Strategic mutual learning between producing and buying firms during product innovation

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Strategic Mutual Learning Between Producing and Buying Firms During Product Innovation Patricia W. Meyers and Gerard A. Athaide

The product innovation activities and strategies employed by successful innovators often differ from those used by firms having more mature products. Marketing strategies for innovating firms can vary along two dimensions of knowledge: technological development (stable and evolving) and market needs (known and emerging). In addition, producers often commit to forms of strategic relationships with their buyers because of the difficulties encountered when buying firms adopt and implement technological innovations. Starting with these two orienting constructs from the literature, Patricia Meyers and Gerard Athaide describe the kinds of learning that develop between producers and buyers when markets for a technological innovation are forming.

Address correspondence to Patricia W. Meyers, Associate Professor, Syracuse University, School of Management, Department of Marketing, Syracuse, New York 13244. © 1991 Elsevier Science Publishing Co., Inc. 655 Avenue of the Americas, New York, NY 10010

A new but growing body of work indicates that the strategic role and tasks of marketing for technology-intensive products is different from those observed for more mature products [7,18,31,39]. While more traditional marketing approaches would hold that producers cannot create needs, the experience of many innovative firms working with new technologies and with developing markets demonstrates that innovations do create new needs. For example, before Xerox launched the first dry paper copier in 1960, the pervasive need for copying that businesses experience today was largely unknown. Early forecasts of the total demand for copiers predicted fewer than 5,000 units world-wide! In fact, the initial strategy for xerography targeted it to produce masters for offset printing. It wasn't until emerging usage patterns found offices using the machines as a fast and convenient replacement for carbon copies that the massive potential market for plain-paper copiers began to be understood [8]. Nearly three decades of research on innovations strongly agree that successful technological innovation requires a clear understanding of market needs [17,29,32,37]. How do producing firms come to understand emerging needs --needs that are forming and taking unexpected directions as the buyer explores and uses the new product? When markets first meet technologies that are new to them, applications for the technology, benefits of its use, and payoffs to the investments in them are unclear to potential buyers. Moreover, the full impact of technology upon a market may also be unknown to the innovator. Such a 0737-6782/91/$3.50

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BIOGRAPHICAL SKETCH Patricia W. Meyers is Associate Professor of Marketing and Associate Director of the Innovation Management Program at the School of Management, Syracuse University. Her research focuses on organizational and team learning during technological innovation. She is particularly interested in the new and challenging approaches to marketing that technological innovation requires. Her articles have appeared in several journals, including Research Policy, The Jonrnal q/" the Academy of Marketing Science, and the Journal ~['High Technology Management Research. This is her second article for The Journal of Product Innovation Management. Gerard A. Athaide is a Doctoral Candidate in Marketing at the School of Management, Syracuse University. His research focuses on new product management with special emphasis on strategic considerations during new product pricing. He has published in the American Marketing Association's Summer Educators" Proceedings.

gap between the potential benefits of a technology and the potential market's awareness and realization of them presents a unique and underresearched challenge to marketing. Under these conditions, successful innovators and their buyers appear to engage in a mutual learning and teaching process aimed at discovering over time the specific potential of a technology for a buyer [39]. This study explores the processes and activities involved during this ongoing and dynamic sharing of knowledge. Conceptual Framework

To explore a phenomenon for which little or no theory exists, field researchers often begin with an "orienting" framework that helps them know where to look for answers to their questions as well as how to interpret their findings [48]. At the outset, the framework assists in the choice of research sites where the phenomena in question are most likely to occur [14]. It also guides the iterative constant comparison research process that ultimately produces a more refined theory grounded in the field data [2,12,15]. Much exploratory research begins with assumptions and tentative concepts. Often these change as data are collected and analyzed. Yet it is important to be explicit about the initial framework so that the integrity of the research process is clear and inspectable [26]. The orienting framework for this study was derived from two research areas relevant to technological innovation: (1) marketing strategies for

P.W. MEYERS AND G. A. ATHAIDE

new technologies, and (2) relationships between sellers and buyers of technological innovations. The first area, marketing strategies for innovations, is summarized in Figure 1. Past research has proposed two major determinants of innovation strategy: the stage of development of the technology itself and the extent to which market needs for the technology are known [3,24,25,28]. The matrix formed by the juxtaposition of these two determinants produces four general possibilities for the strategic marketing of technological innovations that appear in the four cells of Figure 1. In cell 1, technology is relatively stable but markets are emerging. This occurs when technologies develop rapidly but customer experience with the technology lags. The central concern of marketing strategy in this case is to develop and expand the broad base through market modification. Here innovative activity would focus primarily upon identifying a broad range of new technological applications and encouraging customer trial and experience, that is, educating the customer. Examples of such cases would include the mass introduction of proprietary drugs whose patents have expired, such as ibuprofen, and the marketing of microcomputers whose base technologies had largely stabilized during the early 1980s. Figure 1. Classification of R&D and marketing strategies when technological development and market needs vary. Market Needs

Emerging Stable

Known

Cell 1 Market Modification Strateov • Exploit Technology and . Leverage Current Market(s)

