5.

3 Timing strategies

5.3

Timing strategies

5.3.1

The challenge: Competing against time

5.3.2

Time-based strategy: The definition of strategic goals Time-based management: The improvement of time-efficiency

5.3.3

© 2008 Prof. Dr. Hans Georg Gemünden Lehrstuhl für Technologie- und Innovationsmanagement • Technische Universität Berlin

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5.3 Timing strategies

Literature on timing strategies: Time-based management

Kessler, E.H. and Bierly, P.E. (2002): Is Faster Really Better? An Empirical Test of the Implications of Speed. In: IEEE Transactions on Engineering Management, Vol. 49, Feb. pp. 2-12. Langerak, F. and Hultink, E.J. (2006): The Impact of Product Innovativeness on the Link between Development Speed and New Product Profitability. In: Journal of Product Innovation Management, Vol. 23, pp. 203-214.

© 2008 Prof. Dr. Hans Georg Gemünden Lehrstuhl für Technologie- und Innovationsmanagement • Technische Universität Berlin

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Postulated Effects of Time-based Management

• “You can have dramatically higher returns on your product development dollar by halving the time you take to bring new products to market”
Robert H. Waterman Jr., Foreward to: Smith, P. G. and Reinertsen, D. G. (1991): Developing Products in Half the Time. Van Nostrand Reinhold: New York, p. xi.

• “Today´s innovation is time-based competition. ... Give customers what they want when they want it. ... Time-based Competitors are offering greater varieties of products and services, at lower costs and in less time than are their more pedestrian competitors.”
George Stalk, Jr. And Thomas Hout (1990): Competing against time. Free press: New York.

© 2008 Prof. Dr. Hans Georg Gemünden Lehrstuhl für Technologie- und Innovationsmanagement • Technische Universität Berlin

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p. Hans Georg Gemünden Lehrstuhl für Technologie. (1992): Organisation und Controlling von Produktentwicklungen.3 Time-based management Postulated effects of time-based management (1) Product lifetime cycle: 5 years Discrepancy 6 months extension of development time 50% Increase of development costs 5% Loss of profit 30% In a short product lifetime cycle development time has more influence on profit than costs! Source:Schmelzer.5. Dr. H. © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 4 .3. 50.

higher prices Higher profit Source:Schmelzer. Dr.und Innovationsmanagement • Technische Universität Berlin 5 .3 Time-based management Postulated effects of time-based management (2) Shorter development time Shorter usage of resources Efficiency Less R&D costs Earlier market entry Effectiveness More sales.3. H. p. (1992): Organisation und Controlling von Produktentwicklungen.5. 48. © 2008 Prof. Hans Georg Gemünden Lehrstuhl für Technologie.

Dr.3. Hans Georg Gemünden Lehrstuhl für Technologie. Double labor costs due to "not-invented-here"-syndromes 5. Additional costs of "eternity-projects" © 2008 Prof. Cost of stock on hand due to waiting times 2.3 Time-based management Cost-reductions through time optimized processes 1. Loss of orders or penalties due to not meeting deadlines 8. Risk costs due to "security reserves" on material.und Innovationsmanagement • Technische Universität Berlin 6 . and working capital 4.5. Idle costs due to waiting times 3. "Make up for lost time"-costs with progression-effects 7. human resources. Modification costs due to (much too late) error corrections 6.

5.3.3 Time-based management

Risks of Speeding-Up: Official Call-back Actions for German Cars
140
127

120
113

100

Number of Call-Backs

94 82 85

80

60

62 57 50

58

40
35

20

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: Melanie Wassink: Das Werk ruft – immer öfter. Hamburger Abendblatt, 11. Oktober 2002, S. 23
© 2008 Prof. Dr. Hans Georg Gemünden Lehrstuhl für Technologie- und Innovationsmanagement • Technische Universität Berlin 7

5.3.3 Time-based management

The Sources of Hidden Costs

• Low-profit, trivial innovation tends to drive out the more profitable breakthrough types. Gresham’s law about “bad money driving out the good” works on innovation. • Many mistakes happen when skipping steps sacrifices necessary information. • A surprisingly negative and disruptive side to new styles of small-team management sometimes appears. It can boost people costs. • Unexpected inefficiencies result when the process of innovation warps under pressure; the various steps don’t respond evenly to cuts in the time budget. • A firm’s complex set of support resources can get chewed up by pressure from players on speeded-up teams.
Source: Brockhoff, Zeitschrift fuer betriebswirtschaftliche Forschung, Sonderheft 23, 1988, p. 4
© 2008 Prof. Dr. Hans Georg Gemünden Lehrstuhl für Technologie- und Innovationsmanagement • Technische Universität Berlin 8

5.3.3 Time-based management

How to Avoid Hidden Costs Some actions that will let a management capitalize on a worthy new concept yet at the same time help hold down the hidden costs:
1. Spell out new products strategy clearly, and get understanding and agreement on it. 2. Review constantly to see if the innovation mix desired is being achieved. 3. Select two typical accelerated product development (APD) projects that have run their course and hold post-mortems. 4. 5. 6. 7. Keep asking for evidence that APD projects offer genuine benefits to the customer. Pick one project and have an independent party try to assess the true hidden costs. Taking into consideration the hidden costs discussed in this article, manage the APD program in a way to avoid the biggest problems. If contemplating putting an acceleration program into action, be sure the overall product innovation system to be changed is itself a good one
© 2008 Prof. Dr. Hans Georg Gemünden Lehrstuhl für Technologie- und Innovationsmanagement • Technische Universität Berlin 9

3. Feb. pp. Hans Georg Gemünden Lehrstuhl für Technologie.3 Time-based management + H1 H2 - Development costs Innovation speed H3 + H4 Project success + + H5 External uncertainty Internal uncertainty Source: E. Dr. Bierly (2002): Is Faster Really Better? An Empirical Test of the Implications of Speed. © 2008 Prof. In: IEEE Transactions on Engineering Management. E. H. 2-12. Vol.und Innovationsmanagement • Technische Universität Berlin 10 .Kessler/Bierly‘s theoretical framework: Is faster really better? Product quality 5. 49. Kessler and P.

