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Product planning - The strategy of the industrial firm

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Product planning - The strategy of the industrial firm
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Murdick, Robert Gordon, 1920-
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University of Florida
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vii, 163 leaves : ill. ; 28 cm.

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Business management ( jstor )
Business structures ( jstor )
Corporate planning ( jstor )
Customers ( jstor )
Engineering ( jstor )
Market planning ( jstor )
Marketing ( jstor )
Product development ( jstor )
Product lines ( jstor )
Profit planning ( jstor )
Dissertations, Academic -- Economics and Business Administration -- UF
Economics and Business Administration thesis Ph. D
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Research, Industrial ( lcsh )
Supply and demand ( lcsh )
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bibliography ( marcgt )
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Thesis - University of Florida.
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Bibliography: leaves 158-162.
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Manuscript copy.
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Vita.

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PRODUCT PLANNING -- THE STRATEGY

OF THE INDUSTRIAL FIRM












By

ROBERT GORDON MURDICK


A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THF REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY











UNIVERSITY OF FLORIDA


June, 1962













ACKNOWLEDGMENTS


To each of the members of my committee I should like to extend my appreciation for their invaluable and generous assistance and criticism in the development of this research. These individuals are Dr. Ralph B. Thompson (committee chairman), Dr. Willard 0. Ash, Dr. Ralph H. Blodgett, Dr. J. Donald Butterworth, and Dr. William V. Wilmot, Jr. I should like to thank Dr. Thompson in particular for his patience in reviewing again and again my attempts to handle a complex topic. Special thanks are due to Dr. Blodgett for his encouraging me in my individualistic approach.

I am especially grateful for the assistance and cooperation of the following individuals and firms:

Clark A. Crawford, Corning Glass Works

Edward A. Green, General Electric Company

Delmar W. Karger, Randac Systems, Inc.

Harry R. Wrage, General Electric Company

Booz, Allen & Hamilton

Bruce Payne & Associates

H. B. Maynard & Company, Inc.

International Business Machines Corp.

McKinsey and Company

The Dow Chemical Company

William E. Hill & Company, Inc.

ii








To my wife, Emily, I wish to express my appreciation

for the many toilsome hours spent in typing drafts and performing clerical activities to complete this manuscript. This study is dedicated to her.


iii













TABLE OF CONTENTS


Page

ACU)WOLEDGMENTS . . . . . . . . . . . . . .... . . . ii

LIST OF TABLES � . � . � . . . . . � � . � . . . . . . vi

LIST OF ILLUSTRATIONS........... , . . . . vii

Chapter
I. THE PROBLEM . . . .. .. .. .. . .... 1

Introduction
Statement of the Problem

II. REVIEW OF THE LITERATURE . . . . . .. 19

Methodology
Results
Conclusions from the Review of the Literature

III. CUE STUDIES . . . . . . . � . . . � . . . . . 59

Methodology
Results - General Electric Company
Results - Cornin Glass Works Results - Randac Systems, Inc.
Conclusions from the Case Studies

IV. MAIL SURVEY OF FIRMS AND RESULTS AND INTERPRETATION . . . . . . . . . . . . .... . . . 105

Methodology
Results
Conclusions from the Mail Survey

V. SUMARY AND CC ONCLUSIONS...... ...... 133

Outline Summary
Conclusions
Recoamiendations for Future Research








Page
Appendixes
A. NEW PRODUCT PLANNING 1 ....... . 349 B . FACTORS FOR EVALUATING PRODUCT PROGRAMS . * . 151 C. NEW PRODUCT PROFILE CHART ........o. 153 D. PLANNING FORMS - CORNING GLASS WORKS * . . . . 155 BIBLIOGRAPHY.... . . .#. . . . . . . . . . . 158

BIOGRAPHICAL SKETCH . . . � . . . . . . . * *. .. . 163













LIST OF TABLES


Table Page
1. Sources of Articles and Papers Reviewed . . . . . 23 2. Classification of Principal Topics of Articles . 24 3. Percent of Sales Made Up of New Products . , . . 42 4. Questionnaires Classified by State . . . . . . . 111

5. Questionnaires Classified by Primary Standard
Industrial Classification . . . . . . . . . . 112
6. Questionnaires Classified by Number of Employees in the Company . # . . o . . . . . . . v , . . 113

7. Master Strategies. . . ... o . e . . 115 8. Summary of Key Factors in Company Planning . . . 119

9. Number of Firms Which Evaluate Products for Future Operations , ..�...... . 122 10. Frequency of Written Planning and Length of
Future Projections .. . . , 0 � . . . 123 11. Number of Firms in Which Individual or Organization Conducts Product Planning on Full-Time
Basis t. Plnnn fr P o d c t s # . . . . . . * 126 12. Who Does the Planning for Products? . . * 0 # * 127













LIST OF ILLUSTRATIONS


Figure page

I. Marketing Services Organization in General
Electric Company.. ... ........ 82
2. Organization of Medium AC Motor & Generator
Department, General Electric Company . . . . 86
3. Organization of Corning Glass Works ...... 95 4. Questionnaire...... .... . . . . . . 107

5. First Pretest Letter � �..... ... 109






Outline

1. Ansul Chemical Company, Product Planning Policy
Committee (PPPC) Description........ 48

2. Planning Function, Type and Extent of Activity,
and Organizational Relationships in the Missiles System Division of Lockheed Aircraft
Corporation .,. . * * # . . .. . . . .* . 55


vii













CHAPTER I


THE PROBLEM


Introduction

The theory of the firm has received increasing attention in the literature in recent years. This increased attention has paralleled rapid advances in the behavioral and quantitative sciences. Economists, sociologists, psychologists, and operations researchers all view the firm in a different way so that one is reminded of the fable of the blind men describing the elephant.

Each of these sciences has made notable contributions

to explaining some facet of the behavior of the firm or some of the underlying forces which influence the firm's behavior. Some approaches, however, have serious drawbacks from the manager's point of view.

Economics, for example, has greatly simplified the

study of the business firm by the assumption that the firm is the entrepreneur who acts in a completely rational manner, to maximize business profits. Economics has provided an elaborate analysis of the pricing of factors of production, pricing of goods, market structures, and has introduced the concepts of risk and uncertainty. Economic models of the firm have been continually modified, particularly in recent years, to take into account the behavior of consumers to

1






2
some extent. This has been accomplished largely through the development of the theory of imperfect competition and the introduction of additional variables into the analysis such as marketing efforts and costs. Economic theory is, perhaps, most helpful in providing an understanding of the direction of changes rather than in predicting the magnitude of such changes resulting fmm the actions of the firm. Economics has, in addition, contributed greatly to predictive techniques for forecasting the future environment of the firm. This has been done through the development of macroeconomic theory, the introduction of more sophisticated economic planning into business and government activities, and the pressure for the collection of more and more economic data.

The economic theory of the firm has been criticized on a

number of counts, the most important of which is its completely rationalistic approach despite modern "amendments." The rationalistic approach is identified by five major characteristics. They are (1) the treatment of the firm as a single actor rather than a collective group, (2) the assumption that the firm has

complete knowledge of all relevant information and available courses of action, (3) the assumption that the firm can anticipate the consequences of any selected action, (4) the assumption that the firm has a single goal, the maximization of its "incentive function," and (5) the assumption of mechanistic action of consumers based entirely on the price of the product or a very limited number of variables.

Critics of such a rationalistic approach to the theory of the firm say that actually the firm's knowledge of pertinent







facts, knowledge of the future, and consequences of alternative actions are very limited. H. A. Simon, Professor of Administration, Carnegie Institute of Technology, attacks the classical economic model thusly:

Traditional economic man, however attractive he is to
the economic theorist, has little or no place in the theory of organization, or, for that matter, in most
parts of the theories of imperfect markets and of economic development. All the valiant efforts of recent decades to save economic man by adding this characteristic to him, subtracting that, have only shown us how little is left of the predictive power of the classical
theory once we allow the smallest deviations from the
assumption of omniscient rationality. . . .
The alternative approach . . . I shall call the princiPie Of bounded ratlonality:
The capacity of the human mind for formulating and solving complex problems is very small compared with the size
of the problems whose solution is required for objectively rational behavior in the real world--or even for a reasonable approximation of such objective rationality.

If the principle is correct, then the goal of classical
economic theory--to predict the behavior of rational men without making an empirical investigation of his psychological properties--is unalterable.The rationalistic treatment of the firm as a decisionmaking entity thus neglects the psychological and sociological aspects of the individuals who actually make the decisions for the firm. Along the same lines, a theory of market behavior based only upon the competitive situation and the price of goods is not in accord with the psychological and sociological theories of consumer behavior. Attempts to take into account the behavior of firms in oligopoly analysis have lead to either indeterminate results or the necessity for imposing strong assumptions.

'Herbert A. Simon, Models of MM (New York: John Wiley & Sons, Inc., 1957), p. 198.






4

Another point of criticism is that the bulk of economic analysis deals with equilibrium situations which are rarely, if ever, reached in a dynamic economy. As J. Margolis, University of California, points out, economists generally evaluate a decision rule on the assumption that the firm is choosing an alternative action to which it remains committed. Actually, in contrast, firms make decisions which bring in more information which affect later decisions.1 In general, economics has dealt with a very limited number of variables in equilibrium situations and performed at a high level of abstraction from the real world.

There are a variety of behaviorist concepts of the firm of which the organizational school is the most recent. This school represents a fusion of behavioral science with some formal and rationalistic approaches. J. W. McGuire, Associate Professor of Business Administration at the University of Washington, says that the organizational concepts appear to possess at least three features in common: (1) the concept of the firm as a complex Mattern of personal relationships rather than a structure in which actors perform,

(2) qualified assumptions of rationality, and (3) the assumption that the firm is a homeostatic organization with the underlying goal of survival.2 The principal difference

luulius Margolis, "Sequential Decision Making in the Firm" American Economic Review, L, No. 2 (May, 1960), 527-528.
2joseph W. McGuire, "The Concept of the Firm, " California MnSaement Review, II, No. 4 (Summer, 1961), 76-77.






5
between the rationalistic approach and that of the behaviorists is that the former attribute a singleness of character to the firm while the behaviorists imply that although the firm may act as an entity, its actions are based upon aggregates of individuals. The difficulty with the behaviorist approach to the theory of the firm is that the complexity of human behavior from both the psychological and social viewpoints is such that it has been difficult to draw any general principles. Attempts to quantify organizational concepts have been made by a number of investiqators including H. A. Simon. Although Simon has introduced some interesting ideas of modified rationality, the quantitative work is still at a highly abstract level.

Operations research has been defined as the Ultimate

Science or "not a science, for it is not about anything; it is science. 4i As such it has contributed quantitative solutions to many specialized and narrow problems relating to the economics and operation of the firm. Inventory and scheduling are examples. Operations research literature

rarely touches upon management strategy in a manner which takes into account the marketing function. Since the production problem has been superseded in the United States by the marketing problem, this omission is serious. It is true that many special marketing problems have been attacked, such as optimum use of selling effort, choice of distribution

iStafford Beer, "What Has Cybernetics to Do With operational Research?" Operational Research Quarterly, X, No. 1 (March, 1959), 10. Stafford Beer is with United Steel Companies, Limited.






6
arrangement, queueing, and pricing. D. W. Miller and M. K. Starr, Columbia University, also illustrate the solution of a fairly broad series of problems in marketing which are solved by an operations research approach and whose results

would have meaning for the manager of a firm.1 Linear programing methods have been applied to problems involving both marketing and production, but the marketing portion is quite narrow as, for example, considering simply the most profitable product mix.2 A recent potentially fruitful approach to customer behavior is the Markov process.

A description, some applications, and some implications of the Markov process for study of consumer populations in the face of marketing activity are given in an article by J. D. Herniter and J. F. Magee of the management consulting firm of Arthur D. Little, Inc. A basic explanation of this highly mathematical approach is as follows. Each member of the total potential customer population is considered to be in some state defined by some combination of characteristics. Each member of the population must be in one state and only one state at any given time. A simple example is the existence of only two states--customers and non-customers. Zach customer has a probability of going from one state to some other state when the time changes from one period to another.

1David W. Miller and Martin K. Starr, Executive Decisions and Operations Research (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1960).
2Robert 0. Ferguson and Lauren F. Sargent, Linear Programming (New York: McGraw-Hill Book Co., Inc., 1958), pp. 239-256. Both authors are with the management consulting company of H. B. Maynard and Company, Inc.






7
The authors develop this concept to where they show how to select optimum strategies for promoting and selling. The results for the two-state case are shown to be consistent with published empirical data. Other examples with more than two states are developed in a similar manner. The authors discuss feasible approaches to overcoming the most critical problem in the Markov process, namely the estimation of the matrices which apply under alternative policies. In sumary, this process appears to offer a powerful technique for selecting strategies, but it is still in a primitive stage.1

Game theory has in the past provided strategy concepts for specialized situations such as competitive bidding or for highly abstract decision-making models. Thomas Schelling, Professor of Economics, Harvard University, in an extension of game theory, has opened the door to a more sophisticated and useful approach to situations involving both conflict and mutual dependence in an extension of game theory. A brief mention of two concepts of Schelling will be given here, and then their analogy to the strategy of the firm will be brought out.

Schelling states that in the strategy of pure conflict, zero-sum game theory has provided important insight.2 On

1jerome D. Herniter and John F. Magee, "Customer Behavior as a Markov Process, " Operations Research, IX, No. 1 (January-February, 1961).
2In zero-sum games, the amount won by the winners and the amount lost by the losers always sum to zero. In constant-sum games, the totals lost and won sum to a constant. Mixed strategies, as opposed to pure strategies, are selected on a probability basis.






8
the strategy of action, however, where conflict and mutual dependence are mixed, game theory has followed the methods used in pure conflict, and the results have not been as illuminating. The twofold division of game situations into zero-sum and non-zero-sum lacks symmetry and fails to identify the limiting case that stands opposite the zero-sum game. As limiting cases he proposes (1) fixed-sum, and (2) fixedproportion (of conflict and mutual dependence) games. In between the pure extremes are the variable-sum-variableproportions cases which Schelling prefers to call "bargaining" or "mixed-motive" games.1

Consider now a two-person mixed-motive game. Suppose a "third party" mediator is introduced who is in a position to give instructions which are suggestive only, not authoritative, to the other two players. This third party also receives a payoff in the game. It becomes easy to see, then, the very close analogy between this game situation and the situation of two firms and the consumer group. The firms are engaged in conflict on the one hand, and cooperation through trade associations and implicit or explicit, legal or illegal, communication on the other hand. The customers in the aggregate have suggestive power over the players (the firms) which they exert by shifting the relative amounts purchased from each firm, stretching out the time between purchases, or abstaining completely in extreme cases.

