Learning

Management of Innovation
Transforming from a User of Technology

To a Manager of Technology
Management of Innovation NPD
Effort Product
(log scale)
Launch
Product
1 2 3 S Curve
Time
Technica Market Product
Feasibility
l Feasibility
James Lenz
This Handbook has been specifically adapted for the managers of a large
organization that needs to improve its R&D efficiency. It is also designed to guide
managers in establishing a technology strategy to quickly adopt emerging
technologies.
Management of Innovation Lenz 1

Copyright © 2017 by Insights on Innovation, LLC
All rights reserved. This book or any portion thereof may not be reproduced or used in any
manner whatsoever without the express written permission of the publisher except for the
use of brief quotations in a book review.
Printed in the United States of America
First Printing, 2017
This is a work based on the experiences gained from working in large companies and being
involved in thousands of innovation projects across hundreds of organizations. Significant
effort has been extended to capture the facts and events presented here accurately and
precisely based on available documentation and literature.
Cover Photo: Laboratory setup for the first demonstration of a high sensitivity magnetometer.
This development led to the commercialization of integrated circuit magnetic sensors. Billions
of these devices have been sold for thousands of applications, such as the magnetic compass in
nearly every mobile device.

Management of Innovation
A Handbook for Managing the Innovation Side of New Product Development
With support from:

William Qualls, University of Illinois
Nancy Blake, University of Illinois
Robert Stevens, Deere and Co.
Feng Wang, Northwestern University, Xian, China
KK Sinha, University of Minnesota
Rias Van Wyk, University of Minnesota
Frank Kulacki, University of Minnesota
Amy Danzeisen, University of Minnesota
Terry Guggenbuehl, University of Minnesota
Lori Lorenz, Lori Principle, LLC
University of Minnesota Management of Technology Classes of 2003 and 2004

Table of Contents
Introduction
About this Handbook 10
Motivation 11
Chapter 1. Corporate Financial Performance and NPD 12
1.1 Revenue Driven Era
1.2 Profit Driven Era
1.3 Acquisition Driven Era
1.4 Stock Price Driven Era
1.5 Discussion
Chapter 2. Product Development Categories 25
2.1 Four Fundamental Types of NPD Activities
2.2 Business Practices and NPD
2.3 The Actions Behind Each NPD Category
Chapter 3. Managing the S Curve 32
3.1 Stage Gate Process
3.2 Quality Function Deployment
Chapter 4. The Barriers to Product Launch 44
4.1 Barrier 1: What to Start With
4.2 Barrier 2: Defining the Unmet Need
4.3 Barrier 3: Detailing the Cost Benefits Analysis – The Business Case
4.4 Comparison between Different Industries
4.5 An Example: The Navigation Heading Sensor or Gyro
4.6 Summary
Chapter 5. Processes for the Management of Innovation 61
5.1 The Revenue-First Process
5.2 The Profit-First Process
5.3 The Loss-Leader Process
Chapter 6. Decreasing Time to Market 97
6.1 Summary
Chapter 7. R&D Assessment 103
7.1 Step 1: Strategy Assessment
7.2 Step 2: R&D Project Map
7.3 Step 3: The Project Score Sheet
Chapter 8. R&D Project Selection Process 112
8.1 Three Project Process
Chapter 9. Product Stewardship 120
9.1 Technology Life Cycle Model
9.2 Product Life Cycle Definition
9.3 What Is Product Stewardship? (Ref. www.epa.gov)
9.4 Businesses and Product Stewardship
9.4.1 Retailers and Product Stewardship
9.4.2 Consumers and Product Stewardship
9.4.3 State and Local Governments and Product Stewardship
9.4.4 Federal Government

Chapter 10. Creating an R&D Technology Strategy 130
10.1 Role of a Technology Strategy
10.2 Creating a Technology Strategy
10.2.1 Step 1: Mapping a Company’s Technology
10.2.2 Step 2: Overlaying Roles and Responsibilities, Best Practices
10.2.3 Step 3: The Breakthrough Technology Strategy
10.3 Using the R&D Technology Strategy
Chapter 11. Why Companies Fail at Managing Innovation 146
11.1 Problem Solving of Mysteries versus Puzzles
11.2 Disruptive Innovation Illustrated
11.3 Knowledge Management Tools to Measure Innovation
11.4 The Case of Nokia in Managing Innovation
11.5 Managing Innovation is not the same as Investing in Innovation
Chapter 12: The Challenge of Managing Innovation 164
12.1 Addressing Uncertainty while Accelerating Innovation
12.2 Software Development as a Platform to Study Innovation Practices
12.3 Overview of a Durable Process
12.4 Overview of an Agile Process
12.5 Connection of Agility and Durability
12.6 Case Study of 38 Embedded Software Innovation Projects
12.7 Illustrating how Agility is added to a Durable Process
Appendix I. Crisis Management - An Electrical Interpretation 177

The Resistive Manager
The Capacitive Manager
The Inductive Manager
The Diode Manager
The Resistive-Capacitive-Inductive-Diode Circuit

Exhibits
Exhibit 1-1. Example of a New Product Development during the Era when Engineers Ran the
Company
Exhibit 1-2. Example of a New Product Development during the Era when MBAs Ran the
Company
Exhibit 3-1. Market Investigation Tools and Templates
Exhibit 3-2. Example of Value Chain Mapping
Exhibit 3-3. Example of QFD Relationship Matrix
Exhibit 4-1. Fiber Optic Gyros vs. Ring Laser Gyros
Exhibit 5-1. The Bubble-Jet Printer Development
Exhibit 5-2. The JA-30 Accelerometer Development
Exhibit 5-3. Revenue-First Product Idea: Fiber Gyro
Exhibit 5-4. Revenue-First Product Idea: Valve Position Sensor
Exhibit 5-5. Profit-First Product Idea: Low Drift Current Sensor
Exhibit 5-6. Profit-First Product Ideas: A340 Door Controls
Exhibit 5-7. Loss Leader Product Idea: Laser Velocity Sensor
Exhibit 5-8. Loss Leader Product Idea: myfacilities.com
Exhibit 9-1. Corporate Stewardship
Exhibit 10-1. Road Mapping Machine Control Technologies
Exhibit 10-2. Road mapping Machine Intelligence Technologies
Exhibit 10-3. Road mapping Electric Power Technologies
Exhibit 11-1. Examples by Product Line of Disruptive Innovations
Exhibit 11-2. Nokia and ‘The Burning Platform’ Companywide Announcement

Figures
Figure 1-1. Annual Report Summary

Figure 1-2. When MBAs Run the Company
Figure 1-3. When Corporate Runs the Company
Figure 1-4. Merger or Acquisition Process
Figure 1-5. Honeywell 3-Year Stock Performance
Figure 1-6. Summary of Project Losses ($M) Audit
Figure 2-1. New Products Are a Metric for Best-in-Class Firms
Figure 2-2. Categories for NPD and Business Growth
Figure 2-3. Management Practices are Applied Equally to all Categories of NPD
Figure 2-4. The Actions that further define each NPD Category.
Figure 3-1. Product Life-Cycle Curves
Figure 3-2. The Stage Gate Process Major Steps
Figure 4-1. R&D Issues that Precede the S Curve
Figure 5-1. “Revenue First” EPI Process (technology push)
Figure 5-2. “Profit-First” EPI Process (market pull)
Figure 5-3. “Loss-Leader” EPI Process (lead user pull)
Figure 6-2. Organic Business Growth
Figure 7-1. Risk versus Reward Bubble Charts
Figure 7-2. Example R&D Major Projects
Figure 7-3. Score Sheet for Assessing Projects
Figure 7-4. Score Sheet for Early Research Project
Figure 7-5. Score Sheet for Technical Feasibility Project
Figure 7-6. Score Sheet for Market Feasibility Project
Figure 7-7. Score Sheet for a Project Validating the Value Proposition
Figure 7-8. Score Sheet for a Product Launch Preparation Project
Figure 7-9. R&D Center Sample of Products
Figure 8-1. Traditional R&D Project Definitions
Figure 8-2. Modern R&D Project Definitions
Figure 8-3. R&D Projects
Figure 8-4a. Technical Feasibility
Figure 8-4b. Revenue First EPI Process
Figure 8-4. Technical Feasibility Projects
Figure 8-5a. Market Feasibility
Figure 8-5b. Profit First EPI Process
Figure 8-5. Market Feasibility Projects
Figure 8-6a. Venture Project Selection
Figure 8-6b. Loss-Leader EPI Process
Figure 8-6. Venture Projects
Figure 9-1. Technology Development Following an S-Curve
Figure 9-2. Product Life Cycle Curve
Figure 10-1 Technology Strategy Influence on the R&D Project Selection Process
Figure 10-2: Four Activities to Creating a Technology Strategy
Figure 10-3: Road Mapping of Machine Electronics by Product
Figure 10-3 Charting various roles across an organizations functional units.

Figure 10-4 Over serving a market
Figure 10-5 Pacing the market
Figure 11-1 Overlaying NPD Categories as Related to the Problem Solving of Puzzles or
Mysteries
Figure 11-2 Common Visualizations of a Puzzle and a Mystery:
The Rubik’s Cube and a Banner of Sherlock Holmes, a Mythical Mystery Solver (Wikipedia)
Figure 11-3 Comparison of Ptolemy (puzzle like) and Copernicus (mystery like) Solutions to
Describe the Planetary Motion in our Solar System
Figure 11-4 Mobile Phone Market Share overlaid with Nokia CEO. ERA 1 CEO Jorma Ollila,
ERA 1 CEO Olli-Pekka Kallasvuo, and ERA 3 CEO Stephen Elop.
Figure 11-5 Nokia High Level Organization: Technology is a primary focus of the overall
management because the focus is around product
Figure 11-6 Matrix Management: Technology is thought of as a supporting capability to the
business
Figure 11-7 Technology cannot be seen as part of the organization
Figure 11-8. Network of organizations with more than 5 publications from 2001 to 2011
Figure 11-9 Networks of cited references. The colors represent the cited organizations
Figure 12.1 Software development projects leading to significant financial issues.
Figure 12.2 Illustration of the main tasks involved in a Durable Process for Software
Development
Figure 12.3 Agile and Durable Approach.
Figure 12.4 Comparison of Innovation Project type based
Figures 12.5 – 12.11 Analysis of Process Tailoring Effects on Quality
Figure 12.12 Rings of Innovation illustrate how an Agile Process and Durable Process evolve
together through the establishment of experienced staff.

Tables
Table 4-1. Average Time from Idea to Product: 12 Years
Table 5-1. Comparison of Three Evaluating Product Ideas Processes
Table 6-1. New Product Forecasting Techniques
Table 6-2. Statistics and Costs of R&D Honeywell 1999
Table 6-3. Statistics and Costs of R&D Honeywell 1999
Table 7-1. Some Data that Can Be Used for Risk versus Reward Bubble Charts
Table 7-2. Assessment Factors for High Technology

Introduction
Motivation
New product development (NPD) is a basis for business growth. It is also a key part of strategic
planning and adds to the overall excitement in a company. However, of all the management
aspects of business (i.e., human resources, marketing, manufacturing, accounting, service,
customers, etc.), the complete process of NPD is the least defined and the most difficult to
manage. With the emergence of e-business, the NPD process has created even a greater
challenge to be generalized and practiced because the time scale for evaluating ideas and
introducing new products changes from years to days.
First the terms New Product Development (NPD) and Research and Development (R&D) need
to be defined. To be more precise about the business function of Research and Development
(R&D) there are two major stages. The first stage to R&D is the process of generating and
evaluating ideas, and the second stage is the process of launching a product. The process of
launching a product is categorized as New Product Development (NPD). There have been
numerous papers and books published to give insight to the challenges of NPD and outline
guidelines for success. The product S curve concept where activities start slow and grow in a
non-linear fashion guides the NPD process. The question that arises is ‘What precedes the S
curve?” This is defined as the stage of Management of Innovation (MOI), the first stage of
commercializing R&D.
The Management of Innovation stage is neither well understood nor well documented. Typically
this effort is so diverse, unscheduled, and event-triggered that to generalize the management
practices often introduces more constraints than benefit. A current trend is to adapt the processes
that have been successful for improving efficiencies in manufacturing and supply chain
management, like TQM and 6 Sigma, to the R&D functions. However these processes are
designed to minimize variability whereas R&D needs to maximize variability to bring forward
the sustainable idea. The motivation for this handbook is to establish processes that are specific
to R&D practices. From these processes it is hoped that the management of R&D practices will
evolve to lead the efficient growth of the company. Managing Innovation requires different
skills, motivations, organizations than taking a company’s previous success processes and then
investing in innovation.
This handbook will outline and review a series of different R&D practices that have been
developed to commercialize products and services. The best practices for NPD and for what
precedes a new product launch are defined in this handbook as the Management of Innovation.
MOI is defined and illustrated with product case studies. It is the hope that each reader of this
handbook will gain further insight to the challenges of managing New Product Development and
ultimately managing the life cycle of technologies and products. Appendix I offers an insight
into the technologist as a manager and developing a framework for understanding the people side
of technology management. Appendix II and II offer studies for evaluating a portfolio of
products for risk assessment and sustainability management.

About this Handbook
A complete doctrine on New Product Development should include four major parts:
1. Basic Themes for Insight and Understanding
2. Examples based on actual new product launches to illustrate those themes
3. A summary of messages and any “take-away” from the themes
4. A Foundation of Rules from which specific advice and guidance can be derived for a
given situation
This handbook is designed for practitioners involved in new products and product improvements.
This handbook addresses items 1 and 2 above. Of course the teaching of a subject where the
rules are presented first and then supported with themes and many case studies would be much
better and more familiar to the technical student. However there are numerous sources and ideas
for describing and managing new product development and in fact the entire research and
development activity. This handbook selects many of the leading ideas and frames them into a
sequence of insights. It is not a ‘cookbook’ and thus the ‘take-aways’ are mostly left to the
reader.
Each chapter brings forward different themes. The order of the themes starts from an owners or
corporation’s view, moves to the individual project, and finishes with strategic management.
There are 11 actual new product developments illustrated in exhibits to re-enforce each of the
major themes in this handbook. It is hoped the reader will find the technology and the new
product ideas of these cases an entry to developing their own insights to the Management of
Innovation. Each chapter has a summary of the major points of the chapter and discussion
questions are presented that can be used in group sessions to enhance the meanings from that
chapter.
This version of the Handbook has been specifically focused toward the large organization and its
needs for innovation management. Most organizations have achieved successful growth in
applying technology and innovation. But to sustain that growth its managers must now expand
their skills and practices to not just applying but managing technology and innovation.
There are two major categories for innovations. Sustaining Innovations arise from technology
changes and improvements. Disruptive Innovations are more than technology innovations that
also create a new market. Disruptive Innovations improves a product or service in ways that the
existing market does not expect. This handbook is structured to complete this NPD foundation
that not only focuses on managing for Sustaining but also Disruptive Innovations.

Chapter 1 Summary: Corporate Financial Performance and
NPD
Synopsis:
The 20-year history of an American based company with global business, Honeywell, is used to
illustrate four high level strategies that guide the innovation in a company. These are named:
When Engineers Run the Company: a Revenue-driven strategy
When Accountants Run the Company: a Profit-driven strategy
When Corporate Runs the Company: a Merger and Acquisition strategy
When Wall Street Runs the Company: a Shareholder focus strategy
These strategies are not intended that the named department of the company has full control of
the company but reflects that the main motive and management processes for innovation and
growth came from that department’s typical approach to business.
A main point is that the revenue and profits reported by a company may be the best way to assess
a company’s management practices, even for its strategies for innovation. Honeywell is a
technology driven company and its success and growth comes from introducing high performing
products with new technology. Here during four different CEO’s of the company, each with
different styles and business objectives, the revenues and profits recorded during their time as the
chief manager is used to gain insights into their management practices. Each has great intentions
that their management strategies would lead to the best success. In fact each strategy did NOT
meet the goals, and as a result a change (a new CEO) was made. But the change was mostly a
change and did not lead to better or more lasting success. In each case the main point is that the
management of the technology was not directly addressed. Investing in innovation and managing
innovation are two different things.
A basic summary of this case study of Honeywell is sometimes referred to as “The Mis-
Management of Technology”. But certainly the management practices enforced by Honeywell
were very well implemented and processes developed to encourage continuous improvements.
But none of the practices led the company to meeting its growth goals. These practices failed to
manage the innovation properly to achieve the business goals that were obtainable.
Discussion:
1. What is the better method of the four strategies described that encourages innovation?
2. Why is unplanned loss a reflection of poor management practice?
3. Should stock price of a company affect its strategies for innovation?
4. Can large companies make decisions on high-risk innovations?
5. Is it appropriate to call these 4 examples of corporate management themes the ‘Mis-
Management of Technology’?

Chapter 1: Corporate Financial Performance and NPD
The study of Honeywell and its strategies for new product development offers excellent insight
to the challenges and success of R&D strategies. Honeywell is a publicly traded company with
no dominant family ownership and management. It has always been an early adopter of the latest
management strategies. Honeywell has established numerous management-training programs
with many business schools. At times there have been dramatic changes as witnessed in the
financial performance. In many ways the performance of Honeywell has been typical of a
technology-based manufacturing company for the past 20 years.
A summary of the financial performance of Honeywell is plotted in Figure 1-1. It shows sales
and income for each year since 1980. The values plotted are in that year dollars so there is no
adjustment for inflation. Unadjusted figures are used because it allows growth to be more easily
tracked in direct year-to-year comparisons. There are four distinct eras in the company’s history
that coincide with four different CEOs. The financial performance of these eras is distinctly
different and can be titled as:
I. When engineers run the company: a revenue-driven era

II. When accountants run the company: a profit-driven era
III. When corporate runs the company: an acquisition-driven era
IV. When Wall Street runs the company: focus on stock price
Figure 1-1. Annual Report Summary

Each of these eras will be discussed in relation to the R&D strategies at that time. The titles of
these eras are an attempt to describe the practices of that era. In a large corporation all job
families are involved in the operations. It would be misleading to think that one job family could
dominate the company’s decisions. However one job family can exert significant influence at
any given time in the life of a company.
1.1 Revenue Driven Era
The financial performance of using an R&D strategy depicted as engineers running the company
can be seen in Figure 1-1, on the previous page, from 1980 to 1988. During this era new product
securing orders before the development was complete drove launches. Engineering activities
were the focus for most of these NPD plans and agreements. The development would be
completed as the product was being launched. The company had about a 5% annual growth in
sales and had steady profits. During this time the company was introducing approximately 2
major new products a month, of which about 50% were ‘new-to-the-world’ products. These
included diverse markets such as aircraft navigation systems, home controls, and industrial
controls. The negative income in 1986 was due to restructuring of the company (sale of the
computer business to Bull) not related to the actions taken to achieve growth. However the
negative income in 1988 is a significant event and the annual report targets NPD cost overruns as
the reason (ref 4). An audit of NPD projects showed $500M of unplanned losses involving 20
new products. The factors for the losses were defined and are listed in the order of significance
contributing to the unplanned loss:
1. Underestimated technical difficulty during proposal

2. Optimistic assumptions and ground rules during proposal phase “Must Win” attitude
3. Compressed schedule imposed by customer
4. Inadequate staffing
5. Inexperienced program leadership
6. Weak capability and support by technical support groups
7. Inadequate planning and control
8. Organizational conflicts
9. Inadequate performance of subcontractors/vendors
10. Inadequate transition from design to production
11. Optimistic pricing
Exhibit 1-1, on the next page, illustrates one of the projects typical of the NPD projects at this
time. This product is an IR camera for reconnaissance using a Tornado aircraft. The motivation
was to win the first order for a new product and then perform the new product development
leading to the first lot build. The cost of development and first lot build was estimated and
amortized over the order size. Profit as a percentage was added but often adjusted lower in the
final negotiation before the award. The initial order was for 10 systems at a price of $38.3
million. The final expenditure to complete the order came to $83.0 million resulting in an
unplanned loss of $44.7 million. This project was a tremendous technical achievement at the
time. However no additional units were sold. The changing political structure in Europe and the
introduction of electronic cameras eliminated this technology. Five of these 20 new products
having unplanned losses developed actually have continued on to become good commercial

successes and are the basis for more than $2B of annual revenue. Ten years later the profits from
these 5 products alone covers the entire unplanned loss each year. However the short-term
financial performance was unacceptable to the stakeholders and changes were expected.
1.2 Profit Driven Era
From 1989 to 1994 Honeywell implemented a significant change in R&D strategy and policy.
The business case for justifying a new product was built around detailed financial analysis; i.e.,
expected skills of an MBA. In this era (Figure 1-2) sales were flat and profits fell approximately
5% per year. New products decreased to half the previous rate (approximately one NPD per
month) with about 10% now being new-to-the-world products. Considerable cost benefit analysis
was completed for each NPD opportunity to assure minimal risk. The significant feature of this
era is that profit was never negative. Product lines that were not profitable were stopped or re-
aligned quickly.
Figure 1-2. When MBAs Run the Company
Exhibit 1-2 illustrates a new product development during this era. It illustrates the development
of an electronic magnetic compass for use in automobiles. Again there was a lead customer who
drove the product need. But now detailed financial analysis and product definition was
performed such that the technical risk was minimized and profits almost assured.

Exhibit 1-1. Example of a New Product Development during the Era when
Engineers Ran the Company
MBB Tornado Linescanner Program
Infrared Imaging System (IIS) for the

German AF ECR-Tornado
The Electronic Combatant/Reconnaissance (ECR)

Version of the Tornado Fighter-Bomber built by
Messerschmitt-Bölkow-Blohm (MBB)
In 1985 Honeywell began a product launch of a new system for use on the
Tornado aircraft. It was an exciting new program that would revolutionize IR
surveillance by aircraft. This system would allow the pilot to review the captured
imaging during his flight so a complete survey would be captured during an initial
flight into enemy territory.
Film Magazine Unit Block Diagram
New Film Recorder and Film Magazine Showing:

• Flat Plane Recorder
• Film Transport
• Film Developer
• Film Manipulator Unit
At first it is difficult to imagine how infrared imaging can be captured on film,

developed and presented to a pilot while film continues to be taken at 50 frames a
second. Here is an illustration of the system that accomplished this. It is
considered one of the highest technical achievements in the history of
surveillance.
Lessons Learned Review MBB Program
• Continuation of main product line (IR Linescanner)

• Must win approach (Knockout competitor)
• Very complex customer set
• Contract vague and still not finalized ever
• Policy 50 (63) reviews performed at an early time (3 review team/boards)
• After 6 months, discovered Linescanner would not fit in the aircraft; needed a
total redesign (unproven)
• Unit is overweight; penalty clauses exist
• Initial order: $38.3M
• Final expenditure: $83.0M
As a business case, it was very poor. With such a loss and such a limited market
(there are less than 1000 “tornadoes” flying), the product was discontinued.
Today this film technology has been made obsolete by image intensified solid-
state cameras (CCD and electronic memory) being the technical approach used.

Exhibit 1-2. Example of a New Product Development during the Era when MBAs
Ran the Company
Compassing
Application
1. Cardinal points (N, NW, W…..) $ 1s

• 22º Accuracy (100 milligauss resolution)
• No tilt compensation
• Family anomaly compensation
2. Heading/Orienteering $10s
• 1º Accuracy (5 milligauss resolution)

3. Navigation (<1% distance traveled) $100s
• 0.1º Accuracy (0.5 milligauss resolution)
• Strap down (2-axis tilt measurement)
• 3-D calibration procedure
The availability of low cost signal processing has led to the development of solid-
state electric compasses for many applications. These applications can be grouped
into three levels of performance: cardinal point determination, orienteering, and
navigation. For each level of performance, more extensive calibration and
signaling processing is needed. In the mid-1990s the automotive market was
interested in a long life compass that could display the cardinal points of the
magnetic heading.
Magnetic Heading Resolution

Magnetic Heading Resolution
Bea rth ~ 0.5G
30mV MR minimum detectable field

MR sensor scale factor ~ G− 3 ¥ 10-7 G
MR bridge voltage resolution ~ 10 V
8
ΔBea st < 8 −2
for cardinal points 360 Bea st ~ 10 G

Signal to ΔBea st < 1 −3 For auto compass
1° Compass 360 Bea st ~ 10 G signal to noise ~10 4
Noise
ΔBea st < 0.1 −4
0.1° Compass 360 Bea st ~ 10 G

⎛ Bea st ⎞
Heading = Arctangent ⎜⎝ ⎟
Bn orth ⎠ Tilt compensation not
needed for cardinal
ΔHeading ~ Arc tan gent ⎛⎜ ΔBea st ⎞
⎟
Near North ⎝ Bn orth ⎠ point measurement
Tilt ΔBea st ~ Bea rth ⋅ sin( tilt ) ⋅ cos(latitude) ⋅ sin( ΔHeading )
Latitude ~ 45 o Latitude ~ 45 o
Δ Heading ~ 1o Δ Heading ~ 1o
Tilt ~ 1 Tilt ~ 10
o o
ΔBea st ~ 10−4 G ΔBea st ~ 10−3 G
J Lenz, U of M

A “back of the envelope” analysis indicates the technical risk is minimal for a
cardinal point compass. First the sensor needs to detect fully only to 10–2 G but
has 10-5 G sensitivity (a 1000x margin). Second tilts of 10 degrees or less will
only constitute a 10-3 G error (a 10x margin).
Lesson Learned Summary: Automobile Compass
• Discovered customer during visit to Michigan-based aerospace companies

• Delivered prototype
– Stuck on business case
– Needed lab disaster to initiate product launch
• Decided to sell component ($5 price, 40% gross profit) versus board solution ($20
price, 10% gross profit)
• Signed agreement with number 2 supplier, blocking chance to supply to the
market leader, for 5 years
• In 1997 $60M worldwide market (3,000,000 vehicle @ $20)
– Honeywell take ~ $3M (5% MOI) with ~ $1.5M gross profit
Honeywell used a voice of the customer to evaluate the product idea and decide
on a product launch. This evaluation went on for nearly three years negotiating
with customers to be able to make a profit on the initial order. Two product ideas
were worked- providing a circuit board solution at $20 and ~$2 initial profit or
supplying an IC with 2 magnetic sensors at $5 with $1.50 profit. The IC solution
was selected. This has resulted in a good profit percentage but the business today
is only ~5% of the total market.

The business case for launching the compass product was open and negotiated with the
customer. The initial product idea was for the entire compass circuit board solution valued at $20
with a $2 profit that was at risk because new manufacturing tooling and processes would need to
be developed to achieve the throughput and yields. After nearly a year of negotiation with the
customer it was decided that Honeywell would only sell the two magnetic sensors in a single
package priced at $5 with a $1.50 profit. Analysis indicated this approach offers low risk to
achieving the projected profit since no additional skills or tooling was needed to manufacture the
integrated circuit. Some examples of the circuitry were offered to the customer as application
notes. The customer built the circuit board assembly in their circuit board fabrication facility
having the extra capacity. Today the product is still sold with a profit, however with the standard
price erosion of components the profits are decreasing. The lesson learned is that the key
technology was not leveraged into a larger business making this overall product line of minimal
interest for additional growth because of its small revenue size.
1.3 Acquisition Driven Era
From 1995 to 1999 Honeywell launched a strategic thrust to grow sales (Figure 1-3). This
growth was achieved by acquiring other businesses that were strategically aligned with the
current businesses and offered a financial benefit. The corporate offices led most of these
assessments, e.g., the era of corporate running the company.
Figure 1-3. When Corporate Runs the Company
Figure 1-4 illustrates the general process to mergers and acquisitions with a growth-focused
objective (Ref. 7, 8). The process begins with a strategic assessment by major business segments.
Once a company of interest is selected two major analyses are prepared. One defining possible

“surprises” or risks and the other estimating synergy savings to offset the price and goodwill
needed to win the bid. The “surprise” effort attempts to assess the business’s new product
development risks in relation to their own practices. These investigations lead to a listing of
Revenue Enhancement Opportunities (REO). An REO in its simplicity is a newly created
product that is made possible by the combined capabilities of the companies.
Merger or Acquisition Process
Operations Analysis:
surprises, alignment
with current
businesses Revenue
Global Market
Enhancement
Trending: by What’s for
Opportunity Decision Offer
business, by ROI, by sale?
(REO)
competition
quantified
Financial Valuation:
synergy savings,
goodwill
Key focus areas:

1. Anticipating global market directions and following what acquisitions are possible
2. Analyze savings and increased revenue potential from the combined company
Figure 1-4. Merger or Acquisition Process
The revenue growth for this era came from approximately 10 major acquisitions out of hundreds
that were available. Separating the performance of the acquired businesses from the total is
difficult. The organic growth of most purchased companies decreases the year following the
acquisition. In fact, not one of Honeywell’s acquisitions met its forecasted revenue the first year
after its acquisition. Overall sales grew at almost 10% per year and income grew at nearly 20%
per year but this was coming at a penalty to the sustainability of the acquired businesses. This era
ends with Honeywell being purchased by a 50% larger Allied Signal.
1.4 Stock Price Driven Era
Maybe the last example of a major corporate operational mode that impacts new product
development can be called ‘When Wall Street runs the Company’. During this era the focus is on
stock price. There are almost daily decisions made in an attempt to increase stock price. As a
result of this short window for management decisions and results there is minimal drive within
the corporation for major new products. As an example of the effects on the company the stock
price from 3rd quarter, 1999 through 3rd quarter, 2001 is plotted in Figure 1-5. It is easy to see
the effect on the stock price (large increase) when it was announced that Allied Signal would be
purchasing Honeywell (Allied P.O.). It is also easy to identify the effect (large decrease) of
missing the profits for the second quarter, 2000 and then the announcement of the pending sale
of the company to GE (GE on). When the deal with GE fell apart (GE off) again the stock price

fell and management today continues to strive for a quick fix to increasing the stock price. The
most recent action reinforcing the lack of support for new product development was the closure
of the corporate research center in January 2002.
Allied P.O. Missed numbers GE on GE off
Figure 1-5. Honeywell 3-Year Stock Performance
1.5 Discussion
A way to generalize across these major corporate organizational and management themes is that
the time scale of the company’s stakeholders controls the motivation for growth. The larger the
size of the company, the larger the number of stakeholders, the shorter the time scale for
objectives. A management theme that results from the shorter time frame for objectives is the
practice of risk avoidance. Over the 20-year history new product development changed from an
environment that celebrated technical risk to one that discouraged any risk taking.
There is a documented rational for this change. Figure 1-6 lists the top 12 of the 20 new
products that contributed to the unplanned loss in 1988. These unplanned losses for new-to-the-
company products varied from 10% to as much as 100% overruns. There are many messages in
such a list but one main one is that technical managers will not manage primarily for risk
avoidance. Processes and management objectives need to be in place to help drive this motive.
However the instinct to explore can be quickly dispelled with the wrong processes.

Internal Audit Results 1977-1990 (Over $10M/Program)
Unplanned
Program Year Loss
TISS 85-88 65
RLG 77-84 90
UNTS 78-79 10
NEARTIP 80-81 50
AV-8B 81-82 14
VINSON 81-83 16
F3/F-15 85-88 5
F-15/McAIR 84-88 5
GOI 80-88 68
COMMON MOD 81-82 25
FMPS 84-88 24
MBB 85-90 45
B52/KC135 87-88 12
A-12 86-89 35
Other (12 below $100M) 80-90 54
Figure 1-6. Summary of Project Losses ($M) Audit
Although this section has used Honeywell as the example to illustrate how corporate financial
performance can affect the strategies and operations of NPD almost every company has similar
happenings. Next the processes and insights that can be used to manage the risk in NPD are
described.

Chapter 2 Summary: Product Development Categories
Synopsis:
The best in class companies achieve sales growth faster than their competitors. They do this for
the most part by introducing new products. There are four basic categories for New Products
that can be defined from the types of customers and the newness of the technology relevant to
the company themselves. These are:
Market Penetration (Product Cost Reductions)
Market Extension (New Users/Versions for existing Products)
Product Improvements (Product Line Extension)
Product Creation (New to the Company Products)
The Challenge facing companies is the desire to use the same business practices for all four types
of NPD developments. This works well in a large organization as then the entire organization
can follow the same processes, the same metrics, and the same motivations. However as will be
illustrated in the following chapters of this e-book, the category of Product Creation does not fit
well under these data-driven processes such as Total Quality Management and Voice of the
Customer Market Research.
The NPD category of Product Creation can lead to the most innovative products. However it
does not lend itself to actions that can be managed by data-driven processes but instead is more
represented by a Technology PUSH action plan. Technology PUSH requires more inventing
and creating which needs judgment for guidance than specific worksheet decision methods.
Chapter 11 will come back to this point of management practices using judgment as the primary
decision process for Product Creation product developments.
Discussion:
1. For one company that you know well, describe an example of a new product for each
type of NPD category that that company might develop? An example of a candy bar
manufacturer is used in the Chapter.
2. Describe or illustrate process that relies on data-rich or data collection methods to drive
the product feature definitions and decisions.
3. Contrast the effects that a data-rich process like Six Sigma Quality Control would have
on each type of NPD category. How would this process encourage the most innovation
in the product?
4. For a product idea that you know or can envision, contrast what specific actions you
might take between Market PULL and a Market PUSH process.
5. For a product idea that you know or can envision, contrast what specific actions you
might take between Technology PULL and a Technology PUSH process.

