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Journal of management studies
82
J PROD INNOV MANAG 1993;10:75-86
strategy which only a few producers have adopted. But several have been very successful, and many others will probably be looking in this direction. The strategy can start at either of two points: ingredient supplier or manufacturer of the product which uses the ingredient. Du Pont has initiated programs on Teflon, Lycra and Stainmaster, Searle/ Monsanto on Nutrasweet and Simplesse, and 3M on Scotchguard. Kellogg initiated the strategy on PopTarts with Smucker’s Preserves, as have General Mills with Hershey’s Syrup in Betty Cracker Brownie Mix and Beech-Nut with Chiquita bananas in its baby food. The ingredient suppliers are looking for several advantages. One is lower costs from large-volume orders, a second is higher prices from advertised specialties (some soft drink manufacturers picked up on Nutrasweet only after its advertising was effective), and third is longer-term supplier-manufacturer relationships that come from such licensing arrangements. Chrysler signed a multi-year agreement with Infiniti audio systems. Manufacturers, for their part, see advantages in “ingredient” that consumers have been having an made to want. The ingredient signals high quality, demand comes from the supplier’s advertising and channel stocking is much easier when the product contains a highly advertised ingredient. (Some food chains even waived slotting allowances for Simple Pleasures’ ice cream made with Simplesse because they wanted the product in their stores.) Retailers get some of the same advantages, especially the ready demand that ingredient advertising provides. This makes for higher margins, faster inventory turnover, and revitalized brands (what Nutrasweet did for Jell-O gelatin and Kool-Aid powdered fruit drink mix.) There are problems, of course. The advertising is expensive, and suppliers may not be able to finance it. Manufacturers of the primary product lose some control to the ingredient supplier. Suppliers cannot sell manufacturers who do not think the advertising will be effective. The power of advertising can fade, and consumers can become confused. And, of course, if the ingredient comes into short supply, then the manufacturers’ products may be left high and dry. But there are some conditions just right for ingredient branding and advertising. Specifically, the strategy fits best in situations where what the ingredient offers is central to why people buy a product, for example, taste on a soft drink, “cleanability” on carpets. Too, it helps if the ingredient itself is a major
ABSTRACTS
technical breakthrough, wanted by all. And the supplier can spread the costs of the advertising if the ingredient is useful in different products across several industries (such as with Teflon). Suppliers like it best if they have patent control over the ingredient, the sales volume of using products is very high (e.g., soft drinks) and the manufacturers are willing to be patient while the advertising’s effect is being built up. The author gives a procedure for suppliers to follow if they have an “ingredient” for which they want to brand, advertise and establish a pull-through. Boiled down, it calls for 1. Doing market research in the selected markets to see how people buy things and what role the ingredient might be able to play; 2. Creating the ingredient’s trademark, and then undertaking consumer advertising and promotion for it, pointing out the contribution of the ingredient in each market targeted, for example, Stainmaster in carpets; 3. Calling on manufacturers, to sell them on cooperating in the use of the ingredient, and arranging for them to promote the arrangement too, for example, putting Nutrasweet flags on soft drink cans; 4. Continuing to expand the manufacturer user basemore in the same market and/or those in added markets; initial users probably will not provide break-even revenues; 5. Collaborating with manufacturers in all aspects of the arrangement, for example, in inventory management, and manufacturing cost reductions; creating bonds that will survive attacks from competitive ingredient suppliers; and 6. Continuing the consumer advertising and promotion.