IThomas C. Schelling, The Strategy of Conflict (Cambridge, Mass.: Harvard University Press, 1960).






9

Another 'ediator" or fourth party to the game is the government. Overall, the government receives a payoff in taxes and social gain by means of its strategy. If government agencies are viewed individually, some regulatory agencies would not receive payoffs, but the situation is included in standard game theory. It should be pointed out that much government action fits within the pattern of mixed-game strategy since the government either bargains directly with companies or through the courts and has both common and conflicting interests.

Unfortunately, to date, game theory deals with only one aspect of decision theory and also suffers from abstraction and lack of data required to make it useful to the manager

of the firm. Except for two-person games and other special types of games, solutions are not generally available as yet. Payoff matrices are difficult or impossible to establish. Also, game theory seeks equilibrium solutionsy for given strategies there is a given payoff. A given strategy is time-invariant throughout the problem.

The above approaches have all contributed to providing explanations of the operation of firms. Yet each has deficiencies which cast doubt on whether that particular method or approach is the one which will eventually lead to usable models for selecting a course of action.






10

Statment of the Problem


General statement

Since theories of the firm are not yet sufficiently

developed to guide the management of the firm in its operation of the business, it would appear desirable in the interim to provide some outline, guide, or structure for managers to follow to achieve whatever principal and lesser objectives they may establish for the firm. It might be well to step off from the theory of the firm to outline a general strategy for industrial firms. This strategy would be founded on principles drawn from the theory of the firm, marketing, and practices of successful firms. A managerial approach to the operation of the firm would provide guidance for the manager by advising him what he should do to achieve his objectives and why he should do it rather than what he does and why he does it.

This research is concerned with a managerial approach to the master strategy of the industrial firm. The objective of the research is to show that product planning, as defined in a broad sense, is the strategy of the industrial firm. The hypothesis is not fully stated until a number of terms appearing in it have been defined. It will then be possible to tie the wide range of research results into a very specific statement. The following sections provide the

needed definitions.








Product

By product is meant not just the physical good produced,

but all those qualities which have significance to b the

customer and the manufacturer who produces it. From the

buyer's viewpoint, a product has numerous characteristics

which differentiate it from other products. A number of

these are:

1. Appearance and finish
2. Availability
3. Buyer-seller business or good-will links
4. Convenience in use
5. Ease of service or maintainability
6. Function
7. "Halo" attributes (reputation of other products of the firm and of the firm itself)
8. Life and durability
9. Packaging
10. Parts availability
11. Persistence (in memory)
12. Price
13. Relationship to substitutes and complements
14. Safety
15. Social and cultural attributes
16. Transportability
17. "Urgency" of need (buyer's state)
18. Weight and size

In summary, the uniqueness of a product is due to any

possible differentiation between it and some other product.

This concept is essentially that which Wroe Alderson, President, Alderson Associates, gives:

Product differentiation takes various forms. It may be
based upon certain characteristics of the product itself, potential features; trade marks; trade names; peculiarities of the package or container; singularity in quality,
design, color, or style. Product differentiation may also exist with respect to the conditions surrounding
its sale. Examples of this are convenience of the seller's location, reputation and good will of the seller,
services provided by the seller, and various other links
which attach the customers to the seller. Product differentiation, broadly interpreted, represents a control






12

over supply in the sense that only one seller offers a
product of that exact name and identity.1

From the seller's viewpoint there are additional characteristics which distinguish a product or products. These are:

1. Opportunity cost
2. Profit margin 3. Producibility
4. Product mix
5. Marketing mix
6. Volume


Product planain

Product planning must be defined more precisely and

more broadly than it is defined in the literature. Therefore, product planning is here defined as the development and formulation of the strategy for synchronized creation, production, and marketing of products in order to optimize the achievement of long-range objectives and goals.


Stratg

The term "strategy" is founded upon military science

which still has the greatest claim to the concept. Strategy in the military sense means "the art of the general" and is derived from the Greek straktgos formed from stratos (army) and agein (to lead). In the military sense, strategy is the overriding long-range plan. Strategy in the military sense is said to have direction, compass point, or intent. This direction is known as the "strategic concept."


'Wroe Alderson, Marketing Behavior and Executive Action (Homewood, Ill.: Richard D. Irwin, Inc., 1957), p. 105.








A recent definition of strategy Iias been developed in

the theory of games, and while different authors give slightly

different flavors to the term, their meanings are essentially

the same. For example, John D. McDonald writes:

The strategical situation in game theory lies in the interaction between two or more persons, each of whose actions is based on an expectation concerning the actions
of others over whom he has no control. The outcome is dependent upon the personal moves of the participants.
The olicy followed in making these moves is the strategy .

W. J. Baumol, Professor of Economics, Princeton University, places considerable emphasis on the rules involved:

The strategy really becomes an extensive book of rules indicating what the player intends to do, in every contingency, from the beginning of the game to the end.
Thus the strategy commits the player to an entire sequence of moves which is contingent in a fully specified
manner upon what is done by the other player.'

Schelling gives the most elegant discussion of the meaning of strategy%

Among diverse theories of conflict--corresponding to the diverse meanings of the work "conflict"--a main dividing line is between those that treat conflict as a pathological state and seek its causes and treatment, and those
that take conflict for granted and study the behavior
associated with it. Among the latter there is a further
division between those that examine the participants in a conflict in all their complexity--with regard to both "rational" and "irrational" behavior, conscious and unconscious, and to motivations as well as to calculations--and those that focus on the more rational, conscious, artful kind of behavior. Crudely speaking, the
latter treat conflict as a kind of contest, in which the participants are trying to "win.' A study of conscious,
intelligent, sophisticated conflict behavior--of

1John D. McDonald, Strata in Poker, Business and War (New York: W. W. Norton & Co., Inc., 1955), p. 16.

2William J. Baumol, Economic Theor and OPerations Malysis (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1961), p. 359.






14
successful behavior--is like a search for rules of "correct" behavior in a contest winning sense.

We can call this field of study the strategy of conflict.1

For the purpose of definition here, strategy includes

the element of sophisticated conflict behavior. It includes a set of interrelated decisions. It includes a temporal dimension which is not included in gane theory. Strategy, while long range, is flexible in that it is continually reviewed in terms of new information so it represents sequential decisionmaking. Strategy, to some extent is open-ended. And finally, strategy is general in that it integrates all activities and conflicting goals.

The concept of strategy for the purpose of a useful definition applicable to the business world is therefore based upon both the original military sense of long-range planning and the game theory sense of a set of rules for situations of combined conflict and dependence. Strategy is now defined as a temporal pattern of action along a time continuum by means of which a firm seeks an optimization of its goals in a field of mutually conflicting and cooperating participants and varying unknown states of nature.

It is apparent that the development of a strategy of the individual in terms of a specific set of rules is a different matter for each firm. There are many specific strategies to select from. This does not mean that there cannot be one

1Schelling, p. 3. Schelling states that "The term
strategy is taken here, from the theor- of games, which distinguishes games of skill, games of chance, and games of strategy, the latter being those in which the best course of action for each player depends on what the other players do."






15

underlying strategy common to every firm. Is it not possible that all individual strategies fit within the pattern of one master strategy? The hypothesis states that product planning is such a master strategy.


The industrial firm

A definition of the term fim by itself is:

A business enterprise or firm--the two terms are used interchangeably--is an independent private organization
that
(1) mobilizes economic resources (land, labor, and
capital),
(2) produces goods or services for sale in the market,
and
(3) relies primarily on the proceeds from the sale of
its product to meet its costs. The characterization
of the firm as an organization implies that it is a
unified group of interacting participants.1

In the theory of the firm, the "firm" is not a firm, according to economist E. T. Penrose, Johns Hopkins University. Mrs. Penrose writes:

Difficulties arise when an attempt is made to acclimatize the theory to an alien environment and, in particular, to
adopt it to the analysis of the expansion of the innovating, multiproduct, "flesh-and-blood" organizations that
businessmen call firms.2

By adopting a "flesh-and-blood" approach in the present study, no problems arise regarding the meaning of industrial firms. With some qualification, firms classified under the Standard Industrial Classifications from 20 to 30 are considered as manufacturing or "industrial firms." Some of

IH. R. Bowen, The Business EterPrise as a Sb bject for Research (New York: Social Science Research Council, 1955), p. 2.
2Edith Tilton Penrose, The Theory of the Growth of the ELM (New York: John Wiley & Sons, Inc., 1959), p. 13.






16
these firms so listed actually are simply processors of raw materials. The end physical products of such firms are identical, and there is little opportunity to vary these physical attributes. Although other attributes of the product may vary, these firms are of limited interest here and are not included in this research. There is, of course, the question of where to draw the line. Some firms process agricultural products and add substances to produce cereals, for example. Some food processors produce a continually changing variety of products. Where the dividing line lies is not significant for this study. By studying firms which must be concerned with physical attributes and changing product lines, it becomes easier to uncover the basic strategy if such exists.


Research methods

Even in the natural sciences, hypotheses or principles

are not "proved," but instead, experimental and observational evidence is amassed which lends greater and greater credence to them. In the business world, principles must likewise be

substantiated and verified by accumulating evidence. Such evidence is usually observational rather than experimental. Further, it is an expensive, difficult, and often impossible task to obtain oblective observational data in business such as that yielded by a carefully planned probability sample survey. It is more likely that evidence to stqpport a principle of management is based upon a study of many cases by many different investigators.






17
Three methods of research were employed in the present investigation in order to provide a broad basis for the conclusions. one method consisted of a review of periodicals, books, speeches, and papers dating from 1955 to the present. Management consulting companies were contacted and publications requested. Over 200 publications were reviewed in the search for writings on product planning and strategy of the firm.

As a second method, case studies of product planning in three firms were made. Personal contact often uncovers unanticipated information, and this was one basis for choosing this second method. Two of the largest and most progressive firms in the United States and one small aggressive company just starting up were chosen. One of the large companies, Corning Glass Works, utilized centralized planning, while the other, General Electric Company, is widely known for decentralized planning. The third company, Randac Systems, Inc., was entering into the highly competitive field of office automation equipment.

The third method was designed to obtain, first-hand,

information about a large number of firms. This method consisted of a mail survey of a sample of 420 firms representative of all manufacturing firms in the United States. Although returns from mail surveys are notoriously low and semantic difficulties abound, it was felt that if the results

obtained were consistent with those obtained by the other two methods of investigation, greater confidence could be placed in the conclusion drawn from this entire study.






18

The terms such as Droduct, product planning, and stratgyare used with varying connotations by writers and business executives. One of the purposes of this research is to translate information from these sources into more precise terms. The idea of product planning as the strategy of the industrial firm will be shown to represent a newly-developing orientation of the firm in its planning for the future. As such, product planning may be considered to be the strategy of the firm.














CHAPTER II


REVIEW OF THE LITERATURE


Methodology
The concept of product planning is relatively new, so

that the main body of the literature on this subject begins

to appear about 1950. The earliest significant mention of

the subject which was found in this investigation,appeared in Fundamentals of industrial arketinq by Robert F. Elder,

then Associate Professor of Marketing at Massachusetts Institute of Technology, which was published by McGraw-Hill in

1935. Chapter XIV is entitled "Merchandising, Or Product

Planning" and states that:

A brief classification of the principal problems of
product planning is:
1. Diversification.
a. Creation of new products.
b. Adaptation of existing products to new uses.
c. Adaptation of existing products to changing
demand.
2. Simplification.
a. Elimination of obsolete products, varieties,
and items.
b. Elimination of superfluous varieties and
items.
3. Grading and quality standards.
4. Identification, brands, and trade names.
5. Packaging.1

'Robert F. Elder, Fundamentals of Industrial Marketin (New York: McGraw-Hill Book Co., Inc., 1935), p. 230. By permission of McGraw-Hill Book Company, Inc.






20
Ten years later, Ben Nash, product development consultant, wrote Developl Marketable Products and Their Packaginas (McGraw-Hill Book Co., 1945). This book provided an interpretation of the underlying techniques used by product development executives in discovering the vital influences which contribute to successful marketability of products. It provides a strong clear case for consumer-oriented product development and marketing. In many respects, this volume has not been surpassed today.

In 1947, a significant contribution to the concept of product planning was made by D. M. Phelps' book, Planina the Product, which was published by Richard D* Irwin, Inc. Phelps recognized that products must not be left to chance. He pointed out that the product planning function cuts across the usual functional lines of sales, production, and research. Decisions on a single product have to be conditioned by the firm's policy on its entire line. Phelps says, "The word 'product' for the purposes of our discussion will be thought of in a very inclusive sense as being that which the consumer actually receives when making a purchase..l Unfortunately, Phelps then proceeds to give a not very inclusive list of things the consumer receives. He lists packaging, labeling, information about the product, utility and assurance. His significant point over-all, however, is that while economists have long recognized that the ultimate objective of all economic activity is the satisfaction of

1D. M. Phelps, Plan the Product (Chicago Richard D. Irwin, Inc., 1947), p. 1.






21

human wants, business managers have done little to determine if their products have adequately met the wants of consumers.

Although many articles, collections of articles, and brochures have appeared, no book has since been published which deals in broad philosophical fashion with the product planning concept. Two recent books are devoted entirely to a major phase of product planning. One is an excellent book, The New Product, by D. W. Karger, Head of the Department of

Management Engineering, Rennselaer Polytechnic Institute, published in 1960 by the Industrial Press. Because of the author's objective, the evaluation of old products, the integrated marketing concept, and the concepts of company-wide short- and long-range planning centered on product and business objectives are touched upon only briefly. Rather, emphasis is upon techniques involved in x product development and marketing. The other book, Handbook of New Product Development by Peter Hilton, was published by PrenticeHall in 1961. This appears to be more of an introduction to the subject than a handbook.

