Notes on Strategic Management of Technological Innovation

I had a feeling that my fellow New York University Alumnus Mellissa A. Schilling would produce a worthy written work explaining the technical language used within the Innovation and Technology Management field, a discipline I’m now studying at Universidad Pontificia Bolivariana in Medellin, Colombia.

The case studies included covers a wide variety of topics. Innovation and strategy in high technology industries such as smartphones, videogames, pharmaceuticals, biotechnology, electric vehicles, and renewable energies. All interspersed with comments on issues related to platform dynamics, networks, creativity, and breakthrough innovation.

I made the below notes for myself, and highly encourage those also in this field to also purchase her book.

absorptive capacity
The ability of an organization to recognize, assim- ilate, and utilize new knowledge. 

whereby as firms accumulate knowledge, they also increase their future ability to assimi- late information. A firm’s prior related experience shapes its ability to recognize the value of new information, and to utilize that information effectively. 

This knowledge base enables the firm to more rapidly assess the value of related new materials, technologies, and methods. The effects of absorptive capacity suggest that firms that develop new technologies ahead of others may have an advantage in staying ahead. 

network externalities Also termed posi- tive consumption externalities, this is when the value of a good to a user increases with the number of other users of the same or simi- lar good. 

installed base The number of users of a particular good. For instance, the installed base of a particular video game console refers to the number of those consoles that are installed in homes worldwide. 

complementary goods Additional goods and services that enable or enhance the value of another good. For example, the value of a video game console is directly related to the availability of complementary goods such as video games, periph- eral devices, and services such as online gaming. 

path dependency When end results depend greatly on the events that took place leading up to the outcome. It is often impossible to reproduce the results that occur in such a situation. 

Firms will tend to use and build on their existing knowledge base rather than enter unfamiliar areas.

This can result in a very “sticky” technological paradigm that directs future technological inquiry in the area.

Thus, a dominant design is likely to influence the nature of the technological discontinuity that will eventually replace it. 

Increasing returns
When the rate of return (not just gross returns) from a product or process increases with the size of its installed base. 

Technologically superior products do not always win—the firms that win are usually the ones that know how to manage the multiple dimensions of value that shape design selection. 

Buyer Utility Map

It is important to consider six different utility levers, as well as six stages of the buyer experience cycle, to understand a new technol- ogy’s utility to a buyer. 

The stages they identify are purchase, delivery, use, supplements, maintenance, and disposal. The six utility levers they consider are customer productivity, simplicity, convenience, risk, fun and image, and environmental friendliness. Creating a grid with stages and levers yields a 36-cell utility map. Each cell provides an opportunity to offer a new value proposition to a customer. 

For example, instead of having a single entry for customer productivity, the map could have rows for several dimensions of productiv- ity such as speed, efficiency, scalability, and reliability. The map provides a guide for managers to consider multiple dimensions of technological value and multiple stages of the customer experience. 

Even if a new innovation has a significant advantage in functionality, its overall value may be significantly less than the incum- bent standard. 

For the new technology to compete on its stand-alone util- ity alone, that utility must be so great that it eclipses the combined value of an existing technology’s stand-alone utility, its installed base, and its complementary goods. 

When users are comparing the value of a new technology to an existing technology, they are weighing a combination of objective information (e.g., actual technological benefits, actual information on installed base or complementary goods), subjec- tive information (e.g., perceived technological benefits, perceived installed base or complementary goods), and expectations for the future (e.g., anticipated technological benefits, anticipated installed base and complementary goods). Thus, each of the primary value components described above also has corresponding perceived or anticipated value components 

“vaporware”—products that are not actually on the market and may not even exist but are advertised—by many software vendors. By building the impression among customers that a product is ubiquitous, firms can prompt rapid adoption of the product when it actually is available. Vaporware may also buy a firm valuable time in bringing its product to market. If other vendors beat the firm to market and the firm fears that customers may select a dominant design before its offering is introduced, it can use vaporware to attempt to persuade custom- ers to delay purchase until the firm’s product is available. 

first movers the first entrants to sell in a new product or ser- vice category. 

early followers Entrants that are early to market, but not first. 

late entrants Entrants that do not enter the market until the time the product begins to penetrate the mass market or later. 

in an industry characterized by increasing returns to adoption, there can be powerful advantages to being an early provider; a technol- ogy that is adopted early may rise in market power through self-reinforcing positive feedback mechanisms, culminating in its entrenchment as a dominant design. 

