Accelerating new product development and successful market introduction.

In today's markets, the speed of product introduction can spell the difference between success and failure. It is important to acquire market share and establish industry leadership. The company with the first product to the market can usually capture premium segments, build a strong name recognition, and control a large market share (Duffy & Kelly, 1989). This share can lead to significant economies that are useful in keeping rivals from entering the market.

Quick innovation and product introduction also increase a company's ability to respond to a fast changing marketplace. AT&T reduced the time required to develop a cordless telephone to meet global demand for the product. Similarly, Hewlett Packard cut its computer printer development cycle from 60 months down to 22, thus responding to the need for higher quality and speed in its printers. And, building on advances in electronics and growing market demands, Matsushta developed and introduced a washing machine that uses advances in fuzzy logic research in only one year. Similarly, Daewoo took only 15 months to develop and market its popular Leading Edge personal computer. European companies have also followed a similar approach. Recognizing the importance of this issue, The Conference Board--Europe has recently established The European Council on Corporate Strategy to promote exchange of ideas among executives on ways to accelerate new product development (Tank, 1991).

Speedy new product development (SNPD) and timely introduction have other crucial implications for successful competition in today's markets. Successive, quick new product or technology introductions help a company sustain its lead in a new market. This strategy enables the company to learn about its markets, make changes, and then position the revised products (Hamel & Prahalad, 1991). American, European, Japanese, and Korean companies have applied this approach successfully. In today's constantly changing markets, the rewards of product pioneering go to firms that are committed to introducing products fast and making changes or modifications as quickly.

Ironically, in some companies bureaucracy, rigid structures, and outdated managerial decision-making processes conspire against the speedy introduction of new products and technology (Kanter, 1989). To succeed, these companies must demolish old product design and development patterns by applying new ways of organizing. They must experiment with new philosophies of management.

This article focuses on the managerial practices that enhance SNPD and timely market introduction, first reviewing the role of SNPD in determining a company's competitive advantage, and next relating it to breakthrough and incremental innovation patterns. Third, the article identifies effective approaches for redesigning innovation and managerial decision-making processes to promote SNPD. These three approaches stress the importance of cohesive, cross-functional approaches to SNPD. Finally, the article concludes with several recommendations for leveraging the advantages of SNPD.

Speedy New Product Development and Competitive Advantage

SNPD can provide an enduring competitive advantage as highlighted in Figure 1. A company gains a competitive advantage when it develops and maintains superior skills and competencies over its rivals. General Electric gained considerable experience from transferring its "best practices" across different projects. As a result, GE responded more quickly to its markets than its rivals, helping to establish the company as one of the top two competitors in each of its 15 business fields (Tichy & Charan, 1989).

Advantages from SNPD fall into two categories: strategic and operational. Strategic advantages include: preventing competitors from entering a segment or flanking a company's products or technology models; giving the firm an opportunity to set the standard for a segment, especially when the product is radically new; creating an initial monopoly for a firm in a given market; and establishing a firm's name recognition. These advantages serve as entry barriers that protect a company's competitive position, and also generate profits.

SNPD activities also may result in operational gains, by lowering cost and eliminating unnecessary tasks, e.g., improved efficiency. Another benefit is the development of the engineering, marketing, and production skills necessary for SNPD. These skills can enhance the distinctiveness of the product and allow the company to charge premium prices. Also, SNPD may result in economies of scale, especially if the company pursues multiple projects simultaneously. These economies reduce cost, offering a basis to attract new customers. Together, the operational and strategic benefits of SNPD can improve company profitability.

One must bear in mind that speed alone may offer little or no value in today's marketplace. A company should leverage speed by tying it directly to its competitive strategy. Specifically, a company can employ one of four ways to gain an advantage from SNPD and timely product introductions: direct attack, flanking, breathing new life into the company, and changing the shape of the company (Stalk & Hout, 1990).

