J PROD INNOV MANAG 2009;26:308–321 r 2009 Product Development & Management Association
Exploring the Relationships Between Product Development and Environmental Turbulence: The Case of Mobile TLC Services Tommaso Buganza, Claudio Dell’Era, and Roberto Verganti
Managing innovation in turbulent environments (e.g., in environments with extreme uncertainty and complexity in market needs and technological opportunities) is a major challenge. A recent stream of studies in the management literature has suggested that when facing turbulent environments, firms should deploy more flexible development processes. This paper approaches this issue by looking at the Italian mobile telecommunications (TLC) industry. Nine in-depth case studies were conducted in five different companies. Data analysis showed some important results. First of all environmental turbulence should be considered to be project specific rather than company or industry specific. Moreover, it can come from both shift in the market needs and in the technology. Nevertheless, it seems clear that having rapid changes is not enough to have environmental turbulence. If rapid changes can be somehow foreseen, there is no turbulence at all. Hence, when approaching projects in potentially turbulent environments, managers should assess both rapidity and unpredictability of the environment. Finally, looking at the in-depth cases, the paper points out what of the main practices to increase flexibility that are described in literature are actually adopted by companies. In case of turbulence (both in the market and/or in the technology) companies delay concept freezing point. Moreover, in the case of technological turbulence, they also leverage on rapid project iterations, whereas in case of market turbulence they more likely adopt early experiments involving customers, formal and cross-functional project teams, and flat organizational structures.
Introduction
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anaging innovation in turbulent environments is a major challenge in theory and in practice. In the late 1990s the Stage-Gates
Address correspondence to: Tommaso Buganza, Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Piazza L. da Vinci 32 20133 Milano, Italy. Tel.: þ 39 02 2399 2763. Fax: þ 39 02 2399 2720. E-mail:
[email protected]. Financial support for the project ‘‘Flexible Management of the NTBF’s Development Process’’ of the Italian Ministry of Education, University and Research (MIUR) is gratefully acknowledged. We also acknowledge Marco Schiavi and Matteo Menescardi, who provided tireless help during the entire research process. Finally, we thank all the practitioners who collaborated during the in field data gathering and in particular Vincenzo Coletta, Fabrizio Negro, Alessandro Pirinu, and Csaba Tarnai of Vodafone Italy; Elena Montefredini and Gianluca Pancaccini of Wind; Filippo Fochi, Mario Perini, and Giorgio Ramenghi of H3G; Francesco Paorici of Buongiorno Vitaminic; and Dario Calogero and Paolo Gianferrara of Ubiquity.
approach theorized by Cooper (1990) appeared not to be the right answer for each development environment. A rigid sequence of phases based on the front-loading problem solving was not applicable to very turbulent environments like the Internet software industry in the 1990s (Iansiti and MacCormack, 1997). The main challenge faced by companies in this industry was that Stage-Gates , with its early freezing of concept, could not deal with the rapid dynamics of the environment. In fact, market needs and technologies could dramatically change during the time elapsing between the product concept freeze and the product launch on the market (the so-called response time), causing the obsolescence of the product concept (Bhattacharya, Krishnan, and Mahajan, 1998; Cooper and Kleinschmidt, 1994, 1995; Iansiti and MacCormack, 1997). A clear example is provided by the development of Internet Explorer 3.0, in
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which the license for the core technology (Java) was bought in the middle of the development project, forcing the designers to heavily redesign the concept (MacCormack, Verganti, and Iansiti, 2001). Many authors have tried to identify design practices that allow the process flexibility to be increased (Bhattacharya et al., 1998; Eisenhardt and Tabrizi, 1995; Iansiti and MacCormack, 1997; MacCormack, 1998; MacCormack et al., 2001). The main idea of these studies is to find practices that allow coping with environmental turbulence and that allow a development team to react to dramatic shifts in the technology and in the market needs by keeping the concept open almost until the end of the development process. These studies provide new frameworks for investigating product innovation in rapidly moving environments; they describe specific BIOGRAPHICAL SKETCHES Dr. Tommaso Buganza is assistant professor of management of innovation in the Faculty of Design and in the School of Management at Politecnico di Milano. He is also director of operations of MaDe In Lab, the laboratory for education on marketing, design and innovation management in the School of Management at Politecnico di Milano. Dr. Buganza’s papers investigating the development of new products and services in turbulent environments won the Best Paper Award at the European Institute for Advanced Studies in Management’s International Product Development Management Conferences in 2003 and 2004 and the runner-up diploma in 2002. Dr. Claudio Dell’Era is research assistant in the Department of Management, Economics and Industrial Engineering at Politecnico di Milano, where he is also a contract professor of innovation management and lecturer in design management and project management. He finished his Ph.D. in management, economics, and industrial engineering in 2007. His thesis was titled ‘‘Language Mining–Managing Design Driven Innovation by Capturing, Interpreting, Sharing, and Communicating Knowledge on Socio-Cultural Trends.’’ He has published in relevant international journals, such as the Journal of Product Innovation Management, International Journal of Innovation Management, and European Journal of Innovation Management. Dr. Dell’Era’s paper investigating the development of new services in turbulent environments won the Best Paper Award at the European Institute for Advanced Studies in Management’s International Product Development Management Conference in 2004. Dr. Roberto Verganti is professor of management of innovation at the Politecnico di Milano, where he also serves as director of the Alta Scuola Politecnica and director of MaDe In Lab, the laboratory for education on marketing, design, and innovation management. He is a member of the editorial board of the Journal of Product Innovation Management, of the Advisory Council of the Design Management Institute, and of the Scientific Committee of the European Institute for Advanced Studies in Management. He has published more than 100 papers, including 35 papers in leading international journals, such as the Journal of Product Innovation Management and Management Science, and 7 books. He was awarded the ‘‘Compasso d’Oro’’ 2001 (the most prestigious design award in Italy) for the research project the Italian Design System in which he was a member of the Scientific Organizing Committee.
