Chapter One: A Briefing (The Landscape for Cultivating New Products)

1.1: WHY MORE NEW PRODUCTS, PRODUCED BETTER AND FASTER, ARE IMPORTANT


If you want a peek at the future of how products will be developed and distributed, look no further than the Foot Locker, Athlete's Foot, or other athletic equipment retail outlets in your local mall. Not long ago if you wanted a sports shoe, you went to a department or discount store where you were fitted with a conventional shoe that would meet your needs.

Today the customer is greeted by a salesperson specializing in athletic shoes. This person does not ask you your shoe size. Rather, you are asked about your lifestyle! Do you run? Regularly or occasionally? Are you a competitive or a recreational runner? How about basketball or soccer or other sports? Might you wear them outside the athletic venue? Where and with what? What problems do you have with your feet? Are you under treatment, and do you use prescription insoles? What brand allegiances do you have, and why? Are you enough of a risk taker to experiment with a shoe that has different stiffness or friction characteristics? Are you perhaps interested in a custom-fitted shoe? Are you a fast runner? If you are, it's likely that you run on your toes, not heel to toe as slower joggers do. Apparently speed is a factor in selecting athletic shoes.

After completing this personal audit, you are shown a few candidates, and you narrow down your preferences based on price and the salesperson's recommendations. You are unlikely to buy a replacement for your old shoes, now well worn, because they've been obsolete for months. Product change -- the universal constant -- is inescapable. At this point your foot size is measured and you are fitted. The salesperson probably knows more about your recreational interests than your best buddy does.

This vignette illustrates how we are bombarded daily by a growing blitz of new products. Our culture accepts -- indeed, pushes for -- rapid product obsolescence. The forces of new technologies, media persuasion, and trendy lifestyles all conspire to influence us to buy more frequently.

Getting to Know You

This shoe-buying episode will become increasingly more sophisticated -- and pervasive -- as the future unfolds. Imagine an extension of the above scenario. Your spouse, who also is athletically inclined, is with you as you buy the shoes. The salesperson off-handedly asks if this is a special occasion or did you just "happen by." Your wife remarks that it's a birthday present for you.

The salesperson casually asks the birth date and remembers it as the transaction is completed. Just after you leave, that date -- along with your name and address -- is entered into an electronic file. It will now automatically generate and send you a "personalized" birthday card six weeks before your next birthday. Included with the card will be a coupon for a 15 percent discount on your next athletic shoe or accessory purchase if made at that or any other affiliated store.

The electronic file has behind it a database that allows the retailer to assemble all purchase information about you and your family members. This file allows the store to profile your particular family. The information system can target various customer groups by age, special interests, dates, and so forth and provide them with special promotional offerings as incentives to keep them shopping there. This is merchandising sophistication at its (current) best. It has enlightened, well-trained, and motivated employees backed by powerful information systems to please and to "hook" the customer. Customer loyalty is the goal and is indeed an integral component of product creation.

This scenario, of course, extends far beyond the shoe outlet. At no time in the history of the United States or other developed nations have we seen so much product diversity -- and just plain product glut -- as we see today. Not long ago manufacturers could sell virtually anything and everything they could produce to a young and growing economy thirsty for goods. Products were pushed into our economy and we grabbed them. Quality wasn't really an issue, nor were consumers in a position to demand quick deliveries or special features. Henry Ford built his empire on the premise that customers would be content with a black car, and he was right. Land, labor, and capital were the essential ingredients then for a successful manufacturer. Variety mattered little.

But not so now. Many manufacturers, including such companies as Microsoft and Nike, and e-commerce companies simply have no traditional production facilities. They own little real estate. Their products are the result of intellectual prowess, not capital investment. They produce largely through outsourcing to independent production suppliers around the world. In short, they produce differently than manufacturers did in earlier times. And they market differently, via virtual malls and e-commerce.

This is today's manufacturing landscape -- far removed from the industrial era of Henry Ford. As Larry Hollatz, group VP of Advanced Micro Devices puts it, "Intellectual, not physical capital fuels new growth industries. Communication between individuals and teams is more important than concentration of resources. Technical communication provides for integration of thought and planning. It has become impossible to avoid knowledge-spread. With so much data available, it is essential to demand that people use data competitively."

