Chapter06

Business Business Market Market

ManagementManagement

33rdrd edition edition

New Offering New Offering RealizationRealization

Chapter 6

Copyright © 2009 Pearson Education, Inc.

Publishing as Prentice Hall

Business Market Management, 3rd edition Chapter 6-2

Section III: Section III: Creating ValueCreating Value




Chapter 6: Chapter 6: New Offering RealizationNew Offering Realization

OverviewOverview

I.I. Realization StrategyRealization Strategy

II.II. Realization Process ModelsRealization Process Models

III.III. Market-Oriented RealizationMarket-Oriented Realization

IV.IV. SummarySummary




OverviewOverview

Businesses create valuecreate value with new offerings by:

1)1) Lowering customer’s total costsLowering customer’s total costs

2)2) Providing superior performance in customer’s Providing superior performance in customer’s

applicationapplication

3)3) Meeting customer’s changing requirement Meeting customer’s changing requirement

and needsand needs

4)4) Lowering supplier’s costLowering supplier’s cost




DefinitionDefinition

New Offering RealizationProcess of developing:Process of developing:

• New core products or services

• Augmentation to construct market offerings

• Bringing to market




Realization Strategy Creating

Superior ValueThrough New

MarketOfferings

RealizationProcess

Market-OrientedResearch andDevelopment




I. Realization StrategyI. Realization Strategy




Realization StrategyRealization Strategy

New offering realizationNew offering realization has the potential to provide significant outcomes in:

1)1) Strengthening the firm’s market positionStrengthening the firm’s market position

2)2) Improving the firm’s resource utilizationImproving the firm’s resource utilization

To reuse, produce, and process know-how

3)3) Vehicle for organization enhancement and Vehicle for organization enhancement and

renewalrenewal

However, most firms find new offering realization seldom delivers these However, most firms find new offering realization seldom delivers these rewardsrewards




Causes for FailureCauses for Failure Unanticipated shift in technology or

market requirements

Mistaken expectations of other functional areas’ performance

Unexpected technical problems

Problem solving delays

Unresolved policy issuesFact: Fact: 35%-80%35%-80% of new of new

offerings failofferings fail




Critical Success FactorsCritical Success Factorsfor New Product Performancefor New Product Performance

Strongest driver of profitabilityExistence of high-quality, rigorous new Existence of high-quality, rigorous new

product process emphasizing:product process emphasizing:

• Up-front homework

• Tough Go/Kill decision points

• Sharp early product definition

• Flexibility




Processes that differentiate Processes that differentiate Successful New Product Successful New Product

Development TeamsDevelopment Teams Senior management commitmentcommitment ClearClear visionvision of immutable goals for the

new product Improvisation process in which teams try

many ideas quickly and are flexible DiversifiedDiversified CommunicationCommunication portfolio that

went beyond formal reports and memos Teams focused on achieving goals and

objectivesChances of product success Chances of product success

using these 5 methods = 98% using these 5 methods = 98%




Building a Successful Building a Successful StrategyStrategy

Create, define, and select a set of development projects that will provide superior products and processes

Integrate and coordinate functional tasks,

technical tasks, and organizational units

Manage development efforts to effectively

achieve the business’s purpose

Work toward making development a long-

term competitive advantage for the company




Development Strategy Development Strategy FrameworkFramework

Technology Technology Assessment & Assessment & ForecastingForecasting

Market Market SensingSensing

AggregatAggregate Project e Project

PlanPlan

Project Project Management Management & Execution& Execution

Market Market StrategyStrategy

TechnologyTechnology StrategyStrategy

(adapted from: Wheelright & Clark 1992)

Development Development Goals & Goals &

ObjectivesObjectives

Post-Project Post-Project Learning & Learning &

ImprovementImprovement




Development Goals & Development Goals & ObjectivesObjectives

Overall Development Goals:LearningLearning

EfficiencyEfficiency

Speed-to-MarketSpeed-to-Market




LearningLearning Learning:Learning: gains in design and process

knowledge and know-how. Learning is paramount for organizational enhancement and renewal

Maximize learning:every development project advances the company’s every development project advances the company’s

capabilitiescapabilities

plan which series of projects to undertake and carry plan which series of projects to undertake and carry

outoutassess each project’s achievements and/or failuresassess each project’s achievements and/or failures




EfficiencyEfficiency

Efficiency:Efficiency: is concerned with getting the most out of available resources

A firm needs to manage efficiency across all realization efforts




Speed-to-MarketSpeed-to-Market

Speed-to-Market:Speed-to-Market: the time it takes to complete a development cycle

Firms must understand what advantage speed-to-market provides and how it gauges performance for this goal




Project ObjectivesProject Objectives

Development Speed or Time-to-Market

Product Cost Product Performance Development Program ExpenseEvery development project will confront

tradeoffs among these 4 objectives. Making the correct choices is paramount to the project’s success

(Smith and Reinertsen)




Development Speed or Development Speed or Time-to-MarketTime-to-Market

““The time between the first instance The time between the first instance

someone could have started someone could have started

working on the development working on the development

program and the instance the final program and the instance the final

product was available to the product was available to the

customer.”customer.”




