Description
This research addresses the approach that, along with introducing disruptive technologies in the mobile and IP convergence era, a new operational mode is needed in the new product development (NPD) process. This study approaches the operational mode from five perspectives: business environment, competence development, process renewal, running technology pilots, and product reliability.
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UNI VERSI TY OF OULU P. O. Box 7500 FI - 90014 UNI VERSI TY OF OULU FI NLAND
A C T A U N I V E R S I T A T I S O U L U E N S I S
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SCIENTIAE RERUM NATURALIUM
HUMANIORA
TECHNICA
MEDICA
SCIENTIAE RERUM SOCIALIUM
SCRIPTAACADEMICA
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EDITOR IN CHIEF
EDITORIAL SECRETARY
Professor Mikko Siponen
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Professor Olli Vuolteenaho
Publications Editor Kirsti Nurkkala
ISBN 978-951-42-8342-0 (Paperback)
ISBN 978-951-42-8343-7 (PDF)
ISSN 0355-3213 (Print)
ISSN 1796-2226 (Online)
UNI V E RS I TAT I S OUL UE NS I S
ACTA
C
TECHNICA
OULU 2007
C 265
Raija Suikki
CHANGING BUSINESS
ENVIRONMENT—EFFECTS OF
CONTINUOUS INNOVATIONS
AND DISRUPTIVE TECHNOLOGIES
FACULTY OF TECHNOLOGY,
DEPARTMENT OF INDUSTRIAL ENGINEERING AND MANAGEMENT,
UNIVERSITY OF OULU
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ACTA UNI VERS I TATI S OULUENS I S
C Te c h n i c a 2 6 5
RAIJA SUIKKI
CHANGING BUSINESS
ENVIRONMENT—EFFECTS OF
CONTINUOUS INNOVATIONS AND
DISRUPTIVE TECHNOLOGIES
Academic dissertation to be presented, with the assent of
the Faculty of Technology of the University of Oulu, for
public defence in Auditorium IT116, Linnanmaa, on
February 23rd, 2007, at 12 noon
OULUN YLI OPI STO, OULU 2007
Copyright © 2007
Acta Univ. Oul. C 265, 2007
Supervised by
Professor Harri Haapasalo
Reviewed by
Professor Oddur Benediktsson
Professor Mika Hannula
ISBN 978-951-42-8342-0 (Paperback)
ISBN 978-951-42-8343-7 (PDF)http://herkules.oulu.fi/isbn9789514283437/
ISSN 0355-3213 (Printed)
ISSN 1796-2226 (Online)http://herkules.oulu.fi/issn03553213/
Cover design
Raimo Ahonen
OULU UNIVERSITY PRESS
OULU 2007
Suikki, Raija, Changing business environment—effects of continuous innovations
and disruptive technologies
Faculty of Technology, University of Oulu, P.O.Box 4000, FI-90014 University of Oulu, Finland,
Department of Industrial Engineering and Management, University of Oulu, P.O.Box 4610, FI-
90014 University of Oulu, Finland
Acta Univ. Oul. C 265, 2007
Oulu, Finland
Abstract
Today's turbulent business environment, which is characterised by uncertainty and inability to predict
the future, is extremely challenging. Mobile and Internet Protocol (IP) convergence, which brings
together technologies and services from the mobile and Internet domains, has been identified as a
discontinuity in the mobile telecommunications business. Additionally, new disruptive technologies
are introduced together with new, complex products.
This research addresses the approach that, along with introducing disruptive technologies in the
mobile and IP convergence era, a new operational mode is needed in the new product development
(NPD) process. This study approaches the operational mode from five perspectives: business
environment, competence development, process renewal, running technology pilots, and product
reliability.
The research on the business environment area proposes two frameworks: one for building and
describing and another for evaluating business models. The study on competence development
arrives at the conclusion to propose a project management competence development framework. The
third research perspective suggests that, when the business environment is changing, and disruptive
technologies and continuous innovations create new kinds of products, it is likely that processes need
renewal. Running technology pilots to involve customers early enough in new product development
is proposed in the fourth research area. Finally, the fifth research topic proposes that it is essential for
companies to be able to estimate the reliability of their products during the product development
phase.
It is concluded that the new operational mode when introducing disruptive technologies requires
reconsidering business models, special attention to competence development, process renewal,
customer involvement in new product development, and requires a means to guarantee software
reliability.
Keywords: competence development, disruptive technology, mobile and IP convergence,
process renewal, product reliability
To my parents
Acknowledgements
It all started in spring 2000, when my daughter Mervi matriculated and started her
university studies at Tampere University of Technology. Today, both of us are finalising
our studies.
Twenty years had gone from the date when I finalized my Master’s thesis. In autumn
2000, I contacted professor Pekka Kess, who gave me my first look at post-graduate
studies in general, and then professor Harri Haapasalo promised to supervise my studies.
Early in my studies, Harri advised me to form a steering group for them. And so I did.
The members of the steering group were Harri from the University of Oulu, professor
Pekka Abrahamsson from VTT Electronics, and Senior Program Manager Arto Pussinen
from Nokia. We had meetings several times a year. At the meetings I received very
valuable and fruitful advice and guidance for my research. Practically all the time Arto,
Pekka and Harri were available to answer my questions and support my work. I deeply
appreciate the support and encouragement I have received from Arto, my line manager at
Nokia, who made it possible to use our working environment as the research
environment. Many thanks to Harri, a co-author and an advisor, who tirelessly led me in
the work of a researcher and Pekka who gave valuable words of advice and
recommendations for my research papers and this thesis. Without you, Harri, Pekka and
Arto, this thesis would not have been possible.
I thank professor Veikko Seppänen for supervising my complementary studies in
software development. Many thanks to my other co-authors, Anni Goman and Raija
Tromstedt. In addition, I want to thank the whole former IPC personnel, and especially,
Markku Jurmu for his support in writing the publication of technology piloting. I am
grateful to Neil Jackson and Paul Rennison, who helped by proofreading the English of
my research papers.
Thanks to the personnel of Department of Industrial Engineering and Management of
the University of Oulu. It was a delightful and rewarding month when I stayed in your
office in January 2006 writing my thesis. It was nice to work as a real researcher.
I want to thank the pre-examiners of this study, professor Mika Hannula from
Tampere University of Technology and professor Oddur Benediktsson from the
University of Iceland for their valuable comments and recommendations.
This work took six years, and I appreciate how supportive my family has been – my
parents Anna-Liisa and Antti Kuusela, my brother Kari Kuusela and his family, my sister
Tuija Kuusela-Korva and her family. With this work I want to encourage my godson Antti
in his future studies. Especially, I want to thank my daughter Mervi and her family - Sami
and Tuuli - for their support and interest in my work. Finally, I thank my life-companion
Matti for his continuous support, endless trust and tireless encouragement during my
work.
Oulu, December 2006 Raija Suikki
List of abbreviations
BBN Bayesian Belief Networks
BPR Business Process Re-engineering
FMEA Failure Mode and Effect Analysis
DfSS Design for Six Sigma
ICT Information and Communication Technologies
IEEE Institute of Electrical and Electronics Engineers
IP Internet Protocol
IPC Internet Protocol Convergence Business Program
ISO International Organization of Standardization
NIST National Institute of Standards and Technology
NPD New product development
ODC Orthogonal Defect Classification
PMCD Project Management Competence Development
QFD Quality Function Deployment
R&D Research and Development
RQ Research Question
SRE Software Reliability Engineering
TQM Total Quality Management
XP Extreme Programming
List of figures
Fig. 1. Research framework........................................................................................... 25
Fig. 2. Research path ..................................................................................................... 26
Fig. 3. Iteration in normative research. .......................................................................... 29
Fig. 4. Action research process modified from Susman & Evered (1978). ................... 30
Fig. 5. Research approach.............................................................................................. 32
Fig. 6. Technology adoption life cycle (Moore, 1998). ................................................. 34
Fig. 7. S curves modified from Christensen (1997) and Moore (1998). ........................ 36
Fig. 8. Ulrich’s & Eppinger’s (1995) generic new product development
process compared to the Stage-Gate model introduced by Cooper
(2001). ................................................................................................................ 50
Fig. 9. Project management competence development framework. .............................. 59
Fig. 10. The Stage-Gate (Cooper 2001) analogy in relation to the piloting
process in the case unit. ...................................................................................... 63
Fig. 11. Software reliability estimation methods in relation to stages of the NPD
process in the case unit. ...................................................................................... 65
Fig. 12. Connection of the research papers to the new operational mode........................ 67
List of tables
Table 1. Research questions. ......................................................................................... 24
Table 2. Overview of research papers. .......................................................................... 27
Table 3. Characteristics in the business context of new product development
(Den Ouden 2006). .......................................................................................... 38
Table 4. Framework for describing and building business models................................ 57
Table 5. Business model evaluation framework (adapted from Slywotzky
(1996) and Hamel (2000)). .............................................................................. 58
Table 6. Process renewal procedure in the case unit...................................................... 61
Table 7. Summary of research contributions. ................................................................ 69
Table 8. Research contributions to the case company. .................................................. 72
Table 9. Research questions and contributions.............................................................. 78
List of original publications
This thesis is based on the following publications:
I Suikki R, Goman A & Haapasalo H (2006) A framework for creating business
models – a challenge in convergence of high clock speed industry. International
Journal of Business Environment 1(2): 211-233.
II Suikki R, Tromstedt R & Haapasalo H (2006) Project management competence
development framework in turbulent business environment. Technovation 26: 723-
738.
III Suikki R (2007) Process Renewal Driven by Disruptive Technologies. International
Journal of Business Innovation and Research 1(3): 281-295.
IV Suikki R & Haapasalo H (2006) Business impact of technology piloting – model for
analysis in different phases of development cycle. International Journal of Innovation
and Technology Management 3(2): 209-235.
V Suikki R (2006) Practical Use of Software Reliability Methods in New Product
Development. Proceedings of the 32
nd
EUROMICRO Conference on Software
Engineering and Advanced Applications, EUROMICRO SEAA 2006,
Cavtat/Dubrovnik, Croatia, 232-239.
Contents
Abstract
Acknowledgements
List of abbreviations
List of figures
List of tables
List of original publications
Contents
Introduction ...................................................................................................................... 19
1.1 Background and overview...................................................................................... 19
1.2 Research environment ............................................................................................ 23
1.3 Research objectives and scope................................................................................ 24
1.4 Research strategy and research papers.................................................................... 26
1.5 Research approach.................................................................................................. 27
1.6 Structure of the thesis ............................................................................................. 32
2 Theoretical foundation................................................................................................... 33
2.1 Changes in industries.............................................................................................. 33
2.2 Business environment............................................................................................. 39
2.2.1 Business models ............................................................................................ 39
2.2.2 Building business models .............................................................................. 41
2.2.3 Evaluating business models........................................................................... 42
2.3 Organisational learning........................................................................................... 44
2.3.1 Competence development ............................................................................. 44
2.3.2 Learning organisation and organisational learning........................................ 45
2.3.3 Organisational culture ................................................................................... 46
2.3.4 Knowledge management ............................................................................... 47
2.4 Quality management and process renewal.............................................................. 48
2.5 Pilot projects........................................................................................................... 50
2.5.1 Conventional product development............................................................... 50
2.5.2 Discontinuous product development ............................................................. 51
2.5.3 Prototypes and early trials ............................................................................. 52
2.6 Product reliability ................................................................................................... 53
2.7 Exploitation of the theoretical foundation .............................................................. 55
3 Models for management in a disruptive business environment ..................................... 56
3.1 A framework for creating business models – a challenge in convergence a
of high clock speed industry.................................................................................. 56
3.2 Project management competence development framework in a turbulent
business environment ............................................................................................ 58
3.3 Process renewal driven by disruptive technologies ................................................ 60
3.4 Business impact of technology piloting – model for analysis in different
phases of the development cycle ........................................................................... 62
3.5 Practical use of software reliability methods in new product development............ 64
4 Evaluation and discussion ............................................................................................. 66
4.1 Logical chain of inferences..................................................................................... 66
4.2 Implications ............................................................................................................ 68
4.2.1 Theoretical implications ................................................................................ 68
4.2.2 Managerial implications ................................................................................ 70
4.3 The reliability and validity of the research ............................................................. 74
4.4 Exploitation of the research.................................................................................... 75
5 Summary ....................................................................................................................... 77
References
Original publications
Introduction
This research was initiated as a response to better understand what kind of operational
mode is needed to promote the development and implementation of new disruptive
technologies in the telecommunications industry.
The case unit of this research was the Internet Protocol Convergence Business
Program (briefly IPC), a temporary Research and Development (R&D) unit that operated
in Nokia Mobile Phones and later in the Nokia Multimedia business group. The Nokia
Multimedia business group makes advanced telecommunication products such as devices
and solutions for imaging, games, media, and businesses. IPC was founded in 2002, and
it was discontinued at the end of 2004, when the personnel and ongoing projects were
merged with its operational mode and processes in the permanent organisational
structures of Nokia Multimedia. IPC consisted of both conventional R&D functions and
business development activities and had roughly one hundred employees. IPC was an
experimental organisation whose main objective was to find an efficient and fast way to
develop new applications, technological enablers, and features for the use of New
Product Development (NPD) projects. IPC acted as a pioneer and an adventurist in
creating and testing new technologies that would provide new opportunities for
customers.
1.1 Background and overview
Today’s telecommunications business environment, which is characterised by uncertainty
and the inability to predict the future, is challenging: the business environment is
changing quickly and the market requires new products with ever shorter product
development cycle times. So-called disruptive technologies (Christensen 1997) might
cause major changes in a business model and radically alter market positions. Paap &
Katz (2004) define disruption as follows: “The disruption in the term ‘disruptive
technology’ is not an attribute of technology. Rather, it describes the effect that some
technologies appear to have on markets affected by technology-based innovation and the
frequent downturn in the success of major firms that compete in those markets when they
fail to adopt the new technology in a timely way. It is a disruption in the business model.”
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We still live in a time of hyper-competition (D’Aveni 1995), which leads to the
situation where cycle-times in product development are ever shorter. We talk about
breakthrough products that require radical innovations, i.e. discontinuous improvement.
They are riskier than less innovative products, because the product itself is new, the
market is unknown, and time to market needs consideration (Deszca et al. 1999, Leeman
& Winer 1997). According to Moore (1999), products that require us to change our
current mode of behaviour or to modify other products and services we rely on are called
discontinuous innovations, while continuous innovations refer to the normal upgrading of
products. The ability to innovate continuously and faster than competitors is vital to a
company’s competitive advantage (e.g. Costanzo 2004).
