New product development process: Stages and successes in the medical products industry

NORTH-HOLLAND

New Product Development Process Stages and Successes in the Medical Products Industry

Linda Rochford William Rudelius This study investigates

how firms manufacturing

medical de-

vices use the new product development (NPD) process. It compares new-to-the world products with product modifications in

portant than other stages and are less frequently Managers interested in developing successful

undertaken. new-to-the-

world products may want to use a more “complete” new prod-

manufacturing, and marketing departments; NPD stages actually pe$ormed; and the relation of these activities to new product

uct process. On the other hand, successful product modiJications may be able to take some short cuts in the new product process 0 Elsevier Science without jeopardizing new product success.

success. Although

Inc., 1997

terms of the perceived

importance

significant

of 12 NPD stages by R&D,

variations

occur among the use

of specij?c NPD stages, thejCms use the NPD stages more ofen for new-to-the world products than for product modifications, and “high-success products ” utilize the NPD stages more often than “low-success products. ” Respondent perceptions of NPD stage importance are consistent with whether a particular stage is undertaken. Marketing stages generally seem less im-

Address correspondence to Linda Rochford, Department of Marketing, versity of Minnesota, 110 SBE, 10 University Drive, Duluth, MN 55812.

Industrial Marketing Management 26,67-84 (1997) 0 Elsevier Science Inc., 1997 655 Avenue of the Americas, New York, NY 10010

Uni-

INTRODUCTION Understanding the factors responsible for new product success has been the focus of both academic research and managerial concern. Significant progress has been made. Researchers have attempted to relate new product performance to the number and specific stages undertaken in the new product development (NPD) process, quality of execution for NPD stages, situational factors such as

0019-8501/97/$17.00 PII SOO19-8501(96)00115-0

NPD organization structure and product characteristics, and interdepartmental cooperation. The present study develops a model to compare new product success between new-to-the-world products and product modifications using perceptions of R&D, marketing, and manufacturing managers and top management about the importance and actual use of the NPD stages.

other words, it is not just whether a stage is undertaken but how well. For example, it may be possible that a firm could conduct extremely thorough beta testing for a new product with key lead users that may make it less necessary to conduct test marketing for the product. It is possible that what steps are undertaken and how well they are undertaken are influenced by a number of factors:

New Product Stages and New Product Success ??

In a series of studies Cooper and Kleinschmidt [S, 71 have identified 13 stages in the new product process and studied which stages relate to new product success and failure. They [5] concluded that new product success involves having and adhering to a new product process model and found a significant difference between new product successes and failures related to the completeness of the NPD process. For example, 54.8% of new products successes undertook nine or more stages in the NPD compared with 38.2% of new product failures. They found that nearly one quarter (23.6%) of product failures conducted five or fewer of the 13 stages in the NPD compared with 4.8% of new product successes. Few firms actually follow all of the steps in the new product process. Cooper and Kleinschmidt’s NewProd III study found that only three of 203 projects studied (1.5%) reported carrying out all of the stages of the new product process [7]. Product success may be particularly influenced by certain key stages in the new product process. Predevelopment activities such as preliminary market and technical analysis are critical because the insight and information gained may reduce costs and problems in the later, more expensive and risky development and postdevelopment stages in NPD. Testing and evaluation stages are likewise important [4, 81 as they provide valuable precommercialization feedback, which may reduce the chances of poor new product performance. Whether a given stage or the entire process is utilized by a firm is only part of the story. Cooper and KleinSchmidt have also shown that the quality of execution for a stage has a strong impact on performance [4, 81. In

Linda Rochford is Associate Professor of Marketing at the University of Minnesota, Duluth. William Rudelius is Professor of Marketing Minnesota, Twin Cities.

68

at the University of

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resources available to the firm importance placed on NPD stages by the different functional area departments and upper management responsible for carrying out these stages.

These two factors are interrelated. Resource availability, for the project as a whole or for any given stage, and those resources actually allocated impact how well a specific stage is executed. Cooper and Kleinschmidt [4] find that resource allocation provides additional insight into why certain new product stages receive greater attention and importance than others and why these stages may be more effectively carried out. Industrial firms in the sample devoted few resources to predevelopment activities. Perceptions of the importance of a stage influence the resources it gets, whether it is undertaken, and how well it is executed. This has not been explicitly examined in the new product literature. The multifunctional nature of the new product process suggests that perceptions for various functional areas will have an impact on the support given for a given new product stage.

Interdepartment Cooperation and New Product Success A number of researchers have found a positive relationship between new product success and the integration of activities of two of the functional units (subsequently called “departments” in this article) involved in the new product process-R&D and marketing [13, 30, 341. Yet effective linking of R&D and marketing activities in high-tech firms continues to pose significant problems due to different perspectives and roles [31]. Research on the marketing and R&D relationships have focused on similarities and differences in personality factors [21] and sociocultural dimensions [ 141 with the goal of leaming to manage the R&D-marketing interface more effectively [ 15, 321 and improving cross-functional communications [25]. Studies by researchers such as Gupta, Raj, and Wilemon [ 131 conclude that R&D and marketing need to be involved

Strategic differences exist between new-tothe-world products and product modifications. at all stages of the new product process. The level and quality of involvement may vary significantly based on what information and role a given department has [29] as well as how important that stage is perceived to be by a particular department. Departmental and individual experiences with previous new product projects can affect these perceptions of importance as well as the nature of the relationship between departments.

