Management of new product development in small
electronics firms
Keywords
New product development,
Small firms, Electronics industry,
Ireland
Abstract
This paper reports on the findings
of a study of the development of
63 new products in 36 electronics
firms in Ireland. The firms range in
size from fewer than ten to over
1,000 employees. They all operate
in the electronics sector, develop-
ing and manufacturing a variety of
products from completely inte-
grated systems to discrete com-
ponents. A series of
questionnaires and interviews was
used to collect historical life cycle
data of new products. The results
presented in this paper focus on
the management of the product
development process. The rela-
tionship between the development
process and new product success
or failure is examined. The differ-
ences between the management
of product development in small
and large firms are also explored.
Small firms report a new product
success rate comparable to that
of larger firms, suggesting that the
factors that are linked to the
success of new products may be
related to firm size.
Received August 1999
Revised January 2000
Journal of European Industrial
Training
24/2/3/4 [2000] 137±148
# MCB University Press
[ISSN 0309-0590]
A. Ledwith
The Department of Management & Marketing and Small Firms Research Unit,
University of Limerick, Ireland
Background
The management of new product
development in large firms has been studied
in great depth. Much has been published
relating to how new product development is
managed, and in particular to management
practices that have been found to be
determinants of new product success.
Montoya-Weiss and Calantone (1994) provide
a very comprehensive review of the research
into NPD to date and conclude that it lacked
focus and direction. A wide variety of
methodologies and study types have been
used. This makes it difficult to directly
compare the results of different studies.
However, in their meta-analysis they define
variables in four categories that have been
identified as determinants of new product
performance. These have been slightly
modified for the purpose of this study and are
summarised in Table I. A discussion of each
category of factors follows.
Organisational factors
The management of internal and external
relations in new product development is one
area where there is a marked difference
between the existing literature on small and
large firms. Most of what is published about
large firms deals with internal relations. It is
argued that integration between different
functional departments will achieve better
results both in the characteristics of the
products developed and the time taken to
develop them (Shrivastava and Souder, 1987;
Wheelwright and Clark, 1992; Towner, 1994).
In contrast, literature dealing with small
firms focuses on external relations,
addressing issues such as industrial services,
subcontracting relationships, licensing,
networking, collaborative R&D (Rothwell
and Dodgson, 1991; Hoffman et al., 1998;
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MacPherson, 1997). This difference in
emphasis makes some sense ± large firms
tend to be able to resource all their technical
requirements internally and thus the
relationships that must be managed are
internal. Small firms, however, often need to
look outside their organisational boundaries
for services and, therefore, must develop
skills in managing external relationships.
Organisational factors, including the
existence and characteristics of project
teams, the level of top management
involvement, the nature of leadership of NPD
projects, have been examined extensively in
large firms. Cross-functional or
multidisciplinary teams with strong
leadership and a high level of ownership and
accountability are generally recommended
as good organisational design for new
product development projects (Cooper, 1999;
Page, 1993; Wheelwright and Clark, 1992). But
many of the above factors are not relevant
when examining determinants of success in
small firms, simply because they exist
inherently in almost all small firms and
usually to a much greater degree than in
large firms.
Development process factors
The new product development process has
been studied in great detail and many
process related factors are identified in the
literature as determinants of NPD success.
Technical and marketing proficiency are key
factors in product success (Cooper and
Kleinschmidt, 1987). Controllable variables,
rather than environmental variables, have
been found to determine the outcome of
product development projects (Cooper, 1990).
The most important technical and marketing
activities include prototype testing with
customers, test marketing, market launch,
product development and production start-
up. In general, most of the literature that
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[ 137 ]
A. Ledwith
Management of new product
development in small
electronics firms
Journal of European Industrial
Training
24/2/3/4 [2000] 137±148
Table I
Determinants of NPD success
Organisational factors
Internal/external relations
Organisational factors
Skills and capabilities
Technological synergy
Marketing synergy
Company resources
Strategy
Source: Adapted from Montoya-Weiss and Calantone, 1994
[ 138 ]
examines the process related factors that
influence the outcome of NPD agree that, in
both small and large firms, proficiency of
NPD activities is a key determinant of
success (see Table I).
Top management support is one of the most
important factors influencing new product
success (Booz-Allen and Hamilton, 1982). In
the US electronics industry senior
management support has been found to be
important for NPD success (Maidique and
Zirger, 1984). Owner manager skill and
support have also been found to be important
in small firms (Hoffman et al., 1998), though
the focus when dealing with small firms is
more on the skill and competence than on the
support of top management. This is
justifiable, as it would be unusual for a small
firm to take on a product development project
without the support of top management.