Product CostProduct Cost

The total cost of the product to the The total cost of the product to the

supplier, including all costs incurred supplier, including all costs incurred

in marketing, sales, and support in marketing, sales, and support

services. These costs are part of the services. These costs are part of the

purchase price.purchase price.




Product PerformanceProduct Performance

How well the product meets How well the product meets

requirements and preferences that requirements and preferences that

target customers have specifiedtarget customers have specified




Development Program Development Program ExpenseExpense

Consists of all the one-time Consists of all the one-time

development costs a specific project development costs a specific project

incursincurs




Aggregate Project PlanAggregate Project Plan

Mechanism

“to ensure that a collective set of projects will accomplish the development goals and objectives and build the organizational capabilities needed for ongoing development success.”




Constructing an Aggregate Constructing an Aggregate Project PlanProject Plan

Three basic steps:Three basic steps:

1)1) Mapping the varying kinds of Mapping the varying kinds of

development projectsdevelopment projects

2)2) Making capacity decisionsMaking capacity decisions

3)3) Making provisions for gaining critical Making provisions for gaining critical

skills and capabilitiesskills and capabilities




Mapping the Kinds of Mapping the Kinds of Development ProjectsDevelopment Projects

Derivative Projectsinitiatives that realize small advances in initiatives that realize small advances in

current offerings or production processescurrent offerings or production processes

Platform Projectsare in the middle of the development spectrum are in the middle of the development spectrum

& harder to define. They entail more product & harder to define. They entail more product and/or process changedand/or process changed

Alliances and Partnership Projectsthose done in conjunction with one more more those done in conjunction with one more more

outside firmsoutside firms




Research & Research &

Advanced Advanced

Development Development

ProjectsProjectsDerivatives & Derivatives & EnhancementEnhancementss

Addition Addition to Product to Product FamilyFamily

New New GenGen

ProductProduct

New CoreNew Core

ProductProduct

Product ChangeProduct Change

LessLessMoreMore

R & DR & D

Derivative

Platform

Breakthrough

Alliances

and

partnership

projects

(can include

any of the

above project

types)

Less

Less

M

ore

More

Pro

cess C

han

ge

Pro

cess C

han

ge

Derivativeprojects

Platform projects

Breakthrough Projects

New Core

Process

Next Gen

Process

Single

Dept.

Upgrade

Incremental

Change

Mapping Mapping the Five the Five Types of Types of

DevelopmeDevelopment Projectsnt Projects




Making Capacity DecisionsMaking Capacity Decisions

Management must make hard decisions about the number and the mix of projects to start or complete with the available resources.

“When organizations overextend their resources, productivity declines, the number of projects ‘in process’ increases, projects take longer to complete, and the rate of project completion declines.”

--Wheelwright and Clark




Capacity DecisionsCapacity Decisions

Evaluate the number of projects undertaken at one time

Resequence some projects to provide a better mix and flow

Decide on a preferred level of development capacity utilization

Remember:Remember: building in slack can building in slack can reducereduce

overall development time!overall development time!




Gaining Critical Skills and Gaining Critical Skills and CapabilitiesCapabilities

Build technical knowledge: Assignments to project team should build technical Assignments to project team should build technical

knowledge for both the organization and individual (job knowledge for both the organization and individual (job rotation)rotation)

Build cross-functional cooperation: Employees with cross-functional skills learn to appreciate Employees with cross-functional skills learn to appreciate

how each area contributes to marketplace successhow each area contributes to marketplace success

Build project leadership capabilities: Individuals need training on working in teams and have a Individuals need training on working in teams and have a

series of project assignments with increasing series of project assignments with increasing

responsibilityresponsibility




Concurrent EngineeringConcurrent Engineeringin Realization Strategyin Realization Strategy

Concurrent Engineering: the process of making a product while they are still in the process of designing itCross-functional teams responsible for Cross-functional teams responsible for

product from inception product from inception • Design• Engineering• Manufacturing• Procurement• Marketing




Point-Based vs. Set-Based Point-Based vs. Set-Based Concurrent Engineering (CE)Concurrent Engineering (CE)

Point-Based CE

1.1. Members responsible for Members responsible for the product design develop the product design develop design alternatives design alternatives

2.2. Most promising design Most promising design solution chosensolution chosen

3.3. Counterparts responsible Counterparts responsible for making the product for making the product continue to improve on the continue to improve on the design until both groups design until both groups arrive at a mutually arrive at a mutually satisfactory solutionsatisfactory solution

