MANAGEMENT AND DESIGN COLLOQUIUM

From new technologies to profitableproducts

S.L.H. Clarke, D.E. Hooper, J. Clement-Jones and G.N. Taylor

Indexing terms: Engineering administration and management, Production engineering, Project and productionengineering

Abstract: The papers of four contributors to the Colloquium 'From new technologies to profitable products'are presented. They discuss the advantages and disadvantages of new technologies, their exploitation, interceptstrategy and funding, through to new products. The discussion at the Colloquium is summarised, concludingwith the importance of timing, the product brief and the need for profitable products.

Advantages and disadvantagesof using new technologyS.L.H. CLARKE(Alvey Directorate)In considering the advantages and disadvantages of usingnew technology, one must first decide whether one meansbrand new technology or just 'the newest accepted tech-nology'. There may also be different views dependent onwhether one is considering the use of tools or the incorpo-ration of similar techniques in new products. One thing iscertain, that in the long run one cannot afford not to usenew technology.

To end on an optimistic note, one must start with thebad news. There is always a risk in using brand new tech-nology. To be second (or third) in the field will make lifemuch easier and more predictable. This may cause a realloss of market position for product development but isunlikely to have a long-term effect in tool use. It is all tooeasy to 'get it wrong' first time, at least to some extent.With a product one may 'get it right', but be too early forthe market.

A major problem of pioneering the way up the learningcurve is that one is showing the way to one's competitorsand opening up the market for them to exploit. Wherestaff acquire new skills they will command a high premiumin the labour market, and the company first in the fieldwill lose many of them.

There is also a danger of getting locked into an imper-fect technology through not having an overall strategy atthe time new technology was adopted. This is almost inevi-table as all the implications of using new technologies willnever become apparent until user experience has been gen-erated. With new products this may also lead to beinglocked out of emerging standards. This will very rapidlylose any initial commercial advantage.

It must be remembered that, even when adopting estab-lished new technology, there will be an exposed period atchangeover.

On a different scale one must not forget that using newtechnology will almost certainly result in lower employ-ment for the company (although the product may generateother employment). All mechanisation has had this effect,

Paper 4195A (Ml, C3), received 6th August 1985

IEE Colloquium held 3lst May 1985 at the IEE, Savoy Place, London WC2R OBL,United KingdomOrganised by the Design Group Ml, IEE Management & Design Division, cospon-sored by PG C3, Information networks, in association with the Design CouncilSummary co-ordinated by C.F. Amor

with agriculture and motor car manufacture being typicalexamples. However, this is not really part of the 'bad news'in the field of design, because these are the areas whereacute skill shortages are developing. New technology mayprovide the only answer to our need for some categories ofstaff.

The advantages of using new technology are easier tounderstand because, unlike the disadvantages, they werethe actual aim of the developers. In the field of materials,components and techniques the technology has been devel-oped to make products cheaper, better and more reliable.Such advantages may be marginal, or they may be so dra-matic that the old technology dies in a very short period.

More difficult to predict, and even sometimes tomeasure, are the benefits of using information technology.The use of computers for design, engineering and manage-ment can bring benefits which are becoming vital intoday's world market. The ability to be more flexible, toachieve a faster turn round using past experience anddesigns, enables designers to respond to changing marketrequirements. Designs can be simulated and checked inorder to 'get it right'.

The 'good news' is shorter but, in the end, it must out-weigh the disadvantages. The caution to be exercised over'first use', particularly in new products, requires a clearindication of great potential for commercial benefit.

New technologies and productopportunitiesD.E. HOOPER(GEC Hirst Research Centre)

1 Essential elements for exploitingtechnologies

Attempts to codify those activities which can be importantin the successful exploitation of technologies identify thefive crucial elements shown by the circles of Fig. 1. Ingeneral, it is necessary to traverse a mix of communica-tions paths (heavy full or broken lines) to achieve an eco-nomically viable result. The simple-minded clockwiseprogression (full lines only) is usually inadequate in itself.