5. Dr. budget 2. similar projects of competitors Development costs was measured using three items utilizing 13-point scales. similar competitor projects © 2008 Prof. relative to: 1. relative to: 1. schedule 2. Hans Georg Gemünden Lehrstuhl für Technologie.und Innovationsmanagement • Technische Universität Berlin 11 . similar past projects 3.3. similar completed projects in ones organization 3.3 Time-based management Kessler/Bierly’s measurement of constructs: Is faster really better? (1) Innovation speed was measured through three items utilizing 13-point scales.

Dr. Internal success measured to what extent the project met expectations and attained organizational goals.und Innovationsmanagement • Technische Universität Berlin 12 . preset performance specifications 2. similar competitor projects Project success was measured using two five-point Likert scales. 2.3.Kessler/Bierly’s 5.3 Time-based management measurement of constructs: Is faster really better? (2) Product quality was measured through three items utilizing 13-point scales. External success measured to what extent the project was a marketplace success. © 2008 Prof. i. to what extent did it “win” in competitive situations. ranging from not-at-all to completely. ranging from product-flop to completely-successful. Hans Georg Gemünden Lehrstuhl für Technologie. similar past projects 3. relative to: 1.e. 1.

advances in research and development of new products.3.Kessler/Bierly’s 5. Dr. income and educational levels.und Innovationsmanagement • Technische Universität Berlin 13 . © 2008 Prof.. devices.3 Time-based management measurement of constructs: Is faster really better? (3) Technological dynamism measured on a five-point scale the degree to which the technological environment of this innovation changes. and processes. ranging from very dynamic (changing rapidly) to very stable (virtually no change).g.g.. social trends. Hans Georg Gemünden Lehrstuhl für Technologie. e. ranging from very dynamic (changing rapidly) to very stable (virtually no change). e. Demographic dynamism measured on a five-point scale the degree to which the demographic environment of this innovation changes. population shifts.

Dr.3. a four-point scale asking respondents to evaluate the degree of change involved in the project.und Innovationsmanagement • Technische Universität Berlin 14 .Kessler/Bierly’s 5. a six-point scale asking respondents to evaluate the type of work done on the project. ranging from pure applications engineering to the development or application of new technology.3 Time-based management measurement of constructs: Is faster really better? (4) Project radicalness was measured through 1. These responses were pooled with a score of ten indicating a high degree of radicalness and two indicating low radicalness © 2008 Prof. 2. ranging from an imitation of existing products to a radically new product. Hans Georg Gemünden Lehrstuhl für Technologie.

licensing arrangements)..3.e. © 2008 Prof. Hans Georg Gemünden Lehrstuhl für Technologie. Dr.Kessler/Bierly’s 5. ideas for this product and 2..e. suppliers.3 Time-based management measurement of constructs: Is faster really better? (5) Internal sourcing was measured on two five-point scales asking to what extent 1. members of the research and/or development staff) as opposed to external sources (i. capital goods.und Innovationsmanagement • Technische Universität Berlin 15 . These responses were pooled with ten indicating a high degree of internal sourcing and two indicating low internal sourcing. technological developments for this product came from internal sources (i.

Kessler/Bierly‘s empirical results: Linear effects 5.3 Time-based management Product quality +.und Innovationsmanagement • Technische Universität Berlin 16 . Hans Georg Gemünden Lehrstuhl für Technologie. Dr.12 (ns) Innovation speed H3 .35 ** H1 H2 Development cost -.3.39 ** H4 H5 Project success External uncertainty Internal uncertainty © 2008 Prof.12 (ns) +.

Sonderheft 23. Zeitschrift für betriebswirtschaftliche Forschung.5. Dr. 1988. Hans Georg Gemünden Lehrstuhl für Technologie. 4 © 2008 Prof.3 Time-based management The Optimization of Innovation Time: The Economic Approach Capital value max Capital value of net sales Capital value of R&D expenditures min Optimal innovation time Innovation time Source: Brockhoff.3.und Innovationsmanagement • Technische Universität Berlin 17 . p.

pp. E. © 2008 Prof.b H2b: The maximum profitability achieved by speeding new products to market is lower for more innovative products than for less innovative new products Sample: N=233 manufacturers of industrial products Development Speed H1 New Product Profitability Source: Langerak.3 Time-based management Study of Langerak and Hultink (2006) New Product Profitability Optimal point Hypotheses: H1: Development speed has an inverted U-shaped relationship with profitability. Vol. and Hultink. F.3. Hans Georg Gemünden Lehrstuhl für Technologie. Development Speed Innovativeness H2a. (2006): The Impact of Product Innovativeness on the Link between Development Speed and New Product Profitability.und Innovationsmanagement • Technische Universität Berlin 18 . 203-214.5. Dr. H2a: The optimal development speed is lower for more innovative new products.J. 23. JPIM.

