The Market And Customer Issues

Published Date: 02 Nov 2017

Introduction

Over the last two decades, both enterprises and consumers witness a myriad of changes in new product introduction process [1] This is particular true in technology industries such as electronic division, machinery division and information technology division The surprising fact is that the changes do not only apply to small companies or start-up companies [2], but they also apply to many well-established organizations. The changes are mainly driven by the existence of challenges in new product introduction process This article examines the challenges that hinder the success of new technological product introduction In addition, it also explores the solutions that could be deployed to introduce new product to market successfully and profitably.

Market and Customer Issues

First of all, market and customer issues are the main challenges for all businesses in introducing new products and are the imperatives in achieving business success Very often, new products introduced to market are mostly neither meeting customers’ expectation nor addressing market needs The reason is that company management and marketing teams are predisposed to think of success when launching new products [3], without interpreting market needs based on research data and market culture. This perception always leads to the overestimation of sales target and market demand As a result, the sales performance of new products always fall short of the original expectation of return [4] and lead to disappointment on new products sales results For example, BlackBerry Playbook sales (200,000 units) attained in second quarter of 2011 were far below the expectation (400,000 units) of Research In Motion and Wall Street [5] The launch of PlayStation Vita handheld is another good example indicating the failure of company in understanding consumers’ needs According to Shuhei Yoshida, President of Sony's Worldwide Studios, the company only managed to attain the sales of 3 million units after launching the product for nine months [6], which the sales was also far below the company’s target. The poor performance results are mainly due to the failure of Sony team in understanding the needs of consumers and markets. This situation is very much similar to the introduction of picture phones [7] by AT&T in several attempts since 1964 [3]. Despite the company’s efforts in introducing the device and convincing the consumers of the benefits of picture phones, the technology is still generally not well received by the public The reason is that consumers prefer smart phones over picture phones [3].

Further, technology companies also encounter fierce competition on product pricing in certain markets due to the lack of understanding about market The addition of new products into the markets will usually intensify the competition among competitors. This may lead to price drop issue and eventually lower profit margin and profit Thus, being the first product to be in certain markets is very crucial in some cases It does not only allow businesses to monopolize the market, but it also enables companies to command a higher price premium, avoid intense price competition and help improving the rate of inventory turnover, which the benefits could effectively enhance cash flow and profit margin Moreover, having good understandings of the market and own technologies would enable a company to grab opportunities more easily than others. For instance, having good understandings of the healthcare market need and the application of scanning technology allow Siemens Healthcare to secure another stream of revenue from introduction of medical imaging product [8] On contrary, the technology innovator, EMI, was forced to drop the computerized axial tomography (CAT) business from market within six years of the product introduction [9].

Technology Issues

The second challenge encountered by technology companies in new products introduction is technology issue. The issues is very much associated with poor management of risks, which could arise from the presence of unanticipated uncertainties such as technological uncertainties [10] in technical feasibility, functionality and quality [11]. Companies that failed to anticipate risks and manage risks well prior to the introduction of new products usually operate within dark edges, which would result in significant loss Unlike automotive companies, which usually apply risk management techniques to product design by performing Design Failure Mode Effects Analysis (DFMEA) on every part of cars and anticipating possibilities of failure for each component in the federally mandated tests [12], technology companies do not adhere to this practice.

The second factor which brings about technology issue is quality problem Product quality is always regarded as a panacea [13] for the problem afflicting technology products However, it is very surprising that very little effort has been devoted by technology companies to ensure the products operate based on the defined set of function, meeting the legislation requirements and no vulnerabilities exist in products before introducing them to market Consequently, electronic companies always suffer from the rejection of products from consumers, sullying of reputation and drop of market share Moreover, management teams sometime do not make preparation in advance in terms of solutions to poor sales performance, product quality problems and product function expansion issues. This always happens in fast pace technology development environment Thus, technology companies always have time constraint dealing with the problems when customer complaints arise.

Another factor which results in technology issue is copyright infringement problem. New products are very susceptible to copyright infringement if the products’ technologies are not being patented before reaching the market Popular technologies are the group of products which are more vulnerable to imitation. This issue always result in unidimensional conflict between pirates and originators [14] on the application of particular technologies and interest Thus, patents must be filed on important technologies or process prior to the introduction of new products into market This is done so as to ensure that new technologies are protected under the copyright law.

