1. Marketing of High-Technology Products and Innovations
Chapter 4:
Market Orientation and
Cross-Functional (Marketing/R&D) Interaction

2. Questions to Consider What is a market orientation?
What does a market-oriented firm look like?
Why is organizational memory important?
What is the purpose of cross-functional teams?
How can the performance of cross-functional teams be enhanced?

3. Market Orientation
A philosophy of decision making focused on customer needs
Market oriented firms gather, disseminate, and utilize market-based information
They exhibit a customer focus
Decisions grounded in analysis of the intended user
They harness the power of cross-functional teams to deliver customer value
Result:
Increased creativity
Improved new product performance

4. 4 Dimensions of a Market Orientation
Intelligence
Generation
Dissemination
Integration
Coordinated
Action 1. 2. 3. 4.

5. The Effect of Market Orientation on Company Performance

6. Impact of Market Orientation on Firm Performance
Superior sales growth and profitability
Effects of market orientation on performance may be stronger in dynamic (high-tech) markets
Firms with a strong R&D base gain the most from a strong marketing capability
Proactive, market-oriented firms generate more innovative products

7. Market Orientation: 1. Intelligence Generation
Market intelligence: useful information about market trends/stakeholders
Current and future customer needs
Competitors’ capabilities and strategies
Emerging technologies across industries

8. Resource allocation to gathering market- based data
Must be budgeted for

9. Gathering Information: Market Research Expenditures and Staffing
% of Revenue
# of Market Research Personnel
By Industry Sector
Pharmaceuticals
0.78 % 52
Media Companies
0.68 % 22
Consumer Goods
0.51 % 18
Technology (B2B Sector)
0.25 % 15
Telecommunications
0.07 %
By Company Size ($ Revenue)
< $1 Million 5
> $5 Million %
13-41
* Source: Corporate Executive Board, Market Research Executive Board, Member Benchmarking Survey Analysis, “ Benchmarking the Research Function”

10. Market Orientation: 1. Intelligence Generation
The Intelligence Continuum: Response to Proactive
Information on:
Proactive
market
orientation
Responsive
Expressed
customer needs
Current
competitive threats
Latent and future
Anticipated

11. Market Orientation: 1. Intelligence Generation
Responsive market orientation: responding to current intelligence
Customers articulate their needs (difficult in high-tech market)
Can result in marketing myopia and the tyranny of the served market
Reacting to existing threats means the firm is always behind

12. Market Orientation: 1. Intelligence Generation
Proactive market orientation: gather anticipatory intelligence (latent needs, future trends)
Bifocal vision: current and future customer needs
Marketing driving firms seek to:
Redefine market structure
Introduce an innovative value proposition
Focus on multiple stakeholders
* Market driving can be risky (high risk/high reward)

13. Contingency Theory of High-Technology Marketing
Responsive market orientation
Associated with development of incremental innovations
Proactive market orientation
Associated with development of radical innovation
Firms must be ambidextrous—
- both responsive and proactive
- pursue both incremental innovations (serve known customer needs) and radical innovations for markets of the future.

14. Market Orientation: 2. Intelligence Dissemination
Disseminate information: actively encourage information sharing
Obstacle: knowledge hoarders
Goals:
Create a “boundary-less” organization
Cultivate a team orientation

15. Market Orientation: 3. Intelligence Integration
Integrate intelligence: shared interpretation of the information
Debate, discuss, disagree, & dialogue
Create an organizational memory to retain knowledge
Explicit knowledge: can be documented
Tacit knowledge: not easily recorded

16. Knowledge Management
Practices used to document, preserve, store, & disperse “knowledge assets”
Creates an organizational memory
Associated with a learning orientation
Requires investments in hardware, software, and Web 2.0 technologies (wikis, etc.)

