Management of new product development in small electronics firms

A. Ledwith The Department of Management & Marketing and Small Firms Research Unit, University of Limerick, Ireland

New product development, Small firms, Electronics industry, Ireland

The management of new product development in large firms has been studied in great depth. Much has been published relating to how new product development is managed, and in particular to management practices that have been found to be determinants of new product success. Montoya-Weiss and Calantone (1994) provide a very comprehensive review of the research into NPD to date and conclude that it lacked focus and direction. A wide variety of methodologies and study types have been used. This makes it difficult to directly compare the results of different studies. However, in their meta-analysis they define variables in four categories that have been identified as determinants of new product performance. These have been slightly modified for the purpose of this study and are summarised in Table I. A discussion of each category of factors follows.

This paper reports on the findings of a study of the development of 63 new products in 36 electronics firms in Ireland. The firms range in size from fewer than ten to over 1,000 employees. They all operate in the electronics sector, developing and manufacturing a variety of products from completely integrated systems to discrete components. A series of questionnaires and interviews was used to collect historical life cycle data of new products. The results presented in this paper focus on the management of the product development process. The relationship between the development process and new product success or failure is examined. The differences between the management of product development in small and large firms are also explored. Small firms report a new product success rate comparable to that of larger firms, suggesting that the factors that are linked to the success of new products may be related to firm size.

MacPherson, 1997). This difference in emphasis makes some sense ± large firms tend to be able to resource all their technical requirements internally and thus the relationships that must be managed are internal. Small firms, however, often need to look outside their organisational boundaries for services and, therefore, must develop skills in managing external relationships. Organisational factors, including the existence and characteristics of project teams, the level of top management involvement, the nature of leadership of NPD projects, have been examined extensively in large firms. Cross-functional or multidisciplinary teams with strong leadership and a high level of ownership and accountability are generally recommended as good organisational design for new product development projects (Cooper, 1999; Page, 1993; Wheelwright and Clark, 1992). But many of the above factors are not relevant when examining determinants of success in small firms, simply because they exist inherently in almost all small firms and usually to a much greater degree than in large firms.

Organisational factors
The management of internal and external relations in new product development is one area where there is a marked difference between the existing literature on small and large firms. Most of what is published about large firms deals with internal relations. It is argued that integration between different functional departments will achieve better results both in the characteristics of the products developed and the time taken to develop them (Shrivastava and Souder, 1987; Wheelwright and Clark, 1992; Towner, 1994). In contrast, literature dealing with small firms focuses on external relations, addressing issues such as industrial services, subcontracting relationships, licensing, networking, collaborative R&D (Rothwell and Dodgson, 1991; Hoffman et al., 1998;

Development process factors
The new product development process has been studied in great detail and many process related factors are identified in the literature as determinants of NPD success. Technical and marketing proficiency are key factors in product success (Cooper and Kleinschmidt, 1987). Controllable variables, rather than environmental variables, have been found to determine the outcome of product development projects (Cooper, 1990). The most important technical and marketing activities include prototype testing with customers, test marketing, market launch, product development and production startup. In general, most of the literature that

Received August 1999 Revised January 2000

Journal of European Industrial Training 24/2/3/4 [2000] 137±148 # MCB University Press [ISSN 0309-0590]

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A. Ledwith Management of new product development in small electronics firms Journal of European Industrial Training 24/2/3/4 [2000] 137±148

examines the process related factors that influence the outcome of NPD agree that, in both small and large firms, proficiency of NPD activities is a key determinant of success (see Table I). Top management support is one of the most important factors influencing new product success (Booz-Allen and Hamilton, 1982). In the US electronics industry senior management support has been found to be important for NPD success (Maidique and Zirger, 1984). Owner manager skill and support have also been found to be important in small firms (Hoffman et al., 1998), though the focus when dealing with small firms is more on the skill and competence than on the support of top management. This is justifiable, as it would be unusual for a small firm to take on a product development project without the support of top management. Managing and measuring the speed to market of new products have tended to be addressed more by practitioners and consultants than by academics (Towner, 1994). In contrast with this emphasis on speed, Cooper (1999) states that, although being first to market is important, being the best on the market is more important. Time to market has not been identified as such a key factor for small firms; there are two possible explanations for this. First, small firms by their very nature are more flexible and possibly experience fewer problems in speeding up product development. Second, small high-technology firms tend to operate in niche markets where time to market may not be such a critical factor. It is perhaps something of a paradox that, though the most commonly used measure of NPD is financial success, very few authors have anything to say about financial analysis as part of the NPD process. While several studies include business analysis as one of the steps in their NPD processes (Cooper and Kleinschmidt, 1995; Page, 1993), relatively little research has been done into financial