3 .~ -~

Cell 2 Product Modification Strateov • Standardize Technology and • Penetrate Market(s)

• Develop New Market(s) Cell 4

Cell 3

Radical

Innovation

'5 o~

Routine Innovation Strateov

• Develop Technology

• Focus Technology

• Pioneer Market(s)

• Re-educate and Expand Existing Markets

Evolving

(Adaptedfrom Cady 1985;Meyersand Tucker1989;Meyersand Athaide1989)

LEARNING BETWEEN PRODUCING AND BUYING FIRMS

When the technology is relatively stable and market needs are largely known, as in cell 2, a strategy of product modification is followed to standardize technology and drive down unit costs while penetrating existing markets. Many would argue that this strategy incorporates only incremental innovations, for example, refinements of existing products that are already familiar to customers or in marketing tools themselves such as new packaging or advertising. Examples here include formula modification in laundry detergents to add features such as softening or bleaching capabilities and new flavors of snacks, desserts and other food categories. Products that encompass evolving technology and are targeted for emerging markets fall in cell 3, where a radical innovation strategy is appropriate. Here producers must both develop the technology and pioneer markets. Firms offering these innovations are faced with the dual risks of identifying the applications of the technology that provide high quality performance and benefits while at the same time educating the buyer, whose behaviors and/or understandings must change drastically, so that the desired benefits are achieved through appropriate use of the product. These two tasks are time-consuming and fraught with error, but the payoffs for success can be very high. The first dry paper copiers, the development and introduction of the Pilkington float glass process and the first microwave ovens would be appropriate examples here. Cell 4 strategy, routine innovation, requires a focusing of technological efforts and an expansion of existing markets in response to evolving technology and known markets. Here the market is not required to change behaviors or perceptions in fundamental ways, despite the introduction of new technology. The new technology employed in these products must deliver better performance or quality than existing products or offer significant cost savings and the strategy must include one of these two alternatives. Marketing efforts towards buyers with known needs may also focus on convincing them of the new technology's superiority to existing technologies. The first ballpoint pens or erasable ballpoint pens, the rotary internal combustion engine and chemically derived sugar substitutes are examples of this type of new product. An in-depth exposition of this matrix is beyond

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the scope of this article. 1 Its purpose here is to provide two fundamental insights: 1. that firms having products located in cells 1, 3, and 4 can be categorized as innovators, and 2. that producer firms can be expected to expend greater educational effort towards the buyer when their products fall in cells 1, 3, and 4. A second part of the initial framework for our study was derived from the growing literature on seller-buyer relationships. 2 Industrial marketing situations involving new technology and new product development (NPD) appear to benefit from relationships between the producer and the buyer. More [27] found alternative modes of relationship between developers and adopters of innovations at the beginning of the new product development process. These modes involved at least two relational styles between the selling and buying firms. The first, called "serial" relationships, operated along the predictable stages of the standard new product development process with relatively little interface between buyer and seller. In the second type or "proactive codevelopment" relationship, buyer and seller formed a relatively close bond to cogenerate the design, production and implementation of the new product. Extensive work by von Hippel [46,47] on the importance of lead users in generating new technological product ideas reinforces the importance of buyer/seller relationships during the development phase. Leonard-Barton [21] found considerable cooperative learning in the implementation of technological advances during the completion of the new product development cycle. Rogers [33] has also found that producers and buyers can work together to "reinvent" an innovation after its initial use. In addition, there is evidence that relationships involving cooperative learning can occur between producers and buyers throughout the entire innovation process [13,16,38,41]. This evidence from the literature led us to postulate a continuum of learning relationships between producers and buyers of technological in~ Extensive discussions and examples of the marketing strategy matrix based upon relative newness of technologies and of markets can be found in Cady [3] and Meyers and Tucker [25]. 2 Throughout this paper we use the terms "producer," "seller," and "innovator" to denote the organization that develops and markets technological products. "Buyer," " u s e r , " and "customer" refer to organizations that adopt and use technological products.

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P.W. MEYERS AND G. A. ATHAIDE

"Normal" Marketinc~ i~

How is the learning relationship between a producer and buyer affected by the producer's strategy?

~

Activities

Low I R~rninoR~lntion~hin(Most Knowle~3geAlreadyAvailable)

How do producers and buyers generate the new knowledge necessary for successful innovation?

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Co~eve~opmenlof ~j NewPr~u~s(~e 1986: ~nH~11976,1986)

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What methods and roles are most effective for producers and buyers in generating and using new knowledge about the technology and market applications? How can producers assist potential buyers to learn about new technologies in effective and efficient ways?

Buyer J

HiclJ3l,~att~innRel~rion~hi9 (MuchGenerationand Sharingof

New

Knowledge)

Figure 2. Schematic representation of types of learning relationships between producers and buyers.

novations from a low-learning condition at one extreme to a high-learning condition at the other. In low-learning relationships between buyer and seller most knowledge about the technology and about market needs is already known to both parties. When little is as yet known about the technology, its applications and the market needs for them, we would expect a high-learning relationship to exist between the producers and buyers of innovations. In between a range of moderate learning relationships would be expected. These types of learning relationships are represented in Figure 2. These two constructs; (I) the marketing strategies for innovation that appear to require education of buyers by producers, and (2) the need for learning relationships between buyers and sellers during innovation; formed the conceptual foundation for our study. Against this backdrop we sought to investigate the following research questions: • What types of learning occur between buyers and sellers of technologically-intensiveproducts?

