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Introduction

Successful market innovation

A business which is serious about competing in fast changing markets with fast changing technology must make things happen – it must innovate. If it does not innovate it risks being overtaken by competitors. Sometimes a business underestimates the competitive challenges it faces. The risk of this happening is high when competitors react to potential challenges in much the same way. It is then – just when traditional industry players feel comfortable with each other – that a business faces the risk of competition from nontraditional suppliers. Non-conventional competition is more and more common. Once stable and regulated industries, such as insurance for example, have in recent years become fragmented by new players such as banks, brokerage firms, retailers, telecommunication and computer services firms. Many of the new entrants in the insurance industry and also in other once stable industries have used market innovation to achieve startling novel results. Before considering market innovation in detail, it is useful to consider briefly the two other main types of innovation which contribute to organic business development – product innovation and process innovation.

Axel Johne

The author Axel Johne is a Professor at City University Business School, Barbican Centre, London. Keywords Innovation, Market planning, Process innovation, Product planning Abstract This article reviews three types of innovation which contribute to organic business development: product innovation, process innovation and market innovation. It argues that market innovation – defined as improving the mix of target markets and how these are served – provides a powerful focus for identifying new business opportunities. Examples from the field of financial services illustrate how skilful market innovation can serve to grow a business as well as to safeguard it from attacks by competitors.

Product innovation Product innovation provides the most obvious means for generating revenues. Process innovation, on the other hand, provides the means for safeguarding and improving quality and also for saving costs. Improved and radically changed products are regarded as particularly important for long term business growth (Hart, 1996). The power of product innovation in helping companies retain and grow competitive position is indisputable. Products have to be updated and completely renewed for retaining strong market presence. It is not enough to avidly engage in product innovation for its own sake – what some managers refer to as “innoflation” (Mitchell, 1996). It is important to delineate just what product features are to be improved or radically changed. For this purpose, analysts have differentiated between “core” product features and help provided in evaluating, buying and using the core product. The amount of help or support provided will depend on the needs of particular customers.

European Journal of Innovation Management Volume 2 · Number 1 · 1999 · pp. 6–11 © MCB University Press · ISSN 1460-1060

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Successful market innovation

European Journal of Innovation Management

Axel Johne

Volume 2 · Number 1 · 1999 · 6–11

An appropriate premium price can normally be charged for support. Support provides a potentially profitable lever for gaining competitive advantage. It enables a supplier to sell the same core product to different customer groups as different offerings (Storey and Easingwood, 1998). Buyers can be served with quite novel forms of support. One such novel form explains the success of the business strategy of First Direct, a subsidiary of Midland Bank, Britain’s fastest growing retail bank. First Direct serves customers solely through telephone contact. This new approach is a great attraction to the customers it aims to target – confident, busy, younger professional individuals. The attraction is not the basic banking products but the way in which help about these is provided. Help now comes through 24 hour a day voice only contact. This is far more convenient than the face-to-face help provided by bank tellers, usually only after a lengthy wait in line, during the working day. The new way of serving customers was quite revolutionary in its market and has made sizable inroads into previously established financial services supply patterns.

process innovation is a particularly challenging activity (Johne and Storey, 1998).

Market innovation Market innovation is concerned with improving the mix of target markets and how chosen markets are best served. Its purpose is to identify better (new) potential markets; and better (new) ways to serve target markets. We deal first with the identification of potential markets. Identification is achieved through skilful market segmentation. Market segmentation, which involves dividing a total potential market into smaller more manageable parts, is critically important if the aim is to develop the profitability of a business to the full. Incomplete market segmentation will result in a less than optimal mix of target markets, meaning that revenues which might have been earned are misread. For example, at the present time, as businesses begin their assault on the former communist countries of Eastern Europe, skilful market segmentation is of critical importance. Market opportunities misread or overlooked now might be lost for ever. It is the prime responsibility of marketing specialists to provide such insights. Sometimes this responsibility is seen to cover solely the identification of present and likely future geographical market opportunities. Geography is, however, only one simple way for segmenting markets. A very wide range of possible criteria exists for segmenting, stretching from objective criteria based on demographic data through to subjective criteria based on life style interpretations of consumer and business buying behaviour, as is shown in Table I. In recent years “benefit segmentation” has become more widely used (Hooley et al., 1998). It is based on the study of buyers’ attitudes, on the assumption that in great measure it is needs and benefits which make up markets and which alter markets. In this form of segmentation emphasis is on “usage occasions”, namely how buyers seek to gain benefits in particular buying situations. This form of segmentation is particularly powerful for dividing a total potential market into meaningful market opportunities. Its power derives from being predicated on the assumption that the same individual buyer can have different usage needs for the same core product. This happens quite frequently in practice, as for example when a person travels

Process innovation Process innovation embraces quality function deployment and business process reengineering (Cumming, 1998). It is a type of innovation which is not easy, but its purpose is now well understood. An efficient supplier who keeps working on productivity gains can expect, over time, to develop products that offer the same performance at a lower cost. Such cost reductions may, or may not, be passed on to customers in the form of lower prices. For example, both in banking and in insurance most long-established companies have now set up telephone based subsidiaries as a reaction to product innovations introduced by Direct Line (motor insurance) and by First Direct (personal banking). All are working furiously to reduce operating costs and also to increase service quality through process innovation. Process innovation is important in both the supply of the core product as well as in the support part of any offer. Both components of an offer require quality standards to be met and maintained. In the case of services, which by their very nature rely on personal interactions to achieve results, the management of 7

Successful market innovation

European Journal of Innovation Management

Axel Johne

Volume 2 · Number 1 · 1999 · 6–11

Table I Main bases for segmenting consumer and business markets

Consumers

Businesses

1. Objective customer characteristics

Age, weight, sex, colour etc.

Age, size, industry classification etc.

2. Subjective customer characteristics

Ascribed personality and life style

Ascribed characteristics, such as centrality of decision making; innovativeness

3. Attitudinal purchasing preferences

Attitudinal preferences of key decision makers(s)

Attitudinal preferences of key decision maker(s)

4. Behavioural purchasing preferences

Revealed buying pattern in terms of loyalty, innovativeness or usage

Revealed buying pattern in terms of loyalty, innovativeness or usage

Source: Based on Kotler et al., (1999)

first class on business but second class for private travel. Each usage need presents a potential market opportunity. The second purpose of market innovation is concerned with serving chosen markets better. This activity again relies on accurately interpreting buying preferences, but in greater detail. As with “benefit segmentation”, an understanding of buying preferences is important because buyers are likely to purchase offers which they like most. Often the analysis of buying preferences is done intuitively. This can result in surprisingly successful results. However, a solid rationale for amplifying buyers’ purchasing preferences has been provided by Mathur and Kenyon (1997) who argue that the same core product features are purchased in different modes by customers with different usage needs. For example, some customers prefer to purchase in a “commodity-buy” mode. This happens when buyers know the core product features well. In this buying mode, neither differentiated product features nor differentiated help is sought. Choice is made on the basis of price alone. Other customers prefer to buy in a “product-buy” mode. In this mode, knowledgeable customers seek superior core product features and are prepared to pay a premium price for these. Less knowledgeable customers prefer to purchase in a “systembuy” mode, in which they are prepared to pay a premium price for core product features and also for help in the form of advice. Last, some customers prefer to purchase in a “consultingbuy” mode. They seek only advice on how to purchase and use the core product and are

prepared to pay for this. The four main modes of buying are shown in Figure 1. Examples from the financial services derivatives market serve to illustrate the power of the schema. Buyers of financial derivative products – typically corporate treasurers – want to manage investment risks. New derivative products are bought in the “commoditybuy” mode by knowledgeable corporate treasurers who know exactly how to evaluate buy, and use them. They buy on price. Less knowledgeable corporate treasurers buy the same newly developed derivatives on a “systembuy” basis. They pay a premium price for perceived superior core product features and for help in the form of advice. Because corporate treasurers are learning very fast about derivatives, banks now have to work hard to develop new core features. These features are Figure 1 Different ways in which the same core product can be bought – the four main modes of buying SUPPORT PROVIDED (in the form of advice on how to evaluate, buy and use the core product) Seen by buyers as: Differentiated

Seen by buyers as: Undifferentiated

Seen by buyers as: Differentiated “SYSTEM-BUY”

“PRODUCT-BUY”

“CONSULTING-BUY” *

“COMMODITY-BUY”

CORE PRODUCT FEATURES

Seen by buyers as: Undifferentiated Source: Based on Mathur & Kenyon (1997) *

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Mathur & Kenyon (1997) refer to a “service-buy”. This label has been altered to avoid confusion, particularly in the field of financial services.

Successful market innovation

European Journal of Innovation Management

Axel Johne

Volume 2 · Number 1 · 1999 · 6–11

turns on the ability to sell the same core product – such as airline or train seats – at different prices to different buyers. What skilful market champions appreciate is that the same core product can be differentiated by varying the support. In many businesses there is a healthy tension between its key competences (Grant, 1991), on the one hand, and market opportunities on the other hand. Market champions address the market side of the business equation to assess alternative courses of action against the opportunities open to a business. This approach is quite different from one which assesses alternatives from the point of view of core competences or capabilities. Consideration of the strength of internal capabilities is too limiting a perspective when, as is increasingly the case, external competitive parameters are changing fast (Hamel and Prahalad, 1994; Hamel, 1996; Day and Reibstein, 1997). It is the task of the market champion to question current market practices. The analytical task of the market champion is to identify better potential markets and better ways of serving existing and new markets. The operational business task, thereafter, is one of exploiting market opportunities as fully as practical taking into account the following three parameters: (1) buyer preferences; (2) the likely reaction of competitors; and (3) core internal competences in product and process innovation, that is to say, the ability to ready the needed offers.

made available for purchase on a “productbuy” basis often at a premium price. Finally, finance directors of small and medium sized companies, who often still have a lot to learn about managing investment risks, buy advice about using derivatives for a fee in the “consulting-buy” mode.

Market championing Identifying potential markets and interpreting buying preferences to understand how chosen markets can be served better is a specialist activity. It is the responsibility of “market champions”. Market champions are to markets what product champions are to products. Product champions fight for the development of products (Maidique, 1980). In a similar way, but with a different mission, market champions fight for consideration of new potential markets, and new ways for serving existing and new markets (Johne, 1996). Operationally, market champions are the makers and shapers of markets. Some analysts have referred to market champions as “innovative entrepreneurs” (Ghoshal and Bartlett, 1988). However, it is one thing to spot potential market opportunities, but quite another to make money from these. Potentially, there are large numbers of market opportunities. A business cannot win in all the markets open to it. Skilful market champions fight for the development of markets which their business can supply and dominate in some way. Effective market championing involves spotting positions in which the business can build and retain competitive strength. There is no point in choosing an innovation strategy which the business lacks the means to pursue over time. Skilful market innovation helps to focus the competitive strategy of a business. Customer analysis, competitor analysis and supply competence analysis are its essential ingredients. Skilful market champions appreciate the specific ways in which different customers buy. They know that some customers will have a preference for certain types of offers, while other customers will have quite different preferences. This means that the same core product can – and indeed, should – be offered quite differently to different market segments, if the aim is to meet buyers’ preferences as closely as possible. There is nothing startlingly new in this. In many markets profitability

As far as needed offers are concerned, Treacy and Wiersema (1995) have concluded, on the basis of a three year consulting study of over 80 corporations in a range of markets, that market champions succeed by delivering a distinctive value proposition. Their message is that a business must decide on the “unique value discipline” which is of benefit to its chosen customers. They speak of achieving “customer intimate relationships” achieved by supplying core product features with an appropriate level of support. Identifying the value propositions which will best serve the interests of selected markets is the most important task of market champions. It is based on interpreting customer usage needs against relevant segmentation criteria (Table I). As far as attitudinal purchasing preferences are concerned, these can be 9

Successful market innovation

European Journal of Innovation Management

Axel Johne

Volume 2 · Number 1 · 1999 · 6–11

amplified by taking into account the different ways in which the same core product can be bought (Figure 1). However, a potential danger occurs, when market champions argue in favour of serving many different market segments, each with its own special mix of core product and support. Doing this will require a wide range of offers, which militates against achieving economies of scale. This is why in many businesses, a tension exists between wanting to meet the buying preferences of different market segments as closely as possible, on the one hand; and on the other, the wish to supply as economically as possible through a standardised offer. The operational challenge is, of course, to decide how wide a range of customers to serve.

share and so has diminished the cost advantages of large old-established institutions. The Internet provides particularly exciting opportunities; especially for new entrant challengers, because these are not burdened by traditional forms of distribution such as retail branch premises. It is likely that nontraditional competitors with a mastery of IT, who are intent on building superior networks, will continue to make serious inroads into traditional banking markets. For example, in both personal and also in business banking there is an exciting new trend towards “interactive marketing”. This form of contact with customers is quite new (Hagel et al., 1997). It is not primarily product-based and is also quite different from leveraging existing affinity groups. The aim of interactive marketing is to reduce the number of access points for the convenience of customers while extending the choices offered. Specific customer segments identified by market champions are provided with access points at which relevant offers are negotiated. It is advanced technology which allows customers to be served simultaneously in two main modes the relationship mode, and the transaction mode. In the relationship mode an integrated profile of a customer’s financial needs is acted on over time; in the transaction mode supply at the lowest possible price is the aim.

The contribution of technology Technology, especially IT in product and process innovation, is emerging as a powerful facilitator of market innovation in both personal and business markets. For example, in financial services many banks now see flexibility of core product features as a major competitive weapon in personal banking. A bank’s ability to offer features such as flexible pricing, tiered rates, and flexible fund switching depends on whether its computer systems have been designed so that they can be quickly adapted to serve new market segments. In personal banking, application of new technology provides new entrants with the opportunity of rethinking the entire value proposition offered to customers. While the offer provided to customers by old-established banks is often standardised, new entrants can use advanced computing technology to provide more accurately targeted offers. They can do so themselves or in conjunction with partners. A recent trend is towards “financial knowledge management”, whereby banks and other financial services providers work together in networks to create electronic packages of value for clients. For example, some brokers, investment houses and life assurers now allow certain clients to track the value of share portfolios on line. Such suppliers are in the business of “dealing with clients in the way they prefer to be dealt with”. It is new technology which provides market champions with the means for redefining markets on an economically viable basis. Importantly, skilful application of IT has reduced the advantages of scale and market

Conclusion In times of fast changing markets and fast changing technology, businesses which want to safeguard their future must innovate. If they want to be proactive and develop further by organic means they must engage not just in occasional bursts of innovation, but in continuous change. Three main types of innovation can be pursued for this purpose. First, market innovation – improving the mix of markets and how these are served. Second, product innovation – improving the mix of offers. Third, process innovation – improving the mix of internal operations. In order to achieve and maintain competitive success in today’s turbulent marketplace, top management must spend at least as much time thinking about customers’ needs and how these might be met innovatively as thinking about internal operations. The assertion “experience is becoming irrelevant and even dangerous” is probably a deliberate exaggeration. But, to compete effectively in the future, 10

Successful market innovation

European Journal of Innovation Management

Axel Johne

Volume 2 · Number 1 · 1999 · 6–11

a business needs to focus beyond the markets it serves presently and to concern itself with market innovation and the “total imaginable market”. Aggressive suppliers from other industries are adopting this wider approach. This is why retailers, brokerage firms, telecommunication and computer services businesses have entered financial services markets. It also explains why “new entrants”, that is to say, non-traditional suppliers like Amazon.com, are entering long-established industries such as book retailing. Not to be surprised by new competitors, incumbent suppliers in all industries need to concern themselves with market innovation. All businesses need to understand the changing needs of their customers. They must develop accurately targeted offers quickly and cost-effectively. Market innovation can help guide this quest by combining product line management with market opportunity analysis. When market innovation is bold and imaginative it provides not just a means for developing new business, but a revolutionary means for safeguarding existing business. This was demonstrated by Midland Bank when it deliberately set up the telephone banking subsidiary First Direct to compete with its traditional way of conducting business. Such action is not for the faint-hearted, but accords with the maxim “it is better to cannibalise one’s own business than to get eaten by the competition”.

