New Product Development in the Internet Era: An Exploratory Study Xeuli Huang * Geoffrey N. Soutar ** Alan Brown * * Faculty of Business and Public Management, Edith Cowan University ** Graduate School of Management, The University of Western Australia Summary The emergence of the Internet has impacted in many ways on how we conduct business. One of these business areas is new product development (NPD). There is little empirical research so far into how businesses use the Internet to improve their NPD. This paper aims to explore the use of the Internet in the NPD process and to identify factors influencing the adoption of the Internet in NPD, particularly in the small and medium-sized enterprises (SMEs).
In-depth interviews were conducted with mangers/owners of 10 innovative firms in
Western Australia and their Web sites were accessed. Qualitative analysis software, NUD-IST, was used to explore the patterns and derive conclusions from the transcriptions. The findings reveal that that the Internet has been widely used in the NPDP. The Internet was found to be used for three purposes in the NPDP: 1) information gathering, 2) communication and inter-firm cooperation, 3) marketing, and 4) after-sales service. Several factors have been identified as influencing the use of the Internet in the NPDP. These include industry’s characteristics, the firm’s main business activities and resources, and the owner/manager’s characteristics, such as age and educational level. At this stage, firms are more likely to use the Internet as a supplementary, rather than complementary, tool to enhance their core competency.
Introduction The Internet has impacted on business in many ways, making it possible to exchange information almost instantaneously with others around the world. The Internet has been suggested repeatedly as something that will affect business operations, marketing, customer relations, inter-firm relationships, and NPD [1-4].
While the Internet is being used as a tool for information search, exchange and inter-functional communication, the world wide web has emerged as a marketplace of on-line communities [4]. Thus, an important function of a website, an important entity of the Internet, is marketing, particularly promotion and
distribution and many businesses have established web sites to promote their products and to allow transactions over the Web. But, what of the Internet’s role in NPD?
NPD is a set of information-intensive and cross-functional activities that include idea generation, screening, business analysis, product development, market testing, and commercialisation. These activities require information from many areas, including the marketplace, technology sources, competitors, and government. From a functional perspective, NPD is likely to involve marketing, research and development (R&D), engineering and production. Successful inter-functional coordination and communication are important factors that influence new product success.
The Internet can be used in many ways to improve new product success. However, there is little empirical information as to how businesses use the Internet for NPD, how they benefit from this new business enabler or what factors influence its adoption. The present paper explores these issues by investigating how the Internet can be used in the NPD process and to identifies some of the factors that affect its use for this purpose. A Literature Review The use of the Internet in business has recently received considerable research interest [5, 6]. Table 1 briefly lists the purposes or business applications identified from the literature [1, 5, 7-10].
As can be seen from the Table 1, the Internet has a wide variety of business applications, particularly for exchanging information, communicating a firm’s offering, building corporate image, strengthening customer relationship, enhancing inter-firm cooperation and increasing sales. Therefore, many organisational functions can be improved with the use of Internet technology. However, few pay specific attention to NPD.
It is long recognised that NPD is a corporate-wide activity [11] which involves multi-functions including R&D, engineering, production and marketing. Although the impact of the Internet technology is fundamental, covering business strategy, organisational structure and process [12], we confine our discussion to the applications of the Internet for the NPDP, which “has the strongest impact on the business’s new product performance” [13, p. 466].
The NPDP is comprised of a series of activities that drives a new product project from the idea stage through to market launch and beyond [14]. Cooper and Kleinschmidt [15] have developed a 13-step model in an attempt to break down these activities into manageable and distinguishable stages (see Table 3).
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Table 1 The Use of the Internet in Business Activities Kalakota and Whinston [5]
Four types of transactions: • between a company and consumers for the purpose of home shopping and home banking; • between business partners; • for information gathering such as market research; and • for information distribution, such as marketing, advertising, and sales.
Hoffman, Novak And Chatterjee [7]
• • • • •
Providing detailed information on a firm’s offering; Creating an image; Building an ongoing relationship with the consumers; Online storefronts; and Content.
Massotto [8]
• • • •
Marketing and Sales; Public Relations/Corporate Communications; Purchasing; and Internal communications.
