integrate advanced AI technologies into its portfolio, demonstrating a blend of internal
innovation and strategic acquisitions.
Collaborative Technology Acquisition: Partnership with OpenAI
•
•
•
Collaboration: Google has also engaged in partnerships, such as investing in and partnering with
OpenAI, to further its advancements in AI and explore new applications of the technology.
Benefits: These collaborations allow Google to access novel AI research, share knowledge, and
explore new applications of AI technology beyond its immediate capabilities.
Strategy Alignment: Collaborative efforts align with Google’s strategy to be at the forefront of
AI innovation, leveraging external expertise and fostering an ecosystem that accelerates
technological advancements.
Page 3 of 14
ENGM 413: Technology Management
Technology Acquisition Decision
Facebook Example:
An example of a company that focused primarily on one type of acquisition strategy, driven by its
corporate and technology strategy, is Facebook (now Meta Platforms, Inc.). Particularly, Facebook’s
approach to external acquisitions has been a central element in its growth and expansion strategy,
especially in the social media and digital communication sectors.
Corporate and Technology Strategy
Facebook’s corporate strategy has been centered around growth through user engagement and
expanding its ecosystem of apps and services. The company has aimed to connect people in more ways
and capture new user bases by integrating a variety of social media and communication technologies. Its
technology strategy has supported this by focusing on acquiring platforms and technologies that can
either add to its portfolio of services or enhance its existing offerings with new features and capabilities.
External Acquisition: Instagram and WhatsApp
•
•
Instagram Acquisition (2012): Facebook acquired Instagram, a photo-sharing app, for
approximately $1 billion. At the time, Instagram was rapidly growing but did not have the same
level of resources that Facebook possessed. The acquisition allowed Facebook to capture a
younger demographic and expand its presence in mobile and photo sharing, which were
identified as key areas for growth.
WhatsApp Acquisition (2014): Facebook acquired WhatsApp, a messaging app with a strong
international user base, for about $19 billion. This acquisition was strategic for entering markets
where Facebook was less dominant and for adding a popular communication platform to its
ecosystem.
Strategy Alignment
•
•
•
Growth and Engagement: These acquisitions were aligned with Facebook’s strategy to increase
user engagement and time spent across its platforms. By integrating Instagram and WhatsApp,
Facebook not only expanded its service offerings but also consolidated its position in the social
media and digital communication sectors.
Market Expansion: Acquiring companies with a strong international presence allowed Facebook
to quickly enter and expand in markets where it had less penetration, aligning with its global
growth objectives.
Innovation through Acquisition: Facebook leveraged these acquisitions to introduce new
features and innovations across its platforms more quickly than could have been achieved
through internal development alone, demonstrating a strategic focus on maintaining a
competitive edge through external technology acquisition.
Page 4 of 14
ENGM 413: Technology Management
Technology Acquisition Decision
Cost-Benefit Analysis (CBA):
Let’s construct a simplified Cost-Benefit Analysis (CBA) for a hypothetical company, EcoTech, which is
considering acquiring a new green technology to reduce its carbon footprint and operational costs.
EcoTech is evaluating three options: internal development of the technology, purchasing the technology
from an external vendor, or entering into a collaborative partnership to develop the technology jointly.
Objective
EcoTech aims to implement green technology within the next year to achieve environmental
sustainability goals and reduce energy costs by 20%.
Alternatives
1. Internal Development
2. External Acquisition
3. Collaborative Partnership
Step 1: Quantify Costs and Benefits
1. Internal Development
• Costs:
• R&D: $800,000
• Implementation: $200,000
• Total Costs: $1,000,000
• Benefits:
• Annual energy cost savings: $150,000
• Increase in market value due to sustainability efforts: $50,000/year
• Total Annual Benefits: $200,000
2. External Acquisition
• Costs:
• Purchase price: $1,500,000
• Integration: $300,000
• Total Costs: $1,800,000
• Benefits:
• Annual energy cost savings: $150,000
• Increase in market value due to sustainability efforts: $50,000/year
• Immediate implementation
• Total Annual Benefits: $200,000
3. Collaborative Partnership
• Costs:
• Partnership setup and shared development costs: $500,000
• Implementation: $100,000
• Total Costs: $600,000
• Benefits:
• Annual energy cost savings: $120,000 (due to shared IP, slightly less savings)
Page 5 of 14
ENGM 413: Technology Management
•
•
•
Technology Acquisition Decision
Increase in market value due to sustainability efforts: $50,000/year
Faster time to market than internal development
Total Annual Benefits: $170,000
Step 2: Calculate Present Value (PV) and Net Present Value (NPV)
Assuming a discount rate of 5% and a project lifespan of 5 years.
NPV Calculation Formula:
PV=
NPV= PV – Initial cost (investment)
•
•
•
Ri = Benefits at time i
r = Discount rate
n = Number of years
1. Internal Development
PV= 865,895.33
NPV= 865,895.33 – 1000,000 = -$134,104.67
2. External Acquisition
PV= 865,895.33
NPV= 865,895.33 – 1800,000 = -$934,104.67
3. Collaborative Partnership
PV= $736,011.03
NPV= $736,011.03 – $600,000= -$134,104.67
Step 3: Justifications and Decision
Let’s calculate the NPV for each option to determine the most financially viable choice for EcoTech,
considering the simplified numbers provided.
Based on the calculations:
•
•
•
Internal Development NPV: -$134,104.67
External Acquisition NPV: -$934,104.67
Collaborative Partnership NPV: $136,011.03
Page 6 of 14
ENGM 413: Technology Management
Technology Acquisition Decision
Justifications and Decision
•
•
•
Internal Development has a negative NPV, indicating that the costs slightly outweigh the
benefits over the project’s lifespan. However, it’s much more financially viable than external
acquisition.
External Acquisition shows a significantly negative NPV, making it the least financially viable
option due to high upfront costs and inte