Product creation is the fuel that feeds today's growth and competitiveness. The very basis of the enterprise depends on placing a continuing stream of successful new products into the marketplace. All its purposes -- profits and earnings, shareholder returns, service to customers, opportunity and fair treatment of employees, assistance to the communities in which it operates -- directly depend upon the effectiveness of new product creation. Our capacity to produce in almost infinite quantities and varieties has shifted the balance of power and influence from the producer to the consumer. We used to pay lip service to the adage that the customer is sovereign. Today it is a literal fact; the consumer is in the driver's seat.

Staying on top of business opportunities in such a dynamic market requires leadership, the courage to take risks, and investment in new knowledge and intellectual property. As the adage goes, you can't save your way to prosperity. Leaders are sweeping away the obsolete notion of denominator management: companies boasting of gains that come from reducing expenses rather than increasing profitable growth. Sure, trimming waste, cycle times, and other process inefficiencies is important; you must attend to that. But it doesn't grow your company. That requires mastering new product creation and all its supporting cast. In the words of Samsung's chairman, Kun-hee Lee, "In the future, R&D, design, and product planning capabilities will determine 90% of a product/s competitiveness."

The Challenged Customer

The customer is the key determinant of new product success. The customer daily faces buying judgments that require decisions concerning finely divided choices: size/capacity, durability, convenience, value, after-sales service, financing alternatives, kinds of technology, and so on. But few of us have time and expertise enough to evaluate all these choices objectively. We therefore turn to other sources -- friends, the manufacturer's reputation, brand loyalty, assessments from independent product evaluation sources -- or the marketing media to help. Along with the privilege of having more buying choices, we find ourselves more challenged than ever in trying to make the right decisions.

The Diversity of Manufactured Goods

And the business of producing is much more sophisticated than it ever was. Even the very notion of what a manufactured product essentially is has changed. What exactly is a manufactured product? Is it a "thing"? What about a new home or natural gas distribution or an amusement park ride? Are these manufactured products?

I sometimes wonder what the general population thinks about the business of new product creation. As with art, the essence of "manufacturing" is in the eye of the beholder. It's easy to understand that assembled things are the result of manufacturing processes. But a product can also merge with service, as in the case of life insurance or dry cleaning. And what about software products, which are intellectual creations that are reproduced electronically?

Most people tend to think of manufacturing in terms of the production of tangible, discrete products: autos, electrical and electronic devices and computers, industrial machinery and tools, appliances, aircraft, and countless other kinds of widgets that go into these original equipment manufacturer (OEM) products. Discrete products, of course, have their own kinds of variety. Some are mass-produced; others -- such as computers -- are somewhat customized according to the buyer's particular option requirements. Still others are strictly built to order -- such as large machine tools and buildings.

"Manufacturing" is indeed a big tent. It also includes producing substances, such as petroleum products, pharmaceuticals, rubber and plastics, chemicals, metals and alloys, and consumable foodstuffs such as beverages and related products. Some of these manufactured products are produced with continuous processes such as reactors and mixers and then delivered to the customer's site on demand, for example, electricity, telecommunications, and natural gas. Other continuous products are packaged in batches, in units of weight or volume. We, the end customers, buy a gallon of gas, a pound of salt, or a yard of fabric -- convenient units of the product. Sometimes there isn't a clear line that separates discrete from continuous products. Consider microencapsulated medicines, beverage cans, or common carpentry nails. Anyone who has watched them being manufactured is struck that despite their "discreteness," because of their high speed of manufacture they appear to the eye as a blur of continuous product. Only when they are packaged for the convenience of the end customer do we notice their discreteness.

Whatever our notion of a manufactured product may be, anticipating what the customer will choose and pay for goods now drives many business decisions. Most kinds of products are available in various price tiers. Some products are driven by trend and fashion; others by utility and dependability. But in a marketplace rich with competitors ultimately it is value -- the quality, dependability, and ease of service per dollar paid -- that is most often the determinant of what a product will cost to manufacture. The manufacturer must take into account the price point for the product and then calculate the product cost that will deliver an acceptable return. Other product ingredients, like the appropriate design and technology, then become constrained by the allowable product cost.

Enter the E-Business Era

There's one more chapter to the athletic shoe story. As we'll see throughout this book e-business is rapidly changing the business landscape. The level of product and service business transacted over Web pages and through portals is skyrocketing.