Ghoshal, S. and Bartlett, C.A. (1988), The Individualised Corporation: A Fundamentally New Approach to Management, Heinemann, London. Grant, R. (1991), “The resource-based theory of competitive advantage: implications for strategy formulation”, California Management Review, Vol. 33 No. 3, pp. 114-35. Hagel, J., Hewlin, T. and Hutchings, T. (1997), “Retail banking: caught in a web?”, The McKinsey Quarterly, No. 2, pp. 42-54. Hamel, G. (1996), “Strategy as revolution”, Harvard Business Review, Vol. 96, July-August, pp. 69-82. Hamel, G. and Prahalad, C.K. (1994), Competing for the Future, Harvard Business School Press, Boston, MA. Hooley, G., Saunders, J. and Piercy, N. (1998), Marketing Strategy and Competitive Positioning, Prentice Hall, London. Hart, S. (1996), New Product Development, Dryden Press, London. Johne, A. (1996), “Avoiding product development failure is not enough”, European Management Journal, Vol. 14 No. 2, pp. 176-80. Johne, A. and Storey, C. (1998), “New service development: a review of the literature and annotated bibliography”, European Journal of Marketing, Vol. 32 No. 3/4, pp. 184-251. Kotler, P., Armstrong, G., Saunders, J. and Wong, V. (1999), Principles of Marketing, Second European Edition, Prentice Hall International, London. Maidique, M.A. (1980), “Entrepreneurs, champions, and technological innovation”, Sloan Management Review, Winter, pp. 59-76. Mathur, S.S. and Kenyon, A. (1997), Creating Value: Shaping Tomorrow’s Business, Butterworth Heinemann, Oxford. Mitchell, A. (1996), “Producers are driving innoflation”, Marketing Week, 25 October, p. 26. Storey, C. and Easingwood, C.J. (1998), “The augmented service offering: a conceptualisation and study of the impact on new service success”, Journal of Product Innovation Management, Vol. 15 No. 4, pp. 335-51.

References Day, G.S. and Reibstein, D.J. (1997), Wharton on Dynamic Competitive Strategy, Wiley, New York, NY. Cumming, B.S. (1998), “Innovation overview and future challenges”, European Journal of Innovation Management, Vol. 1 No. 1, pp. 21-9.

Treacy, M. and Wiersema, F. (1995), The Discipline of Market Leaders, Harper Collins, London.

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1. Introduction

TQM and business innovation

Crawford (1998) argues that one of the main reasons for the present economic stalemate being experienced in Japan is the obstacle to innovation which is presented by the mindset of continuous improvement. He considers that this mentality reflects, in the main, a wish to avoid the embarrassment resulting from potential failures associated with radical change. The point is also made that a strategy of continuous improvement does not necessarily work in markets which constitute highrisk investment, such as pharmaceuticals and microprocessors. These types of arguments tend to imply that TQM is not a valid paradigm in a world where changes are becoming increasingly frequent and need to be made at a faster pace. When the concept of TQM first appeared in the mid 1980s it was considered an innovation in management thinking, but this does not necessarily mean that it is a necessary facilitator of business innovation. Innovation can take several forms: in products, services, production processes and management systems. Innovation in products and services is related with R&D and meeting consumers’ needs. Innovation with respect to processes relates to changes in machinery and other elements not directly associated with employees and has the aim of increasing productivity (i.e. increasing quality and reducing costs). Innovation in management systems is usually in response to new environmental conditions, and improving the way in which people are managed and work is organised. This form of innovation can become necessary by changes in the process, such as automation and the application of mistake proofing devices as typically described by Shingo (1986). Business innovation deals with innovation in management thinking and its primary purpose is to create new value and wealth for all stakeholders and thereby increase economic prospects. It is motivated by changes in external and internal environmental conditions, customers, competitors, suppliers and employees. According to Grossi (1990) the ability to adapt to changes in the environment is the main key to success, much more than factors such as company size. Curry and Clayton (1992), Imai (1986) and Miller (1995) suggest there are two types of business innovation: drastic and progressive. The former is the kind of innovation which is proposed by reengineering, while the latter is the type proposed by TQM through continuous improvement.

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

The authors Angel R. Martínez Lorente is Associate Professor in the Department of Economía de la Empresa, University of Murcia, Spain. Frank Dewhurst is a Lecturer of Operational Research and Director of IT, Manchester School of Management, UMIST, Manchester, UK. Barrie G. Dale is United Utilities Professor of Quality Management at the University of Manchester, Institute of Science and Technology, Manchester, UK. Keywords BPR, Information technology, Innovation, TQM Abstract Business innovation, that is, the adaptation of management systems to the changing conditions of the environment, is a key factor for organisations if they wish to survive and grow. Total quality management (TQM) has demonstrated its potential to be a successful way for organisations to elimintate costs, improve productivity and gain a competitive edge in the marketplace. However, are TQM and business innovation compatible? The advantages and disadvantages to TQM as a means of developing and facilitating business innovations are discussed in this paper. It is argued that TQM does not hinder business innovation and some of its dimensions can assist an organsation to be more innovative. The compatibility of reengineering, which is a form of business innovation, with TQM is also considered in the paper, along with the effects of TQM on the successful implementation of information technologies.

European Journal of Innovation Management Volume 2 · Number 1 · 1999 · pp. 12–19 © MCB University Press · ISSN 1460-1060

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TQM and business innovation

European Journal of Innovation Management

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

Volume 2 · Number 1 · 1999 · 12–19

Some authors argue that TQM is not an obstacle to business innovation. Bessant et al. (1994) considers that TQM supports innovation and Samaha (1996) argues that TQM focuses on identifying work processes that need revamping or replacing to finding new and more efficient ways of doing business and in this way the TQM concept supports innovation. Miller (1995) is also supportive of this argument, pointing out that while a process of continuous improvement does not provide the tools for innovation, it is not necessarily hindered by this since improvement can be achieved using appropriate innovation styles. Table I has been constructed, based on the works of Ahire et al. (1996), Dale et al. (1994), Flynn et al. (1994) and Saraph et al. (1989), and shows the main dimensions that constitute TQM. Although these dimensions have been found to be useful for the current environments in which companies operate (e.g.

Adam, 1994; Adam et al., 1997; Flynn et al., 1995; Kosko, 1998; Powell, 1995; Reimann, 1995; Zairi et al., 1994) it is possible that in future environments they will need to be adapted and developed . This paper analyses the role of TQM in the process of business innovation. The TQM dimensions that facilitate the process of business innovation are examined in Section 2 while the obstacles to business innovation that TQM could create are discussed in Section 3 and the differences between TQM and reengineering approaches are considered along with the advantages and disadvantages of simultaneous application are considered in Section 4. The impact on TQM of the introduction of information technologies, perhaps, the most important source of business innovation today, is considered in Section 5 and conclusion are drawn in Section 6.

Table I Dimensions of TQM

Dimensions

Description

Top management support

Top management commitment is one of the major determinants of successful TQM implementation. Top management has to be the first in applying and stimulating the TQM approach, and they have to accept the maximum responsibility for the product and service offering. Top management also has to provide the necessary leadership to motivate all employees

Customer relationship

The needs of customers and consumers and their satisfaction have always to be in the mine of all employees. It is necessary to identify these needs and their level of satisfaction

Supplier relationship

Quality is a more important factor than price in selecting suppliers. Longterm relationship with suppliers has to be established and the company has to collaborate with suppliers to help improve the quality of product/services

Workforce management

Workforce management has to be guided by the principles of: training, empowerment of workers and teamwork. Adequate plans of personnel recruitment and training have to be implemented and workers need the necessary skills to participate in the improvement process

Employee attitudes and behaviour

Companies have to stimulate positive work attitudes, including loyalty to the organisation, pride in work, a focus on common organisational goals and the ability to work cross-functionally

Product design process

All departments have to particpate in the design process and work together to achieve a design that satisfies the requirements of the customer, according to the technical, technological and cost contraints of the company

Process flow management

Housekeeping along the lines of the 5S concept. Statistical and nonstatistical improvement instruments should be applied as appropriate. Process needs to be mistake proof. Self inspection undertaken using clear work instructions. The process has to be maintained under statistical control

Quality data and reporting Quality information has to be readily available and the information should be part of the visible management system. Records about quality indicators have to be kept, including scrap, rework and cost of quality Role of the quality department

Quality department needs access to top management and autonomy and also has to combine the work of other departments

Benchmarking

A benchmarking policy for key processes should be in place 13

TQM and business innovation

European Journal of Innovation Management

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

Volume 2 · Number 1 · 1999 · 12–19

2. Achieving business innovation within a TQM environment

Empowerment and teamwork contribute to the generation of improvements proposed by employees. These business improvements, which permeate upwards from the bottom of the organisational hierarchy, have the enormous advantage of generating a dynamic force which assists with changing the attitudes of those employees who are more resistant to change. In order to get improvements flowing from the bottom of the organisation, good training is essential. Mertins et al. (1997) argue that empowered employees who take part in the change process are more willing to get fully involved in making continuous improvement to the process for which they have responsibility. The approach of TQM to process flow management is ruled by rationality. Statistical process control and other quality management tools and techniques facilitate the rational analysis of a problem and decision making using real data (Deming, 1986). This contrasts with the non-innovative way of thinking frequently found in companies in which things are done the way they have always being done and which demonstrate complacent and bureaucratic characteristics. Therefore, a company that works and operates according to a TQM philosophy will be more willing to accept and adapt to any management innovation. Benchmarking is included among the TQM dimensions proposed by authors such as Ahire et al. (1996) and Zairi and Leonard (1994). This management approach is fundamentally innovative, since its aim is to know if other organisations do things better, to copy and adapt them and to develop ways to transfer process improvements and achieve the levels of efficiency in those organisations demonstrating best practices.

The need for business innovation is one of the reasons why companies have embraced TQM. However, it does not necessarily mean that TQM is the appropriate management approach to develop and apply business innovation. Companies tackle innovation in two basic ways: by copying or developing their own innovations. The first strategy can be useful in situations in which companies enjoy competitive advantages, such as low wages, easy access to raw materials, protected markets and monopoly supply. However, in order to obtain competitive advantage, the second strategy is a better approach. This argument is valid not only for innovation in products and processes but also for innovation in management thinking. The TQM approach can be applied to both types of strategies. Companies following a TQM approach can more easily assimilate innovations imported from other situations due to the willingness of its employees to accept new ideas as a result of the continuous improvement ethos promoted by TQM. They can also develop their own innovations by building on the work of both continuous and breakthrough improvements. One of the main elements of TQM is the need for adequate customer focus. Companies have to identify current and future consumers’ needs and their level of satisfaction and loyalty. It is foreseeable that in the future global consumers will become increasingly demanding, in particular with the development of TQM in the less-advanced countries (e.g. China, South America and South-East Asia). Any changes which are made have to be undertaken with customer’s needs given full consideration, therefore this TQM dimension constitutes a stimulus to business innovation. Another TQM dimension is that relating to the importance of training and education programmes. The availability of well-trained employees facilitates business innovation and in a TQM environment it is argued that new ways of operating are more readily accepted by employees. This is not only important in relation to the training for the work which the employee is required to perform but also for the development of his/her basic knowledge and skills. An employee with good fundamental knowledge is usually prepared to understand and accept new systems of operating. This is important as future jobs become more intellectually demanding and less mechanical in nature.

3. Changing TQM to facilitate business innovation Grossi (1990) states that innovation requires changes in the operating systems of an organisation and therefore must be driven topdown. However, many of the changes generated by a TQM policy are provided by all members of the company, from shop floor to administrative departments, in particular when policy deployment is employed. Without a policy deployment process using the catch, reflect, improve, scrutinise and pass (CRISP) cycle as outlined by Lee and Dale (1998), these sources of innovations could be biased by the specific interests of the people who work in each department and function and this could hinder the achievement of the company’s vision. 14

TQM and business innovation

European Journal of Innovation Management

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

Volume 2 · Number 1 · 1999 · 12–19

Long term relationships with suppliers in a partnership approach dictate that if changes are made then they need to be implemented with the involvement of the supplier and without a change in source of supply, certainly in the short term. It could be considered that this TQM dimension could be an obstacle to changes in supplier management, since breakthrough changes could imply the need to change the supplier. Quality management tools and techniques can be considered as “traditional” improvement instruments which have been around for some time, used as they have always been. In the future some of these tools and instruments may become obsolete or will need changes in their use and application. For example, increased levels of automation may change the way in which quality-related data are collected and this may impact on SPC (i.e. automated devices can collect data on a multiplicity of product characteristics and process parameters and intelligent and expert systems can aid the decision making). Companies should not look at TQM as a static set of recommendations that are going to be valid for ever; just as TQM is about challenging the status quo, this also applies to the TQM dimensions. Top management have to lead this way of thinking.

neering are complementary and that TQM can often serve as the building block for subsequent reengineering efforts. However, others, for example, Born (1994) consider reengineering to be a successor to TQM, making the point that rather than continually improving a process, reengineering challenges the need for a process. In more recent times the claim that Business Process Reengineering (BPR) is a successor to TQM is being dismissed. Leach (1996) argues that continuous improvement is a better and less risky means of making changes in a company than reengineering. He also points out that reengineering implies radical changes and does not allow employees to assimilate the changes and that when reengineering leads to downsizing, the commitment of employees to change decreases. According to Miller and Pearce (1988), gaining employee commitment to improvement efforts can be difficult when both quality and innovation are a concern. MacDonald and Dale (1999) analysing the differences between TQM and reengineering draw the following conclusions: • large step changes are riskier, more complex and more expensive than continuous improvement; • reengineering places more emphasis on equipment and technology and TQM more emphasis on people; • reengineering tends to concentrate on one process at a time using a project planning methodology, whereas TQM takes a more holistic view of the organisation, building improvement into all its areas of operation.

