Download “experience” with the new offering, it may not need to offer as large

CHAPTER 6: NEW OFFERING REALIZATION
1. OVERVIEW
A new market offering has the intention to fulfill the requirements and preferences of target
market segments and customer better than previous offerings. Businesses create value with
the new offerings by increasing the difference between what these offerings are worth to
target customers and the total costs to provide them.
New offering can create value by:
1. Lowering the customers’ total costs;
2. Providing superior performance in the customers’ application;
3. Meeting the customers’ changing requirements and preferences;
4. Lowering the suppliers’ own costs, which it wholly or partly passes on to customers in
the form of lower prices.
New offering realization is the process of developing new core products or services,
augmenting them to construct market offerings, and bringing them to market. Realization
encompasses all of the activities a firm does to transform an idea into a market offering
that the firm commercializes. It comprises understanding and implementing the means of
consistently producing the core product or service. Companies strive to commercialize new
market offerings with greater speed, lower total cost, and greater market place success
than they have previously or than their competitors can have. In order to reach these
objectives, a realization strategy is necessary to coordinate, prioritize and guide various
realization efforts.
2. REALIZATION STRATEGY
New offering realization has the potential to provide significant outcomes in three areas:
1. Strengthen the firm’s market position;
2. Improve the firm’s resource utilization;
3. Being a vehicle for organizational enhancement and renewal.
In order to overcome realization shortcomings, such as mistaken expectations of functional
areas’ performance and unexpected technical problems firms need a realization strategy.
Realization strategy embraces the following:
 Creating, defining, and selecting a set of development projects that will provide
superior products and processes;
1
 Integrating and coordinating functional tasks, technical tasks, and organizational units
involved in development activities over time;
 Managing development efforts so they converge to achieve business purposes as
effectively as possible;
 Creating and improving the capabilities needed to make development a competitive
advantage over the long term.
The firm’s technology strategy defines what knowledge and know-how resources the firm
requires, how it will attain them, and how they will be translated into market advantages for
the firm. Market strategy defines the target marketing segments and customers. The PostProject Learning and Improvement step feeds back to both strategies.
2.1. DEVELOPMENT GOALS AND OBJECTIVES
As part of its realization strategy, a firm defines its goals and objectives for overall
development efforts and for individual projects, and resolves conflicts that occur in pursuing
them.
2.1.1. OVERALL DEVELOPMENT GOALS
The overall goals of learning, efficiency, and speed-to-market should be of interest to
management regardless of the business strategy the firm is pursuing, although the relative
emphasis placed on each may vary depending on the business strategy.
 Learning – gain in design and process knowledge and know-how;
 Efficiency – get the most out of available resources;
 Speed-to-market – the time taken to complete a development cycle.
Some firms have used the sales profits that new offerings generate as an assessment of these
new offerings` performance.
2.1.2. PROJECT OBJECTIVES
Individual development projects play different roles in a firm’s realization efforts. Four key
objectives in managing individual development projects: Development speed or time-tomarket, product cost, product performance development program expenses.
The firm may be willing to endure some cannibalization when its objective for the new offering
is to blunt inroads made by a recently introduced competitor’s offering. Cannibalization is
when a new offering takes a portion of its sales from an existing offering of the firm. Best
practice firms do not simply rely on post-project measures to evaluate project performance.
They also devise measures that can be used during a project to provide early warning signals
and suggest corrective actions.
2
2.2. THE AGGREGATE PROJECT PLAN
An aggregate project plan is a mechanism used to ensure that the collective set of projects will
accomplish the development goals and objectives and build the organizational capabilities
needed for ongoing development success. With an aggregate project plan, the management of
a supplier company will be able to think about how the firm can have a realization performance
superior to the sum of the projects done. The aggregate project plan maps the mix of projects
it is doing; enables it to make resource capacity decisions, and outlines how it will gain critical
skills and abilities. There are three basic steps in constructing an aggregate project plan:
1st Step: Mapping the Kinds of Development Projects
It consists of understanding how the firm is allocating the resources across varying kinds of
development projects and looking at the mix of projects the firm is doing.
The following map shows two dimensions: the extent of product change and the extent of
process change.
Research and advanced development (RAD) projects concentrate on inventing new science or
capturing new know-how so that required knowledge will be available for application in
specific development projects. They compete with Commercial Development (CD) Projects for
development resources. RAD Projects stress separating invention from application and they
support that an invention’s applied workability should be demonstrated earlier than its use in a
CD Project.
