University of Groningen
Title The contribution of scenario analysis to the front-end of new product development
Author Frank van den Bosch
Jachtlaan 240 7312 GR Apeldoorn
S1733621@student.rug.nl or frankvdbosch@hotmail.com
St. Nr. 1733621
+31 (0) 6 28 882 610
Faculty of Economics and Business Innovation Managerment & Strategy
Supervisors Dr. T.J.B.M Postma
Dr. T.L.J Broekhuizen
Website
www.rug.nl/febTel. Nr. + 31 (0) 50
363 3741Supervisor Ir. Bert Bruns
Website
www.bebright.nlTel. Nr. +31 (0) 182-307498
Supervisor Nicole Rijkens
1Website
www.pantopicon.beTel. Nr. +32 3 2978708
Date June 16, 2010
Status Final version
1
Nicole Rijkens is also a research fellow at the International Centre for Integrated assessment &
Sustainable development (ICIS) (Maastricht University).
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Abstract
The front-end of new product development is part of the innovation process. During the front-end of new product development, identification and analysis of opportunities and idea generation and selection result in product and service concepts. After the front-end phase, a product development phase and a commercialization phase complete the innovation process. The front-end is often referred to as non-routine, dynamic, and uncertain. Therefore, several authors have made attempts to improve the manageability of this phase, by proposing different models. This research explores the contribution of scenario analysis to the front-end of new product development by identifying 21 contributing factors within four problem areas. These contributing factors explain problems that exist within these four problem areas and the contribution of scenario analysis to these problems. Two case studies were used to identify contributing factors and the contribution of scenario analysis to these factors by using interviews, documentation and direct observation as sources of evidence. During these case studies, two additional contributing factors were identified. On the basis of these 23 contributing factors, propositions were formulated about the contribution of scenario analysis to the front-end of new product development, which can be tested during future research.
KEYWORDS:
SCENARIO ANALYSIS
FRONT-END OF NEW PRODUCT DEVELOPMENT INNOVATION
PRIVATE CONTEXT PUBLIC CONTEXT
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Preface
This graduation research has been the last episode of my study at the university. Conducting this research has not always been easy for me. The contribution of scenario analysis to the front-end of new product development is such a broad subject that is was important to frame this research.
However, the explorative nature of this research made it hard to frame and create structure. Besides, during my literature review, al lot of new aspects of the contribution of scenario analysis became clear.
Therefore, I learned that it is very important to take a structured approach to include as many as possible aspects of this contribution in a way that makes as much sense as possible.
I experienced a lot of uncertainty and loss of overall vision during this research. Fortunately, a lot of people supported me during these difficult moments. I would especially like to thank my supervisors:
Theo Postma (University of Groningen) for providing feedback and taking away uncertainties I experienced, Thijs Broekhuizen (University of Groningen) for providing feedback at the end of my graduation, Bert Bruns (BeBright) for offering me the case of VolkerWessels, and Nicole Rijkens (Pantopicon) for offering me the case of Pantopicon. Furthermore, I would like to thank Robert Bood, who supported me in the initial phase of my graduation, by offering me initial methodological
guidelines when I needed it the most. Moreover, I also want to thank Ivan Orosa Paleo for guiding me
through the initial phase of my graduation, as a supervisor. Finally, I would like to thank everyone else
who contributed to this research, as a neighbor, as a respondent, or in any other way.
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INDEX
Abstract ... 2
Preface ... 3
INDEX ... 4
1 INTRODUCTION ... 7
Research questions and structure... 7
2 LITERATURE REVIEW ... 10
2.1 Scenarios – Definitions ... 10
2.2 Scenarios – Functions ... 11
2.3 The front-end of new product development – Definitions ... 14
2.4 The front-end of new product development - Why is it so important? ... 14
2.5 The front-end of new product development – Elements ... 16
2.5.1 Phases ... 17
2.5.2 Engine ... 18
2.5.3 Influencing factors ... 19
2.6 The front-end of new product development – Problem areas... 21
2.6.1 The management of ideas ... 21
2.6.2 The management of attention ... 22
2.6.3 The management of part-whole relationships ... 23
2.6.4 Institutional leadership and innovation context ... 24
2.7 Contribution of scenario analysis to (the front-end of) new product development ... 25
2.7.1 New product opportunities ... 25
2.7.2 New product ideas ... 26
2.8 Integrating scenario analysis and the front-end of new product development ... 27
2.8.1 The management of ideas ... 27
2.8.2 The management of attention ... 30
2.8.3 The management of part-whole relationships ... 35
2.8.4 Institutional leadership and innovation context ... 36
2.8.5 Summary ... 38
2.9 Summary and conceptual framework ... 38
2.9.1 Sub question 1 ... 38
2.9.2 Sub question 2 ... 39
2.9.3 Conceptual framework ... 39
3 RESEARCH METHODOLOGY ... 41
3.1 Case selection ... 42
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3.1.1 Case selection criteria ... 42
3.1.2 BeBright – management consultancy company ... 43
3.1.3 Pantopicon – Management consultancy company ... 45
3.1.4 The appropriateness of VolkerWessels (BeBright) and Pantopicon ... 48
3.2 Data collection ... 49
3.2.1 Data collection methods ... 49
3.2.2 Respondents ... 51
3.2.3 From contributing factors to constructs to measure questions ... 52
3.2.4 Case study design tests ... 53
3.3 Data analysis ... 54
4 RESULTS ... 55
4.1 Within case analysis ... 55
4.1.1 VolkerWessels ... 55
4.1.2 Pantopicon ... 57
4.1.3 Differences between the private and the public context ... 58
4.2 Cross-case analysis ... 59
4.2.1 The management of ideas ... 59
4.2.2 The management of attention ... 65
4.2.3 The management of part-whole relationships ... 75
4.2.4 Institutional leadership and innovation context ... 79
4.2.5 Additional identified contributing factors ... 84
4.3 Summary of the results ... 86
4.3.1 Sub question 3 ... 89
4.3.2 Sub question 4 ... 90
5 CONCLUSIONS & DISCUSSION ... 91
5.1 Conclusions ... 91
5.1.1 The management of ideas ... 91
5.1.2 The management of attention ... 92
5.1.3 The management of part-whole relationships ... 92
5.1.4 Institutional leadership and innovation context ... 92
5.2 Discussion ... 93
5.2.1 Discussion of the results ... 93
5.2.2 Limitations ... 94
5.2.3 Directions for future research ... 95
REFERENCES ... 96
Appendix 1: Evaluation packaging research ... 101
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Appendix 2: Contributing factors and constructs ... 105
Appendix 3: Interview protocol ... 111
Appendix 4: Scenarios VolkerWessels ... 121
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1 INTRODUCTION
The innovation process can be divided into three areas: the (fuzzy) front-end, the new product development (NPD) process and commercialization (Koen et al., 2002). The front-end is generally regarded as the part with the greatest opportunities for improvement of the overall innovation process.
