Tutor profile: Swati T.
What is New Product Development?
New product development emphasizes introducing new products in the market for continuing business success by contributing to the growth of the business, influencing its profits and leading to technological progress (Bhuiyan, 2011). The various stages in NPD help in determining the success of a product in the market. 1. New Product Strategy The primary objective should be to set objectives and devising a strategy to meet them (Wind, 1982). It helps in identifying the business requirements and ensures the product complies with the same. These requirements assign roles that are played by new products and are influenced by the need in the industry. (Booz, Allen and Hamilton, 1982) 2. Idea Generation Once the objectives are identified and a strategy is implemented for the same, the company must advance and nature ideas to take advantage of identified opportunities. According to Crawford, effective idea generation takes place when ideas are originated from all potential sources and not just first sources. Customer’s needs and involvement are vital for the success of a product. 3. Screening and Evaluation The screening stage involves analysis through resources and competition in the market. This stage helps in examining the attractiveness and visibility of the idea in accordance with the objectives of the company. 4. Business Analysis The business analysis stage includes evaluating ideas using quantitative performance criteria (Bhuiyan, 2011). It is vital to have a good selection of ideas that would be beneficial for the success of the business. It helps in verifying the benefits of the product prior to heavy spending. An effective understanding of the industry and the various trends followed helped in evaluating our ideas and implementing them. The likely rate of returns and the profitability index helps in carrying out strategic business analysis. 5. Design and Development The product team moves to the development stage after considering the above stages ranging from the development of the prototype to test marketing. Here plans are translated into concrete deliverables. In order to gain a competitive advantage, customer feedback and inputs are considered to reduce the impact of changing environment and receive greater revenue. Two vital teams that are marketing and R&D should coordinate effectively as one express the needs of individuals and the other comes up with ways of turning them into an actual concept. 6. Testing Testing ensures the total validation and commercial viability of products and their marketing (Cooper and Kleinshmidt, 1987). Testing is conducted during the development of the product and helps in decreasing the chances of failure in the launch stage of the product. Various testing techniques such as development testing and marketing testing are vital as they emphasise on customer’s perspective. 7. Commercialisation Commercialisation includes introducing new products in the market which is facilitated by test marketing. The two basic considerations that should be included are the introduction timings and where it should introduce its product (Kotler and Armstrong, 2013).
“Behavioural Economics demonstrates that firms cannot be trusted to act always in their customer’s best interest”. Critically discuss this statement.
The classical model of Economics categorises humans as ‘rational’ decision-makers with an aim to ‘maximise utility’ (Camerer et al, 2003). According to Neoclassical economics, economic actors interact with each other by maximising their profits through the production of goods in the case of firms and consumption of goods to yield optimal utility in the case of consumers. However, behavioural economics as developed by Herbert Simon (1957) challenges the existing model by studying the problems faced by decision-makers and understanding their behaviour to cope with the same. According to Earl (1995), Simon’s approach integrates ‘economics’ with ‘psychology’ by relying on the inductive method of theories and scientific experiments to explain human behaviour. We examine behavioural economics in the light of ‘bounded rationality and Kahneman and Tversky’s (1974) ‘rules of thumb (heuristics) and cognitive biases that influence consumers to achieve ‘satisfying’ (Earl,1995) rather than optimising decisions. Conversely, the behaviour of firms is subjected to Simon’s approach by stating findings and adopting a critical stance to demonstrate how firms fail to act in consumer interest. The use of academic literature and theoretical frameworks have helped in weighing the two economic actor’s perception through behavioural economics. Edgeworth (1881) stated in his book “Mathematical Psychics”, the principle of Economics believes that every individual is actuated only through ‘self-interest’. A similar school of thought is adopted by capitalist economies where private actors own and control resources according to their interest (Bruce, 2006). In the 21st century with vast homogenous markets, firms fundamentally work for monetary gains as emphasised by Armstrong and Huck (2010), firms are rational in behaviour and aim to maximise profits by exploiting behavioural biases of consumers. Additionally, consumers are viewed as generators in the background to produce a demand curve for products. Firms that fail to recognise the best alternative in the market competition are likely to be unsuccessful and further replaced by profit maximising firms (Mehta, 2013). Firms adopt Miller’s rule (1956) by providing a wide variety of choices in terms of products, therefore, consumers filter alternatives and focus on limited solutions. A situation of ‘choice overload’ is created where customers face numerous options that hamper or decline the quality of their decision, hence, “choices no longer liberate, but debilitates” (Schwartz, 2004). This deception leads to ‘decision fatigue (Samson, 2016) and helps in influencing customer behaviour. Furthermore, some information is deliberately hidden from consumers in order to ensure speculation. For instance, a salesperson selling a used car is bound to know more about it as compared to its buyer. Earl (1995) states that adopting such strategies can help firms benefit from consumer uncertainty and ignorance. In particular with behavioural consumers, firms might gain an advantage in obscuring information in order to charge a higher price or sell low-quality products. In particular, consumers suffering from bounded rationality might be unable to decide the best course of action signifying them as ‘satisfiers’ rather than ‘optimisers’ (Simon, 1957). Firms can seek to fulfil their interest by understanding Tversky and Kahneman’s (1974) “heuristics and biases” and gain an upper hand. For instance, ‘anchoring and adjustment’ serves as a reference point for consumers to decide. Exposure to a particular number influences the consumer’s mind and the consequent judgement that they make. To illustrate, the prices demonstrated by a real estate agent provided for the first house acts as an anchor or reference point to influence the subsequent perceptions of the consumer (Samson, 2016). This can act as deliberate ‘decoys’ to make choices look attractive as consumer’s preferences for a particular option changes by including a third option, however, less attractive (Bateman, Munro and Poe., 2008). For example, marketers influencing consumers to buy an elegant pen for $10 by offering a third option in a comparatively lesser attractive pen. Furthermore, Kahneman and Tversky (1974) observed that individuals are loss averse. This stance is further advocated through ‘Prospect theory’ (Figure 1) which examines risk and uncertainty, describes how individuals interpret win/losses and ‘frame’ risky choices. A classic example is undertaking insurance after a recent natural disaster which is an ‘availability heuristic to illustrate the risk related behaviour (Thaler and Sunstein, 2008). It emphasises how negative assessment (loss of someone) has more effect than positive (insuring someone) assessment. Lastly, representativeness is a major heuristic that identifies the degree to which a sample is similar to the parent group thereby leading to overestimation of its likelihood Thaler and Sunstein, 2008). For instance, a consumer buys a high-quality product from a generic brand because its packaging resembles that of a national brand hence, stimulating their mind to categorise in a broader spectrum. Although firms are viewed as better decision-makers than consumers, they operate in a complex, dynamic and uncertain environment which requires them to resort to rules of thumbs and heuristics (Armstrong and Huck, 2010). Furthermore, the separation of ownership and control makes it essential for managers to achieve personal objectives that might differ from those of shareholders thereby indicating their maximising nature. Post-Keynesian Pricing theory examines sales price and output levels determined by managers, however, constrained by bounded rationality, it limits the context of a particular decision due to the questionable demand for products and cost associated with them at a particular output level (Lavoie, 2001). Hence, it is observed that firms attempt to achieve objectives at a ‘satisfactory level of profit as opposed to ‘maximum’. Furthermore, in light of consumers, a stern problem of principle agent can be observed wherein an asymmetric information model is created, indicating that the information available to both firms as well as consumers might not necessarily be the same at any given point (Fisher and Waschik, 2002). This model could possibly include ‘hidden types and hidden actions’ which leads to the creation of moral hazard as an economic actor (firm) has the opportunity to use a hidden action that could possibly benefit them at the cost of the other actor (consumer). According to Prentice and Roszkowski (1991-1992), the absence of information asymmetry could also result in efficient solutions due to ‘over optimism’. Similarly, Earl (1995) states that consumers could potentially run into ‘infinite regress’ where an attempt to answer one question leads to an answer wherein a similar question is introduced, hence, creating a never-ending spiral of choices. This confuses the consumer and limits its ability to choose an alternative. Elster (1984) advocates that individuals heavily rely on ‘intuition’ meaning “Do the first thing that comes to your mind” while suffering from bounded rationality. This proves illogical and leads to indecision indicating that consumers seldom realise what the best alternative is and whether it satisfies them. Literature indicates that consumers adopt ‘Complementary heuristics’ and ‘non-complementary heuristics’ to evaluate choices (Earl, 1995). Lastly, behavioural economics questions the “theory of self-interest” and reflects that most individuals seldom act according to their best self-interest (Mathis and Steffen, 2015). Behavioural economics research has focused on providing mutual satisfaction as suggested by Fehr and Fischbacher (2002). Furthermore, it is vital to overcome cognitive biases through “debiasing” which can be achieved through ‘nudging’ and changing the choice of architecture (Thaler and Sunstein, 2008). To illustrate, in the light of consumer protection, the law can oppose “availability heuristics and framing effect” to reduce over-optimism among consumers, hence, mitigating cognitive biases to an extent (Jolls and Sunstein, 2006). To conclude, Behavioural economics demonstrates instances where firms can be exploitative in nature and work solely to cover their interest, hence, they aren’t trusted to work in consumer’s best interest. However, the other side of the coin should also be examined. The consumer’s inability to make a decision that satisfies them along with the asymmetric information in the economy proves doubtful for them. It is vital for consumers to understand the decision rules and choices and ‘nudge’ on cognitive biases to reduce intervention from firms.
Explain in detail the evolution of management theory.
The evolution of modern management started towards the end of the 19th century. It started much after Europe, Canada and the United States in the industrial revolution. With this new wave, managers from all backgrounds were looking for ways to satisfy customer needs. For instance, small shops run by skilled workers involved in craft production are replaced by large factories and sophisticated machinery and unskilled workers. As a result, workers found themselves unprepared for several challenges that lay ahead. Hence, managers started to adopt new techniques to manage resources and increase the efficiency of workers. What is Management Theory? Management theories are strategies that comprise frameworks, guidelines that can be introduced in modern organisations to improve their workforce and culture. Adam Smith’s job specialisation theory is one such common concept in management. It advocates that increasing the level of job specialisation can help in increasing efficiency and performance. Job specialisation means that division of labour occurring as different workers specialise in tasks over a while to improve efficiency. This theory proved as the crux for several early management theories to control the work process and maximise division of labour. Scientific Management Taylor’s Scientific Management studies the relationship between people and tasks to redesign work processes and increase efficiency. He believed that if the time and efforts put in by workers to produce a unit of output reduced through specialisation and division of labour, then the process of production is efficient. The principles of scientific management were far more effective than intuition or rule of thumb knowledge. Principles of Scientific Management Study the process workers perform their workers to gather all job knowledge they possess. Experiment with different ways to improve their performance. One such method is time and motion study that involves recording and timing actions undertaken to perform a task. For instance, by reducing the cycle of motions workers put into completing a task by changing the layout of the work area or tools used. Record new methods of performing the task by writing rules and the standard operating procedure. Recording this helped to teach all the workers who performed the task. The task had to be made standard, simplified further to increase efficiency. Identify workers that possess the skills and abilities needed to perform the task. Train them to perform tasks as per the rules and procedures determined above. Furthermore, establish a fair and acceptable level needed to perform the task. Based on this, develop a pay system to reward workers for their performance such as bonus or some percentage of the performance gains. However, many workers received hardships as managers failed to acknowledge their well being. Hence, they withheld sharing job knowledge with managers and resisted techniques of scientific management. Administrative Management Administrative Management focused on creating an organisational structure that supported high efficiency and effectiveness. An organisation structure develops a system of task and authority of relationships that help employees use resources and achieve organisational goals. Theory of Bureaucracy Weber’s theory of bureaucracy is one such theory under this. A bureaucratic system is a formal system of administration. Under a bureaucracy, a manager’s authority is derived from the position they hold. Authority here is the power to hold individuals accountable for their action and making decisions to use organisational resources. Individuals occupy positions thanks to their performance and not social standing or contacts. An individual’s formal authority, responsibilities and relationship with other positions must be specified. Positions must be arranged hierarchically to exercise authority and help employees know whom to report to. Managers need to create a well-defined system of rules and procedures to control behaviour within the workplace. Although the theory helped in performance, many organisations failed to manage bureaucracies. It leads to bureaucratic red tape, slow decision making and inefficiency, resistance to change. Relying on rules to solve problems made managers lack skills, judgement and inflexibility. Another theory is Fayol’s 14 principles of Management that help in increasing efficiency. Although some have faded in current practices, some have been a crux. It includes division of labour, authority and responsibility, unity of command, line of authority, equity and order, discipline and centralisation, unit of direction, initiative, remuneration, stability of tenure, esprit de corps and aligning individual interest to common interest. Behavioural Management It focuses on how managers should behave personally to motivate employees and encourage them to perform well and achieve organisational goals. Follett’s theories focused on the human side of an organisation that was ignored by Taylor’s work. She argued that workers must be involved in job analysis and increase their participation. She advocated the term of cross functioning where members of different departments communicate directly to increase decision making. She viewed the organisational horizontally, emphasizing expertise and knowledge. Hawthorne Studies It understands how characteristics in a work setting impact worker fatigue and their performance. Mayo’s Hawthorne effect suggests that a manager’s behaviour or leadership can affect the level of performance. It leads to the human relations movements where supervisors can be behaviourally trained to manage subordinates leading to cooperation and productivity. Over the years, many situations arise where employees are demoralised if managers fail to treat them properly.