Convergence is a phenomenon in which two or more existing technologies, markets,
producers, boundaries, or value chains combine to create a new force that is more
powerful and efficient than the sum of its parts (Hartman et al. 2000). Mobile and IP
(Internet Protocol) convergence brings together technologies and services from the
mobile and Internet domains (e.g. Darby 1999, Kari & Kilpeläinen 2001, Sengodan et al.
2000). The old and proven ways of doing business are no longer sufficient for success.
One of the challenges is to create a profitable business model for the mobile and IP
convergence era (e.g. Kari & Kilpeläinen 2001, Kelly et al. 2002, Steinbock 2001). The
mobile handset manufacturers’ proven way of doing business was selling mobile
terminals in a highly competitive market. These terminals were embedded systems,
incorporating software and hardware. Lately, however, an alternative approach has been
introduced: software is nowadays also sold separately from hardware. In the mobile and
IP convergence era, the significance of this development will be even more emphasised.
This means, that in addition to selling mobile terminals as embedded systems, the
consumers can be offered the possibility to buy additional software applications for their
devices. As a consequence, the mobile IP software application business is emerging.
Disruptive technological changes in the NPD process require the development of new
competences. Companies that are willing to survive in competition must react to the
changes quickly. According to Nyhan (1998) competence development is seen as one of
the critical strategic factors ensuring companies’ competitiveness. Competence is difficult
to ensure, because it is distributed in several levels of the company. Examples of these
levels are strategic or operative, and technological or business competence. However,
winning corporations must acquire these competences. In high clock speed industries,
where product life cycles are short, this acquisition process is even more complex,
because the content of the competence may not be known long beforehand. These
boundary conditions have given rise to much discussion (e.g. Ivergard 2000) about how
to gain these competences and create organisational and learning environments, such as
learning organisations, which foster employees’ skills and sense of initiative and
responsibility. The latest management and leadership literature (e.g. Sydänmaanlakka
2003, Ivergard 2000, Laughton & Otteweil 2003) stresses the managers’ and leaders’ role
in this kind of environment i.e., business competence management inside the
organisation. Common answers to meet these challenges are the learning organisation,
new ways of doing things, teamwork, communications, focus, and self-management. The
organisation’s role is to provide conditions to ensure this kind of competence
development (Senge 1994, White et al. 1996, Goldberger 1999). Project management
competence consists of knowing the project environment, project management skills,
21
leadership skills, and personal growth. Furthermore, Cavaleri & Fearon (2000) propose
that project management structures provide a natural home for organisational learning.
Project-oriented business management is one approach to manage turbulent business. For
future challenges managers need better knowledge of project management, better
understanding of the project orientation in business and the turbulence of the environment
they are working in.
When moving from development of continuous improvement products to continuous
innovation products, old and fit for use processes might not be appropriate any more;
process renewal should be considered along with the new operational mode. Possible
approaches to process renewal are total quality management (TQM) (e.g. Dale 1999) and
business process reengineering (BPR) (e.g. Hammer & Champy 1993). TQM, a
management system that aims at long-term continuous improvement in customer
satisfaction and real costs (e.g. Fazel 2003), has been used in countless companies since
its launch. BPR, on the other hand, is the rapid and radical redesign of strategic processes
to optimise the workflow and productivity in an organisation. It is generally accepted that
TQM can generate a sustainable competitive advantage (e.g. Prajogo & Sohal 2001), and
the importance of tools and techniques for TQM improvement has been proved (e.g. Tarí
& Sabater 2004). Chong & Rundus (2003) claim that the higher the degree of market
competition the more positive are the relationships between TQM practices of customer
focus and product design and organisational performance. Numerous papers have been
published on the relationship of TQM and BPR, and their similarities and differences
(e.g. Ahire & Waller 1994, Fazel 2003, Gore 1999, O’Neill & Sohal 1999). Fazel (2003)
says that both TQM and BPR embrace the same ideas and goals for organisational
improvements and both encourage employee empowerment, teamwork, quality, change,
and focus on the customer. Similarly, many studies give proposals on how to use TQM
and BPR. Fazel (2003) concludes that TQM and BPR should be used to complement each
other; TQM extends a successful BPR program, and BPR is the turning point of a TQM
initiative. Also O’Neill & Sohal (1999) summarise other authors’ ideas that TQM and
BPR should form an integrated strategic management system within organisations. They
say that both continuous and discontinuous improvements are needed.
Lately, one more challenge is recognised: to identify customers’ requirements when
technology platforms are unfolding, products are still in development and customers lack
experience with the products (Deszca et al. 1999). In addition to moving from continuous
improvement to continuous innovation, product and project management has changed
substantially in the telecommunications industry. This is partly a consequence of moving
from the traditional, so-called waterfall model, to an incremental software development
process (see e.g. Haapasalo & Ylihoikka 2004). All this sets new requirements for
companies’ R&D activities and on reliability and the other quality attributes of their
products.
Testing has gained a lot of attention in recent literature (Pol & Veenendaal 1998, Staab
2002, Davis 1997, Black 2004), as well as verification and validation (IEEE (1012-2004),
NIST 1996). However, verification and validation focus on testing against specifications
rather than validating business needs. ISO 9000-3 defines design verification as an
activity that develops procedures that specify how design outputs, at every stage of the
product design and development process, should be verified. The idea is that these
procedures should verify that outputs satisfy design-input requirements. This is clearly a
22
technical activity which takes place inside a company. Further, ISO 9000-3 defines
validation as an activity that develops procedures to validate the assumption that the
newly designed products will meet customer needs. Outsiders to the company are
connected to the product development process, firstly, when developing design validation
procedures that confirm that the new product performs properly under all real-world
operating conditions, secondly, confirming that the new product will meet every
legitimate customer need and expectation, and thirdly, ensuring that validations are
carried out early in the design process whenever this will help guarantee that customer
needs will be met. The conventional NPD process is viewed as a multi-phase process
starting from idea generation and progressing through to commercial launch (e.g. Lynn et
al. 1996). However, when facing the challenges described above, the sequential phases of
the steps no longer more work optimally even when there is an overflowing volume of
tools inside the phases (Ulrich & Eppinger 1995). Instead, the newfound NPD process
emphasises probing and learning from the experience gained through sequential probes
(Lynn et al. 1996).
Until now, as already said, mobile handset manufacturers have sold mobile terminals
that are embedded systems, incorporating software and hardware. The current trend is
that the proportion of software in the devices is ever-increasing, and further, software is
also sold separately from hardware. Consequently, in embedded systems where both
hardware and software component reliabilities are combined to get system reliability,
demands for software reliability increase. Therefore, software reliability is in the
spotlight. The source of failures in software is design faults, whereas the principal source
in hardware has generally been physical deterioration (Musa et al. 1987, Pressman 2001).
Estimating software reliability seems to be difficult. Assessing or predicting software
reliability is one of the biggest challenges in the software industry. The first software
reliability model was created in 1972 (Lyu & Nikora 1992). So far, more than one
hundred software reliability models have been developed (Kan 2003). However, none of
them has achieved the status of a de facto standard. Software reliability estimation is
important as it provides a means to predict software maturity i.e., when the software is
ready for release, and also to manage software risks during the different R&D phases of
NPD projects.
Despite changes in the business environment and the introduction of new innovative
products, the NPD process is still the solid foundation for product development, even
though it requires updating due to the above-mentioned facts. Ulrich & Eppinger (1995)
presented the generally known NPD process that includes five phases: concept
development, system-level design, detail design, testing and refinement, and production
ramp-up. Cooper’s (2001) new product process includes product development, in-house
product testing, customer tests of the product, trial sell, trial/pilot production or operation.
Cooper’s (2001) Stage-Gate process is a conceptual and operational model for moving a
new product project from idea to launch. Stage-Gate breaks the innovation process into a
predetermined set of stages, each stage consisting of a set of prescribed, cross-functional,
and parallel activities. Generally these kinds of models focus on developers’ interests to
verify specifications, not to adjust features to the customers, even undefined needs. Den
Ouden (2006) talks about the business creation process. She uses the term “business
creation process”, because it has a wider scope than NPD process. It includes the main
processes such as strategy, new product development, manufacturing, market
23
introduction, and sales and service. In each of these processes decisions are made that
influence the end user experience, and if the product is falling short of the end user’s
expectation, they are dissatisfied and might complain (Den Ouden 2006).
1.2 Research environment
According to Kostamo (2001), in the 1990’s in the mobile telecommunications industry
there were only a few players who had a big market share. The distribution channels of
mobile phones included telecommunications operators, retail sale chains owned by them,
and various distribution enterprises. Today, there are thousands of players in the
playground. After switching to the mobile Internet world, the playground became more
complex. Digital data transfer, data processing and multimedia technologies are brought
to wireless communications with the Internet. All of them are still evolving. In the
Internet playground the essential players include terminal manufacturers, software
houses, Internet- and data network equipment manufacturers, mainframe-, server- and
memory device manufacturers, and telecommunications operators including IP operators,
content providers and portals. The relationships between them are complex. Thus, the
case company is faced with a wholly new competitive environment.
The market structure is likely to evolve, and the roles of players change and intervene
in formerly restricted areas of other players (Kostamo 2001).
Zoller et al. (1999) say that numerous groups of players are all willing to take
advantage of the new mobile world, which will increase competition. Mobile device
manufacturers will face the threat of new players that, in some cases, will have the skills
and technology they lack. Powerful industry alliances and joint ventures are trying to
define standards. The winners will shape how the market will develop.
Chesbrough & Rosenbloom (2002) argue that the inherent value of a technology
remains latent until it is commercialised in some way. If the technology does not fit in the
current business, it is essential the companies expand their perspectives to be able to find
the right business model in order to capture value from that technology. Even though a
technology seems to embody attractive potential value proposition, its commercialisation
can fail, if the firm does not discover the proper business model capable of realising that
value.
According to Chesbrough & Rosenbloom (2002), it is often difficult for firms to
manage innovations that do not fit into their previous experience, when their earlier
beliefs and practices do not apply. When attempting to commercialise promising new
technological capabilities, current perspectives can pose a constraint. Especially when old
models have been successful, they provide both a source of value realisation, and a
potential source of cognitive bias. Even if a technology makes little or no business sense
in a traditional business model, it may capture great value when brought to market with a
different model. A business model integrates earlier perspectives into a coherent
framework that takes technological characteristics and potentials as inputs, and converts
them through customers and markets into economic outputs. It is thus conceived as a
focusing device that mediates between technology development and economic value
creation.
24
1.3 Research objectives and scope
The main research problem arises from the fact that there has only been a little research
done on the operational mode, processes, and practices for promoting development and
implementation of disruptive technologies. The case unit lacked refined and established
methods, processes and operational mode to introduce disruptive technologies. An
efficient and effective operational mode is needed to assure profitable breakthrough in the
market, to guarantee competitive advantage over rivals, and to react quickly to changes in
the business environment and technological development. In particular, a quick response
is required when disruptive technologies are introduced by competitors and the case
company has to catch up with the leader to remain competitive in the new situation.
The research problem of this study is stated as follows:
What kind of operational mode is needed to introduce disruptive technologies?
This problem is approached from five different perspectives - business environment,
competence development, process renewal, running technology pilots, and product
reliability - where five research questions (RQ) are formed (table 1) for compiling the
research findings as a whole.
Table 1. Research questions.
# Research question
RQ1 How to build and evaluate business models?
RQ2 How to develop competences?
RQ3 How to renew processes?
RQ4 How to involve customers?
RQ5 How to estimate the reliability of products?
These research questions are related to each other, even though their focus is different.
The research questions - from one to five – move from a wider to a narrower subject
matter. Fig.1 depicts the scope of the thesis - the individual research areas are illustrated
with a cone. The cone depicts the change in the width of the perspective when moving
from one research area to another; the deeper one goes into the cone the narrower the
perspective becomes. When considering business models one must also keep in view
other industries, not just the case company. When competence development is studied,
other industries are considered, but the main focus is in the case company. Going further
in the cone, process renewal focuses more on the case unit and discusses how the renewal
was experienced in the case unit. Finally, the perspective regarding running technology
pilots and product reliability studies is on the project level.
The research subjects were chosen in order to understand the nature of the operating
area as a whole. Each of these areas is large and would be worth further studies.
However, this scope was chosen as an initial move. The first research question (RQ1)
considers the business environment to create the basis for selecting an appropriate and
profitable business model. The second research question (RQ2) reviews competence
development to guarantee the company’s ability and capability to succeed in introducing
new technologies. The third research question (RQ3) examines processes and practices
25
and their renewal driven by disruptive technologies. The fourth research question (RQ4)
goes deeper in the technology and its implementation, and investigates customer
involvement in the NPD process; customer satisfaction is one of the primary drivers of
most contemporary companies. Finally, the fifth research question (RQ5) discusses the
estimation of reliability – especially software reliability as great part of a new technology
is implemented through software.
Considering organisational dimensions, the scope of the research on business models
(RQ1) is valid on the company level and even beyond the case company. Competence
development (RQ2) research is discussed from the overall viewpoint of the case
company. When progressing to studies of process renewal (RQ3), running technology
pilots (RQ4), and product reliability (RQ5), the scope decreases in the organisational
dimension from a business unit to a project level.
Fig. 1. Research framework.
The five research perspectives were chosen at the very beginning of the research. The
focus within the perspectives might have changed a bit, but however, the main research
areas remained the same during the whole study.
Inputs to this research were disruptive technologies and mobile and IP convergence. In
this study they are taken as given and investigating reasons for identifying them are
outside the scope of this research. This research does not cover the implemented
technologies themselves or different instances of quality. The reasoning behind the
foundation of IPC is out of the scope of this research, too. Agile software development
(e.g. Beck et al. (2005) and in particular Extreme Programming (XP), a software
26
engineering methodology, which can be considered to be an extreme case of a pilot
project where the customer participates in the development directly, are outside the scope
of this thesis. However, customer involvement is considered in the fourth research paper
discussing pilot projects, when introducing new technologies. Fig. 2 demonstrates the
“research path” of this research. The five research questions or research subjects are
marked by a circle with the text “RQx”. The circles without any text inside depict other
possible research subjects that were left out of this research. Fig. 2 illustrates that the
highlighted path is just one of many possible paths. The figure shows that this research
covers just the chosen research subjects. Of course, there were numerous other subjects to
select, but these were topical to the case unit at the time when this research was
conducted. The figure shows also that there is room for further study.
Fig. 2. Research path.
1.4 Research strategy and research papers
In this thesis, the research problem is divided into five research questions, which have
different aspects, still related to each other, as described in the previous chapter. Each
research question is answered with the help of a published article, a research paper. Each
research paper provides a partial solution to the research problem. This thesis combines
the contributions of the research papers to give a solution to the original research
problem.