New Product lnnovativeness New product innovativeness appears to be a moderator variable that influences new product performance as well as what stages are undertaken in the NPD process. Strategic differences exist between new-to-the-world products and product modifications. Choffray and Lilien [2] suggest that new-to-the-world products generally face a more hospitable market environment than product modifications. New-to-the-world products have little competition and potential customers have more reasonable expectations than for product modifications that are generally entering more mature markets and face more rigorous customer expectations. This would seem to imply that organizations launching product modifications would be more likely to participate in marketing stages of the new product process to better assess the challenges of entering the market. However, Choffray and Lilien comment that those organizations developing new-to-the-world products must have a longer-term commitment and time horizon than organizations developing product modifications. There may be more patience and support for investing in a more complete new product process and more marketing and predevelopment activities under these circumstances. Kleinschmidt and Cooper [ 181 have found that product innovativeness, defined here as new-to-the world versus product modifications, has an impact on new product success. The results suggest that there is a U-shaped relationship between product innovativeness and performance. Highly innovative, new-to-the world products and

product modifications with little innovativeness outperformed moderately innovative products on success rate, ROI, and market share. Findings suggest that one possible reason for the poorer performance of moderately innovative products may be that the marketing and predevelopment activities were more poorly executed than in the other two categories of products. Managers may underestimate the market and technological synergies of moderately innovative products and take less care with implementing these stages of the new product process. Minor product modifications may utilize fewer marketing and predevelopment activities and these activities may be considered less critical for success than for newto-the-world products. Robben and Hultink [28] determined that managers place less importance on long-term measures of performance for products considered to offer small improvements versus those offering the customer new usage possibilities. Whereas this conclusion does not explicitly consider new-to-the-world products, the authors did find differences in the importance placed on long- and shortterm measures of performance between firms that were technological innovators and those that were fast imitators. Perceptions of the importance of new product stages can be influenced by the type of product developed. For example, the necessity of conducting market testing may be less vital for product modifications than for new-to-the-world products. Therefore, the importance placed on particular new product stages may be affected by product innovativeness. Given that departmental roles vary in the new product process, it is likely that the importance placed on different NPD stages and consequently the stages undertaken by a firm will vary. In other words, the dynamics between the different departments may influence the number of stages and actual ones undertaken in developing a new product. In addition, product innovativeness may influence the nature of the NPD process. Stated broadly, the present article analyzes how participating departments perceive the importance of new product stages,

69

which stages are actually performed, and perceived success of the new products emerging from the process. Where appropriate, comparisons are made between newto-the-world products and product modifications.

STRUCTURE OF THE STUDY The present study utilizes a 13-stage model of the NPD process, adapted and modified from Cooper and Kleinschmidt [3, 41 and the Booz, Allen, and Hamilton [I] models. The 12 stages preceding commercialization are the focus of this study (see Figure 1). The study develops and analyzes propositions and suggests related management actions involving four kinds of variables, shown as variables V, through Vq. Figure 2 is a schematic of the variables considered as part of the study.

market, the firm, and departmental characteristics. For example, Cooper and Kleinschmidt [6] have measured more than 250 variables to track 203 new product introductions to identify factors that contributed to new product success and failure. A relationship has been established between this category of variables and new product success so no research proposition is tested concerning this relationship. To narrow the scope of research, only one of the situational factors is analyzed in this study-product innovativeness-although perceptions of product innovativeness are obtained from different departments in the organization. Products may differ in innovativeness or “newness” to the market. This might cause, for example, differences in importance for preliminary technical assessment or marketing study stages for a product where primary versus selective demand has to be developed-the P,,, relationship in Figure 2 as well as whether a particular stage is undertaken-the P,,, relationship.

V,: Product lnnovativeness Product innovativeness is one of the variables in the category titled situational factors. Situational factors represent the many variables investigated in new products research including the characteristics of the product, the

FIGURE I.

70

V,: Stage Importance This variable can be described as the importance of each stage of the NPD process as perceived by top management, R&D, manufacturing, and marketing/sales. Stage

Stages in the NPD process.

importance was rated on a five-point anchored scale (5 = critical importance to 1 = not at all important). Stage importance was considered an important variable to consider as it is expected to influence whether a given stage in the new product process would be undertaken. Although the 13-stage NPD sequence is a useful analytical framework, it would be naive to assume that each stage in the sequence is equally important to a firm’s new product process or to new product performance-the P,,d relationship. Not all departments may see each stage as having the same degree of importance, which is the P,,* relationship in Figure 2. V,: Stage Performed

Whether or not each stage of the NPD was actually performed was evaluated as a dichotomous variablewas the stage performed or not performed by a responding firm developing a specific new product? Certainly whether or not a firm actually performs a specific stage in the NPD process affects new product success [4, 5, 7, 81. Whether perceived importance of a

la--b

-I-

V,: New Product Success Defined as the effectiveness of the product resulting from the firm’s NPD process, this dependent variable or outcome results from the three preceding sets of factors as shown in Figure 2. Note that situational factors can directly impact new product success as indicated above although this relationship is not shown in Figure 2. New product performance was measured for 13 items which were rated on an 1 l-point anchored scale. End points were “far exceeded/very large extent” (10 point value) and “fell far short/not at all” (0 point value). Research Propositions Figure 2 shows four relationships among the four variables described above. These linkages are as follows:

1.Stage Impollance What la the

bllpoftance0f

l. Sltuatbnal Faclors: *Roduct Chamctertstks: - Product Innovatlwness - EE

eaohstageof theNPD pmcesa zsvop RID, ’ Mafwfactuflng, end Madcetlng/Slk887]

“I.