* Direct attack. A company may use speedy product introductions directly against their slower rivals. For example, early in the 1980s IBM was able to position itself as a leader in the dot matrix printer market by assembling a project team to simplify the design and operations of the printer. The team was asked to produce a printer that was of high quality, inexpensive, and user friendly--and to do so quickly. Not only did the team succeed in its goal of achieving major cuts in production costs, it also accomplished its mission quickly by enlisting different skills. The printer also benefitted from an extensive sales organization and intensive marketing effort. Thus, IBM used its printer to attack existing competitors and dethroned the established market leaders.

To succeed, the direct attack approach requires cost reduction in product development to create value to customers. The company must also choose potential competitors carefully, avoiding confrontations with well endowed rivals.

* Competitive flanking. This option involves using speed to cause the obsolescence of a competitors's product or service. The duel between Honda and Yamaha in the 1980s illustrates an effective use of this option. Honda, through an avalanche of speedy new product innovations, made many of Yamaha's product lines and inventories obsolete. Taken by surprise, Yamaha was forced to cut prices on existing models, causing revenue to fall while debt soared as the company struggled to play catch-up. Another company, Sun Microsystems, used the flanking option successfully through SNPD to achieve growth of over 100% over a four-year period. Sun flanked its well-known competitors by using off-the-shelf technology to produce computer workstation configurations every 18 months in an industry with normal product lives of 36 to 60 months.

* Breathing new life in the company by extending product life cycles. This option addresses the challenge of revitalizing a slow growth product line. Toto, a Japanese toilet fixture supplier in a mature industry, had few outside options for growth. And, Japanese businesses in the growth stage were rarely sold. However, Toto discovered that the per capita consumption of shampoo by Japanese women was twice that of Western women. Consequently, Toto developed a special shampoo sink that now accounts for one in each ten sinks sold in Japan. Toto has continued its market penetration through SNPD. Clearly, there are limits to what companies can do to extend their product life cycle, but some companies overlook the possibilities of making incremental product changes to meet changes in market conditions. Incremental innovations can be a source of revenue and a strong line of defense in rapidly changing markets.

* Changing the shape of the company. This final approach requires changing the shape of the firm itself to affect speedy innovation process. The company makes a strategic choice to use innovation as the primary method to chart future directions for corporate growth and profitability (Zahra, 1991). Merck, Texas Instruments, 3M, and Xerox, for example, rely heavily on this approach. In these companies, innovation is more than a means of creating new technologies and products; it is a way of life.

Speedy Innovation Patterns

Both incremental and radical innovation are crucial for gaining competitive advantage. Yet, companies that seek SNPD appear to have different patterns of innovation from those that introduce products or technologies more slowly. For instance, slower competitors use their R&D resources to seek only major breakthroughs. Conversely, fast innovators stress incremental innovations. Honda and Toyota, for example, have made use of incremental innovations in capturing automotive market share from American and European firms. Honda and Toyota have not only placed their rivals in a defensive position, but are now gaining market share from "upper scale" producers such as BMW and Mercedes-Benz.

Incremental innovation requires constant small changes in design. It requires customer involvement. Some companies that follow this option do most of their test market studies at the product introduction stage, then fine tune innovations as an ongoing process. In contrast, slower innovators with long development and introduction cycles rely on the rare, major R&D breakthrough to regain market share. These slow innovators are often preempted by their rivals' continued introduction of successive models that build on their first-hand experience with customers. Consider, for instance, the approach Asia's "little dragons" have followed in establishing strong footholds in many markets around the globe. Companies in Korea, Taiwan, Hong Kong, and Singapore have used successive incremental innovations to flank better known and often richer American and European competitors. Successive innovations helped these countries build competence and skills which they later used to change their products. Of course, some companies did not do the original research on the products and technologies involved, but the point is still the same: even copycats can use innovation to strengthen their market position.

Reliance on incremental innovation requires acceptance of technological and product obsolescence. Fast innovators must be willing to cannibalize their own products before being out flanked by rivals. Besides adopting incremental innovation, firms that hope to achieve SNPD must learn to do things differently by adopting different organizational processes and structures.

