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96 - Management in Engineering, Fall 2004 Massachusetts Institute of Technology Department of Mechanical Engineering Instructors: Professor Jung-Hoon Chun and Professor Alexander d'Arbeloff

R&D Management

Outline
Risk Factors in R&D Strategic Focus Stage-Gate Process Technology Choice Case

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Attrition Rate of New-Product Ideas

For every 11 serious ideas * 3 enter development * 1.3 are launched * 1 succeeds

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Causes of New Product Failure

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Inadequate market analysis Higher costs than anticipated Technical or production problem

Product problem or defects Competitive strength or reaction All other causes

Lack of effective marketing effort Poor timing of initiative

Figure by MIT OCW.

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Attempts to Start New Business

One success in ten The odds are much poorer for new ideas

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Perilous Path to New Business

Using technology superiority alone Lack of understanding in additional capabilities Product / service not filling unmet customer need Underestimating competition Unable to nurture the new business
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The Suicide Square

New Technology
Increased Risk
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The Suicide Square

New Technology
Increased Risk
e as e cr In isk dR

New Product

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The Suicide Square

New Technology
Increased Risk
e as e cr In isk dR

Inc rea sed

Ris k

New Product

New Market

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The Suicide Square

New Technology
Increased Risk
e as e cr In isk dR

Inc rea sed

Ris k

New Product

New Market

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Failures not merely negligence

Attributable to lack of
understanding customer requirements

creating dramatic differences in current capabilities understanding additional capabilities

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Technology Management
Strategic focus Business process

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Technology Strategy vs. Corporate Strategy

Specify the role technology innovation plays in achieving the firm's overall objectives Specify the types of products, markets, applications and technologies for focus Identify the company Core Competence

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Strategic Focus
Choose attractive strategic markets or market segments to participate in. Find Beacons in selected markets and market segments. Identify core competencies needed to address products, markets and applications. Plan a product, market, application / competency succession strategy.

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Business
PRODUCT MARKET APPLICATION

Product: What we supply to add value. Market: Who we supply the value to. Application: How customers use the product to realize value.
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Business
PRODUCT MARKET Automotive APPLICATION

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Business
PRODUCT Hose &Tubing Assemblies MARKET VW Group GM/ Opel BMW/ Rover Ford APPLICATION AC Systems

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Strategic Resources: Focus and Risk

Assign resources to reflect strategic focus. Assign resources according to the acceptable level of risk. Reconcile differences between the stated strategy and specified resources.

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Stage Gate Process

Go/ No-Go Screen Go/ No-Go Screen Go/ No-Go Screen

Investigate

Develop

Develop

Launch

Ideas

1st
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2nd STAGE 3rd

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nth

Modified Stage-Gate with Continuous Customer Interaction

Customer

Strategic focus

IDEA

Customer

Development

n-th Development

New product

Concurrent Business Development

Cross-disciplinary teams Knowledge must broaden
Engineers are technical experts; but must understand the business Managers are business experts; but must understand the technology

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Case Study: Technology Choice

Grumman Corporation

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Basic Factors in Evaluating a Technology

Will the technology satisfy a market sometime in the future (Market Need)? Does it provide improved performance? Is it lower priced or does it reduce costs? Is its market diffusion rate acceptable? When will the product become significant (Timing)?

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Basic Factors in Evaluating a Technology (cont.)

Will the technology be commercially viable (Economics)?
Does the market exist or will it be created? Does the potential market size justify the investment? Is the production process feasible and practical? Is the product profitable to manufacture?

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Class Presentation Questions

What are current Grummans distinctive technological, marketing or other competency? Looking back, what technologies/products/services Grumman should have considered to develop/commercialize?

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