Product Development,
Manufacturing Expansion
and Community Prosperity
Dr. Fred Zimmerman
University of St. Thomas
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Manufacturing Growth Occurs When
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Market needs exist.
Distribution systems are accommodating.
Manufacturing companies are low-cost.
Products are differentiated.
Suppliers are efficient, well-equipped and
responsive.
• Communities appreciate industry.
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Product Development Realities
• Low-cost trumps product features &
benefits.
• Supplier capability is as important as
product development expertise.
• Successful product development involves
developing products appropriate to or
slightly ahead of market needs.
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Strategic Positioning for Survival
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Strategic Path to Survival
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Tactics of Low-Cost Operation
• Operational Efficiency
• Inventory Efficiency
• Modest Overhead
• Low Cost through Design
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Tactics of Product Differentiation
• Distinguishing Features
• Reliability and Performance
• Product Quality
• Market Continuity
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Leadership Tactics
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Focus on Operations
Managerial Stability
Experience in the Industry Being Served
Technical Experience
Knowledge Exploration
Incremental Changes
Fair Play
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Manufacturing Costs
Est G & A
22.0%
Payroll
18.6%
Est Materials
59.4%
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Low-cost operation
• Provides a strategic advantage far more
enriching than the simple preservation of
needed cash.
• Enables the funding of better product quality,
more differentiated products, and better
customer service.
• Disciplines and conditions the organization for
international competition, and forms a bond that
brings members of the typical company together
and promotes commitment.
• Is absolutely essential to the survival of the
typical firm.
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Three principal side effects for
High-cost operation
• Excess or unnecessary costs reduce
profit, cash flow, and the availability of
resources.
• Unnecessary costs result in operational
inefficiency.
• Unnecessary costs reduce commitment.
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Breakeven chart
• The following breakeven chart illustrates
some theoretical concepts useful to the
manager.
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Important Questions Regarding
Cost
• 1. Are variable costs sometimes much
greater as a percentage of revenue than
we may have suspected?
• 2. Are variable cost rates constant over
short-range changes in revenue or are
they higher when revenue is increasing
than when revenue is falling off?
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Possible breakeven chart for a
typical firm.
How profitability changes as revenue changes is wholly dependent upon the
behavior of variable cost and the presence or absence of upside and downside
efficiency. The typical dilemma of the inefficient firm is that when revenue
increases, costs increase by nearly as much, thus limiting the effectiveness of the
revenue expansion strategy. Correspondingly, when revenue falls, expenses are
not proportionately reduced. For profitability to be improved, efficiency moves
must precede strategic moves.
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Operational Efficiency
• Successful firms concentrate on efficiency first,
products second, and then on marketing and
sales. Revenue expansion based upon inefficient
operations results in severe operating losses.
• Successful companies reduce cost to present
revenue levels. Unsuccessful companies attempt
to increase revenue to cover existing costs.
• Successful companies implement proven
efficiencies immediately but work through people.
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Operational Efficiency (Cont.)
• Successful firms achieve scale economies at the
component or process level and not at the level of the
overall business unit.
• Top managers who know how to achieve efficiencies in
the particular industry being served.
• Successful companies work productively with suppliers
to reduce product cost.
• Successful managers make investments to sustain and
improve efficiency but understand processes well
enough to know what really pays off.
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Lowering Cost through Design
Ford Motor Company’s philosophy:
70 % of cost reductions are achieved
through design.
30% through manufacturing efficiencies.
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Four Strategic Difficulties leading to
Poor Product Development
1. Development activities focused on the past rather than
emerging trends.
2. Development activities focused on products for new
unfamiliar markets rather than for familiar markets.
3. Development activities focused on gadgetry rather than on
product features and benefits that more accurately reflect
user requirements.
4. Development activities that are inefficiently executed and
take too long to satisfy the market being served, often
resulting in products which are insufficiently tested and
refined.
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Practical Lesson in Distinguishing
Product Features
Successful firms focus on emerging trends in the
marketplace. They provide features and benefits ahead
of or in sync with major market trends.
Unsuccessful firms lag behind market trends or overanticipate market trends.
Successful firms provide meaningful features and
benefits, not gadgets and they avoid development of the
unessential.
Successful firms manage development tasks very well.
Unsuccessful firms often take too long.
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Practical Lesson in Distinguishing
Product Features (Cont.)
Successful firms produce reliable new products. New
products from unsuccessful firms are often poorly tested
and unreliable.
Successful chief executives are supportive of development
staffs. Unsuccessful CEOs interfere with limited information
and too much ego.
Both successful and unsuccessful companies spend ample
money on product development, but successful companies
accomplish much more for the money.
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Product Quality
Both successful and unsuccessful companies believe their products to
be of high quality, but credibility varies. Successful companies constantly
check to ensure that products meet or exceed customer requirements.