Ainscough and Luckett [1]
• • • •
Interactive brochure; Customer service tool; Virtual storefront; and Information clearinghouse.
Ellsworth and Ellsworth [9]
• • • • • • • •
Communication Information management and distribution Customer service and technical assistance Public and community relations Cost containment Research Recruitment Marketing and sales
Frank [10]
•
Electronic exchange of information, goods, services and payment; and Creation and maintenance of Web-based relationships.
•
Vassos [16] outlines some applications of the Internet in the NPDP. They include market research, competition analysis, concept testing survey, product development, soliciting feedback on products, and launch new products.
Theoretically, the most important role played by the Internet in SMEs is probably in the areas of information gathering and new product commercialisation. NPD involves both technology and market uncertainties, which can be reduced by gathering information. Moreover, given the fact that the Internet has emerged as a marketplace, it provides opportunities for product developers to market their products on the Internet. As can be seen from Table 1, the Internet has been widely regarded as a marketing and sales tool.
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Many activities in commercialising new products can be solely performed or supplemented by the Internet, including the provision of technical information, customer service, promotion, and product applications. In addition, the Internet can be used as a distribution channel for certain products, such as computer software, electronic games, and databases.
Although it appears from the above theoretical analyses that the Internet can be widely used in assisting NPD, there is a dearth of empirical studies on how firms actually use Internet technologies in developing their new products. The purpose of this paper contributes to filling in this void and provides some insights into the NPDP in this digital age. The Present Study Ten businesses have been randomly selected from the R&D Database of Western Australia (WA). The database was developed by the Department of Trade and Commerce (DTC) of WA and contains 467 businesses that are actively involved in undertaking R&D activities. It provides information about the main R&D activities of the firms, the numbers of total and R&D staff, and contact details. It can be accessed and downloaded from the DCT Web site.
Telephone calls were first made to the person who is responsible for R&D or product development. The purpose of this research was then explained over the phone and their participation was requested. Managers from ten firms were finally secured to be interviewed.
The interviews lasted from one to two hours. All 10 interviews were tape recorded and transcribed. Written materials about the firm’s business, products were also collected at the end of the interview. Qualitative analysis software, NUD-IST [17], was used to explore the patterns and derive conclusions [18] from the transcriptions. The participants’ profile, including industry type, the number of employees, connection of the Internet and establishment of the Web site, is shown in Table 2. For those firms with Web sites, access was also made to these Web sites to examine their content and functions.
Table 2 The Profile of Participant’ Industry, Employment Size and Internet Connection Number 1
Industry Software developer for
Staff
Main business activity
Internet
Web site
9
R&D and production
Yes
Yes
800
R&D and production
Yes
Yes
mining industries 2
Electronic card
4
3
Machinery for oil
13
R&D and production
Yes
exploration
Under construction
4
Medical instrument
3
R&D
Yes
No
5
Marine electronics
2
R&D
Yes
No
6
Bio-technical firm
5
R&D
Yes
No
7
Fire detection and
30
Production and R&D
Yes
Yes
emergency warning systems 8
Vehicle security
15
Production and R&D
Yes
Yes
9
Building materials
90
Production and R&D
Yes
Yes
10
Chemical firm
15
Production and R&D
No
No
Findings and Discussion To assist in the discussion, the firms were classified into R&D-dominated (called firms 1-3 to preserve the firm’s identity), R&D only (firms 4-6) and production-dominated (firms 7-10) based on their main business activities and resources. R&D–Dominated Firms Firm 1 is a software development firm and a division of an international company, with offices in eight countries. The company develops, markets and sells computer software. The company regularly launches new products and the Internet is heavily used in this process. The company’s North American headquarters coordinates new product strategy and the NPD effort. Once a new product idea is approved, detailed product specifications are distributed over the company’s password-protected Web page to generate inputs and feedback.
The company has two test phases (alpha and beta). Each national office tests new products internally in the alpha phase. Problems and solutions about new products are dynamically pasted on the protected Web page so that all staff involved knows the progress of the product. All sub-phases are undertaken over the Internet (through e-mail and the protected Web site). The beta phase is a field test, in which the new product is released to selected clients. Their feedback is collected and pasted onto a special section of the company’s Web site.
