The Nature of New Product Development (NPD) Activities of Australian Firms. Elias Kyriazis, University of Wollongong. Abstract

Transcription

1 The Nature of New Product Development (NPD) Activities of Australian Firms Elias Kyriazis, University of Wollongong Abstract A great deal of managerial and academic literature has focussed upon the new product development (NPD) process as a key element of corporate activity. In particular, the types of new product activities and processes undertaken by firms have been examined by many international studies however little is known in the Australian context. This empirical investigation of 178 Australian firms representing industrial manufacturers, consumer goods producers and service firms seeks to provide insights into the NPD activities of these firms. Examined are the types of new products developed by Australian firms, the degree to which the stages of the NPD process are carried out. The role of marketing as a function is also examined, it seems that many firms involved in NPD activities have adopted the marketing philosophy to a large extent. The importance of NPD to the firm is examined from a number of perspectives including the involvement of marketing staff in the process, the stages of the NPD process used, and finally, cross functional involvement and influence in the process. Introduction For the past few decades a major key top management priority for many organisations has been to develop and maintain efficient new product development processes within firms. New product development processes often entail huge risk for firms, utilising often scarce financial and human resources within the firm. Consequently, this area has received considerable academic attention over the past few decades. The importance of successful NPD activities to the firms viability has been highlighted by many international studies which have found that new products are playing an increasingly important role in their contribution to the total sales revenue of many firms. Often accounting for a sizeable percentage of annual sales ranging from 7% to 50% across major industries (Pessemier & Root 1973, Page 1993, Griffin 1997). However very few studies have been conducted in an Australian context. The earliest Australian study was Link (1987) who examined the underlying factors associated with developing successful new industrial products. Dwyer and Mellor s research (1990, 1991) provided insight into the product innovation activities of Australian manufacturing, while their later research (1993 and 1994) examined the new product strategies and performance of Australian firms. Recent research by Cooper and Kleinschmidt (2000) examined contributing factors to new product success in 110 new product projects in Australian industrial firms. This study aims to shed some light on various aspects of the NPD activities of Australian firms and highlights the degree to which new product development is a very formalised and often marketing function lead activity. The Results Of key interest was to determine if there were any major differences in the NPD activities of different types of firms (Deshpande and Zaltman 1984,1987). Specifically, the business nature of the firm is thought to influence the type of the NPD process used (Cooper 1987). Industrial manufacturing firms rely heavily on close ties with many of their key customer groups, consumer goods manufacturers tend to be more customer focussed and are thought to be more ANZMAC 2002 Conference Proceedings 2411

2 sophisticated in their marketing activities, and finally service firms which by the very nature of services (intangibility, inseparability, perishability) are thought to have different approaches to new developing new market offerings. The following areas were examined: The type of new product development activity undertaken across industry types. An examination of the NPD process used. The importance to the firm of new product development activities. Intracompany functional involvement and influence in the NPDP. Research Method A self-administered questionnaire was sent to 1,000 private sector firms in total, 650 in N.S.W and 350 in Victoria. Members of the Australian Marketing Institute (AMI) were the sampling frame. The questionnaire was directed to a key marketing executive who had participated in the new product development process within the previous three years. In all, 201 usable questionnaires were received, representing a net response rate of 26%. Limitations of the study results lie in their generalisability. Respondent firms were members of the AMI and would be expected to have embraced the marketing concept and the benefits of a marketing orientation to their NPD process more so than non-members. Profile of Respondents Of the 201 firms in the sample a relatively good representation from the main industry categories was obtained with: 74 industrial manufacturers, 54 consumer goods manufacturers, 50 service firms and other 23. Sales turnover figures indicate a bi-polar distribution with 24.6% of respondent firms being regarded as "small" (i.e., less than $10 million annual turnover) and 24.6% being "large" (i.e., greater than $300 million annual turnover). An interesting finding was that the large majority of firms had a formal marketing department, 84% of industrial manufacturers, 91% of consumer goods firms, and 72.7% of service firms. An examination of the relationship between annual sales turnover and the existence of a formal marketing department/division indicated quite clearly that firms with an annual turnover of less than $10 million were less likely to have formal marketing departments/divisions than larger companies. The Type of NPD Activity Undertaken One objective of the study was to actually determine what kind of new product development activities are undertaken (Table 1). The widely accepted categorisation of new products in terms of their newness to the company and to the marketplace (Booz, Allen & Hamilton 1982) was used. Radical new product development was thought to be the realm of industrial/technology based companies, the results indicate that the introduction of new to the world products is far more prevalent than the literature suggests (King 1971, Booz, Allen and Hamilton 1982) and that there is no difference due to the nature of the firm. Consumer firms and service firms are highly involved in introducing new product/service lines, this can be attributed to their ability to change more rapidly to meet customer needs than their manufacturing counterparts who depend on derived demand. Repositioning still remains the consumer goods firms forte. Cost reductions seeking to provide greater value to the consumer ANZMAC 2002 Conference Proceedings 2412

