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Communication patterns of new product development team leaders
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J PROD INNOV 1992;9:70-84
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J PROD INNOV
Second, he would like to see the standard of patentable invention be raised. The patent seeker should be required to offer some evidence that the invention is worthy of society’s protection and reward. This would not only greatly simplify the entire intellectual property process, but would also stop those many cases where holders of defective patents survive because the item protected is not important enough to warrant the time and costs of defending against charges of violating its patent. Payments for use are cheaper. Other recommendations were perhaps more a search for ideal rather than suggestions for immediate change. Government practice should be such that the content of inventions being patented are truly published in a way that ordinary persons can understand. Second, he would like persons in underdeveloped nations to have less expensive access to the patents of developed nations. Third, he would like to see the entire intellectual property process conducted with full awareness of the common practice of people to borrow from each other. (He even cited from a Federal document of creators’ rights that “ownership is ownership is ownership” and wondered if the government authors had sought the approval of Gertrude Stein or had sent her a check recognizing her creative rights in “a rose is a rose is a rose.“) The final plea was: “To the extent that our society seeks some semblance of social justice, intellectual property laws, as an important and growing part of that vision, cannot escape scrutiny.” Bundling-New Products, New Markets, Low Risk, Gary D. Eppen, Ward A. Hansom, and R.
Kipp Martin, Sloan Management mer 1991), pp. 7-14
Review (Sum-
For a long time the term “bundling” has referred to a pricing strategy, such as where a car company can sell the cars unbundled (a low base price, and all options sold separately) and bundled (a higher price, but with a number of options now standard on the car). These authors tell us that the bundling concept can also lead to what is essentially new product development. For example, the “bundled” car is actually a new product, and could even be sold under a slightly different brand name.
MANAG
ABSTRACTS
The Chrysler situation in 1983 makes this clear. It involved the Dodge Omni and the Plymouth Horizon. Both cars were being sold unbundled ($7,000 and itemized pricing on the options). Adding a desirable set of options usually pushed the total price above competition, and the products’ low sales led to an endangered status. But, the high prices on the options were caused by inefficiencies in production-higher setup costs, shorter production runs, etc. So, Chrysler came up with three common sets of options, made purchase of one set mandatory, and found that the production efficiencies allowed much lower option costs. The bundled prices they could set were much more competitive and the products’ lives were extended a couple years. People could save money by buying the package of, say, five options, even if it meant they got one option they didn’t want at all. The authors suggest the bundling process be approached as a new product activity, keeping in mind that there are several purposes for bundling. The jirst purpose is to reduce costs, such as with Chrysler. The firm found they could add intermittent wipers to the basic bundle of tilt steering and cruise control and actually save money by no longer having the separate set up for production on the steering column. Customers got a free ride. Costs can also be reduced by what the authors call margin spread bundling. A software vendor had high-margin internally developed software and low-margin externally developed software. They were using total line quantity price discounts. But, by separating into two bundled products they could offer a high quantity discount on the in-house package and a lower discount on the outside package. Barring peculiar price elasticities, this let them have much lower prices and still not lose money on the higher-cost software pieces. One should bundle items that have a high contribution margin. The second purpose for bundling is to expand one’s market. Different segments of a market rarely all want the same package of attributes. Some want this, some that. For example, credit card firms know that one segment of card users travels a lot, and wants car rental insurance or access to traveler’s checks in foreign countries. Another segment may travel little but want a purchase protection plan, or wide acceptance of the
ABSTRACTS
_IPROD INNOV MANAG
card. Rather than offering none of these services or offering all of them as one set, it is probably more profitable to have two or three cards, each with a set of added services wanted by a given segment of the market. HMOs have gone the same way, and so have restaurants. Another market-expanding approach is tradeup bundling. But one’s ability to bundle higher priced items together varies. For example, one recent season the Chicago Cubs were coming off a good season, and ticket demand would be high, so they offered only three ticket plans. But the White Sox were coming off a less-successful season, and faced weak ticket demand, so they created ten different ticket plans. They knew that most buyers would be unwilling to buy large bundles. Having only three bundles would have caused many of their potential customers not to buy any season tickets. A third purpose for bundling is to improve product performance. For