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The establishment of a new product planning department Mathison, William Arthur 1964

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THE ESTABLISHMENT OF A NEW PRODUCT PLANNING DEPARTMENT by WILLIAM ARTHUR MATHISON B. S. E . , University of Saskatchewan, 1962  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION  In the Faculty of Commerce and Business Administration We accept t h i s thesis as conforming to required standard  THE UNIVERSITY OF BRITISH COLUMBIA June, 196h  the  In the  presenting  r e q u i r e m e n t s f o r an  British  for reference  mission for extensive p u r p o s e s may his  be  of  written  Department  of  degree at  the  study.  c o p y i n g of the  in partial  for  the  Library I  this thesis  Head o f my  agree for  that  or  not  The U n i v e r s i t y o f B r i t i s h V a n c o u v e r 8. Canada  Business  Columbia,  per-  be  by publi-  allowed  permission*  Commerce and  of  scholarly  c o p y i n g or  shall  of  make i t f r e e l y  Department  that  f i n a n c i a l gain  fulfilment  University  shall  further  I t i s understood  this thesis  w i t h o u t my  that  and  g r a n t e d by  representatives.  cation  advanced  Columbia, I agree  available  this thesis  Administration.  ABSTRACT The major o b j e c t i v e of t h i s study was  to e s t a b l i s h  a department i n an o r g a n i z a t i o n , which would c o - o r d i n a t e a l l new  product p l a n n i n g a c t i v i t i e s . To a t t a i n t h i s o b j e c t i v e i t was  necessary t o study  the c h a r a c t e r i s t i c s of a f i r m and then u s i n g these, develop a department which would u t i l i z e the f i r m ' s s t r e n g t h s and a v o i d i t s weaknesses.  I n i t i a l l y the components r e q u i r e d  i n a product p o l i c y were p r e s e n t e d to a c t as a guide f o r management i n e s t a b l i s h i n g i t s new  product p l a n n i n g depart-  ment. The f i r s t complete  step of the o r g a n i z i n g process was  a n a l y s i s of the b a s i c stages that new  ideas pass through.  the  product  This analysis included c o l l e c t i o n  s c r e e n i n g of product i d e a s , the development of  and  specifi-  c a t i o n s f o r the product, and the t e s t i n g o f the product p r i o r to c o m m e r c i a l i z a t i o n .  The d e c i s i o n s r e q u i r e d , and  the p e r s o n n e l i n v o l v e d at each stage were c l e a r l y  indi-  cated as the product i d e a evolved. Throughout the t h e s i s , the need f o r an o r g a n i z e d marketing r e s e a r c h o p e r a t i o n i s emphasized. t h a t to have e f f e c t i v e new  I t i s claimed  product development t h e r e must  be thorough and complete market knowledge a v a i l a b l e . Marketing r e s e a r c h i s an i n t e g r a l p a r t of the proposed  i n this  thesis.  activities  iv The department t h a t i s proposed  c o n s i s t s of a com-  m i t t e e w i t h r e p r e s e n t a t i v e s from each of the major f u n c t i o n s i n the f i r m . functional authority.  line  I t i s a s t a f f department w i t h The new  product development  activi-  t i e s i n the f i r m are guided and c o n t r o l l e d by t h i s o r d i n a t i n g body.  The members of the new  co-  product p l a n n i n g  department work i n c l o s e c o - o p e r a t i o n w i t h the l i n e department managers and the e x e c u t i v e committee. Management of a f i r m adopting the proposed must be devoted to progress through new ment.  For the new  product  system  develop-  product p l a n n i n g department to be  s u c c e s s f u l more than an o r g a n i z a t i o n a l s t r u c t u r e i s r e quired.  The company as a whole must accept the  t h a t an o r g a n i z e d approach  premise  to i n n o v a t i o n i s e s s e n t i a l .  T h i s frame of mind must be p r e v a l e n t b e f o r e the  proposed  department w i l l be able to work c o - o p e r a t i v e l y w i t h the v a r i o u s l i n e f u n c t i o n s i n the f i r m . to new  An i n t e g r a t e d  product development i s t h e r e f o r e being To t e s t the v a l i d i t y of the suggested  compared to the new l e a d i n g Canadian  approach  proposed. system i t was  product development o p e r a t i o n s i n a  chemical company.  The o p e r a t i o n s o f the  f i r m are d i s c u s s e d i n d e t a i l p r i o r to a n a l y z i n g them r e l a t i v e to the proposed  system.  S u c c e s s f u l new  product development i s the key to  the f u t u r e f o r most i n d u s t r i a l companies. ning based on thorough  Careful plan-  and m e t h o d i c a l a n a l y s i s w i l l  result  V  in  new p r o d u c t s  To  enable  ment  must  product  the be  established  activities  meet  introduced with  planning process  system proposed will  being  these  take  which w i l l  and produce  in this  to  thesis,  requirements.  consistent place  a  co-ordinate  optimum r e s u l t s . i f properly  success. departa l l  new  The  implemented,  vi  TABLE OF CONTENTS CHAPTER I  PAGE 1  INTRODUCTION Background  o f the problem  Major O b j e c t i v e s  5  The Nature and Scope o f the Study  7  Study L i m i t a t i o n s  12  Chapter O u t l i n e o f the Thesis  Ik  Chapter I I  II  1  Ik  Chapter I I I  15  Chapter IV  16  Chapter V  16  Chapter VI  17  Chapter V I I  17  PRODUCT POLICY AND THE DEVELOPMENT OF A PRODUCT IDEA  18  Introduction  18  Product P o l i c y The Developmental  18 Process o f a  New Product Idea  18  The Role o f Product P o l i c y i n New Product Development The F u n c t i o n s o f a Product P o l i c y ....  20 20  The Necessary Elements o f a Product P o l i c y  23  vii  25  Summary The Developmental Process o f a New Product Idea  III  26  O b t a i n i n g Product Ideas  26  The Screening Stage  31  The Product S p e c i f i c a t i o n Stage  35  Predevelopment  *+3  and T e s t i n g Stage  THE ROLE OP MARKETING RESEARCH IN NEW PRODUCT PLANNING  ^5  Introduction  ^5  H i s t o r y and Growth o f the A c t i v i t y  *+9  I n d u s t r i a l and Consumer Marketing 52  Research P o s i t i o n s o f Marketing Research i n the Organization  53  A c t i v i t i e s o f Marketing Research and New Product P l a n n i n g  55  Research Design  56  Product Uses  57  Product Users  58  D e t e r m i n a t i o n o f Market Characteristics  59  S t a b i l i t y of Demand  59  Buying h a b i t s  60  Price  61  viii  IV  Buying motives  61  Other f a c t o r s  61  A n a l y s i s o f Competition  63  Summary  67  THE ORGANIZATION OF THE NEW PRODUCT 68  PLANNING DEPARTMENT  68  Introduction Study's Frame o f Reference The  Importance o f C r e a t i v e 73  Leadership The  68  Importance o f C o - o r d i n a t i o n 75  and O r g a n i z a t i o n Two B a s i c Methods o f New Product  76  Planning  The  S t r u c t u r e d System  76  An Unstructured  76  System  Proposed New Product  Planning  Department .  78  P r e l i m i n a r y Examination o f the Company ...  78  Introduction  78  C a r r y i n g out the Audit o f Resources...  78  Establishment  of the Department  Introduction  83 83  D e t a i l s o f the New Product Planning  Department  8*+  ix  The Department's Form and  8k  Staff The Scope o f the New  Product 86  Department O r g a n i z a t i o n a l Aspect o f the New Product Planning Department...  87  Authority Relationships  89  Communication  93  Control  96  Summary V  98  A STUDY OF NEW PRODUCT PLANNING PROCEDURES IN A LARGE CANADIAN CHEMICAL COMPANY Introduction  100 100  Purpose o f the Study  100  Methodology o f the Study  101  O r g a n i z a t i o n o f the Chapter  102 103  Background o f the Company  103  H i s t o r i c a l Development The Competitive P o s i t i o n o f the Company's Products and P r o d u c t i o n Facilities  10*f  Products  lOh  Production F a c i l i t i e s  106  The Company's New Product Operation  Planning 107  X  The Product Idea's Process  Evolutionary 107  .  Introduction  107  The Company's Product P o l i c y ....  108  Product Idea Sources  110  The Screening Stage  I l l  The S p e c i f i c a t i o n Stage  112  The Development and Product T e s t i n g Stage Summary The O r g a n i z a t i o n a l D e t a i l s  Ilk 11? 115  Authority Relationships  115  Communications Network  116  C o n t r o l Techniques  117  The Marketing Research A c t i v i t y i n the Company VI  118  AN EVALUATION AND CRITICISM OP THE NEW PRODUCT PLANNING PROCEDURES OF THE COMPANY STUDIED, RELATIVE TO THE PROCESS PROPOSED IN THIS THESIS Introduction  120 120  A Summary o f the Proposed New Product Planning Department  121  A Review o f the Procedures Followed by the Company S t u d i e d i n Chapter V .....  125  xi  An A n a l y s i s o f the Company Operations R e l a t i v e t o the Proposed  Process  Product P o l i c y  128  Co-ordination  129  Company Operations Proposed System Communication  129 131 132  Introduction  132  Company Operations  133  Proposed System  135  Authority Summary VII  128  SUMMARY AND CONCLUSIONS  136 138 1^0  The E v o l u t i o n o f a New Product Idea  1^2  Product P o l i c y  1^3  Co-ordination  Ikk  Communication  Ikh  Control  1^5  Marketing Research  l*+6  P i t f a l l s t o Avoid  Ih7  BIBLIOGRAPHY  1^9  1  CHAPTER I INTRODUCTION A.  Background o f the problem  1 Approximately f o u r out o f f i v e new products  fail.  In other words, o n l y 20 per cent o f the new products developed r e t u r n a s u i t a b l e p r o f i t f o r the company.  Data  presented by Booz, A l l e n , and Hamilton i n d i c a t e t h a t the success r a t e i s somewhat h i g h e r f o r i n d u s t r i a l companies, however, the f a c t remains  that the r e s o u r c e s wasted on 2  p o o r l y developed products are c o n s i d e r a b l e . The time and e f f o r t  spent on new product develop-  ment, i n recent y e a r s , has i n c r e a s e d c o n s i d e r a b l y w i t h the r e a l i z a t i o n that the major problems f a c i n g the i n d u s t r i a l producer are no l o n g e r t e c h n o l o g i c a l p r o d u c t i o n problems but r a t h e r those e x i s t i n g i n h i s market.^  Pro-  ducers have a l s o r e a l i z e d t h a t s u c c e s s f u l new products hold the key t o f u t u r e i n d u s t r i a l growth.  S o c i e t y today  i s i n an e r a where the consumer expects the producer t o 1 E. J . McCarthy, " O r g a n i z a t i o n f o r New Product Development", i n T. L. Berg and A. Shuchman ( e d i t o r s ) , Product S t r a t e g y and Management, H o l t , R i n e h a r t , and Winston, (1963), p. 384-. 2 Booz, A l l e n , and Hamilton, "A Program f o r New Product E v o l u t i o n " i n Berg and Schuchman, op. c i t . . p. 3V7. 3  McCarthy, op. c i t .  2  c o n t i n u a l l y develop new  and improved  products and t o main-  t a i n i t s c o m p e t i t i v e p o s i t i o n the f i r m must meet these demands.  Does t h i s demand f o r new  products  necessarily  mean that anything appearing on the market w i l l be a success?  A study of the evidence i n d i c a t e s that t h i s i s 1+  d e f i n i t e l y not the  situation.  Management must t h e r e f o r e take a d i f f e r e n t proach t o new  ap-  product development than t h a t which i t has  t r a d i t i o n a l l y taken.  In the l a t e n i n e t e e n f o r t i e s  the f i f t i e s when t h e r e was ment, management was  and  r a p i d t e c h n o l o g i c a l advance-  naturally production oriented.  If  a company could g a i n a c o m p e t i t i v e advantage i n t e c h n o l ogy i t s chances of c a p t u r i n g the market were i n c r e a s e d . T h i s p o s s i b i l i t y s t i l l e x i s t s i n a l i m i t e d manner today but the o v e r - a l l s i t u a t i o n has changed c o n s i d e r a b l y . Managers are beginning t o r e a l i z e that most producers  are  capable of producing comparable p r o d u c t s , thus the emphas i s has s h i f t e d towards a concern about the market as a whole.  the customer and  Today, t o have a s u c c e s s f u l p r o -  duct, a f i r m must have more than the mere a b i l i t y t o produce  a t e c h n i c a l l y s a t i s f a c t o r y product.  I t must a l s o  make a c a r e f u l study of the market t o ensure t h a t the product w i l l be accepted at a r a t e t o j u s t i f y the product investment.  h  Booz, A l l e n , and Hamilton, op. c i t .  3 In a study c a r r i e d out f o r the American Marketing A s s o c i a t i o n , Bund and C a r r o l l i n d i c a t e that the e v o l u t i o n of the concept of marketing  orientation i n a firm,  5 i s a slow p r o c e s s . all  T h e i r c o n c l u s i o n s state that n e a r l y  s u c c e s s f u l changes have been gradual and  than sudden and dramatic.  They s t a t e :  slow r a t h e r  "Apparently t h r e e  years r e p r e s e n t s the a b s o l u t e minimum t o achieve the first  stage of an i n t e g r a t e d marketing o p e r a t i o n .  Most  companies r e q u i r e d f i v e t o seven years t o develop a worki n g marketing  organization.  Greater speed  seems t o r e -  6 s u i t i n waste motion and the need t o r e t r a c e . " Bund and C a r r o l l i l l u s t r a t e how the emphasis on marketing o r i e n t a t i o n has r e s u l t e d i n the c r e a t i o n of new 7  departments.  One  of these new  product p l a n n i n g a c t i v i t y . growth compelled  u n i t s i s a separate  new  They m a i n t a i n t h a t postwar  a realignment of management which,  coupled w i t h a mounting pressure f o r new  products i n many  i n d u s t r i e s , r e s u l t e d i n the c r e a t i o n of product p l a n n i n g departments.  These departments meant that  were abandoning t h e i r haphazard  companies  methods of new  product  development and were becoming concerned w i t h market 5 H. Bund and J . W. C a r r o l l , "The Changing Role of The Marketing F u n c t i o n " , J o u r n a l of Marketing, V o l . 21,  1956/57, p. 299. 6  I b i d . , p.  299.  7  I b i d . , p.  318.  h  c o n d i t i o n s p r i o r t o i n t r o d u c i n g a new  product.  Booz, A l l e n , and Hamilton s t a t e that managers i n i n d u s t r i e s where product i n n o v a t i o n i s e s s e n t i a l t o the maintenance of a c o m p e t i t i v e p o s i t i o n , are beginning t o r e a l i z e that t h e i r growth i n p r o f i t s i s l i n k e d to t h e i r g  product l i n e and t o the l i f e Normally, a product's l i f e phases: cline.  c y c l e of these products.  c y c l e c o n s i s t s of f o u r  i n t r o d u c t i o n , growth, m a t u r i t y , and f i n a l l y As a product passes through each o f these  the p r o f i t a b i l i t y per u n i t produced  de-  phases,  and s o l d changes  a c c o r d i n g t o the c o m p e t i t i v e p r e s s u r e s i n the market. With these p r o f i t a b i l i t y f a c t o r s i n mind, management must p l a n i t s product  introduction.  Stimulated by a h i g h r a t e of product f a i l u r e s by the r e a l i z a t i o n of how  important new  products are t o  f u t u r e growth, many companies have d e c i d e d that t i o n must be managed. t h e i r new  and  innova-  Numerous f i r m s today c a r r y out  product p l a n n i n g i n an u n s t r u c t u r e d manner, as  i n d i c a t e d i n the body of the t h e s i s .  "Unstructured"  means there i s no s i n g l e group h a n d l i n g the product  de-  velopment procedures but r a t h e r they are p a r t of the r e s p o n s i b i l i t i e s of the l i n e In  a study of new  there i s one  departments.  product p l a n n i n g a c t i v i t i e s  q u e s t i o n t h a t must be c o n s i d e r e d :  Is t h e r e  8 Booz, A l l e n , and Hamilton, "The Importance of P r o d u c t s " i n Berg and Shuchman, op. c i t . , p. 27.  New  5  any s u p e r i o r form or procedure that can be employed i n new  product p l a n n i n g ?  department trial  To d e s i g n a p a t t e r n f o r a s i n g l e  that would a p p l y u n i v e r s a l l y to a l l i n d u s -  o r g a n i z a t i o n s would indeed be an almost  s i b l e task.  impos-  Product p l a n n i n g i s t h e r e f o r e more than the  r e s p o n s i b i l i t y of one department.  I t i s a frame of mind  t h a t the personnel of the company must adopt.  For pro-  duct i n n o v a t i o n to be a s u c c e s s f u l o p e r a t i o n more i s r e q u i r e d than a department  i n a company's o r g a n i z a t i o n .  Management must t r u l y accept the premise that product l i n e change i s n e c e s s a r y f o r continued growth of the f i r m . Without  t h i s o v e r - a l l company approach, the  w i l l not be performed One  i n t h e i r most e f f e c t i v e manner.  of the most s u c c e s s f u l i n n o v a t i o n minded companies i n  North America of  activities  new  i s Du Pont which claims t h a t  " i t s pattern  products development i s rooted i n the  over-all  t a s k i t has charged i t s e l f w i t h — t o come out w i t h ent i r e l y new B.  products."  9  Ma.jor O b j e c t i v e s The  a new  primary o b j e c t i v e of t h i s study was  product p l a n n i n g department  to develop  which would be respon-  s i b l e f o r the c o - o r d i n a t i o n of a l l new  product d e v e l o p -  ments i n a company.  t o be designed  The  s t r u c t u r e was  that i t would be a p p l i c a b l e t o as wide a range of  9 "Case H i s t o r y of a New Product", Business Week, February 2 0 , I 9 6 0 , pp. 1 0 5 - 1 0 8 .  so  6  i n d u s t r i e s as p o s s i b l e .  For t h i s t o be the case, i t s  form had t o be f l e x i b l e .  In other words, the b a s i c  s t r u c t u r e , w i t h a few m o d i f i c a t i o n s , should be  appli-  cable t o most i n d u s t r i a l companies. The  department must be capable of g u i d i n g a l l de-  velopmental a c t i v i t i e s w i t h an eye t o the o v e r - a l l company o b j e c t i v e s and p o l i c i e s .  To enable t h i s t o happen  the department must have at i t s d i s p o s a l ,  communication  systems t h a t permit the r a p i d t r a n s m i s s i o n and  recep-  t i o n of i n f o r m a t i o n .  I t has t o be l i n k e d t o top manage-  ment where investment  d e c i s i o n s are made and  i t has t o  have access to the other f u n c t i o n s of the business which c o n t r o l the company's a c t i v i t i e s . The  product p l a n n i n g department must be e s t a b -  l i s h e d t o a l l o w management t o have d e f i n i t e and means of c o n t r o l .  effective  To be of maximum use t o the f i r m , i t  would have d e f i n i t e l i m i t s w i t h i n which t o operate. The  techniques t h a t the department adopt f o r  h a n d l i n g new interest  product  ideas must s t i m u l a t e an  i n product development.  over-all  As the product  idea  progresses towards the f i n a l c o m m e r c i a l i z a t i o n stage, the department would have t o ensure t h a t each step t h o r o u g h l y analyzed and t h a t each d e c i s i o n was f a c t as f a r as p o s s i b l e .  A l l p r o d u c t i o n and  based  on  marketing  d e t a i l s are s t u d i e d completely f o r each i d e a the department accepts and develops as a f i n a l  was  product.  The major o b j e c t i v e o f the t h e s i s then i s t o e s t a b l i s h a department which w i l l c o - o r d i n a t e a l l of the new product development a c t i v i t i e s w i t h the u l t i m a t e g o a l of o b t a i n i n g s u c c e s s f u l product i n t r o d u c t i o n p r o grams more c o n s i s t e n t l y . C.  The Nature and Scope o f the Study The appearance of a separate department w i t h the  r e s p o n s i b i l i t i e s o f d i r e c t i n g new product p l a n n i n g has been p r e v a l e n t o n l y i n the past t e n t o f i f t e e n years i n the United S t a t e s .  There was  little  p u b l i s h e d informa-  t i o n found about the same process i n Canadian companies. Because the Canadian s u b s i d i a r i e s o f American  companies  are much s m a l l e r than t h e i r parent f i r m , i t i s assumed t h a t the development o f t h i s type o f department i s even more r e c e n t i n Canada. P r i o r to e s t a b l i s h i n g a s t r u c t u r e f o r h a n d l i n g new product i d e a s , an e x t e n s i v e s e a r c h o f the l i t e r a t u r e was  c a r r i e d out.  T h i s s e a r c h i n c l u d e d a study o f  s e v e r a l business j o u r n a l s as w e l l as s e v e r a l t e x t s w r i t t e n on the s u b j e c t . was  1 0  An a d d i t i o n a l source, which  extremely h e l p f u l , was the c o l l e c t i o n o f v a r i o u s  American Management and American Marketing publications.' "" " 1  1  Association  The l i t e r a t u r e study was done t o  10  See the p u b l i c a t i o n s l i s t e d  11  A l s o see the b i b l i o g r a p h y .  i n the b i b l i o g r a p h y .  8  determine what s e v e r a l l e a d i n g i n d u s t r i a l companies d i d i n the area of new  product planning  a t i o n a l form they had  adopted.  and what  A basic l i s t  organizof  princi-  p l e s that could be adopted i n e s t a b l i s h i n g a product planning  department was  also  collected.  N a t u r a l l y , the v a r i o u s forms of the department developed by the companies that p u b l i s h e d were a l l d i f f e r e n t i n some a s p e c t s . found t h a t there was the  stages that a new  through.  information  However, i t  was  general agreement w i t h r e s p e c t  to  product idea n o r m a l l y passes  T h i s e v o l u t i o n a r y process was  by Jones and  the  h i s sequence o f steps was  clearly  described  basically  fol-  lowed i n the development of the product i d e a i n t h i s 12 thesis.  T h i s framework enabled a d e t a i l e d d i s c u s s i o n  of the v a r i o u s d e c i s i o n s and had  to be d e a l t w i t h as the  o r g a n i z a t i o n a l aspects t h a t idea progressed t o the  fi-  n a l marketable product. The  literature  search was  o r i e n t e d towards the  i n d u s t r i a l market but more s p e c i f i c a l l y the chemical i n dustry.  T h i s emphasis was  adopted because of  author's i n t e r e s t i n t h i s i n d u s t r y .  the  Even w i t h t h i s  12 C. Jones, "Product Development from The Management Point of View" i n R. L. Clewett ( e d i t o r ) Marketi n g ' s Role i n S c i e n t i f i c Management, American Marketing A s s o c i a t i o n , D e t r o i t Conference, 1957.  9 o r i e n t a t i o n , the b a s i c p r i n c i p l e s proposed  i n the t h e s i s  w i l l be a p p l i c a b l e t o a wide range o f i n d u s t r i a l companies. V a r i o u s f e a t u r e s o f the proposed  s t r u c t u r e are  s i m i l a r t o those that are used i n some o f the companies reviewed  i n Chapter  IV.  However, an attempt was made to  s e l e c t the s t r e n g t h s of these o p e r a t i o n s and t o avoid t h e i r weaknesses.  Many o f the f i r m s had designed a department  s u i t e d t o t h e i r c o n d i t i o n s but not a p p l i c a b l e t o any other company. posed of  T h e r e f o r e , i n e s t a b l i s h i n g the department  pro-  i n t h i s t h e s i s , an attempt was made t o combine some  the s t r e n g t h s o f these e x i s t i n g s t r u c t u r e s and t o  modify them t o produce  a department which would achieve the  o b j e c t i v e s o u t l i n e d above. The  term "new p r o d u c t " has s e v e r a l  i n the l i t e r a t u r e .  interpretations  Depending upon the source of the  product i d e a , the "newness" o f i t might v a r y c o n s i d e r ably.  In t h i s study the new product p l a n n i n g a c t i v i t y i s  p r i m a r i l y concerned w i t h products that lowing s t i p u l a t i o n s .  s a t i s f y the f o l -  The product must have some a l t e r -  a t i o n i n i t s p h y s i c a l c h a r a c t e r i s t i c s and must be o f f e r e d t o the same or new markets.  These a l t e r a t i o n s  could i n c l u d e package changes i f they r e s u l t i n the chemi c a l being sold i n a d i f f e r e n t  s t a t e o r form.  The  simple a l t e r a t i o n o f a package c o n t a i n i n g the same product would not be considered a new product i n the i n d u s t r i a l market as i t might be i n the consumer market.  Offering  an o l d product t o a new market i s not a  new product development; i t i s merely market based on an e x i s t i n g product.  expansion  At the same time, a pro-  duct which i s m o d i f i e d t e c h n i c a l l y and which i s o f f e r e d t o the same market i s a new product because  theoreti-  c a l l y the customer  set o f p r o -  i s now u s i n g a d i f f e r e n t  duct c h a r a c t e r i s t i c s .  Products which are t e c h n i c a l l y  new and unique and which are o f f e r e d  f o r the f i r s t  time  to any market are the u l t i m a t e i n t h i s d e f i n i t i o n o f new products.  The technique of d e f i n i n g  new products used  here i s c l e a r l y i l l u s t r a t e d i n Chapter  IV i n a c h a r t  13 c r e a t e d by Jones and Johnson. As i n d i c a t e d  above, t h i s study i s o n l y concerned  w i t h i n d u s t r i a l goods manufacturers. to i l l u s t r a t e the d i f f e r e n c e  I t i s worthwhile  between an i n d u s t r i a l good  and a consumer good t o enable c l e a r e r understanding of the f o l l o w i n g  material.  The American  Marketing  Associ-  a t i o n d e f i n e s products i n terms o f t h e i r uses even though many o f them can be used i n both spheres.  Nor-  m a l l y an i n d u s t r i a l good i s used i n the p r o d u c t i o n o f another product f o r r e s a l e , whereas a consumer good i s used by the householder i n i t s f i n a l market form and not f o r r e s a l e . 13 C. Jones and S. Johnson, "How t o Organize f o r New Products", Harvard Business Review, V o l . 35, May, 1957, P. 1+9.  11  The  s i z e of the department d e s c r i b e d i n the f o l -  lowing chapters may v a r y depending company. it  upon the s i z e o f the  The f l e x i b i l i t y o f the proposed  t o be adapted  system  t o any s i z e o f o p e r a t i o n .  enables  A l a r g e com-  pany w i t h numerous product groups and s e v e r a l p r o d u c t i o n u n i t s would probably employ a s u b s t a n t i a l s t a f f .  How-  ever, s i z e i t s e l f i s not an important determinant.  A  company may be l a r g e i n terms of gross annual s a l e s but because o f the nature o f i t s product l i n e or i t s i n d u s t r y , new product p l a n n i n g may not be a primary  concern.  Many s m a l l f i r m s c o u l d employ a s u b s t a n t i a l s t a f f i n a new product department i f the c h a r a c t e r i s t i c s of t h e i r product l i n e s meant t h a t new products were c o n t i n u a l l y being introduced.  Thus the new product p l a n n i n g a c t i v i -  t i e s , i n f i r m s where t h e r e i s a s t r u c t u r e d department (as proposed  i n t h i s t h e s i s ) , or where the a c t i v i t i e s are  c a r r i e d out i n an u n s t r u c t u r e d manner, are not s i g n i f i c a n t l y a f f e c t e d by the s a l e s volume o f the company. T h i s study d e a l s f i r s t w i t h the procedures  that  a new product i d e a passes through as i t progresses from i d e a t o product and second w i t h the form that the new product p l a n n i n g department should adopt.  However, t h e r e  are other areas t h a t must a l s o be examined before the a c t i v i t i e s and t h e i r s t r u c t u r e can be designed. these i s the importance  One of  of the product p o l i c y i n r e -  l a t i o n t o new product p l a n n i n g .  Once the company  12  o b j e c t i v e s are e s t a b l i s h e d , a product p o l i c y should be adopted  t o f a c i l i t a t e the attainment of these g o a l s .  With these p o l i c i e s and o b j e c t i v e s i n mind, the new p r o duct p l a n n i n g d i r e c t o r attempts  t o c o - o r d i n a t e the de-  velopmental a c t i v i t i e s t o reach the d e s i r e d ends. Another  t o p i c that was d e a l t w i t h i n some d e t a i l  was the importance  of a marketing r e s e a r c h department i n  the development o f new p r o d u c t s .  The product  failures  r e f e r r e d t o at the beginning of t h i s chapter were o f t e n l a r g e l y a t t r i b u t e d t o i n s u f f i c i e n t market knowledge due t o a l a c k of r e s e a r c h . To g a i n i n s i g h t  i n t o the a c t u a l procedures  lowed by a company i n the Canadian  fol-  chemical i n d u s t r y , a  set of i n t e r v i e w s was arranged w i t h a company r e p r e s e n t a t i v e t o gather d e t a i l s about activities.  i t s product p l a n n i n g  The o b j e c t i v e was t o e v a l u a t e  critically,  the company's o p e r a t i o n s and t o a s c e r t a i n the v a l i d i t y of the proposed D.  Study  system.  Limitations  A thorough review of the l i t e r a t u r e t o gather as many i d e a s as p o s s i b l e , p r i o r t o f o r m u l a t i n g the p r o posed department's s t r u c t u r e , i s one o f the p r e r e q u i s i t e s o f a study of t h i s type.  There  i s a l i m i t e d amount  of l i t e r a t u r e a v a i l a b l e which t h o r o u g h l y d i s c u s s e s the procedures f o l l o w e d by a company.  There were indeed many  13  a r t i c l e s presented l i t t l e value  i n the l i t e r a t u r e hut most were of  i n t h i s study f o r a v a r i e t y of reasons.  Many of the views expressed i n these a r t i c l e s were tremely  narrow and designed f o r and  ex-  a p p l i c a b l e to a s i n g l e  firm. In many o f the a r t i c l e s the w r i t e r s were extremely biased i n t h e i r presentations.  This resulted i n a c o l -  l e c t i o n of a r t i c l e s , p e r t a i n i n g to i n d u s t r i a l  companies,  w i t h each c l a i m i n g t o have a s u p e r i o r system.  However,  most of the c i t a t i o n s  i n the b i b l i o g r a p h y contained  f u l i n f o r m a t i o n which was jective  presented  in a relatively  useob-  manner. The  l i t e r a t u r e was  conspicuous by i t s absence of  any m a t e r i a l p e r t a i n i n g to Canadian i n d u s t r i e s or companies.  However, i n the area of new  the p r i n c i p l e s  acceptable  product  planning,  i n American companies w i l l  gen-  e r a l l y be a p p l i c a b l e i n Canada. T h e o r e t i c a l l y , a l l i n d u s t r i a l companies of the d e f i n e d e a r l i e r , have some new but  product p l a n n i n g  the percentage which have separate  sponsible f o r d i r e c t i n g  type  operation  departments r e -  these a c t i v i t i e s , i s not known.  I n i t i a l l y , a survey of s e v e r a l l e a d i n g companies i n the chemical and  i n d u s t r y was  to be made but because of the  d e t a i l of the q u e s t i o n n a i r e s  discarded.  The  form  required, t h i s idea  f i n a l design c a l l e d f o r interviewing  r e p r e s e n t a t i v e s w i t h i n one  company.  The  interviewing  was  procedure used i s d i s c u s s e d The  i n d e t a i l i n Chapter V.  f i n a l l i m i t a t i o n was the form i n which the  product p l a n n i n g process  had t o be presented.  To en-  able a c l e a r understanding o f the procedures that were followed  and the d e c i s i o n s t h a t had t o be made as the  product progressed  through the v a r i o u s  necessary t o present and  i t was  the i n f o r m a t i o n i n a r a t h e r  m e t h o d i c a l manner.  impression  stages,  rigid  Such a p r e s e n t a t i o n c r e a t e s t h e  t h a t the a c t i v i t i e s a r e part o f a process  cannot be v a r i e d .  T h i s i s , o f course,  not the s i t u a t i o n  because each new i d e a may be handled i n a s l i g h t l y f e r e n t manner.  which  The purpose of u s i n g t h i s  dif-  presentation  was t o show that these d e c i s i o n s had t o be made and t o i l l u s t r a t e who had t o make them. E.  Chapter O u t l i n e o f the T h e s i s (i)  Chapter I I Chapter I I i s d i v i d e d i n t o two major s e c t i o n s .  The  first  d e a l s w i t h the f i r m ' s product p o l i c y and i t s  r e l a t i o n t o new product p l a n n i n g .  The d i s c u s s i o n e x p l a i n s  the f u n c t i o n s t h a t the p o l i c y performs f o r the f i r m and the elements t h a t comprise i t . The  second s e c t i o n o f the chapter  developmental process  d e a l s w i t h the  o f a new product i d e a .  The d i s c u s -  s i o n c e n t r e s around f o u r major headings, they a r e : (1)  the c o l l e c t i o n o f product i d e a s , which covers t h e  15  b a s i c sources that a company can use f o r new i d e a s ; (2)  the s c r e e n i n g stage, which f i r s t d i s c u s s e s the im-  portance o f product p o l i c y i n determining r e l e v a n t i d e a s , and second, p r e s e n t s the d e t a i l s about the market and p r o d u c t i o n s t u d i e s r e q u i r e d at t h i s stage;  (3)  the  product s p e c i f i c a t i o n stage which d e s c r i b e s the d e t a i l s r e q u i r e d i n the advanced market and p r o d u c t i o n cost s t u d i e s ; and Of)  the predevelopment and t e s t i n g  stage  which d i s c u s s e s b r i e f l y , the r o l e o f product t e s t i n g and the subsequent (ii)  product m o d i f i c a t i o n s ,  Chapter I I I In  t h i s chapter t h e r e i s a d i s c u s s i o n of the  r o l e o f marketing  r e s e a r c h i n new product p l a n n i n g .  