Managing Innovation and New Industrial Product Development

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Chapter 8 Managing Innovation and New
Industrial Product Development
PowerPoint by Ray A. DeCormier, Ph.D. Central
Connecticut State University
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Chapter Topics
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1. Strategic processes through which product
   innovations take shape
2. Characteristics of innovation winners in
   high-technology markets
3. Factors that drive a firms new product
   performance
4. Determinants of new product success and timeliness

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Derivation of Sales Profits
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• Many firms derive their sales and profits from
  recently introduced products.
• From products commercialized within the last 5
  years, best-practice firms
• Generate 48 of sales
• Generate 45 of profits

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Risk, Reward Failure
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• But, the risks of product innovation are high,
  significant investment is required, and the
  likelihood of failure is high.
• However, due to
• Shorter product life cycles
• Accelerating technological advances,
• Speed Agility is central to success.

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James Quinn asserts
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• Innovation tends to be
• Individually motivated
• Opportunistic
• Customer Responsive
• Non-linear
• Interactive
• Clearly though, some new-product-development is
  an outgrowth of deliberate strategies.

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Innovations Start Out Chaotic
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• Generally, innovations start out chaotic.
• As a project (product development) progresses and
  as the costs go up, more formal planning and
  controls come in.
• Still, flexibility must be inherent in the
  project.
• There are two broad categories of strategic
  behavior
• Induced
• Autonomous

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Induced Strategic Behavior
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• Most large companies employ induced strategic
  behavior.
• This is a planned form of influence upon the
  workforce to come up with innovative thinking
  around (say) their present product line for their
  customary markets.

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Autonomous Strategic Behavior
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• Large resource-rich companies employ autonomous
  strategic activities.
• This is a situation where employees are allow to
  think creatively about innovation outside of
  their present products. They can think about
  products that theyd like to create.

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Autonomous Strategic Behavior

• This approach often employs a product or project
  champion who is also referred to as an
  intrepreneur or entrepreneur.
• Product Champion is one who
• Creates, defines or adopts an idea for innovation
• Willingly assumes significant risk (loss of
  prestige even their job)
• to successfully implement the innovation.

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Product Champion
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• A product champion is an individual who
• Takes on a central role in sensing a marketing
  opportunity
• Mobilizes an informal network to assess the
  opportunities via their
• Technical feasibility
• Financial opportunity
• Is willing to take on risk (reputation) to bring
  the project to light

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Entrepreneurial Motivation
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• Entrepreneurial motivation can be nurtured and
  encouraged based on
• Availability of rewards
• Senior managements encouragement support
• Resource availability including release time to
  work on entrepreneurial projects
• Organizational structure that promotes
  entrepreneurialism by providing an administrative
  mechanism that brings others into the innovative
  process when needed
• Two other influences are
• Intrinsic motivation
• Work design availability of challenging projects

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Induced vs. Autonomous Behavior
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• Activation of the Strategic Decision Process
• Induced Manager defines the market that is in
  line with the organizations strategy
• Autonomous Managers define a market that
  diverges from the organizations strategy
• Nature of Screening Process
• Induced Formal screening
• Autonomous Informal network that assesses new
  ideas

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Induced vs. Autonomous Behavior
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• Type of Innovation
• Induced Incremental to present products
• Autonomous Major whole new product lines
• Nature of Communication
• Induced Consistent with organizational work flow
• Autonomous Departs from work flow in early
  stages of the decision process

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Induced vs. Autonomous Behavior
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• Major Actors
• Induced Formal as prescribed by the organization
• Autonomous Informal network and furthered by a
  so-called Champion
• Decision Roles
• Induced Roles and responsibilities are well
  defined
• Autonomous Roles and responsibilities are
  loosely defined in early stages but become more
  defined as the project progresses

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Induced vs. Autonomous Behavior
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• Implications for Strategy
• Induced Strategic alternatives are considered
  and a commitment to a particular strategy evolves
• Autonomous Commitment to a particular strategy
  emerges during the early stages as the project
  progresses through sponsorship of the Product
  Champion

