Prezentacija

5.
3 Timing strategies
5.3
Timing strategies
5.3.1
The challenge: Competing against time
5.3.2
Time-based strategy: The definition of strategic goals Time-based management: The improvement of time-efficiency
5.3.3
2008 Prof. Dr. Hans Georg Gemnden Lehrstuhl fr Technologie- und Innovationsmanagement Technische Universitt Berlin
5.3 Timing strategies
Literature on timing strategies: Time-based management
Kessler, E.H. and Bierly, P.E. (2002): Is Faster Really Better? An Empirical Test of the Implications of Speed. In: IEEE Transactions on Engineering Management, Vol. 49, Feb. pp. 2-12. Langerak, F. and Hultink, E.J. (2006): The Impact of Product Innovativeness on the Link between Development Speed and New Product Profitability. In: Journal of Product Innovation Management, Vol. 23, pp. 203-214.
Postulated Effects of Time-based Management
You can have dramatically higher returns on your product development dollar by halving the time you take to bring new products to market
Robert H. Waterman Jr., Foreward to: Smith, P. G. and Reinertsen, D. G. (1991): Developing Products in Half the Time. Van Nostrand Reinhold: New York, p. xi.
Todays innovation is time-based competition. ... Give customers what they want when they want it. ... Time-based Competitors are offering greater varieties of products and services, at lower costs and in less time than are their more pedestrian competitors.
George Stalk, Jr. And Thomas Hout (1990): Competing against time. Free press: New York.
5.3.3 Time-based management
Postulated effects of time-based management (1) Product lifetime cycle: 5 years
Discrepancy
6 months extension of development time
50% Increase of development costs
5% Loss of profit 30%
In a short product lifetime cycle development time has more influence on profit than costs!
Source:Schmelzer, H. (1992): Organisation und Controlling von Produktentwicklungen, p. 50.

2008 Prof. Dr. Hans Georg Gemnden Lehrstuhl fr Technologie- und Innovationsmanagement Technische Universitt Berlin 4
Postulated effects of time-based management (2)
Shorter development time Shorter usage of resources Efficiency Less R&D costs
Earlier market entry Effectiveness More sales, higher prices
Higher profit
Source:Schmelzer, H. (1992): Organisation und Controlling von Produktentwicklungen, p. 48.

Cost-reductions through time optimized processes 1. Cost of stock on hand due to waiting times 2. Idle costs due to waiting times 3. Risk costs due to "security reserves" on material, human resources, and working capital 4. Double labor costs due to "not-invented-here"-syndromes 5. Modification costs due to (much too late) error corrections 6. "Make up for lost time"-costs with progression-effects 7. Loss of orders or penalties due to not meeting deadlines 8. Additional costs of "eternity-projects"
Risks of Speeding-Up: Official Call-back Actions for German Cars

140
127
120
113
100
Number of Call-Backs
94 82 85
80
60
62 57 50
58
40
35
20
0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Melanie Wassink: Das Werk ruft immer fter. Hamburger Abendblatt, 11. Oktober 2002, S. 23
The Sources of Hidden Costs
Low-profit, trivial innovation tends to drive out the more profitable breakthrough types. Greshams law about bad money driving out the good works on innovation. Many mistakes happen when skipping steps sacrifices necessary information. A surprisingly negative and disruptive side to new styles of small-team management sometimes appears. It can boost people costs. Unexpected inefficiencies result when the process of innovation warps under pressure; the various steps dont respond evenly to cuts in the time budget. A firms complex set of support resources can get chewed up by pressure from players on speeded-up teams.
Source: Brockhoff, Zeitschrift fuer betriebswirtschaftliche Forschung, Sonderheft 23, 1988, p. 4
How to Avoid Hidden Costs Some actions that will let a management capitalize on a worthy new concept yet at the same time help hold down the hidden costs:
1. Spell out new products strategy clearly, and get understanding and agreement on it. 2. Review constantly to see if the innovation mix desired is being achieved. 3. Select two typical accelerated product development (APD) projects that have run their course and hold post-mortems. 4. 5. 6. 7. Keep asking for evidence that APD projects offer genuine benefits to the customer. Pick one project and have an independent party try to assess the true hidden costs. Taking into consideration the hidden costs discussed in this article, manage the APD program in a way to avoid the biggest problems. If contemplating putting an acceleration program into action, be sure the overall product innovation system to be changed is itself a good one
Kessler/Bierlys theoretical framework: Is faster really better?

