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 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