With the aim to reduce the “fuzziness” of this phase, several authors made attempts to provide answers to this issue, such as the Stage-Gate™ (Cooper, 1993) or PACE® (McGrath and Akiyama, 1996). This research aims to explore the contribution of scenario analysis to overcome problems in the front-end stage of new product development in the innovation process.
During the past half year, I became interested in scenario analysis and innovation when I conducted research for a large international operating packaging company. The aim of this research was to discover how the food packaging industry would develop until the year 2015. Although my research cannot be characterized as a scenario analysis, I did use elements from the scenario method in order to collect the right information and to produce useful recommendations for the organization. Where scenario analysis focuses on factors and developments on a macro level, outside the organization‟s industry, my research focused only partially on these developments. Since my research focused more on (future) developments within the industry, it can be mainly considered as a trend analysis. Finally, three scenarios resulted from my research. These scenarios were not multiple equally plausible futures (van der Heijden, 2000), but rather headings under which the identified trends were grouped together (clusters of trends). Since my research has a confidential nature, no insights can be provided in these
„scenarios‟. Nevertheless, in order to provide an indication of my work, an evaluation of my experiences and learning moments can be found in appendix 1 of this research. This evaluation also shows the contribution of this research to my abilities in data collection and processing methods, which are usable during this research.
Although my analysis was not a real scenario analysis, it contributed to increasing my interest in future exploration methods. I would like to know more about scenario analysis as being such a method. This research will hopefully contribute to my graduation from university within the master
“Strategy & Innovation”. This offered me an excellent opportunity to explore the contribution of scenario analysis to innovation, or more specifically: the front-end of new product development, the stage in which I expect scenario analysis to be most useful.
Research questions and structure
By introducing the sub questions of this research, an understanding will be created of the research
structure of this research. These sub questions will be put under attention in different chapters. The
formulation of sub questions for different chapters will act as a solid red line throughout this research.
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In order to provide more insight in the aim of this research, the main research question is presented below:
How can scenario analysis contribute to the improvement of the front-end of the new product development process?
The research questions that will be answered with the literature review (chapter 2), are:
1) Which problem areas can be found in the innovation literature with respect to the front end of new product development?
2) What is scenario analysis and what contributions to the front end of new product development are presented in the literature?
Chapter 3 discusses the methodology of this research. It discusses the case organizations and the research methods of this research.
The fourth chapter (which presents the results) will focus merely on the cases. In this chapter, the results, gathered by the different data collection methods described in chapter 3, are analyzed. The research questions for this chapter are:
3) Which contributions has scenario analysis made to the front-end of new product development in practice?
4) Which possible additional contributions of scenario analysis do the results represent, other than those contributions that are identified in the literature?
In the last chapter (chapter 5), conclusions and implications will be presented. The main research question will be answered with the answers of the different sub questions. Moreover, there will be one more research question to answer:
5) What are the conclusions and implications for future research?
On the next page, the research structure is depicted in figure 1.1, which is based on the model of Yin (2003, p. 50). In the second chapter, an attempt is done to develop theory by conducting a literature review. The third chapter involves the research methodology, which describes (among others) the case selection and data collection. Chapter four presents the results of the case studies after they are
conducted. Finally, chapter five develops theory from the results of the case studies on the basis of
these results. Also implications for future research are developed in this chapter.
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Figure 1.1 Research structure.10
2 LITERATURE REVIEW
This literature review addresses the existing knowledge in the field of scenario analysis and its contribution to the front-end of new product development. Firstly, the concept of scenario analysis is introduced by different definitions and types of scenarios. Secondly, the functions and methodology of scenarios are presented. Next, the concept of the front-end of the new product development process is introduced. Fourthly, areas for improvement in the front-end of new product development are
identified from the literature, and finally, possible contributions of scenario analysis to (the front-end of) new product development are described. At the end of this chapter, a summary and a conceptual framework are presented.