Since about 1955, however, the introduction of the product planning concept in industry both in philosophy and formal implementation has been followed by a flood of articles in the journals, trade magazines, and American Management Association Reports. The literature research for this investigation included over 200 publications consisting of the

following:

1. Books dealing with product planning of the firm,
economic theory, and consumer theory.






22
2. Articles and miscellaneous speeches and papers
totaling 168 and covering 27 different periodicals
published through 1955 to the present. (Table 1
shows the range of periodicals and papers treating
the subject of product planning.)

3. Miscellaneous brochures published by management
consulting firms, the United States Government, and
publishing companies.
The articles selected do not represent an exhaustive list by any means, since the number of case histories of product planning for specific products is quite large. Articles which covered some main aspect of company planning in relation to product planning were reviewed, and the one or two main ideas were recorded. The resultant classification of topics covered is of interest, although it is to some extent a subjective analysis for the type of articles reviewed. The rough classification of the main ideas covered is shown in Table 2. Since either one or two ideas were attributed to each article, the total is greater than the 168 writings reviewed.


Results

Nature and importace of product plarnIg

How is "product planning" defined by writers on the subject? Which aspects of the concept are emphasized and which

are omitted? Fortunately, there are only a few patterns which writers on the subject follow, and these will be illustrated.

Product panning as new product development. A large proportion of writers on the subject think of product planning only in terms of nev products. Product planning is








TABLE 1

SOURCES OF ARTICLES AND PAPERS REVIEWED


Source No. of Articles


Periodicals
Administrative Science Quarterly . . , . . . . . 2 Advanced Management . . . . . . . . . . . . . . 6
Business Horizons . .. . * . . . . . . .. 2
California Management Review . . .. .. . . .. 4 Chemical & Engineering News . . . . ... . 9 Chemical Engineering. . . .. . .0 . . . . . . 1
Chemical Engineering Progress . * . . . . . . 6 Cost and Management . . .. .. .. .. . .. . 1
Dun's Review and Modern Industry . . . . . . . . 6 Harvard Business Review ... . ...... 20 Industrial Distribution ........... . 1
Industrial Marketing.... ......... 1
Iron Age.... . . . . . . . . .... . � . . 7
Journal of Business ........ ...... 4
Journal of Marketing .... . . .. . . . . .. 9
Journal of the Academy of Management . . . . . . 1 Machine Design . .. . .. .. .. ..... 1
Nation's Business . . . . . . . . . . . . . . . 1
Operations Research . .. . . . . . . 3 Product Engineering . . . . . . . . .0 . 10 Research Management . ... .. ... 4 Sales Management . . . . . . . . . 7 The Canadian Chartered Accountant . . . . . . . 1 The Controller . . . . . . 0 . . .. . 1
The Management Review . . . .. *.. . .. 14 The Quarterly Journal of Economics . . . . . * 1 The Wall Street Journal . .. . .0 . . . . . . . 2
Miscellaneous articles, papers, and collections
of articles
Analyzing and Improving Marketing Performancea . 1 Developing a Product Strategya . . . . . . . . . 24 How to Plan Products that Sella . 0 0 0 * 0 1 Maintaining the Product Portfolioa . * *en 3
Papers presented at the New Products Conference,
Rensselaer Polytechnic Institute, Troy, N.Y.,
May& 1961 .--. _ , . . . . . . . . . . . . 4
PlanningAhead for Profitsa . . . * . . 3 Miscellaneous speeches and papers . . . . . . . . 7

Total 168

a merican Management Association Reports consisting of a collection of articles.








TABLE 2
CLASSIFICATION OF PRINCIPAL TOPICS OF ARTICLES


Classification No.

Long-range planning--what it is and how to conduct it . 44 The decision-making process and product evaluation . . 27 Procedures for product planning and development. . .. 19 Methods for making new product programs succeed and
reasons why such programs fail ........ . .18 Organization for development and/or marketing of new
products " 0 * . a * * . 0 . 0 * . . . . . * . . & . 17
The product planning function cuts across many
activities .. . . . . . * . . * . * . * . . . , . . 17
Product strategy defined . . . . .. .. . . . . 12
Commercial possibilities must be matched to technical
possibilities.. .. , . . . ... . . 9
Product planning is necessary for the survival of the
firm . 0� 9
Continued introduction of new products to replace old
ones is necessary for the growth of the firm . . . . 8 There is no adequate theory of the fir but considerations required to develop such are given . . ,. . 7 There is a surge of new products, increasing expenditures for new product development, and shortened
time for development �.............. 6
Diversification--Pro, con, and how to go about it . . . 5 Market-oriented product planning is the key to success 5 Product planning is a top management responsibility . . 5 The marketing concept is an integrated approach to
marketing which is consumer-oriented . . . . . . . . 5 An attitude of innovation, not any specific organization structure, is the key factor in product planing . * . . . . a . .. . . . .* . 3
Consumer behavior in relation to products . . . . . . . 2 Long-range planning is necessary for the survival of
the firm . . . . . . . . . . . . . . . . . . . 2
New marketing applications for old products may be
sought rather than technological innovation . . . .. 2 New products are necessary for the growth of the
economy . . 0 9 * * 0 -0 0 . 0 * 0 * 4 0 0 * a 1 Pricing~ products ...... ...... . . 1
Products must satisfy both the user and producer . . . 1 Rapid technological change and increasing competition
are forcing firms to become market-oriented . . . . . 1 There is a need for research on the theory and practice of marketing. .... ........ .... 1






25
said to be a high level staff function which is concerned

with formulating specifications for the solution of new products and establishing procedures for the successful introduction of such products. As Ferdinand F. Mauser, Professor of

Marketing, Wayne State University, writes:

Product planning has to do with originating, evaluating,
and developing new-product ideas and adapting those
showing most promise so thatIthey can be profitably exploited in the market place.

Another illustration of a limited definition of product

planning as one portion of merchandising is given in outline

form:

Product planning
Diversification
Creation of new merchandise
Adaptation of existing products to new uses
Adaptation of products to changing demand2

Some more recent statements show the preoccupation of

the authors with the idea of product planning as focused on

new products only. The following quotations are all from

the same source.

The essential role of the product planner is to search for, select, and evaluate new ideas, either for product improvement or for development of brand new products or
services.
Barton Kreuzer, Director of Product Planning, R.C.A.
Our product planning staff . . is responsible for predigesting for management all the information that can be
gotten together on a new product suggestion. In this

IFerdinand F. Mauser, Mern Marketing Management. An Integrated ApProach (New Yorks McGraw-Hill Book Co., Inc., 1961), p. 196. By permission of the McGraw-Hill Book Co., Inc.
2Ralph S. Alexander et al., Mrti (Boston: Ginn and Company, 1940), p. 120. Mr. Alexander was formerly Professor of Marketing, Columbia University.






26

respect, the product planners can be compared with the controller of a division or the financial officer of a
corporation.
M. E. Mengel, Vice President of Product Planning, Burroughs Corporation We have established the post of coordinator of product planning with the idea that all areas of our business
must participate in and be responsible for the development of new products.
Robert Hood, Presilent,
Ansul Chemical Co..
Since a company cannot go on adding new products endlessly without dropping off either obsolete or marginal products, it appears that the above definitions of product planning really define "new product planning." The American Management Association has published about five reports consisting of collections of articles on "product planning," yet not one article deals exclusively with the problem of planning with respect to when a present product should be dropped. In fact, the main reference to such an idea appears, it seems, only once. In the "Introduction" of Management Report No. 39, Dr. Philip Marvin, Director of the Division of Research and Development of the American Management Association, devotes one page to the subject. Significantly he says:

Developing new products requires both imagination and
initiative. So does dropping products that have become
obsolete. 2

1Deborah Allen *,, "A Report on Product Planning in American Business, " In dustrial Desian, IV, No. 6 (June, 1957), 38, 39.
2Philip Marvin, "Products and Profits: Some Basic Concepts Underlying Company Strategy, " in Dgvloginq a Product garer. American Management Association Management Report No. 39 New York: American Management Association, Inc., Research and Development Division, 1959), p. 20.






27

This aspect of the broader meaning of product planning receives little attention in the literature. An article by M. Mandell was the only one uncovered which touches upon this problem. He suggests that larger companies turn marginal products over to smaller companies rather than discontinue the products. The objective is to avoid unfavorable customer reaction which occurs when products are discontinued. Mandell suggests that smaller firms could handle low-volume marginal products more profitably.1

The literature shows that, as might be expected, the

product planning process depends upon (1) the size and type of company, (2) the sophistication of the management of the company, (3) the definition and scope of product planning, and (4) the organization for product planning within the company. A number of checklists or descriptions of steps to be performed are provided by the literature. Also, amplifications of many of the various steps are given. The difficult problem is to show the complex organizational responsibilities and personal relationships which shape the entire process. Some fairly complete listings of elements in the product planning process are given in Appendix A. Policies and

plans must be formulated in the areas listed in order to achieve the corporate objectives.

It must be recognized throughout that every company does not carry out planning for every step and that the


'Melvin Mandell, "Abandoning Marginal Profits Profitably," Dun's Review and modern Industry, LXXVIII, No. 4 (April, 1959), 89-90.






28

emphasis on the various steps varies from company to company.

Since nineteen substantial lists of product planning elements were uncovered in this investigation, the examples given in Appendix A were chosen to represent the range of views. There is, naturally, considerable overlapping. One basic problem of new product planning brought out in these lists is choosing the general types of products to be produced and sold. At the next stage of planning, this problem resolves itself into evaluating and selecting from among specific alternative projects for new product development. This screening process should take into account every aspect of the product which has a bearing upon successful commercialization of the product. Also, the evaluation procedure, in theory, should be conducted continuously throughout the product development period, and present products should be continued to be evaluated against new products.

The problem of evaluation has been given a lot of attention in the literature. Suggested approaches vary from the purely qualitative to the highly quantitative methods of operations research. In between these extremes are such devices as the profile charts.

An excellent example of the profile chart is described by T. T. Miller, President, Polymer Chemicals Division, W. R. Grace & Co. It consists basically of a number of factors which relate the commercial, technical, producibility factors of a project to over-all corporate product policies. (These factors are listed in Appendix B without the detailed definitions provided by Miller.) Each factor is then






29

checked as Very Good, Good, Average, Poor, or Very Poor in columns opposite the factors. Lines are drawn serially from one check point to the next to produce a profile.

Another good example of the profile chart has been worked out by John Harris of Monsanto Chemical Company. Harris uses a completely different set of factors and defines ratings of -2, -1, +1, +2. For many factors, quantitative definitions are given. Appendix C shows the factors used and an example of the rating system for the first factor.

A slightly more sophisticated factor rating and product evaluation is provided by J. T. O'Meara of Scott Paper Company. The author first establishes a set of weights for each factor. He then sets up five possible quantitative values for the factors to be judged upon. The big judgment step involved, however, is assigning a probability that a factor will be worth each of the five quantitative ratings. The summation of the individual probabilities multiplied by the corresponding quantitative rating values gives an expected value for the particular factor. In essence, this is a utility analysis (in operations research terminology).1

A project-rating system developed by the American Alcolac Company of Baltimore is useful mainly because it forces management to crystallize its data and thinking on each project. In words, the formula is as follows:


1John T. O'Meara, "Selecting Profitable Products," Maryard Business Review, XXXIX, No. 1 (January-February, 1961).






30
[Chances of Technical success x Chances of Comercial Success x Annual Volume x (Price - Cost) x Life] 4 Total Costs = Project Number

S. Sobelman, Chief, Special Analysis Branch, Picatinny Arsenal, employs a simple mathematical model which starts with a first approximation.

z = pT - ct

Where z is the product value or decision-making factor p is the average net profit per year, T is the market life of the product, c is the average development cost per year, and t is

the number of years of development required.1

Useful market life is of great importance, Sobelman believes, and requires further study. His final formula can be used for periodic rating of a project while it is in progress. The formula is as follows: z -pT* - ct* where
T* T X + TZ a t lT)

t= t + T( - T / i)

and T is the actual market life, T the average, t is the actual development time, I the average.2

C. M. Mottley and D. W. Newton of Charles Pfizer & Company propose a model based upon five factors:

1. Promise of technical success.
2. Time to completion from this time forward.
3. Cost of project from this time forward.


'Sidney Sobelman, A Mdern Approach to Product Develome., PB 151649 (Washington, D.C.: United States Government Printing Office, December, 1958), p. 80.
2]=d., p. 84.






31

4. Strategic need (market demand).
5. Market gain (accounting for losses through product
replacement, what's the net market gain potential
for the firm?).

The authors then assign a weight from 1 to 3 to each factor. The five weights associated with the five factors

are then multiplied together to give a project rating between

1 and 243. Mottley then shows how, by accumulating project expenditures beginning with projects having the highest rating, insight may be gained regarding the program mix offering the greatest promise for the company.1

Other techniques involving mathematical models are being developed. "Venture analysis" proposes an approach based upon modern decision theory and requires a computer to run through simple comparison problems.2 Another method appraises products on the basis of present value of research costs, incentives, and penalties.3

Product planning as market oriented. Another group of writers do not concern themselves with the specific mundane procedures or definitions of product planning. They are concerned primarily with the consumer's viewpoint. From this

1C. M. Mottley and R. D. Newton, "The Selection of
Projects for Industrial Research," Operations Research, VII, No. 6 (November-December, 1959).
2Sigurd L. Andersen, "Venture Analysis, A Flexible Planning Tool " Chemical EnaLneering Proress, LVII, No. 3 (March, 1961). Mr. Andersen is in the Engineering Services Division of the DuPont Company.
3George F. Pappas and Donald D. MacLaren, "An Approach to Research Planning," Chemical EnLneerlng Progres, LVII, No. 5 (May, 1961). Mr. Pappas is a Senior Engineer and Mr. MacLaren is Section Head of the Petroleum Division of Esso Research and Engineering.






32
broad viewpoint, businesses must think of themselves not as producing goods or services but as buying customers. According to S. J. Levy, Director of Psychological Research for Social Research, Inc., the manufacturer is selling symbols as well as goods. People buy things not only for what they can do functionally, but also for what the goods mean.1

Every industry was once a growth industry, according to Theodore Levitt, Lecturer in Business Administration, Harvard University, and those that stopped being so did not drop out because of market saturation, but because of failure of management to recognize what the consumer really needed. An industry is not a goods-producing process; it is a customer-satisfying process.2

James Drury is a little more specific. Top management is no longer primarily concerned with how to produce goods but rather with how to produce markets.

