Department of Food Economics Discussion Paper Series

Transcription

1 Department of Food Economics Discussion Paper Series New Product Development and the Irish Food Sector: A Qualitative Study of Activities and Processes By Joe Bogue Agribusiness Discussion Paper No. 30 June 2000 Department of Food Economics, National University of Ireland, Cork, Ireland. Ollscoil na heireann, Corcaigh National University of Ireland, Cork.

2 2 TABLE OF CONTENTS ABSTRACT INTRODUCTION NEW PRODUCT DEVELOPMENT THE IRISH FOOD SECTOR AND NEW PRODUCT DEVELOPMENT DEFINING THE NEW PRODUCT DEVELOPING NEW PRODUCTS THE NEW PRODUCT DEVELOPMENT PROCESS NEW PRODUCT DEVELOPMENT SUCCESS FACTORS MARKET ORIENTATION AND NEW PRODUCT DEVELOPMENT RESEARCH OBJECTIVES RESEARCH METHODOLOGY RESULTS AND DISCUSSION PROFILE OF THE FOOD FIRMS STRATEGIC IMPORTANCE OF NEW PRODUCT DEVELOPMENT TO THE FIRMS LEVELS OF NEW PRODUCT DEVELOPMENT ACTIVITY THE NEW PRODUCT DEVELOPMENT PROCESS ORGANISATION OF NEW PRODUCT DEVELOPMENT ACTIVITIES NEW PRODUCT SUCCESS FACTORS MARKET-ORIENTED NEW PRODUCT DEVELOPMENT COMPETITOR ANALYSIS MARKET ORIENTATION GENERAL NEW PRODUCT DEVELOPMENT ISSUES CONCLUSIONS REFERENCES FOOD FIRM INTERVIEW SCHEDULE

3 3 New Product Development and the Irish Food Sector: A Qualitative Study of Activities and Processes Joe Bogue Department of Food Economics, National University of Ireland, Cork, Ireland Abstract New product development (NPD) is widely recognised as a key strategy for competitive success and the successful management of NPD a key determinant of business performance. Strategic reviews of the Irish Food Sector have repeatedly recommended increased levels of product development activity and added value in the sector. About 90 per cent of new products in the food and drinks sector are reputed to fail within one year of launch. This makes research into how Irish food firms engage in NPD an important research topic to increase new product success rates and develop more market-oriented products. This paper presents the results of a qualitative study of NPD activities and processes in a sample of Irish food firms. A set of 25 Irish food firms, operating in consumer markets, was selected for the empirical research and the firms were chosen to reflect the spectrum of activities occurring within the sector and their geographic location. People working in NPD were interviewed using a semistructured interview schedule. This work evaluates the strategic importance of NPD to the food firms, and the process by which they undertake product development. It also examines NPD activities including the scope, nature and results of NPD. The relationship between NPD and market orientation is investigated, as the food sector has traditionally been identified as having low levels of market orientation. This research also investigates whether Irish food firms have adopted the normative guidelines for new product success generated by previous NPD studies. Results indicate that Irish food firms viewed NPD as being a key strategy for success in more competitive markets. However, the sample firms did not tend to follow the normative guidelines for new product success. Documentation of NPD activities, including the drawing up of a product innovation charter (PIC) was weak. The research found that the sample food firms did not generally engage in market-oriented NPD. Firms did not have close contact with end-users during the NPD process and did not engage in a systematic analysis of end-user needs. There was evidence of good integration between those working in Research and Development and Marketing during the NPD

4 process. 4 Introduction New Product Development Many marketing and management strategists such as Grunert et al. (1997) and Schnaars (1994) see the successful development and marketing of new products 1 as the ultimate route to profits and organisational survival. However, the percentage of new products that fail is high and can vary depending on the source and the type of product being examined. Significantly new products have high failure rates. It is estimated that firms marketing directly to final consumers need to develop and introduce thirteen new products to ensure one successful one (Fuller, 1994; Power et al., 1993). In the food and drinks sector 90 per cent of new products are reputed to fail in their first year (Traill et al., 1997). The annual cost to the US food industry of new product failure has been estimated at $20 billion due to missed sales targets, lost revenues and wasted developmental resources (Morris, 1993). In the context of these figures, it is not surprising that NPD, and determinants of new product success, continues to be a very active research topic. Changing consumer needs, the need for product differentiation, advances in technologies, increased competitive pressure and the shortening of product life cycles have all led to increased levels of new product activity (Buisson, 1995). Mcllveen (1994) suggested that effective NPD permitted food firms to capitalise on changing needs, lent flexibility in times of crisis and also allowed firms to probe new market opportunities. Arguments against NPD include the high failure rates, high costs, long payoff times and the utilisation of scarce management resources (Cowan, 1989). Grunert et al. (1996) warned against heavy investment in NPD in the food industry, due to food customs and tastes changing slowly. The Irish Food Sector and New Product Development The evolution of the Irish food industry can be viewed over the last three decades as moving from a focus on managing supply to a shift to a customer driven culture 1 In this paper new product development is also used to denote new service development.