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practices that allow for improvement of flexibility and help in facing environmental turbulence. Among the issues that need to be further investigated is the nature of turbulence itself. Is it enough having rapid changes in the technology to have a turbulent environment? What does happen if these changes, in spite of being rapid, are also easily predictable? In this case the context could be less challenging than one could expect. Moreover, scholars have started to identify practices to increase flexibility, but still it is not clear which are really used by firms and when. Most of the studies consider the turbulence as industry specific, assuming that the need for flexibility is common to companies operating in the same rapidly moving sector (Bhattacharya et al., 1998; Eisenhardt and Bourgeois, 1988; Eisenhardt and Tabrizi, 1995). However, from a managerial perspective, the concepts of turbulence and flexibility are project specific rather than industry or company specific, as they can vary among different firms operating in the same industry and even among different projects in the same company. Indeed, according to Fabrizio Negro, project manager (P&S VAS) of Vodafone, the need for flexibility is project dependent rather than industry dependent (via interview with the authors, December 3, 2003): It doesn’t make sense to me to ask how flexible our development process is. We approach different projects in different ways; if you want a reliable answer, ask me for the specified approach adopted in a specific project.
Taking off from these considerations the present paper aims to do the following: Define the sources and the dimensions of the environment that a manager should look at to assess the single project environmental turbulence; Identify the relationships between different environmental turbulences and the flexible development practices used to cope with them. Consequently, the paper begins with an analysis of the existing literature contributions about product development flexibility and turbulence, which leads to the identification of the theoretical framework for this study: on the one hand, the specific practices to improve the product development flexibility; and on the other hand, the specific dimensions of environmental turbulence. Afterward, the paper illustrates the research design in terms of research questions, research methodology, and empirical analysis. Finally, the paper discusses the results and analyzes them in the discussion and managerial implications section.
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Theoretical Background To better understand the main issues of the present paper, two main literature streams may be leveraged: (1) studies on flexible product development; and (2) studies on the role of environmental turbulence in innovation processes.
Flexible Product Development Managing the new product development process means taking decisions in every phase of the project in light of interdependences among various activities. The decision-making process connected to the development of new products can be interpreted as the resolution of a series of problem-solving cycles (Clark, 1985). Cooper (1988) proposed a Stage-Gates approach for the development of new products with the purpose of decreasing the failure rate in the introduction of innovations (Cooper, 1990; Kotler, 1980; Ulrich and Eppinger, 1995). During each stage, alternative design options are explored; each stage ends up with a formal Go/Kill/Hold/Recycle decision, and the access to the next stage is possible only when a Go decision is taken. This approach aims to reduce the number of problem-solving cycles through the subdivision of the process in a series of following steps; more in detail, it is based on the front-loading principle that many researchers have postulated as the key principle in product innovation management (Brown and Eisenhardt, 1995; Cooper and Kleinschmidt, 1995; de Brentani, 1991; Hart, 1993; Montoya-Weiss and Calantone, 1994; Thomke and Fujimoto, 2000). Yet many researches have demonstrated that StageGates processes are not always the best possible approach to product development: Wind and Mahajan (1997), Susman and Ray (1996), and Kleinschmidt, Koen, and Reilly (2005) point out that the StageGates approach is more appropriate for small and incremental innovations rather than for radical innovations. Other studies underlined its low degree of flexibility: the Stage-Gates process drives to good performances in relatively stable environments (Cooper and Kleinschmidt, 1994, 1995), whereas it fails in uncertain and dynamic environments (Bhattacharya et al., 1998; Iansiti and MacCormack, 1997). Cooper (1994) proposed fundamental changes to the Stage-Gates approach to achieve more flexibility: Concurrent phases and fuzzy gates substitute absolute decisions (ibid.). This new approach was subsequently
