Creating Optimized Value Creation Conditions: AnAdditive Manufacturing Model

By

Jeffrey EppersonB.S. in Chemical Engineering, Washington State University (2015)

SUBMITTED TO THE MIT SLOAN SCHOOL OF MANAGEMENT AND MITDEPARTMENT OF MECHANICAL ENGINEERING IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS OF THE DEGREES OF

MASTERS OF BUSINESS ADMINISTRATIONAND

MASTERS OF SCIENCE IN MECHANICAL ENGINEERING

IN CONJUNCTION WITH THE LEADERS FOR GLOBAL OPERATIONSPROGRAM AT THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY

June 2021

c○ Jeffrey Epperson, 2021. All rights reserved.

The author hereby grants to MIT permission to reproduce and to distribute publiclypaper and electronic copies of this thesis document in whole or in part in any

medium now known or hereafter created.

Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .MIT Sloan School of Management

MIT Department of Mechanical EngineeringMay 14, 2021

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Professor of Mechanical Engineering

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Chair, Mechanical Engineering Committee on Graduate Students

Creating Optimized Value Creation Conditions: An

Additive Manufacturing Model

By

Jeffrey Epperson

Submitted to MIT Sloan School of Management and the MIT Department ofMechanical Engineering on May 14, 2021, in partial fulfillment of the requirementsfor the Degrees of Masters of Business Administration and Masters of Science inMechanical Engineering in conjunction with the Leaders for Global Operations

Program

Abstract

Stryker’s additive manufacturing (AM) business unit has pioneered cost competitiveMetal AM capabilities at scale. Recently the company has been exploring the pos-sibility of expanding AM capabilities into other materials, processes, and businesssegments. The opportunities for growth have revealed system limiting factors thatare slowing the speed at which the organization is able to create additional valuewith the technology. This research has proposed a model called the value creationmodel as a framework for how AM organizations must think about their technologi-cal capabilities in the context of organizational maturity. At the center of the valuecreation model is the amount of value being created for an organization. The vari-ables that determine the level of value that can be created are; business structures& systems, intellectual property protections, competitive advantages, business strat-egy, and technology development & innovation. In order to create maximum valuethrough AM technology, the technology development and business transformationmust happen in parallel. If any of the variables in the value creation model becomea limiting factor then the maximum value created for the organization is potentiallycapped. In the case of the Stryker AM business unit, it is recommended that theorganization can increase value creating opportunities by migrating their businessmodel to a wholly-owned subsidiary. This business transformation provides signifi-cant value creating opportunities through supply chain efficiencies, simplification ofbusiness systems, tax & financial freedom, and opportunities to create sustainablecompetitive advantages & IP.

Thesis Supervisor: A. John Hart, Thesis SupervisorTitle: Professor of Mechanical Engineering

Thesis Supervisor: Thomas Roemer, Thesis SupervisorTitle: Senior Lecturer, Operations Management, Director MIT LGO Program

2

Acknowledgments

These two years in the Massachusetts Institute of Technology Leaders for Global

Operations Program have been some of the most rewarding and challenging years of

my life. I’ve been challenged in ways I never thought possible, both academically and

personally. I could not have done it without the support of my parents, Steve and

Karen Epperson, my sister Katrina Epperson, my friends, the incredible faculty and

staff of MIT, and the LGO program and staff. I want to send out a sincere thank you

to all of you for helping me and providing me the support and encouragement needed

to pursue my goals. I want to send out an additional thank you to my advisors, Dr.

Thomas Roemer and Dr. John Hart for providing me with the guidance needed to

produce this piece of research.

This year has been enormously challenging with the onset of covid-19 and perform-

ing my entire LGO internship remotely. It has truly been an unprecedented experience

and hopefully one that no future students ever have to replicate. Although it was not

the most ideal situation, I cannot thank everyone enough for working your asses off

to make it as rewarding as possible.

I want to send a special thanks for all the folks at Stryker who spent countless

hours with me on Zoom helping bring me up to speed and making this internship an

experience I will never forget. I want to specifically thank Bernard O’Connor and

Viju Menon for being the champions for the LGO program within Stryker. I also want

to thank David O’Gorman for being an excellent manager and making sure that I

had all the resources necessary to succeed. Additionally, I want to thank Ian Hesketh

for all the hours you spent with me on Zoom explaining how the business worked,

brainstorming solutions, and sharing your life advice. There are honestly too many

people to thank here but overall I just want to say thank you for the extraordinary

experience and all of your support.

I am so grateful to have been a part of MIT LGO and Stryker as this has truly

been a life changing experience. Now that I have completed this two year sprint, I

think I am going to go have a well deserved beer at muddy - with a mask of course.

3

Contents

1 Introduction 12

1.1 Project Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1.2 Problem Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.3 Project Approach and Framework . . . . . . . . . . . . . . . . . . . 15

1.4 Thesis Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2 Strategic Management Review: Identifying and Developing Com-

petitive Advantages 21

2.1 Strategic Management Theories . . . . . . . . . . . . . . . . . . . . . 23

2.1.1 Market-Based View (MBV) . . . . . . . . . . . . . . . . . . . 25

2.1.2 Resource-Based View (RBV) . . . . . . . . . . . . . . . . . . . 26

2.1.3 Relational-Based View . . . . . . . . . . . . . . . . . . . . . . 28

2.2 Business-Level Competitive Strategies . . . . . . . . . . . . . . . . . 29

2.3 Key Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

3 Evolution & Background of Innovation, Technology, & Intellectual

Property Strategy 32

3.1 The Role of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3.2 Innovative Frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

3.3 Impediments of Innovation & Technology Adoption: AM Focus . . . 37

3.3.1 Cost-Related: Cost Modeling of AM . . . . . . . . . . . . . . 38

3.3.2 Organization-Related: Value of an Agile Organization . . . . 42

3.3.3 Labor-Related: AM Expertise . . . . . . . . . . . . . . . . . . 46

4

3.3.4 Institution-Related: Innovation in a Highly Regulated Environ-

ment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

3.4 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

3.5 Key Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

4 Background of Additive Manufacturing 54

4.1 History of Additive Manufacturing . . . . . . . . . . . . . . . . . . . 54

4.2 AM Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

4.3 The AM Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

4.4 AM Value Proposition . . . . . . . . . . . . . . . . . . . . . . . . . . 59

4.5 AM Processes and Materials . . . . . . . . . . . . . . . . . . . . . . . 65

4.6 AM Market Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

4.7 AM in the Medical Device Industry . . . . . . . . . . . . . . . . . . . 81

4.7.1 Brief History . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

4.7.2 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

4.7.3 AM in Stryker . . . . . . . . . . . . . . . . . . . . . . . . . . 84

4.8 Key Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

5 Business Structures & Systems 87

5.1 Classical Legal Business Structures . . . . . . . . . . . . . . . . . . . 88

5.2 Complex Business Structures . . . . . . . . . . . . . . . . . . . . . . . 91

5.2.1 Holding & Parent Company . . . . . . . . . . . . . . . . . . . 92

5.2.2 Accounting & Tax Considerations . . . . . . . . . . . . . . . 96

5.3 Key Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

6 Value Creation Model: Integration Theory and Background 98

6.1 Integrating the Value Creation Model . . . . . . . . . . . . . . . . . . 99

6.2 Stryker Case Study: Applied Value Creation Model . . . . . . . . . . 102

6.3 Proposed Solution: Creating a Wholly-Owned AM Subsidiary . . . . 106

6.3.1 Supply Chain Efficiencies . . . . . . . . . . . . . . . . . . . . . 107

6.3.2 Simplification of Business Systems . . . . . . . . . . . . . . . 113

5

6.3.3 Tax & Financial Benefits . . . . . . . . . . . . . . . . . . . . 118

6.3.4 Competitive Advantages & IP Protections . . . . . . . . . . . 122

6.4 Execution: Implementing the Proposed Solution . . . . . . . . . . . . 125

6.5 Key Takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

7 Case Studies 130

7.1 Nike AirMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

7.1.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

7.1.2 Value Creation Model Application & Analysis . . . . . . . . . 131

7.2 IKEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

7.2.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

7.2.2 Value Creation Model Application & Analysis . . . . . . . . . 135

8 Conclusion 138

8.1 Value Creation Model with AM . . . . . . . . . . . . . . . . . . . . . 139

8.1.1 AM Technology Development as the Bottleneck . . . . . . . . 139

8.1.2 Generalizable Value Creation Model . . . . . . . . . . . . . . . 140

8.2 Immediate Implications . . . . . . . . . . . . . . . . . . . . . . . . . . 141

8.3 Future Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

8.4 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

A AM vs Traditional Manufacturing 144

6

List of Figures

1-1 Parallel Growth Model: Business Transformation and Technology De-

velopment are complementary forces that must run in parallel to enable

value creation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1-2 Business-Technology Maturity Levels: Organizations advance through

levels of organizational maturity based on the capabilities the organi-

zation possesses with a specific technology. [4] . . . . . . . . . . . . . 17

1-3 Value Creation Model: All elements are complementary to one another

and must work together to enable value creation. If one element of the

model fails to evolve as other elements grow, the growth of the entire

system is stunted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2-1 Value Creation Model: Focus of Chapter 2 is on Business Strategies

and Sustainable Competitive Advantages . . . . . . . . . . . . . . . 22

2-2 Determinants of Shareholder Value [43] . . . . . . . . . . . . . . . . 23

2-3 Porter’s Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

2-4 Porter’s Five Forces . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

2-5 Porter’s Generic Business-Level Strategies . . . . . . . . . . . . . . . 30

3-1 Value Creation Model: Focus of Chapter 3 is on how IP affects the

other factors of the model . . . . . . . . . . . . . . . . . . . . . . . . 33

3-2 Innovation & Knowledge Frontier [70] . . . . . . . . . . . . . . . . . 36

3-3 Timeline of AM Cost Modeling Advancements [46] . . . . . . . . . . 39

3-4 Cost Modeling Classifications according to Kadir et al. [46] . . . . . 40

3-5 Classification Technique Definitions according to Kadir et al. [46] . . 40

7

3-6 Advantages & Disadvantages of Cost Classification Techniques accord-

ing to Kadir et al. [46] . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3-7 Paradigm shift from organizations as machines to the paradigm that

organizations are living organisms in order to adapt to the needs of an

agile environment. [11] . . . . . . . . . . . . . . . . . . . . . . . . . . 43

3-8 Distribution of companies based on the metric of speed vs stability.

The matrix divides companies into four categories; trapped, bureau-

cratic, start-up, and agile. [20] . . . . . . . . . . . . . . . . . . . . . 45

3-9 Ten management practices differentiated the most from the least agile

organizations [20] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

3-10 Types of Regulation that Affect Innovation [30] . . . . . . . . . . . . 47

3-11 Intellectual Property Summary [97] . . . . . . . . . . . . . . . . . . . 50

4-1 Value Creation Model: Focus of Chapter 4 is on Additive Manufactur-

ing as a Technology Business Unit . . . . . . . . . . . . . . . . . . . . 55

4-2 Gartner Hype Cycle for 2012 when AM technology was at the peak of

inflated expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

4-3 The Generalized AM Process . . . . . . . . . . . . . . . . . . . . . . 59

4-4 AM Cost vs Injection Molding at Different Volumes [33] . . . . . . . 61

4-5 AM Economies of Scale [81] . . . . . . . . . . . . . . . . . . . . . . . 61

4-6 AM Cost vs Complexity [81] . . . . . . . . . . . . . . . . . . . . . . . 62

4-7 Material Extrusion Process [15] . . . . . . . . . . . . . . . . . . . . . 67

4-8 Photopolymerization Processes . . . . . . . . . . . . . . . . . . . . . 68

4-9 Sintering Mechanism [13] . . . . . . . . . . . . . . . . . . . . . . . . 69

4-10 Selective Laser Sintering Processes . . . . . . . . . . . . . . . . . . . 70

4-11 Selective Laser Melting & Electron Beam Melting Processes [10] . . . 72

4-12 Binder Jetting Process [96] . . . . . . . . . . . . . . . . . . . . . . . . 74

4-13 Material Jetting Process [79] . . . . . . . . . . . . . . . . . . . . . . . 75

4-14 Directed Energy Deposition Processes [77] . . . . . . . . . . . . . . . 76

4-15 Sheet Lamination Process [60] . . . . . . . . . . . . . . . . . . . . . . 77

8

4-16 AM Process Summary [62] . . . . . . . . . . . . . . . . . . . . . . . 79

4-17 AM Global Market projections [] . . . . . . . . . . . . . . . . . . . . 80

4-18 AM Global Additive Manufacturing Landscape [8] . . . . . . . . . . 81

5-1 Value Creation Model: Focus of Chapter 5 is on Business Structures

and Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

5-2 Business Structures [57] . . . . . . . . . . . . . . . . . . . . . . . . . 89

5-3 Parent-Subsidiary Relationship [63] . . . . . . . . . . . . . . . . . . . 94

6-1 Value Creation Model: Focus of Chapter 6 is on the integration of all

the elements on the model and how organizations mature to create

value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

6-2 Leapfrogging Supply Chain Integration: A strategy to integrate non-

continuous supply chain levels into internal business operations without

fully backward integrating all the business activities and actions per-

formed by suppliers. In this example, from the company perspective

(Design/Marketing/Sales), the company chooses to integrate Tier 2 of

the supply chain into internal operations rather than integrating other

tiers (e.g.; Tier 1 or 3) . . . . . . . . . . . . . . . . . . . . . . . . . . 109

6-3 Leapfrogging Supply Chain Example: AM inserting into lower tiers as

a rapid response to supply chain disruptions . . . . . . . . . . . . . . 111

6-4 Leapfrogging Supply Chain Example: AM consolidating the supply

chain into tiers that leafrog full backward integration . . . . . . . . . 111

6-5 Leapfrogging Supply Chain Example: Threat of AM competing with

traditional manufacturing and suppliers to reduce bargaining power of

suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

6-6 Skill dependency with supporting skills required for outsourcing [31] 115

6-7 Matrix of Dependency and Outsourcing by Fine and Whitney (1996)

[31] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

6-8 Generic Financial Benefits Example . . . . . . . . . . . . . . . . . . . 120

9

6-9 Summary of the risk to value creation in creating a wholly owned

subsidiary vs maintaining the status quo for the Stryker AM business

across the four pillars that define the mission of AM within the Stryker

Corporate entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

A-1 AM vs Traditional Manufacturing [81] . . . . . . . . . . . . . . . . . 145

10

List of Tables

4.1 Impact of Profitability Due to Different Factors [71] . . . . . . . . . . 63

4.2 Drivers of Supply Chain Complexity [24] . . . . . . . . . . . . . . . . 64

11

Chapter 1

Introduction

Disclaimer: it must be noted that the following analysis and proposed solution is

solely the opinion of the author and does not reflect the views, plans or strategies of

Stryker Corp or Stryker AM.

Additive manufacturing (AM) is a disruptive technology that has the potential to

upend manufacturing, product design, and supply chains. This technology is becom-

ing an increasingly popular manufacturing tool but adoption is slowed by a number

of challenges such as the relative level of technical expertise needed to successfully

implement and the economics of the technology. Despite these challenges, companies

such as Stryker are figuring out ways to successfully integrate AM capabilities into

their core business, creating significant impact to their bottom line. As companies

like Stryker continue to innovate with the technology, they must be able to transform

their business in order to create maximum value for the organization. This thesis

will propose a framework that integrates technology and business considerations to

enable firms to understand how they must mature in order to create an environment

where the potential for value creation is maximized.

1.1 Project Motivation

Stryker has developed all of their AM process expertise in-house. This strategic de-

cision can be traced back to the mid-2000’s when the company was exploring laser

12

rapid manufacturing (LRM) AM for orthopedic implants applications. At the time,

the business case for AM within Stryker hinged on a number of factors including, but

not limited to, the high margins associated with orthopedic implants, enhanced prod-

uct features and benefits including bone ingrowth, surface creation, and topologies,

the technical advantages over traditional manufacturing methods, and the relative

immaturity, lack of expertise, and unfamiliarity with the medical device industry in

the AM commercial landscape.

For years, Stryker very successfully developed AM capabilities, with an evolving

business model and strategic approach that matched their technical maturity. How-

ever, with the rapid and unexpected onset of covid-19 in February 2020, the needs

of the customer quickly surpassed the internal AM capabilities of the business. In a

matter of weeks, the world was suddenly knocking on Stryker’s door with unexpected

and urgent needs for new medical products to help in the fight against the pandemic.

As a technology, AM was uniquely positioned to quickly respond to a number of

these requests. Stryker’s AM Center of Excellence (CoE) quickly jumped into action,

offering their advanced process knowledge and expertise in the technology to the

design teams within Stryker’s divisions who were working with front line customers.

However, despite the rapid deployment of their expertise, the company did not possess

all the AM processes and technology in-house in order to meet all the emergent needs.

To solve this problem, the Stryker AM CoE quickly made a strategic adjustment to

expand their scope of work beyond strictly internal development and began looking

to external AM suppliers to partner with in order to fulfill the urgent product needs

from customers. As Stryker AM pushed further into executing on this strategy, they

began to find that this shift had pushed their business unit to the limits of what it

was originally designed to handle. Although rapid deployment of the technology was

possible, there were a number of considerations from various stakeholders around the

organization that needed to be satisfied to avoid disruptions and complications in

other areas of the business. It became clear that their current business strategies,

structures and corresponding systems were misaligned with the full capabilities of

the technology, which inhibited and complicated their ability to react to the quickly

13

changing environment and capitalize on new business opportunities.

A key underlying driver of this research is that Stryker believes there is significant

opportunity to proliferate the vast array of additive technologies to new applications

across the company’s portfolio in order to drive growth, enhance margins, simplify

supply chains, and build the company’s brand. With that assumption, a fundamental

set of questions arise; just how much growth is possible, and how can the current

business evolve to meet those growth requirements?

To tackle this question, Stryker proposed an intermediary solution. The company

was interested in creating a robust make vs buy process to help spur adoption of

new AM applications from across their organization. The idea was that exploring

outsourcing options through the centralized AM CoE business unit would provide

them with the opportunity to test the application market internally on various AM

processes before making a large capital commitment to invest in a new technology.

This had the additional benefit of funneling all AM applications through their CoE

to maintain quality, knowledge, and control over the use of the technology within

company. However, in exploring this problem it became apparent that the require-

ments of the AM business segment had matured to a point where it needed to evolve,

not only with their make vs buy capabilities, but in many of their functional areas in

order to satisfy the requirements outlined above.

1.2 Problem Statement

Organizations naturally change and adapt over time but in studying the situation

faced by Stryker, an interesting research question arises. How must organizations

think about the simultaneous maturity of their manufacturing technology and busi-

ness in order to capitalize on emergent opportunities and to fulfill the overarching

goal of creating maximum value for the organization at-large?

14

1.3 Project Approach and Framework

This research does not primarily focus on exploring the market potential of various

AM processes and applications available to the company, but rather focuses on how a

company like Stryker can best position themselves and mature a technology segment,

like AM, to create and capture the most value to give them an advantage over their

competition.

The underlying assumption throughout this research is that business transfor-

mation must evolve in tandem with technological development in order to create

maximum value (see Figure 1-1). Failing to do so will result in slowed or stunted

growth and sub-optimal value creation for the firm.

Figure 1-1: Parallel Growth Model: Business Transformation and Technology Devel-opment are complementary forces that must run in parallel to enable value creation.

Due to the importance of the previous statement in the central argument of this

research, it is worthwhile to explore it further in order to clarify exactly what is meant

before proceeding forward. This statement does not assert that all companies must

mature to the same level or that value is the same to every organization. Rather,

it argues that at any given maturity stage of a company, there are a set of factors

that need to grow in parallel in order to reach the maximum value that is possible

at that stage. If technology or business segments outpace the other, metaphorical

15

bottlenecks may arise, creating limiting factors in the value creation equation.

To explore this, it is helpful to use a sports analogy with a child going through

the stages of development. Lets say that at age 10 a child is learning the game of

basketball. They may have extraordinary ball handling or shooting skills that many

kids years older do not possess, but they have yet to hit their growth spurt and as

such, are held back from reaching their full potential. The child may not be able

to extract maximum value from their superior basketball skills at this stage in their

development because they are much shorter and less physically developed than all of

their peers. In order to truly outperform their competition, they must mature and

continue to grow. This is not to say that the kid cannot be mildly successful with

their current set of attributes, but rather that the kid is not able to achieve their full

competitive potential. Lets say that in two years, the child has grown into their body

and their physical development has finally caught up and surpassed their peers. They

may finally be at their competitive peak as a result of their superior basketball skills

finally matching their physical development.

It is helpful to think of the skills the child has as a technology and the physical

growth as the business. As this example shows, these two attributes must develop

with one another in order to remain on the forefront of competition. While the true

nature of this relationship is often times much more complicated, this example is

simply meant to illustrate the rather elementary concept that the evolution process

relies on a number of factors that must mature together in order to reach an entity’s

full potential. In the context of a business, organizations can develop advanced skills

in certain areas, but if there are other aspects of the business lagging, the company

may never see the full potential of those advanced skills and capabilities.

Figure 1-2 presents a model to visualize this concept of maturity in the context of a

technology development in an organization. As a company advances through maturity

stages, they develop more and more capabilities with different levels of value that

can be extracted. For example, an organization may have begun to commercialize

a technology at level 3, but in order to advance to a more strategic level in order

to capture more value, they may require an evolution of both their business and

16

technology.

Figure 1-2: Business-Technology Maturity Levels: Organizations advance throughlevels of organizational maturity based on the capabilities the organization possesseswith a specific technology. [4]

This thesis takes this idea a step further and proposes a dynamic framework (see

Figure 1-3) to explain how firms can evaluate the ways in which they must evolve

in order to maximize value at the firm-level, and not simply at the technology-level

in order to work towards an optimized level of maturity. Herein lies the central

hypothesis of this work - in order to continue driving maturity, firms must dynamically

and continuously analyze the elements of the framework in order to prevent stunted

growth. The framework focuses on 5 high level elements that drive value creation in

the context of AM.

1. Business Strategy: A set of guiding principles that when communicated and

adopted in an organization, generates a desired pattern of decision making [92].

2. Business Structures & Systems: Business systems refer to the processes and

procedures that enable execution of business practices. Business structures

refers to the governance and organizational structure in place that enables and

guides the business systems.

17

3. Technology Innovation & Development: Refers to the current state of the tech-

nology both internally and externally. For the sake of this framework, innovation

tells what the potential of technology is and development refers to what stage

a company is at in their integration of the technology.

4. IP Protection: The tools and strategies available to individuals and organiza-

tions to protect their most important assets.

5. Sustainable Competitive Advantages: An attribute or a combination of at-

tributes that an organization possesses that allows it to outperform their com-

petition for an extended period of time [93].

.

The idea behind this model is that these five factors work together as the primary

drivers of value creation in the AM business development process. If any of these

factors fail to grow or become ineffective, then the entire value creation process is

slowed or potentially stunted at the existing level of value created for the organization.

As these elements effectively work in tandem with one another, the organization can

continue to advance in stages of maturity which effectively translates to greater and

greater levels of value creation.

Identifying issues in any of these key model variables provides insight to an orga-

nization that can be used to more efficiently deploy resources in the name of creating

maximum organizational value. This model is derived from previous work on matu-

rity models such as capability maturity models (CMM), Agile Iso Maturity Models

(AIMM), and organizational maturity models that have been used by organizations to

help guide process development. This research is intended to apply similar concepts

proposed in these models and apply them to broader development at an organiza-

tional level. The framework being proposed, which will be revisited throughout this

research, can be seen in Figure 1-3.

