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Chapter 8: R&D Management

R&D management can be defined as where the tasks of innovation management (i.e., creating and
commercializing inventions) meet the tasks of technology management (i.e., external and internal creation
and retention of technological know-how). It covers activities such as basic research, fundamental research,
technology development, advanced development, concept development, new product development, process
development, prototyping, R&D portfolio management, technology transfer, etc., but generally is not
considered to include technology licensing, innovation management, IP management, corporate venturing,
incubation, etc. as those are sufficiently independent activities that can be carried out without the presence of
a R&D function in a firm.
The Term research means the systematic approach to the discovery of new knowledge.
Roussel 1991 define technology as the application of knowledge to achieve a practical result. To develop new
knowledge and apply scientific or engineering knowledge to connect the knowledge in one field to that in
Twiss 1992 defines RnD as: It is the purposeful and systematic use of scientific knowledge to improve man's lot
even though some of its manifestation do not meet with universal approval.

Knowledge and Concepts

Basic Research

Applied Research


Technical Service

Physical Products

Traditional View of RnD is to pour vast amounts of money to get the exciting research done, and develop a
technology if it is intriguing, even if it is has no apparent commercial value.

The fundamental dilemma facing all companies is the need to provide an environment that fosters creativity
and at the same time providing a stable environment that enables the business to be managed in an efficient
and systematic way.

R&D expenditure is expressed as:

R&D as % of sales=



Classification of areas of research emphasis in Industry and University

The main activities of Industrial Research are:

Discovering and Developing new Technologies.

Improving understanding of the technology in existing products.
Improving and strengthening understanding of technologies used in manufacturing.
Understanding research results from Universities and other research institutions.

Types of Research Activities within each type of R&D Operation:

1. Basic Research: This activity involves work of a general nature intended to apply to a broad range of
uses or to new knowledge about an area. It is also referred to as fundamental science and is usually
conducted in the laboratories of universities and large organizations. Outputs from this activity will
result in scientific papers or journals.
2. Applied Research: This activity involves the use of existing scientific principles for the solution of a
particular problem. It is sometimes referred to as the application of science. It may lead to new
technologies and include the development of patents. It is from this activity that man new products
emerge. This form of research is typically conducted by large companies and university departments.

3. Development: This activity is similar to Applied Research that it involves the use of known scientific
principles, but activities here are more focused on products. It may involve overcoming a technical
problem associated with a new product, or may involve an exploratory study to improve a product's
4. Technical Service: This activity focuses on providing a service to existing products and processes. This
involves cost and performance improvements to existing products, processes or systems. This would
also include design changes to lower the manufacturing costs.

R&D Managers should take future predictions into their planning process as well:
1. Environmental Forecasts: These are concerned with changes in technology that will occur in the
2. Comparative Technological cost-effectiveness: It is argued that technologies have life cycles and that
after a period further research produces negligible benefit. When this stage is reached, a new branch
of technology is likely to offer far more promising rewards. This may require a significant shift in
3. Risk: The culture of the organization and its attitude to risk will influence decision making. Planning
cannot remove the risk but it can help to ensure that decisions are reached using a process of rational
4. Capability analysis: Companies have to consider their own strengths and weaknesses. This analysis can
help them ensure that they have the necessary capabilities for the future.

The strategic role of R&D as viewed by the business

The three strategic areas can be broken down into operational activities:
1. Defend, support and expand existing business: Maintaining business's current position, keeping up
with the competition, ensuring that products do not become outdated, ensuring that existing products
can compete.
2. Drive new businesses: New business opportunities will continually be presented to managers through
identification of market opportunities or development of technology. (3M Post it notes)
3. Broaden and deepen technological capability: Medium to Long Strategy> continued accumulation of
knowledge, in all areas that may prove to be of importance to company business in the future.

Strategic Pressures on R&D

The Company's technology base from the R&D Perspective can be categorized as:
1. Core Technologies: The core technology is usually central to all or most of the company's products.
Dominates the Laboratories of R&D Departments.
2. Complementary Technologies: Complementary technologies are additional technologies that are
essential in product development. For ex: Microprocessors in Printers.
3. Peripheral Technologies: Technology that is not necessarily incorporated into a product but its
application contributes to the business. For ex: Computer Software in Printers for extra features.
4. Emerging Technologies: These are new to the company but may have a long-term significance for its
products. For eg: Network enabled Printers.
Companies operating process plants cannot respond completely to Market needs.