3. Hans Georg Gemünden Lehrstuhl für Technologie.und Innovationsmanagement • Technische Universität Berlin .3 Time-based management Study of Langerak and Hultink (2006) – Effects of Increasing Speed Increased Development Speed First choice of profitable segments Positive network effects Switching costs for early adopters Experience effects Pricing freedom First choice of distributors Setting of technological standards Preempting of scarce resources Hidden costs of accelerated NPD Higher costs due to investments in technology Higher costs due to more thorough concept and prototype testing Inability to exploit opportunities arising from shifts in consumers‘ preferences Possible positioning and pricing mistakes inherent with accelerated NPD 19 © 2008 Prof.5. Dr.

5.3 Time-based management Study of Langerak and Hultink (2006) – The Impact of Innovativeness Taking Too Little Time in the Development of More Innovative New Products Market Perspective Strategic Window Firm Perspective Development Costs Firm Perspective Marketing Costs Taking Too Much Time in the Development of Less Innovative New Products A strategic window that is already closed because of customers’ experience with product category Lower profitability because of higher costs due to increases in organizational slack and unfocused efforts Lower profitability because of higher costs since established market must be broken into 20 A Strategic window that is not yet open due to incompatibility Lower profitability because of higher costs due to hidden costs of accelerated NPD and testing mistakes Lower profitability because of higher costs related to new market development and possible marketing mistakes © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin . Dr. Hans Georg Gemünden Lehrstuhl für Technologie.3.

3. (3) product improvement Firm Size. Dr.5.Measures Profitability: • • • • Degree to which the new product met profit goals Degree to which the new product met margin goals Performance in development speed compared to similar products in the past Performance in development speed compared to similar products of competitors Categorization according to BAH typology: (1) new product line. Hans Georg Gemünden Lehrstuhl für Technologie. R&D Expenditures and Market Turbulence © 2008 Prof. (2) addition to existing product line.3 Time-based management Study of Langerak and Hultink (2006) .und Innovationsmanagement • Technische Universität Berlin 21 Development Speed: Innovativeness: • Control Variables: .

21 x² + 1.5 5 (p<0.5 2 2.15 x – 0.47 Development speed (=X) Development speed has an inverted U-shaped relationship with new product profitability (confirming H1). Dr.0 1 1. R² = 0.3 Time-based management Study of Langerak and Hultink (2006) – Results (1) The Effect of Development Speed on New Product Profitability 4.0 y =1.3.5 4 4.und Innovationsmanagement • Technische Universität Berlin 22 .5 3 3.01 for all values) Adj. Hans Georg Gemünden Lehrstuhl für Technologie.0 New product profitability (=Y) 3.0 (n = 233) 1. © 2008 Prof.5.65 2.

5 4 4. Dr.20 x² + 1.22 x – 0.5 2 2.5.5 3 3.52 ** 2.0 New product profitability (=Y) * 3.3.und Innovationsmanagement • Technische Universität Berlin 23 . Hans Georg Gemünden Lehrstuhl für Technologie. The maximum profitability achieved by speeding new products to market is higher for product improvements than for line additions (confirming H2b).5 5 Product line additions**: y =0.17 x² + 1.0 (n = 93) 1.3 Time-based management Study of Langerak and Hultink (2006) – Results (2) The Moderating Influence of Innovativeness 4. R² = 0.0 1 1.76 Adj.0 Product improvements*: (n = 122) y =1.01 for all values) Profit maximization occurs at a higher development speed for product improvements than for additions to existing product lines (confirming H2a).71 Adj. R² = 0.41 Development speed (=X) (p<0. © 2008 Prof.82 x – 0.

3.und Innovationsmanagement • Technische Universität Berlin 24 . improve architecture and task clustering Reduce the number of nice-to-do and control-tasks Eliminate steps Eliminate delays Replace push-by pull-principles Parallel or overlap processing Perform several tasks at the same time Speed-up individual cycles Make things faster: Use experience better. concentrate on value generating features. Dr.3 Time-based management Approaches for accelerating new product development projects (1) Simplify Reduce the number of iterations. automate routine work © 2008 Prof.5. Hans Georg Gemünden Lehrstuhl für Technologie.

..3. Hans Georg Gemünden Lehrstuhl für Technologie....3 Time-based management Approaches for accelerating new product development projects (2) Cycle 1 Cycle 2 I 1. R1 Cycle 1 C 3. R 1+2 Eliminate steps Eliminate delays Eliminate delays between cycles Parallel or overlap problem solving cycles Shorten individual problem solving cycles Cycle 1 C 3. Dr.... Simplify Reduce the number of iterations Eliminate problem solving cycles Cycle 1 Cycle 2 C 3. R 1+2+3+4 Speed up individual cycles Cycle 1 C 3..1 C 3.5.1 I 2. R 1+2+3+4+5 © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 25 ... R 1+2+3 Parallel or overlap processing Cycle 1 C 3..

und Innovationsmanagement • Technische Universität Berlin 26 .3 Time-based management Approaches for accelerating new product development projects (3) Major New Product Development Phases: Acceleration Methods: Simplify Research and Development Generate explicit R&D goals and Link with other groups Link R&D goals and mfg.5. capabilities and Provide early product training Utiliize "lead user" ideas and Reduce number of parts Use small groups to generate ideas and Initiate Computer Aided Design Institute mutually exclusive research and Parallel known applied sciences Manufacturing Reduce number of vendors and Simplify documentation Reduce work-in-process and Maintain equipment Reduce assembly steps and Create more reliable products Install on-line product testing and Computer aided manufacturing Provide collateral and/or Contingency facilities Marketing Focus product requirements and Minimize user education requirements Reduce marketing plan delays and Reduce launch delays Minimize formal market testing and Reduce marketing approvals Reduce test market time and Create customer alliances Concurrent marketing and Plan customer service early Eliminate Delays Eliminate Steps Speed-Up Parallel Processing © 2008 Prof.3. Hans Georg Gemünden Lehrstuhl für Technologie. Dr.