18

Figure 1-3: Value Creation Model: All elements are complementary to one anotherand must work together to enable value creation. If one element of the model fails toevolve as other elements grow, the growth of the entire system is stunted.

1.4 Thesis Overview

This research will explore each element of this framework by researching the best

practices and current theories in literature.

In chapter 2, this work will lay out the foundational driving force in a business,

creating value. This will focus on how businesses create strategies that will enable

the development of sustainable competitive advantages. Chapter 3 will explore the

fundamentals of technology, innovation, and IP protection in order to develop a foun-

dation how these factors play a key role in enabling other variables of the model.

Chapter 4 will explore all the technical details of additive manufacturing, from the

background to the processes and materials to the applications. Chapter 5 will ex-

plore the fundamentals of business structures and systems including a review on the

legal structures and relationships of business entities to lay the ground work for the

case studies presented in Chapter 6 and 7. Chapter 6 will integrate all of the back-

ground information and theory covered in the Chapters 2 through 5 to explain how

19

the value creation model functionally operates. This will be followed by an analysis

in which the value creation is applied to Stryker to explain how they must mature as

an organization in order to continue to grow and create value with their AM business

unit. This chapter will culminate with a discussion of how Stryker can execute on

this strategy moving forward. Chapter 7 will discuss various case studies from other

organizations in which the value creation model is applied in order to show how this

model can be adopted and applied in the real world. This chapter will discuss how

the model has the potential to be more generalizable and apply to the development

of any new manufacturing technology. Chapter 8 will present the next steps, future

research, expansion of the model, and the conclusions.

20

Chapter 2

Strategic Management Review:

Identifying and Developing

Competitive Advantages

Since Milton Friedman’s influential article, "The Social Responsibility Of Business

Is to Increase its Profits" was published in the New York Times in 1970, most cor-

porations have subscribed to the management doctrine that the corporation’s sole

purpose is to maximize value for its’ stakeholders. To put it succinctly, Friedman be-

lieved that firms should strive to make as much money as possible while conforming

to the basic rules of society [73]. This piece of work essentially marked the beginning

of the emergence of ’shareholder value’ as the dominant school of thought and prac-

tice in capitalism all over the world. While this theory in practice has come under

intense scrutiny in the last decade due to the shortsightedness and ethical concerns

emanating from the idea, the seeds that it planted are still a strong underlying force

driving the behavior of businesses and decision makers across the globe. It must be

noted, that the purpose of this research is not to argue what corporations or managers

theoretically have been, should be, or will become but rather to understand how the

basis for corporate decision making and how it has evolved in order to best know

how to strategically position an organization for success given the current business

climate.

21

In order to achieve success in driving shareholder value by whatever metric a firm

or society defines, any rational firm must have a sound strategic plan. However, an

organization’s strategy is not as simple as having a goal to increase shareholder value.

As Jack Welch, the former CEO of GE from 1981 to 2001, stated, "...shareholder value

is a result, not a strategy." The strategy results from a series of coordinated plans and

corresponding actions that arise from creating value in a company’s value chain. It

is through this coordinated analysis that an organization can identify which actions

are most valuable to enabling the superior performance a firm desires.

This section will focus on the first element of the valuation creation framework

- the theory of strategic management and competitive advantages. The intent is to

provide the background necessary to understand the importance of value creation and

how competitive advantages drive the strategic thinking of a business. These elements

are crucial to understanding how and why companies make technology development

decisions that drive value creation in tandem with the other variables in integrated

value creation model.

Figure 2-1: Value Creation Model: Focus of Chapter 2 is on Business Strategies andSustainable Competitive Advantages

22

2.1 Strategic Management Theories

It is important to understand some basic definitions and theories from the field of

strategic management. First off, strategies are a series of related actions that man-

agers take in order to increase their company’s performance relative to that of their

competitors [43]. Hill (2014) states that at any given point in time, firms will undergo

the strategic decision-making process in order to increase the performance of the com-

pany, thereby increasing the value to its shareholders. To increase shareholder value,

firms logically must pursue strategies that grow profits and profitability (see Figure

2-2).

Figure 2-2: Determinants of Shareholder Value [43]

In developing strategic plans to drive profits, firms look for ways in which they

can obtain competitive advantages over their competition. A competitive advantage

occurs when an organization acquires or develops an attribute or a combination of

attributes that allows it to outperform its competitors [93]. Having a competitive

advantage is crucial to the sustained success of an organization because without one,

it is hypothesized that other organizations can easily replicate a product, capability,

or service [68]. As a result, it can be said that any and all rational firms therefore

desire to possess competitive advantages in order to demonstrate superior performance

over their competition. This idea is supported by Porter (1985) who argues that

competitive advantages are a key determinant in superior performance of a firm and

the creation of shareholder value [68].

Due to the importance of competitive advantages, it has become one of the most

written about topics in academic research on strategic management. In one of the

23

most influential pieces on the subject, Porter (1985), argued that all competitive ad-

vantages reside within the value chain of a company. The actual manifestation of what

constitutes as a competitive advantage will be further categorized in Section 2-5 but

for now the functional business units and operational areas where these advantages

exist are defined in Figure 2-3.

Figure 2-3: Porter’s Value Chain

Following this influential piece by Porter, a number of schools of thought have

been developed outlining theories about how to define and analyze the sources of

competitive advantages. These theories serve as the basic foundation to the develop-

ment of business strategies and are important to understand in order to find ways to

execute on organizational goals and capitalize on value creating activities. The three

most relevant schools of thought on the subject include;

1. Market-Based View (MBV)

2. Resource-Based View (RBV)

3. Relational-Based View

24

2.1.1 Market-Based View (MBV)

The market-based view theory suggests that industry factors and the external market

are the primary determinants of a firm’s performance [91]. The Structure-Conduct-

Performance Paradigm, published by Chamberlain and Robinson in 1933 and further

developed by Bain in 1968, and Porter’s Five Forces Analysis, published by Porter in

1980 are two of the most influential pieces of research in this category. These theories

provide a framework for analyzing the current market in a structured way in order to

identify potential competitive advantages. Porter’s Five Force’s analysis is perhaps

the most widely used framework that firms use to make assessments of their own

competitive advantages based on the external environment in which the firm exists.

The five forces in the model are (See Figure 2-4) [69];

1. Bargaining Power of Buyers: This is an assessment of how easy or difficult it is

for buyers or sellers to drive down prices. This can be driven by buyer switching

costs, the uniqueness of a product or service, number of buyers in the market,

etc.

2. Bargaining Power of Suppliers: This is an assessment of how easy or difficult

it is for suppliers to drive up prices. This can be driven by the number of

suppliers in the market place, supplier size, supplier uniqueness in product or

service, supplier switching costs, etc.

3. Threat of Substitutes: This is an assessment of the number and strength of

substitute products in the market. In situations where substitutes exist, there

is risk of customers switching to alternative products.

4. Threat of New Entrants: This is an assessment of the threat that new competi-

tors pose to the profitability of existing companies in a given market. In general,

more profitable industries will attract new entrants. However, this metric alone

does not directly correlate to higher or lower threat levels. A robust assessment

must also include considerations of the barriers for entry or exit which looks

25

to understand the relative ease or difficulty that a new competitor can enter or

exit the market in the pursuit of higher profits.

5. Competition: This is primarily driven by the number of competitors in the

market. Many competitors with undifferentiated products will drive down mar-

ket/industry attractiveness.

Figure 2-4: Porter’s Five Forces

Despite being one of the most widely used models in analyzing industries and

determining where potential competitive advantages exist, it is not without limita-

tions. The model assumes a perfect and static market structure which is unlikely to be

found in today’s dynamic markets [91]. Many critics of the model state that resources

and capabilities of a firm are more important to sustainable competitive advantages

than the products and market position of a firm which is the focus of many MBV

approaches [91]. This has given rise to the next theory of strategic management, the

resource-based view.

2.1.2 Resource-Based View (RBV)

The resource-based theory draws attention to the internal environment of the firm

as the main driver for developing competitive advantages a firm uses to compete

in their external environment [91]. Since the 1980’s, the RBV has become one of

26

the more popular theories for competitive advantages [36]. The theory focuses on a

firm’s internal resources as the primary source of competitive advantages. According

to Barney (1991), for a resource to be a strategic asset it must be valuable, rare,

difficult to imitate, and nonsubstitutable [19]. These resources can be both tangible,

which can be easily seen, touched, or quantified, and/or intangible, which cannot be

easily quantified such as knowledge, culture, and reputation [43]. From a strategic

planning point of view, researchers often conclude that intangible resources are often

more valuable in creating long-term, sustained competitive advantages [91].

There are two special cases of the resource-based view theory; knowledge-based

and capability-based. The knowledge-based theory takes prior research on RBV a

step further by stating that knowledge is not just a generic resource, but instead the

most valuable of all resources. It is argued that knowledge, know-how, intellectual

assets, and competencies are the most important driver of superior performance in

the technological age [41]. Further research by Evans (2003), pointed out that tan-

gible assets decreased when used while knowledge increases through use [91] making

knowledge an important strategic resource.

There have been many hypothesized methods for how to define knowledge but

one of the most recent comes from Zack (1999), who defines knowledge into three

categories; core, advanced, and innovative. Core knowledge is basic knowledge that

allows a firm to survive in the short term, advanced knowledge is knowledge that is

similar to a rivals which allows a firm to compete in the short term, and innovative

knowledge is knowledge that gives a firm an advantage over their rivals [98]. Based on

this definition, firms with innovative knowledge are in the best positioned to become

market leaders in a particular field.

The capability-based view on the RBV theory argues that capabilities are the true

source of competitive advantages while resources are the source of capabilities. This

aligns with Amit and Shoemaker (1993) who define capabilities as a firm’s ability to

deploy resources [12]. It is argued that firms do not gain a competitive advantage

because of what they own, but rather what they can do with those resources [43].

In other words, it is necessary to manage, bundle, and otherwise exploit resources to

27

create value [43].

Overall, contrary to MBV, the RBV is an inward looking theory that argues that

internal resources are the true source of competitive advantages over competitors and

that best position a firm for long term success.

Defining Internal Resources

There has been a significant amount of research done to provide a taxonomy for

internal resources that a firm possesses. While there is no general consensus from

the academic community about how to best categorize the vast number of resources

a firm possesses, from this point forward, this research will build off of the definition

proposed by Barney (1991) that classifies internal resources as [19];

1. Physical-Capital Resources: Includes technology, plant and equipment, geo-

graphic location, and access to raw materials.

2. Human-Capital Resources: Includes training, judgement, experience, intelli-

gence, relationship, and insights.

3. Organizational-Capital Resources: Includes a firm’s formal reporting structure,

formal and informal planning, controlling and coordinating systems, relations

between groups in a firm and the external environment.

2.1.3 Relational-Based View

One of the more recent theories to evolve is the relational-based view of strategy

that focuses on the idea that dyad/network routines and process are a key aspect

of developing competitive advantages. The relational-based view challenges the as-

sumption that resources are owned by a single individual and do not expand be-

yond a firm’s boundaries [29]. This viewpoint is becoming increasingly popular as

it helps explain the dynamics of inter-firm relationships, interactions, and networks

[91]. Wang (2004), expanded on this theory by presenting a framework for the three

28

forms of analysis needed to understand a business relationship; market-level, firm-

level, and interaction-level [91]. This aligns with the relational-based view because

as Wang (2013) states, the market- and firm-level relationships are fundamentally

inter-organizational in that they are viewed from their peers perspective [91]. The

interaction-level refers to distinct business arrangements between firms which can

be defined as any sharing of business information, buying or selling goods, receiving

products or services, and/or collaborating on projects. As opposed to the MBV which

focuses on the market factors as the driving factor in a firm’s competitiveness, and

RBV which focuses on the internal resources a firm possesses as driver’s of value,

the relational-based view argues that shared resources of the network and the chal-

lenges in imitating these relationships and network is the driving factor in creating

competitive advantages [91].

2.2 Business-Level Competitive Strategies

The preceding strategic management theories provide foundational frameworks an-

alyzing how a firm is positioned in the market, where competitive advantages arise

from, and a firm’s core competencies in the competitive landscape. While these the-

ories are necessary, the missing link up to this point has been how these competitive

advantages, whether internal, external, or network based, manifest themselves in a

way that is practical and achieves the ultimate goal of increasing shareholder value.

This is where business-level or generic strategies enter the equation and bridge

the gap between theory and execution. Business-level strategies address the question

of how a firm will compete in a particular industry given their unique set of com-

petitive advantages [43]. Porter (1980) addressed this question by developing what

is now known as the most commonly accepted interpretation of business-level strate-

gies. He concludes that business-level strategy revolves around two dimensions [69];

competitive advantages and scope of operations. In the most general sense of the

term, competitive advantages fall into two distinct categories; cost advantages and

differentiation advantages. On the other side of the equation the scope of operations

29

is also defined through two categories which are broad target and narrow target (See

Figure 2-5).

Figure 2-5: Porter’s Generic Business-Level Strategies

Organizations that pursue and are able to successfully obtain a low-cost strategy in

the broader market are said to have ’cost leadership’ while pursuing a similar low-cost

strategy in a niche market is said to be ’cost focus’. Alternatively, organizations that

are able to offer a differentiated and unique product to the broader market are said

to be ’differentiated’ while companies that pursue this strategy in a narrow market

are referred to as ’differentation focus’. In some rare cases, organizations are able to

achieve both a low cost and differentiated strategy. These organizations are referred

to as the best-cost option. Organizations that cannot fit into one of the 4 categories

are referred to as ’stuck in the middle’ where competition is the most fierce [43].

Overall, these business-level strategies operationalize competitive advantages to

make them more easily understood and executable by managers and workers in a

real world setting. Based on the preceding theories, the true source of competitive

advantages can come from both internal, external, and network sources but at the

crux of strategic management theory is the ability for managers to package and use

these identified competitive advantages, regardless of where they arise from to achieve

the goal of creating shareholder value by driving superior performance of a firm.

30

2.3 Key Takeaways

One of the most important objectives, if not the most important, of a corporation is

to create shareholder value. How to actually accomplish this goal has been one of the

most widely studied topics in the field of strategic management. While scholars take

many different approaches about how best to characterize competitive advantages,

it is most likely the case that these advantages arise from a mixture of internal,

external, and network sources. Regardless of whether the identified areas of potential

advantages arise due to external market conditions (i.e.; Porter’s Five Forces) or

internal resources (physical, human, or organizational), the key to linking them to an

executable business level-strategy is the ability to turn that advantage into a tangible

cost saving or differentiation strategy.

Value creation is at the center of the value creation model because it is the overall

objective of the firm. Variables such as competitive advantages and strategy are a

key part of the value creation strategy because they enable firms to be competitive

in the marketplace. It will be explored throughout the rest of this thesis how various

internal resources and external market conditions can influence a firm’s strategy and

ability to create a competitive advantage with a new and disruptive technology such

as additive manufacturing.

31

Chapter 3

Evolution & Background of

Innovation, Technology, &

Intellectual Property Strategy

The intent of this chapter is to explore the importance and impediments of innovation

and technology and how the intellectual property (IP) that arises from knowledge

creation in an organization can be protected in order to enable value creation. This

is a key element of the model of value creation (See Figure 3-1) because the ability

to create and protect IP can dictate business strategies and act as a challenging

but necessary pre-requisite to creating competitive advantages in technology driven

business units such as AM.

3.1 The Role of Innovation

Technology and innovation are two of the biggest buzzwords in all of business. It

seems that every firm nowadays throws around the term innovation as a means to

drive an organization to continually improve and become more efficient. Given the

broad and generic use of the term, it is important to settle on a working definition

for this research in order to understand how it can be leveraged and operationalized

as a value add for a business. Though many academics have tried to define it, there

32

Figure 3-1: Value Creation Model: Focus of Chapter 3 is on how IP affects the otherfactors of the model

is no universally accepted definition. However, there are some common themes in

exploring the various definitions of the word which leads to the definition that this

research will use to guide further discussion:

Innovation: An idea that is new, original, or improved that creates value.

This simple definition, in many respects is analogous to the objective set forth in

the theory of competitive advantages. The basic premise of competitive advantages

(see Chapter 2) is to acquire or develop an attribute or combination of attributes that

allows an organization to outperform its competitors. While not every innovation is

or will become a competitive advantage, the mere act of attempting to innovate

almost by default implies the intent to develop a new attribute that gives an edge

over the competition. However, innovation is not required to create a competitive

advantage. For example, firms may have low-cost competitive advantage through

operational excellence based simply on being more efficient than their competitors.

This is important to understand because firms may choose strategies that rely more

heavily on innovation than others. As such, it is important to understand the role

33

innovation has in driving value creation for your particular organization.

It is common for people to think of innovation and technology as synonyms of one

another. The role of innovation in the context of technology is well understood, think

Apple’s iPod and desktop computers, but big breakthrough technology is not neces-

sarily a requirement to innovate. Defaulting back to the definition above, innovation

simply requires constant tweaking of ideas and building on the foundation of knowl-

edge that exists in the world with the purpose of creating value. There are countless

examples of non-technological innovation that have created significant value for orga-

nizations. Take for example, supermarkets idea to pre-slice fruit for consumers on the

run as a way to multiply profit [85]. Innovations like these did not require technology

but are no less valuable to the performance of a business in the long run. This is not

to diminish the role of technology as an innovative force, but rather to highlight how

the entire innovative ecosystem plays a role in the value creation for a company and

the development of competitive advantages.

Firms that are seeking a strategy to push the boundaries of technical capabilities

almost by default must rely on innovation to stay ahead of the competition. However,

the ultimate role of innovation in these firms must be understood to be both technical

and non-technical. This highlights the need for technology driven firms that consider

innovation key to their strategy to create a culture of openness and flexibility to allow

for the vast array of innovation opportunities. Understanding the role of innovation in

the greater context of a firm’s strategy and ways in which it can create value is crucial

in a firm’s ability to operate efficiently and effectively in value creating activities.

3.2 Innovative Frontier

According to the resource based view of competitive advantages (see Section 2.1),

knowledge is an important resource for firms. This is driven by the fact that knowl-

edge, whether it originates from internal or external sources, is a necessary pre-

requisite to, among other things, innovation. A study by Kleis et al. (2012) cited

intangible factors such as skill and knowledge play crucial roles in the creation of

34

breakthrough innovations [54]. In competitive markets, innovation can be a key tool

to staying ahead of the competition and developing sustainable advantages. So how

exactly can the dependencies of these variables be represented in order to easily under-

stand exactly how the elements of value creation, competitive advantages, knowledge,

and innovation interact with one another?

This can best be understood by what will be referred to as the innovation fron-

tier. The fundamental idea is that as industries and organizations work to advance

their capabilities, they continue to push the boundaries of performance by building

on knowledge acquired through various means. More simply put, growth requires

innovation, and innovation requires knowledge. As the knowledge and innovation

frontier push outwards, the collective growth in capabilities and foundational knowl-

edge builds as time goes on.

This concept has not been widely discussed in literature but can be used as an

abstract mental model to visualize where organizations are operating and pushing

the boundaries of performance. This research hypothesizes that the optimal location

to operate at for organizations that rely on innovation as key to their competitive

success, exist on the innovation frontier. Organizations that are able to operate on

this boundary have the best opportunities for maximizing the value created with a

technology through future growth opportunities. The innovation frontier as concep-

tualized in a white paper by Ricketts (2017) can be seen in Figure 3-2. The x-axis

of this figure shows the four industrial revolutions, increasing with time, and the y-

axis loosely represents the different scientific disciplines. The graph shows how over

time, growth and progress is a function of new knowledge being converted to innova-

tion. This is all driven by the creation of knowledge, because without new knowledge

generation, there is no innovation, and without innovation, there is no growth and

progress. The innovation frontier is essentially the interface of value creation through

knowledge creation.

A necessary and crucial aspect of operating on the innovation frontier is the de-

velopment of knowledge. However, within the context of a competitive environment,

knowledge must be protected in order to maintain an advantageous position on the

35

Figure 3-2: Innovation & Knowledge Frontier [70]

innovation frontier. If knowledge becomes widely available, organizations suffer from

the high cost of development but don’t reap the rewards of such investment. Addition-

ally, protecting this knowledge creates an incentive to continually develop knowledge

because firms are able to see greater returns on their R&D investments. This becomes

a self reinforcing mechanism that drives innovation and the creation of sustainable

advantages.

Another important aspect of the model is the concept of first movers. To truly

exist on the innovative frontier, the interface of creating value through knowledge

creation, one must be willing and able to act quickly on the conversion knowledge and

R&D into their own capabilities. There are many advantages to being a first mover

such as technology and innovation leadership but there are also some disadvantages.

One such disadvantage arises from the reverse scenario where potential competitors

reverse engineer your product, processes, or systems to gain the same capabilities and

expertise but without the expense of developing it solely on their own. Therefore,

in order to capture the true advantage from operating on the innovative frontier

and gaining first mover advantages in the form of competitive technical expertise,

companies must be able to protect these knowledge advancements. As you can see,

IP protection, which will be discussed later in this Chapter, becomes paramount in

36

the value creation equation.

In theory, operating on the innovation frontier is ideal, however, in practice this

may be challenging. This is in large part due to the impediments of innovation and

technology. Overcoming these impediments, as will be discussed in the next section,

is crucial to enabling innovation which is a key component of value creation.

3.3 Impediments of Innovation & Technology Adop-

tion: AM Focus

The importance and role of innovation for firms has been well established, but if

innovating and reaping the benefits is so easy then why is every firm not doing it?

To put it simply, innovation and technology adoption is challenging because there are

impediments that stand in the way and that are often times hard to identify and even

more difficult to overcome. Understanding these impediments is an important aspect

of creating robust plans to executing an innovative and technology driven strategy.

Baldwin (2002) cited five impediments for technology adoption in Canadian man-

ufacturing firms; cost-related, institution-related, labor-related, organization-related,

and information-related [16]. While this research focused on Canadian manufactur-

ing firms, the nature of this research implies the high-level theories can apply more

broadly. According to the research, cost-related impediments are the most significant

factor in the way of technology adoption in manufacturing firms [16]. However, this

does not mean that organizational-, institutional- and labor-related factors are non-

significant. Based on the type of firm, different factors may have greater influence than

the others on the overall adoption of technology and as such, impediments of tech-

nology adoption must be understood in the context of AM for cost-, organizational-,

institutional- and labor-related factors.

37

3.3.1 Cost-Related: Cost Modeling of AM

Generally speaking, AM is more expensive than most traditional manufacturing tech-

nologies. This has hampered adoption of the technology in many respects (See Chap-

ter 4 for drivers of manufacturing decisions). Due to the intrinsic mechanical and

physical properties of AM produced parts, the part design and build process is more

intimately linked to the overall cost of AM moreso than most traditional manufactur-

ing methods. [37]. Therefore, building the business case for AM often comes down to

the output of the optimal cost model and the trade-offs between costs and benefits

that AM provides over traditional manufacturing.

There has been a significant amount of research done on AM cost modeling over

the last couple of decades - approximately 3000 papers were published on the topic

from 1997 to 2016 [28]. This highlights the non-trivial challenges in accurately describ-

ing the technology’s true cost and the importance of this area of research. Although

significant variation exists in the models that exist in research, the shared goal of all

additive cost modeling research is to accurately describe AM activities using appro-

priate AM resources to estimate the unit costs of products or services in order to stay

competitive in the market [46]. Achieving this goal is a key factor in uplifting the

entire industry [46].