Chapter 2: Product Development Categories
It is well understood that the best companies are always looking for sales growth. As shown in
Figure 2-1 these best-in-class firms have a higher percentage of total revenue from products less
than 2 years from introduction. The measurement of percent revenue from new products is now a
standard metric tracked to compare companies. Best-in-class firms derive more than 80% of their
revenue from products that are less than three years old.
New Products Are Metric For Growth

Best-in-class firms grow faster than their peers
New product revenue as a percentage of total revenue in electronic systems companies

[Ref. Michael McGrath, Setting the Pace in Product Development, page 3]
Figure 2-1. New Products Are a Metric for Best-in-Class Firms New product revenue as a
percentage of total revenue in electronic systems companies, McGrath (1996)
However this may be easier stated than achieved. R. Balachandra (1989) writes, “Even from a
cursory review of the literature in these areas (NPD and R&D Project Success) one comes away
with the conclusion that there is a plethora of factors deemed critical for success or failure.” In
order to create insight into managing R&D and NPD a categorization of the general types of new
products needs to be established. A perspective to keep in mind is overall business growth,
which comes from either technology or market pull or push.
2.1 Four Fundamental Types of NPD Activities
Figure 2-2, on the next page, illustrates four fundamental types of new product activities. The
categories are differentiated by existing vs. emerging technology in the company and existing vs.
undiscovered customers in the market. It is often more insightful to evaluate the ideas from your

own company’s perspective as a relative scale than from a world perspective that would then
need an absolute scale. Certainly a comparison within your own context would be more accurate
than from a total economy or market viewpoint.
New Product Categories

Colors indicate level of risk
Market
Undiscovered
Current Customers Customers
Product Improvements Product Creation

Emerging (line extensions) (new-to-the-world)
Technology
Existing Market Penetration

(cost reductions) Market Extension
In (new uses)
company
Figure 2-2. Categories for NPD and Business Growth

(Colors indicate level of technical risk from low to high: White, Green, Yellow, Red)
An illustration of how each of these categories differs is to think of a candy bar company. A new
product for market penetration might be to make a ‘bigger’ version of the same bar or change the
wrapper. For market extension they might introduce the bar into a foreign market and re-
formulate the taste to meet that market need. For product improvement they might add a version
with nuts or a new texture. For product creation they might introduce boxed chocolates or
truffles. Each category has a different need for product development involving different methods
for forecasting and risk management:
1. Market Penetration occurs when existing products are modified to increase existing
market share. The motivation for these product development projects is usually cost
reduction with a secondary emphasis on new features. The development costs and sales
returns are easiest to forecast for these types of projects. They are the lowest risk types of
new product developments. Most companies have a continuous activity in this type of
NPD.
2. Market Extension occurs when existing products are marketed to new users and
applications (undiscovered customers). The product development here is usually minor
with changes to connections or packaging, with minimal product feature changes. The
challenge to forecasting this growth and return is in the estimation of how quickly this

new customer base realizes the value of the product. Often when dealing with a set of
new customers the complete value chain is difficult to understand and predict.
3. Product Improvement occurs when existing products are modified for a new application
or to meet new customers’ needs. Frequently, the motivation for these product
development projects is to expand the features or performance of a product. Product
improvement is a risky activity. The best assumptions for market introduction are based
on past experience. By evaluating what happened when a new product based on a similar
technology was introduced and adopted by the market, you can make certain assumptions
about the introduction of your new product. However most of the time there are few
similarities between the next generation technologies.
4. Product Creation occurs when new technologies are commercialized for totally new
applications. Sometimes this type of NPD is called new-to-the-company. The first
generation of all products starts in this category. The most successful business cases for
growth have come from these types of products. However this is the riskiest type of NPD.
The accuracy to forecast both the investment and the potential profits has little solid
basis. The business case is built on assumptions that are loosely related to the facts from
which they start. As a result, significant research and analysis are needed for a product
launch decision. This handbook starts focusing on managing this activity in Chapter 4:
The Barriers to Product Launch as the Stage of Management of Innovation.
The first two categories, Market Penetration and Market Extension, lead to product
developments that are relatively easy to forecast and manage. For most companies over 75% of
their NPD budget is focused here. It can sustain a company’s revenue and market share. Many
management tools and insights have been documented for what is called managing the S curve.
These tools and guides help build the business case arguments and decisions. They provide a
foundation to the skill of forecasting. Chapter 3 will outline these.
The higher risk categories, Product Improvement and Product Creation, involve increased effort
and most likely increased risk to reach the product launch decision. This activity of what
precedes the product launch point is often a challenge for management. It needs technology
insight as much as market forecasting. Often companies simply defined this as basic R&D and
specific management tools are not effective. However, adapting traditional versions of product
life cycle management tools to manage this pre-launch activity can improve decision-making and
focus resources. This will be illustrated throughout the book.
2.2 Business Practices and NPD
As easily as four categories for New Product Development can be defined, just as easily business
practices drive one set of management tools to cover all the types of New Product Developments.
Figure 2-3 illustrates the trend used today by the leading companies of using the same
management practices independent of the category of NPD.

Market Market
Undiscovered Undiscovered
Current Customers Current Customers Customers
Customers
Emerging Product Improvements Product Creation

(line extensions) (new-to-the-company)
(new-to-the-company)
Market Research
(line extensions)
Market Research Cost accounting
Technology ROI (Return on

Technology Investment)
No leading questions or No leading questions or
Existing ideas to customer
Market Penetration
Market Extension
Existing ideas to Management
Portfolio
Market Penetration
(cost reductions)
customer
Market Extension
In
(cost reductions)
(new users) In (new users)
company company
Market Market
Undiscovered Undiscovered
Current Customers Customers Current Customers Customers

(line extensions) (new-to-the-company)
Market
Cost Research
Totalaccounting
Quality
(line extensions)
Market
Cost Research
Totalaccounting
Quality
Programs All competition is
Programs
good
Technology ROI (Return on ROI (Return on
Investment)
Link products and or Technology Investment)
No leading questions No leadingLink products
Supplierquestionsand or
Selection
customer customer
Existing ideas to Management
Portfolio
Market Penetration
(cost reductions)
customer
Market Extension
Existing ideas
Portfolio
Market Penetration to customer
via Tournaments
Management
Market Extension
In TQM, '6 sigma‘ (new users) In
(cost reductions)
TQM, '6 sigma‘ (new users)

company company
Figure 2-3 Management Practices are applied equally to all categories of NPD with the premise
that one size fits all.
The top four trends are ‘Voice of the Customer’ market research, Return on Investment cost
accounting, Total Quality Programs, and Supplier Management. These basic principles have
numerous metrics, score sheets, and processes that are used to manage each practice. The overall
effect is to replace the dependence on people with processes. However as these processes
continue to pile up on R&D projects they tend to stifle the most innovative projects as these
projects are more difficult to define metrics. And also the champion of the most innovative
projects is usually not the most skilled at running processes and score sheets. As a result the
more strict use of these processes tends to eliminate Product Creation types of products.
The standard business practices taught and used today to manage a company’s business growth,
have many reports that these practices are difficult to apply to Product Creation (New-to-the
Company) type products. It is difficult to manage and synchronize both technology creation and
market development when there is little experience to build from. By the nature that these are
often new-to-the world products there are few fundamental case studies and previous examples
to guide the management. So as the management processes have hindered or mismanaged
Product Creation product development the recommendation to businesses is ‘then don’t do these
types of developments’. However there is growing evidence that eliminating this category of
NPD from a company’s portfolio will lead to significant problems.

2.3. The Actions Behind Each NPD Category
A common theme that underlies the above NPD categories is the concept of PUSH and PULL.
A deeper and more fundamental way to think of the categories on NPD is to think of the action
that drives the motivation for the development. Figure 2-4 overlays the main driving motivation
for each category identifying market driven and technology paced types of developments and of
course current customers can offer the PULL but undiscovered customers need to be frankly
‘discovered’ which is labeled as PUSH. In today’s companies Market PUSH is more accepted
than Technology PUSH. It seems Market PUSH can fit into the standard business practices since
there is already a factory, process, capability to be shown and studied analytically. However the
Product Creation product development as stated earlier has very little measureable metrics that
can be compared to existing measurements in the business today. Thus it scores poorly in the
data rich world of management and fails to get the attention it needs for success. However at
risk may be a significant portion of a company’s sales if a new technology and product disrupts
the current business and market of interest. As above because of the challenges of Product
Creation NPD the action of Technology Push has been generalized to be a poor management
practice by the leading business management organizations. Again this is not because it does not
lead to success but instead it is difficult to fit into the metrics that can be used for the other three
NPD categories and thus is thought not a good management practice.
Undiscovered
Emerging
Technology
Product Improvements
(line extensions)
Technology
Product Creation
PULL PUSH
Technology
Existing
In
Market
Market Penetration
(cost reductions)
Market
Market Extension
company PULL (new uses)

PUSH
Figure 2-4: The Actions that further define each NPD Category.
In the previous case of Honeywell, as they evolved through the four types of Management
themes they more and more reduced the Technology PUSH type projects from their innovation
Portfolio. This became a ‘run away’ effect of their products being less and less innovative
resulting in less growth and lower profits. What can be identified to lead to the most innovative
products is to include Product Creation types of NPD projects. However as a company has
success it is more likely to leverage that success into better and more efficient processes that
further refine the best management practices used today. And as a company gets better at its
own processes it will stifle the riskiest projects, especially those dealing with unknown
customers.

The remainder of this book attempts to illustrate from various viewpoints the management
practices used today and indicate how these practices may or may not fit Product Creation types
of product development. The majority of an organization’s innovation comes from innovations
in technology and this is referred to as sustaining innovations. The first 10 chapters of this
handbook illustrate management insights and practices that are tuned for sustaining innovation.
Sustaining innovation matches well with the three major Product Development Categories of
Market Penetration, Market Extension, and Product Improvements.
Chapter 11 specifically addresses Product Creation NPD by studying what is called Disruptive
Innovation. Disruptive Innovations are more than technology innovations that also create a new
market. Disruptive Innovations improves a product or service in ways that the existing market
does not expect. There are examples of large organizations that the better they become as
organizations for Sustaining Innovation the more likely they will not participate when a
Disruptive Innovation affects their market. Getting past this barrier in large organizations is the
challenge of the high level management. This can only be achieved once the standard innovation
practices are well understood and their limitations quantified. This handbook is structured to
complete this NPD foundation.

Chapter 3 Summary: Managing the S Curve
Synopsis:
The development and introduction of a new product follows an investment or progress profile
that looks like an S. It starts out slowly and then gains progress and then tapers off, as the last
step to final progress takes longer. Developing a new product is not easy to plan. It has many
interdependent steps that result in non-linearity in the progress to completion of the new product.
The main process to develop products is called a stage-gate process that helps guide the right
development tasks and check progress and timing of concurrent tasks. There are many tools and
templates for guiding this stage-gate type process and each company has selected and continues
to refine these tools to fit its needs for product introduction timing and cost-benefits projections.
Every company has defined its own New Product Delivery process. The major aspects of these
processes are the guides for decision-making. A number of these tools are shown in exhibits in
this chapter. It is important to understand the S curve of New Product Development in order to
then understand what it takes to bring a product to the beginning of this development, namely the
beginning of the S curve.
Discussion:
1. Describe how a stage-gate process may lead to a non-linear set of efforts to complete
a new product?
2. Compare the templates in this chapter for which require more customer versus
technical data?
3. Which template would you feel gives the best insights for determining a cost-benefits
analysis to support a product development?
4. Can you give another example using the QFD, maybe for a consumer product you
know?
5. Which tool would you prefer to use for New Product Development decisions?

Chapter 3: Managing the S Curve
The decision to launch a product engages nearly every function in a company. This stage of
R&D is commonly referred to as New Product Development. With a product launch the classic S
cycle is started. It consists of three general slopes: introduction, growth, and maturity. Figure 3-
1 illustrates the average life cycle or S curve for a product introduction in units sold, McGrath
(1996). The investment for this new product looks similar to this curve but time shifted to Year 3
and peaks at the first product sales point, usually Year 6. Figure 3-1 illustrates the significant
product volume advantages if the development time can be reduced. For the past several years
most companies have refined their NPD processes in an attempt to bring the major business
operations (manufacturing, engineering, quality, supply, sales, etc.) together in parallel instead of
having them react in sequential steps. One well-practiced process is called PACE (Product
Acceleration through Concurrent Engineering).
The Product Life-Cycle S Curve
Product life cycle curves with normal and faster time-to-market.

[Ref. Michael McGrath, Setting the Pace in Product Development, page 4]
Figure 3-1. Product Life-Cycle Curves with Normal and Faster Time-to-Market, McGrath (1996)
The S curve is well founded and forms the basis for improving the NPD process. For the
electronics industry the average time from product launch to market introduction is 3 years. NPD
processes must control the development costs as well as manage ways to decrease the
development time. As illustrated in Figure 3-1, the benefits of decreasing the development time
by 50% to 1.5 years leads to a 75% increase in total product sold by the peak of the S curve (year
6).

3.1 Stage Gate Process
A well-known management guide to product introduction is called the Stage Gate Process and
has been refined by R. G. Cooper (2001b). Figures3-2 outlines the steps in this process.
Stage Gate Process (R. G. Cooper)
Figure 3-2. The Stage Gate Process Major Steps [Cooper (2001b)]
The major advantage of the Stage Gate Process is that it sets a common framework that drives
decisions in the organization. Product idea supporters drive the staging and management drives
the gates. One challenge for the stage-gate process is that it is possible that projects can exist
within a stage for a long time. There is a tendency to not kill projects but allow them to linger.
This is often an easier role for management than making the tough decisions of which projects
should be funded at all.
At Gate 1, Screening, product ideas are brought forward by the ‘champions’ and management
authorizes that a preliminary business case be prepared defining the investment requirement and
the estimated return. At Gate 2, Assessment, funding is authorized to prepare a detailed business
case. Usually each company has methods and templates for forecasting the non-recurring
development costs, the product cost, the sales price, projected sales, and eventually a return on
investment. At Gate 3, Development, the business case is accepted and funding is authorized for
initial product development and production. This is usually a significant effort and involves
nearly every aspect of the organization. At Gate 4, Validation, Initial feedback from launch
customers is used to validate and update the business case for the new product. Again each firm
has its own guidelines for the extent of data needed to validate the forecasted business plan. At
Gate 5, Commercialization, full product sales is started and full-scale production is authorized.

In addition to the process there have been a large number of tools and forms that have been used
to help develop the information for the gate reviews. Some of these are shown in Exhibit 3-1
with a brief description of what information is needed and what conclusions are expected. These
forms are difficult to fill-in completely and accurately for the product creation category of new
products. For the lower risk types of new products the forms are important activities and some
subset of the guides should be used as part of the activities in the S curve and the stage-gate
process.
Examples of filling in two of the more popular guides are shown in Exhibits 3-2 and 3-3. In
Exhibit 3-2 the Value Chain Mapping template is used to determine the supply chain and the
needs for each entity in the supply chain. The example new product is an in-home medical
evaluation device. The new device is based on a study that shows if a disease could be detected
early, surgery can be avoided. Surgery costs total over $3B in the US alone for emergency
treatments of this disease. Initially it seems quite simple how a company might sell this product
and there seems plenty of value to be gained. The first approach is to sell it to the patient through
their insurance provider, like an HMO. From there the patient eventually gets the product from
the doctor. As the form is filled in it is unclear that there is a sustainable value chain. How does
the HMO, the clinic, the doctor gain value in providing this new device for use in a patient’s
home? And then who validates the data? The entity validating the data provides the majority of
the value in the product, by giving the data to the patient as they use this device. With the
original market approach it seems the company has a small portion of the overall value. A
second approach is then devised to sell the product directly to the in-home patient. But how does
the patient bring their insurance provider into the value chain? Clearly there is more market
research needed to understand how this could happen such that everyone in the supply chain has
some value added.
3.2 Quality Function Deployment
Exhibit 3-3 illustrates using the QFD guide to understand which of the key design parameters for
a new technology are well matched to the need for a portable electric generator. The new
technology is based on a new version of a thermoelectric material. This material with a circular
design can produce large currents with a 100 deg C temperature gradient across the elements.
Using a propane burner to create the heat a 5-kilowatt unit can be built. An inverter is added to
produce the electricity into a 240VAC, 25A service. The initial theme is to understand which of
the key design parameters match well with the home application and which work against
providing the best solution. A + or ++ is used to indicate where a positive or strong positive
relationship exists between the need and the design for that parameter. A – or – – indicates that
the design parameter has a negative or strong negative impact on meeting that application need.
A blank indicates there is a minimal relationship. The choice to use a propane fuel burner seems
like a very good match to the home application. Also this technology being based on solid-state
components will provide a high reliability that should provide a market pull. The most unique
part of this technology, its unique materials and unique assembly, really do not match any need.
However it is the key to making the unit functional. This indicates a development project must
focus on controlling the cost of this aspect since it is the highest cost driver in the product.

Exhibit 3-1. Market Investigation Tools and Templates
Voice of the Customer Process
1. Document Information Objectives: Outline the key design decisions and identify
the information needed
2. Create a Structured Questionnaire: Provide consistency between interviewers and
interviewees, 30 to 40 questions
3. Broad list of interviewees: Some marketing firms recommend 30 interviews with
people from at least 5 different job categories
4. Technical people also involved: Use the opportunity to add depth to the interview
after the questioning session, record the sessions
5. Transcribe each interview: Segment key information by design decision
categories
6. Group Analysis to define product features and marketing strategy
The voice of the customer process has been refined by Burchill and Brodie
(1997). It typically takes 1 year of effort from originating the questions to
collecting and transcribing 30+ interviews to the analysis. The intent is to
discover unmet needs that are not obvious to any single person. It also brings data
to the challenge of forecasting a need.
Value Chain Form
Supplier Inputs Requirements Customers Output “End-User” Requirements

(Direct, Indirect and Final)
Enterprise
Direct Customer
Key Measures
Indirect Customer
Key Measures
Indirect Customer
Key Measures
Indirect Customer
Key Measures
Indirect Customer
Key Measures
Final Customer

The value chain analysis is an excellent activity when investigating a new market.
The thinking usually starts at the final customer and their requirements. Then the
team works to fill in the supplier-customer links back to the broad economy. Then
a new business can define its role and its value in the complete supply chain.
Refining Value Proposition
Identify Customer Needs Connect Needs to Features Capability and Assets
Offering: Differentiates: Have: Need:

• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
Customer Value Proposition

•
•
•
•
•
•
•
Change from Previous Value Proposition Difference from Competitors’ V-Ps

• •
• •
• •
The value proposition form focuses the thinking onto why the customer values the
new product. This analysis requires significant domain knowledge of the entire
business. It attempts to show how the capabilities of the firm meet or exceed the
value expected by the customer.

Qualitative Market Research Plan
Business Objective (What is to be decided or what is to be learned?)
Candidate Solution(s) (Specify to the degree that measurement is implied or specified)
Research Objective (What do you want to know about your candidate solutions?)
What information in needed? Whom would you like to talk to? Capable? Willing? Accurate?
(What are the key measures? What relationships are you looking for with the measures?)
Data Collection Plan Who will collect the data? Focus Group or one-on-one interviews? Define all elements which could create variation (e.g. What is the population?; Sampling Methods;
Procedures; Experience and Training of Data Collectors cost and timing)
Analysis Plan (What methods will you ultimately use to quantify the importance of customer needs?)
Market research relevant to a product can at times be purchased or a marketing

firm can be retained to conduct the research. This effort works well when trying
to define product improvements. The goal is to provide a clear insight to which
new features would be most desired by existing customers.
Product Design FMEA Form Initial Assessment
Product Feature Potential Failure Mode Potential Failure Effects S O Current Design D R
Potential
or Function E C Evaluation or Control E P
Causes/Mechanisms
V C T N
detect the cause of FM?
that the cause will occur?
How severe is the effect
What is the In what ways can the What is the impact on the What are the tests,
What is the likelihood
What causes the failure

How difficult is it to
to the customer?
function or feature function or feature fail to Customer (Internal or mode to occur? methods or techniques
under be delivered? External)? to discover the cause
consideration? before design release?

The Failure Mode Effects Analysis (FMEA) comes from an engineering design
tool used to define and then eliminate failure modes. By avoiding these failures it
is expected that success is the outcome. This tool can be effective to forecast the
NPD development timeline and market introduction costs.
Quality Functional Deployment Tool
Feature House of Quality
Optional
Kano Dimension
Priority Competitors
Customer Features
Requirements
House of Quality
Cost of feature, risk, time to market
The House of Quality or sometimes called, Quality Function Deployment, has the
activity of building a relationship matrix between the customer requirements and
the new product features. It can prioritize tradeoffs between needs and technical
details based on value creation. It relies on defining and prioritizing customer
needs or product features against various technical approaches. This tool has
been used very successfully by large equipment or automotive manufactures to
drive technology choices to exactly match desired customer expectations

Exhibit 3-2. Example of Value Chain Mapping
Value Chain Delivery: Home Health Device
Supplier Inputs Requirements Customers Output “End-User” Requirements

(Direct, Indirect and Final)
‘MD Device + Accuracy,

Our Company Home HMO Trained
Software Calibration technician
garage’ Setup Kit Installation
Our Home HMO

A Company Kit Lower Cost
Clinic
Throughput
Doctor
Patient Comfort
Our
B Company In home Patient
Our supplier (MD Garage) has invented a device that can detect the onset of
blocked arteries. It consists of a simple optical measurement that can be done at
the end of a finger. A small unit is connected to the home computer and the data is
logged. If there is some change the computer contacts the clinic and a doctor
advises the patient of the next step. Where is the value in the product?
Patient—no lost time, comfort
HMO—lower cost treatment.
We plan to sell a home kit (Approach A). As this is filled in we envision that the
value chain is through an HMO, a clinic and a doctor before the product gets to
the in-home patient. Each entity in the value chain has a different motivation.
With this thinking then the definition of what product they sell reflects who is
their direct customer: the HMO.
As we review this supply chain we can see that we may be offering a small part of
the overall value. Maybe we should switch to a different Approach (B) where we
sell direct to the patient. But this raises several questions about where then do the
patient’s insurance provider and doctor fit into the value chain. This simple
activity points toward where more market research is needed to define this new
product.

Exhibit 3-3. Example of QFD Relationship Matrix
Thermoelectricity (TE) is a property of certain materials that produce an electrical

current when in a temperature differential. The idea is to use a number of these
TE elements in a ring to produce a very large electrical current from a propane
burner. This current is then conditioned to produce a reliable, portable high power
electricity source.

QFD Relationship Matrix
Portable TE Generator
Major Design Parameters
No Moving parts, Solid state
Special Materials, Assembly

Conversion DC to 240VAC
Propane Fuel Compatible

5000KW energy
All metal parts

design
output
NEEDS
Low Noise ++ - +
Energy Effecient + - +
Portable - ++ --
Energy for a home ++ ++ ++
Long Life ++ - + + -
Cost Effective + - + --
A stand-alone 5-kilowatt generator can be produced. Shown above is how the key
design parameters relate to the needs for a portable generator for use to power a
home. A “+” or “++” shows a positive relationship where as that parameter
improves the better the need is met. A “–” or “––” indicates there is a trade-off in
optimizing that parameter against the need.
Exhibits 3-2 and 3-3 are two New Product Ideas that could become Disruptive Innovations.
When the value chain mapping does not quantify a clear value add for each part of the value
chain, the chance for the product to be easily adopted and successful is challenged. In Exhibit 3-
2, the Home Health Device, there is limited or no value created for three parts of the value chain:
the HMO, the clinic and the doctor. Thus there will be a challenge that this product will have a
business model that can deliver the product to the end customer, the patient. The Disruptive
Innovation would be Option B where the product is directly delivered to the patient. However if
the patient is under a managed health care, i.e. health insurance or part of an HMO there will be
negative incentives for the patient to bypass this managed health care system.
In Exhibit 3-3, the Portable TE Generator, the QFD tool illustrates that this technical idea has
many trade-offs between the technical approach and its features or needs. Thus the product will
need to be tightly focused toward a specific market segment. It is unlikely this portable

generator can be introduced at a lower cost or higher energy conversion efficiency than gasoline
powered generators. Thus a specific customer should be identified and developed as the product
is developed. Through this combined technology and market research a totally new product
could arise.
Once we have insights into the New Product Development Process it can be the basis for what it
takes to bring a product to this point of product launch. The remainder of this handbook will
address the steps to bringing a product to a product launch process. This will address the
question: What Precedes the S Curve?

Chapter 4 Summary: The Barriers to Product Launch
Synopsis:
The development of an idea into a product does not follow a smooth, linear pace of development.
The development tends to stop and re-start at three major decision points. These bound two
product development phases that address two different aspects of the business case for the
product. A long list of product examples is used to define these three decision points and two
development project types. The three major decision points are:
1. What to start with

2. Define the unmet need in the marketplace
3. Detail the cost-benefit analysis for the product idea.
The two major development phases are:

1. Achieve technical feasibility (i.e., invention)
2. Achieve market feasibility (i.e., commercialization)
These decision points introduce delays and what appears as re-starts in the product development
timeline. There is a long example of gyroscopic sensor developments that illustrate the decisions
and technical challenges of developing a product based on a new, emerging technology versus
creating a new product based on the existing, proven technology. The point of this long exhibit
is that simply making decisions about a product is always complicated by other ideas that
compete to provide the same function to the marketplace.
Developing a process that helps guide a product idea through these decision points and
development phases is addressed in the next chapters.
Discussion:
1. Give an example of the decision that might be addressed at each of the three major
decision points for a product you are familiar.
2. For the exhibit detailing the rotation sensor for a navigation system, what would you
favor, pursuing the established ring laser gyro technology as an incremental new
product or starting a new-to-the-company product based on the fiber optic gyro?
3. Do you agree or disagree and explain your reasoning about the average timeframe of
nine years for the Management of Innovation timeframe to bring a product into a
product launch?
4. Can you think of some products that could be done in a shorter timeframe than 9
years? An example of a .com product idea is listed in the first table.
5. Can you think of some products that might take longer than the 9-year average? An
example of a medical product was in an exhibit in Chapter 2.

Chapter 4: The Barriers to Product Launch
What is not considered in great detail is what investment comes before the S curve? Sometimes
managers refer to the efforts needed for technical and market feasibility as basic R&D. In a
typical firm R&D (Research and Development) costs will represent between 5 and 10% of its
total revenue. Of those R&D costs nearly 90% is part of new product development costs leaving
less than 10% for this basic R&D. So one can see the reasoning for most firms to not intensely
manage this basic R&D stage since it represents a line item that is at most 1% of the firm’s
revenue.
During this basic R&D stage hundreds to even thousands of product ideas are considered. For
Honeywell the average time an idea was in “research” was 10 years. Professor Otto Schmitt, of
the University of Minnesota, also tracked nearly 100 product ideas showing the average time
from idea generation (his specialty) to product introduction as 13 years.
Idea First Product Product Total

Product Originated Breadboard Dev Start Introduction Years
Ring Laser Gyro 1963 1966 1979 1982 20
Fiber Optic Gyro 1980 1984 1989 1992 13
MR Automobile Compass 1985 1986 1989 1991 7
MR Gear Tooth Sensors 1985 1988 1993 1997 13
Low Perf. Compass 1985 1986 1997 2000 15
Wash Process Sensor 1986 1988 1991 1994 9
General Purpose Magnetometer 1986 1992 1993 1995 10
Vehicle Detector 1987 1994 1996 1999 13
Laser Distance Sensor 1987 1990 1995 1997 11
2-Wire Avionics Prox. 1988 1990 1999 2002 14
Magnetic Lateral Guidance 1989 1994 1996 1998 10
Military Compass 1990 1996 1997 1999 10
Head Orientation Sensor 1990 1997 1997 2000 11
Non-Contact Valve Positioner 1991 1995 1996 1999 10
Emi Hardened Railcar Prox. 1993 1995 1997 2000 8
Myfacilities.com 1999 1999 2000 2000 2
Table 4-1. Average Time from Idea to Product: 12 Years
Table 4-1 shows a summary for a sample of new-to-the-world products introduced by

Honeywell. For each product the three key barriers and then the product introduction dates are
listed. The first breadboard is the completion of the technical feasibility activity. The product
development start is the completion of the market feasibility activity where a business case is
validated and used for the product launch decision. On average the time from idea to product
sales is 12 years. This separates into approximately four years for getting through the technical
feasibility barrier, five years for completing the market feasibility and then three years for
product sales after the product development start decision.
An illustrative case study for basic R&D is the 10-year activity of a Japanese firm, Yamatake, to
establish a basic R&D capability. Yamatake initiated the R&D center, called the Solid State
Advance Center, in 1985. From 1985 to 1995 this center grew from three projects to more than

80. As the managers tracked these projects they noticed three barriers to proceeding with an idea
and two technical activities before a product was launched. The three barriers are:
2. Define the unmet need in the marketplace
3. Detail the cost-benefit analysis for the product idea.
The two major development activities are:

1. Achieve technical feasibility (i.e., invention)
2. Achieve market feasibility (i.e., commercialization)
The timeline for these barriers and activities that precede the S curve are illustrated in Figure 4-1.
The effort between the three major activities--technical feasibility, market feasibility, and
product launch grow exponentially. It would be expected that if completing the laboratory
demonstration takes one full time equivalent (FTE) for one year of effort, working with a test
customer to complete a field demonstration will take two FTE-years, and the product launch
effort to complete the product introduction will take four FTE-years. Knowing how much effort
was involved in the technical feasibility and market feasibility can serve as a guideline for the
product development costs.
Management of Innovation is What Precedes the S Curve
Evaluating Product Ideas NPD
Effort Product
(log scale)
Launch
Product
1 2 3 S Curve
Time
Technical Market Product
Feasibility Feasibility
The three barriers an EPI process must address:

2. Identifying a true unmet need (lead user model)
3. Establishing risk vs. benefits analysis (technical marketing model)
Figure 4-1. R&D Issues that Precede the S Curve

4.1 Barrier 1: What to Start With
The first barrier to managing research and development is to determine what projects to start.
Every project starts with an idea. Ideas can come from a multitude of experiences including
people in every job category, customers, and suppliers. The first step to getting through this
barrier is to setup an environment where ideas can be brought forward for evaluation. Some
companies have formal processes to solicit ideas at specific times of the fiscal year. Some create
a culture where it is expected that a measurement of an employee’s performance is how many
new ideas were put forward. A formal process to invent does not often create the best ideas. The
most successful method is where management listens and attracts ideas from all employees as
well as brings forward their own ideas. These ideas are then prioritized and the leading ones are
funded to determine their technical feasibility.
4.2 Barrier 2: Defining the Unmet Need
Once technical feasibility has been demonstrated, the next barrier is finding a business value for
the idea. This business value can best be defined as an unmet need. An idea or an approach needs
to be envisioned where this technology could solve a problem or create a value for customers.
There is often more work and insight needed to forecast this unmet need than getting through the
first barrier by forecasting a new technical idea. As a result sometimes many good technical
achievements are put on hold waiting for this insight to surface. The process to work through this
barrier can be more easily managed and judged than for the first barrier. Often marketing staff
can lead this effort (or more appropriately teamed with the technical staff) to forecast how this
new technology can create a business value. Again projects are prioritized and a market
feasibility project started. The market feasibility project still involves significant technical work
with the technical work directed at validating the product idea’s ability to meet the unmet need.
4.3 Barrier 3: Detailing the Cost-Benefit Analysis – The Business Case
Once the market feasibility work is done the next barrier is the preparation for a product launch
decision. This is typically called the business case. The purpose of the business case is to forecast
and detail the costs and the benefits for the product launch. Most companies have a business case
template that plays to their strengths and strategies. Again many product ideas can get stuck at
this barrier for significant time till the risks seem manageable compared to the benefits.
Sometimes a second or third market feasibility project needs to be performed to research and
validate the true unmet need.
4.4 Comparison between Different Industries
The barriers are typical for a new idea to work its way on an original path to the marketplace.
Companies that specialize in new-to-the-company NPD will manage this entire development
process. Companies that specialize in market penetration or market extension may start ideas at
the third barrier: Detailing the Cost Benefit Analysis. Here the technical feasibility and market
feasibility can be determined without a major technical development project. Companies that
specialize in Product Improvement NPD may start ideas at Barrier 2. They might use a strong
market pull method to solicit ideas and select market feasibility technical development projects.

