No title

Introduction

Management styles in industrial R&D organisations

This paper aims to understand whether there are different styles of organisation and management of industrial R&D activities. Several studies tackled this issue, from both managerial (among others, Roussel et al., 1991) and organisational (Twiss, 1987) points of view. However, these studies tend to treat R&D as a sort of black box, i.e. one function in which the firm's activities, devoted to the development of new technologies and new products, are concentrated. They focus on the identification of the managerial and organisational paradigms of the R&D function, and its integration with the rest of the organisation. They also implicitly assume that R&D is an activity of one typology. Recent cases of re-organisation of R&D activities within firms suggest that different pieces of the R&D work require different organisation. For example, ICI undertook a profound re-organisation of its overall structure on the basis of the nature of the technological competencies required by its different businesses. Sandoz split its development department away from its research activity at the beginning of 1994 (Financial Times, 28 January 1994), Glaxo announced a similar move at the end of 1993. In the electronic and telecommunication industry, increasingly research activities are managed at corporate level to explore the new opportunities emerging from the convergence of different technologies, whereas development activities are carried out and controlled at business unit level (Kodama, 1992). General Electric assigned a different role to its corporate research in its different businesses, aircraft engines, lighting, motors. Allied Signal assigned its corporate research the role to capture synergies among the technological activities related to the three major businesses: engineering materials, automotive, aerospace (Lewis and Linden, 1990). Moreover, increasingly, firms are forced to go abroad with their R&D to access foreign sources of knowledge and design their R&D organisation on a global basis (Chiesa, 1996). Different modes of global R&D organisation have been found and, especially, they differ when they concern research oriented activities rather than development oriented activities.

Andrea Cavone Vittorio Chiesa and Raffaella Manzini

The authors Andrea Cavone is Research Fellow, Vittorio Chiesa is Associate Professor and Raffaella Manzini is Assistant Professor, all at the UniversitaÁ C. Cattaneo (LIUC), Castellanza, Italy. Keywords R&D, Management styles, Technology, Innovation Abstract This paper aims to understand whether there are different styles of organisation and management of industrial R&D activities. Recent cases of re-organisation of R&D activities within firms suggest that: R&D activities tend to be carried out in different units of the same organisation and often in different locations, and there seem to be inter-industry differences among R&D processes. This paper attempts to explore whether and how a certain managerial/organisational style relates to the type of the R&D process (which varies from industry to industry) and to the different nature of the R&D activities. It also identifies the key characteristics of the R&D organisation and the strategic management of technology, associated with each style. The analysis is based upon an empirical study of 19 multinationals operating in various industrial sectors. A classification of the types of R&D process is adopted and the key characteristics of R&D management and organisation in each R&D type are described and discussed. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . pp. 59±71 # MCB University Press . ISSN 1460-1060

59

Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

.

.

Traditionally, R&D has been seen as a series of stages mirroring the progress of a certain technological programme (research, development, engineering etc.). Research works in different fields of study help to view it from a different perspective. Hedlund (1986) states that strategy can be seen as ``action patterns over time, of which there are two intertwined aspects'': there are programmes of experimentation, the primary aim of which is to seek opportunities, and programmes of exploitation seeking the effective use of given resources. Key characteristics of experimentation programmes are a continuous search for new techno-organisational solutions, and a learning process aimed at enhancing the firm's knowledge base. Exploitation programmes aim to create value through current activities, and to innovate by exploiting the skills embedded in a firm's human resources and technical systems. Therefore, whereas exploitation programmes seek to identify and use the potential of the current paradigm, experimentation programmes aim to identify and define the future paradigm. In turn, technological activities have to fulfil two major tasks: the exploitation of the resources and knowledge base available to compete in the short term (exploitation programmes), and the development of a knowledge base that helps to sustain competition in the long term (experimentation programmes). This distinction is central to our analysis. Recently Coombs (1996) has stated that R&D has two major articulations: the investment mode, in which activities are concerned with the development of the firm's technological capabilities, and the harvesting mode in which the R&D function participates with the other functions to the market-driven exploitation of specific artefacts and services for customers. He also underlines that the characteristics of technology associated to the two ways of employing R&D activities change. Whereas in the investment mode, the product of the R&D activity is technology seen as knowledge and skills (formal abstract representation of technology in codified form, the capabilities to employ it, the related tacit knowledge), the output of the R&D activity in the harvesting mode is functionality profile and technological recipe (the choice of the particular combination of technologies, design practices, configurations of sub-

These examples raise some remarks: R&D activities tend to be carried out in different units of the same organisation (which are at different hierarchical levels, for example, corporate and business unit) (Kay, 1988; Lewis and Linden, 1990; Eto, 1991), and often in different locations (home country and subsidiaries) (Howells, 1990; Hakanson, 1992; Casson, 1991). Therefore, it seems that the R&D carried out within a firm includes activities of a different nature. There seem to be inter-industry differences among R&D processes. Although R&D has some common traits among the various industrial sectors, the nature of the process of technological innovation strongly varies from industry to industry (Pavitt, 1990 and 1991; Kodama, 1995). Managerial studies have rather neglected whether and how such inter-industry differences affect organisational and managerial choices.

Such remarks suggest to study whether and how a certain managerial/organisational style relates to the type of the R&D process (which varies from industry to industry) and to the different nature of the R&D activities. This paper attempts to explore this point. In particular, it attempts to identify the key characteristics of the R&D organisation and the strategic management of technology, associated with each style. In the next section, studies on the nature of the R&D process and activities are reviewed and a classification of the types of R&D process is undertaken; then, the research questions and the methodology are described; finally, the key characteristics of R&D management and organisation in each R&D type are described and discussed.

Studies on the nature of R&D activities and the type of R&D process In this section, major literature contributions are reviewed helping identify whether, within R&D, there are activities which are different in nature, and whether there are different types of R&D processes. The nature of the R&D activities In order to define the nature of the R&D, the tasks of the R&D function are to be identified. 60

Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

systems, able to provide a certain range of service and performance). Another contribution is that of Kodama (1995), who identifies two major stages in an R&D programme, the exploratory stage and the development stage. The first includes fundamental research and exploratory development, the second includes advanced development, engineering development and operational system development. The transition from the exploratory to the development state is given by the sharp growth of the expenditure for an R&D programme, and, in certain R&D processes, by a strong difference in terms of risk. In conclusion, it seems that there is a wide accordance with the fact that there are activities of a different nature within the R&D process, one related to exploration and experimentation and therefore to the development of technological capabilities, the other related to the exploitation of such technological capabilities to generate and provide products and services. The distinction between experimentation activities and exploitation activities is conceptually different from the traditional classification of R&D activities in research (basic or applied) and product development. First, as the classification of Kodama (1995) suggests, experimentation activities may result in the (exploratory) development of commercial products, even if the principal purpose is the experimentation of new technologies. Moreover, especially in industries with high technological complexity, experimentation activities and exploitation activities are not simply sequential. It is not possible to link them with a linear technological transfer process. On the contrary the two types of activity need to be linked by an articulated process, which Iansiti et al. (1997) defines as technology integration, whose purpose is to combine market requirements and manufacturing needs with the availability of new technologies. The type of R&D process As far as the types of R&D processes are concerned, an initial contribution has been given by Pavitt (1984, 1990, 1991) who identified different patterns of technological change and the related sources of innovation. His taxonomy highlights that internal R&D activities play a different role in different industries and, in certain industries, are not a 61

major source of technological innovation. It does not say so much on inter-sectoral differences among R&D processes, when R&D is a major source of technological innovation. A focused contribution to this is the already quoted work of Kodama (1995), who identified three fundamental types of R&D process: dominant design, science based, and high tech. The distinction among the three patterns occurs when the probability is considered that a certain R&D programme is frozen after it has entered the development stage. More precisely, dominant design patterns have the characteristic that the probability to cancel a programme in the development phase is equal to zero. The high tech processes show a decreasing probability to cancel a programme in the development state with respect to the research phase, but greater than zero. In science based processes there is an equal probability to cancel the programme before and after it has entered the development phase. In other words, the three patterns are characterised by a different degree of risk of failure along the programme. Kodama found that the automotive, food, textile, steel, commodity chemicals follow a dominant design pattern; science based processes are those of chemical and pharmaceutical industries; high tech patterns are typical of the electronics, telecommunications, and machinery industries. Kodama interprets the differences between dominant design pattern and the other two patterns in terms of technological and competitive dynamics. In industry characterised by a dominant design pattern, technology evolves through competenceenhancing discontinuities, which improve product performance extending the knowledge base already available. In industries characterised by high tech or science based patterns technological discontinuity is competence-destroying, making the existing knowledge obsolete. So the high risk in the development state of the high tech and science based patterns related to the case that a new technology might, at any time, replace the existing one. In the dominant design pattern, existing technologies usually maintain a commercial value, and it is rare or impossible that the implementation is stopped. To explain the differences that occur between high tech

Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

operating in various industrial sectors (white goods, automotive, tyres, electronics, telecommunications, chemicals, pharmaceuticals). The sample covers the range of industries concerned with the different R&D processes. Four companies are North American, three are Japanese and 12 European. Some are widely diversified into unrelated businesses. In these cases, the analysis has concerned only a certain set of related businesses and the respective R&D activity (the activity studied is indicated in Table I under ``company activity''). Data have been collected through direct interviews of research managers at both corporate and business unit level. In each firm, at least three managers have been interviewed. Answers were cross-checked and re-submitted when uncertainties and differences emerged. The number of managers interviewed in each firm and the cross-checking of the answers reduced the risk that data and information might be biased by personal views or interests. Figure 2 shows the reference scheme of the empirical research. First of all, in each company of the sample, information was collected in order to understand the nature of the R&D activities: . the profile of each R&D unit, especially the scope of the activities, i.e. the range of technologies or products developed; . the time scale of the projects carried out by each unit; . the dimension (annual investments) of the projects carried out by each unit, and . the objective of the projects carried out by each unit (developing new products, developing new technologies, exploring new technologies), so identifying whether or not there is a business focus.

pattern and science based pattern, Kodama considers the intrinsic nature of research activities in the two cases. In science based industries, the R&D process is mostly random: it goes on with a trial and error approach, without modelling the system analysed. So, as long as the system model remains implicit, no learning is possible and, as a consequence, it is not possible to reduce the risk about the output of the process. Also in the final phases of the process a technical problem may stop the programme. On the contrary, in high tech industries the experimentation of explicit models starts a learning process, which progressively reduces the technical risk.

Research question and methodology The above discussion has pointed out that: . each R&D process is composed of an exploratory (or experimental) phase and an exploitation phase[1]; . R&D processes are characterised by a different risk profile, particularly in the exploitation stage. Differences in risk profile mirror differences in the intrinsic nature of R&D processes and in the characteristics of technological change. Three main profiles can be identified, referred to dominant design, science based and high R&D paradigms. The research question is then: do such differences (i.e. in the type of R&D activity and process) call for different R&D management styles? If so, which are the key characteristics of such styles, in terms of R&D strategic management, organisation and managerial approach? (see Figure 1) An empirical study has been conducted according to the research questions. The empirical base encompasses 19 multinationals

In this way, each R&D project was placed into a two-by-two grid: R&D process type

Figure 1 The research hypothesis

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Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

(dominant design, science based or high tech), R&D activity (experimentation or exploitation). Then, for each type of activity in the R&D process of a specific company, information was collected in relation to three main themes: (1) the strategic management of technology (i.e. the strategic planning process, the funding mechanisms, the criteria adopted in the project evaluation process); (2) the R&D organisation (i.e. the organisational structure of R&D units, the hierarchical location of R&D units (corporate vs business unit), the geographical distribution of R&D activity); and (3) the managerial approach (i.e. the project management techniques, the integration mechanisms between R&D units (technology transfer), the integration mechanisms between R&D and other functions.

Table I Description of the sample (in brackets the number of foreign units) Number of employees Company activity Telecomm.

R&D labs

in R&D

corporate labs 3

23,000

business units labs 2 Telecomm.

corporate labs 6 (4)

7,500

bus. unit labs 11 (10) Telecomm.

corporate labs 2

7,000

bus. unit labs 5 (4) Telecomm.

corporate labs 3

16,400

bus. units labs 6 (5) Telecomm.

corporate labs 5 (4)

10,000

bus. unit labs 6 (5) Pharmaceuticals

corporate labs 9 (6)

10,350

Pharmaceuticals

corporate labs 17 (12)

10,000

Pharmaceuticals

corporate labs 7 (1)

5,600

Chemicals

corporate labs 7 (6)

8,000

bus. unit labs 2 (2) Chemicals

corporate labs 10 (8)

7,500

bus. unit labs 2 (2) Chemicals

corporate labs 10 (7)

6,700

Electronics

corporate labs 5 (4)

4,950

Electronics

corporate labs 5 (2)

Electronics

corporate labs 6 (5)

Electronics

corporate labs 5 (4)

Table I summarises the R&D profile of each company. It shows the number of R&D units at both business unit and corporate level, and the total R&D personnel. The empirical study provided insights on the organisation and management of R&D and its relation with the nature of R&D activities and the types of R&D process in different sectors of activity. Major results are discussed in the following section.

bus. unit labs 6 (3) 7,600

bus. unit labs 8 12,000

bus. unit labs 5 8,000

bus. unit labs 4 (3) Automotive

bus. unit labs 6 (4)

2,800

Automotive

corporate labs 2

3,600

Styles of R&D organisation and management

bus. unit labs 5 (3) Tyres

bus. unit labs 5 (4)

White goods

bus. unit lab 4 (2)

Total

184

800 2,000

In this section, on the basis of the results of the empirical research, for each R&D process

153,800

Figure 2 The scheme of analysis

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Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

during the product development process. Decisions can be taken on the basis of the traditional financial techniques for investment evaluation (DCF techniques).

type (dominant design, science based, high tech), the nature of the R&D activities is described and the implications in terms of strategic management of technology, organisation and managerial approach discussed. Dominant design Strategic management Experimentation activities are strongly limited (about 5 per cent of the R&D expenditures) and have mostly an exploration character[2]. In the exploitation state, the freezing rate of an R&D programme is equal to zero. Technology is usually given and know-how advantages on competitors cannot be sustained: imitation is easy as the technology used is usually proven and available. The success of an innovation and, more generally, competition are played on factors such as market knowledge availability, timing of innovation and low manufacturing costs. A key factor is to frequently innovate and introduce new products renewing market offers (in the white goods industry, for example, firms introduce new products or lines of products every year). To this aim, it is critical to: . access sources of market knowledge, in order to capture the required functional profile of new products and hasten the exploitation process; . acquire the required capital equipment and to develop production processes ensuring that manufacturing costs are low; and . have an efficient and timely exploitation and engineering process. Given that there is no technical risk, the risk is wholly commercial and can be reduced if the process is strongly driven by market needs. Hence, marketing defines the market needs the company aims to respond to, while the R&D function defines the best technological response (technological recipes) to such needs. The link with strategy takes place at business unit level, where the R&D activity is an essential part of the product innovation strategy. Decisions related to each individual programme are taken by R&D people together with business unit managers, who usually fund the whole R&D activity. Short period experimentation programmes, which may be launched as the response to contingent technological needs, emerged 64

Organisation There is a strong difference between the nature of the exploration activity and the exploitation of technological capabilities. Usually the exploration activities are separated from the exploitation ones. The core R&D activity consists of the exploitation phase conducted by the exploitation labs. It consists of the design of new products where new proven and available technologies are embedded, and of the related production process. Exploitation labs conduct most R&D (on average they cover 95 per cent of the total R&D costs). Experimentation activities tend to be centralised at the headquarters labs, as the reduced complexity of technology change reduces the number of technological domains to be controlled as well as the need to access the external sources of knowledge. However, experimentation activities are controlled at business unit level and are strongly targeted to fuzzy or potential market needs. The exploitation activity is usually more decentralised. It is carried out at business unit level and is strongly controlled by business managers. Foreign labs play a twofold role: (1) an adaptive role, customizing the products developed by the headquarters to the specific needs of the local market; and (2) a sourcing role, ``listening'' to the customers' needs in specific markets and transferring such inputs to the exploitation centre. In Pirelli, for example, the business division of Pirelli Tyres has total control over both exploitation and experimentation activities. Experimentation activities, aimed to radically renew the product concept, are concentrated within the ``advanced research'' unit. For example, such a unit was responsible, in the 1970s, for the introduction of the high performance tyres, which represented a real breakthrough in the field. Exploitation activities are conducted within the ``product direction'' unit, which is responsible for both product and technology exploitation.

Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

Managerial approach A key factor is the adoption of managerial techniques facilitating the integration of the R&D work (exploitation activity) with production process development activities, manufacturing and marketing (for example, quality function deployment, concurrent engineering, simultaneous engineering). Technical programmes are often carried out by teams including people from different functions (R&D, engineering, manufacturing, marketing, purchasing, etc.) from the very beginning of the project. In Pirelli Tyres Division, most R&D resources are dedicated to the continuous improvement of products. To this purpose, specific units have been created to manage the link with manufacturing. There is not a strong link between experimentation and exploitation. Experimentation units provide generic inputs to the exploitation labs. Therefore experimentation is quite independent from the results of experimentation and a strong integration is not needed.

commercial hand. The integration with strategic management is therefore quite low as the scientific content of the process is very high and the strategy is essentially the result of R&D people decisions. The definition of the appropriate set of projects to undertake is a complex process. Decisions are taken using portfolio techniques to help find a set of projects appropriately balancing risk and reward. Usually traditional DCF techniques are not appropriate for evaluating the goodness of a project. Qualitative techniques, such as checklists, are used. Projects at the exploitation state can be evaluated using risk modified DCF techniques. However, both in the experimentation and in the exploitation phases, risk is a crucial factor in selecting projects. Frequently, companies use elaborate formal and precise procedures to determine it. Glaxo Wellcome, for example, uses a twolevel evaluation system. Each member of the R&D project team is periodically asked to express a subjective appraisal of the probability of project success (commercial launch of the product), concerning his own competence area. A similar evaluation is then asked, also to each scientific discipline director at group level, in order to have a more accurate evaluation. In fact, on the one hand, team members provide deeper and more direct knowledge of the specific project, while, on the other hand, line managers at group level provide wider experience and assure the uniformity of the rating scale all over the organisation.

Science based Strategic management Science based industries have to face the big risk associated with their R&D activities. The experimental activity is highly random, whereas the exploitation phase is aimed to show the positive aspects of the new findings, which are proved through a number of scientific tests. Conducting as many R&D programmes as possible is fundamental to reduce the risk associated with the process. It is the ability of the R&D pipeline to generate innovations which determine the firm's product strategy. In other words, a firm's strategy depends on the output of the R&D pipeline. As a consequence of the nature of the process, the base for creating advantage is scientific and technical knowledge. Of course, timing is also important as the quicker the exploitation process, the larger the window of opportunity to exploit. The strategy process is usually started by the definition of the R&D budget which is negotiated between corporate managers and R&D people. The decisions concerning how to spend the budget are essentially taken by R&D people, who evaluate the risk and reward of each R&D project. Non-technical managers are involved in such evaluation to estimate the risk and reward of the

Organisation The R&D activities tend to be kept in one function. R&D is usually carried out at corporate level. It is seen as a key function, which operates in a quite separate way from the rest of the organisation. In chemical companies there are cases of R&D activities carried out entirely at business unit levels, as they are specifically focused on a certain scientific area which addresses a specific business unit. In any case, there is a remarkable separation from business management. Recently, in some companies (mainly in pharmaceuticals), the research organisation has been separated from the exploitation one (examples are those of Glaxo and Sandoz). One reason is that the activities look very different and require different structural organisation criteria. In fact, 65

Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

High tech Strategic management In the high tech pattern, there is a mix of the characteristics of the previous two. On the one hand, innovation is strongly based on new technological findings. Technology provides the basis to identify new product/market combinations and generates new competitive arenas. Therefore in terms of R&D there is a much stronger experimentation activity than in dominant design industries. Moreover, given that there is a certain risk to abort an R&D programme in the exploitation phase, experimentation is a key issue to reduce the uncertainty of the exploitation state and avoid failures. Experimentation may concern both new technologies enabling to outperform existing products or the integration of existing technologies coming from different fields and disciplines. On the other hand, the exploitation state shows a certain degree of risk and, hence, advantages can also be created on know-how gaps. However, timing is also important as the risk is not very high, and imitation is viable. The ability to exploit technological capabilities to generate new products with continuity and frequently bring new technological findings on to the market is a key issue to survive in the arena. There is a strong link between R&D and strategic management. Technology is a source of competitive advantage and a key strategic factor. Top management directly funds experimental activities in areas where business units would not be willing to make their efforts as they look too far from market exploitation. Mechanisms are put up to make such corporate projects jointly funded by corporate and business units. A mechanism is, for example, that of internal markets. Corporate R&D projects are ``bought'' by business units, who partially fund the projects and gain the right to access the results, although they cannot affect the way they are conducted. This ensures that corporate projects have market orientation from the beginning, and prevents biases of an individual business. Exploitation programmes are strongly integrated with product/market strategies at business unit level. As far as the decision techniques are concerned, in the experimentation phase, projects are usually evaluated with portfolio techniques. Precisely, long-term projects are often evaluated on the base of the contribution to the core competencies

experimentation activities require a strong specialisation by application area (therapeutic area in pharmaceutical industry), while exploitation activities, which are mostly standard and make no distinction about the application domain, do not need an organisation specialised by therapeutic area and get advantage of economies of scale. In Glaxo Wellcome, for example, experimentation activities are carried out in five different research centres in the world, each responsible, at group level, for specific disease areas: Greenford and Stevenage (UK) for gastrointestinal and cardiovascular systems, Geneva (Switzerland) for molecular biology, Verona (Italy) for anti-infectives, Research Triangle Park (North Carolina, USA) for cancer, inflammation and metabolic diseases. On the contrary, drug exploitation projects are strongly controlled by the centre and use, in a flexible manner, resources located in different countries, independently from the therapeutic area they concern. Managerial approach Given their different nature, research and development also require different managerial approaches. As said above, experimentation is highly random, has to do with the unmanageable and requires creativity, freedom and intuition. The exploitation phase is much more standardised, highly codified and manageable. Experimentation cannot be ``managed'', whereas exploitation is manageable and can affect the ability to meet timing objectives. Another reason for such re-organisation will be put forward later in this paper. Usually, the R&D function is weakly integrated with other functions. In some cases, the reason is that manufacturing does not present technological problems (pharmaceuticals), in other cases, manufacturing is part of the R&D process, i.e. the phase of manufacturing scale up is part of the process of research and development (chemicals). Marketing provides information on strategies and moves of competitors, and this may influence the timing of R&D programmes. The integration remains rather weak, although it is increasingly important, as the timing of introduction of a new product becomes a critical success factor. 66

Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

the Paris Centre specialises in photonics. The CRCs activities are coordinated by the research divisions, through which the competencies and know-how developed by the CRCs are transferred to the business divisions. Then, each business division exploits such knowledge to develop new products.

exploitation. Core competencies are transversal to the business areas, so it is possible to take into account the value of research projects on the basis of the variety of the application domains. In the exploitation phase, projects are evaluated with riskmodified DCF techniques, with which is often associated a ``strategic option'' approach. As a matter of fact, high speed in technology change often means investments must stay on the market, to get the opportunity to make further investment in the future.

Managerial approach A critical aspect is the integration both among the R&D units, and between R&D and the other functions. There needs to be a continuous flow of technology from experimentation to exploitation and then to manufacturing and engineering. A common solution is a strong flow of people from experimentation to exploitation labs. When a programme in experimentation is finished, often researchers and scientists who took part in the programme follow the project in the exploitation lab to look after successive developments (manufacturing engineering) and often also the commercialisation phase. This facilitates the creation of an organisation where groups concurrently work at different product generations. Each group is associated with a certain product generation, starting from the experimentation phase, moving to the exploitation units, and, then, to manufacturing and marketing. An example is given by the organisation of Toshiba and Matsushita. R&D is carried out at three levels: central (corporate) labs carrying out exploratory and experimental activities, divisional labs devoted to exploitation tasks, and manufacturing engineering labs looking after the integration with production process. The corporate funds central lab activities, business units fund and manage divisional labs and manufacturing engineering labs. They may also participate to fund central labs to gain access to certain programme results. Programmes are carried out by technology groups who follow a programme from the beginning (experimentation) to the end (exploitation, engineering and manufacturing, and commercialisation). In such a way, there is a continuous flow of technology and people. As in the dominant design companies, there is a strong integration between R&D and operations. In Alcatel-Alsthom, the product exploitation projects are carried out by a trio, formed by a product manager, responsible for the identification of market specifications, a

Organisation Experimentation labs are usually corporate controlled, for two reasons: first, as said above, they often do research in areas where the market looks too far, and second, because they often act as integrators of different technologies involving different technology groups and attempting to exploit crossbusiness synergies. With the aim to exploit these synergies, corporate labs are frequently organised around the technological core competencies of the company. Instead, exploitation labs are usually at business unit level. Their management is strongly integrated with business management. They carry out activities aimed to improve current products and design new product generations for current business arenas. They receive from experimentation labs new experimented technologies to be embedded into their product. In some cases, if the technology exploitation leads to a new product, a new business unit is created to manage it. The geographical structure of R&D labs is strongly decentralised and strongly integrated at the same time. Decentralisation is necessary to face the high complexity of technology change and the need to control competencies which are geographically dispersed. Moreover, there is a strong coordination and an intense communication between the labs, with the aim of stimulating the cross-fertilisation among different technological areas. The organisation of R&D in Alcatel Alsthom is representative. Alcatel has five Corporate Research Centres (CRCs) in France, Germany, Spain, Belgium and the USA, in which the company's research activities are concentrated. Each CRC has a specific ``excellent'' competence: for example, 67

Management styles in industrial R&D organisations

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . 59±71

Andrea Cavone, Vittorio Chiesa and Raffaella Manzini

project leader, responsible for the technical development, and an industrial leader, responsible for the industrial development. The trio concurrently manages resources coming from all the functions involved in the process. Table II summarises role, objectives and scope of R&D associated with the three patterns, and especially highlights the differences between the two activity types, experimentation and exploitation. Table III provides a synthesis of the key characteristics of strategic management, organisation and managerial approach associated with each R&D process type.

.

.

Conclusions and managerial implications R&D organisation and management are heavily affected by the nature of the R&D process and the relative importance of the different activities within R&D. Differences depend on the efforts required to generate an innovation, the related risk, the role of R&D in a firm's strategy and how R&D can contribute to generate competitive advantages. The organisation required varies from R&D process type to R&D process type and from activity to activity. It can be argued that there is not one best way to organise the R&D activity and that, as a consequence, practices cannot be transferred from other industries blindly. Moreover, some remarks can be drawn on the analysis done in this paper:

There is a remarkable distinction between experimentation and exploitation activities in terms of organisation and management. Often these two activities are carried out at different levels within the organisation and sometimes are not strongly integrated. Each of them often requires different forms of integration with the rest of the organisation. Therefore, the so widely celebrated integration (one of the key sacred words in management) needs to be applied to the appropriate part of the R&D department and at the appropriate level (operational and/or strategic). Each process type seems to require a specific management style. The dominant design process seems to be strongly market-oriented and characterised by a strong decentralisation of funding and control of R&D. The management style is based on market pull thinking. The science based process type seems to require a technology push approach. Finally, the high tech process shows a mix of the two. It requires to combine technology push and market pull thinking. Therefore, although the management of technological innovation processes within firms has some common traits across the different industries, it should be recognised that different R&D processes call for different managerial styles. It is obvious that there are factors (the increasing competition or the use of time as a competitive weapon) which are common to all the industries, and that

Table II Role, objectives and scope of R&D by activity nature and R&D process type

Dominant design

High tech

Science based

Experimentation

Exploitation

includes short term support to exploitation activity; includes exploration and monitoring;

is the core of the R&D process (especially design); concerns new product and process

has low relevance with respect to exploitation. is the key activity; develops new findings and new

development; includes continuous improvement of existing products and processes. concerns managing technology development for current businesses;

applications, through ``technology fusion''; is aimed to capture horizontal synergies. is the core of the RD process; generates new competitive opportunities

is aimed to integrate numerous technologies into new commercial products. concerns the standardised scientific tests aimed to show the goodness of the new

through scientific breakthroughs; has a random character.

findings.

