The New Product Development Process as a Communication Web, Part I: Introduction, Concepts, and Spanish Context

Pilar Fernandez Ferrfn

Universidad del Pais Vasco, Spain

Jose Antonio Varela Gonzalez

University of Santiago de Compostela, Spain

Belen Bande Vilela

University of Santiago de Compostela, Spain

Oihana Valmaseda Andia

Universidad del Pais Vasco, Spain

ABSTRACT

This chapter contributes towards existing literature by analysing the innovation activities of Spanish companies and by proposing New Product Development (NPD) as a communication web. We propose a model, based on literature reviews, that relates the external communication of cross-functional teams to the performance of NPD programmes. The composition of NPD teams and the external communication activities thereof are a core competency for companies and can provide them with major competitive advantages.

DOI: 10.4018/978-1-61350-165-8.ch028

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INTRODUCTION

Technological advances, competitive pressures and changes in consumer preferences mean that achieving good new product performance is of vital importance to the survival of businesses. In a study regarding successful factors in new prod­uct development (NPD), Brown and Eisenhardt (1995) identified a line of research characterised by considering NPD as a communication web. This trend emphasises the importance ofvariables relating to the external communication of NPD teams and the use of information from various areas of the firm1. As indicated by Ancona and Caldwell (1997), achieving adequate performance requires a high degree of coordination between the different operating units participating in the process and an optimal sharing of information within the organisation.

Firms usually respond to the above require­ments by entrusting the NPD process to cross­functional teams, believing that they present considerable advantages over single-function groups when it comes to the development of suc­cessful products.

In order to achieve their goals, NPD teams must also gather information from several sources, from both inside and outside the organisation (Kleinschmidt et al., 2010). Thus, Allen (1970, 1984) verified that in successful R&D projects some individuals acted as technological gatekeep­ers, establishing links between the team and the technological environment and gathering techni­cal information from outside and incorporating it into the group.

A broader framework of roles was developed by Roberts and Fusfeld (1981), who believe that the successful finalisation of a development project required five different roles2. The two roles most closely related to the interaction between the team and the outside are that of the previously mentioned “gatekeepers,” and that of product champions: individuals who emerge spontane­ously from within an organisation, actively and enthusiastically push each stage ofthe innovation process forward and contribute decisively to the company’s success (Lichtenthaler & Ernst, 2009; Schon, 1963; Tushman & Nadler, 1986). The aforementioned roles have both been positively linked to the performance of development projects (Allen, 1970; Katz & Tushman, 1981; Markham & Griffin, 1998).

Although some studies (Allen 1970, 1984; Markham & Griffin, 1998; Roberts & Fusfeld, 1981) have shown the importance of communica­tion beyond the boundaries of the NPD team and have identified various roles in this process, the external communication of NPD teams has not received enough attention, nor has its impact on new product performance been sufficiently tested (Ancona, 1990).

Another aspect that is associated with NPD success and that is directly related to the external communication ofNPD teams is the consideration of lead users in the NPD process. Lead users are defined as users that already possess the character­istics that the majority of consumers will present in the future. For businesses, these individuals are great predictors of the trends and needs that will sooner or later emerge in the market (Droge et al., 2010; Spann et al., 2009; von Hippel, 1986).

The aim of this study is therefore to examine the impact ofthe cross-functional composition of NPD teams, and of their external communication activities, on new product performance. In order to do so, we propose a model in which new product programme performance is influenced by: (1) the cross-functional character ofthe team responsible for NPD; (2) the presence of product champions in the NPD process; (3) the presence of gatekeepers in the NPD process; and (4) the consideration of lead users in NPD.

When the composition of NPD teams and the external communication activities thereof posi­tively influence new product performance and the success of innovation activities, the company is provided with a core competency, which competi­tors find difficult to emulate.

