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BSTRACTThe last couple of years there has been a lot of fuzz about the Fuzzy Front End of product innovation. This is the first phase of New Product Development and here hard decisions need to be made about the products to be developed. In this article research into the best way to identify promising product-market combinations in the Fuzzy Front End is presented. There are several models that describe a process for New Product Development, but none of them addresses the Fuzzy Front End and the activities to be performed in the Fuzzy Front End sufficiently. From a theoretical point of view the New Concept Development model combined with lateral marketing is the solution for identifying promising product-market combinations in the Fuzzy Front End.
General Electric Plastics uses the CECOR model for identifying product-market combinations. This model is suboptimal and the combination of New Concept Development and lateral marketing can improve the CECOR model in several ways. Interviews with employees that work daily with the CECOR model have been conducted. The improvements were discussed as well as the question whether New Concept Development and lateral marketing are to be considered better in identifying promising product-market combinations. It surfaced that the activities and the non-sequential nature of the NCD model should be taken account of when trying to identify promising product-market combinations. Furthermore, lateral marketing can generate ideas properly, but it should be used on an application or end-user level.
1.
INTRODUCTION
The first phase in New Product Development (NPD) is the phase where decisions need to be made with respect to the products to be developed. This decision-making is hard while there are a lot of possibilities and parameters to be considered at the front end of innovation. The main question in this phase is which opportunities to select and which to discard: how to identify only promising product-market combinations (PMCs).
Searching for PMCs is a typical first step in New Product Development (NPD). There are several models for New Product Development in scientific literature. However, these are not good for the identification of PMCs. In the NPD models, the first phase of NPD is not very well documented. Within the context of the search for PMCs, it is interesting to examine which way of identifying PMCs is the best one. The main research question is thus: What is the best way to identify promising product-market combinations?
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Figure 1 Development funnel
discussed and thereafter compared to the models originating from scientific literature. Possible inconsistencies and flaws will then surface and they will be the starting point for the fieldwork. Next, the contact with the real world is considered: the way the data are collected will be examined. With these topics covered, data can be gathered and conclusions can be drawn. The questions to be answered to verify the conclusion to the research are:
1. What models can be identified in scientific literature?
2. Which model does the company use to identify promising PMCs currently? 3. Which improvements can be made to this model using the scientific literature? 4. What is the judgment on these improvements?
The structure of this paper will reflect the research design. In the second section the theoretical background will be considered. The current model of the company will be the subject of the third section. The fourth section will discuss the analysis of the models and the improvements. Hereafter the validation of these improvements is considered: the research methodology and the results are the subject of the fifth section. The conclusions and recommendations finalize this article.
2.
THEORETICAL
BACKGROUND
The NPD process is described in numerous ways and the process the ideas or product-market combinations go through is described in the development funnel in Figure 1. After a lot of ideas are considered, some are chosen to develop further. Before this development can be started, a lot of decisions have to be made on which opportunities to follow and which to discard. This part of the process is known as the Fuzzy Front End (FFE, mentioned by Khurana & Rhosental 1997, 1998; Koen et al. 2001, 2002; Van Aken, 2004): the funnel part of Figure 1. This paper will focus on this part of the funnel and the second and third part of the process – the development of the product and the commercialization of the product – will not be considered. In this section, some of the theories on NPD will be reviewed and analyzed to see whether they are applicable in the FFE.
Idea development and testing
COMMERCIALIZATION FUZZY FRONT END
FRONT END
Development
projects Introduced projects
MOUTH
NECK
Preparing project brief Innovative ideas
from customers and marketing,
engineering, R&D, manufacturing, suppliers, alliance
partners etc. GATE 1
DEVELOPMENT
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2.1 Several Models for NPD
There are numerous models in scientific literature for (the description of) NPD. These models will be reviewed for the use in the FFE, but it will become clear that these models are not appropriate. Some do not explicitly consider the first phase of NPD, because they provide no better description of the first phase, others fail to incorporate the special nature of the FFE. The first phase of innovation is the first step in the process of creating a new product-market combination. This phase is characterized by: experimental ‘Eureka’ moments; uncertain commercialization dates and revenue expectations; variable funding; activities of risk minimization and potential optimization; and, finally strengthened concepts as progress measure (Koen et al., 2002). Different authors have built a model for the subsequent phases and activities in the NPD process: Cooper (2001); Crawford & Di Benedetto (2006); Khurana & Rhosental (1997) and Wijnen, Renes & Storm (2004), built a process from a management point of view. Starting in the engineering sciences Pahl & Beitz (1996) and Ulrich & Eppinger (2003) built their models. This list does not claim to be complete, however, these are recent models and all these models are not appropriate for the first phase of innovation.
Cooper (2001) developed his Stage-Gate™ model, which provides tollgates to structure the NPD process. He gives a lot of idea sources and creative mechanisms, but a real ideation process cannot be found in Cooper (1990, 1997 & 2001) or in Cooper, Edgett & Kleinschmidt (2002). Cooper (2001) only mentions an ideation stage at the beginning of his Stage-Gate™ model and he does not elaborate on the tasks to be performed in this stage.
Crawford & Di Benedetto (2006) describe a process aimed at creating Product Innovation Charters. The process for creating these charters is divided in three steps: opportunity identification – opportunity evaluation – filling out the Product Innovation Charter. Crawford & Di Benedetto (2006) conclude that especially the second step is extremely difficult to realize. They do not get passed noting that this step is difficult; a real solution for handling this difficulty is not presented. Still, Crawford & Di Benedetto (2006) give a lot hints as to where one can come up with opportunities. Khurana & Rosenthal (1997) focus on the Fuzzy Front End (FFE) of innovation and
this is a good focus. They have designed a sequential process of steps needed at the front end of innovation. However, they do not grasp the experimental nature of the first phase (Koen et al., 2002) and the consequent non-sequential nature of the model. Wijnes, Renes & Storm (2004) developed phases of a product development project
comparable to the Stage-Gate™ process of Cooper (2001). Wijnes, Renes & Storm (2004) make the same mistake as Cooper (2001): they suggest a really sequential process for managing the NPD. The first phase should be non-sequential (Koen et al., 2002).
