from product innovation to solutions innovation: a new paradigm for competitive advantage

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European Journal of Innovation Management From product innovation to solutions innovation: a new paradigm for competitive advantage Charles ShepherdPervaiz K. Ahmed Article information: To cite this document: Charles ShepherdPervaiz K. Ahmed, (2000),"From product innovation to solutions innovation: a new paradigm for competitive advantage", European Journal of Innovation Management, Vol. 3 Iss 2 pp. 100 - 106 Permanent link to this document: http://dx.doi.org/10.1108/14601060010322293 Downloaded on: 16 October 2014, At: 11:59 (PT) References: this document contains references to 13 other documents. To copy this document: [email protected] The fulltext of this document has been downloaded 3916 times since 2006* Users who downloaded this article also downloaded: Glenn Hardaker, (1998),"An integrated approach towards product innovation in international manufacturing organisations", European Journal of Innovation Management, Vol. 1 Iss 2 pp. 67-73 Qingyu Zhang, William J. Doll, (2001),"The fuzzy front end and success of new product development: a causal model", European Journal of Innovation Management, Vol. 4 Iss 2 pp. 95-112 Jonathan D. Owens, (2007),"Why do some UK SMEs still find the implementation of a new product development process problematical?: An exploratory investigation", Management Decision, Vol. 45 Iss 2 pp. 235-251 Access to this document was granted through an Emerald subscription provided by 465057 [] For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services. Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. *Related content and download information correct at time of download. Downloaded by KING MONGKUT UNIVERSITY OF TECHNOLOGY THONBURI At 11:59 16 October 2014 (PT)

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Page 1: From product innovation to solutions innovation: a new paradigm for competitive advantage

European Journal of Innovation ManagementFrom product innovation to solutions innovation: a new paradigm for competitive advantageCharles ShepherdPervaiz K. Ahmed

Article information:To cite this document:Charles ShepherdPervaiz K. Ahmed, (2000),"From product innovation to solutions innovation: a new paradigm forcompetitive advantage", European Journal of Innovation Management, Vol. 3 Iss 2 pp. 100 - 106Permanent link to this document:http://dx.doi.org/10.1108/14601060010322293

Downloaded on: 16 October 2014, At: 11:59 (PT)References: this document contains references to 13 other documents.To copy this document: [email protected] fulltext of this document has been downloaded 3916 times since 2006*

Users who downloaded this article also downloaded:Glenn Hardaker, (1998),"An integrated approach towards product innovation in international manufacturing organisations",European Journal of Innovation Management, Vol. 1 Iss 2 pp. 67-73Qingyu Zhang, William J. Doll, (2001),"The fuzzy front end and success of new product development: a causal model",European Journal of Innovation Management, Vol. 4 Iss 2 pp. 95-112Jonathan D. Owens, (2007),"Why do some UK SMEs still find the implementation of a new product development processproblematical?: An exploratory investigation", Management Decision, Vol. 45 Iss 2 pp. 235-251

Access to this document was granted through an Emerald subscription provided by 465057 []

For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors serviceinformation about how to choose which publication to write for and submission guidelines are available for all. Pleasevisit www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio ofmore than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of onlineproducts and additional customer resources and services.

Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on PublicationEthics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.

*Related content and download information correct at time of download.

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Page 2: From product innovation to solutions innovation: a new paradigm for competitive advantage

From productinnovation to solutionsinnovation: a newparadigm forcompetitive advantage

Charles Shepherd and

Pervaiz K. Ahmed

1 Introduction

This paper examines companies operating in

the computer and electronic equipment

(C&EE) industry sector, who rely on new

product development (NPD) frameworks to

design and develop new products. For these

companies, release of products into the

marketplace articulates and operationalises

their strategies (McGrath et al., 1992).

However, many of these companies are now

turning towards a `̀ solutions'' focused

business model to counter the effects of

decreasing technology and product life-cycles,

tightening margins and increasing

commoditisation of product components.

This requires existing products and product

development competencies to be more

effectively leveraged than they have in the

past, and for key adjustments to be identified

and implemented to support the new

`̀ solutions'' focused business model.