Today, the making and marketing of goods are becoming so
interwoven they are being recognized in practice for
what they have always been in theory--complementary parts of the productive process. Engineering know-how produces a workable product; marketing know-how produces a salable
product.

To put it another way, a product must not only be good
but x from the consumer viewpoint. Production is not
one thing and marketing another.3

1Sidney J. Levy, "Symbols for Sale, Harvard Business Rview, XXXVII, No. 4 (July-August, 1959), 117-124.
2Theodore Levitt, "Marketing Myopia," Harvard Business Review, XXXVIII, No. 4 (July-August, 1960), 45-56.
3James G. Drury, "Is Your Problem Overproduction--Or Underproduction of Markets?" Advanced Management, XXIII, No. 4 (April, 1958), 26. Mr. Drury is Professor of Marketing, New York University.






33

Alderson says that management must seek an "ecological niche" for its products based upon opportunity and effort. He defines "opportunity" (more specifically than demand) as demand for the particular products and services which the individual firm is prepared to provide. The term "effort" designates activities which the firm puts forth to serve its markets. Effort differs from "supply" as used in economics in that effort relates to activities of the firm rather than directly to goods.1

Martin Schubik, formerly at Princeton University, writes that intent is the operator upon structure which produces behavior.

The firm does not consist of ho oeconomicus in vitro
but in general consists of many men imbedded in a market in a society. As such, an adequate theory of the behavior of the firm must at least implicitly reflect considerations of (1) the goals of the individual and the individual as a decision-maker, (2) the firm as an organization and economic unit, and (3) the interactions of
firms in the socio-economic and politico-economic environment. 2

Ernest A. Dichter, President, Institute for Research in Mass Motivations, Inc., is well-known for his controversial "motivation research." Products, according to Dichter, must satisfy psychological and social desires of consumers. The desire for prestige and improved social status are examples


1Alderson, pp. 29, 356.
2Martin Schubik, "Objective Functions and Models of
Corporate Organization, ' The Quarterly Journal Qf Economics, LXXV, No. 3 (August, 1961), 354.






34

of such desires. Such desires change with time, social customs, and economic well being of the consumers.1

Perhaps a good sunary of this viewpoint on the firm's product and planning is given by Chester Wasson, Associate Professor of Economics, Case Institute of Technology. He points out that the marketing of innovations requires an all too rare understanding that the extent and nature of the new product are not measurable in terms of its physical specifications. The nature of the innovation is what it does to and for the customer--to his habits, his tastes, and his patterns of life.2

Long-range plannIM in relation to product planing. A number of management writers view product planning as a part of long-range corporate planning, sometimes as the main fabric of long-range planning. In substance, long-range plans may be considered as projected responses to general economic, technological, social, and political conditions of the business environment anticipated at least three years and often twenty years in advance. Bruce Payne, President, Bruce Payne Associates, lists six fundamental steps in long-range planning:

1. The company must determine its basic goals and
objectives.

iErnest A. Dichter, "What Are the Real Reasons People Buy Today?" Marketing Research, ed. Parker M. Holmes (Cincinnati: South-Western Publishing Company, 1960), Part II, 194-202.
2Chester R. Wasson, "What Is 'New' About a New Product?" Journal of Marketing, XXV, No. 1 (July, 1960).






35

2. There must be a detailed analysis of the company's strengths and weaknesses.

3. There must be an analysis of the strengths and
weaknesses of your competition.

4. Analysis should be made of the environment in
which your firm works. Population shifts, political approaches and trends, economic potential, labor reserves, must all be considered.

5. There should be devised a plan broad enough to
cover all phases of the company's activities and
to interrelate these activities. It must be
drawn up in sufficient detail to act as a blueprint for basic corporate decisions in all areas of management. This plan should set targets for
one year and for five years.

6. Provision for periodic review and updating of
the plan in light of company changes and economic
fluctuations must be provided.1

Payne amplifies at one point by saying that the place to begin accumulating data for planning is in the marketing area.

At the heart of any company is the question, "What does it

do?" Similarly, Edgar Nelson, Senior Vice President, Market

Planning Corporation, says that a policy should be established which spells out the type of business which the company is presently in and what it wants to be in five years

hence.2

After S. C. Johnson & Son, Inc., organized a new product planning function reporting to top management, it found that:


iBruce Payne, "Long Range Planning in a Competitive
World Economy, Address given at the University of California at Los Angeles, April 10, 1961.
2Edgar W. Nelson, "Auditing the Product Line," in Analyzin -and Improvin Marketing Performance, American Management Association Management Report No. 32 (New York: American Management Association, Inc., MWketiig Division, 1959), pp. 35-91.






36
The total product strategy of the company has been clarified and scheduled towards specific products, which is the only possible approach to realistic long-range company plans.1

It is stated by some writers that long-range planning should not be an attempt to predict the future but rather a blueprint for a change of the company's own choosing. Product planning is related to or equivalent to total business planning. By a process of evolution, product plans have expanded to include engineering and research, marketing, production, financial, and personnel plans. The managerial response to technological, economic, social and political

changes must be "programed innovation." An outline for such planning for growth relating product planning (as usually defined) to long-range planning is shown below:2


PHASE I Preparing the Requirements for Future Develowent

1. Establish quantitative objectives of profitability
and growth, including measurement of the need for
new products.

a. Analysis of record of operations.
b. Establish over-all standards for future profitability and growth.
c. Projection of present operations.
d. Determine new profits and volume needed to meet
over-all objectives.
2. Statement of business purpose and broad policies.

iSamuel C. Johnson and Conrad Jones, "How to Organize for New Products," Harvard Business Review, XXXV, No. 3 (May-June, 1957), 60. Mr. Johnson is New Products Director of S. C. Johnson & Sons, Inc., and Mr. Jones is an Associate in the firm of Booz, Allen & Hamilton.

2William E. Hill and Charles H. Granger, "Charting Your Company's Future Growth," Dun's Review and Modern Industry, LXX, No. 2 (August, 1957), 42.






37

3. Audit of corporate resources and limitations.

a. Individual operating units and individual staff
functions.
b. Company as a whole.

4. Statement of "qualitative" objectives (stability,
new skills, threats to be countered and so on . . .

PHASE II Product (Service) Programmlag

1. Product planning and programming.

a. Related to present operations.
b. Unrelated to present operations.

2. Acquisitions.
a. Related to present operations.
b. Unrelated to present operations.

PHASE III Proqgrammi of Other Functions

Functional programs to support Phase I and Phase II.

a. Line areas--operations and marketing.
b. Other areas: R & D, Organization, Finance, Industrial Relations, and so on . o .


The most often mentioned periods for long-range plans

are one, five, and ten years in the future. More recent articles tend to mention twenty-year plans. The minimum time for long-range planning can be found, according to W. E. Hill, by looking at (1) product development time, (2) resources development time, (3) market development time,

(4) physical facilities development time, and (5) payoff time for capital investment.1

'William E. Hill and Charles H. Granger, *Long-Range Planning for Corporate Planning for Company Growth, The Mnement Review, XLV, No. 12 (December, 1956). Mr. Hill is President of William E. Hill and Company, Inc., management consulting firm, and Mr. Granger is a member of the firm.






38

The need for constant revision of long-range plans to

meet changing conditions and to take advantage of new information is accepted by most writers. These revisions are usually caused by the need to change products to fit changing market conditions. Martin Mayer stresses that long-range planning cannot override the need for flexibility to meet market changes.1

R. B. Young, Industrial Economist at Stanford Research Institute, confirms this thought more eloquently by stating, in effect, that surveillance, sensing opportunities, and being willing to take risks and to act to move the company into new product fields with the highest potential and at the same time abandoning less promising products are typical of growth firms.2

Intermediate- and short-rane PlMnn in relation to product planlning. Intermediate- and short-range planning were rarely even touched upon by the authors. Either no time period was mentioned at all, or else product planning was related only to long-range planning.

Product planning as the basic business strategy . Is the basic business strategy based upon products or is it based upon some set of rules in some other arena of the firm's activities? The Management Research Department of Booz, Allen & Hamilton, a leading management consulting firm, has

iMartin Mayer, "Planned Obsolescence: Rx for Tired Markets?" Dun's Review and Modern Industr-, LXXIII, No. 2 (February, 1959).

2Robert B. Young, "Keys to Corporate Growth," Hrvard
Business Review, XXXIX, No. 6 (November-December, 1961).








conducted considerable research in the field of product planning. This firm writes:

If we accept that products are the medium of business
conduct, then business strategy is fundamentally product planning. The "marketing concept" of business is within
this basic philosophy.

When a company selects and develops a product, it is
choosing the kind of business it is going to be. It is
deciding what will be its customers, competitors, suppliers, facilities and skills, and the socio-economic environment that wil form the perimeter of its opportunity for success.1

Or more specifically, Booz, Allen & Hamilton states:

Business strategy is expressed in products; product programs are the foundation of forward company planning.2

Other writers make the same point with considerable

variety of flavor. Some examples follow below.

The Machinery Group's planning program is called "product planning" to stress the fact that "products" are the foundation on which our company's operations are based.3

Product strategy deals with decisions regarding products to be sold, the markets in which we propose to sell them,
and the properties they musl have in order to satisfy
the needs of those markets.

iBooz, Allen & Hamilton, Manaqement of New Products (Chicago: Booz, Allen & Hamilton, 1960), p. 9.
2 .# p, 29.

3Paul De Pace, "Planning Ahead for Profits," Advanced , xxIV, No. 3 (March, 1959), 20. Mr. De Pace is Manager, Organization Planning, Food Machinery & Chemical Corporation.
4Clifford F. Rassweiler, "A Basis for Product Strategy
Planning," in Developing a Product Stratogy, American Management Association Report No. 39 (New York: American Management Association, Inc., Research and Development Division, 1959), p. 72. Mr. Rassweiler is Vice President for Research and Development, Johns-Manville Corporation.






40

Imgrtance of product pla2n1ig. Table 2 shows that the importance of product planning for the survival or growth of the firm appeared as a main topic seventeen times. One other time, new products were said to be necessary for the growth of the economy. Two other main themes which stated that longrange planning is necessary for the survival of the firm included product planning as a part of long-range planning.

The significance of product planning is most clearly stated in the publication of the Association of Consulting Management Engineers:

An important element of corporate survival is product
planning: establishing an over-all policy to guide
management in dropping old products and adding new ones
through diversification or internal research and development.

The ACME Reporter also states that two-thirds of the leading companies of fifty years ago have disappeared from the scene today.

R. D. Crisp, President, Richard D. Crisp and Associates, in a discussion of concepts and techniques for product planning emphasizes the need for product planning in staccato terms:

"Innovate or die!" In any industry over the long run,
that's the iron law of the market.2

Many articles deal with the life cycle of products. In the currently compressed time scale of technologically

1"Product Plannings Key to Corporate Survival," AM Reporter, XLIX, No. 1 (January, 1960), 31.
2Richard D. Crisp, "Product Planning for Future Profits," Dun's Review and Moder Industry, LXXI, No. 3 (March, 1958), 34.






41
accelerated growth companies, product planning must replace haphazard operation. In addition, the high cost of product development makes survival more difficult for firms which do not plan their research and development and their marketing effort. Booz Allen & Hamilton's research showed that only one successful new product emerges from forty new ideas. The remainder fall by the wayside in screening, business analysis, development, testing, or commercialization. Throughout the literature, companies state that "x" percentage of sales today come from products not produced Ny" years ago. A pharmaceutical firm estimates that 60 per cent or more of its sales are accounted for by products it did not make five years ago. ChemLcal h Unaineering News reports that "Chlorpromazine which had 100 per cent of the tranquilizer market in mid-1954 slipped to about 12 per cent by mid1959 with competition from 19 other such drugs..l An even more extreme presentation is given by the Assistant to the Director of Planning, American Machine & Foundry:

Few new-product programs are started without the intention of making money, yet for each new product that is introduced, there are 500 or more that never reach the market. And of those that do, surveys have shown that
from 50 to 90% are failures within the first two years.2

Table 3 indicates the predicted size of the impact of new products on various industries in the future. It is on

the basis of similar but historical date that business

1"The Dr'xg Industry, " Chemical & Egaineering News, XXXVIII, No. 4 (June 13, 1960), 108.
2james W. Russell, "Developing New Products for Profit," The Moagement Review, XLVII, No. 8 (August, 1958), 9.






42

executives believe that good product planning is necessary

for their firms to stay in business in the future.


TABLE 3

PERCENT OF SALES MADE UP OF NEW PRODUCTS*


INDUSTRY 1960 ACTUAL 1964 EXPECTED


Iron & Steel.. . . . . . . 5% 7% Nonferrous Metals . . . . . , 8 11 Machinery . * . o . 14 23 Electrical Machinery . . . . . 12 16 Autos, Trucks & Parts . . . . 10 11 Transportation Equiaent . . . 35 29 Fabricated Metals . . . . . . 17 13 Chemicals ......... 16 20
Paper & p . . . . . . .. 9 12 Rubber o * .9# * * * * .o. .. 2 7 Stone, Clay & Glass . . . . . 9 13 Petroleum & Coal Products . . 2 5 Food & Beverages. ..... 6 12 Textiles .. . .. .. ... 9 10
Miscellaneous Manufacturing . 16 11

ALL MANUFACTURING . . . . . 10 14

*Products not made four years earlier

Source: "All Cranked Up for a New Round," Business
Week (April 29, 1961), 34.


OrQanization for product P-lanning

There is a considerable variety of opinion as to where

the product planning function fits in the organization and

what specific activities it should include. The approaches

to organization for product planning not necessarily mutually

exclusive may be classified as follows:

1. The type of organization is not important: it is
the attitude of management and the climate for innovation which really count.






43
2. Proper organization for product planning is allimportant.

3. Top management must play a large part in product
planning.

4. Product planning is handled by a committee of its
functional managers, the general manager or top
executive, and other key personnel.