Scholefield Model of Technology Leverage

Technology Leverage and R&D Strategies:
1. Survival: This type of activity is conducted if the decision has been made to exist the business.
2. Competitive: If the intention is to sustain the business, then the role of research is to maintain the
relative competitive technological position by making improvements to both product and process.
3. Technology Mastery: Improving the product and the process relative to the competition.
4. Break the Mould: If the aim is to create a technological advantage, then a much higher order of
creativity is required. Involve Developing new "Patentable" technology.
Characteristics of this Model:
This model is used to check decisions made by managers, but it cannot aid in decision making.
It only includes a technological perspective for classifying a business's strategic position.
It shows how the role of Strategic technology management and a business's selected growth strategy can
influence the business climate within which Manager's operate.

Setting the R&D Budget

Key factors that need to be considered when allocating funds to R&D are:

Expenditure by competitors.
Company's long-term growth objectives.
The need for stability.
Distortions introduced by large projects.

The six approaches used for allocating funds to R&D are:

Inter-firm comparisons
A fixed relationship to turnover
A fixed relationship to profits
Reference to previous levels of expenditure
Costing of an agreed programme
Internal customer-contractor relationship

Chapter 9: Managing R&D Projects

Two Key Technology risks that need to be evaluated:

1. Protecting Innovations
2. Competence Destruction, that reflects the volatility and uncertainty of technical development that vary
greatly between technologies. Where technology uncertainty is high, it is difficult to predict which
investments and skills will be effective and firms have to be able to change direction at short notice.
The managers of firms attempting to develop radically discontinuous innovations are faced with the
need to attract and motivate expert staff to work on complex problems when unpredictable outcomes
may cause organizational failure.

Necessary Ingredients for successful technology management:

1. The capacity to integrate functional and specialist groups for the implementation of innovations.
2. Continuous questioning of appropriateness of existing markets, missions and skills.
3. A willingness to take long term view of technological accumulation within the firm.

The factors that contributed to changing nature of R&D activities are:


Technology Explosion> Too much technology developed in relatively short amount of time.
Shortening of the technology cycle.
Globalization of technology.
Distributed and open nature of networked research.
Growth of externally sourced R&D.
Diminishing barriers towards the increased productivity and effectiveness of R&D.
The continued globalization of R&D.
Shift from Manufacturing oriented R&D towards Service oriented R&D.

Acquisition of external technology/knowledge Matrix

Organizing Industrial R&D

External Technology Acquisition
Highest Level of Organizational Control and Integration

Minimum Organizational Control and Integration

Forms of External R&D:

Contract R&D
R&D Strategic Alliances and Joint Ventures
R&D Consortia
Open Source R&D

Difference between Open Source and Focused Groups

Focused Groups

Open Source

Involves usually not more than a hundred people

Involves thousands of people

Asks people to react to Ideas

Asks people for solutions

Involves a sample of people who are uninterested

Relies on people





R&D function is associated with the following operations>


Choice of materials to be used
Required Shelf Life
Effects of Transportation
Intellectual property rights
Product safety

Extended Product Life Cycle>

Basic Research/New Concept >> Applied Research: Laboratory verification >> Development: Demonstration
of application (Investment) >> Introduction >> Growth >> Revenue >> Maturity >> Return on Investment >>

R&D Activities contribute to the overall profit and growth of the company in the following ways:
1. Development of existing products: R&D's role is to extend the life of the product by continually
searching for product improvements. R&D Can also aid in lowering the production costs hence
capturing a larger market share and improving profit margins. All of this extends the product lifecycle.
2. Early introduction of a new product: Many companies strive to be technological leaders in their
industry. Their aim is to introduce innovative products into the market before the competition to gain
a competitive advantage. In some Industries, this approach is very SUCCESSFUL.

3. Late Introduction of a new product: Deliberately postponing entry into a new market until it has been
shown by competitors to be valid, reduces the risk and costs. It is also helpful in maximizing profits.
4. Long-Term projects: Looking further into the future, R&D will also be developing products that the
public do not yet realize they require. It includes starting new initiatives and new areas of research.
Technology intensive companies.