2 Forces of change

Today's companies are experiencing

significant pressures from increased levels of

competition, rapidly changing market

requirements, higher rates of technical

obsolescence, shorter product life-cycles and

the heightened importance of meeting the

needs of increasingly sophisticated customers

(McGrath et al., 1992). Added to this are

visibly increasing product development lead

times, more frequent development of new

technologies and increasing product

development costs and complexity. The ways

in which companies meet these challenges

depends largely on the nature of the business

they are in, the dynamic forces of the market

in which they operate, and the resources and

skills that can be applied to ensure their

business objectives are met.

During the 1970s and early 1980s, one of

the major features of an industrial economy

was the increasing emphasis placed on

internal quality of execution, rather than

price, as a major competitive tool. During this

time `̀ quality'' was viewed as a key market

differentiator, resulting in many organisations

defining and improving processes, adopting

and implementing total quality management

systems, and attaining quality standard

accreditation. Customer requirements and

sophistication were relatively low, allowing

organisations to flourish using an inwardly

The authors

Charles Shepherd is at NCR, Dundee, Scotland, UK.

Pervaiz K. Ahmed is at the University of Bradford,

Bradford, UK.

Keywords

Product innovation, Computers,

Electronics, Competitiveness, Paradigms

Abstract

Organisations have traditionally employed new product

development frameworks to increase the effectiveness of

their innovation programmes. These strategies have

worked in the past but are increasingly being challenged

by developments in the marketplace and technologies.

This has led firms in some sectors to move to a new

paradigm of competitiveness, namely solutions

innovation. This paper examines the challenges facing the

computer and electronic equipment sector and the

movement to a solutions innovation paradigm.

Electronic access

The current issue and full text archive of this journal is

available at

http://www.emerald-library.com

100

European Journal of Innovation Management

Volume 3 . Number 2 . 2000 . pp. 100±106

# MCB University Press . ISSN 1460-1060

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Page 3: From product innovation to solutions innovation: a new paradigm for competitive advantage

focused strategy (where quality accreditation

appeared to assume paramount importance

and many industrial products were released

via `̀ technology push'' strategies).

During the early 1990s, a discernible shift

from the `̀ technology push'' environment of

previous years to that of `̀ market pull'' was

observed. Customer needs became

increasingly more sophisticated and complex.

This forced companies to focus more on

product quality (effective identification,

validation, communication and delivery of

customer needs and wants) than on the

internal company execution efficiencies.

Today, markets are experiencing the

internationalisation of technology-driven

competition, globalisation of manufacturing

due to faster transitional flows of materials

and money, compression of product life-

cycles, need for greater integration of

technologies and increasingly sophisticated

customers. These challenges are particularly

acute in the `̀ computer and electronic

equipment'' market sector, in which many

large companies such as IBM, Texas

Instruments, Siemens Nixdorf, Xerox, Fujitsu

and NCR operate. These companies have

traditionally had a product focus, but are now

experiencing diminishing margins as

technology and product life-cycles are

shortened and product commoditisation

increases. In order to combat this, some are

looking to re-position themselves as

`̀ solutions'' providers, rather than purely

product manufacturers. This requires them to

leverage existing products and product

development competencies, while

simultaneously introducing higher margin

services to integrate product components in a

manner which resolves a customer's specific

business, rather than technological, need.

In addition to this, many companies are

realising that in order to provide value and

win customers they now need to quickly and

accurately identify changing customer needs,

develop more complex products to satisfy

those needs, provide higher levels of customer

support and service, and utilise the power of

information technology to provide greater

functionality and performance.

Consequently, greater focus is being placed in

having new product development frameworks

that achieve an optimised balance of internal

execution effectiveness, coupled with an

ability to delight customers.

The concept of an effective NPD

framework has subsequently emerged as the

new market differentiator for the 1990s and

beyond (McGrath et al., 1992). Indeed, the

number one priority at the Marketing Science

Institute, a research group backed by

companies such as Procter & Gamble and

Apple Computer Inc., is the improvement of

NPD programmes (Power, 1993).

Product development can be defined as the

art of designing something that a customer

desires which can be produced to a standard

and price acceptable to both customer and

supplier alike in as short a period of time as

possible. This clearly implies a customer

focus on the part of the supplier, and a series

of optimised processes to ensure that product

cost and quality meet customer expectations

ahead of the competition. NPD frameworks

have been devised to maximise this product

development performance and generally

comprise four key elements:

(1) A senior, cross-functional management

team responsible for reviewing

programmes and making associated GO/

NO-GO decisions.

(2) Empowered cross-functional execution

teams who are responsible for an effective

execution and management of product

development programmes.

