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Operation and Production Plan | Entrepreneurship: Creating and Leading an Entrepreneurial Organization

10

Operation and Production Plan

LEARNING OBJECTIVES

To understand the importance of production and operations management

(POM) in a business plan.
To learn about the purpose of the product design and development plan
in a business plan.
To identify and understand the key factors related to design decisions.
To understand the importance of location and project layout decisions in
the success of a business.
To learn about the factors to be considered while drafting a project layout
plan.
To learn about the factors to be considered for plant and technology
choices.
To learn how to deal with matters related to technology transfer.
To learn about the important factors to be considered by the production
and operations team to ensure salability of the products.
To learn about the key aspects that influence production planning and
control decisions.
To understand the aspects related to commercialization of technologies.

WILLIAM HENRY ‘BILL’ GATES III, CHAIRMAN, MICROSOFT

Microsoft has had its success by doing low-cost products and constantly im-
proving those products and we've really redefined the IT industry to be
something that's about a tool for individuals.

—Bill Gates

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William Henry ‘Bill’ Gates III (born 28 October 1955 in Seattle, Washington) is
a prolific American businessman, investor, philanthropist, author and for-
mer CEO and current chairman of Microsoft, the software company that
has transformed the way people live. He belonged to an upper middle class
family and his father was a prominent lawyer. Gates’ family atmosphere
was warm and open where children were encouraged to be competitive and
to endeavour for excellence.

He had been deeply interested in programming since his school days. He gradu-
ated from Lakeside School in 1973 and enrolled at Harvard College in the
autumn of 1973. His passion for computer programming began at the age
of 13 at Lakeside School. He became engrossed with what a computer could
do and spent much of his free time working on the terminal. He wrote a tic-
tac-toe program in the BASIC computer language that allowed users to play
against the computer. While at Harvard, he was acquainted with Steve
Ballmer, who subsequently succeeded Gates as CEO of Microsoft.

He established a venture called Traf-O-Data along with Allen, at the age of 17,
to make traffic counters based on the Intel 8008 processor. He developed a
world of computers to transform the way people do things—one cannot
think of life without computers, especially Windows, in the present era. He
is a co-founder of Microsoft Corporation and has served as Chairman of the
company since its incorporation in 1981. It is a global leader in software,
services and solutions that help people and businesses realize their full po-
tential. Microsoft Corporation is engaged in developing, licensing and sup-
porting a range of software products and services. It also designs and sells
hardware, and delivers online advertising to customers.

Gates retired as an employee with effect from 1 July 2008, but continues to
serve as the company's Chairman and an advisor on key development
projects. Gates served as Chief Executive Officer from 1981 until January
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2000, when he resigned as Chief Executive Officer and assumed the position
of Chief Software Architect. As Chairman and Chief Executive Officer of the
Company from its incorporation in 1981 to 2000, he developed Microsoft
from a fledgling business into the world's leading software company, creat-
ing one of the world's most powerful brands.

Microsoft's chain of innovations introduced are evident from IBM's introduc-

tion of its personal computer with Microsoft's 16-bit operating system; MS-
DOS 1.0 in August 1981; Microsoft Windows 3.0 in May 1990; Windows 95
in August 1995; Windows 98 in June 1998; Microsoft Office XP in May 2001;
Microsoft and partners Tablet PC in November 2002; Microsoft Windows
Server 2003 in April 2003; Microsoft Xbox 360 in November 2005; Microsoft
Windows Vista and the 2007 Microsoft Office System to consumers world-
wide in January 2007; Windows Server 2008, SQL Server 2008 and Visual
Studio in February 2008; Windows 7 in October 2009 and Kinect for Xbox
360 in November 2010.

The company's market capitalization stood at $227.55 billion in October 2011

with a net revenue of $69.94 billion and a net income of $23.15 billion, em-
ploying 90,819 employees worldwide.

In the later part of his corporate journey, Gates has been pursuing a number of
philanthropic endeavours, donating large amounts of money to various
charitable organizations and scientific research programmes through the
Bill & Melinda Gates Foundation, established in 2000. In June 2006, Gates
announced that he would be transitioning from full-time work at Microsoft
to part-time work, and work full-time at the Bill & Melinda Gates
Foundation.
10.1 INTRODUCTION

Having done detailed marketing research to make the final decision

about how, where and when to enter into the market, an entrepreneur
should prepare a detailed operational plan.

‘In the world of business there are many essential parts to a successful
operation. Some may say that marketing, production and/or sales are the
most important phases of any business, but after studying the process of
operation management, it is found to be the backbone of any business

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process. Operation management embodies all aspects of a business

process and unites them to create an efficient resourceful procedure…’1

The operations aspects of a venture have undergone major changes over

time. The emphasis shifted from the cost focus approach, which used to
dominate from 1776 to 1980, to quality as the key focus during 1980–95,
and thereafter, the major emphasis shifted to mass customization during
the period 1995–2010. Accordingly, entrepreneurs in their approach to op-
eration management were required to have a distinct strategic focus. In
the era of cost focus, it was labour specialization that took deep roots cou-
pled with scientific management practices as highlighted by Gantt charts
(Gantt), motion and time studies (Gilbreth), process analysis (Taylor) and
queuing theory (Erlang). A Gantt chart is a type of bar diagram that illus-
trates a project schedule. It depicts the start and finish dates of the termi-
nal elements and summary elements of a project. Frank Bunker Gilbreth
(1868–1924) was an early advocate of scientific management practices
and a pioneer of motion and time study in production systems. Frederick
Winslow Taylor (1856–1915) is regarded as the father of scientific man-
agement, who sought to improve industrial efficiency (Taylor 1915).2 He
was one of the intellectual leaders of the efficiency movement and his
ideas, broadly conceived, were highly influential in the subsequent pe-
riod in the field of management.

During the mass production era that continued between 1910 and 1980,
the focus was on cost management through techniques such as moving
assembly line (Ford), statistical sampling (Shewhart), linear programming
(Dupont) and material requirement planning. Shewhart (1891–1967) was
a prominent scientist with the Western Electric Engineering Department
back during the 1920s. In 1924, Shewhart devised a framework for the
first application of the statistical method to the problem of quality con-
trol. According to his findings, ‘The application of statistical methods in
mass production makes possible the most efficient use of raw materials
and manufacturing processes, economical production and the highest
standards of quality for manufactured goods. In this classic volume,
based on a series of groundbreaking lectures given to the Graduate
School of the Department of Agriculture in 1938, Shewhart illuminates
the fundamental principles and techniques basic to the efficient use of

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statistical method in attaining statistical control, establishing tolerance

limits, presenting data and specifying accuracy and precision.’ Linear
programming consists in optimizing linear functions under a number of
constraints reflected by linear inequalities. The use of this technique to
optimize resource allocation became a vital tool in industrial
applications.

As against this, during 1980–95, the emphasis in production and opera-

tion management shifted to quality focus by use of techniques such as
just in time, computer-aided design and total quality management (TQM).
The present era in operations is characterized by customization focus as a
result of globalization, Internet uses, enterprise resource planning, sup-
ply chain management and build to order.

