Chapter 8:
Managing Innovation
and New Industrial
Product Development
PowerPoint by:
Ray A. DeCormier, Ph.D.
Central Connecticut State University
I. Strategic processes through which
product innovations take shape
II. Characteristics of innovation
winners in high-technology markets
III. Factors that drive a firm’s new
product performance
IV. Determinants of new product
success and timeliness
 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
Risk, Reward & Failure
 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.
JAMES QUINN ASSERTS:

Innovation tends to be:
Individually motivated
b. Opportunistic
c. Customer Responsive
d. Non-linear
e. Interactive
a.

Clearly though, some new-product-development
is an outgrowth of deliberate strategies.
Innovations Start Out Chaotic
• 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
Induced Strategic Behavior
 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.


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 they’d like to create.
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.
Product Champion

1.
2.
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:
a.
b.
3.
Technical feasibility
Financial opportunity
Is willing to take on risk (reputation) to bring the
project to light
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:
1.
2.
3.
4.
5.


Intrinsic motivation
Work design: availability of challenging projects
Activation of the Strategic Decision Process
a. Induced: Manager defines the market that is in line
with the organization’s strategy
b. Autonomous: Managers define a market that
diverges from the organization’s strategy

Nature of Screening Process
a. Induced: Formal screening
b. Autonomous: Informal network that assesses new
ideas

Type of Innovation
a. Induced: Incremental to present products
b. Autonomous: Major – whole new product lines

Nature of Communication
a. Induced: Consistent with organizational work flow
b. Autonomous: Departs from work flow in early stages
of the decision process

Major Actors
a. Induced: Formal as prescribed by the organization
b. Autonomous: Informal network and furthered by a
so-called “Champion”

Decision Roles
a. Induced: Roles and responsibilities are well defined
b. Autonomous: Roles and responsibilities are loosely
defined in early stages but become more defined as
the project progresses


Implications for Strategy:
a. Induced: Strategic alternatives are considered
and a commitment to a particular strategy
evolves
b. Autonomous: Commitment to a particular
strategy emerges during the early stages as
the project progresses through sponsorship of
the “Product “Champion”
Induced vs. Autonomous Strategic Behavior:
Selected Characteristics of Marketing Strategy Formulation Process
Table 12.1
Developed by Cool Pictures and MultiMedia Presentations
7th ed
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.”

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

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.

Let’s start by classifying development projects!
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 development—more like “pure” science.
• 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.
Disruptive Innovation



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.
Performance
The Disruptive Innovation Model
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 Innovator’s Solution: Creating and
Sustaining Successful Growth (Boston: Harvard Business School Press, 2003), p. 33.
Disruptive vs. Sustaining Innovation
 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.
Low End Disruptive Situation

Low End Disruption: There is a market who
wants the new technology but not as much as is
available.
Low End Strategy Test:
a. There needs to be an adequate number of
customers who want a low version of the
technology (product).
b. The company must be able to create a business
model and discounted product to meet that
need
profitably.
25

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 (nonconsumption).

a.
b.
New-market strategy test:
A large number of customers are unable
to financially procure the product.
It is inconvenient for present customers
to use.
Salesforce.com
 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 customer’s 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


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.
Table 8.2
Three Approaches to Creating New-Growth Businesses
Dimensions
Sustaining
Innovations
Low-End
Disruptions
New-Market
Disruptions
Targeted performance of product
or service
Performance improvement
in attributes most valued by
industry’s most
demanding customers.
Performance good
enough along traditional
metrics of performance
at low end of
mainstream market.
Lower performance in
“traditional” attributes,
but improved performance
in new attributes—typically
simplicity and convenience.
The most attractive (i.e.,
profitable) customers in
mainstream markets who
will pay for improved
performance.
Over-served customers in
low end of mainstream
market.
Targets non-consumption:
customers who historically
lacked money or skill
to buy and use product.
Improves or maintains
profit margins by
exploiting existing processes
and cost structure and
making better use of
current competitive
advantages.
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.
These improvements may
be incremental or breakthrough.
Targeted customers
or market
application
Effect on required
business model
(processes and
cost structure)
29
Source: Clayton M. Christensen and Michael E. Raynor, The Innovator’s Solution: Creating and Sustaining Successful Growth (Boston:
Harvard Business School Press, 2003), p. 51.
How High-Tech Innovators Win
 To win in the high tech game, which experiences:
1. Stiff competition
2. Short life-cycled products
3. High velocity industry
 A high tech firm needs to:
1. Stay aligned with the market
2. Must continually innovate
3. Be responsive (on schedule, on time & on target’s
needs)
4. Anticipate customer needs
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.
Patching - A New Strategy in Dynamic Markets


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.

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.

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!
Critical success factors that drive a firm’s new
product performance are:
1. Quality of the new product development
process
2. Resource commitments to new product
development
3. New product strategy
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.
New Product Development Process
Successful companies that employ a high-quality new
product development process give careful attention to
execution of activities and decision points. Benchmarking
characteristics include:
• Firm’s 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.
Resource Commitments
Three main ingredients:
1. Top management commits resources
necessary to meet firm’s objectives for total
product effort.
2. R&D 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.
Anticipating Competitive Reaction
New products trigger reactions from competitors
when the:
a. New product threatens their market
b. Product is in a rapid growth market
c. Selling firm communicates the new product too
strongly
To quell competitive reaction to some degree,
companies:
1. Put into action a strong “competitor
orientation” before and during implementation
2. Promote to niche markets instead of the whole
market
Sources of New Product Ideas
 Internally from:

1. Salespeople
1.
2. Employees
3. R&D
4. Marketing Research
5. Serendipity
Externally from:
Channel Members
2. Competitive Moves
3. Industrial Customers
4. Ultimate Consumers

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.

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.

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
A. “What
do you want?” they ask
B. “Where do you want to go?”
A. 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.
B. Recognizing the customer’s ability to
innovate, many companies have developed
tool kits and have invited customers to
design their own customized products.
Determinants of Success

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…
Product advantage refers to
customers’ perceptions of
product superiority with respect
to quality, cost-performance
ratio, or function relative to
competitors’ products.
Technical synergy comes from
the fit between project needs
and the firm’s R&D resources
and competencies.
Marketing synergy
represents the degree of fit
between project needs and the
firm’s resources and marketing
skills.
International orientation:
New products designed and
developed to meet foreign
requirements and targeted at
world or nearest-neighbor
export markets.
Proficiencies
In addition to a successful strategy, various
proficiencies are important. They include:
1.
2.
3.
Pre-Development
Market Knowledge
Technical Knowledge
Pre-development proficiency involves several
tasks:
A.
B.
C.
D.
Initial screening
Preliminary market & technical assessment
Detailed market research study
Preliminary business/financial analysis
Marketing Proficiency
 Involves understanding about:
1. What does the customer need, want and prefer?
2. What is customer’s buying behavior?
3. What is customer’s sensitivity to price?
4. What is the size of the market?
5. What are the trends?
6. Who and what is the competition?
7. Know how to launch a well planned and targeted
campaign backed with appropriate resources.
Involves having the technical experience to
bring a product from idea to reality by bringing
the product through the various technical
stages such as:
a. Product development
b. Prototype testing
c. Pilot production
d. Production start-up
e. Full production (including quality control)
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.