Thus, this thesis is a collection of five original publications with this summary. Four of
them are journal articles and one article was published in a refereed international
27
conference. I have been the primary author in all of the original publications. In the
papers accompanied by other writers I ensured the novelty of the contributions and
incorporated them to give additional value to this research as a whole and to the research
environment. In the research paper concerning business models, then I condensed the
study into a more compact presentation and assessed its relation to the current
knowledge. In the research paper concerning competence development, in addition to
compression of text, I evaluated the significance of the framework studied in a wider
perspective. In the paper discussing technology pilots, I reviewed the literature with the
other writer, but the research data was studied and analysed by me. Table 2 lists the
articles and combines them with the research questions.
Table 2. Overview of research papers.
# Title Authors Publication Research
question
I A framework for creating business models
– a challenge in convergence of high clock
speed industry
Suikki, R.,
Goman, A.,
Haapasalo, H.
International Journal of Business
Environment, 2006, 1(2): 211-233
RQ1
II Project management competence
development framework in turbulent
business environment
Suikki, R.,
Tromstedt, R.,
Haapasalo, H.
Technovation, 2006, 26: 723-738 RQ2
III Process Renewal Driven by Disruptive
Technologies
Suikki, R International Journal of Business
Innovation and Research, 2007, 1(3):
281-295
RQ3
IV Business impact of technology piloting –
model for analysis in different phases of
development cycle
Suikki, R.,
Haapasalo, H.
International Journal of Innovation
and Technology Management, 2006,
3(2): 209-235
RQ4
V Practical Use of Software Reliability
Methods in New Product Development
Suikki, R. Proceedings of the 32
nd
EUROMICRO Conference on
Software Engineering and Advanced
Applications, EUROMICRO SEAA
2006, Cavtat/Dubrovnik, Croatia,
232-239
RQ5
1.5 Research approach
In the main, this research follows normative and action research approaches. However,
other approaches are used as well, as the thesis is composed of five research papers:
constructive research, participant observation research, and case study research
approaches. Principally the study follows a qualitative research approach. However, a
quantitative research approach is also used in some research papers.
There are different methods and paradigms available to support different scientific
approaches. The main thing is to choose methods that support the scientific problem by
applying thinking and interpretation, which leads to the desired end result. Normative
28
research is looking for results which can be utilised when developing current activities or
creating something new. Descriptive research tries to describe the phenomena by creating
concepts, describing processes, etc. in order to increase the understanding of the
phenomena.
This research aims at understanding the changing environment and, based on the
increased understanding, to improve working methods, operations, and practices. A
normative research approach supports this target. Additionally, the researcher acted in the
case unit studied, and therefore was able to participate in the actions conducted and was
also able to change and modify the actions taken. Thus, an action research approach
provides the prerequisites for this study.
The target of normative research is to gather facts and also to point out in which
respects the object of study can be improved. Normative research includes evaluation of
the present state of things and also of the direction of future development. Normative
research produces the theory of practice for a professional activity, which can consist of
recommendations, rules, standards, algorithms, advice or other tools for improving the
object of study (e.g. Olkkonen 1993).
According to Routio (2006), in its simplest layout, the normative process of research
and development might consist of a linear series of simple decisions e.g., defining the
target, defining which factors in the context can be modified and which not, planning
how to reach the target, selecting the best alternative, making a detailed plan of action,
submitting practical proposals to the people that can decide on the operations in practice.
However, many normative projects deal with complex practical problems, and it is
impossible to proceed directly to the synthesis and proposal. Hence, iteration is needed
which is illustrated by a spiral (see Fig. 3). The iteration includes steps: (1) evaluative
description of the initial state and defining the needed improvements, (2) analysis, (3)
synthesis, and (4) evaluation. The steps follow Deming’s (1986) Plan-Do-Check-Act
cycle.
29
Fig. 3. Iteration in normative research.
By repeating the sequence from 2 to 4, an acceptable result is usually found.
The term “action research” was introduced by Kurt Lewin in 1946 (Susman & Evered
1978). According to Avison et al. (1999) action research combines theory and practice
through change and reflection in a problematic situation. Action research is an iterative
process involving researchers and practitioners acting together on a particular cycle of
activities, including problem diagnosis, action intervention, and reflective learning. The
action research process is illustrated in Fig. 4.
30
Fig. 4. Action research process modified from Susman & Evered (1978).
Susman & Evered (1978) list six characteristics of action research: (1) Action research
is future oriented in dealing with the practical concerns of people. (2) Action research is
collaborative; interdependence between the researcher and the client system is essential.
(3) Action research implies system development; the aim in action research is to build
structures, system, and competences, and to modify the relationships of the system. (4)
Action research generates theory grounded in action; theory provides a guide where to
concentrate and for generating possible courses of action to solve the problems of
members of the organisation. (5) Action research is agnostic; theories and prescriptions
for action are the product of previously taken action and are subject to re-examination
and reformulation in every new research situation. (6) Action research is situational;
many of the relationships between people, events, and things are a function of the
situation as relevant actors currently define it.
Baskerville (1999) says that the various forms of action research share some agreed
characteristics, and they distinguish action research from other approaches for social
enquiry. He lists four common characteristics: (1) an action and change orientation; (2) a
problem focus; (3) an “organic” process involving systematic and sometimes iterative
stages; and (4) collaboration among participants. Different types of action research
according to Avison et al. (1999) are: (1) action research focusing on change and
reflection; (2) action science trying to resolve conflicts between espoused and applied
theories; (3) participatory action research emphasising participant collaboration; and (4)
action learning for programmed instruction and experiential learning. Dick (2000)
characterises action research as cyclic, participative, reflective and qualitative. An
important advantage of action research is that it can achieve results without which the
research would have been ignored.
31
Action research also brings problems for the researcher. Representing mostly
qualitative approach, Baskerville (1999) claims that the lack of generally agreed criteria
for action research complicates the publication review process. Both Avison et al. (1999)
and Baskerville (1999) insist on exactness from researchers in their research approach,
research aim, theory, and method to avoid professional problems. E.g. their work might
be described as consulting instead of research. Ethical aspects should also be considered
to guarantee the success of the research.
Many authors (e.g. Susman & Evered 1978, Schön 1983, Baskerville 1999) claim that
research methods and techniques have become more complicated, situations of practice
are more problematic and characterised by uncertainty, disorder, complexity, continuous
changes etc., and that human organisations can only be understood as whole entities.
Baskerville (1999) says that the fundamental contention of the action researcher is that
complex social processes can be best studied by introducing changes into these processes
and observing the effects of the changes.
Schön (1983) writes about “reflection-in-action” meaning the professional manager’s
thought process. “Reflection-in-action” clarifies the struggle between art and science.
According to Schön (1983) research is institutionally separate from practice, connected to
it by defined relationships of exchange. Researchers provide the basic and applied
science from which to derive techniques for solving the problems of practice.
Practitioners furnish researchers with problems of study and with tests of the utility of
research results. There is a gap between professional knowledge and the demands of real-
world practice. Schön (1983) writes that in the spontaneous, intuitive performance of the
actions of everyday life one shows himself or herself to be knowledgeable in a special
way, however, not being able to say what he or she knows. One’s knowing is tacit,
implicit in the patterns of action.
This research is characterised as normative action research, which seeks models for
everyday business-related problems by means of action research. This research, as a
whole, follows the characteristics of participatory action research, which combines theory
and practice through change and reflection in a problematic situation by the researcher
and practitioners. In this study the researcher belonged to the community where the
research was done. The researcher had several roles in this research; a planner, leader,
facilitator, teacher, observer, and reporter. Action research is an iterative process
involving the researcher and practitioners acting together on a particular cycle of
activities. Action research addresses complex real-life problems and the immediate
concerns of practitioners. All this applies to this research.
Fig. 5 illustrates the research approach of this thesis. Each research question
corresponds to one iterative cycle of the action research process. The five research papers
form a chain of sequential action research cycles. Iterations in a cycle and each cycle in
the chain of cycles add understanding and knowledge to the research environment.
32
Fig. 5. Research approach.
1.6 Structure of the thesis
The thesis consists of five individually published papers and this summary, which is
organised as follows: Chapter 2 presents the theoretical foundation for the research.
Chapter 3 summarises the five published papers, which are included at full length in the
Appendix. In chapter 4 the overall findings of the study are presented by addressing the
research questions based on the research contributions and findings from the individual
papers. Finally, chapter 5 summarises the research.
2 Theoretical foundation
2.1 Changes in industries
Many industries are today faced with ever-increasing speed. Moore’s law (Moore 1965),
which predicts that the transistor density of semiconductor chips would double roughly
every 18 months, describes the speed of technology development well. Despite the fact
that Moore’s law was published more than forty years ago, it is still often referred to.
Today, businesses shift their portfolio of products towards more innovative products with
higher degrees of uncertainty. At the same time, changes in industries have a much larger
impact than before and it is becoming increasingly difficult to achieve product quality
targets.
Goldratt (1990) writes about a process of ongoing improvement, which can sustain a
company’s excellent performance in the long run. He argues that before we can deal with
the improvement of any system, we must first define the system’s global goal and
recognise the role of the system’s constraints. A constraint is anything that limits a system
from achieving higher performance versus its goal. Goldratt (1990) proposes to rethink
the current situation once more and precisely define – verbalise - the problem caused by
constraints. He argues that all our inventions, decisions, and convictions are based only
on intuition. What is missing is the ability to verbalise our intuition, to provoke it, focus it
and cast it precisely into words. As long as proper verbalisation is not used, we ourselves
will act in ways that contradict our own intuition.
Moore (1998, 1999) writes about the development of high-tech markets. He advises
how to move from an early market dominated by a few visionary customers to a
mainstream market dominated by a large group of customers who are pragmatists in
orientation. He presents a technology adoption life cycle, a model for understanding the
acceptance of new products (see Fig. 6). He proposes that a new technology product is
adopted first by a few innovators, who are technologists and pursue new technology
products aggressively. The next group buying new technology products are early
adopters, who find it easy to understand and appreciate the benefits of a new technology.
The early majority are driven by a strong sense of practicality and are ready to wait to see
how other people adopt new products before buying. The people in the late majority wait
34
until products have become an established standard before buying them. The last group is
laggards, who don’t want anything to do with new technology; they buy a technological
product when it is buried so deep inside another product that they don’t even know it is
there. According to the technology adoption life cycle the way to develop a high-tech
market is to work the curve left to right (see Fig. 6), focusing first on innovators, early
adopters, early majority, late majority, and finally on laggards. In addition to expanding
the market, there is another motive, namely keeping ahead of the next emerging
technology, the idea of a window of opportunity.
Fig. 6. Technology adoption life cycle (Moore, 1998).
Christensen describes (1997) how new technologies can initiate discontinuities in
industries. Disruptive technologies might cause major changes in a business model and
radically alter market positions. Only seldom can a market leader keep its position.
Typically, in a discontinuity created by disruptive technologies, market dominance is
changed to new players and the market share of the previous leader collapses. A
newcomer or a previous minor player takes a major part of market share and profits.
Christensen (1997) characterises disruptive new technology as a technology that is
originally not demanded by the industry’s mainstream customers or markets, but by a
small niche market or a totally different customer segment. The new technology later also
replaces the earlier mainstream technology.
According to Christensen (1997) a market leader is usually very carefully trying to
respond to its customers’ needs and therefore is tempted to neglect a new market that is
not seen important enough to be interesting. A new business opportunity might also be
undetected, because the market segment is different from the current one. E.g. customers
and delivery channel are different from existing ones, thus remaining undetected. If the
market leader is a technology-oriented company, it might even be able to develop the new
35
technology first. Anyhow, this new technology is usually not utilised. A market leading
mainstream company will most often not focus its manufacturing or marketing efforts to
a new and unknown business segment, because the new market size is too small or
customers are not recognised. In a fierce market share fight, all available resources are
focused on boosting the currently profitable business, and assets are not directed to new
uncertain areas. Technology development effort is directed to the sustaining technologies.
This kind of market arrogance leaves a door open for a company that decides to enter the
industry through this initially niche market, which might later grow to be the mainstream.
Moore (1998) discusses discontinuous innovations as paradigm shifts. These shifts
begin with new category products that incorporate breakthrough technology. At first, the
market resists these products and the changes they introduce. But in many cases, finally,
there comes a flashpoint of change when the entire marketplace shifts its loyalty from the
old technology to the new.
Many authors (e.g. Matthews 1991, Christensen 1997, Moore 1998, Hakkarainen
2006) write about replacing old technologies with new ones. At first, the performance of
a new technology is usually rather low, but it improves until the technology reaches the
improvement period of its lifecycle, when the improvement becomes rapid. Progress
slows down in the mature period and comes to an end when limits of the technology are
reached. This is described as S-curves. New disruptive technologies are typically initially
not competitive with mature, older technologies. But the S-curve effect typical to a new
technology’s performance improvement vs. time or development effort might change
financial positions. Fig. 7 is based on Christensen’s (1997) presentation and is
complemented by Moore’s (1998) subsequent stages in the life-cycle model i.e., “bowling
alley”, “tornado”, and “main street”.
36
Fig. 7. S curves modified from Christensen (1997) and Moore (1998).
According to Christensen (1997), new technology development teams might be able to
develop a new technology to a level where the old technology’s capabilities are also
exceeded in the mainstream market, and also the mainstream turns to the new technology.
New technology performance improves rapidly and with minor efforts in the beginning of
the development life cycle, but later on even a minor improvement in technology requires
huge effort. Sometimes the new disruptive technology’s performance does not exceed the
old technology performance. The old technology can maintain its advantage and the new
technology remains in its original market segment. A second option is that after a fierce
improvement phase (rapidly rising part of S-curve) the new technology exceeds the old
technology’s performance. In the case of crossing S-curves, the new technology replaces
the old one quite rapidly in the mainstream market, thus causing a radical change in
product demand. If the new technology also introduces changes in business concept, or
changes in how value-added is allocated to the value chain, the impact is even more
radical.
Perhaps the clearest case of crossing S-curves in the cellular telecommunication
industry history has been the introduction of digital technology. At the starting point,
digital mobile terminals were much worse in performance than analogue mobile phones,
thus making the analogue phones more preferred by end users. After a few years of
technology development, the digital phones’ performance clearly exceeded the
performance of the analogue ones, thus changing the end-user preference to the digital
phones.
37
Christensen (1997) argues that leadership in sustaining technologies may not be
essential, but leadership in disruptive technologies creates enormous value. He suggests
that large companies should seek to embed the project in an organisation that is small
enough to be motivated by the opportunity offered by a disruptive technology in its early
years. Christensen (1997) claims that this can be done either by spinning out an
independent organisation or by acquiring an appropriately small company.