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Table III Managerial and organisational style by R&D process type

Strategic management

Dominant design

Science based

Exploitation activities are strongly driven by product/ market strategy

R&D is rather separated Experimentation activities are from strategic management strongly integrated with Strategy is strongly corporate strategic management

R&D projects are evaluated with financial investment evaluation techniques (DCF techniques) Prevailing market pull

dependent on R&D results Portfolio management, balancing risk and reward Prevailing technology push thinking

thinking

High tech

Exploitation activities are strongly integrated with business unit strategic management Experimentation projects evaluation based on contribution to core competencies Exploitation projects evaluation based on DCF techniques and option theory

Organisation

Corporate labs (if existing) do exploration and monitoring

The whole R&D is kept in one function Usually the R&D function

Experimentation activities are carried out at corproate level, to capture businesses' synergies

Exploitation labs are at business unit level Experimentation is centralized in the headquarters

is at corporate level Experimentation and exploitation are split into two separate departments to be managed differently

Exploitation activities are carried out at business unit level Both activities are geographically decentralized, but strongly integrated

Adaptive exploitation is decentralized in foreign units

(trend in some firms)

Managerial

Weak integration between

R&D is weakly integrated

Strong integration between

approach

experimentation and exploitation Exploitation activities are strongly integrated with

with operations and marketing Full-time allocation of resources to project

experimentation, exploitation and operational activities Full-time allocation of resources to project

operational activities Part-time allocation of resources to project

.

these factors call for certain organisational and managerial solutions such as project management, matrix organisations, cross-functional integration etc. However, the analysis has clearly shown that the importance and the implementation of such solutions vary from process type to process type. The type of R&D process in a given industry may change over time and, therefore, the organisation and management approach should change as well. This is what is happening as a consequence of the ``biotechnological revolution'' in the pharmaceutical industry (Chiesa, 1996). The biotechnological approach reduces the risk of development (exploitation) activities. This makes the R&D process

move from the science based to the high tech pattern. This would mean that also a change in the organisation and management needs to take place. As seen above, in such industries there is the tendency to separate research from development. This may be seen as a signal that organisation and management required in experimentation and exploitation are different. In other words, the separation between the two departments, although they are kept in the same function at corporate level, is the organisational consequence of such transition. As a consequence of transformation of the R&D process towards a high tech pattern, pharmaceutical companies tend to import organisational and managerial 69

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.

approaches from high tech industries. Glaxo Wellcome, for example, attempts to strengthen the interaction, traditionally low, between the R&D and marketing, through the involvement of commercial managers in all the main decisions along the R&D process. In this way, experimentation activities tend to be focused on the medical needs with the highest commercial potential. However, structural differences in the characteristics of technology change remain. For example, the R&D process in the pharmaceutical industry is a pipeline, and one drug candidate found in research leads to one product. On the contrary, in high tech industries, there is a ``many to many'' relation between experimentation and exploitation projects, as a consequence of the pervading nature of technologies. The way companies face problems of integration, such as the dilemma of technology transfer, between experimentation activities and exploitation activities will be different. In high tech industries, the output of the experimentation programmes, frequently, is a theoretical model of the new technology (i.e. a new electronic circuit) independent from the product it will be introduced in (i.e. a cellular phone, as well as a satellite decoder or big network switching equipment). The technology implementation problems change from one product application to another, so the solution of such problems must be necessarily deferred to the exploitation phase (technology integration). In the pharmaceutical industry, instead, it is possible to anticipate the solution of certain implementation problems in the drug discovery phase, because the profile of the final product is already known. So, through a holistic approach (early involvement, concurrent engineering, etc.), it is possible to accelerate the clinical and industrial exploitation, improving the overall process performances. It may happen that, within the same industry, different firms face different patterns of R&D. For example, in the automotive industry, some manufacturers choose to develop electronic components on their own, whereas others buy electronics outside. These two groups

.

face different patterns. The first is managing a high tech shaped pattern, whereas the second is facing a dominant design pattern. The organisations required are different. In diversified firms, different businesses may require different approaches. Large diversified firms should pay attention to the nature of the different R&D processes. They may be different in nature and therefore they may require different organisation and management. The recent case of ICI supports this thesis. The multinational group has been split into two organisations devoted to manage, one the traditional chemical businesses, the other the pharmaceutical business, as management recognised that the organisation required for managing technological activities is different. In particular, it has been recognised that the advent of biotechnology makes the nature of the pharmaceutical R&D process radically different from the past and from the characteristics of the chemical one. Again, in electronic firms, several areas follow the high tech patterns (multimedia business), whereas, in some others, the technology is proven and their R&D process is much closer to the dominant design type (for example, audio and video systems in consumer electronics).

Notes 1 In the rest of the paper, following Hedlund, the words ``experimentation'' and ``exploitation'' will be used to identify the activities of different natures carried out within an R&D process. 2 Speed and novelty of technological change are low. This means that the time available to introduce and commercialize the product into the market (i.e. to capture market opportunities) is longer than the time needed by the company to embody the new technology in its own product. In other words, in dominant design industries it is still possible to play, in technology strategy, a waiting game, i.e. to introduce a new product as a follower, after verification of the market success of the leader's product.

References Casson, M. (1991), Global Research Strategy and International Competitiveness, Basil Blackwell, Cambridge, MA.

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Chiesa, V. (1996), ``Separating research from development: evidence from the pharmaceutical industry'', European Management Journal, Vol. 14 No. 6. Coombs, R. (1996), ``Core competencies and the strategic management of R&D'', R&D Management, Vol. 26 No. 4, pp. 345-55. Eto, H. (1991), ``Classification of R&D organisational structures in relation to strategies'', IEEE Transactions on Engineering Management, Vol. 38 No. 2. Hakanson, L. (1992), ``Locational determinants of foreign R&D in Swedish multinationals'', in Granstrand, O., Hakanson, A. and Sjolander, S. (Eds), Technology Management and International Business ± Internationalization of R&D and Technology, John Wiley & Sons, Chichester. Hedlund, G. (1986), ``The hypermodern MNC ± a heterarchy?'', Human Resource Management, Vol. 25, Spring. Howells, J. (1990), ``The location and organisation of research and development: new horizons'', Research Policy, No. 19. Iansiti, M. et al. (1997), ``Technology integration: turning great research into great products'', Harvard Business Review.

Kay, N. (1988), ``The R&D function: corporate strategy and structure'', in Dosi et al. (Eds), Technical Change and Economic Theory, Pinter Publishers, London. Kodama, F. (1992), ``Technology fusion and the new R&D'', Harvard Business Review, Vol. 70 No. 4, pp. 70-8. Kodama, F. (1995), Emerging Patterns of Innovation, Harvard Business School Press, Boston, MA. Lewis, W.W. and Linden, L.H. (1990), ``A new mission for corporate technology'', Sloan Management Review, Summer. Pavitt, K. (1984), ``Sectoral patterns of technical change: towards a taxonomy and a theory'', Research Policy, Vol. 13. Pavitt, K. (1990), ``What we know about strategic management of technology'', California Management Review, Vol. 32 No. 3. Pavitt, K. (1991), ``Key characteristics of the large innovating firm'', British Journal of Management, Vol. 2. Roussel, P., Saad, K. and Erickson, T. (1991), Third Generation R&D, HBS Press, Boston, MA. Twiss, B. (1987), Managing Technological Innovation, Pitman, London.

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1 Introduction

A sociotechnical approach to the innovation of a network technology in the public sector ± the introduction of smart homes in West Lothian

This paper suggests conceptual instruments able to guide the design and innovation of mature technology into complex circumstances. Technological advances are a major influence upon increasing longevity and of improving, in a sustainable manner, the quality of life enjoyed by an ageing population. Unlocking this potential is now a challenge for successful innovation. This is the story of a design process which aims to extract this ``wisdom'' from the body of technological ``knowledge''. It is an unfinished story of technological constituency creation ± a snapshot of a dynamic and evolving design process occurring in real time, between real people and organisations addressing real issues. The constituency which West Lothian Council (WLC) has gathered to create smart housing has the task of translating an array of technically proven devices into a system which will support community care to the satisfaction of patients, formal and informal carers and the community as a whole. Design processes featuring in this story are faced with an array of technological possibilities, their interactivity with a variety of care providers, and the gamut of human beings needing care (Petroski, 1996). The paper traces and analyses the efforts of a council to begin planning the implementation of smart housing into their area. In taking these steps the council is operationalising several important themes of UK government and EU policy. First, the introduction of telematics into public service provisions pursuing the twin goals of inclusivity in the information society, and best value from public expenditure. Second, the goals of joined-up-government taking a userled approach to public service provision (in this case care for and housing of the elderly and disabled) by previously (organisational) fragmented service providers. There is no ``store-bought'' recipe to guide the innovation of complex networked technologies. This is particularly so when the technology is to be used by an array of professionals, by formal and informal carers and by vulnerable people reliant upon locally provided services. The paper therefore analyses the interrelationships between the innovative use of technologies, service users and service providers.

Tony Kinder The author Tony Kinder is Research Fellow at TechMaPP, the University of Edinburgh, UK. Keywords Housing, United Kingdom, Innovation, Public sector Abstract The paper argues that some conventional tools guiding innovation processes inadequately analyse problems arising from blending telematics with public service integration in areas of complex service provision. Also uses Molina's diamond of alignment, and Nicoll's contextual usability conceptual approaches to analyse a case study on the introduction of smart housing in West Lothian, Scotland. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . pp. 72±90 # MCB University Press . ISSN 1460-1060

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This is an analysis real-time ``observeracting'' analysis of processes in which the author has played a role[1]. The approach here is both wider and deeper than the conventional local authority project scoping, tendering and management. Here the conceptual framework adopted is that of Molina's (1999b, 1998, 1997) sociotechnical constituency approach with the associated diamond of alignment tools. Unlike customary product/service innovation there is no one ``user'' to satisfy in the smart homes project. The focus of this paper is the way in which the project can incorporate the perspective and support of formal carers, informal carers and final users (i.e. residents in the smart homes). Within the sociotechnical constituency approach, this paper employs Nicoll's (1995) contextual usability tool to deeply explore the alignment of user requirements and provider parameters. Successful smart homes will be integrative of, and interactive with, previously fragmented functions, roles and technologies. This paper will show that a smart home is a network technology which derives its smartness from the effectiveness of the interaction between the resident and the network, rather than simply the power and versatility of the technology located in the home. The contribution of this paper is structured as follows. Section 2 outlines the background to the emergence of the smart housing constituency in West Lothian ± the problem. Note, it is not the presence of the elderly or disabled which is the problem, nor is the problem the duty of care facing public administrations and informal carers. The problem is defined in terms of the quality of care and dignity available to citizens. The section concludes with a brief survey of smart housing projects arguing that only limited lessons can be learned from (what are in the main) demonstrators without the vital linkages to active service support networks. In section 3 the conceptual tools of analysis to be used are outlined ± Molina's sociotechnical constituencies approach and the theory of contextual usability developed by Nicoll. These tools structure the presentation of the case study in section 4, following which significant theoretical lessons for innovation processes are discussed.

2 The state-of-the-art facing the emergent West Lothian smart homes constituency in 1998 The state-of-the-art West Lothian is a local authority area in central Scotland, the main town in which is Livingston and is the centre of an electronics cluster providing employment opportunities for the population of 156,000 which continues to increase at 3.5 per cent each year (Molina and Kinder, 1999). Although the area has a young demographic structure (average age is 35.3 years), there is a growing elderly section of the population. For example, the 85+ age group will rise by 10 per cent over the next three years and 11 per cent of the population is already over 65 years of age: 17,000 people (WLC, 1998a). Most of this elderly group live independently without intensive care from the local authority or health services. In the main, those requiring intensive care and residential assistance have dementia, mental health problems or learning difficulties: . There are 1,110 people with dementia in West Lothian or 0.7 per cent of the population[2]. (Dementia is a generic biopsychosocial syndrome disorder covering arteriosclerotic dementia, Huntington's chorea, Alzheimer's disease, Pick's disease and general paralysis of the insane[3]). Such degenerative disorders require sensitive care, which respects independence, and is delivered through a combination of family, voluntary, specialist care, and multi-agency support. . The majority of people with mental health problems are treated in their own homes, though there are 169 hospital beds and 52 community care places in West Lothian. Mental health encompasses schizophrenia, affective psychosis, depressive disorder, anxiety, on which the Health Service spends £6.7 million annually in West Lothian, and the council £2.6 million. . Amongst the West Lothian population 500-600 have severe learning difficulties, 105 of whom require specialist services (at times including accommodation). Lothian Health pays £1,352,000 annually for this accommodation and associated services, and WLC £4 million 73

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case notes, administration and correspondence. There are few shared case files between social work, health service and housing associations, little common base diagnosis, and frequently repetitive information gathering and analysis. Of the (approximately) 100 qualified social workers amongst the 1,300 staff in the council's community services, no accurate data exist of time spent on ``expert'' work and downtime. There is no use of telemedicine in West Lothian, though in perinatal care it is diffusing within Lothian (Kinder et al. 1999). Each of the agencies providing residential care in West Lothian has multiple criteria within their governance systems. Typically, these are quality of care and cost parameters. Faced with a rising demand for residential care services, and with pressure on budgets WLC and Lothian Health have formed a partnership with Bield and Hanover housing to provide 100 smart houses in West Lothian, and 50 to 75 dispersed units, to replace three of the existing six institutional facilities. The process examined in this research is one of translating general ideas of smart housing, into a successful implementation meeting the variegated goals of an innovating constituency, their development partners, the users of residential services and their formal and informal carers. The latter three categories of users are those identified by Pieper in technology assisted care (Figure 1). A successfully designed smart house will meet the combined needs of stakeholders with socially acceptable parameters of care in an integrated fashion.

at an average cost of £412 per unit of accommodation[4]. There are 1,224 amenity housing units (adapted conventional public sector housing) in West Lothian, 65 units are very sheltered, and 733 sheltered housing units. The demand is set to rise. Within three years, the 915 people over 75 years of age needing high levels of care are predicted to rise to 1,034. The Council operates six residential care homes containing 209 places at a net cost of £280 per unit per week. Of the 643 privately provided units, some 400 are contracted by the Council at £185 per week (£225 for people with dementia)[5]. Supportive and associated community care services cost the Council £13 million a year and Lothian Health an annual £9 million. These services include 2,000 home care assistant visits; 870 meals on wheels delivered each week; day care facilities; sponsored neighbourhood networks; funding voluntary organisations; respite care facilities; subsidised, concessionary and supported transport; and the provision of aids and adaptations to houses. These arrangements for residential care are unsatisfactory. Many of the elderly residents use existing facilities only because there are no alternatives available matching the degree of independent living they desire. Existing facilities have an ``institutional'' feel rather than a personalised home ambience. Room and bathroom sharing can jeopardise dignity, and create conflict and anxiety. In short, institutional care denies the independence often treasured by the elderly. From the viewpoint of the Council care, quality can suffer when generic rather than specialist staff serve residents with particular needs. These problems are exacerbated when younger residents demand entertainment and activity support, whilst ailing residents crave more ``hospital-style'' care. Each of these facilities requires high levels of capital investment to meet registration standards. Their old design makes them expensive to heat, clean, and staff. Existing provision is costly, offers a low quality of service, and often does not meet the needs of its users. Conventional technology is currently employed in the residential homes service. Residents have community alarms linked to telephones, and mobile panic buttons, which alert a central facility. Individual social workers have network PCs that are used for

Figure 1 Categories of users

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Cumulated experience of smart housing This section summarises existing experience of smart housing[6] suggesting that little of it is based upon effective user-research. Suppliers of individual products are not reviewed here[7]. Doughty et al. (1998) have designed an untested telecare system based upon interviews with dementia carers. Sensors located in a house would transmit (via a PC modem) data over the telephone network to a central control centre, which would then make referral to appropriate agencies. This system envisages the patient using touchscreen and voice inputs whilst their condition allows. Data collection would otherwise depend upon sensors as the patient's condition deteriorated. The Edinvar Housing Association has built a demonstration smart home in Edinburgh. Based upon their barrier-free model this includes a range of technology intended to improve quality of life featuring preprogrammed devices, user-controlled technology, and smart devices. Technology facilitating user control includes a loop induction amplifier for the deaf; video entryphone system; keyless door locks; a door and window powered opening and closing system; infra-red shower, tap and toilet flush controls; a pull-cord and portable alarm system. Preprogrammed technology includes heating controls and audible reminders via the telephone system. These are services from a central control point, which also acts as a call centre. Smart devices incorporated into the Edinvar demonstration house include pressure pads situated to identify movement, which trigger other appliances such as lighting. In addition window sensors close windows when the house is empty, smoke detectors interact with door and window opening devices, curtains automatically close or open at daylight, and a touch-screen interfaces between clients and the operate system. Sensors gather data on activity and environment, transmitting these data to the central control centre. Data include toilet flush or device utilisation, movement detected by infra-red sensors and activation of emergency alarms. No resident has lived in the Edinvar house, though the ambient care system is now used by Edinvar to cover 20 residents in the St Leonard's area of Edinburgh.

