The screening of product ideas

Transcription

1 The current issue and full text archive of this journal is available at Is the screening of product ideas supported by the NPD process design? Kristina Risom Jespersen Department of Marketing and Statistics, Aarhus School of Business, Aarhus, Denmark Abstract Purpose The purpose of this paper is to investigate whether the screening of product ideas is supported by the NPD (new product development) process design throughout the NPD phases. Design/methodology/approach Data were collected with an internet survey questionnaire from 43 large companies producing high and low-technology consumer products. Findings Results reveal that the screening of product ideas is detached from the NPD process design, but significantly influenced by the market conditions facing companies. Research limitations/implications To understand NPD in companies, NPD literature will benefit from knowledge of the process of implementing best practices of NPD. Companies follow guidelines, but how is the NPD process followed through? This paper supports the need for improved insight into the complexity of screening decisions as well as knowledge of the screening determinants. Practical implications The implementation of cross-functional teams and interacting phases demands more attention by management in order to reduce costs of NPD relative to the ROI of new products. Originality/value By showing that the screening is detached from the NPD process design, the paper gives valuable insight into the need for theory to investigate the complexity of implementing best practices of NPD. Keywords Product development, Process planning, Design, Decision making, Best practice Paper type Research paper The screening of product ideas 453 Introduction With new product development (hereafter NPD) as an investment expected to be leveraged, the screening performed between the NPD phases is crucial for the overall performance of a company. Two dimensions of the screening of product ideas are faith and consequence. Faith is the evaluation of a product idea s potential on the market. Consequence is the termination of product ideas within the NPD process. Companies demonstrate faith and consequence in their product development by believing in some ideas while terminating others. Different decision criteria determine the screening of product ideas over the process (Carbomell et al., 2004; Hart et al., 2003). NPD best practice literature generally agrees that the decision criteria and the screening of product ideas are supported by the NPD process design. According to best practices of NPD, the NPD process design supporting screening decisions is the use of cross-functional teams (Gupta and Wilemon, 1986; Montoya-Weiss and Calantone, 1994; Henard and Szymanski, 2001; Song et al., 1996; Song, 1996; Griffin and Hauser, 1996) and an NPD process with interacting phases (Urban and Hauser, 1993; Souder, 1989; Henard and Szymanski, 2001; Montoya-Weiss and Calantone, 1994; Cooper, 1988; Barczak, 1995; Cooper and Kleinschmidt, 1986; Grunert et al., 1997; Maylor, 2001; Wind, 1982; Crawford, 1997; Lewis, 2001). This European Journal of Innovation Management Vol. 10 No. 4, 2007 pp q Emerald Group Publishing Limited DOI /

2 EJIM 10,4 454 assumption has not been explicitly confirmed, because the decision criteria and the subsequent screening have been overlooked by research (Hart et al., 2003). The purpose of this paper is to investigate whether the screening of product ideas is supported by the NPD process design throughout the NPD phases. The empirical results provide important insight into the complexity of choosing the right product ideas to develop into new products. Acknowledging that NPD takes place in a context, the market conditions facing companies are also considered in the analysis. The paper examines the following two research questions: (1) whether the NPD process design supports the screening of product ideas; and (2) the role of a company s market conditions in this relationship. The paper contributes to NPD literature by adding to the knowledge of the screening of product ideas within the NPD process through these research questions. The paper adds to the arguments supporting the screening of product ideas as an important future research topic. By showing that the screening is detached from the NPD process design, the paper gives valuable insight into the need for theory to investigate the complexity of implementing best practices of NPD. Data were collected using an internet questionnaire addressed to the manager in charge of NPD in the contacted company. Participating companies were major international companies having placed their NPD in Denmark. The paper is organized as follows. First, the conceptual framework is presented and the hypotheses developed. Next the data collection and variable measures are described. Then the results and the discussion follow, before a conclusion and implications are given. Conceptual framework and hypotheses Drawing on literature in marketing, product development and project management, the following framework for the relationship between NPD process design, market conditions and product idea screening is developed (see Figure 1). The framework posits three main links: (1) a direct link between NPD process design and product idea screening; (2) a direct link between market conditions and product idea screening; and (3) a direct link between market conditions and NPD process design. Figure 1. Conceptual framework