Den Ouden’s (2006) study deals with introducing new technologies to the consumer
electronics industry. The study reveals that the number of customer complaints in
consumer electronics industry is ever-increasing and that consumers do not only
complain about technical product failures, but also about non-technical product failures.
Non-technical failures occur when the product does not satisfy their expectations, but
does function technically. Den Ouden (2006) lists four major trends that influence
product quality and reliability: (1) increasingly complex products, (2) strong pressure on
time-to-market and fast adoption cycles with fewer product generations, (3) increasingly
globalised economy, and (4) decreasing tolerance of customers for quality problems;
consumers are returning products when they are not satisfied, even when the product is
technically functioning according to the specification. Consumer complaints, especially
complaints of non-technical failures, are caused by a wide range of decisions taken in the
business creation process. In many cases it is no longer feasible to improve on consumer
complaints in the current range of products. Improvement will have to be made over
product generations. This means that it will not be sufficient to make adaptations in the
business creation process as such, but the product innovation cycle will need to be
adapted. The product innovation cycle should include learning from complaints with
previous products and aim at prevention of consumer complaints in new products.
Currently many businesses are facing an increasing number of consumer complaints,
despite the application of quality tools that were proved to be very powerful in the past.
The traditional quality and reliability field monitoring systems are set up for technical
failures only. They check if the product is functioning according to the technical
specification. Problems of a non-technical nature are classified as “Failure Not Found”
and causes of these problems are still unknown. Den Ouden (2006) claims that the
available approaches/tools to fulfil product quality and reliability are not sufficient any
more, even they were applicable earlier with continuous improvement products; the
approaches studied were: project management, quality management, customer/user
centred design, learning in and across projects, Quality Function Deployment (QFD),
consumer involvement in idea generation, evaluating and testing with consumers, risk
management and Failure Mode and Effect Analysis (FMEA), Design for Six Sigma
(DfSS) and robust design, and quality and reliability testing. Instead of choosing one
preferred approach, Den Ouden proposes an adaptable approach, which, however, still
needs further study.
To understand the challenges industries have today, one must realise the changing
environment of the businesses. A comparison of the mid-nineties and present-day
situation reveals major differences in the business context. Table 3 shows the main
characteristics.
38
Table 3. Characteristics in the business context of new product development (Den Ouden
2006).
Until mid-nineties Nowadays
Business strategy Maintaining market share through
production of high volumes and selling at
competitive prices
Growth of turnover and profit through
attractive, innovative products at higher
price points
Product portfolio Incremental innovations; existing
technologies to existing markets (Garcia &
Calantone 2002)
Really new products; new technologies to
existing markets or existing technologies to
new markets (Garcia & Calantone 2002)
Number of
product
generations to
reach commodity
> 10: enough time to learn consumer
expectations and improve technical product
quality and reliability
~3: no time to learn over product
generations
Main uncertainty Technology, in relation to cost effective
mass production
Market, in relation to attractiveness of
product and expectations of consumers on
the product functions
Product
complexity
Low: limited functions and connectivity
options
High: multiple-functions and connectivity
options
Consumer
expectations
Known, due to stable markets and
incremental innovations
Unknown, due to dynamics in market and
decision to introduce really new products
Role of
specification
Fixed and complete at start, stable through
the project
Evolving over time
The present-day telecommunications industry is changing continuously; existing
technologies are replaced by newer ones, moving from sustaining technologies to
disruptive technologies is happening, products are becoming ever more complex, the
business environment is changing, etc. Telecommunication devices have evolved from
“just” mobile phones to advanced devices including sophisticated features and services,
e.g. imaging, music, videos, games, multimedia messaging. Den Ouden (2006) deals with
introducing new technologies in the form of innovative products in consumer electronics
industry. Her studies are very relevant, as the same phenomena are also happening in the
telecommunications industry. The ideas presented by Christensen (1997) and Moore
(1998, 1999) deal with the macro level of the business environment in general, not any
specific industry. It gives a firm standpoint for further studies. This research tries to solve
problematic situations on the case company level: what kind of business model is
appropriate, which new competences are needed and how to acquire them, are current
processes suitable for implementing disruptive technologies, how to involve customers in
new product development, and how to ensure reliability of software during the R&D
phase. The next chapters (2.2 – 2.6) cover theories on these topics and chapter 2.7
describes the utilisation of these theories.
39
2.2 Business environment
The telecommunications industry is in the middle of convergence, which means networks
and terminals dedicated to a given purpose will gradually disappear or merge. (Teleware
2001). Mobile and IP convergence brings together technologies and services from the
mobile and Internet domains. This will open up many new opportunities. (See e.g. Darby
1999, Kari & Kilpeläinen 2001, Sengodan et al. 2000.) A lot is expected from the
convergence of the two most successful innovations of the telecommunications industry,
the Internet and mobile communications (Kelly et al. 2002).
In other words, according to many authors (e.g. Kari & Kilpeläinen 2001, Kelly et al.
2002, Steinbock 2001), the rapidly evolving mobile telecommunications business is
experiencing a discontinuity on the brink of a new era, caused by mobile and IP
convergence. This discontinuity opens up opportunities, but it also brings a considerable
amount of uncertainty to the business. The old and proven ways of doing business are no
longer sufficient for success. The difficulty is in finding the right ways to take advantage
of the opportunities and profiting from them. One of the challenges is to create a
profitable business model for the mobile and IP convergence era.
Several writers (Kostamo 2001, Kari & Kilpeläinen 2001, Zoller et al. 1999, Barret &
Ahonen 2002) propose that the mobile handset manufacturers’ proven way of doing
business is selling mobile terminals in the highly competitive market. These terminals are
embedded systems, incorporating software and the hardware. Lately, however, an
alternative way has been introduced: software is nowadays also sold separately from
hardware. New services and applications will be created and offered by numbers of
service developers, even by end users. User-generated content will also drive the
development, but naturally also network operators and third party service providers will
create services. It is still unclear as to with which devices the combining of Internet and
mobility will be achieved. It is only certain, that there will be no single terminal type, but
multiple solutions.
The product could also be software, which is an example of information goods. The
cost structure of producing information differs from the usual: the fixed cost is high but
marginal cost is low. Furthermore, with advances in technology, the cost of distributing
information is falling considerably (Shapiro & Varian 1999). Digital products can be
transmitted over the Internet instantly and at almost no measurable marginal cost (De et
al. 2001). Kostamo (2001) writes that in the mobile and IP convergence era there are a lot
more players in the game than before and at the same time technologies are evolving
rapidly and business models are transforming. The market structure is likely to evolve,
and the roles of players change and intervene in formerly restricted areas of other players.
2.2.1 Business models
Timmers (1998), Magretta (2002), and Hamel (2000) note that literature has not been
consistent in using the business model concept. A variety of terms are used to mean
roughly the same, including business model, business design (e.g. Bovet & Martha
2000a, Kalakota & Robinson 1999, Slywotzky 1996), and business concept (e.g. Hamel
40
2000). In this research, a business model describes (1) the offering, (2) the value chain or
network, and (3) the revenue model of the enterprise. The chosen elements are those that
are of most interest in this study.
As Normann & Ramírez (1994) discuss, a clear distinction between products and
services can no longer be drawn. Offering is a concept that is comprised of them both: it
is used to refer to any output of a value creation system (the producer or supplier) that is
an input to another (the customer). Offerings consist of three components: physical
goods, services, and ideas or information. The goal of any offering is to create value for
the customer. (Band 1991, Kotler 1997, Normann & Ramírez 1994.) Kotler (1997) has
presented five levels of an offering – core benefit, basic product, expected product,
augmented product, and potential product - each of which adds more customer value.
Activity to create value is the basic building block of business (Normann & Ramírez
1994). The concept of value chain was originally developed by Porter (1985). He refers
to a company’s internal value chain. Later the concept has also been used to denote an
industry-wide value chain, which Porter names value system (see also Kotler 1997,
Hoover et al. 2001). Lately this has been widely replaced by the term value network, as
the nature of business has evolved towards networked environments (Allee 1999). In
value constellations, co-production of value is an essential term; it refers to supplier and
customer working together in the joint value creation process, and thus helping each other
to create value (Normann & Ramírez 1994). Wikström et al. (1994) describe the same
model as value star. The company needs to define its strategic position in relation to the
customer’s value creation process, around which the value star is composed. The modern
networks that are emerging with e-business, generally share the characteristics of the
traditional networks, but differentiate themselves through digitality (Sweet 2001, Bovet
& Martha 2000b, Tapscott et al. 2000). Amit & Zott (2001) have created a model of the
sources of value creation in e-business: they are efficiency, complementarities (that are
present whenever having a bundle of goods together), lock-in (manifested as switching
costs), and novelty.
Revenue model is an inherent part of a business model. It describes how the company
finances its operations, i.e. how and from whom the revenue is generated (Rajala et al.
2001). The company should define its revenue model in conjunction with identifying the
market in which the company will compete (Chesbrough & Rosenbloom 2002).
Shapiro & Varian (1999) and Shy (2001) discuss ICT (Information and
Communication Technologies) industries. They claim that ICT industries belong to so-
called network markets that include e.g. the telephone, email, the Internet, computer
hardware, and computer software. The cost structure of ICT goods differs from the usual:
the fixed cost is high but marginal cost is low, practically negligible. This kind of cost
structure implies that the average cost function declines sharply with the number of
copies sold. Thus a competitive equilibrium does not exist, and markets of this type will
often be characterised by dominant leaders that capture most of the market.
41
2.2.2 Building business models
Porter (2001) questions the value of business models. He argues that simply having a
business model is an extremely weak foundation for building a company, and that no
business model can be evaluated independently of industry structure. Moreover,
according to him, the business model approach to management leads to faulty thinking
and self-deception.
Nevertheless, contrary views do exist. As Magretta (2002) argues, a good business
model is essential for an organisation to succeed, yet this does not mean that a business
model alone would be enough – a company still needs a competitive strategy. It is clear,
that a business model alone is no magic solution, nor can it be evaluated without putting
it into the right context. However, used in the right way, business modelling is an efficient
management tool. When used correctly, a business model forces managers to think
closely about their businesses. A model can by itself create a strong competitive
advantage, and it can be used to get the whole organisation aligned around the kind of
value the company wants to create. A good business model can become a powerful tool
for improving execution.
In addition, companies have to consciously and continuously improve their business
models. Slywotzky (1996) says that value migrates from outmoded, economically
obsolete business designs to new ones that more effectively create utility for the customer
and capture value for the producer. Sooner or later, every business model reaches the
point of diminishing returns: traditional business models just do not keep on bringing
ever growing revenues forever. Therefore, business model innovation is obligatory to be
able to create new wealth (Hamel 2000). The business design dimension is no longer an
optional part, but it is elementary for a company intending to stay in business (Kalakota
& Robinson 1999).
Constructing a business design requires making a number of critical choices. If the
business design is to succeed, its elements must be aligned with customers’ most
important priorities, and the elements must be tested for consistency with each other to
ensure that the business design functions as a coherent, mutually reinforcing whole.
Building a powerful business model is challenging. Therefore, a set of questions can be
used to help in selecting the most powerful elements as Slywotzky (1996) proposes. The
foundation of a business design is a set of basic assumptions about customers and
economics. These assumptions profoundly influence the design’s overall strength and
viability, and therefore must be examined carefully and made explicit. The next task is
defining those elements that match customers’ most important priorities. Having
established the core of the offering that will create utility for the chosen customers, the
task is to define how the organisation delivers that utility and the degree to which it can
earn a profit while doing so.
Hamel & Prahalad (1996) propose a somewhat similar approach, which is also based
on answering some key questions about the concept of served market, revenue and
market structure, configuration of skills and assets, and flexibility and adaptability.
The third approach, based on question lists, is that of Hamel (2000). His framework
for unpacking the business model consists of four major components: core strategy,
strategic resources, customer interface, and value network. Each of these has several
42
subcomponents. The four major components are linked together by three bridge
components: configuration of activities, customer benefits, and company boundaries.
Underpinning the business model are four factors that determine its profit potential:
efficiency, uniqueness, fit, and profit boosters.
Timmers (1998) approaches the question of building a business model with a different
method. He presents a systematic approach for identifying business model architectures,
which is based on company internal value chain deconstruction and reconstruction, i.e.
identifying the elements of the value chain and possible ways of integrating information
along the chain. The framework thus consists of three elements (Timmers 1998):
? Value chain deconstruction, which means identifying the elements of the value chain.
? Interaction patterns, which can be one-to-one, one-to-many, many-to-one, many-to-
many.
? Value chain reconstruction, that is integration of information processing across a
number of steps of the value chain.
The possible business model architectures are then constructed by combining interaction
patterns with value chain integration.
The last approach presented has characteristics from the two different types of
approaches discussed above. To create an innovative business design, first some
questions need to be answered. Kalakota & Robinson (1999) suggest that after answering
the questions, there are three steps in business design. The first step is self-diagnosis.
Before beginning to create an e-business design, the company must be diagnosed. There
are three categories of companies: market leaders, early adopters or visionaries, and the
silent majority. One has to see where in the picture one’s company is, and if the position
is not desirable, make a path to get where one would rather be. The second step is
reversing the value chain. Success depends on creating new product offerings in which
customers see value. Successful companies no longer just add value; they invent it. To
achieve this, the traditional value-chain thinking must be revised. In contrast to the
traditional inside-out models, by which businesses define themselves in terms of the
products they produce, the business design has to be outside in, and the strategy has to
revolve around the customer. Customer needs must be the starting point for creating new
offerings. Business designs are an outcome of the reconfiguration and integration of
competences, channels, application infrastructure, and employee talent. The creation of a
business design is inseparably linked to the management of change. Change is not an
uncontrolled activity; choosing a narrow focus sets the boundaries of change. Thus, this is
the third step. As there are few organisations that can do many things well, a narrow
focus is often more powerful than a much broader one.
2.2.3 Evaluating business models
As Magretta’s (2002) definition of business model has two components: a story that
describes how an enterprise works, and modelling the behaviour of business numerically,
so does the way she evaluates business models. There are two tests that a successful
business model must pass: the story must make sense, and the calculations must show
ability to make profit. Just as in a good story, elements of a good business model include
43
precisely delineated characters, plausible motivations, and a plot that turns on an insight
about value. When it comes to numerical modelling, a spreadsheet is only as good as the
assumptions that go into it, and these assumptions about economics and motivations of a
model are really tested only in the marketplace. Magretta (2002) continues that in order
for a business model to be successful, it has to represent a better way than the existing
alternatives, either by offering more value to a group of customers or by completely
replacing the old way of doing things. The really powerful business models do not just
shift existing revenues among companies, but they create new, incremental demand.