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Ulrich & Eppinger (2003) have a very extensive NPD process. They first assess the strategy and try to come up with new product opportunities: the mission statement. Then they want to go into the NPD process, using the non-sequential nature of the front end of innovation. Separating strategy assessment and the iterative development of the product-market combinations in Ulrich & Eppinger (2003) makes the model suboptimal. There is a lot of uncertainty in the first phase of innovation, and one cannot immediately state in which markets a certain opportunity can fit as Ulrich & Eppinger (2003) want to. The ideas should be reconsidered and also reviewed on strategy fit and feasibility; a separation between these steps can end in products that cannot be produced and ideas that cannot be marketed. The front end of innovation in Ulrich & Eppinger is design driven and not focused on the idea generation before the design questions are posed: the first steps are ‘Customer needs’, ‘Target specifications’ and ‘Generate Product Concepts’ (Ulrich & Eppinger, 2003). These are good steps; however in the first stage of NPD, one should not start with the customers and run to the needed specifications. Gruner & Homburg (2000) conclude less significant results for customer interaction in the ideation stage compared to the more concrete product concept development state. They are inclined to come up with incremental improvements, not with innovations. Christensen (1997) suggests that “listening carefully to customers” has a highly negative impact on a firm’s focus on longer-term technological innovations. These innovations offer no apparent immediate benefit to the loyal customer base – exactly what one should expect when trying to discover new markets. Ulrich & Eppinger (2003) have the same focus on the mission at the start as design oriented approach of Pahl & Beitz (1996), but down the road the same strategy fit is not considered anymore. This strategy fit is important in the FFE (Koen et al., 2002).
* * *
All the approaches and models mentioned here have flaws. Some do not consider the special nature of the first phase of NPD; others do not even consider the first phase explicitly. All approaches mentioned miss an explicit account of culture in the models in general and the first specifically. The models (except the model of Khurana & Rosenthal, 1997) are goods ways to structure the development of concepts that are defined already, however, how one should come up with this concept is an unspecified task. There should be a better process to structure the first phase of innovation. In the context of this research, where the first phase of innovation is considered explicitly, another model should be looked for that specifically addresses the first phase. The models mentioned before do not account for the special nature of this phase. The hint for a better model of the first phase of NPD is given by the FFE description of Khurana & Rosenthal (1997, 1998); it is in this paradigm that the solution to the problems should be found.
2.2 New Concept Development
A model that is focused specifically on the first phase of innovation or FFE is that of Koen et al. (2002). This can be the end of the search for a model that describes the first steps in search for PMCs and it should be researched whether it can really do this. This model describes the necessary steps in the FFE and it considers the special nature of the FFE
2.2.1NCD MODEL
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Eppinger (2003) also point at the iterative nature of this stage of NPD. Koen et al. (2002) also point at the fact that FFE is more than one single ideation step. All the models considered are suboptimal, when it comes to the first phase of NPD. The FFE paradigm, however, is worthwhile investigating.
The FFE was poorly described in the NPD models. To overcome this and to establish a common language in the FFE, Koen et al. (2001) developed the New Concept Development (NCD) model. The NCD model is a description of the first phase of New Product Development and it aims to clarify all the different activities that take place in this phase. This could also handle the experimental and chaotic nature of the FFE. Koen et al. (2002) state “The NCD model consists of three parts:
The engine (author’s italics) or bull’s-eye portion is the leadership, culture, and business strategy of the organization that drives the five key elements that are controllable by the corporation.
The inner spoke area (author’s italics) defines the five controllable activity elements (opportunity identification, opportunity analysis, idea generation and enrichment, idea selection, and concept definition) of the FFE.
The influencing factors (author’s italics) consist of organizational capabilities, the outside world (distribution channels, law, government policy, customers, competitors, and political and economic climate), and the enabling sciences (internal and external) that may be involved. These factors affect the entire innovation process through to commercialization. These influencing factors are relatively uncontrollable by the corporation.”
An overview of these characteristics is given in Figure 2. The inward pointing arrows in the model are two possible starting points for the NCD process. The last step is the concept definition: after this step, the concepts leave the FFE and go into the NPD process or the (Technology) Stage Gate process.
Figure 2 New Concept Development model
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The different activities in the inner-spoke area are the ones controlled by the innovator or idea generator. These will now be explained in more detail.
Opportunity identification is where a business or technology gap is created, wherewith it is possible to capture a competitive advantage. Market and technology are assessed to find these opportunities.
The opportunity analysis is a more thorough examination of the opportunities: what are the demands, trends and developments in the market and in technology.
The idea generation phase is where a new product or service is created; a solution for the problem in the opportunity is envisioned.
Idea selection is the moment to choose which ideas should be pursued and which should not.
Concept statements are precise descriptions of customer benefits and technology requirements. This is the last phase of the NCD model.
2.2.2IDEA SELECTION
Some special attention should be given to the idea selection, according to Crawford & Di Benedetto (2006) the most difficult step in the first stage. The ideas should go through the funnel of Wheelwright & Clark (1992) to select only those that are appropriate for the company. In the different models this step is called ‘Strategic fit’ (Crawford & Di Benedetto, 2006) or ‘Idea selection’ (Koen et al., 2002). One of the most effective ways of selecting ideas is portfolio management: regardless of the methods a company uses for new product portfolio planning, it needs to be part of an integrated front-end process (Khurana & Rosenthal, 1997). Koen et al. (2002) also mention portfolio management as the way to select ideas. CECOR does pay attention to portfolio management, but in what way this should be done is not clear. Cooper, Edgett & Kleinschmidt (1998) define portfolio management as the process in which new projects are evaluated, selected and prioritized; it handles the entire product portfolio, as well as making Go/Kill decisions for individual projects. The funnel is created through several portfolio criteria, however, which criteria are important is unclear.