3 NPD process design Cross-functional teams Being an often cited critical factor for new product success, the use of cross-functional teamwork in the NPD process is expected to influence the screening decisions positively as to increasing effectiveness (Stewart-Knox and Mitchell, 2003; Henard and Szymanski, 2001; Gupta and Wilemon, 1986; Crawford, 1997; Song et al., 1996; Song, 1996; Griffin and Hauser, 1996) and reducing equivocality (Koufteros et al., 2001). In a review of literature, Griffin and Hauser (1996) state that the evidence is strong, consistent, common across a variety of methodologies, and seemingly applicable in both services and products and in both consumer and industrial markets: cross-functional teamwork enhances success (Griffin and Hauser, 1996). Furthermore, a project management review evidenced that cooperation positively affects both task and psycho-social outcomes, suggesting that cross-functional teams promote better task performance as well as general positive feelings of accomplishment from the project (Pinto, 2002). Cross-functional co-operation in developing a new product positively enhances the performance of a product when launched. Therefore it is hypothesized: H1. Cross-functional teams increase faith and consequence in product idea screening. The screening of product ideas 455 Interacting phases Since Booze, Allen and Hamilton, in 1968, presented the NPD process as a sequence of activities, the use of a formal NPD process has been advocated by research because it reduces the uncertainty about the performance of a new product. In literature, the structure of the formal NPD process has evolved from the sequential form to an overlapping flexible team-oriented NPD process designed as holistic NPD (Thomas, 1993), quality function deployment (Griffin and Hauser, 1992), concurrent engineering (Koufteros et al., 2002) or stage-gate (Cooper, 1994;Cooper, 2000) to name a selection of the often cited guides to the NPD process. Since an NPD process designed with interacting phases is associated with improved overall performance (Urban and Hauser, 1993; Souder, 1989; Cooper, 1988; Barczak, 1995; Cooper and Kleinschmidt, 1986; Grunert et al., 1997; Maylor, 2001; Wind, 1982; Crawford, 1997; Lewis, 2001), it is expected that the survival of new product ideas within the NPD process is contingent on the design of the NPD process in a company. Therefore it is hypothesized: H2. An NPD process designed with interacting phases increases faith and consequence in the product idea screening. Market conditions Fast-cycle markets where the competitive advantage relies on creativity and innovation, and where the competitive rivalry is very intense are the markets most often experienced by high-technology companies. Here product ideas are terminated earlier in the NPD process (Slater and Narver, 1997;Williams, 1992). Differently, low-technology companies operate more often in stable environments where competition is based on operational efficiency (Slater and Narver, 1997;Williams, 1992). In these slow-cycle markets, the belief in product ideas is stronger, because the

4 EJIM 10,4 456 known market and customers lower the risk of NPD, and forecast product performance with higher certainty. Therefore it is hypothesized: H3a. Slow-cycle market conditions increase faith in product idea screening. H3b. Fast-cycle market conditions increase consequence in product idea screening. Furthermore, companies faced with high equivocality and uncertainty adopt integrated NPD practices in order to stay flexible and alert to the often changing competitive situation (Koufteros et al., 2002). An empirical study of 79 firms from the medical instrument technology industry and 85 firms from the food processing industry found that the absence of planning and NPD programs is causing new product failure in food processing companies (Karakaya and Kobu, 1994a). Therefore, it is hypothesized: H4. Fast-cycle market conditions increase the use of cross-functional teams and interacting phases for the development of new products. Data collection The sample consists of major international companies having their R&D unit placed in DK. The targeted companies develop either high or low technology products for the consumer market. Low-technology products were represented by food companies whereas high-technology products were more diversely represented by industries such as telecommunication, personal computers, kitchen hardware, speakers, washing machines, tumblers, and headphones. The selection criteria were: reasonable size, consumer products, and product development in Denmark. High or low technology is defined on basis of the end product, since these are operating in fast and slow-cycle markets. The potential companies being identified, their Websites were visited in order to check if product development activities were taking place in Denmark and furthermore to determine a possible contact person. The latter was found based on either job title as R&D manager/director or via the organizational chart from which it was possible to determine whether it was a marketing, engineering or project manager who would be the relevant contact person. Based on this search for companies, the list contained 30 high-technology companies and 55 low-technology companies. Where the low-technology companies are a sample of a large population of food companies, the 30 high-technology companies constitute the existing population in Denmark. Contact was made by telephone to all 85 companies. Having accepted to participate, the company and the participating person from the company were entered into a mail database which distributed s with links and passwords to an internet questionnaire. The response rate was 68 per cent. Measures The screening of product ideas Data were obtained by asking for firstly, the percentage of new product ideas that reaches the different phases of the NPD process (Griffin, 1997) thereby measuring P(phase), and secondly, the probability of a new product idea being a success on the