5. The Product planning organization reports to top
management.

6. A project team is responsible for new product
planning.

7. Product planning is assigned to one major organizational component such as engineering, marketing, or
production.

8. Product planning organization appears at both the
corporate level and in the product departments.

9. Product planning is a major function of a merchandising organization.

10. Product managers conduct product planning.

"mPortnce of organization for product plaBni. The fact that so many different ways of organizing for product planning occur in practice suggests that the product planning organization may be tailored to fit the individual company. According to E. J. McCarthy, Assistant Professor of Marketing, University of Notre Dame, organization is not an important factor in new product development. A dynamic innovating attitude on the part of both top management and the whole organization is needed.1 J. T. Doutt, Head of the Department of Industrial Production, Kent State University, shares this viewpoint when he writes:

1E. J. McCarthy, "Organization for New Product Development?" Journal of Business, XXXII, No. 2 (April, 1959).








The fact of the matter is that finding another product with the rare combination of characteristics described
above is something that cannot be assured by any mechanical approach to the problem--neither amount of effort at product innovation nor the time-honored check list.
The premium quality here is an intense curiosity and concern that is centered on the product by individuals within the organization--individual men who are thoroughly
immersed in the notion of "doing something with our
product" or some new product which they have thought
about on their own. And as with religion, it would
sometimes appear that the best way to kill it is to organize for it, delegating, assigning, parceling out until the responsibility for the product (and the zeal for
it) are pretty well dismembered.1

It is generally conceded, however, that organization of

some type is important. New product planning is complex.

Even the big companies have no sure solution, but systematic

programs get best results. Albert Haring, Professor of Marketing, Indiana University, says:

organization for effective product planning and
product development was recognized as possibly the most difficult mixture of line-and-staff relationship in today's business management.2

With regard to organization in general, Don Dailey, an

executive in the American Society of Industrial Designers,

writes:

It matters little whether engineers, designers, marketing people or presidents supervise the Product Planning
function. The important point is that it be broad in
viewpoint and thorough in creative scope.3

iJohn T. Doutt, "Product Innovation in Small Business," BusiAness Topics VIII, No. 4 (Autumn, 1960), 60, 61.

2Albert Haring, "Product Planning and Adaptation,"
Business Horizons, a report on the proceedings of the First International Seminar in Marketing Management, February 5-18, 1961, p. 77.
3Don Dailey, "Is Engineering the Sole Source for New Product Ideas?" Product Enineering, XXXII, No. 18 (May 1, 1961), 25.






45
Booz, Allen & Hamilton, in their research on managing new products, discovered that 85 per cent of seventy companies surveyed identified organization problems as one of the three most important problems in new product development. There was an expressed need for a separate and formal organization for new product activities by almost every company which did not already have some such form of organization.1

The new product program of a company should be organized
and controlled, that Is. managed.'

The early work of Phelps in 1947 suggested in crude form the necessity of separating out the product planning function:

Creation of a separate department for product development--one which acts in a liaison capacity between production and sales--appears to be an excellent practice.
It is work which is likely to be neglected unless it is
centered from an organizational point of view. At least some means should be provided for co-ordination of 3technical and market research in relation to products.

In a more recent study, the conclusion was drawn that product planning is an organized function.

Organized product planning is a war-baby--really a postwar baby--brought about by the growth of production and
research facilities during the war and the opening up of
a goods-starved consumer market immediately after it.
. . . Product planning as it is practiced in American industry today shapes up as a bird of many colors, but it
is no longer a rare bird: it is an idea that everyone
seems to be turning to, interpreting in the light of his

iBooz, Allen & Hamilton, p. 22.

2id., p. 3.

3Phelps, p. 8.






46

own business, using in many ways to do the increasingly
complex job of creating better products.1

Product planning organization reports to top management.

When specialists write about their own field, they inevitably come to the conclusion that their function should report to ,"top management." On this basis, top management would have reporting to it, besides the main functions of research and development, production, marketing, and finance, such other functions as reliability, value analysis, organization planning, market research, operations research, product planning, plant security, employee relations, etc., until the top management would be spread quite thin in carrying out its work. There are two main reasons for recommending that the product

planning organization report to top management. The first arises from the definition of product planning which may be used--product planning is a function which cuts across many or all organizational lines and has responsibilities in many areas. The second is that product planning is the strategy of the firm and the foundation of long-range corporate

planning.

Ekco Products Company provides an example of this philosophy:

Product planning's importance to Ekco is exemplified by the fact that it is regarded as a special phase of management. It is a completely separate function. The
vice president of product planning reports directly to
the executive vice president, as do the manufacturing


1Allen, 49.






47

vice president, sales vice president, and financial vice
president.1

Committees for product planning. A committee is used

here in the sense of a more or less permanent group of individuals with some generally defined purpose. It may or may not have decision-making powers. Some of the examples of the use of committees for product planning follow:

Portable Electric Tool, Geneva, Illinois, averages one

new product a month. It has grown from ia company with annual sales of $257,000 and 50 employees in 1947 to one with sales of $14, 500,000 and 850 employees in 1960. New product planning centers around three basic committees: Planning, Product Evaluation, and Product Control. The president of the company is on the Product Planning Committee which is the

main decision-making body. Product evaluation is carried out by the Product Evaluation Committee which then provides data and recommendations to the Product Planning Committee.2

Ansul Chemical Company of Marinett, Wisconsin, employs a multiple committee organization for product planning, also. A New Product Idea Screening Conittee is responsible for the preliminary evaluation of new product ideas. It recommends further investigation of desirable projects or ideas to the

Product Planning Policy Committee. This latter committee


1Malcolm N. Smith, "Product Planner - Short Cut to Interdepartmental Teamwork," in Developing a Product Strategy American Management Association Report No. 39 (New York: American Management Association, Inc., Research and Development Division 1959), p. 255. Mr. Smith is Vice President Product Planning, Ekco Products Company.
2"How to Rush New Products from Drawing Board to Market," Iron Age. CLXXXVIII, No. 8 (August 24, 1961), 43-45.






48
(see Outline 1) is made up of all area or functional heads in the organization, Its responsibilities are to plan for the future by setting broad company policies, to investigate and review products, and to make decisions as to whether these products will be manufactured by Ansul. Product Investigating Teams carry out work on individual projects as assigned by the Policy Committee. A coordinator of Product Planning is responsible for providing the "corporate function of coordination of Product Planning." He is responsible for informing and advising the president in the areas of product planning. He also schedules the meetings of the various committees and coordinates the reporting of progress. He sits on all committees concerned with product planning.1


Outline 1
Ansul Chemical Company Product Planning Policy
Committee (PPPC) Description

Source: Deborah Allen et al., "A Report on Product Planning
in American Business, I-dfustrial Design, IV, No, 6
60.

A. BASIC FUNCTIONS
!. Establish product policies, set goals, and give
direction on new product projects.
2, Evaluate and make decisions on all new product
plans and schedules.
B. PERSONNEL
The committee consists of the president (chairman),
Coordinator of Product Planning (alternate chairman),
Vice President and the chief administrative officers of
the following areas: Sales, Research and Development, Manufacturing, and Finance. The president's administrative assistant is secretary of the Product Planning
Policy Committee.

1Allen, 57-65.






49

Outline 1--Continued

C. RESPONSIBILITIES AND SPECIFIC FUNCTIONS

1. Review minutes of last meeting.

2. Screen out and assign new product ideas to PIT or
other groups or individuals.

3. Evaluate accumulated data and make policy or action
decision on recommendations of PITs or other investigating groups or individuals.

4. Establish a total time schedule on all new product
projects.

5. Make assignments to area beads of their respective
responsibilities in carrying out PPPC decisions on
new product projects.
6. Review with area heads and CPP the monthly new product progress reports.

D. BASIC ORGANIZATIONAL RELATIONSHIP RESPONSIBILITIES

1. The PPPC has sole responsibility for action and
policy decisions on products.

2. Since all area heads are members of PPPC they have
a dual responsibility.

a. Making the decisions on new product projects.

b. Carrying out of these decisions.

3. Members of this group may delegate responsibilities
for (b) above to their subordinates, but responsibilities for (a) above may only be delegated to another member of PPPC.

4. PPPC as a group reports to and is directly responsible to the president.

The Bell & Howell Company is another company which uses a committee approach to product planning. The heart of their program is the "research board" which helps guide newproduct ideas to fruition. Members include the president, executive vice president, treasurer, vice presidents in charge of engineering, manufacturing, and marketing, the






50
head of the product planning activity, and the assistant vice president of manufacturing, Thus, all major operating divisions are able to contribute their viewpoints and participate in decisions on new-product development. Additional boards which exert influence on product planning are the sales analysis review board, the budget board and the management audit committee.

A survey of executives of 252 firms showed that approximately 23 per cent of these assigned the product planning function to committees.1

Project teams for product planing. A project team is different from a committee in that it is formed to accomplish a specific task and is disbanded upon completion of the task. In product planning, a task leader and a member from the engineering, marketing, manufacturing, and finance areas might be appointed to follow a specific new product idea from conception to commercialization or to abandonment. In some cases, a product planner may lead all teams. One advantage of the team approach is that all functional groups participate in product planning so that there is less resistance to recommendations. Further, the team members help to obtain technical assistance from their areas. Like the committee, the project team gives breadth of view.

American Standard is one company which uses a Product Development Committee for dealing with top management

1Hector Lazo and Arnold Corbin, MROaement in Marketing (New York: McGraw-Hill Book Co., Inc., 1961), p. 200. The survey was made by the American Management Association in 1958.






51

aspects of product development and uses project teams to

deal with the technical problems of product development.

Product lanIn assigned to a dominant function. The major emphasis or strength of a company may be in a single function such as engineering and research. In such a case, the product planning function may be assigned to this function. Various surveys have shown that product planning is located in the marketing function in from 50 to 85 per cent of companies.

A highly successful company which has placed the initiative in the Research & Development Division is American Machine & Foundry. It has established a New Products Office in research and development to seek new ideas and coordinate their development. Ideas passed upon by the Nw Products Office are passed on to a New Products Committee composed of top management. The projects approved by this committee are placed in the hands of research and development again for

development.

Product planning as a combined corpoate staff auction and decentralized function. In many large companies product policy and-general long-range planning is worked out by a central staff group reporting to an executive officer of the firm. At the plant or product department level, there may be a product planner who has responsibility for more specific planning of products assigned to his area. Westinghouse, Radio Corporation of America, and International Business

Machines are a few companies which carry out product planning






52

at the corporate and product line levels of the organization.1

Product managers. A type of organization which permits flexibility in assigning products to individuals for coordination and following is the product manager approach. A product manager is usually some individual in the marketing organization who is given complete responsibility for a product or product line. He follows his products from conception to customer and may have responsibility for decisions of all kinds for his product. In other words, he is responsible for his products showing a profit.

One form of organization along such lines is that of

General Aniline & Film. Eight product managers have been appointed who fit into the organization as shown below:


Vice President and General Manager
Director of Marketing
Sales Manager - General Dyestuff
1. AZO and condensation colors, P.M.
2. Vat colors, P.M.
3. Azoic colors, P.M.
4. Pigments, P.M.
5. Intermediates, P.M.
6. Acetylene chemicals, P.M.
7. Heavy chemicals, P.M.
8. Surfactants, P.M.


The job of each product manager at General Aniline & Film is to evaluate any additions to existing lines and

1M. J. Kami, "Prerequisites for Effective Long Range Planning," Paper published by the Stanford Research Institute, 1960. Mr. Kami is Director of Long Range Planning for International Business Machines Corporation.






53
coordinate sales, research, and manufacturing in order to improve customer service and profits in his line.1

Responsibilities and relationships. Responsibilities

and relationships for carrying out product planning may be established by means of the formal organization structure. Positions are established and responsibilities are delineated in position guides. Where product planning is very narrowly defined, the position guides will describe positions which have very little scope. The result is that there are no relationship problems, but neither is a high-level product planning job done unless the top management does it alone. If a high-level staff position or organization is established for product planning, then complex and often difficult relationships between this staff and the line functions must be developed informally on a satisfactory working basis. The third general alternative of committees or task forces composed of members of the line divisions had much to recommend it and suffers mainly from the weaknesses of committees in general.

In general, if the intricate interlocking responsibilities of the many people who must be concerned with product

planning can be defined, the chances of a smoothly working operation are greatly enhanced. The linear organization chart which the Missiles Systems Division of Lockheed Aircraft Corporation has developed offers considerable hope. Basically, this is a two-dimensional chart with

1" GAF Revamps Marketing Setup," Chemical & Engineering News, XXXVI, No. 35 (September 1, 1958).






54

responsibilities listed vertically and the extent of responsibility listed horizontally. Outline 2 shows the main items vertically with only item III A expanded. The horizontal portion of the chart is shown for item III A on the second page of Outline 2.


Conclusions from the Review of the Literature


Product

The writers on product planning heavily stress that

products have not only functional charaqteristics but also psychological and social characteristics. The viewpoint of the customer, not just his needs, must be considered. Alderson is the most articulate proponent of this viewpoint in stating in particular a list of forms of product differentiation (see Chapter I). Dichter is particularly vocal with respect to the psychological and social qualities of a product. Thus, it seems logical to define product in a broader sense than in terms of its physical and functional properties.

The evaluation of products to be developed reflects the

viewpoint of the producer. Return on investment from alternative opportunities, profit margin on individual products, suitability of the products to the firm's resources and talents, and many other such characteristics are listed in profile charts for evaluation. Thus, the producer is concerned not only with a product that satisfies the customers' needs but also with a product that satisfies his own needs. The "product" must be described in terms of two sets of






55

Outline 2

Planning Functions, Type and Extent of Activity,
and Organizational Relationships in the
Missiles System Division of
Lockheed Aircraft
Corporation

Source: George A. Steiner and L. Eugene Root, "Linear Organization Charts," California Management Review, I,
No. 2 (Winter, 1959), 14-15.