Assessing a business design’s value creating power requires a detailed understanding
of how well that design meets customers’ most important priorities, both today and in the
future. An equally important task is evaluating the ability of the business design to
capture profit. Business design evaluation requires answering the following questions
(Slywotzky 1996):
? What are the basic customer and economic assumptions on which the business design
is built? Are the assumptions valid? What could change them?
? What are customers’ most important priorities? Are they changing?
? What elements of the business design match the customers’ most important priorities?
How well are they served? Are there priorities that are not well served?
? What differentiates the business design from competitors’ designs? Do the customers
care about that differentiation?
? Are competitors’ business designs based on the same basic assumptions?
? Is the business design internally consistent? Are there elements that do not support the
meeting of customer priorities?
? How cost effective is the business design?
? Can the business design recapture value? How sustainable and defensible is that
mechanism?
? How long will the business design be sustainable? Will some changes in customer
priorities require changes in it?
? Are alternative designs already being employed that meet the next cycle of customer
priorities better?
According to Hamel (2000) there are four factors to consider in determining the wealth
potential of any business concept: its efficiency, uniqueness, internal consistency or fit,
and exploitation of profit boosters. The extent to which the business concept is an
efficient way of delivering customer benefits is elementary to create wealth. A business
model must be efficient in the sense that the value customers place on the benefits
delivered exceeds the cost of producing those benefits. A business concept also needs to
be unique: the greater the convergence among business models, the less the chance for
above-average profits. The goal is not uniqueness for its own sake, but to create a
business model that is unique in its conception and execution. To produce profits, a
business model must be unique in ways that are valued by customers. A business concept
generates profits when all its elements are mutually reinforcing, i.e. the degree of fit
among the elements of the business concept is high. A business concept has to be
internally consistent – all its parts must work together for the same goal. The last factor is
the extent to which the business concept exploits profit boosters that have the potential to
generate above-average returns. There are a dozen profit boosters that can help to
44
generate high profits: one or two of these should be built into the business model. The
profit boosters can be grouped under four categories: increasing returns (network effects,
positive feedback effects, learning effects), competitor lock-out (pre-emption, choke
points, customer lock-in), strategic economies (scale, focus, scope), and strategic
flexibility (portfolio breadth, operating agility, low breakeven point).
Magretta (2002) says that even though some considerations of a business model’s
potential can be found, the business model can only be properly tested in the market.
Profits will tell, whether the model is working or not. When managers operate
consciously from a model of how the entire business system will work, every decision,
initiative, and measurement provides feedback. Business modelling can thus be seen as
the managerial equivalent of the scientific method – starting with a hypothesis, which is
then tested in action and revised when necessary. Also Chesbrough & Rosenbloom
(2002) argue that the best measure of the worth of a given business model is the success
of the enterprise. However, one cannot simply infer that good business models lead to
success. It seems that the process of reshaping an initial business model creates learning
opportunities that may contribute importantly to success.
2.3 Organisational learning
Goldberger (1999) argues that healthy individuals and organisations share the same
three characteristics: productivity, innovativeness and resilience. When systems become
excessively regular, there is an increase in predictability and a loss of resiliency, and this
periodicity is bad for organisational health. Healthy behaviour can be described with
words like plasticity, variability, resilience, and productivity. To keep the organisations
healthy, managers should think of themselves more as choreographers, composers and
conductors.
White et al. (1996) offer new organisational perspectives and skills to managers when
guiding managers throughout the turbulence of today's corporate environment. They
argue that change and uncertainty are the new touchstones of leadership excellence. The
business world of today and tomorrow can be seen as a series of fast flowing rapids full
of excitement, challenge, adventure and uncertainty, where risks will be higher and
rewards greater. They identify leadership skills necessary to ride the corporate rapids:
learning from difficult situations or mistakes, maximising one’s energy and using it for
new learning opportunities, understanding simplicity as the means to clear and effective
communication, bringing the focus on teams' various agendas, and being open to new
ideas for learning and growth.
2.3.1 Competence development
Hamel & Prahalad (1994) have defined competence as a bundle of skills and technologies
that enables a company to provide benefits for customers, rather than a single skill or
technology (see also Ivergard 2000, Sydänmaanlakka 2003). Therefore, core competence
is a source of competitive advantage. Westera (2001) has given two perspectives to
45
competence: theoretical and operative. The theoretical perspective means that
competence is conceived as a cognitive structure that facilitates specified behaviour. The
operational perspective covers a broad range of higher-order skills and behaviours that
represent the ability to cope with complex, unpredictable situations; this definition
includes knowledge, skills, attitudes, metacognition, and strategic thinking and
presupposes conscious and intentional decision-making. (See also Nordhaug 1991.)
Argyris & Schön (1978) distinguish between individual and organisational learning in
that individual learning in an organisation may not represent organisational learning
unless members of the organisation act as learning agents for the organisation. When an
organisation learns, the total amount of competences differs from the sum of individuals’
competences in the organisation (Saeed 1998). However, there have to be individuals in
the organisation to develop its competences. In other words, competence is formed from
the results of learning, either the individuals’ or the organisation’s (e.g. Westera 2001).
2.3.2 Learning organisation and organisational learning
Sociotechnical systems conception of a learning organisation, according to Argyris &
Schön (1978), focuses on the idea of collective participation by teams of individuals in
developing new patterns of work, career paths, and arrangements for combining family
and working life. According to this view, individuals can and must learn to redesign their
work, and upper-level managers must learn to create the contexts within which they can
do so.
Senge (1994) writes about ”the art and practice of organisational learning”. His
treatment of the subject unites system thinking with organisational adaptation and with
the realisation of human potential in a mixture that has a distinctly utopian flavour.
Senge’s (1994) prescriptive approach combines the methodology of systems dynamics
with certain ideas adapted from the Argyris & Schön (1978) theory-of-action perspective,
notably an awareness of the importance of the “mental models” held by organisational
practitioners, including those that constrain to facilitate reliable inquiry into
organisational processes.
According to Argyris & Schön (1978), an organisation is a collective made up by
people. Collectivities become organisational when they meet three constitutional
capabilities: to make collective decisions, to delegate authority for action to an individual
in the name of the collectivity, and to say who is and who is not a member of the
collectivity. Under these conditions, it makes sense to say that individuals can act on
behalf of an organisation and to say that on behalf of an organisation individuals can
undertake learning processes that can yield learning outcomes.
Senge (1994) argues that a deep learning cycle constitutes the essence of a learning
organisation – the development not just of new capacities, but also of fundamental shifts
of mind, individually and collectively. The five basic learning disciplines that Senge
(1994) presents are the means by which this deep learning cycle is activated: personal
mastery, mental models, shared vision, team learning, and systems thinking. The
disciplines are vital, but they do not in themselves provide much guidance on how to
begin the journey of building a learning organisation. The work of building a learning
46
organisation takes place within the architecture of guiding ideas, innovations in
infrastructure, and theory, methods, and tools. Guiding ideas shed light on what the
organisation stands for and helps people stay committed. Innovations in infrastructure are
the means through which an organisation makes available resources to support people in
their work. Through developing practical tools and methods, theories are brought to
practical tests, which in turn lead to the improvement of theories. There are many tools
and methods vital in developing a learning organisation. They all help people enhance the
capabilities that characterise learning organisations: aspiration, reflection and
conversation, conceptualisation.
Cavaleri & Fearon (2000) summarise that organisational learning is being adopted at
an increasing rate as part of an integrated package with other synergistic approaches, such
as quality improvement, innovation, and knowledge management. Many leaders see
organisational learning as representing one of the best strategies for increasing an
organisation’s capacity for creating breakthrough innovations.
2.3.3 Organisational culture
Schein (1992) defines organisational culture as the result of team learning. The basic
situation for building a culture arises when a group of people faces a problematic
situation and they have to work together to solve the problem. The process includes a
definition of the problem and a shared perception about the confidence that the solution
works now and later as well. The ability to share includes learning and understanding the
culture, and the new, shared experience starts building a new culture that later becomes
the group’s special characteristic.
Schein (1992) links organisational culture to the idea of a learning organisation. He
argues that in a world of turbulent change, organisations have to learn ever faster, which
calls for a learning culture that functions as a perpetual learning system. The primary task
of a leader in a contemporary organisation is to create and sustain such a culture, which
then, especially in mature organisations, feeds back to shape the leader’s own
assumptions. Schein (1992) defines leadership as the attitude and motivation to examine
and manage culture. He regards the organisation as a group and analyses organisational
culture as a pattern of basic assumptions shared by the group, acquired by solving
problems of adaptation and integration, working well enough to be considered valid, and
therefore, to be taught to new members as the correct way to perceive, think, and feel in
relation to those problems. In organisational learning, basic assumptions shift in the heads
of the group members. Schein (1992) continues that the job of a learning leader is to
promote such shifts by helping the organisation’s members to achieve some degree of
insight and develop motivation to change. Leaders can foster a learning culture by
envisioning it and communicating the vision.
Cavaleri & Fearon (2000) see that organisational learning can never survive as a
viable entity in organisations, as a stand-alone overlay framework on other business
processes, because managers perceive it as an unmanageable process. There is a need to
integrate organisational learning into existing business processes. The adoption of
organisational learning can only happen when managers see it as manageable.
47
2.3.4 Knowledge management
According to new economic theory the most important competitive advantage is the
company’s ability for continuous innovation (e.g. Saeed 1998). Intellectual capital
consists of data, information, and the ability to use information and competence to
constantly create new ideas and innovations. Ståhle & Grönroos (1999) define knowledge
management meaning the methods which are aimed to direct and manage the company's
human capital and intangible assets. The company's ability to innovate depends on the
whole organisation and its resources, and on how it works. The more the company has
connections and relations the more there are possibilities to exchange information. The
intellectual capital is both intangible and dynamic. Ståhle & Grönroos (1999) claim that
the competence, interactions and information flow are the base of an organisation’s
system, but intellectual capital is not only content but also events and action. The process,
which results in the outcome, is as important as the result itself. The company has to
manage its intellectual capital: it has to get the answer how to manage the competence,
relations and information flow.
According to Nonaka & Takeuchi (1995), human knowledge is developed and spread
throughout the organisation as a social interaction between tacit and explicit knowledge.
Organisational knowledge creation is a continuous and dynamic interaction between tacit
and explicit knowledge – the SECI model (Socialisation, Externalisation, Combination,
Internalisation). Socialisation is a process of sharing experiences and thereby creating
tacit knowledge such as mental models and technical skills. An individual can acquire
tacit knowledge directly from others without using language. The key to acquiring tacit
knowledge is experience. Externalisation is about transferring tacit knowledge to explicit
knowledge. Combination converts explicit knowledge to explicit knowledge.
Reconfiguration of existing information through sorting, adding, combining, and
categorising of explicit knowledge can lead to new knowledge. Internalisation converts
explicit knowledge to tacit knowledge. It is closely related to “learning by doing”. When
experience through socialisation, externalisation, and combination is internalised into
individuals’ tacit knowledge bases in the form of shared mental models or technical
know-how, they become valuable assets.
Johannessen & Olsen (2003) argue that competitive advantages based on explicit
knowledge will, to an increasing extent, only provide a short-term advantage. Tacit
knowledge is intimately related to the task-related part of a company’s competence. Thus,
tacit knowledge is wholly embodied in the individual, rooted in practice and experience,
expressed through skilful execution, and transmitted by apprenticeship and training
through watching and doing forms of learning. Tacit knowledge is the most important
proprietary and difficult-to-replicate knowledge that the organisation holds, as it is
invisible, and difficult to imitate.
Organisations are renewed through processes of inductive organisational learning (i.e.,
from the concrete to conceptual level) (Mintzberg & Westley 1992). Several authors
(Savolainen 1999, Yukl 1989, Argyris & Schön 1978) write that implanting new ideas
and ideologies involves innovative behaviour, and learning is the means through which
managerial ideological change occurs. Therefore, learning is an essential aspect in
examining organisational change processes. Change and learning reinforce each other.
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The increasing pace of change tends to invalidate known answers, demanding continuous
learning. New knowledge is attained through learning, learning generates change, which
can lead to change and can again lead to learning, etc. Learning functions as a mechanism
through which new ideas and ideologies are implanted. Applied to a real-world process of
organisational quality implementation learning occurs through the stages of materialising
ideas, internalising ideas and concepts, gaining support for the idea, preparing a plan of
action and, finally, activity.
Artto et al. (1998) define a project company as a company that delivers products and
solutions to its customers through projects, and its business as project business or project-
oriented business. Project management is a universal concept containing planning and
managing the project-oriented activities. It has evolved in order to plan, coordinate, and
control the complex and diverse activities of modern industrial and commercial projects
(Artto et al. 1998, Lock 2000). Lock (2000) says that the purpose of project management
is to foresee or predict dangers and problems as far as possible to plan, organise and
control activities so that the project can be completed as successfully as possible in spite
of the risks; it starts before any resources are committed, and must continue until all work
is finished. Project business or project-oriented business refers to a company, or rather a
project company, where activities generally are aimed to deliver and implement projects
for its customers (Artto et al. 1998).
Project management is an application of knowledge, skills, tools, and techniques to
project activities to meet project requirements. The project team manages the work of the
projects. The Project Management Institute (PMI) (2000) organises project management
competences into nine basic project management knowledge areas (project integration
management, project scope management, project time management, project cost
management, project quality management, project human resource management, project
communications management, project risk management, project procurement
management) (PMI 2000).
2.4 Quality management and process renewal
Traditional quality management approaches introduced by Deming (1986), Juran (1980),
and Crosby (1979) are widely used in many businesses, but mainly for incremental
innovations. For products requiring continuous innovation these approaches do not seem
to work (Den Ouden 2006). Also Deszca et al. (1999) argue that quality tools that applied
to product development, when the business environment was stable and competition
between companies was not as fierce as today, are not fit for use any more. Additionally,
hard competition requires shifting the portfolio of products towards more innovative
products, which increases the degree of uncertainty. Brombacher (2005) lists four major
trends in the reliability of technical systems:
? Increasingly complex products
? Strong pressure on time-to-market and fast adoption cycles
? Increasingly global economy
? Decreasing tolerance of consumers in quality problems.
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When moving from the development of continuous improvement products to continuous
innovation products, old and fit for use processes might not be appropriate any more;
process renewal should be considered. Possible approaches to process renewal are TQM
(e.g. Dale 1999) and BPR (e.g. Hammer & Champy 1993). TQM is a management
system aiming at long-term continuous improvements (e.g. Fazel 2003). TQM has been
used in countless companies since its launch. It is generally accepted that TQM can
generate a sustainable competitive advantage (e.g. Prajogo & Sohal 2001, Reed et al.