According to the extent of product change and process change, it is possible to classify the
Commercial Development Projects in:
 Derivative projects: consist of initiatives that promote small advances in the firm’s
current offerings or production process.
 Breakthrough projects: they generate new core products and process that are deeply
different from previously generations. They can act in response to nascent markets with
unique requirements or create new markets.
 Platform projects: these are in the middle of development spectrum and are thus
harder to define. It contains product and/or process changes more than the derivatives
do. However, they don’t introduce the untried new technologies/materials and other
changes that occur with breakthrough projects. Platform projects represent the natural
starting point for the core product part of flexible market offerings.
Alliances and partnership projects are those done in conjunction with one or more outside
firms.
2nd Step: Making Capacity Decisions
Management must make some hard decisions about the number and mix of projects to start or
complete with the resources they have because if they overextend their resources, productivity
will decline, the number of projects “in process” will increase and the projects will inevitably
take longer time to complete. Based on that, firms can make the following decisions:
3
1. Postpone or refuse projects in order to reduce the number of projects being done at
any one time;
2. Change the sequence it will carry out the projects in order to reduce the overall time
required to complete the sequenced set of projects;
3. Decide upon a preferred level of development capacity utilization, which will depend
partially on the mix of projects being done and the lacking of resources that can occur.
3rd Step: Gaining Critical Skills and Capabilities
In this final step, management needs to select the development projects that will enable the
firm to build or acquire the critical skills and capabilities it will need for future development
and marketplace success. The greatest value of an aggregate project plan over the long-term is
its ability to shape and build development capabilities, both individual and organizational. In
order to accomplish this, management has to consider building technical knowledge, stimulate
cross-functional cooperation and project leadership capability through training on how to work
in teams, for example.
2.3. CONCURRENT ENGINEERING IN REALIZATION STRATEGY
Concurrent engineering is where firms work on the process for making a product while they are
still in the process of designing it. Firms that practice this strategy overlap stages of their
development processes that have traditionally been strictly sequential. They also form crossfunctional teams with different skills.
2.3.1. POINT-BASED APPROACH TO CONCURRENT ENGINEERING
Individuals who are responsible for the design of a product generate a number of alternatives
and select what appears to be the most promising design solution. After that, they and their
counterparts responsible for the process of making the product go back and forth with the
design, making successive improvements until both groups arrive at a mutually satisfactory
solution.
2.3.2. SET-BASED APPROACH TO CONCURRENT ENGINEERING
It refers to a deliberate effort to define, communicate about, and explore sets of possible
solutions, rather than modifying a point solution. In some cases, these sets may be deliberately
more constrained than common industry practice.
2.4. OUTSIDE DEVELOPMENT
REALIZATIONS STRATEGY
RELATIONSHIPS
AND
NETWORKS
IN
As a final part of realization strategy, we see that understand outside development relationship
and networks play a crucial part of the realization strategy. It means, decide on develop inhouse sources or to seek it from outside.
2.4.1. ALTERNATIVE DEVELOPMENT STRUCTURE
A firm can pursue different number of development structure to gain resources:
4
 Outsource technical resource – supplier that develops it for sale;
 License the technology – gaining intellectual property rights;
 Co develops a technical resource – with customer or supplier; with another business
unit or division.
Comprising the network can be suppliers, competitors, or customers to one another. In other
words, the firm may have multiplex relations.
2.4.2. AIMS OF DEVELOPMENT RELATIONSHIPS AND NETWORKS
 To reduce development costs;
 To pool resources, two or more firms leverage their respective technical capabilities;
 To improve efficiency;
 To have a number of firms commit to developing and using a particular technology –
see page 242 Adobe Systems;
 To persuade industry associations, regulatory agencies, or government to adopt
standards that favor their developed technology over rival technology.
2.4.3. DECISIONS CONSIDERATIONS
Senior management will find that it must consider social as well as strategic factors. It also
must understand the technology cycle and the resource demands of different kinds of
development projects. Firms that benefit most from outside relationships put in place practices
and mechanisms to learn as much as possible from the partner, even in areas outside the
formal agreement.
3. REALIZATION PROCESS MODELS
The authors present a general realization process model that has common characteristics with
different business markets, as well as the market oriented model.
3.1. A VARIETY OF REALIZATION PROCESS MODELS
3.1.1. SMALLFRY INDUSTRIAL DESIN
The aims are to increase added value, improve product quality, and reduce manufacturing
costs for its clients by carefully interpreting marketing, customer, and technical requirements
into effective manufacturing solutions.
5
3.1.2. AKZO NOBEL COATINGS
Figure 3 – The Realization Process at Akzo Nobel Coatings
3.1.3. KLEINWORT BENSON INVESTMENT MANAGEMENT
It is a unit of London-based Dresdner Kleinwort Benson, an investment bank. Drawing on its
own experience as well as those banks, KBIM constructed the product development process to
ensure that individuals sponsoring a new product idea would consider the necessary elements
of a new product’s development in time scales appropriate to allow others to carry out other
necessary work, while controlling the overall cost and risk to KBIM.
3.1.4. ABB ASEA BROWN BOVERI LARGE-SYSTEM PROJECTS
ABB Asea Brown Boveri (ABB) defines large-system projects as those priced greater than $15
million. Large-system projects account for about one-third of ABB’s annual turnover. ABB has
constructed a realization process model to understand which projects to pursue, to capture the
project it wants, to manage risk, and to lower the costs of executing the projects for customers.
Development








Opportunity Tracking
Relationship Building
Customer Need
Assessment
Probability
Assessment
Project Screening
Pursue/ No Pursue
Decision
Technical Positioning
Pre-studies
Pre-acquisition








Customer Needs
Identification
Networking
Preliminary
Strategy
Competitive
Assessment
Risk Assessment
Go/ No Go Decision
Specification
Shaping
Capture Plan
Acquisition











Request For Proposal
Project Kick-off
Meeting
Bid/No Bid Decision
Competitive
Differentiation
Strategy
ABB Matrix
Risk Management
Pricing
Management Review
Tender Submission
Negotiation
Execution




Award
Project Plan
Reviewed
Implementation
Team
Customer Service
and Follow-Up
Figura 4 – ABB- How to Pursue the Busines
6
s Opportunity
3.1.5. ABN-AMRO BANK GLOBAL TRANSACTION SERVICES
The Global Transaction Services (GTS) Unit of ABN AMRO Bank (AA) has embedded its new
offering realization process within its overall process for product management. The new
offering realization process has four phases:
1. Idea Filtering: It’s the stage in which there is an investigation about the consequences
of pursuing an idea. There is a proposal sub phase (the product manager must delineate
the opportunity and convince the business that it is worth performing a fuller
investigation of the viability of the idea) and a justification sub phase (convincing the
business that the idea is worth committing the major resources required to develop the
product).
2. Product Development: This stage’s purpose is to turn the idea into reality and develop
the product up to its market launch.
3. Performance Management: The purpose of this phase is to realize the return on the
initial and ongoing investment, and it encompasses the launch, growth, maturity and
decline of the product.
4. Close Down: This stage is a delicate operation, where the purpose is to make an orderly
withdrawal from an unsustainable market position.
3.2. A General Realization Process Model
Given the diversity in the realization process models we have reviewed, we present the
Wheelwright and Clark’s model as a general model that pulls together their common
characteristics.
This model emphasizes cross-functional integration and provides the primary activities of
engineering, marketing and manufacturing for each development phase.
Wheelwright and Clark maintain that new offering realization requires more than crossfunctional coordination; it requires cross-functional integration, which means that
management add specific activities that support cross-functional work. They recognize that
cross-functional integration truly occurs when individuals from different functional areas work
together to accomplish interdependent tasks.
Another aspect of the model is the inclusion of market introduction phase, which encompasses
all activities that are part of the market launch and concludes with its demonstrated
commercial viability.
3.2.1. AUGMENTING SERVICES IN REALIZATION PROCESS MODELS
We elaborate on this model by considering the planning, design, development, and delivery of
the augmenting services, programs, and systems that enhance the new core product’s or
service’s value. Planning for the augmenting services should begin in the product planning
phase. Devising, designing, and prototyping these augmenting services should occur in the
7
second phase of detailed design and development. The firm also should estimate the resource
requirements and costs of providing the augmenting services. The firm should run pilot
programs for the augmenting services during the commercial preparation phase with
customers that are testing the new product, and make final refinements in the services,
estimates of resource requirements and costs, and customer feedback mechanisms. At the
market introduction phase, the firm is able to deliver the augmenting services at the requisite
levels to support the market launch of the new offering.
3.2.2. “NEXT-GENERATION” REALIZATION PROCESS MODELS
Cooper has proposed a next-generation product development process that he contends is
fundamentally different from stage-gate models of the realization process in four ways:
1. Fluidity
2. Fuzzy gates
3. Focused
4. Flexible
Supplier firms that compete in dynamic marketplaces, such as high-technology markets, take
advantage of the greater agility that next-generation processes provide. By overlapping
concept development and implementation phases, a firm can incorporate late-breaking
changes into its product market introduction.
Another “next-generation” variation is to take a short hiatus in the middles of the development
phase for a new platform product. This way, firm improves the speed-to-make of its derivative
products and thwarts rapid-response competitors from beating them to market niches.
4. MARKET-ORIENTED REALIZATION
Firms in business markets should have the intent of being market oriented and customer
focused in their realization efforts.
4.1. MARKET-ORIENTED RESEARCH
Research and advanced development is responsible for generating new scientific and technical
knowledge. It seeks to push back the knowledge frontiers in science and technology in ways
that create value over the long term. So, this will be translated into technology that firms can
commercialize in new offerings.
In contrast, Commercial Development uses, adapts, or further develop known technologies to
produce new core products or services for the firm to offer to the market. Thus, R&D must
work together to translate generated knowledge resources into products for
commercialization, and marketplace understanding into direction for future Research efforts.
Businesses are placing greater demands on Research to be market oriented. So, firms appear to
be placing more emphasis and spending more on research than in past years, restoring the
8
balance compared with the proportion spent on development. To excel with limited resources,
Research needs to focus its efforts, leverage its resources with outside relationship and
connect itself with the market.
4.1.1. CREATING FOCUSED RESEARCH CENTERS
Research management in consultation with senior management needs to make choices about
which basic areas of science and technology research the firm will pursue actively. An
organizational mechanism that a firm can use to focus its scientists and other resources on
particular areas is the research center.
Scientists in focused research center need to make decisions about how they can best leverage
their allocated resources. One concept that should influence these decisions is sticky
information: that is, the extent to which it is costly to transfer knowledge or information from
the place where it resides to another location and have it in a form the information seeker can
use. Information might be stick because of its nature, such as be tacit rather than explicit, or
because of the amount a provider needs to send to seeker.
A focused research center can pursue collaborative relationships with universities,
government-funded laboratories, research institutes, or other firms’ research units.
As part of its activities, a research center should actively monitor science and technology
developments both within and outside its industry. Firms should engage in collaborative
research with a variety of firms across many different industries. In doing so, the firms can
gather intelligence on how existing technologies might be combined to create hybrid
technologies.
Finally, a research center should not overlook the potential benefits of having its scientists
participate in social network with academic scientists. Rather than having the commercial
intent of a business network, a social network is a collectivity of individuals among who
exchanges takes place that are supported only by shared norms of trustworthy behavior.
4.1.2. CONNECTING RESEARCH WITH THE MARKET
All the research must be connected with the market, since the role of Research is to add value
in the marketplace. In order to make this possible some companies promote regular, scheduled
interactions with other areas inside and outside the firm. These interactions should include a
mix of one-on-one information exchanges and more structure group-to-group exchanges. The
authors recommended an alternating “home and away” schedule for these interactions, where
participants take turns visiting and spending time at each other’s location.
In one-on-one meetings, field engineers and marketers can relate to research to scientists
changes in customers’ requirements and advances in competitors’ offering. It is especially
important to communicate to Research (and to Development) as early as possible new or
anticipated entrants whose offerings use different technology.
Also, as a more structured meetings, a Research should periodically put on research symposia
or innovation fairs, where it presents recent research advances to design engineering,
manufacturing engineering, field engineering, and advanced marketing groups.
9
Finally, Research can participate in “home and way” research overviews with research units of
strategic customers, where supplier development groups facilitate and also attend these
meetings.
