Managing Innovation
on time
Case Study 1 _ Second Assignment
Managing Innovation_MNGT4520
Total Marks=15%
Virgin Galactic LLC (Virgin Galactic), founded by Sir Richard Branson, owner of the Virgin Group
Ltd., was a space tourism company headquartered in California. In early 2019, the company planned
to offer commercial suborbital space flights to paying consumers and to host other suborbital space
projects. In a suborbital space flight, a spacecraft reached the maximum altitude of 62 miles (100
kilometres [km]) but not an altitude where it could orbit the Earth. In December 2018, after
approximately 10 years of effort, Virgin Galactic launched its first successful crewed test spacecraft,
named Virgin Space Ship (VSS) Unity, from the Mojave Air and Space Port in Mojave, California.
VSS Unity was a SpaceShipTwo-class suborbital aircraft (i.e., an air-launched spacecraft capable
of carrying up to six passengers). Branson was optimistic about launching commercial spacecraft
in 2019. He also aimed to apply the technology developed during Virgin Galactic’s space tourism
research to make supersonic intercontinental flights possible.
However, environmentalists such as Leo Hickman, the chief adviser for climate change at World
Wildlife Fund-UK (WWF-UK), were concerned that Virgin Galactic’s space program might
contribute to environmental pollution. Hickman claimed commercial space flight was an expensive
adventure for extraordinarily rich individuals at the cost of the environment. A mere 90-minute
flight on Virgin Galactic’s spacecraft was priced at US$250,000.
In addition, experts such as Valerie Neal, of the National Air and Space Museum, had raised
concerns about the health of space tourists, as space travel generally resulted in DNA
(deoxyribonucleic acid) damage linked to exposure to radiation, bone and muscle loss, and other
ailments. Some prominent astronauts, including Andy Thomas of Australia, also believed that
Branson’s promotion of space tourism was a marketing gimmick.
Branson believed that the environmental impact of Virgin Atlantic’s spacecraft was less significant
than the carbon footprint per person caused by intercontinental travel such as a round trip from
London, UK, to New York. He was further confident that, with time, space tourism would become
affordable.
Could Branson succeed in launching commercial spacecraft and make it affordable over time?
Given environmental and health concerns, could Branson make a case for responsible innovation
through space tourism? Should he focus on space tourism or other business possibilities such as
supersonic flights?
BACKGROUND
Virgin Galactic was founded in 2004 by Branson and incorporated in 2007. In December 2018,
Virgin Galactic had 850 employees and revenues of $114.12 million.
In 2014, Virgin Galactic’s SpaceShipTwo, a suborbital spacecraft designed for space tourism,
broke apart during a test flight, resulting in the death of a co-pilot. In 2015, a National
Transportation Safety Board report related to the accident stated that the pilot had repositioned the
tail wings of SpaceShipTwo early for a return to the ground, and that this had caused the spacecraft
to break apart. After this incident, Branson parted ways with Scaled Composites, a US-based
aerospace company responsible for manufacturing the SpaceShipTwo and hiring test pilots for the
spacecraft. Virgin Galactic decided to use its own manufacturing plants and hire its own test pilots.
In December 2018, Virgin Galactic successfully launched the SpaceShipTwo suborbital spacecraft.
VSS Unity was launched from its mothership, Virgin Mothership (VMS) Eve, which was a
WhiteKnightTwo carrier plane. VMS Eve carried VSS Unity to a height of 43,000 feet (13,106
metres) and released it. The pilot of VSS Unity, Mark Stucky, and co-pilot Frederick Sturckow then
fired the rocket motor of VSS Unity for 60 seconds, which accelerated VSS Unity’s speed to Mach
2.9 (i.e., 2.9 times the speed of sound). This acceleration helped VSS Unity reach the maximum
altitude of 51.4 miles (82.7 km), surpassing the 50-mile (80.5 km) mark that the US government
recognized as the edge of space. The spacecraft flew into space and earned the pilots “astronaut
wings”—recognition from the Federal Aviation Administration (FAA) granted to crewmembers of a
space flight for demonstrating “a safe flight to and return from an FAA licensed mission.” Branson
claimed, “Today, for the first time in history, a crewed spaceship, built to carry private passengers,
reached space.” Representatives of Virgin Galactic mentioned that a lot of work would still be
required before the actual commercial flights began. They said, “Whether we complete all our
objectives during the next flight or need to wait a little longer, we remain committed to completing
the final stages of this extraordinary flight test program as quickly, but more importantly as safely,
as possible.”