2.3 Lateral Marketing
NCD does give the step for idea generation, and a lot of conditions for successful generation and even some methods are provided. Sill, recently Kotler & Trias de Bes (2003) developed lateral marketing for making and closing the gap between products/technology and markets. Lateral marketing is an approach that explicitly considers markets outside the currently served and/or segmented markets (Kotler & Trias de Bes, 2003). Where a company is explicitly in search for new markets, this approach can secure a new look at the market place and it can also provide opportunities in markets not considered before. It would be good to review whether this technique can add something to the already proposed methods. Based on the analysis of the innovations in this research and a description of lateral marketing, it will be clarified that it really can add something to the innovation process.
2.3.1TYPE OF INNOVATIONS
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the customer and a strong market orientation, especially in the early stages”. Other authors also state the importance of a focus on the customer in the FFE: irrespective of where the opportunities originate – from technology or from the market – when it comes to successful new products, it is the customer who is the ultimate judge (Brown & Eisenhardt, 1995). The focus on markets is part of a marketing approach. The approach Kotler & Trias de Bes (2003) propose, is aimed at market discovery outside the markets that are already served. This approach is thus useful when searching for new markets.
The traditional marketing process is a sequence that starts with identification of needs to establish the persons or situations that can be a potential market; hereafter a market is defined and, based on segmentation, targeting and positioning strategies, markets become fragmented and saturated (Kotler & Trias de Bes, 2003). Kotler & Trias de Bes (2003) point out that this traditional approach results in new products that are only variations on existing products, which means that innovations of this kind will remain within the category or market where the idea originated. The traditional marketing approach is not really suitable for the search for combinations of new markets and old products or combinations of new markets and new products, because they both involve new markets. The traditional or vertical marketing approach can only be valuable for discovering more possibilities of the same idea. The focus of this research is on new ideas and thus another approach should be considered. Complementary to the vertical marketing approach Kotler & Trias de Bes (2003) developed lateral marketing. This approach specifically focuses on the creation of ideas in new markets.
2.3.2DESCRIPTION OF LATERAL MARKETING
The description of the lateral marketing approach in the next three paragraphs is based entirely on the work of Kotler & Trias de Bes (2003). The main goal of lateral marketing is to come up with new product-market combinations in new markets. The process is based on lateral displacements, which are interruptions in the middle of a logical thought sequence. This results in provocative ideas. Lateral marketing explores the needs and opportunities discarded by vertical marketing: new markets and categories are created. There are four steps in lateral marketing:
1. Choose a product or a service
2. Select the level of the vertical marketing process a. Market level;
b. Product level;
c. Rest of the marketing mix level.
3. Provoke a lateral displacement for generating a gap 4. Think about ways to close the gap
The first step is the selection of a product or a service from which the lateral marketing process should start. This seems a bit odd, because marketing is used to start with the customer preferences, however for a creative process like this one, it is wise to start with something concrete. Product selection can be based on a currently marketed product or on an opportunity from the competition. The level of the vertical marketing process for this chosen product affects the outcome of the lateral marketing process. Operating on the market or product level will result in new markets and categories, while operating on the ‘rest of the marketing mix’ level will result in subcategories. The rest of the marketing mix does not need consideration in this research; it delivers new subcategories, which is another way of saying that that the rest of the marketing mix delivers another segmentation in existing markets.
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technique on market level. For example a need substitution is making soft drinks to stimulate one’s energy instead of quenching one’s thirst (Red Bull); an experience substitution is placing the activity of taking risks into sports resulting in bungee jumping and skydiving. A change of a dimension means a gap is created, and the best way to connect this gap is to follow the purchase process step by step. On the product level the product should be decomposed into different characteristics in order to change on of those characteristics by lateral displacement. One can change anchors (essential product characteristics) or accidental elements. Six techniques are available for changing characteristics: substitution, inversion, combination, exaggeration, elimination, reordering. For example the inversion of home delivered pizza: just-cooked pizza changed into non-just-cooked pizza, which led to the frozen or refrigerated pizza. Instead of ordering a pizza at a pizzeria and waiting for it at home, making a pizza yourself in your home was possible. New markets opened for pizza manufacturers.
The final step in the process is the closing of the gap. Three different techniques are appropriate for this step: (1) the already mentioned following of the purchase process, (2) extracting the positive and (3) finding a setting. Following the purchase process means imagining a hypothetical buyer, letting this buyer run through the process, reporting every valuable idea along the way and using it to connect the gap in the end. Extracting the positive means looking for positive aspects in our impossible lateral displacement and using that positive aspect as a new product or service. Finding a setting is exactly what is says, finding a setting where the lateral displacement works and adjusting your product or service to the needs of that setting. An example might enhance the understanding of lateral marketing. In Figure 3 the examples already mentioned are being shown.
2.4 Combination of New Concept Development and Lateral Marketing
The innovations from lateral marketing are the result of connecting two ideas, which, in principle, had no apparent or immediate connection (Kotler & Trias de Bes, 2003). They will thus fit the definition of Reid & De Brentani (2004). Lateral marketing will deliver the innovations that are asked for in this research: new market–old product – and new market– new product combinations. The examples in Figure 3 show the shift towards a complete new market.