The chapter is structured as follows: firstly, we collected the most recent data on the innovation activities of European and Spanish companies (EUROSTAT, 2010; INE, 2010). Secondly, we examined the main contributions towards research on NPD measures. Thirdly, we outlined the prin­cipal characteristics of the three main lines of research on NPD success factors and explained why we selected the communication web stream. Fourthly, we analysed the primary evidence sup­porting the influence ofthe four selected variables on new product performance and put forward our hypotheses (which will be tested in the next chapter). Lastly, we provided a summary of the chapter under the “Conclusion” heading.

THE IMPORTANCE OF PRODUCT INNOVATION FOR SPANISH ENTERPRISES

The Community Innovation Survey (CIS) 2008 evaluated European Union (EU) goods and ser­vices companies with ten or more employees and found that more than half of these companies car­ried out innovation activities between 2006 and 2008. The countries in which a higher percentage of companies performed innovation activities were as follows: Germany (80% of companies), Luxembourg (65%), Belgium and Portugal (5 8%), Ireland, Estonia, Austria, Cyprus and Czech Re­public (56%). In Spain the percentage of compa­nies carrying out innovation activities was lower (43%). The aforementioned data includes various types of innovation activities such as product, process, organisation and marketing activities.

The Company Innovation Survey 2008, by the Spanish National Institute of Statistics (INE), assessed Spanish companies with ten or more employees, belonging to four different sectors: agriculture, industry, services and construction. The survey provided further information on the innovation activities of Spanish companies. Be­tween 2006 and 2008 a total of42,206 companies carried out innovation activities and 44% of them (18,493 companies) performed product innovation activities. The number of companies (15,500) that launched products that were new to their company onto the market exceeded the number of companies (8,125) that launched products that were new to their respective markets.

Ifwe use the percentage of revenue expenditure on innovation activities as an indicator of a com­pany’s degree of innovation, the manufacturing industry is the most innovative (1.2%), and, within this industry, aeronautical companies (8.2%), phar­maceutical companies (5.6%) and manufacturers of other transport equipment (5.1%) all stand out.

More than half of the companies included in the survey (57%) considered product innovation obj ectives to be extremely important. These Span­ish companies particularly wanted to improve the quality of their goods and services, offer a wider range ofproducts, launch their products on to new markets, replace outdated products and processes and increase their market share.

It should be noted that 16% of the sales of Spanish companies investing in product innova­tion relate to products that are new to their market, 19% relate to products that are only new to the company and the remaining 65% relate to products that are already available on the market.

Innovation activities entail significant risks for companies and a large number of companies involved in the survey (7,442 companies) admitted to having to abandon their innovation activities either at the initial phase or after the project had started. Many companies (4,599) also confessed to having to suspend their innovation activities3 (Table 1).

NEW PRODUCT DEVELOPMENT: THE THEORETICAL FRAMEWORK

Table 1. Innovation activities of Spanish companies

Number of companies

Agriculture

Industry

Services

Construction

Number of innovative companies

42,206

1,341

14,249

19,207

7,410

% of innovative companies/Total

20.81

19.10

31.13

18.66

15.74

Degree of innovation (% of revenue expendi­ture on innovation activities)

0.95

0.71

1.24

0.93

0.34

Number of companies investing in product innovation

18,493

630

7,730

8,401

1,732

Number of companies that introduced prod­ucts that were new to the company

15,500

541

6,226

7,083

1,650

Number of companies that introduced prod­ucts that were new to their market

8,125

198

3.708

3,752

497

% of companies that consider product innova­tion objectives as important

56.98

60.15

60.95

58.98

41.18

% of revenue expenditure on new or improved products (all companies)

12.69

4.58

20.49

9.87

6.48

% of revenue expenditure of innovative companies on:

1. products that are new to the company

19.23

34.32

18.87

19.84

16.57

2. products that are new to their market

15.69

8.63

16.74

13.71

23.19

3. products that are already available

65.08

57.06

64.32

66.45

60.25

Number of companies that abandoned their innovation activities

7,442

199

3,090

3,224

924

Number of companies that suspended their innovation activities

4,559

237

2,068

1,925

369

Source: INE. Company innovation survey 2008

New product development (NPD) is defined as the process through which products are developed within an enterprise4. However, this term is not
employed throughout all expert areas. Although the fields of marketing and management use the aforementioned NPD term, research and develop­ment (R&D) prefers to use the term “innovation,” engineering opts for the word “design” and, finally, the field of design refers to NPD as the “design of new products.” However, it is now increasingly common for expert areas to adopt terms that ini­tially arose in other areas.