5 according to Kennedy (1998). Different strategic development options have been identified to sustain competitive positions that have included product and market development, and the development of real end-user markets (FAS, 1993). In particular the development of consumer products, both new products for home and export markets and import substitution, has been recognised as a key strategic option for food firms of all sizes. 5 The significance of new product and brand development to the Irish economy is seen in terms of adding value, increasing employment, making a positive contribution to the balance of payments and increasing the profits of innovating firms (Nash et al., 1985). The Irish food industry's contribution to the Irish economy is very significant in relation to manufacturing output, exports, employment and integration with the Irish economy through purchase of raw materials and services. In 1997 the output for the food sector was 10bn representing 6.5 per cent of national output while exports amounted to about 5.2bn or 13 per cent of total exports. Some 40,000 people are directly employed in the food industry with the main components being dairy products and ingredients with an output of 2.3bn in 1997, and the beef sector with an output of 1.7bn for the same year (DAF, 1998a). Further analysis of the food sector reveals three main segments underpinning the Irish Food Industry: basic or primary foodstuffs, food ingredients and prepared consumer foods. The lack of customer focus has been identified in the Irish Food Industry as a major failing and strategic reviews have highlighted the need to become more marketoriented (Forbairt, 1995). The important recurring strands evident throughout these reviews have been an increase in added value levels, an increase in new product activity and a more market-oriented food sector (DAF, 1998b; Bord Bia, 1995; Forbairt, 1995), and from other Irish food sector studies (Nash et al., 1985). Bord Bia 2 in their strategy for the future of the Irish Food Sector envisaged by the year 2000 an innovative industry that would be consumer-oriented and responsive to the rapidly changing consumer marketing environment (Bord Bia, 1995). 2 Bord Bia, the Irish Food Board, was established on December 1st, Its focus is the market development and promotion of Irish food.

6 6 Traill et al. (1997) suggested that future market opportunities will exist in upgrading product quality, changing consumer demographics, changing consumer lifestyles, health and nutrition opportunities in terms of consumer concerns, and the marketing of ethnic food products. The Western European 3 food market is expected to rise to $814 billion in 2002 from $649 billion in 1995 primarily through added value not volume (Bord Bia, 1997). There are however also threats to Irish food firms including food industry globalisation and the development of pan-european brands. The scale of such brands and the resources available in relation to NPD poses a real threat to Irish food manufacturers. There are also significant changes along the food supply chain such as the increased concentration within the retail sector and the increased market share of own labels. Information technology has provided retailers with increased amounts of consumer data, from which to develop new products, and this may further increase the own label share of the food market. This has already been evident in NPD activity in the United Kingdom in 1997 with 64 per cent of product development occurring in the own label sector, as opposed to 36 per cent in branded products (Kennedy, 1998). Defining the New Product NPD can be viewed from a technological viewpoint or from a marketing perspective through satisfying customer s needs, a process called market orientation (Grunert et al., 1997). The definition of a new product itself varies between researchers and can be determined by their research approach, the type of market being investigated, the technology employed or levels of innovativeness. Products can be improved or can actually change customer behaviour such as the first personal computer or Sony Walkman. Degrees of innovativeness are evident from those that are really new, to products exhibiting incremental changes such as food products with new flavours, new pack sizes or alternative cooking methods. Johnson and Jones (1957) argued that a new product definition rested on a product and market dimension and that a product can be new in either one or both dimensions. In their definition new meant only that the product was new to the firm. The definition was presented as a two dimensional matrix with increasing technological newness and increasing market newness on either sides of the matrix. 3 Includes EU, Switzerland and Norway