Within the NCD model the first step is the identification of an opportunity or the generation of an idea (Koen et al., 2002). Lateral marketing is able to come up with either of
Figure 3 Lateral marketing examples: a. On market level; b. On product level
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these elements. An opportunity in the sense of Koen et al. (2002) is: “A business or technology gap, which a company or individual realizes, that exists between the current situation and an envisioned future in order to capture competitive advantage, respond to a threat, solve a problem, or ameliorate a difficulty.” The gap created by a lateral displacement (Kotler & Trias de Bes, 2003) could not have been described better. An idea is according to Koen et al. (2002): “The most embryonic form of a new product or service. It often consists of a high-level view of the solution (idea) envisioned for the problem identified by the opportunity.” The closing of the gap is making a new connection between a product and a market (Kotler & Trias de Bes, 2003). This connection is the solution for the gap introduced by the lateral displacement or opportunity. Lateral marketing is also a good way of ensuring the necessary non-sequential nature of the process (Koen et al., 2002). Putting possible gaps and connections to the test within a company, makes sure that every idea is reviewed and new opportunities are added. Lateral marketing is a fruitful approach to support the NCD model, especially in the Idea Generation step. Furthermore, lateral marketing can also be a way to realize the proposed technological and market assessment: by looking for new markets or for new products or product capabilities, market and technology are assessed. Lateral displacements are new markets or new product capabilities. Lateral thinking is also a good way to come up with new opportunities (Koen et al., 2001). Combining the strengths of both models into a single model should result in more and better ideas (NCD) and in more ideas generated in new markets (lateral marketing).
2.5 Theoretical substantiation
Although there is no other comprehensive model for the first phase of NPD, the academic literature does suggest a lot of necessary elements for this phase (overviews can be found in Cooper, 1997 and of course in Koen et al., 2002). To decide whether a combination of the NCD model and lateral marketing has the elements
the literature views as essential, these should be reviewed. The model should be judged to see whether these elements are part of the model. Elements that should be part of the first phase of NPD are assessments of technology and market (Cooper, 1990; Wheelwright & Clark, 1992; Khurana & Rosenthal, 1997). Some form of strategy input can realize the funneling effect. Strategy is called by many names, by just as many authors: strategic planning (Cooper, 1988); strategy (Cooper, 1999); strategic fit (Crawford & Di Benedetto, 2006); product and portfolio strategy (Khurana & Rosenthal, 1997); and, technology – and product/market strategy (Wheelwright & Clark, 1992). Next to the market analysis, context variables can change – e.g. changes in the environment. These should be incorporated in the first phase of NPD, while they can be an important source of opportunities and ideas (e.g. regulation in Crawford & Di Benedetto, 2006). Also technological turbulence can have
an effect on NPD program performance (Calantone, Garcia & Dröge, 2003). Mansfield & Wagner (1975) already stipulated the integration of R&D (technology) and marketing (markets). Cooper (1988) states that activities like idea generation and idea screening should be part of the predevelopment activities. Opportunity identification & selection (Crawford & Di Benedetto, 2006) and some form of concept statement (Khurana & Rosenthal, 1997) are inevitable. A business assessment – where preliminary financial, risk and legal assessments are being carried out – is another important element of the predevelopment activities (Cooper, 1997). Organizational capabilities do have an effect on NPD, according to Kusunoki, Nonaka,
Figure 4 Essential
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& Nagata (1998). Furthermore, Koen et al. (2002) mention that the organizational capabilities determine whether and how opportunities are identified and analyzed, how ideas are generated and selected, and how concepts and technologies are developed. A clear overview of the essential elements – as mentioned in the literature – for the first phase of NPD is given in Figure 4.
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The inner spoke area consists of five elements a company can control in the fuzzy front end (Koen et al., 2002). The essential elements should fit in this part of the NCD model; this part consists of the explicit steps for NPD. Technological and market assessments and a context analysis are typically part of the opportunity identification and selection steps in the NCD model. Idea generation and screening are the idea generation and enrichment step in NCD. The organizational capabilities are part of the influence factors. Part of the engine of NCD is strategy. Furthermore, strategy and business assessment are part of the idea selection step. Concept statement is the way to leave the NCD model. Lateral marketing is a way to perform the opportunity identification and the idea generation and screening: the closing of the gap is making a new connection between a product and a market (Kotler & Trias de Bes, 2003). This means that the combination of the NCD model and lateral marketing does incorporate all the necessary elements mentioned in the literature. Next to this theoretical substantiation this combination should be fit to identify promising PMCs in new markets.
3.
CECOR
General Electric Plastics (GEP) is a leading global manufacturer and distributor of plastics resins and this research has been conducted in their facility in Bergen op Zoom, The Netherlands. The goal for GEP is to accomplish an organic growth of eight percent each year. One of the approaches GEP uses to grow in spite of the bad economic forecasts is a marketing approach. The Industry Marketing department is organized in market segments, in which the company invests. To explore these market segments, GEP developed the CECOR model.
GEP has a focus on growth and the main question guiding the development of the CECOR model, is: ‘How to teach the entire company to think about growth?’ GEP wanted to know what questions one should ask and what things one should consider during the annual review of strategy. The company needed a tool that supported the development of programs that were able to deliver growth in the future: the process should create and sustain growth.
There was a focus on redefinition of the boundaries – e.g. going from five percent to eight percent growth – and on protecting idea funding.
Furthermore, the customer profitability and satisfaction should be incorporated into the process.
Finally, the culture should move from one focused on execution excellence to one that is more growth-oriented.
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3.1 Description of CECOR
‘CECOR’ stands for Calibrate, Explore, Create, Organize and Realize and in the text it will be referred to as CECOR or CECOR model (see Figure 1). The CECOR model claims to achieve several things. It is:
A roadmap to achieve dual goals:
A strategic process for customer-driven innovation
A commercialization process for the offerings that GE wants to take to market
A discipline that guides all GE businesses through shared marketing practices
A common language to discuss and reinforce marketing initiatives throughout the
organization
A rhythm for the way GE communicates its progress and successes
A validation that new market driven new product or technology introductions will
enable organic growth
Each of the five steps CECOR consists of has a specific focus and CECOR is a tool that consists of questions that will lead you through the marketing process. After the overview of the foci of the steps, an overview of the main questions raised in the subsequent phases in Table 1. Figure 5 depicts the CECOR model.
The calibrate step in the CECOR model is about checking the industry you are in on the wishes of the customers in that industry.
Explore is about the systematic investigation of the opportunities in the market place. The marketer has to search for opportunities in his market segment and determine their attractiveness.
