PREGRADO UESAN

Asignatura: Gestin de Proyectos de Lanzamiento de

Productos (Ingls)

Lectura: Baker, M. (2007). En: Product strategy and

management. (pp. 33-39). 2a ed. Harlow, England: Pearson
Educacin.

Profesor Responsable: Lu Chang-Say, Estuardo.

El presente material se pone a disposicin de manera gratuita, para uso

exclusivo de los alumnos de pregrado de la Universidad ESAN y es slo
para fines acadmicos, de acuerdo con lo dispuesto por la legislacin
sobre los derechos de autor. Decreto Legislativo N 822. En tal sentido,
se deja constancia, que la difusin de este documento bibliogrfico, est
expresamente prohibida, por estar destinado nicamente para uso
acadmico en el presente curso.
PROS_C01.qxd 3/14/07 7:00 PM Page 33

Chapter 1 Competition and product strategy 33

Competing through service

While customers regard product and service as two faces of the same coin, most
manufacturers give greater emphasis to the product and see services as adding
costs rather than value. This perception is being rapidly eroded with the growing
recognition of the importance of customer service.
Deschamps and Nayak conclude: Underlying all these diverse ways to com-
pete is the realization that products are created through a process (original
emphasis, p. 21).

THE PROCESS OF INNOVATION

The dominance of mankind over all other species is largely attributable to our
ability to innovate and develop new, more efficient and more effective ways of
doing things. Indeed, since Schumpeter claimed in the 1930s that more than 90%
of all economic growth was attributable to innovation no one has challenged
its importance as the main driver of human progress. However, until the 1960s
innovation was seen essentially as the consequence of technology push and it is
only in the past forty years or so that other approaches have evolved.
According to Professor Roy Rothwell (Rothwell, 1992) of the Science
Policy Research Unit the process of innovation has developed through four
distinct stages since 1950, and now appears to be entering a fifth stage the Fifth-
generation Innovation Process.
While Rothwell dates the First-generation Innovation Process as lasting
from the 1950s to mid-1960s its key characteristic is one of technology push
in which industrial innovation was generally perceived as a linear progression
from scientific discovery, through technological development in firms, to the
marketplace.

Basic Design &

Manufacturing Marketing Sales
science engineering
This was a boom period of post-war reconstruction and development in which
demand largely outstripped supply and was distinguished by:

The emergence of new industries based largely on new technological

opportunities
Rapid application of technology to enhance productivity and quality of agri-
cultural production
Corporate emphasis on R&D to create new products
Build-up of manufacturing.
PROS_C01.qxd 3/14/07 7:00 PM Page 34

34 Part I The theoretical foundations

The Second-generation Innovation Process is dated from the mid-1960s which

was a period of relative prosperity during which manufacturing productivity
increased considerably but manufacturing employment was more or less static.
Supply and demand were in balance. Its salient characteristics were:

Corporate emphasis
Growth organic and by acquisition
Diversification
Marketing
Increased industrial concentration
Static scale economies
Fight for market share
From expansionary technological change to rationalization technological change.

The perception of innovation shifted towards an emphasis upon demand-side

factors. This was a market or needpull concept of innovation which saw the
market as a source of ideas for directing R&D. This passive or reactive view
of R&D led many to neglect long-term investment in R&D and to a regime of
technological incrementalism.
Market need Development Manufacturing Sales
The Third-generation Innovation Process (early-1970s to mid-1980s) was a
period of demand saturation and high rates of inflation (stagflation) in which
supply capacity generally out-stripped demand with concomitant structural
unemployment. Its salient characteristics were:

Consolidation and rationalization

The pursuit of scale and experience effects
Focus on cost control and reduction
Stress on accounting and finance
Emphasis on success and failure factors.

The push and pull models were recognized as anchoring a spectrum of models
with the majority of cases involving an interaction between market needs and
technological capabilities. The third generation model recognizes this coupling or
interaction but remains essentially a sequential or linear model with feedback
loops. During this period empirical research identified a number of Critical
Success Factors often with strong inter-sectoral differences in terms of their rela-
tive importance.
PROS_C01.qxd 3/14/07 7:00 PM Page 35

Chapter 1 Competition and product strategy 35

Rothwell (1992) grouped these under two headings Project Execution and
Corporate Level. Project execution factors include:

Good internal and external communication: accessing external know-how.

Treating innovation as a corporate-wide task: effective inter-functional co-
ordination: good balance of functions.
Implementing careful planning and project control procedures: high quality
up-front analysis.
Efficiency in development work and high-quality production.
Strong marketing orientation: emphasis on satisfying user needs: development
emphasis on creating user value.
Providing a good technical and spares service to customers: effective user
education.
Effective product champions and technological gatekeepers.
High-quality, open-minded management: commitment to the development of
human capital.
Attaining cross-project synergies and inter-project learning.

Corporate level factors include:

Top management commitment and visible support for innovation.

Long-term corporate strategy with associated technology strategy.
Long-term commitment to major projects (patient money).
Corporate flexibility and responsiveness to change.
Top management acceptance of risk.
Innovation-accepting, entrepreneurship-accommodating culture.

These studies showed that success or failure could rarely be explained in terms of
one or two factors only; rather explanations were multi-factored. In other words,
success was rarely associated with performing one or two tasks brilliantly, but
with doing most tasks competently and in a balanced and well co-ordinated man-
ner. At the very heart of the successful innovation process were key individuals
of high quality and ability; people with entrepreneurial flair and a strong
personal commitment to innovation.
The Fourth-generation Innovation Process (early-1980s to early-1990s) started
with economic recovery and an initial emphasis on core businesses and core tech-
nology. This led to recognition of the strategic importance of evolving generic
technologies with increased strategic emphasis on technological accumulation.
PROS_C01.qxd 3/14/07 7:00 PM Page 36

36 Part I The theoretical foundations

New generations of IT-based manufacturing equipment led to a new focus on

manufacturing strategy and the notions of global strategy, strategic alliances and
networking emerged.
Shortening product life cycles prompted time-based strategies and Japan was
recognized as a powerful innovator in its own right especially, in its manage-
ment of the process.
Two of the salient features of successful innovation in leading Japanese com-
panies which lie at the heart of the fourth-generation model are integration (of
suppliers and in-house) and Parallel Development (the rugby approach).
The fifth-generation model is a logical evolution of the fourth-generation
approach and emphasizes:

Technological accumulation
Strategic networking
Time to market
Integration of product and manufacturing strategies
Flexibility and adaptability
Quality and performance
Regulatory responses, e.g. environmentalism.

Time to market has become accepted as a major critical success factor. First mover
advantages include:

Greater market share

Experience curve benefits
Monopoly profits
Increased customer satisfaction.

Being late to market can lead to reduced market share, lower profits or even fail-
ure, particularly where PLCs are short. BUT, there is a time/cost trade-off which
has to be evaluated taking into account:

The direct benefits of being first (or fast) to market

The direct costs of accelerating product development
The indirect costs of accelerating product development
The influence of timeliness on customer satisfaction
The penalties accompanying lateness
The short-term versus long-term perspective.
PROS_C01.qxd 3/14/07 7:00 PM Page 37

Chapter 1 Competition and product strategy 37

The evidence also indicates that time/cost relationships vary by sector. There-
fore, the fact that the Japanese outperform others across several sectors suggests
that either they are at a lower point on the same time/cost curve OR that each
generation has a different curve with succeeding generations reflecting greater
efficiency.
The underlying Strategic Elements of the fifth-generation model may be sum-
marized as:

Time-based strategy (faster, more efficient product development)

Development focus on quality and other non-price factors
Emphasis on corporate flexibility and responsiveness
Customer focus at the forefront of strategy
Strategic integration with primary suppliers
Strategies for horizontal technological collaboration
Electronic data processing strategies
Policy of total quality control.