In early 2019, several other companies—including Astrium GmbH, The Boeing Company, Bigelow
Aerospace, Excalibur Almaz, Space Exploration Technologies Corp. (SpaceX), Space Adventures
Inc., Space Island Group, and Zero 2 Infinity SL—were also on the verge of launching their own
spacecraft. Commenting on the competition, Branson stated, “For space travel, the demand will far
outstrip supply. Jeff Bezos and Elon Musk are formidable competitors, and there’s definitely room
for all three companies.” Further, space hotel companies, such as California-based Orion Span Inc.
(Orion Span), were on the verge of establishing space tourism hotels. Orion Span’s Aurora Space
Station, likely to be the first space hotel, was to be launched by 2022. Orion Span decided to offer a
12-day stay at 320 km above Earth for a price of $9.5 million. The hotel was expected to orbit Earth
every 90 minutes, enabling guests to see approximately 16 sunrises and sunsets every 24 hours.
However, before checking into this hotel, guests were expected to undergo a three-month training
program. This type of tourism, where guest could spend considerable time in a space hotel or space
station in Earth’s orbit, was known as orbital tourism (see Exhibit 1 for a comparison of Virgin
Galactic’s competitors and complementors).
THE NEED FOR SPACE TOURISM AND THE SPACE FLIGHT EXPERIENCE
Virgin Galactic aimed to create a basic space access infrastructure that could enhance the research
abilities of scientists and entrepreneurs. A New Yorker article on Branson quoted him as saying, “We
see ours [Virgin Galactic’s] being the spaceship for Earth.” Astronauts have emphasized the human
side of space exploration. For instance, in The Overview Effect, by Frank White, an astronaut described
the view of Earth from space by saying, “You don’t see the barriers of color and religion and politics
that divide this world.” Branson corroborated these statements and said, “I believe that, once people
have gone to space, they [will] come back with renewed enthusiasm to try and tackle what is
happening on this planet” (emphasis in original).
In 2016, Branson invited renowned theoretical physicist and cosmologist Stephen Hawking for a
trip to space in Virgin Galactic’s spacecraft. Branson offered Hawking a free ticket into space,
which Hawking accepted conditionally because of his health. Branson spoke of Hawking’s belief
in the importance of exploring space, stating, “He has made it very clear that he thinks mankind
and womankind need to work very hard to try to colonise other planets and that space is very
important for people back here on Earth.”
However, Thomas condemned the Virgin Galactic mission, describing it as a “go nowhere, dead-
end technology.” He stated, “The thing I’ve got to say about Richard Branson is he could sell
refrigerators to Eskimos.” Thomas added,
He’s a businessman and he’s portraying that flight experience in a way that I would not be
comfortable saying.
It’s true that he will fly to the edge of space, but he can’t stay there. He falls right
back down. It’s really just a high altitude aeroplane flight and a dangerous one at
that.
From launch to touchdown, Virgin Galactic passengers would be inside the spacecraft for
approximately 90 minutes. For about four minutes, passengers would be able to unbuckle their
seatbelts and float in the cabin, experiencing microgravity (i.e., the absence of gravitational forces).
During this period, the passengers would be able to view the Grand Canyon, the California
coastline, and the Baja Peninsula. Virgin Galactic pilots, similar to tour-bus drivers, would help
passengers recognize various celestial bodies and terrestrial landmarks visible from the window of
the aircraft.
RESEARCH ADVANTAGES OF SPACE TOURISM
In December 2018, when Virgin Galactic successfully launched VSS Unity, the National
Aeronautics and Space Administration (NASA) aimed to use the flight to test 12 technology
experiments. Christopher Baker, from NASA’s Armstrong Flight Research Center in California,
stated, “Regular, commercial access to space will change how we approach technology
development by allowing us to invest in early research validation. . . . The payloads on this flight
represent a cross section of promising space exploration technologies that could benefit future
NASA missions.”
