1. 19Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved. The Management of Innovation, Product Development, and Entrepreneurship

2. © Copyright McGraw-Hill. All rights reserved.19–2 Learning Objectives After studying the chapter, you should be able to:After studying the chapter, you should be able to:  Explain manager’s role in facilitating product development.  Identify the factors that shorten the product life cycle, and explain why reducing product development time increases the level of industry competition.  Identify the goals of product development, and explain the relationship among them.  Explain the principles of product development, and describe the way in which managers can encourage and promote innovation.

3. © Copyright McGraw-Hill. All rights reserved.19–3 Learning Objectives (cont’d)  Describe how managers can encourage and promote entrepreneurship to help create a learning organization.

4. © Copyright McGraw-Hill. All rights reserved.19–4 Chapter Outline Innovation, Technological Change, and CompetitionInnovation, Technological Change, and Competition  The Effects of Technological Challenge  Product Life Cycles and Product Development Product DevelopmentProduct Development  Goals of Product Development  Principles of Product Development  Problems with Product Development EntrepreneurshipEntrepreneurship  Entrepreneurship and New Ventures  Intrapreneurship and Organizational Learning

5. © Copyright McGraw-Hill. All rights reserved.19–5 Innovation, Technological Change and Competition TechnologyTechnology  The skills, knowledge, experience, body of scientific knowledge, tools, computers, machines used in the design and production of goods and services. Quantum Technological ChangeQuantum Technological Change  A fundamental shift in technology that results in innovation of new kinds of goods and services. The shifts from vinyl records to tape to CD to MP3 represent quantum technological changes in the recording industry.The shifts from vinyl records to tape to CD to MP3 represent quantum technological changes in the recording industry.

6. © Copyright McGraw-Hill. All rights reserved.19–6 Innovation, Technological Change and Competition Incremental Technological ChangeIncremental Technological Change  Change that refines existing technology and leads to gradual improvements or refinements of products over time. Improvements in gas mileage for internal combustion engines represent incremental technological changes in automotive manufacturing.Improvements in gas mileage for internal combustion engines represent incremental technological changes in automotive manufacturing.

7. © Copyright McGraw-Hill. All rights reserved.19–7 Effects of Technological Change Technological change can be threatening to firms that are slow to change while, at the same time, providing benefits to those firms that change and adapt.Technological change can be threatening to firms that are slow to change while, at the same time, providing benefits to those firms that change and adapt.  Microsoft was quick to embrace graphic user interface programs and now is predominant in the software business.  Microsoft failed to recognize the importance of the Internet and initially fell behind its competitors in the development of a web browser for its software customers.

8. © Copyright McGraw-Hill. All rights reserved.19–8 Product Life Cycles and Product Development Product Life CycleProduct Life Cycle  Changes in product demand from its introduction through its growth and maturity to its decline. Embryonic stage: product is not widely accepted and has minimal demand.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.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.Mature stage: demand peaks since most buyers already have the product and only buy replacements. Decline stage: demand falls off as the product becomes obsolete.Decline stage: demand falls off as the product becomes obsolete.

9. © Copyright McGraw-Hill. All rights reserved.19–9 A Product Life Cycle Figure19.1

10. © Copyright McGraw-Hill. All rights reserved.19–10 The Relationship Between Technological Change and Length of the Product Life Cycle Figure 19.2

11. © Copyright McGraw-Hill. All rights reserved.19–11 Product Life Cycles and Product Development The Rate of Technological ChangeThe Rate of Technological Change  The rate of change determines the length of the product life cycle demand curve. In the computer industry, life cycle is about 18 months; in the steel industry, it is many years.In the computer industry, life cycle is about 18 months; in the steel industry, it is many years.

12. © Copyright McGraw-Hill. All rights reserved.19–12 Product Life Cycles and Product Development Fads and fashions also impact the life cycle duration.Fads and fashions also impact the life cycle duration.  Style changes can alter the demand for goods.  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.

