Selling in a global marketplace dramatically expands the commercial potential of a new product, but it requires understanding of customers throughout the world and the establishment of a supply chain that crosses many borders. Technion’s Prof. Avraham Shtub discusses the complexities of developing new products in a globalized environment.
Why does a global mindset matter for developing new products?
First of all, the market. I teach a course about new product development, and we talk about “glocal products”—products that are globally available but tailored with special flavor for different markets. For example, McDonald’s creates and serves different foods for each country. There is a company in New Zealand that manufactures ice cream and has a special flavor for every country. It is very successful, with sales and high profits in 32 different countries.
The other side of the coin is the supply chain. Today, you may get parts from several countries, assemble them in another country, and then do testing and commissioning in a third country. So it's all about globalization. Very few products nowadays are designed, manufactured, tested and used in the same country. It's mostly food products that are still in this category, but there are several others.
How has the process changed in the last 20 or 30 years?
There is a big difference in the process. First of all, we are talking about much shorter cycle times. If you look at the computer and smartphone industry, and at how often new models are popping up, it's amazing. We are talking about a few months at most.
Now think about the telephone industry 20 or 30 years ago. Hardly any new models came out at all, with new ones coming out every five or six years at most. Other than that, the attitude was "if it works, just don't touch it." Today, because of global competition, you need to be ahead of your competitors. Therefore, you have to come up with new products all the time, you have to do it fast, and you also need to come up with value-added products. You have to generate value for the customers. Otherwise, you will not survive.
What's the importance of local tastes and needs in developing a new product?
Probably the most important aspect is the introduction of a new product. People need to see that it's a product they can relate to, they understand, and that it fits their way of life, culture, feelings and way of thinking. The thing is, one size does not fit all. There are very simple examples—one of these is language. You cannot sell an English-only cellular phone in China.
So there are some barriers that actually force companies to do glocal development, and they have to think about the needs and expectations of their customers. These needs and expectations are not the same all over the world. There are great differences between different countries and sometimes there are big differences within the same country.
If you want to create value, you have to understand the voice of the customer and respond to it. This is not one voice: not all customers are speaking the same language, not all customers have the same values, and not all customers have the same background or culture.
Is there a difference with how the millennial generation approaches products? Does that kind of generational change have to be taken into account?
Sure. I'll give you a simple example from my course. Ten years ago, I used to teach the course using only lectures. It turned out that the new generation doesn't like lectures. Some of my students simply don't show up to the lectures. So, we needed to do something different.
What they like is computers, games and interaction with other people, so that's exactly how I designed the course. The students are now developing new products on a simulator called the PTB which we developed at the Technion. They work with people from other universities in other countries. They simulate the new product development. It's a game. Maybe you remember SimCity. In SimCity, you create a new city. Here, you create a new product.
And this interactive, simulated environment—what we now call gamification—is a result of the new generation.
What does a globally diffuse organization need to do to successfully develop a new product?
The answer has two parts to it. The first is to develop the right product, and the second is to do it right.
The first part is what we call the fuzzy front end. It's the period when you have some ideas, you understand the voice of the customer, you see the market, and you have to decide whether you want to develop a new product at all and what exactly you want to focus on.
At one end of the fuzzy front end is a process we call the funneling process, because you start with many ideas and eventually you need to converge into a single idea: the product you want to develop. So, at the other end, known as the tunnel, there is a major decision called the “go/no-go”: whether we want to do it and how exactly we want to do it.
In order to do it right, you have to consider first of all the voice of the customer. You have to provide value and you have to understand what is value in the eyes of your customers. Plus, you have to do it in different countries, because as I said earlier, different people in different countries will have different values.
You have to start with understanding the voice of the customer, see what the current solutions are out there in the market, and whether you can come up with ideas on how to get better solutions.
Then there is another question. Do you have the marketing channel to bring your new product to the customers? If you do, there is a third question. It's the scale-up question: can you develop the product in a lab? Can you produce it in mass production with the right quality, with the right performances the right reliability and the right cost?
If the answer is yes, you go on to the next step. Do you have the people—the resources—to do it? And if you do, with the current resources, how long is it going to take and what's the probability of success? And if you don't, do you want to try and get those resources?
Then there is the issue of intellectual property. Is there somebody out there that has rights on your idea? Another question is, can you defend your new idea? If not, what do you do about copying?
Now, all of this is not local. It's global, because your competition is not necessarily in your country. That's exactly where the global organization has to get its act together in the different countries and have a total and complete methodology: how to go through all of it, so that eventually there will be a return on investment and the organization will be able to survive in the short term and in the long run.
Then there is another issue that has to do with social responsibility, which is very different from country to country. Sustainability and the environment are a very important issue in some countries, while less important in other countries. Where they are important, people look at different aspects of sustainability and the environment.
So you have to find out all of that. You have to collect the information and decide whether you want to go into the process of developing a new product. And this is just the first part.
Now you have to go into the second part, doing it right. You have to put together a project team that can take whatever ideas you came up with in the first step and develop a project plan that takes into account the benefits you want to achieve, the value, the cost, the time, the risk associated with development, and of course, the resources.
Here, there is a lot of tradeoff analysis to do. For example, in a global organization, where do you want to manufacture? Where do you want to do R&D? Maybe there is a country where it's best to do testing, and so on and so forth. So yes, globalization is an extremely important aspect of these two phases of new product development, the do the right thing and do it right.
Can you provide an example of a company in Israel that has attempted to take a product globally?
Take an example from the defense industry, a company like Elbit, who is manufacturing the helmet for the new U.S. Air Force fighter jet. Elbit is very good in terms of the technology, but they have difficulties in understanding the market and the bureaucracy of the systems in the United States. So, they eventually had to join forces with an American company and together with the technology that Elbit brought in and the connections that the American company brought in, they were very successful. Everybody who buys the new fighter jet will get that helmet from Elbit.