Evaluating R&D Projects

The evaluation criteria used by businesses varies considerably from industry to industry. While there are
various quantitative techniques that companies use to evaluate their R&D, most decisions are based on the
experience and expertise. (Formal/Informal). The various techniques under new product development for
screening and evaluating R&D Projects are devised by Cooper (2001) as>
1. Benefit Measurement Models: Benefit measurement models are usually derived from a group of well
informed and experienced managers identifying variables such as: Technical, Patentability, Stability of
the market, Market, Manufacturing, Financial, Strategic fit, Integration, Competitiveness, Research
Direction etc. These variables can be bought together in the form of quantitative or qualitative model,
that will provide the organization with a benefit value with which they will be able to compare those
2. Financial/Economic Models: Financial and economic models are the most popular project selection
tool as the primary objective of firms is to make money. These models are limited because of limited
accuracy of future financial data.
3. Portfolio Selection Models: Portfolio models attempt to find the ideas that fit with the business
strategy and attempt to balance the product portfolio. The consider a business's entire set of projects
rather than viewing new research projects in isolation. The dimensions of balance can be:

Newness- How new is the product likely to be.

Time of Introduction- Is the product being introduced at the right time relative to the market

Markets: Are the different markets and business areas of the company receiving resources
proportionate to their size and importance.

Chapter 10: Open Innovation & Technology Transfer

MTC- Multi Technology Corporations
Open innovation is a term promoted by Henry Chesbrough, a professor and executive director at the Center
for Open Innovation at the University of California, Berkeley, in his book Open Innovation, though the idea and
discussion about some consequences (especially the interfirm cooperation in R&D) date as far back as the

1960s. The concept is related to user innovation, cumulative innovation, know-how trading, mass innovation
and distributed innovation.
Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal
ideas, and internal and external paths to market, as the firms look to advance their technology. Alternatively,
it is "innovating with partners by sharing risk and sharing reward." Innovations can easily transfer inward and
The central idea behind Open innovation is that, in a world of widely distributed knowledge, companies
cannot afford to rely entirely on their own research, but should instead buy or license processes or inventions
(i.e. patents) from other companies. In addition, internal inventions not being used in a firm's business should
be taken outside the company (e.g. through licensing, joint ventures or spin-offs).

The economic perspective of technology transfer states that the Existing R&D Projects and developed
technology which as already been paid for can be transferred to industry and private enterprise.
The Bayh-Doyle legislation (Sponsored by two senators Birch Bayh of Indians and Robert Doyle of Kansas),
created an emerging industry by transferring ownership for any intellectual property that was developed
with federal research funding to the developing institution. This transfer of ownership allowed universitites
the right to license or sell their intellectual property rights to industry for further development and
profitable commercialization. Thus, this legislation cleared the way for technology transfer to become a
factor both in driving the US economy and contributing to the greater social good.

Advantages of Open Innovation

Open innovation offers several benefits to companies operating on a program of global collaboration:

Reduced cost of conducting research and development

Potential for improvement in development productivity

Incorporation of customers early in the development process

Increase in accuracy for market research and customer targeting

Potential for viral marketing

Disadvantages of Open Innovation

Implementing a model of open innovation is naturally associated with a number of risk and challenges,

Possibility of revealing information not intended for sharing

Potential for the hosting organization to lose their competitive advantage as a consequence of
revealing intellectual property

Increased complexity of controlling innovation and regulating how contributors affect a project

Devising a means to properly identify and incorporate external innovation

Realigning innovation strategies to extend beyond the firm in order to maximize the return from
external innovation

Technology Transfer is the application of technology to a new use or user. It is the process by which
technology developed for one purpose is employed either in a different application or by a new user. The
activity principally involves the increased utilization of the existing science/technology base in new areas of
application as opposed to its expansion by means of further research and development.