Ref-  erence i s made t o s e v e r a l s t u d i e s that have been c a r r i e d out t o determine  the p o s i t i o n t h a t marketing r e s e a r c h Ih  assumes i n i n d u s t r y today. ter  The major p a r t o f the chap-  d e a l s w i t h the a c t i v i t i e s the marketing r e s e a r c h de-  partment performs t h a t are r e l e v a n t t o new product ment.  develop  T h i s l a t t e r d i s c u s s i o n i s presented under the f o l -  lowing headings:  r e s e a r c h d e s i g n ; product uses;  product  u s e r s ; d e t e r m i n a t i o n o f market c h a r a c t e r i s t i c s ; and a n a l y s i s of c o m p e t i t i o n . Ih R. D. C r i s p , Marketing Research O r g a n i z a t i o n and O p e r a t i o n . Research Study Number 35? American Management A s s o c i a t i o n , Inc. (1958), p. 8.  16  (iii)  Chapter IV Chapter IV presents  the o r g a n i z a t i o n a l de-  t a i l s o f the proposed new product p l a n n i n g I n i t i a l l y , the new product p l a n n i n g  department.  a c t i v i t i e s of several  i n d u s t r i a l companies are o u t l i n e d b r i e f l y .  This i s f o l -  lowed by an i n t r o d u c t o r y d i s c u s s i o n o f the importance o f c r e a t i v e management and the importance o f c o - o r d i n a t i o n and o r g a n i z a t i o n i n the proposed department.  There i s  a b r i e f a n a l y s i s of the d i f f e r e n c e between an u n s t r u c t u r e d and a s t r u c t u r e d new product p l a n n i n g  operation  p r i o r t o the d e t a i l e d p r e s e n t a t i o n o f the proposed  depart-  ment. In the p r e s e n t a t i o n o f the department, the f i r s t topic discussed  i s the importance o f a p r e l i m i n a r y a u d i t  of company r e s o u r c e s .  With t h i s a u d i t completed, the  company can e s t a b l i s h a department t o e x p l o i t the f i r m ' s strengths  and t o avoid i t s weaknesses.  I n i t i a l l y , the  o r g a n i z a t i o n a l form and the scope o f the department's a c t i v i t i e s are d i s c u s s e d .  T h i s i s f o l l o w e d by an a n a l -  y s i s o f the a u t h o r i t y r e l a t i o n s h i p s , the communications system, and the c o n t r o l measures o f the department. Thus Chapter IV presents  the d e t a i l s o f the o r g a n i z -  a t i o n a l elements o f the new product p l a n n i n g (iv)  department.  Chapter V The r e s u l t s o f a s e r i e s o f i n t e r v i e w s  that  were h e l d w i t h a r e p r e s e n t a t i v e o f a l e a d i n g Canadian  17  chemical company are presented i n Chapter V. j e c t i v e of these meetings was the new  The  ob-  t o gather the d e t a i l s of  product development process o f the company.  To  f a c i l i t a t e c l e a r e r understanding of the i n f o r m a t i o n , some background m a t e r i a l about  the f i r m i s presented.  T h i s data i s combined w i t h a r a n k i n g of the  competi-  t i v e s a l e s p o s i t i o n of each of the f i r m ' s major product lines.  The  i n f o r m a t i o n p e r t a i n i n g to the f i r m ' s  new  product p l a n n i n g o p e r a t i o n i s presented under a format s i m i l a r t o that used i n Chapters (v)  Chapter  I I and  IV.  VI  In t h i s chapter the proposed  system i s com-  pared t o the system used by the f i r m s t u d i e d i n Chapter Initially,  a b r i e f review of the two o p e r a t i o n s i s p r e -  sented t o prepare the r e a d e r f o r the ensuing The two ings:  systems are analyzed under the f o l l o w i n g headproduct p o l i c y ; c o - o r d i n a t i o n ; communication;  authority relationships. to  comparison.  The purpose  and  of Chapter VI i s  i l l u s t r a t e the r e l a t i v e s t r e n g t h s and weaknesses of  b o t h of the o p e r a t i o n s . (vi)  Chapter The  of  VII  c o n c l u d i n g chapter p r e s e n t s the summary  the m a t e r i a l covered i n the t h e s i s and the c o n c l u s -  ions t h a t have been drawn about  the proposed  system.  T h i s chapter i s organized under the major t o p i c s that have been used throughout  the e n t i r e  thesis.  V.  18  CHAPTER I I PRODUCT POLICY AND THE DEVELOPMENT OF A PRODUCT IDEA A.  Introduction (i)  Product  Policy  P r i o r t o d e v e l o p i n g the proposed n i n g department i n Chapter  new product p l a n -  IV, there a r e s e v e r a l t o p i c s  t h a t must be d i s c u s s e d t o provide a framework around the department can be c o n s t r u c t e d .  In Chapter  which  I I , product  p o l i c y w i l l be s t u d i e d w i t h r e f e r e n c e t o i t s importance i n new product p l a n n i n g .  The d i s c u s s i o n w i l l  include:  the p o l i c y ' s r e l a t i o n t o company o b j e c t i v e s ; and the maj o r f u n c t i o n s that the p o l i c y p r o v i d e s f o r the f i r m .  There  w i l l a l s o be an a n a l y s i s made o f the v a r i o u s f a c t o r s a product p o l i c y should i n c l u d e , these a r e : c a p i t a l investment  that  a product's  and the expected r e t u r n ; a c o n s i d e r -  a t i o n o f t h e market demand c o n d i t i o n s ; the c o m p e t i t i v e s i t u a t i o n ; and the new product's e f f e c t on e x i s t i n g  pro-  duct s. ( i i ) . The Developmental The  Process o f a New Product  Idea  second p a r t o f the chapter d e a l s w i t h the  f o u r stages t h a t a product i d e a passes through p r i o r t o becoming a f i n a l product. to  The f o u r phases are intended  r e p r e s e n t the f o u r major d e c i s i o n p o i n t s i n a product's  development.  The f i r s t  s e c t i o n merely d e a l s w i t h the  19  methods t h a t can be adopted The  importance  i n c o l l e c t i n g product i d e a s .  o f u t i l i z i n g a l l sources i s emphasized  because p o t e n t i a l products can come from many d i f f e r e n t i d e a sources. stage.  The second  phase i s termed the s c r e e n i n g  The company's product p o l i c y and the a p p r o x i -  mate c o s t and revenue e s t i m a t e s are used as the b a s i s f o r this preliminary analysis. T h i r d l y , the product i d e a passes through the s p e c i f i c a t i o n stage.  T h i s means that the d e c i s i o n has been  made t o c a r r y out a d e t a i l e d market and p r o d u c t i o n a n a l ysis.  The product s p e c i f i c a t i o n s a r e determined  complete  after a  a n a l y s i s o f a l l o f the important market f a c t o r s  and e n g i n e e r i n g d e t a i l s .  In t h i s t h i r d  stage a l l d e p a r t -  ments o f t h e f i r m can take p a r t i n the data  collection.  The product's p r o p e r t i e s are s p e c i f i e d at the completion of t h i s stage and i t i s ready t o be t e s t e d by the t e c h n i c a l s e r v i c e s people. determined  The method o f t e s t i n g i s o f t e n  by the product i t s e l f .  ducts are f u l l y developed  Normally, unique p r o -  i n the company's p i l o t  plant  o p e r a t i o n s w h i l e e x i s t i n g product m o d i f i c a t i o n s are o f t e n t e s t e d i n the processes o f major customers. stage i s completed  After  this  the d e c i s i o n i s made whether t o p r o -  duce the product o r t e m p o r a r i l y d i s c a r d i t .  Once the  product proceeds past t h i s f o u r t h stage i t then becomes the f u l l r e s p o n s i b i l i t y o f t h e l i n e departments which must produce  and s e l l i t .  The Role of Product P o l i c y i n New (i)  Product Development  The F u n c t i o n s of a Product In e s t a b l i s h i n g a new  Policy  product p l a n n i n g d e p a r t -  ment t o guide product i d e a s through t h e i r v a r i o u s stages until  they appear f i n a l l y as commercial  products, i t i s  assumed t h a t t h e r e i s some b a s i s upon which these i d e a s are  evaluated.  definite  There are c e r t a i n d e c i s i o n s , based  on  standards, t h a t must be made at each step of the  evolution.  These standards or c r i t e r i a are normally r e -  f e r r e d t o as the product p o l i c y .  Some of the  purposes  that a product p o l i c y serves w i l l be o u t l i n e d i n t h i s section. Many companies have a w r i t t e n p o l i c y which outl i n e s a set of standards t o f o l l o w , although there are a l s o many f i r m s t h a t do not put any such l i m i t s down on paper. of  1  I t i s not the purpose here t o d i s c u s s the m e r i t s  a w r i t t e n or an u n w r i t t e n p o l i c y but o n l y t o p o i n t out  that b o t h forms do  exist.  When a company i s e s t a b l i s h e d t h e r e are c e r t a i n b a s i c l o n g term o b j e c t i v e s t h a t i t adopts w i t h r e s p e c t t o f u t u r e expansion and p r o f i t  growth.  These o b j e c t i v e s  provide management w i t h a framework w i t h i n which i t can b u i l d a set of p o l i c i e s t o use as a guide t o o p e r a t i n g  1 C h a r l e s K l i n e , "The S t r a t e g y of Product P o l i c y " , Harvard Business Review, V o l . 33? No. July-August,  (1955), PP. 91-100.  21  decisions.  One  of these p o l i c i e s i s the product  which i s the guidepost f o r a l l product l i n e  policy  decisions.  A c c o r d i n g to K l i n e , t h i s p o l i c y serves three f u n c t i o n s 2  for  the company. The f i r s t f u n c t i o n s t a t e s that a product  policy  p r o v i d e s i n f o r m a t i o n t o f a c i l i t a t e d e c i s i o n s t h a t must he made as t o the content of the product l i n e .  When  management s e t s out t h i s p o l i c y i t has r a t h e r d e f i n i t e ideas of the areas i n t o which i t i s w i l l i n g to expand. If the f i r m i s p r e s e n t l y i n the chemical i n d u s t r y , i t i s l i k e l y to e s t a b l i s h some l i m i t s on new  product  develop-  ment t h a t w i l l keep i t w i t h i n the boundaries of t h i s i n dustry.  There are c e r t a i n l y exceptions to t h i s ,  par-  t i c u l a r l y i n the case of companies t h a t a c q u i r e f i r m s i n entirely different  industries.  p o l i c y should serve the purpose  However, a f i r m ' s product of d e f i n i n g the areas  i n t o which i t s product l i n e w i l l or w i l l not expand. This f i r s t  f u n c t i o n i s important  stages of the a c t i v i t i e s of the new department.  i n the very e a r l y  product p l a n n i n g  I t a c t s as the s c r e e n i n g d e v i c e which the  department uses t o s i f t  out the r e l e v a n t ideas and t o e l i m -  i n a t e those deemed i r r e l e v a n t . The 2  second f u n c t i o n of a product p o l i c y that  K l i n e , op. c i t . ,  pp.  91-92.  Kline  22  suggests, i s i t s use as a supplementary e s t i m a t e s of p r o f i t and l o s s . such as market r e s e a r c h and  check on the u s u a l  He claims that  techniques  s a l e s f o r e c a s t i n g provide data  which are o n l y approximations.  K l i n e s a i d that "an  s a t i s f a c t o r y record f o r an e x i s t i n g product may b a s i c mistake result  i n product p o l i c y , but i t may  reflect  f a u l t y d e s i g n , or inadequate p l a n t  a  a l s o be the  of poor o r g a n i z a t i o n , u n s u i t a b l e s a l e s and  motion,  un-  pro-  facilities."  An a n a l y s i s i n terms of a b a s i c product p o l i c y o f t e n shows up weak spots i n the f i n a n c i a l e s t i m a t e s and  indicates  f a c t o r s which are not e a s i l y reduced t o numbers. The  t h i r d purpose  mentioned by K l i n e i s the most  relevant to t h i s thesis.  He r e f e r s to the p o l i c y as a  d e v i c e t o d i r e c t the a c t i v i t i e s of the e n t i r e company t o wards some common g o a l . t h a t new  T h i s agrees w i t h the  statement  product development i s a frame of mind i n the  organization.  For the new  product p l a n n i n g department t o  operate e f f e c t i v e l y , t h i s u n i t e d atmosphere must be p r e sent and f o r i t t o be present there must be a product  pol-  i c y which a c t s as a d i r e c t i n g or c o - o r d i n a t i n g d e v i c e . Product p o l i c y , t o be e f f e c t i v e , must be  communi-  cated t o a l l p e r s o n n e l so that i t can operate i n the d e s i r e d way.  With a l l p e r s o n n e l being f a m i l i a r with  p o l i c y i t may  be u t i l i z e d , not o n l y i n top management  3  K l i n e , op. c i t . , p.  92  the  23  d e c i s i o n s , but i n the day-to-day  d e c i s i o n s that are made  i n the lower management l e v e l s . (ii)  The Mecessary  Elements of a Product P o l i c y  Once the f u n c t i o n of the product p o l i c y i s e s t a b l i s h e d , i t i s necessary t o formulate the p o l i c y i n c l u d ing  the r e l e v a n t elements  in it.  The f i n a n c i a l  investment  r e q u i r e d and the p o t e n t i a l r e t u r n on that investment, two  are  of the most important f a c t o r s t h a t must be c o n s i d e r e d  i n any product d e c i s i o n . produce  A company i s i n b u s i n e s s to  p r o f i t f o r i t s owners and thus any d e c i s i o n per-  t a i n i n g t o investment  i n b u i l d i n g s or equipment that i s  r e q u i r e d f o r the p r o d u c t i o n of any new made w i t h extreme c a r e .  product must be  Marketing and p r o d u c t i o n cost  i n f o r m a t i o n must be a v a i l a b l e i f management i s to make valid decisions.  The e x e c u t i v e s must have some estimate  of the p o t e n t i a l s a l e s volume of a g i v e n product so they can determine  the process economics.  duct p o l i c y should attempt  T h e r e f o r e the p r o -  t o d e f i n e some standards of i n -  vestment r e t u r n to f a c i l i t a t e p r o d u c t - l i n e The demand c o n d i t i o n s have important  decisions.  i n a company's market  i n f l u e n c e s upon product d e c i s i o n s .  product p o l i c y should be designed to enable new  may The  product  development i n the areas that are i n d i c a t e d by present market c o n d i t i o n s . flexible  I t i s obvious t h a t a p o l i c y should be  to a l l o w a s h i f t i n the company's product  mix  2h  which i s c o n s i s t e n t w i t h changes i n market These market f a c t o r s may tomers ' product mix, i n manufacturing The  conditions.  change because of changes i n cus-  or they may  be as a r e s u l t of changes if customers.  processes by  c o m p e t i t i v e s i t u a t i o n i s the next f a c t o r t o con-  s i d e r i n a product p o l i c y .  There  should be some standards  s t a t i n g whether a company w i l l e n t e r a c e r t a i n product field  i f i t cannot hope t o g a i n an advantage over present  competitors.  Some f i r m s are not s a t i s f i e d w i t h a n y t h i n g  l e s s than the number one p o s i t i o n . pany can be i n the f i r s t  Since o n l y one com-  spot, there are many d i f f e r e n t  p o l i c i e s t h a t can be adopted w i t h r e s p e c t t o t h i s p o i n t . I f a f i r m cannot it  can attempt  capture the major p o r t i o n of the market  to seek other advantages perhaps  s u p e r i o r q u a l i t y product. product  through a  Such f a c t o r s are part of a  policy. The  e f f e c t that a new  product might have on present  company products or on the products of a customer i s another important d e c i s i o n a r e a .  When a new  introduced i n t o a l i n e there i s a d i s t i n c t  product i s possibility  t h a t i t w i l l have an adverse e f f e c t upon e x i s t i n g t h a t are comparable. new  There  products  i s a l s o the p o s s i b i l i t y t h a t a  product might be i n d i r e c t c o m p e t i t i o n w i t h a product  h R. S. Alexander, J . S. Cross and R. M. Cunningham, "Determinants of Product Mix," i n T. L. Berg and A. Shuchman ( e d i t o r s ) , Product S t r a t e g y and Management, H o l t , R i n e h a r t , and Winston, ( 1 9 6 3 ) , p. 117. "~  25  of  a major customer.  The e f f e c t s of the i n t r o d u c t i o n must  be e v a l u a t e d c a r e f u l l y i n these cases.  Each s i t u a t i o n  must be e v a l u a t e d on i t s own m e r i t s but normally the company has an e s t a b l i s h e d p o l i c y i n terms of what i t w i l l s a c r i f i c e w i t h i t s e s t a b l i s h e d products and how age  much dam-  i t w i l l do t o a customer r e l a t i o n s h i p . The  list  of f a c t o r s to i n c l u d e i n a product  could become almost  endless but c e r t a i n l y there w i l l  p o l i c i e s r e f e r r i n g to the e f f e c t t h a t new have on d i s t r i b u t i o n channels.  products  be  will  The c o s t s that are some-  times r e l a t e d t o d i s t r i b u t i o n are a s i g n i f i c a n t of the t o t a l c o s t s .  policy  portion  A p a r t i c u l a r product i d e a may  have to  be abandoned because of a d d i t i o n a l c o s t s that may  have t o  be i n c u r r e d .  raw  The  same s i t u a t i o n might occur w i t h  m a t e r i a l supply channels and (iii)  costs,  Summary The product p o l i c y i s the guidepost which the  new  product manager can use to e v a l u a t e an i d e a ' s progress  at v a r i o u s stages of i t s development.  The f l e x i b i l i t y  t h i s p o l i c y w i l l depend upon the s p e c i f i c must be r i g i d  enough t o be e f f e c t i v e and yet i t must be  f l e x i b l e to a l l o w p r o f i t importance  growth.  w i l l become apparent  r e s p o n s i b i l i t i e s of the new are  developed.  situation; i t  The product i n Chapter  policy's  IV where the  product p l a n n i n g department  of  26  The Developmental  Process o f a New Product  Idea  The d e t a i l s of the f o u r stages t h a t the new product ideas pass through w i l l be d i s c u s s e d i n t h i s  section.  The  product i d e a sources and the methods o f t a p p i n g these sources w i l l be i l l u s t r a t e d f i r s t .  The second t o p i c w i l l be  the d i s c u s s i o n of the s c r e e n i n g stage.  T h i s w i l l be f o l -  lowed by an a n a l y s i s o f the important aspects o f the s p e c i f i c a t i o n stage, which i n t u r n w i l l be f o l l o w e d by the d i s c u s s i o n o f the predevelopment and t e s t i n g A.  O b t a i n i n g Product  stage.  Ideas  The backbone o f any new product development o p e r a t i o n i s the e x i s t e n c e of a supply of sound product i d e a s .  The  sources o f the ideas w i l l v a r y from i n d u s t r y t o i n d u s t r y but there are many g e n e r a l l y s a t i s f a c t o r y areas t h a t can be e x p l o i t e d by an a l e r t company.  At t h i s stage of the  idea development no concern should be g i v e n t o company p r o duct p o l i c i e s because i f the i d e a s are not r e l e v a n t they will to  subsequently be d i s c a r d e d .  i n v e s t i g a t e many d i f f e r e n t  The important f a c t o r i s  sources and not t o narrow  the s e a r c h t o a few e s t a b l i s h e d  ones.  New products a r e i n v e n t i o n s . the mind.  The causes which produce  and two stand out above the r e s t .  5  Their origins l i e i n them can be observed, One i s the d i s s a t i s f a c t i o n  5 H. M. C o r l e y , ( e d i t o r ) , S u c c e s s f u l Commercial Chemical Development, John Wiley and Sons, Inc., New York, 1954-.  27 w i t h t h i n g s as they are and the second i s a s p e c i a l i t y to produce. the chemical  These two  i n d u s t r y but  other i n d u s t r i e s . ulated?  One  How  abil-  are e s p e c i a l l y r e l e v a n t i n should be a p p l i c a b l e to many  are the new  product  ideas s t i m -  answer might be t h a t t h e r e i s a r e c o g n i t i o n  of  a need f o r a product  it  might be the r e c o g n i t i o n of a s p e c i a l a b i l i t y to pro-  duce. ing  and  or s e r v i c e not now  In chemistry a frequent  source  a v a i l a b l e or  i s creative think-  an outgrowth of t h i s i s the f i n d i n g of something  of value w h i l e  s e a r c h i n g f o r something e n t i r e l y d i f f e r e n t .  What i s meant by the statement " r e c o g n i z i n g a need?"  Most companies s t a r t t h e i r o p e r a t i o n s w i t h  product  based on one  idea.  As experience  one  i s gained,  t h e r e i s o f t e n an urge to add d i f f e r e n t products  to the  l i n e which w i l l c o n t r i b u t e to s t a b i l i t y and p r o f i t s . a dynamic o r g a n i z a t i o n t h i s need f o r new i n a l e r t i n g the personnel t o c a r r y out ceptable ideas.  Now  products  In  results  searches f o r ac-  the seed has been p l a n t e d and  time  w i l l produce ideas whether they be from s a l e s p e r s o n n e l , who  through t h e i r i n t e r a c t i o n s w i t h customers, have  de-  veloped worthy i d e a s or from r e s e a r c h people vrho have come up w i t h ideas to supplement the company's line.  product  Once the company e s t a b l i s h e s i n the minds of the  personnel the f a c t t h a t new  ideas are d e s i r e d , the prob-  a b i l i t y of o b t a i n i n g them i s g r e a t l y i n c r e a s e d . Another stimulant which i s r e s p o n s i b l e f o r s e v e r a l  28  i d e a s i n i n d u s t r y today i s the e f f e c t o f s o c i a l p r e s s u r e or  legislation.  In the chemical i n d u s t r y , i t i s not un-  u s u a l t o have government departments ( i . e . defense,  agri-  c u l t u r e ) request the p r o d u c t i o n o f c e r t a i n types o f chemicals.  Often the products requested are new and d i f f e r e n t  from any e x i s t i n g a t p r e s e n t .  T h i s o f f e r presents a c h a l -  lenge t o the r e s e a r c h people t o come up w i t h new ideas that w i l l quest.  s a t i s f y the requirements o f the government r e -  The f a c t t h a t the government c o n t r a c t s are u s u a l l y  s u b s t a n t i a l i s an added stimulus t o be the f i r s t v e l o p the d e s i r e d  t o de-  product.  I n c r e a s i n g l y , l e g i s l a t i o n i s concerned w i t h and a i r p o l u t i o n .  Because the pretreatment  stream  of i n d u s t r i a l  wastes can be a c o s t l y o p e r a t i o n , every e f f o r t i s made t o develop techniques which produce  the products i n a manner  that minimizes the presence o f u n d e s i r a b l e wastes.  These  e f f o r t s have r e s u l t e d i n new ideas such as the v a r i o u s types o f f l u e gas p r e c i p i t a t o r s which reduce the concent r a t i o n o f unfavourable substances i n the e f f l u e n t of  a process.  gases  They have a l s o caused the development o f  many processes which u t i l i z e other p r o c e s s e s .  the wastes o r by-products o f  An example of t h i s was g i v e n by the  company r e p r e s e n t a t i v e who was i n t e r v i e w e d .  Chlorine,  which i s d i f f i c u l t t o d i s p o s e o f , i s a common by-product o f  6  See Chapter V o f t h i s  thesis.  29  his  firm's processes.  the f i r m developed  To u t i l i z e  some o f the c h l o r i n e ,  a method o f producing Phosphoric  Acid  which r e q u i r e s c h l o r i n e at some stage o f the p r o c e s s . Thus the s t i m u l i that cause new product ideas t o come f o r t h can be from many d i f f e r e n t  sources.  In the  f o l l o w i n g s e c t i o n r e f e r e n c e w i l l be made to some o f the s p e c i f i c areas which management can l o o k t o f o r new i d e a s . The  sources o f new product i d e a s can be d i v i d e d i n t o t h r e e  groups c a l l e d primary, secondary and t e r t i a r y .  The p r i -  mary sources are those w i t h i n the company i t s e l f .  The  s p e c i f i c areas w i t h i n the f i r m would, o f course, depend upon the nature o f the o r g a n i z a t i o n a l s t r u c t u r e and the personnel.  Some o f the main departments that would be  worthy o f examination are the s a l e s , r e s e a r c h and d e v e l o p ment, p a t e n t , e n g i n e e r i n g , and manufacturing  departments.  Many o f the i d e a s emanating from these sources w i l l be a r e s u l t of c r e a t i v e t h i n k i n g , while others w i l l r e s u l t i n t e r a c t i o n w i t h some of the secondary  or t e r t i a r y  from  sour-  ces. The  secondary sources can be grouped  major headings.  Some o f these a r e :  under some  technical consult-  a n t s ; r e s e a r c h i n s t i t u t i o n s and f o u n d a t i o n s ; customer comp l a i n t s ; customer i n q u i r i e s ; competitor's  activities;  e d u c a t i o n a l i n s t i t u t i o n s ; government l a b o r a t o r i e s ; and i n dependent i n v e n t o r s . tap  The methods t h a t c o u l d be used t o  these sources are d i f f i c u l t t o determine.  It i s  30  e v i d e n t t h a t too much concern g i v e n t o these areas could become c o s t l y and time consuming. duct p l a n n i n g department  However, the new p r o -  should endeavour t o arrange that  a l l o f these sources are examined  periodically.  The t e r t i a r y sources a r e a l s o v a l u a b l e because many o f them can be s t u d i e d without e x c e s s i v e cost o r time.  Some that are worth examining  are:  trade a d v e r t i s -  i n g and l i t e r a t u r e ; t r a d e j o u r n a l s ; p r o f e s s i o n a l and t h e i r p u b l i c a t i o n s  societies  ( i . e . Chemical I n s t i t u t e o f Canada);  s c i e n t i f i c p u b l i c a t i o n s ; F e d e r a l and P r o v i n c i a l Departments of Trade and Commerce and p r i v a t e  survey sources.  The new product p l a n n i n g department program f o r planned i d e a g e n e r a t i o n .  must e s t a b l i s h a  This w i l l  require  t h a t a l l members o f the o r g a n i z a t i o n be made aware o f the v a r i o u s sources because  a company can never  determine  where i t s next good product i d e a w i l l come from. Many p e r t i n e n t i d e a s may be overlooked i f the f i r m has no c o - o r d i n a t i n g body such as the new product p l a n n i n g department.  T h i s department  i d e a c o l l e c t i o n body.  becomes designated as the  Often a g g r e s s i v e n e s s and c r e a t i v -  i t y are not p a r a l l e l p e r s o n a l i t y c h a r a c t e r i s t i c s so the department  must be prepared t o " p u l l " out ideas from  some sources.  In other words, i t must develop methods of  encouraging the p e r s o n n e l to o f f e r the ideas that  they  have c r e a t e d . T h i s aspect of the department's  a c t i v i t i e s must be  31  designed t o enable a comprehensive c o l l e c t i o n and p r e l i m i n a r y e v a l u a t i o n system.  Obviously, many of the ideas  submitted w i l l be beyond the realm o f p o s s i b i l i t y f o r the f i r m but the department must be c a r e f u l i n d e a l i n g w i t h the ideas f o r s e v e r a l reasons.  F i r s t of a l l , too h a s t y  r e j e c t i o n c o u l d mean the l o s s o f v a l u a b l e ideas and secondly, and perhaps  even more important, t o o hasty r e -  j e c t i o n c o u l d mean the l o s s of an e x c e l l e n t i d e a source. Because o f these f a c t o r s , care must be taken when h a n d l i n g the person s u b m i t t i n g the i d e a . B.  The S c r e e n i n g The  is  second  Stage stage of the product idea's development  concerned w i t h a c a r e f u l s c r e e n i n g p r o c e s s .  Let us a s -  sume that t h e new product p l a n n i n g department now has a group of ideas that have been c o n s i d e r e d worthy o f f u r t h e r study.  These w i l l have t o be screened i n f a r g r e a t e r de-  t a i l and developed t o the p o i n t where an i n t e l l i g e n t ion  decis-  can be made whether t o c o n s i d e r them f u r t h e r or t o  r e j e c t them.  T h i s stage i s s t i l l a p r e l i m i n a r y one but  some approximate The f i r s t into a f u l l  c o s t and market data are necessary. stage o f development Is t o expand each i d e a  product concept.  In other words, the i d e a  must be t r a n s l a t e d i n t o business terms.  T h i s process r e -  q u i r e s some p r e l i m i n a r y i n f o r m a t i o n from the r e s e a r c h people p e r t a i n i n g t o p o s s i b l e uses f o r the product as w e l l as  32  p o s s i b l e d i f f i c u l t i e s t h a t may a r i s e .  The department  will  a l s o want some estimates of p r o d u c t i o n c o s t s and p o s s i b l e c a p i t a l expenditures.  The marketing  group w i l l  provide  i n f o r m a t i o n w i t h r e s p e c t t o p o t e n t i a l markets and the competitive  situation.  At t h i s p r e l i m i n a r y stage of the  development i t i s not necessary t o c a r r y out an e x t e n s i v e study of these i n f o r m a t i o n sources but merely t o gather enough data t o a l l o w an i n t e l l i g e n t e v a l u a t i o n . R e a d i l y a v a i l a b l e f a c t s and o p i n i o n s b e a r i n g on the product lected.  ideas as business p r o p o s i t i o n s should be c o l -  With the a s s i s t a n c e o f the other departments the  new product  p l a n n i n g department should  i d e n t i f y the best  sources of f a c t s and q u a l i f i e d o p i n i o n s and tap these sources i n the most r a p i d and most inexpensive method. It i s suggested and  at t h i s stage that telephone  b a s i c r e f e r e n c e s may be adequate.  interviews  To prevent  t e n s i v e searches being c a r r i e d out, the department restrict  the amount of time  i n a r y examinations. stage the new product  too exshould  i t w i l l spend on i t s p r e l i m -  I t must be remembered that at t h i s p l a n n i n g department i s examining  s e v e r a l ideas and that an e x t e n s i v e s e a r c h at t h i s would mushroom c o s t s out of p r o p o r t i o n .  time  However, t h i s  does not imply t h a t a c a r e l e s s search should be made because i t i s f e l t t h a t t h i s stage i s extremely  important  i n s e p a r a t i n g the r e l e v a n t i d e a s . Continuous r e f e r e n c e should be made t o the product  33  p o l i c y of the company while c o l l e c t i n g the p r o d u c t i o n and marketing  i n f o r m a t i o n r e q u i r e d f o r the s c r e e n i n g p r o c e s s .  T h i s means that the p o l i c y ' s s t i p u l a t i o n s r e g a r d i n g i n vestment r e s t r i c t i o n s , market demand, c o m p e t i t i v e and the product's p r o f i t a b i l i t y , fully.  effects  should be considered  The prime c o n s i d e r a t i o n w i l l be an estimate  magnitude o f the p r o f i t  care-  of the  opportunity.  The a b i l i t y of the new product  department t o use  the a v a i l a b l e f a c i l i t i e s of the company, w i l l be t e s t e d . The f i r s t  step might be t o c o n s u l t the marketing  depart-  ment and have i t determine estimates o f the t o t a l market f o r such a product.  The new product department would want  i n f o r m a t i o n r e g a r d i n g the s i z e of the t o t a l market w i t h an i n d i c a t i o n of the producers  p r e s e n t l y i n the f i e l d .  If  there are competitors, the department would r e q u i r e an e s t i mate o f the r e l a t i v e s a l e s p o s i t i o n s of these companies. would a l s o want to know i f there were any i n d i c a t e d or t r e n d s .  It  changes  An estimate o f the s t r e n g t h s and weaknesses  of the c o m p e t i t o r s ' products  i s important,  however,  be d i f f i c u l t  t o determine.  The most important  this i n i t i a l  study i s an estimate o f the company's  o f the market a f t e r the product  i t may  element i n  i s introduced.  share  T h i s estimate  i s o b v i o u s l y v e r y s u b j e c t i v e but i t can be made on the b a s i s of past i n t r o d u c t i o n schemes and the v a l u e t h a t customers put on the company's name.  F o r the  marketing  department to make acceptable e s t i m a t e s , the new  product  p l a n n i n g department must e n l i g h t e n i t about  the p o s s i b l e  c h a r a c t e r i s t i c s of the product and i t s s t r e n g t h and weaknesses. The department w i l l  a l s o r e q u i r e some cost and  p r o d u c t i o n i n f o r m a t i o n from the p r o d u c t i o n and e n g i n e e r ing  departments.  It w i l l  give the p r o d u c t i o n people the  d e t a i l s of the product p r o p o s a l and ask them f o r a p p r o x i mate estimates of the equipment, men, and m a t e r i a l s that would be r e q u i r e d .  The new product department would  also  want some estimate as to when the product, i f accepted, could be i n a f i n a l marketable  form.  