Risks in new product development: devising a reference tool

This paper describes the development and applicability of a risk reference framework (RRF) for diagnosing risks in technological breakthrough projects. In contrast to existing risk identification strategies, the RRF centers on an integral perspective on risk (i.e. business, technological and organizational) and the assessment of risks in ongoing projects. The resulting RRF consists of 12 main risk categories and 142 connected critical innovation issues and has been developed for a globally operating company in the fast-moving consumer goods industry. Our analyses show that to some extent different project members identified the same risks and that saturation occurred in the number of new risk-issues brought to light. We conclude that the success of breakthrough innovation projects improves through formal risk-assessment.     

Breakeven Time on New Product Launches: An Investigation of the Drivers and Impact on Firm Performance

The ability to break even faster on new product projects is becoming increasingly critical for firms in fast‐moving industries where continually reinvesting in research and development efforts matters greatly for survival. However, most research to date has focused on studying the impact of two primary innovation outcomes: sales and profits. The exclusive emphasis on sales and profit may be warranted for certain types of goods such as durable goods, but when examining the effects of new products in fast‐moving consumer goods or in the entrepreneurial sphere, where cash to cash matters greatly for survival, it is critical for both researchers and practitioners to not only consider the profits and sales generated by the new product but also the time to breakeven. This paper develops a theoretical framework using the competency‐based literature to examine the effects of innovation drivers (customer idea source, speed to market, product quality, and product newness) on breakeven time (BET) and project profits, and their subsequent impact on firm performance. A three‐stage least square estimation method was employed using longitudinal data on 945 new product development projects and launches in the morning (breakfast) foods category. The results clearly pinpoint that for successful product innovation, managers need to consider the time taken to breakeven on new product development. Specifically, the results demonstrate that speed to market and product quality shorten BET, but customer idea source extends BET. Second, the analysis also empirically demonstrates that BET is an equally effective predictor of firm performance as project profits in the short run, but significantly a stronger predictor of firm performance in the long run (t + four years), suggesting that BET should be regarded as a superior leading indicator of firm performance versus product profitability for fast‐moving consumer goods segment. This is an important finding that suggests firms that recoup their cash investments more quickly experience greater short‐term and significantly more long‐term success.     

Subjective Performance Assessment of Innovation Projects*

Performance assessment of innovation projects is a central issue in innovation management research. Using existing literature, a model is developed to assess the performance of new product and new service development projects. In this model, project performance is defined as a combination of a formatively indicated operational performance construct and a reflectively indicated product performance construct. The validity of this model is tested based on a sample of 219 innovation projects assessed by innovation managers. Using only the innovation managers' responses, it is, however, not possible to distinguish between operational and product performance. The impact of common method bias and informant bias is subsequently assessed using a subsample of 128 of these 219 innovation projects that are assessed by the innovation manager and the project leader. These latter results show that operational and product performance are two distinct constructs. In addition, the multitrait–multimethod analyses show that especially the more abstract items of performance, such as the perceptions of quality, captured knowledge, competitive advantage, gained reputation, and customer satisfaction, suffer from random error and informant bias. Project leaders appear to be better informed to assess operational performance, while innovation managers are better in assessing product performance. The paper concludes with a qualitative comparison of several alternative performance models: the project performance model as derived from the literature, a similar (misspecified) reflective performance model, two stand‐alone models in which operational and product performance are assessed separately, and a mixed model that uses a combination of innovation managers' and project managers' data. Based on this comparison, it is advised to use either the stand‐alone models for operational performance and product performance or the mixed model whereby the project leader assesses operational performance and the innovation manager the product performance of an innovation project.     

Perceptions of Material Resources in Innovation Projects: What Shapes Them and How Do They Matter?

Studies on the role of material resources for team performance in innovation projects have provided inconclusive results. This paper focuses on team members' perceptions of the provided material resources' adequacy to address this gap. Understanding what drives perceptions of material resource adequacy may not only reconcile conflicting results in the literature, but may also provide much‐needed guidance for project funding, so as to maximize innovation project performance. Further, the analyses in this paper differentiate between two outcome dimensions of innovation project performance, namely, the degree of new product quality and new product novelty, and thus offer a more fine‐grained analysis of the relationship between perceptions of material resource adequacy and innovation project teams' performance. The posited hypotheses are tested using a sample consisting of survey data from 121 innovation projects in the electronics industry. To avoid common source bias, data from different respondent groups, that is, team leaders, team members, and team external managers of the examined innovation projects, were used. The results of the regression analyses identify team potency and workload as socio‐cognitive drivers of innovation project teams' perceptions of material resource adequacy. Moreover, it is found that perceived material resource adequacy relates positively to new product quality, while it relates negatively to new product novelty. This paper thus provides an important step toward disentangling the ambiguity surrounding the relationship between material resource adequacy and innovation project teams' performance, showing that a key finding of cognitive psychology seems to hold also on the team level of inquiry: the significant influence of socio‐cognitive factors on perceptions. This finding paves the way for putting more attention in research on innovation and project management on cognitive aspects, in particular considering mechanisms behind the formation of team perceptions. Further, the results provide evidence for differential effects of perceived material resource adequacy on innovation project performance, depending on the indicators used for measuring the outcomes of an innovation project. This contributes necessary detail to studying the relationship between material resource adequacy and innovation project performance, which so far has produced inconclusive results, suggesting that these contradictions might result to a large degree from different operationalizations of innovation project performance. On a practical level, the findings of this paper suggest that material resource adequacy seems not to be a catch‐all variable, influencing innovation project outcomes in a uniform way. It appears to be a useful lever for influencing team outcomes depending on the desired result, which may be manipulated by shaping team variables that exert a systematic influence on perceptions of material resource adequacy.     

Making Virtue of Necessity: The Role of Team Climate for Innovation in Resource‐Constrained Innovation Projects

The effect of financial resource constraints on innovation team performance is ambiguous. On the one hand, the majority of scholars have argued that financial resource constraints have an inhibiting effect on innovation, whereas budgetary slack supports creativity and innovation. Consistent with this notion, in most conceptual models on the management of innovation projects, the availability of slack, or at least adequate (rather than constrained) resources represents an important success factor supporting innovation. On the other hand, popular parlance has it that sometimes “necessity is the mother of innovation,” and literature in cognitive psychology suggests that resource constraints stimulate creativity and innovative behavior. Recent innovation literature indeed provides evidence that remarkable innovation outcomes can be achieved with constrained financial resources. Despite the rapidly growing research on success factors of innovation projects, and the high managerial relevance of budget questions, the influence of financial resource constraints has only very recently started to attract interest. The objective of the present study is to contribute to that research by investigating under what conditions financial resource constraints lead to innovation outcomes. Specifically, team climate for innovation is examined as a potentially important contingency variable of the relationship between financial resource constraints and innovation project performance. By explicitly focusing on team climate for innovation, factors of the work environment in innovation projects are addressed as influential boundary conditions for successfully innovating under financial resource constraints. The hypotheses are tested on a sample of 94 innovation project teams from a variety of industries. To ensure content validity and to avoid a possible common source bias, data from different respondents, i.e., team leaders, team members, and team external managers of the innovation projects, are used. Results of regression analyses show that there is no significant relationship between financial resource constraints and innovation project outcomes in terms of product quality and project efficiency. However, results show a significant interaction term of financial resource constraints and team climate for innovation in that team climate for innovation positively moderates the relationship between financial resource constraints and product quality as well as project efficiency. Thus, the findings of the present study contradict the widespread notion in innovation literature that financial resource constraints have a wholesale inhibiting effect on innovation, thereby providing a differentiated perspective on the relationship between financial resource constraints and innovation. On a practical level, the results of this study highlight a specific condition under which product developers can come up with more innovative solutions despite, or even because of, financial resource constraints.     

Managing Relations Between R&D and Marketing in New Product Development Projects

This article examines the R&D/marketing interface conditions found within an extensive data base of new product development innovation projects. The incidence of different types of problems between these two important functions are analyzed and the effects of these observations on project outcomes are discussed. The article contains a number of recommendations for increasing the success rates of innovation projects by using a model that improves conditions at the R&D/marketing interface.     

Individual differences, environmental scanning, innovation framing, and champion behavior: key predictors of project performance

Although increasing evidence points to the importance of champions for keeping product innovation ideas alive and thriving, little is known about how champions identify potential product innovation ideas, how they present these ideas to gain much needed support from key stakeholders, and their impact on innovation project performance over time. Jane M. Howell and Christine M. Shea address this knowledge gap by using measures of individual differences, environmental scanning, innovation framing and champion behavior to predict the performance of 47 product innovation projects. Champion behavior was defined as expressing confidence in the innovation, involving and motivating others to support the innovation, and persisting under adversity. Interviews with 47 champions were conducted to collect information about the innovation projects and the champions' tendency to frame the innovation as an opportunity or threat. Survey data were obtained from three sources: 47 champions provided information on their personal characteristics (locus of control and breadth of interest) and activities (environmental scanning), 47 division managers subjectively assessed project performance at two points in time, and 237 innovation team members rated the frequency of champion behavior. The results revealed that an internal locus of control orientation was positively related to framing the innovation as an opportunity, and breadth of interest was positively related to environmental scanning. Environmental scanning of documents and framing the innovation as a threat was negatively related to champion behavior, while environmental scanning through people was positively related to champion behavior. Champion behavior positively predicted project performance over a one‐year interval. Overall, the findings suggest that in scanning the environment for new ideas, the most effective source of information is the champion's personal network of people inside and outside the organization. Also, the simple labeling of an idea as a threat appears to diminish a champion's perceived influence and erode credibility in promoting an innovation. From the perspective of division managers, champions make a positive contribution to project performance over time, reinforcing the crucial role that champions play in new product development process.     

An option approach to the new product development process: a case study at Philips Electronics

The paper considers the product development process as a series of (real) options with reducing uncertainty over time. Criteria are developed to decide on speeding up or delaying the development process. The paper demonstrates how, in the R&D phase, any particular project may be assigned within a 2 × 2 matrix of uncertainty versus R&D option value. A similar matrix can be established for the product launch phase. The matrices support portfolio management throughout the different phases of development and enable management to decide on an appropriate point at which to abandon individual projects. The approach originates from applying real options insights into the product development process at Philips Electronics. The paper is illustrated with some actual R&D projects.     

An Empirical Study of Platform and Derivative Product Development Projects

Many firms now realize the importance of planning product families and product platforms. However, little research addresses planning and execution of different types of projects within a product family platform series. This study investigates project characteristics, development challenges, typical outcomes, and success factors for product development projects at different locations in the product family spectrum. “Platform” projects result in products that initiate a new product family platform for a company. “Derivative” projects result in products consisting of extensions to an existing product family platform. Data on 108 new product development projects from a variety of assembled products industries were collected via a detailed survey and analyzed. Findings indicate that: (1) platform and derivative projects differ in project task characteristics (including the amount of new technology development undertaken and project complexity) and market newness; (2) platform and derivative projects generally do not differ in terms of project success (achievement of project objectives, level of company satisfaction, and perceived customer satisfaction) or smoothness of project execution; (3) both platform and derivative projects generally are executed in similar ways; (4) certain managerial approaches (including contingency planning, project-based evaluation of personnel, and overlap of design and manufacturing engineering) are associated with higher project execution success for both platform and derivative projects; and (5) use of interdependent technologies and novel project objectives are associated with project execution failure for platform projects. The results suggest that firms can continue to employ a single product development management process for both platform and derivative projects, as long as modest customization of the process is made for the given project type. Completely different management processes are not required. In all, the results presented in this article suggest specific managerial actions companies can take to significantly improve product development success. © 1999 Elsevier Science Inc.     

Selecting Influential Business-to-Business Customers in New Product Development: Relational Embeddedness and Knowledge Heterogeneity Considerations

This study examines how the most influential business‐to‐business (B2B) customers, both existing and potential, involved in providing input to a new product development (NPD) project influence new product advantage. As the relational literature suggests, involving customers who have had close and embedded relationships with a firm's new product organization, such as a firm's largest customers, and customers who have been involved in past collaborative activities, should lead to the development of superior products. To the contrary, the innovation literature suggests that a firm may become too close to its large, embedded customers resulting in less innovation and in lower performing products. Also, the relationship between the heterogeneity of the knowledge of the most influential customers and new product advantage is examined. A contingency perspective is hypothesized such that the degree of product newness sought in the project moderates the effects of both relational embeddedness and knowledge heterogeneity on new product advantage. Empirical findings from a sample of 137 NPD projects support this contingency view. For projects seeking to develop incremental products, where the product being developed is an extension or an enhancement to an existing product, new product advantage tended to be higher in projects using embedded or homogeneous customers. For incremental projects, projects using less‐embedded or heterogeneous customers tended to have lower product performance. For projects following a highly innovative product strategy, new product advantage tended to be higher in projects that involved heterogeneous customers. These heterogeneous customers provided NPD projects with a diversity of perspectives, competencies, and experiences that fostered significant product innovations. The study contributes to the literature by empirically testing relational and innovation theories in NPD projects and by providing evidence on the importance of relational embeddedness and knowledge heterogeneity in selecting influential customers in NPD projects.     

How Do Start-up Acquisitions Affect the Direction of Innovation?*

A start-up engages in an investment portfolio problem by choosing how much to invest in a “non-rival” project and a “rival” project that threatens an incumbent. Anticipating its acquisition, the start-up distorts its investment portfolio in order to raise acquisition rents. This may improve or worsen the direction of innovation and consumer surplus. The bigger the difference in social surplus appropriability across the two projects, the more likely it is that the direction of innovation improves and consumers benefit from an acquisition. These results also hold if the acquirer takes over the research facilities of the start-up.     

Market Learning and Radical Innovation: A Cross Case Comparison of Eight Radical Innovation Projects

Does customer input play the same key role in every successful new-product development (NPD) project? For incremental NPD projects, market information keeps the project team focused on customer wants and needs. Well-documented methods exist for obtaining and using market information throughout the stages of an incremental NPD project. However, the role of market learning seems less apparent if the NPD project involves a really new product—that is, a radical innovation that creates a line of business that is new not only for the firm but also for the marketplace. In all likelihood, customers will not be able to describe their requirements for a product that opens up entirely new markets and applications. To provide insight into the role that market learning plays in NPD projects involving really new products, Gina Colarelli O'Connor describes findings from case studies of eight radical innovation projects. Participants in the study come from member companies of the Industrial Research Institute, a consortium of large company R&D managers. With a focus on exploring how market learning for radical innovations differs from that of incremental NPD projects, the case studies examine the following issues: the nature and the timing of market-related inquiry; market learning methods and processes; and the scope of responsibility for market learning, and confidence in the results. Observations from the case studies suggest that the market-related questions that are asked during a radical innovation project differ by stage of development, and they differ from the questions that project teams typically ask during an incremental NPD effort. For example, assessments of market potential, size, and growth were not at issue during the early stages of the projects in this study. Such issues came into play after the innovations were proven to work under controlled conditions and attention turned to finding applications for the technology. For several projects in the study, internal data and informal networks of people throughout relevant business units provide the means for learning about the hurdles the innovation faces and about markets that are unfamiliar to the development group. The projects in this study employ various techniques for reducing market uncertainty, including offering the product to the most familiar market and using a strategic ally who is familiar with the market to act as an intermediary between the project team and the marketplace.     

Communication Flows in International Product Innovation Teams

Recently, we have witnessed a strong growth in the internationalization of many firms' product development activities. However, the lack of attention devoted by scientific research to the management of international innovation contrasts sharply with the importance attached to it as a cornerstone of international business success. Although several empirical studies and normative theories have specified the communication requirements in innovation teams, an empirically based insight is definitely needed on the communication requirements and requirements that prevail in the complex context of international innovation teams, in which the participants are located in different company units, countries, and cultures. This article addresses the following research question: viewing international innovation as an interfunctional activity, what are the communication requirements an international innovation team is facing, and what are the communication capabilities (interface mechanisms) that may be adopted to initiate, develop, and launch the new product effectively and efficiently? An extensive case study research project was designed to develop a comprehensive theoretical framework. Over a two year time period, the research team has investigated selected innovation projects in four European multinational corporations. The analysis of the case study data suggests five requirements that determine the effectiveness and efficiency of communication in international product development teams: network transparency, knowledge codification, knowledge credibility, communication cost, secrecy. To cope with these communication requirements, organizations may create firm level capabilities (parallel structures, cross‐functional and inter‐unit climate, communication infrastructure, goal congruence) and team level capabilities (core team, team leadership, formalization, procedural justice). The evidence from the in‐depth case study research indicates that these mechanisms provide a parsimonious and powerful approach to address the communication requirements in international product innovation teams. After the information processing framework proposed by Tushman and Nadler [124], the adoption of these mechanisms is expected to improve innovation effectiveness. This holds important consequences for the management of international product innovation projects. First, the innovating firm must balance centralization and decentralization, employ formal as well as informal strategies, and integrate ad‐hoc and permanent strategies. Second, it highlights the critical role of the project leader. Given the fact that companies often select the most available person, rather than the best person for the job, the allocation of light weight project leaders may create heavyweight problems in international teams. Third, following the argument in favor of procedural justice, the absence of involvement may severely hinder cross‐functional commitment to international innovation projects. Fourth, the innovating firm must also actively manage the communication flows with external parties. Failure to do so may result in flawed specifications, and a limited understanding about product design and market strategies.     

Product innovativeness from the firm's perspective: Its dimensions and their relation with project selection and performance

There has recently been tremendous interest in product innovativeness. However, it seems that we need a better understanding of exactly what product innovativeness means. This article presents a conceptual framework to clarify its meaning. The framework first distinguishes customer and firm perspectives on product innovativeness. From the customer's perspective, innovation attributes, adoption risks, and levels of change in established behavior patterns are regarded as forms of product newness. Within the firm's perspective, environmental familiarity and project-firm fit, and technological and marketing aspects are proposed as dimensions of product innovativeness.
Next, the article offers a tentative empirical test of the proposed dimensions of product innovativeness from the firm's perspective. A well-known dataset of 262 industrial new product projects is used to: I) clarify the product innovativeness construct and examine its underlying dimensions, 2) examine the relation of product innovativeness with the decision to pursue or kill the project, and 3) examine the relationship between product innovativeness and product performance. Five dimensions of product innovativeness are found which have distinct relations with the Go/No Go decision and product performance: market familiarity, technological familiarity, marketing fit, technological fit, and new marketing activities. Most strikingly, measures of fit are related to product performance, whereas measures of familiarity are not.
The article concludes that researchers need to be careful about which definitions and measures of product innovativeness they employ, because depending on their choice they may arrive at different findings. New product practitioners are encouraged to evaluate new product opportunities primarily in terms of their fit with their firm's resources and skills rather than the extent to which they are "close to home".     

Critical path method for introducing an industrial product

New product development continues to be a vital evil for most organizations. Considerable attention has been directed toward this function in the consumer goods field but relatively little research has been directed toward this critical task for producers of industrial goods. Industrial goods marketing managers seem to agree that error at the announcement/ introduction phase of the new product development process is responsible for the greatest number of new product failures. This article suggests use of the critical path method to ensure success at this crucial stage.     

Managing radical innovation: an overview of emergent strategy issues

Despite differences in definitions, researchers understand that radical innovation within an organization is very different from incremental innovation , and and that it is critical to the long-term success of firms. Unfortunately, research has also shown that it is often difficult to get support for radical projects in large firms [14], where internal cultures and pressures often push efforts toward more low risk, immediate reward, incremental projects. Interestingly, we know considerably less about the effective management of the product development process in the radical than in an incremental context. The purpose of this study is to explore the process of radical new product development from a strategic perspective, and to outline key observations and challenges that managers face as they move these projects to market. The findings presented here represent the results of a longitudinal (since 1995), multidisciplinary study of radical innovation projects. A multiple case study design was used to explore the similarities and differences in management practices applied to twelve radical innovation projects in ten large, established North American firms. The findings are grouped into three high-level strategic themes. The first theme, market scope, discusses the challenges associated with the pursuit of familiar versus unfamiliar markets for radical innovation. The second theme of competency management identifies and discusses strategic challenges that emerge as firms stretch themselves into new and unfamiliar territory. The final theme relates to the people issues that emerge as both individuals and the project teams themselves try to move radical projects forward in organizations that are not necessarily designed to support such uncertainty.A breadth of subtopics emerge within and across this framework relating to such ideas as risk management, product cannibalization, team composition, and the search for a divisional home. Taken together, our observations reinforce the emerging literature that shows that project teams engaging in radical innovation encounter a much different set of challenges than those typically faced by NPD teams engaged in incremental innovation.     

Supporting New Product Launches With Social Media Communication and Online Advertising: Sales Volume and Profit Implications

The question of how important firms’ investments in digital communication formats are for the commercial success of new products remains unexplored in the product innovation management literature. Drawing on reactance theory, the authors examine the extent to which investments in social media communication and online advertising are related to the sales volume and profits of new products within six months of being launched. Using dyadic survey data, an analysis of new products launched by 122 consumer durable goods firms reveals that sales volume and profits of new products are associated with (1) social media communication in a positive but diminishing shape, and (2) online advertising in an inverted U‐shape. Further analyses show that those curvilinear relationships are steeper for social media communication and flatter for online advertising at respective (1) higher levels of customer product involvement and (2) lower levels of product superiority. The results imply that there is an optimal level of investment in social media communication and online advertising, with the optimum dependent on a new product’s consumer involvement and superiority levels.     

Some Approaches to Complementary Product Strategy

Without complementary products, many high-tech innovations might be relegated to the scrap heap. For example, the development of desktop computers was not the sole impetus for the personal computing revolution. This innovation also depended on the development of word processing, spreadsheet, and desktop publishing software, as well as peripheral devices such as laser printers. Development of complementary products clearly offers increased opportunities for firms in many high-tech markets. However, managers must balance those opportunities with the added risks their firms face in attempting to develop products that may extend beyond their core lines of business. Focusing on the early business analysis stage of the product development process, Sanjit Sengupta identifies some alternative approaches that firms use for developing and marketing complementary products. Using data from 103 projects in the computer, consumer electronics, software, and communications industries, his study explores the relationships between a firm's complementary product strategy and such conditions as complementary product opportunity, organizational fit, and the multiplier effect of the complementary product on sales of the primary product. His study also examines the sources of competitive advantage in complementary product strategies. Contrary to the notion that only large, well-funded firms can pursue a complementary product strategy, the study identifies various alternatives to expensive, in-house development efforts. Depending on the level of resources available for a particular project, a firm may choose various modes for adopting a complementary product strategy, including co-development alliances, proprietary interface development, co-marketing alliances, and original equipment manufacturer (OEM) agreements. Findings from this study indicate that competitive advantage in complementary product strategy comes from the multiplier effect on sales of the primary product and from the innovativeness of the complementary product. Even if the complementary product has low sales potential by itself, the product may still offer a significant competitive advantage through its multiplier effect on the sales of the primary product. Somewhat surprisingly, the results suggest that organizational fit and complementary product opportunity have no effect on competitive advantage. However, organizational fit does appear to be an important condition for adopting a complementary product strategy. (c) 1998 Elsevier Science Inc.     

Collapsing New Product Development Times: Six Case Studies

Today's customers are sophisticated. They demand product variety, functionality and performance. To survive in this arena, successful companies in a global economy must rapidly introduce new products (new product lines or improvements to existing lines) by collapsing their product development times. Vincent Mabert, John Muth and Roger Schmenner report results from a comparative case study of six new product introduction projects at six different firms, identifying those elements that are important to product introduction lead time and how they are influenced by customer and organizational and technical factors. They note that the new product innovation process is very complex, sensitive to external forces like customer demands or expectations and to internal issues like how team leadership is defined for the development team. The article describes the participating companies and analyzes the six projects with particular attention to four structural elements: motivation, workings of teams, external vendor's cooperation with the teams and project control. The authors conclude by identifying the top priority factors influencing new product introduction time.