One can think that service business companies would tend to start at Barriers 2 and 3. Innovative
manufacturing companies would certainly start at Barrier 1.
4.5 An Example: The Navigation Heading Sensor or Gyro
The competitive development of the ring laser gyro and the fiber optic gyro is a fascinating story
(see Exhibit 4-1 on page X) that gives insight to the challenges of evaluating ideas. The ring laser
gyro was the first rotation-sensing device based on solid-state (no moving parts) technology. The
theory originated in the 1890s. Not until adequate electrical and optical components were
available was a gyro built based on this Sagnac theory. It took nearly 20 years before products
were introduced. The unmet need that finally built the business case was the need to eliminate
the third pilot or navigator in commercial aircraft flights. Thus an accurate and reliable automatic
navigation system was needed. Today this technology has nearly replaced the use of the
traditional spinning mass gyroscopes used for heading sensing. In the 1980s several companies,
including Honeywell, were faced with a new version to the optical gyro—the fiber optic gyro. It
was forecast that the advantage of a fiber as the light guide allows the fiber gyro to be an easier
device to build since it would eliminate the need for a precisely machined optical block. These
companies faced the challenge of evaluating the promise of the new technology versus the
growing abilities of the not-so-old technology.
Exhibit 4-1 is a presentation that walks through this technology development challenge during
the 1990’s. As you review this it is of interest to consider what processes could be used to
evaluate product improvement NPD versus new-to-the-world NPD. There is always this issue of
when to obsolete your own products. The three processes described in the next chapter for
bringing new product decisions forward can provide a common basis for valuing the portfolio of
NPD options. This activity consumes 75% of the time from idea to product introduction. It is the
time that is the most difficult to manage because of the diversity of problems that arise.
By 2010 the competition between the RLG and the FOG technologies had been resolved by the
marketplace. Both technologies continued through the 1990’s and early 2000’s to get significant
funding and NPD ideas. By 2010 the RLG technology was the basis for over 80% of the
precision navigation business.
4.6 Summary
There are three barriers that a completely new idea or technology must pass. There are three
general processes to completing this Management of Innovation effort and passing the product
idea through the barriers. These approaches each reward a different theme that can be defined as
revenue-first, profit-first, or loss-leader. Based on the firm’s balance between risk aversion and
strong growth, managers would emphasize one of these approaches more than the other but they
all were and are used. The next three chapters will focus on each of these processes to
Management of Innovation and illustrate with examples how different business results are
achieved. One method or strategy is not a guarantee for success and adopting different strategies
and processes for each idea may be needed.

Exhibit 4-1. Fiber Optic Gyros vs. Ring Laser Gyros
Land Navigation System
Historical Overview of Automobile Navigation Technology

Date Technology
< 60 AD Odometer
200-300 Differential odometer
1100-1200 Magnetic compass
1906 Gyrocompass
1910 Programmed route
1940 Loran positioning
1964 Satellite positioning
1966 Proximity beacon
1971 Map matching
1980- Combination of those technologies
Navigation has been a need and a challenge to mankind since civilization began.
The past 1000 years has involved many developments leading to the use of
combined sensors to make an accurate system. Today’s systems incorporate 3
rotation sensors (gyros), 3 accelerometers, a magnetic compass, Global
Positioning System (GPS) location system, and a processor
Principles of Navigation
Navigation involves:
1. Determination of velocity components

! ! !
Technique: ν = ∫ (a + g )dt
! !
where a is the gravity vector and g is the sensed acceleration
2. Determination of position with respect to starting point

! !
Technique: d = ∫ν c dt
! !
( )
where ν c is velocity vector corrected for heading Δ θ
Corrections:
1. Rotation Sensors (gyros) used to keep track of the gravity vector and heading
2. Altitude used to compensate for gravity magnitude changes
3. Latitude and longitude used with numerical model to correct for gravity vector
deflection anomalies

An inertial navigation system determines position using only the gyro and
accelerometer signals. Calculating a distance vector and adding it to the last
position track the position. The distance vector is calculated from the second
integral of acceleration. The rotation sensors keep track of the gravity direction
and the orientation of the moving body so the integration is consistent in the
body’s coordinate system.
Gyro and Acceleration Background Errors
Earth’s Rotation Rate 10 deg/hr + 0.0000015 deg/hr
Gravitation 1.0 g + 0.000025 g

+ 0.001 deg N deflection
+ 0.001 deg E deflection
The noise of the earth’s motion is quite small but can still factor into a precision
system’s performance. Both the rotation rate and gravity are stable to parts per
million. However gravity as a vector does have a direction variation across the
surface of the earth. Gravity also has a special variation in amplitude across the
surface of the earth. The illustration shows the amplitude change of gravity from
the west coast to the east coast across the center of the United States.

Navigation Errors
d = 21 a t 2
Δd = 21 Δa t 2
Δa ~ anoise + Δaheading
anoise ~ 1⋅ g r ⋅ resolution
Δaheading ~ g sin Δσ
Δσ ~ k ⋅ t k ⋅ drift stability
Δd ~ 21 g ⋅ (r ) ⋅ t 2 + 21 g ⋅ (k ) ⋅ t 3
1mg accel (r = 0.001) Δd ~ 50m @100 sec
1deg/ hr gyro (k ~ 5 ⋅ 10 −6 ) Δd ~ 23m @100 sec
Because of the integration of the sensors, the computed signal from the offset in
the sensors can grow rapidly. An example shows how a rotation sensor with a 1
deg/hr offset leads to an error in the location determination of 23 m in just 100
seconds. This might be acceptable for a missile having a very short flight and not
needing great precision but is not good enough for a robot moving about a
building.
Technical Approaches to Inertial Sensors
Rotation (gyro)
1. Stored energy K = 21 ω2 , = 32 Mr 2
! ! !
2. Coriolis force a = −2Ω × ν
3. Sagnac effect for EM wave Δf = 4A
λP
Ω
Acceleration
! !
1. Spring force F = ma = −kx + γx" + λx 2
! ! ! !
2. Precession (pendulus gyro) τ = r ×F = Ω×L
The gyro is the instrument that limits inertial navigation system accuracy. From a
physics perspective there are only three fundamental concepts for measuring
rotation by being on the moving body. These are spinning (original gyro), Coriolis
(used by MEMS ideas), and Sagnac (optical gyros). For measuring acceleration
even fewer fundamental concepts are available.

Gyro Technologies
Even though there are only three basic concepts to gyros, there have been
hundreds of gyro designs. This field is well studied and there are several efforts to
categorize between the many designs. The R&D of gyros has been a significant
activity for the past 50 years, and it continues.

Alternative Optical Gyro Technologies
The basis for an optical gyro is the Sagnac Effect. This concept discovered in the
late 1800’s by Sagnac when doing experiments with interferometers. Not till the
1950’s did developers devise designs that could use this concept. The advantage
an optical gyro can have no moving parts and thus very long lifetime. There are
three basic approaches to an optical gyro, with the Ring Laser Gyro being the
most successful to date.
First RLG Technical Feasibility
One of the first laboratory ring laser gyro’s, Honeywell 1965.

Ring Laser Gyro Functional Diagram
Ring Laser Gyro Functional Diagram
The design of the Ring Laser Gyro (RLG) establishes a clockwise and counter
clockwise laser beam inside an optical cavity. Typically a three-sided glass block
is used to determine a plane for the laser paths.
RLG Blocks RLG Blocks
(Four sided versions are also available that offer the option to keep the two
counter rotating beams on different planes). At one of the mirrors the beams
interfere and some of the light is allowed to leave the cavity. This ripples in this
interference pattern change based on the rotation of the glass block.

RLG Lock-In
• Primarily due to backscatter in the mirrors

• Two oscillators are no longer isolated
• Lock-in of the two oscillations occurs for small or no rotation
• Solutions (circa 1965)
1. Honeywell: mechanical dither
2. Sperry: magnetic mirrors
3. Litton: multiple frequency oscillation
The heart of the RLG is the glass block. They are fabricated at various sizes to
optimize cost and performance.
The 1342 RLG
The major performance issue to an RLG is backscatter in the cavity or mostly at

the mirrors such that the two beams (CW, CCW) do not act independently. If this
backscatter signal is too large the beams lock together and are not sensitive to
rotation. There are three basic methods to minimize this problem and a different
company preferred each in the 1960s.

Honeywell Inertial Sensor History
* Where is the threat or the opportunity?
Honeywell at this point had a major technical and business achievement with the
launch of the RLG. It served a new need for precise navigation systems in
commercial aircraft. Now they were faced with the next challenge: how long
would this technology be competitive in the marketplace. Within a few years
another technology—the fiber optic gyro (FOG)—would begin to achieve
moderate technical performance. University researchers were forecasting it as the
next major gyro technology. Honeywell was faced with the challenge of where to
invest its R&D—into new versions of the RLG technology or into the emerging
fiber gyro technology. To the left are two charts that were used to forecast that
both technologies had an important future role. Then the story continues with the
FOG technology development.
Today the Honeywell RLG is the leading technology for high performance, long
life gyros. Noise drift is better than 0.01 deg/hr and this performance is warranted
for 100,000 hr of use.

Risk Comparisons and Strategy
RLG PW
FOG SARU FOG AHRS Guidance
777 HEXAD A320 ADIRS
Strategy: Threat over Opportunity
The challenge now being faced was directing R&D funding toward more market
penetration and market extensions with the RLG technology or doing new-to-the-
company products with the fiber gyro-technology.
All the various technologies – smaller RLGs, longer life RLGs, and Fiber Gyros –
met a specific need in the marketplace. The arguments for threats often pushed
forward incomplete business cases.
RLG Business Summary
The RLG business case was initially poor but today it is an outstanding success.

The fiber gyro went through a steady rate of technical improvements to lower its
noise and improve performance. This progress was closely watched by RLG
manufacturers to assess if this optical gyro approach would out perform or be
lower cost than what could be projected for RLGs. For this technology the
business case needed >15 years to achieve financial success. And the life of this
product in the market will be >30 years. The RLG is an excellent example of
where technology based products may need longer planning horizons than typical
products.
Fiber-Optic Gyroscopes
The next generation optical gyro is the fiber optic gyro (FOG), which uses optical
fiber for the optical path. Most of the optical components can be mounted inside
the fiber ring, typically 10. The fiber gyro went through a steady rate of technical
improvements to lower its noise and improve performance. This progress was
closely watched by RLG manufacturers to assess if this optical gyro approach
would out perform or be lower cost than what could be projected for the RLG.
FOG sensors require thousands of meters of fiber are used in the fiber ring. In this
technology the component costs and the assembly precision are the major cost
drivers.

Fiber Gyro Projected Performance (estimate)
The fiber gyro went through a steady rate of technical improvements to lower its
noise and improve performance. This progress was closely watched by RLG
manufacturers to assess if this optical gyro approach would out perform or be
lower cost than what could be projected for RLGs.
FOG Renaissance
• 1970’s: University research

– Univ. of Utah, Vali, paper 1976 proposed the first configuration
– Stanford, Shaw, research group 1977
– Graduated the majority of leading scientists in the IFOG field
– Litton primary funding source, owns most of the patents
• 1980’s: Interest from optical component vendors
– Thomson-CSF: strong integrated optics capability, research led by two
graduates of Stanford, key patents
– McConnell Douglas: miniaturized optical components, strong program in
Navy’s FOSS program
– SEL, Mitsubishi, NEC and others
• 1990’s: Inertial sensors producers join in
– Litton, JAE, Honeywell, Sperry, Smiths, BAE, etc.
The competition of the FOG technology shows four transitions of the major
technology developers. First it was the universities. Then optical component
manufacturers saw FOGs as a higher system assembly they could sell. Then
eventually nearly every gyro manufacturer had product developments. Today only
a couple suppliers are left.

FOG Business
In Honeywell, a FOG product was launched in the early 1990s, mostly based on a
lead user need. The business case was projected to be very poor and it only got
worse. The manufacturing cost of the gyro could not be reduced with volume.
As a result the cost-performance of the FOG was not above the RLG and still has
a difficult time capturing a major market share. FOGs are being very successful
in non-RLG applications such as spacecraft and quiet submarines.
Gyro Scaling Laws

Bias Stability vs. Size—What Power Law?
It is interesting to study or find ways to compare dissimilar technologies that are

competitive for the same applications. Here is a summary of various gyro
technologies compared by noise (long term bias drift) and their size. Although
there is no technical reason for a boundary, one exists in practice relating to the
size and gyro performance.

Chapter 5 Summary: Processes for the Management of
Innovation
Synopsis:
The major objective for Management of Innovation is to drive and manage ideas through the
three major gates or decision points leading an idea to a product launch decision. There are a
number of processes to guide these decisions. The major need is the forecasting of the
technology readiness and the market readiness. There are three general approaches or processes
to create these forecasts, each focusing on a different business objective. These are named:
1. Revenue-First
2. Profit-First
3. Loss-Leader
Because of the different overall business objectives the three processes involve different
approaches to collecting, measuring, and demonstrating the data and information to drive
decisions through the three decision points. Each process is illustrated with a simple series of
steps and examples of a new product development for that process are described. These
processes are also contrasted in the advantages and disadvantages that they have toward certain
business metrics such as managing development costs and matching customer needs.
Discussion:
1. Which of the three processes do you feel is the easiest for you to manage? What
skills are needed to manage this process?
2. Which of the processes seem the most difficult for you to understand, and direct to
guide the Management of Innovation for a new product development? What skills or
knowledge are you weak in for this process?
3. As described for the Bubble Jet Printer product development, what are the key points
that match it to the Revenue-First process?
4. As described for the Current Sensor product development, what are the key points
that match it to the Profit-First process?
5. As described for the MyFacilties.com product development, what are the key points
that match it to the Loss-Leader process?

Chapter 5: Processes for the Management of Innovation
Within the four general categories for new product development—Market Penetration, Market
Extension, Product Improvement, and Product Creation—the Product Creation or new-to-the-
company products are the most difficult to forecast. The process of forecasting is setting targets
for the development costs, the sales volume, the selling price, the profit rate, and the overall
product life-cycle schedule. The activities of technical feasibility and market feasibility drive this
forecasting data and targets are continuously being updated for accuracy and what would create
value. Throughout these developments there is significant technical effort to validate the target
data and thus produce the business case. The product launch decision is based on the risk versus
reward outlined in the business case and its credibility with the managers.
Exhibits 5-1 and 5-2 are two examples of new-to-the-world products that are from Japan. The
first is a summary of the development of the bubble jet printer by Canon. It is thought of as one
of the best commercial successes ever. The second is the development of a new accelerometer
(JA-30) by JAE. This product is clearly a significant technical achievement but it does not create
value for any major application today. The Bubble Jet story illustrates how there were first
technical feasibility accomplishments and then work focused on market feasibility activities. The
JA-30 illustrates how assumptions were made about the market feasibility but little effort was
done to work this issue directly. It is this example that sets the basis for why processes are
needed for evaluating product ideas so that as the product evolves it is matching with an unmet
need and defining a value.
The three basic processes for Management of Innovation are titled Revenue-First, Profit-First,
and Loss-Leader. Each of these will be outlined with examples in the next sections. It is not the
question, which is better. Each has its advantages and disadvantages. The major points are
summarized in the table below. Thus certain overall business strategies may favor one process
over another but in general all businesses will use each of the processes at some time.
Corporate Strategy
Process Match Main Advantage Main Disadvantage
Revenue-First Growth Most of Non-Recurring Unplanned losses can arise
Engineering can be quickly if risk is not bounded
recovered in initial order in the development contract
Profit-First Picking Opportunities Forecasting of profit is most Lengthens time to market
accurate of the targets because of intense financial
analysis and validation
Loss-Leader Defending Threats Fastest time to product Market forecast based on
launch decision lead user with vision that
routine users will eventually
adopt new product
Table 5-1. Comparison of Three Managing Innovation Processes

The Bubble
Exhibit Jet concept
5-1. The Bubble-Jet Printer Development
The Bubble Jet Concept
In 1975, Ichiro-Endo experiences a mistake where a soldering iron dropped on to

a syringe full of ink. A bubble of ink spurts out. Technical feasibility is completed
in the late 1970’s and patents are led. The motive is to find new ideas, never copy.
1975: Ichiro Endo drops soldering iron on syringe needle and ink spurts
out
1985: Endo-san while at a conference in Seattle contracts with Field
Exploration Company to build rugged printers
1990: BJ-10 low cost, notebook sized printer introduced
1995: 20 millionth bubble jet printer sold
• How did this new-to-the-world product pull the technology along?
• Canon wants to model this success and is challenging Endo-san (now

CTO) to create the new R&D process, but not take 15 years.
Endo-san, through motivation to commercialize his technology, leads the market

feasibility activity. He searches for applications and drive technical improvements
to meet them. In 1985, he contracts with Schlumberger for printers that will work
reliably for oil exploration crews.
From the field-durable commercial success, a low cost printer is engineered for
the consumer market. The bubble jet printer is an example of the potential of the
new-to-the-world products. Canon wants to model this success and is challenging
Endo-san (now CTO) to create the new R&D process, but not take 15 years.

The Bubble Jet Printer—Product Creation

Exhibit 5-2. The JA-30 Accelerometer Development
Technology Driven Product Development
Japan Aviation Electronics (JAE) is a long time provider of navigation systems.

The basis for their business success is the acceleration sensor. In 1996 they began
the technical feasibility for a full 3-Dimensional sensor in a single package.

Technology Driven Product Development
The JA-30 is a tremendous technical accomplishment. It has a unique process and

assembly method. A unique analog signal processing ASIC was developed to be
packaged with the sensor and perform the complex calibration calculations.

JA-30: Technical Breakthrough without a Market
Technical Price MEMS

Accelerometer Markets Match Match Volume
Aviation AHRS - + 0
Motion Detection (Seismic) - 0 0
Motion Detection (Games, Phone) + - +
Inclination - 0 -
Robotics + - -
Airbag + - +
Anti-skid, ride quality + - +
Why did this happen after > 6 years of development?
However, the JA-30 has not achieved market feasibility. When mapping it onto
the existing market needs it is not a perfect match to any. The decision being
faced was between will a new-to-the-world application appear or will a market
feasibility effort be needed to re-engineer the product.
5.1 The Revenue-First Process
Figure 5-1 illustrates the general steps for Management of Innovation Process called “revenue
first” and is typical of a technology-driven strategy. The first step is to demonstrate some level of
technical feasibility. Then an effort begins to prepare the business case, which involves much
iteration to optimize the offering. This starts with a market investigation referred to as technical
marketing where a launch customer for the new product is identified. A joint development
agreement is prepared. This agreement usually defines the development plan, owner of the data
rights, and the funding of the work. A management decision is made to either proceed with the
product development or to rework the plan. Many times these proposals are put forward under
the process of a competitive procurement. Management’s commitment is to the plan as it is first
proposed and then negotiated after selection. If a project is not selected to go forward it is often
re-worked. This involves either searching for a different launch customer for the product where a
better business case could be developed or re-creating the overall product approach.

Development
Technical Launch
Technology Contract Product
Marketing Customer Decision
Feasibility Agreement Launch
Evaluations Teaming
Plan
Key focus areas:

1. Engineering works side-by-side with marketing to evaluate and team with a
launch customer
2. Development contract is negotiated to fairly set investment and ownership
sharing
Figure 5-1. “Revenue First” Process (Technology Push)
Exhibits 5-3 and 5-4 are examples of product resulting from this process. The first is the fiber
optic gyro and the second is the valve position sensor. Both were significant technical
achievements and new-to-the-world products. The fiber optic gyro was not a commercial success
and the valve position sensor continues reasonable commercial success. The challenge of this
process is that the development contract needs to address the development risks. Often a fixed
development investment and a pre-set sale price are set in the contract agreement. Without
accurate forecasting this can lead to financial challenges. However once the product is
introduced it often leads to strong success and two to three years of advantage in the
marketplace.

Exhibit 5-3. Revenue First Product Idea: Fiber Gyro
Fiber-Optic Gyroscopes
The fiber optic gyro was foremost to be a lower cost optical sensor technology. In
1988 Honeywell won a development contract with Dornier to introduce this new
technology on one of its regional jets. The price was fixed below that of the older
technology.
Fiber Temperature Effects
Thermal expansion of fiber ~ 5.10 − 7 / ! C

Fiber gyro detection ΔL ~ 10 − 14 m Relates to 0.01 deg/hr. resolution
L
L1 L2
L − L < 10 − 14 m
1 2
L − L = α ⋅ L(T − T ) = α ⋅ L ⋅ ΔT < 10 − 14 m
1 2 1 2

Thermal gradient must be stable to 2 x 10-6 °C/sec
10 − 14 10 − 14 −11
ΔT < = = 2 ⋅ 10 O C
α ⋅L 5 ⋅ 10 − 7 ⋅ 10 3
3 ⋅10 − 8
Transmit time = C ~ ~ 1 ⋅10 − 5 sec
L
2 ⋅103
Some simple calculation could show the fabrication and packaging challenges to
this new technology. One issue was that to meet the noise performance the time
rate of change of the temperature gradient across the sensor had to be less than
two millionths of a degree per second.
Lessons Learned: Fiber Gyro
Technical Challenge Identified

• New Readout method needed to get around patents
• Need integrated optics to meet cost bogey
• Invent assembly process
• Thermal packaging continually re-designed
Accomplishments
• Sold > 1000 FOG gyros in AHRS product
• FOG cost reduced 10x from cost at launch
• FOG gyro cost ($25,000) more than AHRS price ($18,000)
• Patent position purchased ($10M +)
• FOG AHRS product discontinued ~ 1998
• Business loss ~ $30M (J. Lenz estimate)
Overall, this product is thought as the premier success for the fiber optic sensing
technology. The product was expected to have a $20M loss, which actually
resulted in a $30M loss. However, strategically it gave great credibility to
Honeywell as a leader in this business.

Exhibit 5-4. Revenue First Product Idea: Valve Position Sensor
MR-Based Valve Stem Position Sensor
Product exploded view
The valve position sensor was first proposed to a Danish company LKM in 1996.
A development contract was agreed to and a product price fixed. The main
development was the embedded software in the instrument.

From Dumb to Smart to Truly Intelligent
Need Result
Precise, non-contact position measurement
for large control valve stems
Saturated mode MR sensor array with
microprocessor
Simplify factory setup routines
Self- learning algorithms for set points,
tolerances and hardware configuration
Simplified field operation and wiring
Low level bus communications
Improved field maintenance and operating

diagnostics Enriched data collection algorithms
better access to internal data

Higher level bus with higher bandwidth
Reduce bus and controller congestion
Polled operation with silent alarming
Off-load the central controller function
As the Honeywell and LKM engineers evolved the software, it was clear the
requirements grew. In fact each solution to a need drove a new need being
identified. The software effort overran the original target by 500%.
Lessons Learned: Valve Position Sensor
Technical Requirements Grew

• Customer may not always be right (for your budget)
• Original software quote grew from $100K to $500K actual
• Customized the performance from customers own valve data
Accomplishments
• Production rates grown at 30% per year
• 2001 Production rate at 1500 per week
• Sell valve data back to them in every unit
• Key sales feature is 5 year NO CALIBRATION warranty, not accuracy
• Over analysis of next product delays new versions being introduced
• >$5M revenue per year and growing
• Profits <15% because of customer funded NRE and now using Profit-first
Process for new versions

The NRE overrun caused the schedule to be nearly one year late and the ROI is
still low. The product is a new-to-the-world control top for smart industrial
valves, achieving sales of >1,000/week. However, there is some reluctance to
introduce new valves of this technology unless the profits are assured.
5.2 The Profit-First Process
Figure 5-2 illustrates the general steps for the Management of Innovation Process called “profit
first” and is typical of a market driven strategy. The first effort is an intensive survey of customer
unmet needs, Burchill and Brodie (1997). Then marketing and technical efforts combine to
define the product features, a development plan, and a sales forecast for the entire market. Based
on the cash flow, a return on investment (ROI) can be computed and evaluated.
Development
Plan
Voice of the Marketing Product Product

ROI Analysis Decision
Customer Analysis Features Launch
Market Value
Key focus areas:

1. “Voices into choices” - don’t base product on leading questions
2. ROI and NPV are calculated and adjusted versus risk
Figure 5-2. “Profit-First” Process (Market Pull)
The basic process for Evaluating Product Ideas followed by almost all major companies
including Honeywell is similar to the “profit-first” outline shown in Figure 5-2. These steps and
their definitions result from business school themes for the past 20 years. It offers a proven
method to managing risk and introducing profitable products. However because it uses detailed
financial analysis, this process can add significant delay to new-to-the-company products. As a
result of focusing on the profit the product’s technology is centered on the core competency of
the company. Features and specifications that do not offer value to the company are often pushed
to the customer. Some companies would like to leverage their core competency to offer products
one to two levels of complexity above the unique technology as a way to grow. Sometimes by
only focusing on the core competency value proposition the firm has difficulty finding ways to
grow its overall revenue.

Exhibits 5-5 and 5-6 product launch ideas are presented here to illustrate the thinking and results
from a profit first process for evaluating product ideas. The first is an electronic current sensor
for motor controllers. The enabling technology for Honeywell for these product ideas was a high
performance solid-state magnetic sensor based on magnetoresistance. After switching from a
revenue-first process to a profit-first process the product was delayed by more than three years.
However it will be introduced with little downside financial risk. This effort to understand the
complete market needs from the lead users, early adopters, and routine users drove significant re-
design and innovation in the product’s technology. Exhibit 5-6 is the A340 Proximity Sensor
System. After the technical feasibility was demonstrated in 1990 for use on the Boeing 777
aircraft, additional applications for this new-to-the-company sensor technology were
investigated. Airbus was in need of a precise position sensor that could achieve greater than 5
million hours of reliability. Through numerous technical innovations this technology was
demonstrated and a business case was built around the A340 aircraft with sales for backward
upgrades to existing A330 and A340 aircraft. An ROI of 16% was forecast and the system
awarded and accepted by Honeywell. Airbus wanted the same solution for its new A380 aircraft.
However in this system there is additional complexity and with the sales forecast for the A380 it
actually reduced the ROI for the overall business to 15%. As a result the A380 opportunity was
turned down.
These examples indicate this process is not applicable for aggressive growth. However the
process drives significant innovation in the technology and the product design. The added time in
the development cycle is used wisely to add value to the product offering.

Exhibit 5-5. Profit-First Product Idea: Low Drift Current Sensor
Current Sensor Idea Evolution
Exceptional Performance for $5

• 1,000x shielding to stray fields
• 100,000x linear dynamic range
• 10 nanosecond response time
• 1 PPM/degC offset drift
Honeywell has a broad line of current sensor products based on using a Hall
Effect Magnetic Sensor in a laminated core magnetic circuit with a coil for closed
loop readout. New product ideas began in 1998 to use an MR magnetic sensor to
lower the cost and significantly lower the sensor noise and offset drift. In 2000
prototypes were built for evaluations by customers.

Magnetic Flux Closed Loop
Laminated Steel
Core
Ip
Conductor IS
Hall effect generator

Op Amp and
Compensation
Electronics
Construction:
• Core to concentrate magnetic flux
• Magnetic Sensor
• Housing
• Secondary Coil Winding (N turns)
IS
-Ip
+Ip
0
A current sensor produces a voltage output that is linearly related to the current
passing through the sensor. It looks like a resistive response (V=IR) but offers
complete electrical isolation. A closed loop technique using a magnetic core and
feedback coil is implemented to balance the magnetic flux from the current being
sensed. This closed loop technique offers PPM linearity and nanosecond response
times for the sensor.

MR Perfect Offset Subtraction
A unique symmetry in MR can be used to eliminate error due to offset and

temperature drift. This led to a better than 100 times improvement which
impressed a lead user to place an order. Honeywell not sure of the total business
picture chose the profit first process to build the business case for the product
ideas.

Magnetic Core Response to Enclosed Current
100000
10000
Magnetic Flux Density (G/A)
1000 µ=100
µ=2,000
µ=10,000
µ=100,000
100
10
1
0 1 2 3 4 5 6 7 8
Gap Width (mm)
An important design parameter of the current sensor is the permeability of the

magnetic material used in the core. It can magnify the flux density from the
current being sensed. However because a gap is needed in the core to insert the
magnetic sensor most of this enhancement is lost. Any good permeable magnetic
material gives a similar response.
Magnetic Core Response to External Fields
1.00E+01
Magnetic Flux Density Enhancement
1.00E+00
µ=100
µ=2,000
1.00E-01
µ=10,000
µ=100,000
1.00E-02
1.00E-03
0 1 2 3 4 5 6 7 8
Gap Width (mm)

One of the most important properties of a high performance current sensor is that
it is insensitive to stray magnetic fields. Here the permeability of the core is
important for performance. Shielding attenuations of nearly 1000x can be
achieved with highly permeable materials.
Ultra Low Offset Magnetoresistive Closed Loop Current Sensor
Sensors’ Drift Spec (0-70oC)

Key Features:
• Hidden set / reset operation
• + 90 amps range
• Decreased package size
• Shielding from Stray Fields
• Compatible with present Manufacturing
Progress to Date*:
• Breadboards fabricated
• Field Test Sample being fabricated
• < + 0.050 mA offset (4x lower)
• < + 0.006 mA offset drift (135x lower)**
• + 0.06% Accuracy (+90 Amps) (8x better)
• + 0.04% Linearity (+90 Amps) (2.5x better)
• + 0.040 mA Laminate material (2x better)
• 500 ns Response Time
• > 150 kHz bandwidth
* Benchmark: Honeywell CSNA111 closed loop current sensor

** Tested over -40 to +85 oC range.
Nearly four years after the initiation of a new development a technology push
produced a very low offset current sensor. A very clever circuit is created that
implements set/reset switching which is hidden to the user. A sticking point to
resolve was a 75-cent cost premium for the MR sensor over the Hall Effect
Sensor. It is planned that the 100x better performance will attract special users to
offset the slight increase in price.
Voice of Customer Summary Summer 2001
• Conclude price is driver for mass market

• Siemens application(digital output) is niche market
• Ultra low offset is important for some motor controller applications such as:
Elevator hold at floors, Precision machining of surfaces
• Price of Hall based devices is dropping in market place
• Customers following lead user procurement method of working with single
supplier for all current sensor needs across entire family of motor controller
products
• Siemens has contracted with competitor for a second best solution
• New technology will not be the reason to grow
– It has to be valued by the customer
– However given a fair option the better performance will be used

In May 2000 the prototype is used to visit Siemens in Germany. A 30 minute
meeting lasted over five hours. Siemens engineers were astonished by this new
technology and eventually showed they had been designing their own version.
They wanted this device and were ready to place an order for 10’s of thousand per
year. When taken to management for approval it was determined that a complete
profit-first NPD process should be followed. A voice of the customer review
produced seven key points in summer of 2001.
Intense Engineering effort 2002
• Focus on recurring costs:

– Hall based device costs $4.00 and is dropping to $3.50
– MR design has 75 cent disadvantage since sensor costs $1 versus 25 cents
for Hall sensor
– Must use ASIC to reduce electronic parts costs
• Bound development costs through fixed manpower—most are working on this
development project as they continue to support the production as well
– Analyze prototype build in R&D labs, find manufacturing critical issues,
expand performance for safe operation 3X beyond expected performance
range(75A peak versus 25A rating)
– Use design of experiment to optimize magnetic materials, MR sensor
placement, and feedback coil geometry for lowest cost assembly design
• Use competitive process to select ASIC supplier for non-funded engineering
support
• Business development forecasts that the volume could reach 1,000,000 units
per year
– Equal to existing sale of Hall based units

The need to introduce a product that can serve the routine users drove an intense
engineering effort to reduce the MR current sensor’s costs to match the projected
cost for the Hall based units. This drove a new approach to the ASIC supplier and
where the core value for the product was. A cost effective design achieving the
ultra high performance was launched and put into high volume production.
Light at the end of the Tunnel 2003
• Far East ASIC supplier selected

– Samples have 6 month lead times
• As costs are scrutinized realize that 75 cents per sensor is used in shipping of
various parts
– Work with ASIC supplier to find partner to build entire electronics
assembly
– Savings of 72 cents realized
– Working with magnetic material vendor to find 3 cents additional savings
• Main factory will complete final package assembly from electronics device
and perform performance verification
– Margins are just as high as in the Hall based product line.
• Orders begin to be filled in fall 2003
– Hall based devices hold steady volume of 1M per year
– MR is adding the growth
• Orders growing rapidly and because of the single source supplier strategy
revenue is forecast to double by fall 2004
• Main competitor begins to focus on niche markets as a strategy forward
having no technical match to the MR cost and performance
New MR 25 Amp Current Sensor

Nearly eight years after the idea and three years after a potential order from a lead
user was turned down the product is being sold. The timing fits the market need
with customers preferring to order all their current sensor needs from a single
provider. This sensor fills a portfolio that no competitor can provide. Market
share is expected to double within next two years.