Set-Based CE

Refers to the deliberate Refers to the deliberate effort to define, effort to define, communicate about, and communicate about, and explore sets of possible explore sets of possible solutionssolutions

Firm uses its accumulated Firm uses its accumulated knowledge about its design knowledge about its design and manufacturing and manufacturing capabilities to determine capabilities to determine feasible ranges for the feasible ranges for the design parametersdesign parameters




Set-Base CE & Set-Base CE & Flexible Market OfferingsFlexible Market Offerings

Standardized Variety:Standardized Variety: providing extensive product variety at a lower cost by standardising the production process

Modularity + Commonality =

greater flexibility, greater flexibility,

lower acquisition, manufacturing, lower acquisition, manufacturing, and after sales service costsand after sales service costs




Outside Development Outside Development Relationships & Networks Relationships & Networks

Firms may require resources that are:

Technical Economic

Social Political

Seeking or developing the resources in-house or from the outside varies and depends on the kind of project and

resources required.




Alternative Development Alternative Development StructuresStructures

Approaches firms use to gain needed resources

Outsource technical resource (acquire it Outsource technical resource (acquire it

from an outside supplier)from an outside supplier)

License the technology from other firms to License the technology from other firms to

gain intellectual property rightsgain intellectual property rights

Exchange intellectual property rights Exchange intellectual property rights

through cross-licensing arrangementsthrough cross-licensing arrangements

Collaborate with outside firms to co-develop Collaborate with outside firms to co-develop

a technical resource the company needsa technical resource the company needs




Technical EconomicViewed as peripheral to realization strategyRecognition that internal development would slow its speed-to-market

Use resources from outside supplier to lower development costsCollaborate on common design and technical specifications that do not provide any firm with an advantage

Social PoliticalConsensus building reduces risk by pooling resources and sharing financial burden of development

Persuade industry associations, regulatory agencies, or governments to adopt standards that favor their developed technology

Aims of Development Aims of Development Relationships and NetworksRelationships and Networks




Decision ConsiderationsDecision Considerationsfor Outside Relationships & for Outside Relationships &

NetworksNetworksSenior management must consider:

Social and strategic factorsSocial and strategic factors Understand the technology cycle and Understand the technology cycle and

resource demands of different kinds of resource demands of different kinds of development projectsdevelopment projects

Understand dominant designUnderstand dominant design• A single architecture that becomes the

acknowledged standard




II. Realization Process II. Realization Process ModelsModels

A General Realization Process Model: Phases of Development

Functional Activities

ConceptDevelopment

ProductPlanning

Detailed Design & Development CommercialPreparation

Market IntroductionPhase I Phase II

Engineering Propose new technologies;

develop product ideas;

build models;

conduct simulations

Choose components & interact with suppliers; build early system prototypes; define product architecture

Do detailed design of product & interact with process; build full-scale prototypes; conduct prototype testing

Refine details of product design; participate in building 2nd phase prototypes

Evaluate & test pilot units; solve problems

Evaluate field experience with product

Marketing Provide market-based

input;

propose & investigate product concepts

Define target customer’s parameters; develop estimates of sales & margins; conduct early interact with customer

Conduct customer tests of prototypes; participate in prototyping

Conduct 2nd phase customer tests; evaluate prototypes; plan marketing rollout; establish distribution plan

Prepare for market rollout; train sales force and field service personnel; prepare order entry / process system

Fill distribution channels; sell & promote; interaction with key customers

Manufacturing Propose & investigate process concepts

Develop cost estimates;

define process architecture; conduct process simulation; validate suppliers

Do detailed design of process; design & develop tooling & equipment; participate in building full-scale prototypes

Test & try out tooling & equipment; build 2nd phase prototypes; install equipment & bring up new procedures

Build pilot units in commercial process; refine process based on pilot experience; train personnel & verify supply channel

Ramp up plant to volume targets; meet targets for quality, yield, & cost

•Concept for product & process defined

CONCEPT CONCEPT APPROVEDAPPROVED

•Establish product & process architecture

•Define program parameters

PROGRAM PROGRAM

APPROVALAPPROVAL

•Build & test complete prototypes

•Verify product design

DETAILED DETAILED DESIGN DESIGN APPROVALAPPROVAL

•Build and Refine 2nd phase prototype

•Verify process tools & design

JOINT PRODUCT JOINT PRODUCT & PROCESS & PROCESS APPROVALAPPROVAL

•Produce pilot units

•Operate & test complete commercial system

APPROVAL FOR 1APPROVAL FOR 1STST

COMMERCIAL COMMERCIAL

SALESSALES

•Ramp up to volume production

•Meeting initial commercial objectives

FULL FULL COMMERCIAL COMMERCIAL APPROVALAPPROVAL

Key Decisions

Key Mileston

es




Augmenting Services inAugmenting Services inRealization Process ModelsRealization Process Models