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analyzed by Eldred and Shapiro (1996), who proposed a Stage-Gates fuzzy front end. In the second half of the 1990s many authors focused their attention on the impact of environmental turbulence on the product development process; they pointed out that in turbulent environments uncertainty is often very high: Both technology and market needs may shift rapidly, and the development process must achieve an higher rate of flexibility to cope with these shifts (Bhattacharya et al., 1998; Iansiti, 1995; Iansiti and MacCormack, 1997; Pettigrew, Massini, and Numagami, 2000; Verganti, 1999). A flexible approach differs from the Stage-Gates in the denial of a rigid sequential structure; in such an approach, uncertainty is no more considered to be a risk but an opportunity instead, and the product concept must continually be changed and adapted to take advantage of these opportunities (Thomke and Reinertsen, 1998). Recently, many industries faced turbulent environments and have found different ways to cope with them. The Internet software industry in the 1990s was perhaps one of the most turbulent environments ever, and for this reason many studies have focused on the development process of the companies operating in this industry to draw new models for product development (Iansiti and MacCormack, 1997; MacCormack and Verganti, 2003; MacCormack et al., 2001). Yet other industries can also be considered highly turbulent, like biotechnology (Thomke, 2001), integrated circuits (Iansiti, 1997), workstations (MacCormack and Iansiti, 1997), personal computers (Eisenhardt and Tabrizi, 1995), and innovative materials (Thomke, 2001). An analysis of these studies leads to the identification of five main groups of practices that allow the flexibility of the development process to be increased. Rapid Project Iterations. The fundamental objective of the new product/service development process in turbulent contexts is to be flexible and able to react quickly to environmental changes. In uncertain and dynamic environments, it is fundamental to be able to capture new information about market needs and technological opportunities and to implement it in the project, even in the last phases. Moreover, in turbulent environments there is a greater need to gain feedback from ‘‘early’’ tests; it is necessary to verify assumptions about unarticulated customer requirements (MacCormack et al., 2001; Verganti, 2001). Instead of leveraging on front loading, the flexible approach leverages on continuous iterations and refinements that allow for the generation of new
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knowledge and its use throughout the project. Eisenhardt and Tabrizi (1995) underlined the importance of repeating several rapid iterations and tests using frequent milestones. Also, the use of flexible product technologies can increase the capabilities to manage several project iterations efficiently. Flexibility can be embedded both in specific components and in the overall product architecture. Thomke (1998), or example, demonstrated how specific components (Application-Specific Integrated Circuits; ASICs) allow for more flexibility. Also, from the product architecture point of view, some solutions show more flexibility than others: MacCormack et al. (2001) showed that a modular architecture for Internet software allows the product to be easily adapted until the end of the development process. Delay of Concept Freezing. A flexible approach is characterized by the possibility of modifying the concept until the last phases of the development process. Being flexible implies introducing major changes and encompassing new innovations and knowledge that were not available at the beginning of the process (MacCormack et al., 2001; Verganti, 2001). The concept phase can be interpreted as a ‘‘window of opportunity’’ during which it is possible to absorb stimuli from the market both in terms of technological opportunities and emergent new user requirements. Early Experiments Involving Customers. To continually generate new knowledge throughout the development process, flexible product development relies heavily on experimentation. The process starts with a concept draft that is immediately embedded into a prototype (that can be either analytical or physical). The prototype is tested involving the final user to generate early feedback that the designer can use to further develop the concept and detail the architecture. The uncertainty on technologies and market is therefore faced with a continuous experimentation over the whole project that allows knowledge to be created in a dynamic way (MacCormack et al., 2001; Verganti, 2001). In the Stage-Gates process, however, experiments play an important role, yet they have a different aim. In a Stage-Gates development process they are based on past knowledge and experience, and prototypes are built to validate these early assumptions (e.g., an automotive crash test). On the contrary, in a flexible development process, experiments aim to create new knowledge to make important decisions. The decision–test logical sequence is
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completely overturned, as the experiments do not validate a decision but generate knowledge for making it. Formal and Cross-Functional Project Team. The project organization plays a crucial role in accelerating the formal project iterations: Appointing an authoritative project manager, having a multidisciplinary team fully allocated to the project down to the latest phases, and giving significant autonomy to the team are all considered means to increase rapidity of iterations because team members have more rapid exchange of information (Eisenhardt and Tabrizi, 1995; Iansiti, 1997; MacCormack et al., 2001). Flat Organizational Structure. Many studies have addressed the relationship between marketing and technologic departments. On the one hand, some propose to have a facilitator between them. Sauer and Willcocks (2002) call it organizational architect. These people should be mediators between strategy and technology and facilitate their communication to allow the correct combination among structures, resources, and technologies and to exploit their synergies. Nevertheless, these facilitators could reduce the process fluidity and slow the iterative process down, which would be fatal in rapidly moving environments. On the other hand, many researches point out the need for a flat organization to reduce the need for coordination and to increase the process rapidity (Griffin and Hauser, 1996).
