Chapter 4: Market Orientation and Cross-Functional (Marketing/R&D) Interaction

Marketing of High-Technology Products and Innovations

Chapter 4: Market Orientation and

Cross-Functional (Marketing/R&D) Interaction

©2010 Pearson Education, Inc. publishing as Prentice Hall

Questions to Consider What is a market orientation?

What does a market-oriented firm look like?

Why is organizational memory important?

What is the purpose of cross-functional teams?

How can the performance of cross-functional teams be enhanced?


Market Orientation A philosophy of decision making focused on

customer needs Market oriented firms gather, disseminate,

and utilize market-based information◦ They exhibit a customer focus

Decisions grounded in analysis of the intended user

◦ They harness the power of cross-functional teams to deliver customer value

Result: ◦ Increased creativity◦ Improved new product performance


IntelligenceGeneration

IntelligenceDissemination

IntelligenceIntegration

CoordinatedAction

4 Dimensions of a Market Orientation

1.

2.

4.

3.


The Effect of Market Orientation on Company Performance


Impact of Market Orientation on Firm Performance Superior sales growth and profitability Effects of market orientation on

performance may be stronger in dynamic (high-tech) markets◦ Firms with a strong R&D base gain the most from

a strong marketing capability Proactive, market-oriented firms generate

more innovative products


Market Orientation:

1. Intelligence Generation

Market intelligence: useful information about market trends/stakeholders

◦Current and future customer needs ◦Competitors’ capabilities and strategies ◦Emerging technologies across industries


Resource allocation to gathering market-based data◦ Must be budgeted for


Gathering Information: Market Research Expenditures and Staffing

% of Revenue

# of Market Research Personnel

By Industry Sector

Pharmaceuticals 0.78 % 52

Media Companies 0.68 % 22

Consumer Goods 0.51 % 18

Technology (B2B Sector) 0.25 % 15

Telecommunications 0.07 % 15

By Company Size ($ Revenue)

< $1 Million 0.07 % 5

> $5 Million 0.5 - 0.69 % 13-41

* Source: Corporate Executive Board, Market Research Executive Board, Member Benchmarking Survey Analysis, “2003-2004 Benchmarking the Research Function”


Market Orientation:


The Intelligence Continuum: Response to Proactive

Information on:

Proactivemarket

orientation

Responsivemarket

orientation

Expressedcustomer needs

Currentcompetitive threats

Latent and future customer needs

Anticipated competitive threats


Market Orientation:


Responsive market orientation: responding to current intelligence

Customers articulate their needs (difficult in high-tech market)

◦Can result in marketing myopia and the tyranny of the served market

◦Reacting to existing threats means the firm is always behind


Market Orientation:

1. Intelligence Generation Proactive market orientation: gather

anticipatory intelligence (latent needs, future trends)◦Bifocal vision: current and future customer needs

◦Marketing driving firms seek to: Redefine market structure Introduce an innovative value proposition Focus on multiple stakeholders

* Market driving can be risky (high risk/high reward)


Contingency Theory of High-Technology Marketing Responsive market orientation

◦ Associated with development of incremental innovations

Proactive market orientation ◦ Associated with development of radical innovation

Firms must be ambidextrous—

- both responsive and proactive

- pursue both incremental innovations (serve known customer needs) and radical innovations for markets of the future.


Market Orientation:

2. Intelligence Dissemination

Disseminate information: actively encourage information sharing

◦Obstacle: knowledge hoarders

◦Goals: Create a “boundary-less” organization Cultivate a team orientation


Market Orientation:

3. Intelligence Integration

Integrate intelligence: shared interpretation of the information

◦Debate, discuss, disagree, & dialogue

◦Create an organizational memory to retain knowledge

Explicit knowledge: can be documented Tacit knowledge: not easily recorded


Knowledge Management◦Practices used to document, preserve,

store, & disperse “knowledge assets” ◦Creates an organizational memory◦Associated with a learning orientation ◦Requires investments in hardware,

software, and Web 2.0 technologies (wikis, etc.)


Market Orientation:

4. Coordinated Action Execute: implement decisions through

coordinated actions

Requires cross-functional (interfunctional & interdivisional) integration

Barriers◦Culture that disregards marketing input ◦Organizational politics◦“Coopetition”


Assessing a Firm’s Market Orientation

See Box 4-1 in Text.

Management rates the business using the scale: (use items next slides)

The sum of the scores indicates market orientation.