Entrepreneurial Versus Conservative Firms: A Comparison of Strategies and Performance, Jeffrey G. Covin, Journal of Management Studies (September 1991), pp. 439-462 Firms are often classified into sets such as defenders, and so forth, or adaptive, analyzers, prospectors, planning-oriented, and so on. This author wanted to study a small array of firms, divided only into conservative and entrepreneurial. So he selected a sample of business firms in Western Pennsylvania, asked each of them to put their firm on a 7-point scale that indicated its degree of entrepreneurialness. Then, to test a series of hypotheses set up previously, he asked each executive to score the firm on 20 other statements. The statements presumably would distin-
J PROD INNOV MANAG 1993;10:75-86
ABSTRACTS
guish between conservative
and entrepreneurial
83
The author begins with a recap of Coyne’s “sustainable competitive advantage.” Coyne said that competitive advantage comes from competitive differential, and that there are four types of differentials: functional differentials that come from the knowledge and skills of employees and others in the firm’s value chain; cultural differentials that trace to the habits and attitudes of the firm as a whole; positional differentials that are a consequence of past actions and include reputation, advantageous plant locations, and so on; and regulatory differentials that stem from the protection of rights, such as trademarks and patents. Functional and cultural differentials are based on competencies or skills, whereas positional and regulatory differentials are related to assets the company owns. Resources that produce the four differentials are the intangible resources of the firm. Thus intangible resources can be classified as either skills or assets. Here is how the author arranges them:
Assets Intellectual property Trademarks Patents Copyrights Registered designs Contracts (agreements, licenses) Trade secrets (technical know-how) Reputation (of the firm, of its products) Networks (business relationships) Skills Know-how (of employees, suppliers, etc.) Culture (beliefs, modes of thought, etc.)
The Strategic Analysis of Intangible Resources, Richard Hall, Strategic Management Journal (1992), pp. 135-144 This article is not directed to the new product function. Instead, it speaks to the general subject of strategy; however, one key aspect of new products work is the determination of opportunities--either in the market place or in the firm. We too make strategic decisions based on assessment of intangible resources. This author has compiled a classification of intangible resources that may help new products managers assess their own environments.
Given that the tangible asset set includes cash, buildings, receivables and the like, all other values of a firm are its intangible resources. These can sometimes outvalue the tangible assets. The study asked the CEOs to score each of a list of 13 intangible resources on its relative importance to the firm. The rankings were as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Company reputation Product reputation Employee know-how Culture Networks Specialist physical resources Databases Supplier know-how Distributor know-how Public knowledge
J PROD INNOV MANAG 1993;10:75-86
strategy which only a few producers have adopted. But several have been very successful, and many others will probably be looking in this direction. The strategy can start at either of two points: ingredient supplier or manufacturer of the product which uses the ingredient. Du Pont has initiated programs on Teflon, Lycra and Stainmaster, Searle/ Monsanto on Nutrasweet and Simplesse, and 3M on Scotchguard. Kellogg initiated the strategy on PopTarts with Smucker’s Preserves, as have General Mills with Hershey’s Syrup in Betty Cracker Brownie Mix and Beech-Nut with Chiquita bananas in its baby food. The ingredient suppliers are looking for several advantages. One is lower costs from large-volume orders, a second is higher prices from advertised specialties (some soft drink manufacturers picked up on Nutrasweet only after its advertising was effective), and third is longer-term supplier-manufacturer relationships that come from such licensing arrangements. Chrysler signed a multi-year agreement with Infiniti audio systems. Manufacturers, for their part, see advantages in “ingredient” that consumers have been having an made to want. The ingredient signals high quality, demand comes from the supplier’s advertising and channel stocking is much easier when the product contains a highly advertised ingredient. (Some food chains even waived slotting allowances for Simple Pleasures’ ice cream made with Simplesse because they wanted the product in their stores.) Retailers get some of the same advantages, especially the ready demand that ingredient advertising provides. This makes for higher margins, faster inventory turnover, and revitalized brands (what Nutrasweet did for Jell-O gelatin and Kool-Aid powdered fruit drink mix.) There are problems, of course. The advertising is expensive, and suppliers may not be able to finance it. Manufacturers of the primary product lose some control to the ingredient supplier. Suppliers cannot sell manufacturers who do not think the advertising will be effective. The power of advertising can fade, and consumers can become confused. And, of course, if the ingredient comes into short supply, then the manufacturers’ products may be left high and dry. But there are some conditions just right for ingredient branding and advertising. Specifically, the strategy fits best in situations where what the ingredient offers is central to why people buy a product, for example, taste on a soft drink, “cleanability” on carpets. Too, it helps if the ingredient itself is a major