Product quality
+
H1 H2
Development costs
Innovation speed
H3
+
H4
Project success
H5
External uncertainty
Internal uncertainty
Source: E. H. Kessler and P. E. Bierly (2002): Is Faster Really Better? An Empirical Test of the Implications of Speed. In: IEEE Transactions on Engineering Management, Vol. 49, Feb. pp. 2-12.
5.3.3 Time-based management Kessler/Bierlys measurement of constructs: Is faster really better? (1)
Innovation speed
was measured through three items utilizing 13-point scales, relative to: 1. schedule 2. similar completed projects in ones organization 3. similar projects of competitors
Development costs
was measured using three items utilizing 13-point scales, relative to: 1. budget 2. similar past projects 3. similar competitor projects
11
Kessler/Bierlys 5.3.3 Time-based management measurement of constructs: Is faster really better? (2) Product quality
was measured through three items utilizing 13-point scales, relative to: 1. preset performance specifications 2. similar past projects 3. similar competitor projects
Project success
was measured using two five-point Likert scales. 1. Internal success measured to what extent the project met expectations and attained organizational goals, ranging from not-at-all to completely. 2. External success measured to what extent the project was a marketplace success, i.e. to what extent did it win in competitive situations, ranging from product-flop to completely-successful.
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Kessler/Bierlys 5.3.3 Time-based management measurement of constructs: Is faster really better? (3)
Technological dynamism
measured on a five-point scale the degree to which the technological environment of this innovation changes, e.g., advances in research and development of new products, devices, and processes, ranging from very dynamic (changing rapidly) to very stable (virtually no change).
Demographic dynamism
measured on a five-point scale the degree to which the demographic environment of this innovation changes, e.g., social trends, population shifts, income and educational levels, ranging from very dynamic (changing rapidly) to very stable (virtually no change).
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Project radicalness
was measured through 1. a six-point scale asking respondents to evaluate the type of work done on the project, ranging from pure applications engineering to the development or application of new technology. 2. a four-point scale asking respondents to evaluate the degree of change involved in the project, ranging from an imitation of existing products to a radically new product. These responses were pooled with a score of ten indicating a high degree of radicalness and two indicating low radicalness
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Internal sourcing
was measured on two five-point scales asking to what extent 1. ideas for this product and 2. technological developments for this product came from internal sources (i.e., members of the research and/or development staff) as opposed to external sources (i.e., capital goods, suppliers, licensing arrangements). These responses were pooled with ten indicating a high degree of internal sourcing and two indicating low internal sourcing.
15
Kessler/Bierlys empirical results: Linear effects
Product quality
+.35 **
H1 H2
Development cost
-.12 (ns)
Innovation speed
H3
.12 (ns) +.39 **

H4 H5
Project success
External uncertainty
Internal uncertainty
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The Optimization of Innovation Time: The Economic Approach

Capital value
max
Capital value of net sales
Capital value of R&D expenditures
min
Optimal innovation time
Innovation time
Source: Brockhoff, Zeitschrift fr betriebswirtschaftliche Forschung, Sonderheft 23, 1988, p. 4
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Study of Langerak and Hultink (2006)

New Product Profitability Optimal point
Hypotheses: H1: Development speed has an inverted U-shaped relationship with profitability. H2a: The optimal development speed is lower for more innovative new products.
Development Speed
Innovativeness
H2a,b
H2b: The maximum profitability achieved by speeding new products to market is lower for more innovative products than for less innovative new products Sample: N=233 manufacturers of industrial products
Development Speed
H1
New Product Profitability
Source: Langerak, F. and Hultink, E.J. (2006): The Impact of Product Innovativeness on the Link between Development Speed and New Product Profitability. JPIM, Vol. 23, pp. 203-214.
Study of Langerak and Hultink (2006) Effects of Increasing Speed
Increased Development Speed
First choice of profitable segments Positive network effects Switching costs for early adopters Experience effects Pricing freedom First choice of distributors Setting of technological standards Preempting of scarce resources
Hidden costs of accelerated NPD Higher costs due to investments in technology Higher costs due to more thorough concept and prototype testing Inability to exploit opportunities arising from shifts in consumers preferences Possible positioning and pricing mistakes inherent with accelerated NPD
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Study of Langerak and Hultink (2006) The Impact of Innovativeness

