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NEW PRODUCT INNOVATION PROCESS: A CASE STUDY FROM THEMETAL MANUFACTURING INDUSTRY

JAzu SALOUniversityof Oulu, Facultyof Economics nd Business dministration,Department fMarketing, .O.BOX 4600,90014 [email protected]{EIKKI KAzuALUOTOUniversityof Oulu, Facultyof Economics nd Business dministration,Department fMarketing, .O .BOX 4600,90014 [email protected] ruSSILAUniversityof Oulu,Facultyof Economics nd Business dministration,Department fMarketing,P.O.BOX 4600,90014Finland

ABSTRACTThe purposeof this paper is to study the new product innovation processof a largespecialized metal manufacturer in Europe. The analysis will cover new produitinnovation process anging from the new technologydevelopment o the utilization of thetechnology to create new products for existing customers. For mangers our researchsuggest hat while new product innovation process s seen n theory to consist of stagesand phases ike technology developmentand new product development t should be seenas.one ntitywhich is managed.nformation or both R&D and marketing s required ndmixed developmenteamsarewelcomed.INTRODUCTIONInnovation s studiedextensively n the fields from social scienceso appliedsciences.The emphasisadvocatedhere s to evaluatenew product innovation process n its totalitybecause ew to the market echnologies an be deployed n variousnew productsandeven more importantly, the technologJ can be patented and licensed to others.Developing new productsbasedon old technologies s many times more costly andsuccess n commercializations limited, thus productsbasedon new technologiesmayhave higher change o survive when new products have lower production costs, betterquality and _sometimesven lower prices.With the use of a case study from the specialmetal manufacturingcompany,we illustrate hat it is beneficial for companies o considerand assess ew product nnovationpossibilitiesby focusingon technologyand productdevelopment rather than just new product development. The case firm succ-ssfullylaunchednew to the market technologyby deploying its intemal competencies elated ometallurgyand customer nsights.This technologywas ateron used o produce adicallyimproved (seeGarcia and Calantone,2002) products for their customersand hopefullydue to the product superiority t will replaceother productsdeveloped or samepurpose.

The aim ofthe study is to highlight the new product innovationprocess rom the start oend in the specializedmetal manufacturing ndustry context n Europe.The dispositionofthe paper is as follows. First, literaturedepicting new product innovationprocess sreviewedand a framework is compiled. Second,we present he methodologyof our studyand after that the case study elaborateson the new product innovation process n thebusiness-to-businessmetal industry context. Finally, the results are presented andimplications for researchand management re discussed.


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NEW PRODUCT INNOVATION PROCESSAccording to Thompson (1965) innovation means "generation, acceptanceandimplementationof new ideas,processes, roductsor services".Similar to knowledge,also new innovationsare more or less basedon what is already known and beingintroduced o the market, husvarying degrees f innovativenessre possible GarciaandCalantone, 002,p.112).In here we focus on the new product innovationprocess n its totality. New productinnovationprocesss seen o encompassour stages: ront endof innovationprocessseee.g. Khuranaand Rosenthal,1997;1998), ew technology evelopment, ew productdevelopment Cooperand Kleinschmidt,1987)and aunchor commercialization rocess(Hultink et al., 2000) that are usuallydealtseparatelyn literature.The literatureof newproduct innovationusually separates ew technologydevelopment ctivities rom newproduct developmentactivities (Eldred and McGrath, 1997a)and as such this causesseparate inesof research.n here it is suggestedhat more overlapping esearchwouldbenefit al l stakeholders. ront end of innovationprocesshas been studied widely ininnovation iterature seee.g. Buckler, 1997;Kurana and Rosenthal,1997',1998).Alsonew technologydevelopmenthas been researched xtensively Eldred and McGrath1997a; olly, 1997,p.l-30; Lynn et al., 1996).Furthermore,ew productdevelopmentresearch as etaineda high level of popularityover the last30 years Ernst,2002).Theliterature n this field is largeand fragmentedwhich makes t difficult to graspwhat isactually known (Brown and Eisenhardt 1995). The approaches o new productdevelopment nd innovation n generalare almostas numerous s he numberof papersthat havebeenwritten. In addition,successactorsof all phases re studiedwidely (Craig

