Chapter Ten Managing Innovation and New Industrial Product Development

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Patterns of Strategic Behavior

Induced Vs. Autonomous Strategic Behavior: Selected Characteristics of Marketing Strategy Formulation Process Some new products follow planned, deliberate processes, while circuitous and chaotic processes typifies others. Why? Research suggests that strategic activity within larger organizations falls into two broad categories: induced and autonomous strategic behavior.
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Table 12.1

7th ed

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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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Four Types: Development Projects

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
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. 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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The Disruptive Innovation Model

Performance

Performance That Customers Can Utilize or Absorb

Range of Performance That Customers Can Utilize

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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Three Approaches to Creating New-Growth Businesses

Dimensions Targeted performance of product or service Sustaining Innovations Performance improvement in attributes most valued by industrys most demanding customers. These improvements may be incremental or breakthrough. Targeted customers or market application The most attractive (i.e., profitable) customers in mainstream markets who will pay for improved performance. Improves or maintains profit margins by exploiting existing processes and cost structure and making better use of current competitive advantages. Overserved customers in low end of mainstream market. Targets nonconsumption: customers who historically lacked money or skill to buy and use product. Low-End Disruptions Performance good enough along traditional metrics of performance at low end of mainstream market. New-Market Disruptions Lower performance in traditional attributes, but improved performance in new attributestypically simplicity and convenience.

Effect on required business model (processes and cost structure)

Uses 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.

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.

Source: Clayton M. Christensen and Michael E. Raynor, The Innovators Solution: Creating and Sustaining Successful Growth (Boston: Harvard Business School Press, 2003), p. 51. 7
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Innovation Winners: High-Technology Characteristics

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 portfolios creators did not invest in any one version of future but instead used variety of low-cost probes to create options for 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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Although definitions of failure somewhat elusive, research suggests that 40 percent of industrial products fail to meet objectives.

Major Drivers of Firms New Product Performance

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New Product Development Process

Successful companies employ high-quality new product development processgive careful attention to execution of activities and decision points. Benchmarking characteristics: Firms emphasize upfront market and technical assessments. Processes feature complete descriptions of product concepts, product benefits, positioning, and target markets. Process include tough project go/kill decision points and kill option was actually used. New product process are flexible.

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Resource Commitments
Three main ingredients: 1. Top management committed resources necessary to meet firms objectives for total product effort in firm. 2. R&D budgets were adequate and aligned with stated new product objectives. 3. Necessary personnel were relieved from other duties and assigned specifically to new product effort.

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New Product Strategy

Set aggressive new product performance goal as basic corporate goal and communicate to all employees.

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Lead user projects are conducted by cross-functional teams that include four to six managers from marketing and technical departments; one member serves as project leader. Team members typically spend 12 to 15 hours per week on projects.

Lead User Method

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Quality Function Deployment

Quality function deployment, or QFD, is a method used to identify critical customer attributes and to establish a specific link between customer attributes and product design attributes.

First QFD task: identify customer needs. QFD strength: comes from translating customer needs into product design attributes. QFD provides important framework for bringing critical information on customer needs together with appropriate engineering data.

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Product advantage refers to customer perceptions of product superiority with respect to quality, costperformance ratio, or function relative to competitors products.

Marketing synergy represents the degree of fit between project needs and the firms resources and marketing skills.

Four Strategic Factors For New Product Success

Technical synergy comes from the fit between project needs and the firms R&D resources and competencies.
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International orientation-new products designed and developed to meet foreign requirements, and targeted at world or nearest-neighbor export markets.
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