2.1 Scenarios – Definitions
To provide a basis for this literature section, the following question must be asked: What exactly are scenarios? Schwartz (1996) defines scenarios as „tools for ordering one‟s perceptions about
alternative future environments in which today‟s decisions might be played out‟ (p. 4). By doing this, today‟s decisions can be evaluated against the background of possible alternative future
environments. Porter (1985) defines a scenario as used in strategy: „… An internally consistent view
of what the future might turn out to be – not a forecast, but one possible future outcome‟ (p. 446). In
her book about scenario planning, Ringland (1998) also considers this definition, but she adds the
following definition: „that part of strategic planning which relates to the tools and technologies for
managing uncertainties of the future‟ (p. 2). From these definitions, it can thus be determined that
scenarios are not per definition about predicting the future, but rather about discussing uncertainties of
the future. Van der Heijden (2000) states that at least something in the future is predictable. Separating
the predictable from the uncertain is helpful for understanding. He suggests that there are multiple
equally plausible futures if the future is uncertain. These equally plausible futures can be considered as
scenarios. To follow Raubitschek (in Lamb & Shrivastava, 1988), scenarios depict some feasible
future state of an organization‟s environment and mostly include the dynamic sequence of interacting
events, conditions and changes that are necessary to reach that state. Scenarios thus depict plausible
futures, mostly jointly with the storylines that lead to those futures. The scenario process is explained
by van der Heijden (2002), which provides more insights in what scenarios are. He states: „In essence,
the process is about enabling managers to visit and experience the future ahead of time, thereby
creating memories of the future. These „visits‟ to anticipated futures are remembered, creating a matrix
in the mind of managers and serving as subconscious guides to make sense of environmental signals
and to act on them‟ (p. 176). Scenarios are thus not only used to experience the future, but also to act
upon this experience.
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A distinction between different kinds of scenarios can clarify the concept of scenarios even further. Several authors made attempts to classify scenarios. Godet and Roubelat (1996) distinguish between exploratory and normative scenarios. Exploratory scenarios are realized by looking at the past and present trends to create visions of the future. Normative (or anticipatory) scenarios are created by different visions of the future, desired or feared. Furthermore, van der Heijden (1996) distinguishes between internal and external scenarios. Internal scenarios are based on action options linked to a personal goal, while external scenarios are based on projections of possible future developments on (managers‟) mental models of the external world. Another distinction is made by Fahey and Randell (1998). They define four kinds of scenarios: Global scenarios (create a number of distinctive environments, each having different implications in the long term), industry scenarios (create plausible future states of an industry, how the industry will evolve and what an organization must do to win in the industry), competitor scenarios (test and identify competitor strategies in various circumstances), and technology scenarios (help managers to take better technological decisions in uncertain future markets).
2.2 Scenarios – Functions
In order to know whether or not scenario analysis can contribute to the front-end of the new product development process, we need to know what scenarios can do, or more specifically, their functions.
Bood and Postma (1997) mention a list of functions in their research about strategic learning with scenarios. They distinguish between six functions: (1) evaluation and selection of strategies, (2) integration of various kinds of future-oriented data, (3) exploration of the future and identification of future possibilities, (4) making managers aware of environmental uncertainties, (5) stretching of managers‟ mental models, and (6) triggering and accelerating processes of organizational learning.
The first three functions can be considered as „traditional‟ functions, while the last three functions can be considered as „modern‟ functions of scenarios, which have a more abstract nature.
The first function refers to the use of scenarios to evaluate and select strategies. This has much to do with „rehearsing the future‟ (Schwartz, 1996). Usually, strategic options can only be evaluated after a significant amount of time, when their consequences are known. Scenario analysis, by creating different futures, makes it possible to evaluate consequences of strategic decisions beforehand. By offering a context where people can rehearse the future, the feedback lag can be reduced. The second function is about integration of various future-oriented data. Scenario analysis can be used in
combination with all kinds of data, both quantitative data and qualitative input (Huss, 1988).
Additionally, it can handle „soft‟ and fuzzy‟ variables (Linneman and Klein, 1983; Wack, 1985).
These kinds of information can be integrated into the scenario analysis method, and therefore be used
to create perspectives of the future. The third function is to explore the future and identify future
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possibilities. Bood and Postma (1997) argue that scenarios can help identifying major changes and strategic problems a company will face in the future and help to generate strategic options to effectively deal with them. Scenarios can be seen as laboratories in which different models of future policy can be tested (Van der Heijden, 1996). By using scenarios in this way, managers are forced to articulate what they consider as really important in the environment of the organization. This is also embedded in the fourth function, making managers aware of environmental uncertainties. Because of the uncertainty that exists when managers realize that there are multiple equally plausible futures, they are stimulated to accept that there is uncertainty in their worlds. This acceptance helps to understand uncertainties in the environment and deal effectively with them. Scenarios reduce the bias for underestimating uncertainties (Van der Heijden, 2002). The fifth function, stretching of managers‟
mental models, is about signals or events that are perceived as relevant and therefore catch managers‟
attention. Mental models determine how these signals or events are filtered on relevance by managers (Van der Heijden, 1996). Mental models also contain guidelines for actions to react on signals and events (Bood and Postma, 1997). Stretching these mental models occurs when managers are confronted with a set of scenarios (i.e. deviating perspectives) that managers try to incorporate into their mental models and/or change these mental models. This is comparable to the sixth function, triggering and accelerating processes of organizational learning. Since managers can learn together by discussing and simulating the future, mental models are not only stretched but also shared among different organizational members. Therefore, learning from scenarios includes the opportunity to learn from other organizational members, share knowledge and create organizational insights into the future.
This is also explained by Van der Heijden (2002). He argues that „scenarios provide a politically safe team-learning environment and a rich learning process that stimulates creativity‟ (p.143). Managers can identify inconsistencies in their own thinking and that of their colleagues by articulating their assumptions in a scenario exercise. By doing this, a team mental model can be shared and altered.