Managing and measuring the speed to
market of new products have tended to be
addressed more by practitioners and
consultants than by academics (Towner,
1994). In contrast with this emphasis on
speed, Cooper (1999) states that, although
being first to market is important, being the
best on the market is more important. Time
to market has not been identified as such a
key factor for small firms; there are two
possible explanations for this. First, small
firms by their very nature are more flexible
and possibly experience fewer problems in
speeding up product development. Second,
small high-technology firms tend to operate
in niche markets where time to market may
not be such a critical factor.
It is perhaps something of a paradox that,
though the most commonly used measure of
NPD is financial success, very few authors
have anything to say about financial analysis
as part of the NPD process. While several
studies include business analysis as one of
the steps in their NPD processes (Cooper and
Kleinschmidt, 1995; Page, 1993), relatively
little research has been done into financial
Development process factors
Proficiency of activities
Top management support/skill
Speed to market
Financial factors
Marketing and new product characteristics
Product advantage
Market potential
Market competitiveness
Environment
analysis as a key activity in the NPD process
and its impact on the outcome. The cost of
new product development is another
financial issue that has not received much
attention and is perhaps of greatest interest
to small firms, which tend to have limited
financial resources (Roper et al., 1996;
Fitzgerald and Breathnach, 1994).
Marketing and new product
characteristics
Product advantage or product superiority is
judged by many authors to be the most
critical success factor in developing new
products. Cooper (1990), reporting on the
project NewProd, concluded that superior
products are more likely to succeed.
However, a study of small high-technology
electronics firms (Yap and Souder, 1994)
found that small firms, under conditions of
high market or technical uncertainty, were
more likely to succeed by producing
compatible than superior products.
Market potential, including market size
and growth, customer need for a product and
the importance of a product to the customer,
has been found to have an impact on NPD
success, particularly where companies are
aiming their product at a window of
opportunity (Cooper and Kleinschmidt, 1987).
The impact of market variables on small,
high-technology companies is not always as
expected (Yap and Souder, 1994). Market
maturity would normally be thought to
inhibit NPD success but in some
circumstances may actually be favourable
for small firms. This anomaly can be
explained by the fact that many small
companies operate in mature market niches
which are not of interest to larger firms. A
review of literature on small firms, R&D,
technology and innovation in the UK
(Hoffman et al., 1998) reports conflicting
evidence of the impact of market potential on
small firms.
It is a common assumption, based on
Porter (1980), that increased market
competitiveness should limit the success of
new products. However, several authors have
not found this to be the case (Booz-Allen and
Hamilton, 1982; Cooper and Kleinschmidt,
1987; Page, 1993). In the case of small firms
there is no consensus on the impact of
market competitiveness on success. Some
studies have found it to correlate negatively
with success while others have found that it
has no impact at all (Yap and Souder, 1994;
Hoffman et al., 1998).
The operating environment faced by a
firm, including risk, uncertainty and
regulations, is another factor that has not
been studied in detail. A study of the US
A. Ledwith
Management of new product
development in small
electronics firms
Journal of European Industrial
Training
24/2/3/4 [2000] 137±148
electronics industry looking at successful
and unsuccessful projects (Maidique and
Zirger, 1984) measured the importance to
firms of different determinants of NPD
outcomes and found that environmental
factors, including government regulations,
market characteristics and the economy, did
not rate very highly.
Skills and capabilities
Technological and marketing synergy have
been linked with new product success.
Companies are advised to ``attack from a
position of strength'' (Cooper, 1999). This
advice has also been shown to be true for
small firms (Yap and Souder, 1994).
The availability and quality of resources as
a determinant of NPD success have not been
studied to any great extent. It has been
assumed that NPD programmes are
sufficiently resourced; this may well be the
case in large firms. A study of the norms in
product development (Page, 1993) found that
resources were mentioned by only 39.2 per
cent of 189 companies surveyed as being
obstacles to successful NPD. In small firms,
however, a lack of resources, both financial
and human, has been cited as one of the most
important barriers or constraints to product
innovation (Fitzgerald and Breathnach, 1994;
Roper et al., 1996; Hoffman et al., 1998).
Company strategy is probably one of the
key determinants of NPD success as it affects
all other determinants. Many studies of the
strategic management of technological
innovations have stressed the importance of
integration between functions involved in
the innovation process (Shrivastava and
Souder, 1987; Crawford, 1994). Adler et al.