2000), and the importance of tools and techniques for TQM improvement has been
proved (e.g. Tarí & Sabater 2004). Chong & Rundus (2003) claim that the higher the
degree of market competition the more positive are the relationships between TQM
practices of customer focus and product design and organisational performance. BPR is
the rapid and radical redesign of strategic processes to optimise the workflow and
productivity in an organisation (e.g. Fazel 2003). Numerous papers have been published
on the relationship of TQM and BPR, and their similarities and differences (e.g. Ahire &
Waller 1994, Fazel 2003, Gore 1999, O’Neill & Sohal 1999). Fazel (2003) says that both
TQM and BPR embrace the same ideas and goals for organisational improvements and
both encourage employee empowerment, teamwork, quality, change, and focus on the
customer. Similarly, many studies give proposals on how to use TQM and BPR. Fazel
(2003) concludes that TQM and BPR should be used to complement each other; TQM
extends a successful BPR program, and BPR is the turning point of a TQM initiative.
Also O’Neill & Sohal (1999) summarise other authors’ ideas that TQM and BPR should
form an integrated strategic management system within organisations. They say that both
continuous and discontinuous improvements are needed.
Huffman (1997) argues that organisations should use different improvement strategies
in concert when re-engineering their processes. He proposes the use of four improvement
strategies - “Four Re’s” - in organisational improvement i.e., repair, refinement,
renovation, and reinvention. The first level of repair involves quick fixes, and the second
level of repair removes the root causes of the problem to prevent its return. Refinement is
an approach for making an adequate product, system, process, or activity even better; it
involves continuous improvement. Renovation is an approach taken to achieve major
improvement. A critical aspect of renovation is that the result is transformation, not
replacement. Reinvention is the most demanding improvement strategy. It is initiated
with the belief that improving the current product, system, process, or activity will not be
enough to completely satisfy customer needs. The first action is to imagine that the
current product, system, process, or activity does not exist, and a new one is invented.
Huffman’s (1997) “Four Re’s” have ideas of both TQM and BPR i.e., repair and
refinement can be categorised to TQM including continuous improvement actions, and
renovation and reinvention to BPR, including more radical changes in processes.
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2.5 Pilot projects
2.5.1 Conventional product development
Ulrich & Eppinger (1995) present the widely known NPD process that includes five
phases: concept development, system-level design, detail design, testing and refinement,
and production ramp-up. Additionally, they present five variants of generic development
process applicable to a firm’s unique context: generic (i.e. market pull), technology-push,
platform products, process-intensive, and customised. Cooper (2001) is in line with
Ulrich & Eppinger (1995). Cooper’s (2001) new product process includes product
development, in-house product testing, customer tests of the product, trial sell, trial/pilot
production or operation. Cooper’s (2001) Stage-Gate process is a conceptual and
operational model for moving a new product project from idea to launch. Stage-Gate
breaks the innovation process into a predetermined set of stages, each stage consisting of
a set of prescribed, cross-functional, and parallel activities. Generally these kinds of
models focus on developers’ interests to verify specifications, not to adjust features to the
customers’ even undefined needs. Fig. 8 compares Ulrich’s & Eppinger’s (1995) NPD
process to Cooper’s (2001) Stage-Gate model.
Fig. 8. Ulrich’s & Eppinger’s (1995) generic new product development process compared to
the Stage-Gate model introduced by Cooper (2001).
51
Meyer & Lehnerd (1997) define product platform as “a set of subsystems and
interfaces that form a common structure from which a stream of derivative products can
be efficiently developed and produced” and product family as “a set of individual
products that share common technology and address a related set of market applications”.
They say that product portfolios of prosperous firms change through periodic
enhancements to basic product and manufacturing technologies. Some of the changes are
breakthroughs, while others are incremental. Meyer & Lehnerd (1997) talk about “power
tower” meaning an integrative model for managing innovation. The power tower is
needed for effectively managing the evolution of a product family. The power tower
includes market applications, product platforms, and common building blocks. The
common building blocks are: consumer insights, product technologies, manufacturing
processes, and organisational capabilities. Meyer & Lehnerd (1997) also apply the
product family concept to software – the underlying platform, modular add-ins, and
robust, common interfaces linking them together and to the user.
2.5.2 Discontinuous product development
In today’s dynamic telecommunications industry we talk about breakthrough products,
which create or expand a new category, which are new to customers, which often require
customer learning (e.g. Internet), which raise issues related to channels of distribution
and organisational responsibility, and which create the potential for new infrastructure
and add-ons (e.g. multimedia products) (Deszca et al. 1999, Leeman & Winer 1997).
Breakthrough products represent products that require radical innovations.
The conventional NPD process (Cooper 2001, Ulrich & Eppinger 1995, Lynn et al.
1996) presented above is analysis-driven. According to Lynn et al. (1996), with different
techniques companies try to find the right market, the right product, the right price, the
right promotion, and the right channel. However, this process does not apply to products
based on discontinuous innovations in process and product technology. The discontinuous
NPD process places much less emphasis on analysis and much more on probing and
learning from the experience gained through sequential probes. The logic is experimental.
The difference between the conventional and the discontinuous NPD processes results
from identified uncertainties; the market is ill-defined and evolving, the technology is ill-
defined and evolving, and the two interact. Lynn et al. (1996) concludes that it is virtually
impossible to predict what product will eventually be offered, at what price, to whom,
when, and where.
According to Lynn et al. (1996), in the probe and learn process, companies run a series
of market experiments; companies develop their products by probing potential markets
with early versions of their products, by learning from the probes, and probing again. The
initial products are not final versions of the product, and are more like prototypes. The
probe and learn process starts with introducing an early version of the product to a
probable initial market. Probing with immature versions of the product serves as a means
for learning about the technology and the market. Probing and learning is an iterative
process.
52
Cole (2002) agrees with Lynn et al. (1996) that companies can develop products by
probing potential markets with early versions of products, learning from mistakes,
modifying the product, and probing again. Product development is seen as a non-linear
process with backward and forward movements. Probing markets with immature versions
of the products makes sense if they serve as a vehicle for learning. However, this process
may cause decrease in market trust and satisfaction. Also this process may be too time-
consuming. Cole (2002) claims that the probe and learn process lies at the heart of
continuous innovation, and captures the essence of continuous improvement. He even
extends probe and learn to Probe-Test-Evaluate-Learn, and says that it is an accelerated
Plan-Do-Check-Act cycle. Finally, he argues that probe and learn is about organisational
renewal, and it is associated with quick learning and the acceleration of the product
development process.
2.5.3 Prototypes and early trials
Deszca et al. (1999) propose the identification and inclusion of customer opinions when
breakthrough products are in question. The success of a new product depends on
anticipating future requirements. This makes the work even harder, because customers
have no historical experience with similar products and are unable to articulate needs into
new product ideas. Therefore, education about the new products and the usage contexts
are required. Prototype market testing is a means to answer the questions: who is the
customer, what should the product contain, how should it function, and what
infrastructure is needed to support it. However, prototype market testing might cause
confusion, as early prototypes may substantially differ from finalised products. Another
alternative is to wait until the product is fully designed, which again increases
development time. Lynn et al. (1996) propose that prototypes and early trials are used in
an iterative and sequential fashion to enhance learning.
Ulrich & Eppinger (1995) define a prototype as “an approximation of the product
along one or more dimensions of interest”. Under this definition, any entity that exhibits
some aspect of the product that is of interest to the development team can be viewed as a
prototype. Prototypes can be usually classified along two dimensions. The first dimension
is the degree to which a prototype is physical as opposed to analytical. Physical
prototypes are tangible artefacts created to approximate the product. Analytical
prototypes represent the product in a non-tangible, usually mathematical, manner. The
second dimension is the degree to which a prototype is comprehensive as opposed to
focused. A comprehensive prototype corresponds closely to the everyday use of the word
prototype, in that it is a full-scale, fully operational version of the product. Focused
prototypes implement one, or a few, of the attributes of a product. Within a product
development project, prototypes are used as learning tools, they enrich communication,
they are used to ensure successful integration, and prototypes are used to demonstrate that
the product has achieved a desired level of functionality. In addition to the advantages
prototyping provides for product development, Cole (2002) highlights the benefits of
prototyping for quality improvement. Prototyping enables early error detection and
thereby reduces engineering changes, thus reducing design iterations.
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Den Ouden (2006) argues that a new class of non-technical problems contributes in a
large part to the ever increasing number of customer complaints on innovative new
products. She says that current analyses of customer feedback mainly focus on checking
if the product meets technical specifications. These analyses show a rising volume of
customer feedback where no failure could be established. Den Ouden’s (2006) study
reveals that customers complain not only about technical failures but also when the
product does not satisfy their expectations. Running pilots might be one way to involve
customers in product development to get the first ideas of customers’ expectations.
2.6 Product reliability
Reputation is integral in quality, reliability, delivery, and price. Quality, which is simply
meeting the customer requirements, is the most important of these competitive weapons.
Part of the acceptability of a product or service will depend on its ability to function
satisfactorily over a period of time; this aspect of performance is called reliability (e.g.,
Musa 1999, Musa et al. 1987, Oakland 1995, O’Connor 1995). According to Jones
(1996), quality and reliability logically belong together, and good quality guarantees
reliable products. ISO/IEC 9126 (ISO 1991) provides a framework for the evaluation of
software quality. It defines six software quality attributes:
? Functionality: are the required functions available, including interoperability and
security
? Reliability: maturity, fault tolerance and recoverability
? Usability: how easy it is to understand, learn, operate the software system
? Efficiency: performance and resource behaviour
? Maintainability: how easy is it to modify the software
? Portability: can the software easily be transferred to another environment, including
installability
Testing is a means to find out the level of reliability. Musa (1999) defines two types of
software reliability engineering testing i.e., reliability growth testing, which aims at
finding and removing faults, and certification testing, with which a binary decision will
be made: accept or reject the software. Testing has gained a lot of attention in the recent
literature (Pol & Veenendaal 1998, Staab 2002, Davis 1997, Black 2004). Also the
combination of verification and validation seems to be known in standards such as 1012-
2004 IEEE and NIST (1996). ISO 9000-3 defines design verification as an activity that
develops procedures that specify how design outputs, at every stage of the product design
and development process, should be verified. The idea is that these procedures should
verify that outputs satisfy design-input requirements. The same standard (ISO 9000-3)
defines validation as an activity that develops procedures to validate the assumption that
the newly designed products will meet customer needs.
Jones (1996) argues that planning and estimation are the reflections of measuring, and
that metrics are increasingly used to estimate the future. Neil & Fenton (1996) affirm that
the most important requirement of software metrics is to provide information to support
quantitative managerial decision-making during the software lifecycle. They say that the
54
main motivators for using metrics are the desire to assess or predict effort/cost of
development processes and the desire to assess or predict the quality of software
products.
The field of hardware reliability has been established for some time, but the field of
software reliability is a newer one. When embedded systems are considered, both
hardware and software are incorporated, and consequently, hardware and software
component reliabilities are combined to get system reliability. The source of failures in
software is design faults, whereas the principal source in hardware has generally been
physical deterioration (Musa et al. 1987, Pressman 2001). Estimating software reliability
seems to be difficult. When software has been released, users give feedback about
software reliability, which is too late. Fenton & Neil (1999) argue that organisations are
still asking how they can predict the quality of their software before it is used despite the
substantial research effort spent attempting to find an answer to this question over the last
30 years. According to Kan (2003) this research area has been one of the most active in
the software industry. He says that more than one hundred reliability models have been
published in scientific journals and conferences. However, not so many models have been
tested in a real environment with real data, he says. Problems in the use of reliability
models appear because data collection is expensive, models are difficult to understand,
and simply, because they do not work in practice.
Wood (1996) argues that the number of defects remaining in software helps decide if
the product is ready for delivery or if more testing is needed and for how long. This
information provides an estimate of failures customers are going to meet when using the
software and it helps define the appropriate maintenance level. There are lots of papers
advocating statistical model, metrics, and solutions trying to answer the question “Can we
predict the quality of our software before we use it?” Generally, efforts have tended to
concentrate solely on one of the following problem perspectives (Neil & Fenton 1996):
? Predicting the number of defects in the system using software size and complexity
metrics.
? Inferring the number of defects from testing information.
? Assessing the impact of design or process maturity on defect count.
Fenton & Neil (1999), Fenton & Neil (2000), Neil & Fenton (1996) argue that, despite
statistical methods, – as discussed above - also other approaches for software reliability
estimation exist. For example Bayesian Belief Networks (BBN) stands for causal
analysis. A BBN is a graphical network combined with an associated set of probability
tables. The nodes of the network represent uncertain variables and the arcs represent the
causal/relevance relationships between the variables. BBN enables reasoning under
uncertainty and combines the advantages of an intuitive visual representation with a
sound mathematical basis in Bayesian probability. With BBN, it is possible to articulate
expert beliefs about the dependencies between different variables and to consistently
propagate the impact of evidence on the probabilities of uncertain outcomes.
Chillarege (1994) claims that Orthogonal Defect Classification (ODC) is a technique
that bridges the gap between statistical and causal models. Analysis of ODC data
provides a valuable diagnostics method for evaluating the various phases of the software
life cycle and the maturity of the product. ODC provides a means to understand the
dynamics of software development by using classification of defects, so that they provide
55
measurements (e.g. Chillarege 1994, IBM 2002). ODC means that a defect is categorised
into classes that collectively point to the part of the process which needs attention.
2.7 Exploitation of the theoretical foundation
Previously, the general theoretical background (in chapter 2.1) and theoretical foundation
for each research paper (in chapters 2.2 – 2.6) was reviewed. Next, the exploitation of the
theoretical foundation will be presented for each research paper i.e., for each research
question.
Business models. There are different definitions for business models. This research
builds business models from three elements: offering, value creation systems, and
revenue modes (e.g., Normann & Ramírez 1994, Kotler 1997, Porter 1985, Hoover et al.
2001, Shapiro & Varian 1999). Based on - above all - Slywotzky (1996), Hamel &
Prahaland (1996), Hamel (2000), Timmers (1998), and Kalakota & Robinson (1999), a
framework for describing and building business models was created. Additionally, the
business model evaluation framework introduced in this research is founded on the
evaluation criteria presented by Slywotzky (1996) and Hamel (2000).
Competence development. The theoretical foundation for competence development
lies on learning organisation, organisational learning, knowledge management and project
orientation (e.g., Argyris & Schön 1978, Senge 1994, Nonaka & Takeuchi 1995, Artto et
al. 1998), which are enabled by organisational culture (Shein 1992). These, above all, are
utilised in building a framework for project management competence development.
Project management competences are categorised to project management knowledge
areas according to PMI (2000).