Production and operations management (POM) is about the transforma-

tion of inputs into required outputs; and these outputs, when they reach
customers in the target market, meet their needs. In business and engi-
neering, new product development (NPD) is the term used to describe the
complete process of bringing a new product or service to market.2 It
mainly involves product design and detailed engineering and market re-
search and market analysis.

The operations management aspects of a business plan help in identifying

physical inputs such as the physical location, facilities in terms of power
and water, raw material availability and equipment. Further, it also has
to cover other aspects such as inventory requirements and suppliers, and
a detailed description of the manufacturing process. This exercise helps a
lot not only in ensuring the technical viability of the business but also in
estimating investment requirements and working capital requirements of
the business on a day-to-day basis.

In case the business requires any agreements, licensing or otherwise, to

procure technology from some source, it needs to be handled appropri-
ately in advance, so that problems do not surface later on at the time of
starting production. Fundamentally, it is the entrepreneur's preparedness
and readiness that reflects their clear understanding of the manufactur-
ing or delivery process of producing the product or service. It would be
easy to operationalize the various aspects related to the operations plan,
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if the entrepreneur clearly identifies the various stages of product

development.

While writing this part of the business plan, it is important to explain

what has been done so far to get the business operational and what more
needs to be done so that it would become completely functional. It is ad-
visable to identify risks associated with production, planning and control
and the steps that an entrepreneur proposes to take to mitigate them.
While preparing an operational plan, an entrepreneur should be fully
conversant with the industry's standards and regulations that apply to
the product/service and the steps taken to comply with the laws and regu-
lations that apply to the proposed venture.

10.2 TYPES OF PRODUCTION SYSTEMS

As economies move from underdevelopment to developing to the devel-

oped world, the entrepreneurial opportunities keep shifting from agricul-
ture and mining, to construction to manufacturing to the service sector.
The service sector has started dominating with a contribution as high as
60–75 per cent of gross domestic product. This implies increased opportu-
nities in activities such as education, legal, medical, trade, transportation,
utilities, professional and business services, finance, information and real
estate, food, hotel and entertainment.

It is important to understand that production of most of goods contains a

service component and creation of most of the services contains a good
component. The only difference is that products have a small component
of services, and services have a small component of goods. The funda-
mental difference between goods and services is by way of being tangible
and intangible, respectively. Services are usually produced and consumed
simultaneously while goods are produced and then supplied to users
through a distribution chain. Services are usually unique to the consumer
while products are usually standardized. Above all, services have a lot of
customer interaction, which is not so in the case of goods. Thus, the fun-
damental differences between goods and services are as follows:

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The production system of a company uses various facilities, equipment

and operating methods to produce goods and services that satisfy cus-
tomer needs. This depends mainly on the type of the product or service
produced by the entrepreneurial venture and the strategy that an entre-
preneur uses to serve the customers. Production systems can be classified
on the basis of the type of output, type of flow involved in production and
type of specification under service. According to the type of the output of
production, production systems are classified as production of products
or providing services. For example, manufacturing furniture, mobiles, re-
frigerators, television, lathe machines and automobiles fall under the cat-
egory of products, while health services, telecom services, screening
movies, hotels and banking fall under the category of services.

According to the type of flow, production systems are classified as

projects, job shop, flow shop and continuous process. The project refers to
the process involving a set of interdependent activities requiring a set of
resources to perform well-defined tasks to create a product or service re-
quired by the customer. Examples of projects are road construction, hos-
pital building construction and project execution for setting up a turnkey
project to manufacture yarn. Examples of job shop are auto repair shop,
television repair shop and furniture company. Examples of flow shop are
TV manufacturing companies and automobile manufacturing companies.
Companies such as oil refineries, chemical plants and power generation
and distribution are in the continuous process industry.

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According to the type of specification under the service category, there

could be customized services such as that offered by legal professionals
and chartered accountants or standardized services such as banking, in-
surance and wholesale stores. Entrepreneurs, while preparing a business
plan, should meticulously take care of the production system that would
best suit their requirements to deliver a final outcome by appropriately
using facilities and equipment and operating methods. While making a
decision to deploy resources, entrepreneurs should clearly weigh the pro-
ductivity implications. Productivity refers to the relationship between the
output and the input in a business system. The entrepreneur should de-
ploy the systems that can yield the highest output for a given input, main-
taining the quality of production. This could be achieved by increasing
output for a given input, decrease in input for a specified output, propor-
tionate increase in output being far higher than proportionate increase in
inputs and proportionate decrease in the input being more than the pro-
portionate decrease in the output.

Productivity variables mainly consist of labour, capital and entrepreneur-

ship. Human productivity is attributed mainly to improvement in the
quality of workforce arising as a result of improved education opportuni-
ties, better dietary habits and availability of labour on account of greater
mobility. Entrepreneurs face greatest challenges to induct competent peo-
ple and utilize them well with stronger commitment by providing train-
ing to enhance their skills and inspire and motivate them by appropriate
motivators. Capital investment is the tools that human beings use to con-
vert inputs into value-added outputs. Entrepreneurs face challenges to
have an appropriate mix of capital and investment. Above all, it is en-
trepreneurship by way of expertise in managing the factors of production
and economic resources that contributes to the enhancement of
productivity.

10.3 PRODUCT DESIGN AND ANALYSIS

The purpose of the product design and development plan section in a

business plan is to provide a complete description of the product's design,
and specify the stages of development within the context of production,
planning and control. In case product development would require proto-
type development or certain research and development efforts, these
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along with available competencies, timeframe and investment required,

need to be highlighted.

10.3.1 Goals for Product Design and Development

Product design is the first step in proceeding with any business venture.
This requires clear conceptualization of the product and its ingredients.
The goals for product development should focus on the technical aspects,
given the marketing research outcomes as prerequisites. However, there
are ventures that come up with an altogether new product and then look
forward for marketing aspects of the product to create market. For exam-
ple, a goal for product development of natural flavoured ice creams could
be to ‘produce recipe for premium natural flavoured ice creams’.

