CASE STUDY: LUXOR TECHNOLOGIES Between $1992$ and $1996,$ Luxor Technologies had seen their business almost quadruple in the wireless communications area. Luxor$$s success was attributed largely to the strength of its technical community, which was regarded as second to none. The technical community was paid very well and given the freedom to innovate. Even though Luxor$$s revenue came from manufacturing, Luxor was regarded by Wall Street as being a technology$-$driven company.The majority of Luxor$$s products were based upon low cost, high quality appli cations of the state$-$of$-$the$-$art technology, rather than advanced state$-$of$-$the$-$art technological breakthroughs. Applications engineering and process improvement were major strengths at Luxor. Luxor possessed patents in technology breakthrough, ap$-$ plications engineering, and even process improvement. Luxor refused to license their technology to other firms, even if the applicant was not a major competitor.Patent protection and design secrecy were of paramount importance to Luxor. In this regard, Luxor became vertically integrated, manufacturing and assembling all components of their products internally. Only off$-$the$-$shelf components were purchased. Luxor believed that if they were to use outside vendors for sensitive component procurement, they would have to release critical and proprietary data to the vendors. Since these vendors most likely also serviced Luxor$$s competitors, Luxor maintained the approach of vertical integration to maintain secrecy$.$Being the market leader technically afforded Luxor certain luxuries. Luxor saw no need for expertise in technical risk management. In cases where the technical Exhibit I. Likelihood of a technical risk Event Likelihood Rating $$ State$-$of$-$the$-$art advance needed $0\mathrm{.}95$ Scientific research required $0\mathrm{.}80($without advancements$)$ Concept formulation $0\mathrm{.}40$ Prototype development $0\mathrm{.}20$ Prototype testing $0\mathrm{.}15$ Critical performance demonstrated $0\mathrm{.}10$ community was only able to achieve $7580$ percent of the desired specification limit$,$ the product was released as it stood, accompanied by an announcement that there would be an upgrade the following year to achieve the remaining $2025$ per$-$ cent of the specification limit$,$ together with other features. Enhancements and upgrades were made on a yearly basis.By the fall of $1996,$ however, Luxor$$s fortunes were diminishing. The com$-$ petition was catching up quickly, thanks to major technological breakthroughs. Marketing estimated that by $1998,$ Luxor would be a $$follower$$ rather than a market leader. Luxor realized that something must be done, and quickly. In January $1999,$ Luxor hired an expert in risk analysis and risk management to help Luxor assess the potential damage to the firm and to assist in development of a mitigation plan. The consultant reviewed project histories and lessons learned on all projects undertaken from $1992$ through $1998.$ The consultant concluded that the major risk to Luxor would be the technical risk and prepared Exhibits I and II$.$ Exhibit I shows the likelihood of a technical risk event occurring. The consultant identified the six most common technical risk events that could occur atExhibit II$.$ Impact of a technical risk event Impact Rating Event With State$-$of$-$ the$-$Art Changes Without State$-$of$-$ the$-$Art Changes $$ Product performance not at $0\mathrm{.}950\mathrm{.}80100$ percent of specification $$ Product performance not at $0\mathrm{.}750\mathrm{.}307580$ percent of specification $$ Abandonment of project $0\mathrm{.}700\mathrm{.}10$ Need for further enhancements $0\mathrm{.}600\mathrm{.}25$ Reduced profit margins $0\mathrm{.}450\mathrm{.}10$ Potential systems $0\mathrm{.}200\mathrm{.}05$ performance degradation Luxor over the next several years, based upon the extrapolation of past and present data into the future. Exhibit II shows the impact that a technical risk event could have on each project. Because of the high probability of state$-$of$-$the$-$art advancements needed in the future $($i$.$e$.,95$ percent from Exhibit I$),$ the consultant identified the impact probabilities in Exhibit II for both with and without state$-$ of$-$the$-$art advancement needed. Exhibits I and II confirmed management$$s fear that Luxor was in trouble. A strategic decision had to be made concerning the technical risks identified in Exhibit I, specifically the first two risks. The competition had caught up to Luxor in applications engineering and was now surpassing Luxor in patents involving state$-$of$-$the$-$art advancements. From $1992$ to $1998,$ time was considered as a lux$-$ ury for the technical community at Luxor. Now time was a serious constraint. The strategic decision facing management was whether Luxor should strug$-$ gle to remain a technical leader in wireless communications technology or sim$-$ ply console itself with a future as a $$follower$.$ Marketing was given the task of determining the potential impact of a change in strategy from a market leader to a market follower. The following list was prepared and presented to management by marketing: $1.$ The company$$s future growth