Taking Too Little Time in the Development of More Innovative New Products Market Perspective Strategic Window Firm Perspective Development Costs Firm Perspective Marketing Costs Taking Too Much Time in the Development of Less Innovative New Products A strategic window that is already closed because of customers experience with product category Lower profitability because of higher costs due to increases in organizational slack and unfocused efforts Lower profitability because of higher costs since established market must be broken into
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A Strategic window that is not yet open due to incompatibility Lower profitability because of higher costs due to hidden costs of accelerated NPD and testing mistakes Lower profitability because of higher costs related to new market development and possible marketing mistakes
Study of Langerak and Hultink (2006) - Measures
Profitability:
Degree to which the new product met profit goals Degree to which the new product met margin goals Performance in development speed compared to similar products in the past Performance in development speed compared to similar products of competitors Categorization according to BAH typology: (1) new product line, (2) addition to existing product line, (3) product improvement Firm Size, R&D Expenditures and Market Turbulence
Development Speed:
Innovativeness:
Control Variables:
Study of Langerak and Hultink (2006) Results (1) The Effect of Development Speed on New Product Profitability
4.0
New product profitability (=Y)
3.0
y =1.15 x 0.21 x + 1.65

2.0
(n = 233)
1.0 1 1.5 2 2.5 3 3.5 4 4.5 5
(p<0.01 for all values) Adj. R = 0.47

Development speed (=X)
Development speed has an inverted U-shaped relationship with new product profitability (confirming H1).
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Study of Langerak and Hultink (2006) Results (2) The Moderating Influence of Innovativeness
4.0
New product profitability (=Y)
*
3.0
Product improvements*:
(n = 122)
y =1.22 x 0.20 x + 1.71 Adj. R = 0.52
**
2.0
(n = 93)
1.0 1 1.5 2 2.5 3 3.5 4 4.5 5
Product line additions**: y =0.82 x 0.17 x + 1.76 Adj. R = 0.41
Development speed (=X)
(p<0.01 for all values) Profit maximization occurs at a higher development speed for product improvements than for additions to existing product lines (confirming H2a). The maximum profitability achieved by speeding new products to market is higher for product improvements than for line additions (confirming H2b).
Approaches for accelerating new product development projects (1)
Simplify
Reduce the number of iterations, concentrate on value generating features, improve architecture and task clustering Reduce the number of nice-to-do and control-tasks
Eliminate steps
Eliminate delays
Replace push-by pull-principles
Parallel or overlap processing
Perform several tasks at the same time
Speed-up individual cycles
Make things faster: Use experience better, automate routine work
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Cycle 1 Cycle 2 I 1.1 I 2.1 C 3...
Simplify
Reduce the number of iterations Eliminate problem solving cycles
Cycle 1 Cycle 2 C 3...
R1
Cycle 1 C 3...
R 1+2
Eliminate steps
Eliminate delays
Eliminate delays between cycles Parallel or overlap problem solving cycles Shorten individual problem solving cycles
Cycle 1 C 3...
R 1+2+3
Parallel or overlap processing
Cycle 1 C 3...
R 1+2+3+4
Speed up individual cycles
Cycle 1 C 3...
R 1+2+3+4+5
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Major New Product Development Phases: Acceleration Methods: Simplify Research and Development
Generate explicit R&D goals and Link with other groups Link R&D goals and mfg. capabilities and Provide early product training Utiliize "lead user" ideas and Reduce number of parts Use small groups to generate ideas and Initiate Computer Aided Design Institute mutually exclusive research and Parallel known applied sciences
Manufacturing
Reduce number of vendors and Simplify documentation Reduce work-in-process and Maintain equipment Reduce assembly steps and Create more reliable products Install on-line product testing and Computer aided manufacturing Provide collateral and/or Contingency facilities
Marketing
Focus product requirements and Minimize user education requirements Reduce marketing plan delays and Reduce launch delays Minimize formal market testing and Reduce marketing approvals Reduce test market time and Create customer alliances Concurrent marketing and Plan customer service early
Eliminate Delays
Eliminate Steps
Speed-Up
Parallel Processing
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Approaches Potential Benefits
Make technology and design more understandable Applies to external, human corporate relationships Streamlines reports, documents, and controls Understandability fosters trust Flatter organization
Potential Limitations
Re-Entry problems of "project dedicated" team members back into their functional groups at project completion Not meeting customer requirements Higher costs if external vendors are used to augment NPD processes Not meeting product design requirements Lack of project status detail Lack detail if reporting/controls not adequate Use of trust to simplify NPD processes can lead to inadequate critical thinking, e.g. group think Hurried acceptance of the NPD vision Early capital appropriations/alternate technologies may result in poor estimates Early launch may lead to inadequate product documentation If external vendors are used, cost, quality, proprietary advantages may be lost Senior management may be reluctant to decentralize NPD decision-making Requires vendors supplying component parts to adopt high quality standards to minimize "in-house" testing Higher stress Danger of inadequate NPD project documentation Higher risk may occur if some phases are shortened, e.g. testing Potential for confusion Higher stress levels NPD participants must work with greater uncertainty More frequent communication required More resources required Need for teamwork training
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Simplify
Eliminate Delays
Fosters clearer "up-front" thinking - vision Encourages early technology investigation of long-lead items Forces build/buy decisions - may increase quality and speed Authorizing signature elimination moves authority down the organizational hierarchy Eliminates redundant incoming tests and inspections Helps eliminate "Not Invented Here" attitude Forces use of new technologies (i.e., for communication FAX, e-mail) "Smarter" and "shorter" testing algorithms Switch from matrix to project organization structures increases focus on NPD Simultaneous engineering, testing, and market research Increased knowledge of other functions Fosters teamwork activities
Eliminate Steps
Speed-Up
Parallel Processing
Approaches for accelerating new product development projects (5) Instruments to accelerate product development
Parallelization
Simplify Eliminate steps Eliminate delays Parallel processing Speed up individual cycles Technical controlling Tests Time between reviews Technical Simulation Rapid prototyping
Early integration and continuous integration
Managerial process oriented QFD DSM IT-systems Cross-functional teams
Strategic system oriented Pre-development activities Platforms Cooperation Outsourcing
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Visualize and reduce iterations:
THE DESIGN STRUCTURE MATRIX (DSM) DSM as a system analysis tool that
provides a visual image of important relationships in a product development project capturers and displays a process acts as a focus for process analysis and re-engineering reveals key information flows
Source: http://www.dsmweb.org/sys-analy.htm
Approaches for accelerating new product development projects (7) Example:

ACTIVITIES Receive specification generate/select Concept Design beta cartridges Produce beta cartridges Develop testing program Test beta cartridges Design prod'n cartridge Design mold Design assembly tooling Purchase equipment Fabricate molds Debug molds Certify cartridge Initial production run A B C D E F G H I J K L M N X X X X X X X X X X A A X X B X C X X X X X D E X F X X G X X X X X X H X X X I X J K X X X L M X B C D E F G H I J K L M N
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Reading the DSM

1. The green marks (below the diagonal) represent forward flow of information. 2. The red marks (above the diagonal) are of special significance. Such a mark reveals a feedback from a later (i.e. downstream) activity to an earlier (i.e. upstream) one. This means that the earlier activity has to be repeated/reworked in light of the late arrival of new information. This iterative process is similar in most engineering design and development projects. Design iterations create rework and require extra communication and negotiation which result in a prolonged development process.
Leveraging the DSM

In order to speed up an identified iterative design process, the DSM methodology suggests the manipulation of the matrix elements such that iterative behavior is removed from the matrix, or at least minimized. This process is called partitioning.
Critcial reflection about the DSM

Discuss: 1. 2. What are advantages of the DSM? What are limitations of the DSM?
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Table of contents
Innovation strategies
5.1
Sourcing strategies: Where are innovations generated ?
5.2
Exploitation strategies: Where are innovations benefited?
5.3
Timing strategies: When are innovations most successful?
5.4
Strategies for radical innovations
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5.4 Strategies for radical innovations
Literature on strategies for radical innovations
Chandy, R. K. and Tellis, G. (2000): The Incumbents Curse? Incumbency, Size, and Radical Product Innovation. In: Journal of Marketing, Vol. 64, pp. 76-80. Chandy, R. K. and Tellis, G. (1998): Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Cannibalize. In: Journal of Marketing Research, Vol. 35, pp. 474 487. Sorescu, A. B., Chandy, R. K. and Prabhu, J. C. (2003): Sources and Financial Consequences of Radical Innovation: Insights from Pharmaceuticals In: Journal of Marketing, Vol. 67, pp. 82-102. Nijssen, E.J., Hillebrand, B., Vermeulen, P.A.M. (2005): Unraveling willingness to cannibalize: a closer look at the barrier to radical innovation. In: Technovation, Vol. 25, pp. 1401-1409.
Chandy/Tellis study (2000): The incumbents curse? (1)
Common perception in the field of innovation is: Large, incumbent firms rarely introduce radical product innovations They may even turn away entrepreneurs who come up with radical innovations
Radical innovations tend to come from small firms, the outsiders
Source: Chandy, R. K. and Tellis, G. (2000): The Incumbents Curse? Incumbency, Size, and Radical Product Innovation. In: Journal of Marketing, Vol. 64, pp. 76-80.
Chandy/Tellis study (2000): The incumbents curse? (2) However: The evidence for the incumbents curse is based on anecdotes and scattered case studies. Research questions: 1. How prevalent is the phenomenon? 2. Is it driven by incumbency or size? 3. Does the phenomenon vary over time and across national boundaries?
36
Theoretical discussion of the incumbents curse problem (1) Type of firm Incumbent firms vs. New entrants Theory against radical innovation
Organizational mechanisms: a) Incentives b) Filters c) Routines
Theory for radical innovation