analysis as a key activity in the NPD process and its impact on the outcome. The cost of new product development is another financial issue that has not received much attention and is perhaps of greatest interest to small firms, which tend to have limited financial resources (Roper et al., 1996; Fitzgerald and Breathnach, 1994).

Marketing and new product characteristics
Product advantage or product superiority is judged by many authors to be the most critical success factor in developing new products. Cooper (1990), reporting on the project NewProd, concluded that superior products are more likely to succeed. However, a study of small high-technology electronics firms (Yap and Souder, 1994) found that small firms, under conditions of high market or technical uncertainty, were more likely to succeed by producing compatible than superior products. Market potential, including market size and growth, customer need for a product and the importance of a product to the customer, has been found to have an impact on NPD success, particularly where companies are aiming their product at a window of opportunity (Cooper and Kleinschmidt, 1987). The impact of market variables on small, high-technology companies is not always as expected (Yap and Souder, 1994). Market maturity would normally be thought to inhibit NPD success but in some circumstances may actually be favourable for small firms. This anomaly can be explained by the fact that many small companies operate in mature market niches which are not of interest to larger firms. A review of literature on small firms, R&D, technology and innovation in the UK (Hoffman et al., 1998) reports conflicting evidence of the impact of market potential on small firms. It is a common assumption, based on Porter (1980), that increased market competitiveness should limit the success of new products. However, several authors have not found this to be the case (Booz-Allen and Hamilton, 1982; Cooper and Kleinschmidt, 1987; Page, 1993). In the case of small firms there is no consensus on the impact of market competitiveness on success. Some studies have found it to correlate negatively with success while others have found that it has no impact at all (Yap and Souder, 1994; Hoffman et al., 1998). The operating environment faced by a firm, including risk, uncertainty and regulations, is another factor that has not been studied in detail. A study of the US

Table I Determinants of NPD success Organisational factors Internal/external relations Organisational factors Development process factors Proficiency of activities Top management support/skill Speed to market Financial factors

Skills and capabilities Technological synergy Marketing synergy Company resources Strategy

Marketing and new product characteristics Product advantage Market potential Market competitiveness Environment

Source: Adapted from Montoya-Weiss and Calantone, 1994 [ 138 ]

A. Ledwith Management of new product development in small electronics firms Journal of European Industrial Training 24/2/3/4 [2000] 137±148

electronics industry looking at successful and unsuccessful projects (Maidique and Zirger, 1984) measured the importance to firms of different determinants of NPD outcomes and found that environmental factors, including government regulations, market characteristics and the economy, did not rate very highly.

Skills and capabilities
Technological and marketing synergy have been linked with new product success. Companies are advised to ``attack from a position of strength'' (Cooper, 1999). This advice has also been shown to be true for small firms (Yap and Souder, 1994). The availability and quality of resources as a determinant of NPD success have not been studied to any great extent. It has been assumed that NPD programmes are sufficiently resourced; this may well be the case in large firms. A study of the norms in product development (Page, 1993) found that resources were mentioned by only 39.2 per cent of 189 companies surveyed as being obstacles to successful NPD. In small firms, however, a lack of resources, both financial and human, has been cited as one of the most important barriers or constraints to product innovation (Fitzgerald and Breathnach, 1994; Roper et al., 1996; Hoffman et al., 1998). Company strategy is probably one of the key determinants of NPD success as it affects all other determinants. Many studies of the strategic management of technological innovations have stressed the importance of integration between functions involved in the innovation process (Shrivastava and Souder, 1987; Crawford, 1994). Adler et al. (1989) suggest that most companies manage NPD in a tactical rather than a strategic manner, top managers are advised to take a more strategic interest in NPD. Strategy is also a key issue for small firms involved in product innovation (Rothwell and Dodgson, 1991). Learning, flexibility and speed of response are identified as areas where small high-technology firms can gain a competitive advantage. A strategy recommended for small technology-based firms is the adoption of one key growth-sustaining technology and avoidance of high levels of diversification (Meyer and Roberts, 1986). Successful initial core technologies are those that are challenging to implement but difficult enough to deter competitors. Small, hightechnology firms are advised to avoid differentiation but to adopt cost-leadership or focus strategies (Yap and Souder, 1994). This advice is based on empirical research that shows that customers are unlikely to buy superior products with unique features from