NPD is generally considered as an “invention” when the resulting product (good or service) does not make it onto the market and as an “innova­tion” when the product is successfully launched onto the market.

Within a theoretical framework, NPD is viewed as an ability of the enterprise (Day, 1994); an or­ganisational learning process (Hughes and Chafin,

1996; Kleinschmidt et al., 2010; McKee, 1992;

Moorman and Miner, 1997); a collective process involving the generation of innovative ideas (Nonaka, 1991); or as a means of organisational restructuring (Dougherty, 1992).

The development of new products is essential to companies if they wish to secure a sustainable competitive edge in the market, as it contributes to process and product innovation. Bruce and Bie - mans (1995) consider that NPD can be classified into two organisational levels: (1) project level, involving a project for a specific new product and (2) strategic level, involving the analysis of a company’s general NPD. However, for NPD to provide companies with a competitive edge the products must be successful, with good perfor­mance. Existing literature suggests various suc­cess or performance measures that can be used.

Various NPD Performance Measures

Griffin and Page (1993) investigated which per­formance measures are most commonly used by researchers and companies. After conducting a literature review and a managerial survey they found 75 different performance measures, 16 of which are commonly used by both groups (core success/failure measures). These measures can be classified into five categories and measure differ­ent aspects of NPD success and failure:

a. Measures of firm benefits.

b. Programme-level measures.

c. Product-level measures.

d. Measures of financial performance.

e. Measures of customer acceptance.

Companies tend to prefer to use project level NPD measures (groups c, d and e), while research­ers are more interested in the success of the NPD programme and its effect on the company (groups a and b), but both agree that measuring NPD success or failure is a multidimensional process.

Cooper et al. (2004) collected results from a study on NPD performance and procedures by the American Productivity and Quality Centre. This study analysed 105 business units from different industries and their respective performance mea­sures, classified into two groups: (1) measures at a business unit level; and (2) measures at a NPD project level.

The most commonly used NPD performance measures at a business unit level were as follows:

a. Percent of business’s revenue from NPs (69% of business units).

b. Percent of growth in sales from NPS (50%).

c. Overall profits generated by NPs (40%).

d. Number of major launches per year (34%).

e. Percent ofbusiness’s profits from NPs (32%).

f. Return of investment on R&D spending (28%).

g. Success rate oflaunched/developed products (28%)

The most commonly used NPD performance/ success measures at a project level were as follows:

a.

Profitability (70%).

b.

Revenue vs. forecasted revenue (70%).

c.

Customer satisfaction (65%).

d.

Profitability vs. forecasted profits (49%).

e.

Market share (46%).

f.

Performance to schedule (on time launch)

(41%).

g.

Time to market (40%).

h.

Performance to budget (36%).

i.

Development cost vs. revenue (27%).

j.

Time to profit /BE time (26%).

k.

Percentage of repeat customers (19%).

NPD AS A COMMUNICATION NETWORK: AN EMPIRICAL RESEARCH

In their extensive review of studies relating to factors of success in NPD, Brown and Eisenhardt (1995) distinguish three currents of research, which consider NPD as: (1) a rational plan; (2) a communication web and (3) a disciplined problem solving mechanism. Although these three streams share methodologies, the authors highlight factors of differing characteristics as variables that explain new product performance. Thus, the rationalplan stream focuses on a very broad set of determinants of the product’s financial performance; the com­munication web approach highlights the effects of communication in the development of the project; and the problem solving approach deals with the adequate development and conception of the product as a foundation for its success.

