Chpt19

19-1

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

The Management of New Product Development, and Entrepreneurship

The Management of New Product Development, and Entrepreneurship

1919

19-2

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Innovation, Technological Change and Competition

Innovation, Technological Change and Competition

Technology refers to the skills, knowledge, experience, body of scientific knowledge, tools, computers, machines used in the design and production of goods and services.

Quantum technological change: fundamental shift in technology that results in innovation.

The Internet and genetic engineering are examples. Incremental technological change: refinements of current

technology over time.Most firms seek incremental product innovations which

allows constant, but small, improvements.

19-3

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Effect of Technological ChangeEffect of Technological Change Many products undergo constant change and improvement.

Electronic products provide a great example. This change can be a threat to firms that are slow to

improve but provides benefits to firms that adjust.Technological change is both a threat and an opportunity.

Smith Corona typewriter company missed out on word processing and is now out of business.

Microsoft was quick to embrace graphic user interface programs and now is dominant in the software business.

19-4

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Product Life CyclesProduct Life Cycles

Refers to demand changes for a product over time.Embryonic stage: product is not widely accepted and

has minimal demand.

Growth stage: many consumers seek out the product and buy it for the first time.

Mature stage: demand peaks since most buyers already have the product and only buy replacements.

Decline stage: demand falls off perhaps since the product is obsolete.

19-5

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Product Life CyclesProduct Life Cycles

EmbryonicStage

GrowthStage

MatureStage

DeclineStage

Time

Demand

Figure 19.1

19-6

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Relationship Between Technological Change and Life Cycle Duration

Relationship Between Technological Change and Life Cycle Duration

Length of Product Life Cycles

Rate of TechnologicalChange

Figure 19.2

19-7

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Rate of Technological ChangeRate of Technological Change

The rate of change determines the length of the product life cycle demand curve.The computer industry, life cycle is about 18 months; in

the steel industry, it is many years. Fads and fashions also impact the life cycle duration.

Style changes alter the demand for goods.Usually, goods subject to fads and fashion changes will

experience shorter life cycles. In general, life cycles are getting shorter, forcing

managers to be more responsive to customers.

19-8

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

The Four Goals of New Product Development

The Four Goals of New Product Development

Reduce Product Cycle Time

Reduce Product Cycle Time

Maximize Fit withCustomer needs

Maximize Fit withCustomer needs

Maximize Manufacturability

Maximize Manufacturability

MaximizeProduct Quality

MaximizeProduct Quality

New ProductNew ProductDevelopmentDevelopment

GoalsGoals

New ProductNew ProductDevelopmentDevelopment

GoalsGoals

Figure 19.3

19-9

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

The Four Goals of New Product Development

The Four Goals of New Product Development

1) Reduce Product Cycle Time: reduce time needed to develop a product from conception to market introduction. Early to market products can command premium prices

and will have a longer life cycle. Can add new features before competitors

2) Maximize fit with Customer Needs: most products fail because they were not designed to fit customer needs. Ensure customers want the product features before adding

them to the product.

19-10

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

The Four Goals of New Product Development

The Four Goals of New Product Development

3) Maximize Product Quality: be sure new products are of superior quality. Poor quality in a new product can doom its acceptance

even if quality is fixed later on. Quality problems usually result from rushing product to

market.

4) Maximize Manufacturability: the efficiency with which the product is built impacts its time to market. Ease of production can shorten development time. Efficient production can also avoid production

problems and improve quality.

19-11

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Stage-Gate Development Funnel Principles

Stage-Gate Development Funnel Principles

Principle 1: Use a Stage-Gate Development Funnel; managers often try to fund too many projects at once.Stage 1 considers all new ideas. Those that are feasible

and meet the strategic goals of the firm go through Gate 1.

Stage 2 focuses on the product development plan and then evaluated at Gate 2. Only the best continue.

Stage 3 issues a contract book and focuses on responsibilities, budgets, resources, etc. This is the symbolic launch of the formal development.

19-12

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Stage-Gate Development FunnelStage-Gate Development Funnel

Ship

Stage 3Stage 2Stage 1

Ideas

Gate 1 Gate 2

Figure 19.4

19-13

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Cross Functional Teams PrinciplesCross Functional Teams Principles

Principle 2: Cross functional teams seem to be a crucial part of effective product development.Core members of the team are the 3 to 6 people

primarily responsible for the development effort.Must ensure there is coordination and communications

between team members.Often are located physically togetherSuccessful teams will develop a clear sense of their

objectives and share a common mission.