Tangibility of knowledge (Tangible: Real, Actual, Definite, or perceivable)

Models of Technology Transfer:

1. Licensing: Licensing involves the technology owner receiving a license fee in return for access to the
technology, that is protected by patents. Reasons for licensing are:
To avoid or settle patent infringement issues
To diversify and grow through the addition of new products
To improve the design and quality of existing products.
To obtain improved production or processing technology
To ensure freedom of action in the company's own R&D programme
To save R&D expense and Delay
To eliminate the risks involved in developing new technology
2. Science park model: The idea is to develop an industrial area or district close to an established centre
of excellence, often a university. The academic scientists will have the opportunity to take laboratory
ideas and develop them into real products.
3. Intermediary agency model: These come in the form of Regional Technology Centers (RTC), University
technology transfer managers. They act as the intermediary between companies seeking or offering

4. Directory model: Some companies and Universities offer directories listing technology that is available
for license.
5. knowledge Transfer Partnership model: Previously called the "Teaching company scheme", this type
of programme aims to transfer technology between Universities and small companies through PostGraduate Training. The student studies part time at the University, and works on the company project
at the same time. The university provides support to the student and offers other expertise to the
6. Ferret model: The ferret model was first used by Defense Technology Enterprises (DTE). DTE resulted
from a joint initiative between the UK Ministry of Defense (MOD), and a new consortium of companies
experienced in encouraging, exploiting and financing new technology. Scientists and engineers look for
interesting defense technology that could have wider commercial opportunities.
7. Hiring Skilled employees: Hiring people with the necessary skills and knowledge, is a fastest method of
gaining the necessary technology. People are either recruited from other organizations, or from
university research departments that have the relevant expertise.
8. Technology Transfer Units: In 1980s, the US federal labs and other research based organizations,
including universities, established industrial liaison units and technology transfer units to bring in
technology from outside and/or to find partners to help exploit in house developments.
9. Research Clubs: To bring companies together with common interests in particular research areas. DTIDepartment of Trade and Industry in UK
10. European Space Agency (ESA): ESA offers access to space research in virtually all fields of science and
technology. It is achieved through three models: The intermediary agency model, the directory model,
and the ferret model.
11. Consultancy: Consultants are able to offer help, advice and useful contacts to get the research project
off the grid. Frequently, consultants remain part of the research group during the early years of the

Limitations and barriers to technology transfer

There are four different types of companies related to the adoption of innovations (inward technology transfer):

Innovators: The first firms to adopt a new idea.

Initiators: The firms that adopted the idea soon after the innovators.
Fabians: The firms who adopted the idea only after its utility was widely acknowledged in the industry.
Drones: the last firms to adopt new ideas.

Small and Medium Sized enterprises can be classified into:

1. Technology Driven SMEs.
2. Technology Following SMEs.
3. Technology Indifferent SMEs.

The factors that can facilitate technology transfer are:


High quality of incoming communication

Effective internal communication
A readiness to look outside the firm
A willingness to share knowledge
A willingness to take on new knowledge
To license and to enter joint ventures
A deliberate survey of potential ideas
Use of management techniques
An awareness of costs and profits in R&D departments
Identification of the outcomes of investment decisions
Good quality intermediate management
High status of science and technology on the board of directors
High quality chief executives
A high rate of expansion

CLOSED vs OPEN innovation

The paradigm of closed innovation holds that successful innovation requires control. Particularly, a company should
control the generation of their own ideas, as well as production, marketing, distribution, servicing, financing, and
supporting. What drove this idea is that, in the early twentieth century, academic and government institutions were not
involved in the commercial application of science. As a result, it was left up to other corporations to take the new
product development cycle into their own hands. There just was not the time to wait for the scientific community to
become more involved in the practical application of science. There also was not enough time to wait for other
companies to start producing some of the components that were required in their final product. These companies
became relatively self-sufficient, with little communication directed outwards to other companies or universities.
Throughout the years, several factors emerged that paved the way for open innovation paradigms:

The increasing availability and mobility of skilled workers

The growth of the venture capital market

External options for ideas sitting on the shelf

The increasing capability of external suppliers

These four factors have resulted in a new market of knowledge. Knowledge is not anymore proprietary to the company.
It resides in employees, suppliers, customers, competitors and universities. If companies do not use the knowledge they

have inside, someone else will. Innovation can be generated either by means of closed innovation or by open innovation
paradigms. There is an ongoing debate on which paradigm will dominate in the future.
OPEN SOURCE vs OPEN innovation
Open source and open innovation might conflict on patent issues. This conflict is particularly apparent when considering
technologies that may save lives, or other open source appropriate technologies that may assist in poverty reduction or
sustainable development. However, open source and open innovation are not mutually exclusive, as participating
companies can donate their patents to an independent organization, put them in a common pool, or grant unlimited
license use to anybody. Hence some open source initiatives can merge the two concepts: this is the case for instance for
IBM with its Eclipse platform, which the company presents as a case of open innovation, where competing companies
are invited to co-operate inside an open innovation network.
In 1997, Eric Raymond, writing about the open source software movement, coined the term the cathedral and the
bazaar. The cathedral represented the conventional method of employing a group of experts to design and develop
software (though it could apply to any large-scale creative or innovative work). The bazaar represented the open source

Seaton and Cordey-Hayes (1993) argue that inward technology transfer can only be successful if an organization has
not only the ability to acquire but also the ability effectively to assimilate and apply ideas, knowledge and devices.
Members of the organization must show an awareness and receptivity towards knowledge acquisition. Inward
Technology transfer requires an organization to create or raise the capability for innovation by:
1. Awareness- Describes the processes by which an organization scans for and discovers what information
technology is available. To search and scan for external knowledge and information which is new to the
organization, an organization needs to have thorough understanding of its internal organizational capabilities.
This can be achieved by internal scanning.
2. Association- Describes the processes by which an organization recognizes the value of this technology/ideas for
the organization. To recognize the potential benefits of this information by associating it with the internal
organizational needs and capabilities.
3. Assimilation- Describes the processes by which the organization communicates these ideas within the
organization and creates genuine business opportunities. Communicate these business opportunities to and
assimilate them within the organization.
4. Application- Describes the processes by which the organization applies this technology for competitive
advantage. To apply them for competitive advantage.

Interlinking Systems of knowledge Transfer relationships

Chapter 11: Product & Brand Strategy

Emphasis upon continuity in the development of capabilities is also consistent with the idea of an evolving
product platform that a "product family" shares. A robust platform is the heart of an successful product family,
serving as the foundation for a series of closely related products. Sometimes entirely new platforms and
entirely new capabilities are required. Step changes in the product or manufacturing technology, in the
consumer need or in what the competition offers, and how it offers it, can demand radical rather incremental
According to Muffatto and Rovedo, and Moht et al, the benefits gained through using product platforms
Reduced Cost of production
Shared components between models
Reduced R&D lead times
Reduced systemic complexity
Better learning across projects
Improved ability to update products

When used across firms and models, there are many challenges primarily related to the constraint of factory
sequencing or architectural structure of the brand (Brand Operations)
Product Planning
The product planning phase takes place before substantial resources are applied to a project. Product
planning considers the range of projects that a firm might pursue and over what time frame. It is closely
linked to the broader business strategy of the firm and addresses such questions as:
What product development projects will be undertaken?
What is the mix of the portfolio of projects?
What is the timing and sequence of the projects?

The product planning activity clearly requires substantial input from R&D.
development opportunities, they are of 4 types:

When considering product

New Product Platforms, Derivatives of Existing Platforms, Incremental Improvements to existing products,
Fundamentally new products.

New Product Strategy is a cluster of strategies (Marketing Strategy, Technology Strategy and overall
Corporate Strategy).
Competitive Strategy: New products are not needed just because they are new products, they are needed
because they serve a customer need and an organizational need. Competitive strategy can drive new product
planning on a short term or long term basis.
Product Portfolios: Analyzing the organization's total collection of products by viewing it as a portfolio as in an
investment portfolio, may give fresh insights. This approach was initiated by the share-growth matrix, or
Boston Matrix, which used Market Share and market growth as dimensions against which to plot the
positions of products.

Product Differentiation:

Is the process of distinguishing a product or service from others, to make it

more attractive to a particular target market. This involves differentiating it from competitors' products as well
as a firm's own products. The concept was proposed by Edward Chamberlin in his 1933 Theory of Monopolistic
Competition. According to Levitt, there are 4 levels of product differentiation:

The core product: Essential basics needed to compete

The expected product: What customers have become accustomed to as normal in the product market.
The augmented product: Offers features, services, or benefits that go beyond normal expectations.
The potential product: Would include all the features that could be beneficial to customers.