Study Site Selection and Methodology The firms selected for this study of learning during technological innovation are successful small and mid-sized companies. 3 We know a great deal about how large firms develop and market new products and technological innovations [5,42,43]. In contrast, there is evidence to suggest that small and mid-sized firms (SMFs) play an important and under-researched role in the production and diffusion of innovations through more customized and relationship-oriented marketing strategies [4,7]. Small and medium-sized firms provide a disproportionately large contribution to "high" (or more advanced), growth-oriented technologies [9,11,19,36]. These technologies require a strong scientific/technical base, exhibit relatively shorter life-cycles and can even "create" or "revolutionize" demand. SMFs are distinguishable from startups (i.e., entrepreneurial individuals or very small partnerships and companies that are in their earliest formative stages) because they have exhibited some longevity and staying power. They often act powerfully in the adaptation of newly-developed technologies (that they may or may not have invented) to emerging customer needs and in assisting buyers to attain successful use of tech-

3 Small and mid-sized firms [40] (SMFs) have been defined variously in the literature. Following Stroetmann [40] and Clifford and Cavanagh [4], we defined SMFs as having 30 to 750 employees with $5-$500 million in gross annual sales.

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nologies [34]. Studies of the rising number of small and mid-sized, technology-based companies in Europe support their value in the collection, exchange, and transfer of technical and market knowledge [35]. Because of their unique role in the diffusion of technology, small and midsized, technologically-intensive firms were selected as the sites for our study. Once the appropriate research site was established, we then sought the most suitable methodology. Research on new concepts in innovation often has e m p h a s i z e d - - a n d has been faulted for--focusing too heavily on forms of "innovation counts" utilizing cross-sectional data collected by survey methods [10,44]. These methods do not reveal the underlying processes involved in innovation. The focus of this study involved discovering how the producing firms detected, formed and adapted to the markets and buyers that they were directly involved in developing over time. Moreover, too little theory exists in this area to engage in formal theory testing. Accordingly, field study methodology based upon multiple case comparisons was used to form the grounded theory presented in this article [15,49]. Recently case methodology has undergone significant developments adding to the rigor and credibility of its use in theory building [1,20,26,45]. For this study, a design including two longitudinal sites and four replicated multiple sites was employed, following Leonard-Barton [22,23]. Such a design complements retrospective case study interviews with one or more real-time longitudinal field studies based on direct observation as well as interviews while the phenomenon under consideration is actually occurring. Here, two of the study sites (Masco and Wave, Inc.) were observed regularly and frequently for over a year each. (Actual company names have been disguised.) Four additional cases (Docware, Pubsys, Diamed, and Cabletech) were conducted using more limited observation and retrospective semistructured and unstructured interviews concerning learning and knowledge generation during the marketing of technology-based products. Combining these two approaches addresses the well-known limitations of reconstructed past events [30], while providing greater external validity and checks against observer bias. Case studies of this kind have been shown to provide

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several advantages to research, particularly in new areas of study or when existing theory seems underdeveloped or inappropriate. The rigorous case process also can provide richer grounding and definition of research constructs, alternative or rival hypotheses for analysis, and construction or extension of theory [12]. A total of 6 successful SMFs were identified using an expert panel who judged the innovative character of the firm's industry, the firm's success in diffusion and marketing activities (as measured by profitability and growth in 3 of the previous 5 years), its size and adjudged "staying-power" beyond the entrepreneurial, start-up stage (sites had all been in existence for an average of 8 years and no less than 5 years at the time our study began). Multiple data collection methods were used (e.g., face-to-face interviews with key informants; telephone interviews with other informants; archival data; on-site observation; and secondary data). While a complete research program consisting of several studies would include both successful and unsuccessful cases, our initial effort focused upon the success category. Our approach examines representatives of one group of outliers or representatives of a conceptual category, firms that have been successful in generating new knowledge through innovation. Important insights can arise from examining the best (or the worst) of a population, especially when the goal of the work is to gain new understandings. Such studies, while far from final, can suggest interesting problems, new constructs and designs for future work [6]. Several measures were taken to ensure reliability of data collection and interpretation. Multiple interviews (ranging from 3 to 23) were conducted at each firm over periods of varying length (ranging from 1 week to almost 2 years). Multiple informants were used (ranging from two to seven interviewees per firm). The interviews were conducted and the transcripts and field notes were analyzed by at least two interviewers in all cases. In addition to general information about the company, its technology, customer relationships, and strategies, data were collected for each case firm on one recently successful product (a "focus" product) that had been on the market and profitable in the last 2 years. Table 1 summarizes these research sites.