Since individuals can share their mental models, teams of individuals are very important. Furthermore, by offering a context where people can rehearse the future, the feedback lag can be reduced, and therefore, organizational learning is stimulated (van der Heijden, 2002).
Finally, two functions can be added to the above mentioned functions of scenario analysis. Van der Heijden (2002) proposes two functions, which he regards as „benefits‟. These are (7) scenarios as a communications tool and (8) scenarios as a management tool. These functions are somewhat
overlapping with the abovementioned functions. Firstly, the alternative views that emerge inside or outside the organization, resulting from scenario analysis, provide a basis for rational discussion.
Scenario analysis stimulates a strategic conversation in which alternative views are intrinsic and valued instead of squashed rather than searching for the „one right answer‟. The participants are put in a much more open frame of mind and new relationships are often resulting from the scenario exercise.
Secondly, at Shell, scenarios became a context for any strategic key decisions proposed to
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management. Therefore, scenarios could be used by senior management to influence decision-making at all levels in the organization, by creating and communicating these contexts, upon which decisions are made at multiple levels. This captured the interest of senior management in scenario analysis, which made scenarios part of the company culture.
Thus, a total of eight functions can be addressed to scenarios. While the first three functions focus on the product of scenario analysis (extracting value from the resulting alternatives of the future), the last five functions focus on the process of scenario analysis (extracting value from the process which leads to the product). These eight functions will be used to explore possible contributions of scenarios analysis.
Scenario methodology
To provide a better understanding of the organizational context of above mentioned functions, the methodology of scenarios will be explained. Schwartz (1996) points to eight steps to develop
scenarios. These steps are (1) identify focal issue or decision, (2) key forces in the local environment, (3) driving forces, (4) rank by importance and uncertainty, (5) selecting scenario logics, (6) fleshing out the scenarios, (7) implications, and (8) selection of leading indicators and signposts. Firstly, a focal issue or decision provides a rationale that provides the input upon which scenarios can be developed.
Schwartz (1996) recommends an inside-out view to come to these focal issues or decisions. Bood and Postma (1997) state that a SWOT analysis may serve as such a starting point. Secondly, the key forces must be selected that influence the decision in the first step. These key forces are known to influence the success or failure of the issue or decision. Thirdly, driving forces in the macro-environment must be selected. These driving forces are known to influence the key factors of step two. Schwartz (1996) distinguishes between predetermined and uncertain forces. In this step, research is usually required when searching for trends and trend breaks. Bood and Postma (1997) state that the uncertain forces determine the differences between the scenarios. Different outcomes result in different future states.
Ranking factors and forces is completed in step four. Factors and forces are ranked by importance and uncertainty, so that two or three factors or trends result that are most important to the success of the focal issue of decision and most uncertain. Step five includes using the two or three factors or trends as axes along which the resulting scenarios will differ. The logic of a scenario is mainly determined by its location in the matrix with the axes. Schwartz (1996) states that this is like playing and regrouping a set of issues until a logic emerges and a story becomes visible. After different scenarios are
distinguished, they are fleshed out in step six. The factors and drivers of step five are referred to as the
skeleton (logics) (Schwartz, 1996). In step six, each key factor and trend (of step two and three) must
be used to flesh out the scenarios. For each scenario, different outcomes of factors and trends make
sense. These (logical) outcomes can be used to create a narrative to flesh out a scenario. Step seven
includes examining how the focal issue or decision looks in each scenario. Schwartz (1996)
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recommends to make decisions which are robust in as many as possible scenarios. In the final step, leading indicators and signposts are selected, which help to recognize developments toward a certain scenario. In this way, an organization knows what the future holds before its competition does so.
2.3 The front-end of new product development – Definitions
Since this research is concerned with the front-end of new product development, this concept is introduced in this paragraph. The front-end is considered as the first stage of new product development, which roughly concerns the period from the idea generation to its approval for
development, or its termination (Murphy and Kumar, 1997). Or in more detail: „The FFE begins when an opportunity is first considered worthy of further ideation, exploration, and assessment and ends when a firm decides to invest in the idea, commit significant resources to its development, and launch the project‟ (Kim and Wilemon, 2002, 269 – 270). This definition is further extended by Moenart et al.
(1995). They define the front-end as the process in which an organization formulates a product concept and decides whether or not to invest resources in that concept. From these definitions, the front-end of new product development is defined in this research as following: the phase in which an opportunity is identified, product and service ideas are generated and selected upon that opportunity in order to formulate a product (or service) concept, where significant resources might be invested in when it is considered as potentially successful. The following sub definitions will support my definition:
„Opportunity: A business or technology gap, that a company or individual realizes, that exists between the current situation and an envisioned future in order to capture a competitive advantage, respond to a threat, solve a problem, or ameliorate a difficulty.
Idea: The most embryonic form of a new product or service. It often consists of a high-level view of the solution envisioned for the problem identified by the opportunity.
Concept: Has a well-defined form, including both a written and visual description, that includes its primary features and customer benefits combined with a broad understanding of the technology needed.‟ (Koen et al., 2002, p. 7).
The front-end is often referred to as the „fuzzy front-end‟. The next section elaborates the concept of the front-end by explaining its importance and the concept of „fuzziness‟.