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Patterns of Strategic Behavior
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Induced vs. Autonomous Strategic Behavior
Selected
Characteristics of Marketing Strategy Formulation
Process
Table 12.1 7th ed
Developed by Cool Pictures and MultiMedia
Presentations
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Championing a Product
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Senior management at 3M Company will not commit
to a project unless a Product Champion emerges
and will not abandon the effort unless the
champion gets tired.
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Managing Technology
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• According to Michael Porter
• Technological change is the great equalizer
• Can erode the competitive advantage of even the
  most established competitors
• Can propel even the smallest companies to the
  forefront

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Managing Technology
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• Many of the great companies we see today grew out
  of technological changes that they were able to
  exploit.
• Long run competitiveness depends upon how they
• Manage,
• Increase, and
• Exploit their technology base.
• Lets start by classifying development projects!

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Four Types Development Projects
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• Derivative projects center on incremental
  product enhancements, incremental process
  improvements, or incremental changes on both
  dimensions.

Platform projects create design and components
shared by set of products.
Breakthrough projects establish new core
products and new core processes that differ
fundamentally from previous generation of process
and product.
Research and development creates knowledge of
new materials and technologies that eventually
leads to commercial developmentmore like pure
science.
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Product Families
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• Products that share common platform but have
  different specific features and enhancements
  required for different consumer sets.
• Strategists argue that firms should move away
  from planning emphases that center on single
  products and focus on a family of products that
  share a common platform.
• The move toward product family perspective
  requires close inter-functional working
  relationships, long-term technology strategy
  view, and multiple-year resource commitment.

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Disruptive Innovation
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• Disruptive innovation occurs when a totally new
  innovative product is developed that interrupts
  the way business and society does things.
• Examples Train, automobile, telephone, birth
  control pill, plastics, and computers.
• Usually disruptive products start out small but
  grow to overshoot the market.

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The Disruptive Innovation Model
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Performance
Pace of Technological Progress
Sustaining Innovations
Range of Performance that Customers Can Utilize
Performance that Customers Can Utilize or Absorb
Disruptive Innovations
Time
Source Clayton M. Christensen and Michael E.
Raynor, The Innovators Solution Creating and
Sustaining Successful Growth (Boston Harvard
Business School Press, 2003), p. 33.
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Disruptive vs. Sustaining Innovation
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• Looking at the Disruptive Innovations model, we
  see that sustaining product innovation often
  leads to product developments that offer much
  more capacity than the mainstream market needs.
  
• Sustaining innovation is designed for the heavy
  user. In computer technology, we see heavy use
  by the government.
• Disruptive innovation is usually simpler, but
  still changes the world as we know it.
• Ex We once used pens to write until typewriters
  disrupted that, then computers disrupted
  typewriters.

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Low End Disruptive Situation
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• Low End Disruption There is a market who wants
  the new technology but not as much as is
  available.
• Low End Strategy Test
• There needs to be an adequate number of customers
  who want a low version of the technology
  (product).
• The company must be able to create a business
  model and discounted product to meet that need
  profitably.

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New-Market Disruptions

• New-market disruptions are new products that
  change the way people do business but the market
  historically lacked the resources to procure it
  (non-consumption).
• New-market strategy test
• A large number of customers are unable to
  financially procure the product.
• It is inconvenient for present customers to use.

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Salesforce.com
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• One way to find a disruptive idea is to do what
  competitors want.
• A new-market disruption is a situation where
  there is non-consumption. Customers wanted a
  sophisticated CRM program but they were too
  expensive or too difficult for most customers to
  pursue.
• Salesforce.com provided a Web based, relatively
  inexpensive, CRM program for businesses to use.
• It resides on a centralized (virtual) computer
• Easy access by everyone worldwide
• Easy to use

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Disruptive Innovation Litmus Test
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• The final test of innovation is how disruptive
  the product is and how it affects competitors.
• If it is truly a new innovation, and there are no
  competitive players pursing the strategy, then we
  truly have a DISRUPTIVE INNOVATION.