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Table 1. Summary of Case Study Research Sites and Data Case firm and descriptions

Technology and marketing status

A) MASCO: Produces, markets and services shop floor control software for manufacturing firms. Vendor of turnkey systems of hardware and software manufacturing system packages. In-house development of technology. Direct sales only. Employees: c. 35.

Technology: Evolving

Focus Product: A customized manufacturing system, modules of which later became part of standard product offerings.

Market Needs: Emerging

Behavioral Impact of Adoption on Buyer: Radical innovation for buyers producing marked behavior and system changes. Affects several levels of the buying organization. Post-Purchase Support by Producer: Very high. Long-term relational support before and after purchase/adoption. Largely an evolutionary and customized process within broad formal goals and guidelines. Frequent personal contact. B) DOCWARE: Designs, customizes and implements turnkey systems for specialized desk-top publishing and documentation. Systems originally included vended hardware along with internally developed software. Now moving towards software only with intensive consulting and service add-ons. Targeted industries are technically intensive (e.g., aerospace and pharmaceuticals). Direct sales only. Employees: c. 500.

Technology: Evolving

Focus Product: An "active document" software package that allows linkage of documents to other programs, such as data bases and salesperson reports. When data bases are updated, the software automatically produces a new, edited document including the new data in several pre-selected or interactive formats.

Market Needs: Emerging

Behavioral Impact of Adoption on Buyer: Radical innovation for buyers producing marked behavioral and system changes. Potential to affect all levels of the buying organization. Post-Purchase Support by Producer: Very high. Intensive relationship before and after sales. Service goes well beyond technological fixes and "debugging" to include needs assessment, ongoing training and evolutionary add-ons. Frequent personal contact. C) PUBSYS: Provides computer graphics capabilities (hardware and software) for industrial customers. These systems produce presentation, design, and desk-top publication graphics, illustrations and videos for reports and presentations. A market share leader, technological fast follower. Employees: c. 120 regional headquarters (700 nationally).

Technology: Evolving

Focus Product: Turnkey software/hardware graphics system that interfaces with and integrates a buyer's existing graphics systems.

Market Needs: Known

Behavioral Impact of Adoption on Buyer: Little behavior or system change in buyer firm. Targeted buyers familiar with other computerized graphics systems. Post-Purchase Support by Producer: Moderate to low. Formalized through user groups, service contracts and newsletter. Relatively little face-to-face contact.

D) DIAMED: Designs, manufactures and sells diverse medical and industrial products using fiber optics and scanner technologies. Medical instruments a significant product specialization area. Technological and market share leader. Employees: c. 400.

Technology: Evolving

Focus Product: Innovative diagnostic instrument for audiology screening. Sold to doctors' offices through distributors.

Market Needs: Known

Behavioral Impact of Adoption on Buyer:

Minor behavior change. Primarily cost savings.

Post-Purchase Support by Producer: Moderate to low. Short-term relationship through printed training material. Regular annual service intervals and warranty program. Distributor's sales staff calls on customers. Producer's marketing staff trains and calls on distributors--strong relationships needed with these intermediaries.

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Table 1. (Continued) Case firm and descriptions

Technologyand marketing status

E) CABLETECH: Manufactures and sells electronic devices for cable television companies. A technological and market leader in this niche. Employees: c. 200.

Technology: Stable

Focus Product: " T r a p " for cable TV systems. These block the signals for channels that a cable subscriber has not contracted for,

Market Needs: Emerging

Behavioral Impact of Adoption on Buyer: Low. Technical performance improvements but little behavior or system change aside from cost reduction or improved reception. Post-Purchase Support by Producer: Low; little needed. Technical trouble-shooting available. Primarily focused upon risk reduction through guaranteed quality and fast service or replacement. Frequent personal interaction between Cabletech's and buyers' CEOs. F) WAVE, INC.: Designs, produces and markets specialized filters that protect electronic communications reception systems from over-the-air interference. Strategic emphasis on quality, timeliness and customized solutions. Both direct sales and dealer sales. Employees: c. 100.

Technology: Stable

Focus Product: Custom-designed filter to enhance reception of satellite discs. Later became a standard new product offering.

Market Needs: Emerging

Behavioral Impact of Adoption on Buyer: Low. Technical performance improvements but little behavior or system change aside from cost reduction or improved reception. Post-Purchase Support by Producer: Low for buyers; moderate to high for dealers. Little needed for buying firm, primarily focused on service and warranty. High for dealer network in terms of training and involvement in product testing, design and modification. Intensive interaction with customer, however, during problem identification, product selection or design and adoption.