4. TQM versus reengineering as business innovation approaches In the first book devoted entirely to the subject of reengineering, Hammer and Champy (1993), it is considered that while reengineering shares some features with TQM, such as the recognition of the importance of processes, concern about the needs of the customer, eliminating waste and benchmarking, there are significant differences in the two concepts. For example, reengineering seeks breakthroughs, not by enhancing existing processes, but by discarding them and replacing them with entirely new ones. Clearly TQM and reengineering are different philosophies for improving the performance of business processes and for being innovative and creative. However, can they be applied simultaneously with some degree of success to facilitate both continuous improvement and radical redesign? Some authors consider that reengineering and TQM are compatible. According to Love and Gunasekaran (1997) and De Bruyn and Gelders (1997), TQM is an enabler of reengineering. Harrington (1995), Kelada (1994), Grover and Malhorta (1997) and MacDonald and Dale (1999) argue that TQM and reengi-

Dixon et al. (1994) have studied some companies which were simultaneously developing TQM policies and reengineering initiatives and found there were several similarities. In both cases the size of the project affected the entire company, the improvement rate was similar, cross-functionality was a requirement, IT was important for reengineering and considered to be useful for TQM and there was a need for management support. The main underlying difference is that with TQM, changes were made with the active participation of employees, whereas with reengineering, changes were dictated by top management. Rohleder and Silver (1997) have developed a framework for business process improvement that uses elements of both reengineering and TQM. For example, benchmarking is proposed as the technique to select the processes which need to be improved and Pareto Analysis is used to identify the most important processes on which to work. Statistical process control is considered as the 15

TQM and business innovation

European Journal of Innovation Management

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

Volume 2 · Number 1 · 1999 · 12–19

means of determining whether a process meets the targets that have been identified and to decide if radical change is necessary. The authors consider that both kinds of approaches can be used together, but it is necessary to consider the pitfalls of pursuing these twin initiatives. For example, if a company is trying to convince its employees of the benefits of continuous improvement and, at the same time, decides to reorganise a process resulting in redundancies, then it is highly likely that the commitment to continuous improvement will disappear. One of the authors has knowledge of a German company which had introduced a new production process and as a consequence 40 employees were made redundant; the remaining employees established an unwritten agreement to maintain the same levels of production. In short, the jobs of employees who are made redundant after the implementation of a reengineering project have to be retained and relocated if a company wants to apply reengineering in conjunction with a TQM policy. If a company pursuing a TQM approach also applies reengineering by maintaining the commitment of employees, the pace of process of improvement could be doubled, as shown in Figure 1.

introduction of IT do not necessarily support the TQM philosophy and its ideals. IT is usually applied in one of three tasks: the control of automated processes, processing of data, and information interchange. Information interchange through the Internet is creating a number of new possibilities to business which include the marketing and retailing of products. A recent survey by Cembrero (1998) has shown that 28 per cent of companies from a sample of German, French, Italian, Dutch, Spanish and British companies use the Internet to sell their products, and the managers surveyed consider that the annual growth of electronic commerce is in the order of 24 per cent. It is generally accepted that the application of IT facilitates the substitution of employees by machines and this presents problems for companies. Eason (1988) argues that there are two possible approaches to the application of IT. One of them is focused on the use of IT as an agent to control work processes, this approach is supported by Beniger (1986) and Wilson (1994). This kind of application can lead to deskilling and monitored jobs, with the usual results of higher productivity, increased control and command, and inflexibility. The other approach is focused on the use of IT as an enabling mechanism, freeing employees from routine tasks resulting in job enrichment and satisfaction. The result of this is not necessarily higher productivity (although it would be unlikely to decrease) but it is expected to lead to increases in performance, employee initiative skills and flexibility. These two kinds of IT implementation are sometimes applied simultaneously, the first type impacts on clerical staff and the second on professional staff. If the labour required is more intellectual, autonomous and less mechanically controlled as a result of the IT implementation, training is an important issue and the content of which should reflect the new knowledge needs. When work becomes more intellectual, the argument put forward by quality management experts is that supervisors should function as a coach and facilitator rather than their traditional role of giving subordinates’ orders. On the other hand, if IT implies less autonomy and intellectually challenging jobs, this conflicts with a number of the TQM principles and practices (e.g. empowerment, trust and discretion, and teamworking, in particular, self managing workgroups). In a company following a TQM philosophy employees whose jobs are made redundant due to application of IT should be trained and transferred to other jobs, in order

5. TQM and information technologies One of the most important factors that creates the need for business innovation is the application of information technologies (IT). IT is increasing in importance for companies and its effects on global trading are becoming more widely felt, see for example Mahan and Gotlieb (1992) and Chandler (1998). It is frequently argued, see for example, McFarlan (1984) and Parsons (1983) that IT has rapidly become the most important factor in increasing productivity and reducing costs. According to Mathaisel and Kvaal (1995), companies which think about and plan for the impact of the information superhighway on retailing may be the industry leaders of tomorrow. An analysis of the way in which the changes that IT and knowledge management implies in a TQM environment can be demonstrative of the compatibility of TQM and business innovation. According to Ayers (1993) the application of principles and practices of TQM to IT has the potential to eliminate wasteful investments in technology. Daughtrey (1998) argues that IT can lead to more integrated business practices and greater collaboration between departments. However, it is possible that some of the situations which are generated by the 16

TQM and business innovation

European Journal of Innovation Management

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

Volume 2 · Number 1 · 1999 · 12–19

Figure 1 Advantages of applying TQM and reengineering jointly. Improvements made

Key TQM and reengineering TQM alone Reengineering alone

Reengineering project

Reengineering project

Note: This figure is based on the comparison of innovation and Kaizen by Imai (1986)

Time

Effects Analysis (Webber, 1990) and Quality Function Deployment (Rangaswamy and Lilien, 1997; Zhang et al., 1996). In all these cases, IT does not change the way in which these quality management techniques are used but the software and technology help to facilitate a more complete exploitation of their possibilities and eases their application. • IT can improve process flow management in a variety of ways: automated maintenance (Dilger, 1997; Krouzek, 1987), reduction of process variance through automation (Freund et al., 1997), expert systems (Crossfield and Dale, 1991) elimination of a number of inspection type activities (Litsikas, 1997) and SPC type applications (Kendrick, 1995; Papadakis, 1990). • There is a variety of software packages that facilitate the administrative work associated with the development of quality management system to meet the requirements of the ISO 9000 series. • There is a variety of software programs to assist organisations in the process of self assessment against a recognised Business Excellence model such as the EFQM and MBNQA (Ward, 1998).

to maintain the necessary level of employees’ commitment to the goal of continuous improvement. This is possible when improvements help to sell more products and thereby result in growth of the company. Moreover, in the management information system (MIS) field it is now accepted that it is unlikely that any greater savings in staff can be made through the application of IT, indeed as IT becomes more critical for the organisation it is essential that the appropriate support personnel are in place. Thus, we now see many organisations increasing the number of staff as IT becomes more prevalent (e.g. IT specialists in Lotus Notes, Web page development, etc.). One of the key tenants of TQM is its focus on the customer and this can be useful in the application of IT to the company-client relationship. IT has the capacity to facilitate customers’ information processing and related communication and if these data are analysed using TQM principles and practices, the advantages that can be obtained from this could be considerable. This same situation can be also applied to supplier relationship and long-term partnering agreements. There are a number of relationships between IT and TQM, including: • IT is useful in Design of Experiments (Mezgar et al., 1997), Failure Mode and 17

TQM and business innovation

European Journal of Innovation Management

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

Volume 2 · Number 1 · 1999 · 12–19

• The most recent application areas of IT (communication – e-mail, Web, filesharing, etc.) can be seen as either: continuous improvement of existing forms of communication or as redesign or reengineering communication within/without organisations.

be useful in this task. However, IT implementation can also generate problems with TQM. Firstly, when it is applied as an agent to control work processes it can lead to deskilling and the monitoring of jobs. A careful application of TQM, perhaps changing some aspects of its dimensions, in particular, those associated with workforce management, has to be undertaken when IT implies a decrease in the autonomy of employees and/or redundancies.

The point should be made that access to information provided by IT does not necessarily lead to business innovation and competitive advantage. The key issue is how the information is used and it is argued by the authors that the more intelligent use is likely to be by employees in organisations which are following a TQM approach.

References Adam, E.E. Jr (1994), “Alternative quality improvement practices and organization performance”, Journal of Operations Management, Vol. 12 No. 1, pp. 27-44. Adam, E.E. Jr, Corbett, L.M., Flores, B.E., Harrison, N.J., Lee, T.S., Rho, B., Ribera, J., Samson, D. and Westbrook, R. (1997), “An international study of quality improvement approach and firm performance”, International Journal of Operations and Production Management, Vol. 17 No. 9, pp. 842-73. Ahire, S.L., Golhar, D.Y. and Waller, M.A. (1996), “Development and validation of TQM implementation constructs”, Decision Sciences, Vol. 27 No. 1, pp. 23-56. Ayers, J.B. (1993), “TQM and information technology: partners for profit”, Information Strategy: The Executive’s Journal, Vol. 9 No. 3, pp. 26-31. Beniger, J.R. (1986), The Control Revolution: Technological and Economic Origins of the Information Society, Harvard University Press, Cambridge, MA. Bessant, J., Caffyn, S., Gilbert, J., Harding, R. and Webb, S. (1994), “Rediscovering continuous improvement”, Technovation, Vol. 14 No. 1, pp. 17-29. Born, G. (1994), Process Management to Quality Improvement, John Wiley, Chichester. Cembrero, I. (1998), “Las empresas españolas presentes en Internet son las más activas de Europa”, El País, No. 749, May 22. Chandler, K. (1998), “Quality in the age of the networked society”, Quality Progress, Vol. 31 No. 2, pp. 49-52. Crawford, R. (1998), “Reinterpreting the Japanese economic miracle”, Harvard Business Review, Vol. 76 No. 1, pp. 179-84. Crossfield, R.T. and Dale, B.G. (1991), “The use of expert systems in total quality management: an exploratory study”, Quality and Reliability Engineering International, Vol. 7 No. 1, pp. 19-26. Curry, S.J. and Clayton, R.H. (1992), “Business innovation strategies”, Business Quarterly, Vol. 56 No. 3, pp. 121-6. Dale, B.G., Boaden, R.J. and Lascelles, D.M. (1994), “Total quality management: an overview”, in Dale, B.G. (Ed.), Managing quality, Prentice Hall International, Hemel Hempstead, pp. 3-40. Daughtrey, T. (1998), “Intelligence everywhere: how technology can enlighten and empower”, Quality Progress, Vol. 31 No. 6, pp. 21-4. De Bruyn, B. and Gelders, L. (1997), “Process reengineering: a review of enablers”, International Journal of Production Economics, Vol. 50 Nos. 2&3, pp. 169-81. Deming, W.E. (1986), Out of the Crisis, Massachusetts Institute of Technology, Cambridge, MA.

6. Conclusions The advantages and disadvantages of TQM in the development and facilitation of business innovations have been discussed in this paper. It is argued that TQM does not hinder business innovation. In fact, some of the TQM dimensions, such as customer focus, training, empowerment and teamwork, rationality in the analysis of production processes and benchmarking can assist an organisation to be more innovative in its business activities. However, for this to happen the TQM concept has to be well understood by management, in particular, the senior management team. Continuous improvement does not mean that the changes made are the sole responsibility of employees, management needs to be fully involved in facilitating process improvements and providing the requisite leadership. It should not be forgotten that TQM is also subject to change and has to adapt to new conditions of work, competition and environmental situations, which tend to be driven by business innovation. The compatibility of reengineering and TQM has also been considered in the paper. The two concepts are not necessarily mutually exclusive and organisations should try to ensure that they are integrated. If this is not done resources will be wasted. It is our view that reengineering should build on a TQM foundation of continuous improvement. However, this has to be done with appropriate considerations to avoid the lack of employee commitment which is created by the suppression of jobs that can result from a reengineering project. Finally, the effect of TQM on the successful implementation of one of the most important sources of business innovation (IT) has been examined. It has been shown that TQM can 18

TQM and business innovation

European Journal of Innovation Management

Angel R. Martínez Lorente, Frank Dewhurst and Barrie G. Dale

Volume 2 · Number 1 · 1999 · 12–19

Dilger, K. (1997), “To protect and preserve”, Manufacturing Systems, Vol. 15 No. 6, pp. 22-8. Dixon, J.R., Arnold, P., Heineke, J., Kim, J.S. and Mulligan, P. (1994), “Business process reengineering: improving in new strategic directions”, California Management Review, Vol. 36 No. 4, pp. 93-108. Eason, K. (1988), Information Technology and Organisational Change, Taylor and Francis, London. Flynn, B.B., Schroeder, R.G. and Sakakibara, S. (1994), “A framework for quality management research and an associated measurement instrument”, Journal of Operations Management, Vol. 11 No. 4, pp. 339-66. Flynn, B.F., Schroeder, R.G. and Sakakibara, S. (1995), “The impact of quality management practices on performance and competitive advantage”, Decision Sciences, Vol. 26 No. 5, pp. 659-91. Freund, B., Konig, H. and Roth, N. (1997), “Impact of information technologies on manufacturing”, International Journal of Technology Management, Vol. 13 No. 3, pp. 215-28. Grossi, G. (1990), “Promoting Innovation in a big business”, Long Range Planning, Vol. 23 No. 1, pp. 41-52. Grover, V. and Malhotra, M.K. (1997), “Business process reengineering: a tutorial on the concept, evolution, method, technology and application”, Journal of Operations Management, Vol. 15 No. 3, pp. 193-213. Hammer, M. and Champy, J. (1993), Re-engineering the Corporation, Nicholas Brealey, London. Harrington, J.M. (1995), Total Improvement Management: The Next Generation in Performance Improvement, McGraw-Hill, New York, NY. Imai, M. (1986), Kaizen. The Key to Japan’s Competitive Success, McGraw-Hill, New York, NY. Kelada, J.N. (1994), “Is reengineering replacing total quality?”, Quality Progress, Vol. 27 No. 12, pp. 79-83. Kendrick, J.J. (1995), “SPC on the line”, Quality, Vol. 34 No. 1, pp. 35-9. Kosko, J. (1998), “Baldrige Index outperforms S&P 500 for fourth year”, http://www.nist.you/public, February. Krouzek, J.V. (1987), “Economies of computerized maintenance management systems”, Engineering Costs and Production Economics, Vol. 12 Nos 1-4, pp. 335-42. Leach, L.P. (1996), “TQM, reengineering, and the edge of chaos”, Quality Progress, Vol. 29 No. 2, pp. 85-90. Lee, R. and Dale, B.G. (1998), “Policy deployment: modelling the process”, Quality Management Journal. Litsikas, M. (1997), “Electronic downloads eliminate inspection audits”, Quality, Vol. 36 No. 1, pp. 50-4. Love, P.E.D. and Gunasekaran, A. (1997), “Process reengineering: a review of enablers”, International Journal of Production Economics, Vol. 50 Nos 2&3, pp. 18397. MacDonald, J. and Dale, B.G. (1999), “Business process reengineering”, in Dale, B.G. (Ed.), Managing Quality, 3rd ed., Blackwell Publishers, ch. 22, in press. McFarlan, F.W. (1984), “Information technology changes the way you compete”, Harvard Business Review, Vol. 62 No. 3, pp. 98-103. Mahan, M. and Gotlieb, L. (1992), “An automated path to quality, quality comes to the information systems function”, CMA Magazine, Vol. 66 No. 7, pp. 13-15. Mathaisel, B.F. and Kvaal, J. (1995), “Information superhighway: road to the future”, Chain Store Age, Vol. 71 No. 9 (Section 2), pp. 42-4.

