Case Study. Need this in APA formatting
1 How would you rank the innovation objectives for the
2 What are the key issues in resourcing this innovation
3 What are the main factors influencing the resourcing
4 What advice would you give Monica?
136 PART ONE DIRECTING THE OPERATION
‘ Most people see the snack market as dynamic and innova- tive, but actually it is surprisingly conservative. Most of what passes for innovation is in fact tinkering with our marketing approach, things like special offers, promotion tie-ins and so on. We occasionally put new packs round our existing prod- ucts and even more occasionally we introduce new flavors in existing ranges. Rarely though does anyone in this industry introduce something radically different. That is why “Project Orlando” is both exciting and scary. ’
Monica Allen, the Technical Vice-President of PJT’s Snack Division, was commenting on a new product to be mar- keted under PJT’s best-known brand ‘Dreddo Dan’s Surfer Snacks’. The Dreddo Dan’s brand made use of surfing and outdoor ‘action-oriented youth’ imagery, but in fact was aimed at a slightly older generation who, although aspir- ing to such a lifestyle, had more discretionary spend for the premium snacks in which the brand specialized. Current products marketed under the brand included both fried and baked snacks in a range of exotic flavours. The project, internally known as Project Orlando, was a baked product that had been ‘in development’ for almost three years but had hitherto been seen very much as a long-term devel- opment, with no guarantee of it ever making it through to market launch. PJT had several of these long-term projects running at any time. They were allocated a development budget, but usually no dedicated resources were associated with the project. Less than half of these long-term projects ever even reached the stage of being test marketed. Around 20 per cent never got past the concept stage, and less than 20 per cent ever went into production. However, the com- pany viewed the development effort put into these ‘failed’ products as being worthwhile because it often led to ‘spin- off ’ developments and ideas that could be used elsewhere. Up to this point ‘Orlando’ had been seen as unlikely ever to reach the test marketing stage, but that had now changed dramatically.
‘Orlando’ was a concept for a range of snack foods, described within the company as ‘savory potato cookies’. Essentially they were 1½ inch discs of crisp, fried potato with a soft dairy-cheese-like filling. The idea of incorpo- rating dairy fillings in snacks had been discussed within the industry for some time, but the problems of manufactur- ing such a product were formidable. Keeping the product crisp on the outside yet soft in the middle, while at the same time ensuring microbiological safety, would not be easy. Moreover, such a product would have to be capable of being stored at ambient temperatures, maintain its physical robustness and have a shelf life of at least three months.
Bringing Orlando products to market involved over- coming three types of technical problem. First, the formu-
lation and ingredient mix for the product had to maintain the required texture yet be capable of being baked on the company’s existing baking lines. The risk of developing an entirely new production technology for the offering was considered too great. Second, extruding the mixture into baking moulds while maintaining microbiological integrity (dairy products are difficult to handle) would require new extrusion technology. Third, the product would need to be packaged in a material that both reflected its brand image and kept the product fresh through its shelf life. Existing packaging materials were unlikely to provide sufficient shelf life. The first of these problems had, more or less, been solved in PJT’s development laboratories. The second two problems now seemed less formidable because of a num- ber of recent technological breakthroughs made by equip- ment suppliers and packaging manufacturers. This had convinced the company that Orlando was worth significant investment and it had been given priority development sta- tus by the company’s board. Even so, it was not expected to come to the market for another two years and was seen by some as potentially the most important new product devel- opment in the company’s history.
The project team Immediately after the board’s decision, Monica had accepted responsibility to move the development forward. She decided to put together a dedicated project team to oversee the development. ‘ It is important to have represent- atives from all relevant parts of the company. Although the team will carry out much of the work themselves, they will still need the cooperation and the resources of their own depart- ments. So, as well as being part of the team, they are also gateways to expertise around the company. ’ The team con- sisted of representatives from marketing, the development
CASE STUDY Developing ‘Savory Rosti-crisps’ at Dreddo Dan’s
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CHAPTER 4 PRODUCT AND SERVICE INNOVATION 137
kitchens (laboratories), PGT’s technology centre (a develop- ment facility that served the whole group, not just the snack division), packaging engineers, and representative from the division’s two manufacturing plants. All but the manufactur- ing representatives were allocated to the project team on a full-time basis. Unfortunately, manufacturing had no one who had sufficient process knowledge and who could be spared from their day-to-day activities.
Development objectives Monica had tried to set the objectives for the project in her opening remarks to the project team members when they had first come together. ‘We have a real chance here to develop an offering that not only will have major mar- ket impact, but will also give us a sustainable competitive advantage. We need to make this project work in such a way that competitors will find it difficult to copy what we do. The formulation is a real success for our development people, and as long as we figure out how to use the new extrusion method and packaging material, we should be difficult to beat. The success of Orlando in the marketplace will depend on our ability to operationalize and integrate the various technical solutions that we now have access to. The main problem with this type of offering is that it will be expensive to develop and yet, once our competitors realize what we are doing, they will come in fast to try and out-innovate us. Whatever else we do we must ensure that there is sufficient flexibility in the project to allow us to respond quickly when competitors follow us into the mar- ket with their own ‘me-too’ products. We are not racing against the clock to get this to market, but once we do make a decision to launch we will have to move fast and hit the launch date reliably. Perhaps most important, we must ensure that the crisps are 200 per cent safe. We have no experience in dealing with the microbiological testing which dairy-based food manufacture requires. Other divi- sions of PJT do have this experience and I guess we will be relying heavily on them.’