First movers typically bear the bulk of the research and development expenses for their product or service technologies, and they must also often pay to develop suppliers and distribution channels, plus consumer awareness. 

incumbent inertia – The tendency for incumbents to be slow to respond to changes in the industry environ- ment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers. 

enabling technologies Component technologies that are necessary for the performance or desirability of a given innovation. 

How does a firm decide whether to attempt to pioneer a technology category or to wait while others do so? The answer will depend on several factors, including customer certainty, the margin of improvement offered by the new technology, the state of enabling technologies and complementary goods, the threat of competitive entry, the degree to which the industry exhibits increasing returns, and the firm’s resources. 

parallel development process When multiple stages of the new product  development process occur simultaneously. 

oligopolistic industries Highly consoli- dated industries with a few large competitors. 

exit barriers Costs or other commitments that make it difficult for firms to abandon an industry (large fixed-asset investments, emotional commitment to the industry, etc.). 

entry barriers Conditions that make it difficult or expensive for new firms to enter an industry (government regulation, large start-up costs, etc.). 

switching costs Factors that make it difficult or expensive to change suppliers or buyers, such as investments in specialized assets to work with a particular supplier or buyer. 

vertical integration Getting into
the business of one’s suppliers (backward vertical integration) or one’s buyers (forward vertical integration). For example, a firm that begins producing its own supplies has practiced backward vertical integration, and a firm that buys its distributor has practiced forward vertical integration. 

complements  Products or services that enhance the usefulness
or desirability of another product. 

stakeholder Any entity that has an interest (“stake”) in the organization. 

A strategic stakeholder analysis emphasizes the stakeholder management issues that are likely to impact the firm’s financial performance, while a normative stakeholder analysis emphasizes the stakeholder management issues the firm ought to attend to due to their ethical or moral implications. 

In Michael Porter’s model of a value chain, activities are divided into primary activities and support activities. Primary activities include inbound logistics (all activities required to receive, store, and disseminate inputs), operations (activities involved in the transformation of inputs into outputs), outbound logistics (activities required to collect, store, and distribute outputs), marketing and sales (activities to inform buyers about products and services and to induce their purchase), and service (after-sales activities required to keep the product or service working effectively). Support activities include procurement (the acquisition of inputs, but not their physical transfer, as that would be covered in inbound logistics), human resource management (activities such as recruiting, hiring, training, and compensating personnel), technology development (activities involved in developing and managing equipment, hardware, software, procedures, and knowledge necessary to transform inputs into outputs), and infrastructure (functions such as accounting, le- gal counsel, finance, planning, public affairs, government relations, quality assurance, and general management necessary to ensure smooth functioning of the firm). 

tacit resources – Resources of an intangible nature (such as knowl- edge) that cannot be readily codified. 

socially complex resources Resources or activities that emerge through the interaction of multiple individuals. 

causal ambiguity The relationship between a resource and the outcome it produces is poorly understood
(the causal mechanism is ambiguous). 

core competencies (or core capabilities) A set of integrated and harmonized abilities that distinguish the firm in the marketplace. 

By viewing the business as a portfolio of core competencies, managers are better able to focus on value creation and meaningful new business development, rather than cost cutting or opportunistic expansion. 

Sometimes the very things that a firm excels at can enslave it, making the firm rigid and overly committed to inappropriate skills and resources. 

While these systems and norms can prove beneficial in reinforcing and leveraging the firm’s existing core competencies, they can also inhibit the development of new core competencies. For example, a firm’s emphasis on a scientific discipline that is central to its core competency can make the firm less attractive to individuals from other disciplines. Rewards for engaging in core competency activities can discourage employees from pursuing more exploratory activities. 

dynamic capabilities A set of abilities that make a firm more agile and responsive to change. 

Strategic intent is to create value, which entails more than just improving operations or cutting costs; it means leveraging corporate resources to create more performance for customers, more well-being for employees, and more returns for shareholders. A company’s strategic intent is a long-term goal that is ambitious, builds upon and stretches the firm’s existing core competencies, and draws from all levels of the orga- nization. 

Successful and innovative firms question existing price-performance assumptions. They lead customers by developing and introducing products that extend well beyond current market requirements and help mold the market’s expectations for the future. 

The balanced scorecard is a measurement system that encourages the firm to consider its goals from multiple perspectives (financial, customer, business process, and innovation and learning), and establish measures that correspond to each of those perspectives. 

