New Product Introduction

Part I: The Challenges of New Product Introduction

Background

New merchandises can be categorized along two dimensions, viz. newness to the house and newness to the market as illustrated in 1. New merchandise in this article is a general term, embracing any of these subsets.

Business environment has been altering of all time more dramatic presents and concerns are confronting with shorter merchandise life, rapid alteration of market environment and increased competitions [ 2-4 ] . Therefore, effectual NPI pattern is of paramount importance to a house ‘s competitory advantage and its long-run survival [ 2,4-6 ] . 2 shows the general stairss involve in the procedure of new merchandise debut ( NPI ) .

Companies in many different industries draw about tierce of their grosss from new merchandises introduced to the market in the past five old ages. This proportion can even near 100 % in extremely dynamic industries [ 10 ] . Despite the acknowledgment of the importance of NPI, approximately 46 % of the resources devoted to the NPI did non win, either failed in the market place or ne’er do it to the market [ 2 ] . Almost one tierce of the merchandises that make it to the market topographic point failed, caused largely by incorrect thought or clocking [ 4 ] . Discussions below outline the challenges of NPI that consequence in such a blue consequence.

NPI Challenges

3 shows an overview of the factors that determine the result of a NPI based on Porter ‘s Five Forces, Marketing 4Ps and cite [ 1, 6, 11-13 ] . By and large, the success of a NPI is determined by both external and internal factors.

External Challenges

Selling is the interface between the company and the market. Having an in-depth cognition of the market is highly advantageous to a house. For illustration, when Pfizer failed to develop compound UK-92480 into a successful intervention for high blood pressure, it rapidly noticed that the unusual side effects fit into another market, and later developed the drug into one of the Pfizer ‘s most profitable compounds today – the Viagra [ 14 ] .

‘Knowing your client ‘ is an old selling cliche but it truly is non an easy undertaking to make particularly for new-to-the-world merchandises. Market turbulency encompasses three dimensions: i. market dynamism – alterations of client wants and needs ; two. market ill will – competitions in the market including the menace of new entrants and ; threes. market complexness – uncertainnesss in finding what the clients ‘ demands and wants [ 7 ] .

Even with the best attempts, companies can merely do the best stake about the market. Detailed market research is non ever a Panacea. For illustration, GE paid ADL $ 5m to make a market study on the market potency of portable solid-state Television and was informed that there was no market. However Sony launched the merchandise a month subsequently and sold 4 million units in the first twelvemonth entirely [ 1 ] . A crisp contrast can be drawn from the development of Post-it® and Facebook. The writer believes that neither Art Fry who foremost developed the thought of gluey notes while singing in the church choir [ 15 ] nor Mark Zuckerberg who started the societal web in his Harvard residence hall [ 16 ] went through a elaborate market surveies before the thought was conceived. Therefore equilibrating between intuitions and scientific attacks in selling is still an art to be mastered and until so NPI will be fraught with market uncertainnesss.

Even when there is a immense market and the engineering to capture the market, a company can still neglect in gaining. EMI history in CAT scanner commercialisation is the best illustration in this instance [ 17 ] . Godfrey Hounsfield of EMI won a Nobel Prize in 1979 for its innovation of CAT scanner. However, it was non EMI but GE that reaped and still harvesting the most net income from CAT scanner market. Patent protection of EMI failed to forestall GE from contrary technology the merchandise. GE complementary assets such as experient preparation and accomplishments support and deep experience of medical markets enabled GE to commercialize the CAT scanner successfully and wholly ousted EMI from the market [ 17 ] .

Puting pes in the market foremost does non vouch long-run winning. In the early 1980s, Microsoft was still a new company and Mac OS runing system virtually monopolized the market. With extremely differentiated characteristics that move towards ‘user friendliness ‘ , Windows runing system managed to derive the market portion steadily and catch Mac OS to go the market leader until now [ 18 ] . As expected from the illustration above, researches show that NPI success and velocity ( time-to-market ) are uncorrelated [ 4 ] . Innovator is non needfully victor and follower is non needfully a also-ran. ( See 4. )

NPI is non a individual but a uninterrupted event that requires uninterrupted merchandise quality betterment and distinctions every bit good as sound attack to vie with the rivals, both the current and possible 1s.