13. © Copyright McGraw-Hill. All rights reserved.19–13 Moore’s Law: Intel’s Evolving Microprocessors Figure 19.3

14. © Copyright McGraw-Hill. All rights reserved.19–14 Four Goals of New Product Development Figure 19.4

15. © Copyright McGraw-Hill. All rights reserved.19–15 Goals of New Product Development Reducing Development TimeReducing Development Time  Advantages of reduced product development time First-to-market products with new features can command premium prices and will have a longer life cycle.First-to-market products with new features can command premium prices and will have a longer life cycle. Products can be upgraded quickly to incorporate new technology as it becomes available.Products can be upgraded quickly to incorporate new technology as it becomes available. Easier to experiment with new products and replace them if they fail in the market.Easier to experiment with new products and replace them if they fail in the market.

16. © Copyright McGraw-Hill. All rights reserved.19–16 Goals of New Product Development (cont’d) Maximizing the Fit with Customer NeedsMaximizing the Fit with Customer Needs  Most products fail because they were not designed to fit customer needs. Ensure that customers actually want the product features before adding them to the product.Ensure that customers actually want the product features before adding them to the product. Maximizing Product QualityMaximizing Product Quality  New products must be of superior quality. Poor quality in a new product can doom its acceptance even if quality problem is fixed later on.Poor quality in a new product can doom its acceptance even if quality problem is fixed later on. Quality problems are often result from rushing products to market.Quality problems are often result from rushing products to market.

17. © Copyright McGraw-Hill. All rights reserved.19–17 Goals of New Product Development (cont’d) Maximizing Manufacturability and EfficiencyMaximizing Manufacturability and Efficiency  The efficiency with which the product is built impacts the time it takes to get a product to market. Designing a product from the beginning for ease of production can shorten development time.Designing a product from the beginning for ease of production can shorten development time. Designing a product for efficient production also avoids production problems, reduces product costs, and improves product quality.Designing a product for efficient production also avoids production problems, reduces product costs, and improves product quality.

18. © Copyright McGraw-Hill. All rights reserved.19–18 Principles of Product Development Principle 1: Use a Stage-Gate Development FunnelPrinciple 1: Use a Stage-Gate Development Funnel  Forces managers to make choices among competing projects to avoid spreading organizational resources too thin. Stage 1 considers all new ideas that are feasible and meet the strategic goals of the firm.Stage 1 considers all new ideas that are feasible and meet the strategic goals of the firm. Stage 2 focuses on reviewing product development plans; with the best continuing on.Stage 2 focuses on reviewing product development plans; with the best continuing on. Stage 3 issues a contract book and focuses on responsibilities, budgets, and resources in a symbolic launch of the formal development.Stage 3 issues a contract book and focuses on responsibilities, budgets, and resources in a symbolic launch of the formal development.

19. © Copyright McGraw-Hill. All rights reserved.19–19 A Stage-Gate Development Funnel Figure 19.5

20. © Copyright McGraw-Hill. All rights reserved.19–20 Principles of Product Development (cont’d) Principle 2: Establish Cross-Functional TeamsPrinciple 2: Establish Cross-Functional Teams  Cross functional teams are a crucial part of effective product development. Core members of the team are the people primarily responsible for the development effort.Core members of the team are the people primarily responsible for the development effort. Management must ensure there is coordination and communications between team members.Management must ensure there is coordination and communications between team members. Teams are often located physically together.Teams are often located physically together. Successful teams will develop a clear sense of their objectives and share a common mission.Successful teams will develop a clear sense of their objectives and share a common mission.