new companies, and that compatible products have a better chance of success. In summary, organisational factors have been addressed in the literature from an internal perspective for large firms but from an external perspective for small firms. Product development process factors have been found to be critical to both small and large firms but the success of some management practices is probably dependent on firm size. Variables relating to marketing and new products characteristics have an impact on the success of new products but there is limited consensus in the literature about the nature of this impact. And finally, the existence and nature of skills and capabilities have been identified as determinants of new product success in both small and large firms. The results presented in this paper attempt to build on some previous research that examined new product development in small electronics firms in Alabama, USA (Yap and Souder, 1994). A similar research tool[1] was used to collect data, allowing for comparisons to be made between the US and Irish results. The US study found that much of the conventional wisdom that applies to large firms cannot be taken for granted in small firms and, depending on conditions of market and technical certainty, different management practices apply. The results presented in this paper represent the initial analysis of data collected in small and large Irish electronics firms. As this is part of an ongoing study, many of the findings point to areas for further study rather than final conclusions.

Research method
Studies of new product development have taken several different approaches. Some have compared successes and failures, others have concentrated on the impact of particular variables on new product success, yet others have examined the NPD process and suggested ways in which it can be improved. Some studies have examined individual projects within companies while others have examined NPD at a corporate level. Studies that focus solely on the project level are limited in that they often fail to identify company level practices that may have a significant impact on new product outcomes, for example the culture of innovation within a firm (Cooper and Kleinschmidt, 1996). Alternatively, studies that are based solely at the company level may not identify lessons that are learned from one project to the next and may also fail

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to pick up on the detailed management practices that differ from project to project. The research presented in this paper is exploratory in nature and therefore a broad research instrument that collected information at both the company and project level was used. A success/failure approach was adopted as it was considered to be the most practical in attempting to address the issues in question. In addition, the particular instrument used allowed comparisons to be made with previous studies (Souder et al., 1997; Souder and Song, 1997; Yap and Souder, 1994). Data were gathered using a series of seven questionnaires, three aimed at company level, gathering information about: 1 characteristics of the company; 2 cycle time of new products in the industry; and 3 organisational learning.

Another four questionnaires addressed specific projects within a company; these dealt with: 1 characteristics of the new product; 2 market environment; 3 technical environment; and 4 level of innovation. Respondents varied for each type of questionnaire, but included the MD, technical manager/director, marketing manager and R&D engineers. Companies for inclusion in the study were selected from an online Kompass database (1997) in the following categories: .37 Electrical, electronic, data processing and nucleonic equipment. .38 Precision equipment, measuring, testing, optical, photographic, cinematography, medical and surgical. .79 Communications services, telecommunications, radio and television.

unsuccessful products and in some cases only one product was examined. Table II summarises the sample. Success was defined as either meeting or exceeding expectations, while projects that fell below expectations were considered to be failures. This method of classifying project outcome is consistent with previous studies (Song et al., 1997; Souder and Song, 1997; Yap and Souder, 1994). It also allows for reasonable comparisons to be made between companies operating in different markets and between companies of different sizes. It would not, for instance, be rational to use similar measures of overall volume, return on investment, profitability or market share to rate the success of new products from very large and very small companies as their expectations and capabilities would be very different. In analysing the data each project was given a score based on the extent to which it met commercial expectations. Table III shows the rating system used. Failed new products were those that scored lower than 3 on commercial outcomes while successful projects met or exceeded the expectations of the firm. Spearman correlation coefficients (Siegel and Castellan, 1988) were calculated, comparing the project outcome, as shown in Table III, and the responses to a range of questions about the management of each project. Each question required the respondent to select an answer from a fivepoint Likert-type scale. The purpose of the study is not only to identify success factors for the complete sample, but also to look at the differences between success in small and