5 market if it reached a certain phase of the NPD process (Griffin, 1997) thereby measuring P successjphase. Faith was measured as the likelihood of a product idea reaching a phase and being perceived as a potential success on the market ðpðsuccess > phaseþþ. Bayes theorem was used to derive this measure: Pðsuccess > phaseþ ¼ PðphaseÞ P successjphase. Consequence was measured on two dimensions. First, as the decay of product ideas calculated as the change in P(phase) from phase to phase throughout the NPD process. Second, as the percentage of terminated product ideas within each phase calculated as the decay of product ideas divided by the starting P(phase). For example: PðideaÞ2 PðconceptÞ =PðideaÞ. The screening of product ideas 457 NPD process design The measurement questions for NPD architecture were designed in accordance with the PDMA investigations of NPD practices (Griffin, 1997). The use of cross-functional teams was measured by dichotomous variables as to whether the participating companies used cross-functional teams for NPD or placed NPD within a single organizational unit: product development, R&D, production or marketing. The aim was to measure the unit responsible for NPD (Griffin, 1997). An NPD process designed with interacting phases was measured as the percentage of companies having marked the stage-gate approach as resembling their NPD process based on six different scenarios of the NPD process (Griffin, 1997). Market conditions Fast-cycle and slow-cycle markets were measured dichotomously as to whether the company produced high-technology or low-technology consumer goods. Analysis The relationships between NPD process design, market conditions and product idea screening are analyzed by use of a multiple dummy regression analysis. Market condition is coded 1 for low-technology companies and 0 for high-technology companies. Cross-functional teams and single units responsible for NPD are coded 1 for being responsible for NPD and 0 for not responsible. A design of the NPD process with interacting phases is coded 1 for the implementation of any generation of a stage-gate process. The results are presented in Tables I, II and III. To examine the association between market conditions and NPD architecture, a general chi-square analysis was conducted. Results H1 states that cross-functional teams increase faith and consequence in product idea screening. The results in Tables I, II and III do not support this assumption. Regarding faith in the product ideas (see Table I): In the idea phase, cross-functional teams have less faith in product ideas than a single-unit being responsible for NPD, except for the R&D department. Differently in the prototype phase, where cross-functional teams together with marketing demonstrate more faith in product ideas. Regarding the consequence for product ideas in the NPD process, the results show that cross-functional teams are performing as any single unit responsible for NPD. The

6 EJIM 10,4 458 Table I. Analysis of faith in the screening of product ideas Single unit responsible for NPD Interacting phases F R 2 Product development R&D Production Marketing Cross-functional team Market NPD phase b 0 conditions Idea ** ** Fð3; 37Þ ¼4:134 * Concept * ** Fð3; 38Þ ¼4:852 * Prototype * *** ** *** Fð7; 33Þ ¼2:478 ** Product * Fð7; 33Þ ¼2: Market Fð7; 33Þ ¼2:437 ** planning *** Launch * Fð2; 38Þ ¼5:646 * Notes: * p, 0:01; ** p, 0:05; *** p, 0:10