Environmental Turbulence As previously mentioned, many studies investigate the relationships between turbulence in the environment and development practices. Some of these studies focus mainly on the rapidity of changes in the environment without taking into consideration the unpredictability of the changes. For example, MacCormack et al. (2001) describe the anatomy of a flexible development process considering environmental turbulence as an aggregate concept; Eisenhardt and Tabrizi (1995), analyzing 72 projects in the computer industry, demonstrate that using an experiential strategy of multiple iterations, extensive testing, frequent project milestones, a powerful project leader, and a multifunctional team accelerates product development in turbulent segments. But is turbulence characterized by different sources or dimensions? Are there appropriate managerial practices to face specific turbulence sources or dimensions? To answer these
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questions, a deeper analysis of turbulence issue is needed. Emery and Trist (1965) first introduced this concept; they proposed a classification to describe organizational environments: placid and randomized environments, placid and clustered environments, disturbed-reactive environments, and turbulent fields. Since then, turbulent environments have been described in different ways: hostile (Covin and Slevin, 1989; Khandwalla, 1977; Miller, 1987), uncertain (Khandwalla, 1977; Thompson, 1967), complex (Duncan, 1972; Emery and Trist, 1965), dynamic (Dess and Beard, 1984; Duncan, 1972; Emery and Trist, 1965; Miller, 1987), and volatile (Bourgeois and Eisenhardt, 1988). The high number of adjectives that have been used to describe the environmental turbulence makes it clear how difficult it is to define it. What are the sources of turbulence? What are the dimensions of turbulence? And is uncertainty a dimension or a result of turbulence? Almost all studies agree on the fact that a turbulent environment is dynamic (e.g., characterized by rapid changes). According to Child (1972) the dynamism is due both to the innovation frequency and to their novelty for the firm. Morris, Hansen, and Pitt (1995) identify the importance of the innovation rapidity, considering also the industry complexity degree and the overall hostility faced by the firm (e.g., competitors, social trends, suppliers). Bourgeois (1985) introduces volatility as the growth of the market, the modification of the competitive environment and technologies. Calantone, Garcia, and Dro¨ge (2003) define turbulent environments as those in which market or technological changes are frequent and unpredictable and have a major impact on the new product development strategic planning. On the one hand, market turbulence is given by shifts in the customers’ preferences, in prices, and in the cost structure; on the other hand, technological innovation rate increases the environmental turbulence having once again a strong impact on the development of new products. Galbraith (1967) underlines the crucial role of uncertainty defined as the existing gap between the information needed to perform a task and the information actually owned by an organization. This cognitive uncertainty is due to the environmental turbulence that makes it difficult to translate the reality into an interpretative model. Thus, it is the turbulence that generally creates uncertainty, so that uncertainty is best thought of as a result of rather than as a synonym for turbulence. Trying to merge these different approaches, the present study identifies two different dimensions that
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characterize the environmental turbulence (both the market and the technological one): (1) Rapidity is the frequency of change in the environment (e.g., the speed of change in market needs and the speed of innovation in technologies). (2) Unpredictability is the degree to which changes in the environment, regardless of their frequency, are foreseeable. An unpredictable change is an event that is not anticipated by any signs or a change for which the cost of acquiring information to predict is significantly high.
Research Questions Considering literature contributions described in the previous section, it is possible to structure the environmental turbulence in the following terms: (1) the sources of the turbulence (market and technology); and (2) the dimensions of turbulence (rapidity and unpredictability). According to this approach, the present study analyzes the following four components: (1) Market rapidity: rapidity with which customer requirements change over time. (2) Technological rapidity: rapidity with which technologies change over time. (3) Market unpredictability: incapability of anticipating the changes of customer needs. (4) Technological unpredictability: incapability of anticipating the changes of technologies. The literature analysis also allowed some significant flexible development practices to face high levels of environmental turbulence to be identified: (1) Rapid project iterations: for example, the overlap of different phases of the development process, the direct involvement of the customer, the use of flexible product technologies. (2) Delay of concept freezing: allows new ideas and stimuli to be incorporated during the development process down to the latest phases. (3) Early experiments involving customers: if performed in early phases, can create knowledge to be used in the same development process rather than simply validate the development output. (4) Formal and cross-functional project team: having a cross-functional team increase the rapidity of the problem solving cycles and helps in accessing the resources.
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FLEXIBLE DEVELOPMENT PROCESS PRACTICES
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ENVIRONMENTAL TURBULENCE
Rapid project iterations Delay of concept freezing
Market Turbulence
Technological Turbulence
Early experiments involving customers Formal and cross-functional project team Flat organizational structure
Market Rapidity
Market Unpredictability
Technological Technological Rapidity Unpredictability
Figure 1. Conceptual Framework
(5) Flat organizational structure: connecting directly the marketing and research and development (R&D) departments may involve communicational problems but also increases the speed of the iterations.
issue of environmental turbulence: The analysis of a restricted time frame allows many innovations and many changes to be observed. In particular, in the first months of 2003 the Italian mobile telephone industry demonstrated a great dynamicity:
Starting from these statements, this paper is aimed at identifying the relationships between specific components of the environmental turbulence and particular flexible development practices (Figure 1). The main research questions can be formalized as follows:
(1) After the Wireless Application Protocol (WAP) failure, the mobile portals like Vodafone Live! of Vodafone, 3 of H3G and i-mode of Wind favored the success of micro-browsing. (2) The third generation of network technology (UMTS) was introduced. (3) The number of devices able to support multimedia services increased significantly.
R1: Do companies vary the choice of flexible development practices according to the type of perceived environmental turbulence of their specific project? R2: If so, what flexible development practices do they adopt to face each type of perceived environmental turbulence?
Research Methodology To answer the research questions, and taking into consideration the complex system of variables that characterize the observed phenomenon, the casestudy methodology approach has been adopted. This methodology, which allows a holistic and contextualized analysis, is properly suited for the exploratory nature of the initial phases of the research, since it allows for not only the exploration of the phenomenon in its complexity but also the identification of crucial variables (Yin, 1984).