Figure 10.1 Product Design Issues

Product design directly affects the plant layout and the flow of materials
in the production process. While designing the product, it is essential to
critically analyse alternative design features in relation to product uses
and to substitute raw materials and alternative equipment that can be
used to manufacture it. Thus, the key purpose of product design and
analysis is to come up with products that would give greater utility to the

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consumer by way of satisfying their needs through ease and convenience

of use and low cost compared with alternative options available and will
be profitable for the entrepreneur (Fig. 10.1). Some of the important as-
pects of product design include a design for function, making and selling.
Design for function means that the product should be able to perform the
function that customer expects it to do. The key factors to be considered
are strength, safety, security and wearability of product and its
components.

iPod—Integrated Product System: An Example

The iPod, when launched in the market by Apple, was never sold on techni-
cal merits but was designed for function focused on marketing a cool new
way of music getting integrated in one's life. It did not appeal to the cus-
tomers as a ‘standalone’ device but rather as a piece of integrated and
thought through product system with the Music Store and iTunes as
‘missing pieces’ for anything you could possibly do with your music—lis-
tening, ripping, mixing, collecting, burning CDs, archiving, shopping, gift-
ing, subscribing—and taking it with you on the go, to a party or in the car.
In the Windows world, you had all these functionalities spread over dif-
ferent applications and hardware from different vendors—which often
requires mere luck to get everything to work without problems.3

The design of the product needs to focus on ease and convenience to

manufacture the product. A product design that may have functionality
for the customer but is difficult to manufacture and repair will be of no
use. Special care needs to be given to aspects such as the materials used
and ease in fabrication, dismantling and repair while designing the prod-
uct. Above all, a product that has been designed well to manufacture as
well as takes care of the functionality aspects from a customer's perspec-
tive, but is not required or wanted by anyone, is of no use. The ultimate
purpose of coming up with a product is to get it sold like hot cakes.
Therefore, engineers, designers, market experts and psychologists should
work in an integrated manner by keeping the customer in focus to design
and develop better and improved products that have great market
potential.
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Car Fuel—Innovative Way: An Example

Researchers from the south west of England are working on a £1.4 million
project that could take carbon dioxide from the air and turn it into car
fuel. Scientists and engineers from the University of the West of England
are collaborating with colleagues from the University of Bath, who are
leading the research, and colleagues from the University of Bristol in the
project to come up with innovative solutions to global warming as well as
cheap fuel for cars. The project aims at developing porous materials that
can absorb the gas that causes global warming and convert it into chemi-
cals that can be used to make car fuel or plastics in a process powered by
renewable solar energy. The researchers hope that in the future, the por-
ous materials could be used to line factory chimneys to take carbon diox-
ide pollutants from air, reducing the effects on climate change.4

10.4 NEW PRODUCT DEVELOPMENT

In the process of human development, the number of inventions leading

to more and more innovations useful to society is ever increasing at an
accelerated rate. Every innovation leading to NPD has a phase of growth
leading to a maturity and a decline phase. Entrepreneurs, for their very
survival, have to keep coming up with new and new innovations to over-
come the effect of the declining phase in the existing products (Fig. 10.2).
Each product has a different lifecycle in terms of approaching the matu-
rity and the declining phases, which mainly depends on technology devel-
opments, intensity of competition, obsolescence rate, changing tastes and
preferences and economic well-being of the people, in general, leading to
the next level of consumption pattern. The product design strategy works
for the development of existing products to improve operational effi-
ciency and widens product usages by developing completely a new prod-
uct resulting in catering to the existing needs or new needs.

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Figure 10.2 Product Life Cycle

Any new idea requires a good deal of time, effort and investment to give
it a concrete shape—the idea development stage. In this phase, there is
only an outgo of money and, therefore, the company incurs losses. Every
venture would like to minimize the timeframe of this phase and come up
with a concrete product that can recover the initial investment made to
break-even at the earliest possible time. After this, an introduction stage
begins when the entrepreneur is ready with the product to be launched
in the market. At this stage, the entrepreneur attempts to build product
awareness and develop a market for the product. The major emphasis is
on obtaining patents and trademarks and establishing product branding
and quality in the market. Here either the entrepreneur operates on high
skim pricing to take advantage of monopoly to recover development costs
or the product is distributed selectively to ensure its acceptance in the
market. The promotion strategy focuses on early adopters and innova-
tors. The next phase is called introduction, where competitors start enter-
ing in large numbers, depending on the profit potential in the market and
their ability to produce similar products. Therefore, the focus of the en-
trepreneur gets shifted to building brand preferences, loyalty towards the
product and increase in the market share. The entrepreneur attempts to
achieve it by maintaining product quality and adding new features in the
product. Pricing is more or less maintained, as awareness about the prod-
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uct would yield enhanced market with some competition. The promotion
strategy focuses on creation of a broader customer base. In the maturity
stage of growth, the momentum of growth in sales starts diminishing, as a
result of greater competition. Therefore, the entrepreneur attempts to dif-
ferentiate the features of the product from those of their competitors. The
pricing strategy gets shifted to reducing the prices, if the competitors
come up with a wide range of similar products at similar prices or lower
prices. The distribution strategy becomes intensive and promotion em-
phasizes on differentiation. In the declining stage, the entrepreneur has
to get ready to coming up with a new product to avoid the adverse effect
emerging from the decline in sales and profits. The best strategy becomes
to discontinue with the product. In case they are not ready with introduc-
tion of a new product, the entrepreneur may work on the strategy of har-
vesting the product by reducing the cost of production and serving the
niche market of loyal customers. They may also prefer to work on main-
taining the product by adding new features to it or finding new uses for
the product.

Design decisions related to existing or new products are strategic in na-

ture, which affect the interrelated functions of the company in many
ways. These are guided mainly by corporate goals of the company, includ-
ing emphasis the company places on quality aspects. It is the product de-
sign that affects the company's image and reputation in the eyes of em-
ployees customers and the public in general. Some of the key factors re-
lated to design decisions are as follows (Fig. 10.3):

Appearance of the product.

Internal components that affect performance in terms of durability
and reliability.
Components used that affect the production process and in turn the
investment required.
Design decision that affects the number of components that would go
into the manufacture of the product that need to be acquired from
outside sources or manufactured within. This affects supply chain
management in terms of linkages with suppliers, on the one hand, and
availability of spare parts for the customers, on the other.

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Figure 10.3 Key Factors Related to Design Decisions

Therefore, the designer has to be careful about the consequence of the de-
sign decisions on various interrelated aspects from manufacturing to
marketing of the product. The endeavour has to be on simplification,
standardization and systematization to add great value to the manufac-
turing process as well as to the customer in terms of value coupled with
ease of use.

10.5 LOCATION AND LAYOUT DECISIONS

The decision on the location of a business entity is critical to the success

of a business. A bad location choice can kill a business that is best man-
aged otherwise, while a good location choice for the business may enable
a struggling business to thrive ultimately. The choice of location is gov-
erned by the demand potential of the product, conditions required for op-
erations and input requirements. ‘Location’ relates to broad areas such as
city, town, industrial estate and coastal region, while ‘site’ refers to a spe-
cific piece of land where an entrepreneur proposes to set up the manu-
facturing facility. The entrepreneur needs to answer some of the vital

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questions, such as the following, while making a decision on the location

of the business:

Does the business location need convenient transportation facilities,

especially to suppliers?
Does it require easy access?
Does the business have any additional important requirements, such
as parking and proximity to freeway and accessibility to airports, rail-
roads and ports?
Is there a plan to construct a building? Most start-up companies can-
not afford to put capital into construction. However, if there is a plan,
the costs and specifications of the building need to be included in the
plan.

Location choice differs from business to business. For example, home-

based business requires different criteria compared with manufacturing
or warehousing or, for that matter, retail business. Similarly, service in-
dustries such as hotels, schools, colleges and hospitals have different cri-
teria to be satisfied before making a choice of location.