Organizing for Speedy Product Development and Market Introductions

New thinking about the organization's nature and structure is necessary to sustain fast innovation and reap the benefits from SNPD. Executives should be open to experimentation. They need to explore the possibility of adopting simultaneous (rather than sequential) development groups, establishing new venture forms, and using team approaches that are mindful of managing boundary roles. These points are discussed below.

1. Simultaneous vs. sequential development. Simultaneous engineering focuses on the concurrent performance of different activities associated with new technology or product development. Traditional product development processes typically involve a progression, one step at a time. This sequence involves idea development, testing, designing, prototyping, and introducing the product. These activities are typically performed separately.

* The Sequential Approach. "This approach assumes that new products are derived from new technology, that product development projects are engineering projects, and that the flow is in one direction--from the R&D laboratory to the marketplace" (Adler, Riggs & Wheelwright, 1989, p. 9). Once the idea is generated and market research indicates feasibility, the R&D department is assigned responsibility for selecting, developing, and applying technology to create a working prototype. Once this phase is completed, R&D turns the prototype over to manufacturing. Manufacturing is then obligated to find a way to build and mass produce the new product. When production is complete, responsibility is transferred to marketing.

The sequential approach has several obvious advantages: functional managers and employees can focus tightly on their specialties; functional responsibilities and expectations are usually well-defined; cost of product development tend to be less in the early stages because lengthy design planning by cross-functional managers is minimized; and lines of authority and responsibility are clear. Hence, the sequential approach might be suited for some industries (e.g., aerospace, jet engines, and pharmaceutical), where long product development cycles are common.

The sequential approach has three serious limitations. First, it often slows product development because of the segregation of functions. Second, "Excessive control over the program by any single department results in a lopsided product" (Leiva & Obermayer, 1989). Individual departments are inclined to favor activities pertaining to their own disciplines. Thus, engineers may create technologically complex products which may not match consumer needs. Manufacturing may prefer products that are easy to build and prefer to use static components. The pressure of having a high-selling product that beats the competition falls most heavily on marketing and sales people. Third, this approach leads to frequent design rework, because people in the product design function do not communicate with those outside the engineering function.

* The Simultaneous (Parallel) Approach. As an alternative to the sequential approach, this model seeks to reduce rework and to anticipate problems. Development activities are performed concurrently by different functions, rather than in a series. Instead of operating in isolation, the key functions are actively involved in each phase of the process.

The early involvement of each function in the product development process is the differentiating factor between the sequential and simultaneous approaches.

Manufacturing, marketing, and purchasing are usually represented to create a product design that "fits both the customer's demands and the company's manufacturing capability" (Bussey & Sease, 1988, p.1).

The simultaneous approach has several advantages. It shortens the product development cycle and reduces the delays that are caused by failure to include necessary information from the different parts of the organization. It also addresses the "lopsided product" effect through coordination among different units. Finally, this approach encourages frequent interaction among units and improves the quality of communication in the organization. These advantages increased recognition and use of the parallel approach in Europe, Japan, and the U.S. Chrysler, Ford, General Motors, and Rockwell International are among numerous U.S. concerns that have adopted it.

Xerox used this approach successfully to recapture its lead in the copier market. It reduced its product development cycle from seven to two years, achieving a three-year lead over its competitors. General Electric also used this approach successfully in its circuit breaker line of business, in a situation GE called "speed up or die." Noting that its manufacturing process was a source of competitive disadvantage, the company overhauled its sequential approach with a team of cross-functional experts. As a result, GE is currently gaining market share in a flat market. As a GE general manager observed, "We'd be out of business if we hadn't done it" (Dumaine, 1989, p. 55).

Apple, Black & Decker, Tandy, Commodore, Apollo, and Sun Microsystems are some other parallel approach users, achieving significant cost reductions while ensuring SNPD. AT&T also applied this approach when it began the development of a cordless home phone system (the 4200). The parallel approach cut development time by half, lowered manufacturing costs, and improved quality.