2.4 The front-end of new product development - Why is it so important?
Cooper and Kleinschmidt (1994) found that „the greatest differences between winners and losers were
found in quality of pre-development activities‟. Winners can be considered as firms that make a new
product or service into a success. These pre-development activities (front-end activities) distinguish
the projects that are ready for execution from the ones that are not. This means that, in this phase, the
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course for the entire project and also the end product is set, since decisions about allocation of important resources are being made. Because of this importance, the front-end can take up to 50 percent of development time (Smith and Reinertsen, 1998). Furthermore, managers have identified the front-end as being the greatest weakness in product innovation (Khurana and Rosenthal, 1997).
The front-end phase is often called the „fuzzy front-end‟. This „fuzziness‟ is properly explained by Montoya-Weiss and O‟Driscoll (2000). They call the front-end phase of NPD intrinsically non- routine, dynamic and uncertain. The idea-development and subsequent idea-selection stages involve ad hoc decisions and an ill-defined process. To clear this up, two figures of Kim and Wilemon (2002) are used. The first table (table 2.1 below) compares the front-end phase with the development phase of the NPD (new product development) process. This table shows that the front-end phase usually is a phase that is more difficult to manage than the development phase. The level of uncertainty during the front- end phase is significantly higher than during the development phase. The uncertainty is mainly caused by fuzziness or ambiguity about the quality (commercialization potential) of an idea. By obtaining and sharing knowledge about the commercialization potential by using assessments (or other techniques), this fuzziness can be decreased.
Table 2.1 Comparison between the front-end phase and the development phase. Source: Kim and Wilemon (2002).
A decrease of fuzziness allows moving toward the development phase. This is shown by figure 2.2.
Figure 2.2 shows that the level of fuzziness usually decreases as the NPD process progresses. When the level of fuzziness decreases below a certain required level (point „a‟) then the development phase starts off (point „b‟). Point „a‟ (the approved level of fuzziness) is defined as „the point where
management decides to commit to the development of a project‟ (Kim and Willemon, 2002, p. 271).
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Figure 2.2 The fuzziness level throughout the NPD process. Source: Kim and Wilemon (2002).
2.5 The front-end of new product development – Elements
Khurana and Rosenthal (1998) state that the front-end consists of the following activities: product strategy formulation and communication, opportunity identification and assessment, idea generation, project planning, and early executive reviews. Furthermore, they state that these activities typically precede detailed design and development of the new product. However, to understand what happens during the front-end, the NCD (New Concept Development) model of Koen et al.(2002) is used as an indication for this research. They incorporate the following phases in the front-end process: (1) opportunity identification, (2) opportunity analysis, (3) idea generation & enrichment, (4) idea
selection, and (5) concept definition. Furthermore, they mention the „engine‟ and „influencing factors‟
as being part of the front-end. The engine represents leadership, the culture and the business strategy of the organization. These are drivers of the five phases that are controllable by the organization. The influencing factors are relatively uncontrollable by the organization. They include the organizational capabilities (relatively uncontrollable since they typically change very slowly)
2, the outside world and enabling science and technology. The model of Koen et al. (2002) is depicted in figure 2.3. In this section, the elements of the front-end will be explained.
2 Koen et al. (2002) also state that the organizational culture can be identified as an influencing factor, since it changes slowly. They chose, however, to place the culture in the engine, since they refer to it as typically controlled by the organization.
17 2.5.1 Phases
Opportunity identification. In this phase, organizations identify opportunities that the organization might want to pursue (Koen et al., 2002). Typically driven by the business goals, these opportunities can be a „response to a competitive threat, a “breakthrough” possibility for capturing competitive advantage, or a means to simplify operations, speed them up, or reduce their cost‟ (Koen et al., 2002, p. 15).
Opportunity analysis. In this phase, analysis of the identified opportunity is performed to find out if the opportunity is really worth pursuing (Koen et al., 2002). This means that the opportunity
analysis is used to determine the potential successfulness of the identified opportubity. Translating the identified opportunity into a specific business or technology opportunity requires extra information.
This information can be obtained by early technology and market analysis with the objective to reduce uncertainties about the attractiveness of the opportunity. Despite all the effort that is often put into these analyses, technology and market uncertainty will usually remain.
Idea generation and enrichment. This phase is considered as the birth, development and
maturation of a concrete idea (Koen et al., 2002). Ideas can go through a lot of changes in this process.
The fact that figure 2.3 has a circular shape indicates that the front-end process has an iterative
character. For idea generation, this means that ideas can change constantly before they become
definitive. Besides, this iterative character also means that idea generation can just as good feed
opportunity identification again. This means that generation of ideas can lead to the identification of a
new opportunity again.
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Figure 2.3 Model of the front-end of NPD. The two arrows pointing into the model indicate that new product development projects start at either opportunity identification or idea generation and enrichment.
The arrow pointing out of the model represents how product concepts leave the front-end and enter the new product development process. Source: Koen et al. (2002
).
Idea Selection. The importance of this phase is determined by the importance of making a decision about which idea should help to achieve the most business value. Therefore, „making a good selection is critical to the future health and success of the business‟ (Koen et al., 2002, p.22). Limited information and understanding that are available early in the product development often make it difficult to make grounded decisions.
Concept definition. This the final phase of the front-end, in which a product concept is defined.
The concept is „a preliminary identification of customer needs, market segments, competitive situations, business prospects, and alignment with existing business and technology plans‟ (Khurana and Rosenthal, 1997, p. 104). A concept is needed to support the decision to invest in resources to realize the product or service. Managers need to understand customer needs and the potential
technologies and applications to satisfy these needs must be identified. Often multiple concepts will be generated before a decision to design and develop a concept is made. Besides, early targets, such as product cost, time to market, product performance and project cost are requirements for generating concepts. For tangible products, the product concept can be embodied with a sketch or three- dimensional model (Khurana and Rosenthal, 1997).