example, Otis Elevator knows that its customers stand the biggest chance of good product performance if they buy service and maintenance contracts at the time of elevator purchase. Therefore, the elevator and service are sold only as a bundle. The Osborne Computer Company found that its early customers got better performance if the firm packaged some software with the hardware. But later, as computer users became more sophisticated, they found they wanted other software, and stopped buying the bundled units. The last part of the article suggests some steps to take in seeking good bundling opportunities. Essentially, the approach is that of conjoint or trade-off analysis. One goes to customers and measures the value of each attribute of potential bundles, and then adds in relevant cost data and estimates discounts needed to estimate the added profits from each of the seemingly attractive bundles. Potential profits are calculated for each of the various market segments and decisions made accordingly. Communication Patterns of New Product Development Team Leaders, Gloria Barczak and David
Wilemon, IEEE Transactions on Engineering Management (May 1991), pp. 101-109 New product teams can be viewed as information creating and processing systems. This research
J PROD INNOV MANAG 1992;9:70-84
75
project studied a group of New Product Development (NPD) teams, all of whom were charged with getting a new product to market. The purpose was to learn more about the communication of team leaders, especially as between leaders of operating groups (incremental innovation) and leaders of innovative groups (more radical innovation). The researchers studied 114 team leaders from firms in the electrical and electronics industries. Most of the leaders had been involved with at least two NPD projects, and the teams were classified as operating or innovative by three criteria: degree of product newness, degree of market newness, and degree of autonomy from everyday operating activities. Information was gathered about the team’s most recent project. Success of the team was measured by three criteria: degree of technical progress, degree of commercial success, and contribution to company sales and profits. Subjects discussed. The only significant differences in what the leaders talked about were that operating team leaders spent more time discussing product features and schedules, while innovative team leaders spent more time talking about customer needs. Interfaces. Operating team leaders had more interfaces. They interfaced significantly more than innovative team leaders did with customers, vendors and sales personnel. Innovative team leaders were more likely to have important interfaces with engineering personnel. Interface communication topics. Operating leaders were more apt to discuss costs with engineering people, technical issues with vendors, and marketing strategy with sales. Innovative team leaders were more apt to discuss technical specifications with engineering and manufacturability with manufacturing people. Other discussion topics showed no significant differences between the two types of team leaders. Variations in operating team leaders’ communications, by degree of project success. In general,
the leaders of successful operating teams discussed technical issues more than did their less successful counterparts. And they spent less time discussing customer needs, marketing issues, manufacturing schedules and other manufacturing issues. The authors presume that such suc-
J PROD INNOV 1992;9:70-84
MANAG
J PROD INNOV
Second, he would like to see the standard of patentable invention be raised. The patent seeker should be required to offer some evidence that the invention is worthy of society’s protection and reward. This would not only greatly simplify the entire intellectual property process, but would also stop those many cases where holders of defective patents survive because the item protected is not important enough to warrant the time and costs of defending against charges of violating its patent. Payments for use are cheaper. Other recommendations were perhaps more a search for ideal rather than suggestions for immediate change. Government practice should be such that the content of inventions being patented are truly published in a way that ordinary persons can understand. Second, he would like persons in underdeveloped nations to have less expensive access to the patents of developed nations. Third, he would like to see the entire intellectual property process conducted with full awareness of the common practice of people to borrow from each other. (He even cited from a Federal document of creators’ rights that “ownership is ownership is ownership” and wondered if the government authors had sought the approval of Gertrude Stein or had sent her a check recognizing her creative rights in “a rose is a rose is a rose.“) The final plea was: “To the extent that our society seeks some semblance of social justice, intellectual property laws, as an important and growing part of that vision, cannot escape scrutiny.” Bundling-New Products, New Markets, Low Risk, Gary D. Eppen, Ward A. Hansom, and R.
Kipp Martin, Sloan Management mer 1991), pp. 7-14
Review (Sum-
For a long time the term “bundling” has referred to a pricing strategy, such as where a car company can sell the cars unbundled (a low base price, and all options sold separately) and bundled (a higher price, but with a number of options now standard on the car). These authors tell us that the bundling concept can also lead to what is essentially new product development. For example, the “bundled” car is actually a new product, and could even be sold under a slightly different brand name.