cost. testing.g.. group think • Hurried acceptance of the NPD vision • Early capital appropriations/alternate technologies may result in poor estimates • Early launch may lead to inadequate product documentation • If external vendors are used.und Innovationsmanagement • Technische Universität Berlin .e.g. proprietary advantages may be lost • Senior management may be reluctant to decentralize NPD decision-making • Requires vendors supplying component parts to adopt high quality standards to minimize "in-house" testing • Higher stress • Danger of inadequate NPD project documentation • Higher risk may occur if some phases are shortened. and controls • Understandability fosters trust • Flatter organization Potential Limitations • Re-Entry problems of "project dedicated" team members back into their functional groups at project completion • Not meeting customer requirements • Higher costs if external vendors are used to augment NPD processes • Not meeting product design requirements • Lack of project status detail • Lack detail if reporting/controls not adequate • Use of trust to simplify NPD processes can lead to inadequate critical thinking. testing • Potential for confusion • Higher stress levels • NPD participants must work with greater uncertainty • More frequent communication required • More resources required • Need for teamwork training 27 Simplify Eliminate Delays • Fosters clearer "up-front" thinking .3 Time-based management Approaches for accelerating new product development projects (4) Approaches Potential Benefits • Make technology and design more understandable • Applies to external. human corporate relationships • Streamlines reports.vision • Encourages early technology investigation of long-lead items • Forces build/buy decisions . e-mail) • "Smarter" and "shorter" testing algorithms • Switch from matrix to project organization structures increases focus on NPD • Simultaneous engineering.may increase quality and speed • Authorizing signature elimination moves authority down the organizational hierarchy • Eliminates redundant incoming tests and inspections • Helps eliminate "Not Invented Here" attitude • Forces use of new technologies (i. for communication FAX.5. Hans Georg Gemünden Lehrstuhl für Technologie. Dr. documents. and market research • Increased knowledge of other functions • Fosters teamwork activities Eliminate Steps Speed-Up Parallel Processing © 2008 Prof. e.3. e. quality.

3. Hans Georg Gemünden Lehrstuhl für Technologie.5.und Innovationsmanagement • Technische Universität Berlin 28 .3 Time-based management Approaches for accelerating new product development projects (5) Instruments to accelerate product development Parallelization Simplify Eliminate steps Eliminate delays Parallel processing Speed up individual cycles Technical controlling Tests Time between reviews Technical Simulation Rapid prototyping Early integration and continuous integration Managerial process oriented QFD DSM IT-systems Cross-functional teams Strategic system oriented Pre-development activities Platforms Cooperation Outsourcing © 2008 Prof. Dr.

org/sys-analy.dsmweb.3.und Innovationsmanagement • Technische Universität Berlin 29 . Dr. Hans Georg Gemünden Lehrstuhl für Technologie.3 Time-based management Approaches for accelerating new product development projects (6) Visualize and reduce iterations: THE DESIGN STRUCTURE MATRIX (DSM) DSM as a system analysis tool that • • • • provides a visual image of important relationships in a product development project capturers and displays a process acts as a focus for process analysis and re-engineering reveals key information flows Source: http://www.htm © 2008 Prof.5.

und Innovationsmanagement • Technische Universität Berlin 30 . Hans Georg Gemünden Lehrstuhl für Technologie.3.3 Time-based management Approaches for accelerating new product development projects (7) Example: ACTIVITIES Receive specification generate/select Concept Design beta cartridges Produce beta cartridges Develop testing program Test beta cartridges Design prod'n cartridge Design mold Design assembly tooling Purchase equipment Fabricate molds Debug molds Certify cartridge Initial production run A B C D E F G H I J K L M N X X X X X X X X X X A A X X B X C X X X X X D E X F X X G X X X X X X H X X X I X J K X X X L M X B C D E F G H I J K L M N © 2008 Prof.5. Dr.

2. This means that the earlier activity has to be repeated/reworked in light of the late arrival of new information.5. © 2008 Prof. Dr.3.e. Hans Georg Gemünden Lehrstuhl für Technologie. The red marks (above the diagonal) are of special significance.e. Such a mark reveals a feedback from a later (i. upstream) one. This iterative process is similar in most engineering design and development projects.und Innovationsmanagement • Technische Universität Berlin 31 .3 Time-based management Approaches for accelerating new product development projects (8) Reading the DSM 1. downstream) activity to an earlier (i. Design iterations create rework and require extra communication and negotiation which result in a prolonged development process. The green marks (below the diagonal) represent forward flow of information.

What are advantages of the DSM? What are limitations of the DSM? © 2008 Prof. This process is called partitioning. Dr.und Innovationsmanagement • Technische Universität Berlin 32 . Critcial reflection about the DSM Discuss: 1. 2.3. the DSM methodology suggests the manipulation of the matrix elements such that iterative behavior is removed from the matrix.5. Hans Georg Gemünden Lehrstuhl für Technologie. or at least minimized.3 Time-based management Approaches for accelerating new product development projects (9) Leveraging the DSM In order to speed up an identified iterative design process.

Table of contents 5 Innovation strategies 5.3 Timing strategies: When are innovations most successful? 5.und Innovationsmanagement • Technische Universität Berlin 33 . Dr.4 Strategies for radical innovations © 2008 Prof.1 Sourcing strategies: Where are innovations generated ? 5.2 Exploitation strategies: Where are innovations benefited? 5. Hans Georg Gemünden Lehrstuhl für Technologie.

