Traditional New Product Development
Innovation has become a key business process and is seen as essential for business growth and development. Prior to the 1970’s innovation was not a recognised process but in the mid ‘70’s Robert Cooper (1) published his first book; “Winning the New Product Game” which brought innovation into the management system. The aim of the innovation/new product development process is to start with a collection of many ad-hoc ideas and finish with a selection of a few defined ideas to present to the market place.
Idea removal/pass occurs at discrete gates along the funnel where ideas have to meet certain criteria before passing on through the funnel. Cooper (2) called this the “Stagegate”â„¢ model. The number of gates depends upon the complexity of the programme i.e. major development programmes to minor development changes.
The main stages of the Stagegateâ„¢ model from beginning to end are:
1) Concept Idea Generation
A very large number of ideas are considered against near and future strategic market need to decide which are worth exploring further. The aim at this end of the funnel is to have a plethora of ideas such that eventually some will pass to the next stage of the process whilst others will become redundant. Ideas are generally sourced from:
- Interaction with customers.
- Involving employees
- Networking and exposure to alternative businesses, and technologies
- In-house research and technology development.
It has been estimated that about 60% of good ideas arise from the first two areas. It is also essential that ideas are critiqued as soon as possible to ensure a healthy collection of ideas are available to pass to the next stage. All too often this end of the funnel is neglected because it is usually claimed that there are not enough resources to work on all the projects passing through the funnel.
It must be remembered that idea generation requires an open listening culture, with good feedback. Idea teams are commonly used to develop ideas and they tend to have the following characteristics:-
- Small and diverse.
- Focused on solving the given brief.
- Starts with idea generation and with the ability to select winning ideas for further scrutiny. Sometimes this may be two teams as it requires a different mindset from idea generation to idea closure.
Generally a facilitator is used to regulate the ideas teams.
2) Definition of Concept/Principle
Projects selected to go into development are decided on the basis of business need, potential market acceptability, risk/reward criteria, and the availability of the required resources (people, facilities and money). It is usual at this stage to appoint a project manager to each project.
3) Development, Prototype and Testing
Progress to market is dependent on satisfactory feedback on the prototype, an assessment of the competitive response, and deliverable strategies on sourcing, marketing and pricing/ margins.
4) Implementation Marketing and Launch
Prior to launching the new idea into the market it may be prudent to protect the idea by filing a patent. However, it must be remembered that to qualify for a patent, the invention or use of the invention must be novel.
In summary management of the development funnel involves three very different tasks or challenges. The first is to widen and keep the mouth of the funnel full in order to have a portfolio of new products and technologies to grow the business through successive years. The second challenge is to narrow the funnel neck - ideas generated must be screened and resources focused on the most attractive opportunities. The third challenge is to ensure that the selected projects deliver on the objectives anticipated when the project was approved
The beginning of 2008 saw owners and shareholders of companies expecting a further year of market and hence company growth. New products entering markets were focusing on messages of ‘natural’, organic and environmentally friendly. Governments were encouraging companies to develop future new products and technologies that encompassed the philosophy of sustainability of materials and practices that reduced operations that promoted global warming. By the end of 2008, businesses were changing their immediate strategies from one of targeting growth to one of how to operate in a recession. Governments, company owners and the public-at-large had suddenly realised that there was a limit, and maybe a negative rate to market growth.
To stimulate business growth in a recession many companies will try and compete on price but in the end there can only be one winner who can manufacture to the lowest cost. With the rush to become the lowest cost producer a company will assess costs and in many cases this will mean a:
- reduction in staff
- reduction in technology spending
- stop new product development and innovation programmes
- change the perception of risk and become more risk adverse
- reduce or slow expansion plans
- change in management attitude from flexibility to control
The result of following any of the above will be a reduction in innovation and motivation coupled with business stagnation. With prolonged business growth real innovation slows and opportunity comes in the form of just doing more of what already works. In times of low or no business growth opportunity comes by seeking new things that will work, based on new needs. In a recession there will always be opportunities because people will still buy and sell, it is just that they may buy with different requirements. For example to make people feel better it has been observed that sales of cinema tickets have increased as have sales of red lipstick and chocolate. The majority of the population will still be in employment the difference is that the buying public is surrounded by fear. Opportunity always exists.