Strongly Disagree

-3

Disagree Moderately

-2

Disagree Slightly

-1

Agree Slightly

1

Agree Moderately

2

Strongly Agree

3


Responsive Customer Intelligence Generation: We continuously work to better understand of our

customers’ needs. We pay close attention to after-sales service. We measure customer satisfaction systematically and

frequently. We want customers to think of us as allies.Responsive Competitor Intelligence Generation: Employees throughout the organization share

information concerning competitors’ activities. Top management regularly discusses competitor’s

strengths and weaknesses. We track the performance of key competitors. We evaluate the strengths and weaknesses of key

competitors.



Proactive Customer Intelligence Generation: We continuously try to discover additional needs of our

customers of which they are unaware. We incorporate solutions to unarticulated customer needs in

our new products and services. We brainstorm about how customers’ needs will evolve. We work with lead users, customers who face needs that

eventually will be in the market – but face them months or years before the majority of the market.

Proactive Competitor Intelligence Generation: We try to anticipate the future moves of our competitors. We monitor firms competing in related product/markets. We monitor firms using related technologies. We monitor firms already targeting our prime market segment

but with unrelated products.



Intelligence Dissemination: We have interdepartmental meetings to discuss

market trends and developments. Marketing personnel spend time discussing

customers’ needs with other functional departments. We share information about major market

developments. Data on customer satisfaction are shared at all

levels in the organization. When one function acquires important information

about customers or competitors, it shares that information with other functions.



Intelligence Integration: We have cross-functional meetings for the purpose of

intelligence integration. We reach organizational consensus regarding the holistic

meaning of related pieces of information before taking action. We utilize cross-functional teams or task forces for important

initiatives to ensure that all points of view are considered before decisions are made.

Collaboration is valued in this business. Coordinated Action: We are quick to take advantage of market opportunities. The activities of different functions in this business are well-

coordinated. We make sure that all critical functions understand our

objectives and strategy before we take action. There is a high level of cooperation and coordination among

functional units in setting the goals and priorities for the organization to ensure effective response to market conditions.



Given the value of being market oriented, why is it so hard? ◦ Requires a cultural shift from technology to

customer/market focus. ◦ Requires resource commitment to gathering data ◦ Requires cross-functional collaboration


Becoming Marketing Oriented:

Facilitating Conditions

D


Market Orientation Facilitating Conditions:Prioritize Information Gathering Needs

Difficult to comprehensively scan high-tech environments

Scanning efforts must be focused

◦Identify issues by the four strategy types (see Table 4-1 in text)

Avoid “paralysis by analysis”


Prioritize Scanning Efforts by Strategy

Type: Prospectors (Pioneers) Supply new technology solutions to address

customers' expressed and latent needs Information focus:

◦ highest priority on understanding customers’ unarticulated needs through creative market research techniques

Must stay ahead or abreast of technological developments


Prioritize Scanning Efforts by Strategy

Type: Analyzers (Fast Followers) Bring out improved or less expensive

versions of products introduced by Prospectors ◦ Simultaneously defend core markets and products

Information focus: ◦ Closely monitor customer reactions to

Prospectors’ offerings ◦ Monitor competitors’ activities, successes, and

failures Limit new product introductions to

categories that have shown promise in the marketplace


Prioritize Scanning Efforts by Strategy Type: Low Cost Defenders (Operationally Excellent)

Provide quality products or services at the lowest overall cost ◦ Generally less technologically sophisticated

product lines◦ Role of technology is in process/operations

Information focus: Competitor orientation: ◦ Competitors are a benchmark against which

prices, costs, and performance are compared


Prioritize Scanning Efforts by Strategy Type: Differentiated Defender (Customer Intimate)

Focus on customer value for individual/niche segments

Information focus:◦ Skilled at segmentation to identify customer

segments that value superior quality and service ◦ Closely monitor customer satisfaction◦ Identify opportunities to increase share of customer’s

wallet◦ Analyze reasons for customer defections◦ Assess customer profitability


Market Orientation Facilitating Conditions:

Top Management Commitment

Unequivocal, visible commitment of top managers:◦ To customers ◦ To collecting, gathering, and using

market-based information



Decentralized Organizational Structure

Fluid job responsibilities

Informal, extensive, and frequent lateral communication



Market-Based Compensation System

Organizational factor with the greatest impact on market orientation◦ Less emphasis on short term sales and

profit goals


The Heart of a Market-Oriented Organizational Culture

Creating a market-oriented culture requires:

Initiation: Recognize need to change Reconstitution: Build market-oriented

processes Institutionalization: Solidify the cultural

change Maintenance: Sustain over time


Cross Functional Interaction:

Marketing Interactions

Marketing is a boundary-spanning activity

◦Effective marketing decisions are dependent on interactions with:

Personnel in other departments

External stakeholders



Teamwork in Product Development

Cross-Functional Product Development Teams

◦ Requires all functional areas to be closely integrated


Assessing a The Degree of Cross-Functional Integration

See Box 4-2 in Text.