It is important to understand the characteristics of thefive crucial elements. In summary these are:

(a) New product ideas represent a high level of innova-tion, either in absolute terms or as a new departure of theorganisation. The sources of new product ideas may belocated within cells anywhere in a company; subtlety and

IEE PROCEEDINGS, Vol. 133, Pt. A, No. 1, JANUARY 1986 71

luck are needed in establishing these cells. One innovation,however, usually generates another, and the presence of

marketingfunction

new .product ideas^F

enablingtechnologies

marketintelligenceand selling

engineering forvdemonstrator,or prototype '

manufacturing\capacity

research anddevelopmentfunction

manufacturingfunction

qualityfunction

Fig. 1 Crucial elements in the successful exploitation of technologies

just one innovative individual can provide the essentialstimulus.

(b) Enabling technologies provide the new technicalenvironments in which product innovation can flourish.Because of the long learning periods involved, they mustbe in place before the product ideas can proceed. Theseactivities embrace a wide range of advanced engineeringand scientific disciplines, whose practitioners are in shortsupply.

(c) Engineering for demonstrators or prototypes is anessential discipline to show that the product/technologyinteraction is soundly based and to bridge the gap intoproduction. The demonstrator is a model having a ratherrelaxed specification, to 'demonstrate' what might be pos-sible. An interplay is needed between new concepts andolder disciplines.

(d) Manufacturing capacity involves having the rightplant, skills, QA etc. available to manufacture and test theproduct.

(e) Market intelligence and selling involve the complexsocio-economic tasks associated with the customers: theirneeds and their ability to pay.

All of these elements need to be staffed with skilled peoplewho are in short supply, despite the unemployment sta-tistics.

Those normal organisational entities of industrialactivity:

(i) research and development function (R & D)(ii) quality function(iii) manufacturing function(iv) marketing function

each cover at least three of the crucial elements, and can beseen as the essential management structure which ensuresthat progression from one element to another is achievedin the necessary time scales. Substantial interdisciplinaryknowledge is needed to achieve success in these manage-ment tasks. The total structure will only work, of course, iftop management is receptive to product innovation.

2 Some consequences of getting it wrong

Inadequacies of any of the elements can impair the exploit-ation of the new technologies as products. Companieswithout the essential balance among the five elements havethree options:

(a) to invest in acquiring or improving the deficientskills

(b) to associate with other companies which make up

the skills deficiency. This is especially important for smallcompanies

(c) to go out of business.

Even if all the elements exist, it is not difficult to get itwrong by mismanagement; especially mismanagement ofthe time relationships. Establishment of the enabling tech-nologies and manufacturing capacity represents the largestinvestment in people, plant and time. By and large, onlythe larger companies can afford the necessary upfrontinvestments; the management of this investment is cru-cially important to the company, its smaller associates andthe country generally. This is recognised by recent researchinitiatives like Alvey and Espirit, which have directed thebulk of their support, quite rightly, towards larger com-panies.

3 Managing the investments

The obvious similarities between R & D, on the one hand,and manufacturing, on the other, are the needs for:

(a) long-term planning(b) large capital investments.

Less obvious is the fact that similar staff skills are sought;this is emphasised by the steady stream of bright peoplemoving from research laboratories to production plants,and, to a lesser extent, the other way. Simply maintaininghigh-yield production in, for example, a semiconductorplant requires the availability of large numbers of peoplewith a diverse range of skills in advanced topics; needlessto say, such people are rare. For these reasons, there is atendency to co-site development activities with productionunits. Research activities, however, are best kept separate.