Phase I:Phase I: Product Planning

Phase II:Phase II: Detailed Design and

Development

Phase III:Phase III: Commercial Preparation

Phase IV:Phase IV: Market Introduction




““Next Generation”Next Generation”Realization Process ModelsRealization Process Models

1.1. Fluidity:Fluidity: adaptable, overlapping fluid stages for greater speed

2.2. Fuzzy gates:Fuzzy gates: conditional “Go” decision

3.3. Focused:Focused: Prioritization methods that examine the portfolio of products and focuses resources on “best bets”

4.4. Flexible:Flexible: Each project is unique with its own routing through the process




III. Market-Oriented III. Market-Oriented RealizationRealization




Market-Oriented RealizationMarket-Oriented Realization Market-oriented research Creating focused research centers Connecting research with the market Market-oriented development Position statement as a market focusing

mechanism Researching market requirements &

translating into design specifications Tailoring market introduction of new

offerings




Market-Oriented Research and Market-Oriented Research and Advanced DevelopmentAdvanced Development

Role of ResearchPioneering or scouting mission for firmsPioneering or scouting mission for firmsResponsible for generating new scientific and Responsible for generating new scientific and

technical knowledgetechnical knowledgeCreate value over the long termCreate value over the long termDevelop technologies that can commercializeDevelop technologies that can commercialize

Role of Commercialized DevelopmentIt uses, adapts, or further develops known It uses, adapts, or further develops known

technologies to produce new core products or technologies to produce new core products or servicesservices




Current Challenges for Current Challenges for Market-Oriented Research Market-Oriented Research

Greater demand for research to be market orientedR&D budgets stagnant or growing slowlyR&D budgets stagnant or growing slowlyMust demonstrate to senior management its Must demonstrate to senior management its

contributions to the marketplacecontributions to the marketplace

To excel with limited resourcesFocus research efforts and leverage resources Focus research efforts and leverage resources

with outside relationshipswith outside relationshipsResearch needs to connect itself with the Research needs to connect itself with the

marketmarket




Creating Creating FocusedFocused Research Research CentersCenters Choose basic areas of science &

technology research to pursue What knowledge should be generated

internally? Externally? Collaboratively? Factors to consider include:Sticky InformationSticky InformationLablets, located adjacent to leading Lablets, located adjacent to leading

universitiesuniversitiesTechnology fusion: combining technologies Technology fusion: combining technologies

to create hybrid technologiesto create hybrid technologiesSocial networksSocial networks




Connecting Research with the Connecting Research with the MarketMarket

Regularly schedule interaction withDesign engineersDesign engineersManufacturing engineersManufacturing engineersField engineersField engineersAdvanced marketing groupsAdvanced marketing groups

One-on-one Information Exchanges

Structured group-to-group interactions

Home and Away Sessions

Off-hour events

One-on-one meetings

Innovation Summits

“Design Bursts” and “Deeper Dives”




Market-Oriented Market-Oriented DevelopmentDevelopment

“Market-oriented development

is a critical factor for

enduring market leadership.”--Gerard Tellis & Peter N. Golder




1. Positioning Statements as Market-Focusing MechanismAssists in focusing project team

TargetTargetOffering ConceptOffering ConceptValue PropositionValue Proposition

2. Research Market Requirements & Translate into Design Specifications

Lead-User CustomersLead-User Customers Leap-Frog CustomersLeap-Frog Customers Quality Function DeploymentQuality Function Deployment PrototypesPrototypes

• Alpha test• Beta test

3. Guide Realization Efforts with Customer Value Assessment

Technology PushTechnology Push Market PullMarket Pull

4. Tailor Market Introductions of New Offerings

1.1. Know the Local MarketKnow the Local Market

2.2. Internal SellingInternal Selling

3.3. Motivate Channel PartnersMotivate Channel Partners Incentive to change Initial use discount

Four ways for firms to be marketed oriented Four ways for firms to be marketed oriented

in its development of new offerings:in its development of new offerings:




IV. SummaryIV. Summary




SummarySummary New offering realization is the process of developing new core

products or services, augmenting them to construct market offerings, and bringing them to market

Realization encompasses all the activities a firm does to transform an idea into a market offering that the firm commercializes

New offering realization has the potential to create value for the firm and its customers

A firm generates a realization strategy as a means of accomplishing its realization objectives

Realization process models delineate the phases and decision points through which development projects progress

Firms in business markets should have the intent of being market oriented and customer focused




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means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the

United States of America.

Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall

Chapter06

Business

market speed

rdedition chapter

market requirements

firms market position

development efforts

rigorous new product

development speed ortime

final product