Table II Breakdown of sample Large Small firms firms Total

Of the 882 companies identified, only 56 were developing electronic (hardware) products and were responsible for the complete development process, from the exploratory phase through to manufacturing and marketing start-up and after-sales technical service. Only those firms that carried out all these activities at their site in Ireland were included in the research. A total of 36 firms agreed to be interviewed, this constituted a response rate of 68 per cent. All firms were requested to discuss two projects ± one that had been a success and another that had been a failure. The decision on success and failure was left to the managers being interviewed. Not all firms were able to identify both successful and

Number of firms 14 Number of successful projects 15 Number of unsuccessful projects 11 Total number of projects 26

22 20 17 37

36 35 28 63

Note: Small firms are defined as those with fewer than 100 employees Table III Project outcome scoring system Score 1 2 3 4 5 Commercial outcome of the project Far below our expectations Slightly below our expectations Consistent with our expectations Slightly above our expectations Far above our expectations

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large firms; significant results (p = 0.05, 0.02, and 0.01) for all, small and large, firms are presented.

While not all firms, in the group of either large or small firms, were Irish owned, they all have Irish management and were responsible for developing new products from the exploratory stage through to providing after-sales support and service. The nature of the electronics sector, on which much of the Celtic Tiger economy is built, is reflected in the high level of exports in the sector, and also in the large percentage of turnover that comes from products that were developed within the last three years. The overall performance of the firms in the study is shown in Table IV. It can be seen in Table IV that the small firms were approximately one-tenth of the size of large firms and reported less than 4 per cent of the turnover, resulting in a much lower turnover per employee ratio for small firms. A relatively higher level of R&D expenditure as well as a higher R&D intensity is generally expected from small firms (Van Dijk et. al., 1997). This is reflected in the above data. The most significant differences between the two groups of firms are: 1 the level of spending on R&D; 2 the percentage of R&D employees to total employees; and 3 the number of patents held by the small firms.

The reluctance of small firms to protect new products by patenting has also been reported previously and is an issue that is being addressed by the Irish development agencies (Cox, 1999). Small technology-based firms are very dependent on new products and invest heavily in R&D; in fact the level of R&D expenditure by all firms in this study is well

Table IV Overall performance Parameter (mean) Small firms Large firms 358 IR£58.4M IR£127K 95 46 9 14 7 18 16

Size 32 Turnover IR£2.2M Turnover per employee IR£68K Percentage of exports 87 Percentage of turnover from new products 49 Spend on R&D (as a percentage of turnover) 21 Percentage of employees in R&D (R&D intensity) 26 Number of new products launched last year 5 Number of new product variants launched last year 5 Number of patents 2

above the 5.1 per cent reported in a recent Forfas study (Breathnach, 1995). The types of new products being developed by each group of firms is also worth examining. While small and large firms launch similar numbers of totally new products, there is a large difference between the numbers of product variations launched. Large firms launch approximately 2.5 product variations for each new product launched; the ratio is 1:1 in small firms. This points to differences in the new product strategies of small and large firms, which is worth further study. In general, the level of interaction with external organisations in the development of new products for all the firms in the study was very low. A five-point Likert-type ranking scale (1 = never to 5 = very often) was used to measure the frequency of interaction with a range of external organisations. Small firms achieved an average score of 2.17 while large firms scored 2.81; these results are shown in Figure 1. These findings are worrying given that previous studies have emphasised the importance of external support for R&D (MacPherson, 1997). In particular, 23 per cent (n = 5) of the small firms reported that they seldom or never contacted customers in their new product projects, while all the large firms contacted their customers occasionally or more frequently. MacPherson in his study of small manufacturing firms in New York State found that contact with customers was the most important of all external contacts reviewed. The only significant level of interaction occurs between large firms and customers and suppliers, and between small firms and customers. In summary, all firms in the sample were found to be developing new products with little external interaction. This has also been found in earlier studies of product development in high-technology Irish firms (Hurst and O'Kelly, 1995). Respondents were asked about their expenditure on innovation. On average, firms spent IR£1,640,028, or 16 per cent of turnover on innovation. This broke down as IR£388,227 (21 per cent of turnover) for small firms and IR£3,607,143 (9 per cent of turnover) for large firms. This spending was further broken down into a range of activities as shown in Figure 2. On average, firms spend about two thirds of their total innovation spend on new product development, compared with only 7.5 per cent on process improvement. The main differences between large and small firms are the expenditure on process improvement, 11 per cent in large firms and 5 per cent in small