-EwH

3. Stage Pwbmwd:

.Mprk* Charactefbtks: - $gTh

.

stage actually relates to whether it was done (P2,3relationship), and whether performing a stage relates to the effectiveness of the product resulting from the process (P,,, relationship), is also illustrated in Figure 2.

of

- Level Of Competition Firm’s Charactefbtkr: - size

Waa speclfk stage 01 NPD EZualw

?? V,

,.New Pmdwt SuCCOSS:

- lndunry - i+isYYtbn

-

-

- lmpoeance of Product to Rim Depafimont Ch8mcIwktka: - Rolein NPD Staw Department ot Respondent: VI cl

FIGURE 2.

Research design of the NPD process linking situational factors, perception, and performance of new product stages and new product success. 71

P,,, PRODUCT INNOVATIVENESSAND STAGE IMPORTANCE. As noted in the introduction, a number of authors have demonstrated strategic and performance differences with product innovativeness [2, 181. The importance placed on a given new product stage is expected, therefore, to be related to product innovativeness. For example, market research could be considered more critical for new-to-theworld products than for product modifications where market and customer information may already exist. P,, PRODUCT INNOVATIVENESS AND STAGE PERFORMED. Closely related to the proposition above the actual undertaking of a stage, in contrast to the importance of a stage, is expected to be related to product innovativeness. For example, customer testing or preliminary financial analysis would likely be undertaken more frequently for firms launching new-to-the-world products as opposed to product modifications since the risks and uncertainties associated with new-to-the world products would merit careful scrutiny. P,,, STAGE IMPORTANCE AND STAGE PERFORMED. Importance of a given stage should be an indicator of whether a stage was undertaken. Disagreement among departments concerning the importance of a particular stage may mean that a particular stage is not undertaken or sufficient resources are not directed to the stage to ensure that the activity is adequately completed. P,,d STAGE PERFORMED AND NEW PRODUCT SucCESS. This relationship has been demonstrated in past studies [4, 5, 7, 81 and is included in Figure 2 to tie the earlier variables to the dependent variable of new product performance or success. The four linkages shown in Figure 2 were broken down into a total of six research propositions that were

analyzed in this study. Proposition P1,2 is broken down into P1,2aand P,,2b to evaluate both the overall relationship between product innovativeness and stage importance but also the differences in the importance evaluation across departments. Similarly, proposition P,,d was separated into two. P3,4ais a proposition concerning the relationship between performance and specific NPD stages. P 3.4b is a proposition concerning this same relationship but moderated by product innovativeness. These six propositions appear in Table 1, and the rationale for each appears in the right column. These numbered propositions start in the left of Figure 2 and move toward the right. The unit of analysis was the new product, defined as a product not previously manufactured by the firm [23]. Participating firms were asked to select the most recent new product launched during the preceding 4 complete calendar years. The most recent product was the focus for study to remove the product selection decision from the respondent and to increase the likelihood that the key managers involved in the development and launch of the new product were still with the firm.

The Industry: Medical Device Manufacturers We decided to focus on a single industry and chose the medical devices industry for this study. WHY CHOOSE A SINGLEINDUSTRY? Many new product studies combine data from many industries, thereby pooling data from goods versus services firms and consumer versus industrial developments. While this has the appeal of developing broad generalizations, it also can mask more fundamental relationships. Using a single industry, as we have done, tends to avoid these interindustry variations 191.

TABLE 1 Research Propositions and Rationale Research P 1.2a P I Zb

PI.3

P 23 P 14a P 34s

72

Propositions

Rationale

Product innovativeness influences the perceived importance of each NPD stage. A department’s role and importance in a NPD stage relates to the perceived importance of that NPD stage.

NPD stages perceived to be important for new-to-the-world products may differ from those perceived to be important for product modifications, An R&D department may perceive stages with heavy participation by R&D to be more important than those central to marketing or manufacturing. The same may apply to the latter two departments. Performance of (1) a specific NPD stage may relate to whether it involves a new-to-the-world product versus a product modification and (2) the total number of stages performed. The perceived importance of a NPD stage should be an indicator of the actual performance of the stage. High-success products may be more likely to have particular NPD stages performed than low-success products. NPD stages performed may influence the degree of success.

Product innovativeness influences (1) whether a specific NPD stage is performed and (2) the total number of the stages performed. Perceived importance of a NPD stage influences whether a NPD stage is performed. Performance of specific NPD stages influences the degree of new product success. Performance of specific NPD stages influences the degree of new product success and varies with a product’s innovativeness.

WHY

CHOOSE THE MEDICAL DEVICE INDUSTRY?

