As a human being, we all consume products and/or services all the time. This morning you got up and ate your breakfast, e.g., eggs, milk, bread, fresh fruits, and the like. After the breakfast, you drove your car to work or school. At your office, you used your computer, perhaps equipped with 27” LCD monitor. During your break, you drank a cup of coffee and played with your iPhone. So on and so forth. You probably take it for granted that you can enjoy all of these products. But if you take a closer look at how each of these products can be made and eventually delivered to you, you will realize that each one of these is no short of miracle. For example, which fruit do you like? Consider fresh strawberries. In order for the strawberries to be on your breakfast table, there must be numerous functions, activities, transactions, and people involved in planting, cultivating, delivering, and consuming strawberries. Moreover, all of these functions, activities, transactions, and people are connected as an integral chain, through which physical products like strawberries themselves and virtual elements such as information and communication flow back and forth constantly. By grouping related functions or activities, we have a supply chain, comprised of four primary functions such as supplier, manufacturer, distributor, and finally consumer. A supply chain is essentially a value chain. For the society or economy as a whole, the goal is to maximize value, i.e., to create satisfactory value without spending too much. In order to create the maximum value for the strawberry supply chain, every participant in the chain must carry out its function efficiently. In addition, all of the members must coordinate with each other effectively in order to ensure value maximization. We have to face the same issues for almost all the products and services we take for granted in our everyday life, e.g., cars, hamburgers, haircuts, surgeries, movies, banks, restaurants, and you name it! In this course, we want to understand fundamental principles of value creation for the consumers or the market. We try to answer questions like how the product or service is made, how the value-creating activities or functions are coordinated, who should play what leadership roles in realizing all these, and so on. As our course title hints, we approach all of these issues from a learning perspective, which is dynamic in nature and emphasizes long-term capability building rather than short-term symptomatic problem solving.
Three Stages of Change
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New Product Innovation
New product innovation is the key to firm's success. In order to sustain successful business, the firm must design and manage its new product process effectively and efficiently. In this chapter, we will learn new product innovation and new product development process. Especially, we will look into and compare two approaches, traditional approach and cross-functional approach.
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Bowon KimProfessor
KAIST Business School
Now assume that, you know, after doing this cost of benefit
analysis, we decide that it's better to use cross-function team
approach rather than more traditional sequential approach.
So we decided that the potential benefit outweighs the potential
cost, probably because the market uncertainty and technological uncertainty.
And then there is implementation issue.
We decided it's important to use cross-function
team approach, is better to use that approach.
The first thing, the first change that must occur here is at a cognitive level.
In other words, you know, employees and managers must accept that fact the
cross-function team approach works better and it's
very important for them to use it.
So maybe we can do some, you know, management commitment.
We can make some commitment and we tell
the managers and we tell the employees that you gotta use this
approach because this is better for the company as a whole.
The benefit of using cross-function team approach outweighs
the cost and so on and so forth.
And maybe simple communication.
Communication is always important, right?
You emphasize it, some spiritual things, and so on and so forth.
Now, let's suppose that at the cognitive level,
at the cognative level, the necessary change occurs.
Everybody believes that cross-function team approach is
very important so you gotta do it, okay?
But the thing is that even if people,
even if, you know, employees and managers believe
it is important to cross-function team approach, there is
no guarantee that they actually behave in that way.
Behave in, in a consistent way, in a way consistent with their beliefs.
So there is sometimes some gap between cognitive level, and behavior level.
How we can shift, how we can make a transition or how we can make sure that
employees and managers actually behaves at that level, in
other words, there is actual behavior change as well.
[BLANK_AUDIO]
Incentive alignment is very important thing that makes sure that there
is a effective transition from cognitive level to behavioral level.
For example, let's say the current compensation scheme
or current incentive scheme, looks like this.
In other words, your compensation is determined
by 80%, 80% is determined by individual
performance, whereas, 20% of
your compensation is determined by team.
If that is the case, if that is the case, even
if people believe that cross-function team approach is good for the
company as a whole, they don't behave in that way because their current
compensation or incentive mechanism is not consistent with their belief.
Now let's say that how we can, you know, transform or transit the cognition,
cognitive level, cognitive, you know, understanding, to behavioral thing.
We gotta change this incentive mechanism.
In other words, let's say we want to, we want to change it like this.
Now your compensation is determined by
your individual performance at, you know, 20%.
Your individual performance counts for 20%, and 80% of your
compensation will be determined by the team, cross-function team.