(3) Aligned cross-functional processes

providing an execution roadmap for all

employees and ensuring activities are

effectively co-ordinated and aligned.

(4) Specific `̀ decision points'' or milestones,

which demand the delivery of specific

deliverables. These are employed to allow

the senior cross-functional management

team to review programme progress and

attractiveness.

3 New product development businessmodel

New products are central to the growth and

prosperity of the modern corporation. An

estimated 40 per cent of sales from US firms

came from new products in 1986, up

considerably from 33 per cent of the five years

previously (Cooper and Kleinschmidt, 1991).

In order to provide value and win customers,

companies are having to quickly and

accurately identify changing customer needs

and wants, develop more complex products to

satisfy those needs, provide higher levels of

customer support and service while also

101

From product innovation to solutions innovation

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Page 4: From product innovation to solutions innovation: a new paradigm for competitive advantage

utilising the power of information technology

in providing greater functionality,

performance and reliability.

To combat this, firms are now being driven

to implement changes that will help speed

products through development and improve

process efficiency and NPD effectiveness.

They have a need to speedily investigate the

large number of opportunities vying for

limited resources and ensure that they can be

effectively prioritised. Consequently, NPD is

increasingly being cited as the most important

process within many high performing

organisations. It has also been suggested that

the only sustainable source of product

advantage is a superior NPD framework

(McGrath et al., 1992). This reliance and

focus on a strong NPD framework are re-

enforced by research which shows a strong

correlation between new product success and

a company's health. Indeed, NPD

frameworks are increasingly being seen as an

important source of competitive advantage

(Wheelwright and Clark, 1992; Brown and

Eisenhardt, 1995; Bowen et al., 1994),

especially for those companies which are key

players in established markets with relatively

stable product life-cycles.

In numerous studies of new products since

the 1960s, research has consistently found

that the top two success factors are a

differentiated product that offers superior

customer value, and a strong market

orientation reflected in a thorough

understanding of customer needs and wants.

However, studies of actual practice find a

failure to undertake thorough market

assessments, and limited utilisation of new

product methods and tools (Cooper, 1993;

Madique and Zirger 1994; Rothwell, 1972).

Most firms do not systematically infuse

customer or competitor inputs throughout

their development process, and do not even

do a proper job of the preliminary market

assessments, detailed market studies or

market trials. Few formal methods and tools

are used to aid the search for market

understanding.

Research by Cooper (1988) reveals success

factors within NPD frameworks, as follows:. a strong market orientation;. an in-depth understanding of user needs

and wants;. a unique superior product, a product with

a high performance to cost ratio;

. a strong market launch, backed by

significant resources devoted to the

selling/promotion effort;. an attractive market, a high need level, a

large growing market, and uncompetitive

market;. synergy in a number of areas, including

technological and marketing;. top management support; and. good internal and external

communications.

The development and implementation of a

NPD framework are by no means simple, nor

a guarantee for new product success. In fact,

no one best way has been found to organise

NPD, so it comes as no surprise that the

causes of new product success and failure can

usually be traced back to the NPD framework

(Cooper and Kleinschmidt, 1991) as

demonstrated in the following examples

(Cooper, 1988):. one product concept out of seven

becomes a commercial success; and only

one project in four results in a winner;. roughly half of the resources that US

industry devotes to product innovation is

spent on failures and killed projects;. 63 per cent of executives are `̀ somewhat''

or `̀ very disappointed'' in the results of

their firms' NPD efforts; and. new products face a 35 per cent failure

rate at launch.

The ideas discussed above indicate that great

care must be taken when attempting to

implement a NPD framework within an

organisation to ensure that it interfaces well

with existing processes. The framework must

be designed to meet the objectives for which it

is being implemented. Additionally, its

implementation and use have to be supported

by all employees, and it must provide

demonstrable benefits in both the long and

the short term. It also suggests that as

organisations evolve it is imperative that their

NPD framework also evolves, in a manner

that supports strategic repositioning and

growth objectives.

4 Moving to a `̀ solutions'' innovationbusiness model

Companies in the C&EE industry are

experiencing double-edged pressures. On the

one side companies have had to steadily

increase R&D investments to keep pace with

102

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Page 5: From product innovation to solutions innovation: a new paradigm for competitive advantage

rapidly evolving technologies, and on the

other side heightening competitive pressures

have caused them to drive their prices down.

As a consequence, companies in this industry

are seeing product margins being compressed,

while at the same time their product

components are becoming increasingly

commoditised. In such a `̀ product'' centric

environment, sales teams are becoming

overwhelmed by a hardware dominance of

revenue targets, coupled with increasing

complexity of a portfolio (caused by

companies attempting to retain some level of

differentiation in their chosen markets).

In addition to the above pressures,

customers of the `̀ computer & electronic

equipment'' (C&EE) industry are increasingly

looking for solutions to complex business

problems in order to remain competitive. To

achieve this, they are looking more and more

towards partnering with key suppliers who

can provide world class products and services

to address those needs.

In order to tackle these trends and build

towards a long-term, sustainable, profitable

growth, many of the top organisations in the

C&EE industry are attempting to build upon

existing competencies in building and

delivering products and product components

by becoming `̀ solution'' providers. The Oxford

Dictionary defines a solution as `̀ resolution,

solving, answer, method for solving a

problem, puzzle, question, doubt, difficulty,

etc.'' In reviewing this definition, a company

embarking on this type of strategic

repositioning needs to establish exactly what

kind of solutions it wants to provide and to

what extent it will leverage and integrate its

own current products and services (see Figure

1). This is a critical question, as these

companies need to continue to operate

effectively in their current business as they

attempt transition from their current models

of practice towards a new `̀ solutions'' focused

business model.

In this solutions model, contextually

defined here for the C&EE sector, it becomes

apparent that an organisation adopting a

`̀ solutions'' focus needs to be able to

articulate its solution offerings clearly and

ensure that the components which they

comprise can be either provided internally, or

sourced externally and delivered wherever

the customer's site may be. From a

technological perspective, the solution

components need to be architecturally

compliant, i.e. easily integrated using industry

standard technology. This supports the

overall purpose of adopting a `̀ solutions''

model, which is to progressively move away

from being a hardware provider and move

towards providing greater proportions of the

higher margin software and services

components (Picasso, 1997; NCR, 1997;

Kaiser Associates, 1997).

The area that best articulates what it means

to be a `̀ solutions'' focused company lies at

the customer-supplier interface. Traditional

technology providers adopted a `̀ push''

strategy to meet sales quotas while relying on

the customers' desire to improve productivity

through technology acquisition and

advancement. This view changed as

customers' needs became increasingly more

sophisticated and their understanding of the

technology available improved, resulting in

greater market `̀ pull''. The `̀ solutions''

providers now need to take a further step by

working with customers to uncover, or better

define, problems for which solutions are

required. In this manner, customer demand is

stimulated by the application of business

expertise and a strong, symbiotic relationship

with the customer (where the vendor assumes

the role of `̀ trusted adviser'' rather than

`̀ supplier''). The nature of a company's

solution focus can then be articulated (see

Figure 2).

The purpose, then, is to construct an

environment and relationship with the

customer that locks them into a mutually

beneficial, long-term commitment, where

high margin add-ons and significant follow-on

engagements can be generated. This not only

offers significant economic rewards, but also

introduces significant barriers against

competitive attack.

Once the customer need has been fully

articulated, the specific solution can then be

constructed to meet that need. In an effective

`̀ solutions'' company, sales teams will

deliberately target potential customers of a

specific profile once a solution has been

constructed and implemented in a customer

site which boasts the same profile. This is to

leverage the `̀ new competence'' that has been

developed.

3.1 Solutions model competencies

Adopting a `̀ solutions'' focused business

model requires a company to add

competencies in business consultancy,

103

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Page 6: From product innovation to solutions innovation: a new paradigm for competitive advantage

application development and systems

integration. This allows them to better

identify customers' business problems and for

an effective solution to be defined, developed

and delivered in the form of a set of integrated

products (hardware and software) and

services. Clearly, in a highly complex

environment, it will be unlikely that any single

organisation will possess, or wish to possess,

all the necessary skills and technological

collateral to meet the broad, enterprise-wide

needs of its customers. It is therefore

necessary that effective and enduring

relationships be established with customers to

build a strong knowledge of their business

(where the company assumes the role of

`̀ trusted advisor'' rather than `̀ supplier'').

Additionally, key partnerships with

technology and service providers may be

necessary to construct an effective solutions-

based portfolio.

Today, many companies in the C&EE

sector believe that they sell solutions ± `̀ if a

customer needs a box to solve a problem, we

will provide that box and the problem is

solved''. However, the nature and

competences of a `̀ solutions'' company are

not this simplistic. Three key competencies

need to be established, evaluated and

adjusted in order to meet the needs of the

customer:

(1) Technical competence: which encompasses

the knowledge, experience and portfolios

around hardware, software and

networking products. This forms the

foundation of an effective `̀ solutions''

provider operating in the C&EE industry.

(2) Integration competence: demanding

expertise not only in technical integration

of components, but also in an ability to

identify valuable business, process and

organisational integration opportunities.

(3) Market/business knowledge competence: the

ability to bring relevant and complete

information to bear around an industry,

technology and customer.

This is illustrated in Figure 3.

During the transition, it is clear that some

companies will simply not possess certain

competencies demanded of them by the

customers. This weakness can be addressed

by recourse to a greater emphasis being

placed on partnerships, mergers, and

acquisitions and sub-contracting.

Consequently, the competence profile of the

`̀ solutions'' focused company sees a

progressive move away from a strong

`̀ technical'' competence to one which is more

balanced with the `̀ integration'' and `̀ market/

business knowledge'' competencies (see

Figure 4).

Figure 1 Solutions portfolio ± a generic model

Figure 2 View of how to be a solutions company

104

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In this environment, it becomes obvious that

technological leadership will be quickly

displaced by the depth of customer

relationships and the cumulative learning

curves of a company as key market

differentiators of the future.

5 Solutions model and organisationaladjustments

Implementation of a `̀ solutions'' focused

business model requires a number of

organisational adjustments to be made. These

are:. Key organisational processes need to be

effectively aligned to ensure clarity and

consistency of execution.. Reward/compensation schemes need to

be adjusted to encourage the

development and successful selling of

solutions rather than maintaining

the product centric sales motions of the

past.. Effective communications within the

organisation, keeping everyone up to date

with the changes, and need for change,

are a vital activity.. Ensuring that effective measures are

established to indicate to management

whether the strategic repositioning is both

working and effective.

However, the biggest area to be impacted by

adopting a `̀ solutions'' model is that of the

organisational structure. Successful

`̀ solutions'' providers are increasingly

adopting a `̀ horizontal competence''

organisational structure where the majority of

headcount provides horizontal subject-matter

expertise (see Figure 5).

An example of this can be found in IBM,

whose industry facing units represent 7 per

cent of employees. The remaining employees

Figure 3 Solutions to be offered and competitive leverage

Figure 4 Organisational competence of a solutions provider

105

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Page 8: From product innovation to solutions innovation: a new paradigm for competitive advantage

are involved in horizontal competencies.

Horizontal competencies are recognised as

the `̀ core'' of the company and it is that part

of the organisation which keeps them

`̀ leading-edge'' and able to respond to market

needs. Consequently, such companies are

better able to respond to changing customer/

market needs and are not restricted to a

sharply defined set of solutions driven by

product knowledge and experience.

Horizontal competency organisations have

been identified as high performers in terms of

profitability and growth. For example,

significant cost reduction has been found in

Andersen Consulting where increased

utilisation of development and

implementation resource, coupled with an

intent to leverage components, has resulted in

a three to ten times increase in productivity

(Kaiser Associates, 1997). Additionally,

standardisation of solution components has

allowed service offerings to be implemented

faster and more efficiently. The `̀ horizontal

competence'' organisation also supports

dramatic revenue growth by supporting faster

cycles of technology advancement and

innovation, while also leveraging the highly

focused view on key competencies required.

Clearly, becoming a successful `̀ solutions''

focused company demands radical change.

Progressive organisational change is required

as new competencies become established and

old competencies are abandoned. This

change has to be accompanied by the need to

re-distribute or acquire resources. During this

evolution, effective linkages between key areas

in the company need to be forged to prevent

inefficient functional boundaries becoming

established, while a step function

improvement in the provision of information

will be necessary to address the increased

organisational complexity. The evolution to a

`̀ solutions'' focused business model is

therefore a high risk strategy, but in today's

rapidly changing economic and technological

climate, there seems little alternative.

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Figure 5 `̀ Horizontal competence'' organisation structure of `̀ solutions'' providers

106

From product innovation to solutions innovation

Charles Shepherd and Pervaiz K. Ahmed

European Journal of Innovation Management

Volume 3 . Number 2 . 2000 . 100±106

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