Generally, AM cost modeling can be characterized into three distinct categories;

design-oriented, process-oriented, and system-oriented [46]. The earliest cost mod-

els began appearing in literature in the late 1990’s and were focused on direct costs

and build times. These early models often adopted intuitive or analytical techniques

and focused on process-oriented elements. Around 2010, design-oriented cost models

began to emerge. These models built on previous process-oriented models by incorpo-

rating new cost drivers such as indirect and redesign costs. 2012 marked a key year in

the development of AM cost modeling as system-level thinking began to make its way

into cost modeling for AM. This level of thinking advanced previous process-oriented

models by incorporating post-processing, life-cycle, remanufacturing, and enhancing

energy costing. A summary of the major developments in AM cost modeling can be

38

found in Figure 3-3.

Figure 3-3: Timeline of AM Cost Modeling Advancements [46]

Kadir, et al. (2020) did a comprehensive review of all the AM cost modeling

classifications. In this work, cost modeling techniques are further classified into cate-

gories based on the perspective of the individual within an organization handling the

costing responsibilities. Kadir divided these perspectives into finance and accounting,

manufacturing, and operations categories. Further, each of these perspectives com-

monly used different cost classification techniques; method-based, task-based, and

level-based, respectively. The definitions and classifications of each of these categories

can be found in Figure 3-4 and Figure 3-5 [46] and the advantages and disadvantages

of each can be found in Figure 3-6.

Getting a level deeper, depending on the model and when it was produced, var-

ious AM cost models cite different key cost drivers. Despite the differences, there

are some commonalities in most models across methods and time. Most AM cost

models agree that materials, consumables, machinery (depreciation), labor, and post

processing are the key cost drivers [37, 46]. These direct-costs fall in line with the

process-oriented view of AM cost modeling that is the oldest and most documented in

39

literature. As models have evolved to become more complex through the years, many

models have begun including more indirect cost factors such as capital, administra-

tive costs (SG&A), supply chain, value engineering, and many more. Many believe

that including these costs is key to providing quantitative tangible benefits of AM

processes when compared to traditional manufacturing in order to spur adoption of

the technology.

Figure 3-4: Cost Modeling Classifications according to Kadir et al. [46]

Figure 3-5: Classification Technique Definitions according to Kadir et al. [46]

40

Figure 3-6: Advantages & Disadvantages of Cost Classification Techniques accordingto Kadir et al. [46]

One emerging cost estimation method not covered in depth in research is customer-

oriented cost modeling. In this form of cost modeling, AM cost targets can be ob-

tained at the front end and modifications to the process can be made during product

development to meet the customer’s target costs. This is worth noting because it

is customer driven and allows for AM process innovations and modifications to hit

known targets potentially leading to higher adoption.

Cost Modeling Summary

The Kadir, et al. (2020) research found that almost all of the literature on AM

cost models was based on specific AM processes for very specific applications. This

is noteworthy because the fundamental differences in the AM processes can cause

significant variation in the costing between different approaches. The conclusion

from this literature review on AM cost modeling is that a versatile cost calculation

model that represents AM in general does not exist. There has been significant

advancement in the field but cost modeling still takes a specialized approach based

on the AM process and application.

It has been established that costs are one of, it not the biggest, impediments to

41

technological adoption and that AM cost modeling is evolving and lacks a single best

approach. Since there is no consensus in literature as to the best AM cost model, it

must be concluded that AM costing within an organization must be flexible to incor-

porate changes, best practices, technological advances, and the evolving competitive

landscape. In this situation, it is advantageous to create systems that understand

the current state of the field and looks to tangential sources as ways to reduce the

impediments of adoption. An organization must be designed in such a way to ac-

commodate for the current state of the technology as an enabling force for which

innovative problem solving can take place. Hand-cuffing an organization with rigid

costing policies does not provide the flexibility necessary to properly innovate in ways

that lead to maximized value creation.

3.3.2 Organization-Related: Value of an Agile Organization

In today’s competitive business landscape, staying nimble and agile is increasingly

important. It is generally understood that as organizations grow, they run a higher

risk of becoming more bureaucratic and slower, which in turn, makes it more chal-

lenging to respond to market and consumer changes quickly and to innovate. This

may be in part why only 12 of the Fortune 500 companies from 1955 still exist today

[67].

Xerox stands as a prime example of this paradigm as a company that became

slow to react which ultimately led to their downfall. In the 1970’s Xerox held a

95% market share of the copier industry. Their business model revolved around the

idea of manufacturing, leasing, and providing a full package service for high-speed

corporate sized photocopiers to customers. As customer preferences began to change,

this model quickly began to unravel. Individuals in organizations increasingly wanted

flexible and instant access to copying capabilities that competitors like Canon were

able to offer. Xerox, handcuffed by their business model that tied them to large

machines and centralized copying services, was unable to quickly respond to this

change in customer preference. The company was unable to quickly move due to

their rigid policies that guided their sales, service, and manufacturing organizations

42

[95]. They in essence, became too inflexible to adapt which led to a failure to protect

their empire.

This example is not meant to argue that all large organizations are doomed to

fail but rather highlight the importance of staying flexible, nimble, and agile in order

to respond quickly to changes in the business environment. A research report by

McKinsey Co. argues that a new paradigm of speed is evolving in a response to four

trends brought on by the digital revolution of the late 2000’s; (1) quickly evolving

environments, (2) constant introduction of disruptive technology, (3) accelerating

digitization and democratization of information, and (4) the new war for talent [11].

The article goes on to argue that organizations must be both dynamic and stable in

order to successfully adapt to these emerging trends. To explain the paradigm shift

the authors use the analogy of an organization as a living organism that has a stable

backbone but is able to evolve over time in order to adapt quickly to new challenges

and opportunities (See Figure 3-7).

Figure 3-7: Paradigm shift from organizations as machines to the paradigm that orga-nizations are living organisms in order to adapt to the needs of an agile environment.[11]

Further research from McKinsey Co. found that companies defined as agile, which

refers to organizations that excelled in both speed and stability, had a 70% chance

of landing in the top quartile of the organizational health index (OHI) (See Figure

3-8). The OHI is a metric used by McKinsey Co. to benchmark an organization’s

43

ability to "align around and achieve strategic goals" compared to competitors and

peers as well as serving as an indicator for an organization’s ability to achieve long

term success. The classifications from this research defined organizations as:

1. Agile: if the organization were both stable and fast

2. Bureaucratic: If the organizations were stable and slow

3. Start-up: If the organizations were fast but unstable (designation regardless of

organizational size or life cycle)

4. Trapped: If the organizations were both slow and unstable

5. Average: if the organization fell somewhere in the middle

While the agile group of companies showed the greatest correlation to perfor-

mance, the research showed that if an organization was characterized as ’fast’, that

organization scored better than 80% of the companies included in the OHI.

Two other interesting findings came out of this research. The first was that in-

dustry regulation was a strong indicator of companies that fell into the bureaucratic

category. However, companies in these types of industries that were able to achieve

speed while working within the confines of the regulatory environment were almost

always able to outperform their competition. The second significant finding from this

research was a ranking of the specific management practices that differentiated the

most from the least agile organizations (See Figure 3-9 for the management practices

most indicative of agile organizations). Organizations that were able to make rapid

changes while providing structure, stability, and organizational clarity were typically

found to be the highest performing [20].

Organizational Agility Summary

Overall, agile and flexible organizations perform better than slow and bureaucratic

organizations. It becomes obvious then that slow moving and bureaucratic organiza-

tions serve as a huge potential impediment to sustaining a position on the innovative

44

Figure 3-8: Distribution of companies based on the metric of speed vs stability. Thematrix divides companies into four categories; trapped, bureaucratic, start-up, andagile. [20]

frontier. However, with our current understanding of the benefits of organizational

agility, managers can take direct actions to deal with these types of organizational-

related issues to actually enhance an organizations ability to innovate. The ability to

move quickly to respond to new research and learnings is paramount to the overall

health of the organization.

45

Figure 3-9: Ten management practices differentiated the most from the least agileorganizations [20]

3.3.3 Labor-Related: AM Expertise

As will be discussed in Chapter 4, AM is an advanced manufacturing technology

that requires high levels of technical knowledge when compared to other traditional

manufacturing technologies. The 2015 Wohler’s Report, the pre-eminent market re-

search report on additive manufacturing, cited the skills gap as the biggest hurdle in

enabling the adoption of AM. Experts in the field agree that adoption of AM won’t

happen over night but that companies can establish strategies and policies that can

enable proficient use of the technology [27]. These types of policies include creat-

ing organizational structures for focused learning and knowledge generation (such as

46

a Center of Excellence), technology trainings and workshops, funding university re-

search, and recruitment & HR policies to just name a few. Overall, the competition

for AM expertise can be a potential impediment to adoption of the technology and

innovation agility but having robust strategies and policies can aid in the develop-

ment, retention, and acquisition of the talent needed to build a strong AM workforce

to overcome these hurdles.

3.3.4 Institution-Related: Innovation in a Highly Regulated

Environment

The opportunity to innovate is not created equal in all industries. A key aspect

of innovation that must be acknowledged, especially in the context of a company

like Stryker in the medical device industry, is the role of regulation. Elder (2016)

categorizes the types of regulation that have an impact on innovation (see Figure

3-10).

Figure 3-10: Types of Regulation that Affect Innovation [30]

For the purposes of this research, only social regulations that focus on product and

consumer safety will be discussed due to their direct relevance to the healthcare sec-

tor. Elder argues that in industries such as healthcare and medicine that have strong

ethical considerations and an inherent need for safety, the activities and strategies of

47

firms are restricted by regulations in such a way that makes the link between regula-

tion and innovation obvious and close [30]. However, whether regulation inhibits or

influences innovation in literature is unclear. Elder argues that the reason for this is

two-fold. On one hand, safety regulation may prevent risky innovations. The counter

argument to that is that regulations increase acceptance of new products since con-

sumers know they can rely on a baseline safety standard [30]. Empirical evidence

does not signify which school of thought is correct and therefore is largely dependent

on the context of the regulation and innovation.

Regardless of the true nature of regulation’s impact on innovation, the McKinsey

research on organizational health does show a correlation between speed and perfor-

mance in these types of environments. The key then to overcoming institution-related

impediments in the context of innovation and engineering may lie in an organizations

ability to maintain flexibility and agility.

3.4 Intellectual Property

One of the key pieces to innovation and technology development that has been alluded

to throughout this Chapter is intellectual property (IP). IP serves as a cornerstone

in innovation in the world’s economy. IP rights provide the incentive to individuals

and organizations to innovate by granting creators with the ability to profit from

the value their work provides. However, there are a number of challenges that come

along with making sure that innovation is properly accounted for. The first challenge

is identifying innovation [87]. In many cases organizations may not even realize the

value of something at the time it is developed. The second challenge is figuring out

what to do with the innovation once it has been identified. This is a challenge that

managers have to face as they explore the legal options and levels of protection that

exist with the four commonly accepted forms of intellectual property (See Figure 3-11

for a summary):

1. Patents: The granting of a property right by sovereign authority to an inventor.

This provides the inventor exclusive rights to the patented process, design, or

48

invention for a designated period of time in exchange for comprehensive disclo-

sure of the invention [49]. In the US, patents typically last for 20 years but rules

vary from country to country so specific patent laws must be explored to de-

termine the exact protection length. There are three different types of patents;

utility patents, design patents, and plant patents. Utility patents cover anyone

who invents a new and useful process, article of manufacture, machine, or com-

position of matter. Design patents cover an ornamental, new, or original design

for a manufactured product. Plant patents cover anyone who produces, discov-

ers, and invents a new type of plant capable of reproduction [49]. Generally, in

order to obtain a patent the inventor must demonstrate that the technology is

new, useful, and not obvious which requires the disclosure of how the technology

works.

2. Copyrights: Refers to the legal owner of intellectual property. A copyright gives

only the original creators and anyone they grant permission to the exclusive right

to reproduce the work. Copyrights do not protect ideas, discoveries, concepts,

theories, brand names, logos, domain names, or logos [48]. For an original work

to be copyrighted it must be in a tangible, physical form. Copyrights vary from

country to country but typically last anywhere from 50 to 100 years after the

copyright holder’s death [48].

3. Trademarks: A trademark is a recognizable insignia, phrase, word, or symbol

that denotes a specific product and legally differentiates it from all other prod-

ucts of its kind [84]. Trademarks recognize the company’s ownership of a brand

by exclusively identifying the product as belonging to a specific company. This

form of intellectual property protection is commonly associated with brands,

logos, and slogans. Trademarks are slightly different from other forms of IP

protection in that they don’t have to be registered in order to be protected by

common law. Additionally, trademarks never expire, meaning that as long as

the holder of a trademark is continuously exercising the use of the trademark,

it is still protected by law.

49

4. Trade Secrets: A trade secret is any practice or process that is generally not

known outside the company and gives a firm a competitive advantage over it’s

competitors [34]. In order to be legally protected as a trade secret in the US,

a company must make a reasonable effort to conceal the information from the

public. Overall, trade secrets must meet the following three criteria; not public

information, being actively protected, and offers some economic benefit. Trade

secrets may take the form of processes, instrumentation, pattern, design, for-

mulas, recipes, methods, or practices. It is important to note that if a company

fails to safeguard a secret or if it is independently discovered, the legal trade

secret protection is removed.

Figure 3-11: Intellectual Property Summary [97]

IP Protection in Practice

In the fiercely competitive business environment, firms must constantly be on the

lookout for attacks on their core business. IP laws are one way that firms can pro-

50

tect themselves from these attacks. When deployed appropriately, these laws can

build metaphorical ’moats’ around an organization’s competitive secrets, protecting

future profits and superior performance for an extended period of time. Some of the

largest companies in the world owe some of their success in part from their ability to

protect their IP. Some of the most recognizable examples of patents protecting the

development of new technology is in the pharmaceutical industry where companies

file patents for new drugs that protects them from infringement from other companies

for 20 years. Other companies have utilized trademarks to protect their brand names

that have become ubiquitous with certain products. For example, J&J’s ’band-aid’

for bandages and Kimberly Clark’s ’Kleenex’ for tissues.

Unlike the prior examples that require information in the public domain to have

legal protections, trade secrets are another strategy companies can employee to pro-

tect their intellectual assets. One of the most well-known examples of this in practice

is Coca-Cola’s protection of the secret recipe for Coke. The company has kept the

secret recipe as a trade secret for years to keep the information out of the public

domain. Had the company decided to file a patent on the secret recipe, the company

would have been forced to reveal how Coke is made. Although the product would

have been protected from infringement for 20 years in the US, other companies could

have come in following the patent’s expiration and started making Coke. By protect-

ing this recipe as a trade secret, the company has been able to maintain a competitive

advantage over their competitors by having the legitimate claim as the only ’original’.

This strategy of protecting IP with trade secrets is not without risk. If the secret

is otherwise discovered or figured out by another person or organization, legal pro-

tections no longer apply. In essence, it is perfectly legal to try to reverse engineer a

trade secret. As a result, this strategy needs to be carefully considered. Trade secrets

gain legal protection potentially forever through their inherently secret nature while

patents gain their protections through public disclosure [59]. The decision whether

to file a patent or keep a trade secret is company and invention specific but there are

a number of questions as defined by Lobel (2013) that can be asked to help figure out

the correct approach [59]:

51

∙ Will the invention be useful in 20 years?

∙ Is it possible for companies to reverse engineer it?

∙ Is the invention detectable and embedded in the product itself or is it part of

an internal manufacturing process?

∙ Is the invention likely to be independently discovered in the near future?

∙ Is the product regularly observed in public settings?

Other important considerations in using trade secrets as an approach is the level of

turnover in the company and the number of production partners in the manufacturing

process. The more eyes that have access to a trade secret the higher likelihood of the

secret becoming public knowledge.

Overall, the protection of the knowledge created within an organization is crucial

to the value creation equation because it determines the sustainability of competitive

advantages, the robustness of business strategies, and the return on investment for

knowledge creation R&D activities. There are a number of tools available but each

must be considered carefully in the context of the business and technology landscape.

3.5 Key Takeaways

In summary, innovation, the impediments, and the corresponding IP plays an impor-

tant role in the superior performance of an organization. Being able to execute a

strategy that allows a company to effectively overcome adoption impediments while

properly protecting these innovations that push the boundary of performance in order

to maintain a competitive advantage is hugely important to sustain success.

With an advanced manufacturing technology such as AM there are a couple of

important adoption impediments that need to be understood in order to prevent stag-

nated value creation. First, AM cost-modeling is an evolving field lacking a single

generalizable model. Therefore it is important to design organizations that are flexi-

ble and agile in order to respond to these requirements. Creating agile organizations

52

has additional benefits as well in that these organizations typically perform much

better than slower more bureaucratic organizations. These benefits also manifest

by creating positive impacts on labor-related and institutional-related impediments.

In the arms race for AM talent and skills, agility can help overcome labor impedi-

ments by quickly obtaining specialized training that is needed in order to encourage

adoption. Speed has also been demonstrated to result in positive impacts in highly

regulated environments. This is especially relevant to AM, given that some of the

most prominent applications of the technology are in highly regulated industries such

as aerospace and medical (See Section 4). Lastly, once the impediments to technology

adoption are understood and overcome, these pieces of IP created through innovation

and technology development need to be protected. Trade secrets and patents are two

of the most effective tools in protecting AM and advanced manufacturing innovation

in a business.

In the context of the value creation model (See Figure 3-1), if IP is not able to be

protected, it opens the door for competition to replicate a firm’s capabilities. That

then, directly affects the competitive advantages a firm is able to create with that

knowledge and therefore has an influence on the business strategy. It is through these

interconnectivities that we begin to see how the maturity of value creation can be

understood by an organization. When all of this is combined with other theories of

strategic management, firms can begin to define the role of innovation and technology

development within a firm that supports the strategic objectives and works towards

the ultimate goal of creating shareholder value.

Next, we will explore AM in order to understand the differentiating capabilities

that technology provides and how these unique benefits influence and drive the other

variables of the value creation model that have been discussed so far.

53

Chapter 4

Background of Additive

Manufacturing

In this chapter we will explore AM, which will include the history and background,

the value proposition of AM, a discussion of the technical processes, a review of the

applications, and the history of the technology within Stryker and medical device

industry. This knowledge is necessary to understand the maturity of AM as a tech-

nology business unit within Stryker as well as to understand how the technology’s

unique nuances drive the value creation model (See Figure 4-1).

4.1 History of Additive Manufacturing

The concepts that laid the foundation for additive manufacturing (AM) can trace

their origins all the way back to the mid-20th century. As early as 1951, Otto John

Munz developed a system for selectively exposing transparent photo emulsion in a

layer wise fashion [78]. Over the next two decades there were a number of scientific

developments that laid the foundation from which AM sprouted. Most historians

agree that modern AM can trace its routes to 1981, when Hideo Kodama of the

Nagoya Municipal Industrial Research Institute, published 2 papers on the printing

of a solid model in what is now recognized as an early stereolithography technique.

However, the true birth of commercialized additive manufacturing as we know it

54

Figure 4-1: Value Creation Model: Focus of Chapter 4 is on Additive Manufacturingas a Technology Business Unit

today occurred a few years later in 1986 when Charles Hull submitted a patent for

what would become the first stereolithography system and founded the company 3D

Systems.

In the decades that have followed since 3D Systems launched their first commercial

stereolithography printer in 1988, there has been an explosion of different additive

processes from direct metal laser sintering to binder jetting. This wave of development

reached a peak between the years of 2010-2015, which, according to Gartner’s hype

cycle, was defined as the ’peak of inflated expectations’ (See Figure 4-2). In the years

that followed there has a period of disillusionment where investment in the technology

decreased and a number of companies vanished from the landscape. However, the

terms used to describe these periods should not be taken to reflect the actual market

conditions. AM is healthy and has been growing at double digit rates year over year

since 2009. As the marketplace continues to evolve one thing is for certain, AM is

not going anywhere and it is going to continue to expand its foothold as a viable

manufacturing tool.

55

Figure 4-2: Gartner Hype Cycle for 2012 when AM technology was at the peak ofinflated expectations

4.2 AM Overview

Additive manufacturing (AM) by the most basic definition is the ability to build a

physical object by depositing material in a specified geometry, layer by layer until the

object is complete. This process allows for the production of objects directly from

computer aided design (CAD) software at near net shape from a variety of differ-

ent materials without the need for tooling or dies. Many terms have been used to

describe AM but mean the same thing including "layered manufacturing", "additive

processes", "direct digital manufacturing", "solid freeform fabrication", or most com-

monly "3D Printing" [52]. For this reason, it is important to define exactly what is

meant by the term additive manufacturing (AM). From this point forward, additive

manufacturing will be used as the universal term for all the technology processes in

accordance with ASTM Standard F2792.

56

It is also important to call out other terms that refer to applications underneath the

umbrella of AM but are often times used interchangeably such as "rapid prototyping",

"rapid manufacturing", and "rapid tooling". These names refer to the use of AM

technologies for the use of quickly creating prototypes, the use of AM technologies to

create end use products, and the use of AM technologies to create tooling respectively.

The term rapid in these names is a bit misleading as it does not necessarily refer to the

speed of the process but has rather stuck around as an artifact of the technology’s early

development when the primary application space was as a tool for rapid prototyping.

Furthermore, it is important to define exactly what is meant by AM processes.

Throughout this thesis, AM processes refer to the different techniques used to produce

additively manufactured parts such as extrusion, photopolymerization, selective laser

sintering, etc. which will discussed in greater detail in the Section 4.5.

4.3 The AM Process

There are 5 primary steps in creating an additively manufactured part:

1. CAD Design: The first step of every AM process is creating a 3D CAD model.

This is the point where the geometry, tolerances, and surface conditions are

determined. AM Processes and materials are considered at this point but not

necessary for the creation of the model.

2. STL File Conversion and Manipulation: The second step in the AM process is

to convert the CAD file to an STL file. This is the most common file format for

additive manufacturing (Although other file formats can be used such as OBJ,

AMF, 3MF) [9]. An STL file was originally named for the process it was in-

vented for, stereolithography. Nowadays the STL file is also commonly referred

to as Standard Triangulation Language and Standard Tessellation Language.

However, the name is less important than the function it serves. The STL file

format uses a process known as tessellation to approximate the surface of solid

models with triangles. The vertices and normals of these triangles are used

57

to store the geometry of the model. This is an important step in the process

because the resolution of the digital model is captured here. The more triangles

included in the approximation of the surface, the better the geometry can be

approximated and therefore the higher the resolution. As can be surmised, the

higher the resolution, the larger the file size becomes, increasing the computa-

tional power needed to build the model. Next, the STL file must be loaded into

the AM software on the physical machine where it is converted to a G-Code.

A G-Code is a numerical control (NC) programming language that is used to

control automated machine tools such as a CNC. Most additive manufacturing

machines come with their own software but there are 3rd party software services

out there that provide a number of solutions for different additive manufacturing

needs.

3. Machine Set-Up: Once the STL (or other file format) is loaded onto the AM

machine’s software, the best print orientation is determined and the print pa-

rameters are set. Once the print orientation is determined, the STL file is sliced

into thin layers that reflect how the object will be physically printed. At this

stage there are a number of process parameters that can be and must be tuned

such as layer thickness, scanning velocity, and hatching distance, to just name

a few, that dictate the final mechanical properties and physical performance of

the part.