Process renewal. TQM and BPR form the theoretical foundation for the research on
process renewal. In the literature TQM and BPR are seen as complementing each other or
as a continuation of each other (e.g., Fazel 2003, O’Neill & Sohal 1999). Huffman’s
(1997) “Four Re’s” model combines ideas of TQM and BPR. The model is utilised in the
research paper on process renewal, where experiences of praxis are preferential.
Technology piloting. NPD process (Ulrich & Eppinger 1995, Cooper 2001) and
product platforms (Meyer & Lehnerd 1997) form the basis for new product development.
However, continuous innovation and disruptive technologies change the situation
(Deszca et al. 1999, Cole 2002, Costanzo 2004) and lead to new approaches in new
product development; the probe and learn process (Lynn at al. 1996) increases its
importance. The research paper on running technology pilots validates the probe and
learn process.
Product reliability. The theoretical background in the fifth research paper deals with
quality and reliability and views the estimation of software reliability. Despite more than
one hundred reliability models (Kan 2003), published studies still raise a problem: can
the reliability of software be predicted before it is in use? (e.g. Neil & Fenton 1996,
Wood 1996, Kan 2003). The research on software reliability estimation exploits the
theoretical foundation in practice; Musa (1999) gives a firm standpoint for software
reliability estimation.
3 Models for management in a disruptive business
environment
This chapter presents the individual research contributions of the research papers.
3.1 A framework for creating business models – a challenge in
convergence a of high clock speed industry
The research paper discusses business models that could prevail and succeed in the
mobile IP software application business. The paper presents two frameworks: one for
describing and building, the other for evaluating business models. Additionally, based on
four existing business models, six alternative scenarios of business models for mobile and
IP convergence were created. The scenarios were named to reflect the model they
represent. “Old and proven” effectively follows the proven model of the case company in
selling mobile devices as embedded systems. “Configure-to-order” adds mass-
customisation to this paradigm: it allows end users to select which additional applications
they wish to incorporate in the product they are purchasing. “Software house”
concentrates on selling software applications independently of hardware: it aims at
building a massive volume of sales and a dominant position in the mobile IP software
application market. “Internet store” aims at making the whole purchasing process easy
and enjoyable. It utilises the Internet as the sole sales and distribution channel for the
applications, and builds a community around its online store. In the “Content-driven”
scenario the application is bundled in a third party’s service offering, and does not have a
separate price for the end user. The third parties receive the applications free of charge,
but are required to pay a commission from the revenues gained from the service usage.
“Open software” frees the software and source code for downloading from the Internet,
thus being a loss leader model: the software is provided free with the hope that it boosts
the hardware sales. Finally, this paper presents a proposal on how to evaluate the business
models using the defined evaluation framework.
A framework for describing and building business models (table 4) was created in
order to form a commensurable way to describe business models. It ensures that multiple
57
aspects are considered when designing business models, and it also provides formalism
for building business models. The business model evaluation framework created (table 5)
provides a set of diverse dimensions for the assessment of business models. The
framework offers a sound basis for business model evaluation and it enables
comparability of estimations.
Table 4. Framework for describing and building business models.
Dimension Component Description
Composition What is the offering: what physical, information and service aspects are
included?
Customer Who is the customer? (If relevant, identify both end and direct customer.)
Offering
Sales approach Sales channel, distribution, billing (how do customers pay)?
Structure Networked or chain? Position of the firm?
Network players Who are the players? What are their roles? The relationships between
players and the firm?
Value
creation
system
Network size The amount of the players, i.e. how many customers, suppliers etc.?
Basic logic How and from whom is the revenue generated, i.e. where in the business
system the firm takes profit?
Cost and pricing
structure
What kind of cost structure in producing the offering (fixed and marginal
costs)? Value-based or cost-based pricing? For what do customers pay:
bundling or unbundling?
Market Which market is served? Size of the market? Market structure (dominant
player, diversified)?
Revenue
model
Share of total
value
How big a portion of the total value created in the network can the firm
capture with the revenue model?
58
Table 5. Business model evaluation framework (adapted from Slywotzky (1996) and
Hamel (2000)).
Dimension Questions to consider
Suitability How well does the model meet customers’ most important priorities? Are there priorities
that are not served? Is it likely, that the priorities will change and thus make the model
obsolete?
Internal
consistency
How internally consistent is the model? Do all the parts work together for the same goal?
Do the elements positively reinforce each other? Are there conflicting elements or
elements that do not support the meeting of customer priorities?
Uniqueness Does the model differ from those of competitors, or the “average” within the industry in
conception and execution? Is it unique in ways that are valued by customers and benefit
them?
Efficiency What value do customers derive from the offering? What costs does the firm incur in
providing that value? Does the value customers place on the benefits exceed the cost of
producing them, i.e. is the model an efficient way of delivering customer benefits?
Ability to capture
value
Can the model recapture value? Does it capture a sufficiently large portion of the total
value created in the network? Are these mechanisms sustainable and defensible?
Economic
considerations
Is the revenue model sound? Are the cost and pricing structures reasonable? Is the market
large enough? How cost effective is the model?
Future potential Does the model represent a better way than the existing alternatives? Will the model meet
the customers’ priorities also in the future? How long will the model be sustainable? Are
alternative models being employed that meet the next cycle of customer priorities better?
Feasibility Is the model realistic? How easy is it to implement? Is it possible to “sell the idea” to other
network players? How probable is it that the model would work in practice?
This paper points out the possibility and practicality of business model designing and
evaluation to be utilised in a revolution phase of an industry. It is reasonable to have
frameworks to analyse the changes in industry rapidly, because the sooner changes in the
industry or need for business model re-development are realised the more competitive the
changes are in the new environment.
3.2 Project management competence development framework in a
turbulent business environment
The research paper introduces the Project Management Competence Development
(PMCD) framework, which is based on the learning organisation, organisational learning,
organisational culture, knowledge management, and project management. The PMCD
framework was created to develop project management competences in a systematic and
sustainable way. It includes a long term competence development activity (Project
Academia), and short-term activities (N1Race, Project Coaching Principles -workshops,
Case Coach Leadership simulation, and Coffee Room Culture and Visual Management).
All these activities represent continuous learning and improvement, knowledge sharing
and experiential learning.
59
The PMCD framework is illustrated in Fig. 9.
Fig. 9. Project management competence development framework.
Uncertainty and inability to predict the future characterise today’s business
environment. Use of information and control systems and their compliance with pre-
defined goals, objectives, and best practices may not necessarily lead to long-term
organisational capabilities. Disruptive technologies also impact. This is the current world,
which challenges the underlying assumptions i.e., ”accepted way of doing things.” This
world needs the capability to understand the problems given by the changing conditions
afresh. The focus is not only on finding the right answers but also on finding the right
questions. Competence management focuses on ”doing the right thing” instead of ”doing
things right”. To remain aligned with the dynamically changing needs of the business
environment, organisations need to continuously assess their internal theories of business
for ongoing effectiveness. This is the only viable means for ensuring that today's ”core
competences” do not become the ”core rigidities” of tomorrow.
Project orientation gives a flexible standpoint for the deliveries, which means that the
environment is understood beforehand as being dynamic. If we look at this from the
competence point of view, it gives us a valid basis, because competence is also seen as
dynamic in nature and the acquisition process has to be kept continuously ongoing. This
paper describes a framework for competence development appropriate for dynamic,
project-oriented business.
60
3.3 Process renewal driven by disruptive technologies
The research paper presents experiences of process renewal driven by disruptive
technologies in the case unit. The paper presents strategies used in process renewal and
what are the findings when disruptive technologies drive the change. New technologies,
continuous innovation, and changes in today’s business environment cause chaos in the
prevailing circumstances; the old and proven way of doing business requires changes in
the operational mode. This research proves several authors’ (e.g. Ahire & Waller 1994,
Fazel 2003, Gore 1999) ideas of combining the approaches of TQM and BPR.
This paper proposes that the prerequisites for successful process renewal are top
management commitment and confidence in the selected strategy, focusing on customers,
taking their requirements into account and involving them in the development work,
persistency in transferring new ideas, flexible processes, satisfactory quality
management, and competence development. This study addresses the reality that when
technologies change, products are new and innovative, the environment is turbulent, and
product development cycle times are short and then also the way of doing things has to be
reconsidered. A different operational mode, renewed processes, persistence, high
commitment, strong confidence and boldness to do things differently are required when
convincing co-operators, management, and customers.
Table 6 summarises the case unit’s process renewal procedure that is adapted from
Huffman’s (1997) approach – the “Four Re’s”, which are repair, refinement, renovation,
and reinvention. The procedure starts with step ‘Zero’, which gives the initiatives for the
renewal, and moves from the analysis phase up to launching the processes and finally to
capturing the lessons learnt.
61
Table 6. Process renewal procedure in the case unit.
Step Description Responsible Method
Zero New operational mode, disruptive technologies,
breakthrough products are the drivers of the renewal
- -
1 Clarify the target of process improvement: flexibility,
practicality, simplicity
Management team
2 Customer requirements are unknown - -
3 Analyse the available process descriptions, identify
needs for modification, identify missing process
descriptions. Which of the Four Re strategies is best
suited to the nature and extent of each initiative:
- problem – repair or
- could be better – refine or
- wide gap – renovate or
- huge gap or not existing - reinvent
Quality manager
4 Repair – conduct root-cause analysis,
refine – brainstorm improvement ideas,
renovate – break down paradigms and apply
innovation,
reinvent – forget current approach and start with clean
slate
Teams, quality
manager as facilitator
Workshops
Repair – develop alternative corrective actions and
choose optimum action,
refine – develop and select appropriate improvements,
renovate – match innovation possibilities to process
requirements,
reinvent – invent new approaches, processes.
Teams, quality
manager as facilitator
Workshops 5
Introduce process descriptions to test and get
immediate feedback.
Quality manager
6 Launch process descriptions Quality manager
7 Capture lessons learnt Teams, quality
manager as facilitator
Workshops
Process renewal driven by disruptive technologies deviates from management-driven
process renewal in the first place in the primary target: what will the processes be like
and what do customers want. The future is unknown; nobody knows what kind of
processes would be most practical, efficient, and productive, and customers do not know
what to expect. Additionally, in order to come out on top the company has to be agile and
fast. Management-driven process renewal is done more controllably, renewal is well
planned, specifications are created, and resources allocated which is different from
process renewal driven by disruptive technologies. The way of process renewal presented
gave many advantages: (1) renewed or adaptable processes could be tested right away
and feedback was received and possible corrections were made rapidly, (2) common
sense fostered practicality and decreased bureaucracy, (3) compatibility of processes was
considered and tested in practice immediately, (4) customer requirements were
considered, as the operational mode involved customers from the very beginning of the
product/service development, and (5) involvement of all employees was guaranteed
62
because they were the best experts to say how to work and thus provided the contents of
the processes.
The starting point, before the process renewal, was that all process descriptions -
except for piloting processes - were available, even though not practicable as such in the
case unit environment. In the end, a workable set of process descriptions was achieved. In
short, the process renewal embraced adaptation of existing processes to the changed
environment, some of the processes needed a longer time period to assure their
functioning, however.
The case unit served as a learning field, where new competences were acquired.
People had to learn the new technologies, how the technologies could be utilised in future
products, what is required from the technological environment, and infrastructure. Above
all, people had to learn and probe new ways of doing things and also transfer the
knowledge to other people.
3.4 Business impact of technology piloting – model for analysis in
different phases of the development cycle
The research paper presents experience from running pilots for the introduction of
disruptive technologies in the telecommunications industry and proposes pilots as a
means to introduce new products and applications. This study opens running pilots up to
a process embedded in the NPD process. The study validates the probe and learn process
(Lynn et al. 1996) and shows the importance of customer involvement in providing new
innovations and enhancement ideas in a technologically advanced environment. This
paper presents and facilitates the actual process of running pilots in order to manage it.
The study was started with a rough model for running pilots for the end product or part
of it in different finalising phases of the NPD process. This idea proved to be good one,
since running pilots is basically a simple operation, even when the detailed
operationalisation is complex. If the requirement specification is completely fixed by the
customer, running pilots means only verification. In cases where the requirements are
unclear validation comes into the picture and the real benefits of running pilots will be
realised on a full scale. This is equally important for both the supplier and the customer.
In validation the most important benefit is in confirming the common understanding of
the requirements. The proposed piloting process is especially applicable when disruptive
technologies are in question. In this case, the future is still unknown, it is not known if the
new technology exceeds the old technology performance, and customers are unable to
formulate what they want. When sustaining technologies are concerned, verification and
validation processes (ISO 9000-3) are more applicable.
Fig. 10 illustrates the case unit’s piloting process, which is embedded in the product
development process. The process contains a chain of sequential trials (shown with the
box with the dashed line in the figure), and thus executes the probe and learn process.
The phases inside the piloting process are sequential, but running pilots is concurrent
with other activities in the product development process. The principles of Cooper’s
(2001) Stage-Gate process were applied in the case unit’s NPD projects.
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In a high speed industry the importance of running pilots is even greater, because the
requirements change in relation to time – so the content of the delivery evolves. The need
for a project model for running pilots comes from the fact that operations should not only
be managed, but also analyzed and compared. Comparison and development are only
possible when utilising a systematic approach. From the efficiency point of view it is
clear that every pilot should be managed as a project – with a clear target, specific start
and end phases and with defined resources.
The idea of Lynn’s et al. (1996) probe and learn process included in the discontinuous
NPD process was proved to be applicable for the purposes of the case unit in introducing
new technologies. Highlighting that the discontinuous NPD process places more
emphasis on probing and learning from the experience gained through sequential probes;
less emphasis is placed on analyses, even though analyses are essential to avoid incorrect
conclusions and to find the root causes of failures. Prevention of errors is important, but
learning from errors seemed to be vital in the environment of the case unit. The logic in
the probe and learn process is experimental, iterative, and incremental. Also the well-
known idea of Stage-Gate (Cooper 2001) was noted to be effective in iterative
development, as it breaks the innovation process into a predetermined set of stages. The
process ensures that all sub-areas of a product development process are considered, and
the process enables progress visibility for top management, thus providing the
preconditions for decision making.
3.5 Practical use of software reliability methods in new product
development
The research paper presents seven software reliability estimation methods studied in the
case company. Despite tens of software reliability models developed since the beginning
of 1970’s, few – if any - of them have worked optimally across projects (Kan 2003). This
paper focuses on investigating the practical use of the methods in real-life complex
development situations and demonstrates how the methods could be applied to the NPD
process in the case unit. The results show that none of the methods operate alone but need
to be combined with each other. The paper focuses on the practicalities of software
reliability estimation and embeds it into the case company’s process framework.