(2005): Unraveling willingness to cannibalize: a closer look at the barrier to radical innovation. E. 35. Chandy.. P. G. 25. (2000): The Incumbent´s Curse? Incumbency. Size. K. G.J. Vol. C. pp. © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 34 . (2003): Sources and Financial Consequences of Radical Innovation: Insights from Pharmaceuticals In: Journal of Marketing. 82-102.. pp. Vol.. B. 64. (1998): Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Cannibalize. and Tellis. K. K. B. Vermeulen. Sorescu. 474 – 487. In: Journal of Marketing. 1401-1409. Hillebrand. J. Vol. pp. Vol. Hans Georg Gemünden Lehrstuhl für Technologie. Dr. Chandy.A. and Tellis. Nijssen. 67.5. In: Journal of Marketing Research. R. pp. R. and Prabhu. 76-80.M. and Radical Product Innovation.4 Strategies for radical innovations Literature on strategies for radical innovations Chandy. In: Technovation. A. R.

4 Strategies for radical innovations Chandy/Tellis’ study (2000): The incumbent’s curse? (1) Common perception in the field of innovation is: • Large. Vol.5. the outsiders Source: Chandy. Dr. and Radical Product Innovation.und Innovationsmanagement • Technische Universität Berlin 35 . © 2008 Prof. K. and Tellis. In: Journal of Marketing. 64. pp. (2000): The Incumbent´s Curse? Incumbency. G. Hans Georg Gemünden Lehrstuhl für Technologie. 76-80. incumbent firms rarely introduce radical product innovations They may even turn away entrepreneurs who come up with radical innovations • Æ Radical innovations tend to come from small firms. Size. R.

Does the phenomenon vary over time and across national boundaries? © 2008 Prof.5.und Innovationsmanagement • Technische Universität Berlin 36 .4 Strategies for radical innovations Chandy/Tellis’ study (2000): The incumbent’s curse? (2) However: The evidence for the incumbent‘s curse is based on anecdotes and scattered case studies. Research questions: 1. How prevalent is the phenomenon? 2. Is it driven by incumbency or size? 3. Hans Georg Gemünden Lehrstuhl für Technologie. Dr.

Dr.4 Strategies for radical innovations Theoretical discussion of the incumbent´s curse problem (1) Type of firm Incumbent firms vs.5. Hans Georg Gemünden Lehrstuhl für Technologie. New entrants Theory against radical innovation Organizational mechanisms: a) Incentives b) Filters c) Routines Theory for radical innovation Market capabilities: a) Customer knowledge b) Customer franchise c) Market power ÆEnhance commitment to current technology at the expense of radical innovation ÆCreate opportunities for radical innovations © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 37 .

5. Small firms Theory against radical innovation Bureaucratic inertia: Theory for radical innovation Large firm‘s capabilities: Large firms develop a) Financial capabilities a) Multiple layers of administrative staff b) Technical capabilities c) Wide risk spread b) Formal rules of communication © 2008 Prof. Hans Georg Gemünden Lehrstuhl für Technologie.und Innovationsmanagement • Technische Universität Berlin 38 . Dr.4 Strategies for radical innovations Theoretical discussion of the incumbent´s curse problem (2) Type of firm Large firms vs.

Foreign firms Theory for radical innovation in the Theory against radical US innovation in the US US: a) enjoys an active market for venture capital b) culture celebrates risk takers c) failure of entrepreneurship is less stigmatized d) succeeding after a string of failures enhances the glory of the entrepreneur or the winning entrepreneurial team Europe and Japan: Government policies give high financial and technological support to large incumbent firms © 2008 Prof.5.und Innovationsmanagement • Technische Universität Berlin 39 .4 Strategies for radical innovations Theoretical discussion of the incumbent´s curse problem (3) Type of firm US firms vs. Hans Georg Gemünden Lehrstuhl für Technologie. Dr.

5. Dr. Hans Georg Gemünden Lehrstuhl für Technologie. Product classes: consumer durables and office product mass products: • 49 products categories with more than one million units in scale 1994. the last year for which sales were available when the study began © 2008 Prof. information from more than 250 books and 500 articles where collected by one researcher and nine trained assistants over a period of four years.4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Sample (1) Overall.und Innovationsmanagement • Technische Universität Berlin 40 . Selection of the 64 radical innovation on the following criteria: 1.

Dr.5. Hans Georg Gemünden Lehrstuhl für Technologie.und Innovationsmanagement • Technische Universität Berlin 41 .4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Sample (2) 2. Core technology • used in at least one innovation in the category varies substantially from the technology used in the previous product generation This selection is based on information from books on the history of respective categories and judgment of three experts rating the differences in core technology to the previous product generation and the superiority in user benefits. © 2008 Prof.

und Innovationsmanagement • Technische Universität Berlin 42 • • .e.. such as United Press International) Reliability: The sources are well respected or have a history of good reporting Contemporaneity: The sources report as close to the time of the event as possible © 2008 Prof. they did not come from a single source. Hans Georg Gemünden Lehrstuhl für Technologie.5. Dr.4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Research method (historical approach) Selection of historical sources: The authors use the following five criteria: • • • Confirmation: At least two published sources cite the same fact Neutrality: The sources have no overt interest to bias their reports Independence: The sources are based on independent observation (i.

und Innovationsmanagement • Technische Universität Berlin 43 .4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Measurement of constructs (1) Firm size: • Full-time employees in the firm at the time the radical product innovation was commercialized (small <100. Dr.5. medium: 100-2. Hans Georg Gemünden Lehrstuhl für Technologie. large > 2.500.500) Radical innovator: • The firm that first commercialized the radical innovation Incumbent: • A firm that manufactured or sold products that belonged to the previous product generation on the introduction date © 2008 Prof.