MANAG
ABSTRACTS
The Chrysler situation in 1983 makes this clear. It involved the Dodge Omni and the Plymouth Horizon. Both cars were being sold unbundled ($7,000 and itemized pricing on the options). Adding a desirable set of options usually pushed the total price above competition, and the products’ low sales led to an endangered status. But, the high prices on the options were caused by inefficiencies in production-higher setup costs, shorter production runs, etc. So, Chrysler came up with three common sets of options, made purchase of one set mandatory, and found that the production efficiencies allowed much lower option costs. The bundled prices they could set were much more competitive and the products’ lives were extended a couple years. People could save money by buying the package of, say, five options, even if it meant they got one option they didn’t want at all. The authors suggest the bundling process be approached as a new product activity, keeping in mind that there are several purposes for bundling. The jirst purpose is to reduce costs, such as with Chrysler. The firm found they could add intermittent wipers to the basic bundle of tilt steering and cruise control and actually save money by no longer having the separate set up for production on the steering column. Customers got a free ride. Costs can also be reduced by what the authors call margin spread bundling. A software vendor had high-margin internally developed software and low-margin externally developed software. They were using total line quantity price discounts. But, by separating into two bundled products they could offer a high quantity discount on the in-house package and a lower discount on the outside package. Barring peculiar price elasticities, this let them have much lower prices and still not lose money on the higher-cost software pieces. One should bundle items that have a high contribution margin. The second purpose for bundling is to expand one’s market. Different segments of a market rarely all want the same package of attributes. Some want this, some that. For example, credit card firms know that one segment of card users travels a lot, and wants car rental insurance or access to traveler’s checks in foreign countries. Another segment may travel little but want a purchase protection plan, or wide acceptance of the
ABSTRACTS
_IPROD INNOV MANAG
card. Rather than offering none of these services or offering all of them as one set, it is probably more profitable to have two or three cards, each with a set of added services wanted by a given segment of the market. HMOs have gone the same way, and so have restaurants. Another market-expanding approach is tradeup bundling. But one’s ability to bundle higher priced items together varies. For example, one recent season the Chicago Cubs were coming off a good season, and ticket demand would be high, so they offered only three ticket plans. But the White Sox were coming off a less-successful season, and faced weak ticket demand, so they created ten different ticket plans. They knew that most buyers would be unwilling to buy large bundles. Having only three bundles would have caused many of their potential customers not to buy any season tickets. A third purpose for bundling is to improve product performance. For example, Otis Elevator knows that its customers stand the biggest chance of good product performance if they buy service and maintenance contracts at the time of elevator purchase. Therefore, the elevator and service are sold only as a bundle. The Osborne Computer Company found that its early customers got better performance if the firm packaged some software with the hardware. But later, as computer users became more sophisticated, they found they wanted other software, and stopped buying the bundled units. The last part of the article suggests some steps to take in seeking good bundling opportunities. Essentially, the approach is that of conjoint or trade-off analysis. One goes to customers and measures the value of each attribute of potential bundles, and then adds in relevant cost data and estimates discounts needed to estimate the added profits from each of the seemingly attractive bundles. Potential profits are calculated for each of the various market segments and decisions made accordingly. Communication Patterns of New Product Development Team Leaders, Gloria Barczak and David
Wilemon, IEEE Transactions on Engineering Management (May 1991), pp. 101-109 New product teams can be viewed as information creating and processing systems. This research
J PROD INNOV MANAG 1992;9:70-84
75
project studied a group of New Product Development (NPD) teams, all of whom were charged with getting a new product to market. The purpose was to learn more about the communication of team leaders, especially as between leaders of operating groups (incremental innovation) and leaders of innovative groups (more radical innovation). The researchers studied 114 team leaders from firms in the electrical and electronics industries. Most of the leaders had been involved with at least two NPD projects, and the teams were classified as operating or innovative by three criteria: degree of product newness, degree of market newness, and degree of autonomy from everyday operating activities. Information was gathered about the team’s most recent project. Success of the team was measured by three criteria: degree of technical progress, degree of commercial success, and contribution to company sales and profits. Subjects discussed. The only significant differences in what the leaders talked about were that operating team leaders spent more time discussing product features and schedules, while innovative team leaders spent more time talking about customer needs. Interfaces. Operating team leaders had more interfaces. They interfaced significantly more than innovative team leaders did with customers, vendors and sales personnel. Innovative team leaders were more likely to have important interfaces with engineering personnel. Interface communication topics. Operating leaders were more apt to discuss costs with engineering people, technical issues with vendors, and marketing strategy with sales. Innovative team leaders were more apt to discuss technical specifications with engineering and manufacturability with manufacturing people. Other discussion topics showed no significant differences between the two types of team leaders. Variations in operating team leaders’ communications, by degree of project success. In general,
the leaders of successful operating teams discussed technical issues more than did their less successful counterparts. And they spent less time discussing customer needs, marketing issues, manufacturing schedules and other manufacturing issues. The authors presume that such suc-