Mertins, K., Heisig, P. and Krause, O. (1997), “Integrating business-process re-engineering with humanresource development for continuous improvement”, International Journal of Technology Management, Vol. 14 No. 1, pp. 39-49. Mezgar, I., Egresits, C. and Monostori, L. (1997), “Design and real-time reconfiguration of robust manufacturing systems by using design of experiments and artificial neural networks”, Computers in Industry, Vol. 33 No. 1, pp. 61-70. Miller, W. (1995), “Is innovation built into your improvement processes?”, Journal for Quality & Participation, Vol. 18 No. 1, pp. 46-8. Miller, W.C. and Pearce, N.T. (1988), “Synergizing total quality and innovation”, National Productivity Review, Vol. 7 No. 1, pp. 34-44. Papadakis, E.P. (1990), “A computer-automated statistical process control method with timely response”, Engineering Costs and Production Economics, Vol. 18 No. 3, pp. 301-10. Parsons, G.L. (1983), “Information technology: a new competitive weapon”, Sloan Management Review, Vol. 25 No. 1, pp. 3-14. Powell, T.C. (1995), “Total quality management as competitive advantage: a review and empirical study”, Strategic Management Journal, Vol. 16 No. 1, pp. 15-37. Rangaswamy, A. and Lilien, G.L. (1997), “Software tools for new product development”, Journal of Marketing Research, Vol. 34 No. 1, pp. 177-84. Reimann, C. (1995), “Quality management proves to be a good investment”, US Department of Commerce News, February 3. Rohleder, T.R. and Silver, E.A. (1997), “A tutorial on business process improvement”, Journal of Operations Management, Vol. 15 No. 2, pp. 139-54. Samaha, H.E. (1996), “Overcoming the TQM barrier to innovation”, HR Magazine, Vol. 41 No. 6, pp. 144-9. Saraph, J.V., Benson, P.G. and Schroeder, R.G. (1989), “An instrument for measuring the critical factors of quality management”, Decision Sciences, Vol. 20 No. 4, pp. 810-29. Shingo, S. (1986), Zero Quality Control: Source Inspection and The Poka-Yoke System, Productivity Press, Portland, OR. Ward, A. (1998), “IT for QS 9000”, Quality Today, January, pp. s14-s16. Webber, J. (1990), “FMEA: quality assurance methodology”, Industrial Management and Data Systems, Vol. 90 No. 7, pp. 21-3. Wilson, F.A. (1994), “Perspectives on computer-based systems and management”, Doctoral thesis, UMIST. Zairi, M., Leitza, S.R. and Oakland, J.S. (1994), “Does TQM impact bottom-line results?”, The TQM Magazine, Vol. 6 No. 1, pp. 38-43. Zairi, M. and Leonard, P. (1994), Practical Benchmarking: The Complete Guide, Chapman and Hall, London. Zhang, X., Bode, J. and Ren, S. (1996), “Neural networks in quality function deployment”, Computers and Industrial Engineering, Vol. 31 Nos 3-4, pp. 669-73.

19

Introduction

The effectiveness of market information in enhancing new product success rates

A large portion of research into new product development (NPD)[1] has been devoted to investigating which factors contribute to its success. Reviews of the “new product success” literature (Craig and Hart, 1992; MontoyaWeiss and Calantone, 1994) suggest that a number of critical success factors are consistently reinforced covering strategic and development process issues. We argue in this paper that central to several of these critical success factors is market information, yet there are important gaps in extant knowledge regarding the specifics of its role in new product success. The paper aims to address these gaps. The development of user-relevant product advantages is a recurrent pre-requisite for new product success in the literature (Cooper, 1979; Cooper and Kleinshcmidt, 1994; Link, 1987; Maidique and Zirger, 1984; Mayers and Marquis, 1969; Rothwell et al., 1974). This requires that customer information be fed into the development process, yet there is little empirical research which has examined what information is required, when it is required and how it can be used during the various phases of the NPD process. Further, success studies have consistently shown that cross functional integration is a recurrent feature in companies producing a stream of new products (Ansoff, 1979; Bonnet, 1986; Davis, 1988; Pinto and Pinto, 1990; Takeuchi and Nonaka, 1986). The putative role of information in cross functional integration in NPD is examined by Gupta et al. (1986), Gupta and Wilemon (1990), Pinto and Pinto (1990) and Moenaert and Souder (1990), based on the earlier research by Lawrence and Lorsch (1967) and Burns and Stalker (1961). Unfortunately this research tends not to be specific about what kind of information (technological, environmental etc.) is important and thus fails to add to our understanding of how integration can be achieved at various stages of the NPD process. Finally, an increasing number of companies cite the importance of speed in developing new products (Cooper, 1988; Cooper and Kleinschmidt, 1994; Cordero, 1991; Dumaine, 1991; Takeuchi and Nonaka, 1986). Speed in NPD presents managers and academics with a conceptual and practical conundrum. Often viewed as a critical success factor, it conflicts with another, namely the need to complete activities in the NPD process. On the

Susan Hart Nikolaos Tzokas and Michael Saren

The authors Susan Hart is a Professor in the Department of Marketing, University of Strathclyde, Scotland, UK. Nikolaos Tzokas is a Senior Research Fellow at the Department of Marketing, University of Strathclyde, Scotland, UK. Michael Saren is a Professor in the Department of Marketing, University of Strathclyde, Scotland, UK. Keywords Effectiveness, Innovation, Market intelligence, New product development, Success Abstract An overview of the success/failure literature in new product development points to a long list of critical success factors (CSF), which define what should be done to enhance new product success rates but not how to do it. The net result is failure rates which are marginal improvements on previous decades. The basic tenet of this paper is that the effective use of market information throughout the new product development process (NPD) can enhance the success rates of new products. We examine the contingencies affecting the perceived utility and use of market information in the NPD process and develop propositions describing these contingencies. The outcome of our discussion is a conceptual framework, which can aid research in this critical area of organisational activity.

European Journal of Innovation Management Volume 2 · Number 1 · 1999 · pp. 20–35 © MCB University Press · ISSN 1460-1060

20

The effectiveness of market information

European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

one hand, research has quantified the negative consequences of extending development time (Cordero, 1991; Evans, 1990; Gehani, 1992) while on the other, many studies have found that taking a comprehensive approach to the completion of the NPD raises the chances of success (Booz Allen & Hamilton, 1982; Cooper and Kleinschmidt, 1986; Dwyer and Mellor, 1991). Parallel processing has been forwarded as the solution to this conundrum, resulting in a number of theoretical depictions of the NPD process (Cooper, 1994; Hart and Baker, 1994; Rothwell, 1994; Saren, 1984, 1994). These “3rd generation” representations of NPD processes, with overlapping stages and functional fluidity, abandon “traditional” roles of decision-making and authority in NPD. They do not, however, develop our understanding of the micro-processes, which govern the exchange of information crucial to the development of new products with customer-relevant advantages. Even recent contributions to the literature, such as the “value proposition process” (Hughes and Chafin, 1996) suggesting alternative models of new product development, often neglect these micro-processes. If we accept that the customer relevant advantage is germane to the success of new products, research must develop insights into how this advantage is identified and translated into new product solutions. The approach taken in this paper focuses on the relevance of market information to the search for customer relevant advantage and we introduce an inventory of propositions with associated methodological steps which are expected to initiate research towards increasing our understanding on the nature and role of market information in advancing new product success.

dominant economic characteristics of an industry, factors determining competitive success, industry prospects for profitability etc. (Marty, 1994). In this case, market information might be fed into a firm from a variety of sources, both internal and external. In detailing how market information should be collated internally, Kohli and Jaworski (1990) suggest that information can and should be generated in departments throughout the organisation and is not the exclusive responsibility of a marketing department (Daft and Weick, 1984; Webster, 1988). There appears in the literature to have been a silent shift from the early definitions of marketing and market information, where the latter is now commonly used to cover a wider array of information types than the former. The decision to use a broad or narrow definition of market information is crucial in research since it delineates the spectrum of information to be investigated. Recent developments in the literature on the market orientation of firms suggest that too much attention to customer and immediate market information only may be characterised as narrow and myopic (Day, 1994; Sinkula, 1994; Slater and Narver, 1995). Moreover, the organisational learning literature has contributed to this subject and posits that market information processing is a function of what the organisation has learned previously, in terms of both facts about its relevant markets and its particular way of acquiring, distributing, interpreting and storing information, whether that be formal or informal (Daft and Weick, 1984; Huber, 1991; Levitt and March, 1988; Menon and Varadarajan, 1992; Sinkula, 1994). This influences the “use” that is made of the information. Marty (1994) proposes a useful continuum of “market information” which is adapted in Table I. While the more semantic debate may be of interest to some, we adopt the classical usage of terms here, where market information covers the broader view of information and may come from diverse sources within the firm. Using this conceptualisation to define market information allows us to delineate the information that is of immediate interest to the task of infusing new products with the necessary customer-relevance and distinguishes our work from that of Ortt and Schoormans (1993) and Leonard-Barton (1991) which have focused only on marketing research techniques.

What is market information? In order to examine the nature and role of market information, it is first necessary to define what is meant by the term. Most marketing and marketing research texts make a distinction between market and marketing information (Churchill, 1976; Tull and Hawkins, 1992). The former relates to information describing the market only, while the latter refers to information concerning the marketing activities of the firm, their impact on and interaction with the market and their effectiveness in achieving marketing objectives. Others, however, use “market information” to cover a broad array of issues, including the 21

The effectiveness of market information

European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

Table I Market information continuum

Macro data

Industry information

Customer segment information

Customer purchase information

Number of buyers in market Demographic changes

Competitive forces Rivals’ strength Dominant economic characteristics Nature of competition (price/non-price) Prospects for profitability

Buyer behaviour Usage rates Demographic data

Product usage Rates Customer Satisfaction levels Benefits sought from purchase

Interest rates Technology trajectory

Innovativeness Psychographic and lifestyle data

Source: Marty (1994)

The contribution of market information to the NPD process

new product development is to reduce market uncertainty, which comprises consumer and competitive uncertainties, throughout the NPD process. The effectiveness with which this uncertainty reduction is executed has important implications for the success of new products, given the centrality of the customer in new product development efforts (von Hippel, 1989; Johne, 1994; Simonson, 1993; Voss, 1985; Wind and Mahajan, 1997; Workman, 1993). This discussion leads to the introductory proposition: P1. The collection and use of market information throughout the NPD process is positively related to the success of the new product.

From a normative point of view, the NPD process is comprised of multiple, overlapping and iterative stages, whose final output (the new product) is dependent on both technical and marketing input (Hart and Baker, 1994; Saren, 1994; Souder and Moenaert, 1992; Takeuchi and Nonaka, 1986). Moreover, the NPD process is often viewed as one of uncertainty reduction, wherein information is generated and used to reduce the uncertainties germane to the process (Allen, 1985; de Meyer, 1985). Galbraith (1986) defines uncertainty as “the difference the amount of information required to perform the tasks and the amount of information already possessed by the organisation”, while Moenaert and Souder (1990) identify four types of uncertainty with respect to new product development: consumer uncertainty, referring to unrealised consumer requirements; technological uncertainty, relating to ignorance of technical solutions; competitive uncertainty, regarding lack of knowledge about the competition; and resource uncertainty, relating to absence of information regarding the resources available to create the new product. While all these uncertainties must be reduced by the NPD process, Freeman (1982) suggests that the dominant uncertainties are those relating to the market, which is a stance supported by the dominance of “understanding user needs” in studies of new product success and failure (Cooper, 1975, 1979; Cooper and Kleinschmidt, 1991; Johne and Snelson, 1989; Maidique and Zirger, 1984; Rothwell, 1972; Rubenstein et al., 1976; Voss, 1985). To date, however, few studies have examined explicitly the effectiveness of market information in new product development. The fundamental role of market information in

In order to deliver insights, which might confirm or refute this proposition, it is necessary to look in greater detail at the specifics of market information collection and use in NPD. Indeed, unless its role, or roles, are defined specifically, exhortations to use market information are meaningless, and, more importantly, unactionable. At the risk of stating the obvious, market information must be thought useful before it will be acted on in the NPD process. It is logical to suggest that perceived utility of market information precedes the actual use of the information. Below, therefore, we develop themes which might act as contingents on the perceived utility of market information.