Creation means to cause into existence and to produce through artistic or imaginative effort: idea generation and selection. Here the technological feasibility will be assessed as well.
With the organize step the innovation process becomes more concrete in the sense that the resources are aligned to make the innovation reality.
Realize is exactly what it states. The result is achieved and everybody needs to understand the influence of the innovation.
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Phase
Questions
Where are you?
What is our business? Who are the customers?
CALIBRATE
What do are customers want/need/prefer?
How might you change the status quo?
What are our avenues of growth?
EXPLORE
How do customers make money?
What are your best ideas?
What are our best ideas?
CREATE
What is the customer value?
How will you deliver the offering most effectively?
Have you aligned your resources?
ORGANIZE
Are you collaborating with customers?
How do you measure and reassess your impact?
What is your revenue and income plan?
REALIZE
How will you measure customer and GE impact?
The first three steps in the CECOR model are characterized as strategy: which market segments should GEP penetrate? The last two steps are the execution of that strategy: the commercialization phase. In the model are furthermore the departments mentioned responsible for the execution of the different steps. The first three steps are to be performed several times to improve the results. After these steps the process becomes a sequential process very fast. A tollgate process has been developed for the last two steps, which is functioning for a long time in the organization. CECOR is merely developed as a total framework, incorporating the (old) tollgate process. The really new features are the first three steps in CECOR. It is a process that supports the innovation in strategically chosen industries – e.g. Healthcare or Transportation. Within these industries, the opportunities can be identified fairly well. The innovation process that follows after the ideas are validated – in the create step – is sequential in nature.
3.2 Challenges
The CECOR model claims to provide a roadmap for (the first phase of) innovation. There are shortcomings to the model. As one of the employees said, one of the GEP’S challenges is the identification of opportunities in the market place: trends are not always picked up and reacted on. Another challenge in the innovation process of GEP is that GEP finds it difficult to identify whether an opportunity is worth pursuing or not. Why a certain market or development is attractive or not is hard to come by.
The focus of the people responsible for developing applications in markets is mostly on existing markets. The opportunities they react on are mostly in the first and second quadrant of the product development matrix (inspired by Cross, 2000) and less in the third and fourth quadrant (see Figure 6). The industry marketers are engaging in application
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development in new markets (fourth quadrant of Figure 6); however, their new markets are set. They need to stay within their segment. This means some growing markets are not even considered. The focus of this paper on new markets justifies a new approach to identifying these markets. These improvements are all in the first phase of innovation: the ideation phase (Cooper, 2001).
* * *
CECOR is a way to structure the NPD process form front end to the realization of the innovation on the
market place, but it does not realize all it sets out to do. The first two steps explicitly focus on the (unmet) needs (‘Calibrate’) and avenues of growth (‘Explore’) in specific industries. The customer profitability and satisfaction is ensured by the fact that the employees have to consider the customer in every step of the
CECOR model.
However, not all opportunities are picked up and reacted upon. Not all industries and markets are considered and the model as a whole should support the culture move, but it lacks a real consideration of the culture in GEP. It would be good to see whether this model really is the best way of achieving success in this first phase by comparing it to scientific literature that claims the same.
4.
A
NALYSIS
4.1 NCD and CECOR
CECOR incorporates the first steps of the innovation process and the next steps of the tollgate process. It combines the efforts of NCD and Stage-Gate™ in one. The focus is on the first phase of innovation, so the first three steps of the CECOR model are interesting to compare to NCD. These three steps compare to the steps in the NCD model. The calibrate phase corresponds to opportunity identification and it has a strategic component: what type of industry should GEP be in? Exploration means examining the opportunities and see where growth opportunities arise. This is a mixture of opportunity identification and analysis in the NCD model – with the opportunities being business or technology gaps (Koen et al., 2002). Creation compares to idea generation, selection and concept definition taken together. Both models have a non-sequential nature; however a marketer in the CECOR model is restricted to one industry, while NCD does not have such a restriction. Sticking to only one industry is a strategy decision and it would be interesting to see whether deviation from this strategy can be fruitful as well. The CECOR model takes into account a lot of the influence factors: trends, customers and competitors. The match between technology and markets (Mansfield & Wagner, 1975) is considered very late in the CECOR model – it is the last question in the create step –, while NCD considers it in the first step. Technology does not seem to be an important factor in the FFE at GEP. The selection of the ideas is an important part of CECOR,
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but what the criteria exactly are is unclear. The Idea Selection step in the NCD model is necessary for selecting those ideas that create the highest business value (Koen et al., 2001). The last step in the CECOR model is the statement of the PMCs – e.g. in the form of value propositions. The Concept Generation step is exactly that: stating what is the opportunity, what is its size and so on (Koen et al., 2002).
Moreover, the NCD model incorporates other elements, which are not part of the CECOR model. The company as a whole can control the engine, but the marketers in the FFE cannot control it. They need to deal with the factors leadership, culture and strategy. These elements set the environment for the innovation, but their exact role is not clear. Leadership and culture are critical to new product development; however, Koen et al. (2001) were not able to present research that systematically linked them to success in front end innovation. Front-end innovation is defined as the five elements in the inner area of Figure 3. Van Aken (2004) gives a good proposal for leadership in the fuzzy front end. He suggests that a new form of leadership serves the FFE: a type 2 management regime. This management regime is a balance between (Van Aken, 2004): “free and undirected exploration of new ideas on the one hand (the type 3 management regime) and the formal, tightly managed mainstream development (the type 1 management regime)”. Examples of type 1 are a stage gate way of managing and in the R&D department a management style like type 3 can be found. However, Van Aken (2004) does not present any evidence of this statement besides the theoretical foundation. Furthermore, there are hints of a linkage between culture and innovation – an example of a pilot study in the pharmaceutical industry can be found in Doorabjee, Lumley & Cartwright (1998). The link, however is not established very well, so both leadership and culture are interesting parts to review in this research.
