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Innovation Management and New Product Development

Fifth Edition

Paul Trott
Portsmouth Business School

Financial Times Prentice Hall is an imprint of

Harlow, England London New York Boston San Francisco Toronto Sydney Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town Madrid Mexico City Amsterdam Munich Paris Milan

Contents
Preface Foreword by Professor Guus Berkhout Acknowledgements Plan of the book ~ xix xxiii xxiv xxviii

Part One Innovation management Innovation management: an introduction


The importance of innovation The study of innovation Recent and contemporary studies The need to view innovation in an organisational context Individuals in the innovation process Problems of definition and vocabulary ' Entrepreneurship Design Innovation and invention Successful and unsuccessful innovations Different types of innovation , Technology and science Popular views of innovation Models of innovation Serendipity Linear models Simultaneous coupling model Architectural innovation Interactive model Innovation life cycle and dominant designs Open innovation and the need to share and exchange knowledge (network models) ' Discontinuous innovation - step changes Innovation as a management process A framework for the management of innovation New skills . Innovation and new product development

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4 6 9 10 11 12 12 13 15 16 16 18 20 20 21 21 23 23 24 25 25 27 28 29 31 32 33

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Case study: The success of the iPod and iPhone raises the licensing question for A p p l e . . . again

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Contents

Chapter summary Discussion questions Key words and phrases References Further reading

40 40 41 41 44

Economics a n d market adoption


Innovation in its wider context The role of the state and national 'systems' of innovation . How national states can facilitate innovation Fostering innovation in the United States and Japan The right business environment is key to innovation Waves of innovation and growth: historical overview Fostering innovation in 'late-industrialising' countries Innovation within the 25 EU states Improving the innovation performance of the EU The times they are a changing: how frugal innovation is providing a future path for firms in emerging markets Innovation and the market Innovation and market vision Innovative new products and consumption patterns Marketing insights to facilitate innovation Lead users Innovation diffusion theories Adopting new products and embracing change Market adoption theories Case study: How three students built a business that could affect world trade Chapter summary Discussion questions Key words and phrases References Further reading

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48 50 51 52 54 54 57 58 60 61 61 62 62 64 66 67 69 71 71 77 78 78 ' 78 80

Managing innovation within firms


Organisations and innovation The dilemma of innovation management Managing uncertainty Pearson's uncertainty map Applying the uncertainty map in practice Managing innovation projects Organisational characteristics that facilitate the innovation process Growth orientation

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84 84 85 86 88 89 91 93

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Contents Organisational heritage and innovation experience Vigilance and external links Commitment to technology and R&D intensity . Acceptance of risks Cross-functional cooperation and coordination within organisational structure Receptivity Space for creativity Strategy towards innovation Diverse range of skills Industrial firms are different: a classification Organisational structures and innovation Formalisation Complexity Centralisation Organisational size The role of the individual in the innovation process IT systems and their impact on innovation Management tools for innovation Innovation management tools and techniques Applying the tools arid guidelines Case study: Gore-Tex and W.L. Gore & Associates: An innovative company and a contemporary culture Chapter summary , Discussion questions Key words and phrases References Further reading 94 95 95 95 95 96 96 96 97 99 101 101 102 102 103 103 104 107 107 109 110 114 114 115 115 117

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Innovation and operations management


Richard Noble, University of Portsmouth

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120 121 122 124 126 127 128 129 130 135 138 139 144 145 151

Operations management The nature of design and innovation in the context of operations Design requirements Design and volumes Craft-based products Design simplification Process design and innovation Innovation in the management of the pperations process Triggers for innovation Design of the organisation and its suppliers - supply chain management Business process re-engineering (BPR) Operations and technology Innovation as an operations process itself Case study: Novels, new products and Harry Potter Chapter summary

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Discussion questions Key words and phrases References Further reading

151 151 152 153

Managing intellectual property


Intellectual property Trade secrets An introduction to patents Novelty Inventive step Industrial applications Exclusions from patents The patenting of life Human genetic patenting The configuration of a patent Patent harmonisation: first to file and first to invent Some famous patent cases Patents in practice Expiry of a patent and patent extensions Patent extensions The use of patents in innovation management Do patents hinder or encourage innovation? Alternatives to patenting Trademarks Should satisfy the requirements of section 1(1) Distinctive Non-deceptive Not confusing Brand names Using brands to protect intellectual property Exploiting new opportunities Brands, trademarks and the internet Duration of registration, infringement and passing off Registered designs Copyright Remedy against infringement Damages Injunction Accounts Counterfeit goods and IP Case study: Pricing, patents and profits in the pharmaceutical industry Chapter summary Discussion questions Key words and phrases References Further reading