7 Single unit responsible for NPD Interacting phases F R 2 Product development R&D Production Marketing Cross-functional team Market NPD phase b 0 conditions Idea Concept Prototype Product ** Fð1; 39Þ ¼4:076 ** Market Fð1; 39Þ ¼3:8 *** planning *** Launch Notes: * p, 0:01; ** p, 0:05; *** p, 0:10 The screening of product ideas 459 Table II. Analysis of decay (consequence) in the screening of product ideas

8 EJIM 10,4 460 Table III. Analysis of percentage of terminated product ideas (consequence) in the screening of product ideas Single unit responsible for NPD Interacting phases F R 2 Product development R&D Production Marketing Cross-functional team Market NPD phase b 0 conditions Idea Concept Prototype Product ** Fð3; 37Þ ¼4:442 ** Market Fð1; 39Þ ¼4:46 ** planning ** Launch ** Fð1; 36Þ ¼5:898 ** Notes: * p, 0:01; ** p, 0:05; *** p, 0:10

9 product phase is an exception with fever ideas surviving from the prototype phase to the product phase (see Table II). H2 states that interacting phases increase faith and consequence in the product idea screening. The results in Tables I, II, and III do not support this assumption. For the sample companies, the design of the NPD process does not affect the screening of product ideas. Neither faith nor consequence is influenced by the NPD process implemented in the companies. H3a states that slow-cycle market conditions increase faith in product idea screening. The results in Table I do not support this assumption. From Table I and Figure 2 it appears that companies on fast-cycle markets such as high-technology consumer goods have faith in their product ideas. Not, on average, an overwhelming faith, but these companies seem stronger in their belief. H3b states that fast-cycle market conditions increase consequence in product idea screening. The results in Table III and Figure 3 (see below) support this notion. Figure 3 demonstrates that high-technology companies terminate thirty-six percent of new product ideas in the idea phase, but only seven percent in the concept phase, whereas low-technology companies terminate 28 percent of new product ideas in the idea phase and another 25 percent in the concept phase. High-technology companies use fever product ideas for the development of a new product. Differently, low-technology companies have a higher amount of product ideas to evaluate in all phases of the NPD process. H4 states that fast-cycle market conditions increase the use of cross-functional teams and interacting phases for the development of new products. The relationship The screening of product ideas 461 Figure 2. The faith in product ideas

10 EJIM 10,4 462 Figure 3. The percentage of product ideas terminated in the NPD phases between market conditions and the use of cross-functional teams is not supported x 2 ¼ 1:128; p ¼ 0:288. Differently, the relationship between market conditions and an NPD process designed with interacting phases is supported x 2 ¼ 3:561; p ¼ 0:059. As shown in Figure 4, companies on fast-cycle markets (high-technology companies) apply an NPD design with interacting phases more extensively. Figure 4. The implemented approach to NPD