Types of information and the different stages of the NPD process As mentioned above, the NPD process is comprised of multiple, overlapping and iterative stages, which give rise to the question of the nature of market information required at each stage (Saren, 1994). The stages are defined by 22

The effectiveness of market information

European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

tasks or activities in which uncertainties are inherent (Goldhar et al., 1976; More, 1985; Rothwell and Robertson, 1973; Souder and Moenaert, 1992). For clarity of expedition, a normative example of the inputs and outputs of the NPD process is reproduced in Table II. Information collected in support of the activities of one stage enters the stage as information input, but by means of information processing, it is converted into a solution to the problem and can be seen as “information output”[2]. Thus the information

output generated by some activities can feed into other activities as input. Recent research suggests that uncertainty is a function of task variability and task analysability (Daft and Weick 1984; Souder and Moenaert 1992; Victor and Blackburn 1987). By applying this perspective to the NPD process, it has been argued that task variability describes the amount of new uncertainty that emerges throughout the process and that task analysability describes the amount of procedures available to reduce the emerging uncertainty. As

Table II Information needs, source and output in the NPD process

Stage of development

Information needed for stage; nature of information

Sources of information

Likely output of stage in light of information

1. Explicit statement of new product strategy, budget allocation

Preliminary market and technical analysis; company objectives

Generated as part of continous MIS and corporate planning

Generated as part of continuous MIS and corporate planning

2. Idea generation (or gathering)

Customer needs and technical developments in previously identified markets

Inside company: salesmen, technical functions Outside company: customers, competitors, inventors

Body of initially acceptable ideas

3. Screening ideas: finding those with most potential

Assessment of whether there is a market for this type of product, and the company can make it Assessment of financial implications Knowledge of company goals and assessment of fit

Main internal functions: R&D, Sales, Marketing, Finance, Production

Ideas which are acceptable for further development

4. Concept development: turning an idea into a recognisable product concept, with attributed and market position identified

Explicit assessment of customer needs to appraise market potential. Explicit assessment of technical requirements

Initial research with customer(s) Input from marketing and technical functions

Identification of: key attributed that need to be incorporated in the product, major technical costs, target markets and potential

5. Business analysis: full analysis of the proposals in terms of its business potential

Fullest information thus far: detailed market analysis – explicit technical feasiblity – and cost-production implications – corporate objective

Main internal functions Customers

Major go/no go decision Development plan and budget specification

6. Product development: Customer research with product. crystallising the product Production information to check into semi-finalized shape “makability”

Customers. Production

Explicit marketing plan

7. Test marketing: small-scale tests with customers

Profile of new product performance in light of competition, promotion and marketing mix variables

Market research; production, sales, marketing technical people

Final go/no for launch Incremental changes to test launch

8. Commercialisation

Test market results and report

As for test market

Full-scale launch

23

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European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

explained above, the NPD process is one of incremental uncertainty reduction, so the amount of task variability and analysability will change over the duration of the project. The research by Moenaert et al. (1992) shows that the level of uncertainty decreases as more of the NPD activities are completed. Thus, uncertainties about market reaction, makeability or supply of components are fewer as the project nears completion, since the activities of the NPD process are designed to reduce them. It follows, therefore, that the nature of the activities required by a new product project depend on the level of uncertainty embedded within the project. This has not been specifically investigated. There are, however, studies which suggest that the structures of new product projects differ in environments of differing levels of uncertainty in the NPD process. These studies, whose unit of analysis is typically the industry, offer support to the contention that what constitutes an effective set of activities does differ across industries facing different levels of change and uncertainty (Imai et al., 1985; Quinn, 1988). Cooper’s (1993) study found that projects which were newer (as defined by the Booz Allen Hamilton, 1982 typology) underwent a more comprehensive process than those which were modifications or re-launches of current product offering. This leads us to the second proposition that: P2. The newness of the new product development project and the nature of the activities in the NPD process are related.

occur (Cooper, 1993). In order to relate the type of information to the types of decisions, for which it might be appropriate, it is necessary to examine in greater detail, the process of new product development. During the pre-development activities, which tend to occur at the preliminary stages of the NPD process, where, as yet, there is no specific concept which could be evaluated by customers, strategic market information is required (market/customer trends, need assessments, perceptual maps and so on). The types of market research study delivering information for these needs is known as “exploratory” (Kinnear and Taylor, 1991; Leonard-Barton, 1991; Ortt and Schoormans, 1993; Tull and Hawkins, 1992). Exploratory research can be classified as either innovative or co-ordinative. For example, exploratory research such as purchase or consumption trends might be intended for reducing uncertainty about the potential target market for a developing product, in which case it would be classified as innovative. On the other hand, exploratory research describing usage problems with a particular product category will give an indication of the magnitude of the development task required to solve those problems, in which case the information is coordinative. These distinctions are important because they give insights into what can (and cannot) be achieved by using market information in pursuit of success. In short, using such a distinction, we can begin to operationalise the vague suggestions embedded in multi-factor success studies such as “efficiency in pre-development activities” or “knowledge of customer needs”. As the development process proceeds, the effectiveness of market information is related to the extent to which it provides specific methods for reducing more specific points of uncertainty. This kind of research is generally described as “confirmatory” (Kinnear and Taylor, 1991; Tull and Hawkins, 1992). These observations of the different types of information required by the various stages of the NPD process have led to the development of a four-way classification of market information in new product development (see Table III) and to two further propositions. P3a. During the pre-development activities of the NPD process, the perceived utility of market information is higher when the focus of research is more exploratory than confirmatory.

In his study of software development at ICL, Hauptman (1986) described a taxonomy of information types for innovation which relates well to uncertainty reduction as defined by task variability and task analysability (Souder and Moenaert, 1992). The taxonomy posits two types of information, innovative and co-ordinative. Innovative information is that which solves problems occurring during the NPD process and co-ordinative information concerns the identification and scheduling of tasks and outputs throughout the NPD process. Thus, innovative information is suggested to be more appropriate in uncertainty reduction to decrease task variability and co-ordinative information is more appropriate to increase task analysability. This taxonomy is a useful way of capturing the different types of market information required as inputs to the NPD process at various stages. It does not, however, explicitly capture the decision “gates” that 24

The effectiveness of market information

European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

Table III A classification of market information in new product development

Focus of the search for market information Types of market information Innovative

Co-ordinative

Exploratory

Confirmatory

Market trends Usage analyses Need analyses Dominant economic characteristics Magnitude of marketing problem in development Level of marketing resources required Competitive strategies for NPD

Concept tests Product test MDS, Conjoint analysis Factors driving change in industry Decision support Test market results

information, which is in line with its current operations, and therefore, its past learning. This leads to the proposition that the level of newness of the product development is directly related to the organisation’s ability to use its knowledge memory in facilitating market information processing. This is witnessed by the shift in emphasis toward successive generations of new products, with the life cycle of any one “version” assuming less importance (Glazer, 1991) i.e. an increase in the amount of routine product development and extended product development, as defined by Johne (1994). However, in their meta-analytic review of new product development success literature, Montoya-Weiss and Calantone (1994) show that a minority of studies incorporate the level of technological newness as an influencing factor in the types of NPD process undertaken by companies. One notable exception to this tendency is the work by Cooper and Kleinschmidt (1991). In their study of 195 cases of new product launches, they found that the success rate for highly innovative products was greatest. For products displaying low levels of innovativeness, success rates were almost comparable. Only products displaying moderate levels of innovativeness found lower levels of success. Both high and low levels of innovativeness were associated with several of the factors typically influencing product success. These results were later confirmed in a replication study in the chemical industry (Cooper and Kleinschmidt, 1993). Similarly, Griffin (1997) found that the greater the levels of newness in the product being developed, the longer the development time, particularly in the early stages of the NPD process. These results lend face validity to the propositions

P3b. During the pre-development of the NPD process, the perceived utility of market information is higher where it contains both innovative and co-ordinative information. P4a. During the development activities of the NPD process, the perceived utility of market information is higher when the focus of research is more confirmatory than exploratory. P4b. During the development activities of the NPD process, the perceived utility of market information is higher where it contains both innovative and co-ordinative information. The influence of “newness” In addition to the stage of the NPD process, another important factor influencing the utility of market information in uncertainty reduction is the type of new product in question. Not only is this an important moderating factor in the overall level of performance of NPD activity (Cooper and Kleinscmidt, 1991), but also it is related to the perceived efficacy of market information in reducing uncertainty (Hayes and Abernathy, 1980; von Hippel, 1986; Tauber, 1974). However, typologies of information based on uncertainty reduction ignore what organisational learning literature may refer to as the “organisational knowledge memory”. Over time the organisation will learn to understand its markets and simultaneously develop rules for the acquisition, distribution and possibly the interpretation of market information (Argyris and Schon, 1978; Sinkula, 1994). This suggests that the organisation will be more adept at processing market 25

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European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

espoused by Cooper and Kleinschmidt that newness in the project requires greater levels of development work, including attention to market research information collection. However, as Griffin notes, “additional insights on better managing projects can be gained by capturing supplementary data for those projects, for example, number and timing of market research studies” (1993, p. 124). Thus the type of the NPD (in terms of newness) seems to have a moderating effect on the type of information sought and the processes involved. A number of typologies, based on the newness of the product, exist in the literature, e.g. evolutionary/revolutionary innovations (Cohn and Turyn, 1984), radical/ incremental (Dewar and Dutton 1986), continuous/discontinuous innovations (Robertson, 1967), the Booz Allen and Hamilton (1982) empirically based typology of new product introductions, Johne’s (1994) routine, extended, radical and new style product development. Johne (1994) has expounded the view that the types of market information – termed market listening – may have different components depending on the type of product development being pursued. Combining the conceptual views of Ansoff (1979), of Booz Allen Hamilton (1982) and Cardozo et al. (1993), Johne developed a typology of product development newness, depicted in Table IV, wherein he argues for different types of market listening. Using this typology, Johne (1994) argues that routine product development requires routine feedback from the external market in the form of sales representative reports, published market reports and market trend information. In addition, specific research surveys will be undertaken to fine-tune the development decisions. Internal market information is supplied regarding relevant technologies, which might be incorporated into existing products. Extended product development, developing old products for new markets or

market segments, requires extra external market information which focuses on likely demand – since the markets and market need at which the development is aimed is, in this case, current. Radical product development consists of developing products with new attributes, predominantly for existing target markets and requires gathering external market information with particular reference to competitive product attributes, buyer needs, importance of the needs and preferences and market perceptions. New style product development, the development of radically new products for gaining access to new customer groups, requires external market information which addresses macro-market trends. Techniques such as problem, activity and scenario analysis might well be important, especially in the initial stages of the NPD process. These ideas can be see to be related to the previously defined classifcation of marketing research information. Specifically, routine product development requires confirmatory market information, mostly (but not exclusively) of a co-ordinative type, as this kind of development is concerned with targeting current markets, about which there is less uncertainty to be reduced via innovative information. For extended product development, again confirmatory market information is required, but the emphasis here will be on the innovative type as there will be uncertainties regarding, facets of the “new” market. For radical product development, exploratory market information is required as new solutions to current needs are being developed, giving rise to uncertainties regarding the market’s reaction to the new solutions. However, the emphasis is likely to be on confirmatory market information, which can help identify the nature and magnitude of resources to develop the solution to meet user needs. Finally, for new style product development, exploratory information of a largely (but not exclusively) innovative type is required to reduce the uncertainties associated with

Table IV Main types of product development

Product newness

Newness of the customer base Low

High

High

Radical product development: NPD aimed at the existing customer base

New style product development: NPD aimed at extending the customer base

Low

Routine product development: Old product development (OPD) aimed at the existing customer base

Extended product development: Old product development (OPD) aimed at extending the customer base 26

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Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

developing new solutions for new markets. These observatons lead to the following propositions: P5a. For more innovative development projects (i.e. radical and new style product development), the perceived utility of market information is higher when derived from exploratory research. P5b. For radical product development, the perceived utility of market information is higher when it is more co-ordinative than innovative. P5c. For new style product development, the perceived utility of market information is higher when it is more innovative than co-ordinative. P6a. For less innovative development projects (i.e. routine and extended product development), the perceived utility of market information is higher when derived from confirmatory research. P6b. For extended product development, the perceived utility of market information is higher when it is more innovative than co-ordinative. P6c. For routine product development, the perceived utility of market information is higher when it is more co-ordinative than innovative.

between R&D and Marketing; while Rochford and Rudelius (1992) examined the number of functional sources and users of information as an element of their investigation into “functional involvement”. At a more general level, the factors affecting the use of marketing research information have been investigated by Moorman et al. (1992); Luck and Krum (1981) and Matz and Kohli (1996). The terms “use” and “utilization” are used by these and other studies, without much apparent distinction. A distinction is made, however, between conceptual and instrumental, use of which relates to the purpose of market research information. Conceptual use is what Deshpande (1982) describes as “knowledge for understanding” and “instrumental use” is described as “knowledge for action”. Both conceptual and instrumental usage of information can be related to the concepts of exploratory/confirmatory and innovative/co-ordinative market information. In addition, both are central to the market research contribution to new product development. The studies by Deshpande and Zaltman (1982; 1984; 1987) provide a comprehensive investigation of the factors affecting market research information use, although the use situations were confined to strategic marketing decisions. The study by Moenaert et al. (1992) found that the dimensions of information relevance, novelty, comprehensibility and credibility enhanced the perceived utility of “extra-functional” information (i.e. not just market information), but actual use was not examined. In addition, this study found that the quality of the relationships between the provider and the receiver of the information had a significant impact on the perceived comprehensibility and credibility of the information. Finally, this study also suggests that information coming from senior personnel is perceived to be more novel than the information emanating from less senior sources. Thus, the findings of these studies, taken together provide a rich source of factors, which affect the use of information in general, and market research information more specifically. They are summarised in Table V. However, these issues have not been addressed within the context of the potential contribution of market information to new product processes. The issues can be categorised into two groups: those that relate directly to the dimensions of the information (quality, relevance, etc.) and those that describe the

Thus far we have considered the types of information likely to have utility for developing new products that display the marketing factors commonly cited as “critical success factors”. This said, the extent to which the market information input to the NPD process is converted into output depends on whether or not it is used by the development team. The next section discusses the actual use of market information in new product development.

The use of market information in new product development A stream of research into cross-functional integration in NPD has used information exchange between salient functions as the key variable giving evidence of the existence of integration. Indeed, Gupta et al. (1986), drawing on the seminal work by Lawrence and Lorsch (1967) define integration as “the extent of information sharing” and agreement on decisions and decision-making authority; Souder and Moenaert (1992) propose an information-based model to describe and explain the effectiveness of integration 27

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European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

development relates to the focus and type of the market information collected. P8. The use of market information is a positive function of its dimensions.

Table V Factors influencing the use of marketing information

Factor

Source

1. Purpose of marketing research project

1,2,3,4

2. Characteristics of the research report/information: Quality (form/content) Political acceptability Actionability/relevance Degree of surprise in the findings Timeliness Comprehensibility Credibility

1,2,5 1,2 1,2,5,6 3,4,5,6,7 6 6 6

3. Study type (qualitative/quantitative)

3

4. Sample size in study

3

5. Sampling process employed by study

3

6. Degree of formalisation/centralisation in the organisation

1,3,4,6,8

7. Degree of trust between source and receiver

6,9

8. Degree of interaction between source and receiver

1,2,5,7

9. Seniority of information source

6

In terms of the context within which the information is provided, the studies by Krum et al. (1988), Zaltman and Moorman (1988), Moenart et al. (1992) suggest that the relationship between the source and the receiver of market information affects its use. This directs attention to the fact that the dynamics which are developed among the individuals who have an input into the NPD process do have an effect on the use of information by these individuals. In this paper we explore two dimensions, namely the co-ordination mechanisms of the NPD project and its composition. The organisational mechanism for new product development has been called the “project organisational structure” (Craig and Hart, 1992). Speaking of structure we utilise Olsons’ et al. (1995) conceptualisation whereby structure is the formal design of roles and administrative mechanisms to control and integrate work activities and resource flow (including information). The NPD process requires the flow of information, which resides in different functional areas of the firm but also outside the firm (e.g. customers, market, technology centres). In other words the locus of the information and its “stickiness” (von Hippel, 1995) determines whether or not the firm is capable of using specific information, irrespectively of its perceived utility. A composition, which allows access to the different loci of the information during the NPD process, is expected to contribute (mediate) positively to the use of information. However, whereas such compositions provide efficiencies in the use of information from diverse sources, they create problems of interaction and co-ordination of the individuals involved in the NPD process, which in turn can block the use of information. The structural constructs of formalisation and centralisation have been suggested in the past as mechanisms for coping with such problems and the relative debate has produced two opposite views. One is represented by the ideas of Burns and Stalker’s (1961) and Lawrence and Lorch (1967) whereby a mechanistic system is most appropriate for firms operating under stable conditions; in contrast, an organismic system is most appropriate for firms operating in a less stable environment where the need for additional information and interpersonal communication is very important during task execution.

