1. Why is it difficult for Bug Labs to use NPV or IRR in its development project decisions?
It was extremely difficult for Bug Labs to successfully use NPV or IRR in its development project decision-making. Modules were exceptionally expensive to design and manufacture, furthermore, the product development team had the capacity to manage only a few projects at a time. Therefore, Bug Labs had to choose their projects very carefully. However, traditional value analysis tools, such as NPV and IRR, were nearly impossible to use due to Bug Labs' inconsistent and uncertain sales. NPV and IRR rely heavily on consistent cash flows and/or forecasted future sales.
2. What are the advantages and disadvantages of Bug Labs' use of qualitative screening questions to make project decisions?
Due to not being able to use the NPV and IRR methods to make project decisions, Bug Labs relied heavily on the use of qualitative screening questions to make these decisions. The use of qualitative screening questions encouraged decision-makers to focus on how a project will contribute to their competitive advantages and core competencies, while simultaneously reducing possible risks and costs. The use of qualitative screening questions also allowed Bug Lab executives to evaluate the potential market, marketing strategy, consumer demands, engineering, and logistics. On the flip side, responses to the qualitative screening questions can be subjective, providing data that may not be factual. In addition, the qualitative screening questions do not provide any financial data, making it hard to entice a possible investor to invest in the project.
3. What are the advantages and disadvantages of focusing on the demands of current customers?
Bug Labs decided that instead of developing modules that may possibly entice and find customers, they should spend their time focusing on the demands of existing customers. As with any decisions, Bug Labs faces some advantages and disadvantages when choosing to focus on the demands of current customers. By focusing on the current demands of customers Bug Labs will be able to keep a lower amount of inventory, resulting in keeping less money tied up in the inventory. In addition, if Bug Labs focuses on the demands of current customers, they may be able to better predict future sales, enabling them to make better decisions about future projects. However, if Bug Labs solely focuses on the demands of current customers, they may adapt a narrow focus, losing their ability to innovate and create new projects. Furthermore, by focusing on the demands of their current customers, Bug Labs may be oblivious to changes or shifts that take place in the market, causing them to possibly miss opportunities.
4. How are Bug Labs' project selection choices influenced by its strategy of focusing on “The Long Tail”?
Chris Anderson described “The Long Tail” as the strategy of firms that sell a large number of unique items to access many market niches. Anderson stated that while a firm may sell relatively few units of each item, together those niches add up to a big market. After many studies and research, Bug Labs believed that they could successfully serve “the long tail” for electronic devices. When creating their product line Bug Lab focused on customization and personalization, shifting the control from producers to consumers. Bug Labs produced a wide range of individual Bug modules that possessed different functions, but that could be combined to create a customized device. Bug modules used open-source software, enabling users to create their own personalized devices/software.
5. Could Bug Labs use any of the other project selection methods described in the chapter? If so, which would you recommend?
Yes, Bug Labs could use Q-Sort as an additional method of project decision making. Q-Sort is used to rank projects on a wide variety of dimensions. Individuals are given a stack of cards with different development projects on them. The individuals then evaluate each project on certain criteria, such as technical feasibility, market impact, fit with strategic intent, etc. After the assessments, the individuals will then put the projects in order of how well each project performed in the different criteria. The project rankings are then used structure and hold a debate about the projects. Bug Labs could also use Conjoint Analysis as another method to aid in project decision making. Conjoint analysis combines both quantitative and qualitative project assessments by translating the qualitative assessments into quantitative measures, so the projects can be fairly compared to each other.
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