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Figure 1 Interaction with external organisations

Figure 2 Breakdown of spending on innovation

firms, and in marketing, 2 per cent in large firms and 8 per cent in small firms. The remaining data presented in this paper examine project level issues. The results will be presented in the four different categories discussed above: 1 organisational factors; 2 development process factors; 3 marketing and new product characteristics; and 4 skills and capabilities.

Organisational factors
The organisational factors examined include issues such as the level of top management involvement in product development, the interaction between commercial and technical groups, and the nature of the project management. Several organisational factors were found to correlate with new [ 142 ]

product success and several differences were found between the success factors in small and large firms; these factors are summarised in Table V. One of the most striking findings from Table V is the degree to which involvement of commercial entities is correlated with success in small firms and not in large. The common perception of small firms is that communications between the different functional groups is very good, which would suggest that the involvement of commercial entities should be taken as given. However, this seems not to be the case ± the involvement of commercial entities is linked with success in small firms but not in large. A participative project management style is more closely associated with success in large firms (p 0.02) than in small firms.

A. Ledwith Management of new product development in small electronics firms Journal of European Industrial Training 24/2/3/4 [2000] 137±148

Top management support was also found to be a bigger issue for small firms; again this is counter-intuitive. It is normally assumed that new product projects are not initiated within small firms without the support of top management (Maidique, 1980), while the support of top management is frequently cited as a success factor in studies of large firms (Cooper, 1999).

between the different activities and new product success. The most significant activities for small firms are: .market development; .prototype development; .concept development. For large firms the activities linked with success are: .manufacturing start-up; .marketing start-up; .prototype development. Throughout this study manufacturing related issues are found to be more significant for large than for small firms. A possible explanation for this is the fact that many of the large electronics firms in this study view Ireland primarily as a manufacturing location. Though they all have a serious commitment to R&D, as evidenced by their expenditure in the area, for many of them the reason they are in Ireland is for manufacturing capacity and easy access to the European market. It is also interesting to examine how well each set of firms judges their performance in developing new products. Figure 3 compares the levels of proficiency in the eight-stage process of small and large firms. There is very little difference between the proficiencies reported by small and large firms. But there is a slight trend that the smaller firms are reporting to be better at the early stages of the process while the large firms are better at the back end activities. It is also worth noting that in general the firms sampled did not report a very high level of proficiency in the product development process. As can be seen in Figure 3, on average, neither set of firms reported that they were better than fair at any of the activities in the product development process.

Development process factors
For the purpose of this study the product development process was divided into the eight stages listed below: 1 Exploratory: search and inquiry activities, usually phenomenon oriented. 2 Concept development: concept elaboration, extension and substantiation activities aimed at the clarification or elaboration of previously generated ideas or concepts. 3 Prototype development: differs from stage 2 in that a commercially relevant prototype, first model or product has been identified and is targeted. 4 Prototype testing: laboratory, field or production-scale evaluations. 5 Market development: market generation, demand simulation and market analyses activities. 6 Manufacturing start-up: initial production runs, scale-up and preparation for full scale activities. 7 Marketing start-up: preparation for fullscale market entry. 8 Technical service: follow-on market and technical activities which accompany the introduction of the new product.

Each respondent was asked to evaluate their performance in each stage of the process in order to assess the impact of the product development process on the success of new products. Table VI shows the relationship

Table V Organisational factors Factor

Marketing and new product characteristics

All firmsa Small firmsb Large firmsc Many studies of the factors in successful new product development have suggested Level of contact between commercial and that product superiority is the key to technical entities 0.342* 0.351*** successful products. This study also 0.203 Level of information flow between commercial investigated the characteristics of the and technical entities products developed. Questions were asked 0.441* 0.389* 0.157 Level of participation in problem solving by about the nature of the products developed commercial entities and the type of product positioning and 0.274*** 0.250 0.121 Top management support marketing strategies used. 0.392* 0.504* 0.180 Participative style of project manager A set of questions was used to determine 0.214 0.325 The motivation of project level personnel 0.287*** whether a particular product was being 0.282*** 0.330*** 0.066 launched under conditions of low or high market uncertainty. An uncertain market Notes: was defined as one in which the market was a all firms n = 63; b small firms n = 37; c large firms n = 26 not familiar to the developer, customers' Correlation coefficients statistically significant at: *p 0.01; **p 0.02; ***p 0.05, two-tailed [ 143 ]

A. Ledwith Management of new product development in small electronics firms Journal of European Industrial Training 24/2/3/4 [2000] 137±148

needs were not well defined and could not be readily translated into product performance specifications. A strong correlation between market certainty and new product success was found for the small firms in the sample (p 0.001), suggesting that external factors had a significant impact on the outcomes of projects. However, for the large firms studied, no relationship was found between market uncertainty and new product success, suggesting that for these firms internal rather than external factors were significant in determining project outcomes. Table VII summarises some of the customer and market characteristics that were found to be linked to new product success. The results in Table VII would suggest that small firms should pay close attention to what their customers want, while large firms should produce new products for rapidly growing markets. Table VIII summarises the new product characteristics that had an impact on the successful outcome of the projects. The product characteristics that are linked with success in large firms are the initial cost

of the product and the level of service and support offered. Interestingly enough, these are not significant for small firms. The only product characteristic that was linked with success for small firms was product compatibility; this is consistent with previous studies (Yap and Souder, 1994).

Skills and capabilities

Table VI Development process factors Factor Proficiency Proficiency Proficiency Proficiency Proficiency Proficiency Proficiency Proficiency in in in in in in in in the exploratory stage concept development prototype development prototype testing market development manufacturing start-up marketing start-up technical services All firmsa 1.88 0.249*** 0.425* 0.290*** 0.301** 0.155 0.378* 0.264***

The alignment of certain existing skills and capabilities of the firm with the requirements of new product projects was found to have an impact on project outcomes (Table IX). The most significant finding for small firms was the ability to understand user requirements, however, this did not seem to impact on success in large firms. This supports the commonly held view that one of the key advantages of small firms in innovating is their ability to stay close to their customers and to understand their needs. Not only is this an advantage, it is also a critical success factor. Manufacturing skills were found to be more important for large than for small firms. In fact, the lack of any relationship between production/manufacturing skills and success in new product development in small firms is noteworthy. As was presented in Figure 2, large firms reported that they spent twice as much of their total innovation budget (11 per cent) as small firms (5 per cent) on process improvements. Small firmsb Large firmsc Small firms were found to report higher success rates when they stayed close to their existing markets and utilised existing sales 0.238 0.132 and marketing skills; this was not found to 0.402** 0.106 the same extent for large firms. 0.423* 0.302 0.260 0.148 0.423* 0.272 ±0.010 0.419*** 0.388*** 0.388 0.264 0.173

Notes: a all firms n = 63; b small firms n = 37; c large firms n = 26 Correlation coefficients statistically significant at: *p 0.01; **p 0.02; *** p two-tailed

Discussion and conclusion
0.05, The key findings, that differentiate the management of new product development in

Figure 3 Development process proficiency

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the small firms from that in the large firms in this study, are summarised and discussed below.

Company level findings
The small firms in the study reported that they spent a higher percentage of their turnover on R&D and had a higher percentage of their total employees in R&D. This result is not unexpected for several reasons. All the firms involved in the study had formal R&D departments, a bigger overhead for a small firm than for a large firm. Additionally, all firms were involved in developing high-technology (electronics) products, which requires a sizeable up-front investment in both equipment and knowledge (highly skilled employees). As mentioned earlier, these findings are also consistent with previous studies (Van Dijk et al., 1997). Small firms were found to hold fewer patents than large firms. This would tend to suggest that small firms are not adequately protecting their investment in new technologies. The Irish industrial agencies are attempting to address this issue through educational and financial programmes.

Small firms reported a lower level of involvement with external organisations in developing new products than the larger firms in the study. In particular, they reported a much lower level of interaction with customers and suppliers. This is a key finding which, as suggested below, will require additional investigation.

Project level findings

Interaction between commercial and technical entities was found to be more critical to new product success in small firms than in large firms. The finding that a high level of interaction between different functional departments is linked with success is consistent with prior studies. However, the reason why this is of more importance in small firms is that it is generally assumed that small firms are more organic than larger firms, with more open communication flows and interpersonal exchanges. A possible explanation is that it is not valid to treat all firms with fewer than 100 employees as a homogeneous group. The researcher's impression was that firms with up to 15 or 20 employees did indeed possess the characteristics normally associated with small firms, such as frequent and high quality exchanges of information. However, as firms grew towards 50, 80 or 100 employees, communications became more difficult, while the majority of firms in this size range had not yet put in place formal Table VII mechanisms to facilitate the exchange of Customer/market characteristics information, e.g. regular formal review All firmsa Small firmsb Large firmsc meetings. This results in a group of firms in Factor the 50-100 employee size range for whom The customer had a great need for this type of interdepartmental communications cannot product be taken for granted and for whom such 0.325* 0.419* 0.192 The potential customers were eager about new communications are critical to new product products success. 0.297** 0.285 0.258 The market for this product was growing quickly * Top management involvement in new 0.336 0.210 0.529* We took into consideration customers' problems product development was found to be more with previous products when we designed this important in small firms than in large firms. product As with the previous point, this finding is consistent with prior studies of large firms 0.456* 0.559* 0.337 but was not expected to be so critical in small Notes: firms where top management skill and a all firms n = 63; b small firms n = 37; c large firms n = 26 competence had been found to be of greater Correlation coefficients statistically significant at: *p 0.01; **p 0.02; ***p 0.05, importance (Hoffman et al., 1998). A similar two-tailed explanation to that proposed for technical/ commercial interaction could be given ± many of the ``small'' firms in this study are outgrowing the benefits normally associated Table VIII with small entrepreneurial organisations but New product characteristics have not yet put in place formal methods to counter the lack of organic information flows All firmsa Small firmsb Large firmsc and communications. Factor There is at the moment a lot of emphasis A competitive initial cost was a planned selling within the Irish industrial support system on point for this product 0.297* 0.426*** 0.170 encouraging innovation within firms, and Service and support was a planned selling point for this product 0.209 Product compatibility was a planned selling point for this product 0.120 0.003 0.339*** 0.401*** ±0.220

Notes: a all firms n = 63; b small firms n = 37; c large firms n = 26 Correlation coefficients statistically significant at: *p 0.01; **p 0.02; two-tailed



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particularly within small firms. However, the small firms in this study were found to have most success in developing new products that fit closely with their existing markets and products; this was not found to be the case for large firms. This was also reported in the US study of new product development in small high-technology firms (Yap and Souder, 1994). Small firms tend not to have the resources or capabilities to become diversified and are well advised to ``attack from a position of strength'' (Cooper, 1999; Meyer and Roberts, 1986). In their comparison between small hightechnology firms in the USA and New Zealand, Souder et al. (1997) concluded that the New Zealand firms were more customer focused, attributing a large amount of their success to staying close to their customers and gaining an accurate understanding of customer needs. The small Irish firms that participated in this research appear to have similar characteristics. They reported more success with products for which the user had a great need, while large firms had more success when targeting rapidly growing markets. It was also found that understanding user requirements is a key success factor for small but not for large firms. The similarities between Irish and New Zealand high-technology firms, both operating in similar economies, are worth further investigation. Finally, competitive pricing of new products was found to correlate with success in large but not small firms. This is probably

Table IX Skills and capabilities Factor All firmsa

0.373* The user's requirements were well understood Manufacturing skills were at the desired level for this project 0.182 Market research skills were ideal for the product 0.419* Sales and marketing skills were ideal for this project 0.401 The forecast of market demand for this product * was accurate Predictions about customer requirements were * 0.484 accurate There was close fit between existing markets 0.604* and the market for this product

There was close fit between the existing product line and this product 0.259*** There was a close fit between the firm's marketing skills and the needs of this project 0.333* 0.310**

linked to the type of markets within which each group of firms operates. Larger firms are more likely to be operating in mass markets where efficiency of manufacturing and competitive pricing are critical. By contrast, small high-technology firms are more likely to be targeting market niches where the most important new product characteristics are compatibility and reliability; this is consistent with the findings of Yap and Souder (1994). Many of the findings above are intuitive, but they do point to areas where small firms can improve their management of new product development and thereby their overall competitiveness. In addition to these findings, several key areas have emerged that require further research; these include: .Small firms have reported a very low level of involvement with external organisations in developing new product. The problem with this is that, while large firms may possess all the skills they need to develop new products, this is unlikely to be the case for small firms. Therefore, the only way that small firms can access the quantity and quality of resources that they need to remain competitive in their product development efforts is by sourcing them externally. During this study several firms stood out as having mastered the skill of utilising external services, but the majority of firms were still operating in almost complete isolation. .The high ratio of totally new products to product variants in small firms is interesting. Several explanations are possible. Many small firms try to maximise their product development efforts by designing products with a maximum of flexibility, i.e. they try to solve all customers' problems with one product. This could be a positive feature and may be related to their manufacturing capabilities ± it is easier to organise to manufacture a smaller number of Small firmsb Large firmsc products. However, it could also be that small firms are short-term in their 0.474* 0.076 outlook and think only in terms of individual products rather than product 0.397*** ±0.071 platforms. Either way this is a result that requires more attention. 0.437* 0.372 .Many of the results presented here point to the lack of manufacturing skills and also a lack of awareness of the importance 0.430* 0.350 of the manufacturing process and process improvement in small firms. It would be 0.593* 0.320 interesting to attempt to determine whether this is a cause or an effect. In 0.658* 0.522* other words, are the firms in the study still small because they lack a clear 0.388** 0.072 0.384** 0.468* 0.215 0.125

Notes: a all firms n = 63; b small firms n = 37; c large firms n = 26 Correlation coefficients statistically significant at: *p 0.01; **p 0.02; two-tailed [ 146 ]



A. Ledwith Management of new product development in small electronics firms Journal of European Industrial Training 24/2/3/4 [2000] 137±148

manufacturing strategy or do they lack manufacturing skills because they are small? Another aspect of this result could be an over-dependence of the large firms in the study on manufacturing. As discussed already, many of the large firms in the study are Irish divisions of multinational organisations and many have located in Ireland in order to avail themselves of manufacturing tax relief; this could be influencing their management of new product development.

In conclusion, small firms developing new products for rapidly changing hightechnology markets cannot assume the relevance of success factors that have been found to apply to large firms. There are many reasons why this is the case. Small firms manufacture in much smaller volumes than large firms and therefore will not reap the same return for improving manufacturing technology. Small firms tend to have lower market share and less market credibility than large firms, they also rely more on a small number of key customers, and this has a significant impact on how they should manage the marketing of new products. Additionally, most small firms are severely constrained by the limited resources, both human and financial, at their disposal. This paper has begun to identify some of the issues that are linked with successful new product development in small firms. However, much work remains to be done before we have the same understanding of managing NPD in small firms as in large firms.

1 This research is part of a larger project called INTERPROD ± an international study of the factors that distinguish new product successes from failures. INTERPROD is directed by Professor Wm Souder at the Centre for Management of Science and Technology, University of Alabama in Huntsville. The INTERPROD study is funded by the National Science Foundation grant SBR9408272, Marketing Science Institute Grant 4-386 and US Air Force Grant F49620-94-1-0456 to Dr Wm Souder at CMOST.

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Further reading
Clark, K.B. and Wheelwright, S.C. (1992), Revolutionising Product Development, Free Press, New York, NY. Leonard-Barton, D., Bowen, H.K., Clark, K.B., Holloway, C.A. and Wheelwright, S.C. (1994), ``How to integrate work and deepen expertise'', Harvard Business Review, September-October, pp. 121-30.

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