The new product p l a n n i n g department at t h i s  stage  has c o l l e c t e d p r e l i m i n a r y marketing and p r o d u c t i o n cost data.  With the a s s i s t a n c e o f the f i n a n c e department, i t  then must make an assessment of the investment, time and r i s k requirements.  The department must a l s o c o n s i d e r the  l e g a l and r e g u l a t o r y aspects o f the product i d e a .  This  w i l l i n c l u d e an i n v e s t i g a t i o n by the l e g a l department i n t o patent p r o t e c t i o n p o s s i b i l i t i e s and a l s o the chance of  patent i n f r i n g e m e n t s .  The lawyers would a l s o  investi-  gate such t h i n g s as f e d e r a l r e g u l a t i o n s p e r t a i n i n g t o adv e r t i s i n g , e x c i s e taxes, and p r i c e s and allowances.  They  should a l s o examine p r o v i n c i a l l e g i s l a t i o n w i t h regard t o t a x a t i o n , l i m i t a t i o n s on s a l e s o r a d v e r t i s i n g , requirements  licensing  and any other areas worthy o f i n v e s t i g a t i o n .  It might be necessary f o r the i n d u s t r i a l r e l a t i o n s d e p a r t -  35 ment t o examine some a s p e c t s of the l a b o r u n i o n r e g u l a t i o n s depending upon s p e c i a l c h a r a c t e r i s t i c s of the product. The  s c r e e n i n g stage i s , f o r a l l i n t e n t s and  poses, over at t h i s p o i n t . all  The department  now  pur-  must review  the i n f o r m a t i o n and prepare a recommendation f o r top  management.  The new  product p l a n n i n g department  have the a u t h o r i t y t o approve m i s s i o n of top management.  does not  p r o j e c t s without the p e r -  I t i s the department's  duty t o  submit a recommendation t o management g i v i n g i t s o p i n i o n on the product i d e a .  Even though i t s t r o n g l y recommends  the i d e a , t h e r e i s no guarantee t h a t management w i l l  ap-  prove i t . Those ideas that the department  does not develop  f u r t h e r are set aside but they should not be forgotten.  permanently  There should be a s t i p u l a t i o n that the d e p a r t -  ment must review the r e j e c t e d i d e a s p e r i o d i c a l l y the c o n d i t i o n s of the market might product investment C.  because  change t o make the  worthwhile.  The Product S p e c i f i c a t i o n  Stage  It i s assumed that top management has approved  the  p r e l i m i n a r y r e p o r t that the department  submitted t o i t at  the completion of the s c r e e n i n g stage.  I f a company i s  l a r g e , there would be s e v e r a l product ideas being developed at the same time.  T h e r e f o r e i t i s safe to assume t h a t the  36  department could not p o s s i b l y c o - o r d i n a t e a l l a c t i v i t i e s of new  product  p l a n n i n g and  d e t a i l e d product one  analysis.  at the same time c a r r y out It i s f o r t h i s reason that  aspect of a scheme suggested  ,  i n the l i t e r a t u r e w i l l  be  8  used.  Product  p r o j e c t teams w i l l be adopted.  The mem-  bers of t h i s team w i l l be from r e s e a r c h and development, marketing,  and p r o d u c t i o n .  T h e i r appointments w i l l be i n  c o n j u n c t i o n w i t h the a p p r o v a l of t h e i r r e s p e c t i v e d e p a r t ment heads.  I t i s p r e f e r a b l e to have one  of the members,  i f p o s s i b l e , from the group that d i d the o r i g i n a l work on the product  idea.  To a l e s s e r degree t h i s team i s a l s o a  c o - o r d i n a t i n g body i n t h a t i t s t a s k i s t o c a r r y out a det a i l e d a n a l y s i s of a l l aspects of the product  i n the  development o f p r e l i m i n a r y d e s i g n s p e c i f i c a t i o n s .  The  p r o j e c t team should be under the a u t h o r i t y of the new duct p l a n n i n g department but i t may l i n e and  c a l l upon the v a r i o u s  s t a f f departments f o r the d e t a i l e d i n f o r m a t i o n  necessary at t h i s stage.  The  members of the team would  be f u l l - t i m e employees of t h e i r l i n e departments but would be t e m p o r a r i l y on l o a n t o the new ment.  pro-  product  T h i s does not mean t h a t at the same time  they  departthey  would not be expected  t o c a r r y out a c e r t a i n amount of  t h e i r normal d u t i e s .  Thus working under the a u s p i c e s of  8 American Marketing A s s o c i a t i o n , E s t a b l i s h i n g a Product, 1958, Management Report No. 8 , New York.  New  37  the new will  product p l a n n i n g department,  the p r o j e c t team  set out i n i t i a l l y t o determine the d e s i r a b l e market  f e a t u r e s f o r the product and i t s f e a s i b i l i t y . S e v e r a l of the areas touched i n the s c r e e n i n g stage are  re-examined  i n more d e t a i l i n t h i s stage.  team must be thorough because  The  project  the r e s u l t s of i t s f i n d i n g s  w i l l be used as a b a s i s f o r the recommendation to management t o c a r r y out a development and t e s t i n g stage on the product.  Another reason f o r thoroughness  i s t h a t beyond  t h i s p o i n t the product idea moves i n t o areas where cons i d e r a b l e c a p i t a l e x p e n d i t u r e s w i l l be  required.  The team should i n i t i a l l y examine the market a s pects of the i d e a because u n l e s s these appear f a v o r a b l e there i s l i t t l e  use i n d e v e l o p i n g product  specifications.  The extent of market r e s e a r c h c a r r i e d out i s o f t e n inadequate and as s e v e r a l w r i t e r s pointed out, too l i t t l e s e a r c h i s o f t e n the r e a s o n f o r new  product  re-  failures.  With the a s s i s t a n c e of the market r e s e a r c h department  the  team w i l l determine the s i z e of the present market and the p o t e n t i a l s of i t . a t i o n because  This i s often a d i f f i c u l t  i f the product i s a r a d i c a l improvement upon  present products then an estimate as t o f u t u r e is  difficult.  h i s t o r y of Dow  determin-  T h i s d i f f i c u l t y was  expansion  p o i n t e d out i n a case  Chemical's Chlorothene Nu which was  an  im-  proved s o l v e n t used f o r c l e a n i n g s e v e r a l common metals. T h i s product was  developed to r e p l a c e s o l v e n t s l i k e  carbon  38  t e t r a c h l o r i d e even though i t s o l d a t a higher prime s e l l i n g f e a t u r e was t h a t i t o f f e r e d one the  r i s k o f e x p l o s i o n or p o i s o n i n g .  price.  The  twentieth  In the i n i t i a l market-  i n g program the new product s o l d a q u a n t i t y which  consider-  a b l y exceeded the amount of t r a d i t i o n a l solvent t h a t i t replaced.  Therefore  the t o t a l solvent market was expanded.  T h i s expansion had not been p r e d i c t e d by the company's research operation.  When the p r o j e c t team attempt to e s -  t a b l i s h the market s i z e and i t s growth trends  f o r a new  product t h e r e may t h e r e f o r e be c e r t a i n f a c t o r s t h a t are not predictable. As i n d i c a t e d e a r l i e r , an important part o f the market  study i s the d e t e r m i n a t i o n  tors play.  o f what part the competi-  In the chemical i n d u s t r y , a l a r g e percentage  o f the new products are developed as replacements f o r others  so that when a new product i s developed, i t seem-  i n g l y has some c h a r a c t e r i s t i c s that the company s u p e r i o r t o those i n any e x i s t i n g product. g a t i o n o f the c o m p e t i t i o n  considers  In i t s i n v e s t i -  the team w i l l work w i t h the mar-  k e t i n g o r s a l e s departments.  Some o f the obvious  a t i o n i t w i l l look f o r i s the present t h a t g i v e n competitors h o l d .  share of the market  This information  can be ob-  t a i n e d q u i t e a c c u r a t e l y through s e v e r a l sources, which i s trade p u b l i c a t i o n s . ested  inform-  one of  The team w i l l a l s o be i n t e r -  i n any i n f o r m a t i o n p e r t a i n i n g t o f u t u r e moves planned  by competitors.  T h i s w i l l o b v i o u s l y be more d i f f i c u l t t o  determine  than i n f o r m a t i o n p e r t a i n i n g t o present market  conditions. customer.  One source of t h i s data i s o f t e n " a common An a l e r t  salesman may he able t o get i n f o r -  mation from a customer who has had d i s c u s s i o n s w i t h competitors about  p o s s i b l e product changes.  The r e l i a -  b i l i t y o f i n f o r m a t i o n i n such cases may be q u e s t i o n a b l e because competing  companies have been known t o p l a n t  rumors t o l e a d t h e i r a d v e r s a r i e s a s t r a y . With the a s s i s t a n c e o f customers and the t e c h n i c a l s e r v i c e s department the team can get v a l u a b l e i n f o r m a t i o n about  the s t r e n g t h s and weaknesses of competitors pro-  ducts.  T h i s i n f o r m a t i o n w i l l o b v i o u s l y be u s e f u l i n  e s t a b l i s h i n g product s p e c i f i c a t i o n s at a l a t e r d a t e . With these f a c t s i n mind and a good knowledge o f the c h a r a c t e r i s t i c s o f the new product the team must make an educated  estimate as t o the percentage  new product c o u l d o b t a i n .  T h i s might r e q u i r e hypothe-  s i z i n g some p r i c e ranges t o determine tivity.  of the market the  the market's s e n s i -  These ranges w i l l be l a r g e l y determined  by p r o -  d u c t i o n c o s t s , c o m p e t i t i v e p r i c e s , and the markets p r i c e sensitivity. The  impact  that the new product w i l l have on s a l e s  of  r e l a t e d products of the company i s an important  to  study.  T h i s problem  e x i s t e d f o r Dow Chemical which  made b o t h Chlorothene Nu and carbon t e t r a c h l o r i d e . .of  area  Some  the i n f o r m a t i o n necessary f o r t h i s estimate can be  obtained from the s a l e s department.  I t should be  familiar  w i t h the s t r e n g t h s and weaknesses of present products a l l the uses t o which customers put them. it  may  At t h i s  be h e l p f u l t o have the t e c h n i c a l s e r v i c e s  c a r r y out a s m a l l s c a l e experiment  characteristics.  stage  people  on the product t o give  some p r e l i m i n a r y i n f o r m a t i o n t o the team about performance  and  These data may  the product  be h e l p f u l i n  e v a l u a t i n g the product i n r e l a t i o n t o competitors and i n r e l a t i o n to the company's present p r o d u c t s .  It should be  pointed out that t h i s r e s e a r c h work would be done w i t h i n a predetermined The  new  budget that the team had assigned to i t .  product p l a n n i n g department has budget  restric-  t i o n s t h a t have been e s t a b l i s h e d f o r any product that beyond the s c r e e n i n g stage.  The department has  goes  several  products t h a t i t develops f u l l y i n any g i v e n year.  There-  f o r e each p r o j e c t team i s g i v e n a r e s t r i c t e d budget t h a t it  can spend on i t s i n v e s t i g a t i o n o p e r a t i o n s . It must not be assumed t h a t because a product  has  reached the s p e c i f i c a t i o n stage i t w i l l be accepted.  It  i s d u r i n g t h i s phase that d e t a i l e d out t h a t may  s t u d i e s are c a r r i e d  w e l l show that f u r t h e r development Is unwar-  ranted. With the a s s i s t a n c e o f the marketing,  marketing  r e s e a r c h , and t e c h n i c a l s e r v i c e s department the team i s equipped w i t h e x t e n s i v e i n f o r m a t i o n about  present and  t e n t i a l markets, competitors products, and the new  po-  product  c h a r a c t e r i s t i c s and u s e f u l n e s s . gathered the team must now  With t h i s i n f o r m a t i o n  attempt  to e v a l u a t e the  b i l i t y of d e v e l o p i n g and manufacturing  the product  feasias  conceived. Before s u b m i t t i n g i t s f i n d i n g s t o the department, the team must gather another important has now  determined  set of d a t a .  It  the d e s i r a b l e market f e a t u r e s f o r the  product, t h e r e f o r e the team must now  develop  specifi-  c a t i o n s and e s t a b l i s h a d e f i n i t e development program f o r the product. For a s s i s t a n c e w i t h product s p e c i f i c a t i o n s the team w i l l approach the p r o d u c t i o n or manufacturing  personnel.  I t i s assumed t h a t the l i n e department managers have been kept posted as t o the progress o f the product's ment. ket of  develop-  They w i l l t h e r e f o r e have i n f o r m a t i o n about the mar-  p o t e n t i a l s and the product's c h a r a c t e r i s t i c s .  Estimates  r e q u i r e d b u i l d i n g f a c i l i t i e s and p r o d u c t i o n equipment  w i l l be determined  f o r the team.  I t w i l l a l s o want t o  o b t a i n data w i t h r e s p e c t t o p o s s i b l e a d d i t i o n s t o the isting  personnel.  ex-  The p r o d u c t i o n and purchasing p e r s o n n e l  w i l l a l s o p r o v i d e i n f o r m a t i o n about the sources, q u a l i t y , and c o s t s of raw m a t e r i a l s . The product team now duction information. ment, i t w i l l  has complete  With the new  marketing  and  pro-  product planning d e p a r t -  convert the data i n t o a sound business  p r o p o s a l i n terms of time, c o s t , manpower, p o s s i b l e  profits,  1*2  and other b e n e f i t s .  The p r o p o s a l w i l l be submitted t o  management f o r the d e c i s i o n o f whether t o continue w i t h the development or to d i s c a r d i t . The  importance  o f management's d e c i s i o n at t h i s  stage must be r e a l i z e d .  To t h i s p o i n t i n the development  there has not been any s i g n i f i c a n t expenditure  i n terms o f  c a p i t a l equipment other than l a b o r a t o r y s u p p l i e s .  A. con-  s i d e r a b l e cost i n terms o f employee time has been made but now, i f the idea i s approved, the next  step w i l l  probably  r e q u i r e the establishment o f p i l o t p l a n t f a c i l i t i e s or perhaps even p r o d u c t i o n f a c i l i t i e s .  Because r e l a t i v e l y  l a r g e expenditures w i l l be r e q u i r e d , t h e advantages and d i s advantages of the p r o p o s a l must be weighed  carefully.  It w i l l be u s e f u l t o summarize the o p e r a t i o n s t o t h i s point..  An acceptable way t o do t h i s i s t o l o o k a t  the e n t i r e developmental  process i n r e l a t i o n t o the p a r t  played by the new product p l a n n i n g department. initial  In the  stages, the major r o l e was played by the d e p a r t -  ment t h a t produced  the i d e a .  As the i d e a progressed t o  the c o l l e c t i o n stage and then t o the s c r e e n i n g p r o c e s s , the r o l e o f the new product department emerges i n t o the prime p o s i t i o n and continues to be primary i n t o the s p e c i f i c a t i o n stage.  The i d e a w i l l now move i n t o a t e s t i n g  stage where the new product department w i l l  s t i l l be a c -  t i v e but the r o l e s of the p r o d u c t i o n and marketing departments w i l l b e g i n t o emerge and i n c r e a s e i n importance.  ^3  D.  Predevelopment and T e s t i n g Stage In the f i n a l  stage o f the development the new p r o -  duct department w i l l work hand i n hand w i t h e i t h e r the s a l e s e n g i n e e r i n g or the t e c h n i c a l s e r v i c e s department, whichever The  one i s i n c l o s e contact w i t h the customer.  o b j e c t i v e s o f t h i s stage are t o determine  p r o d u c t - d e s i g n d e f e c t s and t o determine c h a r a c t e r i s t i c s t h a t should be a l t e r e d . a l s o attempts for  t o determine  specific  any product The department  s p e c i f i c product  advantages  use i n an e f f e c t i v e s a l e s and promotional campaign.  W i t h e f f e c t i v e t e s t i n g techniques i t w i l l attempt  t o un-  cover any l a t e n t demand; that i s t o d i s c o v e r any new a p p l i c a t i o n s of c o n s i d e r a b l e market importance.  At the  same time the new product department may be a b l e to determine proposed  more a c c u r a t e l y the c o m p e t i t i v e p o s i t i o n o f the product.  In the chemical i n d u s t r y the techniques of t e s t i n g w i l l v a r y from product t o product depending it  upon the r o l e  p l a y s i n the customer's p r o d u c t i o n o p e r a t i o n .  A'common  method i s t o have the t e c h n i c a l s e r v i c e men work w i t h the customer and i n t r o d u c e the new product i n t o a process on a temporary  basis.  T h i s i s of course done at the cost o f  the t e s t i n g company. The new product p l a n n i n g department can guide these a c t i v i t i e s and make sure t h a t the type of i n f o r m a t i o n  r e q u i r e d i s obtained i n the t e s t s .  I t i s then able t o  take the i n f o r m a t i o n and present i t to the r e s p e c t i v e d i v i s i o n a l heads who first,  i n t u r n can decide two t h i n g s :  they decide whether the product as designed r e -  q u i r e s a l t e r a t i o n s , and secondly they d e c i d e , a f t e r e x t e n s i v e t e s t i n g , whether t o proceed t o the f u l l mercialization  of the product.  com-  Once t h i s stage has been  reached the a c t i v i t i e s of the new product p l a n n i n g department are terminated w i t h r e s p e c t t o t h i s new  product.  h5  CHAPTER I I I THE A.  ROLE OF MARKETING RESEARCH IN NEW  PRODUCT PLANNING  Introduction The  r o l e of i n n o v a t i o n has become an i n t e g r a l p a r t  of the i n d u s t r i a l community i n the North American economy today.  Innovation can r e f e r t o change i n markets,  i z a t i o n a l s t r u c t u r e , p r o d u c t i o n techniques, and line.  organ-  product  With product change there are two main problem  areas that must be s t u d i e d p r i o r t o a d o p t i o n of a new duct.  pro-  These are p r o d u c t i o n or t e c h n i c a l problems and  market a n a l y s i s problems.  The t e c h n i c a l problems i n indus-  t r y today, are c e r t a i n l y not minor but they are c o n t i n u a l l y being handled w i t h more ease.  Companies are d i s c o v e r i n g  that t h e i r major area of concern w i t h product  introduction  i s that of market a n a l y s i s . U n t i l r e l a t i v e l y recent years companies were a l most t o t a l l y concerned w i t h the problems of p r o d u c t i o n and operated on the premise be s o l d .  that what could be produced  could  .After many d i s a s t r o u s i n t r o d u c t i o n f a i l u r e s ,  some of these companies made the change from p r o d u c t i o n o r i e n t a t i o n t o market  orientation.  Market or marketing  r e s e a r c h i n c l u d e s the  of a f i r m ' s present and p o t e n t i a l market.  analysis  The term market  r e s e a r c h i s somewhat more r e s t r i c t i v e than the l a t t e r  term.  i  k6 For the purposes o f t h i s t h e s i s the more common one, marketing r e s e a r c h , w i l l be used.  C r i s p has d e f i n e d i t  i n the f o l l o w i n g ways . . . i t i s the systematic, o b j e c t i v e , and exhaustive search f o r and study o f the f a c t s r e l e v a n t t o any problem i n the f i e l d o f marketing. I t i n c l u d e s the a n a l y s i s and study o f the s a l e s methods and p o l i c i e s which can most e f f e c t i v e l y be used. The a n a l y s i s and study of proposed new products, s a l e s f o r e c a s t i n g , establishing t e r r i t o r i a l sales p o t e n t i a l s — a l l these f a l l w i t h i n the area of marketing r e s e a r c h . " 1 When people hear the term r e s e a r c h , they t h i n k of the process s p e c i f i c problem.  immediately  o f gathering f a c t s about a  In the case of t e c h n i c a l l a b o r a t o r y  r e s e a r c h t h i s i s o f t e n the s i t u a t i o n but i n marketing r e search the c o l l e c t i o n of the f a c t u a l i n f o r m a t i o n i s o n l y one  part of the process.  Knowing what t o do w i t h the  i n f o r m a t i o n once i t has been c o l l e c t e d portant  step.  I t i s necessary  i s the most im-  t o evaluate a l l market  i n f o r m a t i o n i n a c a r e f u l , o b j e c t i v e and unbiased The  manner.  d e c i s i o n o f whether t o c a r r y out a c e r t a i n product  p r o j e c t i s made d u r i n g the process  of i n t e r p r e t i n g r e -  sults. Product  f a i l u r e s have i n f l u e n c e d many companies t o  change t h e i r approach t o new product  i n t r o d u c t i o n . The  1 Richard D. C r i s p , Marketing Research O r g a n i z a t i o n and Operation. American Management A s s o c i a t i o n Inc., Research Study, No. 35, (1958), p. 8.  major reason f o r many o f these f a i l u r e s has been too l i t t l e market r e s e a r c h .  There a r e , i n t u r n , three e x p l a n a t i o n s  2 for  t h i s l a c k of research.  to  One i s that many a d d i t i o n s  product l i n e s are made s o l e l y f o r the purpose  ing  c o m p e t i t i v e moves.  These matching  o f meet-  moves are o f t e n  made without c a r e f u l a n a l y s i s of the s i z e o f the p o t e n t i a l market f o r t h a t p a r t i c u l a r type o f product.  The l a c k of  r e s e a r c h not o n l y c r e a t e s problems as to market s i z e but a l s o means that there i s n e g l e c t i n s t u d y i n g the p r o f i t a b i l i t y of the product, the p o t e n t i a l l i f e and  s e v e r a l other r e l a t e d Another  of the product  problems.  reason f o r h a s t y i n t r o d u c t i o n i s the b e l i e f  by management t h a t new products are the automatic key t o growth.  Companies are o f t e n obsessed w i t h the n o t i o n t h a t  growth i s the measure o f success and t o m a i n t a i n the growth they o f t e n attempt  any acceptable l i n e of a c t i o n .  This  p o l i c y can be a s u c c e s s f u l one i f a p p l i e d i n a c a r e f u l l y planned manner but o f t e n i n i n t r o d u c i n g these products, the companies are o v e r l y concerned w i t h s h o r t - r u n p r o f i t s . T h i s o b s e s s i o n w i t h the s h o r t - r u n can be d i s a s t r o u s to the l o n g - r u n f u t u r e of the company. The f a i l u r e t o develop a sound marketing p l a n t o f a c i l i t a t e the guaranteed 2  l o n g - r u n growth of the company  Richard D. C r i s p , op. c i t . .  p. 1 5 .  i s the t h i r d reason f o r minimizing The  marketing  l a c k o f a program can o f t e n l e a d to the  approach d i s c u s s e d above.  research. short-run  I f there i s no p l a n then o f t e n  management w i l l adopt t h i s approach and be concerned o n l y w i t h products  ensuring  them of r e t u r n s i n the near f u t u r e .  An o r g a n i z e d marketing r e s e a r c h o p e r a t i o n c o u l d h e l p a company to a v o i d these p i t f a l l s and a f a r h i g h e r r a t i o o f product ductions.  The  successes  to product  intro-  United S t a t e s Department o f Commerce e s t i -  mates t h a t e i g h t out o f t e n new t h a t o n l y one  could produce  products  out of f i v e products  stage are s u c c e s s f u l . t h a t out of 100 new  One  product  fail.  T h i s means  t h a t reach the  l a r g e chemical  production  company r e p o r t s  i d e a s , 95 are d i s c a r d e d  after  v a r y i n g stages of i n v e s t i g a t i o n , and of the f i v e t h a t e v e n t u a l l y reach the p r o d u c t i o n stage, o n l y one ful.^  i s success-  I t appears then t h a t even w i t h c a r e f u l a n a l y s i s the  chances of success  are r e l a t i v e l y s m a l l .  Unfortunately,  i n f o r m a t i o n i s not a v a i l a b l e p e r t a i n i n g to how  many products  are s u c c e s s f u l w i t h marketing r e s e a r c h and how  many are  c e s s f u l without  it.  A determination  of t h i s s o r t would  sucbe  p r a c t i c a l l y i m p o s s i b l e because o f the d i f f i c u l t y i n d i f f e r e n t i a t i n g f o r m a l from i n f o r m a l r e s e a r c h . r e s e a r c h of some type i s done on a l l products  Marketing introduced.  3 American Marketing A s s o c i a t i o n , Management Report No. 8, " E s t a b l i s h i n g a New Product Program," (1958), p. 87.  It i s an organized approach that s h a l l he d e a l t w i t h i n this B.  study. H i s t o r y and  Growth of the  Probably the f i r s t i s known today was  Activity  marketing  conducted  r e s e a r c h study as i t  In 1879 by N. ¥. Ayer and  Son, a l o c a l a d v e r t i s i n g agency i n P h i l a d e l p h i a . agency attempted  t o determine  The  t h e i r c l i e n t s ' needs p r i o r  to s e t t i n g up the plans f o r t h e i r a d v e r t i s i n g programs. However, a c c o r d i n g to L. C. L o c k l e y , i t was  not  until  1910 t h a t market r e s e a r c h became a recognized form of business  activity.  Since that time the p o p u l a r i t y of the a c t i v i t y a f u n c t i o n i n a f i r m has grown u n t i l i t i s now  as  practised  by numerous types of companies and a g e n c i e s .  Manufac-  t u r e r s , as a group, are the g r e a t e s t u s e r s of  marketing  research.  In l a r g e r f i r m s the marketing  research a c t i v i t y  i s u s u a l l y f o r m a l i z e d w i t h an e l a b o r a t e d i v i s i o n of l a b o r . There has, a l s o been a growing tendency tivities  to i n t e g r a t e the  ac-  of the market r e s e a r c h department w i t h those of  the marketing  and p r o d u c t i o n departments.  Market r e s e a r c h i s used to a much l e s s e r extent r e t a i l e r s and r e l u c t a n t l y by w h o l e s a l e r s .  by  k growth i n  i t s use w i t h wholesalers has been evidenced w i t h advances  h M. S. H e i d i n g s f i e l d and F. H. Eby, J r . , Marketing and Business Research, H o l t , R i n e h a r t , and Winston^ (19625, p.  h.  50 i n warehousing methods and  i n v e n t o r y c o n t r o l techniques.  Marketing r e s e a r c h i s a l s o c a r r i e d out by:  government agencies  i n v a r y i n g degrees  which examine almost every  as-  pect of marketing; marketing r e s e a r c h agencies which work on s p e c i a l problems f o r other business a d v e r t i s i n g agencies;  organizations;  trade a s s o c i a t i o n s ; u n i v e r s i t i e s  which c a r r y on b a s i c r e s e a r c h i n t o fundamental marketing problems; and  s e v e r a l other forms of businesses  such as  newspapers. C r i s p i n a study c a r r i e d out i n 1957 amined company p r a c t i c e s at t h a t time.  1958,  and  ex-  He i n v e s t i g a t e d  the number of f i r m s t h a t c a r r y out any form of marketing r e s e a r c h , the o r g a n i z a t i o n of the department r e s p o n s i b l e f o r i t , the  scope o f i t s o p e r a t i o n s , and the s t a t u s  and  5 r e s p o n s i b i l i t i e s of the people occupying C r i s p sent out 1,000 239  i n return.  q u e s t i o n n a i r e s of which he  $100  ($0 - $25 million).  a list  m i l l i o n ) ; medium  ($25 - $100);  His sample of 1,000  f i r m s was  d i r e c t o r y i n the United  p l i e s only ing research. 5  grouped as f o l l o w s :  of manufacturing companies l i s t e d  business  received  He c l a s s i f i e d the r e s u l t s a c c o r d i n g t o the  s i z e of the companies which he small  the p o s i t i o n s .  States.  in a  large  (over  chosen from standard  Of the  239  re-  f i r m s d i d not p r a c t i c e some form of marketOnly 27  per cent of the 195  C r i s p , O P . c i t . , pp.  7-33.  f i r m s that  51 used some form of r e s e a r c h were c l a s s i f i e d as small a c c o r d i n g t o h i s standards;  30 per cent were medium; k-1 per  cent were l a r g e ; 2 per cent d i d not r e p o r t t h e i r volume. It i s impossible  t o draw any c o n c l u s i o n s from t h i s  survey because of the l a c k of knowledge of the techniques used and because i t i s not known why some 761 f i r m s d i d not r e p l y t o the q u e s t i o n n a i r e . a few years behind  Canadian firms- are  t h e i r American c o u n t e r p a r t s  often  i n adopt-  i n g new a c t i v i t i e s l i k e t h i s , t h e r e f o r e i t would be imp r a c t i c a l t o t r y t o draw any c o n c l u s i o n s about the Canadi a n s i t u a t i o n even i f the data were v a l i d . Another study sponsored by the N a t i o n a l A s s o c i a t i o n of Manufacturers i n the l a t e n i n e t e e n f o r t i e s showed that o n l y 38 per cent of the responding  companies performed any  6 marketing r e s e a r c h a c t i v i t i e s .  The purpose of n o t i n g  t h i s r e p o r t i s not f o r the r e s u l t s , which are outdated, but  i t i s to i n d i c a t e one o f the c o n c l u s i o n s t h a t was  reached. panies  The study  s t a t e d t h a t even though many o f the com-  r e p o r t e d t h a t they performed no marketing  the i n v e s t i g a t i n g committee decided  research,  t h a t a l l companies  perform some r e s e a r c h f u n c t i o n s or i t would be impossible f o r them t o remain i n b u s i n e s s .  I t was assumed t h a t the  6 American Marketing Research A c t i v i t i e s Committee, Marketing Research and Industry, The N a t i o n a l A s s o c i a t i o n of Manufacturers.  52  respondents,  i n these cases, f a i l e d  t i o n s they performed  as marketing  to r e c o g n i z e the f u n c -  research functions;  probably c o n s i d e r e d them as normal f u n c t i o n s of the  they  line  departments which were performing the f u n c t i o n s at that time. T i e t j e n ' s study f o r the .American Management A s s o c i a t i o n s t a t e d that one of the key problems i n product p l a n n i n g was  determining the s i z e of the p o t e n t i a l market  7 f o r a g i v e n product.  It was  f o r t h i s reason t h a t one  of  the e x e c u t i v e s he i n t e r v i e w e d s t a t e d that market r e s e a r c h had a v i t a l r o l e i n new C.  product development.  I n d u s t r i a l and Consumer Marketing  Research  P r i o r to d i s c u s s i n g the r o l e of marketing r e s e a r c h i n new  product p l a n n i n g one must d i f f e r e n t i a t e between  the o r i e n t a t i o n i n consumer goods r e s e a r c h and goods r e s e a r c h .  industrial  T h i s means i l l u s t r a t i n g the d i f f e r e n c e  between the two kinds of goods themselves.  Normally,  i n d u s t r i a l products are those that are used  to  produce  other goods or to render some s e r v i c e whereas consumer goods are thought the form f o r f i n a l The  of as those s o l d t o a householder i n consumption.  important d i s t i n g u i s h i n g c h a r a c t e r i s t i c i s the  7 K. T i e t j e n , O r g a n i z i n g the Product-Planning F u n c t i o n , American Management A s s o c i a t i o n , Inc., Research Study 59?  (1963).  53  purpose f o r which the product i s used.  Many products on  the market b r i d g e the gap and are used i n the same form by both types of purchaser. The major d i f f e r e n c e s i n the marketing of these two kinds of products l i e s i n the buying motives and t e r i a of the customer.  T r a d i t i o n a l l y i t was  cri-  assumed t h a t  consumer goods were bought f o r emotional, e s t h e t i c ,  and  impulse reasons, and to s a t i s f y c e r t a i n b a s i c needs of f o o d , s h e l t e r , and c l o t h i n g .  The  i n d u s t r i a l buyer w i l l some-  times buy on impulse or f o r p r e s t i g e , but g e n e r a l l y he buys o b j e c t i v e l y a s k i n g h i m s e l f such q u e s t i o n s as; they meet i n d u s t r i a l s p e c i f i c a t i o n s ? company money?  i n lowered  Another important d i f f e r e n c e i s the  number of buying u n i t s . has o n l y a few hundred thousands  W i l l they save the  W i l l they pay f o r themselves  maintenance c o s t s ?  Do  The  i n d u s t r i a l producer  p o t e n t i a l customers  often  r a t h e r than  or m i l l i o n s .  The marketing r e s e a r c h e r then must c l e a r l y d e f i n e h i s product and p o t e n t i a l market and attempt t o study them i n a r e l e v a n t manner.  The new  product s t u d i e s i n these  two b a s i c c a t e g o r i e s would o b v i o u s l y take e n t i r e l y ferent D.  dif-  approaches.  P o s i t i o n s of Marketing Research i n the O r g a n i z a t i o n In advocating the n e c e s s i t y of having marketing r e -  search performed  i n c o n j u n c t i o n w i t h new  product develop-  5^  ment i t was not f e l t s u p e r i o r t o another.  t h a t any one o r g a n i z a t i o n a l form was To optimize a company's i n t r o d u c t i o n  a c t i v i t i e s i t i s suggested s e a r c h i s necessary.  