Chapter 8:

Promoting Innovation,
Product Development, and
Entrepreneurship
 Innovation, Technological
Change and Competition
• Technology
– The skills, knowledge,
experience, body of
scientific knowledge,
tools, computers,
machines used in the
design and production
of goods and services.

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 Innovation, Technological
Change and Competition
• Quantum Technological Change
– A fundamental shift in technology that results
in innovation of new kinds of goods and
services.
• The shifts from vinyl records to tape to CD to MP3
represent quantum technological changes in the
recording industry.

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 Innovation, Technological
Change and Competition
• Incremental Technological Change
– Change that refines existing technology and
leads to gradual improvements or refinements
of products over time.
• Improvements in gas mileage for internal
combustion engines represent incremental
technological changes in automotive manufacturing.

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 Effects of Technological
Change
• Technological change can be threatening to
firms that are slow to change while, at the
same time, providing benefits to those firms
that change and adapt.

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 Effects of Technological
Change
– Microsoft was quick to embrace graphic user
interface programs and now is predominant in
the software business.
– Microsoft failed to recognize the importance of
the Internet and initially fell behind its
competitors in the development of a web
browser for its software customers.

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 Product Life Cycles and
Product Development
• Product Life Cycle
– Changes in product demand from its
introduction through its growth and maturity to
its decline.
• Embryonic stage: product is not widely accepted and
has minimal demand.
• Growth stage: many consumers seek out the
product and buy it for the first time.

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 Product Life Cycles and
Product Development
• Product Life Cycle
• Mature stage: demand peaks since most buyers
already have the product and only buy
replacements.
• Decline stage: demand
falls off as the product
becomes obsolete.

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A Product Life Cycle

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The Relationship Between
Technological Change and Length
of the Product Life Cycle

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 Product Life Cycles and
Product Development
The Rate of Technological Change
– The rate of change determines the length of the
product life cycle demand curve.
• In the computer industry, life cycle is about 18 months;
in the steel industry, it is many years.

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 Product Life Cycles and
Product Development
Fads and fashions also impact the life cycle
duration.
– Style changes can alter the demand for goods.
– Goods subject to fads and fashion changes will
experience shorter life cycles.

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Four Goals of New Product
Development

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 Goals of New Product
Development
Reducing Development Time
– Advantages of reduced product development
time
• First-to-market products with new features can
command premium prices and will have a longer life
cycle.
• Products can be upgraded quickly to incorporate
new technology as it becomes available.
• Easier to experiment with new products and replace
them if they fail in the market.

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 Goals of New Product
Development
• Maximizing the Fit with Customer Needs
– Most products fail because they were not
designed to fit customer needs.
• Ensure that customers actually want the product
features before adding them to the product.

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 Goals of New Product
Development
• Maximizing Product Quality
– New products must be of superior quality.
• Poor quality in a new product can doom its
acceptance even if quality problem is fixed later on.
• Quality problems are often result from rushing
products to market.

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 Goals of New Product
Development
• Maximizing Manufacturability and Efficiency
– The efficiency with which the product is built
impacts the time it takes to get a product to
market.
• Designing a product from the beginning for ease of
production can shorten development time.
• Designing a product for efficient production also
avoids production problems, reduces product costs,
and improves product quality.

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 Principles of Product
Development
• Principle 1: Use a Stage-Gate Development
Funnel
– Forces managers to make choices among
competing projects to avoid spreading
organizational resources too thin.

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 Principles of Product
Development
• Principle 1: Use a Stage-Gate Development
Funnel
• Stage 1 considers all new ideas that are feasible
and meet the strategic goals of the firm.
• Stage 2 focuses on reviewing product development
plans; with the best continuing on.
• Stage 3 issues a contract book and focuses on
responsibilities, budgets, and resources in a
symbolic launch of the formal development.

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 A Stage-Gate Development Funnel

Figure 19.5 20
 Principles of Product
Development
• Principle 2: Establish Cross-Functional
Teams
– Cross functional teams
are a crucial part
of effective product
development.

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 Principles of Product
Development
• Principle 2: Establish Cross-Functional
Teams
• Core members of the team are the people primarily
responsible for the development effort.
• Management must ensure there is coordination and
communications between team members.
• Teams are often located physically together.
• Successful teams will develop a clear sense of their
objectives and share a common mission.

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 Principles of Product
Development
• Principle 3: Concurrent Engineering
– The traditional engineering approach follows a
sequential flow resulting in long development
times and poor quality if managers do not
communicate between departments.
– By working concurrently, design and
production issues are considered together.
– Production concerns are addressed while the
product is designed and can still be changed.
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Sequential and Partly Parallel
Development Processes

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 Principles of Product
Development
• Principle 4: Involve Both Customers and
Suppliers
– Products fail because their design does not
meet the needs of customers.
• Customer ideas and needs should be included in the
design process.
• Solicit customer input from many sources.

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 Principles of Product
Development
• Principle 4: Involve Both Customers and
Suppliers
– Suppliers are also critical to the success of a
product.
• Include them during concurrent engineering.
• Seek out their ideas and input early in the process.

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 Problems with Product
Development
• Successful product development is major
source of competitive advantage.
– While most managers know this, it can be
difficult to actually carry out good development
strategies.

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 Problems with Product
Development
– Revolutionizing product development requires
a break with the traditional ways of thinking
and managing.
• Many managers have difficulty in releasing control of
their part of the process and allowing groups and
teams to function in the development process.

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 Entrepreneurship
Entrepreneurs
– Individuals who notice opportunities and take
the responsibility for mobilizing the resources
necessary to produce new and improved
goods and services.
• Entrepreneurs start new businesses and carry out all
of the management functions.
• Entrepreneurs assume all of the risks for losses and
receive all of the returns (profits) from their ventures.

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 Entrepreneurship
Intrapreneurs
– Individuals (managers, scientists, or
researchers) who work inside an existing
organization and notice an opportunity for
product improvements and are responsible for
managing the product development process.
• Intrapreneurs frustrated with the lack of support or
opportunity at their firm often leave and form their
own new ventures.

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 Entrepreneurship and New
Ventures
Characteristics of entrepreneurs—most share these
common traits:
– Open to experience: they are original thinkers and take
risks.
– Internal locus of control: they take responsibility for their
own actions.
– High self-esteem: they feel competent and capable.
– High need for achievement: they set high goals and enjoy
working toward them.

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 Entrepreneurship and
Management
To become involved in an entrepreneurial
firm:
– Start your own business as an entrepreneur.
– Work for a growing
entrepreneur in
their firm.

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 Entrepreneurship and
Management
To become involved in an
entrepreneurial firm:
– Develop a plan for the new business
• Designing a plan to guide the business is similar to a
product development plan.
• Firms without plan usually fail
– Franchising allows you to purchase a plan and
the experience of existing firm to reduce risk.

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 Intrapreneurship and
Organizational Learning
• Learning organizations encourage their
employees to act as intrapreneurs:
– Product champions: taking ownership of a
product from concept to market.
– Skunkworks: keeping a group of intrapreneurs
separate from the rest of the firm.
– New venture division: allowing a division to act
as its own smaller company.
– Rewards for innovation: linking innovation by
workers to valued rewards.
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