The Pareto principle refers to the fact that many events (such as a customer choosing a particular book) have a power law distribution, meaning that 20 percent of the books, shows, or songs attract 80 percent of the business. 

capital rationing – the allocation of a finite quantity of resources over different possible uses. 

R&D intensity – The ratio of R&D expendi- tures to sales. 

net present value (NPV) The discounted cash inflows of a project minus the discounted cash outflows. 

internal rate of return (IRR) The rate of return yielded by a project, nor- mally calculated as the discount rate that makes the net present value of an investment equal zero. 

discounted payback period
The time required to break even on a project using discounted cash flows. 

The internal rate of return of a project is the discount rate that makes the net present value of the investment zero. Managers can compare this rate of return to their required return to decide if the investment should be made. 

discounted cash flow estimates are only as accurate as the original estimates of the profits from the technology, and in many situations it is extremely difficult to antici- pate the returns of the technology… such methods discriminate heavily against projects that are long term or risky, and the methods may fail to capture the strategic importance of the investment decision. Technology development projects play a crucial role in building and leveraging firm capabilities, and creating options for the future. Investments in new core technologies are investments in the organization’s capabilities and learning, and they create opportunities for the firm that might other- wise be unavailable.1 Thus, standard discounted cash flow analysis has the potential to severely undervalue a development project’s contribution to the firm. 

To better incorporate strategic implications in the new product development investment decision, some managers and scholars have recently begun promoting the idea of treating new product development decisions as real options 

real options 

The applica- tion of stock option valua- tion methods to investments in nonfinancial assets. 

• The cost of the R&D program can be considered the price of a call option. 
• The cost of future investment required to capitalize on the R&D program (such as the cost of commercializing a new technology that is developed) can be considered the exercise price. 
• The returns to the R&D investment are analogous to the value of a stock purchased with a call option.

Companies that use the project map categorize all their existing projects and proj- ects under consideration by the resources they require (e.g., engineers, time, capital, etc.) and by how they contribute to the company’s product line. The company can then map the project types and identify gaps in the development strategy. 

The mix of projects represented on such a map should be consistent both with the company’s resources, strategic position, and with its strategic intent 

As once noted by Jack Welch, for- mer CEO of General Electric, “You can’t grow long term if you can’t eat short term. Anyone can manage short. Anyone can manage long. Balancing those two things is what management is.”19 

conjoint analysis
A family of tech- niques that ena- bles assessment of the weight individuals put on different attributes of a choice. 

data envelopment analysis (DEA)
A method of ranking projects based on multiple decision criteria by comparing them to a hypo- thetical efficiency frontier. 

efficiency frontier The range of hypothetical configurations that optimize a combination of features. 

alliance Alliance is a general term that can refer to any type of relation- ship between firms. Alliances may be short or long term and may include for- mally contracted agreements or be entirely informal in nature. 

joint venture A partnership between two or more firms involving a sig- nificant equity stake by the part- ners and often resulting in the creation of a new business entity. 

Collaboration can include partnering with suppliers, customers, competitors, comple- mentors, organizations that offer similar products in different markets, organizations that offer different products in similar markets, nonprofit organizations, government organi- zations, universities, or others. Collaboration can also be used for many different pur- poses, including manufacturing, services, marketing, or technology-based objectives. 

The most common forms of collaborative arrangements used in technological innova- tion include strategic alliances, joint ventures, licensing, outsourcing, and collective research organizations. 

licensing A contractual arrangement whereby one organization or individual (the licensee) obtains the rights to use the proprietary technology (or trademark, or copyright, etc.) of another organization or individual (the licensor). 

capability complemen- tation Combining (“pooling”) the capabilities and other resources of partner firms, but not necessar- ily transferring those resources between the partners. 

capability transfer Exchange of capabilities across firms in such a manner that partners can internalize the capabilities and use them inde- pendently of the particular devel- opment project. 

managers should consider how their portfolio of alliances positions them in the web of relationships that connects their firm, their partners, and their partners’ partners.23 Such networks can be very influential in the diffusion of information and other resources, and being positioned well in an alli- ance network can confer significant advantages 

contract manufacturing When a firm hires another firm (often a specialized manufacturer) to manufacture its products. 

These risks can be minimized if the company limits the number of collaborations in which it engages, chooses its partners very carefully, and establishes appropriate monitoring and governance mechanisms to limit opportunism. 