(1989) suggest that most companies manage
NPD in a tactical rather than a strategic
manner, top managers are advised to take a
more strategic interest in NPD. Strategy is
also a key issue for small firms involved in
product innovation (Rothwell and Dodgson,
1991). Learning, flexibility and speed of
response are identified as areas where small
high-technology firms can gain a competitive
advantage. A strategy recommended for
small technology-based firms is the adoption
of one key growth-sustaining technology and
avoidance of high levels of diversification
(Meyer and Roberts, 1986). Successful initial
core technologies are those that are
challenging to implement but difficult
enough to deter competitors. Small, high-
technology firms are advised to avoid
differentiation but to adopt cost-leadership or
focus strategies (Yap and Souder, 1994). This
advice is based on empirical research that
shows that customers are unlikely to buy
superior products with unique features from
new companies, and that compatible
products have a better chance of success.
In summary, organisational factors have
been addressed in the literature from an
internal perspective for large firms but from
an external perspective for small firms.
Product development process factors have
been found to be critical to both small and
large firms but the success of some
management practices is probably dependent
on firm size. Variables relating to marketing
and new products characteristics have an
impact on the success of new products but
there is limited consensus in the literature
about the nature of this impact. And finally,
the existence and nature of skills and
capabilities have been identified as
determinants of new product success in both
small and large firms.
The results presented in this paper attempt
to build on some previous research that
examined new product development in small
electronics firms in Alabama, USA (Yap and
Souder, 1994). A similar research tool[1] was
used to collect data, allowing for comparisons
to be made between the US and Irish results.
The US study found that much of the
conventional wisdom that applies to large
firms cannot be taken for granted in small
firms and, depending on conditions of market
and technical certainty, different
management practices apply. The results
presented in this paper represent the initial
analysis of data collected in small and large
Irish electronics firms. As this is part of an
ongoing study, many of the findings point to
areas for further study rather than final
conclusions.
Research method
Studies of new product development have
taken several different approaches. Some
have compared successes and failures, others
have concentrated on the impact of
particular variables on new product success,
yet others have examined the NPD process
and suggested ways in which it can be
improved. Some studies have examined
individual projects within companies while
others have examined NPD at a corporate
level. Studies that focus solely on the project
level are limited in that they often fail to
identify company level practices that may
have a significant impact on new product
outcomes, for example the culture of
innovation within a firm (Cooper and
Kleinschmidt, 1996). Alternatively, studies
that are based solely at the company level
may not identify lessons that are learned
from one project to the next and may also fail
[ 139 ]
A. Ledwith
Management of new product
development in small
electronics firms
Journal of European Industrial
Training
24/2/3/4 [2000] 137±148
[ 140 ]
to pick up on the detailed management
practices that differ from project to project.
The research presented in this paper is
exploratory in nature and therefore a broad
research instrument that collected
information at both the company and project
level was used. A success/failure approach
was adopted as it was considered to be the
most practical in attempting to address the
issues in question. In addition, the particular
instrument used allowed comparisons to be
made with previous studies (Souder et al.,
1997; Souder and Song, 1997; Yap and Souder,
1994).
Data were gathered using a series of seven
questionnaires, three aimed at company
level, gathering information about:
1 characteristics of the company;
2 cycle time of new products in the
industry; and
3 organisational learning.
Another four questionnaires addressed
specific projects within a company; these
dealt with:
1 characteristics of the new product;
2 market environment;
3 technical environment; and
4 level of innovation.
Respondents varied for each type of
questionnaire, but included the MD,
technical manager/director, marketing
manager and R&D engineers.
Companies for inclusion in the study were
selected from an online Kompass database
(1997) in the following categories:
.37 Electrical, electronic, data processing
and nucleonic equipment.
.38 Precision equipment, measuring,
testing, optical, photographic,
cinematography, medical and surgical.
.79 Communications services,
telecommunications, radio and
television.
Of the 882 companies identified, only 56 were
developing electronic (hardware) products
and were responsible for the complete
development process, from the exploratory
phase through to manufacturing and
marketing start-up and after-sales technical
service. Only those firms that carried out all
these activities at their site in Ireland were
included in the research. A total of 36 firms
agreed to be interviewed, this constituted a
response rate of 68 per cent.
All firms were requested to discuss two
projects ± one that had been a success and
another that had been a failure. The decision
on success and failure was left to the
managers being interviewed. Not all firms
were able to identify both successful and
unsuccessful products and in some cases only
one product was examined. Table II
summarises the sample.