t h a t some form of marketing r e -  In some companies the r e s e a r c h people  are organized i n t o a separate u n i t w i t h the d i r e c t o r i n a r e l a t i v e l y high administrative p o s i t i o n . is a participant  In many cases he  i n some p o l i c y d e c i s i o n s .  The p r a c t i c e ,  i n other f i r m s , i s to develop a s p e c i a l t y w i t h i n the mark e t i n g department so t h a t the a c t i v i t i e s are d i r e c t e d by the person i n charge o f marketing.  Crisp investigated  the form o f the department i n the f i r m s t h a t r e p l i e d t o his questionnaires. 195  I t w i l l be r e c a l l e d that there were  f i r m s which returned the q u e s t i o n n a i r e s and these  were broken down a c c o r d i n g t o s i z e .  I t w i l l be i l l u s -  t r a t i v e t o present h i s d a t a . C r i s p found t h a t 63 per cent of t h e f i r m s made marketing research a f u l l - t i m e r e s p o n s i b i l i t y of a s p e c i a l i z e d department or I n d i v i d u a l ; there were 19 per cent w i t h p a r t time r e s p o n s i b i l i t y o f a l i n e e x e c u t i v e ; 7 per cent  with  p a r t - t i m e r e s p o n s i b i l i t y of a s t a f f e x e c u t i v e ; 3 per cent w i t h r e s p o n s i b i l i t y assigned t o an o u t s i d e agency, but an i n d i v i d u a l w i t h i n the f i r m had p a r t - t i m e  responsibility  f o r communicating r e s e a r c h f i n d i n g s and c o - o r d i n a t i n g use of data; 5 per cent r e s p o n s i b i l i t y shared by two or more of the above; and h- per cent were u n c l e a r  responses.  Twenty-one per cent o f the responding  small  55  companies had marketing r e s e a r c h as a f u l l - t i m e r e s p o n s i bility;  i n the medium s i z e f i r m s i t was found t h a t 66 per  cent p r a c t i c e d i t f u l l - t i m e , and i n the l a r g e f i r m s the f i g u r e was 88 per c e n t .  These f i g u r e s are u s e f u l i n i l -  l u s t r a t i n g how i n f i r m s of s u b s t a n t i a l s i z e the tasks performed of utmost E.  by the marketing  r e s e a r c h department seem t o be  importance.  A c t i v i t i e s of Marketing Research and New Product Planning In the e v o l u t i o n o f the product i d e a d i s c u s s e d i n  Chapter of  I I i t was emphasized that the process c o n s i s t e d  continuous  stages.  There were d e c i s i o n s that had t o  be made at the end of each stage w i t h r e s p e c t t o c o n t i n u ing  the development of the product i d e a .  In making these  d e c i s i o n s , q u e s t i o n s o f market p o t e n t i a l , p r o d u c t i o n c o s t s , and c o n t r o l f a c t o r s had t o be c o n s i d e r e d . approached  As the product  i t s f i n a l form, the market a n a l y s i s e s t i m a t e s  became more exact. The  new product r e s p o n s i b i l i t i e s of the marketing  r e s e a r c h people w i l l be presented i n t h i s s e c t i o n . process advances, fits ing  As the  i t w i l l be shown where the i n f o r m a t i o n  i n t o the e v o l u t i o n d i s c u s s e d i n Chapter  II.  Market-  r e s e a r c h i s not o n l y used i n c o n n e c t i o n w i t h new p r o -  duct development but as mentioned p r e v i o u s l y i t i s a l s o used t o e v a l u a t e present products and t o modify them where necessary.  However, r e g a r d l e s s o f the type of study t h a t  56  i s to be c a r r i e d out, i t i s necessary to d e s i g n a r e s e a r c h i n v e s t i g a t i o n to enable an organized approach to the problem. (i)  Research Design The  d e s i g n a c t s as the model or master p l a n f o r  the i n v e s t i g a t i o n and  can o n l y be made a f t e r the problem  i s c l e a r l y d e f i n e d and the o b j e c t i v e s of the r e s e a r c h are specified.  The  problem and  the o b j e c t i v e s should be  s i d e r e d c a r e f u l l y i n r e l a t i o n to the time and a v a i l a b l e f o r the study. a t i o n suggest  resources  American Marketing A s s o c i -  t h a t the d e s i g n of the p r o j e c t should  put i n w r i t i n g and The  The  con-  be g  i t should cover some b a s i c areas.  d e s i g n should i n c l u d e :  the o b j e c t i v e and  i t s rela-  t i o n to the problem; the methods that w i l l be used i n a t t a i n i n g the o b j e c t i v e s ; the form i n which the r e s u l t s be presented;  and  how  the r e s u l t s w i l l be used.  s i g n should s p e c i f y a time  schedule  f o r the  The  will de-  entire  o p e r a t i o n , i n c l u d i n g p o s s i b l e d e a d l i n e s f o r the v a r i o u s phases of the work.  To f a c i l i t a t e  c o n t r o l of the  ings t h e r e should be a budget broken down i n t o the of  expenditures.  proceedtypes  Depending upon the i n d i v i d u a l c h a r a c t e r -  i s t i c s of the study, the d e s i g n may  have to i n c l u d e o t h e r  8 "The Design of Research I n v e s t i g a t i o n s " , i n Marketi n g Research Techniques. Series-Number 1, American Mark e t i n g A s s o c i a t i o n , ( 1 9 5 8 ) , p. 5«  information  not l i s t e d  above.  As w e l l as p r o v i d i n g a master guide f o r the g a t i o n , the d e s i g n performs other f u n c t i o n s .  It promotes  c a r e f u l advance a n a l y s i s of the problem, of the methods of approach, and of the proposed p r o j e c t . and  i n general, The  investi-  possible  of the nature and  d e s i g n must a l s o  valu  recognize  account f o r the v a r i o u s f a c t o r s that might a f f e c t  the  Q  i n v e s t i g a t i o n ' s r e s u l t s or confound the a n a l y s i s . It promotes e f f i c i e n c y because p o s s i b l e have probably been reckoned w i t h and one  can r e f e r at any  obstacles  planned f o r .  When  stage of the p r o j e c t to a w r i t t e n  p l a n of i t s e n t i r e t y , problems can be r e s o l v e d more ily.  The  f i n a l f u n c t i o n t h a t the d e s i g n  that of a c o n t r o l d e v i c e .  Personnel and  read-  can provide  budget r e q u i r e -  ments have been estimated i n advance, t h e r e f o r e , at ious stages of the p r o j e c t , reference design,  is  var-  can be made t o  the  to determine i f there are any d e v i a t i o n s from the  estimates. (ii)  Product Uses The  market r e s e a r c h e r  ledge about the new  must have some b a s i c know-  product which he i s s t u d y i n g .  l y he must be aware of the p o s s i b l e uses of the before ket  p.  9  product  he can make any estimates about the p o t e n t i a l mar-  size.  6.  Obvious-  "The  The  t a s k of d e t e r m i n i n g uses f o r e s t a b l i s h e d  Design of Research I n v e s t i g a t i o n s " , l o c . c i t . ,  58 products i s much e a s i e r because many of the uses are a l ready known w h i l e others can be determined ing  the l i t e r a t u r e .  or unique  through  When d e a l i n g w i t h an e n t i r e l y  product, the problem  studynew  of d e t e r m i n i n g the p o s s i b l e  uses f o r i t i s much more complex.  Here the r e s e a r c h e r i s  l o o k i n g f o r a p p l i c a t i o n s that do not e x i s t as y e t .  A  s e a r c h of the l i t e r a t u r e or other companies' product w i l l not give him any a s s i s t a n c e .  In a s i t u a t i o n  lists  like  t h i s he must study the c h a r a c t e r i s t i c s of the product use h i s t e c h n i c a l knowledge t o t r y t o determine can be used.  and  how i t  Members of the t e c h n i c a l s e r v i c e s and r e -  search and development s t a f f should be c o n s u l t e d to g a i n t h e i r experience.  In any case i t i s obvious that i m a g i -  nation i s required. (iii)  Product  Users  A f t e r e s t i m a t i n g p o s s i b l e product uses, the next major t a s k i s to determine who are f o r the new  product.  the p o t e n t i a l u s e r s  Normally a company keeps i t -  s e l f abreast of developments i n the i n d u s t r i a l world i n which i t operates.  It can determine what companies are  producing c e r t a i n types of products through study o f t r a d e p u b l i c a t i o n s .  continuous  Often the s a l e s s t a f f keep  the f i r m posted on i n d u s t r i a l developments i n i t s markets. The market r e s e a r c h e r then has s e v e r a l ways of d e t e r m i n i n g what companies are a c t i v e i n the p r o d u c t i o n of goods which will utilize  the product he i s s t u d y i n g .  T h i s t a s k must  59 be performed i n a thorough manner t o avoid missing any p o t e n t i a l customers.  Once he has i n f o r m a t i o n  uses and p o t e n t i a l product u s e r s ,  about the  the r e s e a r c h e r must  determine i n d e t a i l the s i z e and l o c a t i o n o f the market, (iv)  D e t e r m i n a t i o n of Market C h a r a c t e r i s t i c s In Chapter I I i t was s t a t e d t h a t when a pro-  duct idea was accepted f o r f u r t h e r c o n s i d e r a t i o n by the new product planning  department, i t was b e l i e v e d that a  p o t e n t i a l need f o r the product e x i s t e d .  When the d e p a r t -  ment moved i n t o the s p e c i f i c a t i o n stage o f the study and began t o c a r r y out more d e t a i l e d p r o d u c t i o n ket p o t e n t i a l s t u d i e s , the r e s e a r c h e r s  cost and mar-  were I n t e r e s t e d i n  f a c t s about the s i z e and l o c a t i o n o f the market. c e r t a i n i n f o r m a t i o n that the r e s e a r c h e r his  final a)  There i s  must i n c l u d e i n  r e p o r t t o the new product p l a n n i n g  department.  S t a b i l i t y o f demand One f a c t o r that must be determined i s the s t a -  b i l i t y o f demand i n the market.  There are v a r i o u s  factors  t h a t can i n f l u e n c e demand and depending upon the nature of the i n d u s t r y some o f these are more important than  others.  Knowledge o f the frequency of t e c h n o l o g i c a l changes i s important  i n today's q u i c k l y changing environment.  It i s  evident  t h a t i f the frequency i s h i g h then the demand  schedule f o r the product may be subject t o v i o l e n t f l u c t u a t i o n s and i n f a c t the demand f o r the product i t s e l f be e l i m i n a t e d  because o f some t e c h n i c a l advance.  may  Seasonal  60  f l u c t u a t i o n i n demand i s another common determinant o f stability.  I f a c o n s i d e r a b l e p o r t i o n o f the product's  market c o n s i s t s of customers whose purchases  are depend-  ent upon seasonal c o n d i t i o n s , the demand f o r the new product may be s u b j e c t t o s u b s t a n t i a l f l u c t u a t i o n s .  In some  cases a new product i s added t o a p r o d u c t - l i n e t o even out seasonal peaks t h a t p r e s e n t l y e x i s t .  The r e s e a r c h e r  should a l s o c o n s i d e r the number o f customers t h a t w i l l be u s i n g the product.  Obviously, a product w i t h o n l y one or  two uses and r e l a t i v e l y few customers i s subject t o sudden obsolescence  or wide f l u c t u a t i o n i n demand.  In the  p r e p a r a t i o n o f the r e p o r t the r e s e a r c h e r must weigh these f a c t o r s i n coming up w i t h a f i n a l estimate o f the s t a b i l i t y o f demand. b)  Buying h a b i t s There must be an e v a l u a t i o n made o f the buying  h a b i t s of the p o t e n t i a l customers. determine  The next step i s t o  whether the e x i s t i n g d i s t r i b u t i o n channels  con-  form w i t h the buying p r a c t i c e s o f the p r o s p e c t i v e u s e r s . It i s much e a s i e r t o conform w i t h buyers h a b i t s than t r y to  change them.  One q u e s t i o n t o ask i n t h i s area i s : Do  u s e r s buy d i r e c t from the manufacturer middlemen i n v o l v e d ? or  agents  or producer, or are  I f there are w h o l e s a l e r s , d i s t r i b u t o r s ,  i n v o l v e d , who i s s u p p l y i n g the customer w i t h the  products a t present?  In other words, i f middlemen are i n -  v o l v e d who are they?  Where do they operate from?  How w e l l  61  e s t a b l i s h e d are t h e i r c)  relations?  Price The  importance  o f p r i c e i n the proposed  market must be determined  product's  by the market r e s e a r c h e r s .  Normally p r i c e i s an important determinant of whether a c e r t a i n product w i l l be used by a manufacturer.  To e s -  t a b l i s h a price-volume r e l a t i o n s h i p f o r a new product r e q u i r e s e x t e n s i v e study.  often  T h i s cannot always be d e t e r -  mined by methods s i m i l a r to those used i n consumer goods research.  When the r e s e a r c h e r r e c e i v e s price-volume  mates from customers  esti-  he must e v a l u a t e t h i s i n f o r m a t i o n  c a r e f u l l y and assess the r e l i a b i l i t y o f i t . d)  Buying  motives  The market r e s e a r c h e r i n h i s study must to determine  the buying motives o f the customers.  attempt This  type o f study i s not o n l y c o n f i n e d t o consumer goods because o f t e n important m o t i v a t i o n a l p o i n t s can be r e v e a l e d t h a t give an i n s i g h t i n t o why the i n d u s t r i a l buys the way he does.  customer  T h i s i n f o r m a t i o n can o f t e n be use-  f u l i n d e t e r m i n i n g f u t u r e trends i n the market and i t s p o t e n t i a l growth. e)  Other f a c t o r s There are other major forms of i n f o r m a t i o n t h a t  should be determined d u r i n g the study.  An estimate should  be made as t o what type of i n v e n t o r y requirements the  customers w i l l r e q u i r e .  T h i s data i s important t o sched-  u l i n g p r o d u c t i o n runs and determining d i s t r i b u t i o n r e q u i r e ments.  Information p e r t a i n i n g to s e r v i c e or i n s t a l l a t i o n  requirements  may be u s e f u l i n determining c o s t s o f the  i n t r o d u c t i o n process.  I t was mentioned i n Chapter  an important p i e c e of i n f o r m a t i o n i s t h e e f f e c t  I I that  that the  new product w i l l have upon the s a l e s of t h e e x i s t i n g p r o duct l i n e .  T h i s a g a i n r e q u i r e s complete  product's uses.  There  knowledge of the  i s a d i s t i n c t p o s s i b i l i t y that the  s a l e o f the new product w i l l be made at t h e expense o f the e x i s t i n g products.  An estimate must be made o f the l o n g -  run e f f e c t s o f t h i s  possibility.  The  r e s e a r c h e r must concern h i m s e l f w i t h the l o c a l ,  p r o v i n c i a l , o r f e d e r a l codes that d i c t a t e product fications.  speci-  The l i m i t a t i o n s o f these s p e c i f i c a t i o n s can  have important i n f l u e n c e s on the product's use and i t s c o m p a t i b i l i t y w i t h present manufacturing The  facilities.  i n f o r m a t i o n t h a t a r e p o r t encompassing a l l of  these areas would i n c l u d e , might mean the d i f f e r e n c e between a product's success or i t s f a i l u r e . marketing  F. C. Akers,  r e s e a r c h d i r e c t o r o f Crane Company, s t a t e s  t h a t f a i l u r e t o comply w i t h the requirements  s e t down  above c o u l d and o f t e n does mean market m o r t a l i t y o f a product.  1 0  I t i s evident that t h i s type of study i s  10 .American Management A s s o c i a t i o n , Report op. c i t . , p. 87.  No. 8,  63  necessary f o r c o n s i s t e n t success i n product  introduction  operations. (v)  A n a l y s i s of C o m p e t i t i o n The  determined.  r o l e of competitors i n the market must be An important determinant  of the p o l i c i e s  t h a t w i l l be f o l l o w e d i n i n t r o d u c i n g a product i s the knowledge o f the c o m p e t i t o r s ' plans and a c t i v i t i e s w i t h r e s p e c t to  both products and markets.  a more d i f f i c u l t  I n d u s t r i a l - g o o d s f i r m s have  job of a c c u r a t e l y e v a l u a t i n g c o m p e t i t i o n  than do consumer o r g a n i z a t i o n s .  I n d u s t r i a l f i r m s gener-  a l l y d e a l w i t h h i g h l y t e c h n i c a l products which r e q u i r e f a c t u a l data r a t h e r than o p i n i o n s .  In a d d i t i o n , they work w i t h  s k i l l e d engineers and p r o f e s s i o n a l buyers who d e c i s i o n s on a c l o s e s c r u t i n y of how a product w i l l make them, and how  base t h e i r  much money the use of  much i t w i l l  save them.  Market i n f o r m a t i o n of a l l types thus tends t o be more d i f ficult  t o o b t a i n and more d i f f i c u l t t o i n t e r p r e t and The f i r s t  apply.  q u e s t i o n t o answer i s : what c o n s t i t u t e s  the competition?  Normally the d e f i n i t i o n i n c l u d e s the  lowing elements:  present manufacturers  fol-  of products com-  p a r a b l e t o the prodiicts the f i r m i s p r e s e n t l y making; p o t e n t i a l manufacturers  of these products; and  competitors'  methods or techniques." "^ 1  The  study of known competitors u s u a l l y accounts f o r  11 American Management A s s o c i a t i o n , Report op. c i t . , p. 1 1 0 .  No.  8,  most of the r e s e a r c h e r s ' e f f o r t .  The  e v a l u a t i o n of poten-  t i a l competitors becomes i n c r e a s i n g l y d i f f i c u l t ,  particu-  l a r l y i n a p e r i o d of d i v e r s i f i c a t i o n and a c q u i s i t i o n , when a company producing one  product t h i s month c o u l d be pro-  ducing an e n t i r e l y d i f f e r e n t type of product next month. It i s f o r t h i s reason t h a t i t i s necessary t o keep abreast of the market a c t i v i t y of people whose products are i n the same g e n e r a l areas of a p p l i c a t i o n , but who  use an essen-  t i a l l y d i f f e r e n t method or p r i n c i p l e . The  next q u e s t i o n s the r e s e a r c h e r s ask are, who  the c o m p e t i t o r s ? tive  How  many are t h e r e ?  What i s t h e i r  s t r e n g t h and p o s i t i o n i n the i n d u s t r y ?  The  as  Its organization, f i n a n c i a l strength, reputation  i n the i n d u s t r y , and why  rela-  study  made of a c o m p e t i t i v e company should be as d e t a i l e d possible.  are  s i m i l a r f a c t o r s t h a t help  i t has been s u c c e s s f u l must be examihed.  determine An  attempt  should be made t o gather any s t a t i s t i c a l data on i t s s a l e s , e a r n i n g s , and p r o f i t h i s t o r y .  The  competitor's s t r e n g t h s  and weaknesses must a l s o be e v a l u a t e d . Once the major competitors are known the next i s t o determine  the market share t h a t each of them pos-  sesses at p r e s e n t .  Sometimes t h i s i n f o r m a t i o n can be  t a i n e d from a s s o c i a t i o n f i g u r e s or from government cations.  task  I f t h i s cannot be done then another  ob-  publi-  possibility  i s t o review s t a t i s t i c a l and f i n a n c i a l c o r p o r a t i o n r e p o r t s . T h i s l a t t e r approach may  be impossible i f the c o r p o r a t i o n s  65 are l a r g e and t h e i r pany can use f i e l d approaches  statements  are c o n s o l i d a t e d .  The com-  s a l e s s t a f f estimates i f these other  are not s a t i s f a c t o r y .  The  salesmen  can o f t e n  make f a i r l y accurate estimates of the percentage  of the  b u s i n e s s t h a t competitors are r e c e i v i n g i n a p a r t i c u l a r area.  T h i s method i s o b v i o u s l y s u b j e c t t o s e r i o u s e r r o r s  but i t can be used f o r approximate When i n t r o d u c i n g a new  estimates.  product a company should be  i n t e r e s t e d i n the products of i t s c o m p e t i t o r s .  The  first  q u e s t i o n that the r e s e a r c h e r should ask i s what are the c u r r e n t c o m p e t i t i v e products on the market? determined ing  Once he  t h i s he w i l l then t r y t o f i n d out who  has  i s produc-  them and what advantages or disadvantages they have  compared w i t h h i s f i r m ' s new attempt  t o determine  j u s t how  product.  He  should a l s o  strong the c o m p e t i t i v e p r o -  ducts are so that he can evaluate the o p p o r t u n i t y that a new  product would have i n the market.  I f the present  products are weak, he must decide i f the market f o r a product i s so opportune l y t o produce ing  i t themselves.  on a s i m i l a r new  determine  how  t h a t other manufacturers  are  new like-  I f the competitors are work-  product, the market r e s e a r c h e r should  soon i t w i l l be on the market and what i t s  c h a r a c t e r i s t i c s w i l l be.  The r e s e a r c h department w i l l a t -  tempt t o estimate the share of the market the new can capture immediately a f t e r i t s i n t r o d u c t i o n . o b v i o u s l y not be easy t o determine.  The  product This w i l l  r e s e a r c h e r must  66  attempt  to determine  the i n i t i a l  share  of the market, u s i n g  i n f o r m a t i o n about the c o m p e t i t o r s * p r o d u c t s , the and w e a k n e s s e s o f t h e f i r m ' s new market c o n d i t i o n s .  p r o d u c t , and  job i s to c o n t i n u a l l y t e s t  a v a i l a b l e to i t to determine product.  their  and  com-  a l l the  the proper  information  time f o r i n t r o d u c -  An a n a l y s i s o f c o m p e t i t i v e moves  g e n e r a l market c o n d i t i o n s can o f t e n i n d i c a t e t h a t the  and time  i s not r i g h t f o r t h e I n t r o d u c t i o n o f a p a r t i c u l a r t y p e product.  I t I s e v i d e n t t h a t market r e s e a r c h i s  i n t h i s aspect  b e c a u s e no d o u b t t o o l i t t l e  v a n t a g e o f a r e a d y m a r k e t f o r a new  research  product.  The  a t i o n o f t h e c o r r e c t t i m e f o r i n t r o d u c t i o n may  c o r r e c t t i m e may  has ad-  determin-  not  be  t h e r e f o r e e v e n w i t h ample r e s e a r c h  still  be m i s s e d .  o f s u c c e s s w o u l d d e f i n i t e l y be  However, t h e  of  important  meant t h a t many c o m p a n i e s i n t h e p a s t h a v e n o t t a k e n  e a s i l y determined,  be  products.  r e s e a r c h s t a f f must u s e  i n g t h e new  present  Part of  competitors' products  t h e m w i t h t h e company's The  the  Much o f t h e i n f o r m a t i o n d e s i r e d c a n  l e a r n e d from the t e c h n i c a l s e r v i c e s people.  pare  strengths  the  frequency  higher w i t h research  than  without i t . One  f i n a l e v a l u a t i o n t h a t s h o u l d be made w i t h r e -  spect t o the competitors  i s t h e human e l e m e n t .  r e l a t i v e l y simple to gather markets but  i n f o r m a t i o n about p r o d u c t s  t o know t h e c o m p e t i t i o n a d e q u a t e l y ,  must have a n i d e a o f how  It i s often and  a company  t h e c o m p e t i t o r ' s management t h i n k s  67  and operates.  The q u a l i t y o f these people i s important  because i t i s w i t h them t h a t the product d e c i s i o n s are made. (vi)  Summary An important phase of marketing r e s e a r c h i s the  examination and e v a l u a t i o n of the company's c o m p e t i t o r s . The l i t e r a t u r e i n d i c a t e s that few f i r m s analyze t h e i r 12 competition e f f e c t i v e l y .  T h i s l a c k of r e s e a r c h causes  wrong d e c i s i o n s to be made and thus r e s u l t s time and m a t e r i a l and hence money.  i n a waste of  The time may  event-  u a l l y come when most f i r m s w i l l r e a l i z e the value of c a r e ful,  o r g a n i z e d market r e s e a r c h i n new  ment.  product develop-  It i s suggested that t h i s r e s e a r c h i s o n l y one  p o r t a n t phase of the a c t i v i t i e s that must be c a r r i e d in effective Chapter  new  product p l a n n i n g .  As was  out  shown i n  I I , a knowledge of the market i s e s s e n t i a l  proper procedures i n new  im-  to the  product i n t r o d u c t i o n , and f o r  that reason marketing r e s e a r c h i s an i n t e g r a l p a r t of the process suggested i n t h i s  thesis.  12 American Management A s s o c i a t i o n , Report No. op. c i t . , p. 117.  8,  68  CHAPTER IV THE ORGANIZATION OP THE NEW PRODUCT PLANNING DEPARTMENT A.  Introduction A detailed d e f i n i t i o n of the new product planning  department w i l l be presented i n this chapter by intensivel y discussing the r e s p o n s i b i l i t i e s , a c t i v i t i e s ,  and the  i n t e r - r e l a t i o n s h i p s i t has with other departments i n the firm.  A department w i l l be developed which Is a composite  of many ideas gained through an extensive search of the literature. (i)  Study's Frame of Reference To f a c i l i t a t e a clearer understanding of the f o l -  lowing material i t w i l l be useful to establish the frame of reference from which the ideas were developed.  A new pro-  duct planning department as a separate unit i s not d e s i r able for a l l companies.  Many small and medium-size firms  could not economically establish a d i s t i n c t department i n t h e i r organization.  What then i s the cut-off point for a  department of this type?  This question cannot be answered  i n d e f i n i t i v e terms because many companies with dynamic p o l i c i e s , have established active departments which are continually keeping abreast of new ideas to f a c i l i t a t e advancement to the top bracket i n t h e i r respective i n d u s t r i e s . Many of these firms are not large i n absolute terms.  At  69  the same time many m u l t i - p l a n t , multi-product companies i n Canada do not have a separate new product planning department but rather depend upon t h e i r parent American company to supply them with t h e i r product ideas.  This l a t t e r  technique may be e n t i r e l y s u i t a b l e , depending upon the industry, but i n many cases i t cannot be the optimum method because of the differences  between the two countries.  These may be economic, raw material or p o t e n t i a l market d i f ferences. Can any c r i t e r i a be established to aid i n determining what firms can or cannot use separate new product planning departments?  To attempt to answer this question, a study  was made of publications that refer to practices i n s p e c i f i c companies.  In one a r t i c l e the writer stressed the develop-  ment of sound company p o l i c i e s to f a c i l i t a t e an organized approach to new product programs.  1  He stressed that the  company should follow c e r t a i n procedures before ing to establish a new product department.  attempt-  Management  should f i r s t analyze the long-range company objectives and knowing these goals i t should then attempt to audit the firm's resources.  In other words i t should objectively  evaluate the personnel resources and the physical f a c i l ities.  This author f e l t that with careful preparations and  1 American Marketing Association, Establishing a New Product Program. Management Report No. d, (1958), p. T .  sound p o l i c i e s ,  the form the department eventually assumes  i s not of prime importance. The approach to new product planning used by the American Standard Corporation i s s i m i l a r to the one that w i l l be suggested i n this t h e s i s .  American Standard's  department consists of a s p e c i a l committee which reports to the sales executive and which acts as the co-ordinat-  2 ing body for a l l new product developments.  The a r t i c l e ,  i n t h i s case, was written by the company's marketing manager who suggested that the important factor i n the formation of the department i s the organization and structure that i t assumes.  Thus i n the f i r s t two a r t i c l e s there are  two opposite views, one stressing company p o l i c i e s and pre liminary preparation, and the other stressing the u n i t ' s form. The use of a separate new-business development d i v i s i o n i s suggested by the marketing and technical sales manager of Minnesota Mining and Manufacturing Company.^ According to the organization chart presented, t h i s d i v i s i o n has i t s own general manager with a large s t a f f under him ranging from a product and process development department to a sales and marketing department.  This company's  d i v i s i o n had complete control of a l l new product develop2  American Marketing Association, op. c i t . , p. 57.  3  American Marketing Association, op. c i t . , p. 71.  71  merits and was s o l e l y r e s p o n s i b l e f o r a l l new product activities.  Rather than being a g u i d i n g and c o - o r d i n a t i n g  body i t had complete  functional authority.  The major con-  c l u s i o n t h a t the w r i t e r o f t h i s a r t i c l e came t o was t h a t the d i v i s i o n was an e f f e c t i v e c o r p o r a t e t o o l . The Johnson Wax Company took a s l i g h t l y approach t o t h e problem.  I t d i d not stress the organiz-  a t i o n o f the a c t i v i t y but r a t h e r emphasized a c o - o r d i n a t i n g body.  different  t h e need f o r  The w r i t e r viewed new product de-  velopment as a c o - o r d i n a t i n g and g u i d i n g r e s p o n s i b i l i t y . Du Pont views new product development as an overa l l way o f t h i n k i n g . ^  The author d i d n o t s t r e s s any par-  t i c u l a r type o f department  but r a t h e r he f e l t t h a t the  company as a whole must take a new product  attitude.  Management must be i n n o v a t i o n minded and must  encourage  o r i g i n a l t h i n k i n g on the p a r t o f a l l employees.  T h i s view  i s supported by McCarthy who claims that the form o f the o r g a n i z a t i o n does n o t matter but r a t h e r t h e dynamic i n n o v a t i n g a t t i t u d e on the p a r t o f both top management and a l l the members o f the o r g a n i z a t i o n i s the important f a c t o r .  h S. C. Johnson and Conrad Jones, "How to Organize f o r New P r o d u c t s , " Harvard Business Review. V o l . 35, May 1957, p. h9. • • 5  "Case H i s t o r y o f a New P r o d u c t , " Business Week. Febru-  ary 20, I960, p. 105.  6 E . J . McCarthy, " O r g a n i z a t i o n f o r New Product Development," i n T. L. Berg and A. Shuchman, Product S t r a t e g y and Management. H o l t , R i n e h a r t and Winston^ (1963), p. 3 8 M - .  72  McCarthy does not emphasize organization i n new product planning, but he does mention that at present are s i x basic forms that t h i s a c t i v i t y can assume.' are:  "(1)  ment);  (2)  there 7  They  a f a c i l i t a t i n g committee (usually top managea member of management, perhaps assisted by a  co-ordinator or a committee; eering department;  (k)  (3)  the research or engin-  the sales department;  (5)  a  new product development department reporting to the d i r ector of research; and (6)  a new product development de-  partment reporting to management." The proposed system of t h i s t h e s i s , w i l l be similar to the s i x t h one that McCarthy suggests.  Even though a  d i s t i n c t system i s proposed i t i s not the absolute structure that i s of prime importance.  In Chapter II i t was  shown that a new product idea must be handled i n a c e r t a i n manner.  To enable this to happen there must be some body  i n the company that w i l l carry out the a c t i v i t i e s .  The  organization of that department must be such that the required a c t i v i t i e s iently.  are carried out e f f e c t i v e l y  and e f f i c -  In an i n d u s t r i a l company any one of McCarthy's  suggested forms might be suitable depending upon the company's operations.  However, to be suitable the depart-  ment must carry out the required a c t i v i t i e s manner.  7  E . J . McCarthy, op. c i t . . p. 385  i n an optimum  73  In choosing  the proposed system of t h i s t h e s i s other  forms were not c o n s c i o u s l y e l i m i n a t e d but r a t h e r c e r t a i n tasks were v i s u a l i z e d as being necessary and a department was c o n s t r u c t e d which would perform those tasks ly. six  effective-  With minor m o d i f i c a t i o n s , numbers one, two, f i v e and o f McCarthy's l i s t s  c o u l d e a s i l y become the same system.  Only i n numbers three and f o u r i s the r e s p o n s i b i l i t y handled by an e x i s t i n g l i n e department i n the company. tages o f having  a separate  The advan-  department or group h a n d l i n g  product p l a n n i n g w i l l be presented  new  throughout t h i s t h e s i s  and p a r t i c u l a r l y i n Chapter VI. (ii)  The Importance o f C r e a t i v e  Leadership  There are p a r t i c u l a r aspects  of new product p l a n -  ning t h a t are s t r e s s e d i n the statements o f the company representatives previously cited.  I t w i l l be shown t h a t  there i s at l e a s t p a r t i a l agreement w i t h each o f these f a c tors. felt ment.  The concept t h a t Du Pont's spokesman presented i s to be e s s e n t i a l to s u c c e s s f u l new product developAs he i n d i c a t e s , management  and the company as a  whole must adopt a frame o f mind t h a t i s conducive t o poss i b l e innovation.  