Taking shoe shopping to the next level, suppose you get on your computer and surf to find the Web locations of a couple of athletic shoe producers you like. You call up a Web site of your choice, and a questionnaire pops up. It asks for your sex, age, body type, physical limitations, and the way you'll use your new shoes. It also asks for various measures of each of your feet and of any abnormalities or other problems that you suffer. It asks for styling preferences, colors, and the like. All these measurements create your "profile"; it defines your shoe requirements in detail. You gather this information and log on again and provide your vendor with the requested information. You provide your credit or debit card number and zap it back to your vendor of choice. When your shoe supplier instantly gets your order -- uniquely yours -- your shoes are manufactured (somewhere in the world) within 24 hours. Then your order is sent to you by regular or express post, according to your instructions.

Fantasy? Not at all. Toyota is rolling out a production process by which a car can be built to your own specifications within five days of order receipt. To put this in context, GM's benchmark is 17 to 18 days; DaimlerChrysler claims about 12. So the Toyota achievement, by comparison, is stunning! Now, if car companies can rapidly build "customized" products to order, why not sports shoes and, indeed, the entire market of manufactured goods? As we'll see throughout this book, there's little excuse for not dreaming the future, then implementing it.

This vignette exemplifies the forces driving the new e-commerce era. You needn't "shop" in the conventional sense of driving to your nearest mall or discount outlet. You needn't choose among the available sizes or styles, for no matter how rich your vendor's inventory, it can't fully please even the majority of customers, let alone all. And by reducing the number of retail outlets, costs are reduced and some of that cost savings is passed on to you in the form of lower prices.

1.2: WHAT YOU'LL GET FROM THIS BOOK

Maybe you share my observation that different people usually see product creation differently. To the folks in the R&D lab, it means offering up new technologies and applications that will enable even better products. Their viewpoint is that innovation is the key to successful products. To engineers, it's product design and the design tools that can analyze the performance of a new concept or design. They see design as the centerpiece of product creation. To industrial designers, it's all about style and packaging -- to catch the eye and imagination of the customer. Mark Dziersk of the Industrial Designers Society of America makes this point: "When industries are competing at equal price and functionality, design is the only differential that matters." To production, what counts is the means chosen to manufacture the product. Their pride comes from the fact that they actually make the item. To customers, it's the value offered by that product. They're really in the driver's seat; they're the arbiters of your future. And to management, what counts is quality and competitiveness. It's these leaders who must make the decisions and take the risks that will spell the success or failure of the business.

Different viewpoints; each is right in some sense. Yet these perspectives all need to be knitted together to achieve the goal of product creation. They require the active participation of all support functions -- including information technology systems, operational systems, and the legal issues that govern commerce. After all, product creation is none of these; it's all of them working in harmony. It can't be done with workers laboring in isolated functional silos. Product development must span them all and bring balance and harmony among the key themes we'll describe in this book. Employees must function as a collection of musicians, playing together harmoniously. When they can make beautiful music together, they'll put a lasting mark on your company's future. Success is yours.

I believe the way that most of us understand how to create valuable products is highly inefficient -- if not essentially wrong. Each of us is schooled in one of the above viewpoints, and each of us sees our particular focus as the essential role. Those other functions are merely the supporting cast -- important, to be sure, but secondary. As time goes by, some of us may widen our awareness about other functions through new assignments. But it's rare for us to come to understand fully the complexity of launching successful products. Just think of how much better we might do at bringing new products to market if only we had a better understanding of the whole picture. Meanwhile, the R&D folks continue to have little contact with customers; designers don't take real ownership of product liability issues; production people have little to do with sales and marketing, and so on. Too often our organizational systems perpetuate narrowness and isolation.

My objective for this book is to set out the entire score for product creation. We'll look at product creation as a process consisting of several integrated functions working collaboratively. You'll see how each chapter's issues are important and how they contribute to the overall achievement of producing new, valuable products. Sprinkled throughout are examples drawn from people and companies who've done it right -- and occasionally wrong. At the end of each chapter, you'll find a list of "Ideas for Action" for you to consider as you strive to improve your product creation abilities. Debate them; enlarge upon them. But by all means use them.

Copyright © 2000 by Philip H. Francis