Product Positioning refers to the perceptions customers have about the product. Although there are
different definitions of brand positioning, probably the most common is: identifying and attempting to occupy a market
niche for a brand, product or service utilizing traditional marketing placement strategies (i.e. price, promotion,
distribution, packaging, and competition). Positioning is also defined as the way by which the marketers attempt

to create a distinct impression in the customer's mind.

Brand positioning process
Effective Brand Positioning is contingent upon identifying and communicating a brand's uniqueness,
differentiation and verifiable value. It is important to note that "me too" brand positioning contradicts the
notion of differentiation and should be avoided at all costs. This type of copycat brand positioning only works
if the business offers its solutions at a significant discount over the other competitor(s).
Generally, the brand positioning process involves:
1. Identifying the business's direct competition (could include players that offer your product/service
amongst a larger portfolio of solutions)
2. Understanding how each competitor is positioning their business today (e.g. claiming to be the fastest,
cheapest, largest, the #1 provider, etc.)
3. Documenting the provider's own positioning as it exists today (may not exist if startup business)

4. Comparing the company's positioning to its competitors' to identify viable areas for differentiation
5. Developing a distinctive, differentiating and value-based positioning concept
6. Creating a positioning statement with key messages and customer value propositions to be used for
communications development across the variety of target audience touch points (advertising, media,
PR, website, etc.).
Product positioning process
Generally, the product positioning process involves:1. Defining the market in which the product or brand will compete (who the relevant buyers are)
2. Identifying the attributes (also called dimensions) that define the product 'space'
3. Collecting information from a sample of customers about their perceptions of each product on the
relevant attributes
4. Determine each product's share of mind
5. Determine each product's current location in the product space
6. Determine the target market's preferred combination of attributes (referred to as an ideal vector)
7. Examine the fit between the product and the market.
Positioning concepts
More generally, there are three types of positioning concepts:
1. Functional positions

Solve problems

Provide benefits to customers

Get favorable perception by investors (stock profile) and lenders

2. Symbolic positions

Self-image enhancement

Ego identification

Belongingness and social meaningfulness

Affective fulfillment

3. Experiential positions

Provide sensory stimulation

Provide cognitive stimulation

Measuring the positioning

Branding is facilitated by a graphical technique called perceptual mapping, various survey techniques, and
statistical techniques like multi dimensional scaling, factor analysis, conjoint analysis, and logit analysis.

Deschamps and Nayak identified five distinct product strategies that firms have used in competition:

Product Proliferation

Product Performance Criteria

1. Performance in operation
2. Reliability
3. Sale price
4. Efficient delivery
5. Technical sophistication
6. Quality of after sales service
7. Durability
8. Ease of use
9. Safety in use
10. Ease of maintenance
11. Parts availability and cost
12. Attractive appearance/shape
13. Flexibility and adaptability in use
14. Advertising and promotion
15. Operator comfort
16. Design
17. Environmental impact

Branding System

Brand strategy is the spearhead of the organization's competitive intentions. It carries the company or product
name into the market and shows how it is positioning itself to compete. It involves choices between having no
brand name at all, so that the product is sold as a commodity, and the attempt to develop a distinctive brand
name with a distinctive set of associations and expectations.

Brand Extension
A Brand Extension is the use of an established brand name on a new product in the same product field or in a
related field. The brand name might also be stretched to an unrelated product field. A simple brand extension
would be when a new or unconventional size is brought out, so that the original brand name is given a prefix
(Giant, Jumbo etc.), or for some technical products this could be a new alphanumeric code. Operating within
the same product field, but attempting to attract a new market segment, the extension might have a modified
design and there could be added words to the brand name indicating whom it is intended for, such as for men
or for women.
Potential carry over effects from the original brand can be advantageous for the brand extension strategy if
the original brand is well known. Three kinds of carry over effects are:
Expertise: If the original had established and maintained itself, probably over a fairly long period, as the best
available for that application or usage, then it is likely to have accrued a reputation for high level competence
in its field. Users may feel comfortable and assured in making repeat buys.
Prestige: Some brands have enviable images and some consumers may believe that these images confer
status on those that use them.
Access: A well established original may have developed and held good access to the best supplies and to the
best distributors. An extension would capitalize upon these relationships and it may have a better reception to
its initial launch than a new brand that had no reputation.

