THE INNOVATION PROCESS:
SUGGESTIONS FOR IMPROVEMENT IN A
RESEARCH AND DEVELOPMENT ENVIRONMENT
Friedrich Wilhelm Hein Kruger
B.Sc. (Physical sciences) RAU B.Sc. Hons. (Chemistry) RAU
M.Sc. (Chemistry) RAU
Ph. D. (Polymer science) UPE
Dissertation submitted in partial fulfilment of the
requirements for the degree
Master of Business Administration
in the
Graduate School of Management
at the
Potchefstroomse Universiteit vir Christeli ke Hogr Ondetwys.
Supervisor:
Mr. S.P. van der Meme
POTCHEFSTROOM
In Hartlike woord van dank aan alle persone wat in hul onderskeie hoedanighede bygedra het tot die voltooiing van hierdie skripsie.
In besonder dankie aan:
Mnr. Stephan van der Meme van die Nagraadse Skool vir Bestuurswese aan die PU vir CHO, vir sy geesdriftige leiding en goeie raad tyde~is die aanloop tot en skrywe van die skripsie.
Dr. Chris Reinecke, die Hoofbestuurder van Sasol Tegnologie Navorsing en Ontwikkeling, wat toegelaat het dat ek 'n ondersoek rakende die innovasie- proses binne die divisie kon doen.
Die personeel van Sasol Tegnologie Navorsing en Ontwikkeling wat betrokke was by die invul van die vraelyste, deelgeneem het aan onderhoude, en die uiteindelike resultaat van die studie geproeflees het.
Die bestuur van Sasol Tegnologie Navorsing en Ontwikkeling wat my M.B.A. kursus aan die PU vir CHO geborg het.
My vrou Enid, vir haar onbaatsugtige bystand, opofferinge en aanmoediging in die algemeen, maar in besonder tydens die duur van die kursus.
Sasol Bpk word beskou as die wgreldleier in Fischer-Tropsch tegnologie en streef daarna om die mededingende voordeel, wat nie noodwendig volhoubaar is nie, deur internasionalisering te rugsteun. Hierdie strategie weerspieel die maatskappy se verbondenheid tot volhoubare groei deur die ontwikkeling, produksie, en bemarking van nuwe produkte en prosesse. Sasol Tegnologie (Edms) Bpk is duidelik 'n vername rolspeler in die realisering van die visie, en het ten doel om optimum waarde tot die skatkis van Fischer-Tropsch produkte en prosesse toe te voeg. In der waarheid word die vermoe om nuwe produkte en prosesse meer doelmatig en doeltreffend as mededingers te kan ontwikkel, deur kenners op die gebied van Bestuur van Tegnologie, as 'n vername bron van 'n moontlike volhoubare mededingende voordeel beskou. Gevolglik is dit noodsaaklik om Sasol se nuweprodukontwi kkelingsvermoe van tyd-tot-tyd met die van mededingers te vergelyk, wat hierdie loodsstudie by Sasol Tegnologie Navorsing en Ontwikkeling gei'nduseer het.
'n Nuweprodukontwikkelingsgroep is vyf jaar gelede by Sasol Tegnologie Navorsing en Ontwikkeling gestig. lndirekte observasie het getoon dat 40 nuweprodukidees formeel tussen Februarie 1995 en Januarie 1997 in 11 Nuwe ldees Vergaderings van die Nuweprodukontwikkelingsgroep voorgestel is. Slegs 10% van die idees het voldoen aan die siftingskriteria om vanaf stadium een (voorlopige evaluasie) na stadil-~m twee (gedetaileerde evaluasie) in die innovasieproses te promoveer
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'n internasionale gemiddeld van 40% word in die literatuur as norm gestel. Hierdie resultaat, wat gemanifesteer het in 'n suksestempo van sowat twee voorstelle uit die groep per jaar, is beskou as 'n aanduiding van moontlike swakhede in die innovasieproses by die Nuweprodukontwikkelingsgroep. Sulke swakhede moet ondersoek word, aangesien foutiewe prosesse die waarde van die maatskappy negatief mag bei'nvloed. Die mikpuntdoelwit van hierdie ondersoek was gevolglik om op die kwaliteit van nuwe- produkontwikkelingspogings by die Nuweprodukontwikkelingsgroep te verbeter.Verskeie diagnostiese tegnieke is gebruik om die mees belangrike tekortkominge in die vroee fases van die innovasieproses te identifiseer, naamlik: indirekte observasie,
vraelyste, en onderhoude. 'n Oop-einde vraelys het die tegniese personeel getoets rakende hul kennis van die verskillende stappe in die nuweprodukontwikkelingsproses, en die strategie wat gevolg is om idees in die Nuwe ldees Vergadering te verkoop. Die bestuurspersoneel is getoets met betrekking tot hul kennis van die verskillende stappe in die innovasieproses, en die kriteria wat gebruik is in die siftingsproses in die Nuwe ldees Vergaderings.
Die empiriese resultate is met literatuur rakende die kritiese sukses faktore in nuweprodukontwikkeling gei'ntegreer, wat tot die identifikasie van verskeie swakhede in die nuweprodukontwikkelingsproses gelei het:
Gebrek aan kennis met betrekking tot die verloop van die innovasieproses. Swak interne belyning rakende die uitvoering van die innovasieproses.
Tekortkominge met betrekking tot die inhoud van die N&O Projekbestuurkursus. Swak kommunikasie rakende die projeksiftingskriteria van Sasol Tegnologie Navorsing en Ontwikkeling.
Lae motivering by personeel om aan die Nuwe ldees Vergadering deel te neem. Tekortkominge rakende die struktuur en die inhoud van die Nuwe ldees Vergadering.
Hierdie gebreke is geanaliseer, en bespreek in terme van bewese navorsingresultate wat in die openbare literatuur gepubliseer is. Potensiele aksieplanne is geformuleer ten einde op die kwaliteit van die innovasieproses by die Nuweprodukontwikkelingsgroep (sowel as by Sasol Tegnologie Navorsing en Ontwikkeling) te verbeter, naamlik:
Brei hierdie ondersoek uit na Sasol Tegnologie Navorsing en Ontwikkeling. Verskaf tydige opleiding rakende die nuweprodukontwikkelingsproses.
Hersien die N&O Projekbestuurkursus. Kultiveer produktiewe kommunikasie. Skep 'n meer innoverende klimaat.
Herorganiseer die Nuwe ldees Vergadering.
Etlike positiewe resultate is reeds verkry in reaksie op die potensiele aksieplanne wat in die skripsie vervat is:
die inhoud van die N&O Projekbestuurkursus te hersien. Die hersiene inhoud van die kursus sal uiteindelik met bestaande projekbestuurspraktyke in die grotere Sasol gei'ntegreer word.