Findings Association Between Strategy and Learning Relationships An initial sort was done of the six case sites by the relationships that each case firm maintained with its markets including their general information-sharing and learning activities. These activities clustered around two areas across all six companies. These areas included producer's commitment to learning relationships, and buyer's involvement in learning activity. Findings concerning these relational areas in the six case studies appear in Table 2. While all six firms exhibited some activity in the learning relationship areas, the nature and level of their commitments to each varied. For example, Masco and Docware demonstrated the strongest involvement of buyers in new product development and design, while Pubsys and Diamed displayed the least. Masco initiated strong, conscious learning and teaching activities throughout the sales, development and implementation process, while Wave Inc. established its strongest learning ties during diagnosis of cus-

tomer problems. These ties often occurred before actual sale and adoption of the physical product. Wave Inc. exhibited only very selective after-sale learning and teaching with customers. All of the sites used relationships with buyers as part of their marketing strategy, but, here again, the nature and duration of these relationships and whether or not they were accomplished directly or through intermediaries varied greatly among the case sites. We next explored the possible connection between marketing strategy and the level and type of learning relationships in our cases. Two of the firms, Masco and Docware, engaged in technologies that were evolving and markets that were in their early stages of development. We noted intense emphasis in both firms on both technological and market development. Reflecting a different strategic orientation, Pubsys and Diamed dealt in emerging technologies but focused their marketing on segments that were familiar with these technologies and able to adopt and use them with relative ease. New product development in these two companies centered around exploring and refining technological capabilities and improvements to increase the per-

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Table 2. Summary of Individual Case Evidence of Learning Relationships between Producer and Buyer A) MASCO

1) Producer's Commitment to Learning Relationships • • • • •

Strong seller-buyer relationships over time. Many face-to-face contacts. Customization common and built into pricing structure. Some customized products (or elements of them) later become part of standardized offerings. Heavy reliance upon cross-functional team approach in all areas of NPD and launch. Return to existing customer base with new products for rebuys.

2) Buyer's Involvement in Learning Activity • • • • •

Extensive contact between customers and design teams. Learn from customer through pre- and post-launch needs assessment. Teach customer through meetings, training sessions, demos and informal contacts. On-site design and testing of new product constitute major R&D activity. Strong support of implementation through intensive needs assessment, anxiety and risk reduction and continued technical service.

B) DOCWARE 1) Producer's Commitment to Learning Relationships • Team work primarily within functional areas; some conflict between R&D and other functions. • Recent internal crisis identified poor customer service as a major problem area; current strategy is to raise quality of customer support significantly. • Increasing emphasis on strong relationships with selected "high end" buyers. Providing more service and software. Far less bundled hardware.

2) Buyer's Involvement in Learning Activity • Intensive work with buyers to diagnose needs so that engineers can design customized overlays to basic software modules. • A major future objective with "active documents" is to help buyer design their own customization of core software. • Working with "lead users" to develop new software products; initially custom designed and later sold to others with similar needs. • Customer advisory council for technology provides evaluation of products and possible future directions. • Extensive use of Beta testing with 7-8 key customers. • Customer "help lines" (800 support numbers) provide windows on " b u g s , " redesigns and enhancements.

C) PUBSYS 1) Producer's Commitment to Learning Relationships • Some cross-functionality team approach in design phase. • Customization by configuring standardized modules with some individually designed features.

2) Buyer's Involvement in Learning Activity • Formalized buyer/user support during implementation: user groups, service, newsletter, voluntary buyer participation. • Beta usage test sites for new products, but few major redesigns at this stage. • No direct R&D/design contact with customers. Limited customer interaction with design team.

D) DIAMED 1) Producer's Commitment to Learning Relationships • Team approach formalized in new product development and launch process (e.g., regular input, meetings and signoffs needed to move on to next stages). • Ongoing service (e.g., annual recalibration of instrument) provides regular contact with customer. Strong commitment to timely, quality service. • Strategically chosen design features to target specific needs of their well-known markets (e.g., rechargeability, portability, dual purpose, practice tones, third party reimbursement, varied signal timing).

2) Buyer's Involvement in Learning Activity • Formalized new product development process with regular " g a t e s " for progressive user testing and market feedback. • Little user reinvention.

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Table 2. (Continued) E) CABLETECH 1) Producer's Commitment to Learning Relationships • Little manufacturing/design interface "unless there's a problem." Monthly meetings between sales and R&D. • Strong cross-functional communication inside producer. • Risk reduction for customer--producer replaces or repairs product regardless of warranty status. This is thought to maintain competitive advantage of quality image. 2) Buyer's Involvement in Learning Activity • High customer contact and feedback. 25% of sales force time is spent making direct customer contact, often for relationship building and product performance feedback. • Repeat sales important; buyer's aftersale feedback actively sought. • Core product design largely standardized. Peripheral customization through technological adjustments involving diagnosis with buyer. F) WAVE, INC. 1) Producer's Commitment to Learning Relationships • Emphasis upon quality, timely, customized solutions to problems. "Quality product for a quality price." • Emphasis upon rebuys of modifications and new products from existing customer base. • Constant search for new niches to cover risk of losing or exhausting existing niche markets. Process involves direct interaction over time. • Cross-functional knowledge important inside producer, e.g., phone order takers have technical knowledge and strong program of employee training and cross functional experience. 2) Buyer's Involvement in Learning Activity • Majority of new product ideas come from customers. • Strong emphasis on customer feedback without direct sales force; primarily through phone and mail techniques. • "Free" onsite test with lead customers and dealers to test ideas and usage patterns for new products. • Strong commitment to customer and dealer education. Produce and market a variety of educational technical materials, e.g., handbooks, diagnostic kits, and technical videos.

