Introduction Case Study 6: Hypothesis-testing practice-oriented research

A firm can successfully develop, manufacture, and market new products if the firm’s resource-based capabilities are properly used. With our research we wanted to contribute to the strategy of a leading European firm that develops, produces, and markets high- technology electronic products of relatively short product life cycle. This firm needed to be able to develop new products and launch them on the market successfully. It was interested in an assessment of whether its current resource-based capabilities were sufficient to allow it to do so. The objective of our research, therefore, was to assess whether there was a problem with this firm concerning its capabilities to design and launch new products problem finding and, if so, to specify the problems.

11.2.2 Hypothesis

In order to achieve this objective we were keen to make use of a theory that we had developed that states that a firm’s strategic flexibility is deter- mined by its operations flexibility. The concept of strategic flexibility relates to how flexibly the firm can react to demands of the market. We define this type of flexibility as a firm’s capability to introduce new products on the market at the right moment. We assumed that the earlier a new product with a desired level of attractiveness, quality, and price is introduced, the higher is the resulting market share. We define oper- ations flexibility as a firm’s capability to develop new products in a short time. We assumed that the degree to which standard designs are reused for components in a new product has a direct inverse relation to the time required for the development of the new product. Based on these theoretical notions we formulated the following hypothesis: Hypothesis: The degree to which standard designs are reused for components in a new product in this firm has a direct positive relation to the market share of that new product. Our hypothesis formulates a relation between the degree to which standard designs are reused in the process of product development in this firm and the resulting market share. If this hypothesis is proven to be true, the firm is able to draw a conclusion from it regarding its current resource-based capabilities to design and launch new products. We could only test this hypothesis by using the firm’s expertise and experience regarding the development process of new products as well as regarding the market on which new products are introduced. 234 We wanted to represent this expertise in a computer model of this firm’s product development process and of the market in such a way that we would be able to: 1. generate scenarios with different percentages of components of new products, for which standard designs were reused, in order to estimate the degree to which a shortening of the development process would occur, and 2. generate scenarios with different timings of the introduction of new products, as well as the attractiveness and price of these products, in order to estimate the resulting market share. We would then determine what level of reuse of standard designs would be required in this firm to produce new products of sufficiently high attractiveness, and at sufficiently low cost, for introducing them at a sufficiently low price to the market, at the right moment. Finally, we would deduce from our model of the development process of new products whether the required level of operations flexibility was pres- ent in this firm.

11.2.3 Measurement

We first explored the firm’s situation by arranging a “focus group” con- sisting of two senior managers from the functional area of product development. Although these two managers belonged to a single func- tional area, their background was different. The expertise of one was in marketing, whereas the expertise of the other was in technology development. Because they also knew other functional areas of the organization very well, they were able to represent those areas with an integrative view. We had meetings with this small group in a relaxed and informal setting in which we could optimally tap their knowledge and expertise. In the group sessions, we explored the nature of the market as well as the kind of competencies required from different functional areas. It was discussed whether the new product strategy of the firm was technology driven or market driven. An inventory was made of the activities in this company that are involved in creating, producing, and marketing new products. In a second stage of exploration, information was collected from vari- ous team leaders of product development projects, and from managers in marketing and technology development. We also reviewed relevant documents and publications concerning production attributes, tech- nology, product portfolio, and market position of competitors, as well as their competencies. Subsequently, in group discussions with team