Pioneering New Products
thousands of hours were invested in their development and marketing. In
many cases, the owners and innovators of new products could have
generated a greater return on their investment by purchasing bonds and
clipping coupons. Yet they continue to hire people, schedule more
projects, and invest in more new product development.
An astute gambler would never play those odds in Las Vegas,
so why should any business manager invest in a new product development
effort? Why not just wait for competitors to take those foolish risks
and then quickly copy and improve on their mistakes? Some companies
consciously adopt that strategy, and many companies unconsciously
follow it. A few are lucky enough to endure, but most who choose a
follower strategy are slowly dying and don’t realize it.
All
businesses, institutions, countries, and entire civilizations either
grow through innovation and change or they die without them. They die
because bureaucracy and inertia set in. When institutions and countries
lose the desire to change, they become unable to react and adapt to a
changing world.
World history is evidence of this simple principle. Greek
civilization thrived for more than 300 years through the quest for
learning. It died when Athens became immersed in internal buketers in
that they introduced these ideas to a large market. They spread glass
making throughout their empire, developed the smelting of brass on a
large scale, created central heating and plumbing systems in their
homes, and used the concept of credit to promote agriculture and
industry, to develop foreign trade, and to finance military operations
(a concept practiced to an extreme by many governments today). The
Romans are even credited with developing the first mousetraps-many
Roman homeowners kept weasels to hunt mice for them.
The Romans became complacent with their successes, however,
and focused internally on politics, power, and organization. They were
unable to react to the gradual development of new civilizations and
cultures around them. The dissatisfaction and desire for change among
their own governed people eventually led to the decline and fall of the
empire. Institutions and companies can also turn inward, forgo
innovations, focus on organization, and die as a result of the changes
around them. The great European monarchies of the 17th and 18th
centuries grew because they provided an environment for inspiration and
exploration, and they died when they turned inward and refused to
acknowledge change or accept creativity. The Industrial Revolution of
the late 18th and 19th centuries spawned many large industrial empires
in Europe and America and created most of the basic technology of the
20th century.
The first generation of American capitalists put an indelible
stamp on the character of modern business, especially in their spirit
of pioneering the great American West. The end of the Civil War
unleashed thousands of soldiers turned pioneers who raced to stake a
claim in the fields of the prairies, the mines of Nevada and
California, and the forests of the Pacific Northwest. The resources
needed by the pioneers fueled the creation of empires the Carnegies and
Vanderbilts’ steel, the Rockefellers’ oil, and the Mellons’ banking.
This surge of industry in turn generated an explosion of technology.
The 20 years from 1880 to 1900 generated such major inventions as the
motorcar, the radio, the steam turbine, and the combine
harvester.
The captains or barons of these industries were agents of
change and progress, and they innovated the concept of mass production
on an agrarian-mercantile economy. By 1929, however, many of these
empires had also planted the seeds of their own destruction by failing
to maintain an innovative spirit. Their inability to accept further
change, compounded by a fragile economy, ushered in the Great
Depression.
Since the Depression the United States has witnessed an
unprecedented era of pioneering and technological change. Alvin
Toffler, in his book Future Shock, dramatizes the rate of change in his
description of the progress in transportation: In 6000 B.C. the fastest
transportation available to man over long distance was the camel
caravan, averaging eight miles per hour. It was not until about 1600
B.C. when the chariot was invented that the maximum speed was raised to
roughly 20 MPH. So impressive was this invention, so difficult was it
to exceed this speed limit, that nearly 3,500 years later, when the
first mail coach began operating in England in 1784, it averaged a mere
10 MPH. … It was probably not until the 1880s that man, with the help
of a more advanced steam locomotive, managed to reach a speed of 100
MPH.