Market capabilities: a) Customer knowledge b) Customer franchise c) Market power
Enhance commitment to current technology at the expense of radical innovation
Create opportunities for radical innovations
37
Theoretical discussion of the incumbents curse problem (2)
Type of firm Large firms vs. Small firms
Theory against radical innovation

Bureaucratic inertia:
Theory for radical innovation

Large firms capabilities:
Large firms develop a) Financial capabilities a) Multiple layers of administrative staff b) Technical capabilities c) Wide risk spread b) Formal rules of communication
38
Theoretical discussion of the incumbents curse problem (3)
Type of firm US firms vs. Foreign firms
Theory for radical innovation in the Theory against radical US innovation in the US
US: a) enjoys an active market for venture capital b) culture celebrates risk takers c) failure of entrepreneurship is less stigmatized d) succeeding after a string of failures enhances the glory of the entrepreneur or the winning entrepreneurial team Europe and Japan: Government policies give high financial and technological support to large incumbent firms
39
Chandy/Tellis study (2000): Sample (1)
Overall, information from more than 250 books and 500 articles where collected by one researcher and nine trained assistants over a period of four years. Selection of the 64 radical innovation on the following criteria: 1. Product classes:
consumer durables and office product mass products: 49 products categories with more than one million units in scale 1994, the last year for which sales were available when the study began
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Chandy/Tellis study (2000): Sample (2)
2. Core technology
used in at least one innovation in the category varies substantially from the technology used in the previous product generation
This selection is based on information from books on the history of respective categories and judgment of three experts rating the differences in core technology to the previous product generation and the superiority in user benefits.
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Chandy/Tellis study (2000): Research method (historical approach) Selection of historical sources:
The authors use the following five criteria: Confirmation: At least two published sources cite the same fact Neutrality: The sources have no overt interest to bias their reports Independence: The sources are based on independent observation (i.e., they did not come from a single source, such as United Press International) Reliability: The sources are well respected or have a history of good reporting Contemporaneity: The sources report as close to the time of the event as possible
Chandy/Tellis study (2000): Measurement of constructs (1)
Firm size: Full-time employees in the firm at the time the radical product innovation was
commercialized (small <100; medium: 100-2.500; large > 2.500)
Radical innovator: The firm that first commercialized the radical innovation Incumbent: A firm that manufactured or sold products that belonged to
the previous product generation on the introduction date
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Chandy/Tellis study (2000): Measurement of constructs (2)
New entrant:
A firm that did not manufacture or sell products belonging to the previous product generation at the introduction date
Nationality:
The country where the firm was headquartered at the time it introduced the radical innovation
Radical innovation: Average rating on superiority in user benefits and difference in core
technology relative to previous product generation is equal or more than 5 on the nine-point scale (53 out of 64 innovations meet this criterion )
44
Chandy/Tellis study (2000): Results (1) 1. Incumbency:

53% of the radical innovations are from non-incumbents 47% are from incumbents
These proportions are not significantly different from each other. Thus, the overall results do not support the incumbents curse.
2. Firm size:
58% of the radical innovations are from small and medium firms 42 % of the radical innovations are from large firms (> 2,500 employees)
If a large firm is defined as more than 1,000 employees then 45 % of the radical innovations come from large firms. If a large firm is defined as more than 500 employees then 51 % of the radical innovations come from large firms. Depending on the definition of a large firm, the overall results give more or less support for the theory of bureaucratic inertia of large firms.
Chandy/Tellis study (2000): Results (2) 3. Incumbency status of radical innovators over time:
The average percentages change dramatically over time. Before World-War II non-incumbents accounted for 73 % of the radical innovations, after World-War II they accounted for only 26 %. The incumbents curse may have been a severe problem in the late ninetieth and early twentieth century, however it is by far less common in recent times.
46
Chandy/Tellis study (2000): Results (3) 4. Impact of firm size on pioneering radical innovations over time:
The reversal over time also occurs for the size of firms. Small and medium firms account for 83 % of the Pre-World War II radical innovations but only for 26 % of the Post-World War II radical innovations.
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Chandy/Tellis study (2000): Results (4) 5. Nationality of innovating firms:

Over time the percentage of radical Non-US Innovations increased from 33 % to 43 % (Pre-World War II vs. Post-World War II).
6. Multivariate analysis of radicalness of an innovation:

1. degree of radicalness decreases over time (significant in 3 out of 4 models) Incumbency status has a weak negative influence on radicalness, but this effect is usually not significant Size of the firm has a moderate negative and significant influence on radicalness of innovation
2.
3.
48
Chandy/Tellis study (2000): Results (5)
Continue: 6. Multivariate analysis of radicalness of an innovation:

4. 5. The interaction of year and incumbency is usually not significant The interaction of year and size is a strong positive one which is usually significant. In recent years innovations introduced by large firms are more radical than those introduced by small firms. The interaction effect is so strong that it more than cancels out the negative effect of size on radicalness. There is a strong significant interaction effect of time and nationality. In recent years innovations introduced by U.S. firms are more radical than those introduced by non-US firms.
6.
49
Chandy/Tellis study (2000): Results (6) Conclusion from the multivariate analysis:
Incumbent status alone does not have a strong negative effect on radicalness of innovation. The negative effects of size have been prevalent in the period before World War II. After World War II (up to 1994) large firms appear to have introduced innovations which are even more radical than those introduced by small and medium-sized firms. The role of large firms is further strengthened by the fact that many of successful fast-second imitators have been large and often incumbent firms.
Question:
Please discuss why large incumbent firms have successfully implemented radical innovations!
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Chandy/Tellis (1998): Willingness to cannibalize
Research Question: Beyond size: What really drives radical innovation?
Chandy, R. K. and Tellis, G. (1998): Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Cannibalize In: Journal of Marketing Research, Vol. 35, pp. 474 487.
Chandy/Tellis study (1998): Sample

They restricted the sample to highly competitive and turbulent high-tech industries: 1. computer hardware 2. photonics 3. telecommunication categorized the corporations according to their size:
1. fewer than 100 employees 2. from 100 to 499 employees 3. from 500 to 4999 employees 4. more than 5000 employees
surveyed senior managers
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Chandy/Tellis study (1998): Framework

Firm size
12
Specialized investments Internal markets Product champion influence Futuremarket focus
21 22 23 24
Willingness to cannibalize
11
Radical product innovation
The hypotheses were tested with a path model, based on the interview data.
Chandy/Tellis study (1998): Results (1)
Willingness to cannibalize has a strong positive effect on radical product innovation

Firm size has no significant effect on radical product innovation Specialized investments have a negative but weak influence on the willingness to cannibalize The presence of active internal markets significantly increases an organizations willingness to cannibalize Firms with strong product champion roles are more willing to cannibalize than other firms Firms that focus on future markets more than on current markets have a higher willingness to cannibalize
Chandy/Tellis study (1998): Results (2) Implications:

Willingness to cannibalize has a greater impact on radical product innovation than the size of the firm. Large firms that are organized in a manner that promotes willingness to cannibalize will be innovative. Those that are not will be overrun by small innovative firms. In the context of radical product innovation cannibalization is no effect that has to be avoided. Differentiate between current and future markets, listen to future customers and watch future competitors. Internal markets increase the willingness to cannibalize but they also have a negative effect on the autonomy of business units. Thus, business units themselves should judge when and with whom to cooperate or compete.
Chandy/Tellis study (1998): Results (2) Implications:

Willingness to cannibalize has a greater impact on radical product innovation than the size of the firm. Large firms that are organized in a manner that promotes willingness to cannibalize will be innovative. Those that are not will be overrun by small innovative firms. In the context of radical product innovation cannibalization is no effect that has to be avoided. Differentiate between current and future markets, listen to future customers and watch future competitors. Internal markets increase the willingness to cannibalize but they also have a negative effect on the autonomy of business units. Thus, business units themselves should judge when and with whom to cooperate or compete.
Nijssen et al. (2005): Unraveling Willingness to Cannibalize

Hypothesized antecedents and their proposed influence on the dimensions of willingness to cannibalize Customer Orientation Future Market Orientation Top Management Risk Posture Product Champion Influence Power of Current Technology Specialized Investment Competitive Environment
Willingness to Cannibalize on
Capabilities Sales Investments
+ + + + -
+ + + 57
Source: Nijssen, E.J., Hillebrand, B., Vermeulen, P.A.M. (2005): Unraveling willingness to cannibalize: a closer look at the barrier to radical innovation. In: Technovation, Vol. 25, pp. 1401-1409.
Nijssen et al. (2005): Measures (1)

