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Introduction The multicultural context of brand loyalty A brand is a trademark or a distinctive name of a product or m...

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Introduction

The multicultural context of brand loyalty

A brand is a trademark or a distinctive name of a product or manufacturer. It is a name, term, sign, symbol, design or any combination used to identify the goods and services of a seller. A brand name performs many key functions: . It identifies the product or service and allows the customer to specify, reject or recommend. . It communicates messages to the consumer. Information provided could include statements regarding their users' style, modernity or wealth (The Economist, 1994). . It functions as a piece of legal property in which the owner can invest and through law is protected from competitor trespass.

Fred Palumbo and Paul Herbig

The authors Fred Palumbo is an Associate Professor at Yeshiva University, New York, USA. Paul Herbig is a Professor at the School of Business, TriState University, Angola, Indiana, USA Keywords Brand loyalty, Brands, Innovation, New product development, Marketing strategy Abstract In today's global market, a brand's marketing strategy must go head-to-head, not only with regional or national brands, but also with international competitors' marketing strategies. This adds an entirely new dimension to a company's marketing strategy when it comes to identifying, attracting, and retaining a market. This paper examines the concept of brand loyalty, discusses the various issues connected with brand loyalty, discusses cross-cultural views on brand loyalty throughout the world, and illustrates the proliferation of brand loyalty across international frontiers. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com

European Journal of Innovation Management Volume 3 . Number 3 . 2000 . pp. 116±124 # MCB University Press . ISSN 1460-1060

Brand names convey the image of the product; ``brand'' refers to a name, term, symbol, sign or design used by a firm to differentiate its offerings from those of its competitors, to identify a product with a particular seller. Branding adds value to products and services. This value arises from the experience gained from using the brand: familiarity, reliability, and risk reduction; and from association with others who use the brand. A brand is both a physical and a perceptual entity. The physical aspect of a brand can be found located on a supermarket shelf or in the delivery of a service. The perceptual aspect of a brand exists in psychological space ± in the consumer's mind (American Demographics, 1994). A successful brand has a recognizable name which signals specific attributes to the consumer (i.e. quality, elegance, value). The ability to make a consumer repeatedly seek out and buy one brand over another, even when others offer coupons or lower prices, is brand loyalty. Traditionally, marketing's main goal had been targeted at increasing sales by attracting a steady stream of new customers. The focus of marketing is now being shifted towards a company's existing customer pool. Customer loyalty programs are designed to turn one time buyers into brand loyal customers (i.e. turning one time buyers into customers who will purchase the product over and over again). Customer retention is critical since it has been shown that it is up to five times less expensive to sell to a loyal customer as it is to create a new one. Management consultants

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European Journal of Innovation Management Volume 3 . Number 3 . 2000 . 116±124


explain that companies that improve their customer retention programs by a mere 5 percent can expect to gain a profit rise anywhere between 20 percent and 125 percent (McDonald, 1994). Nonetheless, companies accept the fact that there are some customers who are not worth keeping: an ideal customer is of adequate size with reasonable demands and with the capability of becoming a long-term customer. Research has shown that consumers use perceptions of a family brand to evaluate new products introduced under its umbrella (Aaker, 1996). On the basis of this premise, major corporations such as Gillette and Sony leverage their equity by launching new products using family brand names. Successful extensions can provide several marketing benefits, such as reducing costs of introduction and minimizing the risk of new product failures. However, failures can lead to negative perceptions, which may be difficult to reverse (Aaker, 1991). Therefore, brand dilution or enhancement, either to prevent negative perceptions or to enhance existing equity, is of critical interest to managers. Not all products, though, have the possibility of creating brand loyalty. Simple commodity products experience low customer retention. Consumers usually purchase a lower price product when shopping for paper products such as paper towels, toilet paper, and facial tissue. Frozen vegetables, frozen entrees, and cat food have been found to have the least brand loyalty. Products with strong brand loyalty include mayonnaise, soft drinks, and bar soap. A perfect example of how important brand loyalty is for some products is the beer industry. When beer drinkers are asked why they drink a certain brand of beer, they inevitably always say that it is because of the taste. Blind taste tests, however, have shown that beer drinkers often have different taste reactions the second time. This indicates that beer consumers are actually being sold on the image of the product and not the product itself (American Demographics, 1994). Brand image also contributes heavily to a luxury product's success; few people buy luxury names they do not know. Also, penetration levels of any brand are strongly affected by its awareness level and the relationship is strong between awareness and purchase (Dubois and Paternault, 1995).

The catalog industry is another example of a business sector that enjoys great benefits from loyal customers. According to direct mailers, loyal program members order merchandise twice as often, spend as much as three times more money, and are up to five times more profitable than non-members. These loyalty program members can account for up to one-half of all purchases, even though they represent only 10 to 15 percent of a catalog company's customer base (Chevan, 1992).

Adoption of innovations The existing cultural conditions always determine whether, when, how, and in what form a new idea will be adopted. If the behavior, ideas, and material apparatus that must accompany the use of innovation can affect improvements along lines already laid down in the culture, the possibilities of acceptance are much greater than if such were not the case. This is not to say that culture is the only variant that may influence innovative behavior (i.e. the acceptance of new brands and/or products). Although most studies cited indicate culture can explain between 33 per cent-65 per cent of the variance, these intrinsic factors alone are insufficient alone to explain the total differences seen. Other studies (Herbig and Kramer, 1992) have conjectured the cause for these differences as external factors, items intrinsic to the cultural base of a society. These external factors are called structure, the economic and political institutions that surround the cultural base of a society. Structure, through monetary policy, regulation, economic incentives, etc., certainly can and does influence adoptive behavior. Consumers' degree of innovation influences their propensity to try new products. Various researchers have found differences among individuals with respect to innovation. They found it to be positively related to the ability to deal with abstractions, the ability to cope with uncertainty, with openness to change, education, and science (Seth et al., 1991). As innovation is related to tolerance for ambiguity and deviant ideas culture will play a role. Members of weak uncertainty avoidance cultures may be more innovative than individuals of strong uncertainty avoidance cultures. How innovation operates in cultures

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depends on its configuration with other dimensions. The configuration of four of Hofstede's dimensions can explain why Anglo-Saxon countries tend to include more innovative people than do other cultures. Members of cultures with a large power distance and collectivism configuration are found to show a higher degree of brand loyalty. Conformance to the group plays a role: when an individual chooses another brand than the group-members or switches brands, it distinguishes this person from the group. It is preferable to choose the popular or perceived popular brands; and cultures with large power distance and collectivism configuration reflect higher brand loyalty scores. This is reinforced in societies with a high uncertainty avoidance dimension, which makes it very difficult for new entrants to gain market share (Mooij, 1998).

International brand loyalty Brand and brand loyalty problems are magnified in the international marketplace. In today's global market, a brand's marketing strategy must compete head-on, not only with regional or national brands, but also with international competitors' marketing strategies. This adds an entirely new dimension to a company's marketing strategy when it comes to identifying, attracting, and retaining a market. The potential contributions to brand equity that flow from associating a brand with global consumer culture have long been recognized (Aaker, 1991). Brands with a global image may derive their additional power and value from consumer attributions of enhanced selfworth and status through purchase of the brand. That is, consumers may purchase certain brands to reinforce their membership in a specific global segment, such as teenager, business, government/diplomatic, elite, etc. (Alden et al., 1999). Brands have staying power due to the promotional efforts expended by companies to create awareness and image for their brands. Standardization of both the product and brand are not necessarily consistent; a regional brand may have local features or a highly standardized brand may have local brand names. As a result of separate marketing, Unilever sells a cleaning liquid called Vif in Switzerland, Viss in Germany, Jif

in Britain and Greece, and Cif in France. It would be very difficult to create a Eurobrand since each brand name is well established in each local market. Brand names often are difficult to standardize on a global basis. Johnson's Pledge furniture cleaner is called Pronto in Switzerland and Pliz in France while retaining its American brand name in the UK. Translation problems could render the translated version obscene or with a negative connotation (local slang or idioms). The brand name could already have been registered with another local or international company. Yet, many brand names are worth their weight in gold. Anyone's list of the top ten global brands would have many of the same companies: Coca-Cola, Sony, Kodak, Disney, Nestle, Toyota, McDonald's, IBM, Pepsi-Cola. Global brands carry instant recognition and especially for international travelers represent a risk avoidance strategy versus using local brands. European consumers buy American, for its quality, prestige, and American image. Goodyear sells its tires in Germany with images of Indy Cars. Budweiser has made a name for itself as a premium brand with an American ad campaign. Europeans also pay premium prices for American goods: $7 for a six pack of Bud in the UK versus $3 in the USA. European teenagers wear baseball caps (backward of course) and football jackets over their basketball t-shirts. Jack Daniels and Southern Comfort have prospered as American Brands (Milbank, 1994). The Japanese lean towards pastoral names or female names for their car models: Bluebird, Bluebonnet, Sunny, Violet, Gloria versus animals and power names for American car models: Mustang, Cougar, Cutlass. The first sports car Nissan sent to the USA was named Datsun Fair Lady. Seeing a fiasco in the making, the name was changed to 240Z. Branding, however, is not a guarantee for success in the global market (Onvisit and Shaw, 1989). Some restrictions on brand names exist: ``med'' in France is limited to medicated products, thus potentially causing firms to adjust brand names. The lack of success of Suchard's entry into the UK market demonstrates that if you are a powerful marketer in one country, you cannot literally transfer those brands and still expect them to be a success. The UK chocolate

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company, Thorntons, experienced difficulties in France. Cadbury followed a fragmented branding approach, retaining the brand names on the various companies it has acquired in Europe (Littler and Schlieper, 1995). Coca Cola uses Coke Lite as a brand name instead of Diet Coke in France since the term ``diet'' is restricted due to medical connotations and suggests poor health.

International product portfolio analysis The Boston Consulting Group (BCG) originated an early version of product portfolio analysis. The BCG version classifies a company's products into four categories: stars, cash cows, problem children, and dogs. The classification is based on market share and market growth rate. The optimum product portfolio for one market is different from that of another. Product A, for example, may be a star in country X, and a dog in country Z. Individualizing the use of portfolio techniques for each country will help define different product portfolios for each foreign market. Although portfolio analysis of products for international sale is relatively new, it can assist the company in determining how to allocate resources among different markets. Positioning a new product/brand depends upon the firm's ability to describe product attributes that will generate a flow of benefits to buyers and users. The international marketer planner must put these attributes into bundles so that the benefits created match the special needs of each targeted market segment or subculture. Product positioning then is viewed in a multidimensional space, commonly referred to as the``perceptual space'' or ``product space'' (Johanson, 1985). In terms of perceptual space, a particular version of a product is graphically represented as a point specified by its attributes. Competitors (local and international) and other products are similarly located. If points representing other products are close to the point representing the new product, then these are products similar to the new prototype. If the prototype is positioned away from its closest competitors in the world markets and its positioning implies positive features, then it is likely to have a significant competitive advantage. This mapping process is

appropriate for each foreign country/market segment contemplated.

Cross cultural brand loyalty ± USA One of the advantages for US companies is the fact that the USA is one big melting pot. However, the cultural significance of ethnic consumption exists and is an important factor in marketing decisions. Before investing monies in international research, companies should do their preliminary research at home before trying to define the type of research to be conducted abroad. Marketers must look at the consumption patterns of the various subgroups as they are in their country of origin to adequately target their prospective customer. By identifying similarities between immigrants in the USA and the people from their home countries, much of the preliminary work can be completed before venturing into foreign markets to conduct research. For example, a new study found that ethnic minorities spend more money per household on groceries than the general population. African-Americans spend an average of $66 per week on groceries, while Asian-Americans spend $87, Hispanics $91, and the average US household spends only $65. One explanation given for the larger purchases from minority families is that they tend to have larger families. Another explanation, which should be considered by marketers, is that minorities tend to purchase more brand products and spend more on quality products (Rickard, 1994). Minorities are also known to be less cynical about advertising messages because they are actually seeking out information about the product: information that the general public may take for granted. Another study shows that the AfricanAmerican spends about $350 billion annually, Hispanics about $200 billion a year, and Asian-Americans about $120 billion a year (Loro, 1994). When reaching for the Hispanic market, door-to-door sampling is preferable to direct mail, in-store and newspaper sampling programs. The Hispanic and Asian cultures are very much into building relationships for business. This type of contact builds stronger ties with the consumer and products (Loro, 1994). Although some cultures (e.g. Hispanics) do not respond well to coupons, other cultural groups such as the African-Americans do.

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This is one way of building brand loyalty by reaching a group of people who have not been contacted before. US products that are international tend to pursue a policy of standardized branding (Rosen et al., 1995). The majority of US brands do not. The apparent standardization is the result of extensive distribution of a few brands worldwide (Coke) rather than wide distribution of many brands.

European brand loyalty A survey administered to adults in England by BMRB International reports that over half of the UK's most affluent shoppers do not follow the trend of switching brands. When consumers find a brand they like they stay with it: 61 percent of the adult shoppers ``tended to agree'' with this philosophy of brand loyalty. Another finding that may be alarming to retailers is that 50 percent of the respondents do not believe brands are better than own-label. When asked whether they looked for the lowest price, 8.2 percent responded affirmatively while 2.7 budget for every penny spent on household shopping (Marketing, 1995). There seems to be trend in the UK to create brand loyalty through coupons. According to NCH Promotions the overall UK market grew by 5.15 percent in 1995 due to retailerfunded coupons (Walker, 1996). Catalina Corporation has developed electronic coupon checkouts in the UK market, the most sophisticated point-of-purchase technology in the country. According to Catalina's managing director, ``Catalina is able to drive categories and brands, increasingly without wastage''. Some ad agencies, however, feel that Catalina is only able to facilitate shortterm brand switching. In March 1996, NatWest became the first UK bank to issue promotional vouchers via 1,000 cash machines to its customers. Each voucher, besides carrying the promotional message from advertisers such as Buena Vista Home Entertainment, SeaFrance and the Guardian, also carried the NatWest brand name. According to research, 67 percent of bank customers were likely to use the promotional vouchers dispensed from ATM machines along with their cash (Walker, 1996). Other banks are expected to follow NatWest's footsteps. Manufacturers are

excited about profiling customers who make cash withdrawals and targeting them for further coupon promotions. P&G in the UK has adopted a new strategy. Instead of concentrating on promotional activity and advertising, the company has allocated budgets to fund low prices in order to build brand loyalty and promote its label's growth in the UK market (Richards, 1996). In other words, P&G is forcing customers to switch brands to get the best value. Contradictory to the belief of companies such as Catalina, P&G has taken a diametrically opposite view, claiming that coupons and other promotions create confusion, decrease customer loyalty and increase system costs. On the other hand, there is an argument that only strongly established brands like P&G can afford to use price cuts as a means of increasing brand loyalty. Less known brands may not achieve the same result.

Brand loyalty in Japan The Japanese worship brand names, the perfect solution in a society where individual preference is muted. Once a designer name or brand logo catches on, the scramble begins. As soon as consumers are confident the logo means status or prestige, they will snap up anything that sports the reassuring logo. The Japanese have taken this fanaticism a step further. They do not rush out and buy just any recognizable brand; they buy catalogs filled with photographs of accepted brand products. Before making a purchase, many consumers must consult a reference work to guarantee its prestige. Different reasons for this brand loyalty exist according to age groups. The main reason the older Japanese rely heavily on brand names is that in their formative years (during the Second World War and the years of postwar poverty) goods were scarce and few opportunities existed. Unsure of exactly what they wanted, they opted for the safety of a famous name. Young Japanese consumers tend to prefer brand names because of their fashion consciousness. Consumers associate product quality, safety, and reliability with the image of the company that produces it. They need to see the company as trustworthy and reliable in order to evaluate a brand favorably (Nishikawa, 1990).

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This hierarchical concern with brands can be seen in the way the various Suntory brands have occupied different positions in society. In the early 1960s, the best selling Suntory was a light whiskey called Red; a few years later, Kaku was priced higher. The most premium brand was called Old. Later on, priced even higher for senior executives, came Suntory Reserve. When a Japanese salaryman selects a Suntory brand, he does so solely according to his position in the company. Suntory Old dominates the Japanese market in the middle level; and Reserve is what you drink when you reach high management (Fields, 1984). When Nabisco went to Japan, consumers there found the Oreos too sweet, so the amount of sugar was reduced to give them a more bitter taste. Some consumers still found them too sweet and told Nabisco they ``just wanted to eat the base'' without the creme. Nabisco added a modified Oreo without the creme, Petit Oreo Non-Creme Cookies, which consisted of single wafers without the creme. Coca-Cola changed Diet Coke to Coke Light in Japan; Japanese women do not like to admit to dieting in Japan because the idea of diet implies sickness or medicine.

Brand loyalty in other countries In Cambodia, beer drinkers display little brand loyalty. This has driven beer manufacturers to engage in all kinds of tactics to reduce brand switching among consumers, such as give-aways, ring pull or bottle top competitions, point-of-purchase promotions and billboards (Business Asia, 1996). Name changes are not necessarily voluntary: in India, because of a ban on the use of foreign brand names, hybrid brand names are the norm: Maruti-Suzuki, Dcm-Toyota, KineticHonda, Lehar-Pepsi (Asian Advertising and Marketing, 1992). Air travel is an essential means of transportation in Australia. The deregulation of the airline industry in 1990 caused the entry of Compass Airlines into the Australian market. Compass was able to give better prices and unrestricted fares to consumers, thus capturing 20 percent of the airline market. Threatened by Compass, both Australian and Ansett Airlines introduced frequent flier programs to increase brand loyalty among their customers (Brown et al., 1995).

Philips, the Dutch electronic company, is focusing its marketing effort on Central Asia. Its current strategy is to set up a strong presence in Asia, build brand loyalty for its labels among distributors and customers, besides establishing a reputation at the top end of the electronics market (Crossborder Monitor, 1995).

Creating brand loyalty Three recommendations for creating brand loyalty are suggested by Edmondson (1994): (1) Give your brand a good cause. By associating a brand with a good cause, the product is distinguished from the competition by adding a benefit. Consumers will feel that by purchasing the product, they are also helping a good cause. (2) Get permission, then get personal. Get to know the customer. By knowing the customers, companies can always keep in touch with them and inform them of special offers or promotions. But...get their permission first. The strategy may backfire when you contact customers who get annoyed if direct promotional literature is sent to them. An example of this type of mishap is a jewelry company that sent out mailers to customers who had purchased a high priced piece of jewelry. The company sent out promotional literature and mentioned the fact that an expensive piece of jewelry had been purchased recently by the receiver. Wives of some of the men who received the mailers did not know of the purchases, which left some very angry men. (3) Sell with information, not hype. We live in a world of information, but what customers actually want is knowledge. So not only do consumers want substance, but they also want entertainment, and as if that was not enough, they also want it on their terms. With regard to services, Stern (1997) proposes intimacy theory as the basis of services relationships. Drawing from psychology and social psychology the author presents attributes that service marketers need to be aware of in building brand loyalty. Referring to Home Depot's relationship

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strategy, the researcher suggests that when service personnel take the time to understand the home-repair problem and build trust with the consumer, loyalty is created by providing a customer benefit that is valued and remembered. In the global marketplace, international companies have tried to follow the steps of the successful global brands such as Coca-Cola, Nike, and McDonalds. The name of the game has been standardization because of the economies of scale. In reality, few successful global brands are fully standardized. Manufacturers desire global brands not consumers. Consumers do not care if the brand is global, and they increasingly prefer local brands or what they perceive as local brands. The major multinationals have learned their lessons about globalization. Many of them have restructured their organizations and harmonized their brand portfolios; others are in the process of doing so (Milbank, 1994)

Brand loyalty marketing Ten basic principles to build enduring, profitable growth for brands and their companies are recommended by Light (1994): (1) The pillars of brand loyalty marketing are the four basic elements that every marketing plan should contain to be effective in creating brand loyalty. Those elements include: identifying; attracting; defending; and strengthening brand loyalty. In addition, a company should be able to determine whether the marketing efforts are helping or hindering brand loyalty (2) Brands do not have life cycles. Although products go through life cycles, brands do not necessarily experience them. The value of some brands even increases over time, which has been the case with companies such as Levi's and Coca-Cola. (3) Build leadership based on brand loyalty. A company can become a leader through brand loyalty. A loyal customer can be nine times as profitable as a disloyal one. It makes smart sense to target loyal customers. (4) Be a leader in every market in which you choose to compete. When a company decides to go into a market, it must do so

with full force. The profit received from market leaders is three times greater than for market followers. (5) Avoid under-marketing leaders. To maintain a lead in market share, a company must support marketing to the fullest. Reaching the top only means that the real job has just begun. Maintaining a top position requires more work than reaching the top. (6) Be a pioneer. Leaders are usually associated with pioneers. Most leaders in industries are usually also innovators and creators of products. To maintain this position, companies must invest heavily in research and development. Pioneers are faced with the heavy cost burden of research and development, whereas companies that copy or clone are not. (7) Know the value of your customers. Companies must determine the value of their existing customers. They should note their likes and dislikes, as well as their purchasing power. Knowing the value of the customers allows companies to better adapt products for a better acceptance of their loyal customers. (8) Keep your loyalists sold. By learning more about customers, a company has a much better chance of keeping these customers. It is not enough just to keep customers, a company must work to keep them satisfied as well, and aware that they are satisfied. Satisfied customers translate into loyal customers. (9) Sell on quality, not on price. The basis for even having loyal customers is quality. The primary focus of a marketing plan should be the quality of the product, and not how inexpensive it is. (10) Branding policy is business policy. Building brand loyalty will endure profitable growth as well as sales volume.

Conclusions and implications The future of global marketing strategy will be differentiation between cultural and economic or other non-cultural factors, and the development of relevant product-market combinations for cultures with different configurations on Hofstede's dimensions. A pan-European or global brand, by the very variety of its audience, requires a simple package design. Impact and clarity have to be

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the key criteria. Names must be simple and easy to pronounce, avoiding the doubleentendre pitfalls from language to language. The package design focus is on building recognition, unclouded by emotional imagery that might associate the brand too closely with one culture. Global visual familiarity on the scale of Coca-Cola is built up over many decades of careful product association, advertising, promotional activity, and product availability. A global brand is one that is perceived to reflect the same set of values around the world. The same set of values or brand character forms the key in global brand strategy (Chevron, 1995). According to Omellia (1995) successful global brands must anticipate cultural trends, styles and evolving consumer values in order to appeal to customers across international boundaries; a product's relevance to its customers dictates its global potential. Brands that have a large disparity in consumer regard and image are not as likely to find a standardized global positioning to become a global brand. Successful multicultural advertisers have secured brand loyalty from culturally diverse consumers by tailoring the brand's image to reflect individual cultures. With regard to brands, creation or maintenance of a global brand is highly dependent upon the existing status of the brand. If the company has maintained independent brand names for the same product for numerous countries, it becomes more difficult and chancy to implement a single global brand name. If the product has been adapted in various countries to accommodate local tastes, the creation of a single global brand is not recommended. McCann-Erickson Worldwide indicates that: ``to Brazilians, beer is a soft drink; to Germans, good beer is the one that's locally brewed; to the English, lager beer is a new product; to Americans, beer is a boy-meetsgirl drink; and to Australians beer is a man's drink''. European retailers are moving away from distributors of packaged goods and becoming consumer marketers with their own private label brands (Adweek, 1994). Private labels, or manufacturers' `òwn-brand'' (for example, H.E.B. Brand in Texas) have shaken up the packaged goods industry in North America and Europe. They have claimed 31 percent of the UK's grocery sales and 21 percent of Canada's, according to Datamonitor and

A.C. Nielsen respectively. Interestingly enough, `òwn-brands'' sales volume is comparatively weaker in less developed countries such as Argentina and India due to the lack of large supermarket chains. As a matter of fact, private labels have barely even affected the Hong Kong market where high disposable income has created high-price brand loyalty. Other countries such as South Africa and Japan, on the other hand, have felt the influence of private labeling (Levin, 1995) The success of private label products can be negatively correlated with the country's economic status. When a country's economy is doing well, then its citizens tend to favor the brand labels. But when the economy is bad, consumers are often willing to substitute brand labels with private labels. Therefore, private label sales tend to be highest in countries either still in a recession, or just climbing out of one, such as the UK. Brand loyalty also can vary across cultures. Chinese consumers tend to be more brand loyal and tend to purchase the same brand or product other members of the group recommend, since they tend to be members of a small number of reference groups. Hispanics tend to be more brand-loyal, more likely to use familiar stores, and more likely to be price and promotion conscious than nonHispanics. This could be due to relatively lower income levels and large family size (Saegert et al., 1985). One explanation for greater brand loyalty and the corresponding less tendency to buy private label brands could be that the purchase of prominent brands connotes the assimilation of ethnic consumers into the mainstream economy. Many new immigrants are familiar with many brands from their native experience, and continue to use those brands from risk avoidance as well as the emotional experiences to which they may be connected in the homeland. Colgate toothpaste holds a 70 percent market share due to its dominance in Latin America. However, Crest, though holding only 15 percent of new immigrants, has nearly twice as many of the acculturated Hispanics. The cultural context of brand loyalty can be explained easily through the use of Hofstede's dimensions. Power distance is the willingness to accept that those with power are entitled to it and those without power ought to accept the way things are and just go along. This is an Asian cultural tendency. Big market-share

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brands are the kings of their brand world and consumers from cultures with high power distance tend to believe in them implicitly: the dominant brand has achieved what it has because it is the best and one should not question it. The power dimension is related to uncertainty avoidance (risk). A third dimension is individualism-collectivism, the degree to which one's individual beliefs are submerged to fit in with the greater good of what is acceptable in society as a whole. Asian cultures tend to be highly collective. This collective orientation has implications for consumer attitude formation and brand loyalty and ensures the survival of the dominant brand (Robinson, 1995). Mooij (1998) suggests that companies should `àct global, think local'' by reaping all the benefits of globalization in production, sourcing, distribution, marketing, and the connected benefits of economies of scale in production and organization, but accept that mental images cannot be standardized. This is the global strategy of those firms who have learned to understand that they will only thrive on respect for and exploitation of local cultural values. These companies build relationships with consumers and their communication objective is to build trust. And, with the advent of new technologies to support the creative effort, this task is most achievable.

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Crossborder Monitor (1995), ``Philips establishes itself in Central Asia'', Vol. 3 No. 50, December 20, p. 8. Dubois, B. and Paternault, C. (1995), `Òbservations; understanding the world of international luxury brands: the dream formula'', Journal of Advertising Research, Vol. 35 No. 4, July/August, pp. 69-76. (The) Economist (1994), ``Brands'', 2 July, pp. 9-10. Edmondson, B. (1994), ``New keys to customer loyalty'', American Demographics, p. 2. Fields, G. (1984), From Bonsai to Levi's, Macmillan, New York, NY. Herbig, P. and Kramer, H. (1992), `Ìnternational product roll-outs: a cross cultural perspective'', Journal of International Consumer Marketing , Vol. 4 No. 1. Levin, G. (1995), ``No global private label quake ± yet'', Advertising Age, international supplement, January 16, pp. I-26. Light, L. (1994), ``Brand loyalty marketing key to enduring growth'', Advertising Age, Vol. 65 No. 42, October 3, p. 20. Littler, D. and Schlieper, K. (1995), ``The development of the Eurobrand'', International Marketing Review, Vol. 12 No. 2, pp. 22-37. Loro, L. (1994), ``Minority promotions pick up the pace'', Advertising Age, Vol. 65 No. 20, May 9, p. S-4. McDonald, M. (1994), ``Make them beg for more'', Marketing, April 28, p. 31. Marketing (1995), ``Wealthy prove loyal'', March 16, p. 3. Milbank, D. (1994), ``Made in America becomes a boast in Europe'', The Wall Street Journal, January 19, pp. B1, B6. Mooij, M. (1998), Global Marketing and Advertising, Sage, Thousand Oaks, CA, p. 135. Nishikawa, S. (1990), ``New product development'', Journal of Advertising Research, Vol. 20 No. 2, April/May, pp. 27-31. Omellia, J. (1995), ``The essence of global branding'', Drug & Cosmetic Industry, Vol. 157 No. 3, pp. 50-5. Onvisit, S, and Shaw, J.J. (1989), ``The international dimension of branding'', International Marketing Review, Vol. 6 No. 3, p. 24. Richards, A. (1996), ``P&G brings its price war to British aisles'', Marketing, Vol. 14, February, p. 14. Rickard, L. (1994), ``Minorities show brand loyalty'', Advertising Age, Vol. 65 No. 20, May 9, p. 29. Robinson, C. (1995), `Àsian culture'', Journal of the Market Research Society, Vol. 38 No. 1, pp. 55-63. Rosen, B.N., Boddewyn, J.J. and Louis, E.A. (1994), `ÙS brands abroad: an empirical study of global branding'', International Marketing Review, Vol. 6 No. 1, pp. 7-21. Saegert, J., Hoover, R.J. and Hilger, M.T. (1985), ``Characteristics of Mexican American consumers'', Journal of Consumer Research, Vol. 12, June, pp. 104-9. Seth, J.N., Newman, B.I. and Gross, B.L. (1991), Consumption Values and Market Choices, Southwestern Publishing Co., Cincinnati, OH, p. 69. Stern, B. (1997), `Àdvertising intimacy: relationship marketing and the services consumer'', Journal of Advertising, Vol. 26 No. 4. Walker, J. (1996), ``Redemption revival'', Marketing Week, Vol. 19 No. 7, May, pp. 67-73.

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1. Introduction

Integrating product and technology development

In a world where product life cycles become ever shorter, competition increases on a global basis, and customers demand more and more of the products they acquire, one of the key problems facing industrial firms is how to integrate product development with development of the technologies (Bhalla, 1987). In this paper, we shall discuss the nature of this kind of integration and propose a number of means for achieving integration between product development and technology development. The case for integration mentioned is illustrated in the example below.

Anders Drejer

Example: different approaches to integration at different times

The author Anders Drejer is a Senior Lecturer based at the Center for Industrial Production, Aalborg University, Denmark.

At Firm A (a major Danish manufacturer of pumps), product development and technology development (in the form of manufacturing technologies) have been located together in one building: the technology center. When employees there are asked to tell why the firm works so hard on integrating product and technology development, they always return to the first few years of the firm's existence, some 50 years back. In those days, product development and process technology development were fully integrated, as it was the founder of the firm who did both. Today the firm has more than 8,000 employees, an annual turnover of £600 million, and manufacturing facilities all over the world. In the technology center alone 700 people work on developing new products and process technologies for the firm. Things have become a little more complex. Evidently, no-one can overview product and process development of the firm on the level that its founder could 50 years ago. Thus, integration becomes of even greater importance than before ± imagine if there were developed products that required technologies for manufacturing that the firm did not master. Then it would take time to develop manufacturing technologies after the products were developed and ready ± which, in turn, would lead to a disaster in sales terms. So, from a time perspective alone, integration of product development and technology development is of critical importance.

Keywords Integration, New product development, Technology Abstract Increasing competition at product, firm, and industry level makes it more and more important to be able to develop new products and ± at the same time ± develop the necessary new technologies for producing those new products. In this paper we shall take a look at how four firms go about integrating their product and technology development. This serves as the basis of a model for this kind of integration and a general definition of possible means for integrating product and technology development. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com


1.1 Defining technology In the example above, the firm is attempting to integrate manufacturing technology with new product development. For the purposes of this paper, we shall adopt a somewhat broader view of technology to also include technology for activities outside of physical manufacturing of the products, e.g. CAD technology, IT for communication, and so 125



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on. The general issue of what technology is has received a great deal of attention over the years. The author has previously reviewed the literature (Drejer, 1996a) on management of technology and found that definitions vary from very bounded definitions of technology which include only physical hardware to very open definitions that include software, brainware, organisational aspects of the technology and even human skills. Since it is so difficult in practice to separate technology from the organisation and the employees, we have chosen to adapt an open definition of technology to be the systems of hardware, human beings, and organisational aspects that are used in the operation of the firm (Drejer, 1997). This will include process technology and even technologies used for, say, production planning, order fulfilment, and other management-related activities. For lack of a better word, we shall refer to this third kind of technology as administrative technologies. Furthermore, we emphasise that there are both hard and soft aspects of technology, e.g. human skills, experiences, procedures, etc. are also a part of our technology concept (Drejer, 1997). 1.2 Defining the content of the paper In this paper, we will attempt to answer three questions: (1) How do case firms go about integrating their product development with other technologies? (2) How can we define this kind of integration? (3) In general, what means are available for achieving this kind of integration? Our approach in the paper is inductive. Thus, in the next subsection we will discuss the results of case studies in four firms working with integrating product development and technology development. In section 2, we will describe some empirical approaches to different kinds of integration, and conclude on a general level on the issue of integrating product development and technology development and discuss means for doing so. 1.3 Defining integration In this section, a specific definition and a model for integrating product and technology development will be proposed.

How can integration of product and technology development be defined? Integration is a very ``hot'' term in today's research environment, but, as in the case of the term strategy, there appears to be very little consensus on what integration actually is. Perhaps this is because it is necessary to integrate in many different ways, perhaps it is merely a matter of researchers still developing and expanding the concept of integration. If one attempts to take a step back, the Oxford English Dictionary defines integration as: the making up a whole by adding together or combining separate parts or elements; a making of a whole or entire. The whole to be the result of integration is, in this context, management of technology, and the definition above seems to correspond to the definition of integration of product and technology development as integration of two separate elements (decision areas) in the technology management of the firm. Objects of integration: what is to be integrated? One of the points that we find important from a discussion of integration is the statement that at least two things/issues are needed for integration. Thus, it is crucial to ask what is to be integrated before asking how to integrate. In this case, the objects of integration (what is to be integrated?) are product development and technology development. As indicated in the introduction, we see product development and technology development as separate decision areas in the technology management of a firm. The two decision areas may be characterised by the issues to be resolved in making decisions. Product development deals with technology management on the product/market level. It is not easy, and perhaps not desirable, to distinguish this part of technology management from what is labelled ``business strategy'' (Drejer, 1996a). Important issues for product development are: . What needs do the firm attempt to fulfil with its products? . How can these needs be met in terms of product (i.e. product functionalities)? . Which products should the firm produce? . How should the firm compete with its products; on low cost, on differentiation from other products or on focusing on a few customers and their needs? . How can the firm ensure that cash generated from older ± mature ± products

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gets reinvested in newer ± and cashdemanding ± products in order to maintain a steady income for the firm? What kinds of new products and/or markets can the firm diversify into without moving away from its mission?

Technology development deals with technology management at the internal level. Important issues include: . Which technologies are needed in order to fulfil the needs of the customers? . Which technologies are needed in order to produce and sell the current portfolio of products? . Which key technologies should the firm base its competitive strength on, e.g. innovation, service in sales, manufacturing at high speed, high quality, or . . . ? . What is needed to maintain the technologies in the future? . Which complementary technologies are needed in order to produce and sell the products of the firm with the current set of key technologies? . When should key technologies be abolished? . What are the risks/rewards related to the development of new technologies? The process of integrating The above decisions on product and technology development manifest themselves in different manners when it comes to the process of integration. In some firms, the decisions related to integration are brought about via a formal plan for product development and a formal plan for technology development. In other firms, the decisions are `èmergent'', i.e. not formalised in explicit plans but still existing. At any rate, integration of product and technology development means formulating or altering one or both in such a manner that product development decisions are made in an integrated manner with technology development decisions (Drejer, 1997). This is illustrated by the example below. Example: Firm C's top down and bottom up process In Firm C, one of the firms of the study, a socalled technology planning approach has been developed. In this approach, the starting-point is a predefined formal business plan which is broken down into projects for specific technologies via analyses and discussions of possible solutions to strategic problems. This may be perceived as a top down approach to

integrating product and technology development. Later, results are fed back to the next business planning cycle for bottom-up consideration. In this approach, product development has been planned in advance and functions as the starting-point for the planning of technology development. However, results from the technology planning are used as feed-back to the product development planning and business strategy planning. In some cases, the results of technology planning has resulted in subsequent changes of the other plans, e.g. in delaying the introduction of new products, in acquistion of complementary assets and technologies, and so on. A true bottom-up integration from technology planning to product development could be in the form of asking: what additional products/markets may we capture with our existing technologies. In firm C's case, its key technologies may well be applied in other areas and, thus, lead to the development of entirely new products and strategic business units.

As the example goes to show, we have two aspects related to the process of integrating product and technology development. First, whether or not decisions are reached in an analytical and formal manner, which may or may not be the case and, second, whether or not decions are made with product development plans held constant or with technology development plans held constant. In practice, the two aspects can be mixed ± no two combinations inherently ``belong'' together ± and the practice of integration in industrial firms shows that firms use different approaches at different times (Drejer, 1995b). Different dimensions of integrating Knowing the result of integration of product development and technology development gives little idea of how to reach this end. In other words, we need to be able to discuss means for integrating product and technology development. In doing so, it quickly becomes evident that there are several different ways to integrate. Some authors, for instance Hansen, define integration as: ``. . . co-ordinating, linking, or joining activities in a . . . system with the purpose to obtain a set of goals . . . '' (Hansen, 1992). Here the subject of integration is activities, which seem to correspond to the view of integration as re-integration of differentiated organisational units offered by Burbridge et al. (1987). This view of integration deals with integration of activities along activity chains, an issue made popular by the new buzz-word ``business process reengineering'' (Hammer, 1990). Here

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integration is to be achieved by a combination of organisational and technological means as advocated by Hansen (1992). This corresponds to the conception of data integration as proposed by Hasselris (1993) in his PhD. thesis, i.e. how materials and informations should flow in activity chains, which is also supported by Frick (1990). Others seem to think that integration is a matter of integrating different aspects, or views, of a firm. For instance, the CIM-OSA approach seems to integrate a number of different views into one decision-making process; the functional view, the dynamic (process) view, the information view, the resource view, the organisational view, and the cultural view, see Mùller (1995). Multiple aspects have been advocated by Morgan (1986), as well as a number of authors within strategic management, e.g. the famous 7-S model of strategy seen in the context of structure, skills, staff, style, systems, and shared values (e.g. Mintzberg and Quinn, 1991), or the similar model by Galbraith and Kazanjian (1986), where strategy is seen in connection to task, people, structure, reward systems, and information systems. Evidently, integration is achieved by taking into consideration a number of different aspects related to strategic management, i.e. cost, quality, delivery, and a number of others aspects at the same time ± making the idea of an optimum strategy impossible. This seems to be equivalent to what Hasselris (1993) refers to as goal integration, even though he does not explicitly discuss which goals must be integrated. Finally, there is the view of integration as a matter of co-ordination of centralised and decentralised control, i.e. integration between time horizons as advocated by Riis (1992) and Dam et al. (1994). The challenge in this view is to be able to make short-term decisions with a long-term perspective, i.e. to be able to make a strategy mean something to each of the employees in the corporation. This has frequently been described as a problem of traditional business strategy (Porter, 1991), due to the fact that a (strategic) statement like ``we intend to be world leaders in quality products within the XX business'' may be very hard for employees to translate into actions that are desirable. Consequently, an integration between development, implementation, and the day-to-day operations of the corporation must be

achieved. This seems to correspond to Hasselris's notion of task integration, i.e. which decisions to be made at which level (Hasselris, 1993). Consequently, the different approaches to integrating product development and technology development seems to be threedimensional: integration of time horizons, aspects and activities (Drejer, 1996a), see Figure 1. We shall return to the model in the remains of the paper. Many authors have argued that integration has many facets. Mùller argues that integrated logistics systems should be integrated along somewhat similar dimensions (Mùller, 1995), even though the content of each dimension is different from integration of product and technology development. Voss discusses integrated manufacturing and cites Moniot and Waterlow's hierarchy of integration, where technical (use of compatible hard and software), informational (use of common data), strategic (common aims), and functional (merging of business functions) are seen as the path to integrated manufacturing (Voss, 1989). With this as his starting-point, Voss proposes five facets of integration. The facets are: (1) strategy integration, i.e. integrating decisions in manufacturing with corporate (business) strategies;

Figure 1 A three-dimensional model of ways to integrate product and technology development

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(2) material flow integration, i.e. supply chain flow; (3) technical integration, i.e. linking of process choices with business strategy; (4) information integration, common databases and information for the entire firm (CIM); and (5) organisational integration, i.e. integration of skills, organisational structure, etc. with technological choices (Voss, 1989).

trying to fulfil as well as consistent internally, i.e. well-balanced and synergetic. Firm B has worked for quite a while with a model for product development aimed at integrating customer demands and manufacturing technologies. Firm B produces audio-video products for the high-end of that market. Due to a continuous decline in prices and increased competition since the early 1980s, the firm has changed its organisation and strategy in many ways. One of the approaches taken has been to attempt to integrate: ``. . . product technology with the way things are done around here . . . '' (Drejer, 1996a). In other words, the way in which firm B creates business is to integrate the aspects of customer demands, marketing, the product idea, and process technologies. This is illustrated in Figure 2. At firm B, business is created in a so-called ``land of ideas'' where ``concept-makers'' innovate new product concepts targeted at the market three to five years ahead. In order to do this successfully, the concept makers must take into account what the customers want from a firm B product, which product technologies and process technologies will be needed, marketing issues, as well as the original idea of the product. Top managers at firm B seem to have a clear understanding of what their customers want, as the firm's managers have formulated a list of six points which their customers are believed to desire. In short, the customers want the best of the two worlds of design and technical performance in combination. This has, furthermore, been translated to a number of core process technologies, which include design, mechanisms (e.g. opening and closing), linking of B&O products by a common remote control, and a few others. The core process technologies are one aspect of technology which is to be integrated into the new product concepts. So is marketing and sales in terms of: how is the product supposed to be sold? At which customer group is it targeted?; and so on. According to the respondent, the firm has developed a satisfactory expertise in integrating marketing and core product technologies into product concepts, even though the firm's expertise could be better. However, the lack of expertise in taking into consideration process technologies has led to unsatisfactory internal productivity. Consequently, the recent approach of firm B has the purpose of integrating process technologies into product concepts, thereby making it possible to increase internal productivity.

It appears that Voss's discussion of integration is compatible with the definition of the model for ways to integrate product and technology development proposed above. First, Voss's five facets are not hierarchically ordered and, furthermore, in comparison it seems as if material flow integration and information integration correspond to integration of activities, strategy integration and technical integration seem to correspond to integration of time horizons, and organisational integration corresponds to integration of aspects. We have now formulated an idea of what integration is and how it is to be achieved. This makes it possible to look at different empirical approaches to integrating product development and to propose a concrete definition of integrating product and technology development.

2. Integrating different aspects The example in the introduction is clearly an acknowledgement of the fact that product development and technology development are ``different worlds'', i.e. speak different languages. The head of product development views new products from a different angle than the head of manufacturing or the head of sales. Thus, different aspects of the firm must be integrated in order to integrate product and technology development. For instance, the technologies developed for manufacturing should correspond to the needs of the customers. Within this context, we may see `àspects'' as different disciplines in the firm, e.g. sales, production, logistics, development, and so on. How are different aspects like these integrated? This is illustrated by the example below. Example: integration of different aspects The technologies of the firm must be consistent with the customer demands that the firm is

Integration of aspects is about linking customer demands with product functionalities (technologies) and with the technologies of the firm seeking a balance between, often conflicting, criteria and disciplines. The result of integrating different aspects in the (management of the) firm is that different views on the firm are integrated. For instance, an economical background will

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Figure 2 Integration of product concepts and technology development at firm B

force one person to view the firm differently than another person with a technical background. We find this kind of integration in the literature too. For instance, in Miles and Snow's seminal work from 1978, three different views or tasks (entrepreneurial, engineering and administrative views/tasks) are ``heard'' one at a time, ensuring that all three get their say (Miles and Snow, 1978). And in quality function deployment, the quality house may be used as a means to discuss the different views of marketing people, product developers, and manufacturing people (Drejer, 1995a).

3. Integrating different activities Where integration of aspects is an attempt to link different disciplines within the firm, the next way to integrate product and technology development - integration of different activities ± attempts to integrate technologies along a chain of activities in the firm. To us, an activity chain is a model of the continuous chains of activities associated with the essential tasks of an industrial firm, (Frick and Riis, 1990), most notably product development, handling of customer orders, and materials flow, with the purpose of achieving clarity in integration of activities. This is illustrated by the following example.

discussed how to make sure that new technologies are developed in due time, so that they will not delay fulfilment of customer orders. By applying an activity chain, it would be possible to discuss whether technology development would delay present orders or not, and to decide when to apply new technologies. Another possible application of an activity chain view is to discuss in/out sourcing of technology areas, as does firm B. Here, an activity chain has made it possible to view the technologies in their proper context and discuss which ones that are necessary and which are expendable. If this discussion is combined with an assessment of performance, the issue of in/out sourcing can be discussed in a relevant context.

The theoretical contributions of business process reengineering and time based management (e.g. (Hammer, 1990; Stalk and Hout, 1990) come to mind when discussing integration of activities, and it is true that these contributions do have much in common with the activity chain view proposed above. The strength of taking such a view is twofold: first, technologies are linked to the activities that actually produce the firm's products, so it Figure 3 Viewing technologies along an activity chain

Example: viewing technologies along an activity chain The idea of viewing process and administrative technologies along such a chain is illustrated in Figure 3. By applying activity chains, it becomes possible to discuss, and integrate, the set of activities which contribute to the fulfilment of customers' demands and, furthermore, to link underlying technologies to those activities. An example is Firm C, where top managers have

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is possible to evaluate the necessity of technologies, and to discuss the time involved in a chain of activities. Second, it becomes possible to map and discuss cross-functional technologies across current organisational boundaries and, thereby, capture a number of technologies that would probably not have been captured otherwise.

future. In order to do this, the product development evaluates the technology content of each of its projects. Additionally, the department assembles a total technology portfolio for the firm and uses this as input to the business strategy of the firm. It should be noted that also firm B and C use somewhat similar technology portfolio matrices. The portfolio below illustrates that timing of the development of technologies is crucial as technologies tend to evolve over time and competitors tend to improve their technologies. There is, thus, a need for continuous up-dating of internal technologies in order to stay competitive.

4. Integrating different time horizons Often there will be different time horizons for product development and technology development, most notably due to the fact that product life cycles and life cycles of underlying technologies may be quite different. In strategy it is evident that decisions must deal with both products and technologies (Prahalad, 1993). Thus, competition is more than one-dimensional, i.e. on product-market competition, as firms also need to compete on technology development and overall strategic vision. Products and underlying technologies rarely evolve with the same time horizons. Products may have much shorter life cycles than underlying technologies (as in consumer electronics) or technologies may degrade faster than the products to which they are applied (valves, pumps). In order to figure out which is the case, firms need to identify where to commit themselves and where to establish readiness. Furthermore, firms need to make sure that products or technologies are developed in due time for their use. This is illustrated by the example below. Example: integration of time-horizons Firm A offers an example of integration of time horizons. As part of the ``technology planning'' method of the firm, a technology portfolio has been created for the entire corporation. The use of the firm's approach to integration is to: ``. . . attempt to create a serious discussion of . . . customer demands and . . . the technologies which we will choose to use . . . '' (Drejer, 1996a). The technology portfolio, which is illustrated in Figure 4, is managed in much the same manner as a business portfolio. A maximum of 20 technologies are evaluated according to first, the firm's technological level, and second, the competitive strength of the technology. Furthermore, a conclusion is drawn for product development and strategic management. Figure 4 illustrates what the management of the firm refers to as a ``balanced technology portfolio''. This implies that firm A should maintain the right mix of technologies in order to secure competitive strength in the

In much of the strategy literature, it is assumed that structure follows strategy, i.e. that strategic choices shape the structure of the firm. But in our view, it is often overlooked that, once chosen, structure will constrain strategy. The current structure will impose certain limitations to the degrees of strategic freedom for the firm, e.g. it can easily take five to ten years to change the organisation and culture of a firm, as Firm B has experienced. Thus, a very important issue to discuss is what to choose as invariant in management of the firm, i.e. when commitment to specific actions is feasible, and where to build a strategic readiness of action for changes. The dimension of integration of time horizons is an attempt to capture this kind of issue and to achieve coherence between where readiness of action is needed and where commitment is needed. Figure 4 A portfolio of technologies in firm A (see Drejer (1995b) for further information)

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Results of integration of time horizons This dimension of integration leads to the possibility of placing consideration on technologies in their proper context of time and action, i.e. to discuss the issues of which technologies to develop, desirable levels of performance compared to competitors, when development is to be done/can be done, and so on. Thus, the need for technology development, and perhaps also product development, will arise from the integration of different time horizons.

5. Understanding integration of product and technology development The progress so far in the paper now enables us to propose a definition of integration of product and technology development and to discuss means for achieving this integration. 5.1 Defining the integration Integrating product and technology development is the co-ordination, linking or joining of product development decisions and technology development decisions. This may be discussed in terms of integration of activities, since the activity of product development is typically one of the marketing function and R&D, while technology development may be spread throughout the organisation on all functional units. Consequently, the activities and organisational units need to be integrated somehow. Furthermore, integration of product and technology development may be viewed from the perspective of integration of aspects. This is due to the fact that product development mainly deals with product functions, while technology development is concerned with people, knowledge, and technical tools as a means for developing technology (e.g. Sun, 1993). Thus, a number of aspects must be taken into consideration. Finally, integration of product and technology development implies an integration of time horizons. Typically, technology development involves much longer time horizons than product development, which makes it rather difficult to take into consideration new technology areas (Quinn, 1992). However, it is possible to choose another position, since the products of a firm may be taken to be the invariable factor in the strategic thinking, i.e. time horizons can be chosen. At any rate,

there must be an integration between the time horizons of product and technology development. 5.2 Means for integrating product and technology development We have defined what integration of product and technology development is. This makes it possible to discuss means for this integration. A review of the literature, as well as the means used by the case firms, reveals an abundance of models for integrating product and technology development (Drejer, 1997). It is not possible, within the limitations for a paper of this kind, to describe or discuss all of the models. It is, however, the claim of this author that the models may be ordered by means of the three dimensions of integration proposed in this paper and related to a set of issues formulated to capture the essence of each dimension. Based on this idea, we have developed a hypertext model bank, where a set of more than 100 different models are related to nine issues (Drejer, 1996a). The issues are: Questions related to integration of different aspects . How are present and future products related to technologies? . How are products related to process technologies? Questions related to integration of different activities . By which activities do we produce our present and future offering to the customers? . Which technologies underlie the activities? Questions related to integration of different time horizons . When should we commit the firm to development of a technology? . When should technology development be done in order to minimise product development time? . What are the risks compared to rewards for developing certain technologies? In a software application developed, the issues are stored in a database in which the issues are stored in a list like the above one. The list provides an overview of the issues to be resolved. By means of this overview, it is possible to discuss whichever issue deemed necessary and the models available for resolving that issue. In the database, each

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issue (when clicked) can open to reveal the window shown in Figure 5. As illustrated in Figure 5, each issue is linked to a number of models to assist in resolving that issue. In other words, the issues should guide the use of models not the other way round. Theoretical models only have use when applied to a practical issue to be discussed and resolved. Due to the very nature of the task of integrating product and technology development, i.e. little knowledge of cause-and-effect relations and many possible actions, models are not seen as normative models. In other words, the models are supposed to offer one kind of answer to the issue in question and, at the same time, pose a number of questions to the decision makers. Evidently, a vast amount of models are already available for each of the issues of the methodology. Thus, the author has identified and classified a number of models related to each of the issues above rather than develop new models. The models have been classified according to the following criteria: . The issue that they are related to, i.e. which of the identified issues does the model discuss and attempt to provide some sort of answer to?

.

.

.

.

The category that they belong to, i.e. which category of issues is the model and its issue related to? An illustration of the model. This may be in the form of a figure, a graph or some other kind of illustrative measure. A ``how to'' guide asking a number of questions to help participants deal with the model. Here the author has formulated a number of questions that will aid the users of the model through the process of ``filling in the blanks'' regarding the model. For instance, a business process model says very little about how a given firm's core processes function. A set of `àssumptions'' related to the model. This aims at describing the theory on which the model is based, e.g. a model may be founded in economic theory. Knowing the assumptions will make it possible for the facilitator to ask questions related to other pictures and, thereby, help the process moving.

The full listing of models runs over 100 pages and will not be described within this context. Instead, readers must settle for an example, see below.

Figure 5 Each issue of integrating, a link to models

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related? How well are they related on a scale from 1 to 10? Why? Assumptions of the model: The model assumes that the mapping in question may be done during a discussion. This may not be the case, additional analyses and work may be needed ± especially, since the model needs a lot a data in order to function. Furthermore, the model assumes that demands to the product as well as design features may be discussed and compared without problems. This may not always be the case, so the results of using this model should ± as in all cases ± be evaluated critically.

Example: a model included in the model bank One of the issues formulated for integration of product and technology development is the issue of how current and perhaps future products are related to the technologies of the firm. This is part of integration of aspects and is relevant in many different cases, for instance when discussing the development of entirely new products where the issue of whether or not the firm has access to the necessary technologies is critical. One of the models that can be used to resolve this issue is the QFD model. QFD refers to the title quality function deployment. The model discussed on this example is a model for linking customer demands (in the form of statements) to first, product functionalities (also described by means of statements), and later, to so-called technological capabilities by means of which the product functionalities are created. Question: How are products related to core competencies? Category of issues: Integration of aspects. Illustration (see Figure 6): How to: (1) Discuss a division of products into types fit for analysis. (2) Discuss ± in the order that seems most fit for the present purpose ± the following set of questions: (3) Who have demands to the product in question? Who are users and who have additional demands? (4) What are the demands to the product in question? (5) How important is each demand on a scale from 1 to 10? (6) What are the design features of the product in question? (7) How are design features and demands Figure 6 The quality house

6. Conclusions In this paper, we have discussed how to define integration of product and technology development, and what means are available for achieving such integration. We have done so based on empirical studies as well as theoretical work. 6.1 Understanding integration of product and technology development The competitive reality of the case firms of our research is that product development and technology development are in great need of being integrated. Customers require new products faster and faster, competition is increasing on a global scale, competitors learn to master new technologies faster and faster, and everything seems to be changing faster. In order to understand the concept of integration, when related to the objects of product and technology development, it is necessary to consider several dimensions of integration. This statement has served as the background of the research efforts on establishing a model for the content of integration of product and technology development (see Drejer, 1996b). The research efforts have been directed towards theoretical and empirical approaches to integration and have included literature review and case study. The proposed three dimensional model for the integration of product and technology development reflects two recognitions: (1) In order to deal with integration of product and technology development, it is necessary to consider several dimensions. The dimensions of integration of aspects, activities and time horizons have been proposed and given rise to the formulation

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of a number of important issues to be resolved in a process. (2) In order to resolve the issues, there is not one best way. In other words, a multitude of models may contribute in different manners to resolving each issue. 6.2 The use of models for integration Above, we have proposed a set of models as means for achieving integration of product and technology development. Evidently, these models do not lead us to the ``truth''. Integration is a multi-dimensional concept, and the truth to be found from these models lies in the dialogue that the models create between different stakeholders in the process of deciding on integrating product and technology development. Our work so far allows us to conclude a few things regarding the use of models for integration of product and technology development. First of all, models are used in a manner where they ask new questions to the decision makers and opens their eyes to possibilities inherent in product and technology development. The important point is that models are used in a different manner than in most other decisions. The models are used to `òpen'' the decision process, not to ``close'' it by offering one and only one answer. For instance, there is nothing inherently ``better'' in one position in the quality house than in any of the other positions. Thus, selecting position requires a lot of thought on the account of decision makers ± thought that will be aided by posing additional questions and using additional models. This is due to another important conclusion: to each issue a number of models may be applied. The quality house ± as any other model ± is based on one theory and covers only a limited part of reality. Other models may cover other aspects of the issue of what is the product development strategy of the firm. By assigning a number of different models (based on different theories) to each issue, we propose that a more complete discussion of that issue will result. Furthermore, discussing additional issues (via other models) will also ensure that a more complete discussion of means to integrating product and technology development will result.

6.3 Questions for future research The proposed methodology represents an attempt to implement the ideas of distinguished authors such as (Churchman, 1968; Checkland, 1981; Drucker, 1955; Mintzberg, 1994 and March, 1992) stating that attempts to solve problems without established cause-and-effect and with several degrees of freedom should be based on synthesis (rather than analysis), on finding the best solution (rather than the optimal solution), on reaching consensus via negotiation (rather than having one REM decision maker), and on using models to ask questions (rather than provide solutions). Of course, there are difficulties in this approach ± some of which this section is devoted to. Avoiding the lowest possible common denominator A decision based on consensus will always be a matter of the lowest possible denominator in the sense that everyone must agree with everything in the decision. However, by increasing the participant's understanding of the problem situation at hand (need) and the possible ways to solve the problem (means), it becomes possible to reach another common denominator than if, for instance, we were to measure each participant's opinions on the matter prior to making the decision. In other words, if the proposed methodology can increase the participant's understanding of the problem situation and each other's situation, it will become possible to reach another common denominator. Implicit in this statement lies the assumption that increased understanding leads to a better common denominator, i.e. that seeing the situation from all of the participants' side will increase the quality of the solution agreed upon. Whether this is correct may be disputed, and in future research the author would like to answer the question: is a group decision (based on everyone's views) always better than a one-man decision (where things are seen from one side)? How do we stage a convergent process? Another important point ± which is related to the first point ± is that the process of learning about different views on the problem situation must be staged carefully. No doubt that for a start, most managers will be more interested in making a decision quickly rather than on making long and seemingly fruitless investigations of means and measures. How do we motivate decision makers to learn, and

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to appreciate, views other than their own on the problem situation? And, furthermore, how do we ensure that convergence actually occurs in the process? The latter question is related to the fact that some managers may want to turn the process into a political battlefield. It is necessary to ensure that such attempts are stopped and that everyone's understanding is increased (rather than that everyone is forced to see things, e.g. the CEO's way). How do we guide people in alternative use of models? In most decisions that we learn about, models are applied to offer us the solution, e.g. mathematical models offer quite solid solutions to some problems. However, in strategic decisions ± where there are no established cause-and-effect relations and many degrees of freedom ± models can only be used to generate questions. Questions may be on views other than the model, on limitations of the model, and on parts of reality not covered by the model. This is an alternative use of models that may prove difficult for decision makers to get used to. Thus, a third question for further research is how can decision makers be guided in the alternative use of models? How is the shared understanding documented? The understanding of integration and use of models is supposed to bring about a shared understanding of the need for integrating and means to integrate product and technology development. However, how can we document such a shared understanding in a form that can communicate it to others in the firm? And how can we document the way about which the shared understanding was reached? The work so far has attempted to provide some answers to these questions (not in this paper), but it has not been considered whether alternative options could improve documentation.

References Bhalla, S. (1987), The Effective Management of Technology, Battelle Press, Columbus, OH. Burbridge, J.L., Falster, P., Riis, J. O. and Svendsen, O.M. (1987), `Ìntegration in manufacturing'', Computers in Industry, Vol. 9. Checkland, P. (1981), Systems Thinking, Systems Practice, John Wiley & Sons, New York, NY. Churchman, C.W. (1968), Challenge to Reason, McGraw-Hill, New York, NY.

Dam, A., Riis, J.O. and Thorsteinsson, U. (1994), Integrated Productivity Development (in Danish), Polyteknisk Forlag. Drejer, A. (1995a), ``Theoretical approaches to strategic integration'', working paper, Aalborg University. Drejer, A. (1995b), `Èmpirical approaches to strategic integration'', working paper, Aalborg University. Drejer, A. (1996a), ``Frameworks for the management of technology: towards a contingent approach'', Technology Analysis & Strategic Management, No. 1. Drejer, A. (1996b), `Ìntegration of business strategy and competence development'', PhD thesis, Aalborg University. Drejer, A. (1997), ``Management of technology in a complex world'', International Journal of Materials and Product Technology, Vol. 12 Nos 4-6. Drucker, P.F. (1955), The Practice of Management, Pan Books, London. Frick, J. (1990), ``Core elements of planning and implementation of CIM'', PhD thesis, Aalborg University. Frick, J. and Riis, J.O. (1990), `Àctivity chains'', Proceedings of CIM Europe 90. Galbraith, J.R. and Kazanjian, R.K. (1986), Strategy Implementation ± Structure, Systems, and Process, 2nd ed., West Publishing Co., St Paul, MN. Hammer, M. (1990), ``Reengineering work: don't automate, obliterate'', Harvard Business Review, July-August. Hansen, P.H.K. (1992), ``Managing integration in manufacturing systems'', Proceedings from the 7th IPS Research Seminar, Fuglsù, p. 224. Hasselris, M. (1993), `Ìntegrerede Produktionssystemer'' (in Danish), PhD thesis, Technical University of Denmark. March, J.G. (1992), ``Reason and change'' (in Danish), Samfundslitteratur. Miles, R.E.and Snow, C.C. (1978), Organisational Strategy, Structure and Process, McGraw-Hill, New York, NY. Mintzberg, H. (1994), The Rise and Fall of Strategic Planning, Prentice-Hall, Englewood Cliffs, NJ. Mintzberg, H. and Quinn, J.B. (1991), The Strategy Process, Prentice-Hall, Englewood Cliffs, NJ. Mùller, C. (1995), ``Logistics concept development'', PhD thesis, Aalborg University. Morgan, G. (1986), Images of Organization, Sage Publications, Newbury Park, CA. Porter, M.E. (1991), ``Michael E. Porter on competitive strategy'', Harward Business Review. Prahalad, C.K. (1993), ``The role of core competencies in the corporation'', Research Technology Management, November-December. Quinn, J.B. (1992), The Intelligent Corporation, Free Press, Glencoe, IL. Riis, J.O. (1992), `Ìntegration and manufacturing strategy'', Computers in Industry, Vol. 4. Stalk, G. and Hout, T.M. (1990), Competing Against Time, Free Press, Glencoe, IL. Sun, H. (1993), ``Patterns of organizational and technological development with strategic considerations'', PhD thesis, Aalborg University. Voss, C.A. (1989), ``The managerial challenges of integrated manufacturing'', Proceedings of the UK Operations Management Association Annual International Conference.

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Introduction

Psychological characteristics and process: the role of entrepreneurship in Spanish SMEs Montserrat Entrialgo Esteban FernaÂndez and Camilo J. VaÂzquez

The authors Montserrat Entrialgo, Esteban FernaÂndez and Camilo J. VaÂzquez are all based at the Departamento de AdministracioÂn de Empresas y Contabilidad, Universidad de Oviedo, Asturias, Spain. Keywords Success, Strategy, Entrepreneurship Abstract This research work uses data from 233 Spanish SMEs in order to test three alternative models regarding how psychological characteristics and strategic process affect organisational success: first, the individual model according to which the manager's psychological characteristics entirely account for company performance; second, the process model, whereby strategic process directly contributes towards explaining organisational success; and third, the mediating model where the manager's characteristics affect company success through their influence on strategic process. From the study it is concluded that the manager's traits indirectly affect success through process and that this process has a direct influence on success, although we also observed the direct influence of manager's characteristics on company success. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com


Although some researchers have argued against the manager's influence on organisational performance (Hannan and Freeman, 1977; Lieberson and O'Connor, 1972; Salancik and Pfeffer, 1977), more recent research suggests other conclusions in this respect (Finkelstein and Hambrick, 1990; Romanelli and Tushman, 1986). Beyond the anecdotal evidence about managers being able to change organisations (Tichi and Devanna, 1986; Tichy and Sherman, 1993), many works point towards the influence of managers on the success of organisations. This field of research has its origin in the work of Hambrick and Mason (1984), who, in turn, based their views on the theory of Cyert and March (1963). This theory explains that managers, through their decisions, influence organisational performance. Given that these decisions will be consistent with their cognitive base, which can be explained by their personal traits and experience, it is to be supposed that such aspects may be related to the performance of the organisation. Different approaches have been followed in this line of argument. For example, Weiner and Mahoney (1981) demonstrated the limitations of the study by Lieberson and O'Connor (1972) which concluded that the manager's characteristics did not affect company performance. Others have gone further than methodological refinements, introducing theoretical perspectives (Pfeffer and Davis-Blake, 1986; Smith et al., 1984). In short, numerous studies have observed significant relations between the manager's traits and firm performance. Traditionally, attempts have been made to study the manager's influence from an exclusively economic perspective (Knight, 1921; Schumpeter, 1934; 1942). However, in our opinion, an appropriate understanding of the figure of the manager requires a more global approach, combining explanatory approaches from human behaviour in general, based on psychology, with approaches from the economic field. One of the seminal works of this type of analysis is that of Hollenbeck and Whitener (1988), who developed a model explaining the effects of the manager's personality on company performance, the influence of which is mediated by motivation and moderated by

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Psychological characteristics and process


Montserrat Entrialgo, Esteban FernaÂndez and Camilo J. VaÂzquez

capability. Taking this work as a reference, Herron and Robinson (1993) propose a model considering the manager's personality and capability as factors which explain his behaviour. The aim of this work is, therefore, to analyse the effect of the manager's personality traits, as well as the process by which this influence is produced, on company success. We attempt to respond to the following questions: (1) To what extent do the manager's psychological characteristics account for the variables measuring the strategic processes and/or organisational performance? and (2) To what extent do the strategic processes enable us to explain that part of the results not explained by the manager's psychological features? For this we test three alternative models: individual, process and mediating. The individual model defends the fact that it is the manager's features which explain performance and that process exerts no influence. On the other hand, the process model sustains that the individual features and strategic process make separate contributions to performance and that process contributes towards explaining the part of the performance not explained by individual characteristics. Finally, the mediating model claims that the manager's psychological characteristics explain the strategic process, which, in the last analysis, explains performance. This latter model therefore upholds that there does not exist a direct relation between psychological features and performance and, consequently, that the influence of these features only acquires significance by means of the strategic process.

Three alternative models: individual, process and mediating In this section we will develop three alternative models, namely, individual, process and mediating, to explain the success of the organization. The individual model The discretionary tendency considers individuals to be autonomous, in the sense that they are able to direct their future, and

situates the individual as the main unit of analysis and source of change. For example, Sexton and Bowman-Upton (1991, p. 63) state that ``the manager's propensity towards growth, his ability to direct this together with market factors establish the limits to the companies' growth'' In short, many studies have observed significant relations between the manager's traits and company performance (Robinson and Sexton, 1994). In this sense, literature on the manager's psychology has focused on three personality traits: need for achievement, tolerance for ambiguity and internal locus of control. Consequently, in this work we will refer to these features as they have been widely accepted by most authors. The belief of an individual that he himself rather than external events is in control of his destiny constitutes his internal locus of control. Most managers have been described as people with a high internal locus of control. With respect to empirical evidence, the study by Brockhaus (1980) reveals the capability of internal locus of control to differentiate between successful and unsuccessful managers. The criterion for success used was that the business continued to exist three years after the manager created the company or took over its control. Managers of the successful business had a greater internal locus of control than the managers of those businesses which had ceased to exist. Similarly, Anderson (1977) reports the existence of a significant relationship between internal locus of control and company success. Need for achievement is defined as the desire of individuals to improve the results of their actions and feel responsible for these (McClelland, 1961). High achievers spend a lot of time thinking about how to do a job better or how to achieve something important. Timmons (1991, p. 193) comments that ``this fact could be explained as a continuous struggle between a person and certain self-imposed standards''. Regarding empirical evidence, whereas Begley and Boyd (1986), Johnson (1990), Schrage (1965), Smith and Miner (1983, 1985) and Smith et al. (1987) conclude that the presence of this feature has a significant influence on the results obtained, Nandy (1978) does not observe any relation between the two variables. It is important to point out, however, the diversity of performance

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indicators used. Pandey and Tewary (1979), for example, assert that the need for achievement is positively related to the manager's solvency. Other authors analyse the influence on the success of specific groups of managers. Hence, Casrud et al. (1986) conclude that the need for achievement accounts for the success of male managers. The manager has to confront greater ambiguity when he is forced to make decisions with imperfect or not very accurate information as he must perform certain activities for the first time, even risking the survival of his business. Gupta and Govindarajan (1984) affirm that tolerance for ambiguity is positively related to success in those cases in which the strategic mission lies in company growth. Dubini and MacMillan (1988) come to similar conclusions. The process model The process approach embraces different schools which try to explain how strategies are elaborated in practice from the supposition of the limited rationality of the decision makers. This approach has its origin in the theories about the administrative behaviour of the company which were first developed in the early 1950s. A large part of the germinal works date back to an article by Simon in 1955. Later, the theory was elaborated by Cyert and March (1963), with whose names it has been linked up to the present time. Various researchers have suggested the existence of a set of processes which enable the strategic decisions to be made (Chaffee, 1985; Hart, 1992; Mintzberg, 1973). Rajagopalan et al. (1993) undertake a review of all of these. Such processes take the form of models which can be identified in the organisations. Similarly, there exists a set of dimensions of the strategic decision-making process which are underlying in almost all entrepreneurial processes. This involves the intentions of an individual or team in a dynamic process. As for the specific dimensions of this process, Miller (1983) has provided a starting point upon suggesting that a company presents entrepreneurial behaviour if `ìt performs product-market innovations, takes risks and behaves in a proactive and aggressive fashion''. Miller therefore considers the dimensions of innovation, proactiveness, aggressiveness and risk making and many researchers have used this conceptualisation

(Covin and Slevin, 1989; Ginsberg, 1985; Morris and Paul, 1987; Naman and Slevin, 1993; Schafer, 1990). On the other hand, various researchers have analysed the influence of the entrepreneurial processes on company success. Covin and Slevin (1991) and Zahra (1993) argue that the influence of entrepreneurial orientation on company performance depends on the variables of an organisational as well as a sectorial nature. Lumpkin and Dess (1996), in turn, justify that the influence of an entrepreneurial orientation on an organisation's performance is related to variables of a diverse nature. From an empirical point of view, various works stand out: Covin and Slevin (1989), from a sample of 1,053 new companies, contribute evidence about the influence of the entrepreneurial process on business success. Covin et al. (1990), in turn, conclude, from a sample of 57 industrial companies, that entrepreneurial orientation is associated with superior results among the companies which present a model of coherent strategic decisions. The degree of technological sophistication of the industry, however, has no influence. Naman and Slevin (1993), using data from 82 high tech companies, observe that business success is positively related to the coherence between business style, strategic mission, organisational structure and environment. Zahra and Covin (1995) conclude, in a study on 24 mediumsized industrial companies, 39 chemical companies and 45 large industrial companies, that the entrepreneurial orientation of the organisation has a positive effect on company performance, particularly in companies operating in hostile settings. The mediating model The third model is in line with the `ùpperechelons'' theory and with the theoretical speculations of psychology literature on the manager's behaviour. This model concludes that the manager exerts an influence on organisational performance by means of process and has no direct effects on success. We go on to compile the theoretical foundations and empirical evidence about the influence of the manager's psychological characteristics on success through process. From a theoretical perspective, it is to be expected that those managers with a greater internal locus of control are more innovative,

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convinced of their abilities to influence their environment. On the contrary, managers lacking this control will show themselves to be more passive, in that they consider events to be beyond their scope of influence. Additionally, the action-orientation of internals and their belief in their ability to cope with stressful situations leads them to adopt certain innovative behaviour (Kets de Vries, 1980; Miles and Snow; 1978; Mintzberg, 1973). They also have a greater risk propensity and a tendency to engage in proactive strategies. On the contrary, individuals with external locus of control react passively to the setting, which will cause a management crisis as well as a tendency to follow rather than lead competitors. In short, the existence of a strong relationship between the manager's internal locus of control and levels of productmarket innovation, risk taking and proactiveness is to be expected. The greater an individual's locus of control, the higher the score in the variables measuring these characteristics. Furthermore, people with internal locus of control are more likely to have a vision of the future and make longterm plans. Some empirical works have tested the influence of the manager's internal locus of control on the strategic behaviour of their company. Miller et al. (1982), in a sample of 24 managers, observe the influence of their internal locus of control on the strategic dimensions of innovation, risk taking and proactiveness in the organisation. Based on the results obtained they conclude that internals tend to perform more productmarket innovation, take more risks and be more proactive than competitors. Miller (1983) analyses the influence of the manager's internal locus of control on his innovative, proactive and risk-taking behaviour. To this end, the mentioned author elaborates a typology of companies, namely, simple, planning and organic companies from a sample of 52 companies. He reports that in the simple companies this behaviour is explained by the manager's characteristics, and in particular, that the managers's internal locus of control is that which explains his action. Miller and Toulouse (1986), in turn, conduct an empirical research work on a sample of 97 companies, concluding that internals undertake greater product innovation, have a greater vision of the future

and adapt their approaches to the circumstances facing their companies. This relation appears to be stronger in small companies and in dynamic settings. Miller and DroÈge (1986) come to a similar conclusion. Hence, Kimberly and Evanisko (1981) maintain that entrepreneurial behaviour is explained by internal locus of control. Finally, RipolleÂs (1995) tries to define the profile of the inventing manager. Out of a sample of 29 managers he concludes that one of the features characterising this profile is the manager's internal locus of control. It seems logical to think that the manager's achievers will opt for formulating strategies with attainable aims. They will probably reject a strategy which implies taking very high risks, although they would get bored if they formulated risk-free strategies which simply aim to reduce costs. They may feel attracted, however, by those strategies which enable taking moderate risks and the growth potential derived from creative and innovative behaviour. Hence, it may be interesting for them to implement a differentiation strategy which will enable the manager to take advantage of more market opportunities. Furthermore, it is to be expected that the greater a person's need for achievement, the more proactive his strategy will be. People with a need for achievement are more ambitious and desire to have the greatest possible control over their environments. They leave nothing to chance. Hence, they are likely to carefully analyse situations so that they can proactively manipulate rather than react passively to the actions of their customers and competitors. Diverse empirical works consider this approach. Carland et al. (1989), using a sample of 368 managers, geographically distributed over 20 US states, analysed the influence on the strategic planning process of the need for achievement, risk propensity and preference for innovation. The work concludes that those companies which plan their behaviours are led by managers characterised by being high achievers. Along these lines, Durand and Shea (1974) demonstrate that the need for achievement is related to a more proactive behaviour. Miller and Toulouse (1986) also analyse the influence of the need for achievement on entrepreneurial behaviour. They contribute empirical evidence that high achievers favour

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market-oriented strategies with broad approaches, formal and sophisticated structures and analytical and proactive decision making. Miller (1983) and Miller and DroÈge (1986) study the relation between the individual's need for achievement and organisational structure. They conduct their work on a sample of 93 companies and conclude that the need for achievement is closely related to most of the structural dimensions. This relation proved to be greater in samples of small and new companies, suggesting that it is the figure of the manager which influences the structure and not the other way round. Finally, RipolleÂs (1995) finds in his research that the need for achievement forms part of the inventingmanager's profile. Theoretically, those individuals better tolerating ambiguity are those who obtain superior performance if their mission is company growth. This is due to the fact that, on the one hand, those managers who pursue increasing their market share are faced with more uncertain settings than those seeking to maximise their profitability and, on the other hand, the implementation of the strategy under conditions of uncertainty requires a greater tolerance for ambiguity. Two arguments support this relation. First, a growth strategy implies a desire to increase market share, whereas profitability can be obtained by other routes. Consequently, it is to be expected that, given that the industry share comes to 100 per cent, the aim of growth generates a greater volume of conflicts between competitors than that of profitability. The greater the degree of conflict between the organisation and its setting, the greater the uncertainty it must face up to. Second, the search for market share implies a greater dependence on the decisions and actions of customers and competitors. Achieving this aim involves not only increasing demand but also increasing resources and production volume. Therefore, dependence even on the offer side is increased. As upheld by Thompson (1967), in a nondeterministic world, the greater the external dependencies facing an organisation, the greater the uncertainty confronted by it. Therefore, it is to be expected that the managers setting market share as their objective are more willing to take risks. Gupta and Govindarajan (1984) examined the tolerance for ambiguity of managers, arguing

that this feature had a greater effect on the performance of those companies aiming to increase their market share than on the performance of those seeking profitability even at the cost of market share. Similarly, there exists empirical evidence to this respect. For example, Carland et al. (1989) conclude that people who best tolerate ambiguity are also the most innovative. On the other hand, Gupta and Govindarajan (1984), on a sample of 58 companies, contribute empirical evidence that tolerance for ambiguity favours entrepreneurial behaviour.

Research methodology In this section we will describe the main characteristics of the sample and the variables used in the research work. Sample characteristics The basic information of this work comes from a sample made up of 233 companies whose sizes range between five and 500 employees and are operating in Spanish territory. The main characteristics of the sample are compiled in Table I. Research variables The database used in the present research work has its origin in a questionnaire designed taking as a reference the main works undertaken in this field at an international level. The survey consists of a set of items measuring variables of a diverse nature, which are compiled in Table II. In particular, the information used in this work is organised in three blocks. The first refers to questions concerning the way in which the manager makes decisions in his company. In this case, the five-point Likert scale employed in the work of Dess et al. (1997) has been used. In order to test the reliability of this scale, the Cronbach alpha coefficient was calculated, obtaining a value of 0.765. The second block ± concerning the manager's psychological profile ± includes markers of internal locus of control, need for achievement and tolerance for ambiguity. All the variables have been measured using fivepoint Likert scales. The items measuring the internal locus of control have been taken from Lumpkin (1979)[1]; and these have been used in many previous works (Carpenter and

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Table I Sample characteristics Years

Number of employees 5-10 11-25 26-50 51-100 101-250 251-500 Foundation year Before 1960 1960-1973 1974-1983 1984-1988 1989-1992 1993-1996 Sectors Metallic minerals and mining Construction Food industry Wood industry and furniture Paper and by-products Graphic arts Chemicals Rubber products and plastics Iron and steel industry and metal manufacture Measurement instruments Diverse manufacturers Transport and communications Wholesalers Retailers Commercial services

Construct: Locus of control Sources: Carpenter and Golden (1997); Lumpkin (1985); Miller (1983); Miller and Toulouse (1986) Construct: Need for achievement Sources: Miller and DroÈge (1986); Miller and Toulouse (1986); Steers and Braunstein (1976) Construct: Tolerance for ambiguity Sources: Gupta and Govindarajan (1984); Lorsch and Morse (1974) Construct: Entrepreneurship Sources: Covin and Slevin (1989); Dess et al. (1997); Lumpkin and Dess (1996) Construct: Success Source: Gupta and Govindarajan (1984)

Number of

companies

companies

14.20

33

26.60

62

25.30

59

7.70

18

21.50

50

4.70

11

33 or over

17.40

41

23-36

18.50

43

13-22

22.70

53

8-12

17.60

41

4-7

9.90

23

13.40

32

Under 4

7.21 2.70 26.13 2.70 0.90 9.91 25.23 0.90 5.40 2.70 1.80 8.11 1.80 0.90 3.60

Table II Construct operationalization Construct and main sources

Percentage of

Alpha

0.46

0.70

0.73

0.77 0.83

Golden, 1997; Miller, 1983; Miller and Toulouse, 1986). The items measuring the need for achievement have been extracted from Steers and Braunstein (1976), also observed in various works (Miller and DroÈge, 1986; Miller and Toulouse, 1986). The items measuring tolerance for ambiguity are from the works of Lorsch and Morse (1974) and Gupta and Govindarajan (1984). The Cronbach alpha coefficients obtained for the items measuring need for achievement, the internal locus of control and tolerance for ambiguity were 0.697, 0.375 and 0.722 respectively. Given the low score obtained in the set of items measuring the internal locus of control, we considered the possibility of eliminating some of the items to improve the 142




reliability of the scale. Eliminating the latter dimension ± that of greater improvement ± only enabled a change of 0.375 to 0.460 in the Cronbach alpha coefficient, which, given the scarce improvement, determined the non-elimination of this dimension. In any case, the low score can be explained by the low number of items ± five ± used to measure this variable. The third block draws together questions concerning the success of the company. We have opted to use a subjective marker of the results, calculated as a weighted average of the manager's satisfaction in different performance markers ± economic and financial profitability and growth ± the weighting being the relative importance conceded to each of these markers in relation to the sum of the importance given to the three markers. This marker has been used in many previous research works.

Table III Descriptive statistics

Results

direct influence on company success of tolerance for ambiguity. In order to test the process model, first, to observe the existence of an entrepreneurial process, independent of the other strategic processes a factorial analysis is conducted. Table V shows the results of applying this factorial analysis to the valuations given by the individuals in the sample to the importance of different strategic dimensions. The percentage of variance explained by the first four factors reaches approximately 60 per cent. This is a low percentage, although consistent with that obtained in previous research works (Dess et al., 1997; Lafuente and Salas, 1989). A KMO of 0.78688 and a Barlett sphericity coefficient of 770.02848 with a significance of 0.000 is obtained. The interpretation and labelling of the dimensions of each factor are clear. The first factor ± participative ± includes variables such as ``the plan or strategy of our business is implemented involving all employees to a greater or lesser degree'', ``strategic decisions are made on a basis of consensus, involving people from various departments'', ``most employees participate in the decisions affecting them'', ``cross-functional collaboration and cooperation is encouraged'' and ``working in this organisation is like forming part of a team''. The second factor ± entrepreneurial ± includes variables which suggest decision

The results obtained in this work are strutured in two phases, which aim to test the models considered in the theoretical argument. Hence, the first phase presents the results of testing the individual model and the process model. The second phase shows the results of testing the mediating model. In short, our aim is to ascertain the influence of the manager's profile on the success of the company as well as the process by which this influence is produced, that is, should such an influence exist, whether it exerts a direct or indirect effect. Previously, the descriptive statistics are displayed in Table III. Individual and process models In order to determine the influence of psychological characteristics on company success, we first classify the 233 managers into two groups: ``successful managers'' and `ùnsuccessful managers''. To this end, we take as a cut-off point the average score obtained on a five-point Likert scale. A student's t test is then performed. Significant differences are compiled in Table IV. It is observed that it is the managers who best tolerate ambiguity who obtain superior results. No significant differences are noted, however, regarding internal locus of control and need for achievement. This allows us to affirm the

Variable Locus of control 1 Locus of control 2 Locus of control 3 Locus of control 4 Locus of control 5 Locus of control 6 Need for achievement 1 Need for achievement 2 Need for achievement 3 Need for achievement 4 Need for achievement 5 Tolerance for ambiguity 1 Tolerance for ambiguity 2 Tolerance for ambiguity 3 Tolerance for ambiguity 4 Innovation Risk taking Proactiveness Success

143

Mean

Standard deviation

4.08 4.01 3.89 3.67 3.23 2.71 4.55 4.43 4.12 4.05 3.39 3.43 2.46 3.02 2.83 3.74 3.13 3.18 3.36

0.72 0.94 0.83 0.97 1.04 1.10 0.53 0.61 1.06 0.88 1.02 0.96 0.49 1.12 1.06 0.80 1.07 1.00 0.74




Table IV Student's t test to study the relation between psychological features and success Psychological features Tolerance for ambiguity 4 Tolerance for ambiguity 3

Unsuccessful managers

Successful managers

Significance

3.24 2.87

3.57 3.13

0.01 0.00

Table V Factorial response model to the importance of strategic processes Items 1. Part of a team 2. Collaboration 3. Participation 4. Consensus 5. Decentralization 6. Risk taking 7. Dynamism 8. Innovation 9. Avoiding failure 10. Adaptation 11. No change 12. L/T results 13. Customer analysis Own value Own expl. var. Own cum. var.

Factor 1

Factor 2

Factor 3

Factor 4

0.86 ±0.51 0.50

0.58

0.80 0.79 0.62 0.58 0.52 0.79 0.78 0.71

3.94 24.70 24.70

1.97 14.30 39.00

making characterised by innovation, proactiveness and risk taking. The variables obtaining a significant score in this factor include ``most people are willing to take risks'', ``people are dynamic and present managerial orientation'', and ``people are encouraged to experiment in the organisation in order to generate more innovative methods or products''. The third factor ± simple ± is associated with variables which include a well-defined, although limited, strategy. These include `òur company adapts to the environment'' (with a negative sign), ``there exists a strategy in the organisation which has undergone scarce modifications'', ``failure should be avoided at all costs''. The fourth factor ± adaptive ± suggests an external orientation focused on adapting to customer needs and reacting to environmental feedback. Among the variables which score significantly in this factor can be observed ``we take as long as necessary with our customers and key interest groups, listening to their opinions'', `òur company adapts to the setting, undertaking the appropriate changes in its strategy'' and

1.48 11.30 50.30

0.64 0.61 1.08 7.80 58.10

``long-term results are valued over and above short-term results''. These four dimensions of decision making not only fulfil the validity criteria, but are also consistent with those obtained in previous works. Hence, they coincide with four of the five dimensions of management style identified by Khandwalla (1976). Following a review of the literature, Khandwalla concludes the existence of at least five independent dimensions of top management style: risk taking, technocracy, organic nature, participation and coercive power. Recently, Dess et al. (1997) identified the same factors found in this study. The results of the factorial analysis enable us to support the existence of an entrepreneurial process independent of the other strategic processes. Based on the scoring of the factors obtained for each manager in the sample for the four factors selected, it is possible to construct a typology of managers by means of a conglomerate or cluster analysis. The results of its application are compiled in Table VI. Given the sample of managers, for each of which we have information concerning their strategic orientations, the cluster analysis enables us to classify these managers in the

144




Table VI Clusters of individual types according to strategic processes Cluster 1 2 3 4 5 F P

Factor 1

Factor 2

Factor 3

Factor 4

No. of companies

±0.30 ±1.43 0.29 0.22 1.22 63.61 0.00

±0.85 0.40 0.25 1.12 ±0.56 68.77 0.00

±0.14 ±0.35 1.27 ±0.49 ±0.95 83.53 0.00

0.12 0.20 0.10 ±0.46 0.00 3.33 0.01

70 30 57 45 31

most homogeneous groups possible regarding the strategic processes used. The number of companies making up each group is quite homogeneous. The criterion used to obtain this taxonomy was the strategic orientation presented by each manager in 1996, regarding each of the factors considered. For this, each group is identified with a strategic orientation. Observing the evolution of the measure of proximity enabled us to determine the optimum number of strategic groups, namely five. The different clusters can be interpreted noting the allocation of specific factors to each cluster. For this purpose, it is sufficient to observe the values adopted in each factor by the centroids of the different clusters. In this respect, it is fitting to point out that the higher a value, the more important the process is for the individuals making up the cluster, given the nature of the scale measuring the valuations of the different items. Hence, it is observed that cluster 5 is that which observes a higher value in factor 1. From this perspective, it can be affirmed that it is the individuals who promote decision decentralisation. Cluster 2 obtains a higher score in factor 4. These are, therefore, individuals who encourage analysis and longterm vision. Factor 3 obtains its highest score in cluster 3, which enables us to uphold that the individuals in this cluster formulate simple strategies with scarce modifications. Cluster 4 attains its highest value in factor 2 and so it can be stated that they are entrepreneurial individuals. Finally, cluster 1 obtains a very low score in all factors, and so we can affirm that it is made up of people who do not engage in strategic behaviour in their companies. Definitively, the sequential application of the factorial analysis, followed by the cluster analysis to the valuations given by the individuals in our sample to the importance of

a set of dimensions of the strategic processes enables us to establish four types of basic attitudes or strategic orientations, namely, participitative, adaptive, simple and entrepreneurial, which correspond to the five types of manager, grouped 1 to 5, distinguished by the predominance of a particular type of strategic orientation, with the exception of the apathetic manager, who does not seem to present any type of strategic orientation. In order to check the validity of the grouping made by means of the cluster analysis we proceed to perform a discriminant analysis. This step becomes necessary as the inherent problem in any cluster analysis is the possible artificiality of the classification. What we attempt to do is to regroup the individuals in terms of an external method independent of that previously used. For this we use the discriminant analysis. If the resulting regrouping differs from that previously described we will have to question the former. The greater the coincidence between the two classifications, the more valid the cluster analysis will be. To this end, a discriminant analysis was performed reinforcing the interpretation of the factors, enabling the companies belonging to the five strategic groups formed to be distinguished by means of the cluster analysis. For this, the group to which each company belongs ± in each of the groups formed by the cluster analysis ± was taken as the dependent variable and the factors resulting from the factorial analysis made by the dimensions of the strategic process as the independent variables. The discriminant analysis, like the cluster analysis, correctly classifies, 96 per cent of the individuals, in particular, 92.9 per cent of the individuals in Group 1, 90 per cent of the individuals in Group 2, 100 per cent of the individuals in Group 3, 100 per cent of those in Group 4 and 100 per cent in

145




Group 5, thus validating the results obtained with the cluster analysis. Once the two classifications have been obtained by means of the cluster and discriminant analyses we analysed the Spearman correlation coefficient between the two classifications, the value being 0.91, totally significant for a level of confidence at 99 per cent. This value enables us to conclude that the taxonomy generated by the cluster analysis is not exclusively due to statistical reasons. Analysing the influence of process on company success was then considered. In this sense, we studied the existence of significant differences in success due to the use of a managerial process. To this end, a variance analysis was conducted. Table VII compiles the averages of the subjective results obtained by each of the strategic groups, as well as the Fisher F with the corresponding level of significance. Furthermore, the table indicates the groups for which there exist significant differences. It can be observed that the participative and entrepreneurial individuals are those who obtain higher than average results, as measured by the subjective marker of success. On the contrary, it is the apathetic and adaptive managers who obtain the worst results. In short, this allows us to conclude the influence of the entrepreneurial process on organisational success. The use of entrepreneurial processes has positive effects on company success. Mediating model Finally, in order to ascertain the influence of the psychological profile on success by means of process we performed a variance analysis, the results of which can be seen in Table VIII. As for the need for achievement, there exist significant differences between the apathetic and entrepreneurial individuals, the latter

obtaining a higher score. As for internal locus of control, there are significant differences between the entrepreneurial and the apathetic individuals, although it is the participative managers who attain a higher score in this variable. Significant differences are noted in relation to the tolerance for ambiguity between the apathetic and entrepreneurial individuals and between the latter and simple ones, the managers having a higher score in tolerance for ambiguity. In short, this allows us to corroborate the influence of psychological characteristics on success by means of their influence on process.

Conclusions This research work has focused on the variables of a psychological nature in order to analyse their influence on company success. It has been taken for supposed that the psychological variables are a determinant of organisational success due to their influence on other variables such as innovation, proactive behaviour or risk taking. The aim of this work is to answer the following questions: to what extent does the manager's psychological profile explain the variations in the variables of the strategic process or the organisational results? Second, to what extent do the variables measuring the strategic processes account for those aspects that psychology failed to explain? In order to respond to these questions, three alternative models were tested. In summary, certain support is obtained for the mediating model, according to which process mediates the relation between the psychological characteristics and success, and for the process model, by which the variables of the process affect success in an isolated

Table VII Variance analysis: strategic processes and success Success Subjective indicator

1

2

3

4

5

Signif.

Groups

3.25

3.08

3.47

3.49

3.59

0.03

24

Table VIII Variance analysis: psychological features and strategic processes Features Need for achievement 2 Internal locus of control 3 Tolerance for ambiguity 4

1

2

3

4

5

Signif.

Groups

4.27 3.02 2.66

4.40 3.13 2.86

4.46 3.14 2.73

4.57 3.35 3.26

4.56 3.78 2.67

0.05 0.01 0.03

14 14 14-34

146




way. Scarce support, however, was obtained for the individual model, according to which the psychological traits affect success directly. Analyses show that the relation between psychological features, processes and success is not so straightforward. Regarding the effects of process, the existence is observed of a direct relation between the entrepreneurial process and success, measured by means of a subjective marker. Similarly, we note the existence of a positive relation between the individual dimension of innovation and business success. This comes to corroborate the conclusions drawn in the works of Naman and Slevin (1993) and Zahra (1995). As for the influence of individual traits, we note that tolerance for ambiguity has a significant effect on success; the same does not happen with internal locus of control and the need for achievement. The most successful managers better tolerate ambiguity than those obtaining worse results. The indirect influence of psychological characteristics on performance is also of interest. The individuals who best tolerate ambiguity are more innovative, take more risks and present a more proactive behaviour. Similarly, there are significant differences in the entrepreneurial orientation depending on the tolerance for ambiguity. Those which best tolerate ambiguity are the most entrepreneurial. Regarding the need for achievement, those attaining a higher score in this variable are more innovative and willing to take risks. Likewise, the higher score in entrepreneurial orientation is obtained among high achievers. Finally, internals are more innovative and willing to take risks. In the same way, they present a more entrepreneurial behaviour. In short, it is fitting to conclude from the above results as regards the first question formulated, the greater influence of psychological characteristics on process compared to the direct effect on performance. Hence, of the three features studied, only tolerance for ambiguity has a direct influence on success. The need for achievement and internal locus of control, on the contrary, exert their influence not on performance but rather on process. As for the second question, it is concluded that the managerial strategic process enables us to explain the part of the results unexplained by individual traits.

Nevertheless, this work is not free of limitations. More specifically, we have only studied the influence of variables of a psychological nature, although we are aware of the existence of other social and demographic variables which can also account for performance as well as entrepreneurial processes. Similarly, it may prove to be of interest to analyse types of strategic process other than those analysed in this work. Future works could also focus on the sequence of the influence of personality traits on the entrepreneurial process. That is, if the features directly influence process or rather affect the business motivations and to what extent it is the latter which explain the behaviour. Finally, contingency analyses could be undertaken, such as the influence of psychological features in different organisational and industrial contexts. Definitively, this study throws some light on the effect of the managers' psychology and reveals that it is the study of the relationship with processes which enables us to ascertain the most appropriate characteristics for attaining success, depending on the strategic behaviour required by the environment.

Note 1 A shortened version of Rotter's scale (1966).

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Introduction

Success and failure of 50 innovation projects in Dutch companies Anton J. Cozijnsen Willem J. Vrakking and Mariska van IJzerloo

The authors Anton J. Cozijnsen is a Senior Lecturer at the Free University Amsterdam, The Netherlands. Willem J. Vrakking is a Professor at Erasmus University, Rotterdam, The Netherlands. Mariska van IJzerloo is a Consultant with Anderson Consulting, The Netherlands. Keywords The Netherlands, Innovation, Project management, Success, Business failures Abstract Continued innovation of products, services, technology and the organization itself, is one way to keep a business on its feet during these turbulent times. The importance of innovation ± the process during which leap-changes are effected ± is generally recognized. However, in practice, the successful conclusion of a total innovation project is by no means matter-of-course. Many innovations end in failure. Research in the USA raises the questions of how successful Dutch companies and their managers are in terms of innovation. How many innovation projects succeed, how many fail? This study searches for an answer to this question. The logical next question then is, what are the differences between innovation projects that succeed and those that fail? In short, what are the factors that lead to success, and which factors lead to failure in the projects examined? Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com


Continued innovation of products, services, technology and the organization itself, has been one way to keep a business on its feet during the turbulent 1990s. The importance of innovation ± the process during which leapchanges are effected ± is generally recognized. More than ten years ago, Tushman and Nader (1986) already predicted that managing innovation would become the most important organizational task of the future. Standstill is simply no option for business and industry. Attention focuses primarily on how innovation projects can be carried out most successfully. However, in practice the successful conclusion of a total innovation project is by no means matter-of-course, and many innovations even end in failure. Table I, which is based on the results of US research by Carr (1996), illustrates this point. Table I indicates that 20-30 per cent of the projects ended in failure and 50 per cent showed no improvement. So this latter group also cannot be considered successful. In other words: 70-80 per cent of the projects failed, either completely or partly. These US figures raise the question of how successful Dutch companies and their managers are in terms of innovation. How many innovation projects succeed, how many fail? The study in hand searches for an answer to this question. The logical next question then is, what are the differences between innovation projects that succeed and those that fail? In short, what are the factors that lead to success, and which factors lead to failure in the projects examined in this study?

Theory Innovation projects require more systematic and profesional efforts, as shown by the large percentage of organizations that fail to complete innovation projects successfully (Carr, 1996; Vrakking and Cozijnsen, 1992). In recent decades much research has been done to discover in which way the `ìdeal'' innovation project should be carried out, but often without formulating (success) criteria. The related question is: which activities and factors show a positive correlation with successful innovations?

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Success and failure of 50 innovation projects in Dutch companies


Anton J. Cozijnsen, Willem J. Vrakking and Mariska van IJzerloo

Table I Research data Type of change

Successful (%)

Degree of success Neutral (%)

Failed (%)

29 16 32 27 20

50 50 ± ± ±

21 34 ± ± ±

Total quality management (TQM) Revitalization Vision, values, attitudes Business process systems (BPS) Information technology Source: Carr (1996)

The relevant literature lacks clear conclusions about which factors have a positive effect on successful innovation. Various causes are mentioned (Wolfe, 1994): . Most of the studies concentrate on only a part of the innovation process. It is frequently not very clear to what part of the process the study is limited. . The theoretical basis of the studies depends in part on the particular section of the innovation process a study focuses on. Many studies do not describe their theoretical context. . The way in which studies evaluate and operationalize successful innovation varies widely, or is hardly touched upon. The different measures for successful innovation do not make it any easier to generalize the different studies. . The studies lack clear indications of the types of innovations investigated. In all likelihood a simple technical innovation is based on different success factors rather than a complex organizational innovation. A thorough analysis of the major studies shows that they can all be classified in one of five different perspectives. Each of these perspectives defines successful innovation differently. Based on their definition of succesful innovation, each perspective has developed different evaluation criteria. This means that for each perspective a different measure of success has been developed to decide whether or not an innovation has been successful. A brief outline is shown in Table II. The main concern of the first studies into successful innovation (diffusion and adoption perspective, planned change perspective and so-called structure studies) was the relationship between individual and structural characteristics, and the speed with which the individual or the organization was able to

accept an innovation. Adoption behaviour therefore was the measure of success, and it only concerned the initiation phase or the decision-making phase. Everything that came after those phases, i.e. whether the necessary adjustments in the organization and behavioural changes of the employees were implemented adequately, was outside their scope. Only during implementation is the innovation really given shape and form, which makes considerable demands on organizational conditions and the commitment of the people involved to adjust. The implementation phase is the essence of every innovation process and most failures can be expected to occur during this phase. Since the implementation phase is often the most crucial phase and is also seen as the completion of a project, it is interesting to map the success and failure factors of this phase. The success measure, which we will address in more detail later, will therefore be based largely on the end results of such an innovation project and these will vary per project. The end results of an innovation project will be determined formally during an evaluation phase. The implementation phase, when the actual innovation must be given shape and form in an organization, consists of controlling both the innovation process and the change dynamics. The aim of this phase is to achieve the largest possible result with a minimum of costs and energy (Vrakking, 1995). Central to this crucial phase are the success and failure factors. In a change model, Vrakking and Cozijnen (1995, p. 15) compare the management process and the dynamic process. The management process refers to the planning aspect of organizational changes. In addition, they distinguish the dynamic process of complex changes. More specifically, the dynamic process deals with factors such as resistance to change,

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Table II Research of successful innovation: the five perspectives Perspective

Level of analysis

Success measure

Authors

Adoption and diffusion theories

Individual Organization

Speed of diffusion and adoption of the innovation

Rogers (1983)

Planned change

Individuals Groups and departments

Degree of acceptance of the change

Schein (1969) Chin and Benne (1974)

Organizational-structural

The organization

Extent to which organization has particular structure and culture that enables quick introduction of innovations

Peters and Waterman (1983) Mintzberg (1979) Heriott and Gros (1979) Baldridge and Deal (1975) Cozijnsen (1989)

Implementation

Extent to which innovation is operationalized and implemented in the organization correctly

Result of the implementation of an innovation project in a specific organizational context

Vrakking (1995) Zaltman (1973)

Strategic

The indirect results of an innovation project with regard to profits and competitive position of the organization

Economic measure for turnover or profits of the innovating organization

Brouwer and Kleinknech (1994)

interpersonal communication and power relations. In short, the dynamic process concerns the ``people side of innovation''. This phase is dominated by control aspects like planning, budgeting and monitoring (Wijnen et al., 1997) and intervention methods (training courses, survey feedback, conferences etc.), to handle the dynamic that results from the innovation process (Cummings and Worley, 1993; Andersen and King, 1995; Zaltman et al., 1973) The strategic perspective, represented by ± among others ± Kleinknecht, already concentrates much less on the end results of concrete projects. It focuses much more on the indirect results that are more economic in nature. The strategic perspective defines successful innovation as the degree in which innovations meet the demands of the market. From this point of view, enhancing the organization's competitive position or increasing market share are the objectives of innovation. We refer to it as the strategic perspective because of its orientation on the market and external environment. According to representatives of the strategic perspective it is essential to find answers to questions like: . What strategic advantages can be realized through the innovation?

.

.

.

Does the market consider the innovation an improvement compared to the existing goal? Can we realize the innovation more quickly than the competition can? How much should be invested in R&D?

The study of Brouwer and Kleinknecht (1994) is an example of Dutch research based on this perspective. They examined to what degree R&D expenditure and the availability of technological knowledge contribute to the innovation success of organizations. Their success measure consisted of a calculation of what part of the turnover was generated by implemented innovations in an organization. The strategic perspective can be placed at the very end of the phases model, in the incorporation phase.

Other research into successful innovation It is immediately clear that the implementation perspective, and therefore the implementation phase, receives relatively little attention. The implementation phase has already been referred to as ``the poor cousin'' of innovation literature (Vrakking and Cozijnsen, 1992). Does this mean that the implementation phase is not important? On

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the contrary. Many innovation projects fail because the implementation phase is not handled correctly (Carr, 1996; Vrakking and Cozijnsen, 1992). The implementation phase is known as one of the most difficult phases (Andersen and King, 1994; Cozijnsen and Vrakking, 1992). Then why has there been so little empirical research? One reason why the implementation phase has received so little attention is that it proves very difficult to establish a success measure for implementation. The level of analysis, unlike the other perpectives, is the innovation project itself. If, in the implementation phase, one wants to find factors that influence successful innovation, the success measure will have to relate to the results (output) of the innovation project. The most important result of a successful innovation project is the degree in which the defined goals have been achieved. It is necessary to quantify the results in terms of defined goals. The implementation phase is the final active phase in an innovation process. Implementation factors such as management factors, resistance and intervention refer to events in the innovation process itself. In all likelihood, the way in which the innovation is implemented during the process has a direct effect on the final results of innovation projects. Whereas the other perspectives can design their success measures and criteria based on the results of (individuals in) the innovating organization, the success measure of the implementation activities will have to relate directly to the results of the innovation project. So a way must be found to quantify the results of the innovation project. How can project results be quantified? It is impossible to check innovation results against an external success criterion. There simply is no success measure external to the innovating organization that is useful for organizational as well as technological and product innovations. The objectives of the different types of innovations are too diverse. To evaluate innovation projects, the objective of the innovation will therefore have to serve as the reference (de Leeuw, 1990). The degree in which the goals ± as defined by the innovating organization itself ± are achieved then becomes the success measure. A success measure is only workable if it has been quantified, or at least standardized in some way (Steers, 1988). So the achieved results on the objectives included in the

success measure must all be quantifiable. To measure is to know. Some innovation objectives are relatively easy to quantify, for example objectives like: . increase of turnover; . increase of profits; and . increased productivity. Other innovation objectives are much more difficult to quantify: . atmosphere; and . changes in power balances. In general, one can say that objectives with regard to the human aspect are more difficult to quantify than the more ``solid'' organizational objectives. To be able to measure the results of an innovation project objectively both the organizational and the human results must be included in the success measure (Vrakking and Cozijnsen, 1992). Table III contains a selection of frequently named objectives of innovation projects. Non-quantifiable objectives have been removed from the selection (Steers, 1988; Vrakking and Cozijnsen, 1992; Wijnen et al., 1997). The following is known about the organizations from our sample. A total of 78 per cent of the organizations focus on products, 20 per cent on services, and the focus is unknown for 2 per cent. Six organizations operate on a regional level, 30 on an international level. The organizations differ in size: the number of employees varies, from only two to more than 1,000. Six organizations employ more than 1,000 people; five employ between 500 and 1,000 people; 18 organizations employ between 100 and 500; 11 employ between 20 and 100; and nine companies employ fewer than 20 people. Several organizations did not want to share this information for reasons of anonymity. If the rest of the questionnaire was completed Table III Quantifiable objectives/results Organizational objectives/results Human objectives/results Increased profits Increased turnover Increased efficiency Improved effectiveness Higher productivity Increased market share Improved environment Quality improvement

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Reduction of staff turnover Increased employee satisfaction Enhanced motivation of employees Improvement of work environment




correctly, these organizations were included in the sample. Taking into consideration the requirements described above, we constructed the following success measure for innovations: result score R. This result score reflects the score that can be calculated on the basis of pre-established objectives of an innovation project and the achieved result with regard to those objectives. Each innovation is assigned a number, which indicates the degree to which an innovation has had a successful result. This result score of an innovation has the characteristics of a weighted average and is calculated as follows. The relative `ìmportance'' of an objective for the innovation is obtained by assigning value 2 to an important objective for the innovation, and assigning value 1 to a somewhat important objective. The organizations could only indicate the objectives mentioned in Table II as the original objectives of the innovation project. Subsequently, a value is given to the achieved result per objective. A very positive result is assigned value 2, a somewhat positive result value 1, no result receives value 0, a somewhat negative result value ±1 and a very negative result receives value ±2. If the results and importance of the objectives are multiplied together, a result score ensues. As the objectives may differ in numbers and importance, the product is then standardized. So, the result score, R, is calculated as follows: 12 X

R

i1

Wi

12 X

X

Ui

Wi

i1

R = result score of the innovation i = objective of the innovation = the sum of Wi = importance of objective Ui = achieved result on objective

the measuring instrument are addressed. This paragraph also presents the operationalizations of research questions and hypotheses, as well as the statistical methods used. Research questions and hypotheses General research question How successful are Dutch innovation projects, and what are the success and failure factors of innovation projects? In addition to this general question, we also want to find an answer to the following questions. Question 2 Which implementation factors are related to the innovation result? Related hypotheses: we presume that there is a negative correlation between the degree in which management of the innovation project is inadequate and the innovation result. The hypothesis is: H2a: As the time management of an innovation project is poorer, the innovation project will be less successful. Question 3 What is the relative strength of the effect of the implementation factors on the innovation result? To this end we tested the following hypotheses: H3a: There is a correlation between the implementation factors of time management, cost management, information management, decision making, resistance to unprofessional leadership and innovation success. We also wanted to know the differences between the three types of innovations and innovation success. Our question was whether the implementation factors influence product innovations, technological innovations and organizational innovations to the same degree. The following hypothesis was formulated: H3b: There is a correlation between the implementation factors of time management, cost management, information management, decision making, resistance to unprofessional leadership and success of product innovations.

The result score ranges from ±2 to 2; so a perfectly executed, very successful innovation can get a maximum score of 2, a disastrous innovation can have a minimum score of ±2.

Research design We will first describe the research population and sample. Subsequently, the procedure and

Research population and sample The research population consists of profit organizations that recently concluded an

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innovation process. In these organizations the innovation project has been completed and the results are known, or at least verifiable. The completed innovation project had to be characteristic for that particular business. The organizations examined were from different sectors, i.e.: . food industry; . insurance industry; . metal-electro sector; and . other industrial sectors; this category includes some organizations that do not fit in any of the other three categories, but were included in the sample. Organizations that did not want to divulge what industry they were active in for reasons of anonymity are also placed in the final category. Figure 1 shows the distribution of the organizations in the different industrial sectors. Every respondent from an organization included in the sample was asked to think of a recently completed innovation project, and answer all the questions for this particular project. The frequency table (Table IV) shows how complex and how new the innovation projects were to the innovating organization. Figure 1 Distribution of organizations per industrial sector (in percentages)

Procedure A survey was conducted to answer the research questions. Based on a questionnaire, information was gathered for 50 organizations. The study is quantitative, cross-sectional and was done on a random sample. First of all, addresses and telephone numbers of the organizations in the sample were collected, using annual reports, telephone directories and professional journals. We also used the address file of the French Chamber of Commerce. The organizations were first contacted by telephone. Based on expectations about the characteristic innovation type of the contacted organization (product, technological or organizational), we asked to be put through to an employee. Initially this would be the human resources manager, a technological innovation manager, or a product development manager respectively. Once contact with the organization had been established, it was determined jointly who the right person would be to complete the questionnaire. To thank them, each respondent received a book of their choice or a book token. Figure 2 shows the positions of the respondents who completed the questionnaire for their organization. The questionnaire ``Successful innovation'' was subsequently sent to the respondents. If they wanted, the respondents could also answer over the telephone. A total of 58 people responded, which means a response of 30 per cent. Of the returned questionnaires, eight could not be used. So the final number of questionnaires processed was 50. Research instrument Data were collected by means of the ``Successful innovation'' questionnaire, which was designed specifically for the current Figure 2 Positions of the respondents

Table IV Complexity and newness of innovation projects included in the study Degree of newness Very new Somewhat new Total

Degree of complexity Somewhat Very complex complex 10 21 31

3 13 16

Total 13 34 47

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study, and therefore exploratory in nature. The questionnaire consists of 36, mainly closed, questions. The questionnaire contains two parts. Questions regarding general business information and the experience of the interviewed organization with innovation projects, are included in part I. In part II the respondent is asked to think of one recently completed innovation project and answer a number of (closed) questions about it. To answer question 1 ``to what degree are the examined innovation projects successful?'' we used the success measure for innovations described above. The range of the result score goes from ±2 to 2. The following example illustrates the calculation of result score R. Organization X has concluded an innovation and fills out the questionnaire. The organization lists as the original objectives of the innovation project, as shown in Table V. After the innovation is completed organization X fills in the results of the innovation as shown in (Table VI): Result score R of this innovation project is calculated as follows: Profit is an important objective and is given a value of 2. This is multiplied by value 1, which has been assigned because this objective had a somewhat positive result. Quality improvement is also very important (value 2) and is multiplied by value 2 (very positive result). Increasing employee motivation was a somewhat important

objective and was therefore given a value of 1. The result was somewhat negative and is given a value of -1. These three products are added up and then divided by the number of objectives mentioned and their importance: 21 profit

22 1ÿ1 quality motivation

221

1

The result score of this innovation is 1. Based on four hypotheses, question 2 tests which implementation factors are connected with the inovation result. H2a, H2b, H2c and H2d presume a negative correlation between the degree in which management of time, costs, information and decision making are less effective, and the innovation result. The four management factors (time management, cost management, information management and decisionmaking) each consist of a number of items from the questionnaire. Based on the theory of Wijnen et al. (1997) these items are taken to represent the management factors. To check whether the items show some correlation and can represent the same factor, we calculated the mutual correlations of the items. Based on these correlations we have no reason to think that the items do not measure the intended factors. H2e presumes a correlation between the degree of resistance and the innovation result. The questionnaire contains 12 items that measure resistance. When the results were processed one item was removed because it did not play a role in more than 95 per cent of

Table V

Increased profits Quality improvement Increasing employee motivation

Very important

Somewhat important

Not important/not unimportant

Somewhat unimportant

Very unimportant

1 1

2 2

3 3

4 4

5 5

1

2

3

4

5

Table VI

Increased profits Quality improvement Increasing employee motivation

Very positive result

Somewhat positive result

No result

1 1

2 2

3 3

4 4

5 5

1

2

3

4

5

156

Somewhat Very negative negative result result




the examined innovation projects. It concerns the item of sabotage. It is interesting to gain understanding of the interrelations between the resistance items. That is why an exploratory (rotated factor) analysis was carried out. Based on the graph, in which intrinsic values and the factors are plotted, three resistance factors were selected. Together they explain 67.2 per cent of the variance. We call the three selected factors: (1) factor 1: resistance to leadership; (2) factor 2: resistance against (political) power struggle; and (3) factor 3: resistance against too many or previous innovations. Table VII shows which items constitute the three factors. The degree to which the items correlate with the factors is also indicated as factor loads. H2e was then tested by calculating the correlation between the three resistance factors and the innovation result. Due to the low frequency of intervention methods it was impossible to carry out a factor analysis for the intervention methods. To check for a connection between the innovation result and intervention methods, we calculated the correlation coefficients for all separate intervention methods. Question 3 was tested with the aid of regression analysis, which enables the calculation of (relative) strengths and directions of correlations. The dependent variable is innovation success, the independent variables are: time management, cost management, information management, decision making and resistance to leadership.

Results In this paragraph we present the results of the empirical research. Question 1 was: ``to what degree are the examined innovation projects successful?'' To answer this question result score R was calculated for all the inovation projects we examined. Based on their score the innovation projects are divided into four groups, each representing a different degree of innovation success. The groups are presented in Figure 3. Figure 3 shows that 23 per cent of the innovation projects are successful. In successful innovation projects 50 per cent or more of the defined objectives have been achieved. Of the innovation projects, 23 per cent were partially successful: they realized between 25 per cent and 50 per cent of their objectives. More than 39 per cent of the innovation projects have failed either completely or partly. Eleven of these projects only realized 25 per cent of the objectives at best. A little over 16 per cent of the projects failed completely: not only were the objectives not achieved, but the original situation deteriorated due to the innovation project. To check for a relationship between innovation result and implementation factors time management, cost management, information management and decision making, we calculated the correlation coefficients and p-values (one-tailed). Table VIII contains our findings. As Table VIII shows, the correlations between time management, information management, decision making and the innovation result are statistically significant. Figure 3 Degree of success of examined innovations (in percentages)

Table VII Factors, items and factor loads Factors

Items

1

Lack of leadership Insufficient professionalism of managers Distorted power relations Conflicts between individuals Lack of understanding and support Competititon between departments and groups Political power struggles and competition Informal coalition formation Individual competition Negative earlier experiences with innovations Too many innovations simultaneously

2

3

Factor loads 0.83 0.76 0.56 0.48 0.42 0.64 0.50 0.34 0.27 0.67 0.50

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Table VIII Correlation coefficients of the independent variable innovation result and the management factors Implementation factors (management factors) Time management Cost management Information management Decision making Note: *correlation is significant if p < 0.05

Innovation result p-value Correlation 0.30 0.40 0.40 0.38

0.02 0.00 0.00 0.00

No immediate connection was found between cost management and innovation result. Of the differences in innovation success of organizational innovations, 61 per cent can be explained by the implementation factors time management, cost management, information management, decision making and resistance to leadership. Both the factor cost management and resistance to leadership explain the differences in innovation success of organizational innovations. It is striking that inadequate cost management still shows a positive effect on the innovation result. Time management and resistance to leadership have a negative effect. The correlation of innovation success per significant implementation factor, checked for the effect of other implementation factors, is 0.58, 0.46, and 0.41 respectively. To check for a negative correlation between degree of resistance and the innovation result, we first of all carried out a factor analysis, from which three factors emerged. Table IX shows the three factors and their correlation with the innovation result. Only the factor resistance to leadership has a significant correlation with the innovation result. This would mean that leadership style definitely influences the effective implementation of innovations. Finally, we examined whether there is a connection between the intervention methods Table IX Correlation coefficients of dependent variable innovation result and resistance factors Implementation factors (management factors) Resistance to leadership Resistance against (political) power struggle Resistance against too many or previous innovations Note: *correlation is significant if p < 0.05

Innovation result p-value Correlation 0.47

0.00

0.06

0.71

0.06

0.70

used in an innovation project and the inovation result. To this end the correlation coefficient of every intervention method was calculated separately. Our findings are presented in Table X, which only includes those intervention methods that show a significant correlation with the innovation result. Intervention methods that focus on interaction within and between groups and participation show a much stronger positive correlation than methods based on coercion.

Conclusion and discussion Part of the main question was: ``to what extent are the examined innovation projects successful?''. This question was answered by calculating result score R for the innovation projects. This result score is used here as a measure for the success of an innovation project. Based on pre-determined objectives and achieved result, the result score was calculated. Each innovation project was then assigned a number that indicated the degree of success of an innovation. We concluded that a little more than half of the projects can be considered completely or at least partly successful. However, more than 39 per cent of the innovation projects failed, either completely or partly. This is a considerable percentage, especially considering that, in general, the respondents will be more inclined to fill out the questionnaire a little too positively (socially desirable) instead of negatively. It would be an interesting exercise to compare these percentages with the results from industrial sectors other than those examined here, or with the results from organizations in other countries. Unfortunately, this is not possible, because we have not found any comparable research that defined innovation success as a function of achieved results on established objectives. The first thing we noticed was that there were no success or failure factors that have an unambiguous influence on the success of all types of innovation projects. The success and failure factors differ per innovation type. The correlation between the different innovation factors and innovation result is established, but when relative effects are measured this correlation largely disappears, or changes strongly.

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Table X The significant (p < 0.05, two-tailed test) correlation coefficients of the intervention methods and the dependent variable innovation result

Innovation success

Confrontation meetings

Intervention by third parties

Coercion

Improving intergroup relations

±0.79

±0.64

±0.43

±0.62

As to the link between innovation success and implementation factors, only the factor of ``resistance to leadership'' shows a significant correlation with innovation success. Finally, 61 per cent of the differences in innovation success is explained by nearly all implementation factors, i.e. time management, cost management, information management, decision making and resistance to leadership. Many questions remain unanswered. To make more definite statements about the relative importance of the success and failure factors, we must first examine which implementation factors are interrelated. The method developed here to measure innovation success appears to be practicable. However, this success measure must also be further developed and improved.

References Anderson, N.R. and King, N. (1995), Innovation and Change in Organizations, Routledge, London. Baldridge, J.V. and Deal, T.E. (1975), Managing Change in Educational Organizations, Sociological Perspectives, Strategies and Case Studies, Berkley Books, New York, NY., Brouwer, E. and Kleinknecht, A. (1994), Innovatie in de Nederlandse industrie en dienstverlening, Ministerie van Economische Zaken. Carr, A. (1996), Managing the Change Process: A Field Book for Change Agent Consultants, Publishing Division, Coopers & Lybrand, London. Chin, R. and Benne, K. (1974), ``General strategies for effecting changes in human systems'', in Bennis, W.G., Benne, K.D. and Chin, R. (Eds), The Planning of Change, Holt, Rinehart & Winston, London. Cozijnsen, A.J. (1989), ``Het innovatievermogen van politieorganisaties, Onderzoek naar de mogelijkheden van een non-profit organisatie om

complexe vernieuwingen successvol door te voeren'', dissertatie, Kluwer Bedrijfswetenschappen, Deventer. Cummings, T.G. and Worley, C.G. (1993), Organization Development and Change, 5th ed., West Publishing Co., New York, NY. de Leeuw, A.C.J. (1990), Besturen van veranderingsprocessen: Fundamenteel en praktijkgericht management van organisatieveranderingen, Alphen aan den Rijn, Samsom. Heriott, R.E. and Gros, N. (1979), The Dynamics of Planned Educational Change; Case Studies and Analyses, Mr Cuthon Publishing Corp, Berkeley, CA. Mintzberg, H. (1979), The Structuring of Organizations, Prentice-Hall, Englewood Cliffs, NJ. Peters, T. and Waterman, R. (1993), In Search of Excellence, Harper & Row, New York, NY. Rogers, E.M. (1983), Diffusion of Innovations, The Free Press, New York, NY. Schein, R.H. (1969), Process Consultation: Its Role in Organization Develoment, Addison-Wesley, Reading, MA. Steers, R.M. (1988), ``Problems in the measuring of organizational effectiviness'', Administrative Quarterly, Vol. 20, No. 128. Tushman, A. and Nadler, B.C. (1986), `Òrganization for innovation'', California Management Review. Vrakking, W.J. (1995), ``The implementation game'', Journal of Organizational Change Management, Vol. 8 No. 3. Vrakking, W.J. and Cozijnsen, A.J. (1992), Ondernemen en vernieuwen: Basisboek innoveren en implementeren, Kluwer Bedrijfswetenschappen, Deventer. Vrakking, W.J. and Cozijnsen, A.J. (1995), `Òntwerp en invoering; strategieeÈn voor organisatieverandering'', Samsom Bedrijfsinformatie, Alphen a/d Rijn. Wijnen, G., Renes, W. and Storm, P. (1997), Projectmatig werken, Het Spectrum, Utrecht. Wolfe, R.A. (1994), `Òrganizational innovation review, critique and suggested research directions'', Journal of Management Studies, Vol. 31 No. 3. Zaltman, G., Duncan, R. and Holbek, L. (1973), Innovations and Organization, John Wiley & Sons, New York, NY.

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1.0 Introduction

NPD frameworks: a holistic examination Charles Shepherd and Pervaiz K. Ahmed

The authors Charles Shepherd is Head of Global Process Architecture at NCR, Dundee, Scotland, UK. Pervaiz K. Ahmed is joint editor of this journal. Keywords New product development, Customer requirements, Performance Abstract Modern organisations have approached the challenge of innovation by attempting to develop frameworks for new product development. Whilst many organisations have attempted some degree of customisation of these innovation frameworks, most of them retain features of a common skeleton. Indeed in generic terms innovation methodologies exhibit a high degree of similarity. In this paper, presented is an overview of a generic framework that serves to highlight the essential components to make such a system work. The paper goes on to indicate the types of benefits that can be derived from such a system, as well as the limitations and shortcomings of such approaches in practice. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com


New products are central to the growth and prosperity of the modern corporation. An estimated 40 per cent of sales from US firms came from new products in 1986, up considerably from 33 per cent of the five years previously (Cooper and Klienschmidt, 1991). In order to provide value and win customers, companies are having to quickly and accurately identify changing customer needs and wants, develop more complex products to satisfy those needs, provide higher levels of customer support and service while also utilising the power of information technology in providing greater functionality, performance and reliability (Cooper and Kleinschimdt, 1991). Consequently, new product development (NPD) has become a central mechanism through which a company's strategy can be put into practice. During the late 1980s, companies began to experience a number of pressures which were impacting on business performance. Market place dynamics were moving at a pace which made it more difficult to track changing customer needs, advancing technologies and increasing competitive pressures. This complicated the internal communications and co-ordination infrastructure, resulting in work units becoming longer and more complex. As a result, more and more organisations began to look at NPD frameworks as a way of achieving better co-operation, co-ordination and communication amongst those involved in product development projects. The introduction of greater control and discipline was thought to help achieve better quality and faster execution of key tasks. Additionally, the application of a roadmap lays out the key tasks needed to facilitate improvement in scheduling and resource allocation decisions. To address these challenges, firms are now being driven to implement changes that will help speed products through development and improve process efficiency and NPD effectiveness (Griffin, 1997). They have a need to speedily investigate the large number of opportunities vying for limited resources and ensure they can be effectively prioritised. Consequently, NPD is increasingly being cited as the most important process within many high performing organisations and associated research groups (Trygg, 1993; Pavar, et al., 1994). It has also been suggested that the only sustainable source of product

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NPD frameworks: a holistic examination


Charles Shepherd and Pervaiz K. Ahmed

advantage is a superior NPD framework (Anthony et al., 1992). This reliance and focus on a strong NPD framework is reinforced by research, which shows a strong correlation between new product success and a company's health (Pavar et al., 1994). Indeed, NPD frameworks are increasingly being seen as an important source of competitive advantage (Bowen et al., 1996; Wheelwright and Clark, 1992), especially for those companies who are key players in established markets with relatively stable product life-cycles (Terwiesch et al., 1998) Griffin (1997) highlights that successful firms can be differentiated from lower performers in their execution of a commonly agreed to, customer centered and disciplined NPD process. Their cultivation of a supportive organisation and infrastructure for NPD, the setting of a NPD agenda and managing the portfolio of projects in aggregate were also found to be areas of differentiation. These companies also more actively managed the portfolios of projects under development and limited the number of projects underway at any one time. Proficiency in the performance of NPD activities increases the likelihood of new product success. However, the development and implementation of a NPD framework is by no means simple, nor a guarantee for new product success. In fact, no one best way has been found to organise NPD (Griffin, 1997), so it comes as no surprise that the causes of new product success and failure can usually be traced back to the NPD framework (Cooper and Kleinschmidt, 1991) as demonstrated in the following examples (Cooper, 1988): . One product concept out of seven becomes a commercial success; and only one project in four results in a winner. . Roughly half of the resources that US industry devotes to product innovation is spent on failures and killed projects. . 63 per cent of executives are ``somewhat'' or ``very disappointed'' in the results of their firms' NPD efforts. . New products face a 35 per cent failure rate at launch. This would indicate that great care must be taken when attempting to implement a NPD framework within an organisation to ensure it interfaces well with existing processes and that it is designed to meet the objectives for

which it is being implemented. It also suggests that as organisations evolve, it is imperative that their NPD framework also evolve in a manner which continues to support strategic repositioning and growth objectives.

2.0 New product development ± generic framework A number of NPD frameworks have been developed to satisfy the needs of different organisations operating in different markets. Their goal is to bring products to market on time, to optimise business results by reducing cycle-times and costs, and to manage the programmes according to agreed business plans over the product's life-cycle. The majority of these NPD frameworks possess a number of similar important characteristics (Power, 1993) which, when executed in a balanced and effective manner, can significantly improve NPD performance (Gehani, 1994). These characteristics generally include: . Use of a structured development process, providing the ``rules of the game'' and describing entry and exit criteria between key programme milestones, primary tasks, schedules and resource assignments. . A team of senior executives, called a review board, who provide oversight of the programmes by resolving cross-project issues, setting project priorities, resolving issues and make Go/Kill decisions . Use of realisation teams (cross-functional execution teams), operating under a product ``champion'' and reporting to the assigned senior management oversight board. . Phase or stage/gate reviews at major development milestones, when funding, resources and project schedules are approved or rejected by the review board. The activities are generally organised into distinct phases which are carried out sequentially by the realisation teams and separated by ``stage-gate'' reviews held by the review board. This is illustrated in Figure 1, using a ``best-in-class'' NPD framework called PACE (product and cycle-time excellence) devised by the consultants PRTM (Anthony et al., 1992).

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Figure 1 PRTM's PACE NPD framework

Each component is elaborated in a little more detail next in order to provide a common understanding of NPD frameworks and their application. 2.1 Structured product development process (SDP) In many companies, the way products are developed is completely unstructured. There is no consistent terminology, each project team uniquely defines it's activities, even though many are similar. This need for additional structure is demonstrated by an associated high cost of quality, demonstrated by the following symptoms (Anthony et al., 1992): . Inconsistent terminology and definitions, leading to garbled or confused hand-offs (up to 39 per cent has been measured) causing wasted effort, misdirected work and demanding increased numbers of clarification meetings. . Inability to estimate resource requirements and schedules, resulting in sub-optimal planning and execution in support of programmes considered to be vital to the company. . Excessive task interdependence, resulting in complex and inefficient

.

communication channels and plans being made disjointedly between groups and a poor understanding of responsibilities. In some instances, 42 per cent of work has been repeated because of upstream changes which have occurred due to late customer input, something being overlooked, or errors in specifications. Attention focused on fire-fighting. In some cases, at least 48 per cent of development work has been identified as fire-fighting and caused by unplanned work which appears unexpectedly but requires immediate attention.

Structured development processes (SDP) originally offered a framework consisting of terms which described what needed to be done in development and allowed them to be consistently applied across all projects. This is enhanced by functional decomposition of key phases, through to the numerous steps, tasks and discrete activities (see Figure 2). Since different levels of management have responsibility for different ``layers'' in the structured development hierarchy, the management and control of the environment is greatly simplified and enhanced. As a result, everyone clearly understands what needs to

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Figure 2 Structure development process hierarchy

be done, how it must be done and when it must be done. With such a process in place, rapid execution can then be facilitated. Latterly, the scope of this process hierarchy has been expanded to include other functional processes (e.g. marketing, manufacturing, product management, quality, supply line management, etc.). In application the SDP needs to be uniform across the company and compliance must be mandatory. In this way, it forms part of the organisational culture and is regularly and effectively re-engineered as the needs of the organisation change through time. ``Best in class'' companies create guidelines around the SDP to ensure major tasks are performed across all projects and ensure mistakes, once identified, are not repeated. The clarity offered in these documents concerning key cross-functional linkages and responsibilities ensures an effective overlap of activities, improved hand-offs between functional groups, the setting of realistic and more achievable schedules and improved planning and control. In sum, the SDP offers the guidance to execute the various activities in the company in an effective and co-ordinated fashion. 2.2 Realisation teams The secret to successful product development teams lies in organising project teams to achieve effective communication, coordination and decision making. Many different organisation structures exist in support of different companies' business objectives.

A number of studies have been conducted to identify the most effective team structure to support NPD activities, resulting in the identification of many different approaches to team composition and the associated authority which can be employed (See Figure 3). Core teams or autonomous (realisation) teams operating in a matrix organisation are thought to be the most successful amongst all other alternatives. Larson and Gobeli (1989) found that the use of traditional functional organisations had the lowest success in controlling cost, meeting schedules, achieving technical performance and overall results. The value in using empowered senior crossfunctional teams to drive NPD programmes is one point that is not lost to the majority of companies. As Trygg (1993) identified: ``96 per cent of all groups who had halved product development times employed the use of crossfunctional teams''. A further contributing factor to the success of these teams was the extent to which leadership was provided by ``product champion'' (Trygg, 1993). These teams are key enablers of the NPD framework. They facilitate a change in focus within the company away from functional and towards project specific goals, something which is supported by the high level of budget control they are assigned. Their accountability and responsibility for project related goals fosters a greater sense of ownership and commitment, and the improved communications result in a highly effective and dedicated team. The important message being communicated from these studies is that team

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Figure 3 Project team construction, empowerment and effectiveness

approaches produce lower production and labour costs and more committed employees. Indeed, self-managed cross-functional teams are touted as the keystone to leaner and more flexible organisations capable of managing intensifying competitive pressures and the inexorable acceleration of technology. This is increasingly viewed as the logical means to generate more creative, less problem riddled solutions, faster (Donellon, 1993). 2.3 Review boards Senior management involvement is generally channeled through formally designated review boards. These bodies are also commonly referred to as the product approval committees (PAC), resource boards or new product executive group. This group is designated within the company to approve and prioritise new product development investments. Specifically, it has the authority and responsibility to: . Initiate new product development projects. . Cancel and re-prioritise projects. . Ensure that products being developed fit the company's strategy. . Allocate development resources. Because this is a decision-making group, it ideally should remain small, and typically include the chief executive officer (CEO), chief operating officer (COO) or general

manager, and the heads of the marketing, engineering, finance and operations areas. In this capacity, each would be expected to dedicate around 10-15 per cent of their time on oversight-related activities. The specific roles expected to be performed by these members generally include: . Establish the vision. Setting strategy by establishing a vision for their company's products. With this clear vision, the entire company can execute development activities to achieve it. . Make decisions. Senior management needs to review the right information at the right time to make the right decisions. . Cultivate the product development process. A superior process can be a source of competitive advantage. By supporting a common process, they smooth execution of product development activities. . Motivate. Successful motivation and leadership in product development require that senior management has already achieved respect in the three previous roles. . Recruit the best development staff. This is especially important when trying to secure individuals with specific technical skill of expertise. It is important that balance is achieved between the review board team's authority and the empowerment exercised by the

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realisation teams. Anthony and McKay (1994) highlight this in stating that: . . . the foundation for leadership in NPD is based on balancing product development and process control and its associated information needs between top management (responsible for the strategic direction and resource allocation) and the development teams (responsible for conceptualising, designing, testing, manufacturing, launching and screening new products).

The issue of project and resource management in NPD is an important one and often is a contributory factor in the NPD framework being unbalanced - being either insufficient, over bearing, inappropriate or based on incomplete information. Two dimensions in determining this balance are: (1) Locus of control between top management and cross-functional execution teams. (2) Degree to which the control is exercised. The symptoms which can be expected from an unbalanced NPD framework, by applying these two dimensions, are shown in Figure 4. Anthony and McKay (1992) found that improvements due to balancing the NPD framework can be dramatic ± frequently a 50 per cent reduction in cycle time can be achieved within the first year. Other benefits include better products, lower development costs, improved predictability and the ability to handle more development projects concurrently.

2.4 Phase review process All companies have a decision-making process for new products, although some may not recognise it as an explicitly defined process. In such instances, decision making can become unreliable and consequently introduce significant delays to product development programmes. This can be overcome by applying a well defined and effective phase review process. The phase review process drives the other product development processes. It is the process whereby the review board makes the difficult strategic-level product decisions, allocates resources to product development efforts, provides direction and leadership to the project teams, and empowers the realisation teams to develop the programme on a phase-by-phase basis. These decisions are made through approval at the conclusion of specific phases in the development effort, and are generally guided by a list of deliverables and milestones which are expected to be completed in support of a Go/ No-go decision. The phase review process is intended to cover all significant product development efforts, including all major new product development opportunities. Also, projects that have a significant impact on multiple functional areas such as manufacturing, support, sales and marketing should be included in this process. Very small projects

Figure 4 NPD balance (locus of control and degree to which it is exercised)

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such as minor enhancements are usually managed by a simpler process or grouped and managed as a package. While the NPD process is conceptualised in different ways, many conceptualisations incorporate project review points. Review boards use these review points to examine projected technical, marketing and financial performance of programmes to determine whether to proceed with developing the new product or to terminate it prior to commercialisation. The stage gate model shown in Figure 5 has five stages, although more or fewer stages may be employed by different companies. The phase review process can be viewed as a funnel, with many ideas entering at the concept phase and, through a series of screenings over the course of development, narrowed to a few appropriately resourced projects with high likelihood of market success. At the conclusion of each phase, a review is held to determine the direction of the project: proceed, cancel or re-direct (see Figure 5). In each phase, a number of activities are executed concurrently across a number of different functions. At specific points, these are brought together in the form of specific phase review deliverables which are presented to the review board. On the basis of the information provided, the programme will be permitted to proceed to the next phase (with

commitments in funding and resources given), given instructions to refocus, or cancelled. This review activity ensures that funded programmes are consistent with the company's strategic and financial goals and are supported and resourced in a manner which increases the likelihood of success. Clearly, at the front of this funnel, very little may be known about a concept or the target market to which it is to be applied. As a result, the information to support the opportunity may be somewhat rough and incomplete. However, over time and as the programme moves through the funnel, the levels of completeness and accuracy of the supporting information will improve. As a result, the review board will be able to approve increasing levels of resource to support an opportunity as the quality of information improves over time (see Figure 6). This ability to review programmes and commit resources based on increasing understanding of the opportunity offers an important risk abatement mechanism by allowing undesirable programmes to be cancelled prior to the development phase, when most resources are expended. This is supported by the finding that 80 per cent of a product cost is committed during the design phase, whereas design only absorbs 8 per cent of incurred costs (Pavar et al., 1994).

Figure 5 Funnel approach of new product development frameworks

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Figure 6 Risk abatement in NPD decision points

Clearly, the contribution NPD frameworks can make to a company is determined by the effectiveness of its decision-making process to identify what opportunities to pursue. This also requires some insight into the interdependencies between programmes and the associated resource allocations. As a result, the definition and application of an effective phase review process should exhibit the following major characteristics: . provide a clear and consistent process for making major decisions on new products and enhancements; . empower project teams to execute a project plan; . provide the link for applying product strategy to product development; . provide measurable checkpoints to monitor progress; and . establish milestones that emphasise a sense of urgency. In fact, current practices indicate that the highest attrition of programmes in the funnel takes place at concept screening, with the second largest number of cancellations taking place in the next, business planning, phase. Consequently, programmes are eliminated much earlier in the NPD process than in the past, resulting in less time and money being spent on a particular idea (Souder, 1987). Through the use of such structures today's portfolios of NPD projects waste less money on unsuccessful products (Griffin, 1997).

3.0 Benefits of NPD frameworks Benefits of the successful implementation of a NPD framework can be grouped into the three major categories of: (1) Reduced product development costs. (2) Time to market offering ``first-mover'' advantages. (3) New product advantages. These are presented in more detail next. 3.1 Reduced product development costs Many different processes have been implemented to improve the efficiency, and thus reduce the costs, of product development, particularly in the areas of manufacturing and engineering. These processes, which include the design for excellence (DFX) techniques such as ``design for manufacturability and assembly'' (DFMA), ``design for logistics'' (DFL), ``design for serviceability'' (DFS), ``design for testability'' (DFT) and concurrent engineering practices provide management with more accurate information on the costs of developing products. Many of the improvements achieved in hardware-based developments are now being realised in software development through the standardisation of development environments (MicroSoft foundation classes and development tools), object-oriented design and development practices, and increasing

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support for component based architectures (CBA). Haffenden (1990) postulates that between the design and manufacturing stages, as much as 85 per cent of a product cost can be determined at a point when only 10 per cent of the cost is expended. This corresponds closely with the work by Pavar et al. (1994) who found that 80 per cent of a product's cost is committed during the design phase, whereas design itself only absorbs 8 per cent of incurred costs. Since this information is available so early, an opportunity exists to ensure only those products which stand a reasonable chance of being commercially successful be funded. This capability was demonstrated by Colgate-Palmolive, who saw a drop in the number of products which reached the prototype stage from 50 per cent to 20 per cent once a NPD framework had been adopted and implemented. Consequently, the levels of funding applied to programmes which are killed later is reduced, resulting in an improved return on the overall R&D available. Over the course of a new product development project, costs generally increase at an accelerated rate as the product moves towards commercialisation. Due to accelerating costs over the NPD process, it is important to eliminate failures as early as possible, before they lead to a major loss in investment (Urban and Huaser, 1993). The likelihood of missing key steps, which may require expensive rework or have an impact on cycle time, can also be avoided by use of a roadmap that defines tasks and deliverables. With this improved clarity of purpose comes the ability to more effectively plan activities and allocate resources. This helps in identifying and allowing opportunities for concurrent activity, while also avoiding any potential functional bottlenecks. The introduction of significant functional improvements offering operational efficiencies (such as DFX techniques) can also be more effectively implemented. Systematic frameworks of NPD also contribute to improved levels of planning and decision making by encouraging information to be gathered from all key functions and forcing an evaluation at key milestones within the project to focus the attention on the quality of execution. The whole focus of the reduction in product development cost is to drive out any

unnecessary cost of quality. This is achieved primarily through improved execution achieved by providing greater stability to the organisational linkages or offering accurate information to guide planning and decision making. Additionally, improved product development productivity is achieved through shorter development cycles and reduced levels of waste. As a consequence, projects with a decreased development lead time have also been found to be less expensive (±33 per cent), while those products with an increased development lead time, relatively seen, have been more expensive to develop (+400 per cent) (Trygg, 1993). 3.2 Time to market Product development can be accelerated to give benefits, such as establishing dominant designs, jumping ahead of the learning curve, realising higher profit margins, incorporating new technical advances sooner, or influencing/setting industry standards. All these combine together in building significant competitive entry barriers (Cooper and Kleinschmidt, 1991; Power, 1993). An integral part of the NPD ethos is the concept of ``time to market'' ± the elapsed time between the start of product definition (or business planning) and product availability (Vesey, 1990). The influence of reducing time to market has assumed increasing importance in the success of new product introductions (Murmann, 1994). Indeed, 52 per cent of companies show development lead times for their latest development projects are shorter than for earlier projects in which corresponding products were developed (Trygg, 1993). However, achieving time to market is not just a question of reducing design time, it is also a question of producing the products before others, and thus speeding up one's manufacturing (Pavar et al., 1994). The time employed in new product development is determined by the efficiency of the information process, the levels of uncertainty in development, and the amount of information needed to combine all information elements (Murmann, 1994). It is therefore not enough to automate the shop floor to improve time to market, the entire design-manufacturing process must be addressed (Haffenden, 1990). A faster but inefficient organisation is likely to produce a large volume of wastage, with defective goods

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and poor service, resulting in a devastating effect on the bottom line of the organisation (Gehani, 1994). Studies have indicated the existence of an optimum development time, as illustrated in Figure 7 (Murmann, 1994). Shortening development time to below the minimum of the U-shaped curve means increasing costs due to additional parallel processing that causes more co-ordination expenditures and additional expenses for overtime. Conversely, lengthening development time raises the cost because of losing know-how and motivation. As stated earlier, projects with a decreased development lead time have been found to be less expensive (up to 33 per cent), whereas products with an increased development lead time have, relatively seen, been much more expensive to develop (+400 per cent) (Trygg 1993). This concern with optimising the internal product development activities needs to be assessed in the broader context of market impact and readiness. The ability to complete a product development in order to meet its optimised market window of opportunity is well illustrated by Trygg (1993) and Vesey (1990) who state: . . . a product six months late to market, but on budget, misses out on one third of the potential profit over the product's lifetime. In contrast, a product coming out on time and 50 per cent over budget cuts profits by only 4 per cent.

This demonstrates the need to find an effective balance between the time required to develop a new product and the ability to have it ready when the market is ready. Firms have tried to improve their rates of success in the global marketplace by accelerating NPD execution and speeding time to market (Topfer, 1995). The subsequent benefits to be accrued (as illustrated in Figure 8) tend to attract managerial attention, since justification for proceeding with a project tends to focus heavily on financial measures such as ROI. The specific benefits on offer include extended sales life, extra revenue, lower costs and higher (premium) profits, increased market share and customer loyalty, a technological edge and a good image for technology, delivery and quality (Pavar et al., 1994). Time to market improvements can also allow a company to gain success in timesensitive markets, where predictability of supply and time to market can become a competitive advantage. The ability to innovate can also provide a positive impact on technical and information standards by the attainment of patents and copyrights. Increasing lead time in an individual market should help the pioneer establish an even stronger brand name, and move customers' ideal points closer to the pioneer's product attributes. Further, customers judge late comers against existing brands and usually fail

Figure 7 Optimal internal development time

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Figure 8 The financial impact of shorter time to market

to integrate information about late brands into their existing knowledge structure. A delay in product availability also results in lost sales, longer break-even times, reduction in product lifetime profits and competitive disadvantages (Smith and Reinertsen, 1991). Interestingly, NPD cycle time does seem to be getting shorter for more innovative projects (Trygg, 1993). In addition to these external benefits to improving time to market performance, it is also possible that internal benefits can be realised by a company adopting a NPD framework (Gehani, 1994): . rapid generation of economies of learning with lower overhead and labour costs; . more information sharing and problem solving across the organisation; . higher quality of goods and services; . lower requirements of working capital; and . less need for engineering and design changes due to environmental variations. 3.3 New product advantages The ability to satisfy identified customer needs and wants, by definition, requires an organisation to be capable of developing new products effectively and efficiently. Regardless of the types of new products introduced by a company, one thing is clear ± the rewards for the development and successful launch of a new product can be significant. For example:

.

.

.

.

A total of 700 US organisations between 1976-1981 stated 22 per cent of profits and 28 per cent sales growth came from new products (Towner, 1994). Of all products that actually get launched, 56 per cent are still on the market five years later. Other studies estimate the long term success rate of new products at 65 per cent (Power, 1993). The companies that lead their industries in profitability and sales growth get 49 per cent of their revenues from products developed over the past five years. The least successful get only 11 per cent from new products (Power, 1993). According to a 1982 study by Booz-Allen and Hamilton, US organisations are likely to derive one third of their profits from new products (Gehani, 1994).

Those firms which do not keep their NPD practices up to date suffer an increasingly marked competitive disadvantage. To remain competitive, best in class firms continue to employ the basic attributes of an effective NPD framework, but continue to show evolutionary improvements on multiple fronts to retain their lead (Griffin, 1997). Consequently, the following advantages can be attained through deployement of an effective NPD framework: . improved productivity through upgrades and advancements in technology;

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Charles Shepherd and Pervaiz K. Ahmed .

.

.

.

.

.

.

improved competitive positioning (allowing thought leadership profile); improved ability to penetrate new markets, set rules for existing markets and adjust segmentation criteria thus adversely affecting competitive reaction; improved defence against competitive attacks (shoring up defences through offering flexible configurations or a full product family thus preventing weaker opponents building up a distribution capability); ensures highly skilled work force is retained and motivated to proceed; reduces business risks by having less of a dependence for revenue and margins on outdated components; stimulates an environment of creativity and innovation which allows companies to compete; and reduced inventory required (and costs) due to the ability to apply new technology (replace rather than fix).

4.0 Weaknesses and limitations of NPD frameworks Regardless of the gains to be achieved through an effective NPD framework, there still appears to be much room for improvement (Power, 1993; Lee and Na, 1994). Analysis of various NPD frameworks and the programmes being executed within them have indicated weaknesses which are giving cause for concern, and in some cases have even resulted in the NPD programmes having a negative impact on the success of the organisation (Cooper, 1988, Cooper and Kleinschimdt, 1991; Page, 1995; Trygg, 1993). Around 24 per cent of companies who have implemented a NPD framework have reported worse time to market performance and 63 per cent of company executives have stated that they are ``somewhat'' or ``very'' disappointed in their firms' new product efforts (Trygg, 1993). Additionally, it has been identified that 46 per cent of resources invested in new product programmes are wasted on technical and commercial failures. Consequently, it is not surprising that this less than startling rate of success has resulted in many studies aimed at identifying associated problems and inefficiencies (Anthony et al., 1992; Cooper and Kleinschmidt, 1991; Larson and Gobeli, 1989; Murmann, 1994; Trygg, 1993; Vesey, 1990; Power, 1993; Page, 1995;

Cooper and Klienschmidt, 1995). In support of this, research has shown new product success not to have improved over the last 30 years (Booz et al., 1968; Zahra and Ellorl 1993; Booz et al., 1988). In the scramble to cut time to market, key information gathering steps may be skipped (Trygg, 1993; Crawford, 1992). However, studies have shown that proficiency and completeness of NPD activities are important keys to success (Cooper and Klienschmidt, 1995; Terwiesch et al., 1998; Brown et al., 1996). According to work performed by Cooper and Kleinschmidt (1991), potential problems may arise with the implementation of a new product development process. More bureaucracy, tighter controls that might thwart creativity and slower decision making are all potential problems that might plague the introduction of any formal process. Indeed, many of the problems identified appear to be caused by implementation related issues rather than any fundamental failing of the NPD framework. A further insight is proffered by Anthony et al. (1992) who believe benefits have not yet been gained due to problems directly attributable to the new product development process itself. Specifically: . product development not yet viewed, managed, or taught as a process, making efficient process interface design extremely difficult; . the necessary concepts and techniques have only recently been developed. The environment is changing before they can be fully tested in a live environment; . improvement usually requires a cultural change. It has been seen in some cases that the time required for cultural acceptance and integration is longer that the lifespan of the processes being implemented; . cross functional changes are difficult to make from within. This is now also manifesting itself in problems across process boundaries; and . the changes are extensive and extremely complex. Clearly, this indicates the need for improved process interfaces and corresponding service identification and delivery.

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Conclusions In this paper we have highlighted that innovation cannot be broken into little pieces but needs to approached holistically. There has been a general development of generic frameworks that have attempted to tackle a whole range of activities for effective product development. The key activities of such generic frameworks include: . possessing and managing a structured decision-making framework, such as a stage gate-system; . cross-functional teams to help realise the development aims; . a planning framework, that can facilitate clarity in decision making, balance the product portfolio and abate excessive risks; and . a review board to oversee and control the overall process. The implementation of such frameworks has led to numerous gains in the effectiveness of new product development. However, whilst much has been made of the advantages and benefits through adoption of such encompassing frameworks, there remains considerable scope for improvement. Indeed, experiences of implementing such frameworks highlights numerous negative side-effects. To adopt parts of an innovation framework often leads a to failure through omission, yet attempting to implant large scale radical changes can also result in failure, through commission. Companies need to carefully balance the benefits against the costs of implementation before embarking upon any programme of action. We have highlighted the complementary set of activities for a generic framework, and the attendant possible advantages and problems.

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