Success was defined as either meeting or
exceeding expectations, while projects that
fell below expectations were considered to be
failures. This method of classifying project
outcome is consistent with previous studies
(Song et al., 1997; Souder and Song, 1997; Yap
and Souder, 1994). It also allows for
reasonable comparisons to be made between
companies operating in different markets
and between companies of different sizes. It
would not, for instance, be rational to use
similar measures of overall volume, return
on investment, profitability or market share
to rate the success of new products from very
large and very small companies as their
expectations and capabilities would be very
different.
In analysing the data each project was
given a score based on the extent to which it
met commercial expectations. Table III
shows the rating system used. Failed new
products were those that scored lower than 3
on commercial outcomes while successful
projects met or exceeded the expectations of
the firm.
Spearman correlation coefficients (Siegel
and Castellan, 1988) were calculated,
comparing the project outcome, as shown in
Table III, and the responses to a range of
questions about the management of each
project. Each question required the
respondent to select an answer from a five-
point Likert-type scale. The purpose of the
study is not only to identify success factors
for the complete sample, but also to look at
the differences between success in small and
Table II
Breakdown of sample
Large Small
firms firms Total
Number of firms 14 22 36
Number of successful projects 15 20 35
Number of unsuccessful projects
11 17 28
Total number of projects 26 37 63
Note: Small firms are defined as those with fewer than
100 employees
Table III
Project outcome scoring system
Score Commercial outcome of the project
1 Far below our expectations
2 Slightly below our expectations
3 Consistent with our expectations
4 Slightly above our expectations
5 Far above our expectations
A. Ledwith
Management of new product
development in small
electronics firms
Journal of European Industrial
Training
24/2/3/4 [2000] 137±148
Table IV
Overall performance
Parameter (mean)
Size
Turnover
Turnover per employee
Percentage of exports
Percentage of turnover from new products
Spend on R&D (as a percentage of turnover)
Percentage of employees in R&D (R&D intensity)
Number of new products launched last year
Number of new product variants launched last year 5
Number of patents
large firms; significant results (p = 0.05, 0.02,
and 0.01) for all, small and large, firms are
presented.
Results
While not all firms, in the group of either
large or small firms, were Irish owned, they
all have Irish management and were
responsible for developing new products
from the exploratory stage through to
providing after-sales support and service.
The nature of the electronics sector, on
which much of the Celtic Tiger economy is
built, is reflected in the high level of exports
in the sector, and also in the large percentage
of turnover that comes from products that
were developed within the last three years.
The overall performance of the firms in the
study is shown in Table IV.
It can be seen in Table IV that the small
firms were approximately one-tenth of the
size of large firms and reported less than 4
per cent of the turnover, resulting in a much
lower turnover per employee ratio for small
firms.
A relatively higher level of R&D
expenditure as well as a higher R&D
intensity is generally expected from small
firms (Van Dijk et. al., 1997). This is reflected
in the above data. The most significant
differences between the two groups of firms
are:
1 the level of spending on R&D;
2 the percentage of R&D employees to total
employees; and
3 the number of patents held by the small
firms.
The reluctance of small firms to protect new
products by patenting has also been reported
previously and is an issue that is being
addressed by the Irish development agencies
(Cox, 1999). Small technology-based firms are
very dependent on new products and invest
heavily in R&D; in fact the level of R&D
expenditure by all firms in this study is well
Small firms Large firms
32 358
IR£2.2M IR£58.4M
IR£68K IR£127K
87 95
49 46
21 9
26 14
5 7
18
2 16
above the 5.1 per cent reported in a recent
Forfas study (Breathnach, 1995).
The types of new products being developed
by each group of firms is also worth
examining. While small and large firms
launch similar numbers of totally new
products, there is a large difference between
the numbers of product variations launched.
Large firms launch approximately 2.5
product variations for each new product
launched; the ratio is 1:1 in small firms. This
points to differences in the new product
strategies of small and large firms, which is
worth further study.
In general, the level of interaction with
external organisations in the development of
new products for all the firms in the study
was very low. A five-point Likert-type
ranking scale (1 = never to 5 = very often) was
used to measure the frequency of interaction
with a range of external organisations. Small
firms achieved an average score of 2.17 while
large firms scored 2.81; these results are
shown in Figure 1.
These findings are worrying given that
previous studies have emphasised the
importance of external support for R&D
(MacPherson, 1997). In particular, 23 per cent
(n = 5) of the small firms reported that they
seldom or never contacted customers in their
new product projects, while all the large
firms contacted their customers occasionally
or more frequently. MacPherson in his study
of small manufacturing firms in New York
State found that contact with customers was
the most important of all external contacts
reviewed. The only significant level of
interaction occurs between large firms and
customers and suppliers, and between small
firms and customers.