We chose to focus on U.S. medical device manufacturers

(mainly SIC 3841) because this is an innovative, worldclass industry. This industry includes such medical devices as pacemakers, ventilators, coronary angioplasty catheters, and drug delivery systems. It is a fast-growing, highly innovative, and intensely competitive industry characterized by ready access to technology through links to universities, nonprofit organizations, and businesses; highly skilled scientists, engineers, and technicians; and good financial support for innovative start-ups through a network of venture capital and corporate partnering relationships. Indicators of this growth are that in the United States during the past decade, employment in medical device manufacturing grew at over four times the average for the manufacturing industry as a whole, while real wages increased at three times the growth rate for the U.S. economy as a whole. U.S. medical device manufacturers are world leaders and supply about 48% of global demand. The intense domestic competition among U.S. medical device manufacturers has led to its being a world-class industry, lending support to this general principle advanced by Michael Porter [26]. The industry is of particular interest to the study of new product development among manufacturers because the intense competition, high rate of growth, continuing technological innovation, customer sophistication, and relatively easy access to capital (thereby reducing barriers to entry) suggest a significantly above average level of new product development activity. We believe there are important lessons to learn in this innovative industry that can be extended to other manufacturing industries.

This was followed by a follow-up telephone call 5 weeks after the initial mailing. The final sample obtained consisted of responses from 79 firms, an overall response rate of 36%. Characteristics of the respondents are illustrated in Table 2, which shows a wide size distribution among responding firms. Table 2 shows that in 27 firms, all three areas are represented. Respondents were asked to give their job title. These were then separated into three main job categories: R&D, marketing, or manufacturing. In many instances, respondents checked a job title that could not be readily classified into these categories, i.e., “president.” This explains the presence of 28 “top .management” respondents in the sample-many of whom probably wear “two department hats” in small firms in the sample. The sample of firms is generally representative of the industry. However, a comparison of sales and employment for the sampled firms and data from the Census of Manufacturers suggest that fewer small firms (under $1 million annual sales) are represented in the sample. This may possibly be because smaller firms could be start-up organizations with no new products developed during the specified time period, thereby eliminating them from consideration for the sample.

Products in the Sample The products sampled were primarily product modifications rather than new-to-the-world products. As described by respondents, product modifications repre-

TABLE 2 Characteristics of Individuals and Firms in the Sample Characteristics

Method and Sample Respondents

Specific

General

A mail questionnaire was developed, pretested, modified, and sent to manufacturers of medical devices. Multiple respondents were sought within each firm to provide insight from each of the primary departments involved: marketing, R&D, and manufacturing management. In total, 476 firms were contacted by phone and asked to participate in the study and 215 met the criteria to participate in the survey: (1) having developed a new medical device during the time period and (2) having marketing, R&D, and manufacturing respondents involved with the new device who were still with the organization. These firms received copies of the questionnaire by mail. Two follow-up “reminder” postcards were sent 1 week and then 3 weeks after the questionnaire was mailed.

Job category

Frequency

Technical manager Manufacturing manager Top management Marketing management No response

Respondents

from same firm

52 36 28 41

Percent 33% 23% 18% 26%

1 158

100%

Less than $ I million $1.1-5 million $5.1-10 million $10.1-25 million More than $25.1 million

10 24 14 17 14

13% 30% 18% 21% 18%

Total

79

100%

3 2 1

27 24 28

34% 30% 36%

Total

79

100%

Total Annual sales of firm

Absolute

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Idea generation, product development, and in-house testing-all with major R&D participation-are seen as most important. sented 68% of the new products sampled with 32% being new-to-the-world products. Booz, Allen, and Hamilton [l] finds that about 10% of new consumer and industrial products are truly innovations or new-to-the-world products. The higher percentage of new-to-the-world products in the sample may reflect the fact that the medical device industry is more innovative and inclined towards developing new-to-the-world products.

ber of items utilizing an 1 l-point scale, the performance measure could be treated as either a continuous measure using the composite performance scale or separated into high and low success performance products with a median split. The 13 items used to assess performance are summarized in Table 3. A composite performance variable was constructed by summing the items [29]. The products in the sample captured a range of low to high performing products and achieved acceptable reliability (Cronbach’s OL0.86).

Measure of New Product Success An objective of the research design was to capture a representative sample of new product performance rather than simply product “successes” and product “failures.” By asking respondents to report on the most recent new product introduced and to evaluate performance on a num-

TABLE 3 Performance Items Comprising the Dependent Variables

Performance Items* Towhat extent did the product meet its profit objective? Towhat extent did the product meet minimum acceptable profit levels for this type of investment?

Towhat extent did the product meet its budget objective? Towhat extent did the product meet its timetable deadlines? How would you rate the dollar sales of this product compared to other recent product introductions

by the firm in the past 5 years?

FINDINGS: PROPOSITIONS, ANALYSES, AND MANAGEMENT ACTIONS This section analyzes each of the research propositions and the implications for management actions associated with the results.

Relation of Product lnnovativeness to Stage Importance Proposition P1,2a states that the perceived importance of a NPD stage relates to the innovativeness of the product, whether the product is (1) new-to-the-world or (2) a modification of one of the firm’s existing products. The results for proposition P,,2a are shown in Figure 3. In Figure 3 and subsequent figures in this article it is important to distinguish between two different measures:

How would you rate the profit level of this product compared to other recent product introductions

by the firm in the past 5 years?

Towhat extent did the product meet sales objectives? To what extent did the product open up opportunities for a new category of products? extent extent extent extent extent

To what To what To what Towhat To what

did the product open up opportunities for new markets? did the product open up opportunities for new technologies? was this product considered a financial success? did the product meet shipment deadlines to customers? did this product meet production schedules?

*Each item was evaluated on an 1 l-point scale

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The absolute level of the individual variable, as shown by its variation on the vertical scale of the figure. The relative positions of the two variables plotted in the figure, as shown by their vertical separation. Both measures are important to understanding the NPD process and to identifying associated management actions to improve the process and to increase the success of new products in the marketplace.