Resource fit refers to the degree to which potential partners have resources that can be effectively integrated into a strategy that creates value.47 Such resources may be either complementary or supplementary. Most collaborations are motivated by the need to access resources the firm does not possess; such collaborations are based on the combination of complementary resources. 

Strategic fit refers to the degree to which partners have compatible objectives and styles. The objectives of the partners need not be the same as long as the objectives can be achieved without harming the alliance or the partners. Not knowing a partner’s true objectives or forging an alliance with a partner with incompatible objectives can result in conflict, wasted resources, and forfeited opportunities. 

governance – The act or process of exerting authority and/or control. 

alliance contracts Legally bind-ing contractual arrangements to ensure that partners (a) are fully aware of their rights and obligations in the collaboration and (b) have legal remedies avail- able if a partner should violate the agreement. 

equity ownership When each partner contrib- utes capital and owns a speci- fied right to a percentage of the proceeds from the alliance. 

relational governance Self-enforcing norms based on goodwill, trust, and reputation of the partners. These typically emerge over time through repeated experi- ences of working together. 

The num- ber of links an organization has in a network is known as its “degree centrality.” In general, the degree centrality of an organization tends to be strongly related to its size and prominence. The size and prominence of an organization help to determine how attractive it is to potential part- ners, and only large organizations typically have the resources necessary to manage a large num- ber of alliances. An organization does not, how- ever, have to be large or prominent to occupy a key brokerage position. 

appropriability The degree to which a firm is able to capture the rents from its innovation. 

tacit knowledge Knowledge that cannot be readily codified or trans- ferred in written form. 

socially complex knowledge Knowledge that arises from the interaction of multiple individuals. 

For some competitive situations, protecting a technology may not be as desirable as liberally diffusing it. In industries characterized by increasing returns, firms sometimes choose to liberally diffuse their technologies to increase their likelihood of rising to the position of dominant design.

open source software Software whose code is made freely available to others for use, augmentation, and resale. 

wholly proprietary systems Goods based on technology that is owned and vigorously pro- tected through patents, copy- rights, secrecy, or other mecha- nisms. Wholly proprietary tech- nologies may be legally produced and augmented only by their developers. 

wholly open systems Goods based on technology that is not protected and that is freely available for production or augmentation by other producers. 

original equipment manufacturers (OEMs) Firms that as- semble goods using components made by other manufacturers, also called value- added resellers (VARs). 

architectural control
The ability of a firm (or group of firms) to deter- mine the struc- ture, operation, compatibility, and development of a technology. 

If the firm is unable to produce the technology at sufficient volume or quality levels (or market the technology with sufficient intensity), then protecting the technology so that the firm is its sole provider may significantly hinder its adoption. 

if complementary goods influence the value of the technology to users, then the firm must (a) be able to produce the complements in sufficient range and quantity, (b) sponsor their production by other firms, or (c) encourage collective production of the complements through a more open technology strategy. 

If a firm lacks the production capability or expertise to produce a sufficient range of complementary goods, or the capital to acquire such capabilities quickly, it should encourage collective production of complements through a more open technology strategy and utilize forms of sponsorship. 

Resources for Internal Development 

If a firm does not have significant resources (capital, technological expertise) to invest in the technology’s functionality, it may have difficulty producing a technology that has an initial performance level, and rate of improvement, that the market finds attractive. In such instances, it can be valuable to tap the external development efforts of other firms (or individuals) through utilizing a more open technology strategy. 

A firm with architectural control can typically design the technology to be compatible with its own complements and incompatible with those of competitors. 

Technology trajectories are path dependent; minor events in their evolution can set them careen- ing off into unexpected directions. A firm that has a significant stake in a particular evolution path (because, for example, it has technological competencies that are much more amenable to one path of evolution than other potential paths) may place a high value on architectural control, which can enable it to co-opt or destroy less favorable development paths by denying their progenitors access to the market. 