This obvious approach to economising on capitalspending must, of course, be tempered with the essentialneed to allow researchers to operate somewhat differentlyto their production colleagues so that real innovation isnurtured. Many books have been written on the 'black art'of managing research, but there does not seem to be anyreal practical alternative to following a pragmatic oscil-lating course between the two undesirable extremes asshown in Fig. 2. Simply being aware of the dangers of

market pull

short term

tight projectmanagement

milestonesplanned

uncertaintiespredicted

project financiallyaccountable

license a viablealternative

objective

technology push

long term

benign projectmanagement

no time scale

no predictionof uncertainty

not financiallyaccountable

all researchin-house

= viableenabling technologies+ product ideas+ demonstrators

Fig. 2 Example of an oscillating course between two undesirableextremes

going too far one way or the other, and correcting fromtime to time, appears to help.

72 IEE PROCEEDINGS, Vol. 133, Pt. A, No. 1, JANUARY 1986

4 Conclusion

Initial concentration on the five crucial elements, plus theessential overlapping management infrastructure, can helpconcentrate the mind on the total problem of exploitingnew technologies to provide product opportunities. Thereis a role to be played by companies of all sizes, but theheavy investment needed suggests that the development ofenabling technologies and the establishment of manufac-turing capacity will increasingly be the role of large com-panies. Smaller companies may have a more importantrole in generating new product ideas.

Intercept strategyJ. CLEMENT-JONES(Head of Public Data Networks, British Telecom)These observations are about intercepting strategy fromthe point of view of computer development. However, thegeneral principles apply to any industry or business inwhich the underlying technology is changing regularly.

Within the computer industry, technology includessemiconductor development, magnetic recording develop-ment and software development, although the latter is stillmore of an art form than a science. If we look at the cost/performance curve for the semiconductor or magneticrecording industry we see improvement continuing (Fig. 3).

performance

Fig. 3 Cost I performance curve for the semiconductor or magneticrecording industry

If anything the rate of cost/performance improvement isincreasing.

It is also the case that the lead time in which 'improved'components arive on the market, once a given advance hasbeen made, is also shortening.

What this means, therefore, is that the traditionalprocess of product development (whereby we research ourtechnology, assure ourselves that it is stable, assure our-selves that a second source exists, build a prototype, try itout and then go to market) is no longer a successful strat-egy. First, by the time we have developed the prototypeusing existing technology, a more cost-effective technologywill have come on the market; which would invalidate anybusiness model built round the first variety. Secondly, oncewe arrive on the market with our prototype and testmarket it, then other suppliers will copy it, probably usingslightly better technology (they benefiting from our learn-ing curve) and as a result steal our market.

In order to stay ahead, in a commercial sense, andobtain an increased market share we need to find ways ofgetting ahead in the technology race.

One option is intercepting technology. If we look at thestandard price curve for a component we find they enterthe market at a fairly high price when scarce and thenshow a fairly rapid decrease in cost, providing the productis successful. (Fig. Ad). In order to build a product which

timea

timeb

timec

Fig. 4 Standard price curves for a component

intercepts technology we need to be doing the design andbuilding the prototype before it hits this part of the curveat point A (Fig. 4b). This will enable one to ride the pricecurve. It should be noted that as you go down the pricecurve, if it is a successful component or product, other sup-pliers will very rapidly enter the market producing a newlower curve just ahead of you (Fig. 4c). So those com-petitors who enter the market at point B will typicallyhave a problem in that they will be being overtaken by theimproved product available at the same time or just infront.

An example of a product that intercepted technology

IEE PROCEEDINGS, Vol. 133, Pt. A, No. 1, JANUARY 1986 73

was the ICL System 39 known as DM1. When this designstarted, based on Fujitsu C8000 chip technology, that tech-nology was not a commercial process. The design andproduct planning were based on projections. The result isa product with excellent features in terms of size, power,heat, cost and reliability.

The other option is to intercept the market. We canidentify market opportunities and use them to build aproduct which creates a new market. The PC businessgrew in this way to begin with; now it creates its own newtechnology.

An example of intercepting a market is the BT TONTOproduct, based on ICL's one-per-desk, which took existingtechnology and packaged it to meet an identified butunfilled market need.

How much to risk when following an interceptstrategy?