The Internet is also widely used in marketing and distribution. The company’s Web site enables clients to download upgraded versions of the product. This saves the company costs in distributing new products and allows clients to get new products quickly. Information about newly released products is provided that shows the features of these products and their applications.
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Technical support is also offered on the Internet. Contact information for all offices is listed on the Web site. Clients can post problems on the company’s Web site and, as most of the company’s offices work in different time zones, problems can be dealt with virtually seven days a week. Thus, a staff member in Australia, where the local time is Monday, can solve a technical problem for a client in Brazil on Sunday. A further page on the Web site allows prospective clients to contact the company, which may be helpful in generating new customer, ideas and product applications.
Firm 2 is an international leader in R&D in its area of electronics and its customers are large public sector organisations throughout the world.
Although it has several international divisions, the division
interviewed is responsible for R&D and manufacturing. Given the nature of its business, it is likely that information about its technology would be hard to find on the Internet. The nature and number of its clients makes the Web largely unnecessary. Therefore, it was not surprising to find the firm made little use of the Internet in NPD. Indeed, its Web site is simply an electronic form of the company’s printed brochure.
Firm 3 is a small-sized engineering firm that designs and manufactures specialised products for oil and water exploration companies. The firm serves large exploration organisations and operates in a niche market. Because innovative design and improved materials can improve the product, the talents of the R&D staff play an important part in NPD. The company is currently constructing a Web site but only because “others are doing this.” Perhaps the fact that the owner is unable to operate a computer efficiently may contribute to the limited use made of the Internet.
R&D-Only Firms The three R&D-only firms interviewed were small, employing 2-5 people. Firm 4 is a medical electronic instrument firm that also retails medical instruments. The owner has strong interest in R&D and has developed several products in the past. The Internet is used to search information about new product and technology. Because the new products usually need electronic components, the owner also uses the Internet to search for potential suppliers of these components.
The manufacture and marketing of the new products
developed are outsourced because of a lack of resources and the Internet is used to find potential manufacturers and marketing agencies.
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Firm 5 is a marine electronics organisation that develops products for luxury boats. The owner uses the Internet to search for technical information about the systems the company sells and to find information about potential suppliers of the electronic components contained in the company’s products.
Firm 6 is a biotechnology company that is developing environmental friendly products for a particular industry. The company has a joint venture with an overseas company and the Internet has been used for interfirm communication over the past two years. However, the Internet has not been used in their NPD process. Production-Dominated Firms These four firms are manufacturers but they also undertake R&D activities. The new products they develop are usually incremental.
Firm 7 is a medium-sized firm with products that target commercial, industrial and multi-residential complexes and buildings. The company only recently established a Web site that is used to promote new products and includes technical information, photographs that show the products’ physical appearance, product testing results, the benefits offered, and the service provided (training and technical support) for new products. However, it is largely an electronic version of the company’s printed newsletter. The company has made little use of the Internet in other NPD areas. Although it is possible to use the Internet to search for technical information about their products, the owner prefers to go overseas to collect such information and relies on brochures, operating manuals, and, more importantly, competitors’ physical appearance and the components they use. The owner believes that some information, such as physical appearance, cannot be collected over the Internet.
Firm 8 manufactures an electronic consumer product that is generally sold to consumers through installers. The firm uses the Internet to collect information about overseas development trends, particularly in the North America and Europe. Like firm 7, its Web site is used to promote new products. However, installation instructions are also provided and the Web site has a password-protected page that allows installers and clients to get the installation information needed. Incorrect installations have been a problem because external companies install most products. Before the Web site was set up, installation problems took a significant amount of time.
Firms 9 & 10 made little use of the Internet in their NPD processes. Firm 9 has a Web page attached to the Web site of its local trade association that can be used by customer’s asking about product information. Firm
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10 has not even bothered to connect to the Internet as the owner, who is planning to retire, is attempting to sell the firm.