2.5.2 Engine
The engine sets the environment for successful innovation (Koen et al., 2002). It consists of the leadership, culture and business strategy of the organization. First of all, five dimensions can be identified that are important in shaping an innovative climate within organizations (Prather, 2000).
These dimensions are (1) challenge (to what degree are people challenged by their work, as well as emotionally involved, and committed to it?), (2) risk-taking (to what degree is it okay for a well- reasoned attempt to not meet expectations when trying something new?), (3) trust and openness (to what degree do people feel safe speaking their minds and offering different points of view?), (4) idea time (to what degree do people have time to think things through before having to act?), and (5) idea support (to what degree are resources made available to give new ideas a try?).
Leadership. Koen et al. (2002) distinguish between two types of leadership, which are project leadership and senior (or top) management. Firstly, project leaders are responsible for „lobbying for support and resources and coordinating technical or design issues‟ (Khurana and Rosenthal, 1997, p.
109). A lack of effective project leadership is considered as an important barrier to rapid, effective
front-end performance (McDonough and Barczak, 1991; McDonough, 1993). Secondly, Cooper and
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Kleinschmidt (1986) state that several studies conclude that senior management support and
commitment are fundamental to new product success. Early prototypes enable better visualization and communication of the product concept, which is considered as strengthening support from senior management, e.g. the commitment of resources (Verworn, Herstatt and Nagahira, 2008). Gaining support from senior management is considered as a task of project leaders.
Culture. The culture can be considered as an enabler when it encourages innovation and creativity (Koen et al., 2002). Zien and Buckler (1997) distinguish between cultures that differ during the front- end, the product development process, and market operations (commercialization). The culture in the front-end is experimental and chaotic. The generation of new ideas is often accompanied with a great deal of uncertainty and it is not very goal-oriented. Creativity is needed when new ideas must be generated. In a creative environment, risk taking is encouraged. This means that it is acceptable to not meet expectations when trying something new. The new product development process, however, is goal-oriented and disciplined. This has also already been shown in table 2.1 and figure 2.2. The new product development process follows a more clearly defined process than the front-end process.
Finally, the process of market operations is highly organized and financially oriented (with financial targets). New ideas are not welcome anymore, because operations are committed to the established businesses and are reluctant to change.
Business strategy. Khurana and Rosenthal (1997) state that „business units need to plan their portfolio of new product development activities, which goes beyond the traditional marketing view of having a product for every segment, market and price point. Portfolio planning should map all new product initiatives across the business to balance risk and potential return, short and long time horizons, or mature and emerging markets‟ (p. 104). Thus, portfolio plans ensure that new product development is consistent with product and business strategy. Business strategy is referred to as „the long-term plan of action a company may pursue to achieve its goals‟ (Zahra and Covin, 1993).
2.5.3 Influencing factors
The final element of the front-end is formed by the influencing factors. These are the corporation‟s organizational capabilities, the outside world‟s influences, and the depth and strength of enabling sciences and technology (Koen et al., 2002).
Organizational capabilities. These capabilities give the organization the ability to deal with the other influencing factors (Koen et al., 2002). Collis (1994) states that organizational capabilities concern the ability of firms to perform an activity. He defines them as: „the socially complex routines that
determine the efficiency with which firms physically transform inputs into outputs‟ (p. 145).
Therefore, it is also important to know what routines are. Feldman (2000) defines them as: „repeated
patterns of behavior that are bound by rules and customs and that do not change very much from one
iteration to another‟ (p. 611). Organizational capabilities are embedded in firm routines, which means
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they reside in organizational structures and processes and the corporate culture and network of employee relations. Furthermore, better capabilities allow firms to „more efficiently and effectively choose and implement the activities necessary to produce and deliver a product or service to
customers‟ (Collis, 1994, p. 146). Collis (1994) divides organizational capabilities in three categories, which are (1) static, (2) dynamic, and (3) creative. Static capabilities concern the ability to perform the basic functional activities. Dynamic capabilities concern the ability to learn, adapt, change and renew over time (e.g. due to a changing environment) (Teece et al., 1994). Creative capabilities concern the
„strategic insights that enable firms to recognize the intrinsic value of other resources or to develop novel strategies before competitors do.
The outside world. The outside world can be considered as the total environment of an
organization. The „five-force‟ model of Porter (1979) can be applied for identifying developments in the field of different actors in the environment, which are customers, competitors, new entrants, suppliers, and industry rivalry. The power relationship determines the intensity of competition in the industry (the environment) and often stimulates innovation (Koen et al., 2002). Grove (1999) adds a sixth force to this model: complementors. These are companies that are not direct competitors, but contribute to growth of the industry. Finally, government law and policy can be considered as a seventh force, mainly because of their impact on the use of and profit from a technology (Koen et al., 2002). The outside world of an organization is not only represented by the organization‟s industry, but also by society as a whole. Therefore, developments in the demographical, economical, social-cultural, technical, ecological, and political (legal) areas of society are also part of the environment. Insights into these developments can be created by conducting a DESTEP analysis.
Enabling science and technology. Koen et al. (2002) explain that science and technology become enabling when they can be used repeatedly in a product or service. Thus this is the point when the technology is developed enough to build it into a product or service or use it in manufacturing a product or offering a service.
These influencing factors are largely uncontrollable by the corporation. However, the response by the engine (corporate culture, leadership and strategy) on these factors greatly affects the front-end‟s five inner elements (Koen et al., 2002).