A priori one might expect marketing and R&D stages of the NPD process to be relatively more important for newto-the-world products versus product modifications. Figure 3 provides data to evaluate this conjecture and proposition P,,,. In terms of absolute levels of the perceived importance of the NPD stages, only the idea generation, product development, and in-house testing stages have perceived importance above the 4.0 (very important) level for both new-to-the-world products and modifications. And only the idea screening and market testing stages lie below the 3.0 (some importance) level for both kinds of products. In terms of relative positions and statistical differences, stages of the NPD process are seen as more important for new-to-the-world products versus product modifications for four stages: market study (P < .Ol), customer product testing (marginally significant, P < .lO), market testing (P < .05), and precommercialization financial analysis (marginally significant, P < .lO). Proposition P,,2aappears to be supported, for at least the postdevelopment marketing stages in the NPD process. In terms of management actions, a medical device manufacturer might save resources and accelerate NPD by omitting some stages that are perceived to be of minor importance-such as market study and test marketing for

- -H

product modifications. But there are dangers to accelerating NPD by skipping key stages that provide critical information [3, 5, lo] or by skipping stages on the critical path [35]. This is especially true for medical devices where even product modifications may require significant R&D and product testing. However, research in the cardiac pacemaker industry shows the special significance of top management support and product champions [ 12]-safety valves that may protect against the dangers of carrying stage-skipping too far. Departmental Perceptions of Stage Importance Because of the differing roles of the R&D, marketing/ sales, and manufacturing departments in each NPD stage, we might expect differing perceptions of the importance of these stages among these three departments. So proposition P,.2bstates that a department’s role in a NPD stage influences the perceived importance of that NPD stage. These departmental perceptions are shown in Figure 4, along with those of top management. Idea generation, product development, and in-house product testing-all with major R&D participation-are seen as most important. In general, (I) the manufacturing

- New-to-theWorld

+-Product

Modificotiom

0

H

E

Some

Not Very

Not At All

Stage of the New Product Development Process

Perceived importance of an NPD stage for new-to-the-world products and product modifications (Proposition P,.Pa).

FIGURE 3.

75

i 2

$

F<.O5

zi

0.

Not Very

2 __

- -m --a-

-

RLD t+tad@nngrselss

Fe 01

+tvt%lufactwing l9 NotAtAil

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I

, -,

Stageof the New Product Development Prooess FIGURE 4. Perceived importance of each stage of the new product process as seen by four different organizational units (Proposition P,,,).

department tends to believe a given NPD stage is more important than either R&D or marketing/sales (eight of the 12 stages), and (2) top management sees them as less important (seven of the 12 stages). Figure 4 shows the greatest variation for the perceived importance of a specific stage to be for the preliminary technical analysis and market testing stages. This is borne out by the results of a one-way analysis of variance that identify group pairs having significant differences in their importance ratings. For preliminary technical analysis, R&D and manufacturing placed significantly more importance (P < .05) on this stage than did top management. With market testing, both manufacturing and marketing considered this stage to be significantly more important than either top management or R&D (P < .Ol). To further explore these relationships, differences among departmental perceptions of stage importance were examined for new-to-the-world products and product modifications separately. Small sample sizes for newto-the-world products prevented any relationships from reaching conventional significance limits. However, for product modifications one relationship was significant (test marketing P < .OOl), and one approached significance (preliminary technical assessment, P = .059). The marketing/sales versus R&D conflicts are evident in Figure 4. Generally, for NPD stages where R&D is

76

clearly the lead department (preliminary technical analysis, product development, and in-house product testing), the marketing/sales respondents saw these stages about the same in importance as R&D. But the reverse is true only for the preliminary market analysis stage where both departments see stage importance the same. For two other marketing-oriented stages-market study and market testing-R&D sees these NPD stages as considerably less important than do marketing/sales personnel, a conclusion echoed in a number of studies [13, 15, 16,331. These results suggest some practical actions: educate each department about the purpose of each NPD stage along with each department’s role and responsibility in that stage. And special effort needs to be made to have R&D and top management understand the purpose and value of marketing-related stages in the new product development process. Not only can these perceptions influence whether the stage is actually performed (discussed below) but these perceptions can influence the kind, quality, and use of communication among departments [4,29,35].

Relation of Product lnnovativeness to Specific and Total Stages Performed We are interested not only in the perceived importance of the NPD stages but also in whether a specific NPD

stage was actually performed by the responding organizations. In this vein, proposition Pi,, suggests product innovativeness relates to (1) whether a specific NPD stage is performed and (2) the total number of stages performed. PRODUCT INNOVATIVENESS AND SPECIFIC STAGES PERFORMED. Figure 5 shows that for 10 of the 12 NPD

stages new-to-the-world products were more likely to utilize a specific stage than product modifications. The figure also shows wide variation in the use of a specific NPD stage. For example, 100% of the respondents reported their firms used the idea generation and product development stages for their new-to-the-world products. In contrast, marketing-oriented stages (preliminary market analysis, market study, and market testing) were used far less often for product modifications: 60% for the preliminary market analysis stage, 5 1% for the market study stage, and only 39% for the market testing stage. These results are consistent in the general pattern, although not the absolute levels, found by other authors. Results from a cross-section of industrial products manufacturers in Canada [5] shows that there were very low rates of undertaking detailed market study (25.4% of the projects) and test market (22.5% of the projects) compared with preliminary technical assessment and in-house product testing (84.9% and S&9%, respectively). In a single