Hans Georg Gemünden Lehrstuhl für Technologie.5. Dr.4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Measurement of constructs (2) New entrant: • A firm that did not manufacture or sell products belonging to the previous product generation at the introduction date Nationality: • The country where the firm was headquartered at the time it introduced the radical innovation Radical innovation: • Average rating on „superiority in user benefits“ and „difference in core technology relative to previous product generation“ is equal or more than 5 on the nine-point scale (53 out of 64 innovations meet this criterion ) © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 44 .

If a large firm is defined as more than 500 employees then 51 % of the radical innovations come from large firms.und Innovationsmanagement • Technische Universität Berlin 45 .4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Results (1) 1. the overall results give more or less support for the theory of bureaucratic inertia of large firms. Hans Georg Gemünden Lehrstuhl für Technologie. the overall results do not support the incumbent‘s curse. Firm size: • • 58% of the radical innovations are from small and medium firms 42 % of the radical innovations are from large firms (> 2. Dr.500 employees) If a large firm is defined as more than 1. © 2008 Prof.000 employees then 45 % of the radical innovations come from large firms. Æ Thus. Depending on the definition of a large firm.5. Incumbency: • • 53% of the radical innovations are from non-incumbents 47% are from incumbents These proportions are not significantly different from each other. 2.

Dr. Hans Georg Gemünden Lehrstuhl für Technologie. after World-War II they accounted for only 26 %. © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 46 .4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Results (2) 3. The incumbent‘s curse may have been a severe problem in the late ninetieth and early twentieth century. Incumbency status of radical innovators over time: The average percentages change dramatically over time. however it is by far less common in recent times.5. Before World-War II non-incumbents accounted for 73 % of the radical innovations.

Impact of firm size on pioneering radical innovations over time: The reversal over time also occurs for the size of firms. Small and medium firms account for 83 % of the Pre-World War II radical innovations but only for 26 % of the Post-World War II radical innovations. Dr.5. Hans Georg Gemünden Lehrstuhl für Technologie. © 2008 Prof.4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Results (3) 4.und Innovationsmanagement • Technische Universität Berlin 47 .

6. Post-World War II). but this effect is usually not significant Size of the firm has a moderate negative and significant influence on radicalness of innovation © 2008 Prof. degree of radicalness decreases over time (significant in 3 out of 4 models) Incumbency status has a weak negative influence on radicalness.4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Results (4) 5. 3. Nationality of innovating firms: Over time the percentage of radical Non-US Innovations increased from 33 % to 43 % (Pre-World War II vs. 48 .und Innovationsmanagement • Technische Universität Berlin 2.5. Hans Georg Gemünden Lehrstuhl für Technologie. Multivariate analysis of radicalness of an innovation: 1. Dr.

© 2008 Prof. In recent years innovations introduced by large firms are more radical than those introduced by small firms. 5. In recent years innovations introduced by U. firms are more radical than those introduced by non-US firms. Dr. There is a strong significant interaction effect of time and nationality. Hans Georg Gemünden Lehrstuhl für Technologie.4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Results (5) Continue: 6.S. The interaction of year and incumbency is usually not significant The interaction of year and size is a strong positive one which is usually significant. 6. Multivariate analysis of radicalness of an innovation: 4.und Innovationsmanagement • Technische Universität Berlin 49 .5. The interaction effect is so strong that it more than cancels out the negative effect of size on radicalness.

Hans Georg Gemünden Lehrstuhl für Technologie. After World War II (up to 1994) large firms appear to have introduced innovations which are even more radical than those introduced by small and medium-sized firms. Question: Please discuss why large incumbent firms have successfully implemented radical innovations! © 2008 Prof.5. The role of large firms is further strengthened by the fact that many of successful fast-second imitators have been large and often incumbent firms. Dr. The negative effects of size have been prevalent in the period before World War II.4 Strategies for radical innovations Chandy/Tellis‘ study (2000): Results (6) Conclusion from the multivariate analysis: Incumbent status alone does not have a strong negative effect on radicalness of innovation.und Innovationsmanagement • Technische Universität Berlin 50 .

pp. © 2008 Prof. R. (1998): Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Cannibalize In: Journal of Marketing Research. and Tellis. Vol. K. 474 – 487. Dr.5. G. 35.4 Strategies for radical innovations Chandy/Tellis (1998): Willingness to cannibalize Research Question: Beyond size: What really drives radical innovation? Chandy.und Innovationsmanagement • Technische Universität Berlin 51 . Hans Georg Gemünden Lehrstuhl für Technologie.

telecommunication categorized the corporations according to their size: • 1.5. from 500 to 4999 employees 4. Hans Georg Gemünden Lehrstuhl für Technologie. photonics 3. fewer than 100 employees 2. computer hardware 2. Dr. more than 5000 employees • surveyed senior managers © 2008 Prof. from 100 to 499 employees 3.4 Strategies for radical innovations Chandy/Tellis‘ study (1998): Sample They • restricted the sample to highly competitive and turbulent high-tech industries: 1.und Innovationsmanagement • Technische Universität Berlin 52 .

