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 applications 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, applications 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 $1.$ Likelihood of a technical risk

Event Likelihood rating

State of the art advance needed $0\mathrm{.}95$

Scientific research required $($without advancements$)0\mathrm{.}80$

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 $2025$

percent 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 competition 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 at

Exhibit $2.$ Impact of a technical risk event

Rating impact

Event With state of the art changes Without state of the art changes

Product performance not at $100$ percent of specification $0\mathrm{.}950\mathrm{.}80$

Product performance not at $75-80$ percent of $0\mathrm{.}750\mathrm{.}30$

Abandonment of project $0\mathrm{.}700\mathrm{.}10$

Need for further enhancements $0\mathrm{.}600\mathrm{.}20$

Reduced profit margins $0\mathrm{.}450\mathrm{.}10$

Potential systems performance degradation $0\mathrm{.}200\mathrm{.}05$

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 luxury for the technical community at Luxor. Now time was a serious constraint. The strategic decision

facing management was whether Luxor should struggle to remain a technical leader in wireless communications technology

or simply 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 rate will