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Factors Contributing to Marketing’s Limited Role in Product Development in Many High-Tech Firms John P. Workman, Jr. Assistant Professor, Marketing Dept. Kenan-Flagler Business School CB# 3490, Carroll Hall University of North Carolina Chapel Hill, NC 27514 Phone: (919) 962-3143 Fax: (919) 962-7186 Email: [email protected] July 1997 Forthcoming in: Journal of Market-Focused Management The research reported in this paper was partially supported by funding from the Junior Faculty Development Fund at the University of North Carolina and by the summer research support fund of the Business Foundation of the Kenan-Flagler School of Business. Factors Contributing to Marketing’s Limited Role in Product Development in Many High-Tech Firms Abstract While case-based research, books by insiders, and anecdotal evidence suggests marketing often has a marginal role in product development in many successful high-tech firms, there has been little systematic comparison across high-tech firms which identifies factors leading to this limited role. This paper draws on taped and transcribed interviews with marketing and/or R&D managers in thirty-four high tech firms and argues that three factors contribute to marketing’s limited role in many high-tech firms: (1) the need for technical expertise to understand business opportunities, (2) the development of technology-oriented organizational cultures, and (3) the way in which marketing is defined in many high-tech firms. The paper then assesses key contributions that people in marketing and product management can play and develops propositions concerning antecedents and consequences of the degree of marketing’s role in product development decisions. Keywords: High-tech marketing, marketing’s role, market orientation, new product development 2 What are the means by which high tech firms understand market opportunities and make decisions on new product opportunities? What is the contribution of people in marketing to this process? Kohli and Jaworski (1990) use the term “market orientation” to mean the implementation of the marketing concept and identify three elements of market-oriented firms: organization-wide information acquisition, dissemination, and responsiveness. However, neither they nor Slater and Narver (1994) address the issue of which functional groups within the firm take the responsibility of understanding and interpreting market opportunities. Implicit in their work is the assumption that marketing managers play a central role in the definition and development of new products. Similarly, much of the research within marketing on “boundary spanning” has assumed that the marketing unit plays a key role in linking the capabilities of the firm with the business environment (Lysonski 1985, Singh 1993, Singh and Rhoads 1991). However, case-based research in small samples of high-tech firms has often shown that marketing may not be the primary group which interprets the organization’s environment (e.g., Bucciarelli 1988, Conway and McGuinness 1986, Dougherty 1992, Dubinskas 1988, Nonaka and Kenney 1991, Workman 1993). Much of the information about the market and the needs of key customers may bypass the marketing group and go directly to R&D managers or to senior managers who often have technical backgrounds. While other researchers have documented the limited role of marketing in specific industry contexts such as biotechnology (Dubinskas 1988) or in specific firms (Workman 1993), there has been little effort to understand the factors leading to this limited role or to develop propositions concerning when marketing will have a greater or a less role in product development decisions. This paper is based on interviews done with marketing and R&D managers in a variety of high tech firms and seeks to understand why marketing often has a limited role in product development in high tech firms. Literature Review While start-ups and small firms may have a handful of people that simultaneously handle product development, marketing, manufacturing, and sales, as firms grow they typically expand into a range of environments and allocate these tasks to groups that are more specialized. With this specialization and differentiation of tasks across groups, comes the need for “integration” and communication between the groups (Lawrence and Lorsch 1967). In this section we will consider two streams of research which have considered cross-functional interactions and the role of marketing in new product development. One stream of research has taken the product as the focal point and has then examined communication patterns between marketing and engineering and how they correlate with product success (e.g. Cooper 1993, Cooper and Kleinschmidt 1987, Moenaert and Souder 1990, Souder 1987). While the methodologies vary, these studies have typically compared successful products with unsuccessful products, and have examined various aspects of the projects, including the relationship between marketing and R&D. A general finding is that projects where marketing and engineering work together typically have higher success rates than those where they don't. However, these studies are limited in that they collect responses after the success or failure of the product is known and they typically do not explore detailed aspects of communication patterns over the life of the project. A second stream of research has focused on marketing as one constituency, among many, and has sought to prescribe the role of marketing in the firm -- that is, what activities should they carry out, and how these might logically vary across situations (e.g. Anderson 1982, Hutt and Speh 1984, Kohli and Jaworski 1990, Ruekert, Walker, and Roering 1985, Ruekert and Walker 1987). According to Anderson, the goal of marketing is “to satisfy the long-term needs of [the firm's] customer coalition” (p. 22) and he notes the strategic conflicts that will occur among the various functional groups in the firm as they compete for financial and other resources: “Against this backdrop marketing must realize that its role in strategic planning is not preordained. Indeed, it is possible that marketing considerations may not have a significant impact on strategic plans unless marketers adopt a strong advocacy position within the firm. On this view, strategic plans are seen as the outcome of a bargaining process among functional areas. Each area attempts to move the corporation toward what it views as the preferred position for long run survival, subject to the constraints imposed by the positioning strategies of the other functional units.” (Anderson 1982, pp. 23-24) Using such a constituency or coalitional perspective inevitably brings up the question of what is 2 meant by marketing. Researchers have agreed that marketing can be thought of as either a functional group within the firm or as a set of activities (e.g., advertising, product management, market research, sales, customer service) whose placement will vary across organizations (Glazer 1991; Piercy 1985; Varadarajan 1992; Webster 1992). In this paper, we focus on a functional group perspective and explore the involvement of the marketing sub-unit (as defined by informants) in product development activities. While people in marketing have recognized that product development in high-tech firms represents some uniquely different challenges (Davidow 1986, Glazer 1991, Moriarty and Kosnik 1989), there has been little systematic research to understand the factors leading to marketing’s limited role in product development in high-tech firms. Rather, more