Hans Georg Gemünden Lehrstuhl für Technologie.4 Strategies for radical innovations Chandy/Tellis‘ study (1998): Framework Firm size γ 12 Specialized investments Internal markets Product champion influence Futuremarket focus γ 21 γ 22 γ23 γ24 Willingness to cannibalize β11 Radical product innovation The hypotheses were tested with a path model.und Innovationsmanagement • Technische Universität Berlin 53 . based on the interview data. Dr.5. © 2008 Prof.

und Innovationsmanagement • Technische Universität Berlin 54 .4 Strategies for radical innovations Chandy/Tellis‘ study (1998): Results (1) • Willingness to cannibalize has a strong positive effect on radical product innovation • Firm size has no significant effect on radical product innovation • Specialized investments have a negative but weak influence on the willingness to cannibalize • The presence of active internal markets significantly increases an organizations willingness to cannibalize • Firms with strong product champion roles are more willing to cannibalize than other firms • Firms that focus on future markets more than on current markets have a higher willingness to cannibalize © 2008 Prof.5. Dr. Hans Georg Gemünden Lehrstuhl für Technologie.

und Innovationsmanagement • Technische Universität Berlin 55 . In the context of radical product innovation cannibalization is no effect that has to be avoided. Those that are not will be overrun by small innovative firms.4 Strategies for radical innovations Chandy/Tellis‘ study (1998): Results (2) Implications: Willingness to cannibalize has a greater impact on radical product innovation than the size of the firm. Differentiate between current and future markets.5. Dr. Large firms that are organized in a manner that promotes willingness to cannibalize will be innovative. Hans Georg Gemünden Lehrstuhl für Technologie. Internal markets increase the willingness to cannibalize but they also have a negative effect on the autonomy of business units. Thus. © 2008 Prof. listen to future customers and watch future competitors. business units themselves should judge when and with whom to cooperate or compete.

Those that are not will be overrun by small innovative firms. Differentiate between current and future markets.und Innovationsmanagement • Technische Universität Berlin 56 . listen to future customers and watch future competitors. In the context of radical product innovation cannibalization is no effect that has to be avoided.5.4 Strategies for radical innovations Chandy/Tellis‘ study (1998): Results (2) Implications: Willingness to cannibalize has a greater impact on radical product innovation than the size of the firm. business units themselves should judge when and with whom to cooperate or compete. Hans Georg Gemünden Lehrstuhl für Technologie. Dr. © 2008 Prof. Large firms that are organized in a manner that promotes willingness to cannibalize will be innovative. Thus. Internal markets increase the willingness to cannibalize but they also have a negative effect on the autonomy of business units.

Hans Georg Gemünden Lehrstuhl für Technologie. 1401-1409.. pp.4 Strategies for radical innovations Nijssen et al.5. Vol.J.und Innovationsmanagement • Technische Universität Berlin . In: Technovation. Dr. (2005): Unraveling willingness to cannibalize: a closer look at the barrier to radical innovation. P. (2005): Unraveling Willingness to Cannibalize Hypothesized antecedents and their proposed influence on the dimensions of “willingness to cannibalize” Customer Orientation Future Market Orientation Top Management Risk Posture Product Champion Influence Power of Current Technology Specialized Investment Competitive Environment Willingness to Cannibalize on… Capabilities Sales Investments + + + + - - + + + 57 - Source: Nijssen.M. B. © 2008 Prof. Vermeulen. E. 25.A. Hillebrand..

relative to their current needs We are bold in our effort to maximize the probability of exploiting market opportunities We are fast in introducing new products and services to the marketplace Customer orientation: The company that I am responsible for… Constantly monitors the level of commitment and orientation to serving customer needs Has based its strategy for competitive advantage on understanding customers’ needs Is more customer focused than its competitors Beliefs that it exists primarily to satisfy and serve customers © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 58 .4 Strategies for radical innovations Nijssen et al. Hans Georg Gemünden Lehrstuhl für Technologie.5. Dr. (2005): Measures (1) Willingness to cannibalize: The company that I am responsible for as CEO… Cannibalize sales Supports new projects even when they could potentially take away sales of existing products Will accept the cannibalization of current sales by adopting a new technology to take the opportunity for competitive advantage Is very willing to sacrifice sales of its existing products in order to improve sales of its new products Cannibalize previous investments Tends to oppose new technologies that cause its manufacturing facilities to become obsolete (R) Will not aggressively pursue a new technology that makes existing investments obsolete (R) Will not launch a new technology that hurts existing products’ sales (R) Cannibalize capabilities Can easily change its organizational scheme and processes to fit the needs of a new product Easily replaces one set of abilities with a different set of abilities to adopt a new technology Can easily change the manner in which it carries out tasks to fit the routines that a new product may require Future market orientation: In the company that I run… The emphasis is on new customers with their future needs relative to current customers Market research efforts are aimed at obtaining information about customers’ needs in the future.

4 Strategies for radical innovations Nijssen et al.und Innovationsmanagement • Technische Universität Berlin 59 . (2005): Measures (2) Product champion influence: Within the company I’m responsible for… Product champions play an important role Senior managers strongly support champions with radical new product ideas Activities of product champions clearly impact product development Product champions wield considerable clout Specialized investments: The organization I am responsible for..5. Cannot apply many of its current operational procedures in the new technology Will lose many of its investments in the current technology when it decides to switch to a new technology Will have to start almost from scratch to be able to work with the new technology Has many difficulties in applying the investments made for the current technology in the new technology Power of current technology: Managers that use the firm’s current technology have a large influence on our organization’s strategy Supporters of our current technology can and do seriously delay the introduction of new technologies Apostles of new technologies generally have a hard time getting things done in our organization In discussions and decisions on new investments.. Hans Georg Gemünden Lehrstuhl für Technologie. a more than reasonable share of time and money tends to be allocated to old or current technologies Competitive environment: In this industry… Competition is cutthroat Price competition is a hallmark We hear of new competitive moves almost every day There are many “promotion wars” © 2008 Prof. Dr.