In summary, all firms in the sample were
found to be developing new products with
little external interaction. This has also been
found in earlier studies of product
development in high-technology Irish firms
(Hurst and O'Kelly, 1995).
Respondents were asked about their
expenditure on innovation. On average,
firms spent IR£1,640,028, or 16 per cent of
turnover on innovation. This broke down as
IR£388,227 (21 per cent of turnover) for small
firms and IR£3,607,143 (9 per cent of turnover)
for large firms. This spending was further
broken down into a range of activities as
shown in Figure 2.
On average, firms spend about two thirds
of their total innovation spend on new
product development, compared with only 7.5
per cent on process improvement. The main
differences between large and small firms are
the expenditure on process improvement, 11
per cent in large firms and 5 per cent in small
[ 141 ]
A. Ledwith
Management of new product
development in small
electronics firms
Journal of European Industrial
Training
24/2/3/4 [2000] 137±148
[ 142 ]
Figure 1
Interaction with external organisations
Figure 2
Breakdown of spending on innovation
firms, and in marketing, 2 per cent in large
firms and 8 per cent in small firms.
The remaining data presented in this paper
examine project level issues. The results will
be presented in the four different categories
discussed above:
1 organisational factors;
2 development process factors;
3 marketing and new product
characteristics; and
4 skills and capabilities.
Organisational factors
The organisational factors examined include
issues such as the level of top management
involvement in product development, the
interaction between commercial and
technical groups, and the nature of the
project management. Several organisational
factors were found to correlate with new
product success and several differences were
found between the success factors in small
and large firms; these factors are
summarised in Table V.
One of the most striking findings from
Table V is the degree to which involvement of
commercial entities is correlated with
success in small firms and not in large. The
common perception of small firms is that
communications between the different
functional groups is very good, which would
suggest that the involvement of commercial
entities should be taken as given. However,
this seems not to be the case ± the
involvement of commercial entities is linked
with success in small firms but not in large.
A participative project management style is
more closely associated with success in large
firms (p 0.02) than in small firms.
A. Ledwith
Management of new product
development in small
electronics firms
Journal of European Industrial
Training
24/2/3/4 [2000] 137±148
Table V
Organisational factors
Factor
Level of contact between commercial and
technical entities
Level of information flow between commercial
and technical entities
Level of participation in problem solving by
commercial entities
Top management support
Participative style of project manager
The motivation of project level personnel 0.287***
Notes:
a all firms n = 63; b small firms n = 37; c large firms n = 26
Correlation coefficients statistically significant at: *p 0.01; **0.02;
***p 0.05, two-tailed
Top management support was also found to
be a bigger issue for small firms; again this is
counter-intuitive. It is normally assumed
that new product projects are not initiated
within small firms without the support of top
management (Maidique, 1980), while the
support of top management is frequently
cited as a success factor in studies of large
firms (Cooper, 1999).
Development process factors
For the purpose of this study the product
development process was divided into the
eight stages listed below:
1 Exploratory: search and inquiry
activities, usually phenomenon oriented.
2 Concept development: concept elaboration,
extension and substantiation activities
aimed at the clarification or elaboration of
previously generated ideas or concepts.
3 Prototype development: differs from stage 2
in that a commercially relevant prototype,
first model or product has been identified
and is targeted.
4 Prototype testing: laboratory, field or
production-scale evaluations.
5 Market development: market generation,
demand simulation and market analyses
activities.
6 Manufacturing start-up: initial production
runs, scale-up and preparation for full
scale activities.
7 Marketing start-up: preparation for full-
scale market entry.
8 Technical service: follow-on market and
technical activities which accompany the
introduction of the new product.
Each respondent was asked to evaluate their
performance in each stage of the process in
order to assess the impact of the product
development process on the success of new
products. Table VI shows the relationship
All firmsa Small firmsb Large firmsc Many studies of the factors in successful
0.342* 0.351*** 0.203
0.441*
0.389* 0.157
0.274*** 0.250 0.121
0.392 * 0.504* 0.180
0.214 0.325
0.282*** 0.330*** 0.066
p
between the different activities and new
product success.
The most significant activities for small
firms are:
.market development;
.prototype development;
.concept development.
For large firms the activities linked with
success are:
.manufacturing start-up;
.marketing start-up;
.prototype development.