I PREPARING RECOMMENDATIONS FOR TOP MANAGEMENT ON LONGRANGE GOALS, PROGRAM OBJECTIVES AND RESOURCE ALLOCATIONS

A. Management-Planning Policies and Objectives

B. Product Expansion Policy

C. Relationships between LMSD and Central Corporation

D. LMSD Resource Utilization Policy

II SERVING AS A CENTER FOR FORECASTING ENVIRONMENTAL CONDITIONS AS BASIS FOR PLANNING

A. Developing Broad Environmental Trends and Forecasts

B. Establishing Basic Assumption for Planning III PREPARING PLANS TO REACH OBJECTIVES

A. New Product Development
1. Strategy for preferred areas
2. Measuring new ideas against policy 3. Screening for final recommendation
4. Evaluating results
B. Abandoning Present Product Lines
C. Quarterly, Semi-Annual, and 5-year Financial
Forecasts
D. LMSD Operating Plans
IV EVALUATING OPERATIONS AGAINST PLANS AND OBJECTIVES
A. New Product Operations
B. Resource Utilization

Special Reports

V MAINTAINING GENERAL MANAGER CHART ROOM












MOM

0
01
a"0 l iii








g tself
00


0 14, 1 works with Others Jo


M M Coordinates

(+ r Evaluates

i. 5'1 - Liaison
0 2 Participates



General Manager Ass't General Manager t (Planning and Control) x Ass't General Manager
(Research and Development)

0 x Finance Branch
C0
M Sales Branch

Manufacturing Branch Weapons Systems BranchesW to R & D Branch

W Other Branches 0 LMSD Comuittees
0
o|. General Corporate Offices
6 Outside Consultants and W t A Agencies






57

characteristics to define it properly. This agrees with the viewpoint of the hypothesis.


Product rplaning

Authors of books naturally deal with product planning

in greater breadth than authors of articles. While few books have been written dealing only with this subject, the authors

were extremely foresighted. They pioneered the trail that hordes of later writers were to follow. Products were considered to be differentiated in many ways. Product planning was considered to be planning for all activities from the recognition of a need to conception of the product and finally to production of the product.

Almost all writers emphasized planning for new products. There is little discussion of planning ahead for the end of a product's life cycle brought about by changing market demands, technological obsolescence, or too low profit margins brought on by competition from imitators of innovations.

In long-range planning, the writers with the greatest

breadth of experience, the management consultants, focus upon planning for products in the light of the firm's resources, future environment, and competition. In the usual meanings of the terms, long-range planning is product planning and hence product planning is the strategy the firm employs to achieve its objectives. All functions must be programed to synchronize with product development.

That product planning is considered to be the basic

strategy of the business is indicated by three viewpoints.






58
First, a number of authors state this equation explicitly. Second, product planning on a long-run basis is said to be the requirement for survival and growth of the firm. Third, product planning is usually conducted by top level line and staff personnel in the firm. In this latter connection, almost all articles dealing with organization and implementation of product planning were case reports by actual participants.

It can be concluded, therefore, that both theorists and practitioners agree that planning for the synchronized creation, production, and marketing of products is the strategy by means of which the firm seeks to achieve its objectives. Strategy is the overriding long-range plan. Intermediateand short-run planning, while rarely discussed, represent a detailing of the early part of the long-range plans. Except for a few articles which imply profit planning is the strategic concept, all the remaining literature supports the hypothesis.


Strtq

The definition of strategy which is proposed to make the hypothesis more explicit is supported in general, and is not contradicted in particular, by the literature. The literature states that long-range planning focused on products is the strategy of the firm, that plans should be continuously reviewed as new information becomes available, that the firms

must act in a world of competitors joined together in trade associations, and that much of the future is uncertain.













CHAPTER III


CASE STUDIES


Methodology

Case studies of product planning and business strategy in the General Electric Company, Corning Glass Works, and Randac Systems, Inc., were made in order to:

1. Obtain as complete information as possible on product planning for a large centralized firm, a large
decentralized firm, and a small firm just getting
started in business.

2. Obtain information on product planning and business
strategy which would serve as a guide for designing
the mail survey.

The case study of General Electric was based upon four

sources of information. The first source was an interview with a corporate staff official, the Consultant - Product Studies, who has his office at the company's headquarters in

New York City. Next, information was obtained in an interview with a product department official, the Manager - Marketing & Product Planning, Medium AC Motor and Generator Department. The interviews were obtained by sending a detailed questionnaire to the officials and a letter requesting an interview. The interviews lasted about three hours, Third,

internal and external publications about the General Electric Company and its product planning were collected. As a fourth source, the author's observations during his thirteen years

59






60
of employment with the company served in tying together the other information.

The case study of Corning Glass Works was based upon

two interviews with the Director - Product Planning for the company and internal and external publications. The method

of obtaining the interviews was similar to that for General Electric. The interviews lasted about two hours each. A tour of the Corning Glass Center was also helpful in gaining an understanding of the company and its products.

The case study of Randac Systems was based upon a number of informal conversations which the author had with the President and Chief Engineer of Randac Systems during the author's employment with the company as Manager of Marketing Research.

Results - General Electric Company Nature and Imgrtance of product planning

Product planning as new product development. In the

June, 1957, issue of Industrial Design, staff writers Deborah Allen, Avom Pleishman, and Jane Fiske Mitarachi prepared an article on product planning entitled "A Report on Product Planning in American Business." According to this article, the history of product planning begins with the General Electric Company.

Once the firm's expansion was a simple corollary of inventions in the research laboratories and engineering
departments. But today, G.E. looks ahead to change, diversification, plant investment, and the future in






61
general, through a new set of field glasses: product
planning.1

General Electric has prepared an elaborate set of notes for its company-wide course on product planning. The Product Planning Course book contains about sixty cases drawn from the actual experiences of managers of product planning throughout General Electric's decentralized product departments. The course material without the cases has been put in the form of a booklet of about 100 pages entitled "Introduction to Product Planning." According to this booklet (p. xiii), in December, 1954, the Marketing Services of General Electric formulated the following definition of product planning:

Product planning is the continuous process of fully investigating the planning, the timing, the pricing, and the servicing required to add the new, discontinue the
undesired, and maintain, modify, and improve the existing
products, so as most profitably to meet marketing needs and to justify the manufacture of these products by the Company. This process is carried out by analyzing, organizing, and combining relevant facts as to the product and related company-wide interests (including every functional component) to obtain operating agreements and
management decision for required product programs and
each product's total composition. This process embraces the business and requires understanding and cooperation
of all functional components. Accountability for it
rests with the general manager while integrating responsibility is vested in the marketing component.

Although an explicit mention of the need to discontinue undesired products is made in the above definition, the work elements in product planning, as identified by Marketing


1Allen, 41.







Services, l emphasize new products almost entirely as shown

below:

1. PRODUCT SCOPE RECOMMENDATIONS

What products should be included in the Department's and
Company's product scope? what is the product-business
enterprise we are engaged in now, and for the future?

2. ANALYSIS OF CUSTOMER NEEDS AND HABITS

What are customer needs and wants in the way of products and what influences do customers' buying habits have on
our products?

3. PRODUCT APPRAISAL

What is the standing of the product, (the complete line,
"the business"), in relation to competing products (or
opportunities)--as viewed through the eyes of the customer?

4. PRODUCT IDEA PROCESSING

What product ideas are worth further investigation and
what pools of creative thinking should be probed and processed to bring about product innovation?

5. PREPARATION OF PRODUCT SPECIFICATIONS

What should new or redesigned products be like and what should they do, in order to meet the needs and wants of
the customer?

6. APPEARANCE DESIGN

What improvements in appearance for the product and the
package will achieve maximum sales volume? In what ways can visual planning add user appeals, style, values, and
increase profits by industrial designing?

7. PRODUCT TIMING

When will be the most advantageous time to introduce new
or redesigned products--put them on the market--or to
discontinue old ones as required to meet the objectives
of the business enterprise?

1"Introduction to Product Planning," Brochure published by General Electric Company (Condensation), pp. xxxiii-xxxiv.








8. CONTROL OF THE PRODUCT LINE

What products should be included, or eliminated from,
the product line to facilitate achievement of Marketing
goals?

9. PRICE FORMULATION

At what prices should products be sold in order to
achieve the volume, position, profit and over-all objectives of the Department?

10. PRODUCT INFORMATION

What are the basic product facts that are needed by Advertising and Sales Promotion, Product Service and Sales
to help them profitably serve the customer?

A condensation of the process of new product planning

as formulated by General Electric also indicates the preoccupation with new products in product planning. This condensation, 1 produced below, also shows that marketing, manufacturing, and engineering plans must be synchronized.

1. Ideas and suggestions for new products are gathered from
all possible sources.
2. Product Planners screen these ideas to select the most
promising. This requires that Product Planners obtain reviews by the manufacturing, engineering, accounting
and marketing organizations.

3. The preliminary findings are summarized in a report to
the Manager of Marketing. He approves or disapproves recommendations for further study and market research.

4. The Product Planners then make a thorough analysis of
products approved for further study. They analyze the
product to see if it is desirable to enter that product business, what kind of product it should be, the approximate price it should be sold for, and when it should be
ready for market. Alternatives are presented and comparisons made in a report.
5. If the report is approved by the General Manager, the information is interpreted into engineering terms for engineering development. Engineers study the data and
request any additional information they need.

1Ibid., pp. xxvii-xl.






64
6. Manufacturing studies the marketing and engineering data and determines the manufacturing resources and
time required.

7. Product Planning determines the marketing resources and time required on the basis of engineering and manufacturing data.

8. All facts are then submitted to the financial organization which prepares a report on cost, projected volume,
and profit.

9. The Manager of Marketing reviews this report, and if the product looks worthwhile, he sends it to be reviewed by the General Manager and the other functional
managers. They decide whether to go ahead.

10. Engineers start to design a product which most closely
meets the market requirements at this time. A model is
built and samples then built for field testing.

11. Product Planners review the sample product with Sales,
Product Service, and Advertising people and arrange for
installations in actual user locations to find customers' reactions.

12. After all data are in, Product Planning decides if the
product is ready to market. If it is, manufacturing
preparations are made and all product information and
data is turned over to the marketing groups involved
with this regular marketing functions.

The Medium AC Motor and Generator Department of General Electric produces and markets lines of 150 to 5,000 horsepower induction and synchronous machines. Although motors might be thought of as products in which improvements come slowly, they are nevertheless susceptible to major advances. "Blue-sky" thinking has resulted in the new silicon rectifiers, canned rotor and electromagnetic pumps for atomic power plants, brushless exciters for synchronous machines, and the thermotector motor protective device to take a motor of the line on the basis of rate of temperature rise.

In this particular department, the Manager - Marketing & Product Planning stated there was no way to measure the






65
cost of engineering and research as a per cent of sales because engineering development is so intermixed with manufacturing engineering.

Product planning as market oriented. The special report by Allen et al., gives General Electric credit for being the first to formalize product planning as a function of marketing (1946), the first to set up a department and Manager of Product Planning (1947) and write a specific job description, and the first to put specialists on product planning in the head office to advise others throughout the company (1951).

The concept of product planning was introduced by Ralph Cordiner who developed and implemented the decentralized organization of General Electric. Much of his thinking on product planning was based on the book by D. M. Phelps.1 The concept of product planning grew along with the concept of marketing. As Fred J. Borch, former Vice President of Marketing Services described it, "A marketing philosophy is a recognition of a customer-oriented way of doing business." The way that product planning fitted into the marketing process based upon an article in the General Electric Review is shown below.

1. MARKETING RESEARCH, ANALYSIS, AND FORECASTING

2. MASTER MARKETING PLAN

Establish objectives--volume, position, profit,
gross margin, budgets.
Determine broad product line--range of models,
types, quality level, price range, permitted
costs.

1D. M. Phelps, Planning the Product (Chicago: Richard
D. Irwin, Inc., 1947).






66

Identify markets--where they are, which to cultivate, size and potential.
Select sales channels.
Formulate policies--sales, price, distribution, advertising, service, marketing personnel.

3. PRODUCT PLANS AND PROGRAMS

Specific models, time schedules, product size, capacity, range, style appearance, quantity, prices
discounts conditions, terms.

4. MASTER SALES PLAN1

The Zndustrial Desin report goes on to point out that before World War II, businesses which were based on technology could place emphasis on how to make products, not what to make. After the War, the business climate changed, and Cordiner concluded that General Electric's relationship to the market had to be systematized on a long-range basis. As the authors point out:

It was not enough for salesmen or engineers to find out,
or prejudge, what the customer might buy. That judgment
needed to be based on the broadest thinking, and it
needed to be organized so that Engineering, Research,
Finance and Manufacturing could participate in this
broad corporate goal. This was Marketingi it was no
longer selling goods, but an integrated function that
concerned itself with the whole cycle of producing goods
to meet the market. And since this was an interdepartmental activity, Marketing needed someone to take the
responsibility for bringing that integration about.2

When Cordiner reorganized General Electric, he set up three types of organizational groups.

1. Executive management concerned with long-range company goals.

2. operating management responsible for the conduct of
the decentralized businesses.

1"How to Plan, organize, and Control Marketing in Your Business, " General Electric Review (July, 1953).
2Allen, 42.






67

3. Services management made up of people skilled in
specialist functions.

It was Marketing Services in General Electric which set up a model for a decentralized marketing organization to suit any part of the company. In 1955, the Marketing Services isolated and issued a report on the ten work elements of product planning. Thus Cordiner took the view that new organizational concepts were required to meet the changing

times. With the new marketing concept, the marketing man would have responsibility for participating at the beginning rather than the end of the production cycle. He would integrate marketing into each phase of the business and would establish for the engineer, the designer, and the manufacturing organizations what the customer wants in a given product, what price he would pay, and where and when he would want it. Marketing would have authority in product planning, production scheduling and inventory control as well as sales, distribution, and service. The purpose of this concept would

be to fix responsibility and yet permit greater flexibility and team work.

General Electric in its earlier days had concentrated on advancing technology. it did such an excellent Job in this area, however, that too many products were introduced far in advance of customers' desires. (An example of such a product was the home workshop which was introduced in the thirties.) As basic needs became satisfied, however, the customers became more selective in what they wanted and how much they would pay. Other manufacturers entered the market






68

so that competition increased. It was in this climate that Cordiner recognized the need for a marketing concept which would include all activities involved in planning and distributing products to the customers. He first introduced this concept in 1948 in seven General Electric affiliates by establishing Product Planning components in each.

The fact that the product planning function is located in the marketing organization in the product departments shows that General Electric believes that product planning must be market oriented. According to the Manager - Marketing & Product Planning, careful consideration should be given to (1) the markets, (2) competition, and (3) the internal strengths and weaknesses of the business itself. In considering the markets, the total market of the business should be divided into groups composed of industries or customers with like requirements. The facts about each of these divisions indicate how they can be approached most effectively. Questions such as the following should be carefully considered. One of the greatest values of business planning comes from this fresh look at old subjects:1

1. What is the price situation in this market? Is
there something special about the customers' requirements or the way he buys or the product he
buys which make this situation?