Die Nuwe ldees Vergadering is geherorganiseer. Die kreatiwiteitsessies is, byvoorbeeld, geskei van besprekings wat sentreer rondom nuwe besigheids- geleenthede vir Sasol. Weeklikse kreatiwiteitsessies word sedert September 1997 gehou in die Nuweprodukontwikkelingsgroep, met die klem op die generering van nuwe wetenskaplike idees. Sulke idees mag voorlopers tot besigheidsidees wees.
In die Nuwe ldees Vergadering van 27 Februarie 1998 is vier nuwe besigheids- idees deur verskillende lede van die Nuweprodukontwikkelingsgroep voorgestel. Een voorstel is gesirkuleer, aangesien die bemarkingsinformasie afwesig was. Die oorblywende voorstelle is, in teenstelling met vorige voorleggings, geformuleer en verdedig in terme van die kriteria in die projeksiftingslys van Sasol Tegnologie Navorsing en Ontwikkeling. Al drie hierdie idees is vanaf stadium een (voorlopige evaluasie) na stadium twee (gedetaileerde evaluasie) gepromoveer, wat impliseer dat die jaarlikse tempo van idees wat hek een geslaag het reeds met 50% vermeerder het. Die resultate van vyf verdere Nuwe ldees Vergaderings, geskeduleer deur die loop van 1998, moet nog verdiskonteer word.
Sasol Ltd is regarded as the world leader in Fischer-Tropsch technology and endeavours to reinforce this, not necessarily sustainable, competitive advantage by globalisation. This globalisation strategy reflects the company's commitment to sustainable growth through the development, production, and marketing of new products and processes. Sasol Technology (Pty) Ltd is clearly an important role player in the realisation of this vision, and strives to add optimum value to the treasure-chest of Fischer-Tropsch products and processes. In fact, practitioners in the field of Management of Technology regard the capability to develop new products and processes more effectively and efficiently compared with one's competitors, as a powerful source of a possible sustainable competitive advantage. It is therefore essential to bench-mark our new product development capability against those of our rivals, which induced this pilot study at Sasol Technology Research and Development.
A New Product Development Group was established five years ago at Sasol Technology Research and Development. Indirect observation showed that 40 new product ideas had formally been suggested between February 1995 and January 1997 in 11 New Ideas Meetings at the New Product Development Group. Only 10% of these complied with the screening criteria to pass from stage one (preliminary assessment) to stage two (detailed assessment) in the innovation process
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the literature suggests an international average of 40% as the bench-mark. This result, which manifested in a success rate of roughly two suggestions from the group per year, was regarded as an early indication of possible weaknesses in the new product process at the New Product Development Group. Such weaknesses need to be investigated as faulty processes may influence the value of the company negatively. The purpose objective of this investigation was consequently to improve on the quality of the execution of development efforts at the New Product Development Group.Several diagnostic techniques were employed to determine the most important underlying causes of the shortcomings in the early stages of the innovation process, namely: indirect observation, survey questionnaires, and interviews. An open-ended
questionnaire tested the technical staff on their knowledge regarding the various steps in the new product development process, and on the strategies being followed to market ideas in the New ldeas Meetings. The managerial staff were tested on their knowledge concerning the various steps in the new product development process, and on the screening criteria being used in the New ldeas Meetings.
The empirical results were integrated with the literature on critical success factors in new product development, which resulted in the identification of several defects in the execution of the new product development process:
Lack of knowledge on the course of the innovation process.
Poor internal alignment concerning the execution of the innovation process. Deficiencies in the content of the R&D Project Management course.
Poor communication on the project screening criteria at Sasol Technology Research and Development.
Low motivation of respondents to participate in the New Ideas Meeting. Imperfections in the structure and content of the New Ideas Meeting.
These deficiencies were analysed, and discussed in terms of appropriate research evidence in the open literature. Potential action plans were subsequently formulated to improve the on quality of the innovation process at the New Product Development Group (as well as at Sasol Technology Research and Development), namely to:
Expand the investigation to Sasol Technology Research and Development. Provide timeous education on the new product development process. Revise the R&D Project Management course.
Cultivate productive communication. Create a more innovative climate. Reorgar~ise the New Ideas Meeting.
Some positive results have already been obtained in response to the potential action plans that resulted from this dissertation:
The top management of Sasol Technology Research and Development has decided to review the content of the R&D Project Management course. The revised content will eventually be integrated with existing project management
practices in the bigger Sasol.
'The New Ideas Meeting was reorganised. The creativity sessions were, for example, separated from discussions on new business opportunities for Sasol. Weekly creativity sessions are being held in the New Product Development Group since September 1997, focusing on the generation of new scientific ideas. These ideas may be precursors to new business ideas.
Four new business ideas were suggested by different members of the New Product Development Group in the New ldeas Meeting on 27 February 1998. One proposal was recycled, as the marketing information was absent. The remaining ideas were, in contrast with earlier proposals, formulated and defended in terms of the Sasol Technology Research and Development project screening list. Al three of these complied with the criteria to pass from stage one (preliminary assessment) to stage two (detailed assessment) in the innovation process, implying that the yearly rate of ideas that passed gate one has already increased by 50%. The results of five additional New ldeas Meetings, scheduled for the remainder of 1998, are still to be discounted.
i
CONTENTS
CHAPTER
1
NATURE AND SCOPE OF STUDY1.1 INTRODUCTION 1.2 PROBLEM STATEMENT 1.3 OBJECTIVES 1.4 SCOPE OF STUDY 1.5 RESEARCH METHODOLOGY 1.6 LIMITATIONS OF STUDY 1.7 LAYOUT OF STUDY
CHAPTER
2
ORGANISATION PROFILE AND CAUSAL FACTORS 112.1 IN'TRODUCTION 11
2.2 PROFILE: SASOL LTD 11
2.3 PROFILE: SASOL TECHNOLOGY (PTY) LTD 17
2.4 CAUSAL FACTORS TO 'THE STUDY 19
2.5 SUMMARY 2 1
CHAPTER 3 THE INNOVATION PROCESS: A LITERATURE SURVEY 23
3.1 INTRODUCTION 23
3.2 LITERATURE SELECTION: FACTS AND FALLACIES 23
3.3 THE ESSENCE OF INNOVATION MANAGEMENT 24
3.4 COMPREHENSIVE DEVELOPMENT STRATEGY 26
3.5 INDEPENDENT STUDIES ON NEW PRODUCT DEVELOPMENT 41
ii
3.7 ONE SOLUTION - A FORMAL GAME PLAN
3.8 SUMMARY
CHAPTER
4
EMPIRICAL RESEARCHINTRODUCTION
INDIRECT OBSERVATION SURVEY QLlESTlONNAlRES
RESULTS OF BIOGRAPHICAL PARTICULARS
INNOVKI'ION PROCESS: FEEDBACK FROM MANAGERIAL STAFF INNOVATION PROCESS: FEEDBACK FROM TECHNICAL STAFF IDEA PROPOSAL: FEEDBACK FROM MANAGERIAL STAFF IDEA PROPOSAL: FEEDBACK FROM TECHNICAL STAFF SENSING
SUMMARY
CHAPTER
5
CONCLUSIONS AND RECOMMENDATIONS 93INTRODUCTION CONCLUSIONS INDIRECT OBSERVATION SURVEY QUESTIONNAIRES GROUP INTERVIEW RECOMMENDATIONS
EXPAND THE INVESTIGATION
EDUCATION ON THE NEW PRODUCT DEVELOPMENT PROCESS REVISION OF THE R&D PROJECT MANAGEMENT COURSE CULTIVATE PRODUCTIVE COMMUNICA'I'ION
. . .