Willingness to cannibalize: The company that I am responsible for as CEO Cannibalize sales Supports new projects even when they could potentially take away sales of existing products Will accept the cannibalization of current sales by adopting a new technology to take the opportunity for competitive advantage Is very willing to sacrifice sales of its existing products in order to improve sales of its new products Cannibalize previous investments Tends to oppose new technologies that cause its manufacturing facilities to become obsolete (R) Will not aggressively pursue a new technology that makes existing investments obsolete (R) Will not launch a new technology that hurts existing products sales (R) Cannibalize capabilities Can easily change its organizational scheme and processes to fit the needs of a new product Easily replaces one set of abilities with a different set of abilities to adopt a new technology Can easily change the manner in which it carries out tasks to fit the routines that a new product may require Future market orientation: In the company that I run The emphasis is on new customers with their future needs relative to current customers Market research efforts are aimed at obtaining information about customers needs in the future, relative to their current needs We are bold in our effort to maximize the probability of exploiting market opportunities We are fast in introducing new products and services to the marketplace Customer orientation: The company that I am responsible for Constantly monitors the level of commitment and orientation to serving customer needs Has based its strategy for competitive advantage on understanding customers needs Is more customer focused than its competitors Beliefs that it exists primarily to satisfy and serve customers
Nijssen et al. (2005): Measures (2)

Product champion influence: Within the company Im responsible for Product champions play an important role Senior managers strongly support champions with radical new product ideas Activities of product champions clearly impact product development Product champions wield considerable clout Specialized investments: The organization I am responsible for... Cannot apply many of its current operational procedures in the new technology Will lose many of its investments in the current technology when it decides to switch to a new technology Will have to start almost from scratch to be able to work with the new technology Has many difficulties in applying the investments made for the current technology in the new technology Power of current technology: Managers that use the firms current technology have a large influence on our organizations strategy Supporters of our current technology can and do seriously delay the introduction of new technologies Apostles of new technologies generally have a hard time getting things done in our organization In discussions and decisions on new investments, a more than reasonable share of time and money tends to be allocated to old or current technologies Competitive environment: In this industry Competition is cutthroat Price competition is a hallmark We hear of new competitive moves almost every day There are many promotion wars
Nijssen et al. (2005): Exploratory Factor Analysis

Factor analysis shows the multidimensionality of willingness to cannibalize
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Nijssen et al. (2005): Results (1) Willingness to Cannibalize on

Capabilities Customer Orientation Future Market Orientation Top Management Risk Posture Product Champion Influence Power of Current Technology Specialized Investment Competitive Environment Sales Investments
0.588** 0.144 0.388** 0.314** -0.460** -0.133 -0.090
0.127 0.290* -0.032 0.198 -0.078 -0.046 0.177
0.264* 0.222* 0.419** 0.139 -0.530** -0.237* -0.255*
correlations; n=60 (for shaded coefficients no proposition was formulated; *, ** significance at the 0.05 and 0.01 level respectively)
Nijssen et al. (2005): Further Propositions What is the influence of willingness to cannibalize on radical innovation and financial performance of the firm?
Propositions: The three-dimensions of willingness to cannibalize will be positively correlated to the level of radicalness of the new products developed. Willingness to cannibalize (a) capabilities and (b) investments will be positively related to financial performance. Willingness to cannibalize (c) sales has no or an undetermined effect.
62
Nijssen et al. (2005): Results (2) Willingness to Cannibalize on

Capabilities Radicalness of New Products Performance Sales Investments
0.142 0.251**
0.327** 0.021
0.296** 0.154
Additional measures:
Radicalness of new products (five points Likert scale): Our company.. Regularly introduces new products that are radically different from those already on the market Is known in the industry for setting the pace using innovative new products Is always the first to introduce radically new product innovations Performance: Our companys overall performance compared to its competitors was 1=much poorer-5=much better Our company compared to our main competitor was 1= much less profitable-5=much more profitable
Sources and Consequences of Radical Innovation Study by Sorescu et al. (2003) in the Pharmaceutical Industry Research Questions:
1. Who introduces a greater number of radical innovations: dominant or nondominant firms? 2. How great are the financial rewards to radical innovations, and how do these rewards vary across dominant and nondominant firms? 3. Which are more valuable: innovations that incorporate a breakthrough technology or innovations that provide a substantial increase in customer benefits?
Source: Sorescu, A. B., Chandy, R. K., Prabhu, J. C. (2003) Sources and Financial Consequences of Radical Innovation: Insights from Pharmaceuticals, Journal of Marketing, Vol. 67(4), pp. 82-102.
Types of Product Innovations Theory