Exhibit 5-6. Profit First Product Ideas: A340 Door Controls
Honeywell PSCU and Sensor/Target Samples
2-wire Sensor Interface Module based on A340 sensors and readout
Airbus had identified an unmet need in its A340 aircraft and planned for this
improvement in the introduction of the 500 series. A system that offers 5M hrs
MTBF sensor reliability and meets the high integrity specifications was developed
on schedule and cost.

2-wire SIM Breadboard for A380 System
Basic Parameters
• ± 15VDC, + 5VDC ~1 Amp
• 7 channel
• Built in precision reference
• Switch outputs (based on previous states)
• Gap value
• 9 error states per channel
1-gap < 0.0 mm
2-gap > 6.351 mm
3-cable resistance < 0 W /m
4-cable resistance >1000 W /m
5-cable length < 0 m
6-cable length > 200 m
7-sensor temp < -60°C
8-sensor temp>90°C
9-unknown sensor

The A380 Door Control Systems grows from the A340 system that has 2 boxes
with 90 sensor to 19 control boxes and 200 sensors. Significant innovation was
achieved to address costs. One solution was to develop a model for the complex
readout. A decision was faced to focus on the A340 business or to also pursue the
A380 business.
The financial analysis was forecast in great detail (see spreadsheet on the next
page). Both options forecast a 15% IRR. The A340 offered more reliable forecast
because the opportunity could forward t and retrofit an existing aircraft. The A380
is an innovation in aerospace and its business case adds more risk. The decision
was to focus on the A340 control system and skip the A380 platform.
1997 to 2007 analysis

Sensor Systems--Precision Position Sensors
1. Costs: 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Non-recurring engineering($K) $1,000 $1,500 $2,000 $1,000 $500 $1,000 $3,000 $5,000 $4,000 $2,000 $500
Capitalization $1,000 $2,000 $2,000
Marketing/on site support $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100
Production startup/testing $1,000 $2,000 $2,000
Total Costs $1,100 $1,600 $3,100 $1,100 $1,600 $1,100 $7,100 $9,100 $4,100 $2,100 $600
2. Sales:
Number of Sensors per Sales Price per Systems Per Aircraft built Aircraft Build Aircraft Build Aircraft Build Aircraft Aircraft Aircraft Build Aircraft Build
Product/Platform System System Shipset prior to 2001 2001 2002 2003 Build 2004 Build 2005 2006 2007
A340-500/600 DSCS 47 2-wire prox $32,000 2 0 2 50 50 50 50 50 50

Total Sales($1000's) $128 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200
A340 retrofit 47 2-wire prox $75,000 2 212 0 0 10 20 20 20 20

Total Sales($1000's) $0 $0 $1,500 $3,000 $3,000 $3,000 $3,000
A330 retrofit 47 2-wire prox $75,000 2 212 0 0 0 10 20 20 20

Total Sales($1000's) $0 $0 $0 $1,500 $3,000 $3,000 $3,000
3. Expansion Options
A380 DSMS 200 2-wire prox $750,000 1 0 0 0 0 0 2 24 24

Total Sales($1000's) $0 $0 $0 $0 $1,500 $18,000 $18,000
Prox System Sales w/o A380($K) $128 $3,200 $4,700 $7,700 $9,200 $9,200 $9,200
Prox System Profit(15%) 0.3 $38,400 $960,000 $1,410,000 $2,310,000 $2,760,000 $2,760,000 $2,760,000
Total Prox System Sales($K) $128 $3,200 $4,700 $7,700 $10,700 $27,200 $27,200
Prox System Profit(15%) 0.4 $51,200 $1,280,000 $1,880,000 $3,080,000 $4,280,000 $10,880,000 $10,880,000
4. Cash Flow
Cash Flow--all products (1,100,000) (1,600,000) (3,100,000) (1,100,000) (1,548,800) 180,000 (5,220,000) (6,020,000) 180,000 8,780,000 10,280,000
Cash Flow--without A380 (1,100,000) (1,600,000) (3,100,000) (1,100,000) 38,400 960,000 1,410,000 2,310,000 2,760,000 2,760,000 2,760,000
A340 only: NPV = $2.6M, IRR = 16%

A340 and A380: NPV = $4.5, IRR = 15%

5.3 The Loss-Leader Process
Figure 5-3 outlines the Management of Innovation Process that stages the business case
development from an aggressive approach. This staging is again based on technology readiness
and market readiness. The technology feasibility is assessed through a screening for horizon
ideas. These are product ideas that seem plausible with the current status of the technology and
within a short time scale of when the technology could be productized. The management
approach then is to address the market feasibility effort by identifying a launch customer. This
best launch customer for this type of project is a lead user. The size of the project and the
schedule is based on its affordability more than setting specific metrics.
Prioritize by Launch
Screen list for development Customer Plan:
Solicit Product
“horizon” status and product specs, Affordability Decision 1st Lot Build
Ideas launch budget, field
ideas
customer test plan
Key focus areas:

1. Evaluate internal product ideas for the most affordable development
2. Launch customer must be a lead user in the market of interest
Figure 5-3. “Loss-Leader” Process (Lead User Pull)
The main goal again is to accelerate the market feasibility effort by building prototypes and
getting first hand customer feedback. It is often hoped that this effort could clarify or discover
the value proposition for an available technology and product idea.
Exhibits 5-7 and 5-8 are two examples to illustrate the management actions from the Loss-
Leader EPI process. The first is an idea that drove the market research to quantify if a factor of
10 performance improvement could have a value of 100 times the present solution. The Loss-
Leader process was a good t to drive this market feasibility to closure. The second example is the
launch of a dot-com business. From 1999 to 2001 there many companies started dot-com
businesses. Nearly all followed this Loss-Leader process to bring ideas forward to a product
launch. These were all high-risk ventures and affordability was the main management control.
As of today few of these dot-com businesses have continued onto a sustainable business.
Exhibit 5-7 is based on a corporate experiment where in 1999 the Honeywell Laboratories
initiated an activity to accelerate new products. The product idea is a Laser Velocity Sensor
outlined in the inset that follows. The technical feasibility had been proven for some time but
there were problems in clarifying the unmet need and the value proposition. The goal of this
process was to fabricate a first lot and through field-testing assess whether there was need for a
$10,000 tachometer that had 0.1% accuracy. Of interest is to follow the management process for
this specific case.

This EPI process focused on the commitment of a launch customer. The belief was that much of
the delay in the EPI process was working through the market issues (it often requires twice as
much effort as achieving the first laboratory feasibility). By offering a product for sale a
customer could perform real-time evaluations and it was hoped could more quickly quantify the
value of that product. It was also felt that maybe as much as 50% of a new products value comes
from some unanticipated, secondary benefit. By getting the product into practice this discovery
could be made sooner. The first lot of products is not priced to recover the investment but instead
the price is based on what the launch customer could tolerate. This allows for a calculation of the
expected loss, and thus the name Loss-leader. A revenue projection for this product idea can then
be determined by estimating the number of lead users and different applications that would
purchase the product. The net investment required is funds needed to develop and build the 1st
lot, offset by the sales of the first lot. The affordability of this product is then judged by weighing
the first lot size build against the amount of market valuation data that could result. Figure 5-3
illustrates this “Loss-leader” EPI process. A small group operating somewhat like entrepreneurs
championed each product idea. Only product ideas that could be productized within six months
were considered.

Exhibit 5-7. Loss Leader Product Idea: Laser Velocity Sensor
Laser Velocity Sensor: LVS-300-20
• Stand-off distance: 300 mm

• Sensing range: 0.1 to 20 m/sec
• Accuracy: 0.1%
• Update rate: 10 Hz
• Output: Tachometer or 9600 Baud ASC II
Laser Velocity Sensor-LVS-300-20
Through this process a laser velocity sensor was selected for product development
and a production run of 10 was completed. Figure 8 shows the Laser Velocity
Sensor that was productized through this product acceleration initiative. The
history of this product idea is that the first technical feasibility unit was completed
in 1992. Then one business unit led an effort from 1993-1994 completing a
market assessment that a great market potential but it was unclear what value the
market would purchase the unit for. From 1996-97 a second business unit re-
visited and updated the market study. During this effort a portable unit was built
and tested at two paper manufacturing plants. The testing confirmed the expected
0.1% accuracy of this sensor. In 1999 this product idea was selected for the PAO
concept of driving a product to clarify the market value. The laser velocimeter
acts like a non-contact tachometer for metering lengths in uses ranging from
threads going into carpet fibers to tissue paper going onto bathroom rolls.
Conventional industrial-grade friction tachometers have about 1% accuracy and
cost approximately $100. The market challenge that we were hoping to
breakthrough was there a market for a $10,000 tachometer that was non-contact
and 10 times more accurate. A first lot was completed in 1999 as well as the
certification testing. One was sold at the end of 1999 to the launch customer.
Others are being sold as we identify lead users for different applications. The goal
is that with the inputs from the lead users a complete business case can be
prepared for launching a full market offering. This is where the acceleration is

expected. Through field use of the potential product the market value can be more
accurately estimated and with the production development somewhat completed,
the return on investment will stand out. By the beginning of 2001 the sensor was
gaining market interest and a decision has been made to sell the technology and
product design to a laser sensor supplier who would like to enter this market.
Lessons Learned - PAO
• Selected from 32 to 7 to 1 product ideas in less than 3 months

• Outsource key components, assembly and test can be done
• Sell price based on customer sign-off limits, not ROI
• 8 sold, gathering value understanding
• Unmet Need?
– Where won’t a $100 tachometer work and a $10,000 one will?
– Who values accurate speed measurements?

Exhibit 5-8. Loss Leader Product Idea: myfacilities.com
Honeywell’s CEO and Presidents were personally involved in approving three e-

businesses, with the hope of establishing tremendous growth.
The business case for myfacilities.com can be summarized in three simple

statements, which have very powerful implications:
• Existing buildings are internet accessible
• Tremendous Opportunity to capture significant percentage of existing

building expenditures
• Internet is Threat to our own supply chain

Global Market Summary (VG 1)
18 Million Existing Buildings (US)

Type %
Mercantile and Service 29
Office 15
Warehouse 13
Education 7
Public Assembly 7
Food Service 6
Religious 6
Vacant 6
Food Sale 3
Lodging 3
Health Care 2
Pubic Order/Safety 2
Other 1
Source: U.S. Census Bureau, 1997 Economic Census
In the U.S. there are 18 million buildings that require building operations,
controls, and maintenance. Most, if not all of these buildings, are connected to
the internet.
myfacilities.com & The Facility Services Economy (VG 2)
Suppliers “Customers”
Facility Managers
(Manufacturers,
Distributors,
Solutions
Providers) • 4 Million Managers
• 60 Million Professionals
Facility Owners
$400 .2 T
B $1
(15%
myfacilities.com
Savin
g s)
• Service-Oriented eCommerce Tenants
Parts,
• Personalized, Real-Time Information
Commodities, • Workflow Simplification & Automation
Solutions • Community
myfacilities.com $40 Labor Pool

B 0 B
00 (25
Utilities $4 gs
) %
vin Sa
a vi ng
S •1.5 Million Providers s)
%
(10
Service Providers
(Contractors & In-House)
myfacilities.com: The world’s leading market hub for facility management solutions

These 18 million buildings account for $1.2 trillion of annual business. This
expensed equally between labor, energy, and equipment. An estimated savings
due to the internet is shown resulting in a more than $100 billion opportunity.
myfacilities.com Research and Development Methodology
• Objectives:
– Create an organization that can operate on “Internet Time”
– Create/Enhance core competencies in key areas: U/I Design, Rapid
Development, Data Modeling, Application Integration, and Domain
Expertise
• Team Structure:
– Core team of myFacilities.com employees (team leads, domain experts,
etc.)
– Augment with contract S/W engineering expertise (Infrastructure,
Applications, Security, etc.)
• Development Process:
– Rapid development, testing, release cycle
– Major new functionality-every 3-4 months (Phases)
– Application revs. and minor new functionality-every 30 days (Revisions)
• Risks/Challenges
– Making technology decisions in a rapidly changing environment
– Attracting key technical talent to team
– Developing to rapidly evolving business requirements
– Managing technical teams that are highly competitive (Oracle and
Microsoft)
The e-business was launched and a team of ~30 was separated into their own
workspace and organization. In this case the operations and all decisions centered
on a three month time to market metric. New product ideas were launched within
three months. If the idea was not able to meet this schedule it was dropped for a
new product idea that could. In six months, more than 30 helpful tools for a
building manager were developed.

myfacilities.com 6 months after launch
• Decline to generate revenue from advertising

• 500 users of Project Manager tool (offered free)
Project Manager: Designed for the facility industry, the
myFacilities.com Project ManagerTM tool provides a single, effective
way to plan small projects, assign resources share information among
team members and track progress online.
• Within 2 months 1st sales come from Service Dispatcher tool
Service Dispatcher: The powerful myFacilities.com
ServiceDispatcherTM is an application that will automate service
request administration and dispatch, enabling you ability to check crew
schedule, dispatch technicians, and track status online.
• 2001 revenue projected at $20M, income ~ $15M
At six months, the action was fast and boundless. An ROI was still not forecast
but sales had started and a sales forecast had been agreed to. A similar method to
creating a new market was followed where one product was offered free of
charge. Within months this tool had hundreds of users.
Lessons Learned: e-business transition
• In early 2001 Honeywell gave re-direction to e-businesses

– become part of corporate IT function
– focus will be “internalized”
• The re-direction just brought forward a business decision that was
inevitable. It resolves two open issues:
– supply chain confusion to customers between old and new business
– No ROI based business case able to be established
• e-business will grow: Digitization to drive revenue
– Focus on re-engineering customers day to day activities
– Operate as cost center
After six months the e-business in Honeywell was re-directed. Traditional

business thinking and strategies came forward. The venture attitude and open-
ended vision stopped. Today e-business is integrated into the business structure
and its products compete for funds with all the other new product ideas.

Identifying and then defining product specifications with the launch customer followed the
guidelines of Lead User Research from Hipple, Churchill and Sonnack (1998). The first step is to
list the potential ideas in work. This mostly involves listing ideas that have at least a working
prototype. This list is then screened for “horizon” ideas that are not presently on division’s
roadmap and need a real product to let potential customers determine its value. This is the focus
of this process-to address the barrier of quantifying the benefits from this new product. In 1999,
thirty-two potential product ideas were reviewed and then down selected to seven for an intense
review to assess the product readiness and the lead user pull. The ranking of the projects favored
the launch customer representing a lead user. Hipple (1988) defines lead users as displaying
these two traits:
1. Lead users face new product needs months before the bulk of the market encounters them
2. Lead users expect to benefit significantly by finding a solution to their needs
The product development process followed the sequence of actions and decisions described as
the PACE process, McGrath (1996). A detailed product specification was worked with the
launch customer as well as a test plan involving real-time use of this product. Also a bailment
agreement was outlined. Then an internal affordability plan was presented for a go-ahead
decision. This included a budget to get the product manufactured and through certification
testing, an estimate of how many additional units might be sold. The first lot size is adjusted
more for affordability than maximum sales.
Exhibit 5-8 is the MyFacilities.com venture launched by Honeywell in 2000. As the team leader
for Honeywell’s myfacilities.com describes his process: “We have all jumped off a cliff and are
trying to build a flying machine before we hit the ground.”
The process for entering and managing a dot-com business follows the Loss-Leader process. The
selection of e-business directions is based on affordability and threats to an existing business’s
supply chain. First a company must establish its Information Technology capability and thus the
horizon ideas. This usually evolves around establishing Internet access to its catalogs, product
manuals, application rates, and orders. This activity often has the benefit of a business being able
to re-engineer its supply chain strategies (SCM.qintic.gov.sg). An assessment is completed that
identifies how competitors could disrupt the present supply chain. If there is a perceived threat
then a business case is prepared outlining how this threat could evolve. The financial part of the
business case is based on a top down view of global spending in the business of interest and the
affordability of an annual budget.
The e-business team reviews ideas for services that could be offered through web page access.
Two key discriminators in prioritizing the product options are that the product could be ready in
less than three months and it must be a totally new idea (first to market). The process is most
similar to the revenue-first process in that much of the development involves a launch customers
commitment and guidance.
A major difference is the rate that new products are launched is more than 10 times faster then in
the traditional businesses. Other differences are that there are no NPV or ROI calculations. The

business is a rapid-re line of product introductions fueling continuous market creation.
Engineering decisions have more foundation than profit projection estimates; thus running an e-
business has some semblance to when engineers ran the company.
In 2001 Honeywell re-evaluated its e-business motives. The organizations that were set up to
spinout each of the e-businesses were re-aligned with the internal IT structure. This immediately
changed the atmosphere from an enthusiastic, entrepreneurial team to a cost center minded
group. The e-business products were re-designed to facilitate the existing supply chains and not
compete. Any confusion that arose to the customers was now clear. Since the group was now in
the IT cost center its needs for precise sales forecasts and ROI were pushed back to each of the
main line business units. The e-business was now another cost cutting process they could
evaluate and implement in an affordable and cost effective way. The process for idea generation
and evaluation returns to the standard processes whether the new product idea is from IT or any
other functional group in the company.

Chapter 6 Summary: Decreasing Time to Market
Synopsis:
The main theme of a Management of Innovation process is forecasting the technical and market
data needed to drive decisions through the decision points. The three most used forecasting
techniques have been illustrated previously and an expanded list of these techniques is presented.
These techniques are compared by usage for each type of new product development category.
As seen from this survey of leading companies, no one single process is used exclusively for all
types of product developments. Many companies tailor the processes to match their business
goals and the market characteristics. Understanding this tailoring can decrease the time for a
new product to be introduced to the market.
Two other factors are important to decreasing the time to market for a product. These are
Technical Evaluation and Innovation. Technical evaluation is needed to build a basis for
technical decisions. It needs a layering of complexity from the details to the generalized so that
high level comparisons can be understood by all the managers in the decision process.
Innovation is the key to the value of a new product. Ideas are originated and nurtured through
the Management of Innovation Stage. An example of Honeywell shows the portfolio of projects
throughout the decision points. These projects are compared in two ways. First the number of
project ideas at each decision gate is listed. This data shows that starting with 3000 ideas only 2
make it into products. The second comparison is the amount of investments for this R&D
portfolio. The two products used less than 1% of the overall spend on R&D during this
Management of Innovation stage. Decreasing this time to market and improving this ratio of
ideas to products can make orders of magnitude improvements in R&D efficiency.
Discussion:
1. Explain why the Revenue-first process is the most widely used process for Product
Creation types of products.
2. Why would the Loss Leader process be the second most used process for Managing
Innovation of new products? Why is it also relevant to all four types of new products?
3. The largest screening of ideas happens at the first step where only about 10% of all ideas
actually get funded for a technical feasibility project. Is this good or bad for a company?
4. Even with the rigor of a Managing Innovation process still only 2 out of 3 Product
Creation type products introduced are financially successful. Can you think of including
better metrics to offset this risk?
5. Are large companies able to introduce a rapid development process similar to a venture
method when the ratio of successes to failures will most likely decrease?

Chapter 6: Decreasing Time to Market
There are three key skills to minimizing the time required of the Management of Innovation
phase: forecasting, technical evaluation, and innovation. Forecasting is the basis for the business
case that must then be understood and validated. Technical evaluation defines and clarifies the
pace of emerging technologies. Innovation is having the insight to exploit the new technology.
These skills are then used to allocate and focus the R&D funding.
Forecasting: There are a number of methods used to create this forecasting data for the business
case that are listed in Table 6-1 (Ref. 14, K. Kahn). Also listed is the preference for each of the
techniques. Three processes, here labeled as Revenue-First, Profit-First, and Loss-Leader, align
with the three most popular methods listed by Kahn. Each of these processes has steps that focus
the effort to produce forecasting data. The drive for the data is often accomplished by setting
targets for performance, price, cost, tooling, non-recurring engineering (NRE), etc. and then
having the projects strive for these targets. The faster the right targets are recognized the shorter
the time to market. However it is usually the lowest risk to allocate funding in smaller steps and
let the barriers do their work of screening out the worst ideas.
Cost Product Adapted New-to-the-

Improvements / Improvement/ Products/ Company/
Market Line Market Product
Forecasting Technique Penetration Extensions Extensions Creation
Box-Jenkins Techniques
2 1 1 0
(ARMA/ARIMA)
Customer/Market Research 33 37 37 51 Revenue-first MOI
Decision Trees 6 2 4 7
Delphi Method 6 5 4 7
Diffusion Models 0 1 1 2
Experience Curves 10 7 5 5
Expert Systems 4 2 2 1
Exponential Smoothing
7 10 7
Techniques 4
Jury of Executive Opinion 30 27 29 39 Loss-Leader MOI
Linear Regression 6 6 4 1
Looks-Like Analysis 17 22 20 25
Market Analysis Models
5 5 6
(includes ATAR model) 11
Moving Average 14 11 9 8
Neural Networks 0 0 1 0
Nonlinear Regression 1 1 2 1
Precursor Curves
0 1 0 0
(correlation method)
Sales Force Composite 26 31 26 27 Profit-first MOI
Scenario Analysis 6 8 10 14
Simulation 1 3 4 5
Trend Line Analysis 17 14 12 10
Table 6-1. New Product Forecasting Techniques

Technical Evaluation: In establishing a discipline education leaders have focused on teachings
that go beyond the case study method to define a systematic foundation for MOT. This
foundation can best be described as technical analysis. Technical analysis includes theory and
calculations as the basis for introducing, assessing, and implementing business concepts. At this
point this technical analysis has been developed into two major sub-fields—technology foresight
and managing R&D. The structure for foresight is provided by the frameworks of strategic
technology analysis, which includes a definition, anatomy, taxonomy, evolution, and ecology for
technology. Managing R&D categorizes the activities and management decisions involving new
product development. Analysis to quantify technical and market risk are developed and
practiced.
Innovation: Idea creation is needed to compromise between these targets to achieve the best
value proposition. Our experience has shown that evaluators need a belief in both technical and
market feasibility for the product to allocate funding. If an evaluator has doubt in either one of
these issues, his vote is negative. The belief is developed through technical analysis. Basic
equations are used to illustrate the technical feasibility of the idea and financial projections using
a spread build and defend the market feasibility. Being in the position to judge a new product
idea, students gain experience on how to spot and discuss unsupported claims. As each works
through the issues, a sense of belief or doubt results and forms the basis for that student’s
decision.
Many times if the funding cannot be won internally the project team will seek external funding.
These research contracts are a win-win situation. The external financier gains exclusive rights to
some part of the life-cycle of the product and the company expands its R&D base. This is also an
advantage to the company management in that it can now allow the commercial marketplace to
select the technologies and product ideas. However as this has evolved it has allowed R&D
management to relax in the rigor of technical assessment. As a result this has lengthened the
timeframe from product idea to launch.
Several studies have shown that for every 1000 ideas, one will lead to a product. Insight into how
this breaks down can be seen from statistics of Honeywell’s R&D Center in 1999. Table 6-2
shows the number of projects being worked and the number of projects waiting for funding at the
barrier points. At each barrier only about one in 10 project ideas are funded. The ones that do not
get funded do not go away but effort is ongoing in re-planning the idea to make a better case that
it is ready for the next step. This is often lead by a champion of the idea and most firms expect
this effort to be donated and it often is through the enthusiasm from the champion. For the most
part once a project is funded it is successful (80% success rate). However there are still
challenges in preparing the forecast for the business case and only the top candidates get through.
On average from the R&D center there are two new-to-the-world products launched per year and
of those after the three years of product development one is a great commercial success and the
other is average. Also noted is the average annual effort for the projects in each major activity.
Technical feasibility projects are usually a 0.5 full time equivalent year (FTE-Y) market
feasibility projects are 2 FTE-Y, and product development projects are 20 FTE-Y. This leads to
some surprising insight into where the funding is spent.

Ideas
Investigated Annual Funding
Projects Barriers Annually Pass Through per Project
What to START
3000 300 ?
With?
Technical
300 250 1.5 FTE-Y
Feasibility
What is the
250 25 ?
UNMET NEED?
Market Feasibility 25 20 2 FTE-Y
What is the PAY-
20 2 ?
OFF?
Product Launch 2 2 20 FTE-Y
Market Success 2 1.5 ?
Table 6-2. Statistics and Costs of R&D – Honeywell 1999
Ideas that were Total Annual % Costs for

Projects Barriers successful Costs Success
What to START
10% 0 0
With?
Technical
84% 30 FTE-Y 0.5%
Feasibility
What is the
10% 0 0
UNMET NEED?
Market Feasibility 80% 120 FTE-Y 3%
What is the PAY-
10% 0 0
OFF?
Product Launch 100% 40 FTE-Y 67%
Market Success 67% 0
Table 6-3. Statistics and Costs of R&D – Honeywell 1999
Table 6-3 illustrates the compilation of the total funding. The majority of monies spent are in
technical feasibility projects. But of that funding, less than 1% is being spent on projects that will
eventually lead to a profitable product. One can see why firms are challenging R&D to be more
relevant and efficient in bringing product ideas forward. The other surprising point that little
funding is actually authorized for working through the barriers and using the forecasting data to
prepare the business story. This effort is expected from management overhead and donations of
time.
With the world of technology open to nearly every firm most will fund the nine years of
Management of Innovation activity. Allowing this trial and error process of commercial
evaluations is a relatively easy and unbiased process for management. The firms that can shorten
the time from nine to even six years will have a 30% improvement in their R&D efficiency. To

achieve this shortening of time technical assessments must be done in a way to bring different
technologies to a common cost and risk comparison. Technical assessment by management
builds confidence faster than proof by experiment. Often detailed analysis rigor is not needed for
comparing ideas. The basic engineering equations can often drive an understanding of the most
difficult aspects of the idea.
The fast move to the market of e-business (most of the .com’s) showed that product ideas were
launched without going through the Evaluating Product Ideas activity and the business cases
contained no technical assessment, even through each product is based on new technology. The
slower than projected e-business outcomes are a strong reflection that it is difficult to skip or
shorten the Management of Innovation (MOI) stage without having a strong technical assessment
completed.
6.1 Summary
New product development is a risky part of business. It is a multi-faceted problem that brings
together every aspect of a company. The history of Honeywell and its R&D methods is a typical
reflection of what has happened in companies for the past 20 years and how business schools
have brought forward management tools. Initially e-business dismantled the R&D processes and
incorporated pieces of all three MOI processes. As the e-business revolution evolves it appears it
is coming back into alignment with more standard business principles.
The process of MOI deals with what comes before the classic S curve (where a product is
launched, grows, and then matures). The MOI processes address two barriers to a successful
product. The first is identifying a true unmet need. Technologists focus on this point and when
they have something declare the product is ready. The second barrier is establishing an accurate
risk versus benefits analysis. Business managers focus on this point and when the sales forecast
looks big declare the product is ready. But it takes both steps to have a rapid product launch and
introduction. If these two steps were not completed during the MOI era they end up being
integrated into the NPD phase, causing delays at the most expensive stage of product evolution.
Another factor that complicates the MOI transition to NPD is the product timing and market
window. Sometimes a key new product that is strategically important is pulled into an NPD
before the full business case has been validated. This is often done by committing to a new
product as part of a larger new system being introduced; For example introducing a new
navigation system as part of a new aircraft launch. Now the technical development, market
needs, and NPD are worked simultaneously and it is even more difficult to manage and time the
actions.
The ultimate goal for business is growth. It is often thought that a flat line in the annual report
has a similar appeal as a flat line on the operating table. The patient is dead. Figure 6-2 illustrates
the low risk and high risk options to growth. The low risk growth rate is paced by what can be
self funded by each business. The high-risk growth rate is often categorized as a venture. The
MOI processes and principles described above can be applied to either risk option. No matter
how growth is sought it must be managed. The MOI process is what brings all of the business
insights together into a common platform that offers the fastest and most cost effective effort.

Organic Business Growth
REVENUE
II. B (10%)
Venture
Funded
Business
Type II Type I Self-Funded
Business
TIME
Type I: Self Funded Business

• Cost benefit analysis
• Cash flow management decisions
• Percent of profit investment
Type II: Venture Funded Business

• Risk analysis
• Technology driven decisions
• Affordability
Figure 6-2. Organic Business Growth
In the next four chapters there are special topics related to Managing NPD. These are performing
an assessment of on on-going R&D operation (Chapter 7), a guideline for how a portfolio of
R&D projects could be initiated and managed (Chapter 8), information Figure 6-2. Organic
Business Growth on managing through to a product’s end (Chapter 9), and a method that a
strategy for R&D management can be formulated (Chapter 10).

Chapter 7 Summary: R&D Assessment
Synopsis:
There are five approaches to a Research and Development (R&D) strategy that outlines the
levels of risks the company is willing to work with. These are:
1. Differentiated
2. Low budget, conservation
3. Technology push
4. Not-in-the-game
5. High budget, diverse
Through these overall approaches to risk management one strategy will favor product ideas
across the four categories for product developments. For example a Technology Push strategy
would favor funding Product Creation types of projects over the other areas. A Low Budget,
Conservation strategy would favor Market Penetration and Market Extension types of product
ideas.
A company’s strategy is reflected by the projects it has funded. Maybe a company cannot
clearly verbalize its strategy but it does fund projects for new products and the mapping of this
portfolio of projects will illustrate the R&D strategy. One mapping method is to put projects
onto a chart that plots the potential business reward in revenue versus the timeframe to the
product introduction. The size of the projects reflects the amount of funding going into that
project. These types of charts then can help one distinguish the potential of the project and the
four corners of a plot like this can be named Pearls, Oysters, Cows, and Rice to reflect the
benefit that product might bring to the company. A third assessment method to a company’s
R&D is to score each project and map it onto the non-linear timeline of What-Precedes-the-S-
Curve. An example of this score sheet and its application to one company is used and it
confirms the staging of projects as they progress through the decision points of Management of
Innovation.
Discussion:
1. Of the five types of R&D strategies, which would you favor as a manager in a large
company?
2. Why do you think the Low Budget, Conservative strategy is the most popular among
large companies?
3. Create your own Risk versus Reward chart and populate it with the products you are
familiar with, maybe products that you personally use. Some examples are listed in
Table 7-1.
4. In the project score sheet explain how you might use the weighting factor in the score
to support the broad R&D strategy of the company.
5. As you look at the example of the R&D company projects mapped onto the
Management of Innovation timeline can you assess how well the company is
assessing projects at the three major decision points?

Chapter 7: R&D Assessment
There are three general steps that can be followed to assess an R&D operation. The first is to
identify what is the overall strategy being used by the firm for new products, the second is to
map the various R&D projects for comparison of the portfolio, and the third is to score each
project to assess if the project is on a track for success. Through this analysis the R&D
management can gain insight into its own decision-making practices and compare itself to
industry standards.
7.1 Step 1: Strategy Assessment
There are five general strategies that can be used to drive new product development in a firm
(Cooper, 2001a). These are:
1. Differentiated (~15%): premium priced products unique for customer needs. This
strategy is based on new technology, a clear product focus, and a strong market
orientation.
2. Low budget, conservation (~25%): new products to maintain production levels. This
strategy has small R&D budget where new products match the current resources in
manufacturing and customer service.
3. Technology push (~25%): new products with limited customer inputs. This strategy
strives for innovation and first to market with new product features.
4. Not-in-the-game (~15%): ‘copy cat’ for products. This strategy relies on older, simple
technologies for new products.
5. High budget, diverse (~20%): ‘ivory tower’ R&D. This strategy has a large R&D budget
but no specific process to align technology developments with customer needs.
Also listed are the percentages of firms that use it as the lead strategy. Some times within firms
different product lines will use different strategies. Again new products can come from any of
the four categories: Market Penetration, Market Extension, Product Line Extension, and Product
Creation. The lower risk categories would be favored by the less aggressive strategies.
The assessment into one of the five new product strategy categories takes some investigation. It
may take reviewing the history of the past ten new products to determine which strategy is really
being practiced. Sometimes there is a desire to be one thing but in practice it becomes something
different. Chapter 10 will give an overview of how a strategy for R&D can be formulated by first
assessing the R&D projects.
7.2 Step 2: R&D Project Map
A good template for mapping and comparing projects is called a bubble chart. The bubble chart
captures the risk versus reward relationship. There are names for the four corners of the chart as
illustrated in Figure 7-1. Rice is the lower risk and lower reward projects. Oysters are the higher
risk and higher forecasted reward. It is the comparison of risk versus reward that keeps projects
in perspective. At times a firm will identify projects that have great rewards beyond their level of
risk. These projects are called pearls and are the top stories for the company’s growth. An
interesting part of this mapping is that projects are often carried on that have very high risk in

comparison to their forecast reward. Every company has sacred cows and many times the best
pearl stories came from technologies that were in this situation. Again this charting is based on
the forecasting available. Sometimes an outside review group can map a series of projects with
greater accuracy than the project management themselves.
Bubble Charts
High Pearls Oysters

Reward
Sacred
Rice
Cows
Low
Low High
Risk
Figure 7-1. Risk versus Reward Bubble Charts
In creating the bubble chart a number of data can be compared. Table 7-1 lists some of these
standard comparisons. One of the easier data to forecast is the Annual Revenue Growth versus
Years to a Market Prototype. This example follows.
Technical Risk Market Reward

Probability of Technical Success NPV
Technical Newness Market Newness
Technical Feasibility Market Growth
Competitive Position Attractiveness
Cost to implement Time to implement
Strategic fit Financial fit
Cumulative sales Cumulative development costs
Ease of implementation Market Pull
Table 7-1. Some Data that Can Be Used for Risk versus Reward Bubble Charts

Figure 7-2 shows an assessment that was done for the R&D center of a Japanese firm. The
purpose of the R&D center was to bring forward new-to-the-world products. Here there were six
major project areas with each area having anywhere from two to 10 projects. Each major project
area is plotted with the size of the bubble representing the relative resources being allocated to
that area of development. For each development area an average of the time to a market
prototype (i.e. completing the market feasibility effort) was plotted against the forecast sales
revenue potential. The bubbles provide a comparison between the six major research areas.
Three of the areas (sensors, controls, and data mining) have been focal areas for more than 10
years. It is clear that the R&D does not have any major innovation identified in these areas. It
could be expected that these three areas could be eventually folded into the major business units
if the Differentiated Strategy for R&D continues. A second set of projects (E&E, Health Care,
and Emerging Technologies) is new areas in the past two years. There was hope that these
projects were the future to the company. But after looking into the forecasts these projects are
really in the sacred cow arena and will need some serious management focus to bring the
valuable products out. This company did not have a Management of Innovation (MOI) process
where projects were given milestones and were assessed as they moved through the MOI
barriers. There is also some concern that there were no pearls or even a project close to that type
of payoff. The question arises as to how to grow pearl-like projects. This is addressed in the next
chapter on R&D Project Selection Management.
Example R&D Major Projects
Pearls?
50BY
Emerging
Annual Technologies
Sales
Growth Data Mining
Health and Care
Controls
Sensors
1BY E&E
<1 yr >5 yr Market

Prototype
Figure 7-2. Example R&D Major Projects

7.3 Step 3: The Project Score Sheet
Each project in the portfolio can be assessed with a common score sheet. This can validate if the
project is addressing the proper issues as it progresses through the MOI phase (on average taking
nine years). Also the management can validate its portfolio of projects to make sure there is
adequate effort directed toward technical and market innovation. The score sheet uses a set of
scores in various topics to help rank the projects for funding or track their progress through the
MOI cycles.
An example of a score sheet is shown in Figure 7-3. There are five major categories with a one to
10 ranking. Each category can be weighted differently to reflect the strategy of the business. For
example a Differentiated Strategy might add greater weight to Technology Readiness over the
Development Plan. A Not-in-the-Game Strategy would put very high weight on the market
forecast and little weight on its IP position. A Low-Budget Conservative Strategy might focus its
emphasis on the development plan completeness choosing projects that are well developed.
Table 7-2 lists some questions that help determine the score for each factor.
Evaluation Factors for (firm‘s) R&D
PROJECT TITLE: __(and objective)

Weighting
Factor
x1 1. Technology Readiness: (inventions needed) 1 2 3 4 5 6 7 8 9 10 (estimates complete)
x1 2. Product defined: (open factors) 1 2 3 4 5 6 7 8 9 10 (design complete)
x1 3. Market Forecast: (market push) 1 2 3 4 5 6 7 8 9 10 (strong market pull)
x1 4. Intellectual property position: (none) 1 2 3 4 5 6 7 8 9 10 (patents filled)
x1 5. Development plan: (incomplete) 1 2 3 4 5 6 7 8 9 10 (complete)
MAXIMUM POINTS: ______ SCORE: ______

Business
Criteria
6. OVERALL RISK: Technical Feasibility Status (low) 1 2 3 4 5 6 7 8 9 10 (high)
Market Feasibility Status (low) 1 2 3 4 5 6 7 8 9 10 (high)
>$ 7. NPV: _______
>% 8. IRR: _______ Notes:
Figure 7-3. Score Sheet for Assessing Projects

Technology Readiness Is the technology known or are inventions still
needed?
Product Defined Can you envision the operation of the product and
its approximate recurring cost?
Market Forecast Are there many customers who would be interested
in discussing this product idea with you, or is there
one or none?
Intellectual Property Position Do you have your own patent-able ideas or do you
have agreements or license for unique technology?
Development Plan Are you putting resources effectively on the key
issues? Do you have the best talent for the work?
Risk An overall judgment on technical and market status.
The project objective should match with where the
higher risk is.
Net Present Value and Internal Is there enough of a ‘story’ or definition such that a
rate of return profitable business of an acceptable size is possible.
Table 7-2. Assessment Factors for High Technology
Often through this exercise the survey is lead by a small group and the score sheets are filled in
through interviews with the project leaders. If a NPV and IRR has been forecast it is added to the
sheet. Once the data is complete the assessing group can give an overall measure of the technical
risk and the market risk for the product forecast.
Figures 7-4 through 7-8 are samples of projects on-going that were assessed. It is quick to see
where projects are in relation to each other and how far they may be from a product launch. The
scores and the project effort (this value was known separate from the score sheets) can be plotted
onto a curve to see how they map onto the Management of Innovation development activity. This
is shown for a Japanese firm’s R&D Center having 11 projects in Figure 7-9. For the most part
the projects are on track. There is one very basic research project that has a long way to go
before products evolve. There is a question of how to continue this project. Also as projects
move past the technical feasibility focus to the market feasibility focus the projects are larger.
One issue with this organization is there were no gate decisions on projects and thus there were
no projects that were waiting at a barrier. They had a tendency to let projects evolve, as nature
allows, which may not be the most efficient use of resources. In the next chapter there is a
proposed outline for how management could establish a system for project selection that keeps
more projects under review than just those being funded.

PROJECT TITLE: ___Ball Semiconductor
Develop new processing and devices for 1 mm diameter Si balls.
Weighting
Factor
50
MAXIMUM POINTS: ______ 5
SCORE: ______
Business
Criteria
>$ 7. NPV:
N/A
_______
N/A Still need to find one technical advantage

>% 8. IRR: _______ Notes:
for this technology.
Figure 7-4. Score Sheet for Early Research Project
PROJECT TITLE: ___Co-planarity Optical Sensor

Develop prototype for 3-D surface profiling using Moire imaging
Weighting
Factor
50
MAXIMUM POINTS: ______ 21
SCORE: ______
Business
Criteria
>$ 7. NPV:
N/A
_______
N/A Need prototype to forecast product cost

>% 8. IRR: _______ Notes:
and assess market benefit/value.
Figure 7-5. Score Sheet for Technical Feasibility Project

PROJECT TITLE: ___Edge Optical Sensor
Develop Prototype for precise position sensing for moving edge
Weighting
Factor
50 39
MAXIMUM POINTS: ______ SCORE: ______
Business
Criteria

PBIT: 38MYen
>$ 7. NPV: _______
Profit: 14% Need validation of benefit versus the price

>% 8. IRR: _______ Notes: in the market to confirm profit forecast.
Figure 7-6. Score Sheet for Market Feasibility Project
PROJECT TITLE: ___Data Mining Optimization

Develop Optimization Technology for TCBM tool.
Weighting
Factor
MAXIMUM POINTS: ______

50 38
SCORE: ______
Business
Criteria

N/A
>$ 7. NPV: _______
N/A Validating market need.
>% 8. IRR: _______ Notes:
Figure 7-7. Score Sheet for a Project Validating the Value Proposition

PROJECT TITLE: ___Data Mining Application
Apply TCBM model to customer data to validate advantage.
Weighting
Factor
MAXIMUM POINTS: ______

50 45
SCORE: ______
Business
Criteria
>$ 7. NPV: 46MY(3

_______ yrs)
Validating exact application to customer.
>% 8.
N/A
IRR: _______ Notes: Need new supply chain to value this
technology.
Figure 7-8. Score Sheet for a Product Launch Preparation Project
R&D Center Sample of Projects
~9 years NPD
Effort (man-years)
Product
Launch
Product
5 1 2 3 S Curve
1
Time
5 15 25 35 45 Product
Assessment Score
R&D Center Projects working the technical feasibility and market feasibility emphasis consistent
with the assessment score. Project selection favors working market feasibility concurrently with
technical feasibility causing a ‘blurring’ across the unmet need barrier.
Figure 7-9. R&D Center Sample of Product

Chapter 8 Summary: R&D Project Selection Process
Synopsis: A critical part of the Management of Innovation is organizing, planning, and
executing on the R&D projects. The Management of Innovation involves defining and selecting
projects that have the most potential benefit to the firm. MOI can be equated to the investment
in technology. In this section two categorizations of projects are compared—the Traditional
R&D structure which is based around technology readiness and what is now emerging in most
firms as the Modern R&D structure that is based on market readiness. The Traditional R&D
structure used the terms Research Projects, Development Projects, Production Projects, and
Venture Projects that were clearly defined by the technology readiness and market readiness of
the idea. However many studies have shown that this process sometimes requires a long time for
product development because of the limited inclusion of customer pull early in the R&D process.
Thus the second project definition system is based more on market readiness than technology
readiness.
Then a full process that a firm could use for its R&D project selection is illustrated. This process
first suggests the types of projects included and a percentage of these project types that should
make up the overall R&D project portfolio. Included in this process are three types of projects—
Market Feasibility and Technical Feasibility Projects, and Venture Projects designed to offer a
protection to firms that are susceptible to technology disruptions in their products. Venture
Projects are usually related to partnering with universities or start-up companies who specialize
in a specific emerging technology. Appendix II is a case study illustrating a detailed
methodology for selecting technical feasibility projects using a business valuation process.
Discussion:
1. Why would the Traditional R&D structure tend to take a longer time to develop new
products?
2. What characteristics (types of people working on them, places for the research, number
of milestones, etc.) would be different between Technical Feasibility and Market
Feasibility projects?
3. Define an example of a product development that would fit into a Technical Feasibility
type project.
4. Define an example of a product development that would fit into a Market Feasibility
type project.
5. Define an example of a product development that would fit into a Venture type project.

Chapter 8: R&D Project Selection Process
Most often the basic R&D function in a firm is setup to have many technologies and functions
competing for the same resources. Although this diversity of ideas does not lend itself easily to
any single technical evaluation, the process brings the ideas to a common flow. The work for
each idea is defined into projects and these projects compete for funds at each of the three
barriers in the Management of Innovation processes.
Companies are expecting a shorter development time and more valuable products from their
R&D investments. This is causing R&D activities to transition from a Traditional Project theme
to a Modern Theme. The Traditional Project theme (Figure 8-1) first develops the technology
and then is developed with a launch customer involved.
The Traditional Project Evolution

R&D is what is done before product production is launched.
Entrepreneurship was not part of the evolution to a product.
Market
Launch Customer Market value
defined
Readiness unproven
Prototypes Production Ventures

Available
Projects (Entrepreneurship)
(NPD)
Technology
Readiness
Product
Development Research R&D
not defined
or incomplete Projects Projects Center
Focus
Venture approach was not part of R&D Center project style
Figure 8-1. Traditional R&D Project Definitions

(Venture approach was not part of R&D project style)
The Modern theme (Figure 8-2) uses both technical feasibility as well as market feasibility
projects. Marketing activities are an essential part of R&D activities. Technology Readiness is no
longer thought of as breadboards and prototypes but as the technical advantage quantified.
Market Readiness is not just the Launch Customer but what is the entire customer base. As a
result R&D activities are moving from the traditional Research and Development Projects to
Technical Feasibility and Market Feasibility Projects. As a result the R&D leaders must not just
focus on the technology but also develop the market innovation. As described in this handbook
the market feasibility projects are often more technically challenging and require more
innovation that the traditional R&D projects.

Modern R&D now must have a business sense
R&D Center must address both technical and market development.
Market
Customer base Market value
defined
Readiness unproven
Technical
Advantage Product Launch Market Feasibility
Quantified Projects Projects
(NPD) R&D
Center
Technology Focus
Readiness
Product Product Improvement Technical Feasibility

not defined Projects
Projects
or incomplete
Venture funding accelerates products by working technical and market feasibility

concurrently with NPD.
Figure 8-2. Modern R&D Project Definitions

(R&D must address both technical and market development)
8.1 Three Project Process
In the next few pages a Three Project Process is defined. The Projects are Technical Feasibility,
Market Feasibility, and Ventures. The objectives of this Three Project Process are:
1. Involve all major business leaders
2. Create a full complement of projects
3. Motivate researchers and project leaders
4. Bring business awareness to the R&D organization
5. Bring ideas to a decision point annually
6. Use competition to drive creativity (gaming)
Figure 8-3 shows the comparison between the three types of projects. The technical feasibility
projects are still the major activity and valuable new products need a strong technical basis. In
addition a significant amount of Intellectual Property and patent disclosures should result from
this activity. These projects are originated and driven from the leading technologists in the
organization. The motivation for these projects comes from experience and judgment by experts
who can envision and improvement in products or services through the incorporation of an
emerging technology. Market feasibility projects should account for roughly 30% of the total
projects in the R&D portfolio for a firm. These projects are originated and driven from within
the business units in the firm. These project leaders are still most often technologists but now are
partnered with marketing experience and insights from customer needs. These projects typically

have a technical marketing team defining the tasks and project goals. Venture Projects are no
longer considered vital to the modern R&D center but many firms are looking for outlier ways to
prevent being ‘blindsided’ by technologies or firms that are not directly in their field of business
and management. Venture Projects should account for not more than 10% of the project
portfolio since these reflect high risk, high pay-off projects. Only the very best projects should
be selected and focused on. Venture Projects can be originated by anyone in the firm and may
involve many aspects to a company’s success ranging from partnering for new internal
technologies to new-to-the-company type products. Today many firms are partnering with
universities or small start-up companies to lead and deliver the Venture projects.
R&D Project Portfolio
I. Technical Feasibility
• 60% of funding/projects
• Project selection and funding controlled by R&D center (incentive to
researchers to originate ideas)
II. Market Feasibility
• Project selection controlled by business units (R&D Center offers a
liaison)
• Joint funding from business unit and R&D center (incentive to
business unit)
III. Venture
• Project Selection controlled by corporate, with R&D motivations
• Additional funding provided by corporate above R&D allocation
Figure 8-3. R&D Project Portfolio Definitions
Each of these different types of projects should use a different project selection process to
identify the most important and highest potential for success. Three separate processes are
illustrated below for each of the three R&D project types. A time line is shown for each process
to show the parallel timing of these three selection processes. Overall the full timetable should
be completed in four months and all projects launched at the end of this planning phase. Thus
most firms would line this planning process with the timing that these projects would be
launched at the beginning of the firm’s fiscal year. Because most firms use an annual business
management process it is best these projects be planned with year-long (or shorter) milestones so
that projects can be reviewed and compared with new ideas that are emerging. The technical
feasibility projects should be selected from a technology push type of process. This process is
illustrated in Figure 8-4 including a timeline for the decision making process. The business case
forecasting is done with a Revenue-First process. The market feasibility projects should be
selected from a market pull type process. This process is illustrated in Figure 8-5 again using a
timeline for decision making with a business case forecasting method based on a Profit-First
process. The venture projects should be selected with an affordability type process. This
process is illustrated in Figure 8-6 again using a parallel timeline for a decision making flow with
a business case forecasting method based on the Loss-Leader Process.

Figure 8-4. Technical Feasibility Projects
Technical Feasibility Project Selection
Actions:
1. January: Request for Technical Feasibility projects is sent out.
Guidelines are defined for key technology demonstrations. The revenue
first process is shown such that this feasibility project could position
technical marketing to search for a development agreement.
2. February: Managers should lead ideas into the proposal phase. The
leaders of the project will be the principle investigators.
3. Early March: A set of two page write-ups is prepared outlining the
technology, the objective of the project, the milestones and schedule, and
potential market benefit.
4. Mid-March: A committee led by the R&D Center management prepares
an initial prioritization of the proposals. The top candidates are then
presented to the selection committee who ranks the projects.
Figure 8-4a. Technical Feasibility Project Selection
Development
Technical Launch
Technology Contract Product
Marketing Customer Decision
Feasibility Agreement Launch
Evaluations Teaming
Plan
Key focus areas:

3. Engineering works side-by-side with marketing to evaluate and team with a
launch customer
4. Development contract is negotiated to fairly set investment and ownership
sharing
Figure 8-4b. Revenue First MOT Process (Technology Push)
The second type of projects, market feasibility, is driven by the businesses looking to grow but
the R&D center continues to manage and staff the projects. Figure 8-5 outlines the schedule for
these project selection decisions that would fall in line with the Technical Feasibility Projects. A
Profit-First forecasting process would be the best process for developing the business case.

Figure 8-5. Market Feasibility Projects
Market Feasibility Project Selection
Actions:
1. February: Request for Market Feasibility projects is sent out. Guidelines
are defined for key technology and market definition demonstrations. The
profit first process is shown such that this feasibility project could lead to
some financial analysis being validated.
2. March: Business Unit managers should lead ideas into the proposal
phase. The leaders of the project will be from the R&D Center.
3. End March: A set of two page write-ups is prepared outlining the
technology, the objective of the project, the milestones and schedule, and
potential market benefit is estimated.
4. April: A committee led by the R&D Center management prepares an initial
prioritization of the proposals. The CTO and some staff should be on the
committee. The top candidates are then presented to the selection committee who
ranks the projects.
Figure 8-5a. Market Feasibility Project Selection
Development
Plan
Voice of the Marketing Product Product

ROI Analysis Decision
Customer Analysis Features Launch
Market Value
Key focus areas:

3. “Voices into choices” - don’t base product on leading questions
4. ROI and NPV are calculated and adjusted versus risk
Figure 8-5b. Profit First MOT Process (Market Pull)
The third type of projects would be Venture Projects. These are driven by the corporate
managers and may not have a specific number of projects each year. Venture Projects serve the
purpose in large firms to offer a protection to firms that are suspect to technology disruptions in

their products. Venture Projects are usually related to partnering with universities or start-up
companies who specialize in a specific emerging technology. Figure 8-6 outlines the schedule
for this Project Selection process. In this case a Loss-Leader process would lead the forecasting
technique.
Figure 8-6. Venture Projects
Venture Project Selection
Actions:
1. January: R&D Management encourage corporate leaders with potential
ideas for low risk, high pay-off projects.
2. February: Corporate leaders begin some assessments to determine if any
venture ideas warrant investigation. The loss-leader process could serve
as a guideline for how this technology and product idea could be brought
forward for a product launch.
3. April: A set of two page write-ups are prepared outlining the technology,
the objective of the project, the milestones and schedule, and potential
market benefit. The corporate sponsor for the project allocates additional
funding. R&D manager leads the project making sure resources are
available.
Figure 8-6a. Venture Project Selection
Prioritize by Launch
Screen list for development Customer Plan:
Solicit Product
“horizon” status and product specs, Affordability Decision 1st Lot Build
Ideas launch budget, field
ideas
customer test plan
Key focus areas:

3. Evaluate internal product ideas for the most affordable development
4. Launch customer must be a lead user in the market of interest
Figure 8-6b. Loss-Leader MOT Process (Lead User Pull)

The benefits to this Three Project Process can be defined as:
1. Ensure new technologies are being developed
2. All parts of the company have input to the R&D effort
3. There is some competition for resources, which will drive creativity
4. Include market feasibility as an important step to validating a new products launch
decision
5. Corporate leaders have the responsibility to direct company R&D where fast moving
business opportunities are forecast.
6. Employees have an evaluation metric for driving decisions on their ideas.
Appendix II is a case study to define a process with specific business related tools that can be
used for managing technical developments during the Management of Innovation stage of NPD.
A six-step process is defined and illustrated and applied specifically for the development of new
control-based sensors. Step-by-step instructions are described with illustrations of the
spreadsheet tools used for each step. A case study also shows how the tools were used to
accelerate the development of a complex new sensor-based product. This new tool will
accelerate selection of the best technical approach offering both the best match to technical and
market needs early in development. Once the new product enters the Market Feasibility Phase,
traditional business case tools and methods are best applied to guide the project. This tool
identifies six factors that accelerate a sensor development during the technical feasibility process.

Chapter 9 Summary: Product Stewardship
Synopsis: Product Stewardship involves managing a product through its entire life cycle of use
by mankind. For some investors and businesses this responsibility is not considered to be part of
their business. For others this responsibility is accepted and managed as part of their business
and starts at the very beginning of a new product development, in the R&D or Management of
Technology stage. This section includes background and evidence that there will be a growing
focus on firms to include Product Stewardship as part of their normal developing and selling
products through the end life of the product. The end life of the product may require the firm to
recycle its own sold products back into re-use or be returned to the earth safely. A definition of a
technology life cycle is shown which can form a framework for how a firm could introduce
Product Stewardship practices. At each stage of the technology life cycle certain practices and
steps could be included in its Management of Technology processes to offer the best
environmental and profitable outcome for its products. The Product Life Cycle is also described
which can also indicate a timeline for including Product Stewardship in its Management of
Technology processes. The various perspectives of Product Stewardship are then compared for
retailers, consumers, local governments and federal governments, with the United States used as
an example. Each of these perspectives brings different motives to addressing Product
Stewardship. Appendix III describes a study to develop methods for Product Stewardship
Valuation.
Discussion:
1. Define the difference between a technology life cycle and a product life cycle.
2. List some development steps that might be included during a Technical Feasibility
project for a new product.
3. List some development steps that might be included during a Market Feasibility
project for a new product.
4. In the Exhibit on Sony, describe the effects of their report between showing a
technical improvement such as battery life and product weight, and calculating their
environmental improvement in terms of money.
5. Describe the different perspectives in Product Stewardship between retailers,
consumers, local government and federal government for China.

Chapter 9: Product Stewardship
The following is the foundation for the global interest in Product Stewardship.
29-November-2002
United States – Humanity’s ecological footprint exceeds the earth’s biological

capacity by 20 percent, according to a new report published by the US-based
NGO Redefining Progress. This means human beings’ consumption and waste
production exceed the earth’s capacity to create new resources and absorb waste,
reducing the earth’s capacity to support future life.
The report, “Ecological Footprint of Nations,” analyzes the ecological impact of

146 of the world’s nations, demonstrating to what extent a nation can support its
resource consumption with its available ecological capacity. The report uses
ecological footprint accounts to provide a measurable estimate of humanity’s
pressure on global ecosystems.
The global ecological footprint in 1999 was 2.3 global hectares per capita, while
the Earth’s biocapacity was 1.9 global hectares per capita. The analysis is
primarily based on data published by the UN and the Intergovernmental Panel on
Climate Change from 1999, which is the most recent available to scientists.
Redefining Progress’ sustainability program director Mathis Wackernagel, one of

the report’s three authors, said: “Many nations, including the US, are running
even larger ecological deficits. As a consequence of this overuse, the human
economy is liquidating the Earth’s natural capital.” The US recorded an
ecological footprint of 9.7 hectares per capita, nearly doubling its national
biocapacity of 5.3 hectares per capita. New Zealand had the largest surplus at 14
hectares per capita, with Australia second on the list with a surplus at 7 hectares
per capita.
Warning against “ecological bankruptcy, the report says: “The bottom line for
sustainability thus becomes—how can each person have a satisfying life within
the average of [1.9 global hectares] per person or less? This is the most significant
challenge for research, business and politics.”
Product stewardship includes managing the product on the down side of its life
cycle. Much of the management of R&D and certainly New Product Development
is managing the S curve and what precedes it. It is becoming important also to
manage what follows the S curve. Not only is managing the down turn of a
product’s sales important for a financial reason but also there is an awareness of
‘good citizenship’ as well. The concept of Stewardship begins with an
understanding of technology life cycle and product life cycle. (Khan, 2001)

9.1 Technology Life Cycle Model
A technology’s development and its improvement of performance follows an S-curve.

Technological performance can be expressed in terms of any attribute. Technological
development is often stimulated by market demand, which is the most effective connection
between technology and market. A strong market demand often provokes major technological
breakthrough.
Five major stages in the development of technologies are recognized (see Figure 9-1).
Technology Life Cycle

Sales Volume
Time
Pre-Market Emerging Diffusion Established Obsolete
Issues:
Forecasting Bus Case Supply Chain Cost Reductions Waste
Figure 9-1. Technology Development Following an S-Curve
Pre-market is the time when a technology is discovered or invented. It is the first step in the
process of the discovery of new technologies, resulting from applied research. At this stage a
technology is not yet available for sale, nor its likely uses, risks, or benefits clearly understood.
Assessments at this stage generally concern safety and efficacy, but not cost-effectiveness or the
comparative risks and benefits of the new technology with alternatives.
An emerging technology is past the stage of basic research labs, but not yet in widespread use.
Assessments at this stage have the greatest chance of controlling diffusion and ensuring that cost-
effectiveness influences adoption and use.
A diffusing technology is rapidly gaining acceptance by market, and increasing in volume and/or
rate of use. If assessment has not preceded this stage, a technology can quickly become
established and considered by providers to be a standard approach.

An obsolete technology is one that is outmoded or abandoned. Established technologies can
become obsolete because better alternatives are invented, or because of belated evidence
showing that they are not as efficacious as originally thought, or are actually harmful. Depending
on the reason for obsolescence, a technology can disappear from use slowly or rapidly.
An interesting activity is the forecasting of the transition from one stage to another. There are
techniques to plot the number of papers published on the technology each year. There are other
techniques to plot the number of patents issued each year. A significant increase in the number of
papers related to the technology may signal the transition form pre-emergent to emerging. A
significant increase in the number of patents may signal the transition from emerging to
diffusing.
9.2 Product Life Cycle Definition
The Product Life Cycle theory is established under the following assumptions:
1. Product has limited life
2. Product sales through distinct stages, each posing different challenges, opportunities, and
problems to the seller
3. Profits rise and fall at different stages of the product cycle
4. Product requires different marketing, financial, manufacturing, purchasing, and human
resource strategies in each stage of their life cycle
A typical product life cycle curve has a bell or “S” shape as shown in Figure 9-2.
Product Life Cycle
Units
sold
Profit
Time
Development Growth Decline

Introduction Maturation
Issues: Strategy, cash flow, sales, production
Figure 9-2. Product Life Cycle Curve

Development Stage: Development stage starts when a firm finds and develops a new product
idea. This involves translating trends in the macro-environment, taking diverse pieces of
information, and incorporating them into a product concept. Product concepts typically undergo
several iterations, involving considerable time and money, before they are exposed to target
consumers via test markets. Concepts that survive test market scrutiny are ready for market
introduction. During the product development stage, sales are zero and profits are negative. This
is the era of "What Precedes the S curve."
Introduction Stage: Introduction begins when the product is first made available for
commercial sale. During the introduction stage the product’s sales are relatively low and slow to
accumulate because it takes time to roll the product into multiple geographic markets, convince
wholesalers and retailers to stock and sell the product, and to generate sufficient levels of
customer awareness, interest, and trial. Customers are mainly lead users.
Production costs tend to be high on a per unit basis because the firm has yet to experience any
significant scale economies. Marketing costs required for creating customer awareness, interest,
and trial and for introducing the product into distribution channels are high. Profits, because of
low sales and high unit costs, tend to be negative or very low while heavy expenses on product
introduction are incurred. Overall, demand generally remains low during this stage. Competitors
tend to be few in number; indeed there may be only one major player in the marketplace – the
innovating firm.
Growth Stage: Eventually, as the product becomes more widely available and is adopted by
more and more consumers, sales begin to grow at an increasing rate. This increase is due to:
1. Consumers rapidly spreading positive word-of-mouth about the product
2. An increasing number of competitors enter the market with their own versions of the
product
3. A promotion effect which is the result of individual firms using advertising and other
forms of promotion to create market awareness, stimulate interest in the product, and
encourage trial
It is at this point that the product has entered its growth stage. Sales continue to grow at an
accelerated rate until the market approaches saturation i.e., the pool of potential customers for
the product becomes depleted. As this saturation point is approached, the sales curve begins to
tip over – the rate of sales growth tends to decelerate. At this point, the product transitions into
its third stage – maturity. The growth stage is characterized by product rapid market acceptance
and significant profit improvement.
Product costs are declining on a per unit basis because increased sales lead to longer production
runs and, therefore, economies of scale in production. Similarly firms may experience “learning
curve effects” which help to lower unit variable costs. Because sales are increasing and, at the
same time, unit cost is declining, profits rise significantly and rapidly during this stage.
Customers are mainly early adopters. During the latter part of growth, the first major segment of
the mass market enters the market. This category of consumers is somewhat more price sensitive

and lower on the socio-economic spectrum. As a result, these consumers are somewhat more risk
averse and, therefore, somewhat more hesitant to adopt the product.
Competition continues to grow throughout this stage. As competitors recognize profit potential
in the market, they enter the market with their own versions of the product. As competition
intensifies, strategies turn to those that will best aid in differentiating the brand from those of
competitors. Attempts are made to differentiate and find sources of competitive advantage. In
addition, firms identify ways in which the market can be segmented and may develop focused
marketing strategies for individual segments.
Maturity Stage: Sales continue to grow during the first part of the maturity stage, although the
growth rate is much slower than before. At some point during maturity, sales reach their peak.
This peak will vary in duration, depending on the product category under consideration. For
some product categories sales may remain at their peak for decades. Maturity stage is
characterized by slowdown in sales growth, profits stabilize or decline and increased
competition.
The maturity stage is usually the longest phase of the Product Life Cycle. As a result, most
products at any point in time are at maturity. This means that most decisions made by marketing
managers are decisions relevant to managing mature products. This makes the maturity stage of
the Product Life Cycle among the most important for us to consider from a managerial
perspective.
Profits erode during maturity because of market saturation and continually intensifying
competition. When this slowing of sales is combined with the increasing costs associated with
this stage, the result is that profits will have reached their highest level and must, from this point
on, decline.
Customers now include the routine users. These customer groups are by far the most risk averse
and most hesitant to adopt new products. These customers are quite price sensitive and, as a
result, will not buy products until prices have seen significant declines. Many laggards, the last
group to adopt, often do not do so until the product is virtually obsolete and in danger of being
displaced by new technologies.
Competition is most intense during this stage. The intensity of competitive infighting drives the
changes in costs and profitability.
Decline Stage: Eventually the product sales decline. The decline stage is characterized by a
steady deterioration in sales and profits. This stage culminates in the product’s withdrawal from
the market. In this stage the sales show a downward drift and profits erode. Unless major change
in strategy or market conditions occur, sales are not likely to be revived. Costs, because
competition is still intense, continue to rise. Large sums are still spent on promotion, particularly
sales promotions aimed at providing customers with price concessions.
Profits, as expected, continue to erode during this stage with little hope of recovery.

Customers, again, are primarily laggards. There generally are a significant number of
competitors still in the industry at the beginning of decline. However, as decline progresses,
marginal competitors will flee the market. As a result, competitors remaining through decline
tend to be the larger more entrenched competitors with significant market shares.
9.3 What Is Product Stewardship? (Ref. www.epa.gov)
Product stewardship is a product-centered approach to environmental protection. It calls on those

in the product life cycle – manufacturers, retailers, users, and disposers – to share responsibility
for reducing the environmental impacts of products.
Product stewardship is a different “take” on the manufacturer-centered Extended Producer

Responsibility laws gaining prominence abroad. Product stewardship recognizes that product
manufacturers can and must take on new responsibilities to reduce the environmental footprint of
their products. Without serious producer commitment, a country cannot make significant
progress toward improved resource conservation and a sustainable economy. However,
producers acting alone cannot always achieve real change: retailers, consumers, and the existing
waste management infrastructure may have to pitch in for the most workable and cost-effective
solution. The solutions and the actors will vary from one product system to another.
9.4 Businesses and Product Stewardship
In most cases, manufacturers have the greatest ability, and therefore the greatest responsibility, to
reduce the environmental impacts of their products. Companies that are accepting the challenge
are recognizing that product stewardship also represents a substantial business opportunity. By
rethinking their products, their relationships with the supply chain, and the ultimate customer,
some manufacturers are dramatically increasing their productivity, reducing costs, fostering
product and market innovation, and providing customers with more value at less environmental
impact. Reducing use of toxic substances, designing for reuse and recyclability, and creating
take-back programs are just a few of the many opportunities for companies to become better
environmental stewards of their products. In the 21st century, forward-thinking businesses have
recognized that demonstrated corporate citizenship and maximum resource productivity are
essential components to creating competitive advantage and increasing shareholder wealth. Sony
is one company that has taken a very dedicated approach and extrapolates it to its financial
report. Exhibit 9-1 summarizes Sony’s Environmental Mission related to product development
and how they track and report their overall impact to the environment. This is a lead that more
companies will begin to follow.

Exhibit 9-1. Corporate Stewardship
Sony 2003 Environmental Mission
Manufacturing of a product involves several processes. It starts from

product planning and development, through procurement of raw materials, and
to manufacturing, sales, and distribution to our customers. Then the product
will be recycled after customer's use. The first step in reducing the
environmental impact of business activities is gaining a thorough understanding
of Sony's total environmental impact. At Sony, this impact can be divided into
three categories: greenhouse gas emissions, the consumption of resources and
the use of chemical substances. Specific measures are being taken in each area.
When constructing new business sites, care is exercised to reflect
environmental factors. Environmental accounting is conducted to calculate the
degree of effects obtained in relation to costs for environmental measures.
Sony has taken a serious stance on its impact on the environment. They outline a
complete cradle to grave process and accounting to new products. To make the
point as direct as possible they include specific data on materials, chemicals, their
product improvements, and eventually the financial impacts.
Sony
Lighter blue is cassette version. Darker blue is MD version.
Sony has vigorously sought to reduce the size and weight of its diverse lineup of
products. The Walkman is a case in point. The recording media it uses has
evolved from cassette tapes to mini discs (MDs), and now the Memory Stick. The
latest models of the Walkman are even smaller and consume less power than ever
before. Lighter blue is cassette version. Darker blue is MD version.

Sony 2002 Environment Economics
Environmental Conservation Effect (Unit: million yen)
Category
Material Effect Monetary Effect
Greenhouse gas 1,431,436 ton-CO2 4,438
Resources 190,009 tons 22,041
Water 2,763,283 m³ 1,390
Chemical substances 557 tons 724
Environmental risk 157 points 557
Total 29,150
Environmental Conservation Costs (Unit: million yen)
Category Expenses
For product design and recycling 2,166
For manufacturing and service related activities 10,435
For management activities 5,192
For research and development activities 1,637
For social activities 246
For environmental remediation 7,101
Total 26,777
In their annual report Sony has determined their environmental impact in a

financial impact. They track two lists: the savings or credit to the environment and
their internal costs related to these effects. In 2002 Sony created a 29.15 million
Yen positive effect on the environment by investing 26.777 million Yen.
9.4.1 Retailers and Product Stewardship
As the sector with the closest ties to consumers, retailers are one of the gateways to product
stewardship. From preferring product providers who offer greater environmental performance, to
educating the consumer on how to choose environmentally preferable products, to enabling
consumer return of products for recycling, retailers are an integral part of the product
stewardship revolution.
9.4.2 Consumers and Product Stewardship
All products are designed with a consumer in mind. Ultimately, it is the consumer who makes
the choice between competing products and who must use and dispose of products responsibly.
Without consumer engagement in product stewardship, there is no closing of the loop.
Consumers must make responsible buying choices, which consider environmental impacts. They

must use products safely and efficiently. Finally, they must take the extra steps to recycle
products that they no longer need.
9.4.3 State and Local Governments and Product Stewardship
Solid waste programs in the United States are managed at the state and local level. Thus, state
and local governments are essential to fostering product stewardship. A few progressive states
have incorporated product stewardship objectives into their solid waste master plans, and
launched cooperative efforts with industry to encourage recycling of their products. Some states
have developed product stewardship-type legislation for selected products. In addition, state
procurement activities can strongly encourage product stewardship innovations. In many cases,
states need to work with their neighbors to develop cost-effective approaches to handling
problem wastes.
9.4.4 Federal Government
The Federal government shares responsibility for increasing product stewardship as well.
Currently, Federal statutory authority to control the environmental impacts of product systems is
limited. However, the Environmental Protection Agency is actively facilitating coordination and
collaboration among states, local governments, industry, and non-governmental organizations on
these issues. As the nation’s largest single consumer, Federal agencies are using their market
leverage to incentivize the development of products with stronger environmental attributes.
Appendix III is a case study entitled Valuing Product Stewardship which evaluates two methods
for valuing the product stewardship aspect of products, establishing Green Economy
Manufacturing. One method is designed for existing products to compare alternative
manufacturing methods, such as remanufacture of used parts, and is based on Life Cycle
Assessment concepts. The second method is designed for new product design trade-offs in
which the full financial benefit of the product can be estimated as part of the business case
financial estimation. This method is based on the standard discounted cash flow cost and sales
assumptions method, and includes the projected financial benefits to the consumer and the
environment. The relative financial benefits from the decision options to invest or wait, both
from the company’s and the consumer’s perspective, are then compared. This allows the
business case for eco-friendly design to be more accurately measured for a company’s Green
Economy Manufacturing. Each of these methods is defined from a top-level process, including
case studies of a water pump part for an engine and a hybrid grass-mowing machine. A
summary on how these valuation methods for product stewardship might align with new product
development management and marketing practices is discussed in terms of four major product
stewardship initiatives.

Chapter 10 Summary: Creating an R&D Technology Strategy
Synopsis: Most firms simply use their ‘Profit Zone’ values to guide R&D project selection. By
then organizing the R&D projects a firm can define its Working Strategy for Technology. The
on-going projects are an exact reflection of the Technology Strategy. Often this is the best
method the firm has to visualize its Technology Strategy. However there are two direct efforts
that can be included as part of the R&D project selection process which are defined as the
Technology Strategy and Technology Breakthroughs. The Technology Strategy uses the
Working Strategy (the R&D projects, how they are planned and where they are being lead) to
clarify roles and responsibilities and also define best practices for the research. The Technology
Breakthrough uses various methods to explore emerging technologies and market ideas. These
breakthrough technologies can be assessed through Future Workshops with customers and
through worldwide technology forums. There are three steps to creating a Technology Strategy:
1: Mapping a Company’s Technology
2: Overlaying Roles and Responsibilities, Best Practices
3: The Breakthrough Technology Strategy
The framework for Step 1, mapping a firm’s technology, is based on categorizing the
technologies into Mature, Pivotal, and Emerging timelines. Mature Technologies are
documented into engineering practices and outside suppliers are the major maintainers of
these technologies for the firm. Pivotal Technologies is a stage where the firm has been
extensively using these technologies and an effective management method would start to
bundle technologies into entities that can be managed for sustaining maintenance.
Emerging Technologies are often new product ideas and the strategy should encourage
their development in effective ways. The framework for Step 2 overlaying roles and
responsibilities and best practices is based on defining levels of ownership of projects
between who is Accountable, Responsible, who needs to be Consulted, and who needs to
be kept Informed. The Framework for Step 3 the breakthrough technology strategy is
based on forecasting if the future products will be under-serving or over-serving the
market. The role of the strategy is not so much to select the technologies but how to
provide the management for directing where the technology should be owned and how
fast it needs to be developed. Setting this pace for technology is a key aspect to the
portfolio management of the R&D projects. A technology strategy is not a scorecard but
rather a guide or rulebook for project selection and location.
Discussion:
1. Give some examples of Profit Zone Values that a company could use to drive R&D
project selection. You might consider large firms that you consider the world leaders
in certain markets.
2. Explain the differences between the three examples of technology mapping shown in
Exhibit 10.1.
3. Explain for the development of an electronic controller shown in Figure 10-4 why
engineering and marketing would have different roles in accountability and
responsibility.
4. Provide some examples where products have over served a market.
5. Provide some examples where products have under served a market.

Chapter 10: Creating an R&D Technology Strategy
Most firms operate very well with a basic business strategy to guide its R&D function. Often
these “vision” and “mission” statements are built around a “world class” capability. And often
this strategy is enough for the R&D efforts to operate and select projects and guide those
projects. Much of this handbook has been focused on how to manage these tactical activities. But
what is more challenging is to create a technology strategy that can be used for the project
selection process. Most companies can easily adopt the best management practices and make the
best tactical decisions every day. However at some point this decision making process does not
serve the company’s long term needs to remain competitive. Thus in this chapter creating a
technology strategy for supporting the R&D project selection process is outlined. From this
outline a process to develop a Technology Strategy is defined which is built around the mapping
of a company’s existing technologies.
10.1 Role of a Technology Strategy
The role of a strategy in an organization is to provide a vision, mission, destination, roadmap,

(and many other words) that give meaning to each employee to help guide their own day to day
work and decisions. The role of a technology strategy would then be something that could guide
the R&D project selection process. Figure 10-1 illustrates how a strategy can be wrapped around
the project selection process. The flow follows a structure introduced by Christensen and Raynor
in their book The Innovator’s Solution.
Strategy Development Process
Clarify roles and responsibilities

Identify, define best practices
Technology
Strategy
Types of R&D Projects

R&D
‘Profit Zone’ Working
Project Technical Feasibility,
Values Market Feasibility, Strategy
Selection
Venture
Revenue-First
Profit-First
Loss-Leader
Technology
Breakthroughs
Future Planning
Conferences
Figure 10-1 Technology Strategy Influence on the R&D Project Selection Process

The basic structure, which are the middle set of boxes shown in Figure 10-1, starts with the
firm’s business values, sometimes referred to as its “profit zone” values. These alone are often
enough to drive the R&D Project Selection Process. As described in this book there are three
general approaches to capturing the “profit zone” values: Revenue-First, Profit-First, and Loss-
Leader. Chapter 8 outlined a process that did not rely on a strategy but used the three driving
values to assure a portfolio of various risk level projects. In fact most firms do not define a
strategy that can be used to guide the decision making process. It is not because it is not needed,
but rather it is very difficult to create into a useful form. So most firms operate with an overall
business related strategy for R&D but do not define the strategy down to a specific technology
level.
Figure 10-1 illustrates the major elements and flow for a Technology Strategy involving two
aspects: Deliberate Strategy and Technology Breakthroughs. The remainder of this chapter
outlines a process and insights to create a Deliberate Technology Strategy and identify
Breakthrough Technologies for a company.
10.2 Creating a Technology Strategy
The creation of a Technology Strategy builds from the company’s existing R&D project
selection process and thus has on-going R&D projects. There are three general activities to create
a Deliberate Strategy (Figure 10-2). The first is to study and document the Working Strategy.
This is the most obvious activity since the Working Strategy is a direct reflection of the R&D
projects that are on-going. The major insight needed in this activity is to devise categories so that
trends can be envisioned. In the next section there are examples of using three categories for
technologies: Mature, Pivotal, and Emerging. The second major activity is then to understand
the company’s best practices and how roles and responsibilities are defined and followed. This
activity is less obvious and sometimes difficult to determine the fundamentals since there is
history of experiences and legacies that mask finding the true competencies. The third is to
define a process to watch, and incorporate new technologies to the company. This is a major
concern to most executives and often less concern to the managers leading the R&D projects.
There are few approaches to this activity and one based on understanding the market and if it can
be over served or is being under served with technology is illustrated. The next sections provide
some examples and definition to each step.

Activity 1
Activity 2
Document the Working
Strategy
Identify Best practices,
Roles and Responsibilities Activity 3
Infrastructure for a Machine Control
Machine Electric Computer Computer Remote Autonomous
Assisted Assisted Controlled Operator Machine
Engineering Engineering
Process Steps Unit 1 Unit 2 Marketing Sales Procurement Legal
Switches Mechatronics
Define
Technologies,
standards, and Indicators
Controllers
RTOS +
Advanced Sensors
Reliability Forecasting
Perf. Model Projections
Virtual Test
Electronic Control Box
1.Recycle I I I I I A
Define the Process for
processes
Incorporating Breakthrough
Breakthrough technologies
Driver Library 2.Field Support
needed at Position Sensing
C C R A C C
each Central data IT Uploads
segway— displays 3.Warranty C R C C C I
Technologies
major and Operator Interface
specific Central Data 4.Delivery—warehousing R A C C C I
Bus Embedded Systems Safeguarding
elements Wire
Harnesses Operator warnings 5.Test/validation A R C C C I
CAN Remote Diagnostics
Best ISOBus Re-Programming
Practices 6.Manufacturing—final assembly A R C C R I
Studies
Sensors 7.Manufacturing—PWB assembly A R C C C I
8.Manufacturing engineering and

tooling A R C C C I
Mature Pivotal Emerging
With an emerging market type product
9.Product launch design completed A A C C C I
where the customer needs are
10.Validation of design for yield and growing and often are difficult to
specification forecast product improvements that
Performance
A A C C R I
are agile, such as the loss-leader
11.Design—mechanical and electrical R A C C A I approach is the best way to keep up
12.Design Development and function with the market.
definition R A R C A C
13.Product Specification and

s
requirements I A R C A C
er N
eed Loss Leader Profit First
om
14.Market readiness I R A C C A
Cust Approach Approach
15.Technology readiness C A C C I R
16.Idea C A A R I R Time
Figure 10-2: Three Activities to Creating a Technology Strategy
10.2.1 Step 1: Mapping a Company’s Technology
A method to map a company’s R&D projects and its technology is illustrated in Figure 10-2.
This example is built for a business that has various hardware based product lines that serve both
a business-to-business market (Agricultural Equipment) and a consumer market (Grass
Equipment). Three possible categories for starting the definition of a company’s working
strategy are illustrated in Exhibits 10-1, 10-2, and 10-3. Exhibit 10-1 has a focus on capturing a
company’s status in automation and control of machines. Exhibit 10-2 has a focus on capturing a
company’s status in data management and Exhibit 10-3 in Electric Power, or sometimes referred
to as Hybrids. The process compares by business unit and major product lines where the products
line up on the roadmap for both what is currently in production and what is being planned for the
next product upgrade. An example of a company that is approaching the roadmap from an
evolutionary strategy is shown as well as one that could be using a revolutionary strategy. From
these status roadmaps one can then identify and list the enabling technologies within the
company. From the timeline of the roadmap the company’s technologies can be determined
which are Mature, Pivotal, and Emerging. These can basically be described as:
• Mature: Document into engineering practices, Build to use outside suppliers

• Pivotal: Bundle technologies into entities that can be managed for sustaining maintenance
• Emerging: Encourage and guide the ‘ant hill’
It is difficult to pin point the correct emerging technologies for a company. Often a firm may use
a defensive strategy to encourage a number of emerging technologies be pursued. These projects

tend to be championed by individuals and thus could tend to resemble an ‘ant hill’ where many
activities are on-going with little connections between them and some looking similar in work.
The creation of a Deliberate Technology Strategy builds from the company’s existing R&D
project selection process and thus has on-going R&D projects. There are three general steps to
create a Deliberate Strategy. The first step is to study and document the Working Strategy.
Studying the company’s R&D projects and then mapping the company’s technology can define a
Working Strategy. A process and framework for completing this is described in the next section.
The second major step is then to understand the company’s best practices and how roles and
responsibilities are defined and followed. The third step is then to verbalize and illustrate the
deliberate strategy that can guide the project selection process. These last two steps are outlined
in section 10.2.2.
The following provides some background for the reasoning behind Exhibit 10-1: Electronics is
allowing machines to be easier to operate and customized for various operation and operator
needs. Ag machines have moved from the initial step of replacing mechanical operator controls
to electric where levers are replaced with switches and computers are optimizing the machine
activity in real time. Figure 10-3 illustrates the general path and pace for electronic controls.
Machine Control Evolution: Ag Equipment
Production R&D

Tractors
50hp
100hp
150hp
200hp
300hp
Self Propelled
Combines
SPFH
Implements
Hay
Seeders
Tillage
Sprayers
Illustration to define the stepping points in the evolution
Figure 10-3: Road Mapping of Machine Electronics by Product
The first step is defined as Electric Assisted. This involves adding switches, wiring, indicators,
and wire harnesses to the machine, such as an electric start for the engine. The main advantage is
more compact user controls and use of sensors to monitor critical functions. The second major
step is defined as Computer Assisted. This involves adding logical and mathematical processing

to the machine, such as engine position timing. The main advantage is adding safety and re-
configurable labeling for fewer switches for more parameter settings. The third major step is
defined as Computer Controlled. This involves using the sensor inputs to automatically control a
function independent from the operator, such as engine fuel injection. The main advantage is
functions can be done repetitively and more precisely than from an untrained operator. The
fourth step is defined as Remote Operator. This involves adding self-reasoning to the control
circuit, such as emissions managed engine controls. The advantage is the control can diagnose its
operation and adapt for optimum performance and safety. The fifth step is defined as
Autonomous Machine. This involves adding awareness and intent to the decision process and
control, such as an engine that runs on power demand.
The above description provides some logic and reasoning for how a mapping can be done for a
large organization’s technologies. An example of then using this logic is shown in Exhibit 10-1.
Exhibits 10-2 and 10-3 illustrate two other major themes for organizing a firm’s technologies and
categorizing them into the Mature, Pivotal, and Emerging timeframes. These exhibits set a basis
for mapping a company’s technology. The basic components are the major products, the general
path for improvements and the overlying categorization of the technologies. In these examples
the major products are Ag and Grass Equipment. The general path for improvements illustrates a
general step toward more advanced operations for that overlying technology category. And each
exhibit illustrates the road mapping for three categories: machine control, machine intelligence,
and machine power electrification.
By reviewing a company’s R&D projects these general technology categories can be identified.
Reviewing the projects across various product lines will provide insight to the major technical
steps being advanced. The exhibits show how evolutionary and revolutionary approaches to the
business will show up in the mapping. These exhibits also show how one of the three technology
evolutionary stages for a company could be missing. That is if the company is just building a
base of products for machine intelligence there may be no Mature Technologies to identify. If a
company has been researching a technology but has not standardized or used this technology
across its product line there may be limited Pivotal Technologies to package and manage.
The first major step to defining the technology strategy is defining the working strategy. This is
best documented through categorizing a company’s technologies into what is being used or
pursued into the Mature, Pivotal, and Emerging generations. A method to identify these
generations of technologies is illustrated in Exhibits 10-1, 10-2 and 10-3. The three areas of
Machine Control, Machine Intelligence, and Power Electrification are selected to indicate the
company’s core competency. These areas may be relevant to many types of businesses but
certainly not fundamental to all. By then linking the ‘working strategy’ technologies a
company’s technology roadmap can be generated.

Exhibit 10-1. Road Mapping Machine Control Technologies
Machine Control Evolution: Ag Equipment

Production R&D

Tractors
50hp
100hp
150hp
200hp
300hp
Self Propelled
Combines
SPFH
Implements
Hay
Seeders
Tillage
Sprayers
Various product lines can be compared between their various stages toward more
advanced control methods. Besides showing the state of the machines in
production, it is important to show which ones are the major developments. Here
is shown a comparison for a line of agriculture equipment. Note the product lines
appear to track each other and there is an evolutionary pattern for development.
Machine Control Evolution: Grass Equipment

Production R&D

Residential
Lawn Tractor
Garden Tractor
Golf and Turf

Greens Mower
Fairway Mower
Stadium Mower
Walk Behind
Greens Mower

In comparison with a more consumer type of product line one can notice the
lower level of control because of the affordability of the technology. But here the
strategy appears to focus on a limited product line and work for a revolutionary
product step.
Infrastructure for a Machine Control

Switches Mechatronics
Define Reliability Forecasting
Technologies, Controllers
Perf. Model Projections
standards, and Indicators Advanced Sensors
RTOS +
processes Virtual Test
Breakthrough technologies
Driver Library
needed at Position Sensing
each segue— Central data IT Uploads
major and displays
specific Operator Interface
elements Central Data
Bus Embedded Systems Safeguarding
Wire
Harnesses Operator warnings
CAN Remote Diagnostics
Best ISOBus Re-Programming
Practices
Studies
Sensors
From the comparison of these product lines one can draw out the key technologies
that are enabling the products in that category. One can then phase the company’s
technologies into three areas: Mature where all the products are drawing from a
common basis and set of suppliers, Pivotal where technologies are being
integrated, and Emerging where many new technologies are being evaluated.

Exhibit 10-2. Road mapping Machine Intelligence Technologies
Machine Intelligence Evolution: Ag Equipment

Production R&D
Data Digital Prognostics Business

Management Interface/ Glass Web Operations /Machine Generated
Diagnostics Displays Services Management Rules Rules
Tractors
50hp
100hp
150hp
200hp
300hp
Self Propelled
Combines
SPFH
Implements
Hay
Seeders
Tillage
Sprayers
A second area to map the product lines is against an evolution in data

management. A step defined by the company as Reconfigurable Displays is the
next major development for the overall Ag business. Here there seems to be much
more of a central organization for these technologies within the business.
Machine Intelligence Evolution: Grass Equipment

Production R&D
Digital Prognostics Business

Data Interface Glass Web Operations /Machine Generated
Management /Diagnostics Displays Services Management Rules Rules
Residential
Lawn Tractor
Garden Tractor
Golf and Turf

Greens Mower
Fairway Mower
Stadium Mower
Walk Behind
Greens Mower
Again this market segment lags the other business area, probably because of

affordability. But again this business is investing in revolutionary products. These
technology laggard type markets tend to have a history of significant technology
jumps. Consumer markets tend to drive higher risk developments with the
potential for very high returns to meet the next un-verbalized need.
Infrastructure for a Machine Intelligence

Digital Reconfig Prognostics Business
Data Interface/ urable Web Operations /Machine Generated
Management Diagnostics Displays Services Management Rules Rules
LED panels Hi res displays Awareness

Define LCD
Intent
Technologies, Low Cost LCD
standards, and Model based Decision
processes Generation
needed at Low res displays Symptom Based Environmental compliance
each segue— Diagnostics Hand held unit
major and User interface standards Machine interface
specific Flow charts Remote com
elements Desktop applications, web
Languages/logic
Asset tracking, mgmt
Diagnostic Trouble Remote connections
Illustrations, video
Codes
Condition monitoring
Embedded Controllers
Data Structures Wireless
Communications
Data radio
Wi-Fi Internet link
As the enabling technologies are mapped from the product lines one can see there
are really no Mature technologies and the majority of the technologies are still in
an emerging stage.

Exhibit 10-3. Road mapping Electric Power Technologies
Vehicle Power Electrification: Ag Equipment

Production R&D
Alternator Electric
Machine Flywheel
Low Voltage Powered
Hybrid Fuel Cell
Hydraulic (12 V) Accessories Systems (ePower)
Tractors
50hp
100hp
150hp
200hp
300hp
Self Propelled
Combines
SPFH
Implements
Hay
Seeders
Tillage
Sprayers
A third area to map hardware based products is in their generation of electrical

energy. This shows yet a third pattern for product line portfolio management
where many evolutionary and revolutionary developments are underway.
Vehicle Power Electrification: Grass Equipment

Production R&D
Alternator Electric
Machine Flywheel
Low Voltage Powered
Hybrid Fuel Cell
Hydraulic (12 V) Accessories Systems (ePower)
Residential
Lawn Tractor
Garden Tractor
Golf and Turf

Greens Mower
Fairway Mower
Stadium Mower
Walk Behind
Greens Mower

In this technology area there is more commonality between the Agriculture and
Consumer markets. But again this consumer oriented market is still a pull for
more revolutionary product strategy. Again a revolutionary strategy still requires
some focus toward certain products, because of the risk and amount of investment
for this type of development.
Infrastructure for a Vehicle Power Electrification

Alternator Electric
Flywheel Hybrid
Energy Low Voltage Powered Fuel Cell
Hydraulic (12 24V) Accessories Systems (ePower)
Hydraulics Fuel Cell

Voltage Motors--Custom
Environmental
750 Volt Gen Mag Modeling
Alternators Test and Design
Define Mechanics Fault Detection SR, Induction, PM
APU / Power
Technologies, 48 Volt Systems
standards, and Motor Control Energy
EMC Conversion &
processes Power Electronics
Standards Renewables
needed at Lights Torque
each segue— Motors – Std sensing/control Battery &
major and Trapezoid / Vector Energy Storage
Application
specific Control Technology
Low Cost
elements Ultra-Caps
Chemical Electronics
Unit A/C Cooling
Battery Lithium, NiMH
DC-DC Battery Charge
Conversion Management
As one maps these enabling technologies there are a set of Mature technologies
and Emerging technologies but no obvious Pivotal technologies. This may be a
reflection of this technology area having significant challenges in finding cost
effective solutions for either a business to business or consumer market.
10.2.2 Step 2: Overlaying Roles and Responsibilities, Best Practices
The next important aspect of building a technology strategy is identifying the processes and best
practices. A way to create the roles and responsibilities knowledge is to define the major
processes or steps and then map which individuals, groups, or business units are accountable,
responsible, consulted or informed during these business steps. Figure 10-4 shows a table for
development and delivery of an electronic control box. The process steps are listed in reverse
order from what would be the normal evolutionary steps for the life cycle of this product. When
creating or analyzing roles within a firm, it is often more accurate and easier to obtain data by
working backwards through the supply chain and development history. For each major
functional unit the major type of role is compared. This could be done not just for units, but also
for groups, and even for individuals. From this chart it is easy to find ‘gaps’ and ‘overlaps’. For
example gaps seem to be: no one in the organization is accountable for warranty and also that no
engineering unit is accountable for market feasibility of the product. These are two very common
gaps in organizations where multiple groups are involved. And also overlaps, especially in
accountability, lead to inefficiencies as well. A good technical strategy should define these roles

and responsibilities. From this then the best practices for each process or product step can be
understood and documented by focusing on that part of the organization.
Best practices are at first usually straight forward to gather. For instance, each business has
various guidelines on quality, product support, and common computer software tools. And these
guidelines usually had a point of origin. This may be the place to understand the firm’s best
practices. However in a changing environment it may be that others have surpassed the initial
capability and offer more insight and depth. An example is the practice of developing software
code. There are many self-developed processes for developing code and insuring its quality.
There is also a software industry wide standard metric referred to as the Capability Maturity
Model where there are five well defined levels to measure a software development process. It is
well accepted in the industry that this measurement is a good metric for best practices. However
groups with long history of success may not have moved toward this standard, while newer
groups may have started with this measurement initially. It is difficult to select best practices
between long success and those getting on the “bandwagon”. As a result this is a difficult activity
to get to a consensus in one smooth activity. An extension of this activity is to have the leading
parts of the organization refresh and update the guidelines and the documents that accompany
them.
Electronic Control Box Engineering

Unit 1
Engineering
Unit 2 Marketing Sales Procurement Legal
1. Recycle I I I I I A
2. Field Support C C R A C C
3. Warranty C R C C C I
4. Delivery: warehousing R A C C C I
5. Test/validation A R C C C I
6. Manufacturing: final A R C C R I
assembly
7. Manufacturing: PWB A R C C C I
assembly
8. Manufacturing A R C C C I
engineering and tooling
9. Product launch design A A C C C I
completed
10. Validation of design for A A C C R I
yield and specification
11. Design: mechanical R A C C A I
and electrical
12. Design Development R A R C A C
and function definition
13. Product Specification I A R C A C
and requirements
14. Market readiness I R A C C A
15. Technology readiness C A C C I R
16. Idea C A A R I R
Figure 10-3 Charting various roles across an organizations functional units.

Definitions for each of the four roles are:
A = Accountable – deliver to the value propositions;
R = Responsible – lead to deliver and maintain the technology;
C = Consulting – provide advice on technical and market trends;
I = Inform – has access to the information as it evolves.
10.2.3 Step 3: The Breakthrough Technology Strategy
Many companies have very effective project selection processes that force a close relationship
between the project milestones and the company’s core competencies or “profit zone” values.
And as the management builds a stronger understanding of its technical strategy the R&D effort
becomes very efficient and relevant to the company’s goals. However the challenge to this tight
process is that it feeds itself. And the longer and more refined this project selection process the
more the projects tend to be repeated and driven for measurable and shorter-term deliverables. At
some organizations it is often difficult to distinguish what is different from year to year since the
accomplishments are smaller steps that are readily adapted into the business. This has led some
companies to being ‘blind-sided’ by new technologies. The last part of a good R&D technology
strategy is to recognize and adopt the breakthrough technologies before one is “blind-sided” by
them.
Unless your industry is an early technology adopter your projects are not centered on new to the
world technologies. And then it is a fuzzy process to identify and know when to adopt new
technologies to your organization. Often experts in your organization can identify these new
technologies but expect management to decide when and which will eventually have an impact
to the market of interest. The case of Kodak is a central illustration of this where for more than
20 years they invented digital photography technology but never drove the technology into
products. Management focused only on the lm products not wanting to undermine this solid
business. After more than 20 years of promise and then within only a couple years the lm
business was almost totally replaced by the digital technology. So it is not so often that
technology breakthroughs really surprise a company. What can cause a surprise is when the
technology will be important to your market.
Clayton Christensen has illustrated one method outlined for forecasting and evaluating
technology breakthroughs in his book The Innovator’s Dilemma. A central theme is to analyze
your market of interest as to whether it is being over served by the technology or under served.
In either case technology breakthroughs are still difficult to decide and pace within a company’s
project selection process. Figures 10-4 and 10-5 illustrate how an MOT process may be used to
pace emerging technology product introductions. When the customer needs are moving slowly a
slower MOT process such as Profit-First may limit the adoption of technology. When the
customer needs are moving rapidly a faster MOT process such as the Loss Leader may keep up
with the adoption of technology. A company could be blindsided by either over serving the
market or under serving it. How to balance these technology breakthroughs is truly a dilemma in
any business.

Machine Control Products need a slower MOI timeline
With a market mature type product

where the customer needs have
‘topped’ product improvements can
Performance
easily over serve the market so a
slower, profit first approach may be
the best.
Customer Needs
Loss-Leader Profit First
Approach Approach
Time
Figure 10-4 Over-serving a market: In a market where customer needs are

slowing changing technology breakthroughs will often over serve the market
In a slow changing customer needs market any technology update most likely will over serve the
market. Technology breakthroughs are often not a bundle of incremental options but a totally
new entity. However, it is often less risky to the business to plan product updates and expect to
over-serve the market than risk being blindsided by not being technically advanced. The
disadvantage to this is that the business case for the Profit-First process may need to have a long
term payback acceptance. The loss leader approach can be paced with the growing customer
needs type market but as soon as these needs start to level off this approach can greatly over
serve the market.
Machine Intelligence Products need a faster MOI timeline

With an emerging market type product
where the customer needs are
growing and often are difficult to
forecast product improvements that
Performance
are agile, such as the loss-leader

approach is the best way to keep up
with the market.
eds Loss Leader Profit First

mer Ne
usto Approach
C Approach
Time
Figure 10-5 Pacing the market: In a market where customer needs are rapidly
changing, technology breakthroughs can just keep up with the market

One aspect of forecasting technology breakthroughs is being able to forecast the pace of
changing customer needs. This is a very complex activity but at least gives some basis for
driving new technologies into the project selection process.
10.3 Using the R&D Technology Strategy
The role of a technology strategy is to guide the project selection process to expand a company’s
technology base. This strategy should provide a deliberate process to build the company’s core
competencies. It also should provide focus for maintaining and expanding a firm’s technology
infrastructure. The R&D Technology Strategy guides the R&D project selection process. The
basic need for a strategy in the project selection process is to set a pace for technology that is
affordable from where the company is today and where it needs to be in the future. It also can
guide the projects by directing the funding toward the groups or individuals most accountable for
use of that technology. And finally the Strategy should include some way to consider
technologies that could be breakthroughs in their market segment. Identifying and pulling these
pieces together is best created by looking backward into the company’s current and previous
projects and looking backward through the development of its products. But maybe the most
challenging part of the process is the early detection of breakthrough technologies and properly
adopting them. However over serving a market in performance can have just as negative
business impacts as under serving it.
The ability to build the elements and define the role of a technology strategy is challenging. But
even more challenging is then to engage in using the strategy. One approach is to assign a leader
or strategist position to consider all of this while managing a central R&D project selection
process. Some companies are moving to this approach. The more traditional approach is less
direct and is established through the company’s organizational structure. Instead of the company
leaders working daily to implement a strategy it is usually more efficient to establish an
organization to deliver to the strategy. Then if the strategy is not being achieved a re-
organization can offer a manageable improvement. However if the strategy is not clear, or not
completely agreed to these re-organizations sometimes seem a “trial and error” approach to
implementing a strategy. But non-technical managers, or managers who are technical but lack
the confidence in all the company’s technologies, are attracted to using organization structure to
implement the strategy. The most successful companies are those that can develop and use a
strategy without needing re-organizations. But this requires the strong technologist to lead and
deliver.
The building blocks for defining a technology strategy are knowing which technologies have
been and are currently expected to be important to the business and then defining best practices
and accountable leads for the various processes in the organization. With this information
management can then review R&D projects and direct them for proper funding and ownership of
the technology. The role of the strategy is not so much to select the technologies but how to
provide the management for directing where this technology should be owned and how fast it
needs to be developed. Setting this pace for technology is a key aspect to the portfolio
management of the R&D projects. A technology strategy is not a scorecard but rather a guide or
rulebook for project selection and location.

Chapter 11 Summary. Why Companies Fail at Innovation
Synopsis: The best summary of the management challenges facing firms to remain competitive
in their industry comes from Harvard Business School: “The fundamental reason is that leading
companies succumb to one of the most popular, and valuable, management dogmas: they stay
close to their customers.” A second insight to the challenges of Managing Innovation comes
from distinguishing between the problem solving of puzzles or mysteries. Solving puzzles relies
on the use and creation of data-rich processes. Solving mysteries relies on judgment and insights
since the data that can be collected has high uncertainty. Product Creation type of product
development projects are similar to mysteries more than puzzles, and as a result should use
different management processes than the data-rich processes of market-based product
developments. An example of solving a mystery with a puzzle process is the creating a
mathematical model for the motion of the planets in our solar system. Assuming the earth as the
center of the universe, Ptolemy used a huge amount of collected data to create a mathematical
model of the planetary motions. An equation for one planet required hundreds of terms and
constants but it fit the data. And as more data was collected the equation was fine-tuned to
match with this new observed data. This was accepted at the most accurate representation for a
thousand years. Then a person, Copernicus, approached the problem as if it were a mystery and
proposed a new geometry with the Sun was the center of the system and the equations were
greatly simplified. Once a new method or process was introduced a much more elegant and
insightful solution emerged. Incremental product developments rely on leveraging methods that
were successful in the past. Revolutionary product developments require more agility and
discovery to determine the best solution.
One segment of innovations that represents the extreme side of innovation is Disruptive
Innovations. In study of this extreme aspect of innovation insights to the overall management of
innovation can be gained. Several examples of disruptive innovations in five different markets
are illustrated. The key connection is that firms that experience disruptive innovation lose
market share very rapidly and no standard management practice can bring the business back. It
can only be gotten back through the management of technology and innovation. The recent
business disruption to Nokia provides excellent insights how the best Management Practices do
not fit well when needing to manage Product Creation type of products. Even Knowledge
Management Metrics such as tracking patents and networking cannot easily identify competitors
that could disrupt a firm’s business. In summary Disruptive innovation requires Product
Creation, new product development and a new market defined. This part of Management of
Innovation is more difficult to forecast and put metrics to, but is presently a proven part of a
company’s success when in a market that is subject to disruptive innovations.
Discussion:
1. Explain why Market Extension product developments are like solving a puzzle more
than solving a mystery.
2. Give an illustration when you have had to treat a problem like it was a mystery other
than a puzzle in order to solve it, i.e. using judgment instead of only data-collection.

3. What is your opinion on the future of Nokia and its direction for future product
strategies?
4. Why can Knowledge Management metrics mislead a firm into thinking it is ahead of
its competitors, and not identify competitors that might be the most disruptive to their
business.
5. How should a firm organize its R&D so that Product Creation projects can be
successful?

Chapter 11. Why Companies Fail at Innovation
The most concise summary for the challenge of large firms and innovation was published more
than fifteen years ago by Harvard Business School. “One of the most consistent patterns in
business is the failure of leading companies to stay at the top of their industries when
technologies or markets change. Why is it that established companies invest aggressively--and
successfully--in the technologies necessary to retain their current customers but then fail to make
the technological investments that customers of the future will demand? The fundamental reason
is that leading companies succumb to one of the most popular, and valuable, management
dogmas: they stay close to their customers. To remain at the top of their industries, managers
must first be able to spot disruptive technologies. To pursue these technologies, managers must
protect them from the processes and incentives that are geared to serving mainstream customers.
And the only way to do that is to create organizations that are completely independent of the
mainstream business.” [Disruptive Technologies: Catching the Wave, Joseph L. Bower, Clayton
M. Christensen, Harvard Business Review, Jan 1, 1995.]
11.1 Problem Solving of Mysteries versus Puzzles
When a firm manages a portfolio of new product developments in the four categories of Market
Penetration, Market Extension, Product Introduction, and Product Creation it would first seem
that four different types of management processes should be needed. But in fact the management
premises have served well to generalize the decision process across all these categories.
However maybe three can be thought of as puzzles but certainly the Product Creation type of
NPD is very much a mystery, as illustrated in Figure 11-1. For instance solving a puzzle relies
on accurate and critical data. At some point just one more significant fact can solve the puzzle.
In Product Creation NPD all the information is noisy. The problem is dealing with
‘undiscovered customers’ who are available to the marketplace but even they cannot verbalize
their need till they see and experience the innovative product. The product’s technology is
unproven and can only be proven on its capability, quality, and costs in limited volumes. Only
experiences instead of data entries can forecast the timeline.
Market Undiscovered

(line extensions) Mysteries
(new -to -the -company)
Technology
Existing Puzzles
Market Penetration
Market Extension
In (cost reductions)
(new uses)
company
Figure 11-1 Overlaying NPD Categories as Related to the

Problem Solving of Puzzles or Mysteries

In reviewing these management premises in true experiences where most of the data had great
uncertainty, Klein makes the distinction in the types of problems management is addressing.
“There are different types of uncertainty. Sometimes we are uncertain because we don’t have the
information we need. … Sometimes we have the information but we don’t know if we can trust
it. Sometimes we trust it but it conflicts with other information we also believe. And sometimes
we believe it but we can’t figure out what it means.” [Gary Klein, Streetlights and Shadows:
Searching for the Keys to Adaptive Decision Making, The MIT Press, Cambridge,
Massachusetts, 2009] All of these statements are true when dealing with Product Creation types
of products.
Figure 11-2 Common Visualizations of a Puzzle and a Mystery:

The Rubik’s Cube and a Banner of Sherlock Holmes, a Mythical Mystery Solver (Wikipedia)
Figure 11-2 provides a visualization of the difference between a puzzle and a mystery. A puzzle
is a problem or enigma that tests the ingenuity of the solver. In a basic puzzle, one is intended to
put together pieces in a logical way in order to come up with the desired solution. Solving a
puzzle relies on accurate and critical data. At some point just one more significant fact can solve
the puzzle. Solving a mystery requires sense making and judgment instead of a data rich
process. It is dependent on people.
Another example of how challenging it is to solve mystery problems with a puzzle process is the
case of planetary motion. A comparison of two solutions for describing planetary motion is
shown in Figure 11-3. Planets as ‘wanderers’ in the night sky were discovered thousands of
years ago. In the 2nd-century Claudius Ptolemy, a Roman era scholar of Egypt, collected a
mathematical and astronomical treatise on the apparent motions of the stars and planetary paths.
The process used was a puzzle method with the Earth at the center of the universe. Written in
Greek it is one of the most influential scientific texts of all time. Its geocentric model was
accepted for more than twelve hundred years throughout many civilizations, from its origin in
Hellenistic Alexandria, in the medieval Byzantine and Islamic worlds, and in Western Europe
through the Middle Ages and early Renaissance until Copernicus. For one planet the
mathematical expression to predict a planet’s location in the sky based on time took hundreds to
thousands of terms and factors in the equation. Copernicus' epochal book, De revolutionibus
orbium coelestium (On the Revolutions of the Celestial Spheres), published just before his death
in 1543, is often regarded as the starting point of modern astronomy and the defining epiphany

that began the scientific revolution. His heliocentric model, with the Sun at the center of the
universe, demonstrated that the observed motions of celestial objects can be explained with much
more simplified equations. In fact one equation could be scaled to describe all the planets in our
solar system. Certainly Ptolemy’s equations still solved the problem but it was a force fit from a
method used to solve other mathematical problems. Once a new method or process was
introduced a much more elegant and insightful solution emerged. Puzzles rely on leveraging
methods that were successful in the past. Mysteries require more agility and originality to
determine the best solution.
Figure 11-3 Comparison of Ptolemy (puzzle like) and Copernicus (mystery like) Solutions to
Describe the Planetary Motion in our Solar System
11.2 Disruptive Innovation Illustrated
The most noted set of research illustrating the potential collapse of a company from not being
able to introduce Product Creation type of products comes from Clayton Christensen of Harvard
Business School. He writes: “Disruptive innovation describes a process by which a product or
service takes root initially in simple applications at the bottom of a market and then relentlessly
moves ‘up market’, eventually displacing established competitors”.
[http://www.claytonchristensen.com/disruptive _innovation .html] . Disruptive innovation is the
description for the collapse of many companies across several different market sectors. Exhibit
11-1 illustrates four examples of markets and specific companies that have succumbed to the
effect of disruptive technologies. There is actually very little in common between these market
examples and the companies affected. However the one common outcome is that the company
that often created and had the fastest success in that market sector, at some point becomes a
minority player in a short amount of time.

Exhibit 11-1. Examples by Product Line of Disruptive Innovations
Disruptive Innovation Case 1: Sony and Portable Media
Portable Media
1947
1999
SONY launched the first
2001 From the 1970’s through the 1980’s Sony
Bell Laboratories Apple launched the iPod,
demonstrated the first
Walkman MP3 NW-MS7,
which had a removable 64MB
which is a line of portable not only led the market for portable
transistor radio MagicGate Memory stick media players designed
music but was creating it. They had the
internal strategy to be the ones to outdate
Portable Media
their products every five years. However
by 2000 they were no longer driving the
market growth and by 2010 they were no
long keeping up with the market growth
1979 1998 and were becoming a smaller player in
Sony launched the Panasonic produced the 2010
world’s first stereo
Walkman cassette
first portable DVD Apple released the first the market. The introduction of the iPod
player iPad in April 2010
player /TPS-L2
changed the portable media technology in
Annual Sales Revenue (in million) that the device was not the driving
14000
technology but rather the virtual access to
12000
the media itself and the ease for
10000
downloading became the technology
8000 behind this market. It seems Sony will
Sony Audio
6000 iPod need its own second disruptive
4000 technology to regain its position in this
2000 market.
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Disruptive Innovation Case 2: Sony, Panasonic(Zenith) and Televisions

Televisions
Televisions were and continue to be

considered one of the greatest technical
2000S
Sony launches the world’s
achievements of mankind. However this
1950s
1970s
Panasonic TR-005
first Organic light-emitting
diode (OLED) television market has not gone through disruptive
Floor-Standing Television Sony XEL-1
zenith innovations where the dominant market
Television
players have had significant rise and fall
in revenues. And after many years and
several technologies it appears the
cathode ray tube technology is quickly
1960s
Sony introduces Trinitron
cathode ray tube TV(CRT)
1980s
Zenith Console 1990s 2010
being replaced by flat panel display
Sony 42-Inch LCD (Liquid
with the SONY KV-1310
Crystal Display) Rear
Projection TV
PANASONIC 3D
Plasma technologies. And again the market
leader Panasonic is finally giving way to
TV Sales Revenue (in million)
25000
Sony. But both are quickly being by-
passed by a new entrant Samsung that
20000
created low cost methods to mass
15000
Sony produce the flat panel plasma and LCD
10000 Panasonic
Samsung
technologies. This disruptive innovation
5000 has its own uniqueness in that no one was
0 blindsided by a technology they did not
1985 1990 1995 2000 2005 2010 know about or were even investing in.

Disruptive Innovation Case 3: DEC, Dell, Apple and Personal Computers
Computers
Computers have had a number of disruptive

1946 1972
The ENIAC is the first
general-purpose electronic
HP 9830A was actually an
early desktop computer 1992 innovations especially when there were only
ThinkPad is a brand of laptop
computer. with printer.
computers originally designed,
manufactured and sold by IBM
mainframe computers from IBM to Cray to
DEC. DEC was so good at the mini-
computer
computer technology it dominated the
market. However within just a couple years
this market was being served with individual
1981
1965
The 12-bit PDP-8 was the first
The IBM Personal
Computer, is the original
computers. And then for almost 20 years the
2006
successful commercial
minicomputer, produced by
version and progenitor of the
IBM PC compatible hardware
platform.
The MacBook is a
brand of Macintosh
Personal Computer was void of technology
Digital Equipment Corporation. notebook computers
built by Apple Inc. disruption and major players shared the
market and the technology. However
Computer Sales Revenue (in million) recently there is a disruption in the personal
20000
18000 computer market and Dell, one of the
16000 leading companies, is showing it their
14000
12000
bottom line sales. Apple has re-introduced
10000
Dell the personal computer for the individual and
Apple
8000
DEC
the technology of i-Movie, Photo Booth, i-
6000
4000
Photo, etc are enabling the social media
2000 growths of Google, Facebook, YouTube, etc.
0 It will be interesting to watch if the office
1980 1985 1990 1995 2000 2005 2010 2015
computer also gives way to this new social
media type of computing.
Disruptive Innovation Case 4: Motorola, Nokia, Apple and Portable Phones
Mobile Phones
1986
2003
1949
Motorola introduced the
Bravo numeric pager, the Skype is a software From the 1970’s through the 1980’s
Rotary AT&T Model world's best-selling pager. application that allows
500 telephone
2003
users to make voice calls
and chats over the
Motorola was the leading company in
The Nokia 1100 is a very
simple GSM mobile
Internet.
wireless communication and was
phone produced by Nokia
continuously decreasing the size and cost
phone
of a mobile phone. They lost a market
lead to Nokia in the 1990s and was just
coming back when now both Motorola
1963
The first electronic 2007
and Nokia are losing business the Apple.
push-button 1983
system, with Touch-
Tone dialing, offered
The famous first hand-held
iPhone is a line of Internet
and multimedia-enabled Nokia changed the mobile phone
mobile phone (”brake” ) smart phones designed and
by Bell Telephones to
AT&T customers
Motorola DynaTAC. marketed by Apple Inc. technology from a hardware to a software
system which gave them a much faster
Mobile Annual Sales Revenue ( in million)
and more versatile platform for adding
60000
features and innovating for many specific
50000
markets worldwide. However recently
40000
Apple has changed the mobile phone into
Nokia
30000
Motorola
a fun hand held experience that allows
20000 iPhone the user to easily access many
10000 information features beyond only making
0 phone calls. Again it was a different
1985 1990 1995 2000 2005 2010 2015 structure to the software that is the new
technology basis.

This awareness of disruptive innovation has led companies to fear success as it seems nearly no
company can maintain this success. Many CEO’s are trying to re-build or increase their R&D
function to prevent being blindsided by a technology that completely changes their business
model. Disruptive Innovation can be characterized by:
1. It happens to firm’s not technologies or individuals.
2. One firm’s sales volume experiences a rapid decline while a competitor gains this
market share and even more.
3. Consumers consider the market leader’s product suddenly out of date and the
competitor’s product and technology are considered superior.
4. No standard management process can recover these sales, such as changing
advertising strategy, improvements in the supply chain, sales incentives,
reorganizations, lay-offs, firing of management, etc.
5. The only path to save the business is through the Management of Technology.
One very interesting example of disruptive innovation is the mobile phone market. Motorola
went through a disruptive innovation twice. Once to Nokia in the 1990’s and a second time
Apple’s i-Phone in the 2000’s. And Nokia was even more dramatically blindsided by the Apple
i-Phone. The Nokia situation in 2011 is one of the most visible examples of disruptive
innovation.
11.4 The Case of Nokia in Managing Innovation
Can a company manage itself to death? The situation of Nokia over the past year offers insights
into management practices that can open a company to being blindsided by innovation. In 2010
Nokia was admired as one of the best-managed companies in the world and a year later they
have lost their market prominence and future direction. In February 2011 Nokia CEO Stephen
Elop broadcasts a companywide presentation, a synopsis is in Exhibit 11-2, dramatically
illustrating that the company and all its employees “must decide how we are going to change our
behavior”. Nokia, like most large companies, applied all the best management practices to their
complete NPD portfolio. Product Creation ideas were in their portfolio but they did not get the
decisions to support their introduction into the market. Through an understanding of disruptive
innovations and specific knowledge management metrics related to mobile phones it is evident
that data rich processes are not the foundation for breakthrough innovations. As a comparison
this issue of innovation management is related to problem solving, specifically the differences
between puzzles and mysteries. The major difference in the process for solving mysteries is the
dependence on people. Including management practices that rely on people and experience
rather than always a data rich analysis process must be a part of a company’s NPD management
practices when in a market that is suspect to disruptive innovations.
There are many examples that build the business story for disruptive technologies.
Unfortunately as much as these business disasters can be identified after the fact there is little
insight into what could have been done to prevent them. What can be identified as the best
precaution for the company is to include Product Creation types of NPD projects. However as a
company has success it is more likely to leverage that success into better and more efficient
processes that further refine the best management practices being used. And as a company gets
better at its own processes it will stifle the riskiest projects, especially those dealing with
unknown customers.

Exhibit 11-2. Nokia and ‘The Burning Platform’ Companywide Announcement
Nokia CEO Stephen Elop's letter to employees

Feb 9, 2011, 01.05pm Times of India Article:
Hello there,
There is a pertinent story about a man who was working on an oil platform in the North
Sea. He woke up one night from a loud explosion, which suddenly set his entire oil
platform on fire. In mere moments, he was surrounded by flames. Through the smoke and
heat, he barely made his way out of the chaos to the platform's edge. When he looked
down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.
As the fire approached him, the man had mere seconds to react. He could stand on the
platform, and inevitably be consumed by the burning flames. Or, he could plunge 30
meters in to the freezing waters. The man was standing upon a "burning platform," and
he needed to make a choice.
He decided to jump. It was unexpected. In ordinary circumstances, the man would never
consider plunging into icy waters. But these were not ordinary times - his platform was on
fire. The man survived the fall and the waters. After he was rescued, he noted that a
"burning platform" caused a radical change in his behaviour.
We too, are standing on a "burning platform," and we must decide how we are going to
change our behaviour.
Over the past few months, I've shared with you what I've heard from our shareholders,
operators, developers, suppliers and from you. Today, I'm going to share what I've learned
and what I have come to believe.
I have learned that we are standing on a burning platform.
And, we have more than one explosion - we have multiple points of scorching heat that are
fuelling a blazing fire around us.
For example, there is intense heat coming from our competitors, more rapidly than we ever
expected. Apple disrupted the market by redefining the smartphone and attracting
developers to a closed, but very powerful ecosystem.
In 2008, Apple's market share in the $300+ price range was 25 percent; by 2010 it
escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78
percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed
well, consumers would buy a high-priced phone with a great experience and developers

would build applications. They changed the game, and today, Apple owns the high-end
range.
And then, there is Android. In about two years, Android created a platform that attracts
application developers, service providers and hardware manufacturers. Android came in at
the high-end, they are now winning the mid-range, and quickly they are going downstream
to phones under €100. Google has become a gravitational force, drawing much of the
industry's innovation to its core.
Let's not forget about the low-end price range. In 2008, MediaTek supplied complete
reference designs for phone chipsets, which enabled manufacturers in the Shenzhen
region of China to produce phones at an unbelievable pace. By some accounts, this
ecosystem now produces more than one third of the phones sold globally - taking share
from us in emerging markets.
While competitors poured flames on our market share, what happened at Nokia? We fell
behind, we missed big trends, and we lost time. At that time, we thought we were making
the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.
The first iPhone shipped in 2007, and we still don't have a product that is close to their
experience. Android came on the scene just over 2 years ago, and this week they took our
leadership position in smartphone volumes. Unbelievable.
We have some brilliant sources of innovation inside Nokia, but we are not bringing it to
market fast enough. We thought MeeGo would be a platform for winning high-end
smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo
product in the market.
At the midrange, we have Symbian. It has proven to be non-competitive in leading markets

like North America. Additionally, Symbian is proving to be an increasingly difficult
environment in which to develop to meet the continuously expanding consumer
requirements, leading to slowness in product development and also creating a
disadvantage when we seek to take advantage of new hardware platforms. As a result, if we
continue like before, we will get further and further behind, while our competitors advance
further and further ahead.
At the lower-end price range, Chinese OEMs are cranking out a device much faster than,
as one Nokia employee said only partially in jest, "the time that it takes us to polish a
PowerPoint presentation." They are fast, they are cheap, and they are challenging us.
And the truly perplexing aspect is that we're not even fighting with the right weapons. We
are still too often trying to approach each price range on a device-to-device basis.
The battle of devices has now become a war of ecosystems, where ecosystems include not
only the hardware and software of the device, but developers, applications, ecommerce,
advertising, search, social applications, location-based services, unified communications

and many other things. Our competitors aren't taking our market share with devices; they
are taking our market share with an entire ecosystem. This means we're going to have to
decide how we either build, catalyse or join an ecosystem.
This is one of the decisions we need to make. In the meantime, we've lost market share,
we've lost mind share and we've lost time.
On Tuesday, Standard & Poor's informed that they will put our A long term and A-1 short
term ratings on negative credit watch. This is a similar rating action to the one that
Moody's took last week. Basically it means that during the next few weeks they will make
an analysis of Nokia, and decide on a possible credit rating downgrade. Why are these
credit agencies contemplating these changes? Because they are concerned about our
competitiveness.
Consumer preference for Nokia declined worldwide. In the UK, our brand preference has
slipped to 20 percent, which is 8 percent lower than last year. That means only 1 out of 5
people in the UK prefer Nokia to other brands. It's also down in the other markets, which
are traditionally our strongholds: Russia, Germany, Indonesia, UAE, and on and on and
on.
How did we get to this point? Why did we fall behind when the world around us evolved?
This is what I have been trying to understand. I believe at least some of it has been due to
our attitude inside Nokia. We poured gasoline on our own burning platform. I believe we
have lacked accountability and leadership to align and direct the company through these
disruptive times. We had a series of misses. We haven't been delivering innovation fast
enough. We're not collaborating internally.
Nokia, our platform is burning.
We are working on a path forward -- a path to rebuild our market leadership. When we
share the new strategy on February 11, it will be a huge effort to transform our company.
But, I believe that together, we can face the challenges ahead of us. Together, we can
choose to define our future.
The burning platform, upon which the man found himself, caused the man to shift his
behaviour, and take a bold and brave step into an uncertain future. He was able to tell his
story. Now, we have a great opportunity to do the same.
Stephen.
This companywide presentation was delivered on February 9. On February 11, 2011

Nokia announced it would partner with Microsoft and the Windows-Phone would be their
new software technology platform, basically deciding to abandon its Symbian operating
system, the core of its technology and strategy.

For this analysis the focus is on the Management of Technology, not simply the overall business
management of Nokia. Gaining insights into the R&D management and specifically the
Management of Technology is difficult and relies on interviews and insights related to the
organization, the middle management, the company practices, and the uniform spreading of these
processes across every aspect of the company. Chapter 1 illustrated how practices in a firm are
greatly influenced by the CEO at the time, and the main distinction between top driven
management practices is to replace people with data rich processes for decision making. For
Nokia this seems to also be the case and over the past ten years there have been three CEO’s
with three distinctly different Management of Technology practices. Figure 11-4 They can be
defined as:
1. 2001-2006: Management of Technology
2. 2006-2010: Mis-management of Technology
3. 2011- ? : Give-up Managing Technology
1 2 3
Figure 11-4 Mobile Phone Market Share overlaid with Nokia CEO. ERA 1 CEO Jorma Ollila,
ERA 1 CEO Olli-Pekka Kallasvuo, and ERA 3 CEO Stephen Elop. (reference ‘Emerging
Nokia? Business Case, HBS, 9-710-429, Revised May 2, 2011.)
Era 1: 2001-2006: This era can be labeled as Management of Technology. Nokia became the
dominant developer and supplier of mobile telephones. Their business model focused on the
needs of the wireless service carriers that consumers purchased, by developing new phone
versions rapidly and providing high volume supply of them at very low costs. During this time
Nokia built a worldwide technology based organization, Figure 11-5, where technical decisions
drove the company. As a backbone to this technology Nokia developed the Symbian software
system that was the foundation of their mobile phone functionality and performance. The CEO,
Jorma Ollila, had a long history and devotion to the company and was a charismatic leader to

motivate all aspects of the company. He grew the company organically and focused the research
on the mobile phone software technology. By 2006 Symbian based software was the basis for
more than 30% of the mobile phones sold in the world. They even decided to offer the Symbian
software platform for sale so others could develop applications using this proven, versatile, and
stable software platform for mobile devices.
Figure 11-5: Nokia High Level Organization: Technology is a primary focus of the overall
management because the focus is around product (Reference: “The Dynamics of Strategic
Agility: Nokia’s Rollercoaster Experience” California Management Review, VOL 50, NO.3
Spring 2008)
Era 2: 2006 – 2010: This era can be labeled the Mis-management of Technology. It is not the
case that Nokia was being mis-managed; in fact just the opposite was true. This CEO, Olli-
Pekka Kallasvuo (known internally as OPK), used his business background to bring in the latest
management practices with focus on processes and costs. One major step was moving
manufacturing from the German based factory in Bochum to a low wage workforce in Cluj,
Romania. This was not received well by the EU business community and the EU community
absorbed much of the costs of this plant closure for Nokia. [An interesting continuation of this
story is in September, 2011 Nokia announced the closure of the Cluj, Romania plant laying off
3,500 workers, where again most of this cost will be absorbed by the EU as now Romania is in
the EU.] Nokia continued to bring in processes to manage its entire operations. Throughout its
history Nokia has had success as a logistics and manufacturing company. The Mis-management
of Technology involves taking these practices and metrics that reduce variation in a process and
drive them across the technical organizations and the New Product Development decision-
making methods. There is a short-term gain in this process.
Figure 11-6 shows the layout of the Nokia organization at one point during this era. The focus to
manage the business, and expect you are managing the technology, was producing market results
such that by 2009 Nokia had about 40% of the handset manufacturing market. The strategy for
technology changed from developing it to buying it, with acquisitions of small technology based
companies happening every few months. The technical part of the company seemed under
continuous reorganization, as if it could find an efficient way to manage technology through trial
and error. The technology was treated and managed like it was any other part of the supply
chain for the manufacturing. If something was needed it was purchased. Decisions about
products were no longer technology driven from the technology organizations but instead
decided by Product Decision Boards whose decision making was based on data rich analysis thus
favoring supply chain and logistics issues which can be more easily scored from customer needs
than new technology. The excellent technology of Nokia came so easily for them that they lost

focus on its true value. Management was rewarded for meeting metrics and the management
ranks filled with exceptional metric managers adopting measurable processes. Totally new
product ideas, by their nature being hard to measure and difficult to forecast, fell into metric
categories that were unclear having noisy data at best. The focus became more what could be
measured and innovation was now measured by sales, efficiencies, and customer satisfaction.
These metrics were more precise and could be re-calculated almost daily.
Figure 11-6: Matrix Management: Technology is thought of as a supporting capability to the

business (Reference: “The Dynamics of Strategic Agility: Nokia’s Rollercoaster Experience”
California Management Review, VOL 50, NO.3 Spring 2008)
New product decisions were re-visited almost monthly producing a set of re-directions and new
decisions. Most innovative ideas never got to the marketplace. However despite this almost
monthly re-direction of new product planning, the technologists continued to develop state of the
art technology. Research continued to develop innovative phones having touch screens, built-in
functions like cameras, GPS, sensors, etc. and at one point developed what the technologists
called a ‘killer phone’ years ahead of the iPhone introduction. But these technologies did not get
commercialized because of metrics: no customers were asking for it, it was expensive to
develop, it did not match the existing manufacturing processes, and it did not use the existing set
of low cost parts suppliers. Also the idea to release the Symbian operating system for external
use was never able to be defined and managed well enough to happen. [The feature of making an
open application development environment is proving to be a significant business aspect for the
Android phone market.]
During this time Nokia was considered to have one of the best sets of middle managers of any
company in the world. Harvard Business School did a case study on Nokia in 2010 titled
‘Emerging Nokia?’ which addressed the question ‘Should Nokia stay the course, operating in
both the developed and developing markets, or should they forego one for the other?’ The major
issue for Nokia from this HBS perspective was not on technology, but rather managing the
business from a capitalization and supply chain perspective. [In May 2011 HBS updated its
original case study and offered a short additional case study entitled ‘Nokia: The Burning
Platform’. This case highlights the innovation disruption situation with Nokia and indicates that
the frequent re-organizations were a sign the technology was not being managed properly.
Era 3 2011- today: This era can be labeled Give up Managing Technology. It is very distinctly
defined by two dates: February 9, 2011 the newly installed Nokia CEO, Stephen Elop, presented

to all Nokia employees worldwide his famous ‘burning platform speech’ where he basically says
without directly saying it that they are abandoning the Symbian operating system as their
technology basis and asking employees to ‘take a bold step and brave step into an uncertain
future’. On February 11, 2011 Nokia announced it would partner with Microsoft and the
Windows-Phone would be their new software technology platform.
Figure 11-7 Technology cannot be seen as part of the organization

(Reference: “The Dynamics of Strategic Agility: Nokia’s Rollercoaster Experience” California
Management Review, VOL 50, NO.3 Spring 2008)
Figure 11-7 shows the Nokia high-level organization as it is today. It is hard to say how this era
of management for Nokia will fare in the future, but it seems the company will settle for success
from its competencies in logistics and manufacturing, and no longer follow a strategy to be a
technology leader and innovator.
From the above three charts, it seems the Nokia organization became more seasoned with what is
taught as the best management practices. As it increased the need for good collaboration within
the top team and enhanced the leadership unity, it placed more and more focus on the business
and slowed the technology innovation, which led to missing a major growth opportunity.
11.5 Managing Innovation is not the same as Investing in Innovation
Why did Nokia Fail? Clearly they were investing in technology and even expanding this
investment over the past 10 years. As their success grew they made product decisions that were
more and more evolutionary, or incremental, to their existing products. Their customers were
telling them the next little things they needed and Nokia delivered that in a cost-effective
manner. As they invested in technology they continued to improve and adopt data-rich driven
business processes. All of this led to the inability to make revolutionary product decisions. A
question to consider is through all the best management practices available could Nokia have
seen this disruptive innovation coming into the market they were dominating. One management
practiced used by firms to measure their innovation is through knowledge Management and
auditing their networking between them and their competitors.
Knowledge Management offers several methods to compare a firm’s approach to innovation

through networking can be studied by comparing publications between joint organizations.