Sampling To compare behaviors of companies that face different levels of turbulence in a similar context, the research concentrates on projects managed by companies within the same industry. The paper focuses on the Italian mobile telecommunications (TLC) industry because it was sufficiently dynamic and uncertain. For this reason, it could be considered appropriate to analyze the
Nine in-depth case studies were conducted. They have an exploratory character, are retrospective and multiple in nature, and are literally replicated. Six case studies in Vodafone Italy and Wind were conducted identifying several development processes (in collaboration with interviewees) with the purpose of investigating different levels of environmental turbulence. For example, in Vodafone two projects that had to face a high degree of turbulence (Multimedia Messaging Service and Vodafone Live!) and two other projects developed in less turbulent environments (SMS Worldchampionship and Christamas Card) were investigated. The sample was further extended including another mobile telecommunication network company (H3G) and two Wireless Application Service Providers (Buongiorno Vitaminic and Ubiquity); in each of these firms a single case study was developed. Each case study was conducted in three to four face-to-face interviews with key project informants: typically the project manager and project leaders from different functions (Research and Development, Information Technology, and Marketing). To assure the coherence and the consistency among several case studies, a checklist consisting of three sections was developed: (1) general description of the project (i.e., concept idea, main objectives, and constraints); (2) development process and flexible development practices (i.e.,
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time, phases, people involved, main problems, relationships with external actors); and (3) environmental turbulence (i.e., objective variations during the project, time and budget variations during the project, motivations of variations, results of market analysis).
Data Gathering Four case studies were conducted in Vodafone Italy, one of the world’s largest mobile telecommunications network companies. Vodafone Group has equity interests in 26 countries and partner networks in more than 13 countries; Vodafone Italy counted over 20 million customers at the end of 2003, being the second larger operator in the Italian mobile market with 36% of total number of customers and 6.8 billion euros of revenues in the fiscal year 2002–2003. Currently the company has more than 10,000 employees, eight call centers distributed in the whole national territory, and more than 2,000 sales points. Four different projects were analyzed. (1) Multimedia Messaging Service (MMS): As its name suggests, MMS is the ability to send messages including a combination of text, sounds, images and videos to MMS handsets; Vodafone launched this service in June 2002 after a development period of about 12 months. (2) Vodafone Live! This is an easy-to-use consumer service launched in October 2002 after a development period of 10 months. It allows customers to use picture messaging, to download polyphonic ringtones and color games, and to browse branded infotainment from integrated camera phones, through an easily accessible icon-driven menu. (3) SMS World Championship and SMS Italy: Informative services provided by Short Message Service (SMS) and launched by Vodafone Italy on the occasion of the World Championship of soccer in South Korea and Japan in 2002. SMS World Championship offered an overview of about 32 national teams, with the scores and the markers of the games; SMS Italy offered live updating in real time of scores of the Italian team; in both cases there was the possibility to receive a voice commentary. This project lasted four months. (4) Christmas card: A service provided by Vodafone Italy every year during the Christmas holidays; in 2003 it allowed customers to send 100 free SMS per day from the moment of activation to the conclusion of the Christmas holidays. In this case, the project lasted four and a half months.
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Wind is currently the only convergent mobile network operator in Italy able to offer integrated communication services. In particular, it provides wireless communication under the Wind trademark, traditional cable communication under the Infostrada trademark, and Internet access via the Libero portal, one of Italy’s leading websites. Wind is Italy’s third largest mobile player, with a 16% market share gained in just three years from the launch of its mobile service. Wind Group consolidated its growth in its different markets during the first half of 2003, doubling the earnings before interest, taxes, depreciation, and amortization (EBITDA). In the first half of 2003, revenues from mobile services amounted to 1.1 billion euros, up 29% over 0.8 billion euros of the same period in 2002. The first project developed by Wind refers to imode: it is the innovative service created by NTT DoCoMo in Japan in 1999 with the aim of making Internet content available over the mobile phone. The partnership between Wind and NTT DoCoMo for the launch of i-mode in Italy was signed in June 2003, and the service was launched in November 2003. i-mode allows customers to access a vast range of thematic channels, comprising more than 200 sites developed by leading news, entertainment, and service providers. The second project refers to MMS Card, a service developed by Wind in 2003 that allows sending by MMS photos taken by mobile phones to a traditional mail address. The recipient receives the postcard in a closed envelope via Priority Mail. A single case study was also developed in another mobile telecommunications network company (H3G) and two more in firms operating as content deliverers (Buongiorno Vitaminic and Ubiquity): Born in 1999, H3G was the first mobile video company in the Italian market to develop third-generation services. The portfolio essentially consists of a series of voice and data services for consumer and business markets; in H3G the development process of LAN Access was analyzed, a service developed in 2003 (with a lead time of 12 months) that allows access of the mail server and business intranet through the mobile terminal and wireless connection (wide band, 384 kbps). Buongiorno Vitaminic is a Wireless Application Service Provider (WASP) positioned among the principal players in Europe in the sector of ideation,
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Multimedia Messaging Service 1 Vodafone
Christmas Card 4 Vodafone
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LAN Access H3G
Vodafone Live! Vodafone
I-mode 5 Wind
CD Live 8 BuongiornoVitaminic
3
SMS World Championship Vodafone
MMS Card 6 Wind
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M Market Rapidity
Technological Unpredictability
Market Unpredictability
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Seat Ubiquity
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Figure 2. Market and Technological Turbulence Assessment for Each Case Study
production, aggregation, and distribution of multimedia contents, mainly in the field of information and entertainment services. Buongiorno Vitaminic operates in Italy, Spain, the United Kingdom, France, Germany, and Austria; the case study refers to the analysis of CD Live, a service developed in collaboration with RAI (the Italian public television broadcaster) and several mobile telecommunications network companies in the last three months of 2003: it allows for the purchase of monophonic songs combined to the hits showed in a television program broadcast by RAI. The payment is being done through a short number. Ubiquity is a company that develops integrated systems and software for mobile phones and pocket PC; project Seat started in September 2000 and ended in April 2001 with the objective of transforming the Internet services (White Pages and Yellow Pages) provided by the website SeatPagineGialle in mobile services provided by WAP mobile phones and pocket PCs.