Management rates the business using the scale:(Use items next slides)

The sum of the scores indicates the level of cross-functional interaction within the organization.

Strongly Disagree

-3

Disagree Moderately

-2

Disagree Slightly

-1

Agree Slightly

1

Agree Moderately

2

Strongly Agree

3


The activities of functional units are tightly coordinated to ensure better use of our market knowledge.

Functions such as R&D, marketing, and manufacturing are tightly integrated in cross-functional teams in the product development process.

R&D and marketing and other functions regularly share market information about customers, technologies, and competitors.



There is a high level of cooperation and coordination among functional units in setting the golas and priorities for the organization to ensure effective response to market conditions.

Top management promotes communication and cooperation among R&D, marketing, and manufacturing in marketing information acquisition and use.

People from marketing, R&D, and other functions play important roles in major strategic market decisions.




Teamwork in Product Development Characteristics for Successful NPD Teams

◦Commitment of senior management

◦Clear/stable vision to guide the project over time

◦Improvisational approach to development

◦Information exchange on continual basis

◦Collaboration under pressure by focusing on goals rather than personal issues


Contingency Theory of High-Technology Marketing

Greater inter-functional coordination ◦ Associated with development of radical

innovations ◦ Reinterpretation of competencies ◦ Recombines existing knowledge to generate

breakthrough ideas




Information Integration

Monitoring by Senior

Management

Quality Orientation

Product Innovativeness

Product Quality

Team Identity

Encouragement for Risk-Taking

Customer Influence

+

-

+

+

+

+

+ +




What determines the effectiveness of team interactions?

1. Communication

2. Team Orientation

3. The Reward System




Communication. Teams must:

◦Simultaneously cooperate and compete

◦Harness diverse functional perspectives

◦Reduce language barriers across functions

◦Engage in constructive conflict resolution




Team Orientation

◦Leaders with a clear set of values

◦Confidence in other team members

◦Reward system promotes organization (not individual) performance




Reward System

◦Reward team as a group; split: Equally amongst members –or- Based on position

◦Reward individual team members Process-based: tied to procedures Outcome-based: tied to bottom-line


Findings on Reward Systems◦ Individual vs. Group

If an individual’s contribution to the team is easily evaluated, then position-based rewards are best;

If individual’s contribution is not easily evaluated, does not mean company should use equal rewards— Rather, invest in monitoring to measure individual

contribution to team.

◦ Outcome vs. Process For long, complex projects, used outcome based

rewards, including employee stock options



R&D – Marketing Interactions

Cross-functional Marketing and R & D collaboration particularly important in high-tech firms ◦Associated with greater new product success

Need for R&D-Marketing integration greater when: ◦Innovations are complex ◦Environmental uncertainty is higher ◦Product development is in the early “fuzzy front

end”


Rivalry between R&D and Marketing:◦Reduces the use of information ◦Contributes to failure

Roles: ◦Marketing brings the voice of the customer

into the development process◦R&D brings the knowledge of what is

technically feasible ◦Both participate in customer visit programs,

etc.



R&D – Marketing Interactions Match Nature of Interaction to the Type of Innovation

Understand barriers to R&D-Marketing interaction -High-tech culture that values Engineering more than Marketing-Differing backgrounds/orientation between Engineers & Marketers-Spatial distance-Competition for resources/rivalry

Implement Strategies to facilitate interaction- Cooptation- Foster Cooperation- Communication

Enhance Opportunities for Communication

1

2

3

4


Contingency Theory of High-Technology Marketing

Tailor the nature of R&D-Marketing interaction to the type of innovation

For Breakthrough Products, Marketing-R&D interaction: ◦Assess market opportunities◦Determine what industry/market

segment company should compete in◦Set market development priorities◦Assess desired product feature set

Generally, R&D takes the lead role


Contingency Theory of High-Technology Marketing For Incremental Innovations, R&D-Marketing interaction:

◦Establishes direction for commercialization

◦R&D assists with marketing strategies and materials

Generally, Marketing takes the lead role


R&D – Marketing Interaction:Barriers to Collaboration

Dominant engineering culture of many high-tech firms◦ Manifested in “jokes” (see Table 4-2), job

titles, responsibilities for marketing activities, etc.