Ill
5.1 1 CREATE AN INNOVATIVE CLIMATE
5.12 REORGANISE THE NEW IDEAS MEETING
5.13 IMPLEMENTATION OF ACTION PLANS
5.14 SUM MARY
EPILOGUE
ACHIEVEMENT OF OBJECTIVESREFERENCES
APPENDIXES
A
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QLIESTIONNAIRE: MANAGERIAL STAFF 132B
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QUESTIONNAIRE: 'TECHNICAL STAFF 138C
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SASOL TECHNOLOGY RESEARCH AND DEVELOPMENT:PROJECT SCREENING CRITERIA 1 44
D
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SASOLTECHNOLOGYRESEARCHANDDEVELOPMENT:PROJECT MANAGEMENT 1 45
CHAPTER I
NATURE
AND SCOPE OF STUDY
I .1 INTRODUCTION
Companies all over the globe are caught up in a product war, and the majority rely heavily on new product development for growth and profitability. A strong driver of profitability is the existence of a rigorous new product development process that emphasises the quality of execution of the consecutive activities. The ability to improve on the innovation process, that is to drive new products from idea to market faster and with fewer mistakes, is therefore an important strategic weapon to win this war. This dissertation focuses primarily on improving the quality of execution of the early stages in the new product development process. The study was conducted at Sasol Ltd, an important player in the world of synthetic fuels and chemicals.
1.2 PROBLEM STATEMENT
ldeas for prospective new products and processes at Sasol t t d are persistently being generated on the strategic level at Sasol Synthetic Fuels (Pty) Ltd, Sasol Chemical Industries Ltd, Sasol Oil (Pty) Ltd, Sasol Mining (Pty) Ltd, Sasol Technology (Pty) Ltd and other interest groups within the company. ldeas are also being continuously harvested on the tactical and operational levels within the company, an example of which follows below.
A New Product Development Group was established five years ago at Sasol Technology Research and Development in Sasolburg, with the primary mission to evaluate specific new product proposals in the company on laboratory
and
pilot plant scale. The employees should, as part of their job description, continuously generate ideas for new products or processes which are formally screened each alternate month. In 1997, the author suspected that too few business ideas pass the preliminary evaluation stage in the New ldeas Meeting of the New Product Development Group. Indirect observation showed that 40 new product ideas had formally been suggestedthese complied with the criteria to pass from stage one (preliminary assessment) to stage two (detailed assessment) in the innovation process. An average bench-mark published by Stevens and Burley (1 997: 17), suggests that a figure of 40% is more in line with international standards. This result was regarded as an early indication of possible weaknesses in the new product process at the New Product Development Group, which needs to be investigated as faulty processes wuld have a negative affect on the market value of Sasol.
1.3 OBJ ECTIVES
Consequently, the purpose objective of this investigation was to improve on the quality of new product or process development efforts at the New Product Development Group
(and perhaps at Sasol Technology Research and Development). The goals below were formulated for realising the purpose objective:
i. Determine systematically if too few new product or process ideas pass the preliminary evaluation stage in the New Ideas Meeting of the New Product Development Group. (The unobtrusive assessment confirmed this suspicion.)
ii. Determine the most important underlying causes of the aforementioned phenomenon, by integrating current practices being followed in the New Product Development Group with those suggested in the literature.
iii. Suggest potential action plans to enhance the innovation process and the execution thereof at the New Product Development Group, and perhaps at
Sasol
Technology Research and Development.
iv. Encourage the implementation of the potential action plans, and monitor the outcomes of those strategies that were met with approval. One yardstick for measuring improvement would be the value of the pass-rate of new project proposals in the first screening gate of the new product development process.
1.4 SCOPE OF STUDY
I .4.1 Geographical
The investigation was undertaken at Sasol Technology Research and Development,
a division of Sasol Technology (Pty) Ltd. Based at Sasolburg in the Free State, the Sasol Technology Research and Development team of 337 people (in June 1997) is responsible primarily for safeguarding Sasol's often unique technological expertise and executing most of the group's focused research and development programmes. The study focused, in particular, on the New Product Development Group at Sasol Technology Research and Development. The group comprised at the time of the investigation of one laboratory manager, nine graduated scientists, and two graduated resident engineers.
1.4.2 Field of study
This study focuses in broad on product innovation: the conception, development, and commercialisation of a new product. Innovation, or new business creation, can in general be split into two parts: an upstream process and a downstream process. Most respected companies have a formal process in place to manage the downstream part, which deals with the conversion of the selected opportunities into successful new products. Deschamps (1995:35) noted, in contrast, that few companies have set up an equivalent process to manage the upstream part, which deals with the sensing and creation of opportunities. This lack of process for managing innovation reflects management's fear of what is often perceived as a soft and intangible (i.e. creative) process.
The current study focuses in particular on the preliminary assessment stage in the new
product development process, that is past the idea generation stage but before the detailed assessment stage. The author prefers to describe these stages in accordance with the terminology that is used by Cooper and Kleinschmidt (1 993b:79) in Table 1.1 below.
4
Table 1.A : Typical stages in the "stage-gate" new product process.
Source: Cooper and Kleinschmidt (1993b:79) STAC
GENERATE IDEAS
r Sotictied from wide variety of internal and external sources
r Creativity.
1.5 RESEARCH METHODOLOGY
1.5.1 Literature study
A literature study was conducted to identify the most relevant literature dealing with
critical success factors in the new product development process. The databases Advanced Business Index, Business Periodical Index, Current Contents, and Chemical Abstracts Select were the main sources of information. These databases are available on CD ROM.
1.5.2 Indirect observation
The research strategy was to evaluate the new product suggestions in the official research reports that were issued by the New Product Development Group between February 1995 and January 1997, and determine the mortality rate of the suggestions in the first screening gate.
STAGE' I PRELIMINARY ASSESSMENT r Inexpensive, quick qualitative scope of project.
r Pmfimnary market, technical, financial assessments.
1
-5.3
Survey questionnairesThe research approach was to use two open-ended survey questionnaires: one for the managerial staff and one for the technical staff in the population.