Figure 10.4 Key Factors Affecting Location Decision

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Some of the key factors to be considered while making a decision on the

location of a business are as follows (Fig. 10.4):

proximity to the target market where customers are thickly

concentrated
proximity to the source of the raw materials
issues regarding traffic, accessibility, parking and lighting
location of competitors and rationale for their choice
security and safety
location advantage of government incentive programmes in specific
targeted areas and industrial estates
community receptiveness to a new business at the prospective site

It is important to assess the long-term prospects of factors such as avail-

ability of power, transportation, water and communication before mak-
ing a decision on the location of the business. Over and above the avail-
ability of power and transportation, availability of water becomes a key
criterion for a given technology and manufacturing process vis-à-vis the
industry. Other criteria may be related to coping with environmental pol-
lution in the case of specific industries that are more prone to contribut-
ing to the pollution in the form of gaseous emissions, liquid or solid dis-
charges, noise and heat and vibrations. Location choice needs to assess
the cost of mitigating pollution at alternative locations. For certain
labour-intensive industries—unskilled, semi-skilled or skilled—the avail-
ability of the industryrelated climate in the area may have to be assessed
well. For certain industrial operations, climatic conditions such as tem-
perature, humidity, sunshine, rainfall and dust earthquake may influence
the choice of location. Other infrastructural facilities such as housing, ed-
ucation, recreation and medical care need to be assessed well before
making a location choice. It is important to realize that location decision
is a one-time decision and, once decided, it is a kind of irreversible deci-
sion, as the cost of changing the location would be prohibitive to think
about it. Location decisions become more important for manufacturing
concerns or certain service facilities such as hotels, hospitals, amusement
parks and picnic spots where substantial investment on land and build-

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ing needs to be committed and after making this investment, it is not pos-
sible to easily shift the location.

Having decided on the location, the entrepreneur needs to decide about

the site selection for the business. Within the given location, alternative
sites should be identified and evaluated in respect of land cost and site
preparation and development cost. The cost of site development depends
on the physical features of the site, work related to utilities and obtaining
utility connections and cost related to demolishing existing structures to
make it suitable for the purpose.

For example, for a cement project, the locational considerations would in-
clude availability of raw materials such as limestone mines, kinker and
coal. Most big cement manufacturing plants would also prefer to have
their own captive power generation to take care of power requirements.
However, coupled with availability of raw materials near the site on a
long-term basis, if the coastal area has its own jetty and a conveyor belt
system to load and unload, this may dramatically reduce the cost of trans-
portation of finished goods—cement to certain markets within the coun-
try—and facilitate export handling. The sea coast with owned facilities
for loading and unloading may also help in getting better quality of im-
ported coal at cheaper rates compared with buying from within the coun-
try. Gujarat Cement Works located in Kovya in the Amreli district of
Gujarat is a good example to learn from the locational aspects of a
project, from the long-term viability and competitiveness point of view.

10.6 PROJECT LAYOUT

Keeping ready the data on the important aspects of the project such as
market size, plant capacity, technology, equipment required, civil works,
specific conditions required in the plant and raw material sourcing and
storing requirements, an entrepreneur needs to get the plant layout. The
plant layout helps in defining the scope of the project and provides a ba-
sis for project engineering, investment required on plant, machinery and
equipment and production costs. A plant layout has various facets such as
general functional layout, which focuses on the general relationships be-
tween equipment, building and civil works. The purpose is to ensure
smooth and cost-effective flow of raw materials for the work in progress.
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The material flow part of the layout takes care of flow of materials, utili-
ties, intermediate products, final products, by-products and emission.
Material flow should also take care of the quantity of flow of different
materials. Production layout should take care of input flow along with
main equipment—description, location, dimension, foundation, spacer
equipment, and power and other utilities requirement. It should also
have a balance in different sections in terms of capacities. Other aspects
of a layout are utility consumption layout, communication layout and
plant layout. Plant layouts take care of the physical layout of the factory.
In case of process industries, plant layout is governed by the production
process. Manufacturing industries provide for greater degree of flexibil-
ity in plant layout. Plant layout decisions are based on production tech-
nology, smooth flow of materials, optimum utilization of space, cost mini-
mization and safety.

10.7 PLANT AND TECHNOLOGY CHOICES

A plant constitutes bulk of investment on fixed assets. It is affected by the

type of project and production technology proposed to be used. An entre-
preneur must consider some of the following vital factors for selecting a
particular plant from among the available alternatives:

future demand for the product in the short, medium and long terms of
volume and time
proposed design and layout of factory, equipment, offices and space
for utilities, capacity, efficiency and reliability of plant and machinery
associated maintenance requirements and equipment required for the
same, in case it is to be undertaken in-house
safety aspects related to plant and machinery
suppliers and their credibility in delivering and maintenance
environmental aspects related to plant and machinery

For process-driven industries, plant and machinery has to take care of

matching the capacities available at various stages of production process.
The choice of machinery, in the case of the manufacturing industry, pro-
vides a wider flexibility, as alternative machines available could perform
same operations with a varying degree of accuracy. Broadly, plant and
machinery can be classified into categories such as plant, mechanical
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equipment, electrical equipment, instruments, control panels, internal

transportation system and other plant and machinery. Some of the impor-
tant constraints that need to be kept in mind while selecting plant and
machinery are non-availability of adequate power, difficulty in transport-
ing heavy plant and machinery to remote places, non-availability of
workers and import restrictions, if any, put up by the government.

Technology is about tools, systems and techniques used to transform in-

puts into outputs. The use of technology has become inevitable in any
production system as it makes tasks easier and saves time, effort and
money and in turn helps in making the most of opportunities. Technology
is an important component of all businesses, be it small or big, or technol-
ogy driven or human capital driven. Because technology is an integral
part of every business, entrepreneurs need to plan what technology they
are going to use, where and how to procure it and how to use it. While de-
ciding on the technology for the business, entrepreneurs should keep in
mind the way the company might grow or change. It is advisable to
choose a technology that is flexible enough to grow and change with
changing times. One should pick up a technology that is simpler to under-
stand and use, and serves business requirements effectively.

In companies where technology is key and the core business component,

potential investors would be looking for detailed information about the
nature of the technology. It should cover the basic concept and features of
your technology with a level of detail geared to the expertise of the poten-
tial reader. However, whether it is a technology driven or other business,
the application of technology in certain areas is becoming all pervasive. It
is important to identify the areas that can get a greater benefit compared
with the cost of deployment of technology. Some of the common areas
wherein technology can be deployed are as follows (Abrams 2000):

accounting, taxes and finances

order taking and tracking
order fulfilment/shipping
inventory management
database management: customer, product, supplier and inventory
mailing lists

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communication with customers

internal communication
presentations
desktop publishing/graphics
personnel/human resources management
production: design, cost-tracking and supply management
Internet marketing/Web site/e-mail
Internet sales

While choosing a technology, the key issues that need to be diagnosed

well are functions it would perform; ease of use of the technology; cost
implications and benefits; security issues to ensure that operations re-
main highly secured and protected and scope for further upgradation
and modernization of the technology in use, without making the existing
technology completely redundant (Fig. 10.5).