21. © Copyright McGraw-Hill. All rights reserved.19–21 Members of a Cross- Functional Product Development Team Figure 19.6

22. © Copyright McGraw-Hill. All rights reserved.19–22 Principles of Product Development (cont’d) Principle 3: Concurrent EngineeringPrinciple 3: Concurrent Engineering  The traditional engineering approach follows a sequential flow resulting in long development times and poor quality if managers do not communicate between departments. By working concurrently, design and production issues are considered together.By working concurrently, design and production issues are considered together. Production concerns are addressed while the product is designed and can still be changed.Production concerns are addressed while the product is designed and can still be changed.

23. © Copyright McGraw-Hill. All rights reserved.19–23 Sequential vs. Parallel Development Processes Figure 19.7

24. © Copyright McGraw-Hill. All rights reserved.19–24 Principles of Product Development (cont’d) Principle 4: Involve Both Customers and SuppliersPrinciple 4: Involve Both Customers and Suppliers  Products fail because their design does not meet the needs of customers. Customer ideas and needs should be included in the design process.Customer ideas and needs should be included in the design process. Solicit customer input from many sources.Solicit customer input from many sources.  Suppliers are also critical to the success of a product. Include them during concurrent engineering.Include them during concurrent engineering. Seek out their ideas and input early in the process.Seek out their ideas and input early in the process.

25. © Copyright McGraw-Hill. All rights reserved.19–25 Problems with Product Development Successful product development is major source of competitive advantage.Successful product development is major source of competitive advantage.  While most managers know this, it can be difficult to actually carry out good development strategies.  Revolutionizing product development requires a break with the traditional ways of thinking and managing. Many managers have difficulty in releasing control of their part of the process and allowing groups and teams to function in the development process.Many managers have difficulty in releasing control of their part of the process and allowing groups and teams to function in the development process.

26. © Copyright McGraw-Hill. All rights reserved.19–26 EntrepreneurshipEntrepreneurship EntrepreneursEntrepreneurs  Individuals who notice opportunities and take the responsibility for mobilizing the resources necessary to produce new and improved goods and services. Entrepreneurs start new businesses and carry out all of the management functions.Entrepreneurs start new businesses and carry out all of the management functions. Entrepreneurs assume all of the risks for losses and receive all of the returns (profits) from their ventures.Entrepreneurs assume all of the risks for losses and receive all of the returns (profits) from their ventures.

27. © Copyright McGraw-Hill. All rights reserved.19–27 Entrepreneurship (cont’d) IntrapreneursIntrapreneurs  Individuals (managers, scientists, or researchers) who work inside an existing organization and notice an opportunity for product improvements and are responsible for managing the product development process. Intrapreneurs frustrated with the lack of support or opportunity at their firm often leave and form their own new ventures.Intrapreneurs frustrated with the lack of support or opportunity at their firm often leave and form their own new ventures.

28. © Copyright McGraw-Hill. All rights reserved.19–28 Entrepreneurship and New Ventures Characteristics of entrepreneurs—most share these common traits: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.

29. © Copyright McGraw-Hill. All rights reserved.19–29 Entrepreneurship and Management To become involved in an entrepreneurial firm:To become involved in an entrepreneurial firm:  Start your own business as an entrepreneur.  Work for a growing entrepreneur in their firm.  Develop a plan for the new business Designing a plan to guide the business is similar to a product development plan.Designing a plan to guide the business is similar to a product development plan. Firms without plan usually failFirms without plan usually fail  Franchising allows you to purchase a plan and the experience of existing firm to reduce risk.

30. © Copyright McGraw-Hill. All rights reserved.19–30 Developing a Plan for a New Business Step 1 Step 2 Step 3 Step 4 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. Table 19.1

31. © Copyright McGraw-Hill. All rights reserved.19–31 Intrapreneurship and Organizational Learning Learning organizations encourage their employees to act as intrapreneurs:Learning organizations encourage their employees to act as intrapreneurs:  Product champions: taking ownership of a product from concept to market.  Skunkworks: keeping a group of intrapreneurs separate from the rest of the firm.  New venture division: allowing a division to act as its own smaller company.  Rewards for innovation: linking innovation by workers to valued rewards.