To survive a recession new opportunities have to be pursued. Mindsets have to be changed and paradigms shifted, people may want some things that are different and someone will have to fill those needs. It will also probably be discovered that people still want a product or service, but just need to see it differently. However, understanding customers’ basic needs is the key to positioning products; discover customers’ problems and concerns and opportunities will grow.
Risk and Uncertainty
All business decisions are subject to risk and uncertainty. Whether it is taking a risk or assessing uncertainty when making a business decision the aim is to understand "what can go wrong?" Risks are taken every day and the extent of risk can be formulated as a probability. For complete certainty i.e. it is certain an event will take place then the probability of its occurrence is 100 percent. If it is known that something will not happen, the probability is 0 percent. Hence depending on the certainty of an event a range of probabilities occurs.
The definition of risk is: a situation where all possible outcomes are known, and while it is not known which outcome will occur for sure, it is known the probability associated with each possible outcome occurring.
Uncertainty is defined as: a situation where either all the possible outcomes are not known, the probability of the outcomes is unknown, or both the outcomes and the probabilities are unknown.
In business it can not be guaranteed that plans will be executed as planned. It is therefore usual to create a contingency plan to minimise risks. Uninformed risk-taking is little more than gambling. An informed decision considers alternatives, probable outcomes, and external influences. Managing risk and uncertainty considers which risks are worth taking and looks for ways to mitigate them.
However, economic indicators influence decisions and will sway our thinking about risk. If consumer confidence is high and it is expected that the economy will grow then the underlying psychology for business decisions is a liberal view of risk and uncertainty.
Depending on the innovation and creativity of the business there are many alternatives that a business can use to progress a plan i.e. lease or buy, invest in new capacity or maintain the status quo, launch a new product line of expand an existing one, invest in improving our current operations or use cash for other investments? These options will have; different investment costs, economic lives, cash flows, and tax implications.
Because we cannot predict the future with any degree of certainty, we also cannot predict the outcome of our project with certainty--and that is the essence of business risk.
Popular opinion is that this current recession could not have been foreseen and that businesses could not have planned for such an event. However, a Soviet economist, Nicholas Kondratiev in 1925 wrote a book “The Major Economic Cycles” in which he described economic cycles in the capitalist world. These cycles have become known as Kondratiev (3, 4) waves. The waves averaged a period of fifty years with a range from forty to sixty years. By 1928 Kondratiev was removed from his job and sentenced to prison as his work was seen as criticism of Stalin’s economic plan. He later received the death penalty.
Kondratiev considered there were three phases in the cycle: expansion, stagnation, recession. Latterly a fourth division was added which was the turning point (collapse) between the first and second two. Followers of Kondratiev’s theory divided the wave into four 'seasons'. The foot of the rising part of the wave was defined as Spring which showed economic improvement followed by Summer which showed an accelerated prosperity. The start of the dropping curve was called the Fall and is seen as a recession. The bottom of the downward curve is called Winter which is an economic depression.
The phases of Kondratiev's waves also show social shifts and changes in public mood. The "Spring" stage, encompasses a social shift in which the wealth, accumulation, and innovation create upheavals and displacements in society. The economic changes result in redefining work and the role of participants in society. In the next phase, the "Summer" there is a mood of affluence from the previous growth stage that change the attitude towards work in society, creating inefficiencies. With “Autumn” comes the season of deflationary or stagnant growth. The popular mood changes during this period as well. It shifts toward stability, normalcy, and isolationism. Finally, the "Winter" stage, that of severe depression, includes the integration of previous social shifts and changes into the social fabric of society, supported by the shifts in innovation and technology.