andHart, 1992 ZhangandDoll, 200 ).New technologydevelopmentand new product developmentprocesseswith marketlaunchareherecalled ogetheras a new product nnovationprocess.nnovationprocessis composed f seriesof steps.Betweendiflerent stepsor stages f the processherearedecision pointswhere it is decided f to continue o the next stage seeCooper, 1993,p.75-120).Figure I depicts n detail the phasesor stepsconstituting he new productinnovation process. t goeswithout saying that each step n the new product innovationprocess ould be broken nto smallerstepsand explaining n detail he whole processsout of the scopeof the paper. n brief, it is basedon analysisand synthesisof fourcontributions Cooper,1993;Eldred andMcGrath 7997a;1997b:Hultink et al., 2000).


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New technologtdevelopment

Figure : New product nnovationprocess

Sensedechnolory

Technology easibilitypoint

Second idea generation

Businessase

Launch plan &ready product

Modified launchplan & product


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METHODSWe aimed to understand the new product innovation process in the metalmanufacturing ontext.As such, a qualitativecasestudy method s appropriateor thispurposesincewe are dealingwith a phenomenon hich the researcher as only little orno control over occurringevents n a real-life context Stake,1995p.435-454). crucialphase n case study research s caseselectionand literatureprovidesmany advices oselect ases e.g.Eisenhardt, 989).However, he researcher akes he final decisiononthe numberof cases Romano,1989).The casecompany s selected asedon its proveninnovativeness,erformance,ndustrialcontext, elativebig size and availableaccessothe company. The main data sourceconsistsof four semi-structurednterviews(e.g.Arksey and Knight, 1999).An appropriate evel of saturationwas reachedas answersbegan o repeat hemselves. or reasons f confidentiality he companyand nten'iewees

stay anonym. Inten'iewees rom different functions were chosenbasedon company'scontactpersons' ecommendationsnd they had long history in the companywhich isseen o improve the validigi of the insightsprovidedabout he new product nnovationprocess. ntervieweeswere asked first general questionsabout the company and itsreputationas innovativecompanyand then about he phases f the caseproject ocusedon.

Table : InterviewdataAll interviews were taped with interviewees' permissionand then transcribedandanalyzedaccordingly.The interviewsand other material were employed n qualitativedata analysis n order o bring meaning o the bunchof data(seeMiles and Huberman,1984). Also documentationsuch as industry reports, memos, databasesnapshots,brochures, ews articles,presentations nd emailswere collected n order o triangulatethe respondents'answers, ils suggested n literature (Patton, 1987; Yin, 1994).

Furthermore,o find clarification or conflicting answers, dditionalquestionswere alsoe-mailedafterwardso interviewees.NEW PRODUCT INNOVATION PROCESSMANUFACTIJRING INDU STRY IN TIIE METALThe casecompany s operating n the metal manufacturingndustryand suppliesbasicmetalproductsas well as higher degreeof upgradingmetal-based roductsand services.Their industrial customersuse these products and services as their material or ascomponents nd systems n their processes r end products.The companyoperates nover 20 countriesand employsover 10,000people.Opening up of the Europeanandglobalmarkets s tightening he competitionalso n this industry.Thereare wo generally

Role on interviewee Years in the firm Date and durationResearch anager, Over l0 years April I1,2005, h 5minR&DMarketing Manager, Over l0 years October21,2005,1h 3 minTechnicalcustomer erviceSalesManager, Over l0 years October,26,2005, I h l0 minSalesDirector,SpecialProducts Over l0 years October10.2006. I h 15 min


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noticedways to achievecompetence dvantage n the industry; by consolidatingandseekingeconomies f scaleor by specializing o strong nichesand serving hem withproducts including higher degree of upgrading. The case company has selectedspecializationstrategy o beat he competition. In-depth knowledgeof materials orms thebase for the strategy implementation.Also the developmentwork in cooperationwithcustomersand end-usersas well as concentratingon customer-orientedway of workingand enhancing heir customer erviceare highlighted n the strategy mplementation. heopeningup of Europe s bringing to marketscompanies hat have ower cost structures,which is tighteningpricecompetition n the market.Therefore, ew productdevelopmentis seenvery important or the success f the casecompanyas it makes t possible o getincomes rom more specialized roductswhen the old and conventional nesare facinghigh pressuresor price decreases.Moreover, having innovative new products n theassortment lso mproves he company's mage n the eyesof demanding ustomers nddifferentiates he casecompanyfrom the competitors.