.. STAGE 2 I I
DETAILED ASSESSMENT r Build business case.
r Detailed market study, cornpetiifve
analysis, technical appraisal. r Detailed financial appraisal.
The technical staff were tested on their knowledge with regard to the various steps in the new product development process, and on the strategies followed to sell ideas in the New Ideas Meetings.
The managerial staff were tested on their knowledge with regard to the various steps in the new product development process, and on the screening criteria that is used in the New ldeas Meetings.
1.5.4 Sensing
A formal but unstructured group interview was conducted during the New ldeas Meeting
of 25 August 1997. The goal was to establish the needs and the concerns of the participants on issues such as the fundamental purpose of the New ldeas Meeting.
1.5.5 Interviews
Several informal interviews were conducted probing for the strengths and weaknesses of the innovation process at Sasol Technology Research and Development.
I .6 LIMITATIONS OF STUDY
1.6.1 Extrapolation of results
The study was conducted in the New Product Development Group at Sasol Technology Research and Development. The group was established in 1993 and comprised of a laboratory manager, nine graduated scientists and
two
graduated resident engineers in June 1997. Although one may be tempted to extrapolate the results, the author regard the outcomes of such a highly focused study as non-representative of the general operations within Sasol Technology Research and Development.Sasol Technology Research and Development is involved in several scientific and engineering disciplines (coal technology, Fischer-Tropsch processing technology, applied and basic catalysis, separation processes, product development, process development, biotechnology, and environmental protection). The division employed 307 permanent and 30 temporary workers in June 1997. The study is more probably an important pilot study, and may provoke similar investigations in other sectionslgroups of Sasol Technology Research and Development.
1.6.2 Bench-mark
The understanding of the new product development success curves (number of ideas versus stage in the new product development process) is important for at least one reason: to bench-mark one's own new product development process against other companies in the industry. There is a great deal of confusion and debate in the literature about the "true" shape of success curves for industrial innovation. Two examples will be presented below:
Example 1.
Research on the attrition rate of new product projects in the USA (Booz Allen & Hamilton, 1981 :I 3) revealed that seven new product ideas were on average considered for every substantially new commercially successful product in 1981 (Figure 1.1 ). There are, however, variations by industry in that manufacturers of consumer non-durable goods considered more than 14 new product ideas whereas the manufacturers of industrial goods considered seven new product ideas to generate one successful new product.
Example
2.
In contrast, research on the attrition rate of new product projects in the USA (Stevens & Burley, 1997:16) revealed that 3 000 raw ideas were considered on average for every substantially new commercially successful industrial product in 1997. The logarithmic plot
of
the number of new product ideas that advance to the next stage of development (Figure I .2) was presented as a so-called Universal Success Curve, which ostensiblyapplies to most industries including industrial chemicals.
The question then arises which one of these studies are correct, and should be used as the bench-mark. The answer is that both of the studies are correct, as the results depend on the stage of the success curve one starts counting. Hence, the "Significant Development" stage in the study by Stevens and Burley (1
997),
probably correspondsFigure 1 .I: The attrition rate of new product projects in the general industry.
Legend
4
Screening and evaluation: 1968Business analysis Development
Screening and evaluation: 1981
Business analysis Development Testing Commercialization 40 50 60 70 Percentage of time
Source: Booz Allen and Hamilton (1 981 : 13)
Figure 1.2: The Universal Success Curve of new product projects in the general
industry.
r
--Legend
1
Unwrltlen raw ideas (3 000)'
Ideas submitted (300) Small projects (1 2 5 ) I Significant developments (9)I
Major developments (4)I
Launches (1.7)I
Cornrnercial success (1)I
3 4 5Stage of development process
to the "Screening and Evaluation" stage in the study by Booz Allen and Hamilton (1 981). The Universal Success Curve covers the entire range of project activity from
ideation to commercialisation, and was therefore used as the bench-mark in the current study. The Universal Success Curve
is,
however, undoubtedly an approximation as:Absolute numbers on the attrition rate of products in the new product development process are not kept by industry.
b The attrition rate of new products in the new product process changes over ti me.
b The attrition rate of new products in the new product process is dependent on the type of industry.
1.6.3 Questionnaire validation
The open-ended survey questionnaires in the study were not validated. The questions were compiled by integrating literature on the key success factors that affects then new product development process, with standard practices being followed in the New Product Development Group until June 1997. The questions were therefore tailor-made for the situation, which can result in illogical judgments and conclusions. No discrepancies were, however, observed.
1.7 LAYOUT OF STUDY
A schematic layout of the investigation is presented in Figure I .3, and entails the following:
Chapter 2 presents a brief overview on the organisation in which the investigation was undertaken, namely Sasol Ltd, and deals with the causal factors that induced the study. This information, in coherence with that in Chapter I , highlights the present situation.
Chapter 3 deals with the most relevant literature in previous research efforts on new product development. The critical success factors that were identified by practitioners in the field of Management of Technology for establishing an
9
outstanding innovation process, are reviewed. The literature survey gave the necessary background to formulate realistic goals for achieving the purpose objective.
Chapter 4 presents the results that were obtained with the indirect observation, the open-ended survey questionnaires, and the unstructured group interview. The diagnostic questionnaires were compiled by employing the information in Chapter 2 (causal factors) and Chapter 3 (literature survey).
Chapter 5 deals with the conclusions and recommendations. The information in Chapter 4 (empirical results) are integrated with those in Chapters 1 and 2 (current situation) and Chapter 3 (literature survey). Potential action plans to fill the gap between the current situation and the purpose objective are presented. Early results stemming from some recommendations are discussed.
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Figure 1.3: Schematic layout of the dissertation.
RECOMMENDA TlONS " "r-7. . - r ' . ' " " ' ' ' " ' " ' ' ' ' '
EPILOGUE
ACHlEVEMENTOF
OBJECTIVESCHAPTER
2
ORGANISATION
PROFILE
AND
CAUSAL
FACTORS
2.1 INTRODUCTION
The investigation was conducted at Sasol Technology Research and Development, a division of Sasol Technology (Pty) Ltd, which is in turn a wholly owned subsidiary of Sasol Ltd in South Africa. The discussion in this chapter focus on the profile of Sasol,
and the distinctive role of Sasol Technology Research and Development in maximising
the wealth of our shareholders. The causal factors that induced the study are subsequently presented.