11 Discussion The result that cross-functional teams do not influence the screening of product ideas any differently than single-units being responsible for NPD raises questions regarding the teamwork of cross-functional teams. Rejecting H1 supports the notion that the ability to work in teams is not given in many organizations (Lewis, 2001). Project management literature (Pinto, 2002) states that promoting cross-functional teamwork in companies requires careful attention to not only superordinate goals, team member proximity and the design of the teams, but also to the psycho-social attitudes of the team members. As stated in teamwork literature, teamwork requires special efforts and organizational support. This message seems still highly relevant. Has the NPD process evolved into an overlapping, flexible process? As pointed out by Flint (2002), ad hoc and/or sequential processes exist in some companies (Flint, 2002). Figure 4 supports this notion. The results presented here give rise to another interesting question: How is the design of the NPD process implemented? In a study involving over 100 business and consumer marketing firms, few positive relationships were found to exist between the structure put in place to guide the NPD processes and the sales results accruing from NPD efforts (Gordon et al., 1995). Another study of 244 SMEs in manufacturing found that concurrent engineering did not exhibit significant effects on product innovation performance (Koufteros et al., 2002). The central aspect is not the decision to apply an approach with interacting phases like the stage-gate model, but the implementation within companies (Cooper, 2000; Gordon et al., 1995). Structuring the NPD process is a benefit for the screening of product ideas, but not a small step to take for perfecting the NPD process in a company. It takes more than reading a book to turn theory into practice. The strong confidence of high-technology companies in the sample is interesting. Several aspects may have generated this result, and five are given below. First, the low-technology companies in the sample are food companies, and this market is very much dependent on shelf space, which is not easily gained for new products in the supermarkets (Brunsø, 1996; Risom, 2000). Hence, low-technology companies need a larger portfolio of new products to bring to the negotiations with retailers. The second aspect is experience. Previous research has found that food-processing companies show very low success rates (Stewart-Knox and Mitchell, 2003; Karakaya and Kobu, 1994b; Koku, 1998). Though operating in a slow-cycle market, the food companies seem unable to convert their market knowledge into strong confidence. Third, an investment decision is attached to all new product ideas. The fact is that technology costs more. Hence, high-technology companies are more strongly motivated to a consequent screening than low-technology companies because each development represents a greater economic risk for the company. Fourth, a false security in technology: If a product demonstrates high functionality, then the potential sales are perceived high. This technology-push line of thought is often questioned by theory (Crawford, 1997). Fifth, the attitude of being superior to the market is an often cited characteristic of high-technology companies (Day, 1999). The screening of product ideas 463 Conclusion Two aspects can be drawn from the results and the discussion. First, the screening of product ideas is detached from the actual development process. Second, companies market conditions significantly influence the screening of product ideas.

12 EJIM 10,4 464 As concerns the first research question, the conclusion is that the NPD process design does not support the screening of product ideas. Cross-functional teams and interacting phases are not fulfilling expectations. Though indicated as applied in companies, the functionality is not as theoretically assumed. The implementation of NPD process design constitutes a communication gap between research and practice. As concerns the second research question, the conclusion is that market conditions overrule decision procedures for the NPD process. Companies orientation toward the competitive game in their markets plays a central role for NPD decision-making. In all, the screening of product ideas is a complex decision situation that cannot be assumed to follow the theoretical intentions of cross-functional teams and interacting phases. Research implications To understand NPD in companies, NPD literature will benefit from knowledge of the process of implementing best practices of NPD. Companies follow guidelines, but how is the NPD process followed through? As stated by research, the decision criteria for the screening of product ideas have been an overlooked part of the NPD process (Carbomell et al., 2004; Hart et al., 2003). This paper supports the need for more insight into the complexity of screening decisions as well as knowledge of the screening determinants. Practical implications The risk of developing and investing in ideas without potential to generate ROI is high when the screening of product ideas is detached from the NPD process. The implementation of cross-functional teams and interacting phases demands more attention by management in order to reduce the costs of NPD relative to the ROI of new products. Market conditions should be considered in the NPD decision-making, but as an information source equal to other information sources used for the NPD. Following the conditions of the market is a narrow view on the company product portfolio, and may make companies miss out on important windows of opportunity. Managers should use market conditions actively rather than reactively. References Barczak, G. (1995), New product strategy, structure, process, and performance in the telecommunications industry, Journal of Product Innovation Management, Vol. 12, pp Brunsø, K. (1996), Fødevarerelateret livsstil udvikling af et måleinstrument til markedsovervågning af forbrugere for fødevareindustrien, Handelshøjskolen iårhus Institut for Markedsøkonomi/MAPP Centret Ph.d.-afhandling, pp Carbomell, P., Escudero, A.I.R. and Aleman, J.L.M. (2004), Technology newness and impact of go/no-go criteria on new product success, Marketing Letters, Vol. 15, pp Cooper, R.G. (1988), The new product process: a decision guide for management, Journal of Marketing Management, Vol. 3, pp Cooper, R.G. (1994), Perspective: third-generation new product processes, Journal of Product Innovation Management, Vol. 11, pp Cooper, R.G. (2000), Doing it right, Ivey Business Journal, Vol. 64, pp

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