Market Entry
Decisions about how and when to enter the market can make a substantial difference to the new product's
prospects. There are three factors>
1. Entry Timing
2. Positioning
3. Scale of entry

Market Launch
Success of a product is dependent on how it is launched, its reception by customers, and the continuing
attention given to its improvement.
Managing Mature Products
As growth slows and the level of competition intensifies, profit margins will come under pressure. Product and
brand managers will need to make decisions on medium and long term futures of the brand. Mature products
usually make up the majority of a firm's source of cash generative lines (hence the term cash cow in portfolio
planning). Profit margins may decline due to increasing numbers of competitive products, cost economies

used up, decline in product distinctiveness etc. The low margins act as a barrier to entry and those firms
remaining in an industry can generate sustained profits over a long period in the maturity and decline stages
of a product's life cycle.
Within the maturity and decline stages of a product's life cycle Schofield and Arnold (1988) distinguished 4
phases to the mature phase of the traditional product life cycle:

Late Growth
Early maturity
Mid Maturity
Late Maturity

Brand management is a communication function that includes analysis and planning on how that brand is positioned in
the market, which target public the brand is targeted at, and maintaining a desired reputation of the brand. Developing
a good relationship with target publics is essential for brand management. Tangible elements of brand management
include the product itself; look, price, the packaging, etc.

Chapter 12: New Product Development

Perspectives from which to analyze the development of new products

The competition between companies is assed using financial measures such as return on capital employed
(ROCE), profits and market share. Non-Financial measures such as design, innovativeness and technological
supremacy may also be used.

According to Krishnan and Uldrish (2001), five basic decisions to be made related to concept development:

What are the target values of the product attributes?

What will the product concept be?
What variants of the product will be offered?
What is the product architecture?
What will be the overall physical form and industrial design of the product?

Within the decisions surrounding supply chain design, Krishnan and Uldrich include following aspects:
Choice of Components, Designer, Supply Chain Configuration, Type of assembly process, process equipment
New products bring Prosperity

Considerations when developing a NPD Strategy


Ongoing Corporate Planning

Ongoing Market Planning
Ongoing Technology Management
Opportunity analysis/serendipity

Main Inputs into the decision making process

Ansoff's Directional Policy matrix to identify the variety of growth options available to a business

Market Penetration: Growth opportunities are said to exist within a business's existing markets through
increasing the volume of sales. Increasing the market share of a business's existing products by exploiting the
full range of marketing mix activities is the common approach adopted by many companies and may include
branding decisions. Kellogg promoted usage of cornflakes at times other than the breakfast also.
Market Development: Growth opportunities are said to exist for a business's products through making them
available to new markets. Eg. Mercedes decided to enter small car market.
Product Development: Growth opportunities are said to exist for a business through offering new or improved
products to existing markets. This is an ongoing activity for most companies.
Diversification: Growth opportunities are said to exist for a business beyond a business's existing products and
markets. The selection of this option, however would be significant as the business would have to move into
markets that it currently does not operate in. Eg. 3m entering into stationary market with post it notes.

The Development of Ansoff's directional policy matrix was: Johnson and Jones (1957) matrix for product
development strategies. This matrix replaces Ansoff's product variable WITH Technology. The use of
technology as a variable better illustrates the decisions a company needs to consider. Many other matrices
have since been developed to try to help firms identify the range of options available.

Dimensions of a product
(A product is multidimensional)

Classifications of a new product:


New to the world products

New Product lines (new to the firm)
Additions to existing Product lines (line additions)
Improvements and revisions to existing products
Cost Reductions

6. Repositioning
Liner NPD Model
Idea Generation

Idea Screening

Concept Testing

Business Analysis

Product development

Test Marketing


Monitoring and Evaluation

The 3 main streams of research within New Product Development

1. Rational Planning
2. Communication Web
3. Disciplined problem solving
Customer Roles in New Product Development

Customer as Resource (Ideation), Customer as Co-creator (Design and Development, Product

Testing), Customer as User (Product Support)
Time to Market (TTM) is the length of time it takes from a product being conceived, and
reaching the market. TTM is important in industries where products are outdated quickly.
TTM can vary widely between industries, say 15 years in aircraft and six months in food
Agile or Flexible product development is the ability to make changes to the product being
developed or in how it is developed, even relatively late in the development process,
without being too DISRUPTIVE. Change can be expected in what the customer wants and
how the customer might use the product.