Unsuccessful companies presume that quality is high but do not check.
Successful companies quickly take action on quality problems.
Unsuccessful companies gather more evidence.
Discipline in operations is prevalent among successful companies.
Quality is maintained because precision is expected at every link in the
value chain, and when quality is not forthcoming, changes are made.
Unsuccessful companies lack discipline.
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Product Quality (Cont.)
Successful companies improve the product even when it is better than
competing products. Unsuccessful companies become satisfied when
quality is about the same as that of weaker competitors.
In-process quality is the major emphasis at successful companies. At
unsuccessful companies, more emphasis is on end product quality.
Top managers at successful companies are emotional about quality and
other issues. Top managers at unsuccessful companies display less
emotion and are hard for people to read.
Top managers at successful companies instill pride in company and
product by clearly articulating, through words and actions, what is
important and by supplementing these articulations with outstanding
technical knowledge. The combination of pride, technical competence,
fairness, and experience helps organization members to believe that they
are part of a class act.
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Market Continuity
Successful companies nurture, protect, and develop
products for historical markets before moving into new
markets. Unsuccessful companies often leave historical
markets unprotected.
Successful companies actively preserve product identifiers,
such as names, product colors, advertising, or product
attributes, that retain continuity with historical markets.
Unsuccessful companies frequently change product
identifiers.
Successful companies assume that markets are captured
on the basis of merit arising from better products and
service. Unsuccessful companies overestimate the
importance of the strategic selection of markets.
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Market Continuity (Cont.)
Successful companies are able to more accurately gauge the
rate of change in markets and provide products that are in
phase with changes. Unsuccessful companies are frequently
out of phase.
In order to preserve investment and field a wide variety of
products to cover different circumstances, successful
companies are less inclined to totally discard products.
Instead, they adroitly stash products and features that they
believe will be useful at other times or extend product lines in
other ways. Unsuccessful companies time product
announcements poorly.
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Strategic positioning for survival
Strategic positioning for survival. Survival is most likely
when a company is a low-cost provider of differentiated
products or services.
Survival is least likely when undifferentiated products
are expensively produced.
A firm’s survival position is enhanced if either product
differentiation or low-cost operation is present, but both
attributes are necessary to ensure success.
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Strategic positioning for survival
(Cont.)
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Strategic profiles — successful
cases
Successful operations often first achieve low-cost
operation and then enhance product differentiation
in a two-step process. Charles Nash had the
clearest perception: become highly efficient at
manufacturing and then use some of the savings to
differentiate the product by adding quality and
features.
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Successful Profile (Cont.)
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Strategic profiles —
unsuccessful cases
Unsuccessful firms are seldom able to exhibit a favorable
strategic profile involving low-cost operation and product
differentiation. Costs remain high while product
quality, features, and benefits remain poor.
Under these conditions, failure is an almost universal
outcome.
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Unsuccessful Profiles (Cont.)
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Differences in the Differentiation of
Products
Successful companies make small, incremental improvements to
produce differentiated products. Unsuccessful firms often fail to
incrementally improve existing products even when product
shortcomings are widely perceived.
Unsuccessful companies often make significant and abrupt changes
in the positioning of their products in the market. Successful firms
avoid abrupt changes in market position.
Successful firms put greater emphasis on product quality.
Unsuccessful firms often neglect quality issues.
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Relating to Strategy
Successful firms more accurately gauge their ability to implement fully their
strategic plans. Unsuccessful firms often have strategic plans that are either
internally inconsistent or inconsistent with the company's resource base.
Successful firms concentrate on internal operational issues such as product
quality, organizational productivity, product differentiation, and day-to-day
sales.
Unsuccessful firms often focus on external expansion, acquisitions, or
financial restructuring or some obscure view of business strategy.
The managers at successful firms often have extensive industrial
experience in the particular industry being served or in a closely related
industry. Top managers at unsuccessful firms often have less experience in
the industry being served.
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Recommendation Regarding Public
Policy
• Focus on tangible production.
• Formulate policy on the basis of
input/output economics – strengthen the
supplier base.
• Improve the competitive edge of present
industries.
• Improve everybody’s quality and
productivity.
• Push for similar benefits, reasonable
compensation levels, and more work.
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Recommendation Regarding Public
Policy (Cont.)
• Seek solutions to individual problems, not
class solutions.
• Resist the temptation to solve problems by
spending more.
• Obtain an adherence to sound
management principles in exchange for
economic assistance.
• Set the example by applying efficiency
principles to governmental performance.
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Outsourcing
Outsourcing is the gradual process
of educating future partners or
future competitors.
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Growth
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Growth can happen.
Everybody wants it.
Making growth happen is work.
Many people are working at it now.
Making growth happen is work on the part
of managers, suppliers, employees and
the communities within which the
companies reside.
• Now!
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