The big idea: Many companies employ a phased approach to product development, aiming to reduce uncertainty by noting potential issues with a product early on. In this way, less favorable projects are abandoned early, limiting a company’s losses. Ultimately, these processes must be used to learn as much as possible, throughout all phases of development.
The scenario: Eastman Chemical recognized that the company’s profits were too heavily tied to a single type of plastic. To rebalance its portfolio of products, Eastman launched a project to develop a new copolyester plastic, called Tritan, aimed at the polycarbonate market.
Tritan had successfully demonstrated its potential in the lab, as well as on a pilot line. Eastman was ready to enter the penultimate phase of development, where it would shift production to a small-scale facility in Kingsport, Tenn. It would be three years before a full-scale facility was ready. Now a key decision had to be made: Which customers (and markets) should Eastman target first?
The resolution: It is paramount to consider the long-term objectives for the product (what markets represent the best strategic fit?) and the short-term objectives of the project (what are the most critical factors that the project team needs to learn, or confirm, in order to succeed in the long term?). The ideal long-term market may not be the same as the ideal early entry market.
For example, imagine that a long-term objective for Tritan was to be a premier supplier for the medical device industry. The long regulatory approvals in that industry are not amenable to rapid iterations and learning, especially when there is only a three-year time frame prior to full-scale production. An alternative option is to seek out industries that share some of the same needs from a product and processing standpoint. In this way, the project team can have the best opportunity to learn critical information, even if the end use of the product happens to be drastically different.
The lesson: Preliminary launch decisions need to balance an ability to showcase a product and enter profitable markets with an ability to learn as much as possible within whatever limited time is available. A bottom-up analysis — evaluating each individual opportunity’s potential contributions: profit, brand, channel relationships — may not capture many critical objectives of the final phases of development and may miss out on the big-picture objective. Managers also should conduct a top-down evaluation of the opportunities. Using the same medical device industry example, the top-down objective could be “to be the premier plastic supplier for the medical device industry.” Then, an early entrant market can be measured by its ability to generate knowledge that would help achieve this objective.
Hutchison-Krupat is assistant professor of business administration at the University of Virginia Darden School of Business. The scenario presented in this “Case in Point” is based on a case study prepared by Allison Elias, research associate at Darden’s Institute for Business in Society; Tim Kraft, assistant professor of business administration at the Darden School and Gal Raz, associate professor of business administration at the Darden School.