Capturing the Value

The third challenge in introducing new products is capturing the value of technologies. The word "capturing the value" is no longer be regarded as a revolutionary term in technology-based-business lexicon system The approaches based on performance-centric and quality-centric [1] for new products introduction, which emphasized by enterprises few decades ago, is no longer be the sole important criteria [15] for high technology products introduction It is undeniable that failure to introduce new products into market in time or before competitors move in on the market will usually lead to a significant loss of market share, but being the first to introduce products may not always be the best approach Very often, organizations which possess valuable intellectual properties, ability to access to complementary assets and well prepared for unforeseen circumstances stand a higher chance to succeed in the market The reason is that valuable intellectual properties does not only protect the organizations from copyright infringement issue [14] for at least a decade (14 to 20 years), but it allows company to profit from the innovative technologies. However, not all the patents are useful and valuable. Based on the figure reported by US Patent Office, approximately 2% of the total patents filed [16] are generating decent or attractive rate of investment. In other word, nearly 98% patents failed to generate return to inventors and investors.

In addition, companies must have a capability access to complementary assets. The reason is that companies which do not have access to complementary assets will usually encounter setbacks after a few years in operation. Good intellectual properties only allow firms to build a complete and stable business foundation [8], but they do not provide guarantee for long term business success. Failure to setup complementary assets, such as generic assets, specialized assets or co-specialized assets [9], either through ownership, joint ownership or contractual agreement, on the subsystem of business such as competitive manufacturing capacities, marketing channels, sales and service supports, will usually result in the loss of competitiveness to innovators.

New Product Development/Introduction Process

The fourth challenge is new product development issue. New product development and introduction is not just about designing the function and appearance of products, but it spans the entire product life-cycle from new idea generation, market research, market analysis, concept study, idea screening, product design and detail engineering [17], production, market launch, support, enhancement and retirement [8]. Usually all these processes are incorporated into a complete business process model with systematic management, which allows companies to capture the commitment, innovation and creativity [18] of the whole organisation if executed effectively [1]. However, companies do not always adhere to this practice as the processes take the organizations more resources and efforts to develop, commercialize and manage products. This is commonly seen in small firms, start-up companies and unstructured organizations. As a result, chaotic process always exists in product introduction process, which may disrupt the normal operation of firms. In some cases, product development team may fail to identify weaknesses, vulnerabilities and errors in the products. Hence, further modifications may be required when the products fail to operate according to the defined set of function, which may lead to delay in schedule, over-budget and loss of market share issues.

Good New Product Introduction and Management Practices

Unlike managing the existing products, the introduction of new product requires a new set of management processes. Prior to the development of new products, management teams are required to define project aims. While defining the project, management may face some tradeoffs such as the choices between cost, time and quality or between good intellectual property and market share. A clear objective does not only allow working team to keep track of product introduction progress, but it also enables the development of detailed specifications of products and good business plans, which are the blueprint for burgeoning enterprise [19] and a clear indication of what it takes to achieve the ultimate goal. According to the report of previous research, this step is one of the key features of Japan’s renowned success in the introduction of new product [1] since the quality of implementation is a very important factor that determines the sources of advantage and product differentiation [20]. This statement is supported by another experiment which deduced that management approach in product development is the dominating factor in Japanese new product introduction process [21].

Upon setting the project aims, the teams responsible on the projects must indentify risks and uncertainties and define experiments. Risks and uncertainties identifications are very important for early anticipation of unforeseen circumstances which may arise due to human mistakes, material incompatibility issues, material inherent hazard characteristic and competition problem. Surveys and studies can be conducted to understand the needs of consumers and markets prior to the development of new products. In addition, the team responsible on product development must ensure that the instruction manual written is easily comprehensible by wider consumers. This can be done through the invitation of people who are unfamiliar with the products to operate them based on the instruction manual prepared for the particular products prior to the introduction of products to market [8]. Meanwhile experimental procedure has to be developed as to provide a clear and consistent guideline for product functionality and quality verifications.