of the effort within marketing has been devoted to developing tools and techniques which can better assess customer needs when technical capabilities are not fully understood. One of the more widely referenced approaches is the identification and utilization of market information from “lead user” (von Hippel 1986) who are defined as “users whose present strong needs will become general in a marketplace months or years in the future.” Another approach is to educate potential buyers up to a state of knowledge they will presumably have when the new product enters the market (Urban, Weinberg, Hauser 1996; Wilton and Pessemier 1981). This paper adopts a coalitional perspective of the firm which views the firm as being composed of subunits which have differing levels of influence over various types of decisions (cf. Anderson 1982, Cyert and March 1963, Enz 1986, Pfeffer 1981). In contrast, a large amount of the new product literature has focused on topics such as factors affecting product success and failure (e.g., Cooper 1993, Cooper and Kleinschmidt 1987, Johne and Snelson 1990, Souder 1987), and techniques for collecting and analyzing market information (e.g., Urban and Hauser 1993, Urban, Weinberg, and Hauser 1996), without considering which functional groups within the firm have responsibility for or influence over which tasks. As advocates of a coalitional perspective have pointed out, viewing the firm from a coalitional perspective draws attention to organizational processes and the ways in which goals for the firm are established and the process by which decisions are reached. However, as we point out later in 3 the paper, there is significant variety in how marketing is defined across the firms we interviewed. With this background on the theoretical orientation adopted in the paper, we now describe the field research. Methodology This paper is based on thirty-four field interviews done by the author with managers in a range of high tech firms. The interviews were tape recorded and transcribed and a systematic analysis of the transcriptions provide the primary basis for the development of the claims presented in this paper. While the line separating “high-tech firms” from other firms is somewhat ambiguous, in this article we define high tech firms as those in industry sectors with relatively high levels of R&D spending (over 4% of sales) compared to other industry groups1. The interviews were done as a part of three separate projects. All of these projects were inductive and focused on various aspects of the new product development process and the role of marketing and R&D in this process. While the set of questions varied across the three projects, they were all open ended and typically asked the informant to pick a recently introduced product, discuss where the idea came from, discuss how people in the firm sought to understand what customers wanted, and explain the role of marketing and R&D in this process. Nineteen of the interviews were with people in marketing and fifteen were with people in R&D. The typical person interviewed was a manager with responsibility for product development, marketing, R&D, or product management. The most common title prefixes were VP, Director, or Manager. In eight of the firms interviews were scheduled with two people while single informants were used in the remaining eighteen firms. The categories of factors which contribute to marketing’s limited role were inductively derived by a systematic analysis of the transcripts. Initially incidents and quotes were sorted by the author into analytical categories. The author then reviewed all of the categories and looked for commonalities and underlying factors which could be combined. This led to a more parsimonious set of factors which 1 Four of the firms had an R&D/Sales ratio between 4% to 6%, and the remaining 30 had an R&D/Sales ratio over 6%. 4 contribute to marketing’s limited role. This general approach to the analysis of qualitative field data is in accord with the approaches advocated by Eisenhardt (1989), Bonoma (1985), and Yin (1989). From a knowledge development perspective, this paper is inductive and descriptive, seeking to better understand the factors which can lead to people in the marketing function often having a limited role in new product development. Given the descriptive nature of this paper, future research is needed to develop measures of marketing’s role and to empirically examine variations in marketing’s role in new product development in different contexts. With this background on the methodology, we first consider factors which contribute to people in marketing having a limited role in product development. Factors Which Contribute to Marketing’s Limited Role in Product Development While it was not the case that marketing had a limited role in all of the high-tech firms, in general marketing did not have as much power over product development decisions as the people in R&D. Based on our field interviews, we identify the following three factors which contribute to marketing’s limited role in product development decisions: (1) the need for technical expertise to understand opportunities, (2) the technology-oriented cultures within many high tech firms, and (3) the way in which marketing is defined within many high-tech firms. The Need for Technical Expertise to Understand Opportunities In high-tech firms, it is typically necessary for managers to have technical expertise in order to understand the potential capabilities of their products and to understand how these technologies can be applied in potential customer businesses. In this section we consider three reasons why technical expertise is needed to understand business opportunities: (1) technical customers and distributors, (2) the need to explain capabilities and applications which are not yet on the market, (3) the need for interpretation of market information, competitors actions, and market developments. Technical customers and distributors: High-tech products are frequently sold to business customers rather than to final consumers. For example, most of the output of the top three high-tech sectors mentioned above is to business customers. Studies of industrial purchasing have typically found that 5 members of industrial “buying centers” desire technical information and often use information sources other than product brochures and information from sales reps when buying complex technical equipment (e.g., Bunn 1993, Moriarty and Spekman 1983). Additionally, many high-tech products have relatively small customer bases (e.g., aerospace products, defense electronics, medical equipment, and instruments) or are sold to OEMs (e.g., jet engines, semiconductors) who embed the products in their products and resell them. In these cases, potential customers typically have a high level of technical knowledge and want to interact with technical personnel on the seller side. For example, one person in marketing for a nuclear power services firm said: “We frequently brought engineers out on sales calls. As marketing people we were expected to talk intelligently about what we were selling, but we were not expected to really get into any of the details. So if there was any kind of a technical presentation going on, you'd bring at least one engineer.” In other cases managers mentioned the need to have sales reps with engineering degrees, sending key technical personnel to industry trade shows, and direct interaction between technical customers and R&D personnel on visits to corporate headquarters. Explaining applications and capabilities not yet on the market: A second reason technical expertise is needed is to be able to explain to potential customers or middlemen the applications for which a new technology can be used. In high-tech markets new technologies and new product capabilities are continually being developed. While it is frequently possible for less technical personnel to explain basic applications, in many cases more extensive interaction between customers and suppliers are required to appreciate how a new product or technology can best be utilized. The following quotation is from an R&D director of a firm providing equipment to telephone companies: “We are both creating a market at the same time that we are developing the product and many times, our customers think they know what they want, but they don't necessarily know what is going to make them successful. So, both in trying to establish what it is that we are going to actually build, a lot of times we're selling concepts to them as well, and we're trying to show them the benefit of one approach over another. ... We're establishing a market with our product and you need to find a melting of a whole lot of ideas. Some of them are good ones and some of them are bad ones and sometimes we think farther out than other people do.” This firm is one of the first entrants in the market for equipment to make “video on demand” possible. 6 Their potential customers are the Baby Bells and other phone companies, but they have to help these customers understand the potential end market for video on demand services and the advantages and disadvantage of various technical approaches to providing these services. Interpreting Market Information and Predicting Technology Development: In high-tech markets there is often a need for technical expertise in order to interpret information from the marketplace and to understand the factors affecting the development of the technology. At one telecommunications firm, one of the key designers of the original system headed a small group of engineers called “Advanced Engineering” and reported directly to the CEO. The Director of R&D spoke of the role of this group: “The Advanced Engineering group does a lot of marketing - like technical marketing. They spend an awful lot of time with sales people in the field ... This was a nucleus of people who created the concept for the product and are sort of technical visionaries of the company. And, so they're always looking at next generation ... they do a lot of studying technologies ...they're sort of looking out and saying, this kind of technology is going to be available 9 months from now, a year from now, 2 years from now. Anything you do should allow for that to be integrated or incorporated because you'll get cost savings or performance enhancements” In cases where new products have to work with or interconnect with other products (which is common of many electrical, computer hardware and software, and telecommunications products), the development of standards for such interconnections is critically important. It is common for technical personnel to be on standards-making bodies or when de facto standards are important, for technical personnel to assess the approaches and probabilities of various alternatives becoming the accepted standard. The R&D manager at a different telecommunications spoke of the importance of understanding likely standards: “The decisions on what the base product looks like was done in close cooperation with [a European national telecommunications company]. [Our parent company] and [National Telco] historically had a very close relationship, but they knew there were other places they would sell it as well. Over here, it was pretty obvious that we needed a set of U.S. interfaces, there are some industry bodies that put out some standards. So it was a matter of looking at those and guessing which of these interfaces that were being defined were probably most important to the U.S. and getting some of that work started.” In other situations it is necessary to understand the underlying science and probabilities of various capabilities becoming available. For example, the VP of R&D (who had a M.D. degree) at a drug company noted: 7 “In our environment, what you really need to have is a vision of where medicine is going to be in the future. And, there's much more R&D input for that than marketing input. ... for new product development, should we be in gene therapy or should we not. That's 95% an R&D issue.” Similarly, at another drug company a director of R&D (with a Ph.D. in biochemistry) explained the low importance of marketing input in the earlier stages of drug development: “We obtain a wide funnel of opportunity to examine very quickly - to define what the key checkpoints are for that compound for us to consider taking it to become a product, and we will drive forward with a minimal development program to reach these key checkpoints. The marketing input usually at that stage, is minimal - ... because most decisions are based on scientific rationale and medical need.” Finally, a VP of R&D at a large telecommunications equipment firm spoke of the need to get direct input from key customers in order to avoid losing information: “You want to get people like in my systems engineering organization, even from my R&D organization to talk to them. Technical people in the company. Otherwise you just get too many layers of interpretation between what the customer asks for. You get the product manager’s interpretation and then the systems guys’ interpretations and the software guy’s interpretation of what the system guys asked for. And you’re really lucky if you’re any place close when you get done.” Technology-Oriented Cultures In addition to (or perhaps because of) the need for technical expertise in order to understand business opportunities, high-tech firms often develop organizational cultures which place a high value on people with technical skills. In this section we first document the high status of R&D personnel in many high tech firm. We then consider two factors which may contribute to and support such a culture: the identification of many people in the firm with the professional community of which they are a part and the need for technical expertise in the start-up and early growth phases of many high tech firms. High Status of Technical Personnel in High Tech Firms: It is common for the founders of high-tech start-ups to have technical backgrounds and for marketing and sales to have a secondary status in the early developmental stages of the firm (Kazanjian 1988, Dubinskas 1988). For example, the marketing manager for the nuclear power services firm said: “Everyone at {my firm}, except maybe the human resource people, are all engineers. All but one person in my marketing organization had an engineering degree. ... It's partly a credibility issue. An engineer will be more willing to talk to you if they think that you'll understand it. They 8 wanted the word engineer in our job title.” In another case, a marketing manager at a telecommunications company indicated that an engineering degree was required to be a product manager. It is common for people in sales and marketing positions in high-tech firms (especially in computer and electronics-based industries) to have job titles using the word ‘engineer’ (e.g., product marketing engineer, systems engineer, applications engineer, field sales engineer.) In another case, a marketing manager with an MBA from a Top 20 school spoke of his inability to work in the product marketing group at his firm: We're an engineering-driven firm, culturally and so you have engineers