For Brown and Eisenhardt (1995), each stream presents limitations. The rational plan approach deals with an excessive number of factors, relies on a single source of information and is based on insufficiently defined constructs. The second cur­rent (the communication web) ignores important variables by focussing on communication aspects, uses subjective measures of performance and does not take the radical or incremental nature of products into account. The problem solving cur­rent also ignores important variables, is based on poorly defined constructs and is markedly geared towards Japanese companies.

Our study falls into the second current, NPD as a communication web, as we believe that despite the importance attributed to the communication of the NPD team in various studies, there are still only a small number of international studies on this subject, especially when it comes to external com­munication. In this study, we examine the effect that four success factors (identified individually in previous studies) have on new product perfor­mance: the cross-functional character of the NPD team, the presence ofinformation gatekeepers, the presence of product champions and, finally, the consideration of lead users in the NPD process.

Cross-Functional Teams

Clark and Fujimoto (1990, 1991) developed a series of structures that could be adopted by NPD teams. In their analysis ofthe automobile industry in the USA, Japan and Europe, they found that firms with better performance (in productivity, development time and product quality) tended to structure their NPD through cross-functional teams led by a project manager with expertise in the products and in translating consumer needs into technical specifications.

On the whole, studies suggest that cross-func­tional teams (i. e. project groups whose members are from different functional areas) are vital in achieving good performance. It is believed that the greater the functional diversity of the team, the greater the quantity and variety ofinformation available for the design ofthe product and the faster the response to problems such as manufacturing difficulties or market mismatches (Brown and

Eisenhardt, 1995; Ernst et al., 2010; Hirunyawi - pada et al., 2010; Nakata and Im, 2010).

Following this line of thought, we hypoth­esize a positive relationship between the cross­functional character of the team and new product performance:

H1: The cross-functional nature of NPD teams, which is measured by the number of depart­ments participating in the NPD process, will positively influence new productprogramme performance.

Information or Technological Gatekeepers

Effective communication between NPD team members and external groups has been another factor associated with NPD performance. A sub­stantial part of the information needed for NPD comes from outside a company (Allen, 1970) and it seems obvious that such outside information has to enter the organisation, as without it no research and development unit would be able to survive in the long run. According to Tushman (1977), the survival of a firm is dependent upon its members being aware ofthe key technological developments the company intends to undergo.

Teams have two ways ofkeeping themselves up to date with outside developments (Katz & Tush - man, 1981): through (1) direct contact between all project members and (2) indirect contact via certain individuals (i. e. gatekeepers).

Technology gatekeepers is the name given by Allen and Cohen (1969) to NPD team members who are closely linked to areas of external in­formation, but who, at the same time, maintain close contact with their colleagues within the organisation and translate external develop­ments and ideas into codes familiar to NPD team members. Lievens and Moenaert (2000, p. 1097) define information gatekeepers as “employees in contact with the public who undertake boundary spanning activities.”

The role of the gatekeeper is an informal one (Katz & Tushman, 1981).The organisation can­not formalise it but can promote the presence and participation of gatekeepers in projects and try to find them a suitable position within the company. According to Katz and Tushman (1981), gatekeep­ers fulfil two basic functions: (1) they represent a primary link with external sources of informa­tion; (2) they assume an active role with regards to training, development and social matters in their working groups (i. e. they not only gather, interpret and translate external information into a code understood by the organisation, but also make it easier for other members of the organisa­tion to interact with external contacts).

The beneficial role of the gatekeeper was also (although indirectly) analysed by Allen (1970), who compared pairs of individuals that worked on solving identical problems, by dividing them into high and low performers according to their perfor­mance. The members of the organisation with a high performance rating: (1) consulted colleagues more frequently; (2) had longer discussions with colleagues; (3) confided in a greater number of people, both in their own technical line of work and in other areas; and (4) were more aware of developments in their field.