Strategy runs through the CECOR model (e.g. industry selection) and through the NCD model as well; however, the exact role of strategy in both is unclear. McGrath & Akiyama (1996) and Cooper (1999) state that strategy should be part of NPD and Khurana & Rosenthal (1998) mention that strategy is well integrated in the FFE of successful companies. Collins & Porras (1994) however, state that deviating from the strategy may lead to successful ideas as well. Successful projects have constancy of purpose combined with aggressive, focused goals (Koen et al., 2002). What kind of strategy input is required is also an interesting topic.
* * *
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Considering technology in an earlier stage, like in the NCD model, can improve the results of CECOR. The flow the ideas have through the different elements of the NCD model will improve the ideas as well. NCD is aimed at providing a clear definition of the market and technical requirements as early as possible, which can save a lot of time and money in later stages of the NPD process, because there is a smaller chance for redo activities (Koen et al., 2002). With better ideas the capability to judge whether a certain idea is worth pursuing is supported. Explicitly considering the engine – leadership, culture and strategy – can complement the process in the FFE, but their exact role is to be researched. The challenges GEP faces in the innovation process can be addressed using (features from) the NCD model. This results in the first proposition in this research:
P1: Using the NCD model will result in more and better ideas than by using the
CECOR model.
4.2 Idea selection
Portfolio management has three goals: (1) maximizing the value of the portfolio, (2) balancing the portfolio and (3) linking the strategy to the portfolio (Cooper, Edgett & Kleinschmidt, 1998). Urban & Hauser (1980) describe six desirable characteristics on design and marketing of new products: potential, scale/share, input, reward, penetration and risk. What goal and which criteria are important for the FFE is unclear: these should be examined. Cooper, Edgett & Kleinschmidt (1998) mention that portfolio management is not always included in the first phase of NPD, due to the high uncertainty of the financial figures. Whether portfolio management is used in the first phase should be examined as well. The second proposition here is:
P2: The role of portfolio management in the first phase of NPD is smaller than in the
rest of the NPD process.
4.3 CECOR and Lateral Marketing
Lateral marketing focuses explicitly on new markets and it is an idea generation tool, where CECOR has a focus on set new markets and it is a broader tool than just idea generation. The main advantage of lateral marketing is that it has no boundaries on what to investigate and that is has specific steps to ensure the discovery of new markets. Since lateral marketing aids specifically with the search for ideas in new markets, it can be a good addition to CECOR. CECOR incorporates all the steps needed for innovation, but it does not specify how to come by ideas. This is exactly where lateral marketing can add value: it is an idea generator.
Making lateral displacements is providing opportunities for innovation, which means new products and new markets can be connected. Closing the gap is comparable to the matching of technology and market as Mansfield & Wagner (1975) state. It can be a good way to come up with new markets, and it should be researched whether it can yield improvements to CECOR. The framework and the specific elements should be subject to judgment. And the idea generating capability of lateral marketing should explicitly be judged: does lateral marketing result in more ideas in new markets? The third proposition is:
P3: Using lateral marketing will result in more ideas in new markets than the
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4.4 Summary
In summary we can state that there are several ways to structure the first phase of NPD. GEP handles the first phase of NPD using the first three steps of the CECOR model. The NCD model and lateral marketing can both yield important improvements to the CECOR model. NCD resembles CECOR in several ways, but it goes beyond CECOR in a number of ways – e.g. the earlier examination of technology and it is more open to all types of developments. Lateral marketing can also help to identify new markets. In a joint approach they can even be more successful, while the important elements according to the scientific literature are there. The last proposition for this research will be:
P4: A combination of NCD and lateral marketing will result in more and better ideas
in new markets than using only one of both approaches.
The items to be researched in this research are the described improvements and differences with the CECOR model. First of all the coherence of the NCD model and lateral marketing is to be researched: are all important elements really there and is this a good way to structure them? Technology as a driver or follower in innovation is another subject, as are the role of leadership, culture, strategy, portfolio management and the non-sequential nature of NCD. The propositions about the performance of the models – separately and jointly – should also explicitly be measured and the use of CECOR within GEP, finally, is an interesting subject as well. Researching these elements can result in improvements to the way the Fuzzy Front End is structured in GEP. The next section will discuss the way the actual research is performed. This leads to the following research subjects:
The coherence of NCD and lateral marketing Technology in innovation
The role of the engine
The role and criteria of portfolio management The effect of the non-sequential nature of NCD The performance of the models
The use of CECOR within GEP
The research subjects are now clear, so now the second part of confronting the theoretical analysis with reality. The next section will discuss the way the actual research is performed.
5.
METHODOLOGY
The theoretical part of this research is finished; next the practical part will be discussed.
5.1 Data collection
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Qualitative information gathering can be well served with the interview, being one of the most powerful techniques in the qualitative research (McCracken, 1988). So first of all, qualitative interviews with 8 employees were conducted, to find out which characteristics are the most favorable. The main question in the interviews is whether a specific model supports the quality and quantity of the ideas generated. The employees working in the FFE for GEP are the experts to judge whether the models are better or worse than the CECOR model. Originally, the research was planned on a larger group of interviewees, but the interviewees in this group clarified not to have any knowledge of this type of models. This meant searching for another group of interviewees, and these could fortunately be found in the company. In addition, the author of this paper was responsible for search for promising PMCs during this research. This experience provided the author with direct knowledge and information (observations, documents) with which the accuracy of the empirical analyses in this case study could be enhanced. Using these information sources, a judgment about the proposed new method can be given.
The interview is built up according to the criteria mentioned by Baarda & De Goede (2001) and considering the remarks on validity and reliability of Kirk & Miller (1986). The questionnaire for the interview was designed with the aim of avoiding bias and to ensure adequate reporting within the frame of reference of the study (Brenner, 1985). Every item mentioned at the end of the Theory section is part of the interview guide, to ensure the completeness. The structure adopted minimizes bias through the pre-specification of directive questions. Such preconditioning reduces the tendency to resort to unplanned, non-neutral probes whilst in the field (McCracken, 1988). The interviews were carried out considering the remarks of McCracken (1988) and Schamberger (1997) on positive attitude and the non-obtrusive nature of the questions. The questionnaire itself can be found in Appendix 1.
5.2 Analysis
The interviews in this research are semi-structured: the questions were predetermined, but the interviewer is permitted to ask for clarification during the interview. Griffee (2005) links this type of interview to an analysis using the following steps, as described by Miles & Huberman (1994). This approach is used in this research and it consists of five steps:
1. Transcription of the interview
2. Reading the transcripts several times over a period of time to familiarize oneself with what is being said.
3. Coding of the interviews, which means reading the transcript until certain themes become apparent.
4. Write a summary of the coded data. One should write the code on a separate piece of paper (or word processing document), and under each code list what the respondent said.
5. Write an interpretation, which not only summarizes but also ties together the themes and forces the valuator to say what it all means.
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6.
RESULTS
6.1 Summary of the coded data
In this section the results of the interviews are represented. The percentages refer to the number of interviewees that agreed on a certain proposition: 100 % being all eight interviewees, 87.5 % being seven interviewees and so forth. First the comments on the NCD model are explicated, after which lateral marketing is discussed and finally the remaining results are mentioned.
6.1.1NCD
The NCD model was the first to be discussed in the interviews. In Table 2 the results for the interview items on NCD can be found, every item has some propositions and a percentage of respondents that agreed on that proposition attached. The propositions with an indentation tell something about the additional remarks made by the respondents that agreed on the proposition directly above. The percentage mentioned has the same meaning as the other percentages, e.g. 12.5 % means that one interviewee agrees on this proposition.
Proposition
Percentage
NCD elements
The elements of NCD are sufficient for the FFE 100
Opportunity Analysis and Idea Selection can be combined 25
Non-sequential nature
The non-sequential nature is positively correlated to success in the FFE 87.5
No judgment on the non-sequential nature 12.5
CECOR can be more non-sequential 50
Idea generation capability
NCD generates just as much ideas as CECOR 50
NCD generates more ideas than CECOR 25
NCD generates less ideas than CECOR 12.5
No judgment 12.5
Starting point of innovation
Market need is the starting point for innovation 50
Innovations start with technology (50%) or market need (50%) 50
Strategy
Wavering from the strategy is good 50
GE wavers too little from its strategy 12.5
No judgment on the wavering from the strategy 50
Leadership
Leadership in the FFE should be a mix of freedom and tollgates 75 Leadership in the FFE should use a more tollgate like approach 25
Goals in the FFE
It is effective to use aggressive goals in the FFE 100
It is hard to decide how aggressive the goals should be 62.5
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The overall judgment was positive: the elements and the non-sequential nature are good for the FFE. CECOR can be improved with respect to the non-sequential nature. The judgment on the idea generation capability was not unanimous. The interviewee that could not judge the idea generation capability judged NCD as a good way to structure the FFE.
When talking about the role of technology, the starting point of the innovation process came up. The recent meager results of technology push are explained by the knowledge shift from GEP to the OEMs, according to one interviewee. The OEMs have much more knowledge of the products of GEP and the competitors than they used to and the OEMs are thus far better equipped to withstand forced new products and only select those products they
really need: a start with a market need is inevitable. The strategy is according to 50 percent of the interviewees the direction or segment higher management gives you. The judgment on wavering from the strategy was ambiguous.
The culture elements that should attribute to the success in the FFE are: the ability to take risk and the will to innovate; the size and resources of GEP; a culture of growth (having external focus, clear thinking, imagination, inclusiveness and expertise); creativity; and accountability. In Figure 7 the support for these elements is depicted. While discussing the role of strategy and culture the big antitheses between short-term and long-term developments in the company came surfaced. 50 percent of the interviewees mentioned that it was a real
challenge to go up against the so-called quarter close culture in the company. The global marketing department is embedded in a regional structure; the marketing part of the company is focused on long-term developments, while the regional part is focused on generating sales on the short-term.
The criteria for the selection of ideas were diverse: market size; profit; growth; validation; comparison to the competition; making a unique product and technical feasibility. Figure 8 gives an overview of the support of these criteria. The goals mentioned for the entire portfolio of ideas or programs were: growth; revenue; contribution margin; profit and
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positioning new products. Figure 9 depicts the support for these criteria. Some interviewees mentioned more than one criterion.
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6.1.2LATERAL MARKETING
Table 3 summarizes the results of the lateral marketing part of the interview. The remarks made in the above section on Table 2 also apply in Table 3.
Proposition
Percentage
Starting point
Starting with a product to get ideas is good 75
Starting with a product to get ideas does not work 25
Changing characteristics of markets and products
Changing these characteristics can help to envision new opportunities 100
Gap closing techniques
It is useful to review these techniques when trying to generate ideas 50 Only 20 % of the ideas can be generated by these techniques 12.5
No judgment on these techniques 50
There were three different judgments made on the idea generation capability of lateral marketing: ‘Lateral marketing is a good way to structure idea generation’; ‘Lateral marketing is comparable to CECOR’ and ‘Lateral marketing can be good, but only in more end-user focused situations (see Figure 10).
6.1.3REMAINING RESULTS
The remaining results are summarized in Table 4, where the remarks on the results table in the NCD also apply.