19-14

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Members of a Cross-Functional New Product Development Team

Members of a Cross-Functional New Product Development Team

TeamTeamLeaderLeader

CoreCoreMembersMembers

PeripheralPeripheralMembersMembers

Figure 19.5

19-15

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Concurrent Engineering PrinciplesConcurrent Engineering Principles Principle 3: Concurrent Engineering: Traditional

approach follows a sequential flow between steps.This results in long development times and poor quality

when managers do not communicate between departments. Development managers may design the product without

talking with manufacturing, resulting in problems.By working concurrently, design and production issues

are considered together. Production concerns are addressed while the product is

designed and can still be changed.

19-16

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Sequential v. Parallel Development Processes

Sequential v. Parallel Development Processes

Figure 19.6

OpportunityOpportunityIdentificationIdentification

OpportunityOpportunityIdentificationIdentification

ConceptConceptDevelopmentDevelopment

ConceptConceptDevelopmentDevelopment

ProductProductDesignDesign

ProductProductDesignDesign

ProcessProcessDesignDesign

ProcessProcessDesignDesign

CommercialCommercialProductionProduction

CommercialCommercialProductionProduction

OpportunityOpportunityIdentificationIdentification

OpportunityOpportunityIdentificationIdentification

ConceptConceptDevelopmentDevelopment

ConceptConceptDevelopmentDevelopment

ProductProductDesignDesign

ProductProductDesignDesign

ProcessProcessDesignDesign

ProcessProcessDesignDesign

CommercialCommercialProductionProduction

CommercialCommercialProductionProduction

A Sequential Process

A Partly Parallel Process

19-17

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Bring in Customers & SuppliersBring in Customers & Suppliers

A key reason the products fail is that they do not meet the needs of the customers.

Customer ideas and needs should be included in the design process.Solicit customer input from many sources.

Suppliers are also critical to the success of a product.Embrace them during concurrent engineering.Seek their ideas and input early in the process.

19-18

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Product Development ProblemsProduct Development Problems

Successful product development is a critical component of a successful firm.While most managers know this, it can be difficult to

actually carry out good development strategies.Many managers have difficulty in releasing control of

their part of the process and allowing groups to take part. Conflict management skills can address this.

Product development often requires a break in the traditional organizational culture to be highly successful.

19-19

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

EntrepreneurshipEntrepreneurshipEntrepreneurs are people that notice opportunities and take the initiative to mobilize resources to make new goods and services. Many entrepreneurs work for themselves and start new

firms. Intrapreneurs: work in large companies and contribute to

innovation in the firm.Intrapreneurs that become frustrated with the lack of

opportunity at some large firms often leave and form their own business called a new venture.

19-20

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Entrepreneurship and New VenturesEntrepreneurship and New Ventures

Characteristics of entrepreneurs--most share these common traits:Open to experience: they are original thinkers and take

risks.Internal locus of control: they take responsibility for

their own actions.High self-esteem: they feel competent and capable.High need for achievement: they set high goals and

enjoy working toward them.

19-21

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Entrepreneurship and ManagementEntrepreneurship and Management To become involved in an entrepreneurial firm:

Start your own business as an entrepreneur.Work for a growing entrepreneur in their firm.

Many entrepreneurs enjoy starting a business, but not running it.

Develop a plan for the new businessDesign a plan to guide the business similar to a product

development plan. The Stage-funnel concept can work well here.

Firms with no plan usually fail Franchising allows you to purchase a plan and

experience of existing firm to reduce risk.

19-22

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Steps in Developing a Business PlanSteps in Developing a Business Plan

Step 1Step 1 Notice Product opportunity and develop a basic Notice Product opportunity and develop a basic business idea: What Goods/services to produce business idea: What Goods/services to produce and who are the Customers/Markets?and who are the Customers/Markets?

Conduct Strategic Analysis (SWOT) to identify: Strengths, weakness, opportunities, threats.

Is the Business opportunity feasible?Is the Business opportunity feasible?

Prepare a detailed Business Plan including Prepare a detailed Business Plan including Mission, goals, strategic and financial objectives, Mission, goals, strategic and financial objectives, resources required, and a timeline of events.resources required, and a timeline of events.

Step 2

Step 3Step 3

Step 4Step 4

Table 19.1

19-23

Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

IntrapreneurshipIntrapreneurship A learning organization encourages employees to act as

intrapreneurs. To help, form:Product Champions: person that takes ownership of a

product from concept to market.Skunkworks: group of intrapreneurs kept separate from

the rest of the firm. Allows workers total flexibility and innovation.

New Venture Division: allows a division to act as its own smaller company.

Rewards for Innovation: link innovation by workers to valued rewards.