7 7 Wasson (1960) offered a comprehensive list of thirteen possible ways in which a product could be new. These ranged from convenience in use, to performance, to new availability or a product with a new appearance. The seminal Booz Allen and Hamilton Report (1982) conducted in-depth interviews with top management from the United States and Europe. It identified six categories of newness to the firm and the market which have since been utilised by various researchers. Craig and Hart (1992) defined new in terms of a product development continuum. At one extreme cost reductions or repositioning of products were placed as opposed to radically new products at the other end. Of those firms included in the Booz Allen and Hamilton survey (1982), a mix of these new product categories was generally included in the respondent firm's new product programmes. The survey illustrated, amongst even the largest firms, the lack of introduction of truly innovative products. Hisrich and Peters (1991) concluded that there were few truly new products launched worldwide, even considering the sophisticated technological improvements in society. New products can also be classified from either the viewpoint of the customer or the firm (Song and Montoya-Weiss, 1998). The degree of innovation in new products can also be classified according to how much new learning is required of the consumer in order to use the product (Hisrich and Peters, 1991). Robertson (1967) observed the new product similarly to Craig and Hart s (1992) continuum, in the eyes of the customer but based on the influences on consumption patterns. This continuum has continuous innovations at one extreme and discontinuous innovations at the other. Discontinuous innovations require new consumption patterns and involve the creation of previously unknown products. In terms of defining NPD, the product is deemed new by changes in customer behaviour. O'Connor Colarelli (1998) defined a discontinuous new product as the creation of a new line of business - new for both the firm and the market. This model introduced a new dimension in relation to risk. Highly innovative products involve considerable risk due to latent and unarticulated customers requirements and they offer potentially greater risks and rewards to both customers and manufacturers. An incremental product offers risk only to the manufacturer (Schmidt, 1995). Atuahene-Gima (1996) suggested that a new product, from a market-orientation

8 8 viewpoint, should be defined either from the customer's or firm's perspective. Grunert et al., (1997) argued that other channel members such as distributors or retailers also offered the customer's perspective. For example a product may be new for one channel member but not for all channel members. A retailer may view a product that stacks easily as being new but to the end-user there may be nothing new about the product. For the market-oriented firm it is the customer or end-user, it could be argued, who should define the label new rather than the product developer. One important issue that then is raised is, how does the product developer integrate the views of all the different members of the supply chain, the wholesaler, retailer and end-user, into the NPD process? Developing New Products Developing new products is a very complex process with the main difficulties, from an organisational perspective, being the integration of various people or departments involved in product development. This must be balanced with other factors such as particular industry specific legislation, a firm s budget restrictions and various other internal or external constraints (Hofmeister, 1991). New food product introduction estimates in the United States range from 2,000 to 8,000 per annum (Fuller, 1994). Friedman (1990), while acknowledging that defining the new product was difficult, estimated that only 10 to 15 per cent of new products launched in the United States were available to the consumer for the first time. In an Irish Food Sector survey twothirds of the sample firms indicated that they did not think their new product was in any sense unique (Nash et al., 1985). Booz, Allen and Hamilton's (1982) research highlighted the extent of risk involved in NPD and concluded that only one out of seven new product ideas reached commercialisation stage. This meant that a successful product must not only return its own unique development costs, but also cover the costs of the other six products (Booz, Allen and Hamilton, 1982). Hayes and Abernathy (1980) highlighted this risk in the United States where they suggested managers were attracted to profitable low risk opportunities as opposed to high-risk opportunities. The fear of failure is obviously a salient factor in NPD programmes and suggests a need for senior management to view NPD as a long term rather than short-term strategy. Indeed, Booz Allen and Hamilton (1982) found that a short-term orientation by management was the principal internal obstacle to innovation.

9 9 Sowrey (1989) argued that much of the NPD research centred on industrial markets, which tended to be less complex than consumer markets. Product development failure rates in business-to-business markets are also reported to be lower than consumer markets (Parkinson, 1982). One reason suggested for this is that strong business-tobusiness or supplier-user relationships in industrial markets results in the customer having a greater input in the innovation process (Parkinson, 1982). More end-user input in consumer markets may reduce product failure rates and they may be a significant source of innovation information such as in the lead user system (Pournoor, 2000; Von Hippel, 1988) The New Product Development Process One of the main reasons put forward for product failure is the non-utilisation of a formal NPD process (Cooper, 1988). The methodology of the process of developing new products has an important influence on the success or otherwise of a NPD project. Craig et al. (1992) defined the NPD process as the set of activities and decisions from the time when an idea is generated, from whichever source, until the product is commercialised. Gupta et al. (1985), (1986) described the NPD process as a multi-stage, multi-disciplinary process which can be characterised by pre-specified activities and evaluative points. Blanchfield (1998) put it more succinctly as the process that involves the interplay of market research, technology, and financial efforts to satisfy consumer needs. Traditionally the NPD process has been categorised by a series of sequential stages, following in logical order, whereby an idea was developed through to the commercialisation stage (Best, 1991; Bingham and Quigley, 1989). Each function tended to be compartmentalised and functions within an organisation took over the project following a hand-over from the previous function. This was referred to as "over the wall" product development, where a project is passed from one functional specialist to the next. In this system people work in particular functional areas without much overlap or exchange of information. During a particular stage specific functions have a major input and at other stages they may only have a minor role. In practice this relay race had drawbacks. Results from different phases had to be