Figure 10.5 Technology—Selection Criteria

Some points that can help in making an appropriate choice of technology

are (Abrams 2000) as follows:

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Features of the technology that must be incorporated in the produc-

tion system.
Features that would be helpful and useful but not absolutely
necessary.
How fast new technologies are coming in the area, which make the ex-
isting ones obsolete.
Compatibility between the new technology and the existing plant and
equipment.
Source and ready availability of consumables required for use of tech-
nology at appropriate prices.
Training of personnel and how it would be taken care of.
Whether there will be a permanent dependency on suppliers or adap-
tation of technology by in-house personnel will be easy.
Whether the outsourced technology will be compatible with the local
raw materials.

Technology transfer is the process of sharing skills, knowledge, technolo-

gies, methods of manufacturing, samples of manufacturing and facilities
among governments and other institutions to ensure that scientific and
technological developments are used further for development and ex-
ploitation of the technology into new products, processes, applications,
materials or services. It is closely related to knowledge transfer.5

The commercial exploitation of technology developments can be through

licensing agreements or setting up joint ventures and partnerships to
share both the risks and rewards of bringing new technologies to market.
Other approaches could be spin-outs, where the host organization does
not have the necessary will, resources or skills to develop a new technol-
ogy. These approaches are linked to raising venture capital (VC) as a
means of funding the development process, a practice more common in
the United States, compared with the European Union.6

Research efforts from universities produce new technologies through

ground-breaking inventions every year. Entrepreneurs can derive much
benefit by gaining a deeper insight into the nature and process of univer-
sity technology transfer.

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The process of technology transfer from universities starts when an in-

ventor—faculty or student or jointly—submits an invention disclosure to
the university system for filing a patent. The intellectual property (IP) of-
fice that may also be dealing with technology transfer typically evaluates
the invention's economic prospects and decides whether to protect the IP
by securing a patent, copyright, trademark or trade secret. As the inven-
tions made using university resources are owned by the university, the
inventors assign the rights to their IP to their university, and the univer-
sity is free to license the technology for commercial applications. After
protecting the IP, the university attempts to identify prospective users to
license it. The university and the identified companies may proceed to ne-
gotiate licensing terms. At this stage, the university typically requires the
prospective licensee to submit a development plan and a corresponding
letter of intent. After a due diligent process and the execution of a licens-
ing agreement, both the licensor—the university—and the licensee—
company(s)—may start earning income from the transferred technology.

Entrepreneurs are in constant touch with the university system where re-
searches in an area of interest are going on or find out from patent
searches the available technologies for transfer. At times, industries fund
research and enter into an agreement to have joint rights to IP with other
terms and conditions for its utilization on an exclusive or a non-exclusive
basis. As all inventions coming from the university system may not have
great commercial potential, an entrepreneur has to be creative in seeking
out inventions that would have direct relevance to their product develop-
ment endeavours and can be smoothly implemented and associated with
their business plan.

In addition to the common licensing agreement, a company may negoti-

ate an industrial contract after reviewing the invention disclosure. This
could be in the form of a material transfer agreement,7 a collaboration
agreement, a master agreement or a sponsored research agreement dur-
ing the early stages of research (Fig. 10.6).

The amount of licensing fee or royalty differs from case to case and is
governed by factors such as the type of technology; its stage of develop-
ment; the size of the potential market; the profit margin for the antici-

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pated product; the strength of the patents; the estimated investment that
has led to the discovery; the projected cost of development needed to
complete the product; the scope of the license, such as non-exclusive vs
exclusive, country specific vs worldwide and narrow vs multiple fields of
use; royalty rates for similar products and the expected cost of bringing
the product to the market.8

Figure 10.6 Technology Transfer—Licensing Agreements

10.7.1 Long-term Vs Short-term Licensing Agreement

In the case of a long-term license, the terms of use of technology involve a

longer duration, say five years and above, which is usually more benefi-
cial for companies with limited cash. The initial payment involved to the
licensor is small followed by subsequent royalty payments forming a
greater part of the financial compensation, as the company starts earning
more and more money from the use of technology. On the other hand, a
short-term agreement may involve higher down payment followed by a
small proportion of sales as the royalty.

10.7.2 Exclusive Vs Non-exclusive Agreements

License Agreements

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A non-exclusive agreement is one where more than one company can utilize
the licensed technology, as against an exclusive agreement, which allows
only one company to license the invention. A nonexclusive agreement is
much beneficial to the university and the company, as it reduces the
chances of potential conflicts that might arise, and reduces the risks for
involved parties. The licensing fee and royalty fee in the case of a non-ex-
clusive agreement is relatively low and, therefore, helps in reducing the
cost of the product and in creating a wider market opportunity. The licen-
sor derives an advantage of not being over-dependent on the success of
one particular product or particular licensee.

An exclusive license generally involves an agreement with stipulations that

are more rigorous and stringent. This in turn helps the company in secur-
ing a unique technology as part of its enterprise. This provides a great ad-
vantage to the licensee by way of exploiting the whole market by avoiding
competition. Even the licensor may restrict the application of the technol-
ogy or a method of producing any products that result from the technol-
ogy to a specific territory. This could be even conditional, for a limited
timeframe, subject to the continued employment of certain key technical
staff of the licensee.

Some of the key areas of terms and conditions that need to be explicitly cov-
ered in the licensing agreements are as follows (Fig. 10.7):9,10

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Figure 10.7 Licensing Agreement Terms and Conditions to Be Covered

Licensing Period and Its Renewal—The date of commencement, du-

ration, renewal and extension provisions and conditions, grounds for
termination of agreement, obligations upon termination and licensor's
reversionary rights in the technology should be included under this
section.
Stipulation of Performance Standards—The licensor may be inter-
ested in imposing certain minimum levels of performance in terms of
sales, advertising, promotional expenditure and human resources to
be devoted to the exploitation of the technology. The royalty fee may
be accordingly decided. On the other hand, the licensor may want to
insist on a minimum level of royalties that will be paid irrespective of
the licensee's actual performance.
Payments to the Licensor—Normally, payments involve some initial
fixed amount coupled with ongoing royalty to the licensor. Royalty
computation varies widely according to gross sales, net sales, net prof-
its, fixed amount per unit of product sold or a minimum payment for a
fixed period, irrespective of sales. Royalty payment may be propor-
tionately reduced with increase in sales to provide an incentive to the
licensee.
Quality Control and Assurance—This would provide for production,
marketing and distribution specifications that would ensure quality of
the product to be made part of the license agreement. The licensor
may also set specific procedures to achieve those standards.
Accounting, Reports and Audits—The licensor imposes certain re-
porting and record-keeping procedures on the licensee to ensure an
accurate accounting for periodic royalty payments.
Conditions to Preserve and Protect IP—This section would include
specific obligations on the part of the licensee, its agents and employ-
ees to preserve and protect the confidential nature of the technology
and to acknowledge its ownership. This also would include any re-
quired notices or legends that must be included on products or materi-
als distributed under the license agreement.