Managers referred to Google as a flex- ible and flat “technocracy,” where resources and control were allocated based on the quality of people’s ideas rather than seniority or hierarchical status. Schmidt remarked, “One of the things that we’ve tried very hard to avoid at Google is the sort of divisional structure that prevents collaboration across units. It’s dif- ficult. So I understand why people want to build business units, and have their presidents. But by doing that you cut down the informal ties that, in an open culture, drive so much collaboration. If people in the organization understand the values of the company, they should be able to self-organize to work on the most interesting problems.”c 

it is often argued that small, flexible organizations with a minimum of rules and procedures will encourage creativity and experimentation, leading to more innovative ideas. At the same time, it is also frequently pointed out that well-developed procedures and standards can ensure that the organization makes better development investment decisions and is able to implement projects quickly and efficiently. 

disaggregated When something is separated into its constituent parts. 

formalization – The degree to which the firm utilizes rules, procedures, and written documentation to structure the behavior of individuals or groups within the organization. Formalization can substitute for some degree of managerial oversight, and thereby help large companies run smoothly with fewer managers. 

standardization – The degree to which activities are performed in a uniform manner. Standardization may be used to ensure quality levels are met and that custom- ers and suppliers are responded to consistently and equitably. However, by minimiz- ing variation, standardization can limit the creativity and experimentation that leads to innovative ideas. 

If a firm codifies all of its activities with detailed procedures, it may stifle employee creativity. Employees may not feel empowered or motivated to implement new solutions. 

centralization/ decentraliza- tion Centralization is the degree to which decision- making author- ity is kept at
top levels of management. Decentralization is the degree to which decision- making authority is pushed down to lower levels of the firm. 

mechanistic  An organiza- tion structure characterized by a high degree of formalization and standardiza- tion, causing operations to be almost automatic or mechanical. By establishing detailed rules, procedures, and standards, top management can push decision-making authority to lower levels of the firm while still ensuring that decisions are consistent with top management’s objectives. 

organic An organiza- tion structure characterized by a low degree of formalization and standardiza- tion. Employees may not have well-defined job responsibilities and operations may be charac- terized by a high degree of vari- ation. Employees are given far more lati- tude in their job responsibilities and operating procedures. Because much innovation arises from experimentation and improvisation, organic structures are often thought to be better for innovation despite their possible detriment to efficiency. 

ambidextrous organization The ability of an organization to behave almost as two different kinds of com- panies at once. Different divi- sions of the firm may have differ- ent structures and control systems, enabling them to have different cul- tures and patterns of operations. 

Skunk Works® 

Skunk Works® is a term that origi- nated with a divi- sion of Lockheed Martin that was formed in June of 1943 to quickly develop a jet fighter for the United States Army. It has evolved as skunk works to refer more generally to new product develop- ment teams that operate nearly autonomously from the parent organization, with considerable decentralization of authority and little bureauc- racy. 

there can be significant gains from isolating new product development teams from the mainstream organization.31 Separating the teams from the rest of the organization permits them to explore new alternatives, unfettered by the demands of the rest of the organization. 

Modularity is achieved in product design through the specification of standard inter- faces. 

Because modularity enables a wider range of end configurations to be achieved from a given set of inputs, it provides a relatively cost-effective way for firms to meet heterogeneous customer demands. Furthermore, since modularity can enable one component to be upgraded without changing other components, modular- ity can enable firms and customers to upgrade their products without replacing their entire system. 

By focusing on those activities in which the firm has a competitive advantage, the firm can improve its chance of developing a product that has a price-to-value ratio that attracts customers while reducing the overhead and administrative complexity of maintaining a wide scope of activities. This can cause whole industries to be trans- formed as large vertically integrated firms are displaced by nimbler, more specialized producers. 

center-for- global strategy
When all innova- tion activities are conducted at a central hub and innovations are then diffused throughout the company. This allows managers to:

• Tightly coordinate all R&D activities (across both functions and projects). 
• Achieve greater specialization and economies of scale in R&D activities while
  avoiding duplication of activities in multiple divisions. 
• Develop and protect core competencies. 
• Ensure that innovations are standardized and implemented throughout the company. 

• a center-for-global approach tends to not be very responsive to the diverse demands of different markets. Furthermore, the divisions that serve these markets might resist adopting or promoting centrally developed innovations. As a result, inno- vations developed centrally may not closely fit the needs of foreign markets and may also not be deployed quickly or effectively.
• local-for-local strategy When each divi- sion or subsidi- ary of the firm conducts its own R&D activities, tailored for the needs of the local market. 

There are several downsides to the local-for-local strategy, however. It can result in significant redundancy in activities as each division reinvents the wheel. Furthermore, each division may suffer from a lack of scale in R&D activities, and there is a risk that valuable innovations will not be diffused across the firm.

locally leveraged strategy
When each division or sub- sidiary of the firm conducts its own R&D activities, but the firm attempts to leverage result- ing innovations throughout the company. 

