A case analysis of Applied Research Technologies (ART), one of theemerging giants in the technology world, has shown that by 2006, someof its innovations failed in the market. In particular, there are twoversions of the mini-oxidation system developed by the FiltrationUnit from 2003 to 2006. The first and second generation productsfailed in the world market due to the design defects, as well as, thelack of interest in the marketplace (Bartlett & Beckham 2010, p.4, par. 6). The Filtration Unit, which is under the Water ManagementDivision, however, has considered developing an entirely new versionof the product that will help in wastewater disinfection in smallbatches. The paper analyzes the problem of market research andanalysis, which the Filtration Unit had in launching the first,second and now the third generation product. In consideration ofother problems such as faulty designs and loss of credibility, theessay focuses on identifying the viable solutions and makingrecommendations to the major problem faced by the Filtration Unit andART at large.
Identification of Problems
During the test marketing for the first version of themini-oxidation system produced water that had a detectable smell. Asa result, the product was not absorbed in the market because of thedesign defects. During the period between 2003 and 2006, theFiltration Unit launched the second generation product, which was aslightly modified version of the first generation product. This newversion solved the odor problem but, it was realized that the systemconsumed too much power and thus, requiring battery replacementfrequently. During the development of the third version of theproduct, it was realized that design defects could have been causeddue to some issues in project management. Div Verma, who was the lableader working in the India Technology Center (ITC) owned by ART,complained that the US team rushed the design process, an issue whichincreased the probability of failure for the third time (Bartlett &Beckham 2010, p. 7, par. 2). Although Peter Vyas, who is the GeneralManager of the Filtration Unit, fixed the project management issue,the design of the third generation product, which has not yet beenlaunched, remains questionable.
Another problem faced by the Filtration Unit during the first andsecond attempts to launch a mini-oxidation product is the lack ofinterest in the marketplace. According to Cynthia Jackson, the VicePresident of the Water Management Division, the Unit lacksdiscipline, and this has translated to $6 million losses annuallyfrom 2003 to 2006. As the Filtration Unit developed the thirdgeneration product, Jackson emphasized them to adopt the three phaseprocess, which links the market research to the innovation andbusiness planning (Bartlett & Beckham 2010, p. 5, par. 6). Mostimportantly, before even developing the product specifications andprototypes, she required the Unit to link the product concept tomarket research and analysis. Based on the market research andstrategies developed by the Unit, it seems that there is an acuteproblem regarding the target markets and sales forecast. When Vyaswas requesting the $2 million funding, the market research showedthat they lacked data on the target markets, and the project turnedto be too costly.
Importance of the Problem
The major problem faced by the Filtration Unit concerning themini-oxidation product is the slight discrepancies in market researchand linking the market information to the product concept. It isnotable that the sales forecasts and expense estimates for the thirdgeneration product excluded the market in the developing world. Afterseveral discussions and reviews of the new project, the Unit focusedon the Residential Irrigation Mini-Oxidation System (RIMOS) for theUnited States’ market and halted the Agricultural Irrigation LargeOxidation System (AILOS). The Unit concluded that they would seekassistance from the Oil and Gas Division for developing the salesforecasts in the developing world since the division has aconsiderably more global presence (Bartlett & Beckham 2010, p. 7,par. 5). It seems that from the fact that the Unit had done testmarketing in all markets, they had not done detailed market research,which makes the launching of the third generation product very risky.
The market research problem is important for discussion because itdetermines the commercial success of the product even before thetechnical success. Based on the three phase process, market researchand analysis appears before product development and businessplanning. With the information and data about the market, it is easyto determine whether there is a viable business opportunity or norlong before developing the product concept. Although the Unit haddone some market analysis before developing the RIMOS, there areseveral omissions made in the gathering the market information. It isnotable that the Filtration Unit did not conduct a competitoranalysis even after identifying that there is a scarcity of cleanwater around the world. The business opportunity identified duringthe first and second attempts could have been exploited by othertechnology company and hence relying on the past market data put thenew project at risk regarding its absorption in the market.