Joshua Colwell, a University of Central Florida physics professor whose research, supported by
NASA, was also aboard VSS Unity, stated, “This is the kind of experiment you can’t really do on
the ground So, it’s always exciting and a privilege to collect data like this from a high-quality free
fall environment like you get from one of these suborbital vehicles.” His research tested how small
dust particles ranging from a tenth of a millimeter to about two centimeters acted in conditions of
microgravity, which was achieved when VSS Unity left Earth’s atmosphere. The research findings
were expected to help scientists better understand what could happen if astronauts or robotic landers
worked on the surface of small asteroids.
In July 2018, Virgin Galactic also partnered with the Italian Space Agency for a mission from the
Mojave Air and Space Port in which a Virgin Galactic space flight would take an Italian researcher
to perform a number of scientific experiments. Commenting on the partnership, Branson stated, “I
believe Italy’s vision, which has led to this collaboration with our Virgin space companies, will
provide a real impetus as we strive to open space for the benefit of life on Earth.” After the
successful launch of the VSS Unity, Branson stated, “We have shown that Virgin Galactic really
can open space to change the world for good.”
OTHER BUSINESS OPPORTUNITIES
Virgin Galactic aimed to learn from its space flights to introduce superfast point-to-point
intercontinental passenger flight services. These supersonic flights were expected to be much faster
than the defunct Concorde, which in 1976 was the first supersonic passenger-carrying commercial
airplane, jointly developed by aircraft manufacturers from Britain and France and used by Air
France and British Airways; Virgin Galactic’s offering would make a journey between Boston and
Beijing or Australia in a matter of a few hours. Branson was confident that intercontinental travel,
particularly when operating through space, would be affordable for the masses and would be more
environmentally friendly and fuel-efficient than the commercial flights which were currently
operating on these routes.
In 2016, to develop supersonic aircraft and thereby make intercontinental travel a possibility,
Virgin Galactic allied with Boom Technology Inc., a US-based manufacturer of supersonic
passenger aircraft. Commenting on the partnership, Branson stated, “Through Virgin Galactic’s
manufacturing arm, the Spaceship Company, we will provide engineering and manufacturing
services, along with flight test support and operations [to Boom Technology Inc.] as part of our
shared ambitions.” The supersonic craft, named XB-1 and nicknamed Baby Boom, was expected
to be 10 per cent faster than the Concorde, which was retired in 2003 following a fatal crash in
2000, which resulted in massive fear among potential passengers. Commenting on the superiority
of the XB-1, Blake Scholl, Boom Technology Inc.’s founder and chief executive officer, stated,
“Concorde’s designers didn’t have the technology for affordable supersonic travel, but now we do.”
Virgin Galactic also planned to launch satellite services in an affordable manner and started
working on the LauncherOne spacecraft. In 2017, the LauncherOne team, which comprised 200
workers, was carved out of Virgin Galactic to form a new company, namely, Virgin Orbit.
LauncherOne, which was in its developmental phase in early 2019, was expected to carry non-
human payloads, such as satellites of up to 500 pounds (227 kilograms), into low-Earth orbit (i.e.,
an altitude of 2,000 km, or 1,200 miles). Furthermore, Virgin Galactic’s spacecraft were reusable,
unlike other conventional spacecraft. Thus, the cost of each spacecraft launch for Virgin Galactic
was only $250,000, in contrast to the conventional spacecraft’s launch cost of approximately $12
million and upward.
ENVIRONMENTAL CONCERNS
Environmental concerns had been raised related to space tourism, which many considered to be a
costly, fuel-intensive, and polluting venture. One space shuttle launch required approximately 113
tons of liquid hydrogen fuel, which was equivalent to the electricity consumed by 130 US homes
for an entire year. This fuel was expensive, although it appeared to be clean-burning and less
polluting than other forms of fuels, such as petrol. Branson believed that Virgin Galactic was very
environmentally friendly. He stated, “We will be able to put someone into space for less than the
environmental price of an economy class ticket from London to New York and back.” This was
because the WhiteKnightTwo carrier plane was capable of running on butanol, a biofuel made
from algae. In 2008, an airplane from Virgin Atlantic (the UK-based commercial air transportation
company founded by Branson in 1981) used biofuel that was a mixture of Brazilian babassu nuts
and coconuts in a flight between London and Amsterdam. Branson marked this a “vital
breakthrough” for the airline industry’s attempts to be green.