2.2 PROFILE: SASOL LTD 2.2.1 General overview
From a small start in the
1950s,
Sasol Ltd has become a giant in the world of syntheticfuels and chemicals. Sasol represents the realisation of the visions and dreams of scientists and industry leaders (SCC, 1997b:2-15), culminating in the establishment of the world's only proven oil-fromaal operations in the world. The Sasol process (based originally on a combination of the German fixed-bed and the American fluid-bed Fischer-Tropsch process) has become a blueprint for synthetic fuel projects. The successful commercial application of Sasol's technology,
backed
by continued research for more than 40 years, has established Sasol as a world leader in this field.Sasol became a private sector company in 1979 when Sasol Ltd, the Group's holding company, was listed on the Johannesburg Stock Exchange. Sasol bought the State's 50% share in Sasol Two in 1983, and Sasol Three's 50% share was acquired in July 1991. The company had a market capitalisation of more than R30-billion in 1997. Sasot's ability to manufacture synthetic fuels contributes significantly to South Africa's energy supply, in that the company fulfilled in 44% of the country's liquid fuel requirements in 1997. Through the utilisation of indigenous raw materials, Sasol currently provides 160 000 jobs (directly and indirectly) and savestearns foreign exchange of some R6 000-million per annum. The South African economy hence
benefits substantially from these petrochemical operations.
2.2.2 Corporate structure
The development of the Sasol Group over the years eventually led to the rationalisation of the corporate structures in 1993
(SCC,
1993:4) to align the divisions more closely with the various business activities of the Group. The restructuring places:the chemical activities at Sasol Chemical Industries (Pty) Ltd, the synthetic fuel activities at Sasol Synthetic Fuels
(Pty)
Ltd, the mining activities at Sasol Mining (Pty) Ltd, andthe oil refining and fuels marketing activities at Sasol Oil (Pty) Ltd.
The main operating companies and divisions within the
Sasol
Group, as published in our Annual Report of 1997(SCC,
1997c:14-15), are shown in Figure 2.1. Sasol Synthetic Fuels initiated a comprehensive transformation process in 1995 (SCC, 1997c:23), to counter the impact of reduced tariff protection on synthetic fuels and to enhance our competitive edge. The transformation, called Vulamehlo, started with the r ~ r g a n i s a t i o n of Sasol Two and Sasol Three into a gas production division (Syngas) and a synthesis division (Synref). This new structure should optimise the use of facilities, raw materials and human resources.2.2.3 Downstream thrust
Sasol's
unique
synfuel technology, which produces both fuel and chemical components in a single synthesis step, provides a significant cost advantage in the production of petrochemical feed-stock. The recovery of high value chemical components, many of which are currently marketed as petrol, and placing them in high value chemical markets is thus an ongoing priority. Chemicals represented 20% (per volume) of Sasol's production in 1997 (Cox, 1997), but technically chemicals could represent 44% of our production. The coal gasification process, and the large number of commercially successful products stemming from the downstream processes are depicted in Figure 2.2. Several feasibility studies are under way to identify additional new opportunities in global markets, in agreement with the new Sasol vision launched in January 1997:Figure 2.2: The coal gasification process, and the large number of commercially successful products stemming from the Fischer- Tropsch and other downstream processes.
Goal water A :.. Perraffins Hard waxes Medium waxes Speciatty waxes Pipeline gas Low temperature F ischer-Tro~sch Ammonia Tars Pitches Green coke Carburislng coke Phsnol cl.efa#s - - - --
/
,\
_-. Alcohols Acetlc acid Propionic acid t r Ketones ! AcetoneI Methyl ethyl ketone
I
I
High temperature Fischer-Tropsct
Linear low density
polyethylene
Explosives Fertilisers Acrylonitrile
Methyl isabutyl ketone
L& density
1
: polyethylenePolypropylene Polyactylonitdle
"To be a respecfed global enterprise, harnessing our talents in applying unique, innovative and competitive technologies to excel in selected markets in the energy, fuels, chemicals and related sectors in Southern Africa and worldwide. "
2.2.4 Technological innovations
Continued research and development has enabled Sasol to launch in recent years two major, more cost-effective technological innovations: the Sasol Advanced Synthol (SAS) process, and the Sasol Slurry-Bed Process (SSBP).
The
state-of-the-art and first of its kind SAS reactor was commissioned during June 1995 (SCC, 1996a:40-41), at Sasol Synthetic Fuels at Secunda. The design of this reactor is based on Sasol's proprietary technology for the conversion of synthesis gas to a wide spectrum of liquid petroleum products, and was designed and developed by Sasol Technology Research and Development over 13 years. The continuous and stable operation of this reactor led to the announcement, during May 1996, that the existing 16 Synthol reactors will be replaced with eight SAS reactors at a total cost of R860-million (SCC, 1997b:lO). The combination of these high-temperature Fischer-Tropsch reactors will maintain the existing production volumes, product selectivities and yields, but at significantly lower capital, operatingand
maintenance costs. The SAS reactor has 30% greater production capacity as compared to the mature circulating fluidjsed bed Synthol reactor.Sasol has also invented proprietary process technologies for the recovery and manufacture of some of its products including alpha olefins, anode coke, sulphur (the SuIfolin process in conjunction with Linde AG from Germany), and specialty waxes.
2.2.5 Capital expenditure
During its first three decades, Sasol's primary drive (SCC, 1 997b:5-15) was to produce a range of highquality synthetic fuels, especially petrol and diesel, from coal. Since the mid-1 980s the Group's emphasis has shifted towards the development and marketing of synthetic fuels and an expanding spectrum of value-added chemicals for domestic and international markets.
The historical speech of mr. F.W. de Klerk on the 2nd of February 1990, gave more momentum to Sasol's transformation from a petroleum producer to a petrochemical producer. Over a six financial year period (1 989190 to 1995196), Sasol will have invested an estimated R8 500-million in capital expenditure projects, most of them for the construction of new chemical plants or projects to upgrade andlor expand established coal mining, synfuel production, chemical produdion and oil refining operations. These expenditures emphasises Sasol's strong commitment to capital expenditure and growth. The Group's current scope of capital expenditures includes the following chemical projects that have been commissioned in 1997:
b A R167-million greenfields plant at Sasol Synthetic Fuels (Secunda) to
extract and purify acetic acid and propionic acid from the acidic waste- water streams.
b A R43-million project for debottlenecking the ammonia plant at Sasol
Chemical Industries (Sasolburg) increased the production capacity by almost 14%.
t A R78-million project to expand the 1-hexene feed preparation unit at the
Sasol Alpha Olefins plant (Secunda) as part of a three-phase project to expand the hexene production capacity.
b A R189-million plant at Sasol Synthetic Fuels (Secunda) for the
preparation of tertiary amyl methyl ether. The ether will be used in the formulation of unleaded petrol.
New projects, exceeding R2.6-billion in value are currently being considered, some of which include: acetic acid expansion, propylenelpolypropylene expansion, methanol, detergent alcohols, synthetic lubricants, 0x0-alcohols, acrylic acidlacrylates, propylene oxide/glycols, styrenelpolystyrene.
2.2.6 Upstream thrust
Complementing the downstream thrust into higher-value chemicals, is the entry into the upstream drive (SCC, 1996c:37) of offshore oil exploration under the auspices of Sasol Petroleum International (Pty) Ltd. Sasol Petroleum International has been conducting
extensive offshore exploration in the Atlantic seabed off the coast of Namibia in 1997, and has also set sights on regions such as Northern and West Africa and Australasia.