In h i s book Leadership  i n Administration, g  S e l z n i c k i n d i c a t e s the importance o f a c r e a t i v e management. T h i s c r e a t i v e r o l e has two a s p e c t s .  F i r s t , there  i s what  S e l z n i c k c a l l s the " i n s t i t u t i o n a l embodiment o f purpose." 8 P. S e l z n i c k , Leadership i n A d m i n i s t r a t i o n , Row, son and Company, (1957), p. 1M-9.  Peter-  This  i s the t a s k o f b u i l d i n g purpose i n t o the s o c i a l  t u r e o f the e n t e r p r i s e , or to "transform  struc-  a n e u t r a l body o f  9 men i n t o a committed o r g a n i z a t i o n . "  Du Pont has adopted  t h i s approach i n t h e i r new product development and t h i s t h e s i s s t r e s s e s i t as an important element to ensure  better  r e s u l t s w i t h a new product department. In product i n n o v a t i o n i s exercised analyzing  S e l z n i c k s a i d that  "creativity  by s t r a t e g i c and t a c t i c a l p l a n n i n g ,  that i s ,  the environment to determine how best t o use the  li e x i s t i n g r e s o u r c e s and c a p a b i l i t i e s o f the o r g a n i z a t i o n . " The  process o f "transforming  men and groups from n e u t r a l ,  t e c h n i c a l u n i t s i n t o p a r t i c i p a n t s who have a p e c u l i a r stamp, s e n s i t i v i t y , and commitment" i s u l t i m a t e l y an educ a t i o n a l process. This u n i f i e d purpose then i s not something  that  management can adopt h a s t i l y ; i t must be developed  slowly  u n t i l i t i s a way o f l i f e w i t h the employees of the company.  Koontz and O'Donnell suggest t h a t management's  influence i s transmitted  to a l l l e v e l s through a permeat-  12 ing e f f e c t . 9  They say "a phenomenon o f e x t r a o r d i n a r y  P. S e l z n i c k , op. c i t . , p. 9 0 .  10  I b i d . , p. ll+9.  11  I b i d . , p. 1 5 0 .  12 H. Koontz and C. O'Donnell, P r i n c i p l e s o f Management, McGraw-Hill Book Company, I n c . , ( 1 9 5 9 ) , p. -*f4-3.  75  importance  i s the way i n which the i n f l u e n c e o f the top  l e a d e r o f a group f i l t e r s through an o r g a n i z a t i o n s t r u c t u r e , t o u c h i n g each member as i t seeps by and l a r g e l y accounting f o r the r e p u t a t i o n o f the e n t e r p r i s e . " ^ 1  There-  f o r e product i n n o v a t i o n i s not simply the a d o p t i o n o f a separate p l a n n i n g department but r a t h e r i t i s the development o f a u n i f i e d company s p i r i t which i s t r u l y devoted t o creative (iii)  thinking. The Importance o f C o - o r d i n a t i o n and O r g a n i z a t i o n There are two f a c t o r s , o t h e r than a c r e a t i v e  s p i r i t , which are important t o the success o f a new product department.  The f i r s t i s the c o - o r d i n a t i n g a b i l i t y o f the  department and the second i s the a c t u a l form t h a t the department assumes.  The o r g a n i z a t i o n o f the new product p l a n -  n i n g department i s important w i t h r e s p e c t t o i t s a b i l i t y t o f a c i l i t a t e c o - o r d i n a t i o n and t o engender a c r e a t i v e s p i r i t . Arguments w i l l be presented i n t h i s Chapter to  show how the proposed  system does a l l o w optimum co-  o r d i n a t i o n o f a l l new product a c t i v i t i e s facilitates  and Chapter VI  and how i t a l s o  e f f e c t i v e c o n t r o l and e f f i c i e n t  communication  channels. The a b i l i t y t o c o - o r d i n a t e a l l o f these i s o f utmost importance  t o companies t h a t are developing  s e v e r a l new product ideas a t any g i v e n time.  13  activities  H. Koontz and C. O'Donnell,  Management  op. c i t . , p. ¥+3.  76  must have some system at i t s d i s p o s a l to r e g u l a t e and a l l developmental o p e r a t i o n s . be i l l u s t r a t e d t h a t any new  guide  Because of t h i s need i t w i l l  product  planning  department  must act as a c o - o r d i n a t o r . B.  Two  B a s i c Methods o f New  (i)  Product  Planning  S t r u c t u r e d System I t i s assumed t h a t there are o n l y two  tems t h a t new  product  development can adopt:  t u r e d , and the u n s t r u c t u r e d .  the s t r u c -  The f i r s t , which w i l l be  developed In d e t a i l l a t e r i n t h i s chapter, t u r e d system.  major s y s -  i s the s t r u c -  Using t h i s method, a company has some  s p e c i f i c department or group t h a t i s r e s p o n s i b l e f o r the new  product  development a c t i v i t i e s .  McCarthy claims t h a t  these departments can be c l a s s i f i e d under s i x major headings.  The proposed s t r u c t u r e w i l l be based on the  type t h a t he (ii)  lists.  An U n s t r u c t u r e d If  System  a f i r m does not have a d i s t i n c t department  r e s p o n s i b l e f o r new and  sixth  product  i n t r o d u c e i t s new  p l a n n i n g , how  products?  The  then does i t p l a n  company t h a t was  stud-  i e d i n Chapter V uses t h i s system, however, i t would be d i f f i c u l t to g e n e r a l i z e from i t s a c t i v i t i e s to a l l other firms.  The forms t h a t t h i s u n s t r u c t u r e d o p e r a t i o n c o u l d  assume range anywhere from a completely d u c t i o n scheme where l i t t l e p l a n n i n g  arbitrary  intro-  i s done, to one where  77  the o p e r a t i o n s  are e f f e c t i v e l y handled through c l o s e co-  o p e r a t i o n on the p a r t s o f the v a r i o u s departments ved.  Under t h i s l a t t e r scheme the p l a n n i n g  a c t i v i t i e s are  o f t e n the a s s i g n e d r e s p o n s i b i l i t y o f the v a r i o u s departments o r d i v i s i o n s w i t h i n a company.  invol-  product  The d i v i s i o n a l  product managers u s u a l l y a c t as d i r e c t o r s o f the new duct developments.  pro-  I t i s e v i d e n t t h a t the amount o f time  they c o u l d devote t o new product development would be l i m i t e d due t o o t h e r r e s p o n s i b i l i t i e s .  I n Chapter VI i t w i l l  be shown how t h i s system c o u l d l e a d t o n e g l e c t o f the developmental a c t i v i t i e s .  Because the v a r i a t i o n s are i n -  f i n i t e and because the procedures f o l l o w e d i n any one f i r m may vary from time t o time i t i s d i f f i c u l t t o become spec i f i c about the u n s t r u c t u r e d  form.  The common c h a r a c t e r -  i s t i c s are t h a t the r e s p o n s i b i l i t y i s not d i r e c t l y  assigned  to any i n d i v i d u a l o r group and t h e r e i s no b a s i c e v o l u t i o n ary process  t h a t the product i d e a passes through.  Chapter VI a d i s c u s s i o n w i l l be presented to show t h a t the c o n t r o l techniques  In  which w i l l  and c o - o r d i n a t i n g  attempt abil-  i t y o f t h i s form are l e s s than optimum. There are probably  many f i r m s t h a t use the u n s t r u c -  t u r e d system which have s a t i s f a c t o r y r e s u l t s . some f i r m s , because o f t h e i r inherent not r e q u i r e a new product p l a n n i n g t h a t c o u l d support  and u t i l i z e  the p r o b a b i l i t y o f success  Certainly  c h a r a c t e r i s t i c s do  department but f o r those  i t i n their  organization,  i n i n t r o d u c i n g products would  78  be g r e a t l y i n c r e a s e d . The Proposed A.  New Product Planning Department  P r e l i m i n a r y Examination o f the Company (i)  Introduction An e v a l u a t i o n o f the f i r m ' s r e s o u r c e s should be  made p r i o r t o e s t a b l i s h i n g a new product p l a n n i n g department.  T h i s i n c l u d e s a d e t a i l e d a n a l y s i s o f the p e r s o n n e l ,  productive f a c i l i t i e s ,  product l i n e and management.  To  a l l o w management t o d e s i g n a department which i s b e s t s u i t e d to  the company's c h a r a c t e r i s t i c s t h e r e must be an o b j e c t i v e  d e t e r m i n a t i o n o f each o f these f a c t o r s .  I t i s also  neces-  s a r y to examine the product p o l i c y t o ensure t h a t i t i s c l e a r l y d e f i n e d and u n i v e r s a l l y understood throughout a l l s u p e r v i s o r y and p r o f e s s i o n a l l e v e l s o f the company. Chapter  In  I I i t was mentioned t h a t the p o l i c y should s t a t e  the type o f business a c t i v i t y i n which the company w i l l engage.  I t may even i n c l u d e a d e s c r i p t i o n o f the product  scope which i s a d e f i n i t i o n o f the product l i m i t s o f each of  the manufacturing u n i t s .  to  d e s i g n a new product p l a n n i n g department a f t e r  ing  out this (ii)  Management w i l l be prepared carry-  audit.  C a r r y i n g out the a u d i t o f r e s o u r c e s There i s c o n s i d e r a b l e evidence t h a t many programs  have foundered because the business i n v o l v e d moved too q u i c k l y i n t o the e x e c u t i o n stages o f new-product develop-  79  merit without s u f f i c i e n t advance p l a n n i n g . new  Because a  product development a c t i v i t y w i l l be r e l a t i v e l y ex-  p e n s i v e , t o o low a percentage o f new product  successes  c o u l d s e r i o u s l y j e o p a r d i z e the o v e r - a l l success o f the business.  I n i t i a l l y then a company must examine i t s ob-  j e c t i v e s and ask the q u e s t i o n : accomplish w i t h t h i s program? would l i k e l y f a l l  ahead o f c o m p e t i t i o n ;  l i n e ; and (5)  ic  ization. it  (2) (*+)  t o reduce c o s t s ; to f i l l  (1) t o (3)  to  out t h e product  t o m a i n t a i n an e x i s t i n g t e c h n i c a l  organ-  These r e p l i e s appear v a l i d on the s u r f a c e but  i s b e l i e v e d t h a t a deeper  vealing.  The answers t o t h i s q u e s t i o n  i n t o the f o l l o w i n g c a t e g o r i e s :  use i d l e f a c t o r y c a p a c i t y ; get  What are we t r y i n g t o  examination would be more r e -  The answers would be those o f department managers  and they would r e p r e s e n t f e e l i n g s t h a t t h e i r department possesses some r e s o u r c e , r e a l o r imagined, which c a n be u t i l i z e d i n new o r expanded f i e l d s o f endeavor t o the u l t i m a t e b e n e f i t o f the b u s i n e s s . When the r e s e a r c h and development people say, "We need new product programs i n o r d e r t o u t i l i z e our t e c h n i c a l Ih R. S. Alexander, J . S. Cross, and R. M. Cunningham, " A p p r a i s a l o f Company Strengths and Weaknesses," Berg and Shuchman, op. c i t . , p. Ih6. See a l s o : Booz, A l l e n , and Hamilton, Product E v o l u t i o n , " op. c i t . . p. 339. See a l s o : 15  "A Program f o r New  A.M.A. Report No. 8 , op. c i t . ,  A.M.A. Report No. 8 , op. c i t . ,  p. 8 .  p. 7.  80  s t a f f s , " they are r e a l l y s a y i n g , "here are b r a i n s which can c o n t r i b u t e to the success of the b u s i n e s s , i f properly directed."  A s i m i l a r i n t e r p r e t a t i o n can be  given  to the r e p l i e s o f the other d i v i s i o n a l managers.  There-  f o r e the company must take an o b j e c t i v e i n v e n t o r y o f i t s r e s o u r c e s to see i f i n f a c t the f i r m i s capable o f a t t a i n i n g the l e v e l s p r e d i c t e d by the department managers. The knowledge t h a t i s a c t u a l l y needed i s whether or not the i d l e f a c t o r y c a p a c i t y , f o r i n s t a n c e , i s t r u l y a competitive f a c i l i t y .  Is the c a l i b e r of the r e s e a r c h  and development people t r u l y such t h a t they can step out and capture d e s i g n l e a d e r s h i p ?  Can a broader  a c t u a l l y be e f f e c t i v e l y s o l d through sales force?  product  the e x i s t i n g  field  Management w i l l decide whether t o e s t a b l i s h  a department depending upon the r e p l i e s to these The  line  questions.  answers might a l s o i n d i c a t e t h a t the p r o d u c t i v e  i t i e s have t o be expanded or t h a t more competent nel i s required.  The r e s o u r c e a n a l y s i s may  facil-  person-  also indicate  t h a t b a s i c p o l i c i e s w i l l have t o be a l t e r e d i f the  new  product department i s to f u n c t i o n e f f e c t i v e l y . L i k e any i n d i v i d u a l , each c o r p o r a t i o n has i t s pecul i a r s t r e n g t h s and weaknesses.  The f a c t t h a t none of us  l i k e s to admit to weakness i n h i s own  area o f o p e r a t i o n  makes the e s t a b l i s h m e n t o f a f a c t u a l i n v e n t o r y o f r e s o u r ces a d i f f i c u l t  task.  The  success o f a new  i t y w i l l depend i n great measure on how  product  activ-  w e l l the o r g a n i z a t i o n  81  c a p i t a l i z e s on i t s strengths and avoids overburdening the weak areas.  Therefore to be of r e a l value the inventory  of resources must be f a c t u a l . The exact nature of the inventory w i l l depend greatl y upon the type and size of the organization.  A l l that  w i l l be suggested here are areas which probably should be considered:  (1)  management;  f i n a n c i a l strength;  (*+)  sonnel resources; and (6)  (2)  physical plant;  specialized s k i l l s ; location. ^ 1  (5)  (3) per-  To evaluate manage-  ment such factors as experience i n various types and sizes of organizations, experience i n various business and market areas, and general professional s k i l l and v i t a l i t y should be considered.  As was pointed out e a r l i e r the im-  portance of a careful study of management cannot be overemphasized.  It i s not only management s k i l l that should  be evaluated but also the views that i t has on product innovation.  It may be necessary to have the audit carried  out by an external agency because of the inherent culty of management evaluating  diffi-  itself.  The analysis of the plant f a c i l i t i e s w i l l produce information with respect to productive capacities,  equip-  ment condition, and the v e r s a t i l i t y of the equipment. These data w i l l a s s i s t management i n reaching a decision as to the competitiveness  16 cit.,  of the company*s producing u n i t s .  American Marketing Association, Report No. 8, op. p. 8.  82  T h i s coupled w i t h i n f o r m a t i o n about the f i r m ' s f i n a n c i a l s t r e n g t h w i l l a l l o w management to estimate f u t u r e r e q u i r e ments and the a b i l i t y to f i n a n c e those needs. specialized s k i l l s  should i n c l u d e :  A study of  an e v a l u a t i o n o f manu-  f a c t u r i n g e n g i n e e r i n g knowledge such as t o o l , machinery, or process development s k i l l s ; product-engineering marketing  skills  an a n a l y s i s o f s p e c i a l i z e d  and an e v a l u a t i o n o f s p e c i a l  skills.  An a n a l y s i s of the e x i s t i n g product l i n e a l s o be performed when contemplating a new  product p l a n n i n g department.  should  the establishment The  of  analysis includes  a study of each product, i n terms o f I t s p o t e n t i a l s a l e s volume and p o t e n t i a l f u t u r e p r o f i t a b i l i t y .  I t also i n d i -  c a t e s the l i f e - c y c l e stage of the v a r i o u s p r o d u c t s .  This  p o r t i o n of the i n v e n t o r y would be u s e f u l i n d e s i g n i n g the o p e r a t i n g p o l i c i e s of the new  department.  The r e l a t i v e s t r e n g t h s o f the f i r m ' s resources a l s o have to be e v a l u a t e d .  Normal o p e r a t i n g or  will  accounting  d a t a w i l l be s u f f i c i e n t to supply the necessary  Information  f o r the a p p r a i s a l of the p h y s i c a l p l a n t and the  financial  s t r e n g t h of the company.  I t i s d i f f i c u l t to evaluate  management and s p e c i a l i z e d s k i l l s ; i n these areas a d e t a i l ed a n a l y s i s o f r e a l reasons  f o r past successes  and  failures  should be h e l p f u l i n p o i n t i n g out s t r e n g t h s and weaknesses. A comparison o f the p r o d u c t i v i t y of the company's manufactu r i n g f a c i l i t i e s w i t h those of other s i m i l a r companies w i l l often y i e l d u s e f u l information.  I n the f i n a l a n a l y s i s ,  the  83  e v a l u a t i o n o f the company's r e s o u r c e s i s made by management.  I t s d e c i s i o n s p e r t a i n i n g to the s t r e n g t h s o f the  f i r m , i n the areas s t u d i e d , w i l l have an important ing  upon the success o f the new department.  bear-  The o r g a n i z -  a t i o n o f the new product p l a n n i n g department w i l l be designed  t o c a p i t a l i z e on t h e f i r m ' s s t r e n g t h s and t o a v o i d  i t s weaknesses, thus the c o r r e c t e v a l u a t i o n o f these r e sources i s i m p e r a t i v e . B.  E s t a b l i s h m e n t o f the Department (i)  Introduction I t has been shown i n the previous chapter t h a t  p r i o r t o e s t a b l i s h i n g a new product p l a n n i n g department, management must analyze the company's o b j e c t i v e s , the product p o l i c y , and the f i r m ' s r e s o u r c e s .  With t h i s background  I n f o r m a t i o n , management i s now prepared t o e s t a b l i s h a department and s e t f o r t h i t s o r g a n i z a t i o n a l d e t a i l s .  I t has  been assumed i n t h i s t h e s i s t h a t t h e company which w i l l be adopting the suggested f i r m i n the Chemical  form i s a m u l t i - p l a n t , m u l t i - p r o d u c t  Industry.  T h i s assumption i s made t o  i l l u s t r a t e t h a t the f i r m would be innovation-minded of  because  the r a p i d growth o f t h i s i n d u s t r y and because o f the  l a r g e r e s e a r c h investment  t h a t i s made t o develop new pro-  ducts . An attempt w i l l be made to develop t h a t i s f l e x i b l e t o enable companies.  a department  i t s a d a p t a t i o n to most i n d u s t r i a l  I t must be a c o - o r d i n a t i n g u n i t , i t must com-  8k  municate a l l new  product i n f o r m a t i o n throughout  the f i r m ;  i t must be e f f e c t i v e l y c o n t r o l l e d ; i t must have enough a u t h o r i t y to a c t to enable e f f e c t i v e o p e r a t i o n ; and i t must produce more c o n s i s t e n t r e s u l t s w i t h the new  product  i n t r o d u c t i o n schemes. (ii) a)  D e t a i l s of the New  The department's form and  I n Chapter partments  Product P l a n n i n g Department  I I i t was  staff  i l l u s t r a t e d how  s e v e r a l de-  of the f i r m become i n v o l v e d w i t h the product  i d e a as i t p r o g r e s s e s towards i t s f i n a l form. company takes an i n t e g r a t e d approach,  the new  Because the product p l a n -  n i n g department has marketing, l e g a l , and p r o d u c t i o n i n f o r mation submitted to I t when r e q u i r e d . The new  product p l a n -  n i n g department should be o r g a n i z e d to minimize mental  any depart-  c o n f l i c t s because of the need f o r c o n t i n u a l c o n t a c t  w i t h the l i n e  departments.  The i n t e g r a t e d approach been emphasized throughout  to new  product p l a n n i n g has  the t h e s i s , thus the department  c o - o r d i n a t i n g these a c t i v i t i e s w i l l be d e a l i n g w i t h a l l major l i n e and s t a f f departments at some time i n the p r o c e s s . The department w i l l a l s o be working w i t h top management t o o b t a i n approval f o r c o n t i n u i n g from one stage to the next with a p a r t i c u l a r project.  For these reasons the d e p a r t -  ment w i l l be r e p o r t i n g to the e x e c u t i v e committee of the company and thus, as w i l l be shown p r e s e n t l y i n t h i s chapt e r , i t w i l l be a s t a f f department w i t h f u n c t i o n a l  authority.  To c o - o r d i n a t e new product decided to e s t a b l i s h  development, i t was  a committee system.  There w i l l be  one permanent member on the committee who a c t s as the director. training  He would normally  be someone w i t h s e v e r a l years  i n many phases o f t h e o r g a n i z a t i o n and one w i t h  the a b i l i t y t o i n i t i a t e , l e a d , and c o - o r d i n a t e .  I t would  be advantageous i f the d i r e c t o r was f a m i l i a r w i t h the o p e r a t i o n o f the r e s e a r c h and development department. T h i s background would a l l o w him to evaluate the product ideas coming from t h i s source more i n t e l l i g e n t l y . The other members o f the committee should be r e p r e s e n t a t i v e s o f the r e s e a r c h and development, marketing, p r o d u c t i o n , and any other r e l e v a n t departments i n the firm.  I t i s recommended t h a t they be experienced men i n  t h e i r f i e l d w i t h the assigned r e s p o n s i b i l i t y to a c t primarily  as new product men but t o do so i n c o n j u n c t i o n w i t h  the a c t i v i t i e s o f t h e i r department.  They w i l l s t i l l be  l i n e employees but t h e i r c h i e f r e s p o n s i b i l i t y w i l l be t o act  as l i a i s o n o f f i c e r between t h e i r department and the new  product  p l a n n i n g department.  T h e r e f o r e , the m a j o r i t y o f  t h e i r time w i l l be devoted t o the new product ment a c t i v i t i e s o f t h e i r  develop-  division.  The members o f the committee w i l l s t i l l remain updated on a l l major proceedings  be a b l e t o  i n t h e i r departments  T h i s d u a l c o n t a c t w i l l a l l o w the committee r e p r e s e n t a t i v e s to remain t e c h n i c a l l y  competent w h i l e c o - o r d i n a t i n g the  86  product development o p e r a t i o n s .  The maintenance o f the  t e c h n i c a l a b i l i t y w i l l permit more i n t e l l i g e n t  evaluation  o f the problems o c c u r r i n g i n t h e i r r e s p e c t i v e departments. T h i s i s p a r t i c u l a r l y important i n i n d u s t r i a l  companies  where the committee i s d e a l i n g w i t h customers who a r e t e c h n i c a l l y o r i e n t e d and who communicate  e f f e c t i v e l y only  w i t h people who speak the same jargon. The committee now c o n s i s t s o f f o u r o r f i v e p e r s o n n e l . I t f u n c t i o n s as the c o - o r d i n a t i n g body o f a l l new product development i n the f i r m o r r e s p e c t i v e d i v i s i o n .  The r e f e r -  ence t o a d i v i s i o n I n f e r s t h a t i f the f i r m i s a m u l t i p l a n t o p e r a t i o n , i t would l i k e l y be d i v i d e d i n t o divisions  different  ( i . e . p l a s t i c s , p e t r o - c h e m i c a l s , o r g a n i c chem-  i c a l s ) and t h e r e p r o b a b l y would be a committee f o r each one.  This p o s s i b i l i t y i s dependent upon the s i z e o f the  f i r m and a l s o on how i t c a r r i e s out i t s product development o p e r a t i o n s .  I f each d i v i s i o n i s operated as an auton-  omous business i t would then be f e a s i b l e to have a new product p l a n n i n g department f o r each d i v i s i o n .  One of  the advantages o f t h i s system i s that i t i s s m a l l and f l e x i b l e enough t o be used i n each d i v i s i o n o f the f i r m i f necessary. b)  The scope o f the new product department What i s a new product?  ness does the committee deal?  With what degree o f new-  The answers t o these  q u e s t i o n s a r e o f t e n d i f f i c u l t t o determine w i t h  certainty  87 as i n d i c a t e d i n Chapter  I.  To a s s i s t i n d e f i n i n g what p r o -  ducts the department w i l l d e a l w i t h , i t w i l l be u s e f u l t o  17 present a c h a r t presented by Johnson and Jones.  Certain  a c t i v i t i e s on the c h a r t are d e f i n i t e l y p a r t of the r e s p o n s i b i l i t i e s of the marketing partments.  and r e s e a r c h and development de- ,  However, i n the c l a s s i f i c a t i o n s ,  s i o n , " "product l i n e e x t e n s i o n ,  11  "market exten-  and " d i v e r s i f i c a t i o n , " i t  i s evident t h a t these areas are under the r e s p o n s i b i l i t y o f new product development.  The category "improved  product,"  i s a combined marketing, r e s e a r c h and development, and new product p l a n n i n g department r e s p o n s i b i l i t y .  The a c t i v i t i e s  i n the bottom row are market i n v e s t i g a t i o n problems and those i n the r i g h t column are p r i m a r i l y r e s e a r c h and development a c t i v i t i e s ,  t h e r e f o r e i n the lower r i g h t - h a n d corner  t h e r e i s both a new product and a new market. When the term new product i s used i n c o n n e c t i o n w i t h the new product p l a n n i n g department, i t r e f e r s t o products w i t h at l e a s t some t e c h n o l o g i c a l m o d i f i c a t i o n which are being o f f e r e d t o the same o r new markets. c)  O r g a n i z a t i o n a l Aspect o f the New P l a n n i n g Department  Product  The r e l a t i o n s h i p o f t h i s department t o the other maj o r departments o f the company was i l l u s t r a t e d i n Chapter I I by d i s c u s s i n g the procedures  17  t h a t are f o l l o w e d as the product  Johnson and Jones, op. c i t . . p. 5 2 .  Product objectives  No t e c h n o l o g i c a l change  Improved technology  New technology  reformulation  replacement (seek new and better ingredients f o r p r e s e n t products)  remerchandising (to i n c r e a s e s a l e s to consumers of types now served by the company)  improved product (to improve present products for greater u t i l i t y and mercha n d i s a b i l i t y to consumers)  product l i n e extension (broaden the l i n e o f f e r e d t o present consumers through new technology)  new use ( f i n d new c l a s s e s of consumers f o r present products)  market e x t e n s i o n (reach new c l a s s e s of consumers by modifying present products)  diversification (to add t o the c l a s s e s o f consumers served by d e v e l o p i n g new t e c h n i c a l knowledge)  no market change  strengthened market  new market  oo  89  passes through i t s e v o l u t i o n a r y process. these processes,  In c a r r y i n g out  there are c e r t a i n b a s i c o r g a n i z a t i o n a l  p r i n c i p l e s t h a t must be f o l l o w e d .  I t has  been s t r e s s e d  t h a t t h i s department acts as a c o - o r d i n a t o r  o f a l l new  product development schemes but to do t h i s there must be communication w i t h other areas of the f i r m ; there must be c o n t r o l of the o p e r a t i o n s  and  there must be c e r t a i n  authority relationships. 1.  Authority  Relationships  Confusion  has  a r i s e n both i n l i t e r a t u r e and  in  management p r a c t i c e as to what l i n e and s t a f f are, and r e s u l t s of t h i s c o n f u s i o n have more than semantic 18 cance.  There i s a tendency to regard l i n e and  types of departments. departments may  the  signifistaff  as  Although i t i s t r u e t h a t c e r t a i n  stand i n a predominantly l i n e or  p o s i t i o n w i t h r e s p e c t to other  staff  departments, l i n e and  are a u t h o r i t y r e l a t i o n s h i p s and not groupings of  staff  aetivi-  19 ties.  A s a t i s f a c t o r y way  to r e g a r d l i n e - s t a f f  relation-  20 ships was man  was  o u t l i n e d by Hamilton.  He  s o l e l y r e s p o n s i b l e f o r doing  stated that a l i n e the main work of  o r g a n i z a t i o n i n the p r e s c r i b e d time, of the 18  Koontz and O'Donnell, op.  19  I b i d . , p.  c i t . . p.  the  prescribed  14-9.  137.  20 J . Hamilton, " L i n e - S t a f f R e l a t i o n s h i p s , " i n Organi z a t i o n f o r Management. Canadian I n s t i t u t e o f - C h a r t e r e d Accountants, ( 1 9 6 2 ) , p. 4-7.  90  q u a l i t y and a t a competitive provide  cost.  The s t a f f man was t o  the l i n e man w i t h s p e c i a l i z e d advice  and a s s i s t -  ance i n a way t h a t d i d not r e l i e v e the l a t t e r o f t h i s responsibility.  T h e o r e t i c a l l y a s t a f f department i s p u r e l y  21 a d v i s o r y w i t h no a u t h o r i t y delegated  to i t .  A department w i t h no delegated  a u t h o r i t y would not  be able to e f f e c t i v e l y c a r r y out a l l o f the a c t i v i t i e s r e q u i r e d f o r new product development.  I t i s for this  reason t h a t the s t a f f department which w i l l be proposed i n t h i s chapter, it.  has f u n c t i o n a l a u t h o r i t y delegated  to  F u n c t i o n a l a u t h o r i t y i s not r e s t r i c t e d t o the manager  of a p a r t i c u l a r type o f department; i t may be e x e r c i s e d by  22 line,  s e r v i c e , or s t a f f department heads. For the new product planning  department to operate  e f f e c t i v e l y and f o r i t t o c a r r y out a l l o f i t s r e s p o n s i b i l i t i e s described  i n Chapter I I , i t must possess a  l i m i t e d amount o f a u t h o r i t y . t h a t i t has delegated  The f u n c t i o n a l a u t h o r i t y  t o i t i s the power o f one manager  over s p e c i f i e d p r o c e s s e s ,  p o l i c i e s , o r other matters r e -  l a t i n g to the implementation o f a c t i v i t i e s undertaken by  23 personnel i n other departments.  T h i s concept v i o l a t e s  the b a s i c p r i n c i p l e o f u n i t y o f command but there are 21 Koontz and O'Donnell, op. c i t . , p. 1^9. 22  J b i d . , p.  23  Loc. c i t .  Ik7.  s e v e r a l a c c e p t a b l e reasons why t h i s p r i n c i p l e can be v i o l a t e d a t c e r t a i n times.  Two of the reasons  t h a t Koontz  and O'Donnell present are p a r t i c u l a r l y v a l i d i n t h i s thesis.  U n i t y o f command can be v i o l a t e d when t h e r e i s  a l a c k o f a b i l i t y o f the l i n e o f f i c i a l s t o s u p e r v i s e the processes  and secondly when t h e r e i s a danger o f d i v e r s e  i n t e r p r e t a t i o n s o f p o l i c i e s and procedures. There i s a s u c c e s s i v e s e t o f s t e p s d e s c r i b e d by Koontz which are normally f o l l o w e d as a l i n e department  2' g r a d u a l l y g i v e s up a u t h o r i t y over p a r t i c u l a r a c t i v i t i e s . • A d e s c r i p t i o n of these stages may be u s e f u l t o v i s u a l i z e how a f i r m would g r a d u a l l y e s t a b l i s h a d i s t i n c t  depart-  ment of s p e c i a l i s t s to handle some a c t i v i t y such as new product  planning.  The f i r s t m o d i f i c a t i o n o f the l i n e -  s t a f f r e l a t i o n s h i p o r d i n a r i l y occurs when the s t a f f man's s u p e r i o r delegates  a u t h o r i t y t o him t o t r a n s m i t  infor-  mation, p r o p o s a l s , and advice d i r e c t l y t o the l i n e execut i v e ' s subordinates.  The second m o d i f i c a t i o n occurs when  the s p e c i a l i s t not o n l y t r a n s m i t s i n f o r m a t i o n and advice to the l i n e managers but a l s o c o n s u l t s w i t h them t o show them how the i n f o r m a t i o n should be used o r how the recommendations should be put i n t o e f f e c t .  The f i n a l step o f  the t r a n s i t i o n to f u n c t i o n a l a u t h o r i t y i s accomplished when the s t a f f man i s delegated  s p e c i f i c authority to  2h  Loc. c i t .  25  Koontz and O'Donnell, op. c i t . . p. 1^8.  92  p r e s c r i b e processes,  methods, or even p o l i c y to be  i n a l l s u b d i v i s i o n s of e i t h e r s t a f f or o p e r a t i n g Therefore,  i n e s t a b l i s h i n g a new  followed  departments.  product planning  partment, the a u t h o r i t y t h a t must be delegated  de-  to i t must  encompass a l l of the f a c t o r s o u t l i n e d i n the f i n a l modif i c a t i o n described  above.  The  need f o r t h i s a u t h o r i t y i s  seen when the v a r i o u s product p r o j e c t s are being i n t o an agenda. initiate  The  fitted  committee must have the a u t h o r i t y t o  the study i n i t s p r e l i m i n a r y  stages to a l l o w i t  to decide which o f the p r o j e c t s i s to be undertaken f i r s t . To enable e f f e c t i v e e v a l u a t i o n of new  product p r o j e c t s ,  the committee must a l s o have the a u t h o r i t y to c a l l i n outside consultants  where i t f e e l s i t i s necessary.  would be r e a l i s t i c  i n s i t u a t i o n s where the departments  i n c o n f l i c t over important The  committee must have a u t h o r i t y to make Inde-  committee to which i t r e p o r t s , and  an important aspect  of the a u t h o r i t y delegated  ment because i t means t h a t i t can expedite  This i s  to the  before  To be most e f f e c t i v e ,  the committee must r e a l i z e i t s l i m i t s and  a c t w i t h i n them.  v i o l a t i o n of these l i m i t s w i l l o n l y cause i l l w i l l  tween the department and  depart-  slow moving p r o -  j e c t s and t h a t i t can a l s o stop f a i l i n g p r o j e c t s they become i n o r d i n a t e l y expensive.  