Data Analysis As mentioned already, the paper analyzes the relationships among four context variables referring to environmental turbulence (market rapidity, techno-
logical rapidity, market unpredictability, and technological unpredictability) and five process variables referring to flexible development practices (rapid project iterations, delay of concept freezing, early experiments involving customers, formal and crossfunctional project team, and flat organizational structure). The first step was to assess the environmental turbulence level in each case. Environmental turbulence may be connected to both market needs and technology. But are rapid technological changes enough to produce environmental turbulence? They may be not enough; changes should also be hardly predictable. An interview (December 3, 2003) with Negro supports this hypothesis: Why should I develop products in a flexible way? Even if in the past few years the technology went through so many generations [TACS, GSM, GPRS, EDGE, UMTS], I knew of every one of them at least one year before and I had time to be ready for them.
Thus, for each case study every dimension of the environmental turbulence (market rapidity, market unpredictability, technological rapidity, and technological unpredictability) was assessed and given a value: low, medium, and high. Given the qualitative nature of the study the assessment of each variable was a critical activity. To perform it in a rigorous way,
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Table 1. Empirical Dataa
Flat Organizational Structures
Delay of Concept Freezing
Early Experiments Involving customers Formal and Cross-Functional Project Team
Rapid Project Iterations
1. Multimedia Messaging Service
Process Variables
Technological Turbulence
Market Turbulence
Turbulence Sources
X
X
X
X
X
X
X
X
X
2. Vodafone Live! 3. SMS World Championship
X
4. Christmas card 5. i-mode 6. MMS Card
X X
X
7. LAN Access
X
8. CD Live
X
9. Seat
X
X
X
X
X
X
a Rows represent the nine case studies, while columns are divided into two groups. The first group refers to the two sources of environmental turbulence (Market and Technology) and the second group refers to the five dimensions of the new service development process (rapid project iterations; delay of concept freezing; early experiments involving customers; formal and cross-functional project team; flat organizational structures). Turbulence Sources can assume three values: high (black square), medium (gray square), and low (white square); in the case of process variables the adoption of a specific flexible development practice is marked with an ‘‘X.’’
variables were evaluated autonomously by three researchers, and subsequently they shared their opinions to obtain a convergent assessment. Only in the case of the i-mode project were the evaluations sensibly different and required some verification with interviewees. According to the data coming from the interviews, the environmental turbulence should be considered high only if there is the simultaneous presence of rapidity and unpredictability. Thus, once the single variables were assessed, they were collapsed into two new variables: market turbulence and technological turbulence. Market turbulence was considered high if one between market rapidity (MR) and market unpredictability (MU) was high and the other was at least medium. It was considered low if one between MR and MU was low and the other was at most medium, and it was considered medium otherwise (Figure 2). Afterward, for each case study the adoption of the flexible development practices were assessed (i.e., rapid project iterations, delay of concept freezing,
early experiments involving customers, formal and cross-functional project team, and flat organizational structure). The adoption of these practices was evaluated by two different researchers in direct collaboration with interviewees. For example, delay of concept freezing was considered applied in that projects (Multimedia Messaging Service, Vodafone Live!, MMS Card, LAN Access, CD Live and Seat) in which the lead time of the concept development phase is longer than 40% of the total lead time. Table 1 synthesizes the data collected through the case studies: The rows represent the nine case studies, while the columns are divided into two groups. The first group refers to the two sources of environmental turbulence (market and technology), and the second group refers to the five practices for flexible development processes. Turbulence sources can assume three values: high (black square), medium (gray square), and low (white square); in the case of process variables the adoption of a specific flexible development practice was marked with an ‘‘X.’’
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Results The empirical analysis shows that each project (even in the same firm) has to face different levels of environmental turbulence. Different projects analyzed in Vodafone Italy and Wind show the adoption of different flexibility practices because they face different environmental turbulences. For example, one could compare two different projects in Vodafone Italy: Multimedia Messaging Service and Christmas card. The environmental turbulence of the Multimedia Messaging Service project was extremely high. On the one hand, from a technological point of view, the rapid evolutions of network standards and the high uncertainty about the features implemented in the handsets strongly influenced the identification of clear service technical specifications. On the other hand, from a market perspective, new consumers’ needs were emerging, and SMS was clearly becoming insufficient; at the same time network operators were not sure that simple addition of pictures and images could be enough, and many companies believed that only short videos and animations could satisfy new emerging customers’ needs. To cope with the different components of the environmental turbulence that characterized this project, Vodafone adopted several flexible development practices. For example, they started to experiment with several handsets from the beginning of the development process, and they organized a cross-functional task force dedicated to the development of the MMS technological infrastructure and delayed the concept freezing point down to five months before the project end (total lead time of 12 months). Contrarily, the same company managed in a completely different way the Christmas card project. This project had low technological turbulence because it was based on a wellknown and stable technology (SMS) and low market turbulence because similar services launched before provided reliable market data. For this project almost no flexible practices have been adopted. Looking at Table 1 by columns it is possible to see that companies adopt specific flexible development practices when facing different kinds of environmental turbulence. For example, all the projects in which there are early experiments are characterized by medium/high level of market turbulence. Indeed, this kind of experimentation has an exploratory nature: The company develops experiments to test the final solution involving the customers earlier. In this way, it is possible to encompass their feedback in the service
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concept. For example, in the development of the Seat project, Ubiquity developed a series of prototypes since from the first phase of the project to understand consumers’ needs and to test their reactions and feelings accessing an existing service through a new platform. Paolo Gianferrara, project manager of Ubiquity (interview with the authors, January 15, 2004) claimed: In 2000 WAP was very required by final customers, and our clients wanted to offer their services through this new channel without exactly knowing its potentials and limits: They didn’t really know what final users were looking for. Ubiquity helped Seat, and many other companies, to identify and test final consumers’ needs.