The use of the Internet and Web site in NPDP in these 10 firms is summarised in Table 3. As can be seen from the table, the Internet has been used for information searching, including idea generation, technical analysis, product development and commercialisation. It is also used for internal communication, particularly for multinational companies. In this respect, the Internet (and email) is used to reduce the costs in NPDP. Table 3 The Uses of the Internet in the NPDP by Different Groups of Firms R&D–
R&D only
Production-
dominated
firms
dominated firms
NPD activity
firms 1 1 Idea generation
2
Y
3
4
5
6
7
8
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
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2 Initial screening 3 Preliminary market analysis 4 Preliminary technical analysis (gathering technical information) 5 Preliminary production analysis 6 Preliminary financial analysis 7 Market study 8 Product development Product specification
Y
Searching information for potential suppliers of components Internal communication
Y
Y
9 In-house product testing 10 Consumer product testing
Y
11 Marketing testing 12 Precommercial financial analysis 13 Commercialisation Distribution
Y
Customer service
Y
Promotion
Y
Y
8
Y
Y
Y
Y
Y
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For SMEs, the characteristics of owners/managers can have a great influence on how the firms use the Internet and Web site. These characteristics include their age, education, and attitude. While high educational qualifications may not influence the adoption of the Internet technology in NPDP, the low educational level may deter this process. Conclusions and Implications The rapid development of Internet technology has provided opportunities for firms to undertake and enhance NPD. The Internet as “marketplace” [7] and “business enabler” [19] makes it possible for businesses to market their products in the new emerging cyberspace, to lower the NPD costs, and possibly to increase the speed to market. Although the impact of the Internet technology on the NPDP has been acknowledged and described, it is not clear how firms actually make use of Internet technology in their NPD. This paper has provided insights into it.
This paper has investigate how the Internet has been used by typical Australian SMEs and
has
demonstrated that the Internet has been widely used in the NPDP. The Internet was found to be used for four broad purposes in NPD: 1) information gathering, 2) communication and co-operation, 3) marketing, and 4) after-sales service. Firms use the Internet in several steps of the NPDP, including idea generation, technical analysis, product development, customer product test, and new product commercialisation. However, it seems that the Internet is still under-utilised in many businesses.
The Web sites of the companies studied are mainly used for promoting new products. Most companies interviewed regard the Web site as a marketing and sales tool. Thus, the Web is regarded as a marketplace. Another important application of the Web site is to build customer relationships by providing technical information about new products and gathering feedback from customers and sales agents. For the software developer, the Web site is also used as a channel to distribute its products to users either for field application or field tests.
Several factors have been identified that influence the use of the Internet in NPD. These include industry’s characteristics, the firm’s main business activities and resources, and the owner/manager’s characteristics, such as age and educational level.
To a great extent, how a firm uses the Internet is heavily influenced by the industry within which it operates. For example, information industries, such as the software industry, the Internet has been found used
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not only in distributing its products, but also in communicating with users and co-operating with other firms overseas. Given the nature of the products, which can be easily delivered via the Internet, it can be expected that the Internet will play an increasingly important role in the future as Internet technologies evolve. For high-tech industries, such as vehicle security, the Internet is more likely to be used as a communication media for marketing and technical support. For many industries, the primary objectives to use Internet and Web sites in NPD could be largely in the areas of marketing and information gathering.
Another finding of this paper is that the use of the Internet in NPD depends on the firm’s major business activities and resources. R&D-only firms use the Internet mainly to search information for idea generation, technical analysis and product development, while production-dominated firms use Web sites mainly as a marketing tool and communication medium with their customers. Therefore, the Internet serves as a useful resource and marketing tool to supplement the firm’s main business activities. At this development stage of Internet technology, it seems that smaller firms are more active in using the Internet in their NPD either to cut the development costs or to increase sales. Overall, firms are more likely to use the Internet as a supplementary, rather than complementary, tool to enhance their core competency at this stage.
Besides the industry’s and firm’s characteristics, the characteristics of owners/managers can also influence how the firms use the Internet and Web site. These characteristics include age, education, attitude towards new technologies, and computer literacy. SMEs managed by young and better-educated owners are more likely to adopt the Internet in NPD in their firms. An important implication from this finding is that more training of how to use computers and the Internet are urgently needed in SMEs in order to increase the use of the Internet in NPD.
Given the exploratory nature of this study and the small sample size, more qualitative studies are needed to fully explore the use of the Internet in NPDP. Areas for future studies can include the relationship between the use of the Internet and product performance as well as the difficulties firms encounter in using the Internet in the NPDP.
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