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156 159 160 161 162 162 162 163 163 164 165 166 167 167 169 170 170 172 173 175 175 175 175 176 177 178 179 179 180 181 183 183 184 184 184 185 189 189 189 189 191

Contents

Part T w o Turning technology into business Managing organisational knowledge


The battle of Trafalgar Technology trajectories The acquisition of firm-specific knowledge The resource-based perspective Dynamic competence-based theory of the firm Developing firm-specific competencies Competencies and profits Technology development and effort required The knowledge base of an organisation The whole can be more than the sum of the parts Organisational heritage When the performance of the organisation is greater than the abilities of individuals Japanese organisations and the role of organisational knowledge Characterising the knowledge base of the organisation The learning organisation Innovation, competition and further innovation Dominant design How firms cope with radical and incremental innovation Developing innovation strategies Leader/offensive Fast follower/defensive Cost minimisation/imitative Market segmentation specialist/traditional A technology strategy provides a link between innovation strategy and business strategy / Case study: The cork industry, the wine industry and the need for closure Chapter summary Discussion questions Key words and phrases References Further reading

193 194
196 197 198 198 199 200 202 203 203 204 205 205 206 207 209 209 211 212 216 216 217 218 218 218 219 228 228 228 229 231

Strategic alliances and networks


Defining strategic alliances The fall of the go-it-alone strategy and the rise of the octopus strategy Complementary capabilities and embedded technologies Interfirm knowledge-sharing routines Forms of strategic alliance Licensing Supplier relations Outsourcing Joint venture

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234 236 237 238 239 239 240 240 241
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Contents

Collaboration (non-joint ventures) R&D consortia Industry clusters Innovation networks The 'virtual company' Motives for establishing an alliance The process of forming a successful strategic alliance Negotiating a licensing deal Terms for the agreement ; Rights granted Licence restrictions Improvements Consideration (monetary value) Reports and auditing of accounts Representations/warranties Infringement Confidentiality Arbitration .. Termination Risks and limitations with strategic alliances The role of trust in strategic alliances The concept of trust Innovation risks in strategic outsourcing Eating you alive from the toes up The use of game theory to analyse strategic alliances Game theory and the prisoner's dilemma Use of alliances in implementing technology strategy Case study: And the winner is Sony's Blu-ray - the high-definition DVD format war Chapter summary Discussion questions Key words and phrases References Further reading '

241 241 242 243 245 246 247 248 248 249 249 249 249 249 250 250 250 250 250 250 253 253 255 257 258 259 260 261 267 268 268 268 271

Management of research a n d development


What is research and development? The traditional view of R&D R&D management and the industrial context R&D investment and company success Classifying R&D The operations that make up R&D R&D management and its link with business strategy Integration of R&D Strategic pressures on R&D The technology portfolio The difficulty of managing capital-intensive production plants in a dynamic environment

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274 275 275 278 281 283 285 286 288 289 290

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Contents

Which business to support and how? Technology leverage and R&D strategies Strengths and limitations of this approach Allocation of funds to R&D , Setting the R&D budget Level of R&D expenditure v Case study: The long and difficult 13-year journey to the marketplace for Pfizer's Viagra Chapter summary Discussion questions Key words and phrases References Further reading

291 293 294 295 296 298 299 306 306 307 307 308

Managing R&D projects


Successful technology management . The changing nature of R&D management Organising industrial R&D The acquisition of external technology Level of control of technology required Forms of external R&D Effective R&D management Managing scientific freedom Skunk works The link with the product innovation process The effect of R&D investment on products Evaluating R&D projects Evaluation criteria Case study: CSI and genetic fingerprinting Chapter summary Discussion questions Key words and phrases References . Further reading

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312 314 317 318 319 320 323 324 327 328 329 330 330 334 340 340 340 341 343

Open innovation and technology transfer


Background The dominant economic perspective Open innovation Introduction to technology transfer Information transfer and knowledge transfer Models of technology transfer Licensing Science park model Intermediary agency model
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Directory model Knowledge Transfer Partnership model Ferret model Hiring skilled employees Technology transfer units Research clubs European Space Agency (ESA) Consultancy Limitations and barriers to technology transfer NIH syndrome Internal organisational factors and inward technology transfer Absorbtive capacity: developing a receptive environment for technology transfer Identifying external technology: the importance of scanning and networking Linking external technology to internal capabilities Managing the inward transfer of technology Technology transfer and organisational learning Case study: Sony-Ericsson mobile phone joint venture dependent on technology transfer Chapter summary Discussion questions Key words and phrases References Further reading ,