Furthermore, VSS Unity’s rockets were to burn nitrous oxide only at an altitude of 50,000 feet
(15,240 metres), after being released by WhiteKnightTwo, not from the ground, as with traditional
space shuttles. In fact, 70 per cent of the carbon emissions from the entire 90-minute flight were
expected to be from WhiteKnightTwo rather than from VSS Unity, owing to the suborbital
aircraft’s light weight.
However, a rocket engineer, Caroline Campbell, stated that fuel used in Virgin Galactic space
flights was toxic. She mentioned, “There’s so much soot coming out the back. That’s burning
rubber. That could be carcinogenic.” Researchers at the Aerospace Corporation in Los Angeles,
California, also reported severe environmental concerns. According to their simulation, 1,000
annual launches of spacecraft would emit approximately 600 tonnes of soot, or black carbon—
which, unlike aircrafts’ carbon, would stay in the atmosphere for up to 10 years. The aircraft
emitted soot at a low altitude, where it was washed away by rainwater in days or weeks; however,
rockets were expelled at three times higher altitude than aircraft, and rainwater could not wash
away the soot expelled by rockets. Additionally, the black carbon was expected to warm air in the
stratosphere, adversely impacting the current that carried air from the equator to the poles, possibly
leading to warmer poles and global warming. However, researchers at the Aerospace Corporation
also admitted they were uncertain of these findings as they were unsure about the quantity of carbon
emitted by space vehicles. In response to such allegations, Branson stated that “Rome was not built
in a day. Sending passengers into space is a little more complex!”
HEALTH CONCERNS
Space travel was also expected to expose travellers to certain health risks. Common problems
reported by astronauts who had spent several months living in space under microgravity conditions
included DNA damage caused by radiation exposure, bone and muscle loss, and blood pressure
changes. In an experiment that simulated the forces of acceleration in a space flight, volunteers
complained about grayout (i.e., a transient loss of vision), blackout, nausea, and chest discomfort.
Health experts also raised concerns about the lack of knowledge about whether minor ailments on
Earth, such as gastric problems, could become serious medical concerns at extremely high
altitudes. Similarly, unexpected behaviours such as phobia or anger, could become problems. Dr.
Tarah Castleberry, an assistant professor of aerospace medicine at the University of Texas Medical
Branch in Galveston, discussed the qualifications for space tourists, stating, “We don’t have a
specific list of conditions that would be disqualifying, but certainly uncontrolled medical problems
(whether it’s hypertension or heart disease or lung disease, or many other conditions), would most
likely cause concern and result in disqualification.”
CUSTOMER DEMAND PERSPECTIVE
Consumers had several expectations from space travel, such as the experience of weightlessness, the
ability to float freely in zero gravity, the experience of pre-flight astronaut training, the ability to
communicate from space with significant others on Earth, and the acquisition of memorabilia that
identified them as astronauts. In a survey conducted by NASA, ultra-wealthy individuals mentioned
that seeing the curvature of the Earth from space was their most important reason for space flight.
One Australian tourist stated, “For some people, it’s all about the zero G [zero gravity] experience,
but for me it’s about the Overview Effect,” adding, “Earth is wonderful and we have to look after
it.” On the other hand, “for businessman and philanthropist David Perez, 55, [from] California,
buying a ticket on Virgin Galactic was an instant impulse purchase.” He said, “What, there’s 8
billion people on Earth but only a thousand have been to space, and I’ll be the first Moroccan Jew
in space.” Commenting on the risk associated with space travel, Perez stated, “Who knows if I’ll
blow up and die . . . But I just love being part of this community of people pursuing their passions
and dreams.”
By December 2018, 600 potential passengers had reserved Virgin Galactic tickets priced between
$200,000 and $250,000, and more than 150 were on a waiting list. Commenting on the market
potential, Branson stated, “If I have a room full of 10 people, 8 out of 10 would love to go to space
if they could afford it.” He believed that the market would be enormous if space tourism could be
made safe and affordable. Branson stated that prices of spacecraft tickets in the near future might
decline to an extent where mass consumers could go to space; it could be made affordable for at
least “tens of thousands of people,” if not millions. Reassuring people that prices would decrease in
the future, he argued that, when commercial air travel was developing, “it cost a [relatively] similar
sum of money to send wealthy people across the Atlantic [Ocean]. .