Figure 11-8 presents the network of organizations with more than 5 publications related to
mobile phones in the considered time span of 2001 to 2011. The red nodes represent
organizations of Nokia, the green nodes organizations of Motorola, the blue ones are
organizations assigned to Apple. The “size” of the node indicates the number of articles. Apple
shows as a different approach to innovation from Nokia and Motorola.
Figure 11-8. Network of organizations with more than 5 publications from 2001 to 2011. (analysis
provided by Marianne Hörlesberger, AIT Austrian Institute of Technology GmbH, Technology Management,
Donau-City-Straße 1, 1022 Vienna, Austria)
How different is the knowledge base of these three organizations? The cited references of the
published articles can be considered another relevant aspect of the knowledge base. Figure 11-9
shows the network graph of cited references three times. Only these references appear which
have a frequency higher than 3, which means that the references have to be cited in more than 3
articles. The cited references of Nokia, or Motorola, or Apple are highlighted in the
corresponding colors.
KnowledgeBase_Nokia KnowledgeBase_Motorola KnowledgeBase_Apple
Figure 11-9 Networks of cited references. The colors represent the cited references of the three
organizations respectively. . (analysis provided by Marianne Hörlesberger, AIT Austrian Institute of
Technology GmbH, Technology Management, Donau-City-Straße 1, 1022 Vienna, Austria)

It can be seen that Apple plays a different role while Nokia and Motorola show similar pictures.
Also about half of all cited references of Nokia are also in the cited references of Motorola with
Motorola articles being cited 1,158 times and Nokia articles being cited 909 times.
These analyses and investigations cannot detect “disruptive innovation”. There are many
examples that build the business story for disruptive technologies. Unfortunately as much as
these business disasters can be identified after the fact, there is little insight into what could have
been done to prevent them. In comparing the various knowledge management metrics such as
publications, patents, and references in high technology articles there is little to distinguish the
three technology management eras inside Nokia. During these timeframes one can notice
secondary trends that not so much indicate that change is coming but that the present
management practice is affecting its overall innovation. Maybe the most noticeable Knowledge
Management metric is that Apple was not following the same practice in innovation as evidenced
through publications and citations. If using the same conferences, journals, publications to study
the technology trends and measure the competition, one would have no indication of this
disruptive innovation type competitor status.
There is a growing theme concerning management in uncertain situations. The basic approach is
to categorize the situation (decisions for developing new products for instance) as either puzzles
or mysteries. Solving puzzles is a process of reducing variation. Solving mysteries is a process
of discovering all possible variation and eliminating the improbable. Gary Klein postulates in
his book Streetlights and Shadows that there are 10 premises that guide the best management
practices. He illustrates situations when dealing with uncertain or totally new experiences that
these premises tend not to be very accurate guides. Of the 10 premises there are three that
specifically reference the use of data or information. These are:
3“To make a decision, generate several options and compare them to pick the best
one.” The management practice most related to this premise is known as ‘QFD’
made famous by the HBS case on Toyota and Quality Functional Deployment.
4 “We can reduce uncertainly by gathering more information.” The management
practice most related to this is know at TQM, Total Quality Management is the
umbrella for what are known as ‘Six sigma’ processes which form the basis for
nearly every management practice today.
7 “To make sense of a situation, we draw inferences from the data.” The management
practice most related to this is known as ‘voice of the customer’ market research
where no leading questions are asked and responses are categorized and scored to
learn what the customer knows and can verbalize.
When a firm manages a portfolio of new product developments and categorizes them in the four
general themes of Market Penetration, Market Extension, Product Introduction, and Product
Creation it would first seem that four different types of management should be needed. But in
fact the management premises (outlined by Klein) have served well to generalize the decision
process across all these categories. However maybe three can be thought of as puzzles but
certainly the Product Creation type of NPD is very much a mystery. For instance solving a
puzzle relies on accurate and critical data. At some point just one more significant fact can solve
the puzzle. In Product Creation NPD all the information is noisy. The problem is dealing with

‘undiscovered customers’ who are available to the marketplace but even they cannot verbalize
their need till they see and experience the innovative product. The product’s technology is
unproven and can only be proven on its capability, quality, and costs in limited volumes. Only
experiences instead of data entries can forecast the timeline.
Disruptive innovation requires Product Creation, new product development. Nokia, like most
large companies, applied all the best management practices to their complete NPD portfolio.
The Product Creation ideas where in their portfolio but they did not get the decisions to support
their introduction into the market. The problem that they did not address was should they instead
separate part of the NPD portfolio and treat it like it is a mystery instead of a puzzle.
Unfortunately mysteries require sense making instead of a data rich process. Adding more noisy
data does not improve success in solving mysteries. But the exact process for solving mysteries,
as exemplified by the now leading mobile phone company, Apple, is dependent on people,
namely Steve Jobs. This is more difficult to forecast and put metrics to, but is presently a proven
part of a company’s success when in a market that is subject to disruptive innovations.

Chapter 12: The Challenge of Managing Innovation: Adding
Agility to a Durable Process
Synopsis: Highly innovative product developments are thought to require two major activities—
invention and commercialization (Chapter 4). In the past most organizations used a two-phase
approach to the development where the inventing was completed and then, through the planning
of a business case, the commercialization phase began. The inventing phase was not rigorously
managed but the commercialization phase was managed with a detailed durable process, i.e. a
stage-gate process. It has been well established that these durable processes guide an
organization to achieve their business goals.
Today organizations are accelerating innovation by combining the inventing and

commercializing efforts into one project. These more inventive innovation projects are managed
using the same durable process. However for these projects the process is not delivering the
desired business results, mostly due to cost and schedule overruns. The best example of
simultaneous invention and commercialization innovation projects is soft technology
developments. Soft technologies by their nature allow for rapid re-design and inclusion of new
features. As a result, at the completion of a typical soft technology development more than 50%
of the requirements change from the original plan. The development of these inventing while
commercializing projects must allow some tailoring or agility to the process so that this
uncertainty can be explored and resolved to create the optimum solution for the customer.
Thirty-eight projects that developed and delivered a software module were analyzed. Each
project was launched using the organization’s stage-gate durable process. By completion thirty-
six of the projects had tailored the process in order to meet the schedule and cost business goals.
A surprising outcome from the study is that the quality of the final soft technology product was
not strongly dependent on the process used to create it. Five additional factors that contribute to
Quality in innovative project are identified. The best practice for the organization is to maintain
its Durable Process, which establishes a core capability of experienced staff having a deep
understanding of the customer. This experience allows the tailoring of the process to meet the
overall business objectives.
Discussion:
1. Provide an example of a product that benefited from a Durable development process.
2. Provide an example of a product that benefited from an Agile development process.
3. Why is an Agile Process so accepted by software based product development?
4. When tailoring a Durable Process what are the positive points?
5. When tailoring a Durable Process what are the possible negative points?
6. Does software development serve as a basis for the study of Innovation Management?

Chapter 12: The Challenge of Managing Innovation: Adding
Agility to a Durable Process
12.1 Addressing Uncertainty while Accelerating Innovation
Organizations achieve a desired result more efficiently when activities and related resources are
managed as a process. Most organization’s management of product development is based on
establishing a well-defined, step-by-step process engaging the organization in adopting and
following rigorously the process in order to meet customer needs, defined as a Durable New
Product Development (NPD) process. A Durable Process establishes principles focusing on four
business goals: Schedule, Cost, Productivity, and Quality. The process guides the activities and
the people who perform the tasks to identify and remove uncertainties and risks. Of growing
importance for an organization’s long-term success is the rapid introduction of innovative
products. Highly innovative product developments are thought to require two major activities—
invention and commercialization. Previous research has been shown how a durable process can
be used for managing both the invention and commercialization activities. The challenge of
innovation management is to adjust the organization’s proven durable process to allow
uncertainty to be explored, instead of uncertainty being quickly managed out of the development.
Reluctance comes because any tailoring to the durable process is thought to reduce the quality of
the end result.
Today organizations are accelerating innovation by combining the inventing and

commercializing efforts into one project. These more inventive innovation projects are managed
using the same durable process. However for these projects the process is not delivering the
desired business results, mostly due to cost and schedule overruns. The best example of
simultaneous invention and commercialization innovation projects is soft technology
developments. Soft technologies by their nature allow for rapid re-design and inclusion of new
features. As a result, at the completion of a typical soft technology development more than 50%
of the requirements change from the original plan. The development of these inventing while
commercializing projects must allow some tailoring or agility to the process so that this
uncertainty can be explored and resolved to create the optimum solution for the customer. The
Durable Development Process does not fit innovation projects that are resolving a significant
number of uncertainties. The best approach is for an organization to maintain its Durable
Process as a foundation and allow tailoring of it for its more innovative projects.
12.2 Software Development as a Platform to Study Innovation Practices
Innovation in an organization can come from many different technologies, but one that is having
the broadest potential across nearly all markets is soft technology. Soft technologies have the
most potential to devise innovative features because of their flexibility and independence from
hardware. Soft Technologies are used to solve problems from real-time machine controls, to
searching large databases for customized solutions, to providing travel services with ease and
insights. However since soft technologies have such agility and versatility to solve problems
they also have a well-known difficulty in their ability to be managed during development. A

panel of experts in software development was assembled to review this study and its findings. A
key point this panel made is ‘for soft technologies the invention and commercialization are best
done as one development or one continuous process.’ This is because the innovation provided
by the soft technology arises from its intimacy and connectivity to the product feature it
provides. This connectivity only creates value once it is implemented in the exact application it
will be used. Thus soft technologies are developed in real-time as part of the platform and
environment they will be used.
Many reports have documented the difficulty in managing soft technology projects during
development. In the book The Mythical Man-Month, published in 1976 and 1995, more than
twenty years of business related problems in developing software projects are illustrated. Some
of the more recent failures in developing soft technology based products and services are listed
in Figure 12.1. These software project failures come from different industries and different
product ideas. These projects were developed using the organization’s durable development
process.
Figure 12.1 Software development projects leading to significant financial issues.

Since the list in Figure 12.1 was compiled there continues to be highly visible, important soft
technology projects that have had development problems. For example, in 2013 the Affordable
Care Act (Obamacare) Enrollment System overran by 700% its original estimate for
development of $600M with highly publicized deployment delays. In 2012 the DOD canceled
the development of a new procurement system after spending $1B over six years and realizing
that another $1B would be needed to get the system partially working. Many of the software
failures listed are large government based projects. This is because these projects are public and
easier to document. All industries have a major part of their operations based on soft
technologies and all have experienced difficulties with soft technology projects. Many firms
experience their first soft technology challenge when they introduce organization wide ERP
(Enterprise Resource Planning) systems such as Oracle and SAP.
12.3 Overview of a Durable Process
The most common software development process is based on the CMMI® (Capability Maturity
Model Integration) process. The process clearly defines steps for requirements capture, peer
reviews, thorough testing, and guidelines for addressing running changes and re-work. Figure
12.2 (called the V diagram) illustrates the sequence of steps for a Durable software
development. The software development flows through stages of concept to requirements to
design, leading to the code development. After code development the process begins component
level testing, then system level testing, leading to deployment. The foundation to this V
sequence of steps is that the project team breaks the problem into finer and finer detail as the
project proceeds and then assembles all the details into a final solution. Each step is planned with
risks being identified and mitigated quickly. Changes require bringing them through the entire
process. This is especially challenging to the schedule when this rework comes late in the
project. The major risk for large soft technology projects is schedule overruns that can lead to
cost overruns. CMMI® provides a foundation for the entire organization to define its daily
operation and to continuously improve. The daily decisions and activities are driven by risk
avoidance and adhering to the plan. If changes are needed, the process requires many previous
steps to be repeated. In
engineering terms, well-managed
projects are linear systems: slight
variations in assumptions can lead
to predictable changes in
outcomes. CMMI® has the most
success when less than 20% of the
project is discovery and the
majority is application. This is
analogous to the process an
orchestra might use to prepare for
a concert. The producer has raised
sufficient funds based on Figure 12.2 Illustration of the main tasks involved in a
anticipated attendance, and now Durable Process for Software Development.
the primary objective is to ensure

everyone plays their part at the right time. A durable process works well for these ‘Concert’ type
innovations, which have a minimal amount of uncertainty to resolve.
12.4 Overview of an Agile Process
With increasing industry disruption from new technologies, efficiency, cost, and execution are
becoming less important to organizations than innovation and agility. The main difference
between an Agile and a Durable development process, as illustrated in Figure 12.3, is based on
the timeframe for which output can tested. The Durable Process must forecast the future
customer needs so that the released product matches those needs. A product or service that over-
serves or under-serves the market will not be as successful. The Durable Process evolved when
business cycles and market trends changed slowly. Figure 12.3 illustrates the situation when
customer needs are growing rapidly (based on Figure 10.5 Keeping Pace with rapidly growing
customer needs). Here the durable process must forecast far in the future the customer needs at
the time the product is
released. The Agile
approach because of its
shorter delivery timeframe
has the potential to be
tightly coupled and more
relevant to these emerging
needs.
In 2001 the Agile Manifesto

was introduced to address
the need for Agility in
software development. One Figure 12.3 Agile and Durable Approach. An agile product
principle of the Manifesto development approach attempts to rely less on long range
states “Welcome changing forecasting by delivering faster. The durable approach best
requirements, even late in develops ‘concert innovations’ and the agile approach best
development. Agile processes develops ‘jazz innovations’.
harness change for the
customer's competitive
advantage”. This ability to include changing requirements late in the development cycle is
precisely what Durable development processes purposely eliminate. The Agile Process can better
manage projects having non-linear characteristics: slight variations in assumptions can lead to
drastic changes in outcomes. The Agile development process minimizes upfront investment and
provides options for incorporating customer learning before, during, and after product launch. In
this scenario, organizations discover the product’s value propositions with their customers.
One of the specific process frameworks for the Agile Process is SCRUM. SCRUM is built
around the concept that the entire team is simultaneously involved in completing the product,
like starting the play in the sporting event of rugby. The SCRUM Agile Process follows two
premises: 1) schedule can stifle quality output and 2) the cost of change is low. An Agile
Process naturally fits to projects where nearly 80% of the project is discovery. This is analogous
to an improvisational jazz performance: each musician plays off the other, and the players do not

know 1) where they will end up once they begin, 2) whether they will create treasure or trash,
and 3) if they will ever produce the performance again.
12.5 Connection of Agility and Durability
The soft technology development

processes CMMI® (Durable) and
SCRUM (Agile) have evolved from
the same quality management
fundamentals. A previous paper
defined guidelines to help managers
make the process fit the project
versus having the project fit the
process. Figure 12.4 illustrates the
relationships between process and
the amount of uncertainly in the
innovation project into three
categories. For projects having <20%
uncertainty to be resolved, a Durable
Process is the best fit. For projects
having >80% uncertainty in the
requirements and specific customer
needs an Agile process is the best fit. Figure 12.4 Comparison of Innovation Project type
The majority of projects are between based on the amount of uncertainty it must resolve
these two situations. and the Development Process that fits best.
12.6 Case Study of 38 Embedded Software Innovation Projects
The impact of Agility being added to the Durable process has been studied. Our study focused
on embedded software development as part of a whole goods model update. Thirty-eight
projects that developed and delivered a software module for the same large OEM whole goods
manufacturer were studied. The main purpose for adding Agility to the Durable Process was to
deliver embedded software components on schedule. Its late delivery would often delay the
overall product introduction. Each project started by following the same Durable development
process that had been used for several years. As a project progressed, if it was forecast that the
development would not meet the set delivery date, i.e. the project milestone, the process was
adjusted. This tailoring of the process was left to the development team and optimized on a
project-by-project basis. This tailoring of the process usually chose to simplify steps in the
process, such as relying on engineering judgment to reduce component or systems testing. In a
few cases features were simplified, but not reconfirmed with the customer, again relying on
engineering and marketing judgment. The result was that each development team was able to add
Agility to the Durable Process in order to meet the set delivery milestone.
These software modules were built within the same software framework and operating system.
Each project delivered a compiled software module that was embedded into a whole good
machine. The projects in the study were spread between five engineering departments, where

each project had a development team. The staff ranged in experience from ten years to new
hires. This set of projects also spanned the complete range of developments for embedded
systems ranging from short, two-month projects for new stand-alone features to long, three-year
projects for major updates to complex control systems. They included efforts involving two to as
large as ten programmers. The programmers were typically focused on one project, but advised
and reviewed other projects in their department. The engineering departments were regionally
separated but all of them had staff that had previously worked at one of the other sites. The
cultures between the departments were different (working style, donated hours, breaks,
adherence to the reporting structure, etc.) but each group was equally productive as they all were
able to keep a consistent staff size and amount of work within the larger company.
Four four metrics for monitoring the effects of adding Agility to the Durable process were
defined. These analysis factors are: Complexity, Resources, Non-conformance, and Quality.
Each is normalized for a score from 1 to 10 and is defined as follows:
Complexity: Complexity is computed by multiplying a computation and a code size

ranking having these definitions:
1. Computation - ranking 1 for simple interface code, 5 for display-type code
and 10 for real-time mathematics calculations.
2. Code size - ranking 1 for less than 1,000 lines of code and no special
interoperability up to a rank of 10 for greater than 100,000 lines of code with
greater than 4 other controller interoperable dependencies.
These two ranking numbers are multiplied to provide a non-linear growth in complexity.
The result is then divided by 10 to scale the metric, for a range of 1 to 10.
Resources: Resources is computed by scaling the total accumulated hours of

engineering time involved in the project (across all projects studied) to fit a 1 to 10 scale.
Projects ranged from six months to three years with teams having 2 to 10 members.
Non-conformance: Non-conformance is computed by averaging two factors:

1. Software development process usage - where full use of the process scores 0
and one point is added for each major activity not used.
2. Running changes - the level of running changes on the project is measured on
a scale from 0 to 10 with 0 equaling no changes to the original requirements,
and 10 if the project involves weekly changes coming from marketing, open
requirements, etc.
These two values were averaged. A Non-conformance of 0 indicates that the complete
process was followed during the development with no running changes. A Non-
conformance of 1 indicates one major change was made to the process and one running
change was included in the requirements without re-working this change through the full
process.
Quality: Quality is scored as a 10 with a 1-point deduction for each defect discovered
after the software release. All defects were counted. The severity of the defect was not
ranked. Defects having no visible impact to the machine performance were still scored
against the quality.

Effects from Project Complexity. For a single
project Complexity provides an indication how
well the project fit the abilities of the
development team. The most complex
problems were assigned to the most experienced
teams. Also if the Complexity was increasing
as the project evolved it was a clear indication
that the features were growing in scope, i.e.
‘creeping’. This could be addressed by trading-
off the importance of features versus delivery
schedule. Most projects had to address this
increasing complexity, which then led to
tailoring the process. Figure 12.5 shows how
project Complexity as scored at the end of the
project varied between the engineering Figure 12.5. Comparison of project complexity
departments. A line is fit to the data including a (mathematical complexity and number of lines
95% confidence band. Department 1 of code) between various engineering
specializes in hardware and software departments. Each engineering department has
components that are part of a whole goods its own culture related to product development
assembly. Departments 2, 3 and 4 are focused although all are under the same product
on subsystem level deliveries such as delivery process. A score of less than 4
transmission or cab controls. Department 5 is indicates the software could be developed as a
focused on entire whole goods machine component versus a system solution.
functionality. This department not only
developed the control and interface features but
also used software to capture its domain
knowledge of the system’s operation. Every
department covers a wide range of complexity
in its portfolio. The fact that the firm’s Durable
Process could be applied to such a variety of
projects complexity is a measure of its
robustness and value to the firm.
Effects from Project Resources. Resources is

an indication of how well matched the project
was to the abilities of the team. If the project
was much larger or smaller than what they had
done before the management could anticipate
issues and react. Figure 12.6 compares the
Resources for each project. There was a Figure 12.6. Comparison of project resources
significant variation between the projects with (number of staff and length of development)
some having two to three full time staff between various engineering departments.
(Resource score of 1 to 2) to those having large Each engineering department has its own
teams working for over two years to complete business metrics related to product
the development (Resource score of 8 to 9). As development although all are under the same
an engineering department takes on more product delivery process.

complex projects the resources needed for the
smaller projects also grows. Once the
engineering department is able to complete large
projects, it seems limited to how small a project
it can manage. This is probably driven more by
business practices than by the project need
itself. An option for when the schedule was
falling behind was to add resources to the
project. In nearly every project the preferred
management approach was to tailor the process
so that the same resources could be used to
complete the project. This is another difference
between an innovation (‘jazz’) and an
application (‘concert’) product development
project. The innovation project has learned
that bringing in new resources in the middle of Figure 12.7. Comparison of project non-
development does not increase output. conformance (deviating from the defined
process step) between the engineering
Effects from Project Non-conformance. departments. A score of greater than 0
The most important part of the data collection indicates the software was developed with a
for our study was an accurate recording of tailored version of the process.
changes in adhering to the Durable Process.
Figure 12.7 shows the Non-conformance at the
completion of the project for each department.
Only two of the thirty-eight projects were
completed holding to the complete sequence of
process steps. Thirty-six project teams tailored
the development process as needed to meet the
schedule. The Durable Process, because of the
detailed plan that had been put in place, offered
many options where the team could add Agility.
Each project that added Agility to the process
chose the approach. The Non-conformance
factor was especially interesting to the
department management. The amount of Non-
conformance between the project teams could
help the management understand how efficient
they as a group were at meeting the original Figure 12.8. Comparison of project quality
estimates. They could also gain insights into between the engineering departments. A score
the culture within their department and the of less than 10 indicates the software had a bug
attitude toward a rigorous process. For after it was delivered.
instance, Departments 2 and 4 have different
cultures toward the importance of holding to the original project plan. Department 2 has a
history to hold to the plan, waiting till there are no alternatives. Department 4 has a history to
recognize that the plan will change and accept it sooner than later.

Effect on Quality. The Quality measurement came from from the Durable process metric for
quality. Figure 12.8 shows Quality (at the end of the project) across each department. Quality
is the most similar of all the parameters as compared between the five engineering departments.
This indicates that the process, the individual team, or the project complexity is not the major
factor driving Quality. Quality is influenced by other factors, most likely the re-use and
adherence to the embedded software environment that each project is being developed in.
Comparing these parameters offers insights into the effects of adding Agility to the Durable
Process. Figures 12.9, 12.10, and 12.11 contain the comparison of the software Complexity, the
project Resources, and the resulting Quality to the Non-conformance to the process used to
create that software module. This comparison of adding Agility to the
Durable development process indicates these general trends and insights:
1. As a project had more Complexity the process was tailored more for the project to be
delivered on time. This indicates that more complexity will have more uncertainty,
which requires more agility in its development process.
2. For projects that require more Resources or staff time the process was tailored more
for the project to be delivered on time. This indicates that software is not easy to
compartmentalize and team size does not scale linearly with output.
3. Adding agility to the durable development process does not have a clear affect on the
resulting Quality. This is a result of having an experienced team that was working
inside a proven software environment.
A panel of software management experts was interviewed about the findings that the process did
not have a significant impact on the resulting quality. This group defined and then ranked the
top five factors that contributed to the quality output from each project:
1. Experienced staff/Deep Customer Understanding. Each project had at least one
experienced staff that had a deep understanding of the customer expectations and also the
durable process.
2. Process Framework. A structure has been established with defined roles and
responsibilities. The software development process was well established and the entire
organization was at a CMMI Level 3 implementation.
3. Software Library and Re-use: On average each software module would use
approximately 75% of its code from an existing library. This was for functions such as
messaging, graphic user interface, sensors and actuator digital interfaces, and fault codes.
4. Knowledgeable support group: The organization had established a single external firm
that provided training and 24 hour help desk support on the software system, the re-use code
library, and validation to standards.
5. Single software delivery system. Every software module was built into a single
worldwide software payload delivery system. Wherever that software module was needed, i.e.
for programming the controllers, this single system was used to retrieve it. The rigor of fitting
the module into this universal delivery system led the development to meet specific code
architecture and structure guidelines.

Figure 12.9: Project Complexity as compared to
the Non-conformance of the Process used to
create that software module. For more complex
projects there is a tendency to reduce the rigor
to adhere to the process in order to meet the
scheduled delivery.
Figure 12.10: Project Resources as compared to

the Non-conformance of the Process used to
create that software module. As projects
become larger in staff and/or scheduled time
there is tendency to reduce the rigor in order to
meet the scheduled delivery.
Figure 12.11: The Quality Metric as compared to

the Non-conformance of the process used to
create that software module. This is no
noticeable difference in the number of defects in
the software after it was delivered based on the
Agility of the process that was used. A line is fit
to the data including a 95% confidence band.

12.7 Illustrating how Agility is added to a Durable Process
The analysis factors of Complexity, Resources, Non-conformance, and Quality illustrate the
significant variation between projects. Even as each of these projects used the same machine
control software environment, there seems no two projects are alike. Much of this uniqueness is
because the invention and commercialization developments for that component, the software
module, are joined into one project. A main activity of a Durable Process is incorporation of
statistics to identify the best practices and guide continuous improvement. But if the projects are
not statistically linked then the premise that one process can produce the best results is
challenged. This has lead to the trend in the software industry to abandon any aspect of a Durable
Process advocating for a process that
“Respond(s) to change over following a
plan”.
Organizations do not want to abandon their

Durable Process. It is the foundation behind
Designing in Quality to the product. This
study shows that Agility can be added to a
Durable Process to achieve the desired
business results without compromising on
the quality. The interactions between an
Agile Process and a Durable Process inside
an organization are illustrated in Figure
12.12. The connection between product
improvement ideas and delivering quality
products through the durable process is
illustrated in the Top drawing. A core
capability of experienced staff with a deep
understanding of the customer grows from
the repeated use of a Durable process. It is
this experienced staff that then can adapt a
more agile process, accelerate the
innovation, manage uncertainty, and meet
both the customer needs and the business
needs. The Bottom drawing illustrates this
agility with an inner ring in the process that
is closely coupled to the experienced staff Figure 12.12 Rings of Innovation illustrate how an
and the customer understanding resulting in Agile Process and Durable Process evolve together
an Encapsulated SRCUM process. through the establishment of experienced staff.
Top) A durable process that creates quality
The best NPD approach is for an products builds a core capability of experienced
organization to maintain its Durable Process staff and deep customer understanding.
as a foundation and allow tailoring of it for Bottom) This core competency of staff and
its more innovative projects. When done customer understanding can tailor agility in the
with experts Schedule and cost objectives process for faster and timelier match to customer
can be met without sacrificing on quality. needs.

Appendix I: Crisis Management - An Electrical Interpretation
Most of our working hours are spent attempting to resolve, or at least survive, crises. The crises
arrive at our doorsteps in constant streams: “Somebody ordered the wrong parts”; “I need it
now”; “We can’t work with him any more”; “Your budget is overspent”; “The machine is
broken”.
Once the crisis has arrived, a manager somewhere responds, identifies the problem and begins
working toward a solution. If he is a good manager, he adapts his response to the situation and to
the people involved. Whatever the crisis, a group of people will be involved. Each in turn takes
on the role of a crisis manager and then passes the crisis on to the next person in the chain of
concern. Each person’s style of dealing with the crisis affects how the people farther down the
chain respond.
At one time or another each of us has been a crisis manager. All of us have watched others -
sometimes with fear and sometimes with enjoyment - react to a crisis. And we have all watched a
crisis ricochet along the chain of concern.
Watching others and myself I have identified four basic crisis management styles, which I call
the resistive, the capacitive, the inductive and the diode styles. In its simplest form each of them
styles resembles the electronic component for which it is named. Suppose that a crisis is
analogous to a voltage transient, then the manager’s reaction to the crisis is analogous to the
response of that component to the voltage transient.
Because the analogy is to the manager’s activity, sign conventions are not strictly observed. The
typical manager’s normal activity level is slightly above zero and can only increase. Although he
may well have a negative attitude, the model doesn’t allow him to do less than nothing.

The Resistive Manager
In an electrical circuit’s resistor reduces the current, developing a voltage across its leads that is
proportional to its size, a large resistance will reduce the current more than a small resistance and
develop a larger voltage. A resistor does not introduce any phase lag into the system.
When a voltage spike arrives at the resistor, the voltage across it increases, and when the voltage
transient is over, the resistor’s voltage drops proportionately.
A resistive manager responds to a crisis as it occurs, reduces the effect of the crisis by his value
in solving it, and stops reacting when the crisis is over.
The success of a series of resistive crisis managers in working a problem depends largely on their
collective ability to solve problems. Resistive managers respond appropriately to a crisis; they
don’t overreact or under-react, nor do they anticipate the arrival of the crisis or lag behind it in
their response. After reducing the level of the crisis, each resistive manager passes it on to the
next person with a minimum of fuss.
The Capacitive Manager
The capacitive manager in an electrical circuit a capacitor stores charge, integrating the current
flow. The speed of its response is inversely proportional to its size, or capacitance value. A large
capacitance will store charge slowly during a voltage transient, whereas a small capacitance
charges more rapidly. A capacitor will retain the stored charge until it is somehow discharged.
A capacitive manager introduces a phase lag into the response to a crisis. He gets off to a slow
start and, in some cases, may hardly have started before the crisis is over. Even after the crisis is
over, he remains charged. Perhaps he feels the crisis didn’t get the attention it needed. In any
case, he will continue to respond until he is somehow discharged. With luck, someone,
preferably he himself, will pick a good time to short his electrodes.
If there is a series of capacitive managers in the chain of concern, one can almost guarantee that
the work being done at any given time never relates to what is actually needed.
The Inductive Manager
In an electrical circuit an inductor tends to differentiate the current flow. The rise time of the
current is proportional to the size of the inductor, or its inductance value. The smaller the
inductor, the shorter the rise time and the faster the decay. The inductor responds only to voltage
changes; once the voltage is constant, its response decays to a null value even if the input voltage
has a different steady-state value than before.
An inductive manager introduces a phase lead into the response to a crisis. Expecting the worst,
he overreacts. Although there may be a traumatic surge of activity when the crisis first walks in
the door, within a few hours it is forgotten. Impedance mismatches between a series of inductive

crisis managers can cause serious problems. If the time constants between managers are just
right, they will all begin trying to out differentiate each other.
The Diode Manager
In an electrical circuit the diode responds in one of two ways. It either passes the current or it
blocks it completely. The size of the diode has no effect on its function, nor does the diode
introduce a lag or lead into the current.
A diode manager responds to a crisis in an all-or-nothing manner, operating in an almost switch-

like fashion. If the chain of concern is a series of diode managers, one of two things can happen,
depending on which way the crisis managers are facing. Either the, crisis will be ignored or, if all
of the managers are passing on the crisis, the entire chain might go into an undamped oscillation.
The Resistive-Capacitive-Inductive-Diode Circuit
Each of these four crisis management styles has its place. We tend to choose one to fit the
situation. For example, if the crisis were “Joe didn’t show up for work”, most of us would react
like capacitors. We may be a little more inductive, however, if the crisis is “Joe didn’t show up
for work AGAIN!”
Of course we all know people who tend to favor one style over the others, whatever the situation
and regardless of which style might match impedances best. It could even be argued that is better
that a person be consistent and therefore predictable in his response. This allows the system to
optimize the energy flow by impedance matching. For example, if you know your boss is going
to react inductively to a particular crisis, you have the opportunity to break it to him gently.
Then when he starts differentiating, things may be less transient for you.
So don’t think of that person next to you as a black box, but rather as a simple RLC circuit. It
may make your day go faster. However I advise only modeling; performing electrical
experiments on your subject to verify your analysis will most likely start another crisis.
T H. Harbinger


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Management of Innovation

Transforming from a User of Technology

Management of Innovation NPD

Management of Innovation Lenz 1

Printed in the United States of America

First Printing, 2017

Management of Innovation Lenz 2

A Handbook for Managing the Innovation Side of New Product Development

With support from:

Management of Innovation Lenz 3

Management of Innovation Lenz 4

Appendix I. Crisis Management - An Electrical Interpretation 177

Management of Innovation Lenz 5

Exhibit 3-1. Market Investigation Tools and Templates

Exhibit 3-2. Example of Value Chain Mapping

Exhibit 3-3. Example of QFD Relationship Matrix

Exhibit 4-1. Fiber Optic Gyros vs. Ring Laser Gyros

Exhibit 5-1. The Bubble-Jet Printer Development

Exhibit 5-2. The JA-30 Accelerometer Development

Exhibit 5-3. Revenue-First Product Idea: Fiber Gyro

Exhibit 5-4. Revenue-First Product Idea: Valve Position Sensor

Exhibit 5-5. Profit-First Product Idea: Low Drift Current Sensor

Exhibit 5-6. Profit-First Product Ideas: A340 Door Controls

Exhibit 5-7. Loss Leader Product Idea: Laser Velocity Sensor

Exhibit 5-8. Loss Leader Product Idea: myfacilities.com

Exhibit 9-1. Corporate Stewardship

Exhibit 10-1. Road Mapping Machine Control Technologies

Exhibit 10-2. Road mapping Machine Intelligence Technologies

Exhibit 10-3. Road mapping Electric Power Technologies

Exhibit 11-1. Examples by Product Line of Disruptive Innovations

Exhibit 11-2. Nokia and ‘The Burning Platform’ Companywide Announcement

Management of Innovation Lenz 6

Figure 1-1. Annual Report Summary

Management of Innovation Lenz 7

Management of Innovation Lenz 8

Table 4-1. Average Time from Idea to Product: 12 Years

Table 5-1. Comparison of Three Evaluating Product Ideas Processes

Table 6-1. New Product Forecasting Techniques

Table 6-2. Statistics and Costs of R&D Honeywell 1999

Table 6-3. Statistics and Costs of R&D Honeywell 1999

Table 7-2. Assessment Factors for High Technology

Management of Innovation Lenz 9

Management of Innovation Lenz 10

Management of Innovation Lenz 11

Management of Innovation Lenz 12

I. When engineers run the company: a revenue-driven era

Figure 1-1. Annual Report Summary

Management of Innovation Lenz 13

1.1 Revenue Driven Era

1. Underestimated technical difficulty during proposal

Management of Innovation Lenz 14

1.2 Profit Driven Era

Figure 1-2. When MBAs Run the Company

Management of Innovation Lenz 15

MBB Tornado Linescanner Program

Infrared Imaging System (IIS) for the

The Electronic Combatant/Reconnaissance (ECR)

Film Magazine Unit Block Diagram

New Film Recorder and Film Magazine Showing:

Management of Innovation Lenz 16