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Three Approaches to Creating New-Growth Businesses
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Table 8.2
New-Market Disruptions Lower performance
in traditional attributes, but improved
performance in new attributestypically simplicity
and convenience. Targets non-consumption cus
tomers who historically lacked money or skill to
buy and use product. Business model must
make money at lower price per unit sold, and at
unit production volumes that will initially be
small. Gross margin dollars per unit sold will be
significantly lower.
Low-End Disruptions Performance good enough
along traditional metrics of performance at low
end of mainstream market. Over-served
customers in low end of mainstream market. Use
s new operating or financial approach or
both different combination of lower gross
profit margins and higher asset utilization can
earn attractive returns at discount prices
required to win business at low end of market.
Sustaining Innovations Performance
improvement in attributes most valued
by industrys most demanding customers. These
improvements may be incremental or
break- through. The most attractive
(i.e., profitable) customers in mainstream
markets who will pay for improved performance. Im
proves or maintains profit margins by exploiting
existing processes and cost structure and making
better use of current competitive advantages.
Dimensions Targeted perform- ance of product or
service Targeted customers or market
application Effect on required business
model (processes and cost structure)
Source Clayton M. Christensen and Michael E.
Raynor, The Innovators Solution Creating and
Sustaining Successful Growth (Boston Harvard
Business School Press, 2003), p. 51.
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How High-Tech Innovators Win
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• To win in the high tech game, which experiences
• Stiff competition
• Short life-cycled products
• High velocity industry
• A high tech firm needs to
• Stay aligned with the market
• Must continually innovate
• Be responsive (on schedule, on time on targets
  needs)
• Anticipate customer needs

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Successful High-Tech Companies Win Because
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1. Limited Structure Creating successful
products to meet changing customer needs requires
flexibility, but successful product innovators
combine this flexibility with a few rules that
are never broken. 2. Real Time Communication and
Improvisation Improvisation involves design and
execution of actions that converge with each
other in time. 3. Experimentation Probing into
the Future Successful product portfolio
creators did not invest in any one version of a
future product but instead used a variety of
low-cost probes to create options for the
future. 4. Time Pacing Product innovators
carefully manage transitions between current and
future projects, while less successful innovators
let each project unfold according to its own
schedule.
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Patching - A New Strategy in Dynamic Markets
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• Eisenhardt Brown contend that traditional
  corporate planning and resource allocation are
  not effective in volatile markets.
• Clear-cut partitioning of business into neat
  squares on the organizational chart is obsolete.
• Instead, the organization needs to manage change
  and quickly realign itself (patching) to capture
  market opportunities faster than the competition.
• Patching is the strategic process of quickly
  realigning or remapping businesses by adding,
  dividing, transferring, exiting or combining
  pieces to take advantage of opportunities as they
  emerge in new markets.

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New Product Development Process
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• To sustain new product success companies
• Make new product development a top priority
• Directly involve managers and employees to make
  decisions and speed up action
• Because of substantial risks and/or incredible
  opportunities, companies employ systematic
  thinking about new product development.

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40 of Industrial Products Fail
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• Although definitions of failure is somewhat
  elusive, research suggests that 40 of industrial
  products fail to meet successful objectives.
• Yet, new products are the life blood for
  companies.
• Without new (or updated) products, eventually a
  company will fail!

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Critical Success Factors
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• Critical success factors that drive a firms new
  product performance are
• Quality of the new product development process
• Resource commitments to new product development
• New product strategy

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New Product Strategy
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Top companies have a clear and visible new
product strategy.
They set aggressive new product performance goals
as their basic corporate goal and communicate
them to all employees.
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Major Drivers of Firms New Product Performance
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New Product Development Process
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• Successful companies that employ a high-quality
  new product development process give careful
  attention to execution of activities and decision
  points. Benchmarking characteristics include
• Firms emphasis on upfront market and technical
  assessments before starting the development
  process.
• Process featuring complete descriptions of
  product concepts, product benefits and
  positioning to target markets before starting the
  development process.
• Process includes tough project go/kill decision
  points.
• New product process is flexible.

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Resource Commitments
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• Three main ingredients
• 1. Top management commits resources necessary to
  meet firms objectives for total product effort.
• 2. RD budgets are adequate and aligned with
  stated new product objectives.
• 3. Necessary personnel are relieved from other
  duties and assigned specifically to the new
  product effort.

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Anticipating Competitive Reaction

• New products trigger reactions from competitors
  when the
• New product threatens their market
• Product is in a rapid growth market
• Selling firm communicates the new product too
  strongly
• To quell competitive reaction to some degree,
  companies
• Put into action a strong competitor
  orientation before and during implementation
• Promote to niche markets instead of the whole
  market

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Sources of New Product Ideas
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• Internally from
• Salespeople
• Employees
• RD
• Marketing Research
• Serendipity

• Externally from
• Channel Members
• Competitive Moves
• Industrial Customers
• Ultimate Consumers

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Lead Users
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• Since many industrial markets consist of a small
  number of high volume firms, special attention
  must be given to the needs of lead users.
• Lead Users are small, highly influential buying
  organizations that consistently adopt new
  technologies earlier than most users.
• Example If an auto manufacturer wanted a new
  breaking system, they might ask a racing team to
  help them develop the product.

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Lead User Projects
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• Lead user projects are conducted by a
  cross-functional team that includes four to six
  managers from marketing and technical
  departments.
• One member serves as the project leader.
• Team members typically spend 12 to 15 hours per
  week on projects.

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Lead User Method
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Staying Ahead of Customers
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• Visit with the customer
• Cross-functional teams actually go out, watch and
  ask buying influentials what they are doing so as
  to uncover
• User problems
• Needs
• Desires
• Instead of asking customers
• What do you want? they ask
• Where do you want to go?

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Staying Ahead of Customers
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• Since a marketer job is to know their customers
  situation better than they know it themselves,
  progressive companies figure out where customers
  might (should) want to go (what are the
  possibilities) and develop products accordingly.
• Recognizing the customers ability to innovate,
  many companies have developed tool kits and have
  invited customers to design their own customized
  products.

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Determinants of Success
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• For a successful product development strategy to
  occur, a company has to employ proper strategic
  factors and be proficient at executing them.
• The 4 strategic factors are

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Four Strategic Factorsfor New Product Success
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Product advantage refers to customers
perceptions of product superiority with respect
to quality, cost-performance ratio, or function
relative to competitors products.
Marketing synergy represents the degree of fit
between project needs and the firms resources
and marketing skills.
International orientation New products designed
and developed to meet foreign requirements and
targeted at world or nearest-neighbor export
markets.
Technical synergy comes from the fit between
project needs and the firms RD resources and
competencies.
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Proficiencies
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• In addition to a successful strategy, various
  proficiencies are important. They include
• Pre-Development
• Market Knowledge
• Technical Knowledge

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Pre-Development Proficiency
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• Pre-development proficiency involves several
  tasks
• Initial screening
• Preliminary market technical assessment
• Detailed market research study
• Preliminary business/financial analysis

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Marketing Proficiency
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• Involves understanding about
• What does the customer need, want and prefer?
• What is customers buying behavior?
• What is customers sensitivity to price?
• What is the size of the market?
• What are the trends?
• Who and what is the competition?
• Know how to launch a well planned and targeted
  campaign backed with appropriate resources.

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Technical Proficiency
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• Involves having the technical experience to bring
  a product from idea to reality by bringing the
  product through the various technical stages such
  as
• Product development
• Prototype testing
• Pilot production
• Production start-up
• Full production (including quality control)

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Fast-Paced Development
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Developing products quickly contributes
advantageously to product development success.
Successful companies match the approach to the
developmental task at hand. Successful strategies
include

• Compression Strategy
• This strategy views development as a predictable
  number of steps (approach) that can be compressed
  (task).

• Experiential Strategy
• This strategy acknowledges that developing a new
  product is foggy at best. Therefore, use
  intuition, learn quickly, and be flexible to
  shift depending upon the environment.