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

(Read Page 439)

Network Model of New Product Development

Chapter 13: Packaging and Product Development

The three basic principles of packaging are:
1. Protection (and temper proofing)
Protection and Transportation at optimal cost
Identification and labeling at optimal cost
Information on how the product is used
Establishment of brand identity
Promotion of sale

Source of the product

How to use the product
Universal Product Code or bar code (used by retailers for inventory)
How to care for the product
Nutritional Information
Type and style of the product
Size and number of servings

Containment and use of product at optimal cost

2. Containment
3. Identification

Characteristics of Packaging

After use

Rogers (1962) cites a number of reasons why profit margins decline in relation to Product

Increasing number of competitive products leading to over capacity and intensive competition.
Market leaders under pressure from smaller companies.
Strong increase in R&D to find better versions of the products.
Cost economies used up.
Decline in product distinctiveness.
Dealer apathy and disenchantment with a product with declining sales.
Changing market composition where the loyalty of those first to adopt beings to waver.

Packaging Systems:

Steel and aluminum tins and cans

Folding cartons
Rigid boxes
Hanging back formats
Glass bottles and Jars
PVC bottles and Jars
Pet bottles and Jars
Flexible Tubes
Composite Containers (Pringles Chips)
Bags (For potato chips, sugar etc)

10 Most Irritating Packages:


4 Pint Milk plastic containers (leakage)

Biscuit wraps (difficult to open)
Frozen vegetables (cannot reseal)
Sugar flour and rice bangs (cannot reseal)
Shrink wraps (difficult to open)
McDonalds Happy Meals (excessive packaging)
Toothpaste tube (excessive waste due to consumer inability to access all the contents)
Pickled onions in glass jar (difficult to remove screw top lid)
Vacuum packed roasted coffee (Difficult to open and dispense)

What Retailers Want:

1. Stock only product lines that sell
2. Reduce quantity purchased
3. Stock goods that produce high levels of profit

There are 3 key areas that need to be addressed to revitalize labeled mature packaged goods:
1. Reminding consumers about the brand
2. Improving where the product is sold
3. Improving the packaging

Chapter 14: New Service Innovation

KIBS: Knowledge intensive business services. They include traditional business services such as accountancy
and law, but also a new generation of KIBS.

Benefits of outsourcing and service growth:


The reduction of operational costs

The ability to transform fixed costs into variable costs
The ability to focus on core competencies
Access to the industry leading external competencies and expertise

Main Risks associated with outsourcing are:


Dependence on the supplier

Hidden costs
Loss of competencies
Service provider's lack of necessary capabilities
Social risk
Inefficient management

Johnston and Clark (2005) developed the Service Processes Matrix

SCCC- Simplicity, Capability, Complexity, Commodity

Characteristics of Services and how they differ from products:


Simultaneous production and consumption

Lovelock (1984) Typologies of Innovations


Major Innovation
Start-up business
New services for the market presently
Service line extensions
Service Improvements
Style changes

Four Dimensions of Service innovation by Ebay:


New Service Concept

New Client Interface
New Service Delivery System
Technological Options (Skype)

The service innovation process:

1. Formulation of new
service objective
2. Idea generation

3. Idea Screening
4. Concept Development
5. Concept Testing
6. Business analysis
7. Project authorization

*DT- Design & Testing

8. Service design and Testing
9. Process and System DT
10. Marketing Programme DT
11. Personnel Training
12. Service testing & Pilot run
13. Test Marketing
14. Full scale launch
15. Post launch review

Linear NPD Model

Linear New Service Dev Model

Strategic Planning

Idea Generation

Idea Generation

Idea Screening

Idea Screening

Concept Testing

Business Analysis
Formation of Cross Funct. Team

Business Analysis
Service Design and Process System Design
Product development

Personal Training
Service Testing and Pilot

Test Marketing
Test Marketing
Monitoring and Evaluation