2.2.7 Globalisation
The petrochemical industry has been a pioneer
(SCC,
1997c:6-7) in transcending national boundaries. In line with this philosophy, Sasol employees will reinforce the company's competitive advantage through a co-ordinated, prudent, and focused programme of globalisation. Sasol's globalisation plans centre on the increased marketing and manufacturing of products beyond South Africa's borders, supported by Sasol technology.Keen interest in partnerships utilising Sasol's unique Slurry Phase Distillate process technology for the production of environment-friendly diesel and other high-quality products from natural gas. At least two projects are in prospect before the year 2000, in partnership with the Qatar General Petroleum Corporation and Statoil of Noway, respectively.
2.3 PROFILE: SASOL TECHNOLOGY (PTY] LTD
2.3.1 Strategic role
The complex nature of Sasol's unique technologies, processes, petrochemical streams, and markets inspired the establishment of Sasol Technology (Pty) t t d
(SCC,
1996b:l- 2) as the custodian of the Group's manifold technological interests in synfuels, oil refining and petrochemicals technology. Sasol Technology today comprises two main operational divisions: Sasol Technology Engineering Services, and Sasol Technology Research and Development. Sasol Technology's vision is:"To create and exploit a sustainable competitive advantage in producing high-quality synthetic fuels and value-added petrochemicals for global markets. "
optimum value to its treasurechest of fuels and petrochemicals derived from low-grade coal for diverse South African and international markets.
2.3.2
Sasol Technology Research and DevelopmentThe Sasol Technology Research and Development division is situated at Sasolburg. Besides Research and Development's suite of well-equipped laboratories, including state-of-the-art analytical equipment, the division operates several pilot-plants, an advanced computer network, a sophisticated library, and maintenance workshops (SCC, 1996b:6). During the 1 990's1 the division has designed, developed and operated several notable pilot-plants. Besides the multiple Ficher-Tropsch pilot-plants, other examples include those pilot-plants used to:
b produce high-purity acetic acid and propionic acid from waste-water
streams,
b synthesise detergent alcohols from Fischer-Tropsch olefins, b furnish ultra-pure I -pentene and I -hexenel
b convert hydrogen sulphide into elemental sulphur,
synthesise higher-value chemicals from Sasol's acetone, and b produce beta-carotene.
The division's major feats include research and development projects which culminated in the successful commissioning of two completely new types of Fischer-Tropsch reactors. The first commercial SAS reactor was commissioned in 1989 at Sasolburg, and a larger SAS reactor (8m diameter) in 1995 at Secunda. The commissioning of the SSPD reactor in 1993 at Sasolburg was probably an even greater achievement. These new-generation reactors exceeded critical design specifications in their first years of commercial operation, and have earned several prestigious rewards (SCC, 1997a:67) such as:
rn The Walter Flowers Achievement Award from the United States of America- based Council on Alternate Fuels, was awarded in 1995 to Sasol Synthetic Fuels and Sasol Technology Research and Development for their overall contribution to the commercial development of coal conversion and synthetic fuels processing technologies (among them the new SAS reactor).
w One of the five finalist Kirkpatric Chemical Engineering Achievement Awards
from the McGraw-Hill Companies' Chemical Engineering magazine, was
awarded to Sasol in 1995 for the extremely successful commissioning of the SSPD process.
2.3.3 Product research
Committed to product diversification and value-adding, Sasol depends on Sasol Technology Research and Development's product research groups (SCC, 1996b: 10- I I ) for new products and processes. These groups aim to improve:
Sasol's understanding and utilisation of its technologies, raw materials, processes, and product streams, and
b the range, quality, and applications of its chemical products; especially
those with a higher market value.
The emphasis on product and process development has enabled Sasol to manufacture and market special grades of cresols, xylenols, synthetic lubricants, solvents, novel polymers, and other products. A strong analytical group and expertise in molecular modelling provide a valuable support service to the beneficiation programme.
Not all of Sasol's technology and processes are unique, such that Sasol does not need to undertake
all
development work of its own accord. The top specialists in the world, whether they be associated with South African or foreign research institutes and universities, are also involved. The results of any such research undertaken for Sasol become the property of the company.2.4 CAUSAL FACTORS TO THE STUDY
2.4.1 The new product dilemma
The new product manager of the 1990s faces a dilemma. There is, on the one hand, an increasing pressure for the development of successful new products to ensure prosperity. New product development is, on the other hand, a very risky financial endeavour in the environment of the modern organisation. These aspects will be dealt with below:
Inno vativeness: a strategic weapon.
Companies all over the globe are caught up in a product war, and the majority rely heavily on new product development for growth and profitability. There is good reason for such interest in product innovation: an annual Fortune survey (Uttal, 1987:6246) rated American companies on a number of criteria, including "value as a long-term investment". Cooper (1990a:45) used this data to conclude that: "The single strongest predictor of investment value was found to be the degree of innovativeness in a company". This positive relationship between innovativeness and investment value is shown for top international companies in the chemical industry in Figure 2.3. The ability to improve on the
innovativeness of an organisation is therefore an important strategic weapon to win the product war.
Figure 2.3: The relation between innovativeness and value as a long-term investment. Data applies to the chemical industry. Scale: 0 = poor, 10 = excellent.
Legend
Union Carbide FMC Grace
< ?
Celanese Hercules Cyanamid Allied
I
Monsanto Dow DU Pontlnnovativeness
Product innovation: a risky endeavour.
Booz Allen and Hamilton (1981:6) estimated that 46% of all the resources devoted to new product development in the United States of America are spent on products that either fail or are cancelled, making product innovation a very risky endeavour in the modern organisation. A reason for the high failure rate is the turbulent and uncertain envirorlment that affects new product development (Gupta & Wilemon, 1990:24-25) in technologically advanced industries. Consider, for example, the escalating domestic and global competition, the continuous development of new technologies that quickly obsolete existing products, and the changing customer needs and requirements which truncate product life cycles.
2.4.2 Building development capability
New product managers at Sasol may deal with the dilemma above by continually expanding, upgrading and improving the development capability of the organisation. In fact, Wheelwright and Clark (1992b:311) regard the capability to develop new products and processes more effectively and efficiently compared to one's competition as a powerful source of a possible sustainable competitive advantage. It is therefore essential to bench-mark Sasol's new product development capability against those of our rivals from time-to-time, which induced this pilot study at Sasol Technology Research and Development.
2.5 SUMMARY
Sasol was founded in the 1950s, and has grown from strength to strength with the commissior~ing of extremely large Fischer Tropsch plants at Sasol Two and Sasol Three. Today Sasol is regarded as one of the most powerful and respected companies in the petrochemical industry, and savedlearned South Africa foreign exchange of some R6 000-million in 1997.