The empirical nvestigationn this casestudy s focusingon the innovationprocess fproduct A in the case company. Novel products are in this case a base material forcustomersof the company. There are generally international standards or the productsthe company is producing and marketing. The purpose of these standards s to helpcustomers o compareproductsof different suppliers and save n the costs because hereis no need or a double nspectionwhen a standards guaranteeinghe characteristicsfaproduct. Because he strategy of the company is to specialize and to do high qualityproducts, t is producing products which are better than the standards equire and givethat way some extra benefits to their customers.This makes t also possible o price theproducts igher.Early phasesofnew product innovationNew productdevelopmentn the companydid not utilize formal productdevelopmentprocesswith stages and gates. New processtechnology was originally developed toproductshatalreadyhavesubstitutesn the markets.However, he deaof using his newprocess echnologyto producenew kind of product came up later in the meetingswherethe developmentprojects of the factory were discussed.The difference between theseproducts ies n the customerndustries nd applications here hey canbe used.The ideaof new product ust cameup without any offrcial ideagenerating ctivities.The decisionto develop new product was made basedon information already available and it can besaid hat it wasdonequite intuitively. At least he customerswere not the sourceof ideas.

"... ll/ell, customers couldn't ask product like that, at least not from us,because hey did not btow that we can do that kind of products." (Interviewee2)Productdefinition includesdefinition of the target market, descriptionof the productconcept nd ts benefits o the customer, elineation f thepositioningstrategy, nd ist ofproduct features, attributes, requirements and specifications prioritized. The casecompany ormed the descriptionof the product concept and the benefits the product willbring to the customer as well as the list of featuresof new product. In the market, there


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are not any direct substitutesor the productA and there s neitherany skndard for it.The developmenteam formeda vision of the productby connecting heir knowledgeofcharacteristicsf new processechnology o the informationcollected rom the literatureand about competitors' products.Some feafuresof the productA has been developedsystematicallyight from the beginningand competitors avea long way to come o beatthe new product'sbenefits or the customer.Generallybenefitsof the productA for thecustomers re savings n maintenance nd preparingcosts or their end-customersndenhancedend-productperformance like the benefitsof the product alreadyproducedwith new process echnology.The definition of targetmarketand the delineationof thepositioning strategy were rough. The target market was not clear even there were somethoughts of the customer ndustries.The precisesize of the market was unclearbutassumedo be big andgrowingquite fast. Forminga business ase ncludeswith productdefinition alsoproduct ustificationand projectplan. Product ustification revealswhy acompany should invest on the project and is usually basedon business eview withfinancial,profitability,and risk considerations.t seemshat this product ustificationhasbeen done really roughly and market athactivenesswas the only part, which wasconsidered. oughprojectplan from developmento the launchwas probably ormed ostructure he developmentwork. In sum, all componentsof businesscasewere notconsidered n the decision-makingn the front-endactivitiesand use of market esearchwasvery limited.

When he productwas created n the technicalsense nd he experimentswereover, twas ime to think about aunching t. The productwas launchedo the marketas soonaspossiblebecause here was expected o be demand or it. In next section,new productlaunch s discussed nder the themesof strategicand tactical aunch decisions, estingandvalidation, mplementingaunch,andpost-implementationeview.Product latmchBefore aunchingproductA many ssuesweredecided.These ssues re next discussedas strategic nd actical aunchdecisions.Somestrategic nd actical aunchdecisions recompared with the decisions of competitors,which was difficult becausedefiningcompetitors or the product A is challenging.Competitors or the product are heredefined broadly; f there could be any caseor customerapplicationwhere he productscan compete, hey are seenas substitutes.f the competition s consideredmore specific,the product is quite unique and bears special features hat any other product does notoffer. Strategic aunchdecisionsweremainly done during the productdevelopment. hedecisionsarepresentedn Table 2 and compared o the literatureand to the suggestionsof the study by Hultink et al . (2000). As a product strategydecisions, he companylaunchedmore innovativeproduct,which development id not take long time. This ismaybedue to that productA is more mprovementhanhighly radical new product.As amarket strategydecisions, he company argeted he product o a growing niche,wherethe stage of the life cycle of the product is introductory or already in growth. The newproduct s launched o marketswith severalcompetitors,when competitorsare definedbroadly, and the product advance s basedon performance mprovement. n domesticmarkets,where he productwas aunched irst. therewasmainly one competitorwho hadleadingposition n this kind of products.These wo decisionsdescribe he competitive