The subsequent task would be managing the performance engine. This process usually involves cross-functional team members from all departments. It allows company-wide decision-making [1], enable all the key stakeholders to have intensive communication [22] and contribute their ideas towards the concepts and functions of new product. It is undeniable that this process is time consuming and energy-intensive, but the outcome has been proven to be better than the otherwise. This type of practice is very common in automotive industry. For example, BMW and Toyota [22] are among the successful corporations which adopted this method. Managing the process phase gates and product quality are equally important for new product introduction. It does not only allow the teams to monitor progress, but also enable teams to reduce risk, failures, uncertainties, rejections and reworks or modifications, make wise investment decision, ensure innovation excellence, which could increase new product success rate, progress visibility and project focus and accelerate speed to market [23].

Last but not least, controlling the fuzzy front end (FFE) should not be neglected. FFE is the stage between the moment opportunity is discovered and the moment decision is made on an investment [24]. It is also perceived as a difficult stage as FFE is difficult to plan and conduct due to the presence of uncertainties or equivocality [24]. New ideas or opportunities are initially identified and refined or screened based on business and feasibility analysis such as market demand, technical solution, cost estimation and environmental screening. Subsequently product definition is created, which usually include but not limited to product concept, information about market and product positioning, and project priorities are determined. This process usually involves the participation of cross-functional key staffs. Good management of fuzzy front end does not allow the selection of the good chance, but it also benefits the entire new product introduction process which enables companies to expedite the processes selection and to develop an effective organizational relationships [24], [25].

Conclusion

In conclusion, the introduction of new products into market is fraught with challenges. The main challenges faced by technology firms are the lack of understanding about customers and markets, failure to anticipate and manage risks and failure to capture product values. In addition, product quality and copyright infringement problems are also the main concerns of new product introduction. Albeit the introduction of technology products into market full of challenges, it is not impossible to succeed in the process. Firms should have clear objectives, good plans to monitor and manage the process efficiently in order to introduce new products to market profitably.

Introduction

In the past, most of the technology companies, including both large and small firms, depended very much on owns’ resources, technologies, strength and intellectual properties in the commercialization of new technologies. Internally generated ideas are always perceived as valuable strategic assets [26] to business success. In order to succeed, companies had to ante up considerable resources [26] to compete with their rivals in this culture. This signifies that victory favor only the giant companies which possessed huge amount of resources. However, the golden age of closed innovation had passed. This concept only worked well until the late 20th century, which is the period before rapid computer-aided-diffusion of information [27]. The world of widely dispersed knowledge, massive venture capital flow and low product life cycles [28] has forced firms to adopt open innovation. Open innovation concept is not only well received by small companies, but large multinational companies have started to embrace the concept [29] instead of adopting closed innovation concept alone. This article examines the factors which encourage the adoption of open innovation concept. In addition, it also distinguishes the differences between open innovation and closed innovation concepts in new technologies commercialization.

Criteria 1: Creating Ideas versus Application of Ideas

Unlike closed innovation, open innovation approach neither requires companies to originate and control ideas for commercialization of technologies internally nor involves in marketing, distribution and services themselves (refer to Figure 2). In fact, open innovation allows companies access to a vastly greater pool of ideas [29] beyond the firm boundaries and leveraging those ideas [30] for technologies commercialization, which the ideas can be from customers, collaborators, subsidiaries, own firms, or even the public. The situation can be explained by the presence of porous boundary [26] between companies and its external environment (refer to Figure 3). For example, Lego, a construction toy and video games company, has adopted the ideas of consumers in its business for many years. Lego Indiana Jones is one of the video games developed by its fans. The company usually labels those products as "designed by LEGO fans"[29], [32]. External ideas do not only help addressing the lack of new ideas, but they also function as complementary resources. Furthermore, open innovation concept also encourages collaborative customer relationship management in both logistic and marketing. This would save companies significant amount of money especially in electronic consumer industry [33], improve the mean of communication between corporation and customers, and enhance customer service quality and customer satisfaction. In addition, it promotes faster cycles of innovation [34], shortens the time required for new products to market [34] and allows companies to share product development and commercialization costs [34].