execut-  the department  managers whenever i t f e e l s t h a t i t i s n e c e s s a r y .  Any  are  issues.  pendent recommendations to the v i c e - p r e s i d e n t or ive  This  be-  the l i n e departments which w i l l  93  d e f e a t the whole purpose of the p l a n n i n g body. The most important  area of a u t h o r i t y t h a t must be  granted to the product p l a n n i n g department i s the power t o stop u n s a t i s f a c t o r y p r o j e c t s .  T h i s would normally be done  i n c o n j u n c t i o n w i t h the a p p r o p r i a t e l i n e department manager.  The i m p l i c a t i o n i s t h a t the product p l a n n i n g com-  m i t t e e , which i s f a m i l i a r w i t h a l l aspects of the progress on a p a r t i c u l a r i d e a , can perhaps see t h a t the market a n a l y s i s has shown beyond a doubt t h a t the market f o r a p a r t i c u l a r product i s not e x t e n s i v e enough to make i t profitable.  With t h i s knowledge, the committee can then go  to the r e s e a r c h and development department and p o i n t these f a c t s out t o i t and thus terminate the p r o j e c t further cost.  T h i s a b i l i t y t o see a l l aspects of the pro-  duct's development i s one of the most important o f the proposed  without  scheme.  advantages  Many companies o p e r a t i n g without  t h i s department would not be able to r e c o g n i z e these  facts  as r a p i d l y and thus the p r o j e c t might go on to more advanced stages b e f o r e being 2.  terminated.  Communication Throughout the product development p r o c e s s , i t  i s of major importance  t h a t key departments and  u a l s be kept informed o f p r o g r e s s .  The new  individ-  product p l a n -  n i n g department acts as the communications c e n t r e f o r the f i r m on a l l new  product a c t i v i t i e s .  of the committee's meetings,  The minutes o f each  where the progress o f product  p r o j e c t s i s d i s c u s s e d , must be d i s t r i b u t e d to a l l top personnel i n a l l departments as r a p i d l y as p o s s i b l e . new product  I f the  department e s t a b l i s h e s an agenda s t a t i n g when  v a r i o u s product  development a c t i v i t i e s w i l l commence i t  must a l s o be d i s t r i b u t e d w i t h the minutes. One o f the p r i n c i p a l causes f o r the f a i l u r e o f business  planning  munication. planning  i n p r a c t i c e i s the l a c k o f p l a n n i n g com-  The c i t e d authors  present  a p r i n c i p l e of  communication which s t a t e s t h a t the best  planning  occurs when everyone r e s p o n s i b l e f o r i t has access  t o com-  p l e t e i n f o r m a t i o n a f f e c t i n g h i s area o f p l a n n i n g .  This  p r i n c i p l e n e c e s s a r i l y i m p l i e s t h a t o b j e c t i v e s , premises, p o l i c i e s , plans o f others which a f f e c t a manager's p l a n s , and other i n f o r m a t i o n must be a v a i l a b l e .  The i n f o r m a t i o n  must be as s p e c i f i c and thorough as p o s s i b l e . probable  "It i s  t h a t the person r e q u i r e d to execute a p l a n w i l l  do h i s best  job i f he understands the p l a n i n i t s e n t i r e -  t y , i n c l u d i n g the o b j e c t i v e to be gained,  the g e n e r a l and  d e f i n i t e means o f a t t a i n i n g i t , the jobs others are ex27 pected  t o do, and h i s own assignment. I t i s t h e r e f o r e important  i n f o r m a t i o n on a l l product  11  that complete and c o n c i s e  development a c t i v i t i e s o f the  f i r m be d i s t r i b u t e d r e g u l a r l y t o the c h i e f departmental 26  Koontz and O'Donnell, op. c i t . . p. 567.  27  I b i d . , p. 568.  95  p e r s o n n e l i n the f i r m .  Communications  between key areas  ( i . e . r e s e a r c h , p r o d u c t i o n , and marketing) w i l l be ed  by the p e r s o n a l r e p o r t s o f the members o f the  who  assist-  committee  w i l l be g u i d i n g a c t i v i t i e s w i t h i n t h e i r r e s p e c t i v e  departments. The importance o f a communications' emphasized. to  To enable the new  system must be  product p l a n n i n g  department  a c t as the c o - o r d i n a t i n g body t h a t i t i s designed to be,  i t must have an e f f i c i e n t communications' disposal.  system at i t s  T h i s system must be e s t a b l i s h e d when the d e p a r t -  ment i s o r g a n i z e d to a l l o w i t t o a t t a i n i t s o b j e c t i v e s . When the communications  system i s e s t a b l i s h e d p l a n s must  a l s o be made to overcome the problems i n h e r e n t i n c r o s s wise r e l a t i o n s h i p s .  These r e l a t i o n s h i p s occur i n any organ-  i z e d e n t e r p r i s e between the s u b o r d i n a t e s o f a g i v e n manager and the p e r s o n n e l i n o t h e r d i v i s i o n s who ions o f e q u a l , lower, or s u p e r i o r s t a t u s . o r g a n i z a t i o n i t would not be r e a l i s t i c of  may  occupy p o s i t -  In a  complex  to f o l l o w the r o u t e  the t r a d i t i o n a l o r g a n i z a t i o n c h a r t f o r a l l communication.  Koontz and O'Donnell suggest t h a t t h e r e are t h r e e ways t o 28 minimize the problems encountered.  The f i r s t  i s an under-  s t a n d i n g between s u p e r i o r s t h a t c r o s s w i s e r e l a t i o n s h i p s w i l l be encouraged; the second requirement i s an understanding  t h a t s u b o r d i n a t e s w i l l r e f r a i n from making p o l i c y com-  mitments 28  beyond t h e i r a u t h o r i t y ; and f i n a l l y t h e r e must be  Koontz and O'Donnell, op. c i t . p. *+21.  96  an agreement t h a t subordinates w i l l keep t h e i r s u p e r i o r s informed o f t h e i r i n t e r d e p a r t m e n t a l business c o n t a c t s . Because o f the nature of the a c t i v i t i e s o f the new  product p l a n n i n g department t h e r e i s a n e c e s s i t y f o r  crosswise communication.  T h i s means t h a t the committee  must never o v e r - s t e p the boundaries  of the  understandings  i t has w i t h the other departments o f the company.  To  en-  sure success of the committee's o p e r a t i o n s there must be e f f i c i e n t communication but to o b t a i n t h i s there must be mutual c o - o p e r a t i o n on the p a r t o f the f i r m ' s departments. 3.  Control The  committee must have r e s t r i c t i o n s p l a c e d on  i t w i t h r e s p e c t to the f i n a n c i a l l i m i t of the product j e c t s i t can a u t h o r i z e .  pro-  I n other words, p r i o r to approv-  ing expenditures of a c e r t a i n amount, the committee must r e c e i v e the a p p r o v a l of the e x e c u t i v e committee.  How-  ever, t h i s c o n t r o l must be f l e x i b l e enough to permit  the  new  fac-  product committee to operate e f f e c t i v e l y without  ing excessive delays.  This control f a c t o r i s further  accentuated by the v a r i o u s approvals t h a t are r e q u i r e d as the product i d e a progresses from one  stage to the next.  T h i s means t h a t top management i s m a i n t a i n i n g a p e r i o d i c review of a l l developmental  proceedings.  The department f o l l o w s other procedures to a c t as c o n t r o l s .  t h a t tend  The progress r e p o r t s t h a t are  97 d i s t r i b u t e d to the departments would keep a l l areas aware o f the progress and expenditures being made on each p r o ject.  One important c o n t r o l t h a t i s i n h e r e n t i n t h e system  i s the makeup o f the committee.  With r e p r e s e n t a t i v e s o f  each o f the major l i n e departments on the committee, t h e r e i s an i m p l i c i t c o n t r o l which would tend to prevent  exces-  s i v e expenditures being made i n any one area. I n a d d i t i o n to these p r o c e d u r a l and o r g a n i z a t i o n a l c o n t r o l s t h a t a r e i n c o r p o r a t e d i n t o the department, t h e r e are c e r t a i n b a s i c c o n t r o l s which should be a p a r t o f any corporate structure.  The f i r s t r e f e r s to the product  p o l i c y t h a t has been mentioned e a r l i e r .  I t i s w i t h i n the  boundaries o f t h i s p o l i c y t h a t a l l o f the department's o p e r a t i o n s must l i e ;  i t must not a t any time approve pro-  j e c t s which a r e v i o l a t i o n s o f t h i s p o l i c y .  Because t h e  new product p l a n n i n g o p e r a t i o n s a r e i n t e g r a t e d , the p o l i c i e s o f t h e other departments o f t h e f i r m w i l l the o p e r a t i o n s o f i t s u b s t a n t i a l l y . l i k e l y be the most i n f l u e n t i a l .  influence  The r e s e a r c h p o l i c y  I n the Chemical i n d u s t r y ,  the r e s e a r c h people are r e s p o n s i b l e f o r a major p o r t i o n o f new product i d e a s .  Thus a p o l i c y which r e s t r i c t s the  amount o f o r i g i n a l experimental work that a company w i l l undertake, w i l l g r e a t l y e f f e c t the o p e r a t i o n s o f the p r o duct p l a n n i n g department.  These r e s t r i c t i o n s w i l l  the range o f product i d e a s t h a t t h e department can approve.  control  98 The second c o n t r o l i s the o p e r a t i n g budget o f the new product p l a n n i n g department.  The l i m i t s o f the com-  m i t t e e ' s o p e r a t i o n s w i l l be d i c t a t e d by the budget t h a t management a l l o c a t e s t o the department.  I t i s probable  t h a t the work the r e s e a r c h and development, marketing r e s e a r c h , and the t e c h n i c a l s e r v i c e s ' departments do i n new product development w i l l be charged t o the committee. Thus w i t h a c o s t i n g system such as t h i s and a l i m i t e d budget, the number o f development p r o j e c t s t h a t can be c a r r i e d out w i l l be r e s t r i c t e d .  This c o n t r o l i s necessary  because a f i r m must attempt to a l l o c a t e funds a c c o r d i n g t o the  b e n e f i t s i t r e c e i v e s from the department's o p e r a t i o n s .  With a department such as t h i s i t i s o f t e n  difficultto  measure the r e t u r n s , thus many times the budget a l l o c a t e d to new product development may to do a s a t i s f a c t o r y job.  be l e s s than i s n e c e s s a r y  T h i s i s another f a c t o r which  i l l u s t r a t e s the importance f o r the proper frame o f mind towards i n n o v a t i o n on the p a r t o f management.  I t must  accept the premise t h a t the r e s u l t s o f the department  may  be d i f f i c u l t to determine i n the s h o r t - r u n and thus i t i s the  l o n g - r u n e f f e c t s t h a t management should be concerned  with. d)  Summary A new product p l a n n i n g department can be most  e f f e c t i v e when i t s t e e r s , a p p r a i s e s , e x p e d i t e s , and communicates.  I t should not be allowed to make t e c h n i c a l  99  d e c i s i o n s on any aspect o f the product. for  These are matters  t e c h n i c i a n s to decide w i t h i n t h e i r r e s p e c t i v e depart-  ments.  I t must be remembered t h a t the new product p l a n -  ning department has f u n c t i o n a l a u t h o r i t y , not d i r e c t  line  a u t h o r i t y , and because o f t h i s i t should s t r i v e f o r coo p e r a t i o n w i t h a l l departments i n the f i r m . The product p l a n n i n g department should be kept as simple as p o s s i b l e .  There i s no doubt a constant temp-  t a t i o n t o o v e r p r o c e d u r i z e product development. worthy p r i n c i p l e i s : cedures  A note-  the s i m p l e r the developmental  pro-  the more time the committee has f o r p r o j e c t  One important facilitates  advantage o f the proposed  review.  system which  more e f f e c t i v e o p e r a t i o n i s i t s f l e x i b i l i t y .  I t i s e v i d e n t t h a t a l l new product i d e a s w i l l not r e q u i r e the same h a n d l i n g so the committee must be capable o f d e a l i n g w i t h s p e c i a l cases.  The f l e x i b i l i t y can be es-  t a b l i s h e d when the l i m i t s o f a u t h o r i t y are delegated i n the f o r m a t i o n o f the committee. r e f e r s t o the a b i l i t y a t i o n and t h i s a b i l i t y  F l e x i b i l i t y i n operation  to adapt to any new product can be a t t a i n e d through  situ-  effective  r e l a t i o n s h i p s w i t h the other departments o f the f i r m . be e f f i c i e n t  To  i n new product development work, the t e c h -  niques o f the committee can never become r i g i d because i f they do, the committee w i l l l o s e i t s meaning.  29 American Marketing op. c i t . . p. 65.  A s s o c i a t i o n , Report No. 8  100  CHAPTER V A STUDY OF NEW PRODUCT PLANNING PROCEDURES IN A LARGE CANADIAN CHEMICAL COMPANY A.  Introduction (I)  Purpose o f the study A d e t a i l e d d i s c u s s i o n was presented i n Chapter  I I to c l a r i f y  the v a r i o u s phases  t h a t new product i d e a s  pass through p r i o r to becoming commercialized p r o d u c t s . An a n a l y s i s o f product p o l i c y and i t s f u n c t i o n s was presented t o a c t as a guidepost f o r t h a t d i s c u s s i o n .  The  r o l e t h a t t h e p o l i c y p l a y e d i n new product development became apparent as the v a r i o u s i d e a stages were encountered. To present the d e t a i l s o f the product idea's e v o l u t i o n as c l e a r l y as p o s s i b l e , i t was necessary t o f o l l o w a r a t h e r r i g i d format.  The procedures f o l l o w e d by a l e a d i n g chem-  i c a l company i n Canada were s t u d i e d t o determine the v a l i d i t y o f the m e t h o d i c a l p r o c e s s . The o b j e c t i v e s o f t h e company study were f i r s t to determine which department for  o r departments  were r e s p o n s i b l e  new product development and how they were o r g a n i z e d ;  and second to determine the major sources o f product ideas and the process those ideas pass through b e f o r e becoming f i n i s h e d products.  I n a d d i t i o n to the two major o b j e c t -  i v e s , i t was a l s o d e s i r e d t o study the marketing r e s e a r c h  101  o p e r a t i o n o f t h e company and to determine i t s r o l e i n new product  planning.  (ii)  Methodology o f t h e Study A s e r i e s o f i n t e r v i e w s was arranged  company r e p r e s e n t a t i v e t o gather to  the i n f o r m a t i o n r e q u i r e d  a t t a i n t h e o b j e c t i v e s i n the previous  i n d i v i d u a l was a f i e l d experience  with a  paragraph.  This  s a l e s manager w i t h s e v e r a l years  i n t h e s a l e s and marketing departments.  The  company's A s s i s t a n t Canadian Sales Manager i n d i c a t e d t h a t the i n d i v i d u a l t o be i n t e r v i e w e d was completely w i t h the f i r m ' s new product  planning  familiar  a c t i v i t i e s because  o f a v a r i e d background w i t h t h e f i r m . The  field  s a l e s manager (the s u b j e c t ) was  informed  o f the r o l e t h a t the i n t e r v i e w would p l a y i n the t h e s i s . He was a l s o t o l d t h a t the name o f the company would not appear w i t h the m a t e r i a l o f the i n t e r v i e w .  This  stipu-  l a t i o n was i n s i s t e d upon p r i o r t o p r e s e n t i n g any i n f o r m a t i o n regarding  the firm's  operations.  With the p e r m i s s i o n o f the s u b j e c t , a tape r e c o r d e r was used t o c o l l e c t a l l i n f o r m a t i o n g i v e n .  To make him  f e e l at ease, t h e o n l y p a r t o f t h e r e c o r d e r t h a t was v i s i b l e to him was a s m a l l microphone p l a c e d o f f to the s i d e o f h i s desk.  The i n t e r v i e w was more l i k e an i n f o r m a l d i s c u s s i o n  because o f the l a c k o f notes and other The new product  equipment.  s u b j e c t was encouraged t o t a l k about the company's p l a n n i n g o p e r a t i o n s w i t h an o c c a s i o n a l p o i n t e d  102  q u e s t i o n t o keep him on the d e s i r e d t o p i c . of ing  i n t e r v i e w i n g i t was f e l t  With t h i s method  t h a t the atmosphere of the meet-  would be more r e l a x e d and, i f l e f t r e l a t i v e l y f r e e t o  roam, the s u b j e c t might cover some aspects t h a t were not thought to  o f by the i n t e r v i e w e r .  P r e c a u t i o n s had to be taken  prevent the s u b j e c t from d i g r e s s i n g too f a r from the  topic.  To c o n t r o l the d i g r e s s i o n , a c h e c k l i s t was used and  at opportune moments a p o i n t e d q u e s t i o n was asked  to r e -  d i r e c t the s u b j e c t ' s d i s c u s s i o n . (iii)  O r g a n i z a t i o n o f the Chapter The m a t e r i a l presented i n t h i s chapter w i l l  low the b a s i c o u t l i n e used i n Chapter  fol-  II. Initially a  b r i e f background o f the growth of the company w i l l be presented; t h i s w i l l  i n c l u d e statements  p o s i t i o n of the company's products to  o f the c o m p e t i t i v e  and estimates w i t h r e s p e c t  the r e l a t i v e s i z e of the f i r m ' s p r o d u c t i o n  facilities.  A d i s c u s s i o n o f the company's new product operations w i l l material.  planning  be presented f o l l o w i n g t h i s background  The headings i t w i l l be o r g a n i z e d under a r e :  the product p o l i c y ; product  i d e a sources; s c r e e n i n g stage;  s p e c i f i c a t i o n stage; and the development and t e s t i n g  stage.  The o r g a n i z a t i o n a l p r i n c i p l e s t h a t are r e l e v a n t i n new product p l a n n i n g o p e r a t i o n s w i l l be d i s c u s s e d i n the second s e c t i o n o f t h i s chapter. i n this section are:  The t o p i c s that w i l l be covered  the a u t h o r i t y r e l a t i o n s h i p s ; the  communications system; and the c o n t r o l  procedures.  103  P r i o r to the concluding  remarks, d e t a i l s o f the company's  marketing r e s e a r c h o p e r a t i o n w i l l a l s o be B.  discussed.  Background o f the Company (i)  H i s t o r i c a l Development The  parent American company was  Canadian Government i n the l a t e n i n e t e e n  asked by  the  t h i r t i e s to  es-  t a b l i s h a s y n t h e t i c rubber p l a n t i n Canada. was  turned  I n 194-5  over to the f e d e r a l government to be  as a crown c o r p o r a t i o n . been c o n s t r u c t e d  was  The  this  operated  s i t e on which t h i s p l a n t  a n a t u r a l s a l t bed.  had  Because a v a s t  number of the company's products were dependent upon s a l t , i t was  decided  produce v a r i o u s  to e s t a b l i s h another p l a n t i n Canada to i n d u s t r i a l chemicals.  bearing upon the d e c i s i o n was  One  f a c t that had  t h a t s e v e r a l of the  company's  employees were l i v i n g i n Canada, t h e r e f o r e r e d u c i n g p e r s o n n e l problem. 194-7.  the  o r i g i n a l p l a n t began o p e r a t i o n  S i n c e t h a t time the f i r m has  dented r a t e and and  The  at present  i t has  a  in  grown at an unprece-  f i v e producing  plants  s i x r e g i o n a l s a l e s o f f i c e s i n v a r i o u s p a r t s of Canada. The  company i s p r e s e n t l y undergoing a major r e -  organization. past,  i t was  L i k e so many i n d u s t r i a l companies i n the almost completely p r o d u c t i o n  these c o n d i t i o n s , the a b i l i t y to s e l l was a b i l i t y to produce.  The  s h i f t i n g to the o p p o s i t e  company i s now  oriented.  secondary to  the  i n the process o f  p o s i t i o n where the marketing  partment w i l l be the f o c a l p o i n t o f the  Under  organization.  de-  101+  (ii) 1.  The Competitive P o s i t i o n o f the Company's Products and P r o d u c t i o n F a c i l i t i e s Products An i n d i c a t i o n o f the r e l a t i v e s i z e o f t h e company  was p a r t o f the g e n e r a l i n f o r m a t i o n t h a t was r e q u i r e d . One method t h a t was c o n s i d e r e d was a r a n k i n g o f the t o t a l s a l e s o f the f i r m s i n the chemical i n d u s t r y .  However,  even w i t h t h i s measurement a d i f f i c u l t y arose as i t was p r a c t i c a l l y i m p o s s i b l e t o compare these companies i n terms of t o t a l s a l e s because t h e r e were s u b s t a n t i a l v a r i a t i o n s i n t h e types o f products t h a t were s o l d .  Many o f the com-  panies commonly thought to be i n the chemical i n d u s t r y were so completely v e r t i c a l l y i n t e g r a t e d t h a t i t was v i r t u a l l y i m p o s s i b l e t o make a meaningful  comparison.  Some s i z e estimates were made that may be u s e f u l . An estimate was made o f the company's p o s i t i o n i n the product l i n e s i n which i t had c o m p e t i t i o n .  The f i r m i s t h e  s a l e s l e a d e r i n Canada i n i n d u s t r i a l chemicals.  I n the  heavy chemical market, p a r t i c u l a r l y c h l o r o - a l k a l i products, i t has the l a r g e s t t o t a l s a l e s .  At p r e s e n t i t pro-  duces 65 per cent o f a l l c h l o r o - a l k a l i products and plans to i n c r e a s e i t s p r o d u c t i o n i n the next two y e a r s .  Not a l l  of these products are s o l d commercially because a subs t a n t i a l p o r t i o n i s used i n t e r n a l l y i n o t h e r p r o c e s s e s . I n the phenol and g l y c o l product l i n e the company i s the l a r g e s t s i n g l e producer.  I n g l y c o l s i t was s t u d i e d  at one time by t h e Combines I n v e s t i g a t i o n Commission f o r an  105  a l l e g e d monopoly but no  charge was  laid.  t i o n alone would suggest t h a t i t has  The i n v e s t i g a -  almost complete c o n t r o l  o f t h i s market because the p r a c t i c e of the Combines Comm i s s i o n has been to i g n o r e m o n o p o l i s t i c p r a c t i c e s u n t i l  a  f i r m has v i r t u a l c o n t r o l of the market.^ P l a s t i c s are the f a s t e s t growing product chemical  industry.  l i n e s i n the  In t h i s f i e l d the company i s the Canad-  i a n s a l e s l e a d e r by a s i g n i f i c a n t amount.  The  f i r m has  c o n s i d e r a b l e l e a d over i t s c o m p e t i t i o n  i n polystyrene,  which i s a s p e c i f i c area o f p l a s t i c s .  I t i s f o u r t h or  f i f t h i n the p o l y - e t h y l e n e market because i t does not  a  pro-  duce the low d e n s i t y product which i s the l a r g e s t s e l l i n g item, on a poundage b a s i s , i n t h i s l i n e .  T h i s company and  another l a r g e i n t e r n a t i o n a l f i r m produce a h i g h d e n s i t y poly-ethylene  i n Canada.  However, t h i s other f i r m has  a  somewhat l a r g e r c a p a c i t y and thus i t i s assumed t h a t i t s s a l e s are g r e a t e r . In consumer products down the l i s t has  because i t i s o n l y i n r e c e n t years t h a t i t  i n t e g r a t e d i n t o t h i s market.  products  At present,  the  only  t h a t i t produces i n Canada t h a t could be termed  consumer products The  the company s t u d i e d ranks f a r  are r i g i d c o n t a i n e r s and blown b o t t l e s .  f i r m a l s o markets some consumer products  duced by i t s American parent  company.  t h a t are  pro-  These are major  1 R i c h a r d Gosse, The Law on Competition i n Canada, Car s w e l l Company L t d . , Toronto, (1962), p. 14-2. ~~  The  106  competitors i n the food wrapping l i n e and should p r o v i d e an e x c e l l e n t entree i n t o t h i s market when the time  arrives.  At present the Canadian company markets these on a comm i s s i o n b a s i s f o r the parent 2.  firm.  Production F a c i l i t i e s In terms o f investment  i n c a p i t a l equipment, the  company i s i n the l e a d i n g p o s i t i o n i n Canada.  The  rank-  i n g o f p r o d u c t i o n f a c i l i t i e s can be m i s l e a d i n g because the company s t u d i e d makes s e v e r a l b a s i c products which i t s e l l s to o t h e r i n d u s t r i a l chemical f i r m s which i n t u r n convert them i n t o the f i n a l marketed products.  T h e r e f o r e the o t h e r  f i r m markets the f i n a l product, w h i l e t h i s company has made the c a p i t a l expenditure f o r the primary p r o d u c t i o n f a c i l i t i e s . Examples of t h i s are P o l y v i n y l c h l o r i d e r e s i n s . pany i s the o n l y producer it  s e l l s to at l e a s t two  The com-  of v i n y l c h l o r i d e i n Canada, which other l a r g e manufacturers  who  con-  v e r t i t i n t o the f i n a l r e s i n s which appear on the market. Through t h i s two-step process, i t i s i l l u s t r a t e d how  total  s a l e s and p r o d u c t i o n f a c i l i t i e s do not always c o i n c i d e . An important  i n d i c a t o r of l e a d e r s h i p i n new  product  p l a n n i n g i s the expenditure made on o r i g i n a l r e s e a r c h and development i n Canada. this f i e l d .  T h i s company does not rank h i g h i n  Most of i t s r e s e a r c h work i s done by the parent  American company which means t h a t the investment and equipment i n Canada i s r e l a t i v e l y s m a l l .  in staff  The f i r m does  have a s m a l l r e s e a r c h o p e r a t i o n i n Canada which works  107  c l o s e l y w i t h i t s American c o u n t e r p a r t .  The s u b j e c t claimed  t h a t a l a r g e degree o f autonomy i s maintained  because the  Canadian company merely requests the r e s e a r c h group i n the U n i t e d S t a t e s to do work f o r i t . of  The r e s u l t i n g  suggestions  the parent group can e i t h e r be accepted or r e j e c t e d . Another i l l u s t r a t i o n o f the autonomy o f the Canadian  o p e r a t i o n i s the f a c t each o f the p r o d u c t i o n u n i t s i s modif i e d or completely d i f f e r e n t from those i n any p a r t o f the organization.  F o r some p r o d u c t s , the p r o d u c t i o n r o u t e  lowed i s a l s o completely d i f f e r e n t .  T h i s means t h a t not  o n l y i s the equipment m o d i f i e d but the r e a c t a n t s used process a r e e n t i r e l y d i f f e r e n t .  fol-  i n the  Therefore i t i s safe t o  assume t h a t the Canadian s u b s i d i a r y o f the company i s a r e l a t i v e l y autonomous o p e r a t i o n . C.  The Company's New Product Planning 1. (i)  Operation  The Product Idea's E v o l u t i o n a r y Process Introduction The f i r m ' s product p o l i c y w i l l be d i s c u s s e d p r i o r  to  the a n a l y s i s o f the procedures  i s converted i n t o a marketable c l e a r e r understanding  f o l l o i / e d as a product  product.  idea  To f a c i l i t a t e  o f the f o l l o w i n g m a t e r i a l , i t w i l l be  u s e f u l to present an o r g a n i z a t i o n c h a r t o f p a r t o f the company's o p e r a t i o n .  The f i r m i s o r g a n i z e d on a product  ment b a s i s , as f o l l o w s : Converted  Chemicals,  Plastics,  depart-  Bioproducts,  Products, and a f i f t h department which i n c l u d e s  the i n d u s t r i a l s e r v i c e o p e r a t i o n s .  Each department manager  108  i s i n charge of a l l marketing and p r o d u c t i o n personnel unit.  His r e s p o n s i b i l i t i e s and  a c t i v i t i e s w i l l be  i n his  clearly  i l l u s t r a t e d i n the ensuing d i s c u s s i o n .  President (  Vice-President of Production  Vice-President of Engineering  Chemicals Department Production  Plastics Department  1  Vice-President of Marketing BiopJoducts Department  F i e l d ! Sales Offices Sales Staff  Marketing  As i s i n d i c a t e d i n t h i s c h a r t , the f i e l d s a l e s o f f i c e s are r e s p o n s i b l e o n l y to the v i c e - p r e s i d e n t of marketing. They are i n no way managers and  d i r e c t l y r e l a t e d to any of the department  their staff.  ( T h i s c h a r t may  or may  not  be  v a l i d at any p o i n t o f time because the f i r m i s r e o r g a n i z i n g ) , (ii)  The  Company's Product P o l i c y  I t was  d i f f i c u l t to get the company r e p r e s e n t a t i v e  to i n d i c a t e any o f the d e t a i l s of the product p o l i c y .  The  company's p o l i c y c o n s i s t s of an u n w r i t t e n  s e t of r e q u i r e -  ments t h a t the product must s a t i s f y .  i n i t i a l bounds  The  are e v i d e n t ; t h i s f i r m i s i n the chemical  i n d u s t r y thus i t s  product scope i s narrowed, i n r e a l i t y , to any product which can be c l a s s i f i e d under one  of the f i v e product departments.  109  However, upon f u r t h e r a n a l y s i s of these f i v e areas i t w i l l become apparent  t h a t most i n d u s t r i a l chemicals c o u l d be  c l a s s i f i e d under one of them.  T h e r e f o r e , i f some chem-  i c a l product i s developed t h a t has the r e q u i r e d s a l e s p o t e n t i a l and t h a t w i l l r e t u r n an a c c e p t a b l e p r o f i t , f i r m would c e r t a i n l y c o n s i d e r producing i t .  The  the  company  i s p a r t i c u l a r l y i n t e r e s t e d i n some s p e c i f i c product areas. S e v e r a l of the p r e s e n t processes produce e i t h e r as p r i mary products or as by-products, c h l o r i n e d e r i v a t i v e s as h y d r o c h l o r i c a c i d . s e a r c h f o r new  The f i r m I s c o n t i n u a l l y on the  processes which w i l l u t i l i z e these products  and s o l v e some o f the d i s p o s a l problems. i c y , t h e r e f o r e , has three elements:  The product  i t i s interested  the p r o d u c t i o n o f i n d u s t r i a l chemicals;  (2)  ducts must meet c e r t a i n p r o f i t requirements management; and  such  (3)  polIn  the proestablished  the company i s p a r t i c u l a r l y  i n those products which i n t h e i r p r o d u c t i o n w i l l  by  interested utilize  some of the by-products of other p r o c e s s e s . The f i r m ' s p o l i c y a l s o r e f e r s to the s i t u a t i o n when a new  product i d e a would be a p r o f i t a b l e a d d i t i o n to the  company's product l i n e but i t would a l s o be a detriment t o other products and to a customer's p r o d u c t s .  I n circum-  stances such as t h i s , there would be a c a r e f u l  analysis  made of the e f f e c t s t h a t t h i s product would have on both the f i r m ' s products and those of customers.  The bene-  f i t s o f the product's a d d i t i o n would be weighed  carefully  110  a g a i n s t the c o s t s of l o s i n g a customer.  The f i e l d  sales  manager s t a t e d t h a t i n the p a s t , product developments have been terminated f o r one or both of the above reasons.  He  a l s o i n d i c a t e d t h a t management i s very h e s i t a n t to e l i m i n a t e p o t e n t i a l l y new l o s s of customers.  products even i f i t w i l l mean the  I t was  i n f e r r e d that elimination i s  o n l y r e s o r t e d to i n s p e c i a l s i t u a t i o n s .  Unfortunately,  when questioned f u r t h e r as to the d e t a i l s of these  situ-  a t i o n s , the s u b j e c t r e f u s e d to answer. Even w i t h the r a t h e r l o o s e boundaries of the product p o l i c y , i t i s e v i d e n t t h a t the r e s t r i c t i o n s t h a t i t does have act as guides to new  product development.  I t there-  f o r e serves the f i r s t f u n c t i o n t h a t K l i n e presented which  2 was  o u t l i n e d i n Chapter  II.  l i m i t s of the product l i n e .  This was  a d e f i n i t i o n o f the  The p o l i c y , as d e s c r i b e d ,  tends to a c t as guide which the f i r m uses to attempt r e a c h a common s e t of long-range (iii)  Product Idea  to  objectives,  Sources  Where do the product ideas come from?  Does the  company have any o r g a n i z e d system of g e n e r a t i n g these ideas? These questions were asked to i n i t i a t e the d i s c u s s i o n on the sources of new  product ideas i n the f i r m .  o f the r e p l y to the above questions was  One p a r t  t h a t one o f the  f u n c t i o n s o f the r e s e a r c h and development people i s to l o o k c o n s t a n t l y f o r new  products i n which the company might be  2 Charles K l i n e , "The S t r a t e g y o f Product P o l i c y , " Harvard Business Review. V o l . 3 3 , No. h, July-August, 1955, pp. 91-100.  Ill  interested.  The product ideas t h a t the r e s e a r c h depart-  ment normally suggest are the unique  ideas which have not  been developed  and which would be c l a s s i f i e d as h i g h l y  experimental.  The  sources t h a t the r e s e a r c h department  n o r m a l l y use are i t s own  r e s e a r c h o p e r a t i o n s , the  activi-  t i e s o f the parent r e s e a r c h department, and the v a r i o u s t r a d e sources t h a t were o u t l i n e d i n Chapter  II.  The  s a l e s s t a f f i s the second major source o f product i d e a s . I n t h i s company i t i s the source most commonly used. s a l e s p e r s o n n e l are c o n t i n u a l l y on the l o o k f o r new i n t h e i r customers'  plants.  