4. Part Build & Removal: Once all the process parameters are finalized, the next

step is to physically print the part. This step can take anywhere from a few

minutes to a few days depending on the part parameters, size, geometry, and

process. The part must then be removed from the instrument and sent off for

post-processing. The process of removing the part from the machine can range

in complexity from simple to highly complex.

5. Post-Processing: In the majority of cases (may not apply for prototype parts),

additively manufactured parts coming off the instrument will require some level

of post-processing to meet the final design specifications. Post-processing is

58

intended to improve aesthetics and geometric accuracy, reach desired surface

characteristics, and achieve mechanical functionalities and properties. Typical

post-processing steps may include some or all of the following: excess material

removal, curing (heat-treatment), support removal, machining, surface finish

processes (e.g. bead-blasting), coloring, and inspection.

Figure 4-3: The Generalized AM Process

4.4 AM Value Proposition

While there has been much speculation about the potential of AM throughout the

years, one thing is for certain - the technology is not going to single-handedly replace

traditional manufacturing. Instead it aims to serve as a complement to the other

technologies currently on the market. The promise lies in the opportunity to enhance

our manufacturing capabilities and fill in the gaps where traditional manufacturing

falls short. As with any promising technology, it is important to understand the

benefits and disadvantages in order to optimize its use and figure out exactly what

the technology’s true value proposition is in the manufacturing landscape.

When compared to other more traditional manufacturing methods, AM offers a

number of benefits. Before we can fully understand what these benefits are, we must

know exactly what key metrics managers, engineers, and designers use in choosing

and grading a manufacturing process. First off, engineering design and business de-

cisions are inextricably linked. Together these factors influence which manufacturing

process will ultimately be used for production. Some of the considerations that come

into play during the design process are; volumes, capital costs, unit costs, speed,

surface finishes, types/complexity of shape, scale, tolerances, materials, applications,

and sustainability [58]. From a manufacturing perspective these considerations can

59

roughly translate into following 4 broad categories; cost, quality, flexibility, and rate.

It can be noted that many of these may overlap. For example, a designer may re-

quire certain tolerances and materials will dictate the use of certain manufacturing

processes that influence cost, quality, and rate. These 4 metrics serve as the broad

categories by which manufacturing processes can be compared.

Many of the general comparisons and trade-offs of AM to traditional manufac-

turing can be found in Appendix A, Figure A-1. However, it is often challenging to

compare different processes without specific applications or use cases due to the fact

that there are various trade-offs and a level of optimization that need to occur while

navigating the design and manufacturing considerations from the paragraph above.

For this reason, the value proposition of AM will be defined in generalities for what

is commonly accepted much like the comparison of AM to traditional manufacturing

in Figure A-1.

In general, there are 4 categories where AM is typically seen as superior to other

manufacturing methods and makes up what can be viewed as the AM value proposi-

tion; volumes, complexity, flexibility, and efficiency [39].

Volumes

In many cases, AM outperforms other manufacturing methods from a cost perspec-

tive at low volumes. Typically, in production, efficiencies are gained from reaching

economies of scale. However, AM can offer cost effective solutions at low volumes as

the cost per unit is the same whether you produce one or infinitely many parts.

Franchetti & Kress (2017) modeled this in a study where they directly compared

the unit cost per volume of parts produced with AM to injection molding. Figure

4-4 from their study shows a prime example of how AM unit costs stay constant and

make low volume parts economical for production. It is important to note that this

simple process-oriented model does not consider many of the primary cost drivers

such as the cost of machine depreciation that can affect the overall unit costs due

to low utilization at low volumes. While it can be easily argued that this model is

far too simplistic, it serves as an excellent example to illustrate the advantages AM

60

Figure 4-4: AM Cost vs Injection Molding at Different Volumes [33]

provides at low volumes.

Figure 4-5: AM Economies of Scale [81]

A more generic representation can be

found in Figure 4-5 that shows how af-

ter an initial volume is overcome, where

some cost drivers have a greater influence

on the cost model, the cost of AM stabi-

lizes to a flat rate. This is due to the fact

that there are not significant cost gains

after covering the initial cost drivers such

as the cost of the AM machine. The

take-away is that AM enables potential

cost-effective solutions for high-mix, low-

volume parts which fills a much needed

gap in the conventional manufacturing

tool box.

Complexity

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Figure 4-6: AM Cost vs Complexity [81]

AM enables for a greater level of design

freedom that has direct implications on

product performance, manufacturability

and cost. One of the primary advantages

that AM has over conventional manufac-

turing methods is that complexity is not

linked directly to manufacturability [39].

Therefore, designers are able to create

more complex designs without having to

worry about whether or not the prod-

uct can be manufactured. Additionally,

this has direct implications on costs as

increasing complexity is traditionally as-

sociated with increasing costs [90]. As you can see from Figure 4-6, in general the

higher the complexity, the higher the cost of traditional manufacturing. Since com-

plexity is not linked to cost with AM, the cost curve stays flat in relation to complexity.

Enabling greater complexity allows designers to have design freedoms that were

previously off-limits due to the technology not being able to manufacture it or it was

cost prohibitive. Unlocking this potential allows for new and innovative products that

have improved performance over past iterations.

Flexibility

AM offers significant flexibility that is unmatched by any other manufacturing pro-

cess. The flexibility allows designers to proceed forward with less concern about

manufacturability which has direct quantifiable impacts on design speed. For exam-

ple, when executing a design change, AM offers the ability to quickly execute with

only a revision to the CAD model. With conventional manufacturing methods, de-

sign changes can result in developing new tooling fixtures that can be costly and

therefore inherently inefficient. With the flexibility of AM, these additional consider-

ations are removed and allow design teams to quickly iterate on products at a much

62

more affordable and rapid pace. This design speed translates to a very real benefit

as demonstrated by Reinertsen and also Ciavaldi, who show that the profits of man-

ufacturing projects can be reduced by as much as 31.5% due to a 6-month delay in

launch (see Table 4.1).

Factors Profit ImpactSix month delay in launching phase -31.5%

Quality problem requiring a 10% discount -14.9%Volume reduction -3.8%

Exceeded production cost -3.8%Exceeded development budget -2.3%

Table 4.1: Impact of Profitability Due to Different Factors [71]

Increasing development speed and therefore reducing the time to market has the

benefit of increasing sales lifetime and market share [71]. In addition, decreasing the

design time can allow firms and designers to make product improvements much more

rapidly, allowing firms to potentially launch a much better and competitive product

[32]. Overall, the flexibility of AM over conventional manufacturing methods results

in tangible benefits to project timelines and product performance.

Efficiency

Efficiency in this context is defined as the ability to complete a task with minimal

expenditure (i.e. resources, cost, and time). With this definition, AM is a much more

efficient process in many cases over conventional manufacturing. Efficiency arises from

the blending of both the flexibility of the process and the part complexity advantages.

As mentioned previously, the ability to iterate on designs more rapidly and make more

complex designs than with conventional manufacturing methods inherently makes the

technology more efficient.

However, these factors are not the only aspects of the technology that makes it

more efficient. Efficiencies arise from the ability of the technology to simplify the

supply chain. To understand where these efficiencies come from, it is necessary to

understand the factors that drive supply chain complexity (Table 4.2).

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Stage Complexity Driver

Downstream

Number of customersHeterogeneity of customersShorter product lifecycles (i.e. frequency of vari-ous product introduction) and long product lifecy-cle (i.e. logistics of supporting activities)Demand variability

InternalManufacturing

Number of productsNumber of partsOne-of-a-kind or low volume batch productionManufacturing schedule instability

UpstreamNumber of suppliersLong and/or unreliable supplier lead timesGlobalization of the supply base

Table 4.2: Drivers of Supply Chain Complexity [24]

AM has the ability to directly affect/influence 6 of the 11 factors; shorter/long

product lifecycles, demand variability, number of parts, one-of-a-kind or low volume

production, manufacturing schedule instability, and number of suppliers.

It is commonly accepted in literature and in practice that AM simplifies the supply

chain [51] through a combination of these factors. However, in reality this can be

difficult to quantify and in some cases, might not be as straight forward as the common

understanding suggests. Three case studies done by Khajavi, et al. (2020) found that

AM simplified the supply chain in one case, made it more complicated in another,

and had mixed results in the last. Despite these results, there is still massive promise

for AM to reduce some of the complexities found in Table 4.2.

Additionally, AM presents opportunities over conventional manufacturing to im-

prove sustainability through a more efficient use of resources. There are three areas

where AM can affect sustainability practices [32];

1. Improved resource efficiency: Efficiencies in this category come from both prod-

uct design and in the manufacturing process. In product design, AM enables

the wide spread use of generative design that reduces physical material use in

many cases. In the manufacturing process, raw material can be reused from

build to build leading to a much more efficient use of material.

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2. Extended product life: AM enables economical production of low-volume parts

which creates a potential market for repair and refurbishment parts that can

extend the life of many products. This creates a more sustainable product

environment which could result in reduced waste.

3. Reconfigured value chains: AM could lead to more localized production, shorter

supply chains, and new distribution models that all create more sustainable end

to end business practices.

AM has much to offer for improving efficiencies across many different manufactur-

ing segments but there is still research needed to quantify all the benefits. The point

remains though, AM has the potential to be a much more efficient manufacturing

technology than many conventional methods if utilized correctly and responsibly.

AM Value Proposition Summary

Overall, it must be stressed that AM is not right for every product or application given

the interdependencies of many of these factors. However, AM fills a niche that many

traditional manufacturing technologies do not currently satisfy. When looking at the

key metrics that firms and/or individuals use for picking a manufacturing process,

cost, quality, flexibility, and rate, it becomes clear that AM has a value proposition

that touches all of these areas, making it a viable manufacturing option given the

right application.

4.5 AM Processes and Materials

There are a number of ways to classify and categorize AM processes across a number

of dimensions that include physical raw material state, method of transferring STL

data, working methodology/underlying technology, energy source, raw materials, and

material delivery systems [82]. However, for the purposes of simplicity, this thesis will

stick to the classification of the 8 AM processes as defined by ASTM guidelines;

1. Extrusion

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2. Photopolymerization

3. Selective Laser Sintering

4. Selective Laser Melting

5. Binder Jetting

6. Material Jetting

7. Directed Energy Deposition

8. Sheet Lamination

Extrusion

Material extrusion (ME-AM), was the second major AM process to be commercial-

ized, behind stereolithography (photopolymerization), first reaching the market after

being introduced by Stratasys in 1988 [80]. In general, all ME-AM processes function

by the same mechanism of action. The feedstock material is fed through a heated

extruder that liquefies the material before it is deposited as a thin layer on to the

printing surface. Following deposition of the feedstock as a bead of molten mate-

rial, the material cools and adheres to the surface upon which it is laid (see Figure

4-7). The feedstock in these processes is most commonly in the form of a spooled

filament but can also come in the form of pellets or rods. ME-AM processes are also

commonly known as fused deposition modeling (FDM) or fused filament fabrication

(FFF) when the material feedstock is polymer-based, and known as bound metal

deposition (BMD) when the feedstock is metal.

Of all the ASTM recognized AM processes, extrusion has the most diverse array

of material options. The most common extrusion materials are thermoplastics but

there are commercial technologies that also have the ability to print components with

photopolymers, metals, composites, biomaterials, and with multimaterials. Standard

thermoplastics such as PLA, ABS, and PC, typically cost in the range of $20 per

kilogram while more complex mixtures and composites such as nylon and carbon

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Figure 4-7: Material Extrusion Process [15]

fiber reinforced filaments can cost $40 per kilogram or more [76]. There is also lit-

erature that highlights the process ability to print ceramics but there is no current

commercialized technology.

There are some important design characteristics that need to be considered be-

fore choosing extrusion-based processes. The two primary downsides of extrusion are

speed and part strength. Material extrusion AM is typically a much slower process

than injection molding, another common method for creating tooling or parts from

thermoplastics. Additionally, anisotropic behavior arises in material extrusion part

due to the fabrication methods which can negatively impact the mechanical properties

of the parts [76]. Even though all AM processes require some form of post-processing

there are additional considerations for extrusion based processes depending on the

material. For thermoplastics, photopolymers, composites, biomaterials, and multi-

material, the technology is capable of producing parts with the desired density and

dimensions while metal and ceramic extrusion processes require a densification step

such as sintering [62]. Overall, extrusion based processes are extremely flexible and

becoming more and more affordable as the technology continues to evolve.

Photopolymerization:

Photopolymerization was the first commercially available AM technology. Photopoly-

merization based techniques such as stereolithography (SLA), digital light processing

(DLP), and continuous liquid interface production (CLIP) are all based on the mech-

anism of curing liquid monomers or oligomers by exposing the liquid to a light source

at a specific wavelength to form thermosets [14]. In photopolymerization the object

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is built by selectively exposing a vat of liquid resin to a light source which cures the

resin into a solid. This process is repeated layer by layer until the part is completed.

There are three photopolymerization processes varying slightly in the mechanism

of action. The SLA method works by exposing a thin layer of photocurable resin to

a photon source in a point by point manner to selectively cure the resin. Once the

layer is complete the build plate moves down into the vat of resin and the process

repeats itself until the object build is complete (see Figure 4-8a). DLP is very similar

except that the light source illuminates the entire layer at once instead of point by

point. Additionally, DLP is illuminated from the bottom of the resin vat and the

build platform and corresponding part is dipped into the vat from above [14] (see

Figure 4-8b). CLIP is similar to DLP in that the resin is cured from the bottom of

the vat. The difference is that the object is continuously pulled from the liquid which

increases printing speeds. This is enabled by an oxygen-containing interfacial layer

where free radical polymerization is inhibited between the build platform and the

curing window [14]. This dead-zone facilitates the continuous printing and layer-less

part construction (see Figure 4-8c).

(a) SLA [21] (b) DLP [1] (c) CLIP [45]

Figure 4-8: Photopolymerization Processes

One of the most well known drawbacks of photopolymerization processes is the

brittleness of the final product. This can occur as a result of the inhomogeneous

polymer network with high cross-link density. However, this process is very flexible.

Photopolymerization is capable of processing parts with a wide array of materials

besides photopolymers. This includes metals, ceramics, composites, and biomateri-

als. As with metals and ceramics in extrusion based processes, photopolymerization

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requires a densification step such as sintering in order to reach final density and

dimensions [62]. Overall, photopolymerization processes are characterized by the di-

verse material options as well as the ability to produce some of the highest resolution

products of any of the AM processes with very small feature sizes [14].

Selective Laser Sintering:

Figure 4-9: Sintering Mechanism [13]

The selective laser sintering

(SLS) process was first patented

in the 1980’s by Carl Deckard

and commercialized by Desk

Top Manufacturing (DTM) Corp

[56]. As the namesake suggests,

the primary mechanism of ac-

tion for the process is sintering,

a process by which material is

heated to a point just below the

material’s melting point causing atoms to diffuse across particle boundaries resulting

in the fusion of material into a solid state (Figure 4-9). There are many different

technologies that makes up this process category aside from selective laser sintering

including; high speed sintering (HSS) and multijet fusion (MJF).

The primary building block of this process is powder. The powder properties;

size distribution, shape, flowability, and type as well as the process parameters; layer

thickness, laser intensity, spot size, and power all are important factors that influence

the process parameters and the final materials properties [56]. The process starts

with a thin layer of material in powdered form, typically around 20-150 microns thick

[64], on a build plate.

At this point, the sub-processes in this category differentiate slightly. For basic

SLS, a directional heating source such as a high powered laser points down onto the

bed and, in a point by point fashion, heats the powder to a temperature just below

liquefaction. Once the laser or heat source is removed the material cools and solidifies

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(See Figure 4-10a). With MJF, a fusing and a detailing agent is dispersed across the

bed which causes the powder layers to fuse together once exposed to an infrared light.

HSS is similar to MJF, with the exception that no detailing agent is spread across

the powder after the fusing agent is dispensed by the nozzle head (See Figure 4-10b).

(a) Selective Laster Sintering [5] (b) MJF & HSS [3]

Figure 4-10: Selective Laser Sintering Processes

In all the processes, once the layer is complete, the build plate moves downward

and a roller will spread a new thin layer of material across the build plate. The

process repeats itself until the entire part geometry is complete (Figure 4-10a). This

process generally occurs in a nonoxidative environment that is created in the presence

of heat and gases such as nitrogen and argon [56].

One major benefit of the process is that unlike many other AM processes, the

builds are fully self supporting as a result of the dense material that supports each

layer being fabricated [86]. However, there are some potential downsides as well. One

of the defining mechanical characteristics of this process is the porous microstructures

that result from the sintering processing. Additionally, the rapid cooling after local-

ized heating can lead to shrinkage and deformation of the final product. This is an

important consideration when choosing this process because the formation of these

porous microstructures and the residual stresses induced can have impacts on the

dimensions as well as on the physical and mechanical properties of the final product.

Lastly, the materials associated with SLS processes are more limited than some other

processes and only include thermoplastics, ceramics and composites.

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Selective Laser Melting:

Selective laser melting (SLM) refers to a category of processes that include powder

bed fusion (PBF) and electron beam melting (EBM). Additionally, direct metal laser

sintering (DMLS) is often grouped into this category although there are some slight

differences when compared to SLM, PBF, and EBM.

Overall, this process is very similar in process mechanism to SLS and is often

thought of by many as an SLS subcategory despite having some key differences. The

primary differentiator between the processes is due to the fact that SLM processes

fully melt the powdered form of a material into the fully fabricated part as opposed

to SLS which is a true sintering process. The benefit of this is that the process

parameters can be manipulated to more directly control the porosity of the material.

This has the benefit of producing a higher density part than SLS that is closer in

mechanical properties to wrought material. Additionally, the material used in SLM

is metals whereas SLS is primarily associated with thermoplastics, ceramics, and

composites.

Much like SLS, SLM requires a very fine, atomized powder spread over a build

plate. Similarly, with this process, the material characteristics of the powder; particle

size, size distribution, shape, and flowability as well as process parameters including;

laser power, scanning speed, hatch spacing, and layer thickness need to be optimized

in order to produce the desired mechanical and physical properties of the final product

[65].

The general process for SLM consists of 3 primary process steps. To start, a roller

will spread the material powder evenly across the bed. Next, a heating source will

melt the powder and fuse the metal particles together. Finally, the bed will move

downward a specified depth and the process will repeat itself until the part is fully

fabricated (see Figure 4-11). The heating source is where some of these processes

differentiate slightly. In SLM and PBM a high-power laser is used and in EBM an

electron beam is used to heat and melt the material. The DMLS deviates a little

more from these processes in that the laser does not fully melt the powder. As the

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name suggests, this is much closer to the mechanism of SLS in that the powder is

heated to a point just below the melting point where the material fuses to a solid

state.

Figure 4-11: Selective Laser Melting & Electron Beam Melting Processes [10]

The advantages of the EBM process when compared to SLM and DMLS is that

the process occurs at higher temperatures, in the range of 700C to 1000C, which helps

relieve internal stresses, reduces the need for supports, and limits reinforcements dur-

ing the build [72] [88]. Alternatively, SLM and DMLS are relatively cold processes,

which results in finished parts that may need to be heat treated to resolve residual

stresses. Another drawback of SLM is that the material selection is limited. Cur-

rently only stainless steel, tool steel, titanium, cobalt chrome, and aluminum can be

produced with SLM while for EBM, the material options are even lower, with tita-

nium as the primary starting material and in some limited cases, cobalt chrome [26].

DMLS has an advantage over these other processes in that almost any metal alloy

can be produced but the drawback is that these parts may not possess the desired

metal mechanical properties. Finally, although there are many advantages of SLM

processes, they are known for being expensive when compared to other AM processes

with the primary cost drivers being the raw materials and the cost of the machines

(typically $500K or more [62]).

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Binder Jetting:

Binder Jetting (BJ) is very similar in many ways to SLS. The primary difference being

that with BJ, the binding agent (glue) that is deposited on the powdered bed does

not undergo a sintering step with a high powered heating source at each layer while

the part is being fabricated. The glue is instead deposited and left to cure without

the assistance of directed heating sources.

The BJ process starts with a recoating blade that spreads a thin layer of powder

across a build platform. Once the layer has been leveled, a carriage of inkjet nozzles

pass over the bed and selectively deposit droplets of a binding agent on to the bed

surface (see Figure 4-12). After the layer has been completed, the powdered bed

moves down a specified depth and the process repeats itself. Once the entire object

has been fabricated, the part is left in the powdered bed to cure and gain strength

[23]. At this point in the process, BJ parts are said to be in a ’green state’. In this

form, BJ parts are very brittle and often only suitable for prototype purposes due to

the fact that they are only held together by a polymer binding agent.

The mechanical properties of BJ is one of the primary drawbacks of the process.

In order to achieve more favorable mechanical properties additional steps such as

infiltration, a step where the binder is burnt out leaving voids that are then filled

with another metal, and sintering are required. It is important to note that since

the process occurs at room temperature, the manufacturability of large parts and

parts with complex geometries is not limited by any thermal effects as it is with other

processes such as SLM. One major technical advantage of this process is that parts

do not require supports to produce complex geometries. This is in part due to the

operating temperatures of the process.

The materials often associated with BJ include metals, ceramics, and biomaterials.

One of the primary advantages of using binder jetting for printing metal parts over

SLM or any other process such as material jetting is cost [23]. This process can be

a fraction of the cost, up to 10x more economical, than other processes using similar

materials.

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h

Figure 4-12: Binder Jetting Process [96]

Material Jetting:

Material jetting, which is often times called polyjet and multijet, is a process by which

tiny droplets of material are dispensed from a cartridge, very similar to 2D printing,

onto the printing surface (build platform) and instantly cured by a UV light. Once

the layer is complete, the build platform moves down (typically 16-32 microns [23])

and the process repeats itself until the product is completely fabricated (See Figure

4-13). This process is relatively new when compared to other additive processes, first

commercialized by 3D Systems in the mid-1990’s [66]. In many respects, material

jetting is very similar to SLA in the mechanism of action for solidifying. The primary

difference is in how the material is deposited. In SLA, the material is stored in a vat

of liquid resin whereas with material jetting, the material is deposited in tiny droplets

with what is known as the Droplet-On-Demand (DOD).

The primary advantages of this process include the high resolution, smooth surface

finishes, and the variety of materials available. Material jetting is one of the most

accurate 3D printing technologies, with dimensional accuracies of +/- 0.1% with a

typical lower limit of +/- 0.1mm [23]. Another advantage of material jetting is that

warping is less common than with FDM or SLS due to the process being operated at

or near room temperature.

The materials most commonly used in material jetting are thermoset polymer

resins. These materials are very brittle, have a low heat deflection temperature, and

can be subject to creep [23]. Materials such as metals, ceramics, and biomaterials are

74

potentially available for the material jetting process but are either just reaching the

commercial market or are currently still in development by a few select companies

[62]. Another key material advantage of material jetting is the ability to print multi-

material or full color parts. However, doing so creates special requirements in the

creation of the model, which necessitates the operator to export multiple STL files in

order to account for the different materials and colors.

Figure 4-13: Material Jetting Process [79]

Another important consideration of

choosing material jetting is that parts al-

most always require support structures.

These supports are always printed in a

different, dissolvable material that is re-

moved with pressurized water or in an ul-

trasonic bath [23]. The removal of these

supports is typically hardly noticeable on

the surface of the part following the com-

pletion of the removal process. This con-

tributes to the visually strong aesthetics

of the parts that have been compared to injection molded components [38].

Generally speaking, some of the key disadvantages of the material jetting include

poor mechanical properties, degredation of the material over time, and the high cost.