2. What are the requirements for product design? Standard products or special? Closely or loosely integrated with the driven equipment? How do the customers evaluate quality? Reliability? Size? Appearance?

1Notes given to the interviewer by Manager - Marketing and Product Planning, Medium AC Motor Department, General Electric Company.








3. What kinds of service do the customers require? Is
systems engineering assistance required?--or would it be welcomed? How much application engineering?
What are the requirements for service after the
sale?

4. What kind of sales approach succeeds best? What
kind of salesman should be used? Is constant contact required or only occasional contact? In general, where in the customer's organizations is the
point of most influence? What is relationship of
Purchasing Department with Engineering?

5. What are the buying habits of the industry? Single
supplier or several? How does an 'out" get "in"?
Are annual commitments involved? Large blocks of
business or frequent smaller purchases? Sealed
bids? Evaluated prices? Negotiated prices?

6. What are the company's trade relations with this
market area?

7. What are the other special features of this market?
What trends are discernable? Are contractors entering the picture for instance? Is there a trend
from quality to low price? Is there a trend toward integration, particularly with motor manufacturers?

8. Are new suppliers entering this market? How are
they doing it?

9. Graph the estimated total available business in
this market area for the past ten years and for the next ten. (Trends are more important than absolute
figures.) Also graph estimates of the share obtained by each major producer for the same period.
Are relative positions changing?

After having thought about a market segment sufficiently to answer these questions, and others that might be pertinent to a particular market, it is likely that ideas would have occurred that can be used in answering one
more question:

10. What new or different things might we do to improve
our approach to this market and our share of the
business it provides?

A description of each major competitor should be prepared. There should be particular emphasis on finding out

what things cause him to react or act this way rather than

some other way. If there are facts about this competitor,






70
his organization, his products, his image, trade relations, etc., which may help or harm him in any of the market areas, these should be carefully analyzed and recorded. It is important, if possible, to characterize the over-all strategies of each competitor. It also is important to compare the growth trend of each competitor with that of the firm.

Finally, with respect to the description of the strengths and weaknesses of the firm, major facets should be selected so that the firm's profile can be compared with the competitors' profiles. Information on competitors is, of course, usually limited to certain major items. Study of detailed strengths and weaknesses of the business is better delayed until after the strategy or "direction" of the business has been determined. The Manager - Marketing & Product Planning pointed out that an elaborate laboratory and large expenditures on

new product research might be a "strength" if the firm's strategy was to capture market position and command premium prices through continual product innovation. However, it could be a weakness if the strategy were to duplicate the innovations of others and concentrate on low manufacturing costs and high volume.

Long-raMe plannL in relation to product planning.

Long-range planning for products for the company as a whole may extend as far as twenty years into the future. The use of atomic energy and the conversion of saline water to fresh water are cases in point. Five- and ten-year forecasts are made on a regular basis annually.






71
The fundamental basis for long-range planning is the

synthesis of forecasts by departments with respect to products, markets, and economic conditions. Long-range plans are worked up by the Department Managers for their products once a year. A formal presentation is made to the Division Manager, members of the President's Office and other invited executives. This is called the Annual Business Review. The general procedure in long-range planning is for the Department General Manager and his four line managers responsible for marketing, engineering, manufacturing, and finance to review first of all new developments at the Research Laboratory and General Engineering Laboratory to obtain new ideas. The Consultant - Product Studies ranked internal sources of new ideas in only third place, however, according to the following:

Sources of new ideas Rank

Domestic competitive sources 1 Foreign sources 2 Internal Department and Laboratories 3 Customers 4

General Electric is trying to do a more scientific Job on long-range planning than simply extrapolating. Along with the massive detailed planning that goes into long-range plans, some general thoughts that arose with respect to industrial diamond making were as follows: When will De Beers try to run us out? Can we keep ahead of them by technological developments? How about local competition--say Norton Carborundum? Can we keep ahead of them and maintain a good share of the market? Who else may come into the market?






72
Long-range forecasts by the Medium AC Motor and Generator Department are prepared for a period of five years in the future. The long-range forecast is made once a year. The

forecast is based upon anticipated business conditions as projected by the corporate Marketing Services and the Apparatus Sales Division. For the long-range plans, a market forecast of each line is developed, and budgets are prepared. Each line is considered in detail. By definition here, a line consists of one product with its variations.

The procedure for long-range planning as given by the

Manager - Marketing & Product Planning is as follows. Longrange forecasts of business conditions for the medium AC motor industry are first made by the marketing and product planning organization. Next, this group gathers information from the engineering organizations and top members of other functions. From this data, long-range plans are first formulated. The next step is a meeting of key personnel from all functions and the General Manager. At this meeting, the preliminary plans are reviewed, decisions made, and new ideas are presented for acceptance or further investigation. After

this meeting, the Manager - Marketing & Product Planning conducts further studies as required. At the same time, the Manager - Budgets and Measurements reviews the plans for costs, financing, manpower, etc., in order to check major projects and benefits. A typical planning form has the headings shown as follows:






73
MAJOR PROGRAMS FOR LONG-RANGE BENEFITS Year
insti- Program designation Total Effect on net income tuted and purpose cost 1962 1963 1964 Later The last column, "Later," refers to the year and amount of net income for best year subsequent to 1964. For internal use within Marketing & Product Planning, details of each project are prepared which include the engineering approach, the schedule, expenditures, and anticipated benefits. These details are kept as a permanent record for use in measurement and evaluation. At the annual meetings, development authorizations for engineering work are reviewed as well as any large marketing surveys or projects. The long-range business planning cycle starts in April or May for the five-year period comuencing with the following calendar year.

Intermediate- .ad short-range Planninq in relation to

product planning. The decision by General Electric to expand a product line is usually made about three years in advance. Implementation must start about one to two years in advance of putting the products on the market at a minimum lead time. Short- and intermediate-range plans are reviewed and revised every three to six months, depending upon the product. For model changes only as in the cases of radio, television, and appliances, for example, new models are introduced every year and the planning lead-time varies according to how long it takes to develop a new model.

In developing the product and checking the market, probability sample surveys are rarely used. For an industrial product, a job-shop model will be put into some plant and






74
tested in operation. For consumer goods, samples will be made up, and wives of General Electric engineers will act as a panel to test the particular product. The product will then be redesigned, a pilot run made, and a larger test panel will be chosen to test it. Occasionally a price test will be run in different areas, but this is so expensive and timeconsuming that price is set by judgment. It was emphasized that pricing is a marketing function, not a financial function.

Short-range plans for the Medium AC Motor and Generator Department cover only the next calendar year. They are an outgrowth of the long-range plans in that the early portion of long-range plans can be detailed better than the latter portions. While work on the long-range plans starts in the spring, it is not until October that the budget for the next calendar year is established in detail. The short-range plans which are completed in October cover new markets for the following year and organizational changes within the Department. The same people are involved in the short-range planning as in the long-range planning; indeed, more people participate since the palnning is carried down to lower organizational levels.

Product planninq as the basic business strategy. The elements which are included in the business strategy can be

determined from examining what kind of activities the company tries to measure. The General Electric Company has long been concerned with establishing objectives and measuring the results of business performance. A study was






75
undertaken by the Management Consultation Services of General Electric in 1952 and completed by the Accounting Services Division in 1954. A short brochure entitled "Excerpts from the Measurements Project" was prepared from material taken from the complete report.

This brochure shows what areas Genera). Electric considers important in its operations and its planning since it shows the areas selected for measurement. As a result of this study, General Electric came up with eight "Key Result Areas." As the brochure states:

To check whether a tentative area was sufficiently basic
to qualify as a Key Result area, this test question was applied: �"Will continued failure in this area prevent
the attainment of management's responsibility for advancing General Electric as a leader in a strong, competitive economy, even though results in all other Key Result
Areas are good? The result of this evaluation produced
the following Key Result Areas.

1. Profitability (financial return)
2. Market Position
3. Productivity (effective and balanced utilization of
men, capital, and raw materials)
4. Product Leadership
5. Personnel Development (managerial ard Specialist)
6. Employee Attitudes (including Managers and Specialists)
7. Public Responsibility
8. Balance between Short-Range and Long-Range Goals

It is interesting to note at this point that three of these Key Result Areas bear directly upon product planning in the sense that General Electric uses the term. These are Market Position, Product Leadership, and Balance between Short-Range and Long-Range Goals. with respect to Market Position, the brochure states that:

Market position measures the acceptance of a company's
products and services by the market and thus reflects
the value placed by the market on the quality and prices
of the company's products, its distributing and






76
promotional policies, and its technological contributions. Sound measurements of market position will provide the best indicators of the success of a business in
attaining its twin objectives of growth and leadership.

In discussing the balance between long-range and shortrange goals, the authors of the report state that this area was included in the list mainly for emphasis. Actually, this balance must be sought in decisions in all the other Key Result Areas.

The Manager - Marketing and Product Planning of the

Medium AC Motor and Generator Department discussed the relationship of strategy to product planning thusly.

The description of the business prior to establishing the strategy might include the following:

1. Product scope 2. Market scope
3. Market position
4. Distribution system
5. Relationships with other Departments (dependence on
them for allied sales to same market, etc.)
6. Business image (in the eyes of customers)
7. Major strategies pursued in the past

After careful consideration of the markets, competition, and self, the information is available to the manager for taking his biggest step--a formulation of the master strategy of the business. The judgment of the General Manager and his functional managers is most important at this phase since it is the basis of all the specific plans and programs of the business. Some simplified examples of master strategy are:

1. The Innovator who concentrates on developing new
unique products to stay ahead of the field and thus
obtain pricing independence.






77

2. The Cost-Volume Leader who diverts his engineering
effort towards cost reduction. He will have a high
investment in manufacturing and will place heavy
emphasis on marketing large quantities.

3. The Quality-Volume Leader invests heavily in quality
leadership in a high volume market and thus achieves
some pricing independence.

4. The Short-Term Profiteer who responds to an existing
market need on a minimum cost basis. His price policy is to undercut the leaders by keeping his investment in engineering and facilities as low as
possible.

Once the Master Strategy has been established and the

characteristics of the market and the competitors tabulated, the firm's strengths and weaknesses can be analyzed. Weaknesses and strengths exist only in terms of relative ability to serve the market's needs. Thus a strength is only a strength if no one else has it to the same degree.
"Specific strategies" are policy statements stating

what direction the business will follow in each of a number of decision areas. Specific strategies are usually designed to capitalize on opportunities and overcome weaknesses. Possible areas for specific strategies are:

1. Product development
2. Quality
3. Facilities, methods, systems and procedures
4. Promotion and distribution
5. Pricing
6. organization and personnel
7. Exploratory work
Long-range forecasts should be a complete statement of probable results of the business and should provide a standard for measuring both the planning and the implementation.

Importance of product planMing. The importance of product planning in General Electric is shown by the fact that






78
General Electric has done much to develop the concept and that the president of the company has been influential in implementing it. General Electric has established formal product planning organizations at both the corporate and product department levels. In addition, General Electric has developed a comprehensive course in product planning to train product planners. All these facts indicate that General Electric believes product planning is a requirement for successful operation of its business.


Organization for product Planning

General Electric Company was ranked as the fourth largest industrial corporation in the United States (on the basis of sales volume) in 1958, 1959,1 and 19602 and billed over four billion dollars worth of goods in 1960. The average number of employees totals over 250,000 located all over the world. Its slogan of "Progress is Our Most Important Product" has typified all activities of the company from products to research in management techniques. The diversity of its products covers a wide range as shown by the summary of products sold by its marketing organizations below:

1. ACCESSORY EQUIPMENT 3. APPARATUS-INDUSTRIAL SALES
DEPARTMENT OPERATION OR ELECTRIC
Bridgeport, Connecticut UTILITY SALES OPERATION Schenectady, New York
2. AIR CONDITIONING
DEPARTMENT
Tyler, Texas

1"Directory of the 500 Largest Industrial Corporations," Fortune, LXII, No. 1 (July, 1960), 132.

2Diretory of the 500 Largest Industrial Corporations," Fortune, LXIV, No. 1 (July, 1961), 168.






79
4. COMMERCIAL EQUIPMENT 14. LAMP METALS AND COMPODEPARTMENT NENTS DEPARTMENT
Chicago Heights, Illinois Cleveland, Ohio

5. COMMUNICATION PRODUCTS 15. LARGE LAMP DEPARTMENT DEPARTMENT Cleveland, Ohio
Lynchburg, Virginia
16. MINIATURE LAMP
6. COMPUTER DEPARTMENT DEPARTMENT Phoenix, Arizona Cleveland, Ohio
7. CONDUIT PRODUCTS 17. PHOTO LjAMP DEPARTMENT DEPARTMENT Cleveland, Ohio
Niles, Ohio
18- POWER TUBE DEPARTMENT 8. FOUNDRY DEPARTMENT Schenectady, New York Schenectady, New York
19. SILICONE PRODUCTS
9. GENERAL ELECTRIC SUPPLY DEPARTMENT, COMPANY DIVISION Waterford, New York
Bridgeport, Connecticut
20. TECHNICAL PRODUCTS 10. HEAVY MILITARY ELEC- OPERATIONS
TRONICS DEPARTMENT Syracuse, New York
Syracuse, New York
21. WIRE AND CABLE
11. INSULATING MATERIALS DEPARTMENT
DEPARTMENT Bridgeport, Connecticut
Rotterdam, New York
22. WIRING DEVICE DEPARTMENT 12. LAMINATED PRODUCTS Providence, Rhode Island
DEPARTMENT
Coshocton, Ohio 23. X-RAY DEPARTMENT
Milwaukee, Wisconsin
13. LAMP GLASS DEPARTMENT
Willoughby, Ohio

The company is organized so as to decentralize responsibility as much as possible and to minimize the number of

layers of management. The hierarchy is as follows:

President's Office consisting of the President, Vice
President and Group Executives, and Services Vice
Presidents
Division Vice Presidents and/or Gm up General Managers

Department General Managers

Section Managers
Unit Managers
Functional Individual Contributors








There may be either a Subsection or Subunit Manager,

but in general, there are not more than seven steps from the individual worker at the bottom of the hierarchy to the President. The basic business responsibility lies with the Department Manager who is responsible for the profit or loss of what is essentially a complete and independent business. He has available to him the powerful tools and knowledge developed and accumulated by the Services which conduct research in the frontiers of marketing, engineering, basic scientific research, manufacturing, and management. The Services are generally headed by Vice Presidents who, like the

Group Vice Presidents, form part of the Executive Office of the President. Recent and rapid organizational shifts have occurred in the past year to lead to tightened control. The Operating Divisions report to the Chief Executive and the Chairman of the Board. The Services report to the President

of the Company.

The President's Office has the responsibility for establishing completely new businesses or dropping off old businesses. The Group Executives may create businesses (Departments) which fall within the scope of their charter to conduct business in a certain general area.

The Department Manager who, with decentralization, has considerable autonomy with respect to his business may add, drop, or modify his products within his product lines. Within the Department, the Marketing Manager and Product Planning Manager or Specialist who reports to the Marketing Manager have functional responsibility for coordinating product






81

planning. Other functional groups must participate, of course.

The corporate-level Services contribute to product planning by means of three organizations. First, in the Research Services is the General Electric Research Laboratory. This world-famous Laboratory conducts basic research in areas pertinent to General Electric's business. In particular, the

four research Departments are Chemistry Research Department, Electron Physics Research Department, General Physics Research Department, and Metallurgy and Ceramics Research Department. The Research Laboratory is the source of many new ideas for the operating departments. Usually considerable further development is required by the Departments to permit successful comercialization of such new developments. The big technological advances by the General Electric Company usually originate in the Research Laboratory, however, and include among recent advances the tunnel diode, thermoplastic recording, and industrial diamonds.

Second, the corporate Services assist with product planning through the activities of Marketing Services. Product planning at the corporate level is assigned to Marketing Services which is organized as shown in Figure 1. Marketing Services makes long-range studies, special studies of promising areas where technological development and market opportunity converge, and advises and counsels the Departments. Marketing Services follows marketing activities and advances both within and outside of the company and acts as a clearing house for information. In addition, the Services














Vice President - Marketing Services

Manager - Marketing Services Research Service

Research Consultants - Marketing Division Systems Research
Sociologists - Consumer Behavior Research Economist - Marketing Industrial Economics Research
Economists - Market Structures Research Economists - Marketing Planning Research

Manager - Product, Product Service, and System Planning
Service

Consultant - Product Service Consultant - Product studies
Consultant - Product and System Planning

Manager - Sales and Distribution Channels Service

Consultant - Sales and Distribution Planning

Manager - Promotion, Negotiation and Selling Service

Consultant - Marketing Studies
Consultant - Advertising and Sales Promotion Consultants - Government Marketing Relations

Manager - Marketing Research and Administration Service

Consultants - Marketing Administration

Manager - Marketing Personnel Development Service

Consultants - Research, Education, Training, Inventory and Placement Manager - Economic Forecasting Operation





Figure l.--Marketing Services Organization in General Electric Company.






83

develop new concepts in marketing and develop company-wide training programs. In particular, they have developed a comprehensive course in product planning. Marketing Services also maintains an inventory of all professional people in marketing activities throughout the company. A manager who

wishes to hire an individual for a particular position may specify the type of work, experience required, age, etc., and the file will be searched by Marketing Services. This increases opportunities for promotion of individuals within the company. A placement is also maintained for employees who wish to transfer or who are displaced due to organizational changes.

Third, the Engineering Services contribute to product

planning through product development in the General Engineering Laboratory. In addition, the Engineering Administrative Consulting Service advises and counsels engineering organizations across the company with regard to engineering organization, practices, responsibilities and relationships. This Service also conducts research and has published the results of such research on an integrated approach to product development. This study showed how engineering, marketing,

and manufacturing must work through a coordinating team to get the right product at the right place at the right time,

Although most activity with regard to product planning is conducted by the Departments or the Services, some is being tried out at the Division level, At the Division level within the operating Departments there may be applied research laboratories. Examples of these are the Electronic






84
Laboratory in the Defense Electronics Division, and the Flight Propulsion Laboratory in the Flight Propulsion Division. Also, a product planning organization has been established at the Division level of the Electronic Components Division. Within the Turbine Division there has been an operations research organization for a number of years which employs one or two economists for long-range product and business planning.
Because of its size, General Electric has some organizational peculiarities with respect to product responsibility. For example, several Departments may have responsibility in one line of products or one Department has product responsibility for several product lines. The definition of product line as used by the Consultant - Product Services is "the same device in different sizes and modifications for which any one customer might want a different size or modification." As a specific instance, it was pointed out that power transformers and medium transformers do the same job, but each is assigned to a different profit center in a different location.

The organization of the Medium AC Motor and Generator

Department provides greater detail of the product planning function at the operating level. This Department is located in Schenectady, New York, except for one section in San Jose, California. The Department has been chartered by the company to produce and market lines of 150 to 5,000 horsepower induction and synchronous machines. The Schenectady works, which is the main plant, produces horizontal motors, while






85
the San Jose plant produces high-thrust vertical motors for the pumping industry. The total number of employees is about 2,600, The organization of the Department is shown in Figure 2. The breakdown of the marketing organization is shown below.


Manager - Marketing & Product Planning
Marketing Administration and Forecasting
Price Policy
Advertising & Sales Promotion
Product Planning
Manager - Renewal Parts Operations
Engineering
Sales
Manufacturing

The Manager - Marketing & Product Planning amplified on the engineering organizations' responsibilities with respect to the customers. Advance Engineering carries out special analyses on some part or material common to a number of motors. The results are sent to the design engineering groups for application to entire lines of motors. The Application Engineering organization investigates engineering to determine engineering changes which would be beneficial, investigates product failures, adjusts warrenties, etc.

The Production Engineering organization is responsible

for fitting equipment to the customer's specific requirements.

While the Manager - Marketing & Product Planning has the direct responsibility for continuous product planning, the line managers must participate directly. Each of five managers (Manufacturing, Marketing, Finance, Relations and Engineering) head up a product line "team." Each team is formed of managers drawn from the next lower organizational








General Manager MAC DEPARTMENT


Manufacturing


Manager Sales Utility Government Auxiliary OEM


Marketing


manager Marketing
&
Product Planning


Finance Relations


Manager Sales Industrial
Uses


Engineering


-Advance Engineering


Application Development & Service Engineering


Design Engineering


-Production Engineering


Atomic


I
San Jose


Engineering KManufacturing


-Marketing


-Accounting


-Engineering


- Manufacturing


- Marketing


-Accounting


Figure 2.-Organization of Medium AC Motor & Generator Department, General Electric Compny






87
level, and each functional area is represented. These product line teams meet weekly or semi-weekly.

The purpose of a team is to watch the progress and performance in a particular line, carry out planning for the product line, and provide good communications among the functional areas. The five teams are organized along the following lines:

1. General industrial line: 150 to 500 horsepower.
2. Utility and heavy industrial line-induction motors
above 500 horsepower.
3. Synchronous motors and generators.
4. Hermetic motors.
5. (Not really a product line team, but a task force
to watch conversion of old designs to new designs.)

Reults - Corn~ma Glass Works

Nature and Lmortance of product glannin

Product RlanMin as new rdUCt development. The Corning Glass Works, like General Electric, is a very progressive company whose growth is based upon innovation. Working with one of the least expensive and most abundant raw materials on earth, Corning research personnel have developed more than 7,500 formulas for glasses with widely diverse and precisely controlled characteristics. Corning produces more than 35,000 different glass products, 65 per cent of which were not in commercial production fifteen years ago.1 The company has a long line of notable "firsts" starting with improvements in the optics of signalware (1877) and including Edison's incandescent lamp bulb (1879), the development of

l"History of Corning Glass," September 8, 1960 (mimeograph).






88

fully automatic glass blowing machinery, centrifugal casting of television tubes, development of borosilicate glass and its application in telescope mirrors, the development of silicones, and many others.

During a recent ten-year period, Corning has spent on

research and development twice the average spent by American industry as a whole. This has amounted to $44,000,000 or

3.2 per cent of sales.1

Plans for new products are considered along with present products in the company's long-range planning procedure. Corning Glass evaluates all present and potential products in well-balanced periodic reviews. There is heavy emphasis on the profit outlook for the total product mix.

According to Corning Glass, the steps in achieving major new product objectives are as follows:

1. Search for ideas, problems opportunities
2. Perform exploratory research
3. Carry out product or material development
4. Carry out process development
5. Seek improvements in present products
6. Make pilot production run on new products
7. Conduct sales tests in different cities with respect to price and promotion
8. Initiate production-marketing application request
giving sales, cost, investment, and forecast of
return
9. Design production equipment and facilities
10. Develop production run
11. Conduct market development activities in parallel
with production planning
Product Rlanni as market oriented. Corning Glass works closely with industrial customers, keeps abreast of their needs, and tries to develop products which will satisfy

lnFacts About Corning Glass Works" (Company pamphlet undated but published after 1957).






89
the customers' needs. In long-range planning, Corning Glass studies consumer trends to anticipate industrial needs. Corning specializes in unique, different products such as the viewing glass in missile and atomic energy applications. Corning Glass, because of its uniqueness in its field, has not felt the need to direct planning and research towards foreseeable markets to the extent that General Electric has. Corning Glass continues to seek new glasses with new properties and look for applications afterwards. For example, one account runs as follows:

n the mid 1950's Corning R & D created an entirely new family of materials. By inducing crystals to grow in a
batch of glass, Corning researchers formed a glassceramic as hard as steel and heat resistant. By controlling the crystal growth, literally thousands of
kinds of glass-ceramics could be created. They named the stuff Pyroceram and wondered what to do with it.1

In spite of this apparent reliance on research and

development to find new glasses first and then seek a market, Corning Glass keeps a sharp look-out for market needs. For example, Corning Glass, despite all its glass know-how, was a relatively small company before the advent of television. Its big breakthrough came when former president William Decker foresaw that the key to the television industry's

success would be the picture tube. Under his guidance, a brand new way of forming glass was developed.
Lon-ranqe planning in relation to product planing.

Product planning strategy is influenced mainly by Sales Managers and executives at higher levels. Integration of

l"Technology: Their Most Important Product," Forbes, LXXXIX, No. 3 (February 1, 1962), 22.






90
product planning is the responsibility of the President who accomplishes much of this work by making informal requests of the Director - Product Planning.

About April 1 of each year managers responsible for

product lines and the corresponding controllers are asked to submit product line plans for the following five calendar years. Technical work required and market forecasts are included. About June 1 these plans are submitted in a presentation to the President and corporate staff members who have an interest. Appendix D shows the suggested form for material which is to be presented. (For convenience in presentation, several pages of the forecast outline have been compressed on to one page in Appendix D.) The Divisions must also supply charts showing industry sales, Department sales, and Department profits for the past five years and continuing on into the next five years as estimated. Another chart for the same ten-year period must be supplied showing the selling price for the four major products in each product line.

After the review, the product plans are reworked by the Divisions which develop in greater detail a forecast of sales, personnel, equipment, facilities, and capital required for the next five years. These plans are presented to top management again at the end of August for review, agreement, and commiuncations purposes. The amplified and modified plans are compared with the original plans and variances are explained.
The business strategy followed throughout the longrange planning is one of growth through innovation on a






91
large scale. Emphasis is on 0lose coordination between research and development and marketing (business) opportunity. This strategy in best shown by reproducing below the exact rough notes supplied by the Director - Product Planning entitled "Assists to Growth":l

1. Management press for growth and support with R & D
money and risk capital.
2. Aggressive full time search for business opportunities to alert R & D.
3. Concentrate on big advances worth the technical effort. Avoid excessive service and nickel and dime
projects.
4. Parallel technical development with continuing
business analysis.

5. Single responsibility for each phase of development.

6. Task force of full time people on major phase.

7. Close comunication, coordination, planning,
throughout.
8, Time product when market is ready-ahead of the
competition.
9. Have overall project funding controls separate from
production.
10. Separate planning and development of tomorrow's
products from selling of present products.
11. Product tested in market before commercial introduction.
Currently Corning is engaged in a special long-range

business planning study. The Director - Product Planning is working with a leading consulting firm to select the most

important projects from about twenty project areas. These projects cover topics such as people, inventions, forward

1Notes from outline of talk given at Dow Corning, July 10, 1961,






92
integration of product lines, etc. These projects will be approached from the market aspects of nine major markets and one-tenth of all other classifications of markets.

The question will be asked throughout: "What crucial decisions do I need to make this year to affect the future

of Corning favorable five, ten and fifteen years from now?" Taken into account will be competitive trends, Corning strategy, technological changes, threats and opportunities, international marketing, distribution, broader scope of research, and complexity of business which one manager can handle.

Intermediate- and ahort-ranqe planning. At the end of each four-month, eight-month, and twelve-month period, the Director - Product Planning prepares a major development analysis which lists future projects by year of introduction and their sales potential for each year in the next three years. Thus intermediate- and short-range planning are merged. Included in this presentation are staff responsibilities, line responsibilities, number of technical people required, projected date of introductory sales, cost to date, and present status if they are underway. On "Technical Review Day," members of the corporate staff meet with members of each Division, one Division at a time, to review major developments in each Division. Other Division General Managers attend. At that time, the Division General Manager making the presentation of his plans will also present some important achievement which is of interest to the other Division General Managers who are present.






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POduct pgannU as the basic business strateq.. An examination of the planning forms in Appendix D shows that Corning Glass bases its strategy on product planning in accordance with company-established criteria. These forms, in every case, are based upon present and proposed products. Development and other costs, sales, profits, competition, growth, and marketing strategy are specifically included in company plans for the future. Before any great amount of

funds are committed to making a product reality out of a research phenomenon, the market opportunities must be shown in the planning analysis.

Imortace of product planning. Product planning is very important at Corning Glass to maintain control over, and to provide direction for, product line development and company growth. This importance is substantiated by the fact that the Director - Product Planning reports directly to the President of the company. From a historical viewpoint, product planning has been the key to the tremendous growth of Corning Glass in an expanding world of technological innovation and new markets.


Organization for product planminQ

Corning Glass operates twenty-three manufacturing plants in eight different states and employs about 14,000 people. Eight of these plants are located at the Company's headquarters in Corning, New York. In addition, the Company owns seven subsidiary companies and maintains an interest in eleven "associated" companies. The organization of Corning




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