Financial Evaluation of Innovation Projects - A case study of SCA Hygiene Products and AstraZeneca

Abstract

Abstract Innovation plays an important role for companies’ success in today’s economy, but the investment decision making is complex as the future outcome of innovation is uncertain and difficult to estimate. Therefore, the firms’ choice of innovation process, the appraisal techniques and risk management are highly important and those parameters are also the focus of this study. Two large Swedish companies in different industries have been investigated, SCA Hygiene Products that is a hygiene and forest products company and AstraZeneca that is a pharmaceutical company. The comparison of these two companies is interesting since both often are considered innovative. The intent of this thesis was to gain a better insight in how to analyze the evaluation of different investing approaches to the innovation process at SCA Hygiene Products. It was also desirable that the outcomes of this investigation could constitute a suitable platform for a recommendation to SCA Hygiene Products on how to improve their work in this field. The study is qualitative and was performed through a combination of literature studies and interviews with five employees at the two selected companies. The data used in the theory is secondary data while the data in the empirical part is primary data gathered from the interviews. The interviews showed that SCA Hygiene Products mainly works with incremental innovation while AstraZeneca is focusing on radical innovation. Therefore it is not that surprising that SCA Hygiene Products does fewer appraisals than AstraZeneca, though what is remarkable is that they just use one technique, NPV, in their financial evaluation. Thus, this led to the recommendation that SCA should use at least a few more investment appraisal techniques than they do today. Regarding the innovation process the impression was that it is well developed, but one thing that could be applied is a scalable stage-gate® process where simple projects go through a shorter process than more complicated projects do. In addition, SCA does not do any risk calculations which therefore is another point that could be improved.