Notes: Although the study by Moenaert et al. (1992) examines perceived usefulness, not actual use, of all information, not just market information, we have included it here because, unlike the other studies, it focuses on the new product development process 1. Deshpande and Zaltman (1982) 2. Deshpande and Zaltman (1984) 3. Lee et al. (1987) 4. Deshpande and Zaltman (1987) 5. Luck and Krum (1981) 6. Moenaert et al. (1992) 7. Desphande and Zaltman (1981) 8. Desphande (1982) 9. Moorman et al. (1993) context within which the information is provided (trust between source and receiver, project’s organisation, organisational structure). In the new product development process, the market information dimensions would be expected to affect its use. In addition, however, the relative importance of the dimensions would be expected to vary in relation to the research focus (exploratory, confirmatory) and type of information collected (innovative, coordinative) since the thread of the argument underpinning this paper is that different new product uncertainties require different types of market information. This reasoning gives rise to the following propositions: P7 The relative importance of the market information dimensions in new product 28

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Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

Evidence in support of their view is provided by Galbraith (1986) who observed that as the level of task uncertainty increases, the amount of information to be found and processed by decision makers increases too. He postulated that changes in the organizational structure of firms represent the strategic efforts of firms for processing information. Therefore a mechanistic structure is implemented because tasks are routine and predictable while an organic structure is used when the level of uncertainty is higher and the mechanistic rules and procedures cannot cope with the demands of this situation. However, others including Speckman and Stern (1979), Khandwalla (1972), Cardozo (1980), Bourgeois et al. (1978) and McCabe (1987) found different relationships when studying smaller units within organisations such as departments or work units. McCabe (1987) found a tendency of top managers to centralize the decision-making process in response to high levels of product complexity and perceived task uncertainty. In addition he found that the higher participation of persons in the case of increased uncertainty was serving the need for more information while the actual number of people exercising real authority in the decision process was limited. He attributed these results to the constriction of authority perspective as opposite to contingency theory of Lawrence and Lorch (1967). Despite such differences Mintzberg (1983) subscribed to the view that “although we can characterise certain organisations as bureaucratic or organic overall, none is uniformly so across its entire range of activities” (p. 37). The differences between the organisation as a whole and its sub-units were appreciated by Holbek (1988) and were attributed by him to the efforts of organisations to make use of the advantages of organicity and bureaucracy for the initiation and implementation stages of innovations respectively. Holbek postulated that the dilemma between bureaucracy and organicity is faced by organisations through solutions involving differentiation in time, differentiation in space and hybrid solutions (i.e. balanced differentiation in space and time). Furthermore, he suggested that in order to gain better insights into the problem of this organisational dilemma, “measurement of organicity or bureaucracy must be made for the relevant organisation units, as well as for the organisation as a whole” (p. 274). Recently, Olson et al. (1995) have provided a list of nine types of co-ordination mechanisms which are part of a continuum ranging from

bureaucratic controls (hierarchical, mechanistic) to design centres (participative, organic), i.e. bureaucratic controls, individual liaisons, temporary task forces, integrating managers, matrix structures, design teams, design centres. However, they acknowledged that the different co-ordination mechanisms are not totally independent from each other. Although they found the success of product development projects positively related to the fit between the firm’s familiarity with a new product concept and the co-ordination mechanisms used to manage that concept’s development, they found no evidence of any consistent pattern of change in the coordination mechanisms used within a firm, either across project stages (concept development-commercialisation) or project types (newness to the firm). Moreover, the same authors did not find a perfect match between co-ordination mechanism used and firm’s familiarity with the new product concept. They speculated that these findings may be due to imperatives imposed by the larger corporate structure, acknowledging at the same time that their study was not designed to test influences from the wider organisational environment. This speculation is logical, since the organisational environment serves as the context within which the new product development project is taking place. It is reasonable, therefore, to expect that the use of market information in NPD will be affected by the project’s co-ordination mechanism as well as by the organisation as a whole. Thus, the following proposition is suggested: P9a. A composition which allows access to the different loci of the information during the NPD process is expected to contribute positively to the use of information. P9b. There is a relationship between the NPD project’s co-ordination mechanism and the use of information. This relationship is moderated by the type of the new product development and the wider organisational environment of the firm. Figure 1 summarises the content of the literature reviewed thus far and sets out the interrelationships among the key sets of issues. We now turn to the major issues of how to research these propositions.

Methodological issues Unit of analysis The differing organisational levels at which new product research has been conducted have 29

The effectiveness of market information

European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

Figure 1 Conceptual framework

ORGANISATIONAL STRUCTURE

PROJECT ORGANISATIONAL STRUCTURE (Composition)

ACTIVITY IN NPD PROCESS

FOCUS & TYPE OF MARKET INFORMATION

PERCEIVED UTILITY OF INFORMATION

P7

P3a,b. P4a,b. P2

PROJECT ORGANISATIONAL STRUCTURE

ORGANISATIONAL STRUCTURE

P9a

P5a,b,c. P6a,b,c.

TYPE OF NEW PRODUCT DEVELOPMENT

P1

P8

MARKET INFORMATION DIMENSIONS

USE OF INFORMATION

NEW PRODUCT OUTCOME

P9b

PROJECT ORGANISATIONAL STRUCTURE (Co-ordination mechanisms)

ORGANISATIONAL STRUCTURE

implications for the study of market information. Some studies have been conducted at the firm level, where the researchers’ interest is in identifying those practices which contribute to a company’s ability to bring a stream of successful new products to market. This raises the questions as to whether NPD activities, and the information required to support them, might be assumed visible at the most aggregate levels of company, and how it might be evidenced given changing new product personnel and the vagaries of respondent memory. Alternatively, a focus on specific projects carries the advantage of easier recall on the part of those involved, leading to more accurate data gathering. In addition, greater detail can be recorded regarding the specific contingencies affecting a particular development project, not least the information required and used throughout the process. That said, the product-specific approach may be criticised for a short-term time horizon. Not only does this curtail the lessons which might be learned from following the history of the new product over time, it also delivers little knowledge as to how the particular success might be repeated or the particular failure avoided at the level of specific projects (Cooper, 1979; Cooper and Kleinschmidt, 1987, Lilien and

Yoon, 1989), while others are pitched at the level of the Strategic Business Unit (Cooper, 1984; Griffin and Page, 1993; Hart, 1993; Mahajan and Wind, 1992). The result of these alternative levels is that those researching new product development are caught in something of a conundrum. Either the SBU focus is criticised for being too remote to derive valuable lessons which might be implemented, or, too close a focus on a particular development which can be criticised for contributing to short-term thinking that does not allow for substantial redevelopment of a company’s competitive resource base. This conundrum does not openly present itself in the literature, largely because little attention is given to the concepts and dimensions that ought to underpin the choice of level. Market information, however, spans both SBU and specific development projects, leading to the need for a research specification which is flexible with regard to the organisational level but detailed with regard to the journey the information makes in its contribution (or not) to the outcome of new product projects. This suggests the appropriate unit of analysis is the information itself, as in the work of Moenaert et al. (1992). 30

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Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

Industry focus While it would be wrong to suggest that there are no studies of new product development in consumer industries, they are fewer in number than those situated within the industrial context(see, for example, Brown and Ennew, 1995; Davis, 1988; and McIllveen, 1994; as against Cooper, 1979; 1984, Cooper and Kleinschmidt, 1987; 1995; 1974; Lilien and Yoon, 1989; Maidique and Zirger, 1984; Rothwell et al., 1972). Within these broad categorisations, however, many studies include several industries at once and report the findings in aggregate form. These aggregate studies, however, can often be criticised for lack of both validity and reliability. Content or even face validity are obscured since the broad contexts of the industries concerned are rarely discussed, yet these set the context for the new product development within each industry. Equally, the reliability of the findings is jeopardised since the norms and standards of one industry may be different from another contained within the focus of investigation. These validity and reliability problems become acute in the case of a study of market information in NPD, where the sources and types of information vary widely across industries and indeed the type of information sought is likely to differ. We prefer a contingency approach as suggested by Lilien and Yoon (1989) as this will allow us to compare the use of market information within one context, one set of competitive imperatives, one set of technologies and a common availability of information.

factors at play, that a qualitative approach is demanded in the first instance. Given, however, the numerous articles published in learned journals which insist on the development of fine-tuned questionnaires and measurement devices to examine the exchange and use of market information, our view is that some quantification is warranted to explain the nature and direction of relationships among the perception, use and impact of market information in the NPD process.

Concluding remarks In contrast to much single-discipline research in marketing which posits that “good marketing research” is the foundation for success in NPD, we have integrated current theories from a wider range of disciplines to describe the way in which market information might be used to fill the gaps in empirically based knowledge regarding the critical success factors in new product development. We have integrated concepts such as the use of market information, types of new product development and the emergent views of the NPD process into a framework for assisting the investigation of the complex issues that surround the quest to design and build new products that are customer-relevant and superior to the competition. In addition, we have discussed some of the methodological difficulties that have befallen research into NPD and attempted to integrate lessons from them into a proposed methodological framework. Obviously, the next step is to put this framework into practice. This entails development of appropriate measures for the operationalisation of the various variables and constructs suggested in this paper. This is a monumental task, which, owing to limited space is beyond the scope of this paper.

Research approach As with most management disciplines, there is much debate in the NPD literature regarding alternative research methods. While in many commonly cited studies in new product development, there is a mixture of both qualitative (Rothwell et al., 1974; von Hippel, 1978; Maidique and Zirger, 1984; Ronkainen, 1985; Johne and Snelson, 1989) and quantitative studies (Cooper, 1979; Littler et al., 1995), there are frequent exhortations to adopt a more explanatory, quantitative approach (Montoya-Weiss and Calantone, 1994), as there are plenty of calls for more depth, case by case analysis. (Tholke and Lowe, 1996). As our area of research embraces informal as well as formal items of market information, which might be crucial to the outcome of new product success, there are so many unpredictable and intangible

Notes 1. It is interesting to note that new product development (NPD) is not the only term used to describe the process by which new products are developed. The particular term employed depends on the discipline of the researcher. Hence, “NPD” tends to be the label used by those in marketing (Cooper, 1988; Johne and Snelson, 1989), those working in technological fields refer to “innovation” (Rothwell et al., 1974; von Hippel, 1982), while those in the sphere of engineering often refer to “design” (Pugh, 1983). In this paper, after Craig and Hart (1992), the term NPD is used to describe a multidisciplinary process that involves many separate tasks

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European Journal of Innovation Management

Susan Hart, Nikolaos Tzokas and Michael Saren

Volume 2 · Number 1 · 1999 · 20–35

necessary to bring a new product idea into a successful commercial conclusion.

Cooper, R.G. (1988), “The new product process: a decision guide for management”, Journal of Marketing Management, Vol. 3 No. 3, pp. 238-55.

2. It must be noted here that it is wrong to see the process of information collection and dissemination as part of a problem solving situation only. We agree with Sinkula (1994) that information may enter the organisation and the NPD team from totally unexpected horizons and not only as part of the linear process of a problem solving situation. This may explain cases of serendipity in the NPD process. To take account of this, researchers may find useful insights in the literature on collaborative and network approaches in new product development, i.e. collaboration with firms from different (or alternative) technological frontiers (Dosi, 1982; Hagedoorn, 1993; Pavitt, 1984) as well as in the ideas underlying the principle of “expeditionary marketing” so forcefully put forward by Hamel and Prahalad (1991).

Cooper, R.G. (1993), Winning at New Product, 2nd ed., Addison Wesley, Reading, MA. Cooper, R.G. (1994), “Third generation new product processes”, Journal of Product Innovation Management, Vol. 11, pp. 3-14. Cooper, R.G. and Kleinschmidt, E.J. (1986), “An investigation into the new product process: steps deficiencies and impact”, Journal of Product Innovation Management, Vol. 3, pp. 71-85. Cooper, R.G. and Kleinschmidt, E. (1987), “Success factors in product innovation”, Industrial Marketing Management, Vol. 16, pp. 215-23. Cooper, R.G. and Kleinsmidt, E.J. (1991), “The impact of product innovativeness on performance”, Journal of Product Innovation Management, Vol. 8 No. 4, pp. 240-51.

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35

Introduction

Benchmarking for brand innovation

Benchmarking has become an integral part of business for many successful companies. Notwithstanding its growing popularity, particularly in conjunction with quality initiatives to drive business improvements, benchmarking remains a relatively underutilised tool in the field of innovation. In fact despite the vast existence of a literature base identifying success or failure factors in product development (de Bretani, 1996; Cooper, 1979; 1986; 1990; Cooper and Kliendschimdt, 1987; Madique and Zirger, 1984; Rothwell, 1972) few have tried to explicitly incorporate benchmarking best practice methodology. Exceptions which have used benchmarking in one form or another have been Pierz (1995) who uses a benchmarking methodology to examine best practices for new product development funding in the telecommunications industry. Cooper and Klienschimdt (1995) also report on a benchmarking study to identify critical success factors that set successful companies apart from the not so successful ones. One striking feature that appears in benchmarking and related studies within the innovation is the bias towards quantitative definition of best practices rather than softer definition. This bias may simply reflect the tendency towards positivism within academia. In this paper we try and illustrate the need to break away from sole reliance on hard metrics of benchmarking measurement to a more balanced use of soft and hard metrics. Although the case used to illustrate these points may at first sight appear to be naive, the underlying message however is worthy of some attention. The case in this study examines consumer brands in the UK cosmetics and toiletries sector. It serves to illustrate that hard and soft measures complement each other to produce a much richer understanding. It is argued that it is in the complementary use of hard and soft approaches that benchmarking best practice is most effectively operationalised.

Pervaiz K. Ahmed and Mohamed Zairi

The authors Pervaiz K. Ahmed is at the European Centre for Total Quailty Management, University of Bradford, Bradford, UK. Mohamed Zairi is at the European Centre for Total Quailty Management, University of Bradford, Bradford, UK. Keywords Benchmarking, Brands, Cosmetics industry, Innovation Abstract Notes that benchmarking is an under-utilised tool in the field of innovation. Examines consumer brands in the UK cosmetics and toiletries sector and attempts to use both soft and hard metrics in terms of benchmarking measurement. Considers various types of benchmarking approach and also the nature of both “hard” and “soft” measurement. Focuses on numerous factors relating to brands, using data from the cosmetics and toiletries sector. Concludes by underlining the need for organizations to pay attention to both quantitative and qualitative dimensions if benchmarking is to be effective.