The above appears to be the characteristics of gatekeepers. Regarding the services field, empiri­cal research highlights that active commitment and participation from personnel in contact with the public is crucial with regards to successful innovations in the banking industry (Rogers & Agarwala-Rogers, 1976; Lievens & Moenaert, 2000). These employees “possess valuable commercial information, particularly about the needs of the targeted customers. They can act as gatekeepers of information and pass on crucial market information to their colleagues inside the bank’s project team” (Lievens & Moenaert,

2000, p. 1086).

The aforementioned authors analysed the suc­cesses and failures of new services provided by Belgian banks and found that extra-project com­munication by gatekeepers of information was positively correlated to the reduction of consumer uncertainty (r = 0.42, p < 0.001), which, in turn, was positively linked to the financial performance of the new service (r = 0.34, p < 0.05).

Based on the evidence available concerning the beneficial role of gatekeepers when they collect information from the environment and incorporate it into the group, we posit that the presence of information gatekeepers will be more beneficial for the results of the NPD process than the gathering of information by all members of NPD teams. Thus, we expect the influence on performance to be significantly greater with the presence of gatekeepers than if information were gathered by all members of the team.

H2a: The presence of information gatekeepers will positively influence new product programme performance.

H2b: The impact on new product programme performance will be greater with the pres­ence of information gatekeepers than when all members of the NPD project team are in charge of gathering external information.

Innovation or Product Champions

The presence of a champion is one ofthe variables most frequently associated with NPD success. However, Markham and Griffin (1998) state that this figure has attained mythical dimensions and that its direct connection to performance has not yet obtained sufficient empirical support.

A product champion is defined as an individual who emerges spontaneously from within an organi­sation and who, by actively and enthusiastically pushing forward each stage ofthe innovation pro­cess, contributes decisively to its success (Schon, 1963; Tushman and Nadler, 1986).

In a first description of this figure, Schon (1963) identified a series of functions performed by product champions: (1) they select an idea, (2) they defend it informally but actively and (3) they risk their position and prestige in order to guarantee the innovation’s success. One of the main characteristics of product champions is their ability to identify with an idea and defend it as if it were their own, going beyond the job require­ments in order to promote the idea.

Research on product champions highlights their capacity to transmit and share their vision regarding an innovation’s potential, to persevere in the face of strong opposition, to show great self-confidence and to gather the support of their colleagues in relation to a particular idea (Howell and Boies, 2004; Howell et al., 2005; Shane, 2002). Howell and Higgins (1990) find that champions of technological innovation show, to a greater extent than non-champions, characteristics of achievement, persistence, innovation, persuasion and risk taking.5

Markham (2002) described a series of skills that champions require in order to get through what he calls the “valley of death” (the gap between the technical invention or market recognition of an idea and the efforts to commercialise it). He developed a template ofnine stages that champions must overcome, though not linearly, in order to successfully promote projects. Some of the skills required by champions are to communicate a project’s potential through a persuasive business strategy; obtain the necessary resources; persist in the face of adversity; get the right people in­volved and seek the necessary support (Howell et al., 2005; Markham, 2002).

Kessler (2000), in a study on the development of new multi-industry products, found that when there were more champions, product development costs were lower. Markham and Griffin (1998) analysed the relation between the presence of champions and the following variables: (1) the performance of the NPD process at programme, firm and project levels; (2) the characteristics of the industry; and (3) the characteristics of NPD in relation to the project and to the firm. They concluded that the presence of champions does not directly affect the performance of the NPD process at company level, but does so indirectly through its impact on the new product programme performance.

In accordance with this last result, we support the role of innovation champions and their posi­tive influence on NPD programme performance. Thus, we posit that the presence of champions will positively affect this measure of performance.

H3: The presence of innovation champions will positively influence new productprogramme performance.

Lead Users

Lead users of a novel or improved product, process or service have been defined by von Hippel (1986) as those that display two characteristics: (1) they handle common market needs, even months or years before the majority ofthe market has become aware of such needs and (2) they significantly benefit from obtaining a solution to these needs. Franke et al. (2006) explain that these two charac­teristics are conceptually separate since they both originate from different lines of research and have different functions in the lead-user theory: “High benefits expected are associated with innovation likelihood, and a position ahead of the trend is associated with innovation attractiveness” (p. 311).