-

a-

industry study [9] of new products in the chemical industry, the same pattern of low rates of undertaking marketing activities (42.8% of the firms reported undertaking market study, 54.4% undertaking test marketing) as compared with other, technical stages such as preliminary technical analysis was also found. Seven NPD stages show statistical differences between the two categories of products, lending some support to proposition Pi,,. All three NPD stages related to marketing show such differences: preliminary market analysis (P < .05), market study (P < .Ol), and market testing (marginally significant, P < .lO). Clearly, as medical devices move from the new-to-the-world category to product modifications, some new product stages assume far less significance-including all of the marketing-based stages. DEPARTMENTAL PERCEFTIONS OF

STAG=

PER-

FORMED. An interesting question is whether there are per-

ceptual differences between functions concerning which stages in the new product process are actually undertaken. Cross-tab analysis of stage performed (yes/no) versus the four functional areas revealed significant chi-square values for two of the 12 stages: preliminary production assessment (P < .Ol) and test marketing (P < .05). In the first instance, manufacturing reported undertaking preliminary production assessment at a significantly greater level

p<.10

‘New-to4howorid

+Madiiitxdii

Stage of Ihe New

Product Devebpmmt Procas

FIGURE 5. NPD stages performed by firms producing “new-to-the-world” products versus “product modifications,” in percent (Proposition P,,).

77

New-to-the-world products undertake more NPD stages in total than product modifications. (80.6%) of the cases than other functional areas, especially the technical function (67.3% of the cases) and upper management (44.4% of the cases). For test marketing, a similar pattern was observed. Marketing reported a higher incidence of undertaking this stage (47.5% of the cases) than the technical and upper management functions (25.5% and 37.0% of the cases, respectively). Manufacturing was crediting marketing with undertaking this stage more frequently than reported by the marketing function (55.9% of the cases). An attempt was made to examine whether these perceptual differences were more or less pronounced for newto-the world products versus product modifications. For new-to-the-world products, there were significant differences for only one stage, market study (P < . 01). While sample sizes were small for the new-to-the-world subsample, it appeared that the marketing/sales respondents and the manufacturing respondents (100%) believed that the market study stage in the new product process had been completed, while there were a significant number of technical and upper management respondents that clearly did not agree that these stages had been completed.

For product modifications, significant chi-square values were seen for preliminary production assessment (P < .Ol) and for market testing (P < .05) as was the case for the overall sample. This result is not surprising given that product modifications made up 68% of the total sample. Perceptual differences between high and low performing new products (based on the median split described previously) were explored as well. No significant differences among functional areas were uncovered for lower performing new products. In other words, it seemed that functional area managers appeared to agree on what stages were and were not performed. On the other hand, there were significant differences for three stages for higher performing firms: preliminary production assessment (P < .05), market study (P < .Ol), and market testing (P < .05). PRODUCTINNOVATIVENESS ANDTOTALSTAGESPERFORMED. In terms of total stages performed for new-to-theworld products versus product modifications (the last part of P,,,), the “total” columns in Table 4 show a striking contrast: 49% of new-to-the-world products completed 11 or 12 NPD stages, while only 24% of product modifications did so.

TABLE 4 Stages of the NPD Process Completed by New-to-the-World Products and Product Modifications New-To-The-World Stages Completed

Less Successful

0

0%

1-2 34 5-6 7-8 9-10 1l-12

0% 0% 6% 22% 17% 56%

0% 0% 12% 0% 12% 50% 25%

10.06

9.25

MEAN

78

More Successful

Products

Product Modifications

TOTAL 0% 0% 3% 3% 16% 29% 49% 100% 10

More Successful

Less Successful

0% 5% 4% 34% 23% 34%

0% 0% 6% 23% 25% 33% 13%

9.14

8.06

0%

TOTAL 0% 0% 6% 13% 26% 31% 24% 100% 8.67

More successful new products utilize more stages than less successful new products. Not only did new-to-the-world products undertake more NPD stages in total than product modifications, but more successful new products utilize more stages than less successful new products (P < .Ol). This difference in new product performance is significant for product modifications (P ==L.OS) but was not significant for newto-the-world products, probably due to sample size limitations. In using a formal staged NPD process, managers must consider not only product innovativeness or familiarity [8] and the nature of the industry needs but other situational factors. These situational factors include clarity of objectives and measures of success for each stage [3], organization and reward structures [20], and context of the NPD [19]. For example, IBM’s “crash” development of its personal computer to meet a market opportunity win-

dow meant IBM dropped its traditional 8-stage process. This was a completely different situation than that for Boeing’s 767 that had to be “100% right” at market launch [ 191.

Relation of Stage Importance to Stage Performed Proposition P,, states that the perceived importance of a NPD stage influences whether that stage was actually performed. Figure 6 compares perceived importance of each NPD stage as seen by respondents (left-scale) with the percentage of sampled firms performing each NPD stage (right-scale). While the figure shows significant variation in both curves, there is also significant agreement between perceived importance and stages per-

Stage of UbaNew Produd Prom66 FIGURE 6.