In NPI, houses can besides take to develop new merchandises with other houses, which can be purchasers ( in business-to-business market ) , rivals or providers. The coactions can be fostered through acquisitions, licensing, joint ventures or confederations [ 7 ] . For illustration, the strategic confederations between Hyundai and GE formed in 2005 has created synergism between GE and Hyundai in Korea. Hyundai Card, a recognition card merchandise line, has seen record interrupting operational income even in thick of fiscal convulsion of 2008, thanks to the synergism of GE strong expertness in hazard direction and Hyundai deep apprehension of the market [ 19 ] . However, partnerships do non ever result in successful merchandises launch. AOL acquisition of Time Warner is a celebrated failure instance of this kind. When this acquisition took topographic point, many people believed that the new company ( AOL Time Warner ) would establish merchandises that are of all time more exciting and take up the market portions. Some even believed that the new company would replace Microsoft at the figure one place in the package market. Unfortunately, it did non go on and AOL Time Warner has since fallen into morass beyond recovery ( 1 ) . Therefore, there is no one-size-fit-all solution in term of NPI coactions and partnerships. Part II of this article will discourse other integratings with the outside participants, which farther complicate the whole NPI procedure.

Internal Challenges

Booz Allen Hamilton ( BAH ) study shows that more than 90 % of the top directors at the companies from assorted Fieldss such as aerospace, automotive merchandises, pharmaceuticals, and telecommunications believe that NPI is critical in accomplishing the strategic aims of their companies [ 5 ] . Companies, large and little likewise, have limited resources. Decision on the portfolio investing, which determines which NPI undertakings to prosecute, can be really slippery. It depends non merely on the fiscal and market analysis but besides on the expected product-mixture and the subsequent synergism in the market topographic point. Sometimes little companies face troubles in happening fiscal resources to commercialize their innovations. Raising fund from possible investors such as venture capitalists, Bankss and authoritiess is yet another challenge.

Different direction manners lead to different corporate civilizations, which in bend determine companies ‘ innovativeness. There are by and large contradictions between direction patterns that lead to efficiency and to invention. Efficiency requires conformance to the boundaries in the signifier of policies and criterions, which if overdone, lead to rigidness as vividly depicted by Scott Adam in 5.

Theoretically, invention requires a corporate civilization that stimulates out-of-the-box thoughts – flexible, independent, hazard pickings and tolerates failures [ 10 ] . However, it is non ever so. The writer believes that corporate civilization that stimulates inventions is non to be defined by theories but learnt as companies move frontward. For illustration, many moderate-sized Nipponese houses, which are non known for their openness nor their flexibleness ( compared to their US opposite numbers ) , are so good at their invention that they managed to place themselves as one of the really few planetary providers of some specialised goods [ 21 ] . A arresting illustration is Nipponese Steel Work, which is the individual house that supplies the solid-steel vas that contains radiation [ 21 ] . Fostering a corporate civilization that stimulates invention is really complex depending on many factors and the nature of the concern. It is once more no one-size-fit all solutions.

Decision

Successful NPI is of import to a house both for short-run net income and for long-run endurance. However, NPI is full of challenges both externally and internally. Externally, houses face with market uncertainnesss and uninterrupted competitions. They besides encounter challenges in managing complementary assets, appropriability, confederates and so on. Internally, houses face with limited resources and it is non easy to place a strategic-focus NPI undertaking and to make the corporate civilization that stimulates innovativeness. Indeed, there are more challenges that the writer have non mentioned above. After all, NPI is complex and a complete analysis is virtually impossible.

Part II: Closed Innovation vs Open Innovation

Background

In the yesteryear, R & A ; D competency of a company is strategically critical to a house and can move as a barrier to competitory entry in many industries. Big transnational companies ( MNCs ) like DuPont, Merck, IBM and GE used to put mammoth sum of money in R & A ; D. They hired the top research workers to their labs, funded large-scale research plans and dominated the high engineering markets. Indeed, they earned the monopoly net incomes [ 20 ] and viing with them head-on was impossible without seting big sunk cost upfront. However, concerns now are standing on a wholly different playing field. Being large and disbursement immense on R & A ; D do non ever warrant innovativeness. In 1972, companies with fewer than 1000 employees received merely 5 % of new U.S patents but the per centum has increased to 30 % by 2002 [ 22 ] .

In the past decennaries, many extremist inventions in emergent engineerings were developed by little start-ups [ 23 ] and they have grown so quickly to present serious competitions to the incumbent houses. Companies like Intel, Microsoft, Sun, Oracle, Cisco, Genentech, Amgen, Genzyme have succeeded in leveraging the basic research of others and do immense money out of them [ 14, 24 ] . In add-on, it is increasing evident that the conventional invention theoretical account fails to place the existent values and chances of the engineerings. For illustration, some undertakings abandoned by Xerox in PARCO lab but continued to be pursued by employees who left the companies have proved to be really profitable in the market [ 14 ] .

Upon realisation of the enormous potency but unfulfilled values associated with the external beginning of cognition every bit good as the engineerings that are sitting on the shelves of the houses, concerns are now sing, as Henry Chesbrough put it, a “paradigm shift” from ‘closed invention ‘ ( CI ) to ‘open invention ‘ ( OI ) [ 14 ] . The undermentioned treatments compare and contrast CI and OI.

Closed Innovation V Open Innovation

Firm Boundaries

6 shows the invention funnel of CI and OI side by side. Contrary to CI, the boundaries of unfastened invention are ‘porous ‘ , leting different activities to take topographic point across the boundaries of the companies. OI involves uninterrupted and systematic scanning of available cognition external to the houses, and later integrating them into the invention activities whenever it is profitable to make so. The beginnings of external cognition can be clients, providers, universities, rivals, advisers etc [ 22 ] . In add-on, OI besides involves designation of external options available to the house to maximise the returns through cognition transportation, licencing out IP and spinouts. By implementing OI, there is a immense potency of increased gross and/or shortened time-to-market of new merchandise [ 23 ] compared to CI.

Scheme

Traditionally, when a house has a successful concern theoretical account, it tends to filtrate all information through the lens of what worked in that concern theoretical account, and therefore most likely blind to the potency of the engineerings that fall out of the concern theoretical account. This may except the houses from the possible net incomes. Xerox and PARCO lab instance mentioned above is a good illustration. OI requires a more unfastened attack, determination of go/no-go is to be made from a wider positions.

Fresh Technologies

In CI, engineerings that are proven non utile will be abandoned and put on the shelves. In OI nevertheless, houses are more flexible and go on to seek chances through different OI patterns. One noteworthy illustration is the development of XML Parser Software [ 14 ] . When XML Parser package was proven to be impracticable in 1998, IBM placed it on its external AlphaWorks web site and shortly found that the figure of people downloaded this codification was ten times the usual figure. Due to the high involvement degree, IBM began to examine the engineering more closely. Today, it is the nucleus component of IBM ‘s WebSphere cyberspace service enterprises [ 14 ] . Forming an external by-product is another attack to bring forth values from the engineerings that do non lie within the nucleus competencies of houses. The illustrations of the fully-grown and successful concerns spun-off from DSM OI enterprises are Dyneema Purity and Solupor [ 26 ] .

Customer Relationships

In CI, clients are far from the invention procedure. In OI, houses involve users in the merchandise development. In this facet, Personal computer game industry has a proved theoretical account – the game developers provide nucleus engineerings while promoting users to develop their alterations, which are normally done with a free toolkit. Through these alterations, houses get to understand the market better and detect alteration of gustatory sensation in add-on to supplying customized solutions. Using The Sim as a instance survey, it was found that toolkits and users so add value to the procedure of inventions [ 27 ] .

Network

In CI, houses see foreigners as the providers, clients, rivals or the ‘non-related ‘ . In OI, they can all be confederates. Traditionally, coactions are forged through strategic confederations, joint ventures, licencing understandings, amalgamations, and acquisitions. ( Some illustrations have been discussed in Part I. ) More late, OI has gone beyond these manners of coactions. Now companies particularly MNCs are progressively active in engineering geographic expeditions with new spin-outs, research labs and universities ( 2 ) . Nokia Research Center at Cambridge University ( 3 ) and BASF Advanced Research Initiative plan at Harvard University ( 4 ) are two of the many illustrations of this kind.

Knowledge flow has no value in CI but it is indispensible in OI. Intermediary houses such as InnoCentive, Ninesigma and yet2.com [ 22 ] are formed to capture the increasing demand for cognition flow facilitation. Their major function is to fit the ‘seekers ‘ and ‘solvers ‘ as illustrated in 7. Normally, houses seek solutions to jobs that can non be solved internally. The duplicate success rate can be amazingly high at 50 % as reported by InnoCentive [ 30 ] .

Networking through R & A ; D pool, in which companies pool their inventions to accomplish certain intent, is going a more common pattern. The development of Linux, which involved many pools in Open Source Development Lab ( OSDL ) undertaking, has been wildly successful. 8 shows the different pools formed in the OSDL undertaking and the companies that took portion in it.

The Price to Pay

Although OI is a much more effectual invention attack compared to CI, the benefits do non come without monetary value.

First, in order to travel from OI to CI, there is a demand of a major inspection and repair of pull offing manners from playing cheat to playing fire hook as Chesbrough has so justly described it [ 14 ] . The rational belongings policy is besides much trickier in OI. Systematic legal model is highly critical to avoid case such as Linux and SCO, who accused Linux subscribers of stealing copyrighted beginning codification from its Unix execution [ 24 ] . Finally yet significantly, the high volume of information flows in incorporating internal and external invention in OI incurs higher coordination costs and hazards [ 24 ] compared to CI.

Even with this excess monetary value to pay in OI, the writer believes that the chance cost of non practising OI is even higher.

The Success Story

Although practising OI is disputing, it is non impossible to implement and the potencies are unsurmountable. Among others, P & A ; G offers a singular success narrative. In 2000, P & A ; G was confronting stagnated new merchandise fiscal aims at 35 % and was squeezed by the rivals and lacklustre new merchandise launches [ 32 ] . In the same twelvemonth A.G Lafley ( the new CEO ) incorporated OI and reinvented the company ‘s invention concern theoretical account. By 2008, P & A ; G gross revenues top $ 38 billion yearly [ 32 ] . Some of the blockbuster merchandises that are the consequences of OI executions include Olay Regenerist [ 22 ] , Mr. Clean Magic Eraser and Pringle Prints [ 11 ] . P & A ; G besides profited from out-licensing its low cost micro-needle engineering to a forte drug bringing company [ 32 ] . In term of time-to-market, it was estimated that P & A ; G saved at least 50 % in clip compared with making the research wholly in-house in Olay Regenerist debuts [ 22 ] . P & A ; G great success in OI has earned it the Annual Innovation Awards from The Economists in 2007 [ 33 ] .

Decision

OI is different from CI in many ways. It opens up the houses ‘ boundaries, seeks chances for fresh engineering, integrates clients into the invention procedure, takes portion in more complex web and because of the complexness, incurs higher cost. Despite the fact that OI is more complex and disputing than CI, companies should endeavor to integrate OI into their concern theoretical accounts as the chance costs of non practising OI is enormous and most houses merely can non afford it.

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