in the marketing position. It's a requirement actually. In fact there are open positions right now and I'd consider it except I'm not an engineer and I've no interest in doing product marketing under that guise. In this case, the product marketing group reported to the R&D manager and primarily were involved in product development issues while the marketing people primarily did marketing communications activities (e.g., advertising, trade shows, brochures, training) for products after they were introduced. Identification with the Professional Community: In many high-tech industry sectors, it is common for top managers in the firm to feel a strong identification with their professional communities (e.g., IEEE, American Association for Clinical Chemistry, American College of Cardiology). Particularly when a large number of potential customers are members of the same professional community, there can be strong institutional pressures for firms to have sales and marketing personnel as well as R&D personnel who are members of this professional community. Van Maanen and Barley (1984) use the term “occupational communities” to capture professional ties to communities beyond the firm’s boundary and argue that people with professional training may identify more closely with the profession than with the firm for whom they work. This close identification with the profession can lead to most of the firms in a given industry sector being organized in similar ways with R&D personnel having a higher status and more power over product development decisions than marketing personnel. In organizational fields with strong profession ties, it is common for people who switch jobs to stay within the same industry sector. Additionally, people often move from being users or buyers of a 9 technology to being an employee of the supplier of the technology. For example, the R&D manager of an instrument company explained: "The president of the company worked for a number of years at Oak Ridge National Laboratory and then worked for [another firm] when they were doing a NASA project -- a weightless chemistry analyzer for use in the Space Lab. So he was very familiar with what clinical chemists were dealing with as far as what kinds of tests they wanted to have” This “revolving door” is also observed in Washington, D.C. (particularly in military procurement) where many former governmental officials who understand decision making processes move to the other side of the negotiating table when they leave their governmental positions. As proponents of institutional theory have argued, this job rotation and identification with a professional community can lead to a similarity among firms within an industry sector of job titles, organizational structures, task allocation to organization units, and organizational cultures, even if it is not completely rational and may no longer meet the demands of the environment (e.g., Meyer and Rowan 1977, Powell and DiMaggio 1991, Scott and Meyer 1994). To survive in such an environment, marketing and sales people often play up any ties they have to this professional community in order to be perceived as being more credible. For example, one sales representative at a computer company said: "When engineers came to the field, the first thing I would do to build rapport would be to let them know that I was an EE [Electrical Engineer]. That would bring a real different perspective. It would let them know, ‘Oh, you're one of us.’ .. You'll never be considered as bright or as capable if you're not an engineering-type." Additionally, it is common to hire people with the relevant professional degrees to serve in key marketing and sales positions in companies competing in high tech industries. A Need for Technical Skills in the Start-Up and Growth Phases: An additional factor which can lead to technology-oriented cultures in high-tech firms is the need for technical skills in the earlier phases of the development of the business. Before sales are made, it is necessary to develop prototypes and prove that the technology will work. In some industries like biotech, there can be a delay of as much as ten years before significant revenues are achieved, due to the prolonged clinical trials phases mandated by 10 governmental agencies. Due to this need to first establish feasibility and performance, it is common in the start-up phase of many high-tech firms for a high percentage of the employees to have technical backgrounds. For example, in one biotech start-up, there were over 150 people in the R&D side of the business but only one person in “business development” who handled the marketing and sales tasks. In another case, the six founders of an instrumentation company consisted of two people with Ph.D.s in ElectroChemistry, two mechanical engineers, one electrical engineer, and one person with a sales and marketing background. While such an emphasis on technical skills early in the life cycle of a new firm or a new organizational sub-unit may make sense, there may be a need for a transition to more of a commercial or business perspective as products enter the market. Kazanjian (1988) and Roberts (1992) have found that more successful firms tend to have a change in emphasis from R&D to marketing as products enter the market or as firms expand beyond their original niche in the market. A VP of marketing at a software firm spoke of the need for such a transition: “{Our firm} has a desire to be market-oriented, but right now it’s very technology-oriented. It’s partly because of the CEO’s background and partly because you put a product in a market and you can take a company from 0 to $75 Million [in sales] solving one problem with one particular type of buyer. But then our CEO wakes up and says, ‘OK, we made it past that hurdle, now we’ve got to keep moving forward so now is the time to invest a lot more into marketing and see how we might broaden our market.’ So we’re kind of at a crossroads now.” While these transitions may be necessary, in some cases it can take a very long time to change the technical culture. A VP of strategy at an established telecommunications firm spoke of the difficulty in changing the organizational culture: “We were in business for twenty years before we hired our first marketing person. And he got here and had no one to talk to. They were all engineers. And still today, there are very few marketing and sales-oriented people here. It's very engineering-driven. So what you had was a place, like I think many of these technical places are, that are optimized for technical people to go off and do innovative things.” The Way in Which Marketing is Defined in High-Tech Firms A third factor limiting marketing’s role within the firm is the way marketing is frequently defined within high-tech firms. While most textbook definitions of marketing emphasize activities and processes, 11 there is a common assumption that tasks such as understanding customer needs, interacting with customers, doing market research, and managing products are marketing activities. However, in many high-tech firms it is common that many traditional marketing tasks may be performed in other groups. No doubt the allocation of tasks to functional groups is influenced by the two factors discussed above -the need for technical expertise and the technology-oriented cultures. Thus, in many high-tech firms the product management function is not part of marketing but rather part of the R&D organization. Customer service and support units are typically part of the sales organization and the primary tasks of marketing in many high-tech firms consists