It is undeniable that closed innovation concept requires companies to be more self-reliance, but the one-size-fits-all philosophy [35] has a better enhancing effect on distribution channel efficiency. Further, more breakthroughs could be attained from the reinvestment of profit on internal research and development activities. Thus, more commercialization of technologies could be expected from the companies which embrace closed innovation concept. Moreover, external innovations generally possess an inherent competitive nature or a threat towards company business and potentially leading to conflict on copyright issue, which may affect company reputation, success and diluting the ultimate profit margin. Hence, adopting closed innovation concept would enable business to avoid challenges on the copyright ownership, collaborative agreement legal issues and the lack of trust problems [29], which usually encountered by companies that adopting open innovation concept.

Criteria 2: Controlling IP versus Best Use of IP

The second difference is that closed innovation approach requires companies to control intelligent properties, whereas open innovation approach does not require companies to do so since the latter (open concept) encourages both selling and buying intelligent properties, intellectual properties in-licensing and out-licensing, setting-up of spin-outs and co-branding (refer to Figure 4) based on cost-benefit analysis. The reason is that not all intelligent properties generate profit. Intelligent properties is considered valuable only if it is commercialised [36]. According to US Patent and Trademark Office, around 98% patents fail to provide a decent return to inventors [16]. Thus, making best use of both valuable internal and external intelligent properties and commercialize the ideas seems to be better solutions than controlling the intelligent properties by sealing it from the access of other companies. This can be done either through licensing, joint venture or partnering [37] with other firms on technologies commercialization. The effort helps unlock the potential of particular technologies [26], [38] and provides a lucrative stream of revenue. According to Chesbrough and Crowther, it is faster and cheaper to source for required technologies externally on specific technologies commercialization than to develop the technologies internally once companies have identified the potential of product innovation [39]. On the other hand, if the companies have no capacity to unlock the latent economic potential, they can always work in collaboration with other companies to explore some better solutions. Take for example, the graphical user interface technologies developed by Palo Alto Research Centre (PARC) previously was, although not useful to Xerox, beneficial to Macintosh operating system after the technology latent economic potential [30] was unlocked by Apple Computer [26]. This effort did not only benefit Apple Computer, but it also allowed Xerox to purchase the pre-IPO stock of Apple Computer [40] as a compensation. Furthermore, it provides firms opportunities accessing to new markets with innovation partners [34]. In the worst case scenario, if companies are unable to find any suitable collaborator, the intelligent properties can be sold to other companies for the commercialization of other companies’ technologies. This practice is very much similar with the core business concept of innovation merchants, such as Qualcomm and ARM, which innovate with particular commercial goals in mind [26] and sell the copyright for profit and royalties.

However, adopting closed innovation approach also provides companies many benefits. Create and control own intelligent properties provide the companies a competitive advantage over the other competitors by allowing companies to monopolize specific market effectively and prevent the imitation of competitors since most of the activities in technology commercialization processes are vertically integrated [36], which makes the entry barrier very high [36]. For instance, the success of Thomas Edison in phonograph and light bulb discovery and commercialization had allowed General Electric to monopolize the business of light bulb for more than a decade, generate large profit margin and enabled him to paved a smooth pathway for General Electric to build a stable business structure, venture into other business areas and establish it’s famed Global Research Centre in New York [26]. This is the reason why even IBM, one the open innovation strategy leaders [41], still lock up some intelligent properties and ideas.

Criteria 3: Being the First versus Profitable Business Model

Closed innovation approach emphasizes very much on the first company to commercialize its product to win the competition. Open innovation concept, on the other hand, requires firms to build a better business model [37]. Thus, open innovation concept allows innovation marketers [26] and one-stop center [26] to profit from external intelligent properties. For example, Dell Computer, one of the one-stop centers and leaders in personal computer business, sell computer technologies without owning all the intellectual properties. Instead the company focus on strategy, which helps the company avoid destructive competition [42], and good business model, which helps to distinguish the company from others, by applying cost-efficient direct selling and direct distribution strategies and built-to-order production methods together with efficient supply chain system to succeed in the business. The method does not only allow Dell Computer to concentrate on customer service, but it also enables Dell Computer to reduce R&D and operating expenses and pursue better opportunities in other potential new product introduction. In addition, the good business model also allows Dell to avoid the high cost of obsolescence [43], which other competitors, such as IBM and Apple Computer, have to bear in this business.