Still, the simultaneous approach has some drawbacks, principally the need for significant changes in corporate cultures. These changes are difficult to achieve, expensive, and time consuming. Further, when the simultaneous approach is used, power struggles and conflicts may arise on issues that must be solved by executives, causing delays in product development. Finally, there are increased risks of wasted resources. Great time and effort is invested in the early phases of the project. Should it become necessary to terminate or greatly alter the development project, the "waste of resources is dizzying" (Uttal, 1987, p. 66).

2. The New Venture Option. This approach can be a viable way to promote SNPD. Typically, this unit is a special cross-functional "division" or group created specifically to house product innovation. Companies as diverse as 3M, DuPont, Ralston Purina, and IBM have used these units to strengthen the position of a new product and help secure resources for development. New venture units also protect the innovation from political pressures, especially when the new product or technology falls outside a company's current portfolio. These units also create a sense of accountability among their staff.

Nevertheless, the success of new venture units in speedy new product introduction has not been universal. For example, Exxon and GM have reported mixed results in the use of new venture units. One reason for failure is the lack of experience in managing these new units. Some companies rely on newly hired individuals to lead these units, but since these individuals are not well entrenched politically, conflicts with other units may arise (Kanter, 1989).

3. Managing Boundary Roles. To launch innovative products successfully and fast, the cross-functional team must not only achieve internal coordination but be able to deal successfully with the larger organization of which it is a part. This latter process is called boundary management. Boundary management promotes effective communication with other functional groups and with higher-ups in the corporate ladder (Ancona & Caldwell, 1991). It reduces conflict, promotes harmony within the group, eliminates bottlenecks, and ensures the flow of resources. While some of these roles evolve over time, group leaders should formalize the boundary management process by designating individuals to assume these roles.

Leveraging the Advantages of Speedy Product Development and Market Introductions

Translating SNPD into a potent competitive weapon requires several managerial actions to achieve "first mover advantages," change the formal structure, use benchmarking, promote strategic thinking, and plan for commercialization. In undertaking these activities, senior executives must focus both on the speedy development and effective introduction and positioning of the product. These five points are discussed below.

1. Translate speed into "First Mover" advantage. The parallel approach can be helpful in reaching the market quickly. Employing nonproprietary components and parts is another useful way to achieve SNPD. A third possibility is to use innovative computer technology. For example, recent advances in artificial intelligence have proven invaluable to Canon (in the speedy design of lenses for the camera) and Navistar (in the speedy customization of its trucks to meet the needs of its customers). Artificial intelligence has reduced the time needed for new product development.

Executives, however, should not overlook the fact that the advantages of being first to the market with an innovative product does not mitigate serious product defects. Pontiac's Fiero was the first to the market in a distinctive niche--the inexpensive sports car. However, poor quality reduced any advantages the company might have achieved. Clearly, speed is only one half the equation; the other half is effective strategic thinking and positioning of the product or technology. Managers should not emphasize "speed at any cost" as the sole competitive weapon. They should pay attention to their industry's key success requirements,

2. Structural changes are crucial but insufficient to create speedy new product development. Using cross-functional teams and parallel design approaches are only a good start. Competing by emphasizing speed requires more than structural changes--it requires a different frame of reference, a different perspective on competition. This perspective demands realignment of decision-making processes in the company to collect timely data about customers and competitors, to make quick decisions on types of products, and to disseminate information within the organization.

Executives play a major role in achieving successful SNPD. They shape the context of product development through their styles, expectations, and guidelines. Executives are the very center of communication and decision-making, and they can use this fact to ensure quick turnarounds. In the countless decisions needed in such areas as the definition of the product to be developed, its fit with existing brands/models, its financial needs, and the human and technological resources required for its success.

Executives should also shelter and provide resources for innovation teams through political, emotional, and financial support (Zahra & Fescina, 1991). As people are pooled into specific projects and away from their traditional functions, many career issues arise and deserve special consideration. Who will evaluate these people? What is the effect of their participation in these special projects on their career paths? Executives can show their support for innovative teams by addressing these and similar questions. Above all, executives should create a supportive business environment.

