THE SUCCESS AND FAILURE OF NEW PROD

THE SUCCESS AND FAILURE OF NEW PRODUCT DEVELOPMENT – A STUDY WITH FOCUS ON THE EARLY PHASES
Matts Björklund, Institute of Economic Research at Lund University John Gibe, Institute of Economic Research at Lund University Thomas Kalling, Institute of Economic Research at Lund University Sten Setterberg, Fenix, Chalmers University of Technology
15 June, 2007
ABSTRACT
What factors affects New Product Development (NPD) and are the factors the same in different industries? These are two of the main questions explored when three organizations in different industries are studied from the perspectives of knowledge, motivation and organizational context. Focus is on the early phases of NPD, however the entire NPD process is included to better understand the results of the actions and factors throughout the process. The indications that knowledge and knowledge management are key tools in order to stay competitive in the market place are looked closer at and the empirical cases illustrate the use of knowledge within the given sub-cases and the implications thereof.
TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................................1 the case companies...............................................................................................................................2 LITERATURE...............................................................................................................................................2 METHOD.....................................................................................................................................................5 EMPIRICAL FINDINGS .................................................................................................................................5 Success Factors.....................................................................................................................................6 Knowledge............................................................................................................................................7 Motivation.............................................................................................................................................8 Organizational Context.........................................................................................................................9 Structure............................................................................................................................................................9 Risk.................................................................................................................................................................10 Management....................................................................................................................................................11 DISCUSSION / CONCLUSION...................................................................................................................... 11 REFERENCES.............................................................................................................................................13 Appendix 1: Critical success factors related to the framework..........................................................15 Appendix 2: Selection of NPD processes and their steps....................................................................19 Appendix 3: Study Guide .................................................................................................................... 20
The success and failure of new product development - a focus on the early phases
Björklund, Gibe, Kalling, Setterberg 1
INTRODUCTION
The purpose of this paper is to explore the new product development (NPD) process in different industries to examine similarities and differences with a particular focus on the early phases of NPD. The crucial first steps in the process is where ideas are filtered by the organization and as a result both potentially “good” and “bad” ideas are either accepted into the NPD process or rejected. Chesbrough (2004) refers to this as true and false, positives and negatives.
Today, NPD is a prerequisite more than a strategic option as firms operate in markets with “shorter product life cycles; heightened competition from home and abroad; maturing industries and flat markets; and the quickening pace of technological developments” (Cooper and Kleinschmidt , 1987a, p. 175). 74% of companies in a UK study by Bain & Co. (1990) regarded innovation as “very important” to firm survival and the other 26% rated it “quite important”. However, NPD is associated with risk and thereby also failures. Crawford (1977) found failure rates of NPD to range from 20 to 90%. Other studies like Booz el al. (1982) found that 35% of the products introduced between 1963 and 1981 failed. Cooper (1990) in his study confirmed these failure rates.
One of the cornerstones in NPD research is the view on “success” and “failure”. There are numerous definitions of what “success” and “failure”, ranging from financial measures, sales measures to more “soft” factors (e.g. the opening up of new markets) (Cooper and Kleinschmidt , 1987a). Additionally there is an ongoing discussion on the long term gains and the notion of paradox “the success of failure and the failure of success” (Farson and Keyes, 2002). Within the framework of this paper there will be no attempt to further add to the discussion but rather accepting the success measures drawn up for each sub-case.
The early screening process is used to weed out what potentially will be “failures”. Cooper and Kleinschmidt (1987b) draw special attention to the importance of the evaluation activities in the early phase of the NPD process; “initial screening, preliminary market assessment, preliminary technical assessment, detailed market study or marketing research, and business/financial analysis”.
The success and failure of new product development - a focus on the early phases
Björklund, Gibe, Kalling, Setterberg 2
THE CASE COMPANIES
The case companies are large multinational companies in three different industries operating in competitive markets – Alfa, Beta and Gamma. In Alfa the main focus has been on the design function of the organization and five sub-cases were included in the study, which all were product innovations of more incremental nature. In Beta, the three sub-cases were two product innovations of a slightly more radical type than in Alfa, and a radical process innovation. Two new products in line with the industry practice were studied in Gamma.
The heterogeneity of the case companies and their approach to NPD was chosen both to explore similarities and differences between industries.
LITERATURE
“The potential for new ideas arising from the stock of knowledge in any firm is practically limitless – particularly if people in the firm are given the opportunity to think, to learn, and to talk to each other” (Davenport & Prusak, 1998, p.17). Organizational innovation can be viewed as a result of the combination of existing and new knowledge (Kogut and Zander, 1992). The organizations that can source and integrate new knowledge are more likely to be successful innovators.
Dutton and Thomas (1984) show that learning rates differ not only between industries and organizations, but also within the same or similar process and product areas. Studies have shown that there are more variations within organizations producing the same product (eg. Searly & Gody, 1945 on shipyards producing same vs. different ships during World War II). Similar results from other industries were found by Chew, Bresnahan and Clark (1990). In the search for the factors explaining these variations there has been several contributions. The productivity gains do not automatically come with experience. Hence the importance of understanding which variables actually leads to productivity gains are of interest.
D’Aveni (1994) and Lance et al (1998) highlight that very few firms can develop and master the wide range of knowledge and skills needed independently to be competitive. In relation to the knowledge needed, Szulanski and Rosella (2003) stress the importance of motivation in the transfer of knowledge by both from the source and the recipient of the knowledge. The role of the organizational structure related to knowledge and NPD is further explored by Kim (1993) describing that learning often is rooted in the knowledge structure of top management and the organizational structures and processes (Kim, 1993).
The importance of learning as a factor for competitiveness is stressed by Stata (1989) who argues that the rate at which individuals and organizations learn may become the only sustainable competitive advantage, especially in knowledge-intensive industries.
The success and failure of new product development - a focus on the early phases
Björklund, Gibe, Kalling, Setterberg 3
Together with previous research and the literature review in appendix 1 (summarized in table 1), the categories for the study emerged; knowledge factors, motivational factors and organizational contextual factors. The categories are not always mutually exclusive resulting in some of the factors in table 1 have fallen into more than one category. The main purpose of this type of framework is to create an initial order to the heterogeneous flora of factors from studies suggested to contribute to productivity. The aim of this study is to continue the quest for understanding how NPD can be improved.
All of the studies included knowledge factors which was the most common type of factor. Factors relating to the organizational context (structure, risk and management) were represented in most of the studies. Motivational factors on the other hand were rarely d