b a s i c types o f i n f o r m a t i o n : products;  (2)  The ideas  They are i n t e r e s t e d i n three (1)  new  applications for old (3)  v a r i a t i o n s to o l d p r o d u c t s , and  pound and p r i c e i n f o r m a t i o n of any product being used i n their territory. these  A new  i d e a may  appear from any one  of  channels.  (iv)  The Screening Stage I t w i l l be assumed t h a t the s a l e s department  the source of ideas developed  was  i n the f o l l o w i n g s e c t i o n s .  A member o f the f i e l d s a l e s s t a f f would submit  a report  to h i s r e g i o n a l manager s t a t i n g t h a t a c e r t a i n customer was  u s i n g X tons of product Y and t h a t he was  c e r t a i n company Z d o l l a r s per ton.  paying a  The f i r s t phase of  the s c r e e n i n g process takes p l a c e at t h i s p o i n t .  I f the  s a l e s manager decides t h a t the product does not conform i n any way  w i t h the requirements  o f the product p o l i c y ,  he  112  will  e l i m i n a t e i t a t that p o i n t .  However, i f he decides  t h a t i t i s w i t h i n the l i m i t s o f t h i s p o l i c y and t h a t i t appears  t o be used i n s u b s t a n t i a l q u a n t i t i e s i n h i s t e r -  ritory,  the s a l e s manager w i l l  submit  a r e p o r t to the  r e l e v a n t product department manager g i v i n g him the d e t a i l s of  the i d e a . The department manager w i l l  s a l e s o f f i c e s t o submit  then request a l l other  any i n f o r m a t i o n t h a t they may have  c o l l e c t e d p e r t a i n i n g to. t h i s product. of  After receiving a l l  the r e l e v a n t market i n f o r m a t i o n , the product manager  then analyzes the e x i s t i n g p r o d u c t i o n , s a l e s , and s e r v i c e facilities  to see i f the i d e a i s compatible w i t h the r e -  sources possessed by the company.  I f both s e t s o f data  are f a v o r a b l e , the product manager w i l l prepare a r e p o r t which w i l l be submitted to the e x e c u t i v e committee.  Based  upon the p r e l i m i n a r y market a n a l y s i s , p r o d u c t i o n study, and the recommendations o f the department manager, the comm i t t e e w i l l d e c i d e whether t o proceed w i t h the idea's development.  I f a p p r o v a l i s g i v e n , the i d e a advances t o  the s p e c i f i c a t i o n stage. (v)  The S p e c i f i c a t i o n  Stage  The department manager i n i t i a t e s  a detailed  study  i n three major areas, having r e c e i v e d e x e c u t i v e a p p r o v a l . First ies  the s a l e s department i s requested t o c a r r y out s t u d -  t o determine  a l l market c h a r a c t e r i s t i c s .  c o l l e c t data about  The  salesmen  comparable products o f competitors w i t h  113  r e s p e c t t o the market's p r i c e s e n s i t i v i t y .  They a l s o  gather more d e t a i l e d i n f o r m a t i o n about p r e s e n t and potent i a l u s e r s o f t h i s type o f product. attempt  The salesmen  also  t o o b t a i n i n f o r m a t i o n about  the s t r e n g t h s and weak-  nesses o f t h e c o m p e t i t i v e p r o d u c t s .  This set of data w i l l  be o f a s s i s t a n c e t o t h e p r o d u c t i o n and e n g i n e e r i n g people when they a r e attempting t o determine manufacturing  t h e d e t a i l s o f the  process.  When the f i e l d s a l e s o f f i c e s are g a t h e r i n g d e t a i l e d market i n f o r m a t i o n , the r e s e a r c h and development department i s working  on t h e end-use d e t a i l s o f the product.  other words, i t i s examining  In  the new product t o determine  the p o s s i b l e uses t o which i t can be adapted.  At the same  time i t i s determining the product s p e c i f i c a t i o n s which must be adhered  t o f o r e i t h e r h e a l t h o r s a f e t y reasons.  The product department manager p r e s e n t s the prod u c t i o n and e n g i n e e r i n g people w i t h the s p e c i f i c a t i o n s and market p o t e n t i a l i n f o r m a t i o n and requests t h a t they  submit  estimates as to the c o s t o f t h e c a p i t a l equipment necessary to produce  the f i n i s h e d product i n t h e d e s i r e d volume.  When the t h r e e s e t s o f d a t a are f i n a l l y to  submitted  the department manager, he prepares a r e p o r t c o n t a i n i n g  the i n f o r m a t i o n , which he submits mittee.  t o the e x e c u t i v e com-  The a u t h o r i z a t i o n f o r the development and t e s t i n g  phase o f the product i d e a i s based upon the d e t a i l s o f this report.  114-  (vi)  The Development and Product T e s t i n g  Stage  Under the d i r e c t i o n o f the product manager, the t e c h n i c a l s e r v i c e s and development department  assume r e -  s p o n s i b i l i t y f o r t h i s phase o f the product's e v o l u t i o n . I t i s normal  i n the Chemical i n d u s t r y , at t h i s stage, to  c o n s t r u c t p i l o t p l a n t o p e r a t i o n s to a l l o w the t e c h n i c a l s e r v i c e s people to study the end-use and product f i c a t i o n i n f o r m a t i o n submitted by the r e s e a r c h  speci-  department.  When the t h e o r e t i c a l l a b o r a t o r y i n f o r m a t i o n i s s u b j e c t e d to r e a l i s t i c  p r o d u c t i o n s i t u a t i o n s , t h e r e are u s u a l l y  s e v e r a l m o d i f i c a t i o n s to be made.  As a r e s u l t of the  p i l o t p l a n t m o d i f i c a t i o n s , the t e c h n i c a l s e r v i c e s a r r i v e at what w i l l be the f i n a l product  people  specifications.  These f i n a l c h a r a c t e r i s t i c s are normally a r r i v e d at by p o s s i b l e methods.  The f i r s t i s the p r e v i o u s l y  mentioned  p i l o t p l a n t o p e r a t i o n and the second i s through a t e s t i n g scheme.  product i n the customer's  to i n t r o d u c e and t e s t the manufacturing p r o c e s s .  Through t h i s t e s t i n g procedure, the t e c h n i c a l department new  determines  product.  customer  The company commonly makes an agreement  w i t h an e s t a b l i s h e d customer new  two  services  the s t r e n g t h s and weaknesses of the  I t i s able to v a r y the product's c h a r a c t e r -  i s t i c s to e v e n t u a l l y a r r i v e at an optimum s e t of s p e c i f i c a t i o n s to be used i n the f i n a l product. The nature o f the product l a r g e l y determines extent of the t e s t i n g o p e r a t i o n s .  the  I f i t i s a weed k i l l e r  115  where there are hazards t o l i v e s t o c k , then i t i s normally a lengthy task.  The company must i n i t i a l l y o b t a i n a per-  mit from Ottawa s t a t i n g t h a t the product  i s registered  and t h a t i t s a t i s f i e s the Government a u t h o r i t i e s . A f t e r the t e c h n i c a l s e r v i c e s department has t h o r oughly developed and t e s t e d the new product, the r e s u l t s to the product  i t presents  department manager.  He a n a l -  yzes the i n f o r m a t i o n and r e t u r n s t o the e x e c u t i v e comm i t t e e where the f i n a l d e c i s i o n i s made t o produce o r t o t e m p o r a r i l y d i s c a r d the i d e a . the product  I f t h e i d e a i s approved,  manager then a u t h o r i z e s h i s p r o d u c t i o n and  marketing s t a f f s to begin the c o m m e r c i a l i z a t i o n (vii)  Summary The  f i e l d s a l e s manager i n d i c a t e d t h a t the  company's process  d i d not f o l l o w any f o r m a l i z e d scheme  and t h a t some products manner.  are developed i n a more a b b r e v i a t e d  However, the o p e r a t i o n s  t h a t the product cess.  d e s c r i b e d above i n d i c a t e  ideas pass through an e v o l u t i o n a r y pro-  When the company r e p r e s e n t a t i v e presented  mation, he d i d not i n d i c a t e any formal stages duct progressed  the i n f o r -  as the pro-  towards i t s f i n a l form but r a t h e r  stages were presented ing  process,  these  by the w r i t e r as a means o f c l a s s i f y -  the i n f o r m a t i o n . II.  The O r g a n i z a t i o n a l D e t a i l s  (i)  Authority Relationships The  product manager, who d i r e c t s a l l new  product  116  p l a n n i n g o p e r a t i o n s w i t h i n h i s department, has d i r e c t  line  a u t h o r i t y over the p r o d u c t i o n and marketing p e r s o n n e l concerned w i t h the product's development.  When the manager  d e a l s w i t h the s a l e s o f f i c e s to o b t a i n market  information,  he does not have d i r e c t a u t h o r i t y but r a t h e r he must work through the f i e l d  s a l e s manager.  I t appears t h a t t h i s i s  a functional authority relationship.  The f i e l d  sales  o f f i c e s handle a l l the d e t a i l s o f the market a n a l y s i s and simply submit t h e i r f i n d i n g s t o the department manager. There i s a l s o a f u n c t i o n a l a u t h o r i t y  relationship  between the department manager and the t e c h n i c a l people.  In the f i n a l  services  development stage o f the product's  e v o l u t i o n , the t e c h n i c a l s e r v i c e s department takes over r e s p o n s i b i l i t y f o r g a t h e r i n g the d a t a but the department manager d i r e c t s i t s o p e r a t i o n s . (ii)  Communications  Network  The product manager u t i l i z e s the e s t a b l i s h e d l i n e s o f communication w i t h i n h i s own department to t r a n s mit  i n f o r m a t i o n to the marketing and p r o d u c t i o n people.  However, i t was i n d i c a t e d t h a t the f i r m has problems i n communicating i n f o r m a t i o n from one product department t o another.  To attempt to overcome t h i s problem, a weekly  product managers' meeting i s h e l d to d i s c u s s the progress of  new product development  projects.  There are a l s o problems encountered i n communications between the product departments and the f i e l d  sales  offices.  117  It  appears t h a t the o n l y system used i s the r e g u l a r con-  t a c t s the two ations.  areas have d u r i n g the market a n a l y s i s oper-  T h i s area of communications has  a great d e a l of (iii)  difficulty.  C o n t r o l Techniques The  ing  g i v e n the company  subject o f f e r e d l i t t l e information p e r t a i n -  to t h i s t o p i c but from the d e t a i l s presented  i n previous  s e c t i o n s there are at l e a s t t h r e e c o n t r o l s t h a t are The  first  evident.  i s the f i r m ' s product p o l i c y which presents r a t h e r  d e f i n i t e l i m i t s w i t h r e s p e c t to the product  ideas t h a t the  department manager can attempt to develop.  This p o l i c y  a l s o sets c e r t a i n p r o f i t a b i l i t y and  investment  t h a t must be complied  w i t h p r i o r to developing  in  The  i t s f i n a l stages.  t r o l p l a c e d upon new  standards the  product  second and most e f f e c t i v e con-  product  development o p e r a t i o n s  are  three d i f f e r e n t approvals  t h a t must be r e c e i v e d from the  e x e c u t i v e committee.  first  The  occurs a f t e r the s c r e e n i n g  stage, the second a f t e r the s p e c i f i c a t i o n s stage and t h i r d p r i o r to the c o m m e r c i a l i z a t i o n stage. analyses by management can,  the  the  These three  i f performed p r o p e r l y , f u n c t i o n  as e f f e c t i v e c o n t r o l d e v i c e s . The t h i r d c o n t r o l i s the department manager's opera t i n g budget which i s e s t a b l i s h e d by the e x e c u t i v e committee.  The  l i m i t e d budget may,  r e s t r i c t the.expenditures ations.  i f properly  made on product  I t w i l l a l s o prevent  designed,  development oper-  a d i s p r o p o r t i o n a t e amount of  118 funds  being a l l o c a t e d to any one p r o j e c t .  A  combination  of these t h r e e c o n t r o l s should ensure t h a t the company maintains  a proper balance i n the expenditures  new product D.  development.  The Marketing  Research A c t i v i t y i n the Company  U n t i l approximately one man  i t makes on  three years ago, t h i s f i r m had  employed as a market r e s e a r c h e r .  I t was h i s r e -  s p o n s i b i l i t y to gather d e t a i l e d market i n f o r m a t i o n p e r t a i n i n g to any product which the company was i n t e r e s t e d i n developing.  However, three years ago t h i s p o s i t i o n was  eliminated e n t i r e l y .  U n f o r t u n a t e l y the reason f o r e l i m i n -  a t i n g the a c t i v i t y , as a separate r e s p o n s i b i l i t y , was not disclosed. At present most of the marketing the s a l e s department.  r e s e a r c h i s done by  T h i s became e v i d e n t as the d i s c u s s i o n  of the f i r m ' s new product development o p e r a t i o n s was sented.  pre-  T h i s means b a s i c a l l y t h a t the s a l e s s t a f f i s  r e s p o n s i b l e f o r the c o l l e c t i o n o f data p e r t a i n i n g to market demand c o n d i t i o n s , c o m p e t i t i v e c o n d i t i o n s and data r e l e vant to new product development.  These d u t i e s are combined  w i t h the salesmen's primary t a s k of s e l l i n g the company's products. The t e c h n i c a l s e r v i c e s department i s r e s p o n s i b l e f o r studying the c h a r a c t e r i s t i c s of c o m p e t i t i v e  products  and e v a l u a t i n g t h e i r strengths and weaknesses.  Because i t  119  works c o n s t a n t l y w i t h the customers i t i s aware of the market c o n d i t i o n s as w e l l as the c o m p e t i t i v e product details. The marketing r e s e a r c h r e s p o n s i b i l i t i e s company a r e , t h e r e f o r e ,  i n this  j o i n t l y c a r r i e d out by the f i e l d  s a l e s o f f i c e s and the t e c h n i c a l s e r v i c e s department. i m p l i c a t i o n s of t h i s arrangement w i l l  The  be d i s c u s s e d i n  d e t a i l i n Chapter VI where the e n t i r e o p e r a t i o n o f the f i r m i n the new product development f i e l d w i l l r e s p e c t to the system which i s proposed.  be e v a l u a t e d w i t h  120  CHAPTER VI AN EVALUATION  AND CRITICISM OF THE  NEW PRODUCT PLANNING PROCEDURES OF THE COMPANY STUDIED, RELATIVE TO THE PROCESS PROPOSED IN THIS THESIS A.  Introduction The methods f o r d e v e l o p i n g new products o u t l i n e d i n  Chapter V w i l l be compared, i n d e t a i l , t o those proposed i n this thesis.  To i l l u s t r a t e the d e t a i l s o f the v a r i o u s  stages t h a t the product i d e a passes  through, i t was  neces-  s a r y t o present the i n f o r m a t i o n i n a schematic manner. i m p r e s s i o n was c r e a t e d t h a t each i d e a was handled i d e n t i c a l manner r e g a r d l e s s o f i t s nature.  i n an  This r i g i d  cedure would not always be f e a s i b l e i n an i n d u s t r i a l where new product ideas vary g r e a t l y i n content.  The  pro-  firm  However,  even i f product i d e a s are handled i n v a r i e d ways, there are still  c e r t a i n stages through which each i d e a progresses and  w i t h each o f these stages t h e r e are d e f i n i t e d e c i s i o n s t h a t must be made and c o n t r o l s t h a t must be e x e r c i s e d . C e r t a i n questions must be answered i n the a n a l y s i s i n t h i s chapter.  The f i r s t i s :  Does the process o u t l i n e d i n  Chapter V d i f f e r g r e a t l y from the proposed  one?  Secondly:  Is the f o r m a l process suggested here s u i t a b l e f o r a company s i m i l a r to the one s t u d i e d i n Chapter V? important: manner?  Can i n n o v a t i o n be handled  F i n a l l y and most  i n t h i s organized  121  A b r i e f review o f the proposed system and a summary of  the company's procedures w i l l be presented t o a s s i s t i n  answering these and o t h e r q u e s t i o n s . the  summary,  two w i l l be analyzed i n terms o f the major t o p i c s  cussed throughout the t h e s i s . the  After this  This d i s c u s s i o n w i l l  dis-  prepare  way f o r the c o n c l u s i o n s t o be presented i n Chapter V I I . In Chapter I I , the importance o f the r o l e o f market-  ing  r e s e a r c h i n the new product p l a n n i n g process was em-  phasized.  I t i s assumed i n t h i s chapter t h a t t h e company  has a f o r m a l marketing r e s e a r c h a c t i v i t y and t h a t such an a c t i v i t y can be adapted to the forms proposed i n Chapter III.  The reasons f o r t h i s assumption w i l l be p r e s e n t e d i n  Chapter V I I . I t must be remembered i n t h e f o l l o w i n g s e c t i o n s t h a t t h e r e are a t l e a s t t h r e e important aspects o f new product p l a n n i n g t h a t determine i t s e f f e c t i v e n e s s . (1) the (3) B.  the a t t i t u d e o f management towards  These a r e :  innovation;  (2)  o r g a n i z a t i o n o f the new product p l a n n i n g o p e r a t i o n ; and the c o - o r d i n a t i n g a b i l i t y o f t h a t o r g a n i z a t i o n . A Summary o f the Proposed New Product P l a n n i n g Department. The s t r u c t u r e suggested i n Chapter IV c o n s i s t e d o f  f o u r to f i v e members. ent  director.  Of these members, one was a perman-  This i n d i v i d u a l was a w i d e l y t r a i n e d , w e l l -  experienced man w i t h the a b i l i t y to i n i t i a t e and l e a d , The other members were r e p r e s e n t a t i v e s o f the marketing,  122  production,  r e s e a r c h and  development, and  vant department i n the company. a committee which was planning  The  planning  their  respective  amount of time they would spend on  a c t i v i t i e s would be a f u n c t i o n o f the s i z e  complexity The  of the  their and  organization.  o r g a n i z a t i o n p o s i t i o n o f the committee was  major problem to s o l v e i n t h i s p r o p o s a l . t h a t i t was and  product  r e p r e s e n t a t i v e s were l i a -  i s o n o f f i c e r s between t h i s committee and The  rele-  These people c o n s t i t u t e d  r e s p o n s i b l e f o r a l l new  i n the company.  departments.  any other  I t was  a  suggested  i n a s t a f f p o s i t i o n with f u n c t i o n a l authority  as such was  duct planning  the communications c e n t r e f o r the new  activities.  Because the r e p o r t s t h a t the com-  m i t t e e prepare are the b a s i s f o r c a p i t a l expenditure i o n s , i t was  pro-  decis-  suggested t h a t i t r e p o r t d i r e c t l y to the v i c e -  p r e s i d e n t i n charge of marketing or the e x e c u t i v e  committee  which makes the investment d e c i s i o n s . The  a u t h o r i t y o f t h i s committee must be c l e a r l y  f i n e d , but d e f i n i t i o n w i l l not be e a s i l y achieved  de-  because  of the i n t e r a c t i o n of the committee's work w i t h l i n e operations.  The  s t i p u l a t i o n t h a t the o r g a n i z a t i o n , as a whole,  must be i n n o v a t i o n minded was s i b i l i t y of a u t h o r i t y The  new  advanced because o f the pos-  conflicts.  product p l a n n i n g  department must have the  f u n c t i o n a l a u t h o r i t y necessary to secure  from l i n e  ments the r e q u i r e d market and  information.  production  departIf  123  the marketing r e s e a r c h a c t i v i t y i s p a r t of the marketing department,  the new  able to commission  product p l a n n i n g department r e s e a r c h s t u d i e s f o r new  must be  products.  Because the committee d i r e c t o r has an o v e r - a l l p e r s p e c t i v e of the developmental procedure, he must have the a u t h o r i t y to move i n and a d v i s e the departments expedite or d i s c o n t i n u e a study.  when to  T h i s a c t i o n would nor-  m a l l y be taken a f t e r c o n s u l t a t i o n w i t h the l i n e managers or the e x e c u t i v e to whom the new  product d i r e c t o r  reports.  Care must be taken not to devote a d i s p r o p o r t i o n a t e amount of funds to the developmental procedures of the proposed department.  To ensure t h i s there must be  i v e c o n t r o l e s t a b l i s h e d when the department Two  c o n t r o l s t h a t were mentioned  effect-  i s organized.  were the r e g u l a r progress  r e p o r t s t h a t are d i s t r i b u t e d to a l l management p e r s o n n e l and the p e r i o d i c r e p o r t s submitted t o the e x e c u t i v e committee.  The new  product p l a n n i n g department  w i l l obviously  be g i v e n an o p e r a t i n g budget which w i l l a c t as an o v e r - a l l guide i n the a l l o c a t i o n of i t s funds.  An a d d i t i o n a l con-  t r o l i s b u i l t i n t o the committee w i t h the r e p r e s e n t a t i v e s being from each of the l i n e departments.  T h i s might have  a tendency to prevent a d i s p r o p o r t i o n a t e a l l o c a t i o n of funds to any one p r o j e c t .  The  committee, t h e r e f o r e , i s e f -  f e c t i v e l y c o n t r o l l e d w i t h a combination of budgets, and p r o j e c t approval l i m i t s .  reports,  Management can thus r e g u l a t e  the flow o f funds being devoted to new  product development.  124-  The problem o f communications i n an i n d u s t r i a l o r g a n i z a t i o n can o f t e n be an extremely troublesome one. T h i s problem c o u l d be m a g n i f i e d by the presence o f c r o s s wise r e l a t i o n s h i p s such as those t h a t occur between the new product p l a n n i n g department and the o t h e r departments o f the f i r m .  T h e r e f o r e the a d d i t i o n o f a s t a f f department  w i t h f u n c t i o n a l a u t h o r i t y c o u l d m u l t i p l y the problems o f communication.  One o f the major requirements  i n organiz-  ing t h i s o p e r a t i o n i s the e s t a b l i s h m e n t o f e f f i c i e n t communication  channels.  The primary f u n c t i o n o f the new product department i s to a c t as a c o - o r d i n a t i n g body.  To f a c i l i t a t e  this  o b j e c t i v e the communications network should have the chara c t e r i s t i c s r e f e r r e d to i n the p r e v i o u s paragraph. network serves a t w o f o l d purpose.  First,  This  i t permits the  t r a n s m i s s i o n o f data t o the committee from a l l o f the departments t h a t are i n v o l v e d i n the developmental  project.  Second, the network allows the t r a n s f e r o f i n f o r m a t i o n to a l l management l e v e l s w i t h r e s p e c t to progress being made on each p r o j e c t .  With management completely informed o f  the d e t a i l s o f the product's development, the p l a n n i n g process i n the f i r m i s g r e a t l y  assisted.  Some o f the major s t r e n g t h s and p o s s i b l e weaknesses of the proposed sion.  system have been i n d i c a t e d i n the d i s c u s -  A comprehensive a n a l y s i s o f these w i l l be l e f t  until  the c o n c l u d i n g s e c t i o n o f t h i s chapter where an o v e r - a l l  125  l o o k w i l l be g i v e n to the proposed C.  department.  A Review of the Procedures Followed by the Company S t u d i e d i n Chapter V The company t h a t was  s t u d i e d i s p r i m a r i l y i n the  i n d u s t r i a l chemical b u s i n e s s .  The few consumer goods t h a t  i t handles are e i t h e r marketed on b e h a l f of i t s parent American company or they are s o l d through s u b s i d i a r y companies i n Canada. Although i t i s p r e s e n t l y i n the midst of an o r g a n i z a t i o n a l change the f i r m i s b a s i c a l l y operated on a product group system.  I t i s d i v i d e d i n t o f i v e major product  each d i r e c t e d by a d i v i s i o n a l product manager."*"  areas  Each  department manager has d i r e c t c o n t r o l o f the p r o d u c t i o n and marketing o p e r a t i o n s w i t h i n h i s department.  The  product  departments are r e l a t e d to the f i e l d s a l e s s t a f f o n l y through the v i c e - p r e s i d e n t i n charge of marketing.  The  implica-  t i o n s o f t h i s setup w i l l be d i s c u s s e d p r e s e n t l y . The new  product development procedures  through the f i v e product departments.  are handled  With the manager  a c t i n g as the c o - o r d i n a t o r i n these s t u d i e s , t h e r e might be f i v e separate groups c a r r y i n g out i n v e s t i g a t i o n s at any g i v e n time.  The m a j o r i t y o f the new  product ideas t h a t  are presented t o the department manager come from  either  the s a l e s s t a f f or the r e s e a r c h and development people.  1  See Chapter V of t h i s  thesis.  126  The  t e c h n i c a l s e r v i c e s department determines  the  product  s p e c i f i c a t i o n s and p o t e n t i a l end-uses as the new  product  progresses.  F i n a l l y , the department manager submits a  r e p o r t to the e x e c u t i v e group where the  commercialization  d e c i s i o n i s made.  The d e c i s i o n s concerning c a p i t a l  ex-  p e n d i t u r e s f o r new  equipment and p e r s o n n e l are a l s o based  upon t h i s r e p o r t . The department's o p e r a t i n g budget and the r e p o r t s submitted  to the executive committee are the b a s i c con-  t r o l s p l a c e d upon new The  product development i n t h i s  e x i s t e n c e o f a budget may  first  appears.  charged  firm.  be a b e t t e r c o n t r o l than i t  The product manager's department i s  f o r a l l r e s e a r c h and other i n v e s t i g a t i o n work  done f o r i t .  T h i s means t h a t on each p r o j e c t the  and hence the c o s t , devoted determined.  time,  to each aspect i s e a s i l y  I t can thus be assumed t h a t w i t h h i s o v e r - a l l  budget and a knowledge of h i s costs i n other areas,  the  department manager should be able to a l l o c a t e funds to the developmental  p r o j e c t s i n an e q u i t a b l e manner.  The  fact  t h a t t h i s manager works c l o s e l y w i t h the e x e c u t i v e comm i t t e e on new  product development p r o v i d e s an  additional  c o n t r o l which would appear to be q u i t e e f f e c t i v e . The  a u t h o r i t y and r e s p o n s i b i l i t y r e l a t i o n s h i p s  have been i n d i c a t e d i n the p r e v i o u s d i s c u s s i o n .  The  blems of l i n e - s t a f f c o n f l i c t s are minimized  the  with  pro-  o r g a n i z a t i o n a l set-up o f t h i s company.  The department  manager has d i r e c t a u t h o r i t y over the p r o d u c t i o n and mark e t i n g people i n h i s department, who w i l l be c a r r y i n g out the new product development s t u d i e s .  There s t i l l  exists  a s t a f f - l i n e i n t e r - a c t i o n between h i s department and the l e g a l , r e s e a r c h and development, and the f i e l d  s a l e s de-  partments. Throughout the t h e s i s i t has been emphasized t h a t an e f f i c i e n t communications network must be a t the d i s p o s a l o f the new product p l a n n i n g o p e r a t i o n .  The  field  s a l e s manager o f the company s t r e s s e d the f a c t that comm u n i c a t i o n i s a major problem w i t h t h i s company i n a l l o f i t s operations.  The f i r m ' s major methods f o r communicat-  i n g data i n i t s product p l a n n i n g a c t i v i t y a r e : r e g u l a r meetings o f department managers;  the  and the r e p o r t s  that are submitted t o the e x e c u t i v e committee.  The com-  munications i n each department would t r a v e l the normal routes t h a t have been developed through the r e g u l a r operations. There i s no separate marketing r e s e a r c h department or d i v i s i o n i n the f i r m at p r e s e n t .  The tasks such a  department would normally perform have been c a r r i e d out p r i m a r i l y by the s a l e s people w i t h the a s s i s t a n c e o f the t e c h n i c a l s e r v i c e s department i n the area o f competitor product  analysis.  2 See the o r g a n i z a t i o n c h a r t i n Chapter V o f t h i s t h e s i s , p. 108.  The r e c e n t r e o r i e n t a t i o n of the f i r m has had a d e f i n i t e e f f e c t upon i t s approach  to new  product  develop-  ment, an e f f e c t a l l the more s t r i k i n g because the indust r y as a whole and t h i s management i n p a r t i c u l a r have l o n g been p r o d u c t i o n o r i e n t e d .  T h e i r former procedures were  n a t u r a l l y i n f l u e n c e d by t h i s concern w i t h p r o d u c t i o n .  The  development would tend to be e n t i r e l y centered around  the  c h a r a c t e r i s t i c s o f the product, w i t h o n l y a minimum of market a n a l y s i s .  The f i r m e v e n t u a l l y converted to market  o r i e n t a t i o n a f t e r s e v e r a l other companies i n the chemical i n d u s t r y made the change. D.  An A n a l y s i s of the Company Operations to the Proposed Process The major headings:  Relative  product p o l i c y ; c o - o r d i n a t i o n ;  c o n t r o l ; communication; a u t h o r i t y ; l i n e - s t a f f  relations;  company o b j e c t i v e s ; and marketing r e s e a r c h ; w i l l _ b e  used  as a b a s i s to analyze and answer the questions posed at the beginning of t h i s chapter, (i)  Product  Policy  The product p o l i c y must be designed to a t t a i n the goals set out i n the l o n g - r u n company o b j e c t i v e s . The combination o f these o b j e c t i v e s and p o l i c i e s establ i s h e s the f o u n d a t i o n upon which management develops company.  The a t t i t u d e that the company, as a whole, takes  towards i n n o v a t i o n i s a l s o l a r g e l y determined factors.  the  by these  I t has been p o i n t e d out r e p e a t e d l y , t h a t  this  129 frame o f mind i s an e s s e n t i a l f a c t o r f o r the success  of a  new  not  product  planning operation.  The  department w i l l  be e f f e c t i v e even w i t h the most e l a b o r a t e  preparations  u n l e s s the company i s d e d i c a t e d to progress  through i n -  novation. The o r g a n i z a t i o n of the new  product  planning  de-  partment would a l s o have a major i n f l u e n c e upon the r e s u l t s achieved.  Because management i s devoted to  an  i n n o v a t i n g approach i t does not n e c e s s a r i l y mean t h a t r e s u l t s w i l l occur without  e f f i c i e n t planning.  to t h i s p l a n n i n g i s an o r g a n i z a t i o n t h a t w i l l  The  key  facili-  tate effective co-ordination, (ii)  Co-ordination The  comparative c o - o r d i n a t i n g a b i l i t y o f the  two  systems i s one of the major areas t h a t must be examined i n the a n a l y s i s .  To f u l l y understand  this principle a  d e f i n i t i o n of the scope of the term must be g i v e n .  Co-  o r d i n a t i o n means t h a t a l l of the a c t i v i t i e s i n v o l v e d i n a new  product  p l a n n i n g o p e r a t i o n , are o p t i m i z e d w i t h r e s p e c t  to the o v e r - a l l company o b j e c t i v e s and a)  policies,  Company o p e r a t i o n s There was  a p o s s i b i l i t y of f i v e d i s t i n c t new  pro-  duct p l a n n i n g a c t i v i t i e s being c a r r i e d out at any one  time  i n the company s t u d i e d .  There could t h e r e f o r e be  d i r e c t o r s or c o - o r d i n a t o r s attempting ducts at once.  Although  to develop  five new  pro-  the product managers are working  f o r the b e n e f i t o f the o r g a n i z a t i o n they are p r i m a r i l y h e l d r e s p o n s i b l e f o r the r e s u l t s achieved r e s p e c t i v e departments.  within  their  I t can be s a f e l y assumed then,  t h a t the d e c i s i o n s these managers make might be b i a s e d w i t h r e s p e c t t o the b e n e f i t s r e c e i v e d by t h e i r departments They are capable o f c o - o r d i n a t i n g  the a c t i v i t i e s being per  formed i n t h e i r own departments but the q u e s t i o n  a r i s e s as  to t h e i r a b i l i t y t o make new product d e c i s i o n s t h a t b e n e f i t the company as a whole. appraised  will  The department manager i s  and promoted on the b a s i s o f h i s department's  o p e r a t i o n not on the b a s i s o f the p r o f i t a b i l i t y o f the firm.  The term c o - o r d i n a t i o n  a l l processes a r e r e g u l a t e d The  i n t h i s context  means t h a t  t o produce an optimum r e s u l t .  processes a t the c o n t r o l o f the product manager are  those w i t h i n h i s own department.  Therefore  the co-  o r d i n a t i o n t h a t he w i l l o b t a i n w i l l be w i t h r e s p e c t t o h i s department and not n e c e s s a r i l y to the e n t i r e f i r m . The  reluctance  o f a department manager t o devote .  time and money to product i n v e s t i g a t i o n s which may prove t o be w o r t h l e s s 90 per cent o f the time i s one a d d i t i o n a l problem t h a t may a r i s e .  