It took only 58 years, however, to quadruple the limit, so
that by 1939 airborne man was cracking
the 400 MPH line. It took a mere 20-year flick of time to double the
limit again. And by the 1960s men in space capsules were circling the
earth at 18,000 MPH.’ Product life cycles also demonstrate the rate of
change in business. In the first half of the 20th century, technology
was advancing rapidly, but the disruptive impact of two world wars and
a depression slowed the rate of adoption and assimilation in the
marketplace. A good idea could linger in one research lab, one
geographic area, or one market niche for years before expanding to
other segments. As a result, many companies were able to ride the crest
of a product life cycle for 10 to 20 years beyond technical
obsolescence. This is not so in the 1980s and 1990s. The quickened pace
of consumer psychology has telescoped time. A generation used to be
viewed as a 20- year period, but today the data on consumer attitudes,
trends, and behavior patterns indicate that a generation has shrunk to
7 years.
The rapid development of communication
technology, the opening of international trade, and the concentration
and expansion of distribution systems have produced a business world
that can react with lightning speed. Kodak introduces a new camera and
three Japanese companies and one German company will have film in
stores before the cameras get there. IBM announces it will introduce a
new personal computer in one year; Apple, Compaq, and two Taiwan
companies have enhanced products ready for delivery in six months.
Coca
Cola introduces New Coke and obsolesces its own product with
Classic Coke in three months.
Even traditionally slow-changing industries are becoming
victims of product life cycles. The substitution of plastics and
graphite for steel in automobiles to reduce weight has, in effect, made
a growing portion of a steelmaker’s “product line” obsolete. The rapid
advancement of agricultural chemicals and improvement in yields and
weed control are obsolescing several farm machinery products and
reducing the total market. Deregulation of the banking and finance
industries is rapidly making outdated products such as the traditional
savings account that have endured for decades.
Product life cycles can be affected from many different
directions. A lawn products company introduced new lawn mowers every
six to nine months, reacting to a variety of challenges, opportunities,
and changing technology: Japanese improvement of two-cycle gasoline
engine technology; government-mandated safety regulations requiring
blade safety devices; improvement and expansion of dry- powder painting
systems providing more cost-effective and durable product finishing;
environmental regulation concerns stimulating the design of noise-
reduced muffler systems; and advancement of aluminum die-casting
technology allowing the use of cost-effective aluminum mower housings
with contoured surfaces for vacuum-action cutting. If you think your
product or industry is as immune to fast life cycle obsolescence as the
old family lawn mower, watch out!
Reacting to life cycles is good but it isn’t nearly enough in
today’s world. Businesses must be “proactive,” flexible, and fast
product developers to avoid the catastrophic environmental changes that
seem to be occurring more often. Peter Drucker describes the situation
in his book, Managing in Turbulent Times: Sometime during the 1920s,
the longest period of continuity in economic history came to an end. At
some time during the last 10 years we moved into turbulence. The 25
years from the Marshall Plan to the mid-’70s were not only a period of
unprecedented economic growth … they were also a period of high
predictability … economically, growth in the major countries
proceeded in these years along lines that had been laid out before
World War II, and in most cases well before the Great Depression …
they were also, a period of high technological continuity . . . rapid
change . . . but mostly in areas that were already well
mapped before World War II, in areas based on discoveries and
innovations that had been made before the Great Depression…. This has
ended. In technology, too, we are entering a period of turbulence, a
period of rapid innovation, a period of fast and radical structural
shifts.’
Booz-Allen & Hamilton, a large management consulting
company, reports from a survey of leading companies throughout the
world that the number of new product introductions is expected to
double over the next five years. The survey attributes this pace to
several external environmental factors.’ Technological advances were
viewed as a major factor by 90 percent of the survey sample, changing
consumer needs, 72 percent; shortening product life cycles, 55 percent;
increasing foreign market access, 53 percent; increasing foreign
competition in the
United States, 48 percent;
increasing labor costs, 35 percent; government regulations, 35 percent;
and increasing capital costs, 18 percent.
Mr.
Drucker (the
Drucker Foundation) also offers a solution for dealing with
turbulence and discontinuity: A time of turbulence is a dangerous time,
but its greatest danger is a temptation to deny reality…. The
greatest and most dangerous turbulence today results from the collision
between the delusions of the decision makers … and the realities. But
a time of turbulence is also one of great opportunity for those who can
understand, accept, and exploit the new realities. It is above all a
time of opportunity for leadership.