In conclusion, the phases, engine and influencing factors are the main components of the front-end of new product development. Before we move on to the next section, an endnote for this paragraph is that the relationships between the components of the front-end are as important as the components
themselves. This means that it is important to realize that these components are influencing each other
on a continuous basis. The relationships between the components of the front-end are important,
because the engine powers the five phases and the influencing factors affect the decisions of the inner
two parts (Koen et al., 2002).
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2.6 The front-end of new product development – Problem areas
This section explains problem areas in innovation. Van der Ven (1986) makes a useful contribution to this section. He defines four central problems of innovation that general managers often face in the innovation process. These problems are (1) the management of ideas, (2) the management of attention, (3) the management of part-whole relationships, and (4) institutional leadership and innovation
context. Since these problems are central problems, they can also be considered to be relevant for new product development. This becomes clear in the discussion below.
2.6.1 The management of ideas
Van de Ven (1986) states that people develop, carry, react to, and modify ideas. The main problem here is how to manage the development and institutionalization of ideas. Schön (1971) presents an idea life cycle, which provides insights in the stages that an idea completes before it gets
institutionalized into an organization. This is shown in figure 2.4. This life cycle suggests that a disruptive event, which threatens the social system (e.g. organization) is an impetus for change. In this phase, an opportunity is identified. Ideas are suggested and begin to surface to the mainstream by efforts of people who supply energy necessary to achieve this. The next stage concerns networks of groups of individuals and interest groups exerting their influence on the ideas by developing them and making them attractive so that the ideas become an issue for political debate. This is the point where ideas might be taken up by powerful people, so that ideas gain legitimacy and power to change institutions. The ideas that win out are implemented and institutionalized. The idea remains institutionalized for as long as it addresses critical problems and as long as the regime remains in power.
Figure 2.4 The idea life cycle. Source Schön (1971).
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In this context, van de Ven (1986) mentions three basic limitations that lead to inertia and premature abandonment of ideas. These are (1) a short term problem orientation, (2) the inventory of ideas is seldom adequate for the situation, and (3) the management of attention. Firstly, short term problem orientation exists because people have the need to demonstrate progress. Ideas for problems are abandoned when people leave the problem for what it is and move to solving other problems in the short term in order to make progress. Secondly, the inventory of ideas is seldom adequate for the situation. Van de Ven (1986) argues that „environmental scanning relevant to an issue does not uncover the values and partisan views held by all the relevant stakeholders‟ (p. 594). This means that inertia and premature abandonment of ideas happens when it is not clear who the other stakeholders to an issue are and what their values are, which determine their actions. The last problem is the
management of attention, which is the second central problem. „Human beings and their organizations are mostly designed to focus on, harvest and protect existing practices rather than to pave new
directions … One of the key questions in the management of innovation then becomes how to trigger the action thresholds of individuals to appreciate and pay attention to new ideas, needs and
opportunities‟ (van de Ven, 1986, p. 594). This problem will be discussed in the next section.
2.6.2 The management of attention
This problem engages the limited capacity of human beings to handle complexity and maintain attention. Within this problem, a distinction can be made between (1) physiological limitations of human beings and (2) group and organizational limitations. The first type of limitation concerns limitations of human beings. Most people have very short spans of attention, which is illustrated by the fact that the average person can memorize raw data in short-term memory for only a few seconds.
Memory requires relying on „old friends‟ (Simon, 1947). This means that people link data with pre- existing schemas and world views that are stored in long-term memory. In complex situations, stereotypes are created by individuals in order to deal with complexity. As decision complexity increases, people become more conservative. At this point, they apply more subjective criteria, which are further removed from reality (Filley, House, and Kerr, 1976). Since the correctness of innovative ideas can often not be judged, decision complexity becomes dominant in the decision process. Thus, as decision complexity increases, solutions become increasingly error prone (March, 1981; Janis, 1982).
Moreover, dissatisfaction with the existing situation stimulate people to search for improved conditions (March and Simon, 1958). They cease searching when a satisfactory result is found.
Another problem within this area is found by Helson (1948, 1964). People do not perceive gradual
changes when they are exposed of time to stimuli that change gradually. In this case, they adapt to the
worsening situation. As a consequence, they do not try to correct their situation, since they do not
cross their dissatisfaction thresholds. In the case of innovation, opportunities for innovative ideas are
not recognized and the problems become worse. These worsened problems are sometimes necessary to
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trigger people to take action, thus reach the action threshold. Janis (1982) indicates that these decision processes result in ideas that are likely to be mistakes, since they are dominated by defense
mechanisms (e.g. isolation or stereotyping). In the case of stereotyping, people use judgmental heuristics to simplify cognitive tasks, which is characterized by using general knowledge to judge a complex situation.
The second type of limitation involves limitations of groups and organizations. Janis (1982) has shown that conformity pressures exist in groups, which causes people to conform to one another without them knowing it. Groups minimize internal conflict and focus on issues that maximize consensus. “Group Think” makes it difficult for groups to (re)consider threatening information, which is inherent with most innovative ideas (van de Ven, 1986). Secondly, van de Ven (1986) states that organizational structures and systems are meant to sort attention. Older and larger organizations are more likely to have a large repertoire of structures and systems which discourage innovation. In these older and larger organizations, structures and systems focus organizational participants to routine, not innovative activities. Starbuck (1983) calls these structures and systems “action generators”, which maintain existing organizational practices. They make organizational participants inattentive to environmental developments and the need for innovation.