Four schools of thought emerged as to why capitalist economies have these long waves. These schools of thought revolved around innovations, capital investment, war and capitalist crisis. According to the innovation theory, these waves arise from the bunching of basic innovations that launch technological revolutions that in turn create leading industrial or commercial sectors. Below diagram 3 is a rough schematic of economic growth and decline with time. The diagram also shows the technologies associated with each wave.
The five technologies associated with each cycle are:
- The Industrial Revolution—1771
- The Age of Steam and Railways—1829
- The Age of Steel, Electricity and Heavy Engineering—1875
- The Age of Oil, the Automobile and Mass Production—1908
- The Age of Information and Telecommunications—1971
Some futurists suggest that the next cycle will be the age of robotics.
Stocks of natural, human and social capital are being consumed faster than they are being produced. The rate of consumption of vital stocks can mean that in the long-term they will not be available. It is therefore the responsibility of every organisation and business to manage these capital assets sustainably. It is claimed that sustainable development is the best way to manage these capital assets in the long-term as it is the process to achieve balance between environmental, social and economic activities.
There are two major issues that will impact upon sustainability over the next few decades; they are demographic changes and global warming.
According to the United Nations Population Division (5):
- World population will grow significantly - despite falling fertility. Table 1 shows the expected population to 2050.
- It is projected that there will be a global population of 8.04 billion for the year 2025 and 9.37 billion for 2050. This projection is based upon a total fertility rate of 2.1 children per woman for both developed and developing nations. Currently Pakistan has a total fertility rate of 5 children per woman but is estimated to fall to 2.1 over the next 25 years. Table 1 shows projected population growth to 2050.
- World population growth can stabilise over the next few decades if worldwide fertility rates dropped to 1.57 children per woman. A steep decline in fertility rate has already happened in Europe but is unlikely in the developing nations e.g. Pakistan, India and Nigeria.
- The population of the developed countries as a group will have increased by less than 350 million between 1950 and 2050. The developing countries will have an estimated 6.8 billion people more - thus almost quintupling their 1950 population.
- From the 3.68 billion people that will be added to the world population between 1995 and 2050, Asia will contribute some 2 billion and Africa 1.3 billion.
- It is expected that Europe’s population will decrease by some 91 million between 1995 and the middle of the next century.
- The ten countries which will contribute most to world population growth over the next 30 years are India, China, Pakistan, Nigeria, Ethiopia, Indonesia, United States of America, Bangladesh, Zaire, and Iran.
- India will out-grow China.
- Worldwide , the population will age. In 1950 there were only 131 million people of age 65 and older; in 1995 their number had almost tripled and was estimated at 371 million. Between now and 2025 the number will more than double again; and by 2050 there will probably be more than 1.4 billion elderly worldwide.
The shift in demographic ageing represents an emerging opportunity for technological innovation, growth, competitiveness and employment. Older adults constitute a growing market for new products and services in general areas and in specialised niches. Technological responses to ageing are faced with two key issues:
Older adults are not always the direct purchasers of goods and services, and they are certainly under-represented in the communities driving industrial innovation (engineering, design and business).
Older adults constitute a heterogeneous market, not only in terms of health-care requirements but also in terms of socio-economic needs, rising aspirations and perceptions of quality of life. Quality of life associated with independent living, access to different types of work and leisure, technologies and services needs to be considered.
As with any opportunity the following needs considering when assessing the impact an ageing population will have on society:
- What is the magnitude of the opportunity for new technologies, products and services arising from demographic ageing?
- What are the employment dimensions of this opportunity?
- How can science and technology policy promote equal access to work for all?
- How can the input of older adults into the process of innovation be increased?
Every time severe weather strikes, global warming seems to be blamed. Records show that the average temperature of the planet is climbing quite rapidly. In the last century the global average surface air temperature has risen by between 0.3 and 0.6 degrees C. 1998 was the highest recorded temperature in Britain for one thousand years.