10 10 returned due to incompatibility with constraints introduced in downstream phases (Hananel et al., 1993). It also reduced flexibility and speed, as each stage of work in the process was separated from the others. As an idea moves from the idea stage to the commercialisation stage the success rate decreases, whereas the cost incurred in development increases. Booz Allen and Hamilton (1982) highlighted this as a mortality curve of new product ideas. Each stage in the process can vary in length and investment incurred. Drawbacks with the sequential process model included its time consumption and poor product design, due to the lack of integration of different functions. The transfer of information among functions tended to be ineffective. Researchers such as Millson et al., (1992) argued that running specific NPD activities in parallel offered an opportunity to reduce development times. One new approach to product development is concurrent engineering. It has two main characteristics: it is a concurrent process and is carried out by a multi-functional team (Clausing, 1994). One of the main benefits of concurrent engineering is the use of all relevant information at an early stage in the product development process and can be defined as "right-the-first-time" rather than "redo-until-right" (Turino, 1992). Characteristics of the process include the customers and suppliers as members of the team and in particular the end-user is closely involved so that the end product meets their needs. Takeuchi and Nonaka (1986) suggested that the traditional approach resulted in defined and very structured stages. They suggested that to develop new products quickly and in a flexible manner, a shift was required from a linear model to an integrated overlapping NPD model. This process called new product rugby 4 emphasises speed and flexibility, with an autonomous team from different functions working together from start to finish. From an organisational perspective the advantages include speed, flexibility and the reduction of re-working time (Day, 1990). The importance of the NPD process on project outcome has been clearly highlighted by various studies (Cooper, 1994; Booz Allen and Hamilton 1982). The process itself 4 Rather than sequential stages all functions work together passing the idea from one to another and back.

11 is constantly changing due to new organisational structures, new technologies and different NPD strategies. The main change in the NPD process over the last two decades has been the move from functional and sequential approaches, to multifunctional, concurrent approaches (Griffin, 1997). In the food sector a more multifunctional approach to product development recognises the diverse influences on food choice as outlined in various food choice models (Steenkamp, 1996; Randall and Sanjur, 1981). It has been argued that the traditional step by step process is not adequate in its traditional form and a more multi-functional approach is required, particularly when integration of marketing and R & D is seen as a key new product success factor (Harmsen, 1994; Gupta et al., 1987). The importance of this integration is further accentuated due to its role in accelerating the NPD process, which can be a source of competitive advantage and give firms first mover benefits. 11 New Product Development Success Factors Despite the wide range of empirical research generated on factors that lead to new product success (Harmsen, 1994; Cooper and Kleinschmidt, 1987; Cooper, 1987; Booz Allen and Hamilton, 1982), the failure rates for new products remain high. Frequently quoted failure rates of 80 per cent and per cent have been attributed to the fast-moving consumer goods and industrial goods sectors respectively (Foxall, 1989; Foxall and Johnston, 1987). A wide body of research exists on those variables which most impact on NPD performance and that separate product development winners from losers (Cooper, 1987). The determinants of new product success are complex with many variables associated with the product, process and the organisation. Much empirical research has been undertaken, across different sectors, using different methodologies to identify the critical factors that impact on product success or failure (Cooper 1994; Rothwell 1992). Researchers have examined single success factors, specific products or industries. Different measures of NPD success have also been used. The most frequently used being customer acceptance and financial performance (Griffin, 1997). The majority of NPD studies have either been conducted in high technology industries or across industrial sectors. The major determinants of success may provide indicators

12 12 of where success may lie in product development. Success in NPD may be improved if the key identified success factors can be assimilated into the innovation process at individual firm level. Researchers have argued that the empirical information about NPD has not been utilised by product developers (Barclay, 1992). In effect there seems to be a gulf between the advice generated by new product researchers and the actions of NPD practitioners (Harmsen, 1994). Harmsen (1994) in a review of NPD success factors proposed that key factors could be grouped into three categories: product development strategy; organisation of product development; and market orientation i.e. close market contact during the whole development process (Figure 1). These success factors are consistent across a number of NPD studies (Barclay, 1992; Cooper and Kleinschmidt, 1986; Rothwell, 1977) New Product Development Success Factors Product Development Strategy Market Orientation Organisation of Product Development Figure 1 New Product Success Factors (Harmsen, 1994:2) Cooper (1988) concluded from his Project NewProd research that there was a very strong connection between process and outcomes. Although the research was concerned with industrial markets, the success factors remained relevant to innovation activities in all sectors. Cooper (1988) found evidence that a new product process decision guide, promised significant payoffs. His conclusions illustrated the lack of a systematic formal process in 203 new product projects. His review of 13 key new product process activities highlighted that there was no market study or detailed market research undertaken at all in 75 per cent of the projects. Thirty-four per cent of the projects omitted product testing with the customer. This was evidence of a lack of formalisation and market orientation in the product development process. The non-