Discussion and Managerial Implications The analysis of the empirical results highlights managerial implications that can support development projects in turbulent environments. First of all, each company faces different levels of environmental turbulence. They can change from a project to another. The initial assumption suggested by early interviews is confirmed, and it is correct to consider the environmental turbulence as a project specific variable rather than a company- or industry-specific one. More specifically, the data show that the four dimensions proposed to assess the environmental turbulence (market and technology; rapidity and unpredictability) have significantly different values in the observed cases. Moreover, even if all of the five flexibility practices identified from literature have been observed in the cases, they are seldom applied all at the same time. On the contrary, specific practices are often used to cope with a specific kind of environmental turbulence. Thus, an important managerial implication is that managers, when starting a development project in a potentially turbulent environment, should first assess the actual turbulence level. Turbulence may be both in the market and in the technology. Nevertheless, having a rapidly changing environment is not enough for leveraging on flexibility; the degree of unpredictability must be assessed, too. According to Figure 3, flexibility is needed only when the market needs or the technology have simultaneously rapid and unpredictable shifts. A second managerial implication is how to cope with different kinds of turbulent environments. Once the turbulence level is assessed, a manager can answer by adopting different practices. Even if the flexibility
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Market Unpredictability
H
Market Turbulence
L
Technological Unpredictability
318
H
Technological Turbulence
L
H
L
H
L
Market Rapidity
Technological Rapidity
Figure 3. Areas of Market and Technological Turbulence
practices may be mixed in different ways, according to the data, given a kind of turbulence some of them are more likely adopted (Table 2). The first relevant finding is that when facing any kind of turbulence (in the technology or in the market), companies react by delaying the concept freezing point. Thus, turbulence, both in the market and in the technology, asks for the possibility of introducing relevant changes even in the last development phases. These changes involve modifying the development concept. In other words, in the case of turbulence the delay of concept freezing is needed to leave open longer the so-called ‘‘window of opportunity.’’ The development of Multimedia Messaging Service constraints, caused by functionalities of mobile phone devices and by network platforms, strongly influenced the definition of the service specifications. The concept was frozen only five months before the project end, after the vendor selection and the verification of what functionalities were really supported by the nextgeneration devices. Moreover, Vodafone decided to extend the temporal window of the concept phase to exploit contributions of different countries (Multimedia Messaging Service was developed through a continuous interaction among Global Vodafone and national divisions); in this way it was possible to implement stimuli coming from different countries’ operators. Leonardo Brandi, technical department of Vodafone (interview with
the authors, January 28, 2004) makes this point clearly: In the case of the MMS project the definition of the specifications lasted for a long time even after we started the following phase . . . we had to consider requirements of various mobile network operators, it was a difficult job . . . it could happen that a specific main point for a particular market was not the same for another.
If the delay of concept freezing seems to be adopted by companies to cope with both market and technological turbulence, the adoption of the other flexibility practices seems to depend on the kind of turbulence faced, as described in the following sections.
Technological Turbulence According to Table 1 only two of the cases face a high level of technological turbulence. In both cases (and only in those cases) companies leverage heavily on the rapid project iteration practice (along with the delay of concept freezing). Rapid project iterations allow new information to be implemented in technical opportunities that emerge during the project evolution; for example, starting the system integration phase before the end of detailed design may allow earlier problems among single modules to be identified. Thus, this practice is particularly effective in case of rapid and unpredictable changes in the techno-
Table 2. Flexible Development Practices and Environmental Turbulence
Market Turbulence Technological Turbulence
Rapid Project Iterations
Delay of Concept Freezing
X
X X
Early Experiments Involving Customers
Formal and Cross-Functional Project Team
Flat Organizational Structure
X
X
X
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logical base. The development process is characterized by overlapped phases, especially between concept development and detail design. It is interesting to observe that different projects in the same company may or may not leverage on this practice according to the level of technological turbulence. Wind in the i-mode case adopted standard practices such as a specific sequential order of development phases, an approval iter, and a set of document management formats. Nevertheless, in the case of MMS Card project the value-added service (VAS) division decided not to adopt these standard practices, implementing other ad hoc procedures. Elena Montefredini, of the Responsible UMTS Project at Wind (interview with the authors, November 27, 2003) stated: In Wind there was a very structured and formal NPD process, but in the case of MMS Card project, the VAS division adopted ‘‘light’’ procedures: There weren’t rigid phases, we immediately developed simple requirements giving the opportunity to Technical Department to start the design phase very soon. Then we didn’t freeze the concept negotiating different decisions with Technical Departments. This practice was necessary because of a rapidly changing environment.