Climate researchers are predicting that the Earth's average temperature will continue to increase in the next 100 years. Although the global weather system is extremely complex and not wholly understood, experts say that change in temperature is bound to have severe implications for future weather and climate patterns. They believe that rainforests damaged by the results of climate change will themselves start emitting carbon, making the problem worse still. The global sea level has risen by between 10 and 25 cms over the last century, as glaciers melt and warming sea water expands. Levels could rise by between 15 and 95 cms by 2100, and they will inevitably go on rising for 500 years, because the oceans have only just begun to warm up.
Most scientists believe recent global warming has been generated by human influence. This effect started in 1850, the beginning of the Industrial Revolution, when humans have been pumping large amounts of carbon dioxide and methane into the atmosphere. These gases collect in the atmosphere and trap heat generated from the earth hence reflecting the heat back onto earth. Burning fossil fuels is responsible for most of the increase in carbon dioxide. The upsurge in concentrations of methane is due to gas produced by livestock and rice paddies.
This general warming of the planet will lead to an increase in the number of extremely hot days and decrease in the number of extremely cold days. Warmer temperatures will lead to more severe droughts and floods in some places. Even if people are able to adapt to climate change, many animal species will not. For vegetation the prospect is even worse. Plants and trees will not be able to migrate fast enough to find new habitats as the heat encroaches on their existing territory
However, it is considered that the human impact upon the climate can be reduced by a number of measures.
- Reduce energy consumption and use energy more efficiently.
- Switch to (i) renewable and clean sources of energy such as solar, wind and hydro-electric power and (ii) use nuclear power.
- Better management of land and forests.
The conventional view has been to consider climate change a barrier to development and simultaneously development as a threat to climate change. However, it can be argued that development itself should emerge as the central tool. Every large infrastructure project should have a reverse impact assessment to ascertain how the environment, in particular climate change, could affect the project in the medium to long-term.
Developmental projects, plans and strategies have to be dove-tailed with those for climate change. To develop a sustainable society it is necessary to underpin the philosophy with sustainable projects.
Currently there is no established definition for sustainable innovation although Arthur D. Little (6) has defined ‘sustainability-driven’ innovation as ‘the creation of new market space, products and services or processes driven by social, environmental or sustainability issues.’
As with the traditional definition of innovation, there is an emerging recognition that sustainable innovationis not just about new concepts but is about commercialisation of technologies, products and services and about entrepreneurship. It can also be about the adoption of new processes and systems at societal level. Charter (7) added to the definition of sustainable innovation as; a process where sustainability considerations (environmental, social and financial) are integrated into company systems from idea generation through to research and development and commercialisation. This applies to products, services and technologies, as well as new business and organisation models.
As a subset to sustainable innovation eco-innovation has been described as:
The process of developing new products, processes or services which provide customer and business value but significantly decrease environmental impact James, (8). A later definition is:
Eco-innovation is the creation of novel and competitively priced goods, processes, systems, services, and procedures designed to satisfy human needs and provide a better quality of life for all, with a lifecycle minimal use of natural resources (materials including energy, and surface area) per unit output, and a minimal release of toxic substances. Eco-industry includes businesses across all sectors that are pro-actively and demonstrably involved in eco-innovation, including novel solutions to satisfy legally set standards, norms and requirements.
As can be seen sustainable innovation includes environmental, economic, social and ethical issues whereas eco-innovation only addresses environmental and economic issues.
Finding solutions to environmental problems through eco-innovation has been, and is likely to remain, the primary focus for sustainable innovationwhile aiming to achieve social benefits.
The primary focus and aim of sustainable innovationis on higher levels of innovation which may contribute to significant or ‘Factor X’ reductions in environmental impacts.
In practice radical technological innovation of any type has been rare and tends to occur mainly in times of crisis such as war when economic, market and other considerations are suspended. The same applies to higher levels of eco-innovation which has so far been mainly at lower levels.
The five capitals model (9) suggests five types of sustainable capital from which goods and services are derived.