c e i v e d relative a d v a n t a g e s o f existing or closely related p r o d u c t s . In y e t a n o t h e r strategic posture, C a b l e t e c h and W a v e Inc. specialized in fairly w e l l - k n o w n t e c h n o l o g y for which both had develo p e d profitable p r o d u c t s that remained fairly stable in design and use. N e w p r o d u c t activity in these t w o c o m p a n i e s , h o w e v e r , f o c u s e d u p o n finding n e w applications o f and m a r k e t s for their existing technological knowledge. W e f o u n d that relationships b e t w e e n prod u c e r s and b u y e r s did vary b y p r o d u c e r ' s strategy. The highest i m p o r t a n c e , f r e q u e n c y and intensity o f p r o d u c e r - b u y e r relationship, was o b s e r v e d in M a s c o and D o c w a r e , the two firms strategically f o c u s e d u p o n both emergent technologies and e m e r g e n t m a r k e t needs. Relationships b e t w e e n p r o d u c e r and b u y e r firms w e r e still important b u t m o r e m o d e r a t e (less intense or of shorter duration) in the remaining four firms. G r e a t e r u s e o f intermediaries or o f m o r e " a r m s l e n g t h " relational d e v i c e s (such as user groups and newsletters) c h a r a c t e r i z e d the t w o firms with e m e r g e n t technologies but m o r e stable and k n o w n m a r k e t n e e d s , P u b s y s and Diamed. L e s s f r e q u e n t or m o r e n a r r o w p r o d u c e r - b u y e r rela-

tionships (for e x a m p l e , W a v e Inc.' s greater attention to initial p r o b l e m diagnosis) w e r e o b s e r v e d in the firms with m o r e stable and k n o w n technologies b u t e m e r g e n t markets, C a b l e t e c h and W a v e Inc. T h e s e specific findings are reflected in a recombination and refinement o f the t w o orienting theories with which o u r s t u d y began: (1) the e x p e c t e d difference in strategic p o s t u r e b a s e d u p o n stage of d e v e l o p m e n t o f t e c h n o l o g y and market, and (2) the degree o f learning relationship involving prod u c e r and b u y e r . This revised t h e o r y is displayed in Figure 3. In s u m m a r y , in the case e x a m p l e s included in this study, w e did o b s e r v e a greater c o m m i t m e n t on the part of p r o d u c e r s to a direct learning relationship with b u y e r s w h e n n e w m a r k e t needs were being d i s c o v e r e d . The greatest c o m m i t m e n t to a direct and c o n t i n u o u s learning relationship was o b s e r v e d w h e n both the core technologies and m a r k e t n e e d s w e r e emerging.

Specific Learning Opportunities and Activities The divergent strategic p o s t u r e s o f these technological p r o d u c e r s regarding their core technolo-

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Market Needs

Emerging Stable

Call 1

Known Cell 2

• L flW I e:~mir~l Rel;lli~Jn~;hin

• blM~r~ta I A~lrnino R~tatinn~hin • Some New Knowledge Generation (Mahket Needs) • Case Examples: E. Cabletech F. Wave, Inc.

• Most Knowledge Available

8

~

Cell 3

~

Buyer

Cell 4

• H~h t ~arnin_n RAIglk~n~hln • Much C~generet~on of New Knowledge • Case Examples: A. Maeco B, Docware

• MndAr~atl~ I a~trlir~l_Rc~i~lion~hi~ • Soma New Knowledge Genaration (Technology) • Case Examples: C. Pubays O. Dlamed

Evolving

Figure 3. Contingency framework for degree of learning relationship between producers and buyers when technologies and market needs vary.

gies and their markets led us to examine m o r e closely their relationships with their buyers, particularly those that would shed light on the learning aspect of our r e s e a r c h questions. Specifically, how did these p r o d u c e r s of technological products learn from their relationships with their buy-

ers? In w h a t ways, if any, did t h e y facilitate learning for buying firms? Accordingly, we r e t u r n e d to our data to identify specific learning opportunities that o c c u r r e d b e t w e e n b u y e r s and producers. In addition, we looked for w a y s in which producers tried to actively shape and m a n a g e m t o influence and actively gain k n o w l e d g e f r o m m t h e s e learning opportunities. T h e s e findings are s u m m a r i z e d in Table 3. Opportunities for learning o c c u r r e d around four general themes: n e w product development, reduction o f p e r c e i v e d risk for both the seller and the buyer, c o m m u n i c a t i o n challenges, and implementation hurdles. E a c h of these n o w will be discussed with some representative examples and illustrations from the study cases. New product development (NPD) p r e s e n t e d a n u m b e r of learning opportunities and possible activities. S o m e of these arose from the c o m m o n observation that technological products, particularly those involving emerging or n e w combinations of technology, c a n n o t be fully tested until they are actually used by customers. This results largely from the context-driven differences of usage patterns that affect product output, but is also related to design for manufacturability and usability problems. Firms in our study openly acknowledged the possibility o f these difficulties and actively m o n i t o r e d for their first o c c u r r e n c e s . O n c e

Table 3. Opportunities for Learning in Developing Markets with Related Activities of Producing Firms

Opportunities for learning

Producer's activities to manage learning

New Product Development (NPD)

Specific product needs of niche customers can complicate NPD and raise development costs for both seller and buyer.