5. Dr.und Innovationsmanagement • Technische Universität Berlin 60 . (2005): Exploratory Factor Analysis Factor analysis shows the multidimensionality of willingness to cannibalize © 2008 Prof.4 Strategies for radical innovations Nijssen et al. Hans Georg Gemünden Lehrstuhl für Technologie.

222* 0.290* -0.237* -0.177 0.133 -0.144 0.264* 0.078 -0.314** -0. Hans Georg Gemünden Lehrstuhl für Technologie.139 -0.255* correlations.198 -0.032 0. Dr.419** 0. n=60 (for shaded coefficients no proposition was formulated.5.588** 0.127 0.01 level respectively) © 2008 Prof. ** significance at the 0.090 0.460** -0. *.05 and 0.und Innovationsmanagement • Technische Universität Berlin 61 .046 0.530** -0. (2005): Results (1) Willingness to Cannibalize on… Capabilities Customer Orientation Future Market Orientation Top Management Risk Posture Product Champion Influence Power of Current Technology Specialized Investment Competitive Environment Sales Investments 0.388** 0.4 Strategies for radical innovations Nijssen et al.

und Innovationsmanagement • Technische Universität Berlin 62 . Dr. © 2008 Prof.4 Strategies for radical innovations Nijssen et al. (2005): Further Propositions What is the influence of willingness to cannibalize on radical innovation and financial performance of the firm? Propositions: • The three-dimensions of willingness to cannibalize will be positively correlated to the level of radicalness of the new products developed.5. Hans Georg Gemünden Lehrstuhl für Technologie. • Willingness to cannibalize (a) capabilities and (b) investments will be positively related to financial performance. Willingness to cannibalize (c) sales has no or an undetermined effect.

5.251** 0.296** 0.142 0. (2005): Results (2) Willingness to Cannibalize on… Capabilities Radicalness of New Products Performance Sales Investments 0.327** 0.021 0. Hans Georg Gemünden Lehrstuhl für Technologie.. Dr. Regularly introduces new products that are radically different from those already on the market Is known in the industry for setting the pace using innovative new products Is always the first to introduce radically new product innovations Performance: Our company’s overall performance compared to its competitors was 1=much poorer-5=much better Our company compared to our main competitor was 1= much less profitable-5=much more profitable © 2008 Prof.4 Strategies for radical innovations Nijssen et al.und Innovationsmanagement • Technische Universität Berlin 63 .154 Additional measures: Radicalness of new products (five points Likert scale): Our company.

C.5. © 2008 Prof. pp.. 82-102..4 Strategies for radical innovations Sources and Consequences of Radical Innovation Study by Sorescu et al. Chandy. How great are the financial rewards to radical innovations. B. Dr. and how do these rewards vary across dominant and nondominant firms? 3. (2003) in the Pharmaceutical Industry Research Questions: 1. R. J. Who introduces a greater number of radical innovations: dominant or nondominant firms? 2. 67(4). Vol. A. Which are more valuable: innovations that incorporate a breakthrough technology or innovations that provide a substantial increase in customer benefits? Source: Sorescu. Prabhu.und Innovationsmanagement • Technische Universität Berlin 64 . Journal of Marketing. K. (2003) Sources and Financial Consequences of Radical Innovation: Insights from Pharmaceuticals. Hans Georg Gemünden Lehrstuhl für Technologie.

or existing drug with new usage Drug appears to represent an advance over available therapy Drug appears to have therapeutical qualities similar to those of an already marketed drug © 2008 Prof.und Innovationsmanagement • Technische Universität Berlin 65 .5. Hans Georg Gemünden Lehrstuhl für Technologie.4 Strategies for radical innovations Types of Product Innovations Theory Low Newness of Technology Low High Incremental innovation Technological breakthrough Customer-Need Fulfillment High Market breakthrough Radical innovation Operationalization Chemical Composition Update NME Therapeutical Potential Standard Review Incremental innovation Technological breakthrough Priority Review Market breakthrough Radical innovation Food and Drug Administration (FDA) Definitions: NME Update Priority Review Standard Review New Molecular Entities (active ingredient never been marketed in the U. Dr.) New formulation.S. new dosage of existing components.

und Innovationsmanagement • Technische Universität Berlin 66 . assets.4 Strategies for radical innovations Sorescu et al.5. Dr. and profits of a firm © 2008 Prof. (2003) – Results (1) Who introduces more breakthroughs? Number of Breakthroughs Number of Breakthroughs What type of breakthroughs? 73 80 70 160 140 120 100 80 60 40 20 0 60 50 50 30 19 13 25 116 40 30 57 18 Nondominant Acquired 20 35 Dominant Invented 10 0 Market breakthroughs Technological breakthroughs Dominant Radical innovations Nondominant • Sample of 255 breakthroughs introduced in the pharmaceutical industry over a ten year period • Dominance (level of market power) is measured by market share. Hans Georg Gemünden Lehrstuhl für Technologie.

7 200 100 0 Market breakthroughs Technological breakthroughs Radical innovations • Net Present Value (NPV) of a product is estimated by the increase in the market value of the firm over a three-day windows after the announcement of the new product introduction © 2008 Prof.5 153.und Innovationsmanagement • Technische Universität Berlin 67 . Dr.4 Strategies for radical innovations Sorescu et al.4 187.5.3 636. (2003) – Results (2) Who profits from breakthroughs? Average NPV ($M) Which breakthroughs are more valuable? 456 500 450 400 350 300 250 200 150 100 50 0 Nondominant Dominant Average NPV ($M) 700 600 500 400 300 37. Hans Georg Gemünden Lehrstuhl für Technologie.

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