While the process is capable of producing visually appealing parts with many materi-

als, this comes at a cost, with most machines retailing for more than $150K [62] and

material that costs between $300 - $1,000 per kilogram [23].

Directed Energy Deposition:

Directed energy deposition (DED) additive manufacturing is a process by which fo-

cused thermal energy is used to fuse materials by melting them as they are being

deposited [35]. The heat input for this process can come from a laser, an electron

beam, or a plasma arc, and the material (always a metal) is either in the form of a

powder or wire [77]. When an electron beam is used as the heating source, the pro-

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cess is often denoted by the acronym EBAM, which stands for electron beam additive

manufacturing. Alternatively, when a laser is the heating source, the process is often

times referred to as LENS, which stands for laser engineered net shape.

In general, the material is fed through a nozzle or a feeder, which is attached to a

robotic arm (typical 4-5 axis). This material is then fed to the build surface where a

directed thermal energy source fuses the material to the build site (see Figure 4-14).

Overall, wire feed systems are thought to be more energy efficient as these systems

result in a higher deposition of metal to the substrate as a unit of total energy used

[77].

(a) DED with Metal Power (b) DED with Wire

Figure 4-14: Directed Energy Deposition Processes [77]

Regardless of the material form or heating source used, these processes are re-

quired to be performed in an environment with inert gases or in a vacuum to prevent

oxidation and fire. There are 3 different methods for creating this environment, each

with advantages and disadvantages; vacuum, inert chamber, and local shielding. A

vacuum chamber produces the best environment but requires a specialized reinforced

chamber to handle the forces of the vacuum. An inert chamber is the most com-

mon approach and also produces a high-quality environment but requires an enclosed

system. Local shielding directs inert gas directly at the melt pool. This method

provides less environmental purity but may be an economical substitute when other

closed environments are not economical [17].

The application space for DED is slightly different due to the fact that no powder

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bed is required. Like any other additive manufacturing processes, DED processes can

be used for near net shape parts, but they can also be utilized for feature addition

and repair. These applications allow DED to print directly onto a substrate which

can be beneficial in cases where features are too expensive or difficult to produce

conventionally or as a way to automate and improve control of repairs processes [17].

DED generally has low resolution and geometric capabilities. This is due to the

mechanism of melting metal into a molten pool. This process does not lend itself

to producing complex internal geometries and other features such as overhangs. For

these reasons, the parts this process can produce are very similar to conventional

manufacturing methods [17]. This restricts applications of DED to cases where con-

ventional manufacturing is too slow or expensive. It is important to note that this

process has the advantage over SLM in the ability to print with multi-materials. Ad-

ditionally, there is some early research showing the ability to print ceramic materials

using this process.

Overall, DED has advantages in cost and print speed over other metal printing

processes but this comes at the expense of lower resolution and limited geometric

flexibility.

Sheet Lamination:

Figure 4-15: Sheet Lamination Process [60]

There are two sheet lamination pro-

cesses, ultrasonic additive manufacturing

(UAM), which bonds together sheets or

ribbons of metals using ultrasonic weld-

ing, and laminated object manufactur-

ing (LOM), which uses adhesives to bond

sheets of paper. There are a limited

number of technologies that are using

polymers and composites but the com-

mercial options are fairly limited at this

time.

77

The sheet lamination process begins with a sheet of material moving into position

over the building platform. The material is then bonded to the previous layer. In

LOM processes, an adhesive plus a hot roller utilizing mechanical pressure laminates

the sheets together. With UAM processes, ultrasonic waves and mechanical pressure

provide the necessary energy to bond the sheets together by diffusion [99]. Once the

sheet has been bonded, a laser cuts out the layer geometry. The build platform is

then lowered and the sheet is removed from the build platform. Another layer of

material is then moved into position over the build platform and the process repeats

itself (See Figure 4-15.

The sheet lamination process has very limited use and is really only effective for

producing low cost, non-functional prototypes meant for display. Additionally, the

process has one of the lowest resolutions of any the AM processes and often requires

CNC machining (in the case of metals), in order to produce the final net shape of the

part. Despite these disadvantages, the cost of sheet lamination is relatively low and

the speed of printing is fast compared to other processes making it an economical

choice for prototyping applications.

AM Process Summary

As with any technology, there are trade-offs in additive manufacturing processes. The

intent of this section is to highlight the technical expertise needed for the vast array

of AM processes available. As can be surmised, there are similarities in various AM

processes, but also significant enough differences that expertise in one area does not

necessarily translate to expertise in another. Therefore, a thorough analysis is needed

to determine whether AM is appropriate for your application based on the balance of

materials, mechanical properties, cost, and many other factors. Overall, a summary

of all the AM processes and materials can be found in Figure 4-16.

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Figure 4-16: AM Process Summary [62]

4.6 AM Market Review

As of 2018, the AM industry accounted for $11B in spend. The market is expected

to undergo significant growth in the coming years, reaching $32B by 2025 and $60B

in spend by 2030. This market can be broken down into 4 distinct categories [61].

1. Hardware: Machines that physically make 3D printed products.

2. Software: Includes software that convert data into fabrication data (i.e.; CAD

software, slicing software), software included on machines, and software that

routes data to machines (i.e.; digital twins and process flow and tracking soft-

ware).

3. Materials: Includes any raw materials and consumables used for specific AM

processes (i.e.; materials in powders and filament form, gases, etc.)

4. Services: Includes repair services, external production providers, and consulting

services such as design, production, and factory management.

The hardware, material, and services category is expected to have a compound

annual growth rate (CAGR) around 16% and the software category is expected to

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maintain at 20% until 2025. From 2025 to 2030, the hardware, materials, and services

categories are expected to flatten slightly to 12% CAGR. During the same time period,

software is expected to maintain the same growth rates around 20%. The material

and hardware categories are expected to account for $27B and $15B respectively by

2030, far outpacing the services and software categories that are expect to account

for $10B in revenue each.

Figure 4-17: AM Global Market projections []

There are a significant number of companies invested in additive manufacturing

(see Figure 4-18). Within this crowded marketplace there are a number of major

players in each sub-category.

1. Hardware: Desktop Metal, GE Additive, Markforged, EOS, HP, 3D Systems,

Ultimaker, EnvisionTex, Stratasys

2. Software: BASF, Henkel, GKN, Sandvik, Solvay, Hoganas

3. Materials: Siemens, Autodesk, Dassault Systemes, Materialise, PTC

4. Services: Optomec, GE Additive, Shapeways, Siemens, Sculpteo

Overall, the AM industry is expected to see very healthy growth rates over the

next decade due in part to the further development of the technology, the increasing

number of applications in product ready parts, and reductions in cost. As a result

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Figure 4-18: AM Global Additive Manufacturing Landscape [8]

this market is highly enticing for companies to enter to try to get a piece of this

growing pie. Competition is expected to increase in many of these segments which

could result in advantageous market conditions for downstream customers.

4.7 AM in the Medical Device Industry

4.7.1 Brief History

The impacts that AM has made in the field of medicine are extraordinary. Even

Charles Hall, the inventor and holder of the first AM patent and an AM visionary, has

said that the applications of the technology in medicine have surprised him the most

[7]. There is no denying that AM has had a significant impact on many industries,

but AM in medicine has been one of the technology’s greatest success stories.

The beginning of the modern history of AM in medicine dates back to the mid to

late 1990’s with literature citing the benefits of using 3D printing as a surgical aid.

One of the first early applications of the technology in the field was a case from 1996

at Wilford Hall Medical Center in Texas, where surgeons printed an anatomical body

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of the bone structure of conjoined twins. The model enabled the surgeons to study

the operation prior to getting the patients on the operating table which ultimately

led to successful separation of the twins and resulted in both patients being able to

walk [7]. These early use cases were fairly rudimentary but served a valuable purpose

in gaining acceptance of the technology in the medical community.

Other potential uses for the technology continued to float around in literature and

academic circles for much of the late 1990’s and early 2000’s. One of the most well

documented early ideas for the technology was as a method to produce tissue scaf-

folds for implants. This idea originated in 1999 when a team of researchers at Boston

Children’s Hospital and Harvard Medical Center led a series of trials to produce uri-

nary bladders for seven patients. The team constructed these bladders by hand from

collagen and synthetic polymer before seeding them with cells from the patients with

the hope that after implantation, these bladders would grow into fully functioning

organs. The implants were successful but the process for creating these implants was

enormously challenging. Following these cases, a member of the research team, Dr.

Anthony Atala, hypothesized that the process of building these scaffoldings could be

automated and simplified, making the procedure of organ regeneration more widely

available. Shortly thereafter, Dr. Atala moved to Wake Forest Baptist Medical Center

to lead the newly formed Wake Forest Institute for Regenerative Medicine (WFIRM)

where his team of researchers at WFIRM began experimenting with using 3D print-

ing of tissue scaffolding to implant into patients to regrow organs [94]. Although this

application is still being researched and is not ready for clinical use, this time marked

a signal of things to come for applications of AM in the medical field.

Around the time Dr. Atala was experimenting with 3D printing to produce bio-

compatible scaffoldings, other researchers were exploring alternative uses of the tech-

nology. During the early 2000’s, the hottest areas of interest in literature and industry

revolved around implants in both the dental and orthopedic space. Although it took

many years for the technology to develop, these applications have proved to be the

most successful from a commercialization standpoint. The first major commercializa-

tion milestone for the technology in this application segment occurred in 2008 when

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the first 3D printed prosthetic was produced for and used by a patient. Following

that, the next major leap occurred in 2012 when an 83-year old woman received what

is claimed as the first additively manufactured orthopedic implant. The surgery and

research was carried out by BIOMED Research Institute in Belgium and the implant

produced by Xilloc on LayerWise (since acquired by 3D Systems) technology [6]. By

this point, much in line with the significant hype for the technology, research and

development into AM as a method for producing orthopedic implants as well as other

medical applications was well under way. In the years that have followed, companies

have continued to enter the space, further increasing the use cases and success stories.

4.7.2 Applications

New applications for AM are emerging all the time, especially in the field of medicine.

At the time of writing this paper, there are five current and commonly accepted ap-

plications of AM in the medical field [44] as well as one additional application defined

by this research. These applications are generally accepted as the areas where AM

has proved value through specific use cases and demonstrated advantages over other

current manufacturing technologies in line with the technology’s value proposition in

Section 4.4. The common applications include:

1. Medical Models

2. Surgical Implants

3. Surgical Guides

4. External Aids

5. Biomanufacturing

6. Medical Products

The last category, Medical Products is the 6th application category in the med-

ical industry that is not commonly discussed in literature. The first 5 categories of

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applications do not account for areas where AM can be substituted as a viable re-

placement for traditional manufacturing in standard medical products. Therefore, the

Medical Products application category, is defined as any product that demonstrates

advantages in cost, quality, flexibility, and rate over traditional manufacturing (see

Section 4.4). This category is not specific to the medical industry but has important

implications in the adoption of the technology in the field and thus cannot be ignored.

In line with the trend of personalized medicine in healthcare, AM stands to play an

important role in producing personalized products, organs, and drugs in the future

[89]. These complex applications of the technology, while still far from reaching

the commercial market place, are important areas of research that could one day

revolutionize the field of medicine healthcare industry as a whole.

The emergence of AM in the field of medicine is still in its infancy in many

respects as the technology only entered the fray 20 years ago but the impacts have

been extraordinary. As the technology continues to evolve, the application space

should be expected to grow right along with it.

4.7.3 AM in Stryker

Stryker first began commissioning research into metal additive manufacturing in 2001.

By 2002 the company had filed its first patent related to the technology. Like many

medical device companies at the time, Stryker was interested in exploring the use

of additive manufacturing for use in orthopedic implants with the initial research

centered around titanium due to the material’s favorable material properties for the

application. Following years of research, in 2007 the company purchased their first

piece of prototyping equipment, a laser rapid manufacturing (LRM) machine, in the

SLM category of additive processes, for further development in Cork, Ireland. The

company continued to iterate on the technology and reached another major milestone

in 2011 when the first production capable LRM machine and software was delivered

to the company. Only a few years later, in 2013, Stryker received regulatory clearance

and the first surgery was performed with the company’s first orthopedic implant, the

Triathalon Tritanium Baseplate.

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At the foundation of Stryker’s AM competencies has been their Tritanium tech-

nology, a name given to their titanium line of implants, that enables the creation of

porous structures that mimic cancellous bone, making it ideal for orthopedic appli-

cations. The "precise randomization" of the interconnected pores offers porosity that

differs from other technologies in that it eliminates longitudinal channels and windows

that result in a uniform lattice structure [75]. This technology provides the benefit of

porosity that is only available on the surface of the product giving it significant bone

fixation advantages. In 2017 GE Additive agreed to a partnership with Stryker that

includes machines, materials, and services to support Stryker’s growth in AM.

Since the launch of the Triathalon Tritanium Baseplate in 2013, Stryker has con-

tinued to expand their additive manufacturing offerings to include over eight other

implants produced with their proprietary Tritanium additive process. This has been

catalyzed by significant investments that include a 2016 pledge for $400M and a fur-

ther $200M investment in 2019 for new AM facilities in Cork, Ireland. Additionally,

the company brought on a number of products into the AM spine portfolio from a

2018 purchase of the Virginia, USA based company, K2M.

4.8 Key Takeaways

This section has done a deep dive into many of the important aspects of AM but it is

important to understand why these elements are crucial to the value creation model

(See Figure 4-1). To understand the potential value that AM brings, it is necessary to

have an overview of the entire technological landscape, from the value proposition to

the application spaces. A major part of that is understanding the technical differences

in all the AM processes. Although AM is often spoken about in general terms, there

is a high-level of technical expertise and knowledge required to master each of the

different processes. Mastery in a specific AM process may provide a generalizable

knowledge base which can be applied to other AM processes but does not replace the

fact that some level of R&D will still be required in order to fully understand the

nuances needed to produce products with the desired properties and quality. As a

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result, exhibiting market leading capabilities in one AM process does not necessarily

mean that a firm will possess those same advantages in another by default. This does

not imply that a firm cannot obtain these capabilities, but rather, suggests that it is

not a given.

However, with the vast number of technical AM processes consisting of different

materials and technical advantages available, the numerous and growing application

spaces of the technology, and the evolving value proposition in numerous business

segments, there are substantial opportunities for manufacturing organizations to cre-

ate and capture significant value by correctly deploying the technology. The sheer

number of value creating opportunities that the technology affords implies that there

is potential to create a number of competitive advantages.

Overall, the scope and complexity of AM and its application is necessary to illus-

trate later on in Chapter 6 how a business can create value with this unique tech-

nology segment. This understanding is intimately tied to formulating strategies that

create advantageous environments that allow organizations to create and maintain

sustainable competitive advantages.

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Chapter 5

Business Structures & Systems

Organizational theory is an academic field of study centered around a set of interre-

lated concepts that explain behaviors of individuals or groups that interact with one

another to perform activities intended to work towards a common goal. In many re-

spects, this definition is analogous to the objective of the value creation model. This

leads to the fundamental concept that we must explore in relation to organizational

theory - what is the glue that ties together these concepts that enable the creation of

value?

While in reality there are a number of factors that link behaviors and actions, this

chapter will focus on two key areas; the legal and financial structure of an organi-

zation. Choosing the correct legal structure of an organization can have significant

impacts on the tax, accounting, legal, technology development & adoption, and pro-

tection of IP in a business. As such the structures and systems of a business can

therefore be used as a key enabler to linking together the core ideas discussed in pre-

vious chapters. These linking mechanisms create potential avenues to find synergies

and innovation opportunities from the cross functional intermixing of theories and

concepts. It is hypothesized that this will create even more value for the organiza-

tional system than if concepts are deployed in a silo-ed manor.

This chapter will explore the legal and financial basics of organizational structure

in order to lay a foundation for how these structures can be utilized as strategies

in tandem with the other elements of the value creation framework (see Figure 5-

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1). These principles will be key to understanding how to put an organization in the

optimal position to strengthen the creation and protection of competitive advantages

through technology development.

Figure 5-1: Value Creation Model: Focus of Chapter 5 is on Business Structures andSystems

5.1 Classical Legal Business Structures

There are 4 classical legal structures for an organization; Sole Proprietorships, Cor-

porations, Partnerships, and Hybrids (See Figure 5-2). All four types will be briefly

explained but the primary focus on this research will be on corporations and hybrid

structures such as LLCs.

Sole Proprietorships

This structure is the simplest, least expensive, and requires no formal filing or main-

tenance. An individual operates this business as an extension of themselves. This

results in the owner (or sole proprietor) reporting the profits and losses on their own

personal tax return. Legally this makes the owner responsible for any liabilities asso-

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Figure 5-2: Business Structures [57]

ciated with the business, and if any lawsuits are brought against the business, a court

can levy the personal bank account and property of the owner.

Partnerships

There are three types of partnerships:

1. General Partnerships (GP): The general partnership model is similar to a sole

proprietorship in that there are no formal ongoing reporting requirements. In

this structure there can be two or more partners that share the profits and losses

of a business as outlined in the partnership agreement. This partnership agree-

ment outlines how the profits and losses are distributed to each partner. The

business is by default equally split among the partners unless otherwise stated

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in the partnership agreement. Legally, each partner in a general partnership is

equally responsible for the liabilities of the business, meaning that credits can

collect from whoever is the easiest to collect from.

2. Limited Partnerships (LP): The limited partnership (LP) model is similar to a

general partnership from a structural and tax perspective. The primary differ-

ence is that the limited partnership model allows for ’silent partners’ who are

not responsible for the liabilities of the business. This structure exists to allow

for outside investors who will not be subject to the liabilities of the business.

3. Limited Liability Partnerships (LLP): The limited liability partnership model

came about as a result of attorney’s and accounting firms desire to limit the

liability of the partners. These are similar to the structure of other partnerships

in every other dimension except for the liability that partners are subjected to.

Hybrids

1. Limited Liability Corporate (LLC): The LLC model is the most popular model

for small businesses. The structure is a hybrid between partnerships and corpo-

rations. From a tax perspective, LLC’s have the option to be taxed as a partner-

ship, which flows the taxes through the partners own returns, an S Corporation,

which results in profits flowing through the owners/partners tax returns, or as

a C Corporation, which results in the business filing their own tax return. The

LLC Articles of Organization determine the ownership percentages, voting pow-

ers, and profit/loss distributions rather than through stock ownership as would

be the case in a Corporation structure. The benefit of this structure is that the

owners are protected from the liabilities of the business but as a downside, an

LLC can be subject to a franchise tax (depending on the state).

2. Joint Venture (JV): In the joint venture model, each member of the partnership

is subject to the profits, losses, and costs associated with the venture. Joint ven-

tures can take on any legal structure of any other model such as a partnership,

corporation, or LLC and are separate the member’s other business interests.

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The result is that JV’s are subject to legal and tax rules of the structure that

is defined in the partnership agreement. Joint ventures are commonly set up

to leverage resources from different sources, combined expertise, and as a cost

saving measure.

Corporations

1. Corporation (C Corp): A C Corporation is a legal entity that is owned by

one or more stockholders. Corporations are managed by a Board of Directors

who appoint ’officers’ to run the day to day operations of the entity. Legally,

stockholders, directors, and managers are protected from the liabilities of the

company, even if those liabilities are the result of personal negligence (except

in extraordinary circumstances). From a tax perspective, corporations file their

own tax returns and pay their own taxes. The implications are that profits and

losses are not passed through to the managers or the corporation. Corporations

are however, taxed at different rates than individuals. Rates vary depending on

the unique situation that a corporation exists (location, size, etc.).

2. S Corporation: This structure differs from a C Corporation from a tax per-

spective. An S Corporation is formed after the formation of a corporation by

making a filing through the IRS (US only). In an S Corporation the profits

and losses flow through the tax returns of the stockholders in the proportion of

their ownership. This structure is ideal for small business or businesses where

most of the shareholders are employed by the corporation and involved in the

day to day operations. From a legal perspective, stockholders and managers

are still protected from the liabilities of the organization as is the case with a

C Corporation.

5.2 Complex Business Structures

The previous section described the different ’simple’ types of legal business entities

and the considerations for each that form the foundation of all business organizations.

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However, in many cases, the true design of an organization is much more complex.

Organizations and businesses often times utilize a much more complex structure that

incorporates many different structures in tandem in order to gain advantages that

have direct implications on the organization’s bottom line or for their legal liability.

Therefore, while the simple business structures provide the necessary foundation to

building a successful organization, these entities are only the building blocks for what

is deployed in the real world.

When designing an organization, one must consider a number of factors. The

primary drivers that influence how an organization must be structured include; flex-

ibility, complexity, liability, taxes, control, capital investment, and licenses, permits,

and regulations [83]. In order to optimize for all of these variables, businesses have

created new, complex relationships and structures that offer more favorable environ-

ments to operate within. While there are many creative methods of designing an

organization, depending on the specifics of the business entity being considered, the

relationship that will be covered for the purposes of this research is the holding/parent

company-subsidiary structure.

5.2.1 Holding & Parent Company

Business entities often set up holding or parent companies in order to manage legal

and financial liabilities of the entire organization. Holding companies by definition are

companies that do not manufacture, sell products or services, or conduct any business

operations and exist to hold controlling interests in the form of stock in other business

entities, which are often a number of subsidiaries (defined as a company that is owned

by another company). A parent company on the other hand, typically has its own

business ventures and purchases subsidiaries for the purpose of investment or to aid in

operations. Legally, a holding or parent company can be structured as a corporation

or LLC that exists to hold ownership stake in a number of subsidiaries which can be

other corporations, hybrids, and/or partnerships.

This ownership stake can be any percentage up to 100% as long as the holding

company has just enough for controlling interest in the subsidiary. In general, there

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are no restrictions regarding what types of subsidiaries a holding company may own.

However, in certain cases, like an LLC owning a C Corp, the IRS may require an LLC

to file taxes as a C Corp. Additionally, LLCs can never purchase S Corps and sole

proprietorships are never allowed to own subsidiaries.

This holding/parent structure can be used by businesses and industries of all sizes

but is most common in large enterprises with multiple business units. There are four

types of holding companies that exist:

1. Pure: Exists to own stock in other companies and does not exist in any business

operations of the subsidiaries.

2. Mixed: Holds controlling interest in other firms (subsidiaries) and also engages

in the primary’s business operations.

3. Immediate: A company that maintains control or voting stock in another com-

pany but is a subsidiary of another company.

4. Intermediate: A holding company that is a subsidiary of another company.

Holding companies are structured such that the management is responsible for

oversight of the subsidiary’s performance while the subsidiary management controls

the day to day management of their respective business. The duties and responsi-

bilities of the holding company management include the power to elect or remove

corporate directors to the subsidiaries, make major policy and strategic decisions,

and make decisions about where to invest money.

Holding Company-Subsidiary Relationships

Not all holding/parent company-subsidiary relationships are created equal. Therefore

it is important to understand the exact nature of the relationship in order to under-

stand how to effectively manage these assets and ensure that they are contributing

to the overall value creating mission of the holding company. A study of Japanese

corporate groups by Mitsumasu (2013) attempted to classify the different parent-

subsidiary relationships based on a dependency matrix (See Figure 5-3). This work

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defines relationships as either unilateral or mutual. In a unilateral relationship, the

parent or subsidiary solely depends on the other for production inputs (internal) as

a source of revenue. The relationship is mutual when both the subsidiary and parent

depend on each other. This means they can trade either internally with the other,

externally with other organizations, or a mixture of both.