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Technical Assistance, Training and Support—This section provides

for any obligation of the licensor to assist the licensee in the develop-
ment or exploitation of the technology being licensed.
Warranty—Are assurances by one party to the other party that cer-
tain facts or conditions are true or will happen; the other party is per-
mitted to rely on this assurance and seek some type of remedy if it is
not true or followed. A prospective licensee may be particularly inter-
ested in certain representations and warranties in the license agree-
ment. These would include aspects such as the ownership of the IP,
such as absence of any known infringements of patents or restrictions
on the owner's ability to license the IP, or a guarantee that the technol-
ogy has the features, capabilities and characteristics previously pre-
sented in the negotiations.
Infringements—The license agreement should also provide for proce-
dures for notifying the licensor of any known or suspected direct or
indirect infringements of rights of the licensee. The responsibility for
the cost of protecting and defending the technology also gets specified
in this section.

Above all, in all licensing agreements, adequate reporting and record-

keeping by the licensee has to be ensured, so that the licensor receives all
royalty payments as and when they fall due. Record-keeping matters will
include the details of the licensee's actual use of the technology; research
studies or market tests that have directly or indirectly used the technol-
ogy; marketing, advertising or public relations strategies planned or im-
plemented that involve the technology; progress in meeting the estab-
lished performance objectives and timetables; threatened or actual in-
fringement or misappropriation of the licensor's technology and requests
for sublicenses or cross-licenses that have been made to the licensee by
third parties.

10.8 PRODUCT SPECIFICATIONS AND CUSTOMER NEEDS

It is key that the entrepreneur produces a product that gets sold with least
of effort by the marketing team. This can be done by producing products
that are needed by the customers. The production and operations team
has to make the required products in accordance with the plan. The pro-
duction and operations team has to focus on the following aspect.
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10.8.1 Performance

Products, depending on consumer or industrial, will have different pa-

rameters to measure their performance that can ultimately give rise to
quality standards. Although performance criteria differ a lot from indus-
try to industry and product to product, some of the key criteria from com-
petitive framework are as follows:

customer looking for shorter lead time for manufacturing

reduction of manufacturing cost to compete well in the market
improvement of return on investment
reduction of inventory cost
building in order to customize
improvement of manufacturing flexibility/agility
defining quality benchmarks
raw materials to be used and their specifications

For example, light-emitting diode (LED) performance parameters may in-

clude optical properties mainly related to the spectrum, such as bright-
ness and colour performance requirements. According to the new indus-
try standard ‘semiconductor light-emitting diode test methods’, mainly
the peak emission wavelength, spectral radiation bandwidth, axial lumi-
nous intensity, beam angle of half intensity, luminous flux, radiant flux,
luminous efficiency, colour coordinates, correlated colour temperature,
colour purity and dominant wavelength, colour rendering index and
other parameters are included. The two major parameters of LEDs in-
clude the lighting effect of the atmosphere and dominant wavelength.

One may specify parameters in terms of electrical properties. PN junction

LED's electrical characteristics determine the LED lighting applications in
the electrical characteristics different from those of traditional light
sources, namely, one-way non-linear electrical properties, low-voltage
drive and the characteristics of static sensitive. Thermal performance—
lighting LED luminous efficiency and improved power LED industry is
currently one of the key issues, at the same time, LED the PN junction
temperature and shell heat dissipation is particularly important for gen-
eral use thermal resistance, case temperature and junction temperature.

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Radiation—Need for Safety and Reliability

Radiation Safety—LEDs being a narrow beam having high-brightness light-

emitting devices, taking into account the radiation, may be harmful to the
human retina. Therefore, international standard specifies the limits of
their effective radiation requirements and test methods for their
application.

Reliability and Lifetime—LED indicator is the measure of reliability to work

in all environments. For example, in lighting applications, the effective
life of an LED is at rated power conditions, the flux attenuation to the pro-
visions of the initial value of the percentage of the duration of the time.11

10.8.2 Aesthetics

Aesthetic experience is restricted to the pleasure that results from sen-

sory perception from the appearance of the product. Product design
should be guided by environmental patterns and features that are benefi-
cial for the senses. Entrepreneurs in certain lines of activities especially
focus on providing a unique experience. The experience mainly consti-
tutes the unity of sensuous delight, meaningful interpretation and emo-
tional involvement, which an entrepreneur should consciously incorpo-
rate into the product design or service they are providing.

Product Appearance—shape, colour and fragrance have an immediate

impact on consumers’ perception about a product called visual cue.
Consumers, in general, prefer laundry powders containing coloured
speckles and bright, fresh perfumes. The Coca-Cola bottle, for instance,
‘even when wet and cold, its twin-sphere body offers a delightful valley
for the friendly fold of one's hand, a feel that is cozy and luscious’ (Loewy
1951).

10.8.3 Quality

The word ‘quality’ is widely used by companies, irrespective of the indus-

try—manufacturing or service. Customers always weigh the value of a

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product or service with price and quality. Quality is defined as the ability
to achieve target operational goals. The ISO 8402-94 standard defines
quality as ‘the set of characteristics of an entity that give that entity the
ability to satisfy expressed and implicit needs’. The ISO 9000:2000 stan-
dard defines quality as ‘the ability of a set of intrinsic characteristics to
satisfy requirements’. Fundamentally, there are two broad types of qual-
ity, namely, external quality, which refers to the satisfaction of clients.
Thus, achieving external quality requires offering a product or service
with stipulated characteristics that meet client expectations to establish
customer loyalty to improve market share. On the other hand, internal
quality refers to the improvement of a company's internal processes, to
achieve defect-free, pre-specified standards in the product or service (Fig.
10.8). The main purpose of internal quality measures is to implement the
means that enable the company to best describe the organization, and to
identify, at appropriate stages of production, any aberrations in the out-
put vis-à-vis pre-determined standards.

The entrepreneur's challenge lies in continuous improvement in quality

without escalation in the cost of production to meet customer's expecta-
tions better than the competitors. Therefore, the production system
should be so designed as to eliminate quality defects as much as possible
to earn a good degree of customer satisfaction and customer loyalty and
make profits, with least cost of production.

Fundamentally, the entrepreneur has to always aspire to continuous im-

provement in the quality, implying that quality is a never-ending project
whose goal is to identify any deviation from standards as quickly as possi-
ble after it occurs and to take corrective steps. According to Deming cycle,
continuous improvement can be achieved by a PDCA (Plan, Do, Check and
Act) model, which focuses on the following aspects (Fig. 10.9):

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Figure 10.8 Broad Aspects of Quality

Figure 10.9 Deming Cycle

Plan—Define the goals to be achieved and plan the steps involved in

implementation.
Do—Develop a system to implement the corrective actions.
Check—Have a mechanism to confirm that the set goals are achieved.
Act—Having identified deviations, if any, that occurred in the previ-
ous step, take preventative measures.

Continuous improvement in the quality enables a company to closely

work with its customers in the best conditions, which helps in nurturing
and developing long-lasting relationship of mutual trust, resulting in im-
proved profits.