Proposition
Percentage
Combination of NCD and lateral marketing
This is a good combination 75
Lateral marketing fits the idea generation step of NCD exactly 25
Starting with a product to get ideas does not work 25
Usage of CECOR
CECOR is not the only tool I use 62.5
CECOR is merely a reporting tool 25
CECOR is merely a toolbox 25
Table 3 Lateral marketing results
Figure 10 Lateral marketing judgment
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CECOR improvements
The focus of CECOR is too much B2C, adapt CECOR to B2B situations 25 Clarify the timeline of CECOR: how much time should every activity take? 25
Change CECOR into a measurement tool 12.5
Miscellaneous propositions
Solve the miscommunication between Marketing and Technology 12.5 Make CECOR more non-sequential by assigning more resources to a project 12.5
Enhance personal contact to create better ideas 12.5
What is the influence of such a model on the ideas that are generated: is it that important to know all the steps, or is it merely a matter of getting the right
people together? 12.5
6.2 Interpretation
The NCD seems to be a good representation of the activities necessary in the Fuzzy Front End. With the NCD model the FFE can be structured quite reasonably and the performance of this model is generally spoken comparable to the CECOR model. A feature that stood out was the non-sequential nature, which supports the FFE. For the CECOR model this includes an improvement. With a more non-sequential nature, the CECOR model can perform even better. As a starting point for innovation the employees mostly consider the developments in the market as a starting point, while it used to be more equally distributed between market and technology innovations.
The engine of the NCD model is where some new insights have surfaced. The strategy is mainly a high level guideline in the FFE on in which market one should invest and some wavering can certainly be fruitful. Cultural elements that support the FFE are the possibility of taking risks and the resources available for a marketer or innovator. A theme that surfaced on the brink of strategy and culture is the distinction between short-term and long-term. The local management keeps asking when they can see some revenue coming from the long-term projects. This is a big issue, when should the ideas in the fuzzy front end enter a more revenue directed tollgate process? It is hard to decide when to kill a program, also because it is hard to restart a ‘killed’ project. Still, an aggressive or stretch goal at the end of the project supports the developmental activities, but it is difficult to exactly decide what such a goal should be for a certain project. The leadership should be somewhere between the freedom of the R&D department and the structured tollgate process: the tollgates in the FFE should be fuzzy.
The ideas are subject to a range of criteria, but the financial criteria – market size, profit – are the most important. In the portfolio management this is not different: growth, revenue contribution margin and profit are the main drivers for the portfolio. None of the interviewees could state whether the criteria became more stringent towards the end of the innovation process. Through the tollgate process that is applied after the first three stages in the CECOR model, the process becomes more rigid and the gates need to be passed. Still, the first phase of CECOR is difficult because the question is constantly whether a certain project fits the strategy of GEP and whether the project has enough positive prospects. The criteria are used throughout the first phase and there is no evidence for a distinction between a first and a second screening as Kim & Wilemon (2002) state.
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marketing should furthermore not be the only technique used in the FFE. A combination of NCD and lateral marketing can furthermore be good, especially when lateral marketing is used near end-users and as an input to the idea generation step in NCD. The new models can improve CECOR by adding new insights to the idea generation process. Other insights determined that CECOR should be adapted to the specific industry and that a better description of the time necessary for the activities should be produced.
7.
CONCLUSIONS
AND
RECOMMENDATIONS
7.1 Conclusions
The Fuzzy Front End is the first phase of the New Product Development or innovation process, wherein hard decisions about innovations need to be made. In this paper the structure of the Fuzzy Front End was assessed: What is the best way to identify promising product-market combinations? Scientific literature did not seem to address the first phase of innovation explicitly, until the New Concept Development model of Koen et al. (2002) and lateral marketing of Kotler & Trias de Bes (2003) were developed. These models address the specific needs of the Fuzzy Front End. The current model of General Electric for the identification of PMCs is the CECOR model, but this model is suboptimal. Based on interviews with employees of General Electric the improvements NCD and lateral marketing suggest were assessed.
The New Concept Development model represents the activities necessary in the Fuzzy Front End: opportunity identification, opportunity analysis, idea generation, idea selection and concept statement. Especially the non-sequential nature of the model supports the Fuzzy Front End. Moreover the performances of New Concept Development are comparable to the model used in General Electric: the CECOR model. Kim & Wilemon (2002) ask what the best way is to define the Fuzzy Front End: New Concept Development is the answer. Leaders in the Fuzzy Front End should use aggressive financial goals. Leadership is supported with fuzzy tollgates, so the hypothesis of Van Aken (2004) is corroborated. This is a part of the solution to the problem of uncertainty about preferred leadership style, brought up by Kim & Wilemon (2002). The culture in the Fuzzy Front End should allow risk taking and there should be a broad range of resources available. Strategy should only give high-level guidelines and wavering from this strategy can be productive. The criteria to which the ideas and the portfolio are subject are mainly financial – market size, profit, growth and contribution margin.
Lateral marketing is a reasonable tool for idea generation, but is not appropriate for the raw materials or intermediate products. Lateral marketing should be more focused on the product the end-user receives (application level thinking) to be successful. This corresponds with the preferred starting point for the Fuzzy Front End: a market need. The combination of New Concept Development and lateral marketing was no immediate breakthrough, but when one uses lateral marketing on an applications level, there can be a good symbiosis.
In summary, the activities and the non-sequential nature of the NCD model should be taken account of when trying to identify promising product-market combinations. Lateral marketing can generate ideas properly, but it should be used on an application or end-user level.
7.2 Recommendations
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When CECOR is a way to spread growth throughout the company, spread CECOR throughout the company, so everybody knows about growth and can connect to the CECOR objectives. More people can then be challenged to be creative.
7.3 Further Research
Although the propositions in this article could not be substantiated, an interesting vision on how to structure the Fuzzy Front End has arisen. This research was limited in scope: only one company was considered and it was no long term research. The sample of the employees did secure the validity of this research; they are the people that search for promising product-market combinations daily. Confrontation with the preliminary results also showed that they concurred with the outcomes and this showed the reliability of the research. This research is representative for GE Plastics and to be able to generalize these results additional research in other companies can be a good way. Also research on the longer term is good to support this research. Next to the substantiation of the results in this research, further research should focus on:
How to join the short-term – and long-term cultures: when should the ideas be fed into the more sequential tollgate process and generate revenue?
How to determine the aggressive goals. In other words, it is difficult to decide when to kill an idea.
A final issue is the translation of the non-sequential nature into practice: what are the best ways to ensure an iterative first phase of innovation?
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