Exercises in York, Norway and The Netherlands are under way designing smart home demonstrators. Also relevant may be US experiences in ``villages for the elderly''. Other demonstrations of smart housing include: a seven-month observation in Finland (Topo, 1997); an Australian study transmitting ``standard assessment scales for elderly people'' data via a modem and mains circuitry (Celler et al., 1994); an evaluation of X-10 LonWorks products (Mostoller et al., 1996); and a European survey project (Ambrose et al., 1997). The history of technology is littered with examples of the proven technical competence of devices which have not enjoyed social acceptability or success (Petroski, 1996). Such examples highlight the importance of user-led design and implementation. Design, effectively employed, symbiotically loops through each stage of research, design and development (RD&D) introducing aspects of social and user acceptability into products and services (Walsh et al., 1992). For the smart housing constituency in West Lothian, the fact that much of the technology has little proven social acceptability is an essential issue[8]. In the absence of a proven design constituting a smart house, configuration of technology raises issues of constituency alignment and user-led design for the emergent West Lothian smart homes constituency.

3 Sociotechnical tools for the analysis of complex network technology innovation Sociotechnical constituency alignment Sociotechnical constituencies are dynamic ensembles of technical constituents (for example, machines, instruments) and social constituents (for example, organisations, interest groups) which interact and shape each other in the course of the creation, production and innovation of specific technologies. The process of sociotechnical alignment can be illustrated through the use of the diamond of alignment (Figure 2), a conceptual framework particularly suited for the study of the role of technology in the provision of public services like smart housing. It is able to accommodate the rich picture of competing influences and trends, both within public sector organisations, and in the broader institutional framework, which 75

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Figure 2 Diamond of alignment

is operative in the arena of public service provision. The framework of sociotechnical alignment is grounded on insights making it an analytical tool technologically appropriate for innovation, implementation and diffusion. The diamond of alignment shown has two levels. The sub-diamond in the centre of the figure represents intra-institutional aspects of alignment within the smart homes constituency. The outer level refers to the inter-organisational level, including the interaction with other constituencies, and the impact of the more general social and technological trends and developments. The shaded areas I and II represent the world of the product or technology at the centre of analytical attention. Areas (1 ± 1i), (2 ± 2i), (3 ± 3i) and (4 ± 4i) represent aspects of critical influence to the success or failure of technological and organisational development[9]. Put simply, the diamond acts as a guide to alignments between peopletechnology, technology-technology and technology-people. Table I describes the content of each one of the aspects in the diamond. The key to the successful implementation of technological change lies in the quality and effectiveness of the alignment strategies and tactics implemented to keep all these aspects evolving in a convergent and synergistic direction. Analysis using the diamond of alignment draws attention in real-time, to real-world conflicts and trade-offs, guiding

practitioners towards practical reconciliations inhibiting the success of a particular constituency. The success of any attempt at implementing smart housing (whether public or private sector) depends critically on the effectiveness of the alignment, or management of misalignment, of all these aspects expressed in the diamond of alignment. Any imbalance in one of the six sectors of the diamond of alignment, both on its inter-institutional dimension and on its intra-institutional dimension, is likely to destabilise developments in the other sectors. Conversely, a stable constellation, especially in the two important sectors of constituents' perceptions, goals, actions and resources, and technology, has important positive external effects on the overall development of the constituency. Contextual usability Paradigms of user-led innovation have altered from producer-led models (von Hippel, 1988) to recognise that users can be non(differently) rational in their assessment of the value added by innovations, especially if they hold different perceptions of the ``problem'' the innovation seeks to resolve (Nielsen, 1992; Fleck, 1996). Dissonance between the perceptions and preferences of user, and those of providers, may be particularly pronounced where users are unlikely, of their own volition, to become early adapters or by 76

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Table I An overview of aspects of Diamond of Alignment (Molina, 1999a) (I) Constituents' perceptions, goals, actions and resources This dimension relates to the present state of organisational resources: the type of organisation, people, material and financial resources, knowledge, expertise, experience and reputation and other elements such as current perceptions, goals, visions and strategies. In short, what the organisation is at a given point in time. (II) Nature and maturity of the technology This dimension highlights the importance of the nature and maturity of a technology for successful implementation and diffusion. Any strategies adopted must be aligned with the strategic opportunities and limits implicit in the particular characteristics of technologies. It is a simple fact that the nature of smart product technology differs from that of other products, and a single ``universal'' approach to innovation and its implementation will not do. Alignment (1-1i) ± governance This dimension highlights the importance of alignment of the technology with the governance and strategic directions of the organisational, industrial and market environments of the company. This means, on the one hand, that the market or objective addressed by the technology is perceived as highly significant to the organisation's performance; on the other hand, it means a simultaneous perception that the potential technical and organisational solution is promissory and viable so as to merit allocation of resources. Alignment (2-2i) ± nature of target problem This dimension highlights the importance of alignment between the capabilities of the organisation and the technical requirements of offering a useful service (i.e. target functionality and cost). This includes alignment between the service and widely-recognised technical and market trends and standards in the target industrial area (see alignment 4). In short, to avoid ``failure'', service providers must have the technical capacity to deliver appealing products within available resources and in competitive time. Alignment (3-3i) ± target constituents' perceptions and pursuits This dimension relates to the people and organisations the service provider is seeking to enrol behind its product. It includes alignment of perceptions and goals between the service provider's development, and potential or target constituents in the organisational, industrial and market environments of the service provider, including users, suppliers, and other relevant organisations. Alignment (4-4i) ± interacting technologies/constituencies Alignment 2 highlights the ``fit'' between an innovated technology and the service it supports; these service requirements are of course dynamic and shift with client demography and environment alterations. Within this environment are other technologies and standards which affect service delivery.

constituency. It is particularly suited to resolving alignment issues of complex network technologies, especially (as is the case with smart homes) where all players carry burdens of preconceptions as to the nature of the problem and appropriateness of solution the innovation is meant to address. Some conventional models of user-producer relations stimulating innovation appear onedimensional (vertical or horizontal information and knowledge flows); contextual usability offers a holistic approach[10]. Nicoll begins by distinguishing use, usability, usefulness and usage, as Figure 3 illustrates. These are not exercises in linguistic philosophy; rather this formulation systematically decomposes users and their preferences and perceptions into forms of practical value in technology design and implementation processes. Contextual usability is a tool compelling ever-deeper analysis into questions of why and how. It stimulates the unpacking of what

virtue of illness/disability provide feedback to providers (Kirakowski, 1998). Technologically-pushed innovations can face the danger of rejection where there is misalignment of user and provider perceptions and preferences (see Wiklund, 1994). These are areas of technological innovation which Nicoll's (1995) theory of contextual usability addresses. The conceptual frameworks contained in the approaches of total quality management (Oakland, 1993), industrial psychology (Statt, 1994), marketing (Oliver, 1990; Leenders and Blenkhorn, 1988), and organisational behaviour (von Krogh and Roos, 1995) each contribute important dimensions towards aligning the provider's offering with the users' or customers' desires and expectations. Nicoll's (1995) contextual usability differs from these approaches by explicitly locating users' preferences and perceptions within an integrative dynamic framework of an evolving technological 77

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Figure 3 Dimensions of contextual usability

the service provider needs to know to achieve alignment and avoid misalignments between segments of the diamond of alignment, between types of users and between elements of technology and organisation in each usability quadrant. This paper focuses upon the formal, informal and final users highlighted by Pieper, shown in Figure 1, and explained further in Table II. Technology employed in smart homes is proven, mature technology. The innovation is in the reconfiguration of support service networks to use this technology in its interaction with the smart home. Thus, suppliers of the technology, builders etc. are less profoundly challenged to adapt to the smart home than the formal, informal and final users. Figure 4 illustrates how alignment within the West Lothian smart homes constituency, and with target constituents passes through the prism of formal, informal and final users between the diamond of alignment and the quadrant of contextual usability. ``P'' at the centre of the quadrant and diamond signifies the smart homes project. Arrows in Figure 4, draw attention to aspects of usability and alignment, which will prominently feature in the following case study and subsequent discussion. For example, diamond segment B calls attention to target users' perceptions and preferences of the ease of use of the proposed smart housing service. Segment A signifies the implications for the governance of complex

services and the use likely to be made of their ``re-invented'' form and content. The arrow connecting segment C to usage draws attention to patterns of use being shaped by collaborative and competitive technology and in turn shaping the extent to which it is used, and for what purposes. Finally, segment D connects to usefulness suggesting the dynamic nature of ``the problem'' and of proposed solutions to it. It may be, for example, that smart homes evolve into fuller services incorporating telemedicine. These arrowed links are merely illustrations of the relationship between the usability quadrant and the alignment diamond. In practice, these holistic tools will be found to inter-relate with all of the complexity and unpredictability people always bring to innovation processes. Techniques appropriate to contextualised user research enable customised packages of user research to be defined. In the case of realigning public services to independent living, such research must take account of the heritage of formal and informal carers, and the differential capabilities of residents to match their desires and their needs. Techniques employed, appropriate to this study, may take two forms. First, deeply canvassing views ± interviews, focus groups, Delphic panels; and second, demonstrating the technology and its interactivity ± antenna pilots, controlled field trials, etc.

Table II Users of smart housing featured in the analysis of this paper Formal carers/users

Informal carers/users

Professional and service staff of WLC, Family friends, voluntary health trust etc. organisations, supporting service provision or particular residents

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Final users (residents) Residents ± the subject of and to varying degrees users of the technological networking forming smart home

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Figure 4 Sociotechnical alignment and contextual usability

expertise in designing homes for special needs users. Lothian Health and WLC (and the government (see Scottish Office, 1997)), believe that a superior quality of care can be provided at no higher cost per head[12]. The housing association seeks expansion into the very sheltered housing market segment. The central goal of the smart homes constituency is to improve the quality of care by closing three outdated institutions and replacing them by 100 smart houses, and establishing a care network into which other tenants and residents can be incorporated. In grants, land, and buildings, Housing Association resources and private funding, the constituency has £9.3 million[13]: £1.9 million from the council, housing associations £0.4 million, £4.8 million from the Scottish Office (some via Scottish Homes) and £2.2 million from private borrowing.

4 The West Lothian case study Constituents' perceptions, goals, actions and resources (I) WLC's David Kelly (who is responsible for social work and housing) champions the smart housing constituency. Other constituents are Lothian Health, and Bield and Hanover Housing Associations, Scottish Homes and the Scottish Office (funding providers), property developers and private funding providers (see Figure 5). Aspects of this constituency's work, whilst important to its success will not feature in this research[11]. The constituency also involves smart and assistive technology suppliers and the property, architecture and planning sections of the council. Robin Burley, previously Chief Executive of Edinvar, is advising the constituency on technology and design issues. The council, Scottish Homes and the two housing associations have 79

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Figure 5 Stakeholders in smart homes constituency

Nature and maturity of technology (II) The aim of the smart homes constituency is to:

Telecare is a reference to housing association call centres which employ multifeatured telephones with data and voice capabilities, from which referrals can be made to a home support team and formal and informal carers. Care-call communicates between residents and the call-centre. The constituency needs to evaluate contradictory evidence from existing smart homes projects. For example, HomeBus has been successfully used in Norway by Human Factor Solutions (Clatworthy and Bjùrneby, 1997); alternatively Swedish Smart-Bo uses the European standard (BUS) accessed by PCs (Eiger and Furugren, 1998). The council's submission document recognises the need to involve in design and implementation final-users (residents), formal and informal carers, and support service users; it aims to align their interests in the target service. The constituency also recognises a range of potential ethical issues (see Marshall, 1995). Ethical issues include clarity over the problems the technology is addressing; identifying for whom the problem exists; who is defining the problem and solution; whose needs do proposed solutions serve; and how can drawbacks and advantages be reconciled. Above all, the constituency cannot innovate risky unproven technology; the innovation lies in its specific

. . . provide an innovative form of housing for older people with support needs that will sustain independent living through effective physical design, focused individual care planning and the efficient use of new technologies (WLC, 1998a).