I t was c i t e d t h a t  approxi-  mately 90 per cent o f a l l product ideas are d i s c a r d e d p r i o r to commercialization  and o f those t h a t are mar-  keted o n l y about 1 i n 5 ever become p r o f i t a b l e .  When a  manager devotes money, which he i s r e s p o n s i b l e f o r , t o i n v e s t i g a t i o n s he i s f a c e d w i t h the r e a l i t y t h a t the  131 o p p o r t u n i t y f o r success i s indeed minute.  He may,  there-  f o r e , become r e l u c t a n t t o c a r r y out an a n a l y s i s on  any  i d e a that shows the s l i g h t e s i n d i c a t i o n of f a i l u r e  because,  among other f a c t o r s , he i s probably e v a l u a t e d on the b a s i s of h i s department's p r o f i t a b i l i t y .  T h i s i s of course a  s u p p o s i t i o n but i t i s a d i s t i n c t p o s s i b i l i t y . i s a danger of a d o p t i o n of a s h o r t - r u n approach  Thus there to  new  product i n t r o d u c t i o n and w i t h t h i s approach goes the poss i b i l i t y t h a t the l o n g - r u n o b j e c t i v e s of the f i r m w i l l  be  neglected. The one major s a f e t y v a l v e to prevent the a d o p t i o n of a s h o r t - r u n approach  i s the i n f l u e n c e t h a t the e x e c u t i v e  committee has upon the expenditures on new ning.  The committee may  make new  product p l a n -  e x e r t p r e s s u r e on the managers t o  product development expenditures and thus r e l i e v e  some o f the apprehensive c o n d i t i o n s .  T h i s does not com-  p l e t e l y s o l v e the s i t u a t i o n because the e x e c u t i v e committee cannot p o s s i b l y study the d e t a i l s of a l l the product i d e a s which have been e l i m i n a t e d , b)  Proposed  System  The problems of c o - o r d i n a t i o n w i l l be under the proposed  system.  When an e x t e r n a l body ( i . e .  e x t e r n a l to the l i n e departments), the data r e l e v a n t to a l l new  minimized  c o l l e c t s and  analyzes  product p r o j e c t s and views  these r e l a t i v e to the company o b j e c t i v e s , the p o s s i b i l i t y o f a r r i v i n g at an optimum r e s u l t f o r the company, as a  132  whole, i s g r e a t l y i n c r e a s e d . adopt an approach conducive  F o r the e n t i r e company to to new product  development,  the o p e r a t i o n s must be c o - o r d i n a t e d so that the personnel f e e l t h a t they are c o n t r i b u t i n g to some common company goal. The p o s s i b i l i t y o f adopting  a s h o r t - r u n approach i s  minimized when the r e s p o n s i b i l i t y f o r new product  planning  i s p l a c e d w i t h an i n d i v i d u a l o r a body which i s e x t e r n a l to the l i n e departments.  A firm interested i n a progressive  approach t o new product p l a n n i n g needs an o r g a n i z a t i o n t h a t w i l l ensure d e c i s i o n s t h a t f u r t h e r the company o b j e c t i v e s and product  policies.  The p r o b a b i l i t y o f c o - o r d i n a t i o n i s i n c r e a s e d when the r e s p o n s i b i l i t y f o r new product  development i s p l a c e d  w i t h one body r a t h e r than w i t h s e v e r a l .  The p o s s i b i l i t y  e x i s t s t h a t when there a r e f i v e departments c a r r y i n g out r a t h e r independent product  r e s e a r c h a c t i v i t i e s they might  strive f o r five different objectives.. (iii) a)  Communication Introduction To a t t a i n a h i g h l y c o - o r d i n a t e d new product  p l a n n i n g o p e r a t i o n i n a f i r m , the department these procedures  must have an e f f i c i e n t  system a t i t s d i s p o s a l . munications  performing  communications  T h i s department would be the com-  center o f the f i r m w i t h r e s p e c t t o i t s product  planning a c t i v i t i e s .  To m a i n t a i n a frame o f mind  conducive  133  to product kept  i n n o v a t i o n , a l l p e r t i n e n t personnel  completely  informed  o f the o p e r a t i o n s  the company at t h a t time.  The  should  be  i n progress  in  a b i l i t y of the company to  work as a u n i t toward some common o b j e c t i v e w i l l be  deter-  mined by the amount and content o f the i n f o r m a t i o n which i s communicated to the people ning i s o n l y one operation.  important  involved.  New  product  phase o f the o v e r - a l l company  However, u n l i k e the p r o d u c t i o n or marketing  departments, which have t h e i r own  personnel  to a t t a i n c e r t a i n o b j e c t i v e s , the new  and  product  facilities  planning  a c t i v i t y depends upon the o p e r a t i o n s o f the other ments f o r i t s success.  With the f a c t s t h a t the  ment c o n t i n u a l l y r e c e i v e s i t compiles ject.  The  depart-  depart-  data on a g i v e n pro-  importance of e f f e c t i v e communications i n t h i s  c o l l e c t i o n process b)  plan-  cannot be  over-emphasized,  Company o p e r a t i o n s In each product department of the f i r m s t u d i e d i t  has been assumed t h a t the communications system i s r e l a tively effective.  The  e f f e c t i v e n e s s of t h i s network c o n t r i -  butes to the o p e r a t i o n of the department.  However, i t s  c o n t r i b u t i o n to the company as a whole i s m a r g i n a l .  To  f a c i l i t a t e complete t r a n s m i s s i o n of i n f o r m a t i o n there must be some other system.  The  departments attempt to u t i l i z e  a weekly managers' meeting which allows f a c t s to be t r a n s f e r r e d from one  department to the o t h e r s .  p e r i o d i c r e p o r t s t h a t are submitted mittee.  There are a l s o  to the e x e c u t i v e com-  13^ T h i s communications system may appear t o be completel y adequate but t h e r e are p o s s i b l e weaknesses that become apparent upon f u r t h e r a n a l y s i s .  The department managers  have the r e s p o n s i b i l i t y f o r the marketing, p r o d u c t i o n , and t e c h n i c a l s e r v i c e a c t i v i t i e s i n t h e i r departments. means t h a t the problems o f new product p l a n n i n g  This  consti-  t u t e one s m a l l group o f t h e numerous problems f a c i n g the department manager.  I f t h i s i s combined w i t h the f a c t t h a t  t h e r e are a t l e a s t f i v e departments r e p r e s e n t e d at t h e weekly meetings, then i t i s d o u b t f u l as t o how much time i s devoted t o d i s c u s s i n g , i n d e t a i l , ' the problems and progress o f each new product development p r o j e c t . The f i e l d s a l e s manager i n t e r v i e w e d , p o i n t e d out t h a t communication was indeed a major problem and t h a t a t tempts were being made to improve t h i s s i t u a t i o n . little  The  time t h a t can be devoted to d i s c u s s i n g new product  development a t the weekly meetings, can h e l p to e x p l a i n p a r t o f the problem. explanation.  However, t h i s i s o n l y a p a r t i a l  There a r e other departments i n v o l v e d i n these  procedures t h a t are i n no way d i r e c t l y r e l a t e d w i t h these f i v e product groups. department.  One i s the r e s e a r c h and development  I t has been the source o f many product ideas  i n the past and as such i t must be kept informed of the progress t h a t i s being made on the v a r i o u s p r o j e c t s .  It  i s a l s o i n v o l v e d i n t h e l a t t e r stages o f the development as w e l l as the i n i t i a l i d e a stage.  O f t e n new products t h a t  135 are developed from other sources must be analyzed c a r e f u l l y by the r e s e a r c h people to determine the chemical c h a r a c t e r i s t i c s and the p o s s i b l e end-uses.  The r e s e a r c h  department  must t h e r e f o r e be kept abreast o f a l l developments i n any project. The r o l e o f the s a l e s s t a f f i s important i n new product i n t r o d u c t i o n s and developments i n t h i s f i r m .  It  appears to be the major source o f new product ideas and i t i s a l s o s t r a t e g i c a l l y i n v o l v e d i n the v a r i o u s stages o f the product's development.  However, i t was noted t h a t the  s a l e s o f f i c e s are o n l y r e l a t e d  t o the f i v e product depart-  ments through the v i c e - p r e s i d e n t i n charge o f marketing."^ Communications must t h e r e f o r e t r a v e l v i a t h e t r a d i t i o n a l structural  route.  T h i s does not n e c e s s a r i l y mean t h a t  this  r o u t e i s i n e f f e c t i v e but r a t h e r i t i s suggested t h a t problems may occur w i t h cross-wise communications. t h a t the f i e l d  The f a c t  s a l e s o f f i c e s a r e g e o g r a p h i c a l l y separated  from the f i v e product department  managers i n t r o d u c e s another  complication. c)  Proposed  System  The problem o f communications was c o n s i d e r e d c a r e f u l l y i n the proposed department.  I n a modern complex  o r g a n i z a t i o n the problems o f communication can never be completely e l i m i n a t e d but attempts  can be made t o minimize  them as the o r g a n i z a t i o n i s expanded.  3  See Page 108 i n Chapter V o f t h i s  If a staff  thesis.  136  department such as the new  product  department i s to  be  e s t a b l i s h e d , p r o v i s i o n must be made to make i t operate as e f f i c i e n t l y as p o s s i b l e . to the success  of new  Communications are e s s e n t i a l  product  next step i s to show how  planning.  Therefore,  the  the proposed system s o l v e s most  of the communications problems. The methods f o l l o w e d by t h i s department t h a t complete and sonnel  assure  c u r r e n t data are t r a n s m i t t e d to a l l per-  i n v o l v e d i n product  developments.  The  system  allows f o r r a p i d data t r a n s m i s s i o n to the committee  and  a l s o allows f o r e f f i c i e n t  t r a n s m i s s i o n of summary r e p o r t s  to a l l department heads.  The  communications c e n t r e r e c e i v e s  a l l the p e r t i n e n t data, compiles i t , analyzes mits  the output  to a l l r e l e v a n t areas.  i t , and  trans-  T h i s enables a l l  departments to p l a n a c c o r d i n g l y and a l s o the e n t i r e organi z a t i o n to be aware of a l l new (iv)  developments,  Authority The  product  product  a u t h o r i t y r e l a t i o n s h i p s between the  p l a n n i n g department and  the other departments of  the f i r m , t h a t are i n v o l v e d i n new must a l s o be d i s c u s s e d .  new  product  development,  A common management p r i n c i p l e i s :  the a u t h o r i t y to act should be p l a c e d where the r e s p o n s i bility lies.  In new  product  planning  i t i s almost e s s e n t i a l  that a l l of the major departments of the f i r m be i n v o l v e d . T h i s i n t e g r a t e d approach has throughout the t h e s i s .  The  been o u t l i n e d  thoroughly  problems of o b t a i n i n g  137  c o - o p e r a t i o n on some common t a s k by the v a r i o u s l i n e s t a f f departments i n v o l v e d are a r e s u l t o f t h i s  and  inte-  g r a t e d approach. One  o f the p r e r e q u i s i t e s to success i s a company's  a b i l i t y to operate  as an i n t e g r a t e d e n t i t y .  Several writers  s t r e s s e d the need f o r an i n t e g r a t e d approach to new  pro-  duct p l a n n i n g .  T h i s means t h a t the d i f f e r e n t departments  must co-operate  on common problems and  responsibility for their solution.  j o i n t l y share  the  Because the new  pro-  duct development a c t i v i t y i s an i n t e g r a t e d o p e r a t i o n i n v o l v i n g a l l of the major departments, i t i s almost  im-  p o s s i b l e to have one person o:r group w i t h d i r e c t a u t h o r i t y over a l l of the o p e r a t i o n s r e q u i r e d f o r a thorough i n v e s t i gation. The department manager o f the f i r m i n Chapter V d i r e c t a u t h o r i t y over the p r o d u c t i o n and marketing i n v o l v e d i n the process w i t h i n h i s own gather  the r e s p e c t i v e department managers. of a u t h o r i t y c o n f l i c t s was  people  department.  i n f o r m a t i o n from other areas he had  had  To  to work through  Thus the  possibility  present even though i t may  not  have been probable. T h i s same p o s s i b i l i t y i s present  i n the proposed  department because t h e r e i s an even g r e a t e r interaction.  However, the q u e s t i o n must be asked:  n e c e s s a r i l y a drawback? the new  staff-line  product  The  e n t i r e company must  Is t h i s  support  p l a n n i n g o p e r a t i o n to make i t a success.  138  T h i s w i l l r e q u i r e an i n t e g r a t e d approach w i t h both  staff  and l i n e departments c o - o p e r a t i n g w i t h the new product p l a n n i n g department by p r o v i d i n g i t w i t h the r e q u i r e d information.  Because o f the need f o r constant  interaction  between the new product p l a n n i n g department and the other departments, i t has been suggested with functional authority.  t h a t i t be delegated  However, the p o s s i b i l i t y o f  interdepartmental c o n f l i c t i s s t i l l present. it  i s maintained  t h a t the important  Therefore,  element i n t h i s  entire  o p e r a t i o n i s t h a t the company be i n n o v a t i o n o r i e n t e d . c o n f l i c t s w i l l be minimized The importance  The  i f t h i s i s the s i t u a t i o n .  o f the a u t h o r i t y r e l a t i o n s h i p s i s  b e l i e v e d t o be subordinate to the areas o f c o - o r d i n a t i o n and communication i n t h i s a c t i v i t y .  Thus i n e s t a b l i s h -  ing the department s t r e s s should be p l a c e d on those  aspects  which w i l l n u r t u r e an o v e r - a l l company approach to new product p l a n n i n g and f a c i l i t a t e e a s i e r attainment o f company objectives. (vi)  Summary From the a n a l y s i s i t i s evident t h a t t h e r e are  d i s t i n c t d i f f e r e n c e s i n the two systems but t h e r e are several s i m i l a r i t i e s  i n the procedures  i n g a product i d e a .  However, these procedures  main s u b j e c t o f the t h e s i s . ment t h a t i s important.  f o l l o w e d i n developare not t h e  I t i s the form o f the depart-  The e f f e c t i v e n e s s i n h a n d l i n g  these o p e r a t i o n s i s o f prime importance.  I t i s with  this  139  aspect  that the t h e s i s has d e a l t . The  second q u e s t i o n  t h a t was posed e a r l y i n t h i s  chapter d e a l t w i t h whether the proposed system c o u l d be adopted by the company s t u d i e d .  The important determin-  ants o f t h i s i s s u e are the a t t i t u d e s o f management and the o r g a n i z a t i o n o f the department. When the department was s e t f o r t h i n Chapter IV one  o f the major s t i p u l a t i o n s was t h a t the f i r m should  a multi-product  company i n an i n d u s t r y where  was an important f a c t o r .  be  innovation  The chemical i n d u s t r y and the  company s t u d i e d , comply w i t h these s t i p u l a t i o n s .  The pro-  posed department w i l l operate most e f f i c i e n t l y i n a company of t h i s type.  Product i n n o v a t i o n  i n a one product company  i s not a major problem. Because the f i r m s t u d i e d i s one o f the l e a d e r s i n i t s i n d u s t r y i t i s s a f e to assume that i t s management i s p r o g r e s s i v e l y minded and t h a t i t would be w i l l i n g t o accept the a d d i t i o n o f a new department i f i t promised the f i r m an improved r e t u r n .  The number o f people t h a t the company  would be w i l l i n g to devote to t h i s a c t i v i t y would be dependent upon s e v e r a l f a c t o r s ; two o f these are the personnel c o s t and the magnitude o f the p o s s i b l e r e t u r n s .  Through-  out the t h e s i s i t has been shown t h a t even i f management i s i n n o v a t i o n minded, there i s s t i l l  a need f o r an e f f i c -  i e n t o r g a n i z a t i o n to d i r e c t t h e a c t i v i t i e s t o produce t h e d e s i r e d r e s u l t s i n new product  planning.  ikO  CHAPTER V I I SUMMARY AND CONCLUSIONS The major o b j e c t i v e s of t h i s study were o u t l i n e d i n d e t a i l i n Chapter I .  They b a s i c a l l y s t a t e d the d e s i r e to  e s t a b l i s h a department i n a f i r m which would e f f e c t i v e l y coordinate  the new product planning  operations.  t h a t a s t r u c t u r e would be developed t h a t would  I t was hoped facilitate  more c o n s i s t e n t r e s u l t s i n product i n t r o d u c t i o n programs. Does the proposed system f u l f i l answering t h i s there are other  these demands?  P r i o r to  p o i n t s to c o n s i d e r .  There i s a d i s t i n c t p o s s i b i l i t y t h a t an over-concern w i t h academic p r i n c i p l e s w i l l r e s u l t i n a p r o p o s i t i o n t h a t l a c k s r e a l i t y i n a study of t h i s type.  I n developing  a  department t h a t i s t o be used by an i n d u s t r i a l company, care must be taken to ensure that the f i n a l r e s u l t w i l l i n f a c t be a p p l i c a b l e t o i n d u s t r y . to consider  One o f the f i r s t  points  then i s whether the new product planning  depart-  ment can f e a s i b l y be adapted t o a f i r m such as the one s t u d i e d i n Chapter V.  I t w i l l be r e c a l l e d t h a t i n Chapter  VI, t h i s problem was d e a l t w i t h i n some d e t a i l .  The r e s u l t -  ing c o n c l u s i o n a t t h a t time was t h a t the proposed system c o u l d indeed be a p p l i e d to such a company. For a f i r m to adopt t h i s system, management and the company as a whole would have to completely support the department and i t s o b j e c t i v e s .  To be as r e a l i s t i c as  14-1  p o s s i b l e i t must be p o i n t e d  out t h a t management would be  concerned about the cost of i n s t i t u t i n g such a setup and the b e n e f i t s t h a t could be d e r i v e d from i t . Whereas the c o s t s could be determined w i t h r e l a t i v e ease, the problem of q u a n t i f y i n g  the b e n e f i t s i s not as simple.  d o l l a r f i g u r e be p l a c e d  on a concept such as t h i s ?  I t i s almost impossible t h i s question  How can a  to g i v e a d i r e c t answer t o  so an i n d i r e c t approach must be used.  would s t i m u l a t e  What  management t o become concerned about t h e i r  new product p l a n n i n g  operations?  I t i s l i k e l y t h a t the  major f a c t o r s would be an i n d i c a t i o n o f extreme c o s t s and a h i g h number o f f a i l u r e s i n t h i s area.  These f a c t o r s  would probably i n i t i a t e a study s i m i l a r t o the one c a r r i e d out f o r t h i s t h e s i s and seemingly the end r e s u l t would be a complete a n a l y s i s o f the company's operations  and the  development o f a department which would more e f f e c t i v e l y handle the p r o c e s s .  T h i s s t r u c t u r e would ensure management  t h a t the success r a t e o f the product i n t r o d u c t i o n would be i n c r e a s e d each p r o j e c t .  operations  because o f the thorough a n a l y s i s g i v e n t o  The p r o f i t a b i l i t y o f many i n d u s t r i e s i s  c l o s e l y r e l a t e d t o t h e i r product l i n e , t h e r e f o r e  any assur-  ance o f a h i g h e r r a t i o o f successes to i n t r o d u c t i o n s would convince management to i n c o r p o r a t e  such a system.  Again the d e c i s i o n t o u t i l i z e a s t r u c t u r e s i m i l a r to the proposed one hinges on the r e a l i z a t i o n by management t h a t new products are an important key to t h e i r f u t u r e .  14-2  With t h i s r e a l i z a t i o n goes the s i n c e r e d e s i r e to adopt some system which w i l l more e f f e c t i v e l y ensure a new  product's  success. Is the make-up of the committee as d e s c r i b e d Chapter - IV unchangeable? d i r e c t o r and  eventual  T h i s committee w i t h i t s permanent  department r e p r e s e n t a t i v e s  able i t to be m o d i f i e d  in  as any  i s designed to  company might r e q u i r e .  s i z e of i t would be dependent upon the s i z e  o r g a n i z a t i o n o f the company.  The  enThe  and  Important c h a r a c t e r i s t i c  of t h i s system i s the concept t h a t t h e r e i s at l e a s t  one  permanent member and  t h a t the committee i t s e l f i s f l e x i b l e .  T h i s f l e x i b i l i t y and  thus wide a p p l i c a b i l i t y i s a d i s t i n c t  advantage of t h i s system and type of companies d e s c r i b e d  i t i s concluded t h a t f o r  the  i n the t h e s i s t h i s form would  be  extremely e f f e c t i v e . A.  The  E v o l u t i o n of a New  Product Idea  In Chapter I I the d e t a i l s o f the v a r i o u s  phases a  product i d e a passes through p r i o r to becoming a f i n a l marketa b l e product, are o u t l i n e d completely.  This t h e s i s stressed  t h a t an i d e a must be handled i n an organized  manner and  that  c e r t a i n b a s i s d e c i s i o n s must be made at s t r a t e g i c p o i n t s the ideas growth.  I t i s maintained t h a t w i t h t h i s  approach, the f i r m w i l l be f o r c e d to c o n s i d e r  in  organized  a l l of  the  r e l e v a n t f a c t o r s which w i l l determine whether a product i d e a i s worthy of f u r t h e r development.  The  purpose of  the e v o l u t i o n a r y process i n t o f o u r phases was  breaking  to i n d i c a t e  1^3  c l e a r l y the necessary d e c i s i o n s t h a t must be made and to i l l u s t r a t e how the new product p l a n n i n g process i s an i n t e grated operation. To ensure t h a t these d e c i s i o n s are made and t h a t t h e o p e r a t i o n i s c o - o r d i n a t e d , i t i s necessary t o o u t l i n e the d e t a i l s of a department t h a t w i l l f a c i l i t a t e the e f f i c i e n t development of a l l new product i d e a s .  I n Chapter  IV t h i s  department was e s t a b l i s h e d and d i s c u s s e d thoroughly. B.  Product  Policy  A company c o n s i d e r i n g the a d o p t i o n of a separate new product p l a n n i n g department must c l e a r l y d e f i n e i t s product policy.  Management  adopts i t s long-range o b j e c t i v e s f o r  the company and s e t s out to e s t a b l i s h p o l i c i e s that a t t a i n these g o a l s .  I t must determine  will  the p o l i c i e s t h a t out-  l i n e the d e t a i l s o f the types o f products the f i r m w i l l duce and s e l l .  pro-  I n e s t a b l i s h i n g t h i s p o l i c y though an ob-  j e c t i v e e v a l u a t i o n o f the company's p o t e n t i a l must be made. T h i s means t h a t management must attempt  to r a t e i t s own  a b i l i t i e s as w e l l as those o f the members o f the o r g a n i z ation.  T h i s s e l f a p p r a i s a l w i l l a l l o w i t t o adopt  i s t i c goals and p o l i c i e s . management Without  With these tasks  real-  accomplished  can e s t a b l i s h a new product p l a n n i n g department.  the p o l i c y as a guidepost the e s s e n t i a l l o n g - r u n  approach to new product development c o u l d not be adopted and thus the d e c i s i o n s made would merely be s h o r t - r u n s o l u t i o n s which are a l l too p r e v a l e n t i n i n d u s t r y at p r e s e n t .  C.  Co-ordination I n a r r i v i n g at the c o n c l u s i o n t h a t the proposed  system was  s u p e r i o r because of i t s f l e x i b i l i t y ,  other important f a c t o r s c o n s i d e r e d .  t h e r e were  One which was  con-  t i n u a l l y mentioned  throughout the t h e s i s was  f o r the department  to c o - o r d i n a t e the product p l a n n i n g  activities  effectively.  w i t h the i d e a t h a t new grated a c t i v i t y .  T h i s was  the n e c e s s i t y  developed i n c o n j u n c t i o n  product development i s an i n t e -  As an i n t e g r a t e d process t h e r e w i l l  neces-  s a r i l y be developmental work being done i n s e v e r a l departments of the f i r m at any one time.  The e x t e r n a l f e a t u r e  o f t h i s committee p l a c e s i t i n an i d e a l p o s i t i o n to take an o v e r - a l l l o o k at proceedings and guide them a c c o r d i n g l y . For new  product development to c o n t r i b u t e most to the com-  pany o b j e c t i v e s i t w i l l have to be handled i n an i n t e g r a t e d manner r a t h e r than as a s e r i e s of i n d i v i d u a l p r o j e c t s being performed  i n d i f f e r e n t areas of the f i r m .  T h i s committee  and the methods o u t l i n e d i n Chapter I I w i l l r e a d i l y  facili-  t a t e the attainment of these g o a l s . D.  Communication For the committee to succeed i n i t s c o - o r d i n a t i n g  a c t i v i t i e s i t must be designed w i t h e f f e c t i v e networks at i t s d i s p o s a l .  communications  These systems have been c l e a r l y  d i s c u s s e d before but i t i s concluded here t h a t the proposed department  w i l l r e a d i l y a l l o w the r a p i d t r a n s m i s s i o n of  data to and from the v a r i o u s departments.  The networks  are not an i n h e r e n t f e a t u r e o f t h i s system but r a t h e r they are made p o s s i b l e by the form o f the committee and t h e methods i t w i l l u t i l i z e . r e p o r t i n g to the executive planning  S e t up as a s t a f f department committee, the new product  department tends to a c t as the communications  c e n t r e o f the product p l a n n i n g allows  activities.  This  feature  a l l departments o f the company to remain c u r r e n t  on a l l p r o j e c t s and to p l a n t h e i r s t r a t e g i e s a c c o r d i n g l y . E.  Control A new product planning  a c t i v i t y must be designed t o  enable e f f e c t i v e c o n t r o l by management. t h a t the proposed system f u l f i l l s  I t i s concluded  t h i s requirement.  d e t a i l s o f the v a r i o u s c o n t r o l measures have been i n previous  chapters.  They i n c l u d e d :  the r e g u l a r  The  presented progress  r e p o r t s t h a t were d i s t r i b u t e d to a l l departments; the c l o s e contact w i t h top management; the l i m i t a t i o n of p r o j e c t app r o v a l ; the make-up o f the committee; and the o p e r a t i n g budgets p r o v i d e d  f o r i n v e s t i g a t i o n purposes.  The f a c t  that  the committee could observe a l l developmental procedures meant t h a t i t could more e a s i l y a l l o c a t e funds t o the v a r ious p r o j e c t s i n a p r o p o r t i o n a t e manner.  This  system  t h e r e f o r e makes i t p o s s i b l e f o r management t o c o n t r o l the department's a c t i v i t i e s and f o r the department to c o n t r o l expenditures  made on each product i d e a .  Ih6  P.  Marketing  Research  I t i s a l s o concluded t h a t an important key to the success of the p l a n n i n g a c t i v i t y i s the presence of an e f f i c i e n t o r g a n i z e d marketing  r e s e a r c h department.  The  v a r i o u s forms t h a t t h i s department c o u l d adopt have been o u t l i n e d i n Chapter here i s t h a t the new  I I I , however, the Important  element  product p l a n n i n g department has a  group a t i t s d i s p o s a l to c a r r y out d e t a i l e d analyses o f the market. I t was  emphasized t h a t the need f o r e x t e n s i v e market  i n f o r m a t i o n was  Imperative t o the success o f product  d u c t i o n schemes.  intro-  As p o i n t e d out p r e v i o u s l y , a l a r g e pro-  p o r t i o n of the product f a i l u r e s at present occur because of i n s u f f i c i e n t market knowledge.  Too many companies have  developed the product f u l l y b e f o r e they have  determined  whether t h e r e i s any market f o r i t . Alarm was  t h e r e f o r e expressed when the company s t u d i e d  i n Chapter V i n d i c a t e d t h a t i t had r e c e n t l y e l i m i n a t e d i t s meagre one-man marketing  research operation.  f o r t u n a t e t h a t the d e t a i l s not be determined.  as to why  Doubt was  t h i s was  I t was  un-  done c o u l d  expressed as to the  relia-  b i l i t y o f the market i n f o r m a t i o n gathered by the s a l e s  staff  p r e s e n t l y employed by the f i r m . Thus the new  product p l a n n i n g a c t i v i t y and  market knowledge go hand i n hand.  thorough  The techniques employed  to g a i n t h i s knowledge are not at q u e s t i o n here.  Ih7 G.  P i t f a l l s to Avoid The  advantages o f t h i s proposed system are c l e a r l y  i l l u s t r a t e d and i t s adoption by c e r t a i n companies i s recommended. be  However, there are some c a u t i o n s t h a t must  expressed. First,  be h a s t y .  the company adopting t h i s system should not  I n other words the a d o p t i o n should come o n l y  a f t e r a complete a n a l y s i s o f the company's resources has been c a r r i e d o u t .  Without t h i s p r e p a r a t i o n a department  may be e s t a b l i s h e d without  c a r e f u l p l a n n i n g and the r e s u l t s  o b t a i n e d may be d i s c o u r a g i n g f o r c i n g c a n c e l l a t i o n o f t h e operation.  J u s t as any other department i n a company, t h i s  one must be c a r e f u l l y o u t l i n e d and planned.  The  important  f a c t o r s p r e v i o u s l y d i s c u s s e d i n t h i s chapter must be accounted  f o r and the s t r u c t u r e designed a c c o r d i n g l y .  Another p o s s i b i l i t y t h a t i s e q u a l l y dangerous i s t h a t the department w i l l be o v e r - o r g a n i z e d .  By t h i s i t i s  meant t h a t the company should r e a l i z e i t s l i m i t s ,  i n terms  o f p o t e n t i a l growth, and adopt a s t r u c t u r e s u i t e d f o r i t s size.  I t might happen t h a t management's enthusiasm to  o r g a n i z e i t s new product p l a n n i n g a c t i v i t i e s may cause i t to over-extend  itself.  This would r e s u l t i n u n p r o p o r t i o n -  ate c o s t s and would send the department t o an e a r l y  death.  The new product p l a n n i n g department should not be adopted f o r the t o o l ' s sake.  T h i s means t h a t a company  should not e s t a b l i s h a separate department s o l e l y f o r the  14-8  r e a s o n t h a t o t h e r f i r m s have s u c c e s s f u l new ations.  product  oper-  This a g a i n r e t u r n s the d i s c u s s i o n to the f a c t  t h a t management must c l e a r l y b e l i e v e i n such an o p e r a t i o n and i t must be t r u l y concerned w i t h improving ance i n new  product i n t r o d u c t i o n s .  t h i s approach  i t s perform-  I f management adopts  the p o s s i b i l i t y o f the e n t i r e company sup-  p o r t i n g t h i s o p e r a t i o n w i l l be i n c r e a s e d and t h e r e f o r e the p r o b a b i l i t y of s u c c e s s f u l new  products w i l l a l s o be i n -  creased. T h i s same argument can apply to the a d o p t i o n o f a marketing for  r e s e a r c h department to p r o v i d e market knowledge  the f i r m .  When management decides to e s t a b l i s h these  types o f departments they must be c l e a r l y convinced t h a t i t i s f o r the b e n e f i t of the company and that they w i l l  aid i n  the f u t u r e growth of the f i r m . In review i t i s thus concluded t h a t the department and the methods d e s c r i b e d f o r new  product p l a n -  n i n g w i l l e f f e c t more c o n s i s t e n t r e s u l t s i n new introduction.  proposed  product  I t s t i m u l a t e s o r g a n i z e d t h i n k i n g and i n so  doing, i n c r e a s e s the p o s s i b i l i t y t h a t a l l f a c t o r s c o n s i d e r e d i n product d e c i s i o n s .  are  The department f o r c e s  management to adopt concrete product p o l i c i e s and to p l a n t h e i r product l i n e i n an attempt long-run objectives.  The new  to reach the company's  product p l a n n i n g department  a l s o ensures t h a t e v e n t u a l l y the system of producing a product and then attempting to s e l l i t , w i l l be d i s c a r d e d .  BIBLIOGRAPHY  BIBLIOGRAPHY A.  BOOKS  Alexander, R. S., Cross, J . S., and Cunningham, R. M. I n d u s t r i a l Marketing.  Homewood,  Illinois:  D. Irwin, Inc., 1956. Berg, T. L., and Shuchman, A.  (editors)  and Management. and Winston, Chaddock, R. E., ( e d i t o r ) tice.  Product S t r a t e g y  New York:  Holt, Rinehart  Inc., 1963. Chemical Market Research i n Prac-  New York:  Reinhold Publishing  Corp.,  1956. Corey, E. R.  The Development o f Markets Cambridge, Mass: .  f o r New M a t e r i a l s .  R i v e r s i d e P r e s s , 1956.  I n d u s t r i a l Marketing. (Cases and Concepts).  Englewood C l i f f s ,  N.J.: P r e n t i c e - H a l l Inc.,  1962. C o r l e y , H. M.  (editor)  S u c c e s s f u l Commercial  Development.  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