• Track customer needs aggressively and in creative ways (e.g., active questioning, networking). • Identify dual level benefits; qualitative (appreciated by end users, supervisors and middle managers) and quantitative (to convince decision-makers). Design these in.

Buyer's perceptions of needs often unstable and evolving.

• Change product configuration to meet technological advances and emerging needs. • Explore needs continuously throughout development and implementation cycles; include buyer's decision-makers and end-users.

First uses of finished product often reveal undetected product problems.

• View installation as the first product test and respond quickly to problems. • Expect and learn from "bugs." • recognize limits of own R&D; augment with variety of technical sources.

Development of more standardized products can be difficult.

• Refine product continuously on the basis of new customer requests; update previous installations. • License custom-designed products for sale to a broader market.

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Table 3.

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(Continued)

Opportunities for learning

Producer's activities to manage learning

Risk Reduction Buyer can be averse to large initial outlays and resistant to unproven innovations and/or relatively unknown small and mid-sized firms.

• Meet all deadlines; goes a long way towards establishing trust. • Joint discovery of customer's future related needs. • Demonstrate dedication to long-term, cost-effective service.

Technologies perceived as new, particularly process innovations, can change the buyer organization's way of doing business in both anticipated and unanticipated ways.

• Develop close working relationship with buyer; capture strategic knowledge that shapes product and service delivery. • Phase-in installation over a 1- or 2-year horizon. • Control prices by facilitating phased adoption over time.

Potential buyers may have too little knowledge of and commitment to the product and required organizational changes.

• Identify and cultivate "hammers," i.e., buyer's managers who can cut through "red tape." • Locate influential resistors; learn from the problems they identify. • Choose buyers with high "learning readiness."

Communication Difficulties can arise between seller and buyer in identifying developing needs, prioritizing problems and providing appropriate information and "fixes."

• Spread training expertise broadly within seller; both technical and marketing staff can train users. • Use the sales cycle to help buyer identify and appoint appropriate project team members. • Focus all discussion around the core strategic concern of solving customer problems; build and maintain trustful relationships. • Establish and maintain frequent contact with customers; consider on-site location; create direct, easy two-way access.

Interfunctional conflict within buyer can distort decision processes.

• Discover and put in place a common language across buyer functions--most often involves justification through cost savings. • Bridge the "thought worlds" of upper, middle and lower management within the buying firm. • Foster frequent direct contact between seller's technical people and buyer's end users. • Mediate customer's problems in cross-functional decision-making; stimulate conflict raising and solution creation.

Implementation Changes in needs for and perceptions of the product as well as in the abilities and motivations of customers to use them occur continuously during cut-over and early use of innovation.

• Clarify customer needs during early use as their experience with product evolves. • Develop consensual team spirit and dedication to the common goal of implementation inside the buying firm. • Prepare for related product and upgrade needs. • Market support, training and management services during sales cycle, long before cut-over.

Managers involved in the purchase decision may not be the most appropriate for implementation decisions.

• Influence buyer to establish a project team with the "right mix" of skills and influence for successful implementation (often differs from the buying decision unit).

Perceived benefits often differ across management levels.

• Match training modules with clear benefits from the end-user's perspective. • Design "hands-on" interactive training over lecture or textbook learning styles.

Necessary infrastructure may be unknown.

• Go in with augmented product. Explore and meet key infrastructure and training needs.

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they surfaced, these problems were fixed with a positive " c a n - d o " attitude ( " w h a t e v e r it takes") as opposed to reluctance. This attitude was supported at all levels of the producer firms, not just because it benefited the customer, but also because it improved the producer's product. Masco's CEO expressed this attitude succinctly as follows: Anybody who is knowledgeable about what our product was 2 years ago knows that it's totally different [today] from what we had 2 years ago. Little bits and pieces change as a result of customers . . . . The fact that we do listen and effect changes in our product is a strength we have over our competition. More importantly it gives us a better product. The modifications we make come back and therefore enhance the total package-adding to our bag of tricks. Another interesting aspect of active learning for new product development highlighted the differences in perceived benefits at various levels of management within the buyer firm. At least two levels of product benefit were identified during product development for customers: one having to do with quantifiable improvements resulting from the new product and the other dealing with more qualitative and difficult to quantify improvements resulting from the new product, such as ease of use, improved internal communications, and more effective management. Producers used their interaction with buyers to explore both levels of perceived benefits in order to enhance them within the product and related services or to "talk them u p . " As one Docware manager told US,

Operational managers see direct benefits that help them perform better or faster, things like better data, more active data, more knowledge about what's going on and as a result making better decisions . . . . But the highest level of management always and only wants to know, "What will your products save this company?" Particularly in cases where both technology and market needs were emerging, producers were aware of these differing levels of need perception and actively sought ways, first, to discover their specifics and, second, to incorporate ways to address these specifics in their products and their presentations to the buyer.