. . And over the years the price came down to a level where enormous quantities of people were able to
go.”
THE ROAD AHEAD
After 2009, when the Russian space agency took billionaire Guy Laliberté to the International
Space Station, several space enthusiasts emerged, and much talk has circulated of commercial
space flight becoming a reality. However, some companies, such as XCOR Aerospace, had exited
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the business, and others had changed their focus “from crewed spaceflight to satellites and
scientific payloads” in low-Earth orbit. Branson asserted that, among his Virgin Galactic, Bezos’s
Blue Origin LLC, and Musk’s SpaceX, Virgin Galactic’s spacecraft would make the first
commercial flight in space. He was also confident that none of these companies were competing
to be first. He stated, “Safety’s all that matters if you’re putting people into space. So, none of us
will race to be the first.” Branson further noted that “Space is difficult. Rocket science is rocket
science.”
Despite having criticized Branson, Thomas broadly supported the Virgin Galactic project because
of the technological by-products it was creating, such as the ability to launch small satellites from
under the wing of an aircraft with the help of a small booster. However, David Cowan, a space
company investor with Bessemer Venture Partners in California, stated that one fatal accident could
“‘inevitably and episodically’ suspend ventures such as Virgin Galactic for months or years.”
Cowan was also reluctant about Virgin Galactic’s high-tech efforts to develop a 21st-century
version of the Concorde supersonic aircraft that could make travel from New York to Sydney
feasible in just a couple of hours. One fatal Concorde accident had spread so much fear that, due to
low demand and high maintenance costs, British Airways had to discontinue Concorde services.
Commenting on the sustainability of Virgin Galactic, Branson stated, “I’m sure there are many
people on the Virgin Group board who may question my level of sanity, but I firmly believe that
yes, space travel and space tourism can be truly sustainable.” Was Branson right in pursuing his
dream of space tourism? Did investment in space tourism provide enough value to society at large
to make up for potential harmful effects?
Case Questions
1. Explain diffusion of innovation considering Virgin Galactic. How diffusion of innovation will take
place in space tourism (explain using five characteristics)? (5 Marks)
2. Critically evaluate space tourism from the perspective of (a) environmental impact, and (b)
incorporating societal and ethical aspects. (3 Marks)
3. Explain what factors should Branson consider while forecasting market demand? Follow these four:
forecasting total market demand, defining the market, dividing demand into component parts, risk and
benefit. (4 Marks)
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4. Should Branson pursue business opportunities like intercontinental space travel, or should he focus only
on space tourism? Discuss the answers based on the concept of exploratory and exploitative innovations.
(3 Marks)
Exploitative innovations are incremental innovations that are built on existing knowledge and skills.
Exploratory innovations require new knowledge or a departure from existing knowledge
EXHIBIT 1: VIRGIN GALACTIC’S COMPETITORS AND
COMPLEMENTORS
Competitor Complementor
Virgin Galactic,
LLC
Blue Origin, LLC
Space Exploration
Technologies Corp
(SpaceX)
Orion Span, Inc.
Founded 2004 2000 2002 2017
Founder
Sir Richard C.N.
Branson
Jeffrey P. Bezos Elon R. Musk Frank Bunger
Type of
Commercia
l Tourism
Suborbital
Suborbital
Suborbital
Orbital (Space
Station/ Space
Hotel)
Employees 850 3,000 6,000 n/a
Seed
Funding
$600 million
($400 million was
from investors
based in Dubai,
UAE.)
$13 million
(Bezos had also
pledged to fund
Blue Origin
every
year with $1
billion.)
$2.5 billion
(Equity
funding)
$2 million
crowdfunding
campaign launched in
December 2018
Spacecraft VSS Unity
New Shepard,
New Glenn
Falcon 9,
Falcon Heavy,
Dragon
Aurora Space Station
Payloads
Astronauts
(Tourists)/
Research/
Satellites
Astronauts
(Tourists)/
Research/
Satellites
Astronauts
(Tourists)/
Research/ Satellites
Orbital Tourists
Price $250,000
$100,000–
$200,000
$200,000
Initial deposit:
$80,000 Full fee:
$9.5 million
Note: n/a = not applicable; all currency amounts are in US$; UAE = United Arab Emirates; VSS
= Virgin Space Ship.