Improving quality is a participative process that requires involvement

and commitment of the entire company and most of the time, it leads to
changes in work habits resulting in changed organizational culture.
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Therefore, a quality procedure is an organization-wide approach to con-

tinual improvement by taking appropriate steps to eliminate quality-re-
lated defects.

The concept of TQM refers to the implementation of a business plan that

is based on a quality procedure that involves all the employees, that is, a
comprehensive strategy by which an entire company uses all possible
means to satisfy its customers in terms of quality, cost and deadline.
According to the Juran Institute, Inc., TQM ‘is the set of management pro-
cesses and systems that create delighted customers through empowered
employees, leading to higher revenue and lower cost’. The goal is to seek
business excellence and competitive leadership to satisfy customer expec-
tations. A ‘quality spirit’ must be inculcated, developed and shared by one
and all in the organization for TQM to succeed. It requires top manage-
ment commitment, effective management of the cost of quality, key focus
on customers, continuous improvement in all the aspects of operations
and complete involvement and commitment of all the members of the or-
ganization. Figure 10.10 shows the TQM components.

Deming, in his writing on TQM, highlights that 94 per cent of quality-

driven problems arise because of management while just 6 per cent are
contributed by workers, and therefore, quality issues should be given
prime importance. According to him, handling quality issues on TQM phi-
losophy helps in higher productivity of people, lowers the cost of produc-
tion, increases market share because of customer concern for quality and
gives rise to long-term stability to the business. According to Crosby, five
absolutely essential aspects of quality are as follows:

Conformance, not goodness or elegance.

There is no such thing as quality problem; it has to become the philos-
ophy of business.
It is always cheaper to do a job right at the very first attempt.

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Figure 10.10 TQM Components

Cost is to be the measure of performance for quality.

Zero defect in whatever is done in the production or the service indus-
try is the only performance standard.

According to him, there is a 14-point process for achieving TQM leader-

ship, which are as follows:

top management commitment

quality improvement team
quality measurement system in place
cost of quality
quality awareness amongst one and all in the organization
timely detection of deviations, if any, and taking corrective actions
zero defects—no tolerance for defects
goal setting
quality training to employees—a continuous process
observing zero defects day
errors cause removal
recognition for people making extraordinary contributions in quality
adherence
having quality councils to review the system at regular intervals
do it over again

Crosby philosophy of TQM focuses mostly on statistics to ensure that sys-

tems are in place to achieve goals and timely signals for deviations are
captured by the production system.

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10.9 PRODUCTION, PLANNING AND CONTROL

There are many different ways of manufacturing a product. The manage-

ment must choose the best production process or series of processes that
duly take care of the fundamental aspects such as proper matching of ca-
pacities in different sections for optimum utilization of plant and machin-
ery and people skills so that the available plant can be optimally used;
proper layout of plant, as seen in the earlier section; proper maintenance
requirements and, above all, minimization of the cost of production.

A production planning and control (PPC) system is concerned with plan-

ning and controlling and managing all aspects of manufacturing, includ-
ing materials, setting up and scheduling machines, making available ade-
quate number of people with requisite skills and coordinating suppliers
and customers. An effective PPC system is important to the success of any
company. A PPC system's design is not a one-off undertaking; it should be
adaptive to changes in the competitive arena, customer requirements,
strategy, supply chain and other possible problems (Fig. 10.11) (Vollmann
2005: 1).

Figure 10.11 Key Aspects That Influence Production Planning and Control
Decisions

Three key aspects that influence PPC decisions are (Fig. 10.11) (Ibid. 2–3):

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Globalization—The interdependence between nations resulting in

growth in the international markets has had a crucial impact on PPC
decisions. Global markets and acquiring raw materials, including out-
sourcing international suppliers, have become a reality. The composi-
tion of supply chains change according to opportunities. This has ne-
cessitated international, transparent and effective PPC systems.
Changing the Role of the Customer—Meeting customer require-
ments and service demands is crucial. Hence, both product and
process flexibility are needed to produce customized products at a
variable volume.
Information Technology—Responding to global coordination and
communication requirements calls for the deployment of information
systems to link functionally disparate, geographically dispersed and
culturally diverse organizational units.

A production system consists of a number of processes, starting from ac-

quiring different raw materials to the delivery of final goods and services
to the customer. It is important to ensure that the steps involved in differ-
ent processes are well documented. Checks and balances to ensure adher-
ence to quality standards should also be in place to make sure that the
products remain consistent.

A PPC system has to be geared up to the needs of market as revealed by

the marketing department. A proper balancing act between supply and de-
mand needs to be ensured so that the entrepreneur neither misses on
meeting the deadlines to make goods available to the consumer on time
nor lands up with excessive inventories, resulting in increased cost of
production and adversely affecting cash flows. Therefore, it becomes es-
sential to study the production volume capacity of the production set-up
and match it with the requirements of the market. It becomes still more
important not to produce more than the required goods, especially when
goods are perishable. Also, care should be taken not to overproduce, espe-
cially if the goods are perishable. Therefore, some of the essential ques-
tions that a PPC system has to answer are as follows:

How many units per day/week/month/year can be made?

Can this meet the requirements of the market?

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What is the maximum stretchable demand that can be met by the PPC
system?
Where would excess production get stored and what would it cost?
How much inventory can the company afford to keep and for how
long?

10.10 COMMERCIALIZING TECHNOLOGIES

As in the past, manufacturing excellence is key to competitiveness.

Commercialization of technologies will be the key to success in the
twenty-first century. According to the study undertaken by McKinsey &
Company, to understand the difference between leaders and laggards in
commercialization undertaken in the United States, Japan and Europe, it
was found that leading companies have the following characteristics
(Nevens, Summe and Uttal 1990).

Commercialize two to three times the number of new products and

processes as do their competitors of comparable size.
Incorporate two to three times as many technologies in their products.
Bring their products to market in less than half the time.
Compete in twice as many products and geographic markets.

The aforementioned characteristics are found to be sustainable over a pe-

riod in leading companies. Thus, in the present business environment, it
is the ability of a company to come up with product concepts that can be
taken to markets efficiently and quickly that would govern the prospects
for their success. Another major factor that would govern successful com-
mercialization of new technologies is the capability of ventures to frag-
ment the markets, particularly on the basis of their incomes and sophisti-
cation in terms of requirements.

The process of commercialization of new technologies can be an outcome

of research endeavours of the entrepreneur in the company or research
outcomes of universities and research and development institutions. As
such, the ultimate goal of research and development has to revolve
around commercialization and profit-making through competitive edge.
The research outcomes are commercialized in two ways, namely, forma-
tion of new ventures by the owners of the IP and providing access to the

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new technology to the existing companies or new companies formed by

entrepreneurs who do not own IP. Providing access of new technology to
the existing or new ventures undertaken by entrepreneurs who do not
own it would involve commercial licensing of research work. This nor-
mally involves entering into a technology transfer agreement, which
should take care of the following aspects (Fig. 10.12):

Nature of the IPR involved.