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Another learning opportunity concerned the identification of specific risks and the ways to reduce them. Here one frequently used device combined learning about buyers' immediate and longer term needs with discovery of the buyers' sensitivity to price. Using this knowledge producers proposed alternative modular and phasedin installations of their product to reduce buyers' perceived risk. An interesting side discovery in one producer involved actively working with buyers to separate present and future needs, " m u s t haves" from "nice-to-haves." In one manager's words: There's always two or three things that are just way out, and we tell them, "No, we can't do that." They may beat you up on it and maybe not. If we listened to just what they wanted--and they always ask for a budgetary quote--I'd say we'd lose 99 percent of the orders. We'd frighten them off. We've got to educate them. Learning Being out t h e r e . . . Talking to people . . . . •

.

.

Risks also have to be controlled from the producer's side. One learning opportunity to do this was found in exploring and identifying the "learning readiness" of each buyer. Assessing this early on can help producers segment their markets more successfully. One vice president expressed this point well: They have to have some education to be ready for our education. At first we said, "We'll educate these people. Through this education, we'll be able to sell our system." That's tough--it costs megabucks and maybe they still won't buy. Now we spend time up front to see how much they already know about what they want. We trace a fine balance between educating the customer and really inflating our cost of sales. Discovering the level of buyers' abilities to assess their own needs and to make decisions about the match between their needs and the producers' products was considered essential learning by all four of the case firms involved in developing new markets for their technology. Several learning activities arose from c o m m u n ication challenges that emerged between buyers and sellers throughout the development-designimplementation cycle. Especially in the four companies involved in emerging markets, these learning activities involved establishing and

L E A R N I N G B E T W E E N P R O D U C I N G A N D BUYING FIRMS

maintaining frequent, direct contact between various functional areas within and between the selling and buying firms. One unusual activity, observed at both Masco and Docware, involved the seller in discovering and employing a c o m m o n language that could be understood across functions and managerial levels within the buying firm. This " l a n g u a g e " focused largely on cost savings and other tangible benefits of the product but at times incorporated special aspects of the buying firm that had to be discovered by the seller. In one example, we were told that, Sometimes you'll get someone in management who says, "we absolutely have to have this functionality, we're committed to it." But it's the people in the field, who are actually going to use the system and make it work who may say, "Forget it." When this happens you've got to find things that matter to both groups to help resolve the disagreement. You can't just tell them they disagree and leave it at that. You've got to find the right concept to help them agree. A n u m b e r of learning activities revolved around the difficulties buyers experience in actually implementing a n e w technological product. One clear example emerged in the realization that the seller often must help the buyer to establish an implementation project team that includes the right mix of members. To do this, producers have to be familiar enough with buyers' managers to k n o w w h o m to r e c o m m e n d . A n o t h e r example found in both Masco and Docware involved actively mediating the buyer's problems in crossfunctional decision-making. Concerning implementation teams, one engineer told us: We become a mediator a lot of times. We set the stage and sit at these meetings and ask, "How will you guys handle this?" Then we d u c k ! . . . You see everybody views the product differently. Even though we see it as a global solution, they [the buyer's managers] don't . . . . We spend a lot of time orchestrating meetings of adversary groups together to talk to each other--to agree on how to use and implement our product.

Discussion and Conclusion It is important to recognize that the conclusions of this study have limited generalizability as yet. Arguably this is not a serious problem here be-

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cause the purpose of our study was to explore developing theory rather than to test a well-formulated existing one. Yet caution is essential in applying the conclusions of our study until further research can confirm and extend the findings. The sample size here is, of course, too small for statistical inferences and would need amplification. The inclusion of unsuccessful small and mid-sized technological firms and products could offer additional valuable insights, as could broadening the interviews to include buying firms. Though these steps could not be carried out in this study, they are encouraged in future research. Considerable usefulness, however may be found in the ability of our findings to stimulate further exploration by both managers and researchers. Insofar as learning functions as a primary goal and o u t c o m e for producer-buyer relationships during technological innovation, then it will be beneficial for technological companies to manage these relationships effectively. The conscious and purposive stimulation and capture of specific learning about technological improvements, design e n h a n c e m e n t s and new or improved uses may well form the basis for competitive advantages, such as high switching costs, pioneering technological advances and applications, and continuous adaptation of existing products to encourage rebuys and additional related purchases. Moreover, producer-buyer learning relationships that have the complementary effect of helping buyers realize o p t i m u m benefits from adoption and use of new technologies can result in competitive advantages for the buyer as well as the producer. Indeed the m a n a g e m e n t of learning can be launched as a saleable service itself. Such services would include the more c o m m o n p l a c e end-user training and technical fixes but, more importantly, could extend well beyond them to include active learning functions such as those we have identified. Finally, there is growing evidence, to which this study contributes, that learning relationships between technologically-based firms and their customers can enhance greatly the development, adoption and implementation of innovations. Especially where technologies and markets are emerging, successful innovators appear to benefit greatly from employing a strategy that includes a strong c o m m i t m e n t to educating their customers as well as to learning from them.

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