Low Newness of Technology Low High Incremental innovation Technological breakthrough Customer-Need Fulfillment High Market breakthrough Radical innovation
Operationalization
Chemical Composition Update NME
Therapeutical Potential Standard Review Incremental innovation Technological breakthrough Priority Review Market breakthrough Radical innovation
Food and Drug Administration (FDA) Definitions:

NME Update Priority Review Standard Review New Molecular Entities (active ingredient never been marketed in the U.S.) New formulation, new dosage of existing components, or existing drug with new usage Drug appears to represent an advance over available therapy Drug appears to have therapeutical qualities similar to those of an already marketed drug
Sorescu et al. (2003) Results (1)

Who introduces more breakthroughs?
Number of Breakthroughs Number of Breakthroughs
What type of breakthroughs?

73
80 70
160 140 120 100 80 60 40 20 0
60 50
50 30 19 13 25
116
40 30
57 18
Nondominant
Acquired
20
35
Dominant
Invented
10 0 Market breakthroughs Technological breakthroughs

Dominant
Radical innovations
Nondominant
Sample of 255 breakthroughs introduced in the pharmaceutical industry over a ten year period Dominance (level of market power) is measured by market share, assets, and profits of a firm
66
Sorescu et al. (2003) Results (2)

Who profits from breakthroughs?
Average NPV ($M)
Which breakthroughs are more valuable?
456
500 450 400 350 300 250 200 150 100 50 0 Nondominant Dominant
Average NPV ($M)
700 600 500 400 300

37.3
636.4
187.5 153.7
200 100 0
Market breakthroughs
Technological breakthroughs
Radical innovations
Net Present Value (NPV) of a product is estimated by the increase in the market value of the firm over a three-day windows after the announcement of the new product introduction

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5.

The challenge: Competing against time

5.3 Timing strategies

Literature on timing strategies: Time-based management

Postulated Effects of Time-based Management

5.3.3 Time-based management

Postulated effects of time-based management (1) Product lifetime cycle: 5 years

6 months extension of development time

50% Increase of development costs

5% Loss of profit 30%

Source:Schmelzer, H. (1992): Organisation und Controlling von Produktentwicklungen, p. 50.

5.3.3 Time-based management

Postulated effects of time-based management (2)

Earlier market entry Effectiveness More sales, higher prices

Source:Schmelzer, H. (1992): Organisation und Controlling von Produktentwicklungen, p. 48.

5.3.3 Time-based management

5.3.3 Time-based management

Risks of Speeding-Up: Official Call-back Actions for German Cars

5.3.3 Time-based management

The Sources of Hidden Costs

5.3.3 Time-based management

Kessler/Bierlys theoretical framework: Is faster really better?

5.3.3 Time-based management

Kessler/Bierlys empirical results: Linear effects

5.3.3 Time-based management

.12 (ns) +.39 **

5.3.3 Time-based management

The Optimization of Innovation Time: The Economic Approach

Capital value of net sales

Capital value of R&D expenditures

Optimal innovation time

Source: Brockhoff, Zeitschrift fr betriebswirtschaftliche Forschung, Sonderheft 23, 1988, p. 4

5.3.3 Time-based management

Study of Langerak and Hultink (2006)

New Product Profitability

5.3.3 Time-based management

Study of Langerak and Hultink (2006) Effects of Increasing Speed

Increased Development Speed

5.3.3 Time-based management

Study of Langerak and Hultink (2006) The Impact of Innovativeness

5.3.3 Time-based management

Study of Langerak and Hultink (2006) - Measures

5.3.3 Time-based management

New product profitability (=Y)

y =1.15 x 0.21 x + 1.65

(p<0.01 for all values) Adj. R = 0.47

5.3.3 Time-based management

New product profitability (=Y)

y =1.22 x 0.20 x + 1.71 Adj. R = 0.52

Product line additions**: y =0.82 x 0.17 x + 1.76 Adj. R = 0.41

Development speed (=X)

5.3.3 Time-based management

Approaches for accelerating new product development projects (1)

Replace push-by pull-principles

Parallel or overlap processing

Perform several tasks at the same time

Speed-up individual cycles

Make things faster: Use experience better, automate routine work

5.3.3 Time-based management

Approaches for accelerating new product development projects (2)

Reduce the number of iterations Eliminate problem solving cycles

Cycle 1 Cycle 2 C 3...

Parallel or overlap processing

Speed up individual cycles