Monica, who had been tasked with managing the (now much expanded) development process, had already drawn up a list of key decisions she would have to take:
● How to resource the innovation project – The division had a small development staff, some of whom had been working on Project Orlando, but a project of this size would require extra staff amounting to about twice the current number of people dedicated to the innovation process.
● Whether to invest in a pilot plant – The process technology required for the new project would be unlike any of the division’s current technology. Similar technology was used by some companies in the frozen food industry and one option would be to carry out trials at these (non-competitor) companies’ sites. Alternatively, the Orlando team could build its own pilot plant which would enable it to experiment in-house. As well as the significant expense involve,
this would raise the problem of whether any process innovations would work when scaled up to full size. However, it would be far more convenient for the project team and allow its members to ‘make their mistakes’ in private.
● How much development to outsource – Because of the size of the project, Monica had considered outsourcing some of the innovation activities. Other divisions within the company might be able to under- take some of the development work and there were also specialist consultancies that operated in the food processing industries. The division had never used any of these consultancies before but other divisions had occasionally done so.
● How to organize the innovation activities – Current- ly the small development function had been organized around loose functional specialisms. Monica wondered whether this project warranted the creation of a sepa- rate department independent of the current structure. This might signal the importance of this innovation project to the whole division.
Fixing the budget The budget to develop Project Orlando through to launch had been set at $30 million. This made provision to increase the size of the existing innovation team by 70 per cent over a 20-month period (for launch two years later). It also included enough funding to build a pilot plant which would allow the team the flexibility to develop responses to potential competitor reaction after the launch. So, of the $30m, around $18m was for extra staff and contracted- out innovation work, $7.5m for the pilot plant and $4.5m for one-off costs (such as the purchase of test equipment etc.). Monica was unsure whether the budget would be big enough. ‘I know everyone in my position wants more money, but it is important not to under fund a project like this. Increasing our development staff by 70% is not really enough. In my opinion we need an increase of at least 90% to make sure that we can launch when we want. This would need another $5m, spread over the next 20 months. We could get this by not building the pilot plant I suppose, but I am reluc- tant to give that up. It would mean begging for test capacity on other companies’ plants, which is never satisfactory from a knowledge-building viewpoint. Also it would compromise security. Knowledge of what we were doing could easily leak to competitors. Alternatively we could subcontract more of the research which may be less expensive, especially in the long run, but I doubt if it would save the full $5m we need. More important, I am not sure that we should subcontract anything which would compromise safety, and increasing the amount of work we send out may do that. No, it’s got to be the extra cash or the project could overrun. The profit projections for the Orlando products look great [see Table 4.1], but delay or our inability to respond to competitor pressures would depress those figures significantly. Our competitors could get into the market only a little after us. Word has is that Marketing’s
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138 PART ONE DIRECTING THE OPERATION
calculations indicate a delay of only six months could not only delay the profit stream by the six months but also cut it by up to 30%. ‘
Monica was keen to explain two issues to the man- agement committee when it met to consider her request for extra funding. First, that there was a coherent and well-thought-out strategy for the innovation project over the next two years. Second, that saving $5m on Project Orlando’s budget would be a false economy.
QUESTIONS 1 How would you rank the innovation objectives for the
2 What are the key issues in resourcing this innovation process?
3 What are the main factors influencing the resourcing decisions?
4 What advice would you give Monica?
Table 4.1 Preliminary ‘profit stream’ projections for the Project Orlando offering, assuming launch in 24 months’ time
Time period * 1 2 3 4 5 6 7
Profi t fl ow ($m) 10 20 50 90 120 130 135
PROBLEMS AND APPLICATIONS
1 How would you go about evaluating the design of this book?
2 A company is developing a new app that will allow customers to track the progress of their orders. The website developers charge €10,000 for every development week and it is esti- mated that the design will take 10 weeks from the start of the design project to the launch of the website. Once launched, it is estimated that the new site will attract extra business that will generate profits of €5,000 per week. However, if the website is delayed by more than five weeks, the extra profit generated would reduce to €2,000 per week. How will a delay of five weeks affect the time when the design will break even in terms of cash flow?
3 How can the concept of modularization be applied to package holidays sold through an online travel agent?
4 One product where a very wide range of product types is valued by customers is that of domestic paint. Most people like to express their creativity in the choice of paints and other home decorating products that they use in their homes. Clearly, offering a wide range of paint must have serious cost implications for the companies which manufacture, distribute and sell the product. Visit a store which sells paint and get an idea of the range of products available on the market. How do you think paint manufacturers and retailers manage to design their services and products so as to maintain high variety but keep costs under control?
5 Some firms specialize in helping clients to innovate and design their products and services. One of the best known of these is IDEO ( ideo.com ). Look at the website and: (a) Identify the stages of design innovation that the firm goes through with its clients. (b) Assess its approach to design innovation. What does the firm believe are the most impor-
tant aspects of successful new product and service development? (c) Why do you think IDEO is so willing to tell everyone how to go about the design innova-
tion process? Isn’t that giving away the firm’s expertise for free?
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