2.6.3 The management of part-whole relationships
Management of innovation can be seen as managing increasing bundles of transactions (deals or exchanges that tie people together within the organization) over time (van de Ven, 1986). This is because innovation is a collective achievement. A proliferation of people becomes involved in the innovation process, who have different skills, resources and interests. This means that a single idea proliferates into multiple ideas because people have different „frames of reference, or interpretive schemas, that filter their perceptions‟ (van de Ven, 1986, p.597). These different frames of reference are amplified by proliferating transactions or relations among people and organizational units that occurs as the innovation discloses. A solution to a problem in the form of an idea often results over time in a web of complex and interdependent transactions among the parties involved.
Besides these transactions, a proliferation of functions and roles exists that manages this complex and interdependent bundle of transactions in the institution that houses the innovation (van de Ven, 1986). Specialists are often qualified to perform unique parts and these specialized parts are
subsequently integrated into a whole. The objective is to make the whole greater than the sum of its parts with an organizational design that develops synergy in managing complexity and
interdependence. A problem is that the whole is often not greater than the sum of its parts (Hackman,
1984). An illustration of this situation is given by Peters and Waterman (1982). They give an example
of a product innovation which required 223 reviews and approvals among 17 standing committees to
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develop it from concept to market reality. They indicated that every action within this process made perfectly sense.
2.6.4 Institutional leadership and innovation context
Innovation is a „network-building effort that centers on the creation, adoption, and sustained implementation of a set of ideas among people who, through transactions, become sufficiently committed to these ideas to transform them into “good currency” „ (van de Ven, 1986, p. 601).
Furthermore, he explains: „this network-building activity must occur both within the organization and in the larger community in which it is part. Creating these intra- and extra organizational
infrastructures in which innovation can flourish takes us directly to the strategic problem of
innovation, which is institutional leadership‟ (van de Ven, 1986, p. 601). Institutional leadership can be defined as leadership within an institution, which can be an organization, but also a larger
community. This problem area points to the problem for institutional leaders to manage the creation of intra- and extra organizational infrastructures.
The extra organizational infrastructure (context) includes the environment of an organization, such as society, but also the industry in which the innovation is located. Aldrich (1979) and Erickson and Maitland (1982) indicate that, in order to understand the societal (demographic) characteristics that facilitate and inhibit innovation, a broad population or industry purview is needed. Besides this purview, innovation is a reflection of the amount of support that an organization can draw from its environment. Intra organizational infrastructure refers to the organizational context, such as the culture, organizational strategy, structure, and systems. Institutional leadership is decisive in creating an organizational context that fosters innovation.
But what is the role of institutional leadership within innovation? Innovation involves alternative ways of doing things, which means periods of development and transition. During these periods, the role of institutional leadership is to create the organization‟s character or culture (Selznick, 1957). This role includes four functions. The first function concerns the definition of an institutional mission and role, which is a self-assessment to discover the commitments of the organization, as set by internal and external demands. The second function is the institutional embodiment of power. Policy must not only be made, but it must also be build in the social structure of the organization. This means that it needs to be sensitized into ways of thinking and responding, so that policy will be executed. The third function involves the defense of institutional integrity. This function is about maintaining values and distinctive identity, instead of sheer survival. In the process of creating the organization‟s character or culture, an organization needs to develop distinctive competences. These are an „aggregate of
numerous specific activities that the organization tends to perform better than other organizations
within a similar environment‟ (Snow and Hrebiniak, 1980, p. 317). Finally, the fourth function is the
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ordering of internal conflict. Selznick (1957) states that „the struggle among competing interests always has a high claim on the attention of leadership‟ (p. 63).
2.7 Contribution of scenario analysis to (the front-end of) new product development After identifying problem areas for the front-end of new product development, we will review the literature to look for the contributions that scenario analysis
3can make to the (front-end of) new product development. Literature that describes this contribution is hard to find, which indicates that this research area needs to be further explored.
Ideas and opportunities are important elements of the front-end of new product development (see figure 2.3). The arrows pointing at the “opportunity identification” and “idea generation &
enrichment” phases (from outside the model) indicate that an interaction takes place with the environment. This might also the reason why relevant literature in this section points to these two phases. Please note that the authors who are referred to in this section use different names for scenario analysis. From their explanations of this concept, it can be concluded that they point to the same process.
2.7.1 New product opportunities
Most of the scenario literature that explains possible contributions of scenario analysis to the new product development process, highlights scenario analysis to be supportive to the identification of new product opportunities. Daum (2001) compares investing in innovations to investing in stock options.
He states that, the higher the risk, the higher the possible return. If the risk (which he considers as a downside) can be limited, the value of a stock option increases exponentially. Another way to increase value is identification of sudden opportunities. Daum (2001) considers scenario analysis as a possible powerful technique to limit risks from external influences and to identify future opportunities. This is confirmed by Lee Gilbert (2000), who argues that scenarios facilitate learning at low real and
opportunity costs by identifying major opportunities, threats and uncertainties. Cooper, Edgett and Kleischmidt (2002) consider scenarios as a way to „arrive‟ at new product opportunities. They recommend to restrict to the discussion to scenarios that are relevant for the business, and deal with the external environment . Koen et al. (2002) recommend techniques (such as market research, trend analysis and involvement of customers) to optimize each element of the front-end of new product development (figure 2.3). Multiple views of the future that are created by using scenario development will yield insights into the future environment, which helps organizations to determine which
3 Please note that scenario analysis is only presented here as one possible method to create insights in the future.
Other techniques, such as the Delphi-technique (Postma et al., 2007), however, are outside the scope of this research and are therefore not included.