Figure 5-3: Parent-Subsidiary Relationship [63]

Based on this dependency matrix, Mitsumasu (2013) defined four types of rela-

tionships [63]:

1. Type U (Unilateral Dependence): Subsidiaries belonging to this group depend

on the parent as the main trading partner and source of revenue. The parent

company however has many partners in the market and can choose between us-

ing the subsidiary or external sources. In this situation the subsidiary has weak

bargaining power in the market which forces the subsidiary to be competitive

with the rest of the market. Overall, less coordination is needed between the

parent and subsidiary because the parent is not reliant on the output of the

subsidiary.

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2. Type M (Mutual Dependence): Subsidiaries belonging to this group primarily

sell their services and products to the parent company and the parent company

is dependent on the goods and services from the subsidiary. This category of

subsidiaries helps facilitate specialization while helping to reduce labor costs.

Additionally, this relationship is inevitable when there are no other suppliers

on the market for the product or service the subsidiary provides or if there are

concerns about the proprietary nature of the technology being copied or imi-

tated. These types of subsidiaries need to find a balance between developing

firm specific technology knowledge and acquiring new knowledge through work-

ing with external clients. The Type M relationship requires regular coordination

between the parent and the subsidiary.

3. Type D (Dual Focused): Subsidiaries in the Dual Focused category primarily

sell their products to external clients in addition to the parent company. In this

model, the parent company is largely dependent on the products or services

produced by the subsidiary which can lead to a conflict of interest where the

subsidiary is looking to expand external sales. However, a focus on external sales

and participation in the external market by the subsidiary may have benefits to

the parent company in helping to produce economies or scale and scope as well

as cost competitiveness. Due to the competing forces and conflicts of interest

at play with Type D subsidiaries, careful coordination is required between the

parent company and the subsidiary.

4. Type I (Independent): Subsidiaries in this group sell goods and services primar-

ily to external clients and the parent company is not dependent on these goods

and services. In this model the parent sees the subsidiary as a separate revenue

generating business within the portfolio. Many subsidiaries start out in differ-

ent categories but can mature into a Type I if their business operations begin

making significant contributions to the revenue of the parent. This relationship

requires little control and coordination between the subsidiary and the parent.

There is no one-size fits all type of relationship for parent companies and their

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subsidiaries. However, the evaluation tools and theories outlined by Mitsumaru pro-

vides a general framework by which companies can analyze their desired relationship

and the strengths and weaknesses of each.

5.2.2 Accounting & Tax Considerations

One of the primary advantages of a holding company comes in the form of tax benefits.

Holding companies that own 80% or more of every subsidiary have the opportunity

to file consolidated tax returns. This allows holding companies to consolidate the

financial records of all subsidiary companies into the holding company. This has

the advantage of offsetting losses from one subsidiary against the profits of other

subsidiary companies.

There are also advantages of the holding company structure that can aid in the

legal protection of assets. If a subsidiary is subject to a lawsuit or bankruptcy, the

plantiffs have no claim to the assets of other subsidiaries. This creates opportunities

for an organization to protect competitive advantages that exist as tangible assets.

Additionally, this legal structure can create opportunities to obtain low cost loans

due to the backing of the holding/parent company. However, in some cases this can

result in the parent company being responsible for the liabilities of the subsidiary.

Another important financial factor in the subsidiary parent relationship is adher-

ing to acceptable accounting practices and keeping an eye on tax implications. One

factor that needs to be considered in subsidiary parent relationships is the concept

for transfer pricing. Transfer pricing refers to the price that a subsidiary or division

within a larger organization charges another division or the parent for goods and ser-

vices. This is an important consideration because companies can use transfer pricing

to reduce the tax burden of parent companies [74]. In theory, within a company,

transfer pricing should result in a net sum zero for the organization as a whole. For

example, if a subsidiary charges a higher price to a parent, the COGS of the parent

will be higher which reduces revenue. However, the revenues of the subsidiary will

be higher, thereby canceling out the loss in revenue of the parent, resulting in no

overall impact to the organization. Where companies can take advantage of this is

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when the parent and subsidiary exist in different tax jurisdictions. As in the previous

example, if the subsidiary exists in a lower tax country, it would be advantageous

for the organization to set policies that allow the subsidiary to obtain higher profits

in order to reduce the overall taxes paid. However, this is illegal and is therefore

closely monitored by tax authorities [74]. It is therefore extremely important for or-

ganizations to understand the rules of transfer pricing and make sure that they are

adhering to international generally accepted accounting practices when structuring

the holding/parent-subsidiary relationship.

5.3 Key Takeaways

Complex business structures can be utilized as a method to enable more effective

execution of strategy within a company or to create more financially favorable envi-

ronments to operate within. There are many ways in which to employ various legal

business entities to organize a business, depending on the variables within an organi-

zation that are being optimized for. However, for the purpose of this research, only

one specialized case is discussed in depth due to being one of the most common,

well-established, and widely practiced organizational design structures. The holding

company-subsidiary relationship can create favorable financial and legal conditions for

a business that serve as a key enabler link between the other theories and concepts

covered in the rest of the value creation model. These complex structures create an

additional variable that increase the number of permutations of value creating oppor-

tunities available to an organization. Without understanding the opportunities that

these permutations present, an organization will almost undoubtedly find themselves

in a position at some point in their maturity operating sub-optimally.

With the correct type of business structure and relationship, an organization can

create a financially and operationally favorable environment that fosters technical

innovation. Overall, this is a key point of consideration in the value creation process

that may often be overlooked, but can be a key linking mechanism and enabler in the

equation aimed at fully maximizing a firm’s competitive potential.

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Chapter 6

Value Creation Model: Integration

Theory and Background

The previous chapters have described the background and generally accepted theories

on additive manufacturing, corporate strategy, competitive advantages, intellectual

property, innovation and technology, and business structures. This chapter is intended

to show how all of that prevailing information works in tandem to create value and

how to qualitatively determine if the organization is operating at optimal levels (See

Figure 6-1 for a review of the value creation model). Through this analysis we will

see how value can not only be created, but how it can be stunted if each variable in

the value creation equation is not matured or is not capable of maturing.

Through an applied case study on Stryker AM, this chapter will show how these

variables dynamically interact with one another in order to show how an organization

must evolve in order to allow the business unit to operate at its competitive potential

and therefore maintain a position as an industry leader. This is key to creating a

competitive AM strategy that maximizes value from the technology across all layers

of an organization.

98

Figure 6-1: Value Creation Model: Focus of Chapter 6 is on the integration of all theelements on the model and how organizations mature to create value

6.1 Integrating the Value Creation Model

As stated in Chapter 3, we are operating under the assumption that the primary

objective of a firm is to create value. In order to create value, a firm must execute

business strategies. These strategies are developed with the intent of creating some

form of competitive advantages within the firm, whether it be through cost or dif-

ferentiation (see Chapter 2). Technology comes in to play in this model as a way

to potentially create these competitive advantages. However, to make a competitive

advantage sustainable, IP must be protected. An important linking mechanism in all

of this is the organizational structure and systems of a business entity that enable

technology development, execution of strategies, and protection of IP. Without laying

out all the permutations in which these factors are linked, the key point is simply that

these factors are dynamically linked to one another in a way that requires constant

evaluation based on the changing business environment.

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Value Creation Model: Illustrative Example

The integration of the model is best understood in the context of an illustrative

example. For this we will use a hypothetical manufacturing company, ABC LLC, who

is considering investing in a new technology. ABC LLC believes this new technology

will add value to their core operations and for their organization by giving them

cost leadership over their competition in the production of one of their key product

lines. ABC LLC begins to execute this technology development strategy by forming a

dedicated team to focus on the R&D necessary for internal development. ABC LLC

hopes that the investment in internal R&D will yield important IP that will support

the overall low-cost strategy. The company plans to protect the IP developed in this

team with patents in order to give them control over the application of the technology

for the next 20 years. This decision is made because the company believes that in this

amount of the time the technology will have evolved to the point where it is widely

available amongst the competition. However, while researching the technology, ABC

LLC realizes that some of the core knowledge they had centered their R&D strategy

around has already been patented and therefore is part of the public domain. At

this point it is unclear whether or not the competition is aware of the patent. As

such, the company realizes that they will be unable to claim this newly developed

knowledge as proprietary, potentially hampering their ability to strategically turn

this technological advancement into a competitive advantage over other firms. At

this point the company must revisit the value creation model to understand the full

implications of this development.

It may be argued by some at this point that the company would still be creating

value by developing the technology and this research would agree. However, the

important nuance in this model, is that the intent is to maximize value, both internally

and externally (see MBV and RBV in Chapter 2), in order to make a firm the most

competitive. In the preceding example, if ABC LLC chose to continue to develop the

technology in-house they would do so knowing that the IP is not protected and is

potentially readily available to the competition. If ABC LLC chose to continue to

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move forward, over time, the value this technology creates relative to the competition

diminishes because in theory there is nothing stopping competition from directly

acquiring the same capabilities. Investing in the technology may then, in the context

of the competitive business environment, be a strategy aimed purely at keeping up

with the competition. This is creating value in the sense that it is preventing ABC

LLC from falling behind but they may not be differentiating themselves. Theoretically

this could lead them to a "Stuck in the Middle" strategy (see Figure 2-5). Without

getting too far into the different scenarios such as ABC LLC potentially gaining

exclusive license to the patent, the key point here is that the IP has been identified as

a potential sticking point in the value creation equation. This needs to be understood

in order to maneuver in other areas to keep creating value relative to the competition.

Continuing with this example, ABC LLC has done a thorough analysis of their

current position and came to the following two conclusions. One, they have not iden-

tified any competitive advantages that result from developing the technology in-house

and two, they have discovered that the cost of internal development is not worth the

small head start it will give them over their competition. As a result they make

the strategic decision to outsource the technology. This shift results in the need to

develop new business structures and systems to handle this new outsourcing strategy.

However, this shift allows ABC LLC to obtain the cost advantages through opera-

tional and supply chain excellence that are in-line with their overall organizational

strategy.

What this model argues is that in this scenario, there is potential to create more

value to the organization by allowing it to mature in different ways. In this sce-

nario, the value may manifest as additional resources that can be invested into other

potential assets or areas of the business such R&D, human-capital, etc. The develop-

ment process of creating these internal technical capabilities may require significant

resources, which will ultimately not create the maximum possible value when com-

pared to other potential strategies the company could make. This further depresses

the value creation as a result of pursuing a particular strategy.

While this example is purely qualitative and hypothetical, the central idea is that

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the process of creating value is dynamic and in some way shape or form influenced

by these factors. Value creation must be viewed as a function of all the variables of

the model or an organization runs the risk of creating a locally optimal solution and

not a globally optimal one. A single variable in the model can stunt the overall value

creation process, creating a sub-optimal system. This hypothetical company could

have progressed with in-house technology development, and created value, but the

value created may not have been optimized when looking at the entire system that

includes the company and the competitive environment over a larger time horizon.

With the basic understanding of how the dynamic model works as a system, the

rest of this chapter will focus on a specific case study with Stryker to show how

this model can work in practice. In this study, an evolution of the business will be

proposed followed by a discussion of the holistic benefits executing this plan in the

context of value creation for the organization at-large.

6.2 Stryker Case Study: Applied Value Creation Model

Before beginning, it must again be noted that the following analysis and proposed

solution is solely the opinion of the author and does not reflect the views, plans or

strategies of Stryker Corp or Stryker AM.

The Stryker AM business unit presents an interesting application of the value

creation model. To begin, the driving mission behind the AM business unit has been

to drive growth in the company, enhance margins, simplify supply chains with AM,

and boost the brand of Stryker. These four pillars, and their potential are the driving

force where the company sees value emerging from this business unit. As has been

discussed in Sections 1.1 and 4.7.3, Stryker AM has been growing substantially over

the years. This growth and value can all be mapped back in some way to the four

pillars of the business. Even with this clear mission and purpose, Stryker AM finds,

themselves, as many successful business do, looking at the next iteration of their

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business unit in order to ensure continuous improvement and optimal deployment

of the technology across the organization. To understand how the company must

dynamically evolve in the context of the current business and value creation model it

is necessary to understand their current state:

1. Business Structures & Systems: Legally, Stryker AM is part of the Global

Quality Organization (GQO) which exists across a number of different legal

entities, one of which includes Stryker European Operations Limited (SEOL),

under the parent company, Stryker Corporate (SYK). GQO within the Stryker

corporate structure is the manufacturing arm of the company and exists solely

as a supplier to the Stryker selling divisions which reside under the legal entity

Stryker Sales Corporation. Organizationally, Stryker Corporate is divided into

three divisions; Orthopedics, Medical and Surgical, and Neurotechnology and

Spine. At a very high-level, Stryker Corporate has approximately 200 wholly-

owned subsidiaries, that are a variety of different legal entities including both

operating and holding companies, which comprise the entirety of the business.

2. Business Strategy: Underneath the organizational umbrella of GQO, the Stryker

AM Center of Excellence (CoE) exists not to turn a profit, but rather to manu-

facture products at cost for the selling divisions in the company. As such Stryker

AM is legally not a revenue generating entity. This was structured this way to

create numerous advantageous value creating conditions for the company, many

of which will not be discussed in details.

3. Technology Innovation & Development: Stryker has developed their AM ca-

pabilities in-house. Currently, the company has commercialized their LRM

capabililities and are working on a number of other AM processes for commer-

cialization. Stryker Corporate has invested in AM as a means to drive growth,

enhance margins, simplify supply chains, and build the brand of the organiza-

tion. See Section 4.7.3 for more details on Stryker’s AM capabilities.

4. IP Protection: Due to Stryker’s internal investment in AM, they have estab-

lished significant IP in AM that has resulted in marketplace competitive ad-

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vantages. The company protects this IP with a combination of strategies in

accordance with the strategies outlined in this research and the best practices

of most large multinational corporations.

5. Competitive Advantages: Stryker AM has competitive advantages in cost and

differentiation with their LRM process capabilities. This is evident from the

product performance in the marketplace and the ’at-scale’ AM capabilities the

company possesses. This research acknowledges that these competitive advan-

tages are perceived by the author and do not reflect any claims made by Stryker.

As Stryker AM has evolved technologically, so too have the other elements of their

business. For example, in 2016, Stryker established the AMagine Institute, an AM

Center of Excellence (CoE). This allowed for a business entity focused on knowledge

creation and the development of the technology and large-scale manufacturing capa-

bilities. The creation of this CoE was a strategic decision made in direct response to

the opportunity to create and protect potential competitive advantages for the com-

pany through cost reduction, product differentiation, and product innovation. This

model has worked well as a way to overcome the technological hurdles and imped-

iments, allowing the technology and the segment of the business to mature. This

success was capped in 2020 when the company celebrated $1 billion in cumulative

sales of their AM products. However, as noted in Section 1.1, as the company has

started to look at new business opportunities and opportunities to further innovate,

they have run into some pain points that is slowing their opportunity to optimize for

value creation.

The Challenge(s) Facing Stryker AM

As with any business, continuous improvement is crucial to sustained success in a dy-

namically changing world and competitive marketplace. The challenge for Stryker in

the spirit of continuous improvement is how can the organization push into uncharted

territory on the innovation frontier in order to prevent inhibition of technology de-

ployment. This pursuit usually leads to a natural evolution of business processes in

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order to lower the barriers arising from growth impediments. At the most basic level,

the primary growth impediment facing Stryker AM from speeding up the rate of in-

novation and expanding into new product lines is the adoption of AM technology and

processes. It must be noted that this is not a problem unique to Stryker, but rather

a question being explored by the entire AM industry. Stryker is seeing challenges

similar to the rest of the industry in that adoption is currently being stunted on two

primary levels; cost- and organizational-related (see Section 3.3 for technology adop-

tion impediments). From a cost perspective, in an increasingly competitive market,

Stryker AM must continue to fight to be cost competitive with external AM suppliers

and conventional manufacturing methods. From an organizational perspective, the

legacy structures are slowing innovation due to these financial-related challenges that

weren’t developed with this disruptive technology in mind.

To break down the current state of the problem within the context of the value

creation model we start with the technology. There is significant opportunity to

continue to expand AM capabilities based on the state of the technology, the highly

technical nature of development, the relative immaturity of the commercial landscape

and the number of potential applications (see Chapter 4). Arising from the potential

market growth of AM in a number of segments, there is ample opportunity to create

competitive advantages arising from knowledge advancements through IP. Creation

of these competitive advantages is crucial to justify continued strategic investment in

the technology as a means to stay ahead of their competition with both differentiated

and cost competitive products. Based on the overall value proposition of AM, Stryker

sees plenty of opportunity to execute on this strategy.

From a high-level Stryker appears poised to continue growth in additive given

their current CoE structure and the generalizable process expertise that they have

developed through the years. However, on the heels of their success, the AM business

unit is working to figure out ways to enable future sustainable growth and prevent

the creation of barriers that will inhibit future growth. The CoE model is excellent

at helping a technology incubate and gain momentum but many organizations lack

the ability to mature beyond this model into a structure that has the flexibility to

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serve multiple markets and purposes [40]. Simply put, Stryker AM is experiencing

this problem as the potential of the technology is slowly outgrowing the model, which

is at best slowing the further maturity, and at worst inhibiting it. This is not to say

that the prior strategies were bad strategies or that Stryker AM is operating poorly,

but rather that they are now outdated and require evolution in order to continue to

mature.

This then leads to the next natural question, with the current state of Stryker, how

can they evolve to solve cost-related impediments arising from organizational-related

issues in order to enable further growth in the AM technology segment?

6.3 Proposed Solution: Creating a Wholly-Owned

AM Subsidiary

In studying the challenges and opportunities facing Stryker as an evolving organiza-

tion, it becomes clear that Stryker has the opportunity to align their strategy with

the value proposition and characteristics of the technology. This requires them to

remain flexible and agile (see Section 3.3.2) in order to continue extracting value and

respond to new market opportunities from this business segment.

This research proposes that one way to do this is create a separate legal entity, in

the form of a wholly-owned subsidiary, that allows the AM organization to become

more nimble and respond to this rapidly changing environment. The relationship

between Stryker Corp and the new AM business subsidiary would be "Mixed" (see

Section 5-3). The intent is to create a Type M or type D subsidiary (See Chapter

5) which will effectively allow the AM business segment to be the sole provider of

AM products to Stryker Corporate’s selling divisions while also enabling the AM

subsidiary to sell to external customers. By creating this type of corporate legal

relationship, the business structures & systems is removed as the limiting variable in

the value creation model. This enables the business to continue to grow in parallel

with the trajectory of the technology.

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Additionally, this new structure not only enables Stryker to continue to mature in

their AM capabilities, but also creates a higher ceiling for maximum value creation by

unlocking additional benefits in other areas of the business. These benefits include:

1. Supply Chain Efficiencies

2. Simplification of Business Systems

3. Tax & Financial Benefits

4. Competitive Advantages & IP Protections

Two important assumptions are being made with the following recommendation.

The first assumes that the level of technical expertise needed to execute AM will

continue to be high and the commercial landscape does not develop to the point where

AM becomes a commodity manufacturing method in the short term. The second,

assumes that Stryker is going to continue to see significant returns and value in AM

based on the growth, evolution, and improvements of the technology. As with any

investment decision, there is always the option to abandon the decision (sunk cost) if

it is no longer providing value to the organization. At this time Stryker has significant

IP and expertise in the AM segment that is generating significant returns in various

product lines. As a result, it is of the opinion of the author that Stryker’s pursuit of

AM growth is warranted. However, technologies and competitive environments can

change which emphasizes the importance of incorporating and constantly evaluating

the market with Porter’s 5 Forces and MBV of competitive strategies (see Chapter

2) in the context of the value creation model.

6.3.1 Supply Chain Efficiencies

One of the advantages of AM is the flexibility and simplicity it can provide in supply

chains. Currently however, Stryker has some legacy business processes that cre-

ate barriers to allowing the organization to extract maximum value the technology

provides. Creating a wholly-owned subsidiary removes these handcuffs that have

prevented the maximization of value in this critical business function.

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Traditionally businesses have engaged in various supply chain strategies in order

to create more value for the organization. Two of these high level strategies are back-

ward and forward integration. Backward integration is a form of vertical integration

in which a company expands the scope of their capabilities to include roles formerly

completed by other business entities in their upstream supply chain [47]. Companies

typically pursue this strategy in order to improve efficiency or realize cost savings.

Alternatively forward integration is when a company expands their scope of capabil-

ities to include downstream business activities [50]. The goal of this strategy is to

increase ownership in the market, create competitive advantages, and gain control of

distribution channels. Both of these strategies are typically executed at the corporate

level, require significant capital resources to execute, and are done with the intent of

improving the competitive standing of the company. How then does AM fit into this

equation in the greater thinking on supply chain strategy?

Leapfrogging Supply Chain Integration

As previously discussed in Chapter 4, AM is an ideal manufacturing technology can-

didate for products that need to be developed quickly, only require low volumes, and

have high complexity. Within the context of a product supply chain this presents

enormous opportunity.

This presents a new concept that is not found currently in literature, leap-frogging

integration. The idea is that AM can be deployed to different levels of the supply

chain in order to gain efficiencies without fully backwards integrating. More simply

put, leapfrogging integration is a variation of backwards integration. The efficiencies

of using AM to execute a leapfrogging supply chain strategy can be obtained due to

a number of reasons including rapid deployment when suppliers encounter problems,

consolidating supply chain levels by creating more complex products, and driving

down costs by creating competition to suppliers. Leap-frogging integration essentially

aligns with the value proposition and capabilities of the technology. The alignment of

the technology and the strategy allows organizations to potentially gain some of the

benefits of backwards integration without the capital expenditures required to fully

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Figure 6-2: Leapfrogging Supply Chain Integration: A strategy to integrate non-continuous supply chain levels into internal business operations without fully back-ward integrating all the business activities and actions performed by suppliers. Inthis example, from the company perspective (Design/Marketing/Sales), the companychooses to integrate Tier 2 of the supply chain into internal operations rather thanintegrating other tiers (e.g.; Tier 1 or 3)

execute a backwards integration strategy. Leapfrogging integration can be visualized

in Figure 6-2.

Leapfrogging can best be understood through an illustrative example using three

different scenarios as which could potentially apply to Stryker’s current operations.

The creation of the GQO within Stryker was a form of backward integration. The

company integrated manufacturing capabilities to complement their design, R&D,

and Marketing and Sales functions. However, this strategy has not precluded the

use of external suppliers. For the sake of simplicity this can be thought of as par-

tial backwards integration, where some activities are covered, but the entire scope of

manufacturing and supplier capabilities is still a mix of internal and external. Addi-

tionally, as discussed above GQO was structurally created to be a supplier only to

the company’s selling divisions. This prevents GQO manufacturing functions from

easily selling products to external suppliers.

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Scenario #1

Now take for example a newly developed product in Stryker that has 100 parts and

a mixture of components that are both mechanical and electrical. For the sake of

this example, this entire supply chain has 3 tiers and is being set up with external

suppliers because the company does not currently possess any lower cost options to

produce components in-house. Pretend that at some point in the future, the Tier

3 supplier who provides mechanical parts to a Tier 2 supplier, goes out of business.

Realistically any reasonable supply chain would have more than one supplier for this

exact scenario, but for the sake of this example let’s make the reasonable assumption

that AM is part of the company’s supply chain risk mitigation strategy.

In response to this disruption, Stryker could deploy their internal AM capabilities

to respond quickly to this supply chain disruption and prevent any product delays

(see Figure 6-3). The speed of AM uniquely positions the technology to fill this gap

and prevent disruptions in the supply chain. In this scenario AM may not be the

most cost effective compared to what was being done, but if thought about from a

system-level perspective, disruptions may be much more costly to the business in the

long term than the increased short term product costs due to AM.

Scenario #2

In keeping with this example let us look at how leap-frogging integration combined

with AM can consolidate the supply chain. The entire supply chain consists of Tier

3 producing mechanical components, Tier 2 adding electrical components, and then

Tier 1 creating and adding an additional mechanical component to complete the

product. Say that through further development the design team within Stryker finds

that the mechanical components produced by Tier 1 and Tier 3 can be combined into

one component using AM given the ability of the technology to create more complex

geometries. With AM, Stryker could effectively consolidate Tier 1 and Tier 3 to

become a new Tier 2 supplier to the current Tier 2 supplier (electrical components)

that now becomes a Tier 1. In this example, the company is able to gain efficiencies

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Figure 6-3: Leapfrogging Supply Chain Example: AM inserting into lower tiers as arapid response to supply chain disruptions

by consolidating and reducing the complexity of the supply chain (see Figure 6-4).

Figure 6-4: Leapfrogging Supply Chain Example: AM consolidating the supply chaininto tiers that leafrog full backward integration

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Scenario #3

In the last example of the advantages of leap-frogging integration in the context of

AM, lets say Tier 3 is producing components that are not currently capable of being

produced through any other manufacturing method. In the context of Porter’s market

forces discussed in Section 2-4, this supplier may have market power over Stryker to

keep costs high. If in the future a new technology such as AM was able to produce

that product, by default the introduction of alternate manufacturing methods creates

more market competition for the supplier in the form of a new technology threat.

As a result this could help drive down prices (see Figure 6-5). Having the ability as

a business to be flexible in the supply chain creates the opportunity to gain more

market power and therefore keep costs in check.

Figure 6-5: Leapfrogging Supply Chain Example: Threat of AM competing withtraditional manufacturing and suppliers to reduce bargaining power of suppliers

Leap-Frogging Summary

Overall, the key takeaway is that leap-frogging integration has the ability to selec-

tively choose value creating opportunities in the supply chain based on technical

competitive advantages without the extensive capital expenditures that are required

in a full backwards integration strategy. While this strategy is not exclusive to AM,

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the technology is uniquely positioned as a manufacturing technology to execute this

type of strategy due to the unique value proposition (see Section 4.4). This strategy is

further enabled by creating a wholly-owned subsidiary because it gives businesses the

flexibility to more easily conduct business with internal and external vendors. With

the current GQO structure, Stryker AM is not able to easily execute on this strat-

egy because they are not structured to sell to external suppliers in the supply chain.

This creates complexities that inhibit emerging business opportunities and ultimately

slows down the organization as a whole. The overarching goal with this strategy is to

make organizations more agile and create the potential for higher performance and

maximization of value by removing barriers for technology adoption.

While this concept is hypothetically generalizable to any capability a company

deems valuable to integrate, it comes with other considerations such as, organizational

structure, business systems, and tax & financial (discussed in Section 6.3.2 and 6.3.3),

in order to execute.

6.3.2 Simplification of Business Systems

The second benefit of creating an AM subsidiary out of the Stryker AM business

unit is to reduce complexity of the business. In order to stay agile, an organization

must prevent complexity from manifesting into sluggishness. In the case of Stryker,

they are attempting to expand into new markets with new AM applications but do

so within the confines of their current structure which is creating complexity in the

system. Over time, and with enough growth, this complexity will continue to grow,

making it difficult to respond to market or consumer preference changes (see the

example of Xerox from Section 3.3.2).

This is undoubtedly a situation that an organization would like to avoid. Creating

a wholly-owned subsidiary from Stryker’s AM business allows this business segment

to separate from the corporate processes and procedures that are currently restricting

and complicating their innovation activities and allows them to create structures that

enable their further growth through simplification. Two apparent advantages of this

simplification that arises from the new structure come from the make vs buy decision

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and the enterprise resource planning (ERP) systems.

Make vs Buy Decisions

In order to understand how the make vs buy decision can be simplified for Stryker

by creating a separate business entity it is important to understand the basics of the

decision itself.

Few companies possess the ability to "do it all" and must decide from a strategic

level which skills and capabilities they want to integrate into their business [31]. This

decision often manifests in the product development cycle in the form of a make vs

buy decision. Fine and Whitney (1996) argue that the make vs buy decision has long

term strategy implications on who controls market power. Under this condition, the

make vs buy decision becomes very important in remaining competitive.

The make vs buy decision is often times very complicated due to the complex

dependencies that exist in the development of a product and at a system engineering

level. Fine and Whitney (1996) attempt to untangle these dependencies by exploring

supporting skills required by a firm in order to outsource. (see Figure 6-6). The skills

in the left hand column increase in complexity from the top to the bottom. The skills

lower on the list require a greater deal of in-house knowledge in order to help with the

outsourcing process. In the words of Fine and Whitney, "As one moves from being

dependent for knowledge, to dependent for capacity, one moves from a greater degree

of dependence to a lesser one". The key takeaway from this is that as you move down

the list, firms become less dependent on external sources for knowledge.

Fine and Whitney also break down the product development and systems engineer-

ing cycle by defining the decomposability of products or systems. Decomposability

is defined as the ease in which someone can define the boundaries of a system with

clear interfaces interacting with the system around them. If this can be easily defined,

then a product can be said to be decomposable. If the system boundaries are not

well defined, it may be defined as "integral" to the system, which means that the

way in which this sub-unit interacts with the rest of the system is not well under-

stood. Combining the elements of decomposability and skills dependencies, Fine and

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Figure 6-6: Skill dependency with supporting skills required for outsourcing [31]

Whitney created a matrix that help guide make vs buy decisions (see Figure 6-7).

This matrix is notable because within the context of AM, protecting the overall

strategy of the company is very important. Take for example the scenario that Fine

and Whitney label as a "A Potential Outsourcing Trap", where the company begins

outsourcing an AM part and becomes dependent on that supplier for knowledge.

Stryker may lose the competitive advantage that AM provides if those suppliers can

then provide that technology knowledge to competitors. Alternatively, in the sce-

nario classified as "Best Outsourcing Opportunity", the company may simply need

additional capacity to produce, which may expose competitive advantages but allows

the company opportunity to focus on developing competitive advantages in other

areas. Without going in to detail on each of the scenarios that may arise in each

situation included in the matrix, the key point is that make vs buy decisions are com-

plicated and require knowledge system level thinkers in order to execute effectively

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Figure 6-7: Matrix of Dependency and Outsourcing by Fine and Whitney (1996) [31]

in the context of the greater overall business strategy.

With this understanding of the complexities that come with executing an opti-

mized make vs buy decision process, this research asserts that the best way to do

this from a management perspective is to give this decision making process to the

people who are most knowledgeable. Within Stryker, the design teams and supply

chain engineers are not the most qualified to understand the nuances that come with

protecting the competitive advantage in a technology vertical like AM. This respon-

sibility should lie where the knowledge is centralized - the AM business unit. It must

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be noted that this is not going to create a situation where products are unnecessarily

biased towards AM, but rather, once the decision is made to go with AM as a tech-

nology, the most knowledgeable individuals within the organization are given more

autonomy to source the products based on engineering, IP, cost, supply chain, and

strategic considerations.

Creating a separate subsidiary for the AM segment of the business sends a clear

signal to the rest of the company on the ownership of the technology. Corporate

policies and procedures that are in-line with how the rest of the business operate

can reflect the requirement to go through the AM business entity in order to make

a clear distinction in the separation of responsibilities. This gives the most qualified

people, from a technology strategy perspective, the ability to execute make vs buy

decisions. Additionally, the overall strategy around the technology becomes much

more black and white to the rest of the organization. Overall, the creation of a

separate AM subsidiary does not necessarily simplify the make vs buy decision, but

rather solidifies the ownership of that decision from a system level perspective by

defining the boundaries of who is responsible and qualified to make the decision.

Enterprise Resource Planning Systems

Stryker has been growing through acquisitions at a rapid pace - since 2015, the com-

pany has completed 19 acquisitions. However, this rapid growth does not come with-

out a cost. Due to the rapid nature of these integrations, many of the acquisitions

have simply been bolted on to the organization and have not yet undergone a full

standardization process. In many cases, fully integrating two organization’s ERP

systems can take many years to reach full standardization. This is a result of the

complicated nature of the process and the many stakeholders that are necessarily

involved. As a result of the sheer number of acquisitions and the long time horizon of

standardization, at any given time Stryker has a non-insignificant number of enter-

prise resource planning (ERP) systems at differing stages of the integration process.

This has created somewhat unavoidable complexity in handling some of the back-end

business transactions that must occur in the course of normal business operations.

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From an internal perspective, constantly evolving web of ERP Systems has created

some unforeseen challenges that are creating additional hurdles standing in the way

of the organization’s innovators and problem solvers. This dynamic, which by itself

represents a natural and normal evolution of the greater organization (Stryker Corp),

has the local effect of reducing the AM business unit’s ability to be agile and adapt

to changes in the market. This complexity can partially be solved by creating a

subsidiary that can build a new ERP system from the ground up that can handle

all the nuances of the new business entity that includes leap-frogging integration and

handling the other ERP systems within Stryker Corporate and GQO. Overall, this

allows the ERP system to mature along with the technology instead of being held

hostage by the maturity of the rest of the business.

6.3.3 Tax & Financial Benefits

At Stryker’s stage in their growth progression, creating a wholly-owned subsidiary

has the potential to create tax and financial benefits for the entire organization. The

benefits can characterized and best understood from a micro- and a macro-level.

It is important to note before diving in to the potential organizational benefits

that there are some financial downsides. From an organizational perspective creating

a wholly-owned subsidiary is going to result a significant up-front investment in order

to get it running smoothly and implementing some of the additional needs that have

been discussed previously. This initial investment is most likely going to result in an

overall increase in organizational fixed costs in the short term. However, with the

micro- and macro-benefits that will be discussed in the the following sections, it is

predicted that variable costs will decrease in the long run as a result of organizational

efficiencies that result from this model.

Micro-Level Benefits

At the micro-level, the creation of a wholly-owned subsidiary gives the organization

more strategic financial flexibility in terms of costing and rates. As discussed previ-

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ously in Chapter 5, the parent/holding company has oversight of a subsidiary but the

management of the subsidiary runs the day to day and sets the policies. Within the

context of AM, this freedom gives management the ability to quickly adapt to the

rapidly evolving and complex nature of AM costing as discussed in Section 3.3.1.

The challenges of costing AM products effectively and competitively is a reality

of the technology in its current state. The idea with reducing complexity is not in

the models themselves, but to reduce business factors that exacerbate the complexity,

which are making the barrier for adoption even higher than it needs to be.

Stryker is working to understand how internal costing and accounting policies re-

lating to geographical considerations, factory overheads, labor rates, and equipment

utilization are driving differences between internal and competitor product quotes. In

evolving this thinking Stryker will be able to provide an apples to apples comparison

upon which they can create policies that can drive technology adoption in advanta-

geous but less obvious applications. With the wholly-owned subsidiary model, the

AM business unit has the ability to maintain greater control on product costs because

they have more freedom to not only utilize technology advantageous cost models, but

also spread costs across multiple projects in order to meet divisional product "should"

costs.

Figure 6-8 shows an illustrative example of how financial costing flexibility can

enable more product volume. In Figure 6-8a, Product A does not meet the should

costs and therefore AM will not win the business. However, by spreading the over-

heads to other products such as Product B in Figure 6-8b enables the "should" costs

to be met for both products, thereby winning for business for the company.

One of the questions that may be arising at this point, is why can’t a company

execute a leapfrogging supply chain integration strategy without creating a subsidiary

company. The answer is that it is possible, but it may create complexity and may

not be optimized for peak organizational performance. As was discussed previously,

the GQO structure in Stryker is not designed to recognize revenue or be a selling

entity. As such, having an organization within this structure that can suddenly sell

to outside entities creates accounting and tax problems.

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(a) Current method of costing basedon divisional overhead rates (b) Reallocated costing to meet

"should" costs for both products

Figure 6-8: Generic Financial Benefits Example

One such problem that this creates is reconciling the revenue. For example, take

the scenario where Stryker AM functions as a Tier 2 supplier, delivering an AM

component to an external Tier 1 supplier. In this example, the Tier 1 finishes the

product and sells to Stryker Corporate where Stryker Corporate then marks up the

product and sells to the end customer. What is the profit that Stryker recognizes in

this scenario? This depends on a number of factors. Does Stryker AM provide goods

at cost? Does Stryker AM mark-up the product and recognize revenue? These all tie

back in to strategic questions of how the business wants to operate and grow. While

this isn’t impossible to figure out, it creates complexity which can potentially lead

to a less agile organization. Additionally, aside from only the financial impacts, the

answers to these questions have implications on ERP system functions, the funding

strategy of further AM technology development, and quality tracking.

Macro-Level Benefits

The final financial and tax benefit that will be discussed on a macro-level for how the

wholly-owned subsidiary structure can potentially solve technology funding tension

while also creating beneficial tax situations. As alluded to earlier, within the structure

of Stryker, the question of how technology development and manufacturing capacity

gets funded is becoming a bigger question. In the early days, with a very clear

technology application for orthopedic implants, the funding responsibilities were very

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clear for the joint replacement division within the company. As the Stryker AM

expands into other processes and materials such as polymers that have lower margins

and rely on a large portfolio of products rather than a single pipeline, the question

of who funds this development becomes more murky.

The wholly-owned subsidiary model can potentially alleviate these issues a couple

of different ways, some of which have already been discussed. First off, as a subsidiary,

the company can execute a leap-frogging strategy that allows them to have access to

a number of new applications. This creates a whole new market of applications

that can allow the organization to achieve the product volumes needed to make the

technology cost competitive. Second, the ability for the organization to recognize

revenue allows better transparency and strategic control for management to make

technology investment decisions based on market analyses and trends as discussed in

Section 4-17 and Section 2.1. Third, with greater access to the outside market, the

AM business unit has potential to generate more income and charge higher prices to

outside customers that could result in excess capital to be used for driving R&D in

other AM processes.

Lastly creating a wholly-owned subsidiary model provides tax benefits due to

consolidated tax returns. As discussed in Section 5.2.2, if a company owns over 80%

of a subsidiary they are allowed to file consolidated tax returns. If the AM subsidiary

operates at a loss, the organization at large can offset the tax burden of the profits

from the rest of their organization. Where this becomes beneficial in the adoption

of AM is the initial cost hurdle of the technology. For example, in the early stages

of technology development, the AM subsidiary may need to cost at a loss in order

to be competitive. In the early stages, operating at a loss can actually be beneficial

by potentially offsetting profits to the overall core Stryker business, lowering the tax

burden. In the long term, this has the potential of spurring adoption by allowing the

subsidiary to cost competitively in the market and build a pipeline to where the AM

process can eventually become profitable.

Overall, this research is not intended to propose a generalizable best practice to

answer all the questions and scenarios that may arise with tax and financial impli-

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cations but rather illustrate the complexities that are created and how they interact

with the rest of the system. In the case of Stryker, it is proposed that the best move

is to create a wholly-owned subsidiary to untangle the complexity, but in other cases

there may be other levers to pull to solve the problem in order to achieve other finan-

cial and tax benefits. The initial cost of doing this however is going to be non-trivial,

which will require the organization to do a full cost benefit analysis in order to fully

quantify the net present value (NPV) of this project when weighing the future cost

savings of reduced costs resulting from the preceding benefits.

6.3.4 Competitive Advantages & IP Protections

Another potential advantage of the wholly-owned subsidiary model for Stryker’s AM

business is how it can be used in conjunction with the creation of competitive advan-

tages and IP protections.

As has been discussed in Section 6.2, Stryker Corporation is set up as a number

of different legal entities that exist for a variety of purposes including the protection

of IP. Protecting IP through corporate legal structure is done through the creation of

IP holding company (IPHC). This works by placing legal ownership of the IP, which

was potentially created by an operating company, into an IHPC and then licensing

it back to an operating company. The operating company then pays royalties back

to the IPHC. This affords organizations two significant benefits [25]:

1. Shield IP from Litigation and Creditors: In the event that one of Stryker’s

operating entities faces any sort of litigation or experiences financial hardship,

the IP is protected. By separating the IP from the operating company by

placing it under the purview of an IPHC, creditors or litigators have no legal

claim to property that is not legally owned by that entity. Although in general

the preceding statement may be true, organizations must be aware that there

are ways for litigators and creditors to get around this protection by "piercing

the corporate veil" which refers to the ability to disprove the separate nature of

business entities.

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2. Tax Benefits: IHPC’s allow organizations to collect licensing fees gain from

their IP in locations with more favorable tax codes. For example, Stryker can

set up an IPHC in a state like Delaware and collect licensing fees from their

manufacturing site using that IP in Michigan in order to reduce the tax burden

the company owes.

Although the exact nature and workings of Stryker’s IP and business entities is

proprietary, it can be reasonably assumed that Stryker Corporate is already operating

as either the holding company for all IP within the organization, or in the more likely

scenario, created one, or potentially multiple, wholly owned subsidiaries that act as

holding companies for their IP (patents, trademarks, copyrights, etc.). Since the

company is already operating in this manner, it would not be a fundamental change

to pursue a similar strategy for their AM business. This is a commonly used and

successful strategy that can easily be utilized to take advantage of the significant IP

opportunities that exists within the AM field.

Additionally, as has been alluded to in the preceding sections, this approach allows

Stryker AM to further create competitive advantages by providing the flexibility to

tailor their strategic approach in order to quickly respond to market and technology

changes. From a strategic positioning perspective, this presents the opportunity to

view AM capabilities as a real option.

AM as a Real Option

A real option is "an economically valuable right to make or else abandon some busi-

ness choice" [42]. These options are referred to as "real" because they often refer to

a tangible asset such as machinery, buildings, land and inventory as opposed to being

purely a financial instrument. In practice real options give managers the ability to

make decisions based on changing economic, technological, or market conditions [42].

Take for example, a company that is interested in investing in a new manufacturing

facility. Traditional financial analysis might look at net present value (NPV) and

other similar techniques to determine whether the company should undertake the

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project. However, this commonly ignores the potential value of future decisions that

can be made based on the investment decision. In the scenario where the company

invests, the real option would be the opportunity to, at some point in the future,

make decisions such as introducing new products, consolidating operations, or other

adjustments. There is value in these opportunities because in the scenario where

the company had not invested in the manufacturing facility, they would not have the

ability to invest in a new product in the same way if they had the manufacturing capa-

bilities. The fundamental aspect of real options is determining what the opportunity

to make a decision at some point in the future is worth.

By investing in AM, Stryker is creating a real option because it provides the com-

pany with the opportunity to execute on the value proposition of AM (see Section

4.4). These real options can potentially serve as an instrument for protecting their

competitive advantages in product development, supply chain, and manufacturing

capabilities. Investing in AM today does not necessarily require Stryker to continue

investing in the future, but it does provide them with the option to utilize the tech-

nology to make advantageous business decisions that would not otherwise be available

to them.

Companies that are not currently investing in AM do not possess the same real

option that Stryker AM possesses. By enabling continued growth and investment

in AM, Stryker is creating value as a real option. While this option is immensely

challenging to quantify, it is not a stretch to make the assertion that value does exist

based on the growth potential for AM discussed in Section 4-17.

Overall, the wholly-owned subsidiary model does not create IP protections or com-

petitive advantages that could not be accessed with the current business structure but

rather does not inhibit continued growth in the technology segment. It is essential

to ensure that with this growth, IP and competitive advantages are adequately pro-

tected with this new structure. This enables the continual growth in value creation,

which is the key objective of the business.

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6.4 Execution: Implementing the Proposed Solution

In order to achieve the benefits discussed in Section 6.3 Stryker needs to execute on

the strategy of creating a wholly-owned subsidiary. There are seven steps that need

to be taken in order to execute the formation of a subsidiary [22]:

1. Authorize the formation of the subsidiary: This is typically done by calling a

meeting of the board of directors of the parent company to vote on the formation

of the subsidiary. If the vote passes by majority, draft a resolution recording

the decision and have it signed by the board chairman (in Stryker’s case, the

CEO).

2. Choose a business entity type for the subsidiary: It must be decided whether the

subsidiary will be formed as a Corporation or LLC. These two types of business

entities allow an ownership structure that gives the parent all the interest in the

subsidiary. Additionally, these structures create a legal structure that create a

separation of liability between the parent and the subsidiary. This decision also

has important tax consequences (see Section 5.2.2). For Stryker, the formation

of the AM business as an LLC would be preferable as it allows for ’pass through’

tax to the parent Corporation.

3. Draft the company’s formation document: Stryker Corporation must determine

the location to set up the new business entity. This has important implications

because different locations have different statutes, laws, and instructions for

how to prepare articles of corporation or articles of organization (for an LLC).

Typically, most large corporations look to establish subsidiaries in tax havens

(areas with low tax rates). The most advantageous international tax havens

include Luxembourg, Cayman Islands, and Ireland to name a few [53]. Domes-

tically, Delaware and Nevada are known as two of the best tax havens. For

the purposes of Stryker’s AM business they would most likely form an LLC in

Ireland to reflect their physical location as well as take advantage of the tax

benefits.

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4. File the formation document and pay the fee: The articles of corporation or

articles of organization must then be filed with the appropriate officials. After

the filing fee is paid and the articles are accepted by the state officials, the new

subsidiary comes in to existence.

5. Capitalize the new company: The parent company must transfer assets to the

subsidiary so that it may begin operations. The initial transfer is typically

done for ownership in the subsidiary. For Stryker Corporation this may include

transferring physical assets such as plant, property, and equipment to the new

subsidiary in order to gain full ownership stake. This transfer must be recorded

in the parent company’s and subsidiary’s accounting records.

6. Draft the subsidiary’s bylaws and indemnification agreement: It is necessary to

draft by-laws to provide on how the subsidiary’s internal operating processes

will work. Within these by-laws, the subsidiary must ensure that they are

unable to make changes to the board of directors without the permission of the

parent company. An indemnification agreement must also be created in order

to protect the subsidiaries management from liabilities.

7. Install an initial board of directors: The board of directors is established to

manage the subsidiary as a separate entity. The parent company has control

over the make-up of the subsidiary in order to maintain control. Subsidiary

boards are expected to act in an independent and objective manner, meaning

they must act in the best interest of the subsidiary and not the parent. How-

ever, as is the case with a wholly-owned subsidiary, the ownership structure

makes it difficult to achieve full independence. Often times, the parent nom-

inates directors, officers, or managers of the parent company to the board of

the subsidiary. This often causes the interests of the parent to take precedence

over the subsidiary [55]. The size of the board of directors for the subsidiary

is dependent on the size and scope of the location of the business entity. In

Ireland, all LLCs must have a minimum of two board members, one of which

must reside in the European Economic Area. Once the board of directors has

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been established for the subsidiary, the company is free to begin operations.

Although the company is free to begin operations at this point, there are still

functional considerations to be made in order to assume full operations. For exam-

ple, the company must determine which shared services they intend to utilize from

their parent and which services they will function independently. As has been al-

luded to throughout this chapter, there are certain services that need to function

independently in order to achieve the benefits of this strategy. For instance the AM

subsidiary must have some level of financial and accounting independence in order

to execute on the rapidly changing costing landscape of AM and gain supply chain

flexibility with the customer base. Additionally, they must have some form of ERP

connection to the parent but also enough independence and flexibility to operate

with external customers. Stryker currently utilizes some shared services across their

organization and it would be expected that they would do the same when it comes

business functions and support such HR and potentially IT for their AM subsidiary.

Careful consideration is needed when determining which business functions to operate

as shared services and which to establish as independent as these decisions will have

important efficiency and cost implications.

6.5 Key Takeaways

The purpose of the value creation model is to identify areas that are stunting or

inhibiting growth and the creation of value for the organization. Applying this model

to the case of Stryker AM reveals that the current organizational structure and the

business systems have significant opportunity to evolve in response to the dynamics

of the rapidly changing market in order to allow the organization to speed up AM

technology deployment and maximized the overall value for the organization.

With this understanding, one proposed solution is to create a wholly-owned sub-

sidiary out of Stryker’s AM business unit in order to unlock future growth potential.

Evolving the organizational structure enables growth that is currently being ham-

pered in the business unit due to challenges with organizational complexity. This

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growth is enabled through a number of benefits that include supply chain efficien-

cies, simplification of business systems, tax and financial benefits, and competitive

advantages & IP projections. With the execution of this strategy, the organization

will have sufficient opportunity to create new value with their AM business unit.

Within the context of the mission of the Stryker AM business unit introduced at

the beginning of Section 6.2; drive growth, enhance margins, simplify supply chains,

and boost the Stryker brand, the wholly-owned subsidiary model offers value creation

opportunities over maintaining the status quo. This can be summarized in Table 6-9.

Figure 6-9: Summary of the risk to value creation in creating a wholly owned sub-sidiary vs maintaining the status quo for the Stryker AM business across the fourpillars that define the mission of AM within the Stryker Corporate entity

As can be seen in Table 6-9, the greatest risk to creating value based on the

metrics defined in the mission statement for maintaining the status quo is in supply

chain simplification brand boosting. This is primarily due to the complexity that is

created as the business grows. The growth driver is also classified as a moderate risk

due to the potential for slowing growth due to adoption hurdles that is exacerbated

by organizational complexity. Overall, for the bottom line, maintaining this business

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structure will most likely lead to long-term increases in variable costs as a result of

increasing levels of complexity that will require more resources to solve.

Alternatively, with the wholly-owned subsidiary model, the growth driver and

brand booster pillars become low-risk as a result of greater market access (external

customers/suppliers) and a less complex system. The supply chain simplifier pillar

becomes a lower risk than the status quo because of the supply chain flexibility that

is afforded to the business unit but still maintains some risk because of the high up-

front costs to achieve this. The margin enhancer metric becomes a high risk simply

because of the high up-front costs.

This chart must not be interpreted to be absolutes. The risk-levels are simply the

perceived potential for risk in the value creation process. As with any change, there

must be an understanding of the risks involved. This wholly-owned subsidiary model

is not perfect, but it does provide a potential for improvement in areas that Stryker

uses as the driving mission of the business unit.

With the execution of this strategy, value creation opportunities are introduced

but that doesn’t mean that the value itself is created. Strategic execution is still

required in order to capitalize on the opportunities that exist in AM to capture the

value. This is a key aspect in the ability to mature as an organization or as a business

unit. The model itself is a tool to orient managers to areas that are creating roadblocks

but execution is still required to see the benefit.

For this reason, the model must be used dynamically rather than as a static

model. Solving for the organizational structure as the bottleneck may increase the

value creating capacity of the system but as with any process, theoretically creates

a new bottleneck or limiting factor somewhere in the value creation equation. While

there is value in anticipating the potential inhibiting factors, it may not be possible

to know exactly where new bottlenecks or limiting factors will arise due to the fact

that each of the factors in the value creation model are a function of a number of

complicated variables. Therefore the model must be continually revisited in order to

ensure that business systems and technology are working in parallel to maximize the

value created.

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Chapter 7

Case Studies

Up to this point, the value creation model has been applied very specifically to the case

of AM within the context of Stryker’s AM business unit. However, it is hypothesized

that this model could apply much more generally to many different manufacturing

technologies and capabilities. The following section will explore three cases studies of

how organizations have applied the value creation model to protect competitive ad-

vantages in technology, supply chain structure, and organizational in order to enable,

mature, and maximum the value creation within their organization.

7.1 Nike AirMI

7.1.1 Background

In 1968 Tetra Plastics opened up a plant in Chesterfield, MO. Over the next 9 years

the company rapidly developed and innovated on a number of plastics technologies. In

1977 the company pitched one of their products, an airbag cushioning system, to Phil

Knight (the Nike Founder) as the shoe cushioning of the future. A year later in 1978,

Nike released the Tailwind, the first shoe to debut the air cushioning system. A few

years later in 1981, Tetra Plastics began working with Nike to develop a proprietary

extrusion process that would eventually become the Nike Air sole cushioning system.

The innovation became a massive commercial success with the debut of the Nike Air

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Max 1 which featured the first visible air cushioned sole. In 1991, Tetra plastics added

another significant proprietary innovation to their portfolio as they are the first to

develop a blow molding process that allowed for maximum cushioning and complete

visibility of the sole in the shoe.

Following this development, Nike made the decision to purchase Tetra Plastics

to ensure that they are the sole supplier of air cushioning soles made worldwide. In

1998, Tetra Plastics officially became Nike In-House Manufacturing (IHM), a wholly

owned subsidiary of Nike. In 2016 Nike IHM is rebranded is Nike Air Manufacturing

Innovation (Nike AirMI). The following year in 2017, Nike opened a new AirMI

facility in Beaverton, Oregon [2]. Today Nike AirMI has over 1,500 employees located

at facilities in Beaverton, Oregon and St. Charles, Missouri with planned expansions

in Arizona.

7.1.2 Value Creation Model Application & Analysis

Since Tetra Plastics first pitched their product to Nike in 1977, the business segment

has gone through a number of iterations in the value creation process as the technol-

ogy and the company have matured. This evolution can be analyzed with the benefit

of hindsight. In the beginning, the pitch by Tetra kicked off the value creation process

with the prospect of using a new plastics technology for applications in shoe cush-

ioning. The potential of the product was enough to convince Nike to give it a trial

run commercially with the Tailwind shoe. At this point the technology development

and business systems surrounding the product were relatively immature due to the

uncertainty surrounding the commercial viability. However, following the success of

the Tailwind shoe, Nike began to realize the potential value in the technology, thereby

signaling a necessary evolution of the elements of the value creation model.

By 1981, Nike clearly saw value in the technology’s ability to provide superior

cushioning which could serve as a key differentiator of Nike’s product over competi-

tors. The decision was made to work with Tetra to mature the technology and develop

a proprietary process that would ultimately become the Nike Air sole cushioning sys-

tem. This decision can be thought of as an evolution of the value Nike saw in this

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technology. For one, the technology clearly had the potential to evolve. From a strate-

gic perspective, Nike saw this as a key product differentiator based on the market

outlook. This was accompanied by the opportunity to develop competitive advan-

tages by protecting IP through a proprietary and exclusive development process. It

can be assumed, based on the success of the Nike Air Max commercially, that the

business systems had to evolve in order to create supply chains and business processes

for incorporating the technology into the product development and commercialization

process in order to get it to market.

For years this model was sufficient to extract maximum value from this technology

segment of the business. Based on the evolution of the external market, with no real

competitors to the product, and Nike’s own development, it can be assumed that the

technology was the bottleneck in the value creation process. In 1991 with Tetra’s con-

tinued technical advancements, the value creation equation began to change. With

years of data showing the commercial viability and continued technical improvements,

Nike recognized the importance of this technology in their strategic plan. The decision

was made to bring the technology in-house to protect the IP and therefore protecting

a differentiated competitive advantage over the competition. Over the next 7 years

Nike launched a number of shoes with the proprietary process for developing the air

sole cushioning. In 1998, Nike made the strategic decision to make Tetra Plastics a

wholly-owned subsidiary of Nike, renaming the company, Nike In-House Manufactur-

ing (IHM). The company finally rebranded Nike IHM to Nike AirMI in 2016 on the

heels of multiple decades of commercial success and expanded operations.

The Nike AirMI case is an excellent example of how a company can create maxi-

mum value for their organization through a dynamic and coordinated analysis of the

potential value of technology. One key element of this case is how these elements

evolved in parallel as the technology and company evolved. It is worth noting how

Nike’s approach to IP protection has enabled them to create a sustainable compet-

itive advantage. Nike Corporate has created a IPHC subsidiary, Nike Innovation

C.V., that acts as a holding company for all their IP across many different business

segments. Nike AirMI has utilized this to protect their air sole cushioning patents

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and other IP but they have also relied on trade secrets to keep important IP out of

competitors hands. The trade secret strategy necessitated the purchase of Tetra to

bring manufacturing capabilities in-house, which was a distinct deviation from their

corporate strategy of outsourcing most manufacturing capabilities overseas.

This was a necessary move in order to continue extracting maximum value from

the technology. Had Nike made the decision to outsource the technology that is

based on trade secrets, they would have opened themselves up to the potential of

competitors gaining access to the technology. Had this happened, it would have

eroded the differentiated competitive advantage that Nike possessed in this business

segment, stunting the value the company was able to create from the technology. Nike

has created more value by deviating from their corporate strategy in order to protect

this competitive advantage.

7.2 IKEA

Baraldi (2019) explored how the network position influences the development position

of a business unit within a multinational corporation using a longitudinal study of

IKEA [18]. This analysis will explore the same case study but through a different

lens to explain how the decisions and evolution of the business can be understood

through the value creation model.

7.2.1 Background

In 1986 IKEA was looking for a producer that used a technology known as "Board

on Frame" (BOF) to manufacture their newly launch LACK tables. The company

formed a relationship with a cooperative named Zbaszyn-Babimost located in Poland

who was using a technology known as "Board on Frame" (BOF) to produce sink

cabinets. At the time, the cooperative didn’t have the production capacity to handle

the volumes required by IKEA but was awarded the business anyway due to the

competitive prices and the cooperative’s location near IKEA’s primary markets in

Germany.

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In 1992, despite satisfactory operational performance and good relational stand-

ing with IKEA, the cooperative began experiencing financial hardships, which were

primarily due to political turmoil in the country. Shortly thereafter, the cooperative

agreed to a takeover proposal from the IKEA Group to become part of Swedwood,

IKEA’s production arm. The new factories acquired in this transaction were subse-

quently named Swedwood West. Even though Swedwood West was now officially a

part of IKEA, the two business units still had a buyer-external supplier relationship,

with IKEA forcing Swedwood West to compete for contracts.

The relationship between Swedwood and IKEA continued to strengthen through-

out much of the 1990’s as the two collaborated intensely on developing process tech-

nologies related to BOF. During this time, Swedwood became the sole manufacturer

of IKEA’s LACK tables worldwide, producing more than 2 million units. Throughout

the 1990’s, Swedwood began to establish themselves as not only a low cost manu-

facturer, but also as a key technology innovation hub, taking on a leading role in

further developing key products. The 1990’s culminated with the 1999 acquisition of

a new factory in a neighboring village by Swedwood West. At the beginning of the

2000’s, the close collaboration between IOS, Swedwood West, and IKEA bore fruit

again as the business unit perfected and introduced a new surface treatment method

that "facilitated the printing a vaneered pattern on particle board".

By 2003, Swedwood West was not only facilitating production and technology

development of many of IKEA’s supplier’s, but was also managing highly complex

supply chains for the organization. This new capability required the construction

of a new warehousing facility and the implementation of sophisticated IT and ERP

Systems. From 2002 to 2007, IKEA reduced the number of direct suppliers from

2,500 to 1,300. With this reduction, Swedwood West gained even more responsibility

in production in technology development. The increase in responsibilities coincided

with the creation of multiple new factories in the region. 2008 marked an important

evolution in the relationship between IOS and Swedwood West, when IOS made

the decision to create a dedicated product development center (PDC) within the

business unit to serve as a testing ground for products across the entire IKEA network.

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At the same time, Swedwood West strategically began strengthening their position

with machinery, coatings, and process material suppliers by establishing long term

relationships. By this time in the evolution of Swedwood West, the business unit had

become recognized as a technology CoE across the organization, supplying technology

solutions and products to many additional IKEA subsidiaries.

Swedwood West’s importance to IKEA was formalized in 2014 when the business

unit was formally merged with the IKEA Group under the new business unit IIZ in

the Flatline Division. This marked the end of nearly 30 years as a subsidiary of the

company and cemented the factory’s position of importance within the organization.

7.2.2 Value Creation Model Application & Analysis

As with the previous case studies explored, this story begins with an organization

looking for a technology to complement the organization’s product development strat-

egy. The selection of a technically competent supplier, despite a lack of production

capacity, was made in-line with the overall low-cost strategy employed by the com-

pany. This relationship, although minimal in the scope of IKEA’s worldwide opera-

tions, was an important value creator due to the ability to execute the organization’s

overall strategy and beneficial physical location.

The value creation potential, through process technology and as a low-cost pro-

ducer, was important enough that IKEA made the strategic decision in 1992 to ac-

quire the factories rather than let them go bankrupt. Despite this transaction, the

two business entity’s maintained the same relationship that had existed prior to the

acquisition. This is likely due to the fact that the maximum value IKEA was capable

of extracting from the Swedwood West business unit was optimal and did not require

an evolution of other areas of the business.

However, IKEA did see the potential value in evolving the technologies that the

factories had engineering expertise with, which included BOF. As these technologies

began to evolve and mature through much of the 1990’s, IKEA began to expand their

business operations and overall responsibilities within Swedwood West. Throughout

much of the decade following the 1992 acquisition of Swedwood West, the business

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unit did not run into any major bottlenecks in the creation of significant value. By

structuring Swedwood West as a subsidiary that was forced to compete with other

suppliers, the business unit was incentivized to develop technology and process exper-

tise that aligned with the parent organization’s low-cost strategy. This structure was

aligned to enable the strategy, competitive advantages, IP and technology to work in

harmony with one another resulting in a immensely successful business unit.

2003 marked the next evolution of the business. By this point, the success of the

unit had let to such a significant increase in their responsibilities that their business

system’s began to bottleneck the value creation from this business unit. This resulted

in the implementation of new sophisticated business systems and structure that en-

abled the further proliferation of their superior technical skills. While this relieved

the tension for a few years, the business unit was growing at such a pace that a new

potential bottleneck soon emerged in the form of IP protections. In order to protect

the organization, Swedwood West began working on establishing long term relation-

ships with many suppliers that included special contracts and conditions to protect

their technical position in the marketplace. These contracts were done in accordance

with IKEA’s corporate IP policies and effectively assured the sustainable protection

of some of the organizations competitive advantages.

Realizing the technical capabilities that had been developed in this business unit,

IKEA established a product development center in order to enable better prolifera-

tion of knowledge and skills across the organizations network of subsidiaries. This

structure effectively, again, removed the organizational structure as a bottleneck in

the process to allow value creation from this business unit to continue to grow. Ulti-

mately in 2014, to protect the technical expertise and competitive advantages formed

in the Swedwood West business unit, IKEA Group made the decision to fully merge

the factories into the parent company. While it is not entirely apparent why this

decision was made, it can be hypothesized that this was done due to a number of

factors in the value creation model including protection of competitive advantages

developed through technical knowledge, ensuring the unit’s continued status as a low

cost producer, and to provide more synergies through organizational structure.

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Given the previous two examples, Nike AirMI and IKEA Swedwood West, one

of the keys to extracting value in an emerging technology is to force the technology

to be the bottleneck of the process. In the spirit of agility in organizations and the

importance in being able to respond quickly, the other variables in value creation

model must stay ahead of the technology bottleneck in order to respond quickly and

maximize the value captured from the technology’s use. In analyzing IKEA from

1986 to 2014, it appears that they did exactly that. When the technology reached

a point where it caught up with the rest of the variables, the company was able to

respond in order to ensure continued growth emerging from these technologies.

IKEA’s Swedwood West business unit is an excellent example of how the company

was able to recognize and react to the formation of bottlenecks in the value creation

process in order to continue maximizing the value created for the organization as a

whole. Similar to the case of Nike AirMI, the evolution of value creation ran opposite

to what has been proposed for Stryker. However, what this shows is that no two

cases are precisely the same and the way value creation has to evolve is unique to

each organization.

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Chapter 8

Conclusion

At the heart of this research was Stryker’s desire to capitalize on the growing op-

portunities in the field of AM. Despite being one of the leaders in the field in metal

AM at scale, the company is committed to continuously improving. The drive for

improvement and pushing the boundaries of the AM technology business unit has

uncovered opportunities and challenges in figuring out exactly how to move forward

to extract maximum value from the technology. This research has never intended

to provide guidance to Stryker about which markets or AM processes to pursue in

order to increase revenue for the company but rather provide a framework to help

the organization analyze the landscape and work towards the ultimate goal, value

creation.

While exploring various business solutions to enable growth it became apparent

that there are a series of interconnected variables that all contribute to optimal value

creation for the organization. As of the writing of this thesis, Stryker AM has reached

a level of maturity that is going to require more advanced solutions in order to enable

execution of more ambitious goals. However, the solution requires a greater under-

standing of the current state of the business unit and how the technology interacts

with the overall organizational system. This exercise in identifying how to mature

the business unit in the name of maximizing value creation reveals how challenging

it is to untangle the interconnectivities of the system elements; business systems &

structures, IP protections, competitive advantages, business strategy, and technology.

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The value creation model was designed precisely to give managers exploring AM

the tools to understand the complexities of building an AM commercial business. This

simplified framework is an aid for managers to more easily identify the corresponding

factors and develop robust plans to solve problems that are inhibiting organizational

maturity and unlock AM innovation, adoption, and most importantly, value creation.

8.1 Value Creation Model with AM

It is well established that AM is a complex and evolving manufacturing technology.

There are significant opportunities to take advantages of the unique value proposition

of the technology but figuring out exactly where the technology fits in an organizations

manufacturing portfolio is not simple or straightforward. This requires a high-level of

technical and organizational expertise in order to convey both the direct and indirect

benefits of the technology in a way that overcomes the impediments to new technology

adoption.

Organizations across a number of industries are all racing to figure out how to

best do this in order to use the technology to gain advantages over their competition.

In a highly competitive, and highly specialized environment such as this, firms need

to be able to react quickly to technical developments and efficiently integrate them

into their operations. Historically Stryker has been able to execute this strategy to

remain on the forefront of this race, but as the business and technical environment

evolves, the company must dynamically evolve along with it in order to optimize the

value the technology’s value proposition affords. Ultimately, the value extracted from

this evolution depends on the organization’s ability to dynamically respond to the

opportunity and drive continuous improvement.

8.1.1 AM Technology Development as the Bottleneck

One of the revealing takeaways from applying the value creation model to Stryker AM

and AM technology more broadly, is that given the rapid evolution and opportunities

of AM, the technology must be driven as the bottleneck in the value creation process

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to maximize value. Doing so enables agility and the ability to be a technology leader

and remain on the innovation frontier.

If the bottleneck is found at the other variables in the model such as the compet-

itive advantages, IP, strategy, business systems & structures, then either the value

created by the technology is not maximized or the potential value the technology can

create for the company has an upper limit. In the former scenario, if the bottleneck

is not the technology, this problem must be solved for in order to continue driving

growth. This scenario implies that the technology still has potential value that is not

being captured. Not capturing value from a technology due to inefficiences in other

areas of the business is by definition a sub-optimal system which leaves value on the

table. In the latter scenario, the value creation of the technology may not be able

to grow any further due to unfixable limitations that could be a result of internal

or external factors. For example, the IP of the technology may become available to

everyone and the technology has become widely available from external suppliers. In

this situation, there may not be more value to extract from this technology due to

market saturation. By driving the technology development to be the bottleneck in

the value creation model, it is easier to ensure that the organization is operating on

the innovation frontier because complicating network inhibitors are removed.

However, although it is important to drive technology development in AM as

the value creation bottleneck, the business transformation around the technology

must not outpace the technology development to the point of creating a new set of

inefficiencies. It is a delicate balance to keep business evolution just slightly ahead

of technological development, but if executed properly, an organization can create

conditions that favor optimal value creation.

8.1.2 Generalizable Value Creation Model

Although the value creation model was developed for AM, it is hypothesized that the

model could have application for a number of different manufacturing based tech-

nologies. The cases of Nike AirMI and IKEA demonstrate how the companies have

evolved and successfully created sustainable value for the organization with a man-

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ufacturing technology. Moving forward, more in-depth analysis would be needed to

stress test the assumptions in the model when applied to different technologies and

organizations.

8.2 Immediate Implications

Creating a subsidiary out of Stryker’s AM business unit could potentially remove

complexity from the business and unlock potential growth opportunities. However,

there is an inherent level of risk in any major organizational change taking into

consideration things such as the executional aspects, which have not been explored

in depth. This research has explored how, from an AM technological innovation

and development perspective, this move has many potential benefits. It allows for

Stryker to unchain their AM technology segment to enable innovation across their

organization. Despite this, what remains uncertain, is the cost vs benefits of this

move from a strategic and operational perspective. Yes, the technology can grow, but

are the future business opportunities actually there for Stryker in the medical device

space to actually benefit from this technology? What this conceivably comes down to,

is whether or not the technology segment provide enough of a competitive advantage

in these AM processes or in other market applications to justify the organizational

cost of creating a AM subsidiary? In the opinion of the author, the answer to these

questions is yes.

8.3 Future Work

In order to fully explore these questions, a robust cost-benefit analysis must be done.

This would include a full portfolio and market analysis of potential AM processes.

Stryker must identify the potential product candidates for AM across their portfolio.

This requires data on all the materials of all the products in the organization’s port-

folio. Additionally, the company must be able to project how each of these material

segments will grow in order to understand the direction of the portfolio. Once Stryker

141

is able to fully quantify the material needs of the products, the AM group must be

able to analyze the most promising material segments to determine whether or not

these products would be potential candidates for AM. This would be a significant un-

dertaking but is necessary to determine the potential internal market for various AM

processes. With this information, the company could better understand the future

product pipeline and the overall benefit of future technology development.

In parallel, Stryker must quantify all of the costs of becoming a wholly-owned

subsidiary. The two main questions to answer will be (1) what additional overheads

will be required to operate as a subsidiary and what are their respective costs, and

(2) what are the potential financial and tax implications of the move? Answering

these questions, along with an understanding of the future pipeline will provide the

analysis necessary to growing the business as outlined in Chapter 6.

Given the outcome of this analysis, it may be the case that within this industry

there is not a justifiable case to create a wholly-owned subsidiary of Stryker’s AM

business unit. However, this does not mean that the value creation model is not valid.

Rather, what this indicates is that Stryker Corporate must make different adjustments

to the variables contained within the model to maximize the value for the company

from the technology segment. It may be that the future growth of the technology

segment relies on a different strategic approach. Regardless, this demonstrates the

dynamic nature of the value creation model. If conditions change, the business must

know how to respond accordingly in order to create value for the organization and

this model provides the tools to guide that analysis.

8.4 Concluding Remarks

AM is a technology with vast potential and a number of significant challenges. There

is no one size fits all approach to successful implementation of this technology and

as such requires flexibility in order to overcome the technical and business related

hurdles. This research is intended as a flexible macro-level tool to frame decision

making around the technology that incorporates the best practices from management.

142

Irregardless of this research there are executional challenges to implementing any

changes that are identified with this model. These executional challenges must not

be downplayed as they can be just as crucial in the success of a business unit as are

the identification of issues and proposed solutions.

143

Appendix A

AM vs Traditional Manufacturing

144

Figure A-1: AM vs Traditional Manufacturing [81]

145

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