primarily of marketing communications. The term ‘marcom’ is commonly used in high-tech firms and refers to such communication activities as doing trade shows, developing and placing ads in trade journals, coordinating direct mail and lead generation, developing brochures and literature, training the sales force, and doing press relations activities. In this section we briefly consider the low status of marketing and reasons for having product managers outside the marketing organization. Low Status of Marketing: One of the more important concepts which has been discussed in the strategic literature is the concept of core competencies. Managers in many high-tech firms are more likely to identify R&D as a core competency than marketing and sales. Due to the reasons discussed above, this can lead to a “dominant logic” (Prahalad and Bettis 1986) around R&D which leads to marketing having a relatively low status in the firm. As Leonard-Barton (1992, p. 117) has argued, “A business generally recognized for certain core capabilities attracts, holds, and motivates talented people who value the knowledge base underlying that capability.” This can lead to a reinforcing cycle where the best engineering students go to work for high-tech firms while the best marketing students do not desire to work at these firms. Examples and quotations of the low status of marketing abound in the interviews. For example, one person who used to work as a project manager at Sun Microsystems said: “My impression was that marketing was as low, as far as respect goes, as human resources. I 12 think its because at Sun Microsystems, everything is very engineering-driven.. I don't remember marketing people coming to a whole lot of meetings in the early stages of project I worked on. They didn't even call marketing until later on in the process, until they actually had products that worked. Then they'd say, ‘Oh I guess we'd better get marketing in here.’” Another person who had worked in marketing at a chemical firm spoke of the difficulty in getting access to people in R&D: "This company was very technical. Always been technical, not very marketing-oriented. .. R&D people, all the way up to the VP, saw R&D as a haven to create new products, for themselves, in a vacuum, without marketing. R&D was a 10 minute car drive away. They were inside the factory, whereas marketing was outside the factory. We had a difficult time getting access to them.” Given this relatively low status of the marketing functional unit, it is common in high-tech firms that “marketing tasks” that are more closely related to R&D such as product management may be shifted out of the marketing unit. Similarly, astute managers may realize that they may be more effective doing such activities as customer service, applications development or support, or marketing research if they are not part of the marketing unit. We now consider the case of one of the functions that is frequently moved out of marketing, the product management function. Product managers outside of marketing: In many of our interviews, managers mentioned that product managers were part of R&D rather than marketing. In some cases there was a division of responsibility for product management with product managers in R&D responsible for products under development and product managers in marketing responsible for products which had been introduced. However, in other cases there was no such shift of product management functions to marketing once products were introduced. One reason for having product managers in R&D is the short product life cycles of many high-tech products and the fact that a high percentage of the product managers time is devoted to working with R&D in product development and introduction. For example, in one computer firm a marketing manager said: “We have traditional product marketing and they're in the plant ... there are a lot of engineers who are in product marketing which makes sense because they understand the engineering schematics and diagrams and they know [the technology] and things that I wouldn't know as a 13 non-engineer.” In contrast, in many consumer packaged goods firms, the largest percentage of the product manager’s time is devoted to advertising and promotion (Quelch, Farris and Olver 1987, p. 51), activities which are not as critical to a product’s success in high-tech firms. A second reason for having the product management function in R&D is that many high-tech products are modular systems which are then adapted to specific applications and types of customers by marketing and sales groups. In these cases, the focus is on coordinating the parts of a complex system. One manager of a telecommunications firm spoke of the complexity of systems products: “When you're talking about products that have to communicate with other products and work as a system rather than a box, they must have the same syntax or interaction and it must all be managed centrally. They have to have protocols among them with flow control, and they know where each other are, and it gets very, very complex. By being in R&D, product managers can better help R&D make trade-offs of what aspects of the product should be “hard-wired” and common to all market segments and which aspects should be left to be adapted by sales and marketing groups for specific industry sectors or specific types of applications. In a third case, program or project managers rather than product managers are used, report to R&D or engineering managers and manage the overall business aspects of a project. For example, at one pharmaceutical firm, a program manager explained: “The scientists are called upon to do more than just go into their cubicle and think about clinical development. As project leaders, you're in charge of your budget basically and you've got to meet the bottom line in your budget or you're going to hear about it.” Such project-based structures has also been historically used in the aerospace and automotive industries. Thus far in the paper, we have considered factors which can lead to marketing having a limited role in product development decisions. We now consider contributions marketing can make. Contributions Marketing Can Make to Product Development As was discussed above, there are a variety of ways to organize the groups responsible for traditional marketing activities. In this section we use the general label ‘marketing.’ However, we are concerned 14 with the contributions of people who are responsible for spanning the boundary between “the market” (broadly defined) and R&D groups. The types of groups which may be responsible for all or portions of this boundary spanning activities include marketing, sales, product management, market development, strategy, business development, and commercial development. We now consider three of the key contributions marketing can make to product development: (1) market assessment and development, (2) interpretation and synthesis of market feedback, and (3) adaptations of the products and explanation of benefits for specific market segments. Market Assessment and Development One of the more important tasks of marketing is to assess the size of a market opportunity. As Dougherty (1992) has noted, R&D people are much more concerned with what the product should do and what customers want and often fail to consider whether there are enough potential customers and whether they will value the product enough to make it a viable business opportunity. Market assessment is an iterative process of understanding what types of capabilities might be delivered at various price points and estimating