One way this strategy is employed in consumer markets is to assign an individual the role of international brand custodian. This person is responsible for ensuring that a successful brand is deployed into the firm’s multiple markets while also maintaining consistency in the product’s image and positioning.52 Such a strategy can be very effective if different markets the company serves have similar needs. 

globally linked strategy Innovation activities are decentralized, but also centrally coordinated for the global needs of the corporation. 

Bartlett and Ghoshal argue that, overall, the multinational firm’s objective is to make centralized innovation activities more effective (that is, better able to serve the various local markets) while making decentralized innovation activities more efficient (that is, eliminating redundancies and exploiting synergies across divisions). Bartlett and Ghoshal propose that firms should take a transnational approach wherein resources and capabilities that exist anywhere within the firm can be leveraged and deployed to exploit any opportunity that arises in any geographic market. They argue that this can be achieved by: 

• Encouraging reciprocal interdependence among the divisions of the firm (that is, each division must recognize its dependency on the other divisions of the firm).
• Utilizing integration mechanisms across the divisions, such as division-spanning
  teams, rotating personnel across divisions, and so on.
• Balancing the organization’s identity between its national brands and its global image. 

• member rotation programs facilitate the diffusion of knowledge throughout the firm.
• We will begin by looking at the three key objectives of the new product develop- ment process: maximizing fit with customer requirements, minimizing cycle time, and controlling development costs. We then will turn to methods of achieving these objectives, including adopting parallel development processes, using project champi- ons, and involving customers and suppliers in the development process. Next we will look at a number of tools firms can utilize to improve the effectiveness and efficiency of the development process, including creating go/kill decision points with stage- gate processes, defining design targets with quality function deployment, reducing costs and development time with design for manufacturing and CAD/CAM systems, and using metrics to assess the performance of the new product development process. 

For new product development to be successful, it must simultaneously achieve three sometimes-conflicting goals: (1) maximizing the product’s fit with customer requirements, (2) minimizing the development cycle time, and (3) controlling development costs. 

For a new product to be successful in the marketplace, it must offer more compelling features, greater quality, or more attractive pricing than competing products. Despite the obvious importance of this imperative, many new product development projects fail to achieve it. The firm may not have a clear sense of which features customers value the most, resulting in the firm’s overinvesting in some features at the expense of features the customer values more. Firms may also overestimate the customer’s willingness to pay for particular features, leading them to produce feature-packed products that are too expensive to gain significant market pen- etration. Firms may also have difficulty resolving heterogeneity in customer demands; if some customer groups desire different features from other groups, the firm may end up producing a product that makes compromises between these conflicting demands, and the resulting product may fail to be attractive to any of the customer groups. 

development cycle time
The time elapsed from project ini- tiation to product launch, usually measured in months or years. 

a company that is able to bring its product to market early has more time to develop (or encourage others to develop) complementary goods that enhance the value and attractiveness of the product. 

A firm with a short devel- opment cycle can take advantage of both first-mover and second-mover advantages. 

partly parallel development process
A development process in which some (or all) of the development activities at least partially overlap. That is, if activ- ity A would pre- cede activity B in a partly paral- lel development process, activity B might com- mence before activity A is completed. 

A sequential process has no early warning system to indicate that planned features are not manufacturable. Consequently, cycle time can lengthen as the project iterates back and forth between the product design and process design stages. 

Firms often make decisions about projects on the basis of financial considerations and level of production and technical synergy achieved by the new product proposal rather than on marketing criteria. This can lead to an overemphasis on incremental product updates that closely fit existing business activities.16 The screening decision should focus instead on the new product’s advantage and superiority to the consumer, and the growth of its target market. 

lead users  Customers who face the same general needs of the marketplace but are likely to experience them months or years earlier than the rest of the mar- ket and stand to benefit dispro- portionately from solutions to those needs. 

research has shown that many firms produce new products in less time, at a lower cost, and with higher quality by incorporating suppliers in inte- grated product development efforts.22 For example, consider Chrysler. Beginning in 1989, Chrysler reduced its supplier base from 2,500 to 1,140, offering the remaining suppliers long-term contracts and making them integrally involved in the process of designing new cars. Chrysler also introduced an initiative called SCORE (Supplier Cost Reduction Effort) that encouraged suppliers to make cost-saving suggestions in the development process. The net result was $2.5 billion in savings by 1998. 

crowdsourcing 

A distributed problem-solving model whereby a design problem or production task is presented to a group of people who voluntarily contribute their ideas and effort in exchange for compensation, intrinsic rewards, or a combination thereof. 

go/kill deci- sion points Gates established in the develop- ment process where managers must evaluate whether or not to kill the project or allow it to proceed. 