Market Turbulence According to Table 1, three cases cope with high market turbulence, and in all three cases the companies adopted the delay of concept freezing along with (1) early experiments involving customers; (2) formal and cross-functional teams; and (3) flat organizational structures. All these practices are particularly effective in case of market turbulence. Early Experiments Involving Customers. The realization of several beta releases since the beginning of the development process allows the evolution of customers’ needs to be tested continually as they rapidly evolve during product development and the offering to be adapted according to their feedback. For this reason companies that develop projects characterized by high levels of market turbulence introduce many experiments involving customers in the early development phases. For example, Ubiquity planned continuous experimentations during the development of Seat service. Dario Calogero, managing director of Ubiquity (interview with the authors, December 23, 2003), believes that for the services they offer, very often customers cannot identify their own needs before the ‘‘consumption’’ of the service; for this reason, Ubiquity built up different prototypes during the development process and in this way
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had the possibility of capturing and implementing feedback from the customers: . . . Since the beginning we released a lot of prototypes for our clients, in this way they could test our services in a meaningful way. Only 20% of functionalities implemented in the first release were transferred and developed in the second one without any change.
Formal and Cross-Functional Project Team. When the turbulence in the market is high and it is not possible to clearly define from the beginning the list of functionalities and performances that must be developed, the presence of a formal cross-functional project team is crucial. Introducing a change in the concept implies the support of the technical area for rapidly assessing the feasibility (technical and economic) and the time needed. Moreover, the technical departments may offer a stimulus to the marketing one, thanks to their knowledge of current technological trends. In other words, the marketing department must continually revise the concept in case of market turbulence, and to do that it needs the support of the technical departments. Thus, a formal cross-functional project team is needed; otherwise, the time for the information exchange among resources not directly involved in the project could compromise the process effectiveness as clearly stated in the Vodafone Live! Case by Negro (interview with the authors, December 3, 2003): . . . Differently from other cases the functions Marketing, Product & Services and Technical Departments interacted directly in order to manage in an effective way possible recycles.
Also, Ubiquity constituted a cross-functional project team composed of marketing and information technology (IT) resources to develop the Seat project; moreover, the postmortem maintenance and upgrading activities were assigned to the same team to assure the necessary multidisciplinary approach. Calogero (interview with the authors, December 23, 2003) said: . . . Usually we assign the service development to a selected and focused project team . . ., the resources that manage the development phase are the same that take care of the product growth.
Flat Organizational Structure. This last practice is strictly related to the previous one. Putting a mediator between the marketing department and the technical ones would slow the process down. According to some literature this mediator could be useful in ab-
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sence of market turbulence because the mediator may help the marketing department clearly and specifically define the product concept, thus increasing the process efficiency. Nevertheless, when continuous changes are needed and introduced, the absence of a direct link between marketing and technical departments may compromise the process effectiveness. Companies adopt this practice according to the project specific needs. For example, in 2003 Vodafone launched for the fifth time the Christmas Card. Every time, incremental changes had been introduced, but the concept was largely the same; consequently, Vodafone had developed a remarkable managerial experience and could manage the project without leveraging on particularly flat managerial structures. Contrarily, the MMS channel in 2002 was an extremely innovative project because Vodafone had many doubts about consumers’ reactions. In this case the company adopted a flat organizational structure to have direct links among the involved departments. About this subject, Negro (interview with the authors, December 3, 2003) said: If a project is standard there is a marked separation of assignments and roles: project concept is defined by the Marketing, then it is transferred to the function Products & Services that has to interface with Technical Departments. Instead, in the case of Multimedia Messaging Service (MMS) the functions Marketing, Products & Services and Technical Departments had to work together since the beginning.
Conclusions, Limits, and Suggestions for Further Research The first and most important finding of this paper is each project, even if in the same company or in the same industry, has to be managed by specific practices according to the potential environmental turbulence sources (technology and market needs). The paper provides a model that looks simultaneously at the rapidity and the unpredictability of the environment (Figure 3). The second main finding (summarized in Table 2) is a list of flexible development practices that companies adopt to face different kinds of environmental turbulence. First, every form of turbulence asks to delay the concept freezing point. But this is rarely practiced alone. Which other practices are adopted along with it depends on the specific turbulence source faced. In case of technological turbulence, normally a big emphasis is placed on rapid project it-
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erations, whereas in market turbulence normally companies leverage on (1) early experiments involving customers, (2) formal and cross-functional project team, and (3) flat organizational structure. From the academic point of view, it must be underlined that this paper has some major limits due to its exploratory nature. The first is that the research does not assess the effectiveness of the managerial and organizational practices but just detects when they are applied. Even if all nine cases can be considered successful, we can’t determine whether the rapid project iterations should be useless in the case of high market turbulence but simply that the companies of the sample did not apply it. Further research could enlarge the scope measuring not only the adopted practices but also the project performances. From the turbulence point of view, normally we divide it into market and technological; it could be interesting to analyze possible relationships between them. Looking at Figure 2 we can see that market rapidity seems to be correlated more with technological rapidity than with market unpredictability. Of course, the small sample does not allow any conclusions to be drawn, but a hypothesis regarding different relationships may be investigated in future investigations.
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