353 353 353 355 355 355 356 356 356 357 358 359 361 362 362 363 365 373 373 373 373 376

Part Three New product development Product and brand strategy


Capabilities, networks and platforms Product platforms. Product planning Product strategy Competitive strategy Product portfolios The competitive environment Differentiation and positioning Differentiation Product positioning Competing with other products Managing brands Brands and blind product tests Brand strategy Brand extensions Market entry Launch and continuing improvement Withdrawing products Managing mature products

377 378

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Case study: Developing a new product for the tooth whitening market Chapter summary Discussion questions Key words and phrases References Further reading

407 413 414 414 414 415

New product development


Innovation management and NPD Product development as a series of decisions New products and prosperity Considerations when developing an NPD strategy Ongoing corporate planning Ongoing market planning Ongoing technology management Opportunity analysis/serendipity NPD as a strategy for growth Market penetration Market development Product development Diversification A range of product development opportunities What is a new product? Defining a new product Classification of new products Repositioning and brand extensions New product development as an industry innovation cycle Overview of NPD theories The fuzzy front end Time to market Agile NPD Models of new product development Departmental-stage models Activity-stage models and concurrent engineering Cross-functional models (teams) Decision-stage models Conversion-process models Response models Network models Case study: Launching innocent into the growing fruit smoothie market Chapter summary Discussion questions Key words and phrases References Further reading

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418 419 420 420 420 421 421 421 422 422 423 423 423 423 426 427 429 431 432 433 434 436 437 437 438 439 441 441 441 441 442 443 450 451 451 451 454

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Contents

Packaging and p r o d u c t development


Wrapping and packaging products The basic principles of packaging Protection Containment Identification Labelling Characteristics of packaging Dispensing Storage Stability Handling Opening/resealing After use and secondary use Disposal v Product rejuvenation New product opportunities through packaging Product and pack size variation Packaging systems Retailer acceptance Revitalising mature packaged goods Case study: Halfords Motor Oil - redesign and rebranding of an existing product Chapter summary Discussion questions Key words and phrases References Further reading .

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458 461 461 462 463 463 465 465 465 466 466 466 468 468 468 470 471 473 475 476 477 482 482 482 483 483

N e w service innovation
The growth in services Growth in knowledge-intensive business services (KIBS) Outsourcing and service growth Different types of services Technology and new service development New services and new business models Characteristics of services and how they differ from products Intangibility Heterogeneity Simultaneous production and consumption Perishability Classification of service innovations The new service development process New service development models Sequential service development models or stage-gate models Concurrent service development models

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488 488 489 493 495 495 496 497 498 498 498 499 499 501 502 504

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Service innovation and the consumer Consumer user toolkits Consumer testing of services Case study: Developing new services at the world's most successful internet-based company, eBay Chapter summary Discussion questions Key words and phrases References Further reading

505 506 507 508 516 516 516 517 520

Market research and its influence on new product development


Market research and new product development The purpose of,new product testing Testing new products Techniques used in consumer testing of new products Concept tests Test centres , Hall tests/mobile shops Product-use tests Trade shows Monadic tests Paired comparisons In-home placement tests Test panels When market research has too much influence Discontinuous new products Market research and discontinuous new products : Circumstances when market research may hinder the development of * discontinuous new products Technology-intensive products Breaking with convention and winning new markets When it may be correct to ignore your customers Striking the balance between new technology and market research The challenge for senior management Case study: Dyson, Hoover and the bagless vacuum cleaner Chapter summary Discussion questions Key words and phrases References Further reading

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524 525 526 527 528 528 528 528 529 529 529 529 529 529 532 533 533 534 536 539 540 542 543 551 551 552 552 553

Managing the new product development process


New products as projects The Valley of Death

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Contents

The key activities that need to be managed Assembling knowledge The generation of business opportunities Developing product concepts: turning business opportunities into product concepts The screening of business opportunities New technology product blogs Development of product prototypes Technical testing Market testing and consumer research How virtual worlds can help real-world innovations Market introduction NPD across different industries Organisational structures and cross-functional teams Teams and project management Functional structures Matrix structures Corporate venturing Project management Reducing product development times through computer-aided design The marketing/R&D interface High attrition rate of new products Case study: An analysis of 3M, the innovation company Chapter summary Discussion questions Key words and phrases References Further reading Appendix: Guinness patent Index . .

558 560 560 564 564 567 567 569 569 570 571 572 572 573 573 574 576 576 577 577 578 581 586 586 587 587 589 590 606

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