Each gate has three components: deliverables (these are the results of the previous stage and are the inputs for the gate review), criteria (these are the questions or metrics used to make the go/kill decision), and outputs (these are the results of the gate review process and may include a decision such as go, kill, hold, or recycle; outputs should also include an action plan for the dates and deliverables of the next gate). 

Some of the most prominent tools used to improve the development process include stage-gate processes, quality function deployment (“house of quality”), design for man- ufacturing, failure modes and effects analysis, and computer-aided design/computer- aided manufacturing. Using the available tools can greatly expedite the new product development process and maximize the product’s fit with customer requirements. 

Stage 1, the team does a quick investigation and conceptualization of the project. 

Stage 2, the team builds a business case that includes a defined product, its business justification, and a detailed plan of action for the next stages. 

Stage 3, the team begins the actual design and development of the product, including mapping out the manufactur- ing process, the market launch, and operating plans. In this stage, the team also defines the test plans utilized in the next stage. 

Stage 4, the team conducts the verification and validation process for the proposed new product, and its marketing and production. 

Stage 5, the product is ready for launch, and full commercial production and selling commence. 

At Microsoft, almost all projects receive either a post- mortem discussion or a written postmortem report to ensure that the company learns from each of its development experiences. These postmortems tend to be extremely candid and can be quite critical. As noted by one Microsoft manager, “The purpose of the document is to beat yourself up.” 

Measures of the success of the new product development process can help management to: 

• Identify which projects met their goals and why. 
• Benchmark the organization’s performance compared to that of competitors or to the organization’s own prior performance. 
• Improve resource allocation and employee compensation. 
• Refine future innovation strategies.

Multiple measures are important because any measure used singly may not give a fair representation of the effectiveness of the firm’s development process or its overall innovation performance. Also, the firm’s development strategy, industry, and other environmental circumstances must be considered when formulating measures and interpreting results.

social loafing When an individual in a team does not exert the expected amount of effort and relies instead on the work of other team members. 

cross- functional teams – Teams whose members are drawn from multiple func- tional areas in the firm such as R&D, marketing, manufacturing, distribution, and so on. 

Teams that are composed of people from diverse backgrounds have several advan- tages over teams that are drawn from only one or a few functional areas.9 A greater variety of specialists provides a broader knowledge base and increases the cross- fertilization of ideas. 

Functional experts often actively read journals and are involved in associations that directly affect their trade. These activities can lead to the creation and improvement of innovative ideas, as well as provide solutions to product develop- ment problems. 

homophily 

The tendency for individuals to like other people whom they perceive as being similar to themselves.

The most successful new prod- uct development teams have gatekeepers who provide important links to the environment. Ancona and Caldwell found that teams engaged in three primary types of boundary- spanning activity: 

 Ambassador activities—These activities were directed at representing the team to others and protecting the team from interference. For example, an ambassador might convince other individuals in the organization that the team’s activities are important. 

Task coordination activities—These activities emphasized coordinating and negotiating the team’s activities with other groups. For 

instance, task coordination activities might include negotiating delivery deadlines with other divisions of the firm or obtaining feed- back about the team’s performance.
Scouting activities—These activities were directed at scanning for ideas and information that might be useful to the team, enhancing its knowledge base. For example, scouting activities could include collecting data about what competitors were doing on similar projects or finding technical information that might be useful in the development project. 

Kichuk and Wiesner found that the personality characteristics that enhanced the success of a new product development team were high extroversion, high agreeableness, and low neuroticism.20 

Autonomous teams typically excel at rapid and efficient new product development, particularly when such development requires breaking away from the organization’s existing technologies and routines. Thus, autonomous teams are typically considered to be appropriate for break- through projects and some major platform projects. They can be the birthplace of new business units.25 However, the independence of the autonomous teams can cause them to underutilize the resources of the parent organization. 

In heavyweight and autonomous teams, the project manager must be someone who can lead and evalu- ate the team members, champion the development project both within the team and to the wider organization, and act as a translator between the various functions. 