17. Market Orientation: 4. Coordinated Action
Execute: implement decisions through coordinated actions
Requires cross-functional (interfunctional & interdivisional) integration
Barriers
Culture that disregards marketing input
Organizational politics
“Coopetition”

18. Assessing a Firm’s Market Orientation
See Box 4-1 in Text.
Management rates the business using the scale: (use items next slides)
The sum of the scores indicates market orientation.
Strongly Disagree -3
Disagree Moderately -2
Disagree Slightly -1
Agree Slightly 1
Agree Moderately 2
Strongly Agree 3

19. Assessing a Firm’s Market Orientation
Responsive Customer Intelligence Generation:
We continuously work to better understand of our customers’ needs.
We pay close attention to after-sales service.
We measure customer satisfaction systematically and frequently.
We want customers to think of us as allies.
Responsive Competitor Intelligence Generation:
Employees throughout the organization share information concerning competitors’ activities.
Top management regularly discusses competitor’s strengths and weaknesses.
We track the performance of key competitors.
We evaluate the strengths and weaknesses of key competitors.

20. Assessing a Firm’s Market Orientation
Proactive Customer Intelligence Generation:
We continuously try to discover additional needs of our customers of which they are unaware.
We incorporate solutions to unarticulated customer needs in our new products and services.
We brainstorm about how customers’ needs will evolve.
We work with lead users, customers who face needs that eventually will be in the market – but face them months or years before the majority of the market.
Proactive Competitor Intelligence Generation:
We try to anticipate the future moves of our competitors.
We monitor firms competing in related product/markets.
We monitor firms using related technologies.
We monitor firms already targeting our prime market segment but with unrelated products.

21. Assessing a Firm’s Market Orientation
Intelligence Dissemination:
We have interdepartmental meetings to discuss market trends and developments.
Marketing personnel spend time discussing customers’ needs with other functional departments.
We share information about major market developments.
Data on customer satisfaction are shared at all levels in the organization.
When one function acquires important information about customers or competitors, it shares that information with other functions.

22. Assessing a Firm’s Market Orientation
Intelligence Integration:
We have cross-functional meetings for the purpose of intelligence integration.
We reach organizational consensus regarding the holistic meaning of related pieces of information before taking action.
We utilize cross-functional teams or task forces for important initiatives to ensure that all points of view are considered before decisions are made.
Collaboration is valued in this business.
Coordinated Action:
We are quick to take advantage of market opportunities.
The activities of different functions in this business are well- coordinated.
We make sure that all critical functions understand our objectives and strategy before we take action.
There is a high level of cooperation and coordination among functional units in setting the goals and priorities for the organization to ensure effective response to market conditions.

23. Given the value of being market oriented, why is it so hard?
Requires a cultural shift from technology to customer/market focus.
Requires resource commitment to gathering data
Requires cross-functional collaboration

24. Becoming Marketing Oriented: Facilitating Conditions

25. Difficult to comprehensively scan high- tech environments
Market Orientation Facilitating Conditions: Prioritize Information Gathering Needs
Difficult to comprehensively scan high- tech environments
Scanning efforts must be focused
Identify issues by the four strategy types (see Table 4-1 in text)
Avoid “paralysis by analysis”

26. Prioritize Scanning Efforts by Strategy Type: Prospectors (Pioneers)
Supply new technology solutions to address customers' expressed and latent needs
Information focus:
highest priority on understanding customers’ unarticulated needs through creative market research techniques
Must stay ahead or abreast of technological developments

27. Prioritize Scanning Efforts by Strategy Type: Analyzers (Fast Followers)
Bring out improved or less expensive versions of products introduced by Prospectors
Simultaneously defend core markets and products
Information focus:
Closely monitor customer reactions to Prospectors’ offerings
Monitor competitors’ activities, successes, and failures
Limit new product introductions to categories that have shown promise in the marketplace

28. Prioritize Scanning Efforts by Strategy Type: Low Cost Defenders (Operationally Excellent)
Provide quality products or services at the lowest overall cost
Generally less technologically sophisticated product lines
Role of technology is in process/operations
Information focus: Competitor orientation:
Competitors are a benchmark against which prices, costs, and performance are compared

29. Prioritize Scanning Efforts by Strategy Type: Differentiated Defender (Customer Intimate)
Focus on customer value for individual/niche segments
Information focus:
Skilled at segmentation to identify customer segments that value superior quality and service
Closely monitor customer satisfaction
Identify opportunities to increase share of customer’s wallet
Analyze reasons for customer defections
Assess customer profitability

30. Market Orientation Facilitating Conditions: Top Management Commitment
Unequivocal, visible commitment of top managers:
To customers
To collecting, gathering, and using market-based information

31. Fluid job responsibilities
Market Orientation Facilitating Conditions: Decentralized Organizational Structure
Fluid job responsibilities
Informal, extensive, and frequent lateral communication