Method of the transfer being assignment or license. Assignment gives
the assignee greater freedom in relation to the technology, as it in-
volves very few controls on the assignee by the assignor. On the other
hand, licensing gives the parties a greater feeling of control and also
the ability to participate in any successful commercialization of the
technology through royalty streams, as well as the ability to partici-
pate in the growth of the spin-out business as a shareholder.

Figure 10.12 Key Aspects to Be Taken Care of in a Technology Transfer

Agreement

Consideration for the transfer of technology can be made up of equity,

upfront payments, royalties or a mixture of all the three.
Other rights and obligations specifying continuing rights, if any, to the
parties involved, tenure, any prosecution and other protection of the

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transferred rights costs.

IPR infringements address issues pertaining to who holds the primary
responsibility for dealing with any IPR infringement of the transferred
technology.

Research-driven universities and other institutions in the emerging fron-

tiers of knowledge will be the repositories of new technologies and in-
vestors, and entrepreneurs will be the promoters of new technologies
that will shape the future of growing economies.

Thus, business plans depending on entrepreneur venturing into provid-

ing products or services have to meticulously focus on various aspects of
operation and production plan constituting the design of goods and ser-
vices to provide ease of use at least possible cost coupled with outstand-
ing quality and customer value proposition; clarity about the stages of the
product life cycle and the phase in which the product is operating at a
given point of time vis-à-vis competition in the industry; location and lay-
out of the production facilities based on specific criteria that provide
competitive advantage; plant and technology choices; issues related to
technology transfer; characteristics and quality aspects and PPC aspects
with an emphasis on supply chain management, so as to collaborate with
suppliers to develop innovative products from stable, effective and effi-
cient suppliers; human resources required to ensure their outstanding
contribution at all levels; inventory management to ensure lowest cost of
inventory coupled with high customer service; scheduling to ensure high
levels of throughput and timely delivery to customers and maintenance
of plant and machinery to ensure high utilization of facilities by effective
preventive maintenance and timely repair of plant and machinery.

CHECK YOUR PROGRESS

10 Reasons Why People Will Buy from a Company

People do not buy things for what they are, but for what they will do for
them. They need to be convinced that the value of the benefits will out-
weigh the cost. It does not matter what the product or service is, or if it is
sold to businesses or consumers. People buy products, not features. The
focus will inevitably be on features as this is where the costs are incurred.
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When talking to the customers though, the focus should always be on the
features. Here are 10 good reasons why someone might buy a product or
service.

Meets
1. a need:The greater the need, the easier the sale. For example, one
will be keen to find a glazier if one has a broken window.
Highly
2. desirable: One does not need it all the time, but right now it is re-
ally appealing and readily available. This is why ice cream sells well
on the beach in summer.
Affordable:The
3. customer has the money, or the company has broken the
cost down into manageable instalments.
Safe:The
4. product is reliable and perhaps reduces a risk that worries the
customer.
Performance:It
5. does what it says on the box. Reputation and evidence of
performance, perhaps testimonials, will reassure the customers and
have them say yes.
Appearance:It
6. looks good. Given the choice, no one would buy an ugly
product if one that looked more appealing was available. Also, it
makes the customer look good.
Convenience:It
7. is easy to use, easy to find and easy to dispose of later.
Economy:Once
8. bought, it is cheap to run it. A more concentrated product
might cost more but be cheaper to use as only less of it is needed each
time.
Durability:The
9. lifespan of a product often dictates its value for money.
The cheapest often does not last as long as the most expensive. This
should be spelt out to the customers.
10.
Peer pressure:Nobody likes to feel left behind. This applies to business
purchases such as PDAs, where people buy them to be fashionable and
not because they need one.
KEY CONCEPTS

New Product Development: The term used to describe the complete

process of bringing a new product or service to market.
Product Design and Development: Provide a complete description of
the product's design and specify the stages of development within the
context of production, planning and control.

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Plant Layout: Helps in defining the scope of the project and provides
a basis for project engineering, investment required on plant, machin-
ery and equipment and production costs.
Material Flow: Takes care of flow of materials, utilities, intermediate
products, final products, by-products and emission along with quan-
tity flow of different materials.
Production Layout: Takes care of input flow along with the main
equipment—description, location, dimension, foundation, spacer
equipment, and power and other utilities requirement.
Technology: It is about tools, systems and techniques used to trans-
form inputs into outputs.
Technology Transfer: The process of sharing of skills, knowledge,
technologies, methods of manufacturing, samples of manufacturing
and facilities among governments and other institutions to ensure that
scientific and technological developments are used for further devel-
opment and exploitation of the technology.
Licensing Fee or Royalty: A consideration paid by the user of technol-
ogy to the owner of technology.
Exclusive Vs Non-exclusive Agreement: A non-exclusive agreement
involves more than one company to utilize the licensed technology, as
against an exclusive agreement, which allows only one company to li-
cense the invention.
Quality: The ability to achieve target operational goals.
External Quality: Refers to the satisfaction of clients.
Internal Quality: Refers to the improvement of a company's internal
processes to achieve defect-free, pre-specified standards in the prod-
uct or service.
Total Quality Management: Refers to the implementation of a busi-
ness plan that is based on a quality procedure that involves all the em-
ployees, that is, a comprehensive strategy by which the entire com-
pany uses all possible means to satisfy its customers in terms of qual-
ity, cost and deadline.
Production Planning and Control: Concerned with planning, control-
ling and managing all aspects of manufacturing, including materials,
setting up and scheduling machines and making available adequate
number of people with requisite skills.

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Project: Refers to the process involving a set of interdependent activi-

ties requiring a set of resources to perform well-defined tasks to create
a product or service required by the customer at a given point of time.
IPR Infringements: The infringement or violation of an IP right.
Patent Infringement: The commission of a prohibited act with re-
spect to a patented invention without permission from the owner of
the patent.
Warranties: Are assurances by one party to the other party that cer-
tain facts or conditions are true or will happen; the other party is per-
mitted to rely on that assurance and seek some type of remedy if it is
not true or followed.

REFERENCES

Abrams, R. 2000. The Successful Business Plan: Secrets and Strategies. Palo
Alto, CA: Running ‘R’ Media, www.RhondaOnline.com.

Ibid., 2–3.

Loewy, R. 1951. Never Leave Well Enough Alone. New York: Simon and
Schuster.

Nevens, M. T., G. L. Summe, and B. Uttal. 1990. ‘Commercializing

Technology—What the Best Companies Do’, Harvard Business Review on
Entrepreneurship, United States, May–June Issue 154–163.

Taylor, F. W. 1915. ‘Expert in Efficiency, Dies’, New York Times, 22 March

1915,
http://www.nytimes.com/learning/general/onthisday/bday/0320.html

Vollmann, T. E., W. L. Berry, and D. Clay. 2005. Management, 1.

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definition.html#ixzz19FkUQ8Je

CONCEPTUAL QUESTIONS

1. Why is it said that operation management is the backbone of a busi-

ness process?
2. Define production and operation management.
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