The contract book provides a tool for monitoring and evaluating the team’s performance in meeting objectives by providing a set of performance benchmarks and deadlines to which the team’s performance can be compared. More important, however, the contract book is an important mechanism for estab- lishing team commitment to the project and a sense of ownership over the project. After negotiation and acceptance of this contract, all parties often sign the contract book as an indication of their intention to honor the plan and achieve the results. 

Gassman and von Zedtwitz studied 37 technology-intensive multinationals and identi- fied four patterns of teams: (1) decentralized self-coordination, (2) system integrator as coor- dinator, (3) core team as system architect, and (4) centralized venture team. 

The value of any technological innovation is only partly determined by what the tech- nology can do. A large part of the value of an innovation is determined by the degree to which people can understand it, access it, and integrate it within their lives. Deploy- ment is not just a way for the firm to earn revenues from its innovations; deployment is a core part of the innovation process itself. 

Generally, firms try to decrease their development cycles in order to decrease their costs and to increase their timing of entry options, but this does not imply that firms should always be racing to launch their products as early as possible. A firm can stra- tegically use launch timing to take advantage of business cycle or seasonal effects, to position its product with respect to previous generations of related technologies, and to ensure that production capacity and complementary goods or services are in place. 

cannibaliza- tion When a firm’s sales of one product (or at one location) diminish its sales of another of its products (or at another of its locations). 

If the firm invests in continuous innovation and willingly cannibalizes its existing products with more advanced products, the firm can make it very difficult for other firms to achieve a technological lead large enough to prove persuasive to customers. 

backward compatible When products of a technological generation can work with products of a previous generation. For example, a computer is backward compatible if it can run the same software as a previous generation of the computer. 

penetration pricing – When the price of a good is set very low (or free) to maxi- mize the good’s market share. 

When it is unclear how customers will respond to a particular price point, firms often use introductory pricing that indicates the pricing is for a stipulated time. This allows the company to test the market’s response to a product without committing to a long-term pricing structure. 

manufactur- ers’ repre- sentatives Independent agents that pro- mote and sell the product lines of one or a few man- ufacturers. They are often used when direct sell- ing is appropriate but the manu- facturer does not have a sufficiently large direct sales force to reach all appropriate mar- ket segments. 

wholesalers 

Companies that buy manufac- turer’s products in bulk, and
then resell them (often in smaller or more diverse bundles) to other supply channel members such as retailers. 

retailers 

Companies that sell goods to the public. 

original equipment manufac- turer (or value-added reseller) 

A company that buys products (or components of products) from other manufac- turers and assem- bles them or customizes them into a product that is then sold under the OEM’s own name. 

disintermedi- ation
When the number of inter- mediaries in a supply channel is reduced; for example, when manufacturers bypass whole- salers and/or retailers to sell directly to end users. 

How the product is sold may also affect the product’s positioning from the perspective of the customer. For example, if competing products are primarily sold in a high-contact mode such as specialty stores or via a direct sales force, selling the new product in a lower-contact channel such as mass discounters or through mail order might cause the customer to perceive the product as being of lower quality or more economical. 

Firms introducing a technological innovation can use strategic alliances or exclusivity contracts to encourage distributors to carry and promote their goods. By providing a distributor a stake in the success of the new technology, the firm may be able to persuade the distributor to carry and promote the new technology aggressively. 

viral marketing Sending informa- tion directly to targeted indi- viduals in effort to stimulate word-of-mouth advertising. Individuals are typically chosen on the basis of their position or role in particular social networks. 

These stages of adoption have been related to the adopter categories of inno- vators (in the very early stages); followed by early adopters, which cause adoption to accelerate; then the early majority and late majority as the innovation penetrates the mass market; and finally the laggards as the innovation approaches saturation.7 The characteristics of these groups make them responsive to different marketing strategies. 

A firm that aggressively promotes its products can increase both its actual installed base and its perceived installed base. 

Any of these individuals is capable of sparking an information epidemic:

Connectors are individuals who tend to form an exceptionally large circle of acquaintances. Sociolo- gists have found that if a random sample of people is asked to identify the individuals they know on a first-name basis, connectors will identify many times the number of people an average person identifies. 

Mavens are individuals who are driven to obtain and disseminate knowledge about one or more of their interests. Economists have widely studied “market mavens,” otherwise known as “price vigilantes.” 

salespersons are those individuals who are naturally talented persuaders. Such individu- als are gifted at providing verbal responses that their listener is likely to find compelling.