19-1 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 The Management of New Product Development, and Entrepreneurship 19

19-2 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 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 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 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  Decline stage: demand falls off perhaps since the product is obsolete.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 Cycles Embryonic Stage Growth Stage Mature Stage Decline Stage Time Demand Figure 19.1

19-6 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 Relationship Between Technological Change and Life Cycle Duration Length of Product Life Cycles Rate of Technological Change Figure 19.2

19-7 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 Rate 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 Reduce Product Cycle Time Reduce Product Cycle Time Maximize Fit with Customer needs Maximize Fit with Customer needs Maximize Manufacturability Maximize Manufacturability Maximize Product Quality Maximize Product Quality New Product DevelopmentGoals DevelopmentGoals Figure 19.3

19-9 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 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 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 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 Funnel Ship Stage 3Stage 2Stage 1 Ideas Gate 1Gate 2 Figure 19.4

19-13 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 Cross 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 together  Successful 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 TeamLeader CoreMembers PeripheralMembers Figure 19.5

19-15 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 Concurrent 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 Figure 19.6OpportunityIdentificationOpportunityIdentificationConceptDevelopmentConceptDevelopment ProductDesignProductDesign ProcessDesignProcessDesign CommercialProductionCommercialProduction OpportunityIdentificationOpportunityIdentification ConceptDevelopmentConceptDevelopment ProductDesignProductDesign ProcessDesignProcessDesign CommercialProductionCommercialProduction A Sequential Process A Partly Parallel Process

19-17 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 Bring 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 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 Entrepreneurship Entrepreneurs 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 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 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 business  Design 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 Plan Step 1 Notice Product opportunity and develop a basic business idea: What Goods/services to produce and who are the Customers/Markets? Conduct Strategic Analysis (SWOT) to identify: Strengths, weakness, opportunities, threats. Is the Business opportunity feasible? Prepare a detailed Business Plan including Mission, goals, strategic and financial objectives, resources required, and a timeline of events. Step 2 Step 3 Step 4 Table 19.1

19-23 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 Intrapreneurship 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.