Nevertheless, being the first company to commercialize specific products in the market, which supported by closed innovation concept, provides numerous advantages to the firm. For instance, it allows the firm to secure higher market share and command a higher price premium since it is the first product to be in the market. Moreover, it also enables the firm to avoid destructive competition due to rivalry between the firm and its competitors, which could eventually dilute the firm’s profit margin. Furthermore, being the first in product in the market also allows the company to have sufficient time building its reputation or enhance brand recognition. Indirectly, it will increase sales through long product sales life, increased product loyalty and sustained leadership position in the market [44].

Criteria 4: Expertise Mobility Comparison

Lastly, closed innovation principle is also distinct from open innovation through it requirement on smart and competent people to work in the organization. However, this concept has lost its viability in the 21st century due to dramatic rise in mobility of skilled workers [45]. This makes companies having tough time in securing and protecting proprietary ideas or expertise[26]. In addition, an increased availability of highly-capable outsourcing partners [45] also allows companies access to essential expertise of bright individuals [37]. Open innovation, on the other hand, does not require all the intelligent people to work in the firms on technologies commercialization. It emphasizes very much on the ability to access knowledge, requisite skills [34] and expertise of brilliant individuals externally [37]. The new brilliant brains from external individuals have potential to bring more new ideas, which make them attractive to power brand [35] and is essential in elevating company image. For instance, P&G scored a great success through its "connect and develop" program [26], which is an open innovation concept. The firm did it by applying the innovation ideas of four entrepreneurs from Cleveland-area on the development and commercialization of SpinBrush [26]. Although P&G paid the four entrepreneurs a hefty $475 million [46] for their gizmo, the technology had helped the former earned more $200 million in the fiscal year of 2002 [46] and changed the image of the century-old company, which was considered a wise approach.

Although closed innovation concept is more stringent, it does also provide some advantages to the commercialization of new technologies. For instance, it allows those smart people in technology field to work together. In comparison, more synergy effects could be attained and more valuable ideas could be generated through the adoption of closed innovation concept than that of open innovation concept. Further, accessing to the knowledge of external people usually costs companies significant amount of money which would dilute profit margin.

Criteria 5: Challenges faced and Skills Requirement Comparison

Unlike closed innovation, open innovation exposes firms to different internal and external challenges such as "Not-Invented-Here syndrome" [28], [34], [39], the lack of internal commitment problems [28], [39], the lack of resources, free-riding behaviours, disparity in organizational cultures, dispute on agreement, copyright, intellectual properties and contracts between collaborative partners [28], challenges in integrating external resources with internal technologies and diversifying the exploitation of intellectual property resources [47]. As such, the concept requires firms to have capability accessing to the necessary skills such as introspective skill, extrospective skills, interactive skills and technical skills [34]. These skills are needed to link potential collaborative partners together, ensure that clear and precise agreements could be drafted to avoid disputes on copyright claims, accurately assess the market trends and collaborator’s capabilities and understand in depth about the technologies to be developed together [34]. In addition, company should devise fair compensation and reward schemes to motivate staffs [47], involve staffs in decision making process and encourage staffs to focus on portfolio instead of project [34].

Closed innovation, on the other hand, required firms to be more independent. Thus, companies discover, develop and commercialize technologies without collaborating with external organizations [26]. Failure to innovate and commercialize products will eventually lead to business failure since innovation is the lifeblood of technology business[29]. In addition, companies may need to absorb the cost of obsolescence on the unused technologies since the technologies are being controlled and locked from the access of other potential collaborators.

Conclusion

In conclusion, both open innovation and closed innovation concepts have pros and cons in the context of new technologies commercialization. However, open innovation outweighs closed innovation in the terms of intellectual property application, growth in revenue and new products, knowledge management and expertise management Although being the first to market and monopolizing the market are important, possessing good business model is equally essential to succeed in new technologies commercialization Further, open innovation allows firms access to greater pool of ideas, work in collaboration with other organization in unlocking the potential of valuable technologies, stimulate the flow of goods, services, capitals, ideas and knowledge [38] and avoid the cost of obsolescence, which are the reasons why open innovation is so predominantly seen in the commercialization of new technology.