Value Roadmapping: Here's a Systematic Approach to Supporting Early-Stage Technology Investment Decisions

Decision makers in technology-based firms face a significant challenge: how to appraise the business potential of early-stage technologies. This challenge includes a realistic determination of the value that a specific technology can bring to the organization, in comparison to the cost of developing or acquiring that technology. However, it remains difficult for technology managers to establish assumptions on which to base their decisions, as future applications of an early-stage technology may not be clear or have yet to be identified. In this paper we categorize technology as early stage on the basis of its technical and market uncertainty (1). Technology Readiness Levels (TRLs) provide a nine-point measure of technology maturity, mostly used in acrospace and defense sectors, such as by the United States General Accounting Office to establish best practices in technology management for defense projects. TRLs focus on the development of the technology and for our purposes an early technology is defined as one that operates in levels 1-3, which is the stage before it is introduced to sub-systems or components within a new product development program. Although numerous techniques and tools are available, many decision makers are still not satisfied when it comes to appraising and valuing early-stage technologies. Most of the available techniques are quantitative and derived from financial valuation techniques and decision theory, such as discounted cash flow, decision trees and real options (e.g., 2,3). These techniques enable decision makers to systematically structure the potential outcomes and their underlying uncertainty. Although widely accepted when technologies have a medium to high level of maturity and applications have been defined, for early-stage technologies, these approaches can be mathematically sophisticated but contextually naive as the uncertainty about the assumptions (e.g., probabilities) in these early stages is often high (4). Another category of techniques focuses more on the qualitative aspects of valuation. These techniques generally attempt to structure reasoning, support communication, and serve as an aid to decision makers in shaping their judgment, such as the use of score cards. Cooper et al. (5) show that companies that use only financial or quantitatively based methods under-perform compared to companies that use both qualitative and quantitative methods. Yet little is known about how these approaches specifically address the issues related to early-stage technology. In fact, many firms refrain from using formal valuation methods until the technology becomes more mature (and hence more certain) and rely on "gut feel. " This paper proposes an alternative technique that can support early-stage technology investment decisions and is based on the practice of roadmapping (6, 7). The roadmapping approach uses structured visual diagrams to support strategic dialogue, linking technology investment to business outcomes. It is being used in industry, at company and sector levels, to support a variety of strategic goals (7,8,9). Although roadmapping is widely accepted for goal-oriented applications such as general strategy and technology strategy, very little research has focused on the more exploratory side (10). In this paper a customized roadmapping approach is presented, designed to address exploration issues concerning the appraisal and valuation of early-stage technologies, and also more mature technologies for which new applications are sought. The approach is termed "Value Roadmapping" (VRM), based on frameworks and techniques developed over several years of prior research, exploring how to rapidly initiate and customize roadmapping in organizations. In order to understand the practical implications of prevailing approaches for early-stage technologies from a theoretical perspective, we begin with an overview of some widely applied methods and tools. …