Benchmarking Benchmarking has a variety of meanings attached to it. There remains a certain degree of confusion and even mysticism about what benchmarking really is about. For companies such as Xerox, which was responsible for the

European Journal of Innovation Management Volume 2 · Number 1 · 1999 · pp. 36–48 © MCB University Press · ISSN 1460-1060

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Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

early development of the concept and is a leader in the application of this methodology, benchmarking has provided significant improvements. However, for others the experience has been rather ephemeral and somewhat elusive. Many of the problems of failure can be related to the lack of clarity about the meaning of benchmarking and in its method of application. We provide a brief overview of the term and discuss the limitations of its application. In general there exists four basic types of benchmarking approaches each with its own specific limitations and advantages. (1) Internal benchmarking is based on conducting comparisons with other parts of the same organisation. This is possible if the organisation is large enough and its sub-parts are different enough to allow possibilities of learning from one another. This approach is relatively simple in that access and depth of information is easily obtainable. Moreover it is possible to continue monitoring progress on a continuous basis. The major limitation is in being able to find examples of practice that yield significant improvement opportunities, since often practices in one part of the organisation will have spread into all corners of the organisation. (2) Competitor benchmarking. This form of benchmarking requires examining competitive companies and using their indexes of performance and practice to fashion improvement programmes. The advantage of this form of benchmarking is that the comparisons are much more direct because they pertain to a specific industry sector. Due to this the learning is likely to be more relevant as well as much more easily adaptable to the context of the client organisation. Of course the major problem with this form of benchmarking is (because of the nature of competition) that much of the information will be sensitive in nature, and the likelihood of disclosure limited. Moreover, there are possibilities that competitors may purposely mislead each other. Despite these drawbacks large organisations do exchange information in select areas of joint interest. (3) Functional benchmarking is a form of benchmarking which involves making comparison of like functions but with

non-competitor organisations. This type of benchmarking has several advantages: • information is accessible because the competitive angle is absent, and often leads to the development of partnerships; • learning on function by function basis facilitates adaptation and ease of implementation; • functional leaders are easy to identify. The drawback or limitation of the approach is often the learning that can take place is narrow, and a large proportion of holistic aspects which cut across functional areas is likely to be missed. (4) Generic benchmarking is the most complex form of benchmarking in that often it cuts across narrow functional boundaries, leading to comparisons of business processes across a wide variety of industries. This form offers the potential for making radical improvements and truly searches for best practices. The problem of this type of benchmarking is the level of complexity involved. Companies undertaking this form would need to have a deep experience of benchmarking coupled with an understanding of their own vision and competence, and a sensitivity to be able to recognise broad processes from different sectors that maybe of relevance and potential. Additionally the integration of radical and novel concepts into the company is likely to present a great adaptation and implementation challenge. Benchmarking is an improvement methodology, which functions by getting organisations to compare themselves to how other companies are carrying out business and use this as a source of stimulus to improve themselves. Benchmarking in this sense is a learning and developmental process. It works on the principle of identifying best practices, improving them, adapting them to the needs of the company and then implementing them. Benchmarking is not exclusively about quantitative measurements , although unfortunately in the majority of practice it has tended to be so. In its true sense benchmarking is much more about general improvements above those of hard metric based comparisons. In fact some of the most useful information for organisations tends to be qualitative learning about organisational practices and procedures. While benchmarking can be used to set targets yet it 37

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

is more than just a target setting device by management because it is based on what is being achieved by other organisations. It therefore allows an objective assessment of what can be achieved, how it can be achieved and where the organisation is in relation to these criteria. The understanding of the others’ practices often serves to provide inspiration and impetus to move the company forward. In essence benchmarking is about continuously striving for improvement by learning from others better than oneself. Definitionally, “Benchmarking is the ongoing structured and objective process of measuring and improving products/services, practices and processes against the best that can be identified world-wide in order to achieve and sustain competitive advantage” (Grinyer and Goldsmith, 1995, p. 5).

• Percent of products reworked. • Percent of total labor performing rework. • Incoming vendor defects in parts per million (ppm). • Outgoing product defects in ppm. • Number of customer complaints. • Warranty claims. • Returns and allowances percentages. • Good units produced/planned output. • Parts availability/on-time deliveries. • Forecast accuracy. • Number of engineering change notices. Delivery/timeliness measures • On-time delivery percentage. • Lead time to engineer (design) a finished product. • Start-up time from design to production. • Component lead times – purchased and manufactured. • Transportation lead time. • Number/percentage of late deliveries. • Number of back orders. • Number of late orders. • Manufacturing lead time (queue, move, cycle). • Set-up number and time. • Inspection number and time. • Value-added/total time. • Waste time. • Average level of order fulfilment. • Order processing cycle time. • Average engineering change notice execution time. • Preorder cycle time.

Hard and soft measurement in benchmarking As a framework, benchmarking involves focusing on quantitative and qualitative measures of performance throughout various levels of the firm. While measurement is hardly new in the area of benchmarking it is nevertheless fraught with problems. Measurements can be either quantitative (hard) or qualitative (soft). McNair and Leibfried (1992) suggest that hard measures make the user feel as if they are dealing with fact. However, quantitative precision is often unable to capture vital insights provided by qualitative indices. In addition to traditional financial measures such as those encapsulated by the Dont Return on Investment model McNair and Liebfried suggest the following quantitative benchmarks:

The danger with quantitative measures is that they are often the parameters that are accorded the greatest level of attention. This focus serves to distract attention away from qualitative indices which are often more difficult to collate. McNair and Leibfried suggest that despite being more difficult to codify it is possible to create proxy measures for qualitative issues. These qualitative proxy benchmarks are reproduced below: (1) The complexity of the product: • Number of material moves. • Number of total parts. • Average number of options. • Number of products produced per line, machine, or plant. (2) Existing capacity: • Number and location of bottlenecks. • Part/component bottlenecks. • Number of process changes. • Preventive maintenance and repair levels.

Productivity measures • Total product output divided by total headcount. • Cost per good unit produced. • Total output of product divided by total resource inputs. • Orders processed/shipped per employee hour. • Value added per employee. • Inventory turnover ratios. • Non-value-added costs/total costs. • Value-added/total costs. Quality measures • Yield rates. • Scrap rates. 38

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

• • • •

Statistical quality control capabilities. Material velocity. Average lot size. Number of material-handling control points. • Demand fluctuation. • Number of quality control/inspection points. (3) Customer satisfaction: • Intention to repurchase. • Satisfaction index (summary of product characteristics). • Actual performance against expectations. • Recommendation to others to buy. • Perceived quality. • Perceived functionality. • Ease of use. (4) Marketing/distribution channel: • Number and location of warehouses. • Number of stockouts. • Total lead time. • Market areas covered/penetration. • Channels used versus available. • Support provided/responsiveness. • Scope of coverage. • Flexibility. • Number of new products. • Product success rates. (5) Paperwork: • Number of days to process an order. • Number of steps/hurdles faced by customer. • Average number of contacts per order filled. • Number of errors/rework. • Number of exceptions generated. • Days to close general ledger/accounts. • Days lag in producting/distributing reports.

It is a bundle of attributes that the customer buys, and which serve to assure the customers of consistent quality plus superior value, for which the customer is willing to give loyalty and pays a premium price. Accordingly the brand does not reside on the shelf even if the product does, but, rather in the mind of the consumer (Agres and Dubitsky, 1996). Brands have multiplicity of meaning. de Chernatony and Dall ‘Olmo Riley (1997) reviewing the literature suggest nine views on brands: (1) Brands as legal instruments. (2) Brands as a logo. (3) Brands as a company. (4) Brands as an identity system. (5) Brands as an image in consumers’ minds (6) Brands as a personality. (7) Brands as a relationship. (8) Brands as “added value”. (9) Brands as an existing entity. Aaker (1996) suggests a similar diversity in identifying variety of elements above those of a product (see Figure 1). In addition to the complexity stemming from the multiplicity of definition, an attempt at measuring the value of brands (or equity) presents its own challenge. Agres and Dubitsky (1996) present the Young and Rubicam model of brand equity measurement across product. The framework evaluates brand value through the use of a 32 item questionnaire along four sets of measures: (1) Differentiation – measures market place distinctiveness of the brand. (2) Relevance – evaluates the level of personal relevance to the user. Figure 1 A brand is more than a product

Brands and brand management issues Brand Personality

Brands have become a major denominator in marketing reality. The word “brand”, especially after the 1980s has become a familiar term, yet few understand the critical differences between a brand and a product. King (1993) clarifies the distinction in saying:

Organisational Associations Symbols PRODUCT Country of Orgin

A product is something that you can make in a factory; a brand is something that is brought by the customers. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless (King, 1993).

Scope Attributes Quality Uses

User Imagery

Emotional Benefits Self-Expressive Benefits

In other words a brand is a set of differentiating promises, that links a product to its customers. 39

Brand-Customer Relationships

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

(3) Esteem – assesses whether the brand is held in high regard and considered best in class relative to competitive offerings. (4) Knowledge – measures the level of understanding as to what the brand stands for.

Perceived quality/leadership measures (3) Perceived quality. (4) Leadership/popularity. Associations/differentiation measures (5) Perceived value. (6) Brand personality. (7) Organisational associations.

The framework is based on a sample of interviews of 34,000 adult consumers across 24 countries. The Y&R framework suggests that building of successful brands occurs through a very specific progression of consumer perceptions: first differentiation, then relevance, next esteem and finally knowledge. Wood (1995), adopting an accounting perspective, suggests brand valuations can be made by: (1) Cost – accounting for the cost of establishing and maintaining a brand. (2) Premium pricing – the difference between the brand and a similar unbranded product. (3) Market value – value placed by the buyers. (4) Share of “mind” – awareness of the brand, and esteem with which it is held. (5) Discounted cash flow/earnings multiple – brand valuation based on assessment of earnings capacity (with provision made for risks).

Awareness measures (8) Brand awareness. Market behaviour measures (9) Market share. (10) Market price and distribution coverage. The measures are classified into five categories, with the first four capturing customer perceptions of the brand along four dimensions of brand equity: loyalty, perceived quality, associations and awareness. The fifth is a market based assessment rather than customer based. In the next part of the paper we illustrate by examining brands in the deodorants sector that the typical focus of benchmarking is on “hard” factors rather than soft qualitative attributes.

Background to the personal care and hygiene sector

Aaker ( 1996) states that good management starts with good measurement, and the key to managing a portfolio is a common set of measures. Well developed and accepted financial measures – such as sales figures, cost analysis, margins, profit and returns on assets (ROA) usually dominate brand objectives and performance measures. The problem is that these measures tend to be short-term, so an attractive investment proposal becomes one that will deliver immediate financial results. Moreover such a system is self perpetuating in that brands that can deliver on these measures attract more resources. Unfortunately this leads to starving of some brand by cutting back on brand building activities that do not pay off in the short run. Clearly the challenge is to develop credible and sensitive measures of brand strength that supplement financial measures with brand asset measures. Aaker suggests ten measures to measure equity, which he terms “The brand equity ten”:

The personal care sector has developed considerably over the last decade. The total market for personal care products has grown significantly (see Table I). The personal care for women’s antiperspirant is relatively mature, although sales are showing steady growth. The market for men’s personal care products has grown rapidly. Of particular significance is that both men and women are demanding gender specific products at the expense of unisex products. Moreover, increasingly there has Table I Retail sales of antiperspirants, deodorants, bodysprays, 1991-96

Index £m 1991 prices £m at 1991 1992 1993 1994 1995 1996(est)

Loyalty measures (1) Price premium. (2) Satisfaction/loyalty.

229 240 258 276 288 300

100 105 113 121 126 131

Source: Market Intelligence, 1996 40

229 225 233 240 244 247

Index 100 98 102 105 107 108

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

been a trend by consumers to view the product less in purely functional terms.

Table IV Manufacturers’ shares for men’s deodorants/antiperspirants, 1994 and 1995

Percent 1994 1995 of change £m Percentage £m Percentage 1994-95

Companies and brands The key players in this market and their brands are shown in Tables II and III. Elida Fabergé and Gillette are the dominant players in the market accounting for major shares of the market. A similar picture is apparent in the male toiletries sector (see Table IV and V) The overall leaders are Elida Faberge and Gillette, each having leading brands in both men’s and women’s deodorants. Elida Faberge leads the body spray sector which it pioneered first with Impulse for women in 1979 and then Lynx for men in 1985. The mechanism of building the brands has been through advertising and promotion. Advertising spend in the sector although exhibiting fluctuations has continually risen (see Table VI).

Elida Fabergé 18.2 Gillette 6.2 Procter & Gamble 5.2 Carter-Wallace 1.6 Cusson’s 1.6 Other brandsa 19.2 Total

Elida Fabergé Sure Vaseline Intensive Care Total Elida Fabergé

Percentage

32 6 48

24 5 29

18.9 8.1 4.9 2.2 1.6 18.4

35 15 9 4 3 34

+3.8 +30.6 –5.8 +37.5 – –4.2

100

54.0

100

+3.8

Note: aincluding own label. Data may not equal total due to rounding Source: Market Intelligence, 1996

Table V Manufacturers’ shares for men’s bodysprays, 1994 and 1995

Percent 1994 1995 of change £m Percentage £m Percentage 1994-95 Elida Fabergé 33.1 Procter & Gamble 5.2 a Gillette Other brandsb 19.7

Table II Brand shares for women’s deodorants, antiperspirants, 1995

£m

52.0

35 12 10 3 3 37

Total

58.0

57 9 34

29.9 4.9 4.9 21.4

49 8 8 35

–9.7 –5.8 – +8.6

100

61.0

100

+5.2

a

Note: a included in other brands

Gillette Right Guard Natrel Plus Total Gillette

17 16 33

13 12 25

Soft & Gentle (Colgate-Palmolive) Mum (Bristol-Myers Squibb) Arid (Carter-Wallace) Amplex (Sara Lee) Other brands Own label

18 11 4 2 10 15

14 8 3 2 8 11

131

100

Total

b including own label. Data may not equal total due to rounding

Source: Market Intelligence, 1996

Table VI Main monitored media advertising expenditure on antiperspirants, deodorants, bodysprays, at rate card cost, 1991-96

1991 1992 1993 1994 1995 1996

Source: Market Intelligence, 1996 Table III Brand shares for women’s bodysprays, 1995

Impulse (Elida Fabergé) Coty (Coty UK) Limara (Beiersdorf) Othersa Total

£m

Percentage

22 3 2 15 42

52 8 5 35 100

£m

Index

Percentage of sales

19.4 14.2 24.2 21.9 29.3 31.9

100 73 125 113 151 164

8.5 5.9 9.4 7.9 10.2 10.6

Note: * MAT to June. Source: Register-MEAL/Market Intelligence, 1996 The breakdown of advertising spend in brand terms is presented in Table VII. Table VII highlights that the top six brands accounted for 38 per cent of total spend. One of the reasons for such high advertising to sales

Note: a including own label Source: Market Intelligence, 1996 41

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

(2) Body friendly: • natural ingredients; • environmentally friendly; • feels comfortable on the skin; • does not block pores; • dermatologically tested product. (3) Perfume: • pleasant perfume; • long lasting perfume; • leaves the user smelling nice. (4) Versatility: • can be used instead of perfume; • suitable for all-over use.

Table VII Main monitored advertising expenditure, top six brands, 1995

£m

Percentage of total

Vaseline Intensive Care Sure Lynx Impluse Right Guard Natrel Plus

5.5 4.8 4.5 3.6 2.7 2.4

19 16 15 12 9 8

Others

5.8

20

Total top six

23.5

80

Total

29.3

100

As far as consumers are concerned deodorants are equally about body comfort as functionality. Functionally deodorants should ideally prevent wetness and body odour, as opposed to blocking or masking it. In this equation the softer aspect, namely the perceived confidence-giving attribute of deodorants, is an augmented benefit. The discussion that follows is based on the MAI Research (1992) report. The report is based on a survey interview of 800 consumers in the UK (481 women and 321 men), in which brands were rated on a number of attributes on a scale from 10 (excellent) to 1 (very poor).The brands included in these ratings were Elida Gibbs’ Sure, Impulse and Lynx; and Gillette’s Right Guard and Lynx. All the major brands received very similar rating in the functional effectiveness attributes. However, there appear some interesting differences in perception of the brands’ more peripheral attributes. Among the women interviewed: • Impulse scores highest on “refreshing to use”. • Right Guard scores lowest on the more “soft”, peripheral attributes, like “pleasant perfume”, “long-lasting perfume”, “having a nice pack” and “making me more attractive”. • Impulse scores highest on “pleasant perfume”, “long-lasting perfume” and “making me more attractive”. • Natrel Plus and Impulse score highest on “have a nice pack”, “not leaving deposits” and “drying quickly”. • Natrel Plus scores much higher than all other brands on “environment friendly” • a result of clever advertising, depicting the product as being “close to nature”. Among the men interviewed:

Note: Data may not equal totals due to rounding Source: Register-MEAL/Market Intelligence, 1996 ratios is that the major player relies almost exclusively on TV medium to reach a mass audience and promote the desired image. The above analysis shows the use of typical quantitative measures. These measures if used to benchmark provide insights but these remain primarily market based. Interpretations resulting by benchmarking against such hard metrics yields only superficial insights as to how well the companies and their brands are doing. Such metrics say little in the way of how they have got there, how they could improve the product, what new product opportunities exist and what is the most appropriate process of building new positions for the brands. In order to understand such issues organisations need to involve themselves in qualitative terms of assessment. In the following we present a qualitative assessment of the major brands identified using a version of Kotler’s (1991) expanded concept of product.

Qualitative dimensions of brands In understanding qualitative dimensions it is necessary to define the key reasons for using deodorants. The key attributes that a deodorant should have can be classified in four categories: functionality, body friendliness, perfume and versality: (1) Functionality: • effective against body odour; • keeps the user dry all day long; • product dries quickly; • keeps the user feeling fresh. 42

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

• Right Guard scores slightly higher on “keeps me dry all day” (clever advertising campaign, with the “hands up” strapline), but on few other attributes. • Lynx scores highest on “having a nice pack”, long lasting perfume” and “making me attractive” (here it appears that advertising has been successful in projecting an image on to the product; creating a feeling of wellbeing, both physically and psychologically, for the user). • Sure scores highest on “drying quickly”, “no sticky feel”, “suits sensitive skin” and “having a subtle fragrance”. (The more traditional attributes appear to be more important for this brand.) However, Sure scores relatively low on “giving confidence” (a sign that Sure lags behind on the more “soft”, peripheral attributes of deodorant brands which are taking on increasing importance).

those which are functional and generally listed in the product specification, like “non-sticky” and “quick-drying”. The peripheral, extended or “soft” product attributes are those which are less tangible but no less significant to the consumer. These include attributes such as “making the user more attractive”. Figure 2 illustrates the ideal deodorant attributes – i.e. what the consumers indicate they want and need from the product. This enables a comparison to be made between this “ideal” and how each brand is perceived by the consumers. It may be possible, therefore, to draw conclusions about any potential areas for development and improvement in the brands. Both in comparison with the consumers “ideal” model, and the perceived attributes of competitor products. Sure Sure is a well-established, traditional brand; and the major attributes as far as the consumer is concerned are illustrated in Figure 3. The brand scored highest on the following attributes: • Effective against wetness (8.6). • Prevent odour all day (8.5). • Keeps me fresh (8.5). • Refreshing to use (8.4). • Keeps me dry all day (8.3). • Drying quickly (8.3). • No sticky feel (8.3). • Giving confidence (8.1).

Perceived brand attributes Looking more closely at the ratings for each individual brand by selecting those attributes for each brand with the highest scores (i.e. 8 or more on a scale from 1 to 10) we can compare different products. The products are each illustrated with a diagram so as to exhibit its distinctive attributes; both specified, and peripheral or extended. (Figures 2 to 7). The specified attributes are Figure 2 “Ideal” brand attributes of anti-perspirants

Confidence-Giving

EXTENDED PRODUCT

Quick Drying Fresh all Day No Stickiness

Effective against Odour and Wetness

Dry all Day

No Deposits Perfume No Sting Makes User More Attractive

Refreshing

Environment Friendly

Comfortable on Skin

Suits Sensitive Skin CORE BENEFIT

SPECIFIED PRODUCT

43

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

Figure 3 Perceived brand attributes: Sure

Confidence-Giving

EXTENDED PRODUCT

Quick Drying Fresh all Day No Stickiness

Effective against Odour and Wetness Dry all Day

Refreshing

Comfortable on Skin

Suits Sensitive Skin CORE BENEFIT

SPECIFIED PRODUCT

Lynx Again, effective and well targeted positioning has been used to establish this product, supported by image-projecting advertising. This brand is much more than merely a functional deodorant, and has become market leader as a result. Figure 5 illustrates the major attributes of Lynx, as perceived by consumers. Lynx is perceived to score highest on the following attributes: • Refreshing to use (9.0). • Not leaving deposits (8.7). • Pleasant perfume (8.7). • Drying quickly (8.5). • No sticky feel (8.4). • Effective against wetness (8.3). • Keeping me fresh (8.3). • Prevent odour all day (8.0).

• Suits sensitive skin (8.0). Sure scores well on many of the functional attributes, but the more peripheral attributes are less well represented, as perceived by consumers. Impulse Clever advertising and good market targeting and positioning has ensured the success of Impulse primarily as a perfume; secondarily as a deodorant. Figure 4 illustrates the main attributes as perceived by the consumer. Impulse scores highest on the following criteria: • Pleasant perfume (9.4). • Refreshing to use (9.3). • Drying quickly (9.1). • No sticky feel (8.9). • Keeping me fresh (8.6). • Not leaving deposits (8.6). • Long lasting perfume (8.6). • Giving confidence (8.6). • Having a subtle fragrance (8.4). • Making me attractive (8.4). • Effective against wetness (8.2). • Keep dry all day (8.0).

Lynx clearly scores as strongly on many functional and body comfort attributes. Next we compare attribute scores of Elida Faberge brands with those of Gillette’s brands. Natrel Plus A relative newcomer to this market, Natrel Plus from Gillette appears to score quite a hit, largely due to its “close to nature” appeal in both image and advertising. This appeal extends to the product being perceived as being environmentally friendly by consumers – whether it actually is or not! The major

Impulse scores higher on the more image and style oriented attributes – the peripheral, “soft” aspects of the brand. It is perceived as being a perfume and a younger woman’s product. 44

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

Figure 4 Perceived brand attributes: Impulse

Confidence-Giving

EXTENDED PRODUCT

Quick Drying Fresh all Day Effective against Odour and Wetness

No Stickiness

Dry all Day

No Deposits Perfume Refreshing Makes User More Attractive

CORE BENEFIT

SPECIFIED PRODUCT

Figure 5 Perceived brand attributes: Lynx

Quick Drying

No Stickiness

EXTENDED PRODUCT

Fresh all Day

Effective against Odour and Wetness

Dry all Day

No Deposits Perfume Makes User More Attractive

Refreshing

CORE BENEFIT

SPECIFIED PRODUCT

attributes of this brand, as perceived by consumers, are illustrated in Figure 6. Natrel Plus scored highest on the following attributes: • Drying quickly (9.0). • No sticky feel (8.8). • Refreshing to use (8.7). • Pleasant perfume (8.7). • Effective against wetness (8.6).

• Not leaving deposits (8.6). • Giving confidence (8.6). • Prevent odour all day (8.5). • Keep me fresh (8.5). • Keep dry all day (8.4). • Environment friendly (8.4). • Having a subtle fragrance (8.4). • Suit a sensitive skin (8.3) 45

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

Figure 6 Perceived brand attributes: Natrel Plus

Confidence-Giving

EXTENDED PRODUCT

Quick Drying Fresh all Day Effective against Odour and Wetness

No Stickiness

Dry all Day

Makes User More Attractive

Refreshing

Environment Friendly

Perfume

Suits Sensitive Skin CORE BENEFIT

SPECIFIED PRODUCT

The product also scores well on functional and body comfort criteria. However, this was the only brand that was perceived by consumers to be environment friendly.

Figure 7 illustrates consumer perceptions of the brand’s main attributes. Right Guard scored highest on the following attributes: • No sticky feel (8.9). • Effective against wetness (8.7). • Keep me fresh (8.6). • Drying quickly (8.6). • Prevent odour all day (8.5). • Refreshing to use (8.4). • Keep dry all day (8.0).

Right Guard This brand has been around a fairly long time, and has been promoted very much as a hard working, no-nonsense deodorant; for hardworking people. So it is positioned more alongside Sure than either Impulse or Lynx. Figure 7 Perceived brand attributes: Right Guard

EXTENDED PRODUCT

Quick Drying

No Stickiness

Effective against Odour and Wetness

Fresh all Day

Dry all Day Perfume

Makes User More Attractive

Refreshing

CORE BENEFIT

SPECIFIED PRODUCT

46

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

Essentially, Right Guard lives up to its reputation, and is perceived as being very functional, with little in the way of peripheral or extended product attributes. From the information presented above it is easily appreciated that building an overall profile of the brand, particularly one which captures qualitative facets of the brand helps in understanding how to manage the brand. The softer understanding of the personality and meanings associated with the brand allows mangers to appreciate more fully the weak points of their brand portfolio as well the nature of their strengths. This deeper understanding also helps to define the space for further brand innovation. Relying solely on quantitative benchmarks provided indication primarily about the market equity and brand strength but offered little insight as to how the brands could be further developed or strengthened.

similar to one another revealed that consumers were more likely to find differences in categories that rely on emotional appeal (such as cigarettes, beer) than those utilising predominately rational appeals (such as cleaning agents). Biel (1997) suggests that the possible explanation for this maybe that functional differences between brands are fairly marginal at best. Moreover, technological progress is often so rapid that any advantage based purely on functional features is short-lived. On the other hand, softer characteristics such as brand personality being less constrained than physical attributes are potentially capable of producing greater differentiation. Additionally brand meaning, extending beyond functional attributes provides further advantages; one is that while functional attributes can change, and today’s features of advantage can become tomorrow’s liabilities, brand personalities can tap more enduring values and therefore provide higher likelihood of longevity. Furthermore, brand personality encourages more active processing on behalf of the consumer, suggesting that he/she can interpret a brand’s image in a manner that is more personality meaningful. Although the definition of brand equity is often debated, and the term is frequently confused with brand image, we suggest that there is a clear distinction. Brand equity deals with value, in economic terms, beyond the physical assets associated with manufacture of product or service (Biel, 1997). Blackston (1996) throws insight onto the issue by examing the question of attitudinal and behavioural measurement dimensions of brand equity. He suggests that attitudinal and behavioural aspects are co-alternatives but are both important and necessary dimensions of managing brand equity. Accordingly consumer behaviour (measured as loyalty or willingness to pay a premium for a brand) is what you get if you manage equity well. Attitudes is “what you have to do” to get it. In other words equity is the end, attitudes is the means to the end. These two distinctions are picked by: • brand value; and • brand meaning, respectively.

Conclusions Blackston (1996) defines brands and how to measure it by indicating that brands consist of: • Brand saliency – as an expanded definition of brand awareness. • Brand associations – as perceived characteristics of the brand, the images with which it is associated. • Brand personality – as the type of “human” characteristics with which the brand is endowed. • Brand meaning which contains both hard and soft aspects. Hard aspects such as tangible/functional attributes such as price, speed, user-friendliness, length of time in business, opening hours, number of transactions per minute etc. Brand meaning also contains “softer” attributes such as excitement, trustfulness, dullness, uniqueness, stability etc. These meanings depict three levels of imagery; the image of the provider and product (corporate image), the image of the user, and the image of the product/ service itself. Often a lot of attention is given to hard attributes to a brand while soft aspects are accorded lower priority because they are perceived to have little impact on purchasing behaviour However, emerging research presents evidence that questions the veracity of such perception. BBDO (1988) investigation into the extent that leading brands are truly different or

Brand value is the bottom line of a brand’s merit and often this quantitative dimension receives much higher attention than brand meaning. Brand meaning is the qualitative dimension in the sense that it denotes the 47

Benchmarking for brand innovation

European Journal of Innovation Management

Pervaiz K. Ahmed and Mohamed Zairi

Volume 2 · Number 1 · 1999 · 36–48

qualities of a brand that create value. Since brand value is the outcome it cannot itself be managed but it is the resultant of managing the brand’s meaning. So while it is important to measure value, measuring meaning actually is the basis for managing value. Moreover, since value is dependent in meaning, then altering meaning results in changing the value. Thus, if a benchmarking exercise simply focused on brand value, which the dimension captured by hard benchmark metrics, then the value of the exercise is limited. On the other hand if the exercise includes measuring the meaning and how the brand meaning is created then the benchmarking practice begins to be much more valuable. It is suggested that only by paying attention to both quantitative and qualitative dimensions can benchmarking begin to deliver on its promise as a management tool. We have attempted to demonstrate in this paper the need to address both quantitative and qualitative dimensions in any benchmarking exercise. Often in benchmarking the prime focus is on hard metrics and while this may lead to improvements such narrow focus yields only partial advantages. To be fully innovative, organisations must adopt soft approaches in balance with harder dimensions. In fact, as the paper illustrates, greater innovation opportunity for learning and management presents itself from within softer approaches. Moreover it is highly likely that this is more enduring than purely technical and functional driven advantages gleaned from hard measures and investigations.

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