Key Stakeholders affected by the Problem
The first and second generation products, which failed in themarket, have discredited the capabilities of the Filtration Unit andthe ART’s Water Management Division in promoting the company’smission of being innovative. The losses made by the Filtration Unithave hurt its credibility, which lowers the chances of being fundedwith the money needed to launch the residential irrigationmini-oxidation system (Bartlett & Beckham 2010, p. 3, par. 4).Cynthia Jackson, the VP of the Water Management Division and PeterVyas are among the topmost officials haunted by the effects ofinadequate market research in new product development process.Although the two versions of the product had design defects, there isa great likelihood that the product could not have succeeded in themarket even if the products were flawless. In other words, thedefects portrayed by the products during test marketing covered upthe potential failure, which would have been caused by low sales.
The slight discrepancies in market research during the third launchmay affect the personal credibility of Vyas, who is supporting theproposal and seeking $2 million funding from the Company’s FinanceDepartment. During the third generation product development, JaniceWagner, who was leading the US project management team, worked closedwith the ITC technologists (Bartlett & Beckham 2010, p. 5, par.4). Therefore, if the product fails during test marketing due to theproblem of weak market research, the ITC technologists will be blamedfor developing an unsuccessful mini-oxidation system. It is notablethat during the third attempt, the project management teams both inthe US and India, were determined to develop a flawless product,which could be true. However, if the RIMOS fail to generate revenuein the US market, the failure will be blamed on every departmentinvolved in the design of the product, and this will lead to loss ofcredibility for all the stakeholders.
The Current CEO, David Hall, who is also the founder of the companywill lose any funding support from the foreign aid groups, forexample, the one that funded the first generation. In this way, theCEO will also lose the networks of support for innovations made byhis company. The losses made by the Filtration Unit from 2003 and2006 due to poor market research will affect the entire companyregarding finance and profitability. After the Unit had developed adetailed product concept, marketing strategies and risk managementplans, the team led by Vyas approached the company’s grapevine forfunding of $ 2 million to launch the product. If the launching of theproduct fails the third time, the company will lose the money andhaunt the company’s reputation regarding innovativeness.
Causes of the Problem
The failures during the first and second attempts were caused bylimited information about the market. Similarly, the third launchmight be affected by the lack of data on the target market. Limitedinformation about the market can be analyzed using the funnel ofuncertainty which provides a road map for making and reviewingdecisions about the amount of resources to be committed toinnovation. In this funnel of uncertainty, knowledge is considered tobe important in converting uncertainty to nearly calculated risks(Bessant & Tidd 2013, p. 330, par. 5).There is also the recognition of the importance of investing theearly knowledge through market research, technological research anddevelopment, trend-spotting and competitor analysis. The launching ofthe third version of the mini-oxidation product might turn out to beproblematic since the Filtration Unit did not invest much knowledgeduring market research, collecting suggestions from the end-users andidentification of the target market among others.
During the previous attempts of innovation in the Filtration Unit,there was minimal consultation between the Unit and the corporate R &D groups. However, during the third launch, the filtration unit’s R& D team in the US offered to develop an entirely new version ofthe mini-oxidation product by utilizing ultrasound waves fordisinfecting water (Bartlett & Beckham 2010, p. 5, par. 3). Thefact that the technological changes proposed by the R &D wasstill undergoing research and testing in 2006 brings forth thequestion of whether the Filtration Unit adopted it or not. This is aweakness that the Unit had in gathering information from the R &D group. During the review of the project, Cynthia Jacksonhighlighted the sparseness of market data, which put the project atrisk. Also, the Unit did not analyze the level of competition beforethe development of the product concept.
Proposed Solutions to the Problem
Although the Filtration Unit has limited information about themarket, they can launch the product and manage the innovation stagesof test marketing and commercialization. Innovation managementinvolves balancing the costs of continuing with a project, which mayeventually fail and the loss of an opportunity by terminating theproject, which would have been beneficial to the company. Astructured development system in innovation management is importantbecause it allows a series of decisions to be made as the innovationprogresses in the market. This is commonly referred to as the stagereview process, which is suitable for new product development. Globalcompanies with multiple products in one line/chain such as GeneralMotors and Siemen use the stage gate system to evaluate and reviewthe innovation process (Bessant & Tidd2013, p. 332, par. 4).