The more you change the more you risk. Identify alimited number of system components to change and holdthe rest stable. Or, as is probably the case, limit thechanges you make to them and make sure that those arelow-risk changes.

For example, if we are building a computer system withnew components, a new highway or backplane, a newoperating system and, while we are at it, we improve theprogramming language, then we have a receipe for unmiti-gated disaster. You should, as the more successful com-panies have done, hold some components, such assoftware, stable improving the hardware performance, ordevelop new software to run on the existing hardware insuch a way that you always have a reference back to theexisting software.

You should always have fallback for any technologyyou are intercepting.

The market now moves so rapidly that you must almostalways identify the Mark II product before you have fin-ished the Mark I. The market window is now typically twoyears before competitors enter the market and they do nothave to go through your learning curve.

Bubbles are an example of an intercept which did notgo well. Winchesters have got ahead of them and havedone better. You could argue that this is because thebubble technology was inherently unsound or that theinvestment in making discs competitive was greater andhas always kept ahead of bubbles or large quantities oflow-speed store.

Looking at likely futures there is an interesting set ofevaluations going on in the Josephson junctions versusgallium arsenide area. These are two technologies onecould intercept. It would look as if gallium arsenide is thebetter bet because it has most of the performance for lesscooling, the old 80/20 rule applies, and similarly it per-forms better at normal temperatures.

If you ask me to look into the future I would say thatthe next big intercept that will create a boost to the marketand cause all the Sinclairs of the world to get healthyagain will be continuous speech input/output. This wouldenable the industry to churn the whole of the word pro-cessor office system base, or at least add something to it.

The funding of newtechnologiesG.N. TAYLOR(Investors in Industry, pic)It is necessary to provide funding to bridge between newtechnologies and profitable products. This funding is pro-

74

vided (in the UK) by venture capital, for example by Inves-tors in Industry (3i). However, such private venture capitalorganisations cannot take extreme risks, and must obtainan overall return on investment.

This may often make the enthusiastic technologist takea jaundiced view of the financier, but both have to identifyneeds and then create benefits.

The life cycle from new technology to a profitableproduct is shown in Fig. 5. The numbers indicate the likely

Ideas

Technology

Risk Reward

Market needs

Team & organisation

Create product

Win customers

Make profits

Public offering etc.

Repay investors ^ w

Fig. 5 Life cycle from new technology to profitable product

risk and reward which the investor might expect, showingthat at midband the risk of failure is still one in two. Thelikely reward is the percentage annual return on the invest-ment, i.e. the growth in the share value.

The various phases of the product life cycle require dif-ferent means of funding. At the 'idea stage' the funds maycome from University development, Alvey type funding,from large companies or from military sources, because ofstrategic interests. Later stages result in commercial inter-ests, when profits appear and the public share offering ismade. Funding then can come from banks, pension fundsand from the general public. Risks are reduced, but so arepossible rewards.

Venture capital organisations (such as 3i) enter at anearly stage, but still must not take large risks. Therefore,they fund from the establishment of the market need.Alternatively, the Government may sometimes be inducedto fund certain projects from this point. Venture capitalsuppliers prefer to relinquish funding as soon as publicfunds become available (and rewards diminish, as do theattendant risks).

Such suppliers of capital will do all they can to help thedeveloper, with not only finance, but also withmanagement/financial advice. However, in return thedeveloper must give the financier full information abouthis business.

In short, if you want finance, you must show yourbackers why it is good for them!

Summary of discussionC.F. AMOR(The Design Council)Mr Clarke gave examples of UK developments which weretoo early for the market place, such as Concorde and theComet. Also, silver on glass circuits (with plated throughholes) and the early use of 35 mm film material as com-puter bulk store, which were not only early, but with thebenefit of hindsight, technically unsatisfactory.

Unimation commenced early in robots, 20 years ago,and was one of the few companies to be early and right,but it was pointed out that it had lost money for aboutthree-quarters of this time.