32. Organizational factor with the greatest impact on market orientation
Market Orientation Facilitating Conditions: Market-Based Compensation System
Organizational factor with the greatest impact on market orientation
Less emphasis on short term sales and profit goals

33. The Heart of a Market-Oriented Organizational Culture
Creating a market-oriented culture requires:
Initiation: Recognize need to change
Reconstitution: Build market-oriented processes
Institutionalization: Solidify the cultural change
Maintenance: Sustain over time

34. Cross Functional Interaction: Marketing Interactions
Marketing is a boundary-spanning activity
Effective marketing decisions are dependent on interactions with:
Personnel in other departments
External stakeholders

35. Cross Functional Interaction: Teamwork in Product Development
Cross-Functional Product Development Teams
Requires all functional areas to be closely integrated

36. Assessing a The Degree of Cross-Functional Integration
See Box 4-2 in Text.
Management rates the business using the scale: (Use items next slides)
The sum of the scores indicates the level of cross- functional interaction within the organization.
Strongly Disagree -3
Disagree Moderately -2
Disagree Slightly -1
Agree Slightly 1
Agree Moderately 2
Strongly Agree 3

37. Assessing a The Degree of Cross-Functional Integration
The activities of functional units are tightly coordinated to ensure better use of our market knowledge.
Functions such as R&D, marketing, and manufacturing are tightly integrated in cross-functional teams in the product development process.
R&D and marketing and other functions regularly share market information about customers, technologies, and competitors.

38. Assessing a The Degree of Cross-Functional Integration
There is a high level of cooperation and coordination among functional units in setting the golas and priorities for the organization to ensure effective response to market conditions.
Top management promotes communication and cooperation among R&D, marketing, and manufacturing in marketing information acquisition and use.
People from marketing, R&D, and other functions play important roles in major strategic market decisions.

39. Cross Functional Interaction: Teamwork in Product Development
Characteristics for Successful NPD Teams
Commitment of senior management
Clear/stable vision to guide the project over time
Improvisational approach to development
Information exchange on continual basis
Collaboration under pressure by focusing on goals rather than personal issues

40. Contingency Theory of High-Technology Marketing
Greater inter-functional coordination
Associated with development of radical innovations
Reinterpretation of competencies
Recombines existing knowledge to generate breakthrough ideas

41. Cross Functional Interaction: Teamwork in Product Development

42. Cross Functional Interaction: Teamwork in Product Development
What determines the effectiveness of team interactions?
Communication
Team Orientation
The Reward System

43. Cross Functional Interaction: Teamwork in Product Development
Communication. Teams must:
Simultaneously cooperate and compete
Harness diverse functional perspectives
Reduce language barriers across functions
Engage in constructive conflict resolution

44. Cross Functional Interaction: Teamwork in Product Development
Team Orientation
Leaders with a clear set of values
Confidence in other team members
Reward system promotes organization (not individual) performance

45. Cross Functional Interaction: Teamwork in Product Development
Reward System
Reward team as a group; split:
Equally amongst members –or-
Based on position
Reward individual team members
Process-based: tied to procedures
Outcome-based: tied to bottom-line

46. Findings on Reward Systems
Individual vs. Group
If an individual’s contribution to the team is easily evaluated, then position-based rewards are best;
If individual’s contribution is not easily evaluated, does not mean company should use equal rewards—
Rather, invest in monitoring to measure individual contribution to team.
Outcome vs. Process
For long, complex projects, used outcome based rewards, including employee stock options

47. Cross Functional Interaction: R&D – Marketing Interactions
Cross-functional Marketing and R & D collaboration particularly important in high- tech firms
Associated with greater new product success
Need for R&D-Marketing integration greater when:
Innovations are complex
Environmental uncertainty is higher
Product development is in the early “fuzzy front end”

48. Rivalry between R&D and Marketing:
Reduces the use of information
Contributes to failure
Roles:
Marketing brings the voice of the customer into the development process
R&D brings the knowledge of what is technically feasible
Both participate in customer visit programs, etc.

49. Cross Functional Interaction: R&D – Marketing Interactions

50. Contingency Theory of High-Technology Marketing
Tailor the nature of R&D-Marketing interaction to the type of innovation
For Breakthrough Products, Marketing-R&D interaction:
Assess market opportunities
Determine what industry/market segment company should compete in
Set market development priorities
Assess desired product feature set
Generally, R&D takes the lead role

51. Contingency Theory of High-Technology Marketing
For Incremental Innovations, R&D- Marketing interaction:
Establishes direction for commercialization
R&D assists with marketing strategies and materials
Generally, Marketing takes the lead role

52. R&D – Marketing Interaction: Barriers to Collaboration
Dominant engineering culture of many high-tech firms
Manifested in “jokes” (see Table 4-2), job titles, responsibilities for marketing activities, etc.
Differing values (see following table)
Physical separation of personnel
Competition for resources

53. R&D – Marketing Interaction: Barriers to Collaboration
Different Orientations Between R&D and Marketing Personnel
R&D
Marketing
Time Orientation
Long
Short
Projects Preferred
Breakthrough
Incremental
Ambiguity Tolerance
Low
High
Department Structure
Informal
Moderately Formal
Bureaucratic Orientation
Less
More
Orientation to Others
Permissive
Professional Loyalty
Profession
Firm
Professional Orientation
Science
Market

54. R&D – Marketing Interaction: Achieving Integration
Formal systems specify marketing role in new product development
Informal Techniques:
Co-optation
Cooperation
Communication
Constructive Conflict

55. R&D – Marketing Interaction: Achieving Integration
Co-optation - merge R&D/Marketing interests:
Build informal networks
Gain product knowledge and credibility
Build consensus through questions and subtle influence
Form strategic coalitions
Work on minor improvements to products outside of R&D

56. Cooperation - Enhanced by:
Physical co-location of Marketing and R&D
Job rotation of personnel across functions
Informal cross-functional networks
Decentralized organizational structure and tolerance for risk; joint reward systems

57. R&D – Marketing Interaction: Achieving Integration
Communication
Moderate amount of interaction is optimal
Must exceed minimum threshold
Too much interaction may exacerbate conflict and result in information overload
Formal dissemination enhances credibility
Informal channels provide openness and spontaneity

58. Communication (Continued)
Information-sharing norms:
expectations about how departments communicate
If marketing managers identify more with the company (than with the marketing function), they communicate more

59. Communication (Continued)
Integrated goals – organization’s goals take precedence over departmental goals
Even if marketing managers identify strongly with the marketing department, they communicate more when integrated goals are stressed
Caveat: Such marketing managers may use coercion to gain R&D compliance
Implications: Encourage information sharing norms and set integrated goals

60. R&D – Marketing Interaction: Achieving Integration
Relationships that are too close can result in “groupthink”
Precludes alternative views
Formalized roles
(i.e., for devil’s advocate)
Can help overcome groupthink

61. Must have a strategy to manage conflict between marketing & R&D
Conflict handling strategies (next slide)

62. Conflict Handling Strategies
Constructive conflict strategies for improved innovation performance
Integrative - Demonstrate high concern for self and others
Accommodating - Low concern for self and high concern for others
Destructive conflict strategies that lower innovation performance
Forcing – High concern for self and low concern for others
Avoiding – Low concern for both self and others
Compromise - moderate concern for self and others - associated with less destructive conflict as well

63. Assessing a The Degree of Integration Between the Marketing and R&D functions
See Box 4-3 in Text.
Management rates the business using the scale: (see items next slide)
Sum the scores: negative scores indicate room for improvement, while high scores (rare) indicate a strong capability
Strongly Disagree -3
Disagree Moderately -2
Disagree Slightly -1
Agree Slightly 1
Agree Moderately 2
Strongly Agree 3

64. Marketing and R&D:
Coordinate work activities smoothly.
Have senior managers who share values and perspectives.
Enhance each other’s performance.
Cooperate with each other.
Have compatible goals and objectives.
Agree on the priorities for each function.
Respect each other’s capabilities.

65. R&D – Marketing Interaction: A Caveat- Remembering the Customer

66. Chapter Features Opening Vignette: Buckman Labs Technology Experts:
Hewlett Packard (Product Manager)
Xilinx Software (Engineer)
Appendix: Agilent Senior VP of R&D and Marketing
Technology Solution: Aravind Eye Hospital
End-of-Book Case: Xerox, ESRI, Goomzee

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