Aggressive business leadership and pioneering are required to
survive in an era of turbulence. Some of the giants of industry are
demonstrating the type of renewed pioneering spirit needed. General
Motors Corporation has acquired a large computer systems company and
several technology-based businesses in order to shift from car making
to manufacturing technology and services. Sears, Roebuck & Co. has
added a variety of financial services to its traditional product
retailing business. International Harvester, on the verge of
bankruptcy, left the farm machinery business, renamed itself Navistar,
and intends to be the largest truck manufacturer in the
world.
These examples, some closer to business obsolescence than
others, also demonstrate that improvements in internal efficiency are
not enough to ensure market survival. General Motors was extremely
innovative in labor management techniques, cost-effective design, and
automobile assembly concepts, but it recognized that ultimate survival
would require offering innovative value outside the company to the
world marketplace. Sears, as the country’s largest retailer, developed
lending techniques for efficient distribution of merchandise, but
realized that shifts in consumer discretionary spending would require
innovative service offerings in order to maintain growth and,
ultimately, to survive.
Innovation in internal
efficiency alone will not guarantee survival for any American
manufacturing company. Manufacturing competition from Third World and
lesser-developed countries will explode in the next 20 years at a rate
far greater than the most innovative manufacturing techniques. Low-cost
automobiles are already available from Yugoslavia and Korea; Taiwan and
Korea are attacking Japan’s position in consumer electronics; India and
China are replacing New Jersey as America’s nuts and bolts source;
Indonesia displaced Korea, which displaced the Carolinas a long time
ago, as America’s clothing manufacturer; and the precision tool
industry is being invaded by sources in such unlikely places as
Portugal and Sri Lanka. American business must compete with market
knowledge, creativity, and new product development skills to survive in
this environment. A few companies can succeed solely by developing
intimate market knowledge and product distribution skills and by being
a fast follower on technology. These companies are still pioneers, but
they are focused on distribution. Danger and management delusion
exists, however, when a company adopts a product follower strategy but
hasn’t pioneered in speed of market introduction and
distribution.
With very short life cycles, a market
may disappear before a follower can even react. This phenomenon is
evident in two vastly different industries, sports clothing and
personal computers. The race to become the hot sports shoe of the year
has been won and lost annually by such names as Adidas, Nike, and
Reebok while the offshore manufacturers struggle to keep up with copy
designs. No sooner does Taiwan copy a new Apple personal computer
design, than Apple introduces an upgraded version with enhanced memory
and peripheral support. Clearly, if a company chooses to be a follower
in product design, it better be innovative in product introduction and
distribution techniques. And American manufacturers can’t count on
manufacturing cost efficiency as their pioneering focus for
survival.
In addition to offering survival, new product pioneering
provides financial rewards despite high failure rates. Most industries
have an inherent inertia in their distribution systems which can react
to and logistically support only a limited number of alternatives. So
once a new product is successfully introduced to a distribution
channel, it tends to enjoy a more monopolistic price and profit
position for at least 6 to 12 months. Consumer awareness, attention,
and decision time is generally limited to only two or three choices in
any product category, which also provides a monopolistic opportunity.
The typical supermarket in America has some 18,000 products on its
shelves, available to a market where the average new high school
graduate has a working vocabulary of about 10,000 words. A successful
new product achieving a distribution position in that supermarket and
an established awareness and preference with its shoppers will generate
attractive financial rewards.
Companies need new product development. Product pioneering is
essential for long- term business profitability and survival. New
products create the growth that sustains a business just as a
civilization thrives on innovation. The rate and degree of change in
product life cycles require product pioneering to avoid obsolescence,
and the discontinuity and turbulence of today’s world require proactive
innovation focused on the marketplace. Following rather than leading
new product development isn’t a practical alternative without unusually
innovative introduction and distribution concepts. Good pioneering
techniques can generate attractive returns despite the financial risks
and low success rate of new products. Finally, and perhaps most
important, new product pioneering energizes a company. A product
development effort provides a specific, tangible goal that cuts across
all company functions. It can create team morale, maintain an
environment receptive to change, and stimulate a spirit of creativity,
motivation, and enthusiasm extending to all areas of the
company.
So, the choice is not whether to pioneer, but how.