There are both similarities and differences between the methods studied, and also
advantages and disadvantages in each of the methods. Fig. 11 illustrates when each
method could be used in relation to the NPD process stages in the case company. Some of
the methods discussed can be used from the very beginning of the product development
project i.e., before the software is executable, and some methods just after the software is
executable. The figure suggests that it is useful to combine methods to complement each
other.
65
Fig. 11. Software reliability estimation methods in relation to stages of the NPD process in the
case unit.
According to Fenton & Neil (1999, 2000), statistical models have dominated software
metrics, though they often lead to misunderstanding about cause and effect. Therefore,
they propose to use holistic models for software defect prediction, using causal models,
like BBN, as alternative approaches to the single-use models. Software reliability
engineering (SRE) is an approved method (e.g. Musa 1999) for software reliability
estimation, as proved also by this research. In this study, SRE and one of the case unit’s
tailored methods (using the principles of SRE) have emerged as preferred methods – yet,
not totally forgetting other methods.
The study reveals that the biggest obstacle when introducing the software reliability
estimation methods to NPD projects in the case company has been missing enablers i.e.,
automated testing tools, scarce resources, and lacking competences. This study brings out
the importance of data collection and more importantly the analysis of data during the
whole life cycle of the NPD process.
4 Evaluation and discussion
In the previous section individual research papers and their contributions are presented.
In this chapter, the logical deduction to link the papers together is presented, theoretical
and managerial implications of the contributions are discussed, reliability and validity of
the research results are considered, and exploitation of the research results is proposed.
4.1 Logical chain of inferences
Magretta (2002) defines the difference between strategy and a business model as follows:
a business model describes the ensemble where building blocks of business are connected
to each other; competition is not included in a business model, but is part of strategy.
Mobile and IP convergence and disruptive technologies require reconsidering both for an
appropriate business model and strategy. When a business model changes, it is necessary
to rethink competition and competitive advantages as well. Competence development is a
source of competitive advantage and it is essential for a company to acquire new
competences faster and earlier than its competitors. At the same time, when the business
environment is changing, new competences are needed, and disruptive technologies and
continuous innovation create new kinds of products, it is likely that processes need
renewal, and a new operational mode in a company must be introduced to tackle the new
challenges. Furthermore, despite changes in the business environment and despite the
means by which companies try to manage in the ever-changing circumstances, customer
satisfaction is still the driving force for the success of companies. To involve customers
early enough in new product development, running pilots gives means for this.
Additionally, as the proportion of software is ever larger in products and customers are
ever more demanding, the reliability of software, technologies, and products has to be
guaranteed. For companies it is essential to be able to estimate the reliability of their
products during the product development process and not to wait for customer feedback.
The above-mentioned chain of inferences describes how one moves from a wider
perspective to a narrower one (see Fig. 1). Fig. 12 illustrates the connections of the five
perspectives or research papers in another way: the new operational mode is the rallying
point of the individual studies. Despite the straightforward transition from one
67
perspective to another, there are also linkages between all of the perspectives. Next some
examples are given to show how the aspects are intertwined with each other.
Fig. 12. Connection of the research papers to the new operational mode.
When introducing disruptive technologies new business models are required, which
requires acquiring new competences. As the business model is new, learning is essential
and distributing the lessons learnt is vital for the case unit and company. The case unit
acts as a learning field and a learning organisation. Introducing disruptive technologies
and new business models also triggers the need for a new operational mode and process
renewal, as the old and proven practices are not necessarily beneficial any more. Further,
when dealing with new technologies and new products, customer requirements and
expectations must be considered carefully. Running pilots with customers is one means to
involve customers in the NPD process. Finally, despite a novel business model, despite
probably still insufficient new competences, despite new operating practices, and despite
unknown customer expectations, better profitability, productivity and reliability of the
new products must be guaranteed.
From the competence development point of view, refined and practical processes help
to accumulate skills and competences and also help to create a good foundation for a
learning organisation. Additionally, running pilots is an excellent way to develop
competences; quick feedback through pilot projects strengthens learning, as learning
68
from errors is still a firm cornerstone. When competences are in place, it obviously
reduces errors and increases product reliability.
Process renewal is essential when the operational mode changes. Process descriptions
help to align sub-areas and expertise areas as well. The piloting process is a novel process
and with the help of the overall process renewal, the piloting process is also aligned with
the NPD process. Well-defined processes guide concentration on the essential, prevent
overlapping work, help to prevent generating errors and, in this way, minimise rework.
Thus, processes support increased reliability.
Running pilots is a way to detect errors early enough and thus increase product
reliability, and running pilots is a means to test the maturity and reliability of standards
and de factos. Above all, pilot projects help in ascertaining customers’ expectations for
new technologies and new products.
The previous logical deduction leads to the research problem, which was formulated
as: What kind of operational mode is needed to introduce disruptive technologies? The
above-mentioned logical deduction anticipates that an operational mode consists of
different elements, different aspects, and thus, a very simple and short answer is not
possible. As a conclusion, the operational mode when introducing disruptive technologies
requires reconsidering business models; the old and proven way of doing business is not
adequate any more. The new operational mode requires special attention to competence
development; especially tacit knowledge is highlighted in project-oriented business. A
framework for competence development gives a solid basis for development of
competences and knowledge management. Further, the old and proven processes and
quality tools used in development of continuous improvement products are no longer
appropriate; process renewal is required to move to the adaptable, flexible processes. The
new operational mode requires more intensive customer involvement in product
development; with highly innovative products customers are often unable to give specific
requirements as the technology is new and customers lack the experience in such
products. Technology pilots offer an efficient and effective way to involve customers in
product development in the R&D phase. The customer point of view is also in the
spotlight in reliability estimation; reliable estimates of software reliability support
managerial decision-making as to when to launch the software.
4.2 Implications
In chapter 2 the theoretical foundation for the research papers was given, and the research
papers were presented in chapter 3. In this chapter both theoretical and managerial
implications are discussed.
4.2.1 Theoretical implications
Table 7 summarises the theoretical contributions of the five research papers and then,
implications of the research papers are discussed.
69
Table 7. Summary of research contributions.
# Title of the paper Contribution Research
questions
I A framework for creating business models –
a challenge in convergence of high clock
speed industry
- Framework for creating and building
business models
- Framework for evaluating business
models
- Business model scenarios and a
proposal for evaluating them
RQ1
II Project management competence
development framework in turbulent business
environment
- Framework for project management
competence development
RQ2
III Process Renewal Driven by Disruptive
Technologies
- Process renewal procedure
- Experiences on process renewal
driven by disruptive technologies
compared with management-driven
process renewal
RQ3
IV Business impact of technology piloting –
model for analysis in different phases of
development cycle
- Introducing technology pilots
concept in product development
framework
- Experiences on customer
involvement in pilot projects
RQ4
V Practical Use of Software Reliability
Methods in New Product Development
- Integration of software reliability
estimation methods to product
development framework
- Evaluation of software reliability
estimation methods in the case unit
RQ5
Business models: The research paper proposes practical tools for building and evaluating
business models and creates business model scenarios. The paper discusses a very topical
issue and is solidly based on existing knowledge. However, when a new business model
is chosen, further studies are still required to analyse how the model works in practice.
The model needs further reconsideration based on the analysis.
Competence development: The paper confirms the importance of the concepts of
learning organisation, organisational learning, knowledge management and organisational
culture. It proposes a practical framework for competence development. The proposed
framework has been used in the case company and the results are promising so far. Still,
as the environment is ever-changing, also the framework needs modifications. There are
future development challenges: how to evaluate the impacts of the framework, how to
create and follow-up career/competence development path, what are the working
methods, etc.
Process renewal: This paper strengthens the idea of existing literature of combining
both TQM and BPR approaches in process development. Experience with the operational
mode and renewed processes of the case unit has been encouraging. However, they still
need further research to find out if they also prove to be favourable in long-term use.
70
Technology piloting: The research paper is based on existing knowledge of the NPD
process, which is complemented with a piloting process that involves customers in
development work. The paper proposes the piloting process applied in the NPD process.
Additionally, the research verifies the probe and learn process. The study proved the
applicability of the presented model for running pilots, but also the utility of the whole
piloting activity. However, piloting activities (process development and analysis) need
continuous evaluation of and reflection on the ever-changing environment. Ultimately,
processes should be defined to reflect the best practices and especially help product
development projects to fulfil their business targets.
Product reliability: This research gives a practical point of view for software reliability
estimation based on existing knowledge of software reliability models. It proposes a
praxis for coping with a very challenging task. However, the studied and, especially, the
preferred methods need continuous evaluation due to the changing environment. In
addition to currently presented methods there are future development challenges: how to
further develop the methods to better respond to the daily practices of NPD projects.
This research as a whole provides one solution for how to investigate and evaluate the
current situation of a company in today’s business environment. One has to keep in mind
that the approach presented is only one possibility of many as to how this can be done.
There are certainly many other ways and aspects to evaluate a company’s possibilities to
cope with the dynamic business environment.
4.2.2 Managerial implications
Fig.1 depicts the scope of the thesis composed of the five individual research papers. The
scope is illustrated with a cone; the deeper one goes into the cone the narrower the
management perspective becomes. The research paper 1 (“A framework for creating
business models – a challenge in convergence of high clock speed industry”) focuses on
business models and discusses the prevailing business environment from the point of
view of the case company, but of course it is relevant also beyond the case company. The
focus area – competence development - of the research paper 2 (“Project management
competence development framework in turbulent business environment”) is more concise
compared to the previous one, and covers the case company; the paper introduces a
framework that is built especially for the case company but is applicable to other
companies and other industries as well. Further, the research paper 3 (“Process renewal
driven by disruptive technologies”) concentrates on experiences from the process renewal
of the case unit as part of the case company; the paper tells experiences of the process
renewal conducted in the case unit. The research paper 4 (“Business impact of technology
piloting – model for analysis in different phases of development cycle”) deals with
technology pilot projects in relation to the NPD process in the case unit; it goes deeper
into the technology development in the case unit. Finally, the research paper 5 (“Practical
use of software reliability methods in new product development”) focuses on software as
part of technology products, and covers the project level in the case unit.
In respect of the different research perspectives, the time frame for these implications
is also different. The implications for new business models will be visible during the long
71
term period. However, today it is known that the business model is different but its
impact in the quantitative meaning is not yet concrete. Practices and tools for competence
development are changing all the time. The proposed competence development
framework introduced in the second research paper has been in use since 2001; data from
it is already presented in the paper. The renewed processes have been in use in the case
unit for about three years. Their impact on daily work is seen as flexibility. However,
quantitative data of the use of the processes is not yet sufficient. With respect to
technology pilot projects, the first trials have been conducted and the lessons learned
have been distributed to later pilot projects. The impact of technology pilot projects is
also visible as quantitative data as can be seen in the fourth research paper. Special
attention is drawn to feedback data collection and analysis in current projects. The
technology piloting process is in use in the case unit. Software reliability estimation
methods introduced in the fifth research paper have the most concrete impact. The
proposed methods are introduced in NPD projects in the case company. Quantitative data
analyses have been done, and a more systematic way to collect and analyse data taken
into use. Commercial modelling tools have been introduced and significant savings in
resources is expected.
The five perspectives represent different fields: business models deal with economics,
competence development concerns human resources and personnel management, process
renewal relates to quality management, running pilot projects goes deeper in technology
management, and software reliability applies to software engineering. The purpose of this
“cone approach” is to help understand the wholeness of the situation. However, these
perspectives are not the only ones, just some of them. The aspects chosen were the most
important and topical to the case unit.
The research environment changes quickly and research results focusing on changes in
different sub-areas have given valuable input for managerial decisions. The case unit,
IPC, consisted of both R&D functions and business development activities. It was an
experimental and temporary organisation, whose main objective was to find an efficient
and fast way to develop new applications, technological enablers, and features for the use
of NPD projects utilising new, disruptive technologies. IPC acted as a pioneer and an
adventurist in creating and testing new technologies that provide new opportunities for
customers. IPC was established in 2002 and today it does not exist as such, but is merged
with its operational mode and processes in permanent organisational structures of the
case company. IPC worked in its way for new technologies. Success factors were – above
all – top-management commitment and confidence in the case unit’s work, focusing on
customers, taking their requirements into account and involving them in the development
work, persistency in transferring new ideas, flexible processes, satisfactory quality
management, and competence development. This study addresses the viewpoint that,
when technologies change, products are new and innovative, the environment is
turbulent, and product development cycle times are short, then also the way of doing
things has to be reconsidered. A different operational mode, renewed processes,
persistence, high commitment, strong confidence, and boldness to do things differently
are required when convincing co-operators, management, and customers.
When contemplating this research today as a whole it confirms the managerial
decisions made during the existence of the case unit. The work gives confidence to
managers that their decisions have been fair guesses. From time to time, some decisions
72
have been made based on intuition (according to one manager of IPC). However, one can
say that this intuition is evidence of the tacit knowledge that the people of the case unit
have. Goldratt (1990) writes about intuition and says that all our inventions, decisions,
and convictions are based only on intuition. What is missing is the ability to verbalise our
intuition, to provoke it, focus it and cast it precisely into words. As long as proper
verbalisation is not used, we ourselves will act in ways that contradict our own intuition.
This study can be considered as verbalising the intuition of the key managers.
A summary of contributions to the case company is presented in table 8.
Table 8. Research contributions to the case company.
# Title of the paper Contribution Research
Question
I A framework for creating business
models – a challenge in convergence
of high clock speed industry
Today it is known that the old and proven way of
doing business is not sufficient any more.
Theoretical foundation for building business models
and their evaluation is provided.
RQ1
II Project management competence
development framework in turbulent
business environment
Business environment is changing and new
competences are needed. Project management
competence development framework provides a firm
standpoint for competence development.
RQ2
III Process Renewal Driven by
Disruptive Technologies
Mobile and IP convergence, disruptive technologies
and business agility push to process renewal. The
case unit’s renewed processes give a basis for further
process development.
RQ3
IV Business impact of technology
piloting – model for analysis in
different phases of development
cycle
Customer satisfaction and user experience urge to
customer involvement. Technology pilot projects
involve customers in new product development.
RQ4
V Practical Use of Software Reliability
Methods in New Product
Development
Despite new technologies and changing business
environment the reliability of products is still vital
for success. Methods for software reliability
estimation are introduced to estimate reliability
during R&D phase.
RQ5
Next, an extract from the message of the director of IPC is presented. The message was
sent to IPC personnel on December 27, 2004 ? at the time when it was discontinued as an
independent unit and was merged in the current organisational structure of Nokia
Multimedia (Huotari 2004):
“IPC started approximately three years ago and after a short start-up phase we
concentrated to do architecture, protocols and IP oriented software mainly for
Symbian-based products. Because we didn't have any "own" products it was hard to
drive different requirements to [the technology platform], but somehow we
managed to do it anyway. But it is