ABSTRACTS
technical breakthrough, wanted by all. And the supplier can spread the costs of the advertising if the ingredient is useful in different products across several industries (such as with Teflon). Suppliers like it best if they have patent control over the ingredient, the sales volume of using products is very high (e.g., soft drinks) and the manufacturers are willing to be patient while the advertising’s effect is being built up. The author gives a procedure for suppliers to follow if they have an “ingredient” for which they want to brand, advertise and establish a pull-through. Boiled down, it calls for 1. Doing market research in the selected markets to see how people buy things and what role the ingredient might be able to play; 2. Creating the ingredient’s trademark, and then undertaking consumer advertising and promotion for it, pointing out the contribution of the ingredient in each market targeted, for example, Stainmaster in carpets; 3. Calling on manufacturers, to sell them on cooperating in the use of the ingredient, and arranging for them to promote the arrangement too, for example, putting Nutrasweet flags on soft drink cans; 4. Continuing to expand the manufacturer user basemore in the same market and/or those in added markets; initial users probably will not provide break-even revenues; 5. Collaborating with manufacturers in all aspects of the arrangement, for example, in inventory management, and manufacturing cost reductions; creating bonds that will survive attacks from competitive ingredient suppliers; and 6. Continuing the consumer advertising and promotion.
Entrepreneurial Versus Conservative Firms: A Comparison of Strategies and Performance, Jeffrey G. Covin, Journal of Management Studies (September 1991), pp. 439-462 Firms are often classified into sets such as defenders, and so forth, or adaptive, analyzers, prospectors, planning-oriented, and so on. This author wanted to study a small array of firms, divided only into conservative and entrepreneurial. So he selected a sample of business firms in Western Pennsylvania, asked each of them to put their firm on a 7-point scale that indicated its degree of entrepreneurialness. Then, to test a series of hypotheses set up previously, he asked each executive to score the firm on 20 other statements. The statements presumably would distin-
J PROD INNOV MANAG 1993;10:75-86
ABSTRACTS
guish between conservative
and entrepreneurial
83
The author begins with a recap of Coyne’s “sustainable competitive advantage.” Coyne said that competitive advantage comes from competitive differential, and that there are four types of differentials: functional differentials that come from the knowledge and skills of employees and others in the firm’s value chain; cultural differentials that trace to the habits and attitudes of the firm as a whole; positional differentials that are a consequence of past actions and include reputation, advantageous plant locations, and so on; and regulatory differentials that stem from the protection of rights, such as trademarks and patents. Functional and cultural differentials are based on competencies or skills, whereas positional and regulatory differentials are related to assets the company owns. Resources that produce the four differentials are the intangible resources of the firm. Thus intangible resources can be classified as either skills or assets. Here is how the author arranges them:
Assets Intellectual property Trademarks Patents Copyrights Registered designs Contracts (agreements, licenses) Trade secrets (technical know-how) Reputation (of the firm, of its products) Networks (business relationships) Skills Know-how (of employees, suppliers, etc.) Culture (beliefs, modes of thought, etc.)
The Strategic Analysis of Intangible Resources, Richard Hall, Strategic Management Journal (1992), pp. 135-144 This article is not directed to the new product function. Instead, it speaks to the general subject of strategy; however, one key aspect of new products work is the determination of opportunities--either in the market place or in the firm. We too make strategic decisions based on assessment of intangible resources. This author has compiled a classification of intangible resources that may help new products managers assess their own environments.
Given that the tangible asset set includes cash, buildings, receivables and the like, all other values of a firm are its intangible resources. These can sometimes outvalue the tangible assets. The study asked the CEOs to score each of a list of 13 intangible resources on its relative importance to the firm. The rankings were as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Company reputation Product reputation Employee know-how Culture Networks Specialist physical resources Databases Supplier know-how Distributor know-how Public knowledge