According to von Hippel (1986), the more a lead user will benefit from a product or process that they need, the more effort they will make in order to find a solution (i. e. the more resources they will dedicate to the search for this solution).

A lead user has a double-value in the NPD process: not only can they provide information on unfulfilled needs, but they can also offer their own opinions on how to suitably meet such needs. This active role of lead users in the development of product concepts was corroborated in different case studies.

Herstatt and von Hippel (1997) found that Swiss machinery firms considered the develop­ment of products in cooperation with their users
to be the most effective way of understanding consumer needs. However, they also verified that this method was rarely used, the main limitation being that it was very complex, costly and dif­ficult to apply.

In markets characterised by rapid change, lead users can act as an important element in achieving successful NPD. Lead user involvement “clearly helps to acquire important need and solution infor­mation. This information prevents delays in later stages of the NPD process and ensures that the new product provides an advantage to customers” (Langerak & Hultink, 2008, p.165). Von Hippel (1986) proposed a four-stage process in order to incorporate lead users into market research. Further studies have demonstrated the suitability of this method for different industries (Herstatt & von Hippel, 1997; Urban & von Hippel, 1998).

Most studies have focussed on a particular industry and a particular product. Luthje and Herstatt (2004) gathered the results of eight previous studies, centred on different products such as open-air sports equipment and surgical equipment, and verified that the percentage of users that developed improvements or new ap­plications for their own use varied from 10 to 38 per cent. Morrison et al. (2000) found that, for two providers of information search programmes for libraries, at least 20 per cent of the improvements made by users were new to them and interesting from a commercial point of view.

Studies have analysed the possible reasons why lead users tend to develop their own product improvements (Luthje & Herstatt, 2004; Morrison et al., 2000; von Hippel et al, 2000) and even share their results with other users (Morrison et al., 2000). Schreier & Prugl (2008) studied the antecedents and consequences of consumer lead userness in the context of extreme sports. The antecedents included consumer knowledge, user experience and two personality variables: locus of control and innovativeness. The lead users in the study not only showed innovation by offering ideas for new products but they were also quicker and keener to embrace new products.

However, we believe that there is no empirical sample study that proves the possible influence of the lead users method proposed by von Hippel (1986), or of any other alternative method, on new product performance. A central problem in these types of studies is that they do not include a measurement scale, or if they do, it is always very simple6. Morrison et al. (2004) analysed the nature of the lead users construct. They proposed a similar construct: LES (leading edge status) and a scale formed by four dimensions and seven indicators. This continuous measure was found to be both reliable and valid when tested on a sample of information search programme users from Australian libraries.

This scale was designed to identify lead us­ers of a product, but not to measure the extent to which suppliers or manufacturers ofa product use lead users and incorporate their ideas into NPD. This, on the other hand, is precisely what we aim to do in this study.

Following von Hippel (1986) as regards the relation between lead users and success in NPD, we hypothesize that a firm’s consideration of these users in the process of NPD will favour NPD performance.

H4: The participation of lead users in NPD will positively influence new productprogramme performance.

Figure 1 shows the four relationships hypoth­esized.

CONCLUSION

Figure 1. Cross-functional teams, external communication and new product performance

By analysing the most recent data available on the innovation activities of Spanish companies, this chapter has been able to confirm the importance of general innovation and particularly of product innovation for these companies. Although Spain
has a lower percentage of innovative companies compared to other European countries, the find­ings show that Spanish companies regard prod­uct innovation objectives as very important and recognise that a significant portion of their sales are thanks to new products.

In the second half of this chapter we suggest considering NPD as a communication web. We hypothesise that there will be increased new product programme performance in firms that use cross-functional teams, rely on the presence of product champions and information gatekeep­ers and take into account the opinions of more advanced users.

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