Executives can stimulate SNPD by creating innovative organizational systems. New product development raises many intellectual, financial, and organizational challenges, for which groups of professionals spend considerable time developing solutions. It is wise, therefore, for executives to create a system that captures these experiences for future use in other projects. At GE, for instance, there is an emphasis on transferring the best practices across all the businesses "with lightning speed" (Tichy & Charan, 1989, 116).

Another need is for effective project planning and management. This point often escapes some executives, perhaps because of the uncertainty that accompanies some new product development activities. To some executives, this process resembles a "black box" that is difficult to understand or predict. This perception reflects misunderstandings of the nature of the creative process and a lack of attention in the traditional management literature to the activities associated with new product development. Typically, these activities were viewed as falling within the purview of R&D, engineering, or similar units. Managers can no longer accept this narrow perspective; product innovation is crucial to company survival and success. Therefore, speedy development and introduction should be viewed as an important task of executives (Reinerstein & Smith, 1991).

3. Beyond benchmarking. Companies should examine their competitors' track records in product design, development, and introduction to gain important insights into ways to reduce time and cost spent on each step. These insights are useful in designing new product introductions. However, benchmarking is insufficient for companies that aspire to achieve market leadership. Benchmarking gives managers an idea about the "best practices" in the industry, but industry leaders must push the frontiers of the industry by establishing new standards in every phase of new product development and introduction.

4. Strategic thinking is imperative. Strategic thinking is essential to building corporate capabilities around which the product portfolio is designed. Strategic thinking is also needed to balance the timetable of introducing and replacing portfolio products and to manage the company's suppliers and buyers. SNPD should be weighed against the long-term risks it introduces. Von Braun (1991), for example, warns that while companies may benefit in the short run from shrinking product life cycles, later these companies may experience serious declines in their overall sales. SNPD should be viewed as an integral component of a viable competitive strategy.

5. Successful market introduction. SNPD is almost worthless without successful transfer from the lab to the market. The timing of new product introduction plays a profound role in determining success or failure. Thus, companies must plan for product commercialization while they are planning the new product. Frequently, products are developed but then must await organizational arrangements for commercialization. Obviously, this can be self-defeating, costing the firm many of the advantages associated with SNPD. The key point is for CEOs to start early in planning for commercialization.

Companies can expedite commercialization of their products by establishing lines of communication with development teams. Placing these activities in close proximity to executives is one way to ensure such communication. Here, cross-functional teams can be useful in ensuring the successful commercialization of new products as they have been in achieving SNPD. Teams can help resolve conflicts, remove bottlenecks, and ensure the timely release of the products. They can define possible themes to emphasize in announcing the new product introduction and ways to build rapport with distributors.

While timing is important, effective market research can be useful in developing messages that educate and convince customers about the product. Targeting, in our view, is more than glamorous advertising campaigns; it means closeness to the customers as they explore the possibility of buying the product.

Targeting a new product also requires attention to the firm's competitive strategy, including pricing, customer education, distribution, and service. The extent to which a company emphasizes each variable depends, of course, on the market, the availability of substitutes, and the product itself. Still, without a clearly defined competitive strategy, SNPD and early product market introduction may not pay off.

Conclusion

Speedy product development and introduction has become a major consideration in companies' efforts to create and sustain a competitive advantage. As this article shows, speed itself is the result of several forces, many of which are under the control of senior executives. To ensure the speedy development of products and technologies, executives must be innovative in the way they assemble teams, define the product, and create a supportive environment. Executives must learn to make decisions quickly. SNPD begins in the executive suit, but should also permeate every aspect of the organization. Success in the marketplace through speed requires significant changes in the way companies are structured and managed and in the way people work.

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Dr. Shaker A. Zahra is Professor of Strategic Management at Georgia State University in Atlanta, GA. Diane Ellor is a Program Manager with John J. McMullen Associates, Inc. in Arlington, VA.