Sasol is the world leader in Fischer-Tropsch technology, and currently reinforces this competitive advantage further by more extensive beneficiation programs since the early
1990s. The company's petrochemical plants are undergoing modifications, renovations, and new-plant expansions to provide more valuable chemicals for the domestic and export markets. The launching of the new Sasol vision in 1997 gave momentum to the company's globalisation drive.
The reason for existence of Sasol in today's turbulent international environment is excellent innovation. Sasol Technology is instrumental in supporting Sasol's continuing innovation, diversification and growth through its excellent and well-integrated research and development, project management and engineering services. Sasol Technology has a proud history of innovation, and has received numerous international rewards in recognition thereof.
The new product manager of the 1990s faces a dilemma. There is, on the one hand, an increasing pressure for the development of new products. New product development is, on the other hand, very risky. Sasol may deal with the dilemma by continually cultivating the development capability of the organisation. It is therefore essential to bench-mark Sasol's new product development capability against those of our rivals, which induced this pilot study at Sasol Technology Research and Development.
CHAPTER
3
THE INNOVATION PROCESS: A LITERATURE SURVEY
3.1 INTRODUCTION
There has been an increased interest in: "What separates the winners from the losers in new product development?" since the 1950s' as the question became more-and- more actual in today's white water environment. This survey aims to identify the most relevant literature in the field of new product development, and focuses in particular on those critical success factors that enhance the probability of launching a successful product. This information was integrated with the causal factors to the study, and was subsequently used to diagnose the innovation process and the execution thereof in the New Product Development Group. The recommendations that follow on improving the innovation process in a research and development environment are also judiciously interwoven with the literature.
3.2
LITERATURE SELECTION: FACTS AND FALLACIESOne should be extremely careful with the interpretation of literature results that led to the derivation of those critical success factors that drive the innovation process. Major reasons concern the poor uniformity with regard to the exact definitions of some of the terms in the field of new product development, and the selection of the types of corr~parries andlor products in previous research reports. Consider, for example, these points of contention:
What is the definition of a new product?
Only those studies that focused on "major" new products or "significant" new market entries are considered in the literature survey. Products representing modest line extensions or minor design changes were, for example, not regarded as new and as such studies on these projects are excluded.
When is a new product a success?
24
innovation to being commercially successful were considered in the literature survey. In general, the concept must have realised an exceptable financial profit to the company.
How long should a new entry have to achieve success?
If a product is marketed prematurely and languishes
in
the marketplace before catching on, it can be called either successful or unsuccessful. No selection was made in this regard, as such information is seldom given in the literature on new product development.What types of organisations should be included?
Studies that focused on the industry in general, or on the chemical industry in particular, were included in the literature survey. These companies must have a strong commitment to new products, as there is no sense in bench-marking Sasol's activities against those of non-innovative companies.
What types of products should be included?
There is, in general, a difference in the slJccess rates of new products destined for the consumer and industrial markets (Hopkins, 1980:4-8). The literature on new product development does not always distinguish between these two categories, but this survey deals mainly with products destined for industrial markets.
These self-imposed limitations reduced the general literature on new product development considerably, and brought the account more in line with actual new product development practices in the industrial chemical industry.
3.3 THE ESSENCE OF INNOVATION MANAGEMENT
Wheelwright and Clark (1 992b:28-29) suggest three important potential benefits of effective product and process development efforts namely: market success, resource utilisation, and organisational renewal. These benefits promise to yield rich financial
rewards such as irr~proved return on investment, higher profit margins, expanded sales volume, lower costs, and increased productivity.
Market success.
b New products or processes can open totally new markets, or complement existing product offerings by product mix changes.
b New products, their associated manufacturing processes, and their distribution channels can be the vehicle to leapfrog the competition. b A superior development can set industry standards, which may present
an important barrier to enter that industry.
b New products or processes can establish a leadership image that translates into market dominant designs.
Resource utilisation.
b Well-executed development projects may capitalise on previous investments in the respective organisational functions.
› Successful development efforts should improve the leverage of existing assets such as the sales force, factories and field service network. b New developments may assist in eliminating weaknesses that stif led the
development of future products and processes with superior potential.
Organisational renewal.
b The excitement, image and growth associated with product and process development efforts may capture the commitment, innovation and creativity of the entire organisation.
b Successful developments may enhance an organisation's ability to recruit the best people. Proper integration of the entities (individuals, groups, functions, businesses) in the respective systems of the organisation s h o ~ ~ l d result in an extremely flexible competitor.
b Development projects themselves are often the vehicle by which new approaches and new thinking are adopted, and subsequently become
part of the procedures andlor values of an organisation.
Unfortunately, in most firms this promise is seldom fully realised. Even in very successful companies, new product development is tinged with significant disappointment and disillusionment, often falling short of both its full potential in general and its specific opportunities on individual projects. Research on new product development is therefore concerned with the causes of the promise-reality disparity and, even more important, with countermeasures to elirr~inate these deficiencies in the process. Section 3.4 deals with portfolio management in new product development, setting the stage for a concise overview on the innovation process of individual new products or processes.
3.4 COMPREHENSIVE DEVELOPMENT STRATEGY
3.4.1 Causes of the promise-reality disparity
Wheelwright and Clark (1992b:29-33) presented several common pitfalls in new product development that cause the great disparity between promise and reality, such as:
The moving target.
Too often the basic product or process concept misses a shifting technology or market, resulting in a mismatch. This can be caused by locking into a technology before it is sufficiently stable, targeting a market that changes unexpectedly, or making invalid assumptions about the distribution channels.
Mismatches between functions.
While the moving target problem usually reflects a mismatch between an organisation and its external environment, mismatches also often occur within an organisation. Such mismatches may result from a lack of communication among the organisational functions, or from a sequential "over-the-wall" approach to project management.
Lack of product distinctiveness.
Often new product development ends in disappointment because the new product is not as unique or defensible as the organisation anticipated. If all the factors that may impact on the development and eventual commercialisation are not properly investigated, the organisation may lock into a concept too quickly. For example, the market may dry up or critical technologies may be sufficiently widespread that imitators appear overnight.
Unexpected technical problems.
Project delays and cost overruns often can be traced to an overestimation of a company's technical capabilities, or even a lack of knowledge and development resources. Projects can suffer delays and stall in midcourse if essential inventions are not completed and drawn into the designers' repertoire before the development project starts.
Problem-solving delays.
Every new product development activity involves uncertainty with regard to specific problems and the resources required to resolve them. Too often organisations allocate all their development resources to known project requirements, leaving little or no cushion for the unexpected. Subsequently, when unanticipated problems occur and the project experiences delay, managers rob Peter to pay Pall. Once delays occur, costs increase, pressures mount to cut corners, and additional problems erupt.
Unresolved policy issues.
Several very specific choices and decisions must be made during any product or process development project. If major policies have not been articulated clearly and shared, these choices often initiate policy issues that may affect the entire organisation. Resolving policy issues during the heat of the battle and at senior levels of the organisation inevitably engenders delay and further complications.