In order to implement the fifth-generation model there needs to be:

Greater overall organization and systems integration:

parallel and integrated (cross-functional) development process
early supplier involvement in product development
involvement of leading-edge users in product development
establishing horizontal technological collaboration where appropriate
Flatter, more flexible organizational structures for rapid and effective decision
making:
greater empowerment of managers at lower levels
empowered product champions/project leaders/shusas
Fully developed internal data bases:
effective data sharing systems
product development metrics, computer-based heuristics, expert systems
electronically assisted product development using 3D-CAD systems and
simulation modelling
linked CAD/CAE systems to enhance product development flexibility and
product manufacturability
Effective external data link:
co-development with suppliers using CAD systems
use of CAD at the customer interface
effective data links with R&D collaborators.
PROS_C01.qxd 3/14/07 7:00 PM Page 38

38 Part I The theoretical foundations

SUMMARY
In this chapter we have explored a wide range of issues in order to explain and
justify our claim that product strategy and management lie at the very heart of
business strategy and are critical to survival and competitive success.
To begin with, we reviewed the forces which have led to the emergence
of global competition. Essentially, we attribute this to the fact that, in order to
overcome supply deficiencies and optimize output, firms and countries pursue
the principle of comparative advantage. For specialization to succeed exchange is
essential. It follows that producers will compete with each other, both directly
and indirectly, for the patronage of customers. So long as demand exceeds supply
competition will be limited and the balance of power will lie with the producer.
However, in the twentieth century accelerating technological change has greatly
enhanced productivity and output while demand has stabilized in the more
advanced and affluent countries due to the absence of population growth. As a
result of these environmental changes international competition has intensified
and the balance of power has moved to the customer. Marketing defined as
the creation and maintenance of mutually satisfying exchange relationships
has been rediscovered and is now accepted as a critical factor in achieving
competitive success.
A central theme of this book is that change is evolutionary and proceeds in
cycles. Each cycle is initiated by the introduction of an innovation or new product
which is believed to offer greater benefits to users compared with the existing
product which it seeks to replace. In essence innovation is a process of substitu-
tion. To begin with, innovations make slow progress as most consumers buy
from habit and are the victims of inertia. For them change represents risk.
However, if an innovation does offer real benefits people will switch to it in
increased numbers, resulting in rapid growth until all persons with the need
which the innovation satisfies have converted to it. This state of saturation or
maturity will prevail until the next cycle of innovation occurs when sales of the
new product will erode those of the existing product, leading to decline and
eventual withdrawal. It is this cycle of change which provides the structure for
this book.
Most markets comprise many suppliers and customers with the result that
suppliers must compete with each other to secure the customers patronage. If
customers perceive suppliers offerings as undifferentiated then they will buy
from the firm asking the lowest price. Obviously you can only survive offering a
lower price than your competitors if you have lower costs. Such a strategy of cost
leadership is dependent on the economies of scope and scale which accrue to the
most efficient producers and marketers. But, by definition, only a few suppliers
can achieve the size which triggers these economies. The majority of smaller
producers can only survive through a strategy of differentiation so that customers
will be willing to pay higher prices for what they see as additional benefits.
Innovation or new product development is seen as central to this process and
PROS_C01.qxd 3/14/07 7:00 PM Page 39

Chapter 1 Competition and product strategy 39

accounts for the product (or service) being regarded as at the very heart of every
successful competitive strategy.
Differentiation is accomplished through innovation and the chapter concludes
with a review of the changes that have occurred in the process over the last
50 years, as conceptualized by Roy Rothwell.
In the next chapter, The product in theory and practice, we develop this
theme in detail.

QUESTIONS
1. Summarize the factors which have given rise to the growth of global
competition.
2. Explain the notion of comparative advantage.
3. Discuss the contribution of marketing to competitive success.
4. Why was the Club of Romes 1967 prediction of environmental collapse
flawed?
5. Describe the process of evolutionary change and explain the concept of life
cycles associated with such change.
6. Identify Porters Five Forces and show how they govern competition in an
industry.
7. Portray Ansoffs growth vector matrix and summarize the nature of the
strategic options defined by it.
8. Discuss the proposition that there are only two basic sources of competitive
advantage cost leadership and differentiation.
9. Why is product strategy central to business performance and success?
10. Outline the major changes that have occurred in the approach to innovation
over the past fifty years or so.