Building a Portfolio for the projects at hand can solve the problemof weak market research. This will allow the spreading of risksbefore resource commitment to innovation. The fact that theresidential irrigation mini-oxidation system (RIMOS) was notidentified as a “fast track” project makes it unwise to continueto the launching of the product. The spreading of risks can beborrowed from the idea that the funnel of uncertainty should be usedto guide the innovative process. The wide mouth of possibleinnovations converges into a smaller section that represents the keyresources worth resource commitment (Bessant &Tidd 2013, p. 338, par. 2). With proper portfolio management,the Filtration Unit can judge whether to continue with third launchor not based on the risks, resources committed, as well as thepotential rewards.
The management might as well consider building coalitions ornetworks of support, which will help in accelerating the adoption anddiffusion of the innovation. Many problems during the development ofnew products arise from the lack of a common perspective on theproduct and the marketplace where it will be introduced (Bessant& Tidd 2013, p. 336, par. 3). The Filtration Unit,therefore, should create networks of support after launching theproduct to ensure several stakeholders such as the end-users andsuppliers are involved. It is important to note that the engagementof stakeholders is necessary when developing the product concept but,involving them after the launch will considerably increase theadoption of the innovation.
The best approach that the Filtration Unit should take is bylaunching the product and applying the stage gate system in managingits penetration in the market. The criteria used to decide on thestage gate system involves assessing how the proposed solutionhandles uncertainties and how it addresses the issues of competitoranalysis, risk assessment, and marketing strategies included in thebusiness plan. The stage gate process will allow the Unit to evaluateand review the progress of innovation in the market and makedecisions that restrict costly undertakings but, high potentialrewards. The Unit should use the stage system because it offerssolutions to managing uncertainty and most importantly, convertingthe uncertainties about the market to nearly calculated risks(Bessant & Tidd 2013, p. 330, par. 2).The option of using this system is supported by the fact that itallows the launching of the product, unlike, building portfolios andnetworks of support, which may limit the launching of the project.
The stage gate process should first involve setting up criteria formeasuring progress against what was done during the test marketing ofthe first and second generation products. Secondly, the Filtrationshould make a series of decisions starting with the outset todetermine whether to continue with the project or not. Thesedecisions should be based on the evaluation of the resourcescommitted, risks and potential rewards (Bessant& Tidd 2013, p. 330, par. 4). It, therefore, means thatthe unit should assess the risks and potential benefits realized ornot achieve from the outset. The potential problems likely to occurinclude high levels of resource commitment and low sales revenue inthe short term. However, with a stage gate system, there is a highprobability to succeed because it is possible to make and review theseries of decisions made during the progress of the project. Also,the people involved in test marketing can formulate strategies thatwill accelerate the adoption of the innovation.
While using the stage-gate system, the Filtration Unit should focuson the resources committed to the new project in the short term. Inthis period, it is usually hard for new projects to generateconsiderably enough revenue for the company and hence the sales forceshould be concerned on the expenses incurred by comparing them withthe estimates included during the business planning process. Thelikely outcome in the short term is higher costs than revenues but,there is a likelihood that the expenses incurred exceed the salesmade with high margins. In the medium term, the sales force and theUnit should determine the break-even point where sales are almostequal to the expenses. The Unit should assess the adoption anddiffusion of the innovation in the market in the medium and longterms (Bessant & Tidd 2013, p. 369, par.5). The company should support the project through formingnetworks of supports and be engaging in community affairs toaccelerate the acceptance of the innovation in the market.
It seems that the major problem affecting the Filtration Unit is howto conduct detailed market research and analysis and to link the sameto the product concept. The Unit, which had been making losses forthe past few years, has experienced innovation failures during thetest marketing of the first and second generation products. Althoughthese failures have been connected to design defects and lack ofinterests in the marketplace, the slight discrepancies in marketresearch during the third launch depicts that the Unit has beenfailing due to problems relating to the collection of the rightmarket data. To address the problem, I think the Unit can continueand launch the product but, they should apply the stage gate systemto guarantee their success in the short, medium and long termsdespite the mistakes made during market research.
Bartlett C A & Beckham H, 2010, Applied Research Technologies,Inc.: Global Innovation’s Challenges, New York, HarvardBusiness School.
Bessant J and Tidd J, 2013, ManagingInnovation, Integrating Technological, Market and OrganizationalChange, Washigton, Wiley.