13 use of the customer in product testing was a particularly revealing result (Cooper, 1988). 13 The importance of a well-defined new product strategy has been identified across many studies (Foxall, 1989; Cooper, 1987; Booz Allen and Hamilton, 1982), and a set of procedures to ensure an ordered approach to the process has been laid out. Kleinschmidt's (1995) research indicated that there was a gulf between practitioners and researchers and a serious gap existed between manager's beliefs and reality for many of the key determinants of NPD success. A product innovation strategy is an essential element in an effective new product programme. There is a strong link between product innovation strategy and performance (Cooper 1987). Many firms lay down a product innovation charter (PIC) to provide details of a firm's new product strategy (Crawford, 1994). Cooper (1994) identified eight major drivers to product success. The major driver that separated winners from losers was product superiority. A superior product is one which delivers unique benefits and product value to users. This does not imply that products must be highly innovative or new to the world. Cooper argued that product superiority was the number one factor influencing commercial success and that product definition and early pre-development activities were the most crucial steps in the NPD process. He maintained it was these activities that had the greatest impact on product success or failure. One mechanism that helps identify and integrate consumer preferences into product design is Quality Function Deployment (QFD) 5 (Urban and Hauser, 1993). A planning tool such as QFD helps to describe product attributes desired by the customer at an early stage in product development. These customer needs can be linked to product design via those working in NPD. Multi-functional integration has been found to be positively related to sharing and using of market information as well as overall project success (Ottum and Moore, 1997). Kessler and Chakrabarti (1999) suggested that accelerated NPD may not be desirable in all industries, particularly where products impact on consumers' health and safety, such as in the foods or pharmaceuticals 5 QFD is a product development system to assure customer satisfaction and value by focusing functionally divided organisations on a common goal understanding true customer needs (Quality Function Deployment Institute, 2000)

14 14 sectors. Accelerated NPD must not be at the expense of customer satisfaction with poor quality products (Millson et al., 1992). Using multi-functional teams interacting with the customer provides a balance between speed and quality. Failure to conduct the right type of market research has also been identified as one of the major reasons for new product failures (Morris, 1993; Booz Allen and Hamilton, 1982). Not understanding consumers needs and not defining those needs has been a fatal flaw identified by many NPD researchers, particularly at the early stages of the product development process where end-user needs can built into product design (Dimancescu and Dwenger, 1996). Market Orientation and New Product Development Although market orientation s positive impact on business performance has been widely reported (Jaworski and Kohli, 1993; Narver and Slater, 1990), the link between market orientation and new product success has only recently become the focus of much research. Narver and Slater (1990) draw on a number of writers when they define market orientation as the organization culture that most effectively and efficiently creates the necessary behaviours for the creation of superior value for buyers and, thus, continuous superior performance for the business Narver and Slater, 1990 pp.21 Harmsen s (1994) Danish Food Industry research compared product development practices with advice offered by product development researchers. Market orientation was given a low priority with firms eliciting most of their information from direct customers (retail chains, agents, or industrial customers), and rarely from the endusers. Respondent firms had no thorough understanding of the needs or wants of endusers. This lack of marketing orientation in the Danish food industry, as defined by Harmsen s (1994) research, provided a practical indication of the gulf between NPD practitioners and researchers. Narver and Slater s (1990) market orientation research concluded that firms who adopted a market orientation, by using resources to understand their customers and competitors, not only achieved higher relative profitability and sales growth but also more new product success. If a more market-oriented approach to innovation is

15 adopted at the design stages of product development, the generation of market information from various sources plays a role in driving the NPD team. From a product development perspective Harmsen (1994) defined market orientation as development based on an understanding of the needs and wants of the consumer. 15 Dimancescu and Dwenger (1996) proposed using selected customer groups for product definition. Von Hippel (1986) argued that lead users are key NPD contributors. These are people who have an interest in a particular product or who may be affected by modifications or product changes, The customer is utilised early in the NPD process, after drafting the market-oriented product strategy, which explicitly includes customer analysis to assist in product design (Aaker, 1995). Research Objectives The research objectives were (i) to understand the process by which Irish food firms engage in NPD; (ii) to examine whether the food firms have adopted the normative NPD success guidelines; (iii) to investigate whether the food firms approached product development in a market-oriented fashion; (iv) to provide data on current NPD practises in the food sector. Research Methodology Qualitative analysis A qualitative research approach was used in this research and an interview schedule was designed after consultation with food industry experts 6. It was pilot tested to identify problems associated with design, ambiguity, interpretation or bias. A qualitative study was chosen as the research method due to the exploratory nature of the study and the need to gain a deep understanding of the key NPD issues among a sample of food firms (Miles and Huberman, 1994). A key informant in each of 25 Irish food firms was interviewed. The particular informants were chosen because they were directly involved in NPD. A sequential sampling procedure was used, where the 6 A copy of the interview schedule is on page 39.