3 are still pursued by all types of firms. The main implication of these results is that for many of the firms new product development activities are varied in nature and are of an ongoing nature. Table 1: Types of NPD by industry type Total Industrial Manuf. Consumer Goods Services x 2 Sig % % % % % New to the world products Totally new product lines New additions to existing lines Improvements/ Revisions to existing lines Product repositionings to new customers New products which reduce the cost to the consumer The Use of a Formal New Product Development Process The use of a formal new product development process is widely viewed as one of the key factors contributing to new product success (Cooper 1984,1988, Feldman and Page 1984, Griffin 1997). Table 2: shows that most respondent firms are fairly sophisticated to the extent that they proceed through all of the formal new product development stages. The data reveals that two critical stages, specifically concept testing and test marketing, are less frequently employed than the other stages, this confirms findings from other international studies (Griffin 1997) and is similar to Cooper and Kleinschmidt (2000) Australian findings. Table 2: Stages carried out in the NPDP by industry nature Stages of NPDP % of all Respondents % of Industrial firms % of Consumer firms % of Service firms X 2 Sig New Product Strategy Idea Generation Screening & Evaluation Concept Testing Business Analysis Development Test Marketing Commercialisation ANZMAC 2002 Conference Proceedings 2413

4 Importance of NPDP to the Firm The other thing to note from Table 2 is that for concept testing, statistically significant differences were found across categories of firms. In particular, only 63.6% of service firms used this stage prior to new service launch compared with 78% and 80% of consumer and industrial products launched, respectively (p<.05). This is an interesting finding since the intangible, experiential nature of services would seem to suggest that concept testing prior to launch should take on even more importance than it does for physical, tangible products. For all other stages however, there were no significant differences in the usage rates across the three industry types. Several measures were used in this study to determine the importance of NPDP activities to the future of the firm as importance has been suggested as a determinant of many NPD related issues i.e., resource allocation, staffing issues and process issues. The first measure was the percentage of sales (p.o.s) derived in the last 3 years from new products. Industrial manufacturers had an average of 19.3% as a p.o.s, consumer goods firms 27.2% and service firms 39.1%. These figures are similar to those reported in US studies (Page 1993, Griffin 1997). The importance to top management of NPD activity determined using a seven point rating scale (1= not very important, 7 = very important), NPD was seen as very important by all types of firms. Consumer goods firms in particular were found to be statistically significant different to the others (p<.014). Using the same scale, the importance of NPD to the industry found that industrial firms perceived new product development as less important than the other two types of firms (p. <000). The number of marketing people assigned to NPD has been found (More 1978) to be a useful guide as to the importance of NPD activity to the firm. Industrial firms assigned on average 29% of their staff to NPD related duties, consumer goods firms 40.4% of their staff, and service firms 24.3% (p<.040). Intracompany Involvement and Influence in the New Product Development Process This was viewed as an opportunity to assess the overall involvement of various functional areas in the NPDP, thus determining to an extent whether the company was marketing oriented. Intercompany involvement was measured by asking the respondent to indicate if a company function was involved at a particular stage of the NPDP (Section 9). From this, eight indices were created by summating the scores for each company function over the total NPDP. Marketing it seems plays a very active role in the NPD process of many firms, in particular the critical predevelopment activities of new product strategy, idea generation and concept test/evaluation (Table 3). Closely associated to the input that various company functions have in the NPDP is the influence that they have in that process. Respondents were asked to rate the influence that the various company functions have on a seven point scale. Table 4 shows that the marketing function has the most influence in the NPDP which is consistent across the three types of organisations. Industrial marketers have viewed the marketing function as more influential than the "technical" functions of the company (ie., Manufacturing, R&D/Technical Services and Engineering). This is contrary to many researchers belief that marketing takes a secondary role to these "technical" functions in the NPDP. However it is possible that industrial marketers are beginning to embrace the marketing concept. ANZMAC 2002 Conference Proceedings 2414