IEE PROCEEDINGS, Vol. 133, Pt. A, No. 1, JANUARY 1986

Information Technology should enable rapid and rightresponses to the market requirements.

Inevitably, questions relating to the Alvey projects wereaddressed to Mr Clarke, who said that the Demonstratorprojects are planned research demonstrations to showresults of R & D ready for the market and will enable thecompany to implement at less risk. Possibly the projectsare not sufficiently forward looking, but no single UKcompany is large enough, and more application work isnecessary. It is difficult for companies to co-operate nearto the end market, but the 'club' projects associating Uni-versity research with only one manufacturer are workingwell. They show the advantages of using new technology.

The Alvey theme was returned to by Prof. Hooper, inthat it is helping companies to collaborate in new technol-ogies and 'enabling technology'. Small companies may bebetter at new product ideas and market intelligence,whereas large companies should be better at manufac-turing, research and development, and in managing'demonstrators'. Thus, the smaller company may makemoney from a few, high-cost projects, but have difficultywith cash flow and mass production of low-cost items. Anew product may require a low volume market and pro-duction facility until the enabling technology is moreadvanced. It is well known that the Japanese score inmanufacturing techniques. It was suggested that marketintelligence is required between new product ideas andR & D, with feedback from the ultimate user. The largeequipment user usually sees demonstrations, but it isessential that this is the end user, not the purchasingofficer.

Mr Clement-Jones gave his recipe for new businesssuccess as to research available technologies, select likelywinners (by judgment, not scientific), monitor performanceand progress, and explore fallback options. There wassome disagreement concerning technological forecasting,but present technology will not last for 15 years. The needis to be 'fast-footed', with no virtue in being a 'fast-follower' of other companies. It was reiterated that thenext market surge is likely to be connected with speechinput to computer systems, particularly the word pro-cessor.

Interest was shown in comparisons between the USAand the UK, and Mr Taylor believed it was more difficultto start up in the UK than in the US environment, withprobably a greater loss rate here. The rewards and pros-pects are better in the USA, because of the market size and

attitude; also individuals generally have more personalfinance and it is easier to find employment if the companyfails. More frequent in the USA are 'company doctors'specialising in company rescue and also organisationsbuying failed companies.

There appeared to be no simple answer for the time acompany takes to become viable, but venture capitalistswould like their investment to grow by 30% per annum.For high risks, a 50% rate is required, but the funds maywell be locked in for about 5 years. If shares grow at muchless than 30%, the venture capitalist would wish to sell hisholding, but may be unable to do so. However, if thecompany cannot produce sales, possibly because they aretoo late in the market, the funds must eventually be with-drawn.

Finance should only be to the next event, or stage. (It iswise to arrange the development cycle in large companiesin a similar manner.)

In summing up, the Chairman, Mr G.E.P. Constable,said that the discussion had revealed both the good andbad news of new technology. Although the benefitsresulting from new technology should never be ignored,the risks of using new technology to create new productsshould never be underestimated. Furthermore, it shouldnot be assumed that new technology was always necessaryfor the creation of new products; for example, the SinclairC5 used technology that has been available for manyyears.

Mr Constable stressed the crucial importance of timing,in that using an 'old' technology would impair the marketappeal of the product, while using an underdevelopedproduct usually led to performance and reliability prob-lems. The issue of timing was all too often neglected andshould always be given full emphasis in the product spe-cification or brief, a document that is much of the timeinadequate or even nonexistent.

Referring to the concept of 'enabling technologies', MrConstable observed that the term 'enabling' probablyapplied to all technology. It would, for example, be diffi-cult to distinguish between technologies that were'enabling' and those that were 'disabling'. A further weak-ness associated with this concept was the emphasis it gaveto technology rather than product. The national need isfor profitable products, which, incidentally, implies theimportance of exploiting the appropriate technologies. Anemphasis on technology at the expense of product is a dis-tortion and may be counterproductive.

IEE PROCEEDINGS, Vol. 133, Pt. A', No. I, JANUARY 1986 75