16 16 sample as Diamantopoulos and Cadogan (1996) stated..was not wholly pre-specified but evolved during the fieldwork. Food industry directories provided by development agencies, food marketing boards and commercial and non-commercial bodies were used to identify potential firms for interview. Firms were selected on the basis of their geographic location, their level of NPD activity, their operation in consumer markets and to reflect the range of activities in the food sector. The interviews were conducted by one person and generally lasted between one and two hours and were taperecorded. The interviews were transcribed and analysed using the ETHNOGRAPH v4.0 computer package. As only 25 firms were interviewed the results cannot be assumed to be representative of NPD across all Irish firms. Another limitation relates to interviewing only one informant within the food firms. Due to the confidential nature of the new product function within organisations only one informant was interviewed per firm. Food industry consultations prior to the fieldwork indicated that the confidential nature of the NPD function within organisations meant that it would only be practical to interview one informant. Confidentiality also means that firms in this paper are referred to by number rather than by name. This was agreed with respondents prior to the interview. The interview schedule was in four parts. In part 1 a profile of the food firm was collected; in part 2 the questions related to the food firm s NPD activities; part 3 determined how the food firms organised their NPD activities; and in part 4 NPD and market orientation was the focus of the discussion. After a brief introduction to the project, a definition of a new product was given to each of the key informants. For the purposes of this study a new product was defined as one that is viewed new by the customer in relation to previously supplied products and can be radically innovative, i.e. newly introduced or a modified product in terms of improvements such as functionality, ingredients, packaging or brand extension. Results and Discussion The results are presented under six headings: a profile of the food firms; the strategic importance of NPD to the firms; level of NPD activity; the product development

17 process; organisation of NPD activities; NPD success factors, market-oriented NPD and general NPD issues. 17 Profile of the food firms Twenty-five food firm interviews were completed between November 1998 and October The food firms ranged from the very small (5 employees and a turnover of 50,000) to the very large (3000 employees and a turnover of 2.3bn). Most of the firms operated both in industrial and consumer markets and the majority had been in business for over 10 years. The products included a wide range of consumer dairy products, farmhouse cheeses, bottled mineral waters, confectionery, ready meals, sauces and soups, organic products, processed meats, ready prepared vegetables and added-value sea foods. Strategic importance of new product development to the firms The importance of NPD to the strategic development of their organisations was repeatedly mentioned by respondents. They indicated that its importance within their food firms would increase over the next number of years: At the moment we are very active (in NPD) because we have set up a separate team for NPD, working on 15 projects. (Technical manager, Firm 1) NPD is very important (to our company) as we are coming from a traditional based industry. We are coming out of an area with commodity type products so in order to differentiate we have to look at other areas. It (NPD) is very important to the organisation. (Market development manager, Firm 2) NPD is crucial as what we sell today won t exist in 10 years time or 5 years time. It will, but there will be changes because it s such a dynamic marketplace. (Market development manager, Firm 2) Innovation is part of the firm s mission statement. (NPD consultant, Firm 3) NPD as a company ethos is hugely important. (NPD manager, Firm 4)

18 18 (NPD) It s an ever growing factor. A recognition that customer needs and demands have changed substantially. (NPD manager, Firm 5) NPD is critical. All our products have a lifecycle. They can be quite short or a bit longer but we have to keep replacing old products and because we compete in a global market now, and food for sale in Ireland comes from all over the world. We feel that we have to have a match for products that are imported into Ireland and we have to be competitive to new products, so it s critical to the whole life blood of the company. (Senior product manager, Firm 11) It s probably one of the most important parts of the business at the moment because things are changing so much that you have to keep developing new products all the time and cater for people s needs all the time; so we would constantly be developing something new. (Managing director, Firm 12) NPD is our absolute number one priority in terms of strategic development because it is the only thing that differentiates us. (Managing director, Firm 14) It s critical to add value to milk which is the key to success and margins are tightening up on basic quality products like milk, milk powder, butter and cheddar cheese. (New product manager, Firm 16) If NPD is of great importance to these firms what levels of NPD are they engaged in? Levels of new product development activity Most firms felt that they had a good track record in NPD with the larger firms working on an average of 15 new product projects concurrently. Firm 10, for example, would normally begin with about 100 concepts that would be reduced to about 5 actual projects. One of the larger and longer established firms introduced on average about 50 new products each year. These consisted mainly of additions to lines and new products for export markets (Firm 9). Without exception the role of retailers in dictating NPD activities was evident across respondents:

19 19 We have to move with the market and a lot of that is not just that it is demanded from the marketplace but within the marketplace with retailers dictating or directing where we should be going. (Technical manager, Firm 1) Supermarkets want one supplier of certain types of products and part of the supplier assessments is R & D and the ability to innovate and come up with new products so they expect a firm they go with to have enough innovation to keep the products moving onto the shelves. (NPD consultant, Firm 3) The types of products developed were mainly revisions or modifications of existing products and line extensions in particular. The NPD budget varied depending on the size of the firm ranging from 500 to 2million for those who had a budget mapped out. Firm 25 in the organic sector spent 5 per cent of turnover on NPD but the innovation generally amounted to producing an organic equivalent of conventional products. Firm 14, operating in a very competitive added value market dominated by large international competitors, launched ten new products over a five-year period to differentiate their products from those of the competitors. They aim to launch between one and three new products every year. The types of products developed and launched by Firm 14 included products from all new product categories, with only one really innovative product. The new product development process Generally firms did not have a NPD strategy outlined but suggested that it was something that would be required in the future. Documentation in some firms was fairly complete with the main drivers for this being grant applications, the granting of quality certification such as ISO 9000 or a quality procedure such as HACCP. External bodies, such as retailers or regulatory agencies also required extensive documentation. A new product strategy statement was missing in most of the smaller scale firms (Firms 20, 21, 22, 23). One respondent from a larger firm stated that the NPD strategy

20 20 was contained in the organisation s marketing plan and the main areas of focus were then passed on to the research and development department (Firm 5). There was no multi-functional approach to developing the firm s new product strategy. For those firms who followed a stage gate product development process the balance between being formalised or too informal was highlighted: We don t want to take NPD to a stage where it is too formal where you have to sign four different forms for each stage. (Technical manager, Firm 1) NPD is quite formalised. At this level it has to be. The amount of money that would be involved is quite high. Before it comes to my desk, the amount of money that would have been spent on marketing and doing basic trials at this level would be thousands of pounds. (Technical manager, Firm 1) We are following Bob Cooper s stage gate process with a variation on it. We tend to have less stages and less gates. (New product manager, Firm 16) Although some of the smaller firms also followed a stage gate process it tended to be more flexible with documentation on new product outcomes, rather than actual documentation of the process and stage gate outcomes. Other firms had more extensive documentation: All the stages from the initial samples right through to product launch are documented. We have a manual which basically outlines the whole steps and the process. (NPD manager, Firm 4) In fact the process is very much written down as a flow process at which stage you have to present your concepts and everything else, and this is where you get your project approval. It is very controlled. (NPD manager, Firm 5) I ve worked in a situation where you can kill NPD with bureaucracy. I ve worked in larger companies and there was a form for every day of the week. There were so many forms to fill out and there was a lovely file for each project. You can over formalise. You need a dynamic in R & D. (Managing director, Firm 14) Larger firms such as Firm 5 and Firm 18, which are subsidiaries of multi-national

21 food firms, had very strict monitoring of the NPD process particularly to keep an element of control over the process and to examine the financial aspects: 21 A log diary of everything every day is kept including how many hours are spent on each project and we have to produce a monthly report saying project by project where it is at, what the next stage of development will be, what any the delays are, when we hope to launch the product and how many hours have been spent in the calendar month on the project. (NPD manager, Firm 5) "There can be a lot of people who go off on hobby horses and projects can be started and not finished, and so it was decided people only work on brief projects so that everything was clearly set out and everybody knew where they were at and the documentation kept everybody up to date" (Product development technologist, Firm 18) In terms of generating new product concepts, all firms generated ideas through management, sales persons, competitors and trade shows. Only a small number used end-users in concept modification (Firms 11, 14). End-users were not used for the generation of product ideas. Firm 14 also used end-users for sensory evaluation of competitor products during the NPD process and had its own external taste panel. Organisation of new product development activities Respondents acknowledged that the organisation of NPD activities in their firms was not very well executed. The smaller firms did not have a NPD department or manager but generally had an employee with NPD responsibilities, who often had other responsibilities usually in quality control as in Firm 16. It was seen as hard to justify employing somebody full time in NPD: Small sized firms don t have the personnel and they can t stretch it that well to sit down and have meetings and formalise arrangements and follow a system like that. They just leave it informal and it still works for them. (NPD consultant, Firm 3) One of the larger firms had restructured its product development operation so that a new venture team was set up consisting of personnel from different areas in the firm