Council officials have mentioned a sum of £5,000 per house for smart technology into very sheltered housing (Burley, 1998). Burley's uses of smart technology in care services is as follows: Assistive technology The electro-mechanical and microelectronic appliances and devices that act as an aid in the house and reduce the handicapping effect of the built environment. Smart housing A system which interconnects a number of appliances or alert devices by means of a digital network controlled by a software programme. Telecare The use of information and communication systems to provide remote monitoring and diagnostics. A menu of possible technologies (Table III) is available. 80

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Table III Available smart and assistive technologies Smart technologies

Assistive technologies (individually customised)

Automatic light switching in the event of resident mobility at night Automatic alert if residents out of bed longer than normal Automatic turning off of cookers if overheating Smoke detectors alerting central control, unlocking exits Detectors on doors if opened at night altering central control ``Secure by design'' external security and lighting

Loop induction amplifiers for deaf people

Interactive PC or broadband links to formal and informal carers, education and Internet resources

Audible pre-programmed reminder devices Keyless door locks using swipe cards Video entry-phone system with remote lock/unlock Automatic or power assisted door opening systems Infra-red sensor operation of taps, bath, toilet flush and shower Infra-red remote or wall switches for window opening/closing, pre-programmable to respond to external and internal temperatures Infra-red remote or wall switches closing curtains at dusk touch-screen interface controlling key devices

which the outcome would be ``residential homes with a bit more technology added on''[14], by transparently involving users in design and implementation. David Kelly's idea is a table d'hoÃte for all new homes including barrier-free design, coupled with safety and interactive security features. An aÁ la carte menu of possible assistive technology and smart technology features will be customised to meet particular residents' needs. It is the interaction between the people and technology in the smart homes and ambient support services, and the renegotiated governances of these services where problems are envisaged.

configurational form and its interfaces with ambient care services. Alignment (1): intra- and interorganisational governances Alignment (1) in Figure 2 refers to the relationship between the governance within the initiating organisation and the governance required to successfully incorporate the proposed technology in the expanded smart housing constituency. The extent to which the promissory nature of the technology can ``fit'' both the governance of the council and its partners, and the use to which carers and residents would put the technology are the subject of this alignment. Governances within public service organisations are currently under review in the light of ``best-value'', customer-focus and quality initiatives. At the same time, previously autonomous governance between public services are now challenged by the government's ``joined-upgovernment'' agenda. Introducing telematics technology catalyses governance realignment, and challenges existing criteria over what constitutes acceptable performance criteria. The council in West Lothian has innovatively addressed governance issues within its organisation. Examples include functional integration (social work and housing), and the use of public-private joint ventures across council services (such as in the conversion of despoiled accommodation and regenerating dilapidated estates). The council aims to avoid ``silent design'' within the smart housing constituency from

The smart homes constituency formulation of governance issues In outlining his vision of smart housing Robin Burley[15] argues that when innovating barrier-free housing people in wheel-chairs became the paradigm to test against, and that smart housing should instead be modelled round people with dementia, providing services to meet their holistic needs. This he believes will force the constituency to create houses capable of evolving as the care needs of residents change. His vision is encapsulated in the spectrum of care shown in Figure 5. His concern is that technological drivers should not replace institutionally-driven care. Rather, moving from left to right in terms of Table IV, that independence of residents drives changes in residential care. This vision informs his views on design, governance and implementation issues facing the smart homes constituency. 81

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Table IV Illustrative spectrum of potential residential care Tele-care and telemedicine

Focus of care

Barrier-free housing

Smart housing

Technology employed

Assistive

Some interactivity

Interactivity with carers and medical specialists

Communications with non-specialists Restricted

Less restricted

Independent living

Carer databases, alerts and alarms Emphasis on out-going information Within home

Wider carer access Interactive communication

Degree of user independent living Interfacing systems

Spatial boundaries addressed

Housing and social work call centres

Within house environment

Within locality (dearth of distance?)

Figure 6 Care quality irrespective of distance vision

Robin Burley argues that solutions to these issues should be person-centred and care-led rather than technology driven. Burley is firmly of the view that no ``store-bought'' configuration exists. He quotes ``gentle care'' approaches to caring for people with dementia which allow carers to ``cut with the grain'' of disabled persons' behaviour rather than attempting to regiment behaviour to a norm. His vision is that smart housing facilitates independent living for people with cognitive disabilities, in the same way as barrier-free housing allowed for people with physical disability. He advocates patterns of care responsive to the needs and wishes of elderly and disabled people. Although perhaps naturally interfacing with telemedicine, Burley believes that ``too much, too soon'' by way of technology would advance beyond the capability of interfacing care systems to keep up, or users and their carers to accept. In Burley's view, some other constituency members view the technological aspects of smart housing as a technological black box with few consequences for existing service systems. He strongly argues that the technology is a menu yet to be configured, and that some re-engineering of existing social work, housing association and informal carer systems and practices will be necessary to accommodate smart housing. Robin Burley envisages a project team initiating workshops to draw out potential conflicts in goals, cascading ideas and proposals into the participating organisations. His design concept, Figure 6, indicates a choice for residents ± living proximate or not

to a support hub. High quality of care and independence irrespective of spatial location have major implications for care services which in the past have operated largely through physical contact, and without functional and information system integration. Burley argues that WLC should not settle for the incremental innovation of isolated smart housing. Rather the opportunity should be taken to align people and their carers with technological opportunities to eradicate functional and organisational barriers to achieve user-led care patterns. Over time his vision is one in which ambient services (leisure, transport, shopping) will all include design aspects featuring the holistic needs and wishes of the elderly and disabled. 82

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ambient services to the 105 residents in the three residential facilities to be replaced, in a manner capable of generalisation. Trends and emerging standards reach beyond care services in West Lothian. Definitions of ``independent living'' are likely to alter with the emergence of telemedicine, e-mail shopping, the wired town hall and digital entertainment dawns. Already some evidence suggests elderly people are less technologically phobic than expected. The constituency will need to place its design within the context of ``network society'' changes expected over the next years, avoiding an early closure on the potential of the smart housing.

Alignment (2): nature of target problem Segment 2 in Figure 2 draws attention to the clarity, and shared definition of the problem the constituency intends to resolve. This section therefore highlights issues of the usefulness (from various stakeholder perspectives) of the smart homes innovation. The goals of the constituency are ``an innovative form of housing'', ``sustain independent living'', ``effective physical design'', ``individual care planning'', and ``efficient use of new technologies''. Such aims are likely to involve trade-offs between conflicting and competing aspirations by constituency members and stakeholders, and conflict with other constituencies. When initially launched, in early 1999, the response from informal carers and the wider community to smart housing had negative aspects including a ``save our old folks' homes'' perspective. This response highlights the challenge facing the constituency in reconciling the cost of care with quality of care ± balancing democracy and efficiency. Perhaps the most urgent issue facing the smart homes constituency is engagement with the wider constituency stakeholders to clearly identify a common definition of the problem which exists and for whom ± to illustrate the usefulness of smart homes technology in addressing problems defined around the perceptions and preferences of carers and final-users. Put simply, technological fixity ought to be avoided, making future reshaping less traumatic and costly.

Alignment (3 ± 3i): target constituents' perceptions and pursuits Successful innovation will necessitate the alignment of providers and users with the evolving goals of the smart housing constituency. Currently, using European competitive tendering procedures for public contracts, partners are being sought by the constituency to assist in design, and provide technology. Identifying and delivering appropriate technology to users prominently features issues of usability (see Figure 4). Identifying and delivering usability to formal and informal carers Smart housing will enable formal and informal carers to adjust from physical to virtual monitoring, evaluation and prognoses of the needs of residents, and to do so via integrated information flows. Such processes are likely to present opportunities for functional and system integration (``joinedup-government'') which in turn may result in changes to staff skills and structures, and perhaps staff status. Change is unavoidable when resident/patient/client data are to be received electronically, and capable of central analysis on behalf of all sets of formal carers. Indeed, integrated data capture and analysis, coupled with integrated services, are likely to present opportunities to codify and streamline the responses of formal carers to changes in the condition of final-users. Arising from a codification of problem-solution, Robin Burley anticipates that the smart homes constituency will evolve towards a fuller telecare (including telemedicine) service. These are complex issues for formal carers currently in separate statutory organisations.

Changing trends shaping usefulness Heimer (1997) recently found that sets of suppliers defined the design problems in terms of their own expertise. Thus, consumer-oriented companies emphasised the use of AC rather than DC current. Installation companies placed ``smartness'' in their system and defined problems in terms of cabling, and computer hardware providers (who defined smartness as built into hardware) defined smart houses' problems in terms of a BUS[16] capable of serving existing hardware. Currently 6 per cent of public sector accommodation caters for the 9 per cent of the population requiring residential care. Two issues are posed for the constituency. Usefulness for the smart homes constituency will be defined in terms of successfully delivering physical accommodation and 83

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In particular some of the issues mentioned may threaten long-established governances and moreÁs of professional social workers, housing officers, IT specialists and nurses. These staff enjoy a high density of trade union organisation, and many have grading and reward schemes derived from national agreements. Usability of smart homes technology for formal carers poses wide issues encompassing the quality of care they can offer final-users, and the impact upon their own working patterns and governances. Family, friends and voluntary organisations currently provide a range of services to institutional residents including laundry, meals, entertainment, benefits advice, decorating, transport, holidays and respite breaks. Many of these informal caring services are intrinsic to a high quality of life for final users. Such assistance may be more easily delivered to groups gathered in institutional homes than to persons living independently and separately. Indeed, it may be that some informal carers are less likely to offer assistance to people who could be perceived as better able to ``manage on their own''. Alternatively, it may be that informal carers assist and visit more often with relatives enjoying the self-confidence derived from independent living. In particular communications devices recording visitors could be viewed with suspicion by some volunteers or informal carers (many voluntary organisations are funded by the council and subject to performance indicator monitoring). Additionally, some informal carers may feel alienated from electronic communications devices, perhaps being used to the positive feedback of personal contact with formal carers as part of the recognition for their volunteering. Consultation and involvement of special interest groups may bring a range of tacit and specialist knowledge to the smart house constituency processes, and should involve the widest range of formal and informal carers. The former group will include staff groups, trade unions and professional bodies, and the latter range from the Alzheimer's and incontinence group to cyber-grannies. Usability and final-users At first sight, the smart homes constituency, unlike most innovators, has the advantage of knowing exactly its set of final-users. After all, the 105 residents in the three institutions to 84

be replaced by the first batch of smart homes are known to the constituency, admirably suiting user-led innovation. However, the situation is more complex. Unlike Porter's ``discerning customers'' many of the smart homes final-users have no effective demand ± little choice except for public provision. In addition, there is a natural turnover in the composition of final-users, and the consultative group should include potential users. Some residents such as those with severe dementia may be unable to participate effectively in antenna pilots, interviews and usability labs, posing sharp moral questions of ``testing'' an innovative way of living on vulnerable people. A further complication is that the needs of a resident today may inadequately represent his/her needs tomorrow, particularly where conditions such as dementia deteriorate. In practice, user-research techniques will involve some parallel tracking of existing service forms running alongside the new capabilities offered by the smart homes. In effect, of the first 105 smart homes, each may have assistive technology, with only a small number of pilots having smart technology. Such prototyping will evolve the use of the technology by ambient service providers and final users' homes. Pilot monitoring will then assess carefully the applicability of a menu of smart and assistive technology to particular individuals. This slowly-but-surely approach offers contextually specific user-research without endangering vulnerable people. West Lothian is a caring community and the wider community council tax payers and concerned citizenry will wish to be informed of the emergent new design, and may have useful comments to feed into the process. Such a time-consuming and major exercise in public consultation by the smart homes constituency may pay dividends. In summary, a careful process of aligning the smart homes constituency's perception of usability with the perceptions of formal users, informal users and final users is likely to benefit from the piloting approach and eventual evolution of a series of options to meet the needs of final-users. Carers are users of some aspects of the smart homes but not the complete home; in this sense they can be thought of as intermediate users of the technology in the homes and their tacit knowledge of service systems and users (residents) may prove invaluable in the

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innovation process. Smart homes offer the potential of service and functional integration based upon a virtual service value chain and defragmentation of information flows and their analysis. Given the difficulties of aligning usability outlined above, it would appear that these ambient support services are likely to evolve towards the goals of integration, rather than shift dramatically and immediately.

Usage, like other aspects of contextual usability, contains both promissory and constraining opportunities for the successful alignment to which the smart homes constituency strives. Collaborative technologies Currently information technology in West Lothian residential care services includes a telephone line community care scheme linking alarm systems to a central social work or housing association team, and computerised client records held on social workers'PCsaspartof the council's intranet. Usage of information technology within all public administrations in West Lothian is on the threshold of radical change. The council is leading an e-commerce inter-organisational constituency in West Lothian aiming, by means of call centres, kiosks and smart cards, to integrate IT services between the council, police, college, health services, benefits agency, employment agency, business centre, the local enterprise company, and business in West Lothian. This is likely to become a major conduit of information transmission and stimulation of public service integration and its re-engineering in West Lothian. Contained within the vision of this ecommerce constituency is the innovation of telecare and telemedicine into West Lothian (Kinder, 1999). In summary, usage patterns of information technology, collaborative with alert and alarm systems in smart houses, are on the threshold of change in West Lothian. Users and carers are likely to benefit from the degree of information and knowledge flows, and interactivity arising from collaboration between the smart homes and e-commerce constituencies.

Alignment (4 ± 4i): interacting technologies Like all innovators, the change champions of the smart homes constituency know that a significant constraint on innovation is the inherited habits and behaviour patterns of target users. Changing habitual patterns of ``how things are done'' is never simply a matter of providing new technology. Rather it is a matter of migrating yesterday's values and attitudes towards evolving goals, with tomorrow's capabilities of addressing these goals. Segment 4 in Figure 2 calls attention to the alignment between the technology to be innovated and the people and services which will make the innovation a success. Figure 7 indicates that a wider smart housing constituency will have to address a range of technological and service issues. This process in turn introduces dynamism into the technological constituency which will no doubt re-design provision at some point in the future, taking advantage of unfolding opportunities. Usage (in the sense of patterns of use) of smart homes technology will evolve as the behaviour and (later) attitudes of users evolve. Figure 7 Interacting and evolving constituencies

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Competitive technologies Usage of technologies enabling physicalpresence patterns of care and non-interactive technology may be seen as competitive technology by some potential users of smart housing, rather than the physical-presence model with its concomitant service reengineering. Physically integrating services may be held up by some users as an alternative to smart housing. Examples of this include a £10 million project in Broxburn to use a vacated school building to house a one-stopshop housing, health, social work and community education services. In addition, care in the home continues to feature importantly in the West Lothian community care plan. A range of non-interactive technology has greatly enhanced safety and life quality in the home. Publicly provided examples of this include telephones, aids and adaptations, smoke detectors and alarms, and open access improvements. It may be that some formal users/carers argue with this expenditure on such technology. It should not be forgotten that the smart homes constituency exists in a social environment in which other public initiatives supporting the elderly and disabled are taking place. For example, in terms of security, rather than assistive technology advocacy, groups may argue for more video surveillance of dwelling and community policing. Safety groups such as the fire service may argue for the provision of deep fat fryers (significant proportions of domestic fires are caused in cooking accidents). Finally, it is possible that primary care groups, such as general practitioners, will argue for advanced telemedicine initiatives at an early stage. The prospective competitive technological constituencies cannot be separated from the power brokering and resource allocation in local governance systems in which the smart houses constituency operates. A task of this latter constituency will be to integrate their vision with those in potentially competing constituencies.

5 Discussion Bill Gates' (1995) visionary smart home is stacked with technological aids[17], and is quite different from the West Lothian vision which is one of greater interactivity with outside networks ± the smartness is in the network, rather than in the home. A recent survey of smart housing in 18 European countries (Ambrose et al., 1997) identified these system interfaces as the essential innovation issues in smart housing. As the case studies show, this vision is driven by the quality of life available from independent living coupled to a (technological enabled) unobtrusive care network. The challenge facing the West Lothian smart homes constituency is to contrive a care network capable of offering independent living to people with dementia. Doing so is far more complex an exercise than simply asking each of the user sets to list their priorities. User research processes will also entail reflexivity by constituents to ensure that their duty of care aligns with stated and observed user aspirations, and that such lessons are internalised into the innovated technological systems. Independent living as opposed to institutional care is a long-standing theme in care provision. This theme contains strategic debate over de-centralised versus centralised care models, and tensions (at times) between the preferences of formal carers, informal carers and final-users. Undoubtedly such debates will resurface during and after the design and implementation of West Lothian's smart housing. Some of the insights possible from the use of the contextual usability and alignment tools flow from the case study and are set out below. It may be that a significant benefit of this approach is avoiding some of the sterility from conventional debate, and creating a new consensus for the form and content of these services. The smartness of smart homes is not within the home In terms of Freeman's taxonomy for innovation, this is an imitative design process addressing a niche market. To a degree the smart technology to be incorporated into the smart houses is ``embedded'' technology in the sense that all users are judging its performance by its (social) results rather than

State-of-the-art in July, 1999 To summarise, Table V represents the state of the West Lothian smart homes constituency by July 1999. 86

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Table V West Lothian smart homes constituency, state-of-the-art in June 1999 (I) Constituents' perceptions, goals, actions and resources An adequately resourced, provider-led technological constituency exists and has a strategic adviser and technology partners. The constituency's goal of independent living in new and heritage housing for the elderly and disabled is established. (II) Nature and maturity of the technology Mature technology and emergent technology at trial stage are available to the constituency, within an infrastructure which supports telematics. Heritage systems are modern. The smart homes constituency is aligned with a wider '`wired town hall'' information society initiative combining all public sector actors in the locality. Alignment (1±1i) ± Governance The Council and Health Trust, as main players in provider residential care for the disabled and elderly have established a close working relationship and effective governance at strategic level. The constituency's ability to integrate services and staff across functional and organisational governances is yet to be tested. Use of smart housing technology by formal carers, informal carers and final-users is yet to be negotiated. Alignment (2±2i) ± Nature of target problem Constituents appear to share a preparedness to align in the interests of final-users however, the consequences of such realignment in terms of restructuring and reskilling are yet to be detailed. In particular, the constituency is aware that the usefulness of smart homes technology may be interpreted differently by sets of target constituents. Alignment (3±3i) ± Target constituents' perceptions and pursuits Technology partners are sanguine that technological problems can be solved once the preferences of target constituents are known. For target users the usability of the technology is unknown. Some adverse reaction to the smart homes initiative has come from formal and informal carers. Alignment (4±4i) ± Interacting technologies/constituencies Usage of smart homes technology and its interaction with alternative and complementary technology remains at the planning stage. A vitally important task facing the constituency is to demonstrate that patterns of use will add value for all users.

from an understanding of its intrinsic (technological) innovativeness. Interactivity forms the kernel of a ``userled'' definition of smart technology, as does Burley's distinction between assistive and smart technology. This is enabling technology with which residents interact with their built environment (the home), which assists their interaction with services outside their own home. Both assistive and smart technology as presented by the smart homes constituency contains elements which are smart in this sense. This particular interactivity is unusual since the originators of the data (the finalusers) have the results of its analysis transmitted not directly back to themselves (as in a smart pen, for example). Rather, following the mediation of experts (or expert systems) the feedback signal takes the simplified form of a referral (reference to carers) or an automatic alert. Whilst the design process here is inclusive, its results are likely to need careful knowledge management to include the views of paradigmal targetusers (those with dementia) who may be unable to express and lobby for their preferences.

It is unwise to predict the outcome of any non-linear innovation process. In particular this is so with a complex network technology, being innovated into a complex service provision. However, using the alignment and contextual usability tools the case study identifies significant areas of interest. The nature of the technology employed here is not radically innovative (though it is possible that broad-band, hand-held devices will be used once they are proven in trials elsewhere). Alignment (1± 1i) highlights that a use satisfying formal, informal and finalusers will necessitate important alterations to governances within formal care, and between formal carers and both informal-carers and final-users. Formal carers (from all organisations) may conduct less physical visits and monitor (and prescribe action) as a result of monitoring at a distance. Exposing all users to observation of antenna pilots and usability labs may draw out unpredicted aspects of use. Usage patterns too cannot be predicted. One elderly person may be delighted at the prospect of email communications abroad, others may be pleased with security, and yet another with alarm links to an adjacent family. Alignment (4 ± 4i) will require a 87

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monitoring of such patterns of use by all categories of users over time. It is particularly important that governance systems monitor without constraining the benefits of independent living if informal carers and final-users are to derive maximum benefits of interaction with network technologies. It may be that only after well-researched field trials will usage patterns be identified and taxonomised. The nature of the target problem Alignment (2 ± 2i) highlights several issues of usefulness. First, continued alignment between smart homes and the support services network as they evolve to an integrated service. Second, usefulness of interaction with the wider networks, in particular, in West Lothian, the information society network for all public administration. Third, the innovated technology should be capable of aligning with anticipated developments towards telemedicine. Finally, the needs of final-users and informal carers change over time as they die and new generations occupy their roles, and change within the context of smart homes adjacent to the hub and those in traditional housing estates. Skilled professionals and the innovation constituency are both likely to benefit from exposing carers and final-users to proposed technologies in usability labs. The sociotechnical alignment approach addresses the question: to successfully innovate how do technological and organisational aspects of a constituency align within the constituency and with the relevant wider world? Alignment (3 ± 3i) and Figure 7 suggest the constituency cannot simply reconfigure the information technology used in public administration bureaucracy (typically PC-based) if informal carers and final-users are to enjoy usability. Customisation to individual needs and capabilities will be the watchword, and may only be finalised following the piloting of the smart houses and other field trials. Clear frictions between use, usage, usability and usefulness can be identified in the case study. It is in reconciling these before and during innovation that the constituency's own governance systems may come under pressure. In such instances a balance will be struck between accountability (transparency and inclusiveness) and effectiveness (choosing the right way forward and implementing it). Use of contextual usability tools will not mean that future adjustments and realignments are

unnecessary. It will, however, have demonstrated that the constituency governance systems are capable of identifying and making such realignments.

6 Conclusions This paper has argued that innovating complex networking technology risks technological failure and social rejection unless attention is paid to (internally and externally) aligning the organisational and technological dimensions of the innovated technology. The paper suggests two tools appropriate to these processes ± the diamond of alignment and contextual usability quadrant. The paper has applied these tools to the early stages of smart housing innovation in West Lothian and has shown that even with complex innovation projects it is possible for constituents and target constituents to remain in control of the process and avoid becoming victims to technological determinism by innovating inappropriate technological systems. A range of practical approaches flowing from the application of contextual usability has been identified, and it is suggested that using these approaches may overcome sterile debates by building, from user-research, a consensual and successful innovation.

Notes 1 From the formation of West Lothian in 1995 until 1998, the author was a councillor and chair of the strategic services committee. 2 Dementia in old age is an acquired organic disease of the brain in elderly persons. The disease is characterised by impaired mental ability, and causes failure of psychological processes such as language ability, memory and reasoning. The disease is chronic and cannot be cured, and often becomes worse over time. 3 Dementia incidence rises to 20 per cent of the over80 years of age population, life expectancy varies between five and 15 years (see Pieper, 1997 and Bjorneby and van Berlo, 1997). 4 Preliminary estimates by WLC officers suggest that smart housing care may cost £50 per week rent and £150 care-costs ± £200 a week. 5 These costings should not be interpreted as inefficiency by public providers; since only privately run homes are entitled to claim benefit subsidy. 6 See Mostoller et al., 1996 and Scottish Office, 1998. 7 Tunstall who lead a consortium of eight organisations under the EU Safe 21 programme to

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develop telecare technology. Their product range includes a mobile telephone with geographic information system (GIS) capability and mapping system interface. Another supplier is IST of Finland who have developed a watch-device which collects and transmits activity and passive monitoring information. British Telecom (BT, 1998) in association with Anchor Housing Trust have developed a range of smart products offered to smart home developers including transmitter devices capable of collecting activity and environment data from a home and transferring them to a central base. 8 Dickinson (see Johnson, 1970, No. 910) illustrates the dangers of conscious choice without experiential learning:

References Ambrose, I. McFarlane, J. and Nolte, E. (1997), ``Policies and partnerships for non-handicapping home environments: a cross-national review of policies for housing adaptation and applications of information technologies'', The European Context for Assistive Technology, Assistive Technology Research Series, IOS Press, Denmark. Bjorneby, S. and van Berlo, A. (Eds) (1997), Ethical Issues in Use of Technology for Dementia Care, Akontes, Knegsel. British Telecom (1998), Local Government and Community Development, BT, London. Burley, R. (1998), Technology Strategy for WLC New Housing Partnership Bid, WLC, Livingston. Celler, B.G., Harris, M. and Clark, R. (1994), ``Remote monitoring of health status of the elderly at home. A multidisciplinary collaborative project between the University of NSW and British Telecom, Australia'', paper presented to 2nd Health Informatics Conference, Gold Coast, August. Clatworthy, S. and Bjùrneby, S. (1997) ``Smart house installation in Tùnsberg'', in Bjorneby, S. and van Berlo, A. (Eds), Ethical Issues in Use of Technology for Dementia Care, Akontes, Knegsel, Ch. 6. Doughty, K., Williams, G., King, P.J. and Woods, R. (1998), ``DIANA ± a telecare system for supporting dementia sufferers in the community'', paper presented to the 20th Annual International Conference of the IEEE Engineering in Medicine and Biology Society, Hong Kong. Eiger, G. and Furugren, B. (1998), ``Smart-Bo ± an ICT and computer-based demonstration home for disabled people'', in Porrero, P. and Ballithio, E. (Eds), Improving the Quality of Life for the European Citizen, IOS Press, Sweden. Fleck, J. (1996), ``Informal information flow and the nature of expertise in financial services'', International Journal of Technology Management (special issue on Informal Information Flow), Vol. 11 No. 1/2, pp. 104-28. Gates, B. (1995), The Road Ahead, Viking, London. Heimer, T. (1997), The Genesis of Intelligent Home Technology, Johann Wolfgang Goethe University, Frankfurt. Johnson, T.H. (Ed.) (1970), Emily Dickinson, Complete Poems, Faber, London, No. 910. Kinder, T. (1999), ``The information technology infrastructure and environment for the diffusion of e-commerce amongst SMEs in West Lothian, Scotland'', TechMaPP, University of Edinburgh. Kinder, T., Klaes, M. and Molina, A.H. (1999), ``Sociotechnical alignment in the rise and evolution of a telemedicine constituency in Scotland'', in Science and Public Policy, Vol. 26 No. 6, pp. 415-35. Kirakowski, J. (1998), Report about the Usability Professionals Association Annual Conference, 22-26 June, Washington DC. Leenders, M.R. and Blenkhorn, D.L. (1988), Reverse Marketing ± The New Buyer-Supplier Relationship, Free Press, London. Marshall, M. (1995), ``Technology is the shape of the future for dementia care'', Journal of Dementia Care, Vol. 3 No. 3, pp. 12-14.

Experience is the angled road Preferred against the mind By ± paradox ± the mind itself ± Presuming it to lead Quite opposite ± how complicate The discipline of man ± Compelling him to choose himself His preappointed plan.

9 Roman numbers in segments (I) and (II) representing the emergent constituency should not be confused with Arabic numbers (1), (2), (3) and (4) representing dimensions of alignment. 10 See Molina and Kinder (1999), for a review of learning organisation models. 11 Of particular note are issues of resource transfer for care costs between constituency participants and the locational integration of new facilities with existing townships. 12 Cost here should be interpreted holistically and encompass dimensions of effectiveness of expenditure over time by the variety of service providers ± it is not reducible merely to the dimension of short-term efficiency. 13 On 26 October 1998, the Scottish Office invited bids from local authorities and health trusts and boards into a £5 million annual budget intended to implement their policy statement (The Scottish Office, 1998). This policy encourages inter-agency service integration in community care provision, and the use of telecare techniques. 14 David Kelly interviews 22 December 1998. 15 Robin Burley was Director of Edinvar Housing Association for 22 years and proudly recounts the innovation of barrier free housing for the elderly and disabled in Scotland by Edinvar. He is advising the Council on the smart homes project and was interviewed on 21 December 1998. He is active in Technology, Ethics and Dementia (TED) a European funded RD project based in Bamberg. 16 BUS is a binary user system connecting the cabling signals to central data points. 17 Gates' home aims to: reduce distance issues; introduce working life flexibility; enable access to specialist information and search for new associations; address security and safety feelings and fears; save time and energy by enabling preprogramming, automatic switching, and remote switching; allow control of its environment; and reduce repetitive tasks.

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Molina, A. (1997), ``Insights into the nature of technology diffusion and implementation: the perspective of sociotechnical alignment'', Technovation, Vol. 17 Nos. 11/12, pp. 601-26. Molina, A. (1998), ``Making it in the new emerging markets of the information society: lessons from the failures and successes of a European microprocessor company'', TechMaPP Working Paper Series, TechMaPP, The University of Edinburgh, Edinburgh. Molina, A. (1999a), ``The role of the technical in innovation and technology development: the perspective of sociotechnical constituencies'', Technovation, Vol. 19, pp. 1-29. Molina, A. (1999b), ``Transforming visionary products into realities: constituency-building and observacting in the case of NewsPad'', Futures, Vol. 31, pp. 291-332. Molina, A.H. and Kinder, T. (1999), ``A sociotechnical model of learning organisations ± new ways of working and emerging organisational forms'', TechMaPP Working Paper, The University of Edinburgh. Mostoller, M., Corbin, S., Gilbert, C., Sichol, J., Cope, G. and Robinson, E. (1996), ``The smarthouse technology'', New Communications Technology Group Project, London. Nicoll, D. (1995), ``Contextual usability: a methodological outline of contextual usability and quality function deployment in the development of advanced media products'', TechMaPP Working Paper, University of Edinburgh. Nielsen, J. (1992), Usability Engineering, Academic Press, Boston, MA. Oakland, J. (1993), Total Quality Management, Butterworth-Heinemann, London.

Oliver, G. (1990), Marketing Today, Prentice-Hall, London. Petroski, H. (1996), Invention by Design ± How Engineers get from Thought to Thing, Harvard University Press, Cambridge, MA. Pieper, R. (1997), ``Technology and the social triangle of home care: ethical issues and the application of technologies to dementia care'', in Bjorneby, S. and van Berlo, A. (Eds), Ethical Issues in Use of Technology for Dementia Care, Akontes, Knegsel, pp. 1-31. Scottish Office (1997), Modernising Community Care ± An Action Plan, HMSO; and WLC, 1998, Community Care Policy, Livingston. Scottish Office (1998), Modernising Community Care: An Action Plan, SO, Edinburgh. Statt, D. (1994), Psychology and the World of Work, Macmillan, London. Topo, P. (1997), ``User needs of people with dementia ± methodological issues'', in Bjorneby, S. and van Berlo, A. (Eds), Ethical Issues in Use of Technology for Dementia Care, Akontes, Knegsel. von Hippel, E. (1988), The Sources of Innovation, OUP, Oxford. von Krogh, G. and Roos, J. (1995), Organisational Epistemology, Macmillan, London. Walsh, V., Roy, R., Bruce, M. and Potter, S. (1992), Winning by Design, Blackwell, Oxford. Wiklund, M. (Ed.) (1994), Usability in Practice, AP Professional, Boston, MA. WLC (1998a), Opening Doors for Older People, WLC, Livingston. WLC (1998b), West Lothian Primary and Community Care Plan 1998-2001, WLC, Livingston.

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Introduction

An integrated approach to innovative product development using Kano's model and QFD

It is a common notion that competition in industries is becoming increasingly intense. With the trend of business globalisation, companies face challenges from both national and international competitors. To counter this threat, many of them focus on searching for sustainable advantages. The survival of a company is heavily dependent on its capacity to identify new customer requirements and to develop and market improved products (goods or services). The delivery of innovative products to the marketplace is, thus, considered as a key element for a company to confront competitive challenges. Satisfying customer requirements through the use of ordinary products is often not enough to capture and retain market share. Customers' needs and expectations should be met and exceeded through product innovation. However, these needs and expectations become increasingly sophisticated as customers experience new ideas in the world around them every day (Plsek, 1997). The innovative product development process requires an understanding of continuously changing customer wants and needs. Hence, there is a need to study and develop procedures that can help a company or project team gain a profound knowledge of customer requirements and satisfaction, and then develop products with innovative features. The purpose of this paper is to better understand customers' requirements and satisfaction in order to satisfy and delight them. It also aims to develop a systematic product development process which could help project teams to design the voice of the customer into the product, thus reflecting their tastes and desires. To achieve these, an integrated approach to innovative product development using Kano's model and quality function deployment (QFD) will be presented.

X.X. Shen K.C. Tan and M. Xie The authors X.X. Shen, K.C. Tan and M. Xie are all at the National University of Singapore, Singapore. Keywords Customer satisfaction, Innovation, Model, Quality function deployment, Product design Abstract Under rapidly changing and highly competitive circumstances, the timely design, development and marketing of new products or services with creative and innovative features are essential for a company's survival. In order to capture and retain market share, customer requirements and expectations should be met and exceeded through product innovation. For effective newproduct-development project management, a systematic approach to understanding customer requirements and further embedding them into the future product is desirable. This paper analyses the notion of customer satisfaction based on the Kano model and points to the importance of product innovation in exceeding customer satisfaction. It further proposes an integrated process model for innovative product development by incorporating Kano's model and the quality function deployment (QFD) technique. Analyses suggest that the proposed approach would contribute to the creation of attractive product attributes and product innovation. Electronic access The current issue and full text archive of this journal is available at http://www.emerald-library.com

Understanding customer requirements and satisfaction As an approach to doing business, the concept of quality has become widely accepted throughout the world. The goal of total quality excellence is now recognised as a key to world-wide competitiveness. Quality

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can be defined as satisfying or exceeding customer requirements and expectations, and hence to some extent it is the customer who ultimately judges the quality of a product. For repeatable success, customer satisfaction is an important goal. The cost of customer dissatisfaction can be very high. For example, recent research shows that 8.5 per cent of revenue is at risk from customer dissatisfaction (e.g. Hepworth, 1997). The situation, in fact, could be worse because many customers seldom complain when a product's quality is not up to expectation. Such customers simply switch to a competitor's or alternative product to fulfil their needs at the next purchase. To maintain customer satisfaction and thereby long-run profitability, it is clear that companies should provide products of high quality. It is easy for project teams to understand that higher product performance can result in higher customer satisfaction. However, the relationship between customer satisfaction and product performance is more complicated than this. For some product features, customer satisfaction can be greatly improved only with a small improvement of performance; while, for some other features, customer satisfaction can only be improved a little even when the performance of the product has been greatly improved. For example, customers may take no scratches as granted when they purchase a new car, and therefore there may not be a high satisfaction level even though this attribute is greatly improved. But, one tiny scratch on the hood of the car may put off a potential customer. As a converse example, an integrated child seat may delight potential customers. Thus, a deep understanding of customer satisfaction is a prerequisite to achieving customer satisfaction. Kano et al. (1984) have developed a very useful diagram for characterising customer needs (see, for example, CQM (1993)). The Kano model can help us gain a profound understanding of customer satisfaction. It divides product features into the following three distinct categories, each of which affects customer satisfaction in a different way (see Figure 1): (1) Must-be attributes. Customers take them for granted when fulfilled. However, if the product does not meet this basic need sufficiently, the customer may become very dissatisfied. For example, when a

Figure 1 The Kano model

customer wants to buy a new car, ``no scratches'' may be such an attribute. (2) One-dimensional attributes. These attributes result in customer satisfaction when fulfilled and dissatisfaction when not fulfilled. The better the attributes are, the better the customer likes them, e.g. ``low fuel consumption''. These attributes are also known as spoken qualities. (3) Attractive attributes. The absence of attractive attributes does not cause dissatisfaction because they are not expected by customers who may be unaware of such product features. However, strong achievement in these attributes delights customers, e.g. ``power rearview mirror'' and ``remote door lock on ignition key''. Kano's model illustrates the relationship between customer satisfaction and product performance. It provides a way of categorising customer attributes into one of three types: must-be attributes, one-dimensional attributes, and attractive attributes. A competitive strategy for product development should take into account these three categories. It should be noted that the same attribute may change category over time. Specifically, attractive attributes can become onedimensional attributes and then further become must-be attributes. For example, we may perceive ``power rearview mirror'' as an attractive attribute this year, but it may be considered as one-dimensional next year. Similarly over the years, power door locks have now become a must-be attribute. Inherent in Kano's thinking is that customer 92

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needs and consequently product attributes are dynamic rather than static.

the model, attractive attributes over time become one-dimensional attributes and then further on become basic attributes. In other words, those products that were perceived as innovative and attractive are not considered to be innovative at the present time, and consequently customer satisfaction may not be achieved and exceeded. Timely development and introduction of products with innovative features are, thus, important.

Exceeding customer satisfaction Based on the Kano model, it can be recognised that customer satisfaction is more than a one-level issue as traditionally viewed. It may not be enough to merely satisfy customers by meeting their basic and spoken requirements under current highly competitive environments. One main reason is that nowadays there are so many similar products for customers to choose from in the marketplace. Customers might become confused when facing all kinds of products of various brands, models and features, and their attention may not be attracted by ordinary or non-outstanding products. A strategy that companies may adopt is to delight customers and to exceed their satisfaction. Through the use of products with attractive quality, customers may be retained and thereby market share can be captured and sustained. Essentially, customer requirements and expectations can be satisfied and exceeded with such products. Furthermore, a satisfied customer is one sort of effective media in advertising the product that brings him/her exceeded satisfaction. They may share their satisfaction with other potential customers, e.g. friends, colleagues and relatives. It is therefore necessary to innovate, as Deming (1993) stated, to predict needs of customers and give them more, as a satisfied customer may switch. Hence, much attention should be paid to attractive quality creation when managing a product development project. Most innovative products cannot be designed and manufactured by accident. A systematic approach is necessary for developing such products. In fact, one task of product management is to find out what makes a product superior, of higher value or distinctive and to deliver this to the customer by a better method than that used by the competition. If such customer needs can be identified and designed into new products and marketing programmes, the company will more likely succeed (Urban and Hauser, 1993). Another important implication we can learn from Kano's model concerns the timely delivery of innovative products. According to

An integrative approach As discussed, exceeding customer satisfaction requires the development and introduction of innovative products. To provide a systematic means of innovative product development, a process model is proposed in this paper. In particular it investigates the role of Kano's model and quality function deployment (QFD) in the product development process. Overview of the process An overview of the proposed process model is shown in Figure 2. It includes initial product idea generation, potential customer identification, customer requirement acquisition, Kano model analysis, QFD analysis and other downstream product development phases, e.g. testing and launching. Note that this process model is more concerned with the early phases of new product development than the whole process. For a detailed product development process, see, for example, Urban and Hauser (1993) and Wilson et al. (1996). Figure 2 A proposed innovative product development process

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The initial product idea generation and identification stages have received considerable attention. Product ideas may arise from various sources, e.g. technology, market needs, competitors and user solutions. There are also various methods for generating product ideas. For example, Urban and Hauser (1993) listed direct search, technological innovation, exploratory customer studies, individual creativity, alliances, acquisitions, licensing and so on. For some recent discussion on this issue, see, for example, Veganti (1997), Khurana and Rosenthal (1998). For an initial product idea, potential customers should be identified before collecting their requirements and conducting further analysis. The project team must decide who may have interest in this product. Several issues should be considered in this step. First, team members may have varied ideas of who constitute potential customers. It may be the case that several customer groups are identified for a particular future product. Second, the needs of a substantial portion of the customers may be different from those of other customers. As a consequence, segments probably exist among customers. It is useful to identify possible customer segments for maximising market share. When there are segments, for example, possible outcomes could be to develop different products for each segment, to develop one product for a major segment or to develop one product for a specific segment (not for a major segment due mainly to the existence of strong competitors in that segment). The product idea generation and customer identification take place iteratively. If project team members find that there are not enough potential customers or that the potential market is not as big as expected, they may turn back to the previous stage and then evaluate and modify the initial product idea or search for alternative product ideas. After knowing who the potential customers are, the project team then proceeds to collect their specific needs and requirements based on the initial product idea. Various techniques can be employed in this step to help for the acquisition of customer needs and wants. Some well-known methods include focus groups, interview and survey. A comprehensive discussion on the issue of the customer voices can be found in Griffin and Hauser (1993). 94

The Kano model analysis Each identified customer requirement will be analysed on the basis of Kano's model at this stage. The project team can group these requirements into their appropriate Kano categories using the Kano questionnaire or a force-choice classification method. The Kano questionnaire In 1984, Professor Kano developed a method to identify which customer attributes are must-be, which belong to one-dimensional and which are attractive. The data needed to classify customer attributes are obtained through a Kano questionnaire that consists of pairs of one positive and one negative question. For instance, suppose that the product to be developed is a Web page and that one customer requirement is ``the Web page is fast in loading''. The pair of questions would be: how would you feel if the Web page is fast in loading and how would you feel if the Web page is not fast in loading? For both questions, customers choose from one of the following responses: ``delighted'', ``expect and like it'', ``no feeling'', ``live with it'', ``do not like it'' or ``other''. Based on the Kano survey results, customer attributes can be categorised as ``must-be'', ``one-dimensional'', ``attractive'', ``indifferent'', ``reverse'' or ``sceptical''. For more information on this questionnaire and its analysis, see Kano et al. (1984). A force-choice classification method The Kano questionnaire provides a systematic way of grouping customer requirements into different Kano categories. This grouping can be further improved by using a two-step classification to distinguish categories to a deeper degree. Specifically, sub-categories can be formed from the various Kano categories. For instance, ``interesting Web page'' may be categorised by customers as an attractive element. But it may be of interest to further understand how attractive it would be, e.g. extremely attractive or somewhat attractive. In the first step, customers are asked to group the customer attributes into three basic Kano categories, i.e. must-be, onedimensional and attractive. They must become familiar with the Kano model before the survey is conducted. Therefore, before the first step, the development team members or

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include some differentiating attractive elements (CQM, 1993). Furthermore, the completeness of customer requirements should be checked according to the results; that is, we should ensure that we have a comprehensive list of customer attributes in terms of different Kano categories. This is very useful for the identification of must-be and attractive attributes because they are considered as unspoken qualities. For instance, if there are very few customer requirements that are grouped as attractive attributes, corresponding action should be taken. More of this type of attributes should be gathered and embedded into future products in order to delight customers. This can be accomplished through in-depth interviews or the use of lead user analysis (von Hippel, 1988). Alternatively, the project team may return to the previous stage and redefine potential customers or even go back further to re-examine their initial product idea.

marketing people should provide respondents with a brief introduction to the Kano model. For the second step, customers are further asked to group the customer attributes into the sub-categories using the force-choice scale (Figure 3). For those customer attributes grouped into the attractive category in the first step, customers further group them into one of three corresponding sub-categories, i.e. very attractive, moderately attractive and somewhat attractive. Similarly, for those customer attributes grouped into the must-be category in the first step, customers further group them into one of three corresponding sub-categories, i.e. very basic, moderately basic and somewhat basic. As to the customer attributes grouped as one-dimensional in the first step, they still remain in the same category because of its relative simplicity. It should be noted that this method presumes that each customer attribute falls into one of the three basic Kano categories. However, at times, customers may not be able to express their opinion of whether a particular product or a particular feature of a product fulfils their needs. In this case, it may be classified as indifferent rather than in one of the three main categories.