5 Table 3: Intracompany Involvement in NPD activities Stages of NPDP Company Functions Finance Engineering Manufacturing R&D Mktg Legal % % % % % % New Product Strategy Idea Generation Screening and Evaluation Concept Testing Business Analysis Development Market Testing Commercialisation Table 4: The Influence of Company Functions by Industry Nature Company Functions Overall Mean Rank Order Industrial Consumer Goods Service Firms x 2 Sig Finance Engineering Manufacturing R&D/Technical Marketing Legal Conclusion New product development plays an important role in the daily life of many marketing professionals in Australian firms, whether they are in industrial, consumer or service firms. Many operate within the bounds of a formal marketing department indicating that many firms are beginning to embrace the marketing concept. Even in industrial firms where R&D usually is a dominant function, marketing does have considerable influence and input into the NPD process. The type of new products developed by Australian firms indicate a high level of innovativeness as their rate of new to the world introductions are higher than other published studies. Also the degree to which the stages of the NPD process are carried out indicates a high level of sophistication in developing new products. The nature of the firms industry was thought to have played a role in the type and way new products are developed, however there are few difference in the NPD activities of Australian firms. This study was the first to examine NPD activities of service firms in an Australian context and was surprised to find that there were no major differences between the three types of firms contrary to the accepted conventional wisdom in the literature. ANZMAC 2002 Conference Proceedings 2415

6 References Booz, Allen and Hamilton., (1982). New Product Management for the 1980 s. New York: Prentice-Hall. Cooper, Robert G., (1984). New Product Strategies: What Distinguishes Top Performers. Journal of Product Innovation Management, 2, (1988). Predevelopment Activities Determine New Product Success. Industrial Marketing Management, 17, Cooper, Robert G., and Kleinschmidt, Elko J., (1986). An Investigation into the New Product Process: Steps, Deficiencies and Impact. Journal of Product Innovation Management, 3, , (1987). New Products: What Separates Winners from Losers. Journal of Product Innovation Management, 4, , (1988). Resource Allocation in the New Product Process. Industrial Marketing Management, 17, , (2000). New Product Performance: What distinguishes the Star Products Australian Journal of Management, Vol 25, No 1, June, Deshpande, R., & Zaltman, G., (1982),"Factors Affecting the use of Market Research Information: A Path Analysis," Journal of Marketing, Vol 19(February), and (1984),"The Use of Market Research in Industrial Organisations" in Strategic Business Marketing, Dwyer, Larry., and Mellor, Robert., (1990). Product Innovation Activities in Australian Manufacturing Industry Prometheus, 8, 1, June, and ---- (1991a) Organisational environment, new product process activities and project outcomes, Journal of Product Innovation Management, 8, 1, March, and ---- (1992) The Impact of new product strategies of Australian firms, Prometheus, 10, 2, December, Feldman, L.P., and Page, L., (1984) Principles vs Practise in New Product Planning. Journal of Product Innovation Management, 1, Griffin, Abbie., (1997). PDMA Research on New Product Development Practices: Updating Trends and Benchmarkeing Best Practices Journal of Product Innovation Management 1997; 14: and Albert A. Page., An Interim Report on measuring Product Development Success and Failure JPIM 1993; 10: ANZMAC 2002 Conference Proceedings 2416

7 King, S.H.M., Identifying Market Opportunities Management Decision, Volume 9, No 1, 1971, p7-30. Link, Peter. L., (1987) Australian Usage of Market Research for New Industrial Products, Australian Marketing Researcher, 11, 2, Mahajan, Vijay., and Wind, Jerry., (1992) New Product Models: Practice, Shortcomings and Desired Improvements. Journal of Product Innovation Management, 9, Page, A.L., (1993) Assessing New Product Development Practices and Performance: Establishing Crucial Norms. Journal of Product Innovation Management, 10, ANZMAC 2002 Conference Proceedings 2417