22 22 (Firm 1). This team would lead NPD throughout the entire organisation. The venture team ultimately decides in which physical location a new idea can be developed into a new product for the firm. This creates a certain amount of competition amongst the employees in the different manufacturing locations within the group: The team looks at an idea and would decide where the product is to be made by talking to the marketing and technical people in the plants and getting a picture by putting the project on the table for them and saying would you make it and how much it will cost to implement it. It creates competition among the different plants. (Technical manager, Firm 1) Firm 9 organised its new product development activities around its markets with a different product development team for each market while the larger firms (Firm 11, 16 and 18), had NPD managers for each food division within the organisations. Firm 18 had a product champion for each product to set up meetings, to evaluate each step of the NPD process, and to keep all team members aware of developments: "One of the reasons for having a product champion means they are ultimately responsible and it s up to them to make sure everything is adhered to and it s up to them to keep the team together and having the responsibility means they have a lot more control over it" (Product development technologist, Firm 18) Most respondents saw the integration of the marketing and technical functions as important and levels of integration were perceived to be quite high:..you ve got to be constantly tweaking the technology against consumer reaction. You have to keep going back and forwards all the time. You have to keep the customer s voice present all the time. (NPD manager, Firm 16) However, in one of the larger firms the respondent felt that, between new product meetings, there was little contact between marketing and technical personnel (Firm 11). The respondent mentioned that the marketing and technical staff came from different backgrounds and that often the marketing group felt that a project might fail even though it was still worked on by Research & Development staff: I know we stupidly keep projects live on our NPD programme for months and I know they are going to get nowhere but it's just political, it has to be humoured. NPD

23 is very much personality driven, it depends on the strengths of people such as the NPD manager and the product manager. (Senior product manager, Firm 11) 23 On of the key NPD difficulties identified by respondents was the development and running of small batches particularly within the larger firms: There is no point in producing something that is going to have a home baked flavour. It has to be done in a factory environment so they (production) have always facilitated trials. (NPD manager, Firm 5) The NPD team have to be very flexible as well because sometimes they have to be in at 7am in the morning to do their trials and stay there until 10pm to get them in at both sides. (NPD manager, Firm 5) There was good support from senior management in general and respondents felt that they played an active role in decisions concerning the viability of new product projects. In some firms the chief executive and all senior members of the organisation sat in on all NPD meetings (Firm 10, Firm 11). Personnel from the firms did go on NPD courses particularly to develop new skills and acquire new information for product development (Firm 10): Courses may be ones looking at a whole range of areas that the firm may not be currently working in but it s just to get broad experience in different areas. (Technical manager, Firm 1) New product success factors The majority of respondents saw flexibility as a key new product success factor coupled with effective communications within the organisation, including good marketing and technical cross-communications. Product success rates varied from 33 per cent (Firm 3), to 70 per cent in Firm 4, and 80 per cent for Firm 25 which produced for the organics sector. Smaller scale firms (Firms 21, 22), claimed higher success rates due to having very close interaction with customers. This could be what Harmsen (1994) refers to as mere order taking, rather than actually developing new products. The respondents from Firm 4 and Firm 10 felt that their high success rate

24 24 was mainly due to the successful integration of their marketing and technical personnel and the subsequent exchange of information. One of the more successful firms felt that planning was the key ingredient in their development of successful new products. Speed to market and reacting to customer requirements were important to Food Firm 8: Generally we would be able to react quite quickly to a customer s wishes, when I say customer I mean retailers or one of the catering groups and we are fairly flexible. (Product development technician, Firm 8) The respondent from Firm 11 stated that their relationships with the major retailers was a major factor in successful NPD and that they could get their product distributed very early on due to extensive national distribution. Also having good support in terms of national advertising and in-store tastings had been important to product success. Products that had failed in Firm 11 had done so because they were, according to the key respondent, mediocre and not differentiated from existing products on the supermarket shelves. Having a new product champion to guide a new product through the process was also seen as a critical factor in terms of project success or failure in that firm. Firm 9 attributed their success to having a good new NPD team in place that was well trained. In terms of product success the smaller firms emphasised that quality was a key to new product success: Quality of the product would be the main thing. We try and keep them (products) more to a home made type of taste than a mass produced product. (Managing director, Firm 12) There was no competitor. It was better than the packet or tinned equivalent. It was a better product. (NPD manager, Firm 16) Firm 25 attributed their new product success to accurately identifying new product opportunities targeted at identified customer needs and then being first on the market with a quality product at a reasonable price. None of the respondents mentioned Cooper s (1988) major driver of product success, delivering unique benefits and product value to users, as a key NPD success factor.