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stance.The company's strategy seems o be more technology driven and its innovationstrategy seems o include aim for technological nnovation more than, for instance,marketins nnovation.

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Table2: Strategic aunchDecisionsIt seems hat almost all of the strategic aunch decisionsof the company are doneaccording o recommendations f either the study of Hultink et al . (2000) or otherliterature.Moreover, he majorityof the decisions re madeaccordingo other iterature.Tactical aunchdecisionswerenot made n the companyuntil afterproductdevelopment,contrary to suggestionsof literature. These decisions are presentedand compared tosuggestions f thestudyby Hultink et al. (2000).Product tactic decisions include the breadthof the product assortment ntroducedandbranding strategy.The company aunched wo quite similar products,as discussed n thefollowing sectionconceming estingand validation,which is equal productassortmentwith competitors. The company has product lines where the products are namedsimilarly. The new product is a product ine extensionand is namedaccordinglyas abranding strategy.Moreover, the company's name is used in the marketing of newproduct.


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Table 3: TacticalLaunchDecisionsSome actical aunchdecisionspresentedn Table 3 concerningproductA in the casecompanyare following suggestions f literature, omeare according ecommendations

by Hultink et al. (2000),and he decision egarding istributionexpendituresouldnot beevaluated.Testing and validationThe company aunched he new product irst to the domesticmarketswhereexistingcustomers, ho used he mostsimilar productof the case ompany'sproductassortment,were in the target.The productwas launchedonly to domesticmarketseven though twas known that there would not be enoughvolumesand customersavailable or themaximum long-term profitability of the product. n this light the companywas usingdomestic markets as test markets where they tested and validated the product, itsproduction, nd marketing.Nevertheless,t is not clearhow consciouswas he decision.Prior to launch personnelof salesdepartmentwas educatedand internal marketing wasused o convince he productionpersonnelhat he product s important or the company.Because he product needsmore work and attention n the production process han others,workersweremotivated o handle hem.Implementing aunchAfter launching he new product o the domesticmarketsand adjustingmarketingplanaccording o gained experiences,he focus in marketingmoved to Europeanmarkets.Launching new product to bigger marketsdemanded nvestmentsn order to increasevolumes n production ine. To support he decisionwhether o invest o the improvement


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of production ine, the companywas interested bout he future demandestimations ndusedsomemarket research o examine t.Timing of the product aunchwas not especially onsideredn the company.When heforecastsshowed high growth rates, he aim of launchingthe new product as quickly aspossibleseem o be desired.Again during the launch o the Europeanmarkets nternalmarketing were needed.Employees n the salesoffices and agentsaround he Europedidget informationabout the new productavailableas well as informationaboutcustomerapplications ndpotentialcustomer ndustrieswereshared.Next, a typical negotiationprocess etween he case ompanyand a potential ustomeris shortlydescribed seeFigure2). Negotiationprocessworks alsoas a channel o collectcustomer eedbackduring the discussionswith the customers nd potentialcustomers.The whole processbegins with recognizingpotential customer.This can be doneaccording to the information on applications and potential industries found. Then, thecustomer s contacted rom the sales,usually by phone,and time for presentations set. nthe presentation he engineers from the company tell about the new product and itsbenefits'