Injudicious participation of senior managers.
Most senior managers play little, if any, role in the early stages (knowledge acquisition, concept investigation, basic design) of a development effort. Once a project progresses to the point of building prototypes and trying to show the performance characteristics (or lack of characteristics) of those prototypes, management awakens and remains attentive until prototyping problems have been resolved. When the product is introduced, all too often customers discover several remaining issues and problems, and management again focuses its attention on this effort.
Under such circumstances tremendous amounts of managerial, technical, and functional expertise are employed to avoid competitive disaster rather than to provide competitive advantage. The managerial contribution is thereby largely reactive, piecemeal, and tactical. Burgelman et a/. (1 996:657-660) maintain senior managers need a much more comprehensive approach to apply development resources in a way that is pre-emptive, proactive, and strategic. The remainder of this section will focus on achieving the latter advantages.
3.4.2 Development strategy framework
In reality, many organisations use an approach to product and process development in which critical elements of strategy, such as a technology plan and a marketing plan, are only connected in individual projects. These technology and productlmarket strategies are seldom explicitly integrated with other individual product development projects (Wheelwright & Clark, 1992b:33). The primary defects of such an approach are:
t a failure to focus the individual project sufficiently to guarantee its rapid,
productive execution;
t a failure to provide sufficient up-front planning to effectively link individual
development projects to the technology and productlmarket strategies; and
address organisational policy issues, functional mismatches, as well as meet the challenges inherent in any development project.
As a result, individual projects fall short of their potential to: implement the technology and productlmarket strategies, capture market position, improve resource utilisation, and facilitate organisational renewal. Wheelwright and Clark (1 992b:34) observed that organisations with superior development capabilities have a much more comprehensive framework for development strategy, as shown in Figure 3.1, which provide a far more secure foundation for individual projects. This strategic framework for managing the development portfolio of an organisation addresses four main purposes of an integrated development strategy, namely to:
b create, define, and select a set of development projects that will provide superior products and processes;
b integrate and coordinate functional tasks, technical tasks, and organisational units involved in development activities;
b manage development efforts so they converge to achieve business purposes as effectively and efficiently as possible; and
b create and improve the capabilities needed to make development a competitive advantage over the long term.
'The expanded framework accomplishes these purposes by adding two pre-project focal points, namely development goals and an aggregate project plan, where technology strategy and productlmarket strategy can be discussed and integrated. The tect- nol logy and productlmarket strategies play a key role in focusing development efforts on those projects that collectively will accomplish a clear set of business goals and development objectives. In addition, individual projects are undertaken as part of a stream of projects that not only accomplish strategic goals and objectives, but lead to systematic learning and improvement. The elements of this encorr~passing development strategy framework are discussed below.
Figure 3.1:
Development
strategyframework.
Technology strategyi
'I
Technology assessment forecastingobjectives project plan
execution
/"
learning and improvement Market assessment forecasting3.4.3 Technology planning and strategy
'The objective of technology strategy (Burgelman & Maidique, 1988:233-235) is to guide the organisation in acquiring, developing, and applying technology for competitive advantage. Technology strategy typically address the next key issues:
t The strategy must define those technological capabilities and
competencies in which the organisation seeks to establish and maintain a distinct competitive advantage. The type of competitive advantage the company wishes to achieve, namely low cost or differentiation, must be seriously considered in the selection of these technologies. Any of the technologies in the value chain can have a significant impact on competition.
t Technology strategy must deal with the integration of inside and outside
sources. Technological capability may be developed internally through investment in people, equipment, and facilities. Such resources are expensive, and will severely limit the number and scope of core technologies a company can opt to develop internally. Technology may also be acquired from outside the organisation through sponsored research, joint ventures, and licensing.
t The organisation must thirdly distinguish between the timing and
frequency of entering the market with new technologies. Technological leadership and followership have an implicit time dimension, as late entrants can either be leaders or followers whilst pioneers can only be leaders. Porter (1 985: 186-1 91 ) suggested distinct advantages and disadvantages of being a technology leader, which should be considered in formulating the technology strategy. The frequency of implementation will depend on the nature of the technology, the industry and strategic
choice.
Integrating the overarching technology strategy with specific product or process development projects requires action plans for the development and the implementation of technological capability (Wheelwright & Clark, 1992b:38). There exists two critical
technology-related issues in this regard, namely:
Separate the technology invention from application.
The technology invention should be separated from the application. The timing, prerequisites, resources, and specific outcomes are largely unpredictable for inventions under development, and therefore invariably causes delay, backtracking, and disappointment on inclusion in an advanced development project. Clearly, the required inventions should be proven beforehand, that is off the critical path in commercial development projects.
The use of the comprehensive development strategy model can do much to address this technological issue, by forcing clarification of the objectives of the technology strategy. In such approach, all the technologies that will be required in each of the primary business functions before proceeding with a specific commercial development project are identified. For each of these technologies, a clear distinction between early and advanced technology developments will ensure that the required inventions precede their application in commercial development projects. Such approach will align the objectives of the technology strategy and the comprehensive development strategy.
Integrate product and process development.
The product and manufacturing process technology development paths should be integrated. Development projects often disappoint because many companies develop a rather narrow technology strategy that focus on product technology development only. The full benefits of the product technology will never realise if the manufacturing process cannot simply deliver the quality, cost, or timeliness the product requires.
The comprehensive development strategy can largely pre-empt this critical technological issue by providing a long-term focus on product and process technology evolution efforts, and an intermediate-term focus on advanced
product and process developments. The latter developments will most likely find application in one or more of the future commercial development projects. Successive product and process generations should be matched to maximise the competitive benefits of technological improvements.
3.4.4 Productlmarketing planning and strategy
The objective of marketing strategy (Kotler, 1994:92) is to direct and coordinate the marketing effort for achieving the product's objectives in a target market. Typically, a business' productlmarket strategy address four important issues:
t Decisions should be taken regarding the product mix, which is the set of all the product lines that a company offers for sale to its buyers. The product mix is characterised by a certain width, length, depth, and consistency.
t Who will be the target market? The supplier company should distinguish
the major market segments, target one or more of these segments, and develop product and marketing programs tailored to each selected segment.
b Marketingchannel decisions should be taken. These are among the most complex and challenging issues facing a company. Each channel system creates a different level of sales and costs. The chosen channel will significantly affect and be affected by the other elements in the marketing mix.
t Why will customers prefer one company's products to those of the competitors? The key to achieving organisational objectives resides in learning the needs and wants of target markets, and delivering the desired satisfactions more effectively and efficiently than competitors can.
Integrating the overarching productlmarket strategy with specific development projects raises two critical issues (Wheelwright & Clark, 1992b:42) which should be addressed at both the strategic and tactical levels of the company, namely:
