Some experts believe the Japanese are faster and more cost-effective than
At some companies, this message has already hit home. During the mid-1980s, IBM junked a technology transfer process that funneled product ideas from market research to R&D, design engineering, manufacturing, and, finally, to sales and marketing. It now assembles product development teams comprising technology, marketing, and support personnel. Team members receive ongoing commercial input and are in constant communication with one another-monitoring and revising the process in line with market fluctuations and changes in customer needs. One result: The four-year development cycle for the AS/400 midsized computer has been trimmed to 20 months.
IBM’s achievement should be an inspiration to other large corporations with talented staffs eager to boost the bottom line. But for others to follow, CEOs must gain a better understanding of the technology transfer process: Support for invention and innovation must begin at the top.
Following is one model for technology transfer (see graphic in this story). Roughly speaking, it begins with market research and technical assessment; proceeds through internal testing, pilot production, and field evaluation; and ends with broad sampling, initial sales, and ultimately, the commercialization of a product. Generally, the initial steps involve minor investment. After the tentative business plan is approved, however, substantial expenditures are often incurred.
There are two key functions that must be defined at the outset of the transfer process. They are commercial development, normally a function within the marketing department; and technical development, usually the responsibility of the R&D department. The commercial development function usually identifies the need for new products or the modification of existing products, prepares the justification for the activities required to meet this need, assists in planning for the development of products, and introduces them to the marketplace.
The technical development function usually assesses the technical/economic feasibility of the product need, conducts the experimental work required to prepare the product, outlines the manufacturing process, assists in establishing specifications, and prepares sample quantities for customer evaluation. In addition to these functions, market research, engineering, production, accounting, and sales personnel participate as part of a project team. In some cases, representatives from customer companies become part of the team.
According to an article in The Wall Street journal, Ingersoll-Rand employed the team approach to slash its product development time by two-thirds. A team headed by a product manager-including personnel from sales, marketing, engineering, and manufacturing eliminated the “walls” and autocratic mind-sets that impede successful product development and commercialization.
Generally, a new product opportunity is reported by sales, technical service, or marketing personnel. A customer or potential customer may have indicated an existing product requires improvement or that a system in the concept state will require a new component. In other cases, someone in R&D may have an idea to develop a product that could offer an outstanding property, or a combination of properties, not available in the market. Whether opportunity takes the form of a need awaiting a new product or a new product idea in search of a market, the same general approach can be applied. The Post-It® note from 3M was an example of a need satisfied through the use of a low-tack adhesive that had been discovered “accidentally.” The discovery had been shelved, simply because no one had found an application for it.
The first action step in systematic technology transfer generally begins with marketing management authorizing a preliminary market survey by market research. The objective of this survey is to estimate a new product’s potential. It should define or estimate:
- The market size (the number of customers with an existing or potential need).
- Acceptable performance level.
- Quantities required.
- Price parameters.
- Deadlines for the product development cycle.
Consultation with sales personnel can assist in determining which industries, manufacturers, or consumers should be contacted to gather relevant information in the shortest time period.
Upon completion of the study, market research should present its report to marketing management, along with an interpretation of the data and a recommendation for further action. If research recommends that a company pursue an opportunity-and receives a favorable response-marketing management assigns a commercial development specialist to initiate the project.
THE TENTATIVE BUSINESS PLAN
The commercial development specialist submits a project proposal to the R&D department requesting a formal assessment of the product’s technical feasibility, the estimated cost of development, and a target date for the availability of samples. Upon its completion, the assessment is included in a tentative business plan.
While the foregoing is underway, contact can be made with the product manager and/or field sales manager (who will eventually inherit the product) to solicit a commitment to commercialize the product when it becomes available. Cultivating these contacts may help to elicit a more favorable response to the product later on.
The next step is to prepare the tentative business plan and to submit it to senior management for approval. An essential part of this report is the profit forecast; this, of course, will be directly affected by the estimated sales volume, technical and commercial expenses, manufacturing costs, and price.
In addition, an analysis of the impact on ROI using different costs and price/volume relationships will gauge potential risks. Most critical is a realistic estimate of the potential sales opportunity and the cost and time from development to commercialization. Early on, many companies are overly optimistic-only to find later that the development costs were too high, the progress too slow, and the sales volume too low.
Now it’s time to put up or shut up: Until now, the investment has been relatively modest.
An executive-level new products committee or an executive sponsor should be assigned to monitor new projects. A skilled commercial development specialist communicates regularly with this entity to sustain support for the project. If additional funds must be allocated, it helps to have an understanding of the status and support for the project at this level. If organizational difficulties slow the progress, it may be necessary to seek executive intervention.
It is also critical to receive specific approval from departmental executives whose personnel will be assigned to the project. Budgeted development allocations-and estimated timetables for initial production and market introduction-should be discussed with and verified by them.
Once the plan is approved, the next step is to meet with key individuals from each group for a comprehensive review. Although the R&D team member is more directly involved at this stage, representatives from production, engineering, technical services, and marketing should attend. Subsequently, each of these functions will be asked to provide support to the product. The profit objective, need definition, and timetable are outlined, and a discussion of the technical program and its schedule takes place. Each function is advised of the approximate date when its services will be required. IBM put such a team concept to use in the mid-1980s when it commercialized its dot matrix printer. An interdisciplinary team of designers, engineers, and automation specialists developed the product in half the usual time.
As experimental work progresses, the team should meet to determine whether the project is proceeding according to schedule and whether individual departments or functions are fulfilling their commitments. A lack of progress by one directly affects the progress of the others.
During the technical development period, visits are made to prospective customers by the commercial specialist to assess changes in the market. If appropriate, consultations are scheduled with sales personnel, government agencies, and outside testing laboratories to identify any special testing requirements.
Preliminary discussions begin with the communications function about the need for product announcements and literature. Competitive products are compared to the product under development. The need for patents or licenses is discussed with the patent department. Preparations are made to expedite customer evaluation once samples become available.
Finally, the first samples or prototypes emerge from the laboratory and are tested internally. A series of samples may be required before there is agreement that the technical project has attained its initial objective. The preparation of a laboratory sample achieves the first goal, but it is only one step toward demonstrating technical feasibility. Other important questions: Can the manufacturing process be scaled up and adapted to the existing manufacturing facility? Will an additional capital investment be needed?
Satisfactory results from the testing of the laboratory samples prompt the scheduling of a pilot production trial. During this trial, it is essential that representatives of the production department-with guidance from the R&D team member-become acquainted with the process. Adequate quantities of product are manufactured; these will be used in extensive internal and selective-market testing. The quality control laboratory evaluates the samples using proprietary and established industry tests and standards.
At the same time, engineering personnel evaluate the need for any equipment changes in the existing production facility. A preliminary manufacturing cost estimate is prepared by the production team member with assistance from R&D and accounting personnel. Here is the first moment of truth. Will the estimated cost fit into the profit projection? If not, will a process design or raw material change reduce costs? Should the project return to the laboratory? Needless to say, if the product cannot pass muster at this stage, termination of the project must be considered.
Test results are reported by quality control. Assuming the product meets performance targets, the commercial specialist must now plot the first venture into the market: The field evaluation will be the true test. An initial evaluation by a customer in the targeted market is scheduled. Two or more evaluations should be completed.
In setting up the evaluation, special care should be taken to select potential customers who will hold product information in confidence. Unused samples should be returned to the laboratory. A cautious approach may help to stem information leaks and extend the new product’s lead time over its competition.
Next, team participants determine whether the project should proceed. This judgment is based on the market evaluation and testing. If the decision is affirmative, the next step is to prepare the final business plan. This includes revisions to financial estimates (if necessary) and details the resources to be provided by each function. The plan is submitted to senior management: It seeks a commitment to provide additional human and financial resources.
THE FIRST PRODUCTION RUN
Before scheduling a production run, it is essential to prepare a tentative process report and product specifications. The process report is provided by the R&D team member, while representatives of engineering, technical service, and quality control assist the commercial specialist in preparing the specs.
While arrangements are being made for the production run, the commercial specialist requests a production cost study, schedules the product announcement, arranges initial publicity, briefs marketing personnel, and advises sales personnel of the product’s imminent availability.
Following a successful production run, pricing is approved, specifications and technical data are set, product announcement and publicity are released, and broad sampling by sales personnel is authorized.
The coordination of those involved in the sampling program is vital to ensure the proper allocation and handling of the product. Technical service support must be available at this stage.
Once broad sampling and initial sales are underway, additional production runs should be scheduled. Minimum inventory levels are established to ensure prompt shipment of the product. (Nothing cools a prospect’s interest in evaluating a new product more than delays or difficulties in procuring it.) Responses to inquiries resulting from the promotional efforts should include technical data and a questionnaire seeking information about the customer’s requirements. Qualified leads should be pursued-in person-by sales personnel.
Normally, after several runs, manufacturing limits can be established and cost calculations verified. The product specifications are reviewed and reclassified from tentative to final. It may he necessary to prepare new specification sheets to reflect any changes.
After successful sampling and several production runs, the product may be upgraded to commercial status. However, if the sampling of production runs indicates any limitations, the additional time and money needed to set things right and the product’s ability to meet market needs must be reconsidered.
Once the product hits the market, the commercial specialist hands off responsibility for it to a product manager in the marketing department. Shipments to a number of customers bring to an end the project team’s role, but in some cases team members may be transferred to new assignments supporting the product’s commercialization.
If cost and deadline targets have been met, profitability now depends on pricing strategies and sales growth. Without an aggressive marketing plan, a product’s chances for success are remote.
In 1986, the Industrial Research Institute’s study mission to
In this area-as in any commercial activity-there is no substitute for sound thinking. If we are to regain our competitive edge, chief executives must better understand the transfer process-and, if necessary, take a hand in its redesign.
Roy Serpa is president and chief executive officer of Midland, TX-based Instamelt Systems, a privately held supplier of technology and equipment to the plastics industry.