Differing values (see following table)

Physical separation of personnel Competition for resources


R&D – Marketing Interaction:Barriers to Collaboration

R&D Marketing

Time Orientation Long Short

Projects Preferred Breakthrough Incremental

Ambiguity Tolerance Low High

Department Structure Informal Moderately Formal

Bureaucratic Orientation Less More

Orientation to Others Permissive Permissive

Professional Loyalty Profession Firm

Professional Orientation Science Market

Different Orientations Between R&D and Marketing Personnel


R&D – Marketing Interaction:Achieving Integration

Formal systems specify marketing role in new product development

Informal Techniques:

1.Co-optation

2.Cooperation

3.Communication

4.Constructive Conflict



Co-optation - merge R&D/Marketing interests:

Build informal networks Gain product knowledge and credibility Build consensus through questions and subtle

influence Form strategic coalitions Work on minor improvements to products

outside of R&D


Cooperation - Enhanced by:◦Physical co-location of Marketing and

R&D ◦Job rotation of personnel across functions ◦Informal cross-functional networks ◦Decentralized organizational structure

and tolerance for risk; joint reward systems



Communication◦Moderate amount of interaction is optimal Must exceed minimum threshold Too much interaction may exacerbate

conflict and result in information overload ◦Formal dissemination enhances credibility Informal channels provide openness and

spontaneity


Communication (Continued)

◦Information-sharing norms: expectations about how departments

communicate

If marketing managers identify more with the company (than with the marketing function), they communicate more


Communication (Continued)

◦Integrated goals – organization’s goals take precedence over departmental goals Even if marketing managers identify strongly with

the marketing department, they communicate more when integrated goals are stressed

Caveat: Such marketing managers may use coercion to gain R&D compliance

Implications: Encourage information sharing norms and set integrated goals



Relationships that are too close can result in “groupthink” ◦Precludes alternative views

Formalized roles (i.e., for devil’s advocate)

◦Can help overcome groupthink


Must have a strategy to manage conflict between marketing & R&D◦Conflict handling strategies (next slide)


Conflict Handling Strategies Constructive conflict strategies for improved innovation performance ◦ Integrative - Demonstrate high concern for self and

others ◦ Accommodating - Low concern for self and high concern

for others Destructive conflict strategies that lower

innovation performance ◦ Forcing – High concern for self and low concern for

others ◦ Avoiding – Low concern for both self and others

Compromise - moderate concern for self and others - associated with less destructive conflict as well


Assessing a The Degree of Integration Between the Marketing and R&D

functionsSee Box 4-3 in Text.

Management rates the business using the scale:(see items next slide)

Sum the scores: negative scores indicate room for improvement, while high scores (rare) indicate a strong capability

Strongly Disagree

-3

Disagree Moderately

-2

Disagree Slightly

-1

Agree Slightly

1

Agree Moderately

2

Strongly Agree

3


Marketing and R&D: Coordinate work activities smoothly. Have senior managers who share values

and perspectives. Enhance each other’s performance. Cooperate with each other. Have compatible goals and objectives. Agree on the priorities for each function. Respect each other’s capabilities.


R&D – Marketing Interaction:

A Caveat- Remembering the Customer

Customer Marketing Engineering Product Technology

Rock Pile

Would you like a rock?

Sure

Here’s a blue rock?

OK Find me a big, cheap, fast, dense, sharp...rock

Wrong rock

Do you have a red rock?

What’s wrong with blue?

I can make a purple one

OK, but only if its square

We don’t have square ones


Chapter Features Opening Vignette: Buckman Labs Technology Experts:

◦ Hewlett Packard (Product Manager) ◦ Xilinx Software (Engineer) ◦ Appendix: Agilent Senior VP of R&D and

Marketing Technology Solution: Aravind Eye Hospital End-of-Book Case: Xerox, ESRI, Goomzee


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Chapter 4: Market Orientation and Cross-Functional (Marketing/R&D) Interaction