market size for various product concepts. A market development manager in a drug company discussed this task: “Marketing begins to get involved at the disease state. Once you define a compound, there may be an opportunity for it to be used in Alzheimer’s, for dementia, for emesis - here's your possibilities and usually they're very broad ... at that point, you can say well here's the marketplace and the greatest opportunity is here. This disease area has 12 million people, this disease area has 500 people and the one with 12 million, it kills people - so it's a matter of unmet needs.” Related to market assessment is market development which entails working with potential partners such as distributors, potential joint venture partners, and suppliers of complementary products to develop an infrastructure which will facilitate the product’s acceptance (Rosen, Schnaars and Shani 1988, Van de Ven 1993). For example, an R&D manager at a telecommunications firms discussed the need for business development activities: “Business development basically goes out and tries to dig up new opportunities to utilize the technology. An ideal thing would be the ‘cinema of the future’ project we’re working on right now. There was no market there that we could go market to. So what they did was they 15 developed a market, worked it, and now we’re into the point of almost establishing that the market exists. Then we can actually go and market to it and have different people buy it.” Because many high-tech products are (a) embedded in products which are resold, (b) part of an interconnected system or (c) depend on complementary products, there is also a need to work with providers of the other products. While many of the technical details may be handled by R&D personnel, it is common for marketing people to manage these external partnerships and engage in the activities which help facilitate the development of the market. A marketing manager at a telecommunications firm said: “Everybody in the world wants to get into ‘Video on Demand.’ However, the conglomeration of partners that are necessary is extensive. In VOD, Bell Atlantic is arguing right now with AT&T, they’re not going to be the systems integrator. They’re going to get maybe NYNEX or somebody else to work as a system integrator. Well, if you do that, what does that mean to a project when you try to do a set-top, access, some control mechanisms, some video information providers, plus the switch fabric in the middle of it somehow. And get them all to build to the specifications that’s going to deliver a true product at the end.” Given this need for a whole set of companies to work cooperatively to define standards and develop parts of a larger system which must interconnect, it is commonly the responsibility of people in marketing to facilitate the development of these external partnerships. This is in line with Webster’s (1992) argument that the role of marketing is changing from optimizing marketing mix components at the product level to a role of managing relationships with external companies in the value chain. Interpretation and Synthesis of Feedback from Customers, OEMs, and Distributors For the reasons discussed earlier in this paper, it is common in high-tech firms for R&D personnel to receive direct feedback from key customers, from OEMs, and from distributors (we will use the term ‘business partners’ in this section to refer to current and potential customers, OEMs, resellers, agents, distributors, etc.). However, marketing can play a key role in helping to facilitate and interpret this exchange of information. In many cases marketing managers help set up forums which provide for the interaction between R&D and business partners. This can include having R&D people go along on visits to customers, taking key R&D people to trade shows, and having organized feedback forums with groups of business partners. However, as Dougherty (1992) and others have noted, one of the risks of such 16 direct interaction is that R&D people often think in concrete terms (‘the customer said he wants this’) and often do not consider whether this customer is typical or whether there are enough of them to make a viable business. A director of product management at a telecommunications firm brought up this issue: “I don’t like putting R&D people with customers. Because they get the idea that this particular customer is the only customer that there is. Rather than thinking of a solution that fits many sets, they think of the solution that fits that set.” In spite of this resistance, the R&D director in this firm insisted on having direct contact with key customers in order to not lose information. Another key role marketing can play is to synthesize feedback from a range of accounts, identify the common needs for specific market segments, and help prioritize features and help in design trade-offs. An R&D director at a different telecommunications firm talked about the prioritization and trade-off process: “Marketing comes to Engineering with a wish list - this is the ideal product that they would like to have. And, typically they want more than technology can deliver at a lower cost than we think we're able to build it at. So, you then get into a negotiation phase -- We think this feature costs X dollars and that one Y dollars and the combination does this. This is how much flexibility costs you and this is how much performance costs you. Recently we had to line those numbers up and go into a room and try to talk about it. But, we ended up with our CEO helping us -- because there's going to be some tough decisions and so we very often end up with our CEO, our VP of Sales, our VP of Marketing, and our VP of Technology involved.” In other cases marketing and R&D managers talked about trade-offs and decisions about schedules as well as functionality, product cost, and development budget. As one manager phrased it, “Performance, Cost, Schedule - you can have two out of the three.” One strategy in software firms is to group various features in different releases of the software, with marketing input often being used to decide which features are more important and must be included in the next release and which can wait. Explanation of Benefits and Adaptations of the Products for Market Segments Finally, for many high-tech products, one of the key contributions of marketing is on the ‘outbound’ side of taking a new product to market. This can involve the typical marketing communications activities with an emphasis on explaining the benefits of the new technology or product for customers. Since hightech products are often products which are pushing the state-of-the-art, there is frequently a need to 17 educate potential customers and explain the benefits of the new technology. In one case, the marketing manager at an instrumentation firm spoke of the educational effort for a new product they developed: "The product line evolved because we looked at what the customer was actually doing. They were looking for electrolyte measurements and blood gas measurements in the same environment. But when you asked them, would you like a blood gas analyzer that also does electrolytes, they universally said no. Because those two things are so separated in the clinician's mind. However, when we actually gave them an analyzer that did that, they suddenly found that that was a major benefit ...now it takes four instruments from our competitors to make a comparison with our one.” In addition to translating features into benefits, for many products which are new to the market, marketing often has a key role in helping determine the value to the customer, helping to set the price level, and then explaining the value of the product to customers. On several occasions in biotech and pharmaceutical firms, marketing managers spoke of helping design clinical trials which would not only get FDA approval but would also provide data to show the value of the drug to managed care providers. A marketing manager at one such firm spoke of the need to quantify the value of the drug: “When you go to an HMO, they want to know ‘If I give this patient the drug, what is the outcome and what are the costs associated with that outcome?’ So, pharmaco-economics is an evolving science which tries to describe those two pieces. We have a drug that's used in surgery and it has a very rapid recovery profile. Now, anesthesiologists like that - the patient comes to quicker. What we tried to characterize is the value of that in dollars and cents. Because if you can move a patient out of intensive care areas into less intensive care areas, that is a cost savings for the system.” Since many high-tech products are modular and flexible and can be applied in different configurations to different applications, another role of the marketing groups is to adapt the products to the needs of different market segments. This may involve working with other business partners to be sure the product works with components, software, peripherals from other firms which are needed to apply the product to a given application. If the needs of different market segments are significantly different, this may also be information which can help R&D design a more modular or flexible product which can then be customized through value-added activities of sales and marketing personnel (or by resellers and distributors) at later points in time. 18 Antecedents and Consequences of Marketing’s Limited Role With this background on factors affecting marketing’s role in the firms we studied, we now develop propositions of antecedents and consequences of marketing having a limited role in product development decisions. We groups these propositions by class of independent or dependent variable. Project characteristics The first set of antecedents we consider are characteristics of the project itself. There has long been a distinction between radical and incremental innovations and there has recently been greater interest in “really new products” and the ways in which this affects the product development activities (Wind and Mahajan 1997). Based on our observations, we propose that: P1: The more radical the innovation, the less significant is marketing’s role in new product development A second project level characteristic is the time the product will take to develop before it enters the market. Some projects may take a matter of months while others may take as long as a decade (e.g., new drugs) . It has been noted by Lawrence and Lorsch (1967), Dougherty (1992), and others that marketing tends to have a shorter time horizon than R&D. The importance of this varying length will be more significant for projects with long development times: P2: The greater the length of the time before a new product will enter the market, the less significant is marketing’s role in new product development. Firm characteristics In addition to the project specific factors, there are also factors common to all projects within a firm which can affect marketing’s role in product development decisions. One of the more widely studied firm level characteristics is the composition of the top management team and the effect this may have on various aspects of organizational decision making (cf. Hambrick and Mason 1984, Gupta and Govindarajan 1984). Based on our earlier discussion of the technology-oriented cultures in many high tech firms, we propose: P3: The greater the technical experience of the members of the top management team, the less significant is marketing’s role in new product development. 19 Related to the overall culture is the life cycle stage of the firm. Empirical research by Kanzanjian (1993) and Roberts (1990) has noted that high tech start-ups tend to be dominated by managers with technical backgrounds, with marketing and sales taking on a greater role as products are commercialized or as the firm expands beyond its initial market. We thus propose: P4: Marketing’s role in new product development will be less significant in the earlier stages of the life of a high tech start-up firm. Finally, based on our earlier discussion that marketing often has a limited role because of the way in which marketing is defined within high tech firms, we propose: P5: The greater the dispersion of responsibility for marketing activities, the less significant is marketing’s role in new product development. Business environment characteristics Thus far we have considered antecedents within the boundary of the firm and thus presumably under control of managers within the firm. We now consider business environment characteristics which will affect all firms operating within that business environment. There has been extensive debate, yet relatively little empirical testing of whether “high tech marketing” really is all that different (e.g. Davidow 1986; Moriarty and Kosnik 1989; Workman 1993). One indication that marketing may play a smaller role in product development decisions in high tech firms is reported by Piercy (1986) who found that new product development was more likely to be controlled by R&D when new product development was one of the top two critical success factors in the firm. Conversely, marketing was more likely to control new product development when it was not one of the top two success factors. One characteristic of high tech environments is the rate of technical change within the industry. We propose: P6: The greater the rate of technical change in the business environment, the less significant is marketing’s role in new product development. An additional environmental factor which has been shown to affect organizational structuring is the nature of the customer’s buying process. To be successful, firms must adapt to provide the types of information desired by their customers and must listen to and make trade-offs among the concerns of different members within the customer “buying center.” In some sense, suppliers’ organizations must 20 mirror those of their customers in order to facilitate inter-organizational information and physical product exchange. We thus propose that: P7: The greater the extent to which purchasing decisions are influenced by technical personnel, the less significant is marketing’s role in new product development. Finally, in industrial marketing situations it is common that technical personnel within the supplier’s organization play a greater role in interacting with key customers and directly learning of market requirements (Hutt and Speh 1992; Workman 1993). In a survey of 252 large U.S. manufacturing firms which focused on marketing and R&D interactions during new product development, Hise, O’Neal, Parasuraman and McNeal (1990) found that marketing had a greater role in development decisions in consumer firms than in industrial firms. Thus, we propose that: P8: Marketing’s role in new product development is less significant when selling industrial products. Consequences While we did not extensively consider consequences of varying marketing involvement in our interviews, we believe that researchers empirically examining marketing’s role in product development should also consider various outcomes. We thus offer two illustrative propositions concerning consequences in order to highlight the