4.2. MARKET-ORIENTED DEVELOPMENT
There are four ways for the firm to be market oriented in its development of new offerings:
Use positioning statements as a market-focusing mechanism; Research customer requirements
and preferences and translate them into design specifications; Guide realization efforts with
customer value assessment; tailor market introductions of new offerings.
4.2.1. POSITIONING STATEMENTS AS A MARKET-FOCUSING MECHANISM
At each phase of the realization process, the senior manager should require the project team
to provide a positioning statement as part of its review materials. Each positioning statement
should contain three elements: target, offering concept, and value proposition. These
statements should be very specific, in order to push the team to think about the characteristics
of target customers, the essential attributes of the offering for customers, and the worth of the
new offering to the customer.
4.2.2. RESEARCHING MARKET REQUIREMENTS AND TRANSLATING THEM INTO
DESIGN SPECIFICATIONS
There is no substitute for market research on the requirements and preferences of target
customers to inform and guide realization efforts. Market research complements reports from
the sales force and field engineering, which are also valuable sources of information about
customer requirements and preferences, and how they are changing. It´s especially interesting
to research that customers whose have knowledge or experience that can significantly
contribute to a firm’s realization efforts.
Evidences show that lead-user customers are often sources of innovation to supplier firms.
Lead-users are current or prospective customers who are experiencing problems or needs that
will become widespread in the market in the foreseeable future. They would derive significant
value immediately from an innovative solution. Also, theses customers can teach firms about
possible user-defined and new-to-the-firm uses or applications of the product.
Another kind of customer that is of interest to research is the leap-frog customer, which is a
small aggressive firm, possibly newer entrant that is pursuing a riskier development strategy to
gain market share. According to Ulwick, in these researches firms should solicit from them
changes in the outcomes that they seek from an offering.
Translating target customer requirements and preferences into design specifications is a crucial
step in connecting the marketplace with realization efforts. Often gaps occur between the way
a customer expresses the performance it is seeking and the way a supplier specifies how it
makes products. Some methods and tools are using for translating target customer
requirements and preferences into internally understood engineering and manufacturing
parameters, these methods and tools are called quality function deployment.
Also, the project team should attempt to gain feedback on its translation as early as possible in
the realization process; prototypes could be a tool for it. Firms are looking for ways to lower
10
the cost of prototypes, and some have turned to computer simulations rather than
constructing physical prototypes. Not only do computer-simulated prototypes reduce
realization costs, they also speed up the realization process.
In certain cases, it is extraordinarily difficult to know the customer’s application of a new
offering. In such cases, a firm can respond with a product that provides flexibility through two
components: one component that is standard across all applications, and a user-friendly
component that enables customers to tailor the standard component to their own
requirements.
4.2.3. GUIDING REALIZATION EFFORTS WITH CUSTOMER VALUE ASSESSMENT
It’s important to firms to know whether the customer is willing to pay for the new product. So,
value assessment provides this essential information to guide realization efforts.
In realization projects that are technology push, where the firm’s new offering will introduce
new technology into the market, it can use value assessment to persuasively demonstrate to
prospective customers how the new technology provides greater value or lower cost to them.
In realization projects that are market pull, where the firm is developing its new offering in
response to customer requests or demand, it can use value assessment to provide guidance on
what improvements are worthwhile for it to pursue, and the priority it should give to potential
advances.
4.2.4. TAILORING MARKET INTRODUCTIONS OF NEW OFFERINGS
A firm should tailor its market introductions of new offerings, striving for commonality and
consistency where it can, yet recognizing where it needs to remain flexible. The firms should
focus on three critical activities, which are:
1. Knowing the local market
2. Internal selling – it’s essential to gain the commitment of local country managers.
3. Motivating channel partners
Another point to observe is the price of new offerings, as discussed previously in Chapter 5.
Firms typically need to provide prospective customers with a larger incentive to change: that is,
initially give an additional part of the offering’s incremental value as monetary motivation to
try something different. It is critical for the firms to think about this pricing tactic and manage it
separately from the pricing strategy for the new offering.
Marketing communication tools can influence the size of the incentive to change a firm need to
provide. When a firm can give prospective customers a low-cost, low-risk “experience” with
the new offering, it may not need to offer as large an incentive to change.
11
5. REFERENCES
Anderson, James C. et al. – Business Market Management: Understanding, Creating, and
Delivering Value – 3rd ed. – Pearson Education, Inc. – New Jersey – 2009
12