UNIT XII – ORGANISING FOR NEW PRODUCT DEVELOPMENT

Why have a structure for Product Development?

As we read at the beginning of the book product development is no longer

associated with inventors or great men getting good ideas. It has now become
a scientific exercise in first understanding the requirements of the customer or
his unfulfilled needs and then go about systematically creating a product that will meet this
requirements and along with this also help the company meet its
business objectives like profit, sales, market penetration, market share, etc.
When we talk and say that we need to gather information from the customer,
analyze it seems to be a simple task. However behind the simple sentence the
amount of work that is actually needed on ground is enormous. It first requires
the understanding of:

 Who the customer is? An exact definition is needed in terms of his

demographic, psychographic, geographic characteristics.
 How does this customer purchase? Where does he purchase? When does
he purchase?
 Based on this the company has to decide how to find out the information
on customer needs of the customer. Will it be from:

o The sales force

o The market channel
o The customer himself
o Group discussion

 Depending on the way the company wants to find out the information
from the customer it needs to put in place a mechanism to gather this
information. This information could be gathered on a regular basis or on
a one time basis depending on the company‘s decision.
 Once the information has been collected this information must be
analyzed for its relevance to the company‘s business and for any ideas
for product development. For undertaking this, the company needs a
team of people who can do the analysis.
 The ideas that come out from this analysis need to be disseminated
across the specified persons in the company in order to get their
feedback or comments on these ideas before they can be taken any
further.

So we see that just a small spoken sentence needs a series of steps in order to bring the
tasks to fruition. All of this cannot be done by one person in an organization since product
development is not a onetime activity. It is an ongoing process of development. In this process
we undertake some activities for the immediate requirement, some for the midterm and some
for the long term. Hence such planned efforts in product development needs a formal structure
within the organization which is entrusted with the task of undertaking product development.

Types of Structures

The nature of the product varies from company to company. Some companies have
products that need extensive research; some need more customer research, while some need
more in terms of development and testing. Thus depending on the type of effort needed the
company must build the necessary capabilities to be able to carry out the tasks. Since product
types vary from one extreme to another, we can define a series of organizational structures
between two extremes, functional organizations on one end and product organizations on the
other. Functional organizations are organized according to functional disciplines. Senior
functional managers are responsible for allocating resources. A single person does not have the
responsibility for the total product. Detailed specifications, procedures and rules, meetings (ad
hoc and structured) and shared traditions among engineers allow for effective coordination
amongst team members. Products which need specialized knowledge for its development
require a functionally organized organization structure.

1. Functional Organizations
This type of organization structure is usually divided by function and each function carries
out a specialized functions. This type of organization needs an organization structure for
achieving common goals – it is structured hierarchically with a strong concept of subordination.
Most companies in the modern era rely upon this functional/hierarchical model. In the functional
organization, each job becomes the focus point. People performing similar functions and
specializations are put together in departments. The functional areas will have personnel with
varied skills, but those skills
are grouped on their similarities. The people who have identical skills can be grouped easily and
they can be placed in separate units and this creates an organizational structure. The top
management coordinates with all levels for various activities. When an organization handles a
single product, the functional organizational structure is most suited and most frequently used.
In this structure a product manager is added and it is he who coordinates the product
development activities through interaction with representatives from each function. The main
tasks of the product manager are: to collect information, to solve conflicts and to facilitate
achievement of overall project objectives. Their influence and status in the organization is less as
compared to functional managers. This is because here they have no direct access to working
level people.

The benefits in utilizing a structure which relies upon the functional model are:

 The chain of command is linear and sound

 The human resource abilities are constantly nurtured by concentrated tutoring,
leadership, and guidance
 Professional similarities between the organizational participants in each of the different
functional offices
  The development of professional expertise attained by clustering specialists in the
present function as a single unit
 Provides an easy path for the employees to grow within the organization sideways as well
as upwards in the organizational tree

The drawbacks of the functional organizational structure are

 The decision making process is bureaucratic and is slow
 The flow of communication and synchronization between functional departments is
complicated
 The speed of resolving problem is slow and inefficient
 Grouping based on functions results in a lack of broader view from employees resulting
in narrowed vision of overall organizational objective