If this is the new incentive mechanism, then it's,
it would be possible to move from this cognitive level to behavioral level.
So that's the called incentive alignment.
But I'm not, I don't want to say, I don't want to, I don't
want to give an impression that I'm only interested in the monetary values.
Incentives, there are two different types, right?
Implicit,
implicit incentives and explicit incentives.
The money, promotion and all those, you know,
carrots or those inducements, that's explicit.
And implicit motivation, that's kind of a, you know, self-motivation,
self-motivation, and sense of accomplishment when it's over.
So the manager, the time management issue to join this new incentive mechanism
by take into account these two different types of incentives at the same time.
Not just, you know, monetary incentives, I do not mean that.
And now let's say that the managers and employees not only think
that the cross-functional team approach is important but also they decide to behave.
They actually behave in that way.
Behave in the way consistent with their belief.
But then even if they believe and
behave that way, the performance is not improving.
What's wrong with that?
Okay.
Now let's say that, you know, managers, also,
behave, managers, not only think, but also behave in that way.
Behave in that way.
But their performance is still not improving.
Then there is a possibility that the
infrastructure support is not enough or is it?
I mean that if we want to
use this cross-function team approach, then the coordination,
coordination is very important, right?
And, therefore, that implies that you gotta have, communication.
Communication or, you know, coordination or
co-working mechanisms.
You gotta have these kind of mechanisms.
Or you, you gotta have these kind of tools.
Or you gotta have some organization or relationship that supports
all this increased need for coordination, increased need for communication.
That's, called infrastructure support.
So you needed to have incentive alignment
to move from cognitive level to behavioral level.
And you also needed to have infrastructure support to move from behavioral level to
actual improvement in the performance.
Right.
In this lecture, we look at this new product innovation process.
We compare the two process, two extreme processes.
And as I already mentioned, company rarely choose only one type of process.
Sometimes they use both, and sometimes they have their own, you
know, mixed version of approaches and so on and so forth.
So, what is important is to, to, I want to,
what I emphasized in this lecture is we first need
to understand the advantages as well as the disadvantages
for the pure form, pure traditional and pure sequential approach.
And also I want to compare with that, compare
the system with the pure form cross-function team approach.
So I make a, you know, sharp contrast between these two in order
to understand what are their characteristics, what
are their advantages, what are their disadvantages?
And we said that it's not right to say that one
approach is always better than the other under all the circumstance.
Under every circumstance.
It's not true.
It depends on the technological uncertainty, market uncertainty.
Is it a high uncertainty, low uncertainty?
And we already said that, if there is a huge market as well as technological
uncertainty, then the benefit using cross-function team approach
outweighs the cost to use cross-function team approach.
Therefore, it's better to use cross-function team approach.
And that's, you know, shown by looking at this cost benefit analysis.
And the next question is once we decide cross-function team approach benefit
outweighs cost, okay, let's now, we decided cross-function team
approach is the one we need to use then, what is the implementation strategy.
How can you move from cognitive
level to behavioral level to performance improvement?
Now we talked about incentive alignment and infrastructure support.
You know why we, you know, spend
this whole lecture on new product innovation, right?
I don't want to look at this supply chain
management from purely operational perspective,
opera, operational, you know, viewpoint.
I want to look at the, the, you know, big extended continuum,
from the concept of new product, to the end of the current
product life cycle, and the new of product life cycle.
So I wanted to get the entire,
entire link, entire continuum, because I believe that's
the best way for us to appreciate the, you know, value we supply to management.
In fact, you know, all these lectures I have
done so far are big elements in supply chain management.
So although I start the lecture titled supply chain
management more specifically from next time, right?
Next time, lecture six, seven, eight, I will
devote on supply chain management issues very specifically.
But all what we have done so far, from lecture one to lecture five,
are the essential building blocks, essential, you
know, ingredients for the supply chain management.
So what I have done so far are big part of supply chain management.
Okay?
We look at this, supply chain management, SCM structure in our first lecture.
And then we done individual ingredients of a supply chain management so far.
And then the next time, I will focus on
the more specifics, more details of a supply chain management.
How to design supply chain.
How to incorporate what we have done in our, you know, first part of this
whole, you know, cause, into understanding supply chain management.
I hope that you, you know, you still have very
clear idea about the goals and objectives of this course.
And I hope that you, you, please to decide to take this course, okay?
All right, so I will see you next time and we will get
into the core of supply chain management next time.
[BLANK_AUDIO]
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