Page 349 - Introduction to Business

CHAPTER 9 Developing the Product and Pricing Mixes 323

is trying to come up with a cure for cancer might have scientists in the Amazon
jungle in Brazil examining tropical plants to increase their knowledge in the hope
that there might be a scientific payoff later.
When downturns in the economy occur, companies often reduce their R&D
budgets. This decision often hurts companies in the future, because their subse-
quent new product development efforts will suffer. This mistake was not made by
Texas Instruments during the semiconductor industry’s deepest slump ever.
Instead of cutting back, it tapped its $5 billion in cash to bring out a new generation
of computer chips that will enhance its position in digital signal processors
(DSPS) and analog chips. William J. McClean, president of IC Insights, says that
“companies that spend money in the downturn gain market share in the upturn.”
Intel CEO Craig R. Barrett believes that successful companies are those that spend
their way out of recessions, not save their way. STMicroelectronics, a European chip
maker, followed this strategy and became the third largest company in the industry
in 2002, up from 14th in 1995. 10
Legal and ethical issues can affect R&D. For example, stem cell and cloning
research that is being conducted by doctors and pharmaceutical companies
around the world has the potential to revolutionize medicine. However, these prac-
tices are highly controversial, particularly in the United States. Public opinion and
laws governing the conduct of this research vary widely between the United States
and Europe. As a result, advances in this area of R&D are likely to be made abroad
before they are made in the United States.
It is important that there be close coordination between marketing and R&D
personnel throughout the development process; marketing should not simply
hand off the product concept to R&D and then withdraw from the process. This
cooperation will ensure that R&D will develop a product that is in tune with what
the market wants. What can happen when there is not close cooperation occurred
at Chrysler: The different product development teams did not communicate with
each other so each team purchased different parts (windshield wipers, corrosion
protection, etc.) for their models, and so needlessly increased the cost of the cars. 11
The development process needs to be accelerated so products reach markets
faster. This will provide first-mover advantages, preempt competitors, and relate to
the market’s needs and desires before they change. Because Japanese dealers were
clamoring to have Honda’s Fit, a car shaped like a loaf of bread, in showrooms ear-
lier than expected, the company felt compelled to accelerate the new product
development process so that the car was delivered three months earlier than
planned. The Fit became the best-selling car in Japan—more popular than even the
Toyota Corolla. 12
While the benefits from accelerating the new product development process are
substantial, companies should not be too hasty. One study of 195 industrial manu-
facturing companies analyzed the design phase of the new product development
process. Firms that did not make detailed drawings had only 52.7 percent success-
ful new products, compared to 71.4 percent for those that did. Firms that elimi-
nated some of the seven design steps were not as successful with their new prod-
ucts as firms that performed a greater number of steps. 13
Some companies will use informal methods of developing new products. Called
skunk works, these refer to R&D people being allowed to devote a portion of their skunk works R&D personnel being
time to projects they would like to work on. Skunk works at Honda involve a four- allowed to use their time to develop
new products in which they are
foot-tall humanoid robot that can climb stairs, and one in North Carolina where
interested
work is being done on a business jet made from composites and powered by a
®
Honda fan engine. The famous Post-it Notes (3M Company) were developed by
14
a scientist working in his spare time.

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