importance of considering outcomes in empirical research. First, we observed that in many cases technical personnel desire to interact with technical personnel in key customer accounts. However, as we indicated in our discussion of marketing’s contributions, R&D personnel often have a difficult time looking across customer accounts and market segments and making the trade-offs essential to developing products which can serve a variety of customers. This has also been noted by Dougherty (1992), who noted that technical personnel tend to think in a more literal sense and not at the level of abstraction more common of marketers. We thus propose that: P9: The more highly involved R&D is with customers, the more narrow the scope of needs satisfied by the new product. Second, we consider an interaction effect where higher levels of marketing involvement in product development leads to success in lower tech markets but not in high tech markets. Many of our 21 informants rationalized the lower involvement of marketing by claiming that in high tech markets, R&D should play a greater role in product development. This is also the argument put forth by Workman (1993) based on ethnographic study in one high tech firm. We thus propose: P10: The greater the extent of technology change in the business environment, the lower the relationship between marketing role in new product development and new product success. Discussion and Implications The goals of this article were to identify factors which may contribute to marketing’s limited role in product development in high tech firms, to explore key contributions marketing can make to product development, and to develop propositions identifying antecedents and consequences of marketing having a limited role in product development decisions. One theme which ties together the three factors which can contribute to marketing’s limited role (technical expertise needed to understand opportunities, technology-oriented cultures, the way in which marketing is defined) is that the issues are organizational and cultural. While some scholars may argue that it doesn’t matter what firms call the activities as long as they do the right activities (“they don’t have to call it marketing as long as they are doing marketing”), we would claim that it has important implications for how we study high-tech firms and how we train and prepare students who will work in such firms. To the extent that our theories and textbooks are out of step with organizational reality in many high-tech firms, we may be doing a disservice to our students who are not prepared to work within a technology-oriented cultural environment. One implication following from this research is that marketing’s role in product development can be expected to vary based on how marketing is defined within the firm. Prior research on the role of marketing (e.g., Achrol 1991, Johne and Snelson 1988, Webster 1992) has not really addressed the issue of varying definitions of marketing across firms. To the extent that the firm has a technology-oriented culture, many of the key “marketing tasks” may be done outside of the marketing department, since people in these firms realize they may be more effective and have more power if they are in groups outside of marketing. At a conceptual level, it is important to keep distinct terms such as market 22 orientation vs. marketing-orientation and being market-led vs. marketing-led. While most of the research on market orientation has been careful to avoid linking market orientation to power or status of functional groups, it is very common for managers to speak of firms being marketing-oriented, technology-oriented, or technology-driven. We must recognize that many high tech firms may be close to their customers and doing the right activities, but that many of these activities may take place outside of the marketing department. From a normative perspective, an understanding of the culture and decisions processes is important in order to provide guidance to managers in how they should act. A marketing manager with a background in consumer packaged goods moving into a marketing position in a high tech firm may be unprepared for the challenges of operating in an organizational environment where marketing may have a very different role in product development. Rather than leading the process, it may be necessary to adapt to an environment where influence is exerted indirectly. A second implication is that in many high-tech firms, the most effective managers may be those who have a good grasp of both the technology as well as marketing and business issues. However there has been relatively little study of how to best develop these dual-skill sets. Firms have taken a number of approaches in developing these skills. One is to simply hire people with technical backgrounds for the sales and marketing positions. However, these people are often forced to learn the basics of sales and marketing on the job. Some firms have developmental programs, where people are hired into marketing or sales positions, but spend an internship period in R&D or a training period with rotation through several job positions. The goal is often to learn the basics of the technology but an important side benefit is the establishment of interpersonal ties to the people on the technical side of the business. Another option is to recruit students which what Business Week (1994) has called “techno-MBAs” - MBAs with undergraduate degrees in technical fields or with a combined masters degree in business and engineering. Finally, it may be desirable to encourage people to rotate through job positions in both engineering and marketing over their careers. While this approach has been successful in many large Japanese firms, some people have noted that this approach may be less appropriate in U.S. firms where there are no life23 time employment commitments and the investment in job rotation training may be lost if people leave the company. Finally, this research points to the need to have more in-depth studies of how marketing activities are organized within high-tech firms and the role of various groups in product development decisions. If the issues are primarily cultural and organizational, then qualitative research methods may be most appropriate for describing the organizational cultures, the ways in which tasks are allocated to organizational groups, the meaning of terms to people, and the subtle ways in which groups influence product development. Deshpande and Webster (1989) have recognized the need for a greater attention to cultural issues in marketing and identify several topics that may best be studied through qualitative research which seeks out ‘native views’: "Among the many interesting issues that marketing researchers might examine using this 'native views' concept of culture are conflict between sales and marketing departments, cooperation between R&D and marketing departments in the development of new products, and assignment of sales representatives to customers on the basis of ethnic, regional, or professional background similarity.” (Deshpande and Webster 1989, p. 6, italics added) While there have been qualitative studies which have examined cross-functional interactions in product development (Ancona and Caldwell 1992, Bucciarelli 1988, Dougherty 1992, Dubinskas 1988, Workman 1993), most of this research has been done outside of the marketing field and the insights have not been well integrated into theories about marketing’s role in product development in high-tech firms. 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