Perceived importance of NPD stage compared to whether it was actually performed (Proposition P2.J. 79

formed. For example, at least 80% of the firms reported they performed six of the stages of the NPD process (idea generation, preliminary technical assessment, preliminary financial analysis, product development, in-house product testing, customer product testing) and six of these stages rated at least 3.4 on the perceived importance scale. Figure 6 also shows that for these medical devices, marketing stages generally are seen as less important than other stages and are less frequently undertaken than R&D, and even production, stages. The critical importance of R&D to these medical device firms highlights the necessity of avoiding “design amnesia” among technical personnel. This can be accomplished by reducing personnel turnover or modifying the organizational and reward structure to “remember” what worked and didn’t in the past. One automobile supplier discovered that over 40% of the troublesome issues plaguing a new design had already been solved in the past-thereby wasting about 30% of the design time [ 111. These results also suggest that whether a NPD stage is actually performed is in strong agreement with the perceived importance of the stage. Evaluations of stage importance are influenced by experience. For example, some managers say that some specific stages performed have little value after new product launch but may not

HighSuccass

Low-S-

have felt that way during the course of the process. So managers in the NPD process should not only communicate the importance of specific new product stages to all functional areas and top management but should also systematically evaluate the value of each stage in order to tailor each future NPD process to situational factors like those mentioned above.

Relation of Stage Performed and New Product Success We might expect that the performance of a specific stage in the product development process might be different for high-success products than low-success products (based on a median split), the essence of proposition P,,,, Figure 7 shows that beyond the idea generation stage (where virtually all new products use this stage), highsuccess products are more likely to utilize a given stage than low-success products. Figure 7 also shows the stages for which a statistically significant difference exists between the percent of highsuccess products performing the stage versus low-success products. While the preliminary market analysis stage is not statistically significant, the market study stage is (P < .05). Technical assessment (P < .lO, marginally significant), inhouse product testing (P < .05), and customer product

PraducS

Products PC01

-W +

- High-Succass Products Low-~

Products

Stage of the New Product Development Process FIGURE 7.

NPD stages utilized by “high-success

products”

versus “low-success

products”

(Proposition

P&.

testing (P < .Ol ) also show statistical differences-which suggests not only the importance of the technical quality of the product but its responsiveness to customer needs. Somewhat surprisingly, the financial assessment-usually judged to play a more passive role in the new product development process-differentiate between more and less successful new products, both at the preliminary financial analysis stage (P < .lO, marginally significant) and precommercialization financial analysis (P < .Ol) stages. Do different departments agree on whether these stages were undertaken for more and less successful products? Subsample analysis revealed no significant differences among departments concerning stages undertaken for less successful products. However, significant differences among departments were observed for preliminary production analysis (P < .05), market study (P < .Ol), and market testing (P < .05). Evidently, there were discrepancies concerning whether these stages were in fact undertaken for more successful new products. Does this mean that team members for more successful new products were actually less well informed about what stages were being undertaken? Possibly. It is more likely that NPD participants may be less concerned with whether any given stage was undertaken (except for those for which they

have direct responsibility or involvement) but more concerned with having a “complete” process (since high success products tend to use more total stages than low success products). Figure 7 makes clear that while great variation exists among the stages actually performed, more successful medical devices more often utilize a specific stage than less successful ones. The results suggest that rigor in utilizing the stages in the new product process does matter. SUMMARY Table 5 summarizes the results of the propositions. The general conclusions are that product innovativeness does impact the nature of the NPD process. In addition, there are differences between more and less successful products, based on the innovativeness of the product. In general, these differences suggest that new-to-the-world products share more complete NPD processes than product modifications and more successful new products have more complete NPD processes than less successful new products. There are few departmental differences in the importance and actual performance of specific new product stages. However, these differences seem to be

TABLE 5 Research Propositions and Conclusions Research Propositions

Conclusions

P , Za Product innovativeness influences the perceived importance of each NPD stage.

Appears that greater importance is placed on the stages in NPD for new-to-the-world products versus product modifications. However, that difference is only significant (or marginally significant) for the market study, market testing, customer product testing, and precommercialization financial analysis stages of the NPD process. Generally, manufacturing views the stages of the NPD as having a greater importance than other departments, whereas upper management views the stages of the NPD as having less importance than any other group. These departmental differences are only significant for the market testing stage (where manufacturing and marketing/sales see it as being significantly more important) and for preliminary technical analysis (where top management sees it as significantly less important than the manufacturing and R&D functions. Overall, for this sample, it does not appear that departmental role plays a significant role in the importance placed on a given stage. Firms marketing new-to-the-world products more frequently perform a given stage of the NPD process than product modifications. For seven of 12 stages, there is a significant or marginally significant difference. It appears that a more “complete” NPD process is utilized for new-to-the-world products. Perceived importance of a stage correlates closely with whether a given stage is actually undertaken.

P I 2b A department’s role and importance NPD stage influences perceived importance of that NPD stage.

P ,i

in a

Product innovativeness to a firm influences whether a NPD stage is performed.

Perceived importance of a NPD stage influences whether a NPD stage is performed. P 14. Performance of specific NPD stages influences the degree of new product success. P, 4h Performance of specific NPD stages influences the degree of new product success and varies with a product’s innovativeness.