Use of quality function deployment The deeply analysed customer voices are then input into the QFD analysis. QFD provides a means of translating customer requirements into appropriate technical characteristics for each stage of product development and production (Sullivan, 1986). As a product development and quality management methodology, it was first introduced in Japan (Akao, 1990) as a quality improvement tool. One form of QFD is a four-phase model, which includes the house of quality (HOQ), parts deployment, process planning and production planning. Among the various stages, the HOQ is the most commonly used stage and its aim is to reflect customer desires

Results analysis Classifying customer requirements into their appropriate Kano categories and subcategories helps us understand different requirements for future products. Some product attributes can only make sure that customers will not be dissatisfied, while some can delight customers. The general guideline would be to seek to fulfil all must-be requirements, be competitive with market leaders on the one-dimensional attributes and

Figure 3 Two-step classification method using force-choice scale

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and tastes (Hauser and Clausing, 1988). The HOQ is a matrix style chart that correlates identified customer needs with technical characteristics. Ideally, the HOQ should be developed by a cross-functional team made up of members from various departments. It consists of several submatrices joined together in various ways, each containing information related to the others (see Figure 4). Section A of Figure 4 contains a list of the customer wants and needs. Sometimes it is also called the ``voice of the customer'' or ``whats''. Section B is the planning matrix which usually includes the following information: importance to customers, competitive benchmarking, sales point and final priorities. Section C lists the technical characteristics of a product or the ``hows''. Section D is the relationship matrix which indicates how much each ``how'' affects each ``what''. Section E, the roof of the HOQ, contains the technical correlations that capture the trade-off between pairs of ``hows''. Section F, considered as the last room, contains the technical matrix with information on technical priorities. Sometimes it also includes technical benchmarks, technical difficulties, estimated cost, targets and other related information. The process of constructing the HOQ is different from the construction of a real house. The HOQ construction begins with the left room, i.e. the collection of customer needs and prioritising them. In the proposed model (Figure 2), QFD analysis is performed based on the thoroughly collected and deeply analysed customer requirements of the previous stages. Specifically, the customer

attributes analysed using the Kano model are used as input to the QFD analysis. The next step involves building the planning matrix, which is a tool to help the product development team to systematically re-prioritise customer needs. This part describes customer perceptions of competing products with regard to meeting their needs. Competitive benchmarking is also carried out here. Sales point may be used to help decide in what areas the firm should be aggressive. After gathering the VOC and coming up with the technical characteristics (also called the voice of the engineer), the next step is to build the centre of the house which indicates how each technical characteristic affects each customer need. Thereafter comes the construction of the roof of the HOQ. This is a matrix indicating relationships between technical characteristics. The roof is a good indicator of future design trade-off that may have to be made. The final step in constructing the HOQ is to build the technical matrix. This last section of the HOQ contains the most important and useful information. The priority of each technical characteristic provides a rank ordering of the technical characteristics. This serves as a guide for making trade-offs in resource allocation. Additional information in this section consists of the technical difficulties, the estimated cost, or the determined importance of meeting a particular target specification. Since its first use, QFD has been widely accepted by a large number of organisations world-wide, e.g. IBM, Digital, Du Pont, Texas Instruments and Philips International (Burn, 1990). Because of its numerous

Figure 4 A simple house of quality for ``Web page''

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benefits, it has been extended beyond its initial concept and has been widely used in many other fields besides manufacturing, e.g. software development (Barnett and Raja, 1995), marketing planning (Lu and Kuei, 1995), education (Pitman et al., 1995), information technology systems (Tan et al., 1998), among other industries. Some of its benefits of using QFD include increased efficiency, reduction of cost, shorter lead time, reduction in prelaunch time and afterlaunch tinkering and better customer satisfaction (e.g. Sullivan, 1986; Hauser and Clausing, 1988; Zairi and Youssef, 1995).

big idea that will revolutionise the field, but instead will be on innovations that can add value to existing items. When a product development team adopts QFD, field comparison suggested that QFD appears to encourage the team to become more integrated and co-operative and that it enhances communication within the team (Griffin and Hauser, 1992; Debackere et al., 1997). Furthermore, it is argued that success in innovation requires adequate information capacity in the system and that such capacity is a function of the intensity of the communication pattern, i.e. the frequency, density, informality and openness of the communication (Ayas, 1997). As a consequence, it can be concluded that the use and realisation of cross-functional teams in QFD would lead to a significant effect on the innovative product development process.

QFD and innovative product design Besides the above stated benefits, Brown (1991) argued that QFD brings superior product design and the potential for breakthrough innovation. QFD also helps companies discover that innovation, manufacturing and quality can fit comfortably together (Anderson, 1993). The role of QFD in promoting innovation is investigated in this paper. Two factors, which can have significant impacts on innovative product development, are analysed in detail. They are the use of cross-functional teams and the roof matrix.

Technical correlation matrix QFD utilises the technical correlation matrix, also called the roof of the HOQ, to map the interrelationships and interdependencies among technical characteristics (see Figure 4). The roof matrix can lead to important insights in the development process and in many ways it contains the most critical information for engineers (Hauser and Clausing, 1988). Each cell in the roof matrix shows how much one technical characteristic affects another. Specifically, the correlations are usually judged as positive or negative. A positive impact suggests that the improvement of one technical characteristic can result in the corresponding improvement of another technical characteristic, while a negative impact suggests that the improvement of one technical characteristic will cause the deterioration of another technical characteristic. The latter situation usually implies conflict among technical characteristics, i.e. technical trade-offs. Faced with these trade-offs, engineering compromises is unavoidable. Although tradeoffs and technical limitations are always there, they do at times represent opportunities for R&D breakthrough (ReVelle et al., 1997). This is because once a strong negative correlation is broken, it usually represents a major paradigm shift resulting in proprietary technologies and patents. The roof matrix,

Cross-functional teams One of the conditions of working with QFD is that a cross-functional team carries out the product development project. The team members are from different departments in the organisation, e.g. sales, marketing, manufacturing, engineering, R&D, quality assurance and finance. This is in order to garner the wide ranging expertise of people with different backgrounds and to cut through functional barriers (Griffin and Hauser, 1993). As a subset of concurrent engineering, cross-functional teams place emphasis on integrating the various specialities needed for successful new product design and development (Hitt et al., 1996). It also offers a useful solution to the integration problems posed by the innovation process and the associated problems for competitiveness (Caird et al., 1997). Gummer (1995) argued for the growing importance of teamwork as the competitive struggle in all areas of endeavour today no longer focus on the next 97

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differentiate among various types of customer requirements so as to obtain an imaginative understanding of the underlying needs. These deeply analysed customer needs are then conveyed into the QFD process which guides product managers and design teams through the conceptualisation, creation and realisation process of a new product, or a new version of an existing product. It is concluded that Kano model analysis and the cross-functional team and technical correlation matrix involved in QFD have significant positive effects on attractive quality creation and product innovation. For future work, research efforts should be directed at the identification of attractive customer requirements and the selection of different product concepts. For its practical use, guidelines should be studied and developed so that this model can be appropriately tailored to different circumstances. In addition, it would be worthwhile to investigate the incorporation of other techniques into this process, e.g. TRIZ ± the theory of inventive problem solving.

hence, contains the information for potential innovation. The following example may help us understand the role of the roof matrix in promoting creative and innovative ideas and designs in product development. Let us again consider the Web page design example. For simplicity, only two general technical characteristics are included here, namely, use of graphics and size of page. Usually more graphics should be used to give Web surfers a good impression and to make the Web page more interesting to view. However, increasing the use of graphics increases the size of the page and this deteriorates loading speed, which is undesirable. In this case, these two technical characteristics are negatively correlated, which implies that a trade-off needs to be made. In trying to resolve this conflict, several useful and creative concepts regarding the use of graphics in Web page design are suggested. For example, Web page designers may consider saving the graphics into files of smaller formats or sizes, providing linkage to text-only pages or splitting the graphics into small pieces. Or they may simply create a Web page that will reserve the space for the graphic first, then load the text and later the graphic itself. Through this particular sequence, Web surfers can read the text while waiting for the whole page to be loaded. Some of these ideas and concepts may be obvious to Web page designers, while other ideas may require the designers' various inputs, discussions, arguments and tests.

References Akao, Y. (1990), Quality Function Deployment: Integrating Customer Requirements into Production Design, Productivity Press, Cambridge, MA. Anderson, R.E. (1993), ``HRD's role in concurrent engineering'', Training and Development, Vol. 47 No. 6, pp. 49-54. Ayas, K. (1997), Design for Learning for Innovation: Project Management for New Product Development, Eburon Publishers, Delft. Barnett, W.D. and Raja, M.K. (1995), ``Application of QFD to the software development process'', International Journal of Quality & Reliability Management, Vol. 12 No. 6, pp. 24-42. Brown, N.M. (1991), ``Value engineering helps improve products at the design stage'', Marketing News, Vol. 25 No. 24, p. 18. Burn, G.R. (1990), ``Quality function deployment'', in Dale, B.G. and Plunkett, J.J. (Eds), Managing Quality, Philip Allan, London. Caird, S., Roy, R. and Wield, D. (1997), ``Team approaches to developing innovative products and processes'', International Journal of Innovation Management, Vol. 1 No. 4, pp. 333-54. CQM (1993), ``A special issue on Kano's methods for understanding customer-defined quality'', The Center for Quality Management Journal, Vol. 2 No. 4, pp. 3-35. Debackere, K., Looy, B.V. and Vliegen, J. (1997), ``A process view on managing quality during the creation of technical innovations: lessons from field research'', R&D Management, Vol. 27 No. 3, pp. 197-211.

Conclusions In order to remain competitive, it is imperative for companies to focus on the timely delivery of high quality products to customers. Based on the Kano model, this paper analysed the concept of customer satisfaction and concluded that meeting customer requirements is not enough to capture and retain market share. Products of attractive quality are desirable and customer expectation and satisfaction should be exceeded. A process model for designing and developing innovative products was proposed by incorporating Kano's model into the quality function deployment technique. The Kano model helps project team members 98

Innovative product development using Kano's model and QFD

X.X. Shen, K.C. Tan and M. Xie

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Deming, W.E. (1993), The New Economics for Industry, Government, Education, MIT Centre for Advanced Engineering Study, Cambridge, MA. Griffin, A. and Hauser, J.R. (1992), ``Patterns of communication among marketing, engineering and manufacturing ± a comparison between two new product teams'', Management Science, Vol. 38 No. 3, pp. 360-73. Griffin, A. and Hauser, J.R. (1993), ``The voice of the customer'', Marketing Science, Vol. 12 No. 1, pp. 1-27. Gummer, B. (1995), ``Go, team, go ± the growing importance of teamwork in organizational life'', Administration in Social Work, Vol. 19 No. 4, pp. 85-100. Hauser, J.R. and Clausing, D. (1988), ``The house of quality'', Harvard Business Review, Vol. 66 No. 3, pp. 63-73. Hepworth, M. (1997), ``How to stem revenue loss resulting from customer dissatisfaction'', CMA Magazine, Vol. 71 No. 8, p. 31. Hitt, M.A., Nixon, R.D., Hoskisson, R.E. and Kochhar, R. (1996), The Birth, Life and Death of a CrossFunctional New Product Design Team, Working Paper, Report No. 96-111, Marketing Science Institute. Kano, N., Seraku, N., Takahashi, F. and Tsuji, S. (1984), ``Attractive quality and must-be quality'', Hinshitsu (Quality, The Journal of Japanese Society for Quality Control), Vol. 14 No. 2, pp. 39-48. Khurana, A. and Rosenthal, S.R. (1998), ``Towards holistic `front ends' in new product development'', Journal of Product Innovation Management, Vol. 15 No. 1, pp. 57-74. Lu, M.H. and Kuei, C.-H. (1995), ``Strategic marketing planning: a quality function deployment approach'',

International Journal of Quality & Reliability Management, Vol. 12 No. 6, pp. 85-96. Pitman, G., Motwani, J., Kumar, A. and Cheng, C.H. (1995), ``QFD application in an educational setting: a pilot field study'', International Journal of Quality & Reliability Management, Vol. 12 No. 6, pp. 63-72. Plsek, P.E. (1997), Creativity, Innovation, and Quality, ASQC Quality Press, Milwaukee, WI. ReVelle, J.B., Moran, J.W. and Cox, C.A. (1997), The QFD Handbook, John Wiley & Sons, New York, NY. Sullivan, L.P. (1986), ``Quality function deployment'', Quality Progress, Vol. 19 No. 6, pp. 39-50. Tan, K.C., Xie, M. and Chia, E. (1998), ``Quality function deployment and its use in designing information technology systems'', International Journal of Quality & Reliability Management, Vol. 15 No. 6, pp. 634-45. Urban, G.L. and Hauser, J.R. (1993), Design and Marketing of New Products, 2nd ed., Prentice-Hall, Englewood Cliffs, NJ. Veganti, R. (1997), ``Leveraging on systemic learning to manage the early phases of product innovation projects'', R&D Management, Vol. 27 No. 4, pp. 377-92. von Hippel, E. (1988), The Sources of Innovation, Oxford University Press, New York, NY. Wilson, C.C., Kennedy, M.E. and Trammell, C.J. (1996), Superior Product Development: Managing the Process for Innovative Products, Blackwell, Cambridge, MA. Zairi, M. and Youssef, M.A. (1995), ``Quality function deployment: a main pillar for successful total quality management and product development'', International Journal of Quality & Reliability Management, Vol. 12 No. 6, pp. 9-23.

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1 Introduction

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

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.

Charles Shepherd and Pervaiz K. Ahmed

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

2 Forces of change

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

European Journal of Innovation Management Volume 3 . Number 2 . 2000 . pp. 100±106 # MCB University Press . ISSN 1460-1060

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

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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 lifecycles, 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 business model 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

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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 reenforced 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;

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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'' innovation business 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

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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,

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Figure 1 Solutions portfolio ± a generic model

Figure 2 View of how to be a solutions company

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 solutionsbased 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).

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Figure 3 Solutions to be offered and competitive leverage

Figure 4 Organisational competence of a solutions provider

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.

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.

5 Solutions model and organisational adjustments 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

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

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.

References Bowen, H.K., Clark, K.B., Halloway, C.A. and Wheelwright, S.C. (1994), ``Development projects: the engine of renewal'', in Clark, K.B. and Wheelwright, S.C. (Eds), The Product Development Challenge, Harvard University Business Press, Harvard, Boston, MA. Brown, S. and Eisenhardt, K.M. (1995), ``Product development: past research, present findings and future directions'', Academy of Management Review, Vol. 20 No. 2, pp. 343-70. Cooper, R.G. (1988), Winning at New Products, Gage Educational Publishing. Cooper, R.G. (1993), Winning at New Products: Accelerating the Process from Idea to Launch, 2nd edition, Addison-Wesley, Reading, MA. Cooper, R.G. and Kleinschmidt, E.J. (1991), ``Formal processes for managing new products: the industry experience'', Faculty of Business working paper, McMaster University, Ontario. Kaiser Associates (1997), ``Solutions business model'', a Benchmarking Report prepared for NCR, Kaiser Associates. McGrath, Shapiro and Anthony (1992), Product Development Success through Cycle Time Excellence, Butterworth-Heinemann, London. Madique, M. and Zirger, B.J. (1994), ``A study of success and failure in product innovation: the case of the US electronic industry'', IEEE Transactions in Engineering Management, Vol. EM-31, pp. 192-203. NCR (1997), ``Solutions strategy'', an internal communications presentation, NCR Multi-Media Services, NCR, Scotland. Picasso, C. (1997), ``NCR's solution evolution'', September, Internal Report, NCR, Scotland. Power, C. (1993), ``FLOPS ± too many new products fail: here's why ± and how to do better'', Business Week, 16 August, pp. 23-4. Rothwell, R. (1972), Factors for Success in Industrial Innovations, Science Policy Research Unit, University of Sussex, Brighton. Wheelwright, S.C. and Clark, K.M. (1992), Revolutionary Product Development, The Free Press, New York, NY.

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