Throughout this study manufacturing
related issues are found to be more
significant for large than for small firms. A
possible explanation for this is the fact that
many of the large electronics firms in this
study view Ireland primarily as a
manufacturing location. Though they all
have a serious commitment to R&D, as
evidenced by their expenditure in the area,
for many of them the reason they are in
Ireland is for manufacturing capacity and
easy access to the European market.
It is also interesting to examine how well
each set of firms judges their performance in
developing new products. Figure 3 compares
the levels of proficiency in the eight-stage
process of small and large firms.
There is very little difference between the
proficiencies reported by small and large
firms. But there is a slight trend that the
smaller firms are reporting to be better at the
early stages of the process while the large
firms are better at the back end activities. It
is also worth noting that in general the firms
sampled did not report a very high level of
proficiency in the product development
process. As can be seen in Figure 3, on
average, neither set of firms reported that
they were better than fair at any of the
activities in the product development
process.
Marketing and new product
characteristics
new product development have suggested
that product superiority is the key to
successful products. This study also
investigated the characteristics of the
products developed. Questions were asked
about the nature of the products developed
and the type of product positioning and
marketing strategies used.
A set of questions was used to determine
whether a particular product was being
launched under conditions of low or high
market uncertainty. An uncertain market
was defined as one in which the market was
not familiar to the developer, customers'
[ 143 ]
A. Ledwith needs were not well defined and could not be of the product and the level of service and
Management of new product readily translated into product performance support offered. Interestingly enough, these
development in small specifications. A strong correlation between are not significant for small firms. The only
electronics firms market certainty and new product success product characteristic that was linked with
Journal of European Industrial was found for the small firms in the sample success for small firms was product
Training (p 0.001), suggesting that external factors compatibility; this is consistent with
24/2/3/4 [2000] 137±148 had a significant impact on the outcomes of previous studies (Yap and Souder, 1994).
projects. However, for the large firms
studied, no relationship was found between
market uncertainty and new product success, Skills and capabilities
suggesting that for these firms internal
rather than external factors were significant The alignment of certain existing skills and
in determining project outcomes. Table VII capabilities of the firm with the
summarises some of the customer and requirements of new product projects was
market characteristics that were found to be found to have an impact on project outcomes
linked to new product success. (Table IX). The most significant finding for
The results in Table VII would suggest that small firms was the ability to understand
small firms should pay close attention to user requirements, however, this did not
what their customers want, while large firms seem to impact on success in large firms.
should produce new products for rapidly This supports the commonly held view that
growing markets. one of the key advantages of small firms in
Table VIII summarises the new product innovating is their ability to stay close to
characteristics that had an impact on the their customers and to understand their
successful outcome of the projects. needs. Not only is this an advantage, it is also
The product characteristics that are linked a critical success factor.
with success in large firms are the initial cost Manufacturing skills were found to be
more important for large than for small
firms. In fact, the lack of any relationship
between production/manufacturing skills
and success in new product development in
small firms is noteworthy. As was presented
in Figure 2, large firms reported that they
spent twice as much of their total innovation
Table VI
budget (11 per cent) as small firms (5 per cent)
Development process factors
on process improvements.
Factor All firmsa Small firmsb Large firmsc Small firms were found to report higher
success rates when they stayed close to their
Proficiency in the exploratory stage 1.88 0.238 0.132 existing markets and utilised existing sales
Proficiency in concept development 0.249*** 0.402** 0.106 and marketing skills; this was not found to
Proficiency in prototype development 0.425* 0.423* 0.302 the same extent for large firms.
Proficiency in prototype testing 0.290*** 0.260 0.148
Proficiency in market development 0.301** 0.423* 0.272
Proficiency in manufacturing start-up 0.155 ±0.010 0.419***
Proficiency in marketing start-up 0.378* 0.388*** 0.388
Proficiency in technical services 0.264*** 0.264 0.173

Notes:
a
all firms n = 63; b small firms n = 37; c large firms n = 26 Discussion and conclusion
Correlation coefficients statistically significant at: *p 0.01; **0.02;
p ***
p 0.05,
two-tailed The key findings, that differentiate the
management of new product development in

Figure 3
Development process proficiency

[ 144 ]
A. Ledwith the small firms from that in the large firms in
Management of new product this study, are summarised and discussed
development in small below.
electronics firms
Journal of European Industrial
Training Company level findings
24/2/3/4 [2000] 137±148 The small firms in the study reported that
they spent a higher percentage of their
turnover on R&D and had a higher
percentage of their total employees in R&D.
This result is not unexpected for several
reasons. All the firms involved in the study
had formal R&D departments, a bigger
overhead for a small firm than for a large
firm. Additionally, all firms were involved in
developing high-technology (electronics)
products, which requires a sizeable up-front
investment in both equipment and
knowledge (highly skilled employees). As
mentioned earlier, these findings are also
consistent with previous studies (Van Dijk et
al., 1997).
Small firms were found to hold fewer
patents than large firms. This would tend to
suggest that small firms are not adequately
protecting their investment in new
technologies. The Irish industrial agencies
are attempting to address this issue through
educational and financial programmes.
Table VII
Customer/market characteristics
Factor All firmsa Small firmsb Large firmsc meetings. This results in a group of firms in
The customer had a great need for this type of
product 0.325* 0.419* 0.192
The potential customers were eager about new
products 0.297**
0.285 0.258
The market for this product was growing quickly 0.336*
0.210 0.529*
We took into consideration customers' problems
with previous products when we designed this
product
0.456* 0.559* 0.337
Notes:
a
all firms n = 63; b small firms n = 37; c large firms n = 26
Correlation coefficients statistically significant at: *p 0.01; **0.02;
p ***p 0.05, importance (Hoffman et al., 1998). A similar
two-tailed
Table VIII
New product characteristics
Factor All firmsa Small firmsb Large firmsc and communications.
Small firms reported a lower level of
involvement with external organisations in
developing new products than the larger
firms in the study. In particular, they
reported a much lower level of interaction
with customers and suppliers. This is a key
finding which, as suggested below, will
require additional investigation.
Project level findings
Interaction between commercial and
technical entities was found to be more
critical to new product success in small firms
than in large firms. The finding that a high
level of interaction between different
functional departments is linked with
success is consistent with prior studies.
However, the reason why this is of more
importance in small firms is that it is
generally assumed that small firms are more
organic than larger firms, with more open
communication flows and interpersonal
exchanges. A possible explanation is that it is
not valid to treat all firms with fewer than 100
employees as a homogeneous group. The
researcher's impression was that firms with
up to 15 or 20 employees did indeed possess
the characteristics normally associated with
small firms, such as frequent and high
quality exchanges of information. However,
as firms grew towards 50, 80 or 100
employees, communications became more
difficult, while the majority of firms in this
size range had not yet put in place formal
mechanisms to facilitate the exchange of
information, e.g. regular formal review
the 50-100 employee size range for whom
interdepartmental communications cannot
be taken for granted and for whom such
communications are critical to new product
success.
Top management involvement in new
product development was found to be more
important in small firms than in large firms.
As with the previous point, this finding is
consistent with prior studies of large firms
but was not expected to be so critical in small
firms where top management skill and
competence had been found to be of greater
explanation to that proposed for technical/
commercial interaction could be given ±
many of the ``small'' firms in this study are
outgrowing the benefits normally associated
with small entrepreneurial organisations but
have not yet put in place formal methods to
counter the lack of organic information flows

A competitive initial cost was a planned selling There is at the moment a lot of emphasis
point for this product 0.297* 0.426*** within the Irish industrial support system on
0.170
Service and support was a planned selling point encouraging innovation within firms, and
for this product 0.401***
0.209 0.003
Product compatibility was a planned selling
point for this product
0.120 0.339*** ±0.220

Notes:
a
all firms n = 63; b small firms n = 37; c large firms n = 26
Correlation coefficients statistically significant at: *p 0.01; **0.02;
p ***p 0.05,
two-tailed

[ 145 ]
A. Ledwith particularly within small firms. However,
Management of new product the small firms in this study were found to
development in small have most success in developing new
electronics firms products that fit closely with their existing
Journal of European Industrial markets and products; this was not found to
Training be the case for large firms. This was also
24/2/3/4 [2000] 137±148 reported in the US study of new product
development in small high-technology firms
(Yap and Souder, 1994). Small firms tend not
to have the resources or capabilities to
become diversified and are well advised to
``attack from a position of strength'' (Cooper,
1999; Meyer and Roberts, 1986).
In their comparison between small high-
technology firms in the USA and New
Zealand, Souder et al. (1997) concluded that
the New Zealand firms were more customer
focused, attributing a large amount of their
success to staying close to their customers
and gaining an accurate understanding of
customer needs. The small Irish firms that
participated in this research appear to have
similar characteristics. They reported more
success with products for which the user had
a great need, while large firms had more
success when targeting rapidly growing
markets. It was also found that
understanding user requirements is a key
success factor for small but not for large
firms. The similarities between Irish and
New Zealand high-technology firms, both
operating in similar economies, are worth
further investigation.
Finally, competitive pricing of new
products was found to correlate with success
in large but not small firms. This is probably
Table IX
Skills and capabilities
Factor All firmsa Small firmsb Large firmsc
The user's requirements were well understood 0.373* 0.474* 0.076
Manufacturing skills were at the desired level
for this project
0.182 ±0.071 0.397***
Market research skills were ideal for the
product
Sales and marketing skills were ideal for this0.419* 0.437* 0.372
project
The forecast of market demand for this product0.401* 0.430* 0.350
was accurate
Predictions about customer requirements were
0.484* 0.320 0.593*
accurate
There was close fit between existing markets
and the market for this product 0.604* 0.658* 0.522*
There was close fit between the existing
product line and this product 0.259*** 0.388** 0.072
There was a close fit between the firm's
marketing skills and the needs of this project
0.333* 0.384** 0.215
0.310** 0.468* 0.125
Notes:
a
all firms n = 63; b small firms n = 37; c large firms n = 26
Correlation coefficients statistically significant at: *p 0.01; **0.02;
p ***p
two-tailed
[ 146 ]
linked to the type of markets within which
each group of firms operates. Larger firms
are more likely to be operating in mass
markets where efficiency of manufacturing
and competitive pricing are critical. By
contrast, small high-technology firms are
more likely to be targeting market niches
where the most important new product
characteristics are compatibility and
reliability; this is consistent with the
findings of Yap and Souder (1994).
Many of the findings above are intuitive,
but they do point to areas where small firms
can improve their management of new
product development and thereby their
overall competitiveness. In addition to these
findings, several key areas have emerged
that require further research; these include:
.Small firms have reported a very low level
of involvement with external
organisations in developing new product.
The problem with this is that, while large
firms may possess all the skills they need
to develop new products, this is unlikely
to be the case for small firms. Therefore,
the only way that small firms can access
the quantity and quality of resources that
they need to remain competitive in their
product development efforts is by
sourcing them externally. During this
study several firms stood out as having
mastered the skill of utilising external
services, but the majority of firms were
still operating in almost complete
isolation.
.The high ratio of totally new products to
product variants in small firms is
interesting. Several explanations are
possible. Many small firms try to
maximise their product development
efforts by designing products with a
maximum of flexibility, i.e. they try to
solve all customers' problems with one
product. This could be a positive feature
and may be related to their manufacturing
capabilities ± it is easier to organise to
manufacture a smaller number of
products. However, it could also be that
small firms are short-term in their
outlook and think only in terms of
individual products rather than product
platforms. Either way this is a result that
requires more attention.
.Many of the results presented here point
to the lack of manufacturing skills and
also a lack of awareness of the importance
of the manufacturing process and process
improvement in small firms. It would be
interesting to attempt to determine
whether this is a cause or an effect. In
other words, are the firms in the study
still small because they lack a clear
0.05,
A. Ledwith manufacturing strategy or do they lack
Management of new product manufacturing skills because they are
development in small small? Another aspect of this result could
electronics firms
be an over-dependence of the large firms
Journal of European Industrial in the study on manufacturing. As
Training discussed already, many of the large firms
24/2/3/4 [2000] 137±148 in the study are Irish divisions of
multinational organisations and many
have located in Ireland in order to avail
themselves of manufacturing tax relief;
this could be influencing their
management of new product development.
In conclusion, small firms developing new
products for rapidly changing high-
technology markets cannot assume the
relevance of success factors that have been
found to apply to large firms. There are many
reasons why this is the case. Small firms
manufacture in much smaller volumes than
large firms and therefore will not reap the
same return for improving manufacturing
technology. Small firms tend to have lower
market share and less market credibility
than large firms, they also rely more on a
small number of key customers, and this has
a significant impact on how they should
manage the marketing of new products.
Additionally, most small firms are severely
constrained by the limited resources, both
human and financial, at their disposal. This
paper has begun to identify some of the
issues that are linked with successful new
product development in small firms.
However, much work remains to be done
before we have the same understanding of
managing NPD in small firms as in large
firms.
Note
1 This research is part of a larger project called
INTERPROD ± an international study of the
factors that distinguish new product successes
from failures. INTERPROD is directed by
Professor Wm Souder at the Centre for
Management of Science and Technology,
University of Alabama in Huntsville. The
INTERPROD study is funded by the National
Science Foundation grant SBR9408272,
Marketing Science Institute Grant 4-386 and
US Air Force Grant F49620-94-1-0456 to Dr Wm
Souder at CMOST.
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