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market o base he investmentdecisionbefore aunchingnew product o the Europeanmarkets.On the otherhand, he characteristicsf marketand he firm itselfas well as hedegreeof newnessof new product are more typical for responsivelymarket-orientedfirm. This may be due o differencesn classifying egree f newnessn the literature.tre.p,i".li:.. n-,r't** t'-;-;-*i,.* -i;1,,,,,1",:i..:Jo r i ( r t i r t i t t r r i l r ' i c r i t ; r ( i i n or i e n t l t i r r [

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Table 4: The casecompany'scombinationof strategic rientationand he characteristicsofnew product nnovationprocessCONCLUSIONSThe purposeof this paperwas to examinenew product nnovationprocessof a largespecializedmetal manufacturer n Europe. We depicted in detail the new productinnovation processand its relevant steps. The findings indicate that new productinnovationprocessesary especially n market nformationprocessing apabilities nd nthe degreeof newnessof the product.For instance, he casecompanyusedonly somemarket esearchn its innovationprocess f productA while descriptions f incrementalnew productdevelopment rocess n the literary suggest sing a lot of marketresearch.Additionally, in classifuing he degreeof newnessof new product for the purposeofanalyzing hancesn the new product nnovationprocess,he micro level is adequate.notherwords,when nnovationprocesss approachedrom the angleof company,which isdevelopingnew products, t may not be so relevant o classifo he degreeof newness tthe macro evelat all.The differences in the new product innovation processesare seen already whenclassifuinghe newness n a micro level.When he degree f newness n a micro level shigh and a firm is technology-oriented,a firm may not use market researchat all in itsnew product innovation process,or does not use it at least in the front end of productdevelopment, s he casestudy reveals.Responsivemarketorientationand technological


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orientation may be easier o implement for a company, while proactivemarket orientationseem o be more demanding ne. When he degreeof newness f new product s high onevena micro level, t may not be evenpossible o use raditionalmarket esearchesultsdirectly as a base of decision-making. here is lack of more useful market researchmethods and it would demanda lot of effort from a firm to develop those. It may betempting to go through whole new product innovation processwithout market researchbecauseraditional esearch, hich is easier o use,givesno help.This may lead o moretechnologicalorientation. Finally in the case company, he new product innovationprocess s mainly conductedby engineersand thus the firm has good resources nengineering.n this study t was earned hat establishedargecorporations analsoexcelat competition by being technology-orientated ather han market oriented.For mangersour case study based researchsuggest hat while new product innovationprocesss seenmany times n academic eferences sconsisting f stages ndphasesiketechnologydevelopmentand new productdevelopment t should be seenas one entitywhich is managedeffectively.This could increase he success ateof innovationand ingeneralmake it more effective. Furthermore,basedon the casestudy, t is suggestedhatR&D and marketing peopleare involved throughout the new product innovation processin al l stages nd hus,mixeddevelopmenteamsarewarmly welcomec.Limitation of the study is the methodchosenas case studiesdo not provide law-likeresults. However, the case study elicits a good amount of information applicable to itsoriginating context. Thus, managers and researchersalike, involved in new productinnovationprocessespecially n metal ndustryrelatedareasmay apply these esultsasthey wish.Nevertheless, thersshouldbe morecarefulas resultsare contextspecificandfurtherstudies re needed o see f other ndustries avedifferentor similarbusinessogicin new product innovation process. n addition, future studies are needed o fullyunderstand the new product innovation process from start to successfulcommercialization nd re- ntroduction.AcknowledgementsThe financialsupportof the FinnishFundingAgency for Technologyand Innovation sgratefuly acknowledged.REFERENCESArksey, Hillary and Knight, Peter. (1999). Interviewing for Social Scientists,Sagepublications, ondon.Brown, Shona.L and Eisenhardt,Kathleen 1995).Productdevelopment: astresearch,present findings, and future directions. Academy of Management Review,20(2),343-378.Buckler, Sheldon. (1997). The spiritual nature of innovation. Research TechnologyManagement, 0(2),43-47Cooper,Robert. 1993).Winning at New Products:Acceleratinghe Processrom ldea oLaunch,2nd d.Perseus ublishing,New York.Cooper,Robertand Kleinschmidt,Elko (1987).New Products:What SeparatesWinnersfrom Losers. ournalof Product nnovationManagement,4(3), 69-184.


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