P 27

Firms marketing more successful new products undertake a given NPD stage more frequently than those marketing less successful new products. Significant differences exist for activities such as preliminary technical analysis, market study, in-house product testing, customer product testing. Successful new-to-the-world products generally have a more complete NPD process than less successful new-to-the-world products. A similar pattern holds for product modifications. The major difference between product types is that successful new-to-the-world products undertake preliminary market analysis and market study more frequently than less successful new-to-the-world products and all product modifications (regardless of success).

81

New product managers should consider the relafive innovativeness of their new product entry. for marketing stages that are undertaken more frequently for successful new products. This study focused on the medical device industry to take advantage of an industry with high growth, continuing technical innovation and an above average level of new product development activity. For example, the sample here shows a higher level of new-to-the-world products than the general population of new products. While generalizations beyond this industry cannot be made with confidence, a couple of points might be considered that could be at issue in other industries. RELATIVE INNOVATIVENESS OF NEW PRODUCTS. Whether a particular industry is or is not as innovative as the one in this study, new product managers should consider the relative innovativeness of their new product entry with respect to its industry and as an indication of what NPD stages could be more or less critical to new product success. The more a particular new product departs from current products in performance, in manufacture, and particularly in customer usage the more important it is to critically assess the complete NPD process in order to better evaluate the uncertainties and increase the probability of new product success. TECHNOLOGYOF PRIMARYIMPORTANCE. Few differences were found among departments concerning importance of NPD stages as well as the stages actually undertaken. The differences that did exist were for marketing stages. Even then, the technology-related stages were considered most critical. For high technology new products, this may be due to common technical backgrounds among players across departments. Perhaps technology and technology related stages are truly more important to new product success. Conversely, this may be a symptom of a product orientation-“build a better mousetrap and the world will beat a path to your door.” This could be a common problem for technology-based new product developers that rely too extensively on technical NPD stages. This can result in resource allocation that tends to neglect

82

marketing stages of the process, which may be particularly critical for more innovative and new-to-the-world products. Commercialization and market launch may be neglected as well.

Managerial Implications To improve new product performance, managers should consider the following issues: NPD PROCESSAND NEW PRODUCTFrr. Managers need to carefully scrutinize the type of new product project contemplated to ensure that the NPD process reflects the nature of the product. The following questions should be considered when evaluating the NPD process and new product fit. How similar is this new product compared to current products with respect to: Very Similar

Not at All

Manufacture

I

2

3

4

5

Market segment served

I

2

3

4

5

Customer usage

I

2

3

4

5

Product performance

I

2

3

4

5

Price level

I

2

3

4

5

Channel

I

2

3

4

5

Higher new ratings increase the importance for careful scrutiny of the NPD or may indicate a need to zero in on particular stages. For instance, a new product that targets new-to-the-firm customers or market segments, that projects usage situations very dissimilar to current industry practice makes the market study and market testing stages of the NPD particularly important. COMMUNICATEANDBUILD SUPPORTFORNPD PROCESS AND KEY STAGES. Managers within departments having primary stage responsibility, as well as top management,

need to communicate effectively within the organization to increase understanding of what is involved in a particular stage and to build support for using that stage appropriately. Managers should consider the following questions: Do other departments understand and appreciate what is involved in each of the NPD stages, particularly the stages that they are not directly responsible for? What are the potential benefits and costs of undertaking a stage? These need to be clearly communicated throughout the organization. Are new product and NPD process objectives clearly articulated and understood? Are these objectives measured? Is a tracking and evaluation process in place to look at the results of each stage of the NPD and in total to develop a record that can help guide future NPD processes and new products? For example what NPD activities have/have not been done for current and past products?

LIMITATIONS AND FUTURE RESEARCH Operating managers who face the complex day-to-day issues involved in new product development are grappling with trade-offs as they strive to improve the efficiency and effectiveness of the NPD process and the ultimate success of new products-accelerating the NPD process, eliminating NPD stages [22], focusing on fewer new product ideas [27], improving participation and communications, cross-functional teams [ 171, and increasing the number of blockbuster new-to-the-world products. Future research should attempt to enhance our understanding of both (1) the stage-related issues touched on in this article as well as the (2) critical nonstage-related issues that affect new product success. In terms of stage-related activities, future research should study how new product success relates to: The successive performance measures appropriate for and used at each NPD stage. What objectives do organizations have for a stage? What is “deliverable” at that stage in the process ? What level of interdepartmental communications and cooperation are needed at that stage? [3,24] The NPD stages that can be cut back effectively in moving from new-to-the-world products to product modifications. The completeness with which a NPD stage is donegoing beyond the “did’ versus “did not do” measure used in this article.

Tied into these issues are ones that may be nonstage related in short development projects but interact with the NPD stages in extended NPD projects. Future research should also seek to determine how new product development success relates to NPD stage activity for such factors as: The composition of the new NPD “team” and its organization, the existence of a “champion” on the team and top management support. The clarity of the objectives for the team, most useful performance measures, when success is to be measured, and organizational rewards for individuals on “successful” NPD projects. Factors such as industry, kind of product (good versus service, industrial versus consumer, complexity), and competitive context. This is a big order. And meaningful answers to these questions require a more homogeneous underlying data base-larger samples, with more complete reporting across all NPD-related departments, with a wider spectrum of successful and unsuccessful products, from firms in a single industry. Such samples will make possible detailed subsample analysis to partial out the effects of individual factors. Unfortunately, because of the extreme difficulty in collecting actual data, most of these sampling criteria have not been met in past studies, with the frequent result of a pooling of new product developments that make solid, reproducible inferences difficult.

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