Natural Capital is any stock or flow of energy and material that produces goods and services. It includes:
- Resources - renewable and non-renewable materials
- Sinks - that absorb, neutralise or recycle wastes
- Processes - such as climate regulation
Human Capital : consists of people's health, knowledge, skills and motivation. All these things are needed for productive work. Enhancing human capital through education and training is central to a flourishing economy.
Social Capital : there are trusted and accessible systems of governance and justice. Communities and society at large share key positive values and a sense of purpose. The structures and institutions of society promote stewardship of natural resources and development of people. Homes, communities and society at large provide safe, supportive living and working environments.
Manufactured Capital: all infrastructure, technologies and processes make minimum use of natural resources and maximum use of human innovation and skills. This is not the capital value of produced goods.
Financial Capital: f inancial capital accurately represents the value of natural, human, social and manufactured capital
When implementing the innovation process into a company undertaking a sustainable development programme extra questions need to be asked.
1) The team generating the new ideas for future business development need to have an understanding of the challenges and opportunities that create a business based upon sustainability.
2) Following idea creation the idea must be developed such that the innovation will create a more sustainable function or service. The development team will also need to evaluate the impact that the development will have on the environment and society.
3) The development team should include members who have different world views such that perceptions of need and value of the project can be rigorously assessed.
4) Any intellectual property that can be derived from the development programme is usually considered a business asset. However, before establishing a patent it needs to be understood if taking out a patent is for the public good.
Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster." Prof. Geert Hofstede (10), Emeritus Professor, Maastricht University.
People in different cultures do not behave or think in the same way. Geert Hofstede carried out research into identifying a countries culture with the purpose to gain insight to having more effective dialogue between countries. He identified five basic dimensions of differences between national cultures. The five dimensions are:-
- Power distance index
- Uncertainty avoidance index
- Long term orientation
Power Distance Index (PDI): that is the extent to which the less powerful members of organizations and institutions accept and expect that power is distributed unequally. It suggests that a society's level of inequality is endorsed by the followers as much as by the leaders. All societies are unequal, but some are more unequal than others'.
Individualism (IDV): this dimension measures individualism through to collectivism. Societies with a high individualism dimension are expected to look after him/herself and his/her immediate family. In collective societies people or groups of people from birth onwards are integrated into strong, cohesive in-groups, often extended families which continue protecting them in exchange for unquestioning loyalty.
Masculinity (MAS): this dimension measures masculinity through to femininity of a society and refers to the distribution of roles between the genders which is another fundamental issue for any society to which a range of solutions are found. Masculine values are seen as very assertive and competitive whilst feminine values are seen as modest and caring. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men's values and women's values.
Uncertainty Avoidance Index (UAI): this dimension deals with a society's tolerance for uncertainty and ambiguity i.e. if people feel either uncomfortable or comfortable in unstructured situations. Unstructured situations are novel, unknown, surprising, different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth; 'there can only be one Truth and we have it'. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side. People within these cultures are more phlegmatic and contemplative, and not expected by their environment to express emotions.
Long-Term Orientation (LTO): this dimension was added after the previous four by work carried out by Chinese scholars. Values associated with Long Term Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling social obligations, and protecting one's 'face'. Both the positively and the negatively rated values of this dimension are found in the teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C.; however, the dimension also applies to countries without a Confucian heritage.
Innovation is related to tolerance for ambiguity and deviant ideas, members of weak uncertainty avoidance cultures are more innovative than members of strong uncertainty avoidance cultures. Power distance and individualism influence cultural innovativeness. For people in small power distance and individualistic cultures innovation is internalised but for cultures with large power distance and collectiveness innovation is externalised i.e. depends upon the power holders and group process.
American consumers have been characterised into five groups according to their degree of acceptance of new products (11). The groups are; innovators, early adopters, early majority, late majority and laggards. Innovators are seen as individuals willing to take risks, early adopters serve as role models, early majority are seen as risk avoiders but deliberate in their purchasing patterns, late majority are sceptical and cautious of new ideas and laggards are very traditional.