2. Product Organizations
In this type of organization product development is treated as a project and structures
and information flows are designed in a manner that helps in the movement of people and
information expeditiously. Here the structure consists of separate product oriented teams. A
product organization exists because of product oriented flows: project and teams. The project
members move out of their functional departments and dedicate all their time to the product
development. The product team sits together in a separate location and work towards
developing the product. The people in this organization bring in the necessary skills from their
functional departments and are responsible for any work that needs to be done from that
functional area. For example, if a functional manager in the project team is from the
manufacturing department and the product development team needs any work to be done by
the manufacturing department then the functional manager on this team from the
manufacturing department will be responsible for getting the work done in that department. In
addition to this necessary inputs such as the organizations ability to manufacture the new
product, capacity available, manpower sills in manufacturing will also be provided by this person
to the product development team.
In these structures the project manager is usually more senior than the corresponding
person involved in product development in a functional structure. This is because he does not
have the direct access to the resources of the department and therefore needs the additional
authority to get the work done. Product Based companies are much more focused towards the
customer and each product manager is responsible for ensuring the success of the product.
However, resources like finance, marketing, manufacturing are in the common pool. This leads
to competition for centralized resources.

The advantages of product organizations are

 Resources can be optimally utilized in an organization
 They can also be optimally allocated within the project team
 Technical and market tradeoffs can be evaluated more quickly
 Information movement across the organization is speeded up.
The limitations of such an organization structure are
 Individual team members may get cut off from their functional area and so may lose some
of their cutting-edge knowledge of the function.

3. Matrix Organizations
The matrix organization attempts to ensure satisfactory control of products while utilizing
resources effectively and efficiently. The company is organized into functional units, such as
marketing, finance, development, etc. For each product or a group of products the company is
involved with has a product manager. It is the function of the product managers to ensure
products they are responsible for progress satisfactorily. Functional managers are primarily
responsible for managing their staff, ensuring correct procedures and levels of quality are
maintained, etc. Product managers are responsible for managing products, that is ensuring tasks
are completed on time, budgets are met, etc. If the Product manager encounters a problem it
must be resolved between the functional managers, the product manager and the individuals
involved. Product managers need to have good negotiating skills. Managers of departments and
Products managers must co-operate. Product managers and functional managers have direct
communication links with senior management, including direct access to the managing director.

4. Alternative Classification of Structure

Though companies generally classified as per their organization structure we can also
view them in a different manner. They can be classified based on the nature of the projects
undertaken/ products developed. We distinguish projects by the number of employees needed
to undertake the tasks, or amount of work involved in developing them, and the number of tasks
needed for development that are fundamentally different in nature.

Another way to classify organization structure is by one of the following four categories:
 The product to be developed can be understood by one person. This one person is likely
to have all the knowledge needed to develop, manufacture and assemble. The company’s
development department which undertake these kinds of projects are usually very small.
Companies that have more than one department are usually structured as a functional
organization.

 The product to be developed has a reasonably low complexity, but total amount of work
needed to complete the product is high. In this case these types of products are likely to
be developed within one functional department. A research department can also be an
example of a department in which these types of projects are done. The light weight
matrix structure is preferred if more than one departments are involved. Usually here
employees are involved on a full-time basis. Tasks involved in product development may
be performed concurrently.

 If the product to be developed has of a lot of different parts, such as software, PCB, power
supply and mechanical structure. Though the parts are many, however it is clear what
needs to be done to get the product developed and into production. In such a case various
departments perform their own tasks. These tasks have mostly a low workload. Here
 employees cannot work full-time on one product since they are a part of the department
and have other functions also to complete. This creates a complex situation because
allocation of resources is not a simple task because of fluctuation of work load on a daily
basis. Setting up separate cross-functional engineering teams is the right way to develop
products. However, the drawback is commencing of too many project at the same time.
This causes key people from marketing, manufacturing, and engineering work at several
projects at once thereby limiting the time given to each product and in the overall context
lengthens the product development time.

 The product is complex. Here typically the total work would be high. Employees can thus
work on a full-time basis. A project organization is the best suited organizational structure
for these kinds of products.

Choosing an organization Structure

Which organizational structure is most suited for the organization depends on the
performance parameters that are most critical to the success of an organization. Functional
organizations have a focus on specialization of function while coordination is a slow tedious. In
product organizations the focus is on quick decisions and effective co-ordination amongst
different functions. Matrix organization by their definition can have a mix of both the functional
and product organization characteristics. However, in order to decide which structure to use we
must answer the following:

i. Can an individual in a product organization be fully utilized for the duration of the project
– If a person is deputed from his function and is to be used in a project then he must have
enough work on the project to justify his deputation. We may find that in a product team
some functions have a lot of work which can justify their use but some functions which
do not have much work. In this case functions which have less work may be structured as
a function and the others as a product structure.

ii. Does the work involve a large amount of coordination amongst various functions – if a
large amount of coordination is required then a product organization will be more suited
rather than a functional organization.

iii. Does the work involve a large amount of specialization – when specialization of services
is needed on a regular basis across the organization then a functional organization is more
suited. For example in a car manufacturing company the design department will be
working over several products and the skill needed in design will be highly specialized.

iv. Is speed of development a critical factor – since product organizations can resolve
conflicts more quickly because of their structure they are more preferred in case the time
to market is small. Let us say the electronic industry where new products are needed
every six months here the product structure will be most suited.
Need for Ideas
Ultimately an organization can only develop products from ideas. So where do we get
these ideas. As we have seen in Chapter 2, companies have various sources to get this
information. However this is easier said than done and so it is important to have a part of the
organization structured towards gathering this information, collating it and then evaluating it
keeping in mind the business type and objectives of the company. There are two key places from
where information can be gathered

i. Customer – the customer is the one who has to use the product and it is the customer ‘s
needs that we need to fulfill and so he is the best person to ask for what he wants.
Unfortunately, we do not have only one customer and each customer will:
 Explain his need in his own way.
 Each customer ‘s need will not be the same and will differ from a little bit to a lot.
 Some customers may not be able to put their need in words on the other hand some
customers may describe it in too much detail. Too much detail is also not good as it tends
to cloud the thinking of the product developers.
 Some customers may not be even aware of a certain latent need e.g. in the case of the
Fair and Handsome cream for men. Till sometime back no one thought that men would
also use a cream to become fair. This was totally created by the advertising which possibly
fanned a latent desire.
 Some markets may be behind other markets and so may not be ripe for products already
existing in those markets. E.g. MNCs had several home appliances and consumer durables
available in international markets like – microwave ovens, washing machines, mixer
grinders, etc. which they brought into India only when the market was ripe for their
acceptance.

So asking a customer is not so simple. Organizations must therefore create a system of collecting
this information from their customers on an ongoing basis so that the customers inputs are
captured. Companies may capture the information in several ways:

 Customer surveys – customer surveys can be carried out by the organization itself if it has
the capability otherwise this can be carried out by specialized organizations on behalf of
the company. The important part of the survey is that it must be structured in the right.
This is because the wrong type of questions may lead us to collect information the wrong
type of information (that we already know or the information that we would like to hear).
The right questions allow the company to test hypothesis, concepts and new ideas. It also
helps companies to uncover new areas in which products can be positioned, positions
where no other customer is focusing. A consumer survey also gives the company an
opportunity to collect more information that what it needs for its immediate decision so
as to use it at a later point of time.
 Customer feedback from retail outlets – when customers buy products from retail outlets
they discuss with the retailer the limitations of the existing products and also offer
suggestions for improvements and new products. By putting in place a system of
 capturing this information and bringing it back to the organization can help the company
get many valuable ideas.
 Customer feedback from customer service department – similarly when a customer is
using a product he begins to get ideas of how it should operate to improve it. So when
the product has a failure and the customer service engineer visits the customer he has a
lot of ideas which he gives to the engineer. Unfortunately, companies generally do not
implement systems to capture this data. This also has another problem, this is that a new
product development is the realm of the marketing department and the credit for
developing an excellent new product will go to them. Hence there is little incentive for
the service department to provide inputs for new products. This is where the role of top
management is important in creating systems where the credit can be shared and it is for
them to motivate people in companies to work as a team rather than as individual
departments.
 Customer feedback received directly from a customer writing to the company – many
times we have enterprising customers who write directly to the company. Though this is
generally to complain about lack of service but we also have some writing with new ideas
of products that they want. Some companies May take them into consideration and some
may not take any further action.
 Customer clubs – Large consumer base companies try and get customers engaged in
customer clubs. This set of customers get company promotions, information about new
products and activities of the company. It is possible to use these clubs for feedback and
information. These feedbacks are valuable because unlike a consumer survey where we
do not know if the consumer being surveyed is our customer or not, here we know that
the user is using our product and so the feedback is qualified. Standard Chartered bank
credit card team used to send a questionnaire to its select customers every year to get a
feedback on various aspects of the card.

Now in order to capture information from any of the above areas the company must create a
system where the data is captured in a :

 Formatted manner – this is important since the customer will give the information in
several ways but the company cannot analyze the information that comes in different
formats.
 There is a fixed periodicity for collecting the information
 There is someone who is assigned the task of collecting and collating the information
 The information captured must be analyzed and stored in a manner that is useful for the
company.
 All information is then classified and stored so that it can be retrieved when required.

ii. Within the organization – this is an area which many companies neglect but can become an
excellent source of information. Imagine that all the employees of the company are aware of the
company’s products on one hand and on the other hand they are also consumers of various
similar and possible also the company’s product. The company’s employees know about the
company’s product in much more detail than any consumer, plus they also know what the
company ‘s capabilities are and so what they can manufacture. Thus they are in the best position
to advise the company on what products it can make in order to capture the customer ‘s money.

However, in order to get this information, the company must again put certain processes in place
so that eh employees contribute their ideas:

 Just as we survey customers by making an attempt to go out to them and seek their ideas
the company must go out and seek its employee ‘s ideas also.
 Many times the company does not undertake such an exercise because they feel that
employees will want an award for their ideas – while it is not a bad idea to reward
employees who give a good idea because this will bring in profit for the company.
However, many employees do not seek a monetary award but recognition within the
company for their ideas. The company can do this through a newsletter or a felicitation
ceremony.
 The concept of quality circles in manufacturing has helped companies a great deal in using
the brain power of their employees who are actually working on the shop floor to improve
manufacturing processes and quality. Similar groups in product development can bring
about tremendous benefit for companies.
 Many times companies only reward success and no scope is left for failure and to learn
from this failure to enable the company or its employees to do better next time. This in a
way stifles innovation because when an employee or his team innovates there are
chances of failure. Of course we have to take all the necessary precautions to ensure that
this does not happen but here is still a possibility. This scope of error helps employees
improve their ability to take correct decisions and therefore helps in product
development.
 Lastly all ideas will not work and it is only one in many which will give a reward. If a
company or its management make negative remarks for ideas that do not work, then
employees will stop giving suggestions because they do not want to be ridiculed in the
organization. Here again as in the case of customers there must be a system to collect,
analyses and store the information for use. However, we need one extra aspect in the
case of internal employees – this is the factor of recognition of employees who contribute
good ideas. This is a hugely motivating factor for them and can have long term benefits in
motivation and team building. If companies, follow the process of gathering information
in a systematic manner it can lead to an ongoing process of development and
improvement for companies.

Protection of Product Innovation

Companies spend a large amount of effort and money in developing new products. This
effort comes by way of creating structure in the organization, training its manpower, interacting
with customers, and finally spending its time and money on the actual development process. If
after spending so much time and effort on a product innovation some competitor was to come
and copy the product the company would not be able to recover its investment. Over a period of
time companies would not be interested in spending this time and effort on developing new
products. Thus in order to protect these innovations companies can use the protection offered
by Intellectual Property Right protection. Intellectual property (IP) is a term referring to a number
of different and unique types of creations of the mind for which property rights are recognized
by law. Under intellectual property law, owners are granted certain exclusive rights to a variety
of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and
words, phrases, symbols, processes and designs. Common types of intellectual property include
copyrights, trademarks, patents and industrial design rights.

1. Copyrights
Copyright is a set of exclusive rights granted to the author or creator of an original work,
including the right to copy, distribute and adapt the work. Copyright does not protect ideas, only
once they have been created. The Copyright is automatically obtained as soon as the idea has
been created and does not need to be registered. Once the work comes into public domain
copyright owners have the exclusive right to control over copying and other exploitation of the
works for a specific period of time. Initially copyright law only applied to the copying of books.
However, over a period of time it became applicable to other uses such as translations and
derivative works were made subject to copyright and copyright now covers a wide range of
works, including maps, dramatic works, paintings, photographs, sound recordings, motion
pictures and computer programs.

2. Trade Marks
A trademark is a distinctive sign or indicator used by an individual, business organization,
or other legal entity to identify that the products or services to consumers with which the
trademark appears originate from a unique source, and to distinguish its products or services
from those of other entities. A trademark is typically a name, word, phrase, logo, symbol, design,
image, or a combination of these elements

3. Patents
A patent is a set of exclusive rights granted by the government to an inventor for a limited
period of time in exchange for a public disclosure of an invention. Typically, however, a patent
application must include one or more claims defining the invention which must be new, non-
obvious, and useful or industrially applicable. Under the World Trade Organization's (WTO)
Agreement on Trade-Related Aspects of Intellectual Property Rights, patents should be available
in WTO member states for any inventions, in all fields of technology, and the term of protection
available should be the minimum twenty years.

4. Industrial Design Rights

Industrial design is a combination of a design and science, whereby the looks, design and
usability of products may be improved for increasing its marketability and ease in production. An
Industrial design right is an intellectual property right that protects the visual design of objects
that are not purely utilitarian. An industrial design consists of the creation of a shape,
configuration of prototype or color, or in three-dimensional form containing aesthetic value. An
industrial design can be a two- or three-dimensional pattern used to produce a product, industrial
commodity or handicraft.