Critical Success Factors in New Product Development

INTRODUCTION

New product development (NPD) is the locus of the innovative potential of organizations. Every organization, regardless of size, profit motive, or industry experiences regular pressures to renew, expand, or modify its product or service offerings (Leenders et al, 2003). The rate of market and technological changes has accelerated in the past decade. Central to competitive success in the present highly turbulent environment is the firm’s capability to develop new products (Gonzalez and Palacios, 2002). New products are increasingly cited as the key to corporate success in the market. During the 1970s, new products accounted for 20 % of corporate profits; in the 1980s, they accounted for 33 % of profits (Takeuchi and Nonaka, 1986). In the 1990s, this figure has risen to 50 % (Slater, 1993). A recent study estimates that new products provided over 42 % of company sales in the period 1985-1990, up from 33 % in 1980 (Page, 1993). The number of products introduced by these firms was expected to double (Booz et al, 1982). However, new products continue failing at an alarming rate. The most recent studies show new product success rates at launch of less than 60 %-54.3 % for the UK, 59 % for the US, 59.8 % for Japan and 49 % for Spain (Edgett et al, 1992). Recent years have witnessed extensive research into the determinants of new product success; however, these new studies do not appear to have had much of an impact on managerial performance. Therefore, a clear understanding of the factors that drive product success is needed in order to help firms optimize the resources dedicated to the product development process and increase the market demand for a firm’s new products.

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Malaysia now has an export driven economy boosted by high technology and knowledge based industries, although the emphasis is changing from pure manufacturing to higher value added products and activities. Manufacturing sector in Malaysia contributes almost 80% of overall country’s export and besides, Malaysia also known as the 17th largest exporting nation in the world. For that reason, Malaysia’s firms have to work hard in order to maintain, preserve and enhance in manufacturing sector. According to Raja Musa, it is stated that products manufactured in Malaysia are accepted in developed countries such as US, EU and Japan. This shows that Malaysia manufacturing sector already achieved a level that can be proud of and it can be related with the help of new product development for the success of its products.

The study aims to test the critical success factors that are correlated with the NPD in a statistically significant manner by using the model from Gonzalez and Palacouis, (2002). According to Gonzalez and Palacouis, the critical success factors have common factors such as top management support, market orientation, NPD process, NPD speed, technology, knowledge management, NPD teams and NPD strategies. However, this study will only cover top management, NPD strategies, NPD teams. This paper will also describe a survey of NPD in Malaysian manufacturing industry and discusses the implications of these findings for this sector.

1.2 PROBLEM STATEMENT

1.6 RESEARCH OBJECTIVES

There are several research objectives that this study attempts to achieve, which are to:

Identify the factors of top management support, NPD strategies, and NPD teams that affect the success of new product development.

Analyze the factors of top management support, NPD strategies, and NPD teams that influence new product development success.

1.7 RESEARCH QUESTIONS

In achieving the above objectives, this research addresses the following questions:

Is the success of new product development affected by the factors of top management support, NPD strategies, and NPD teams?

Is top management support, NPD strategies, and NPD teams influence in new product development success?

1.8 CONTRIBUTION AND SCOPE

The research paper will be contributed to all the parties in an organization including senior managers, managers and staffs especially in manufacturing industry.

CHAPTER 2

LITERATURE REVIEW

2.1 Introduction

This chapter introduces the concept of new product development (NPD). The chapters review the relevant literature extensively. Among the topic discussed are critical success factors for NPD, top management supports, NPD strategies and NPD teams.

2.2 Concept of New Product Development (NPD)

The concept of new product is susceptible to various definitions. A definition considered basic describes a new product to cover original products, improved products, modified products and new brands developed through an organization’s research and development efforts (Ulrike, 2000 and Kotler, 1991). In a similar classification (Petrick and Echols, 2004 and Stanton et al., 1994), three distinct categories of new products are identified. These are: those that are really innovative, satisfying unsatisfied needs; replacement products that are significantly different from the existing one in form, function and benefits provided; imitative products new to the organization but not new to consumers.

In the other hand, new products had been described along two dimensions: ‘newness to the organization’ and ‘newness to the markets’. Ranging from low to high on each dimension, six categories have been identified. These categories are: cost reductions; improvements in existing products; repositioned products; additions to existing product lines; new product lines allowing a firm to enter established; markets, new to the world products that create new markets (Ilorri et al, 2000 and Pujari et al, 2003).

2.3 Critical Success Factors for New Product Development

NPD is indeed very important for companies. However, developing new products is a risky and uncertain process. In order to reduce the risks and uncertainties, companies need to evaluate their new product initiatives carefully and make accurate decisions. Although the outcome of a new product evaluation decision can be influenced by the environmental uncertainties that are beyond a company’s control, companies can successfully improve the accuracy of their new product evaluation decisions (Ozer, 2003 and Debruyne et al, 2002). Historical cases suggest that firms can make two types of erroneous decisions when evaluating their new product ideas. First, they might decide to pursue a potentially unsuccessful new product idea. Second, they might decide not to develop a potentially successful new product. In either case, firm’s accure big losses, while the former leads to investment lose the latter leads to missed investment opportunities. Given this background, it is clear that it is in the interests of firms to make accurate new product evaluations and critical success factors for NPD can sign a way to evaluate this process accurately (Sanders and Monrodt, 1994).

From previous study, proficiency in new product development can contribute to the success of many companies. According to Poolton and Bar [17], “if companies can improve their effectiveness at launching new products, they can double their bottom line. It’s one of the area left with the greatest potential for improvement.” In the past decades, many studies have focused on the critical success factors (CSF) associated with the success/failure of new product development (NPD).

Lynn et a1 [ 141 developed a model of the determinants of new product development success. He sent informants a series of cases and asked them to identify eleven key factors as shown in table 2. Lester [13] carried out a study and found a range of potential problems that can derail well-intentioned new product development efforts. By working through these problems, he discovered the fifteen critical success factors in five areas of new product development. Poolton and Barclay [I71 identified a set of six variables that have consistently been identified in the literature as being associated with successful NPD. Cooper [3] studied on hundreds of cases revealed what makes the difference between winners and losers on the new product development process. He extracted twelve common denominators of successful new product project and seven possible reasons (blockers) offered by managers for why the success factors are invisible and why projects seem to go wrong, or aren’t well carried out.

It can be found that the factors proposed by the four studies are not totally the same and it is hard to generate a common set of CSF for NPD. It is even hard to generate these factors to any specific industry. In fact, there are many other studies on CSF or drivers for NPD [e.g., 2, 3, and 201, which will not be reviewed each by each. Montoya-Weiss and Calantone [15] reviewed 47 research studies about the determinants of new product performance and found each of these studies attempted to identify the factors that improve NPD success rates. However, each uses a somewhat different method and different factors and provides results that are useful but sometimes inconsistent with or even contradictory to other studies’ results. What they share is a general focus on what is necessary for success of NPD.

In the recent literature that can find several models based on the lessons and recipes for success in the product development process. For example, Rosenau and Moran (1993) furnish a guide for success with project management tools to the product development process, emphasizing speed to market, quality management and multifunctional teamwork. On the other hand, Bowen et al. (1994) highlights seven critical elements that any outstanding product development project should have in common: (1) recognize and nurture the firm’s core capabilities, (2) a guiding vision shared by all members in the cross-functional team, (3) project leadership and organization, (4) ability to instill the team with a sense of ownership and commitment, (5) ability to rapidly learn and to reduce mistakes and misunderstandings, (6) ability to push forward the company’s performances, and (7) ability to integrate within projects following a systems approach. Bobrow (1997) provides a list of success factors for new products, including a clear strategic direction, a corporate culture aligned behind new products, a sensible allocation policy of resources and people, and a cross-functional team dedicated to the new product development process. Beside this, Chorda et al (2002) state that top management support, NPD process and analysis of market requirements are key success factor for NPD. In the view of Gonzalez and Palacious (2002) critical success factor are top management supports, nature of market, and product quality, supplier and costumer involvement in design process. According to Varela and Benito (2004), management emphasis, experience in NPD, centralization, novelty, NPD process style and technical activities are important factors to achieve successful NPD.

2.4 New Product Development and Top Management Support

The Malcolm Baldrige criteria highlight the importance of leadership. Leaders must pay attention to developing the “right” corporate culture. In the words, order, rules, and regulations, along with uniformity take second place to goal achievement. The strategic focus moves away from stability, predictability, and smooth operations toward a search for value added. It is emphasized that without management commitment, improvement efforts fail. This commitment must be not only active, but also visible. The intent is to develop leadership that is open-minded, supportive, and professional (Spivey et al, 1997)

NPD is an ambiguous process with different people and departments having different perspectives about how things are to be done. It is therefore a political process involving struggles for resources, influence and power which can generate conflicts. This conflict only be able to cope with top management decisiveness (Atuahene, 1997). Several works documented that top management initiative and support is a key aspect in order to achieve new product success (Zirger and Maidique, 1990; Chorda et al., 2002; Varela and Benito, 2004). Management commitment provides organizational support for change, generates enthusiasm, provides a clear vision of the product concept and assures sufficient allocation of resources (Poolton and Barclay, 1998: 200; Clarck and Fufimoto, 1990).

2.5 New Product Development Strategies

NPD strategy is determined within the framework of the organizational objectives, environmental factors, past and present performances, resource availability and corporate capability. Generally, three types of organization can be identified depending on the NPD strategy adopted. These are classified as reactors, planners and entrepreneurs (Ilori et al, 2000). ‘Reactors’ wait for problems to occur (e.g., dwindling market share) before attempting a solution while ‘planners’ anticipate such problems. ‘Entrepreneurs’, however, anticipate both problems and opportunities for timely exploitation.

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A simple classification gives two types of NPD strategies as either offensive or defensive (Debruyne et al, 200; Wilson et al., 1992). The offensive strategy opens up new markets or enlarges the existing one through careful planning, while competitive forces or other changes in the operating environment stimulate the defensive strategist into action. An organization’s continued commitment to an offensive strategy could be very expensive in terms of the high degree of risk and investment in money, skill and time, but also with a lot of potential for higher returns. This contrasts sharply with the relatively low risk/low return defensive strategy (Liu et al, 2004; Kim et al, 2004).

In other consideration, Johne and Snelson (1990) gave two approaches in formulating NPD strategies as the traditional asset-based and market-based. The components of the traditional asset-based approach are given as product cost-cutting, product modification, product-line extension and new product line. These, all seeking to build on existing product lines and technical know-how, are applicable in the existing market and with greater intensity in new markets. Beyond the conventional asset-based approaches, the market-based options seek for a wider and a more profitable exploitation of opportunities with a sharper focus on potential market opportunities outside a firm’s business. Considered a novel and exciting approach, it is made up of project offering, system offering, commodity offering and service offering strategies within a product support matrix. These offering strategies consider a wider myriad of benefits a product offers to specific target market, hence the differentiations in products and support as considered appropriate.

Firth and Narayanan (1996) defined a NPD strategy as having three aspects: (1) new embodied technology; (2) new market applications; (3) innovation in the market. Based on these three aspects, his research lead to a NPD strategy definition, i.e. (1) innovators; (2) investors in technology; (3) searching for new markets; (4) business as usual; (5) middle-of-the-road. Beside this, Barczak (1995) divided NPD strategy into three categories based on Ansoff and Stewart’s classification: first to market, fast follower and delayed entrant. Song and Montoya-Weiss (1998) utilized Ansoff’s product market matrix model considering the growing in our current market and technology strategy. The results lead to incremental NPD. A development strategy that pursues a new market with a new product and technology will create a “real new product”. A strategy involving a current market and new product or new market and current product is classified as a moderate innovation. Veryzer (1998) used new models with two important aspects: technological capability and product capability. Technological capability means that a product must be made using a technology beyond the current company technology level. Product capability represents the benefit of a product recognized or experienced by customers. Therefore strategies that firms follow decide to their NPD performance.

2.6 New Product Development Teams

NPD teams are frequently used to integrate employees from several company departments and give opportunities for simplification and parallel processing. Many empirical studies have found that this practice increases a project innovation and NPD success rate (Sanchez and Perez, 2003: 140; Atahuene and Evangelista, 2000; Bonner et al, 2002; Jassawalla and Sashittal, 1998). NPD teams can take various forms including teams comprised of personnel temporarily assigned to an NPD team from a firm’s functional departments to develop new product. In addition, members of NPD teams often are organizationally linked through matrix structure to their functional departments. Two other NPD team forms involve, first, functional specialists permanently assigned to distinct new product or new venture development groups and, second, senior managers whose primary focus makes them directly responsible for the development of new products (Millson and Wilemon, 2002; Oliver et al, 2004). NPD team members face the same types of challenges that all decision makers face: they are subject to judgmental biases, believe in their ability to influence results post-decision, suffer from limited capacity to deal with data, are often overly ambitious, and must face the consequences of their decisions. The work is considered to be inherently challenging and often depends on making intuitive “leaps” (Cooper, 2003). So NPD teams composition and other group factors affect NPD process.

2.7 Theoretical Framework:

Top Management SupportsIndependent Variables Dependent Variables

New Product Development Success

NPD Strategies

NPD Teams

Figure: Theoretical framework of this study

The theoretical framework gives an overview in achieving the critical success factor in new product development. It shows that there are four variables that are interrelated in a process to make the new product development successful. There are three independent variables which consist of top management support, new product development strategies and new product development teams. Meanwhile the dependent variables consist of new product development success. This is a single model which to identify the critical success factors in new product development.

2.8 Hypothesis

H0: There will be positive relationship between top management supports in NPD success.

H1: There will be positive relationship between NPD strategies in NPD success.

H2: There will be positive relationship between NPD teams in NPD success.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter will explains the procedure used to conduct the study including the data collection, data source and measurements being used to process the data collected. The respondent of this research topic will be the employees of the firm in Malaysian manufacturing industry.

3.2 DATA COLLECTION

Ways of collecting data by having questionnaire methods. The questionnaire will be distributed to the employees. There will be 30 questions being prepared in the sheet whereby the questions will be categories into three variables which consist of top management supports, NPD strategies and NPD teams.

3.3 DATA SOURCE

Most of the data collection above taken from the articles and journals.

3.4 UNIT OF ANALYSIS AND RESPONDENT

The unit of analyses was distributed to 200 firms which represent all manufacturing industry. These particular types of industry were chosen as the research samples compare to other industries for instance, manufacturing related firm which these industry were more involve in new product development. The respondent will be focus on the managers of the company whereby they are the one who handling about new product development in the organization and they were the one which facing it every day.

3.5 SAMPLES

The population of this study covered manufacturing industries registered with Malaysian Industrial Development Authority (MIDA) and Federation of Malaysian Manufacturers (FMM). The respondents taken from Malaysian manufacturing directory because the sample of respondent will be 200 persons in this research process and the place where sample were focus on the Malaysia northern region that include Perlis, Kedah and Penang.