Industrial Product Innovation

F A Johne

• Publisher: Taylor & Francis
• Year: 2018
• Print ISBN: 9780815383956
• eBook ISBN: 9781351204415
• Edition: 1
• Topic: Economía
• Subtopic: Negocios en general

Originally published in 1985 this book looks at the way in which some businesses in high technology manufacturing industry have organised their structures and processes in order to manage product innovation effectively. Including detailed case studies of both British and American companies, the book gives examples of both effective and less effective practices. The author puts forward a general framework of good practice for the benefit of both practitioners and business studies students.

Chapter One

THE IMPORTANCE OF PRODUCT INNOVATION

It is commonly believed that nearly 90% of new products launched by firms fail to fulfil commercial objectives. However, recent research carried out by Crawford (1979), Hopkins (1981) and Cooper (1982, 1983) in the US points to an average failure rate for industrial products of only about 35%. The results of these recent research studies represent an important discovery because they indicate that industrial firms as a whole have become considerably better at developing new products than was previously thought.

What is of even greater importance is that almost all recent research into product innovation has stressed that there is wide variation around the average failure rate, which implies that some firms are now much better at developing new products than are others. Indeed, it was this phenomenon which provided the initial stimulus for undertaking the study on which this book is based. The design features and principal findings of that study are described in Chapter 4 which outlines the background to the case investigations which make up the bulk of this book. The purpose of the study was to find out whether firms which are experienced at developing new products organise themselves in a way which is different from that of less experienced firms. Suffice it to say, by way of introduction, that important differences were found in the way experienced product innovators organise. These differences include not only the way product innovation is formally organised, but more importantly, the way specialist tasks are actually performed, informally as it were, by those involved in developing new products.

The organisational practices of six firms are considered in detail in this book. Three of the firms are active and experienced product innovators and three are less active product innovators. The organisational systems of each firm are described in detail, often in the words of managers working within them. All the firms manufacture and market electrical and electronic test and measuring equipment, such as analogue and digital voltmeters; ammeters; multimeters; oscilloscopes; spectrum and logic analysers, which are sold to a wide range of industrial end – user markets. The instrument manufacturing industry was selected for study because it contains some of the world’s most active product innovator firms which have gone a long way to develop into a very fine art the tasks involved in successfully bringing new products to market.

The organisational practices of three experienced product innovator firms are described in Chapter 5. These are contrasted, in Chapter 6, with those of firms with less experience of the tasks involved. The three experienced firms are acknowledged leaders in product innovation in the instrument industry with a long and successful record of introducing new products on to the market. This is not to say that they have never suffered a new product failure. They probably all have; however, what singles them out for special attention is the fact that they have learned, through regular and disciplined product innovation, to overcome many of the problems associated with failure.

Managers in manufacturing industry will have no difficulty in relating to the material in each of the cases described in Chapters 5 and 6. Those managers who work in firms which are already pursuing an active product innovation policy will find the practices of the three experienced firms of particular interest. This is because there is much to learn from the best performers in an industry, such as instrument manufacturing, in which regular product innovation is an essential ingredient of sustained business performance. Managers at present working in firms with little or no experience of product innovation will find much to relate to in the case investigations contained in Chapter 6, because particular emphasis is placed on identifying how product innovation might be stimulated in them.

Before reading the cases all readers are strongly recommended to look at Chapters 2 and 3 at least. This is because these two preliminary chapters provide the key to interpreting the narrative material contained in the case investigations

THE ROLE OF PRODUCT INNOVATION

Product innovation, that is to say, the development and launching of new products, is one of the most important tasks in manufacturing firms which compete in fast-changing markets and technological environments. Product innovation is particularly challenging for firms which are applying the latest advances in technology. Yet, despite its importance, product innovation cannot, on its own, be expected to guarantee business success in manufacturing firms. Competitive success results from pursuing an appropriate amalgam of different types of innovation. Whilst Ansoff (1965) stressed the importance of technological and marketing innovation (see Table 1.1) it is important to remember that a firm needs to concern itself also with other important types of innovation – innovation in its financial systems; innovation in its personnel and industrial relations practices; innovation in its purchasing practices – all of which can contribute to profitable business growth.

A glance at Table 1.1 shows that product innovation is a variant of technological innovation. The aim of product innovation is to offer customers radically new or incrementally improved new products based on technological advances. It will be noticed that another important variant of technological innovation is process innovation. The aim of technological process innovation is to reduce the costs of manufacturing existing products. Whilst both technological product and process innovation are important to manufacturing firms, product innovation is arguably the most important in the long run because it can ensure survival in times of rapid changes in technology and markets. For, no matter how skilled marketing personnel might be in penetrating existing markets more efficiently or in developing new markets for old products, and how much manufacturing costs can be reduced through process innovation, the time will come when existing products will have served their purposes. Without new products to replace old ones a manufacturing firm will ultimately wither and die.

THE NATURE OF PRODUCT INNOVATION

Product innovation is made possible through invention. A radically new product typically incorporates one or more recent technological inventions. The process of commercially exploiting such inventions is referred to as innovation. Incremental product innovation is concerned, broadly speaking, with the commercial exploitation of less advanced technology.

Table 1.1

It is important to note that the categorisation of innovation as “radical” or as “incremental” depends entirely on the background of those involved in applying a technological advance for commercial purposes. For example, the invention of the micro-processor unit provided manufacturers of advanced electronic products with an opportunity for “incremental” product innovation. For these manufacturers the microprocessor presented a useful step up from the less versatile silicon chip. However, the same invention offered manufacturers of less advanced electrical products the opportunity for “radical” product innovation, because they had not used sophisticated micro-electronic components before.

It has already been mentioned that both technological product and process innovation are important to manufacturing firms operating in fast-changing environments. This poses businessmen with the problem of how to strike a balance between these two types of innovation. In this connection the analytical assertions of Utterback (1979) provide useful insight into the issues involved:

The stimulus for innovation changes as a [manufacturing] unit matures . . . . . . . uncertainty about markets and appropriate targets is reduced as the unit develops, and larger research and development investments are justified. At some point, before the increasing specialization of the unit makes the cost of implementing technological innovations prohibitively high and before increasing price competition erodes profits with which to fund large indirect expenses, the benefits of research and development efforts reach a maximum . . . . . . A strong commitment to research and development is characteristic of productive units in the middle stages of development. Such units invest heavily in formal research and engineering departments, with emphasis on process innovation and product differentiation through functional improvements. . . . . Units in different stages of evolution … undertake different types of innovation.

Utterback’s assertions are important because they suggest the existence of two distinct cycles of technological innovation within manufacturing firms: one reflecting the rate of product innovation, the other the rate of process innovation. Table 1.2 illustrates these generalised assertions, which are based on the assumption that younger firms will have a greater proportion of new products in their portfolio than older firms.

Table 1.2

WHY FIRMS INNOVATE AT DIFFERENT RATES

As far as the rate of technological innovation is concerned there is now considerabe evidence which points to the pervading influence of competitive pressure. Empirical research by Townsend et al. (1981) in the UK, and by von Hippel (1978, 1982) in the US, has shown that the most frequent form of technological innovation – incremental product innovation – occurs as a result of applying inventions made outside a firm. Already in 1962 Schumpeter referred to a “gale of creative destruction” when the communality of inter-firm competition is broken from outside and the survival of those firms unable or unwilling to innovate is threatened. On the other hand, when inter-firm competition is not strong, and when barriers to entry are high, considerable delays can occur.

When competitive pressure is high it will undoubtedly be necessary for a firm involved in manufacturing advanced technology products to engage in both product and process innovation. By engaging in technological product innovation a firm can usually charge a premium price for specially developed features. Later, as competitors follow the leaders emphasis moves to technological process innovation, that is to say, manufacturing at the lowest possible unit cost. Both types of technological innovation rely on engineering (Research & Development) input, and, as has been well put by Steele (1975):

Out of such new directions comes the self-renewal that maintains the vitality and viability crucial to large corporations if they are to continue to warrant their birthright.

However, as has been stressed by many analysts, there is no universally accepted method for measuring particular innovative activities which contribute to the quality, efficiency and costs of industrial products. To engage in too much R&D is wasteful of the firm’s resources. To engage in too little, in the hope of selling existing products in new markets (see Table 1.1), can only be a short-term solution. In the longer-term a firm which seeks to manufacture and market higher technology products will need to invest in R&D expenditure or accept that its products and processes will be overtaken by competitors either from inside the industry or from outside it.

Whilst competitive pressure can act as a spur to technological innovation it is, on its own, insufficient to explain differences in the type and degree of innovation pursued by particular firms. Why is it, for example, that firms such as Hewlett-Packard or 3M consistently lead the competition in many product markets, whilst other firms follow? Here recent work in the business policy area provides considerable insight. Writers such as Steiner (1979), Porter (1980), and Ansoff (1984) all conceive a firm’s strategy as the starting point of the management process. They argue that technological innovation will be pursued by a firm as a result of a will or a ‘strategy’ as they call it. If there is no will to innovate, with any sense of urgency, then outside competitive pressure, or even having the necessary resources, will not be sufficient to make things happen.

DIFFERENT TYPES OF INNOVATOR FIRMS

Accepting that different strategies are pursued by firms as far as product innovation is concerned one is faced with the problem of how to classify these strategies. Freeman (1974) has explained the phenomenon whereby some firms regularly lead in terms of technological product innovation by suggesting that such strategies are “offensive”, whilst those of followers are “defensive”. Miles & Snow (1978) in addressing the same phenomenon speak of “prospector” firms and of “reactor” firms, whilst Miller & Friesen (1982) speak of “entrepreneurial” and of “conservative” firms.

A most useful rationale for understanding differences in the pace of technological innovation on the part of manufacturing firms has been provided by Ansoff et al. (1976) and by Nystrom (1979) who conceive firms as operating, at any one point in time, in either the “entrepreneurial” mode or in the “positional” mode. Firms in the entrepreneurial mode are concerned with change, whilst those in the positional mode are concerned with maintaining the status quo, particularly as far as their product range is concerned.

Whilst it is common practice for firms to pursue strategies which are appropriate to particular products and/or markets, it is also true that some firms in an industry are commonly regarded as more active product innovators than others. This phenomenon is particularly pronounced in those product markets in which certain firms have built up for themselves a reputation for ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Tables
• Abbreviations used
• Preface
• Acknowledgements
• 1. THE IMPORTANCE OF PRODUCT INNOVATION
• 2. PRINCIPAL ORGANISATIONAL DESIGNS
• 3. HIDDEN ORGANISATION STRUCTURES
• 4. THE CONTEXT OF THE CASE INVESTIGATIONS
• 5. HOW INNOVATIVE FIRMS ORGANISE
• 6. HOW LESS INNOVATIVE FIRMS ORGANISE
• 7. CURRENT TRENDS IN STRUCTURING
• 8. CONCLUSION
• Bibliography and References
• Index