Management of new product development in smallelectronics firms
A. Ledwith The Department of Management & Marketing and Small Firms Research Unit,University of Limerick, Ireland
Keywords
New product development,Small firms, Electronics industry,Ireland
Background
The management of new productdevelopment in large firms has been studiedin great depth. Much has been publishedrelating to how new product development ismanaged, and in particular to managementpractices that have been found to bedeterminants of new product success.Montoya-Weiss and Calantone (1994) providea very comprehensive review of the researchinto NPD to date and conclude that it lackedfocus and direction. A wide variety of methodologies and study types have beenused. This makes it difficult to directlycompare the results of different studies.However, in their meta-analysis they definevariables in four categories that have beenidentified as determinants of new productperformance. These have been slightlymodified for the purpose of this study and aresummarised in Table I. A discussion of eachcategory of factors follows.
Abstract
This paper reports on the findingsof a study of the development of 63 new products in 36 electronicsfirms in Ireland. The firms range insize from fewer than ten to over1,000 employees. They all operatein the electronics sector, develop-ing and manufacturing a variety of products from completely inte-grated systems to discrete com-ponents. A series of questionnaires and interviews wasused to collect historical life cycledata of new products. The resultspresented in this paper focus onthe management of the productdevelopment process. The rela-tionship between the developmentprocess and new product successor failure is examined. The differ-ences between the managementof product development in smalland large firms are also explored.Small firms report a new productsuccess rate comparable to thatof larger firms, suggesting that thefactors that are linked to thesuccess of new products may berelated to firm size.
Organisational factors
Received August 1999Revised January 2000
Journal of European Industrial Training24/2/3/4 [
2000
] 137±148# MCB University Press[
ISSN 0309-0590
]
The management of internal and externalrelations in new product development is onearea where there is a marked differencebetween the existing literature on small andlarge firms. Most of what is published aboutlarge firms deals with internal relations. It isargued that integration between differentfunctional departments will achieve betterresults both in the characteristics of theproducts developed and the time taken todevelop them (Shrivastava and Souder, 1987;Wheelwright and Clark, 1992; Towner, 1994).In contrast, literature dealing with smallfirms focuses on external relations,addressing issues such as industrial services,subcontracting relationships, licensing,networking, collaborative R&D (Rothwelland Dodgson, 1991; Hoffman et al., 1998;
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MacPherson, 1997). This difference inemphasis makes some sense ± large firmstend to be able to resource all their technicalrequirements internally and thus therelationships that must be managed areinternal. Small firms, however, often need tolook outside their organisational boundariesfor services and, therefore, must developskills in managing external relationships.Organisational factors, including theexistence and characteristics of projectteams, the level of top managementinvolvement, the nature of leadership of NPDprojects, have been examined extensively inlarge firms. Cross-functional ormultidisciplinary teams with strongleadership and a high level of ownership andaccountability are generally recommendedas good organisational design for newproduct development projects (Cooper, 1999;Page, 1993; Wheelwright and Clark, 1992). Butmany of the above factors are not relevantwhen examining determinants of success insmall firms, simply because they existinherently in almost all small firms andusually to a much greater degree than inlarge firms.
Development process factors
The new product development process hasbeen studied in great detail and manyprocess related factors are identified in theliterature as determinants of NPD success. Technical and marketing proficiency are keyfactors in product success (Cooper andKleinschmidt, 1987). Controllable variables,rather than environmental variables, havebeen found to determine the outcome of product development projects (Cooper, 1990). The most important technical and marketingactivities include prototype testing withcustomers, test marketing, market launch,product development and production start-up. In general, most of the literature that
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[ 137 ]
A. LedwithManagement of new productdevelopment in smallelectronics firms Journal of European Industrial Training24/2/3/4 [2000] 137±148
examines the process related factors thatinfluence the outcome of NPD agree that, inboth small and large firms, proficiency of NPD activities is a key determinant of success (see Table I).Top management support is one of the mostimportant factors influencing new productsuccess (Booz-Allen and Hamilton, 1982). Inthe US electronics industry seniormanagement support has been found to beimportant for NPD success (Maidique andZirger, 1984). Owner manager skill andsupport have also been found to be importantin small firms (Hoffman et al., 1998), thoughthe focus when dealing with small firms ismore on the skill and competence than on thesupport of top management. This is justifiable, as it would be unusual for a smallfirm to take on a product development projectwithout the support of top management.Managing and measuring the speed tomarket of new products have tended to beaddressed more by practitioners andconsultants than by academics (Towner,1994). In contrast with this emphasis onspeed, Cooper (1999) states that, althoughbeing first to market is important, being thebest on the market is more important. Timeto market has not been identified as such akey factor for small firms; there are twopossible explanations for this. First, smallfirms by their very nature are more flexibleand possibly experience fewer problems inspeeding up product development. Second,small high-technology firms tend to operatein niche markets where time to market maynot be such a critical factor.It is perhaps something of a paradox that,though the most commonly used measure of NPD is financial success, very few authorshave anything to say about financial analysisas part of the NPD process. While severalstudies include business analysis as one of the steps in their NPD processes (Cooper andKleinschmidt, 1995; Page, 1993), relativelylittle research has been done into financialanalysis as a key activity in the NPD processand its impact on the outcome. The cost of new product development is anotherfinancial issue that has not received muchattention and is perhaps of greatest interestto small firms, which tend to have limitedfinancial resources (Roper et al., 1996;Fitzgerald and Breathnach, 1994).
Marketing and new productcharacteristics
Table IDeterminants of NPD successOrganisational factorsInternal/external relationsOrganisational factorsDevelopment process factorsProficiency of activities Top management support/skillSpeed to marketFinancial factorsMarketing and new product characteristicsProduct advantageMarket potentialMarket competitivenessEnvironmentSkills and capabilities Technological synergyMarketing synergyCompany resourcesStrategySource: Adapted from Montoya-Weiss and Calantone, 1994[ 138 ]Product advantage or product superiority is judged by many authors to be the mostcritical success factor in developing newproducts. Cooper (1990), reporting on theproject NewProd, concluded that superiorproducts are more likely to succeed.However, a study of small high-technologyelectronics firms (Yap and Souder, 1994)found that small firms, under conditions of high market or technical uncertainty, weremore likely to succeed by producingcompatible than superior products.Market potential, including market sizeand growth, customer need for a product andthe importance of a product to the customer,has been found to have an impact on NPDsuccess, particularly where companies areaiming their product at a window of opportunity (Cooper and Kleinschmidt, 1987). The impact of market variables on small,high-technology companies is not always asexpected (Yap and Souder, 1994). Marketmaturity would normally be thought toinhibit NPD success but in somecircumstances may actually be favourablefor small firms. This anomaly can beexplained by the fact that many smallcompanies operate in mature market nicheswhich are not of interest to larger firms. Areview of literature on small firms, R&D,technology and innovation in the UK (Hoffman et al., 1998) reports conflictingevidence of the impact of market potential onsmall firms.It is a common assumption, based onPorter (1980), that increased marketcompetitiveness should limit the success of new products. However, several authors havenot found this to be the case (Booz-Allen andHamilton, 1982; Cooper and Kleinschmidt,1987; Page, 1993). In the case of small firmsthere is no consensus on the impact of market competitiveness on success. Somestudies have found it to correlate negativelywith success while others have found that ithas no impact at all (Yap and Souder, 1994;Hoffman et al., 1998).The operating environment faced by afirm, including risk, uncertainty andregulations, is another factor that has notbeen studied in detail. A study of the US
A. LedwithManagement of new productdevelopment in smallelectronics firms Journal of European Industrial Training24/2/3/4 [2000] 137±148
electronics industry looking at successfuland unsuccessful projects (Maidique andZirger, 1984) measured the importance tofirms of different determinants of NPDoutcomes and found that environmentalfactors, including government regulations,market characteristics and the economy, didnot rate very highly. Technological and marketing synergy havebeen linked with new product success.Companies are advised to ``attack from aposition of strength'' (Cooper, 1999). Thisadvice has also been shown to be true forsmall firms (Yap and Souder, 1994).The availability and quality of resources asa determinant of NPD success have not beenstudied to any great extent. It has beenassumed that NPD programmes aresufficiently resourced; this may well be thecase in large firms. A study of the norms inproduct development (Page, 1993) found thatresources were mentioned by only 39.2 percent of 189 companies surveyed as beingobstacles to successful NPD. In small firms,however, a lack of resources, both financialand human, has been cited as one of the mostimportant barriers or constraints to productinnovation (Fitzgerald and Breathnach, 1994;Roper et al., 1996; Hoffman et al., 1998).Company strategy is probably one of thekey determinants of NPD success as it affectsall other determinants. Many studies of thestrategic management of technologicalinnovations have stressed the importance of integration between functions involved inthe innovation process (Shrivastava andSouder, 1987; Crawford, 1994). Adler et al.(1989) suggest that most companies manageNPD in a tactical rather than a strategicmanner, top managers are advised to take amore strategic interest in NPD. Strategy isalso a key issue for small firms involved inproduct innovation (Rothwell and Dodgson,1991). Learning, flexibility and speed of response are identified as areas where smallhigh-technology firms can gain a competitiveadvantage. A strategy recommended forsmall technology-based firms is the adoptionof one key growth-sustaining technology andavoidance of high levels of diversification(Meyer and Roberts, 1986). Successful initialcore technologies are those that arechallenging to implement but difficultenough to deter competitors. Small, high-technology firms are advised to avoiddifferentiation but to adopt cost-leadership orfocus strategies (Yap and Souder, 1994). Thisadvice is based on empirical research thatshows that customers are unlikely to buysuperior products with unique features from
Skills and capabilities
new companies, and that compatibleproducts have a better chance of success.In summary, organisational factors havebeen addressed in the literature from aninternal perspective for large firms but froman external perspective for small firms.Product development process factors havebeen found to be critical to both small andlarge firms but the success of somemanagement practices is probably dependenton firm size. Variables relating to marketingand new products characteristics have animpact on the success of new products butthere is limited consensus in the literatureabout the nature of this impact. And finally,the existence and nature of skills andcapabilities have been identified asdeterminants of new product success in bothsmall and large firms.The results presented in this paper attemptto build on some previous research thatexamined new product development in smallelectronics firms in Alabama, USA (Yap andSouder, 1994). A similar research tool[1] wasused to collect data, allowing for comparisonsto be made between the US and Irish results. The US study found that much of theconventional wisdom that applies to largefirms cannot be taken for granted in smallfirms and, depending on conditions of marketand technical certainty, differentmanagement practices apply. The resultspresented in this paper represent the initialanalysis of data collected in small and largeIrish electronics firms. As this is part of anongoing study, many of the findings point toareas for further study rather than finalconclusions.
Research method
Studies of new product development havetaken several different approaches. Somehave compared successes and failures, othershave concentrated on the impact of particular variables on new product success,yet others have examined the NPD processand suggested ways in which it can beimproved. Some studies have examinedindividual projects within companies whileothers have examined NPD at a corporatelevel. Studies that focus solely on the projectlevel are limited in that they often fail toidentify company level practices that mayhave a significant impact on new productoutcomes, for example the culture of innovation within a firm (Cooper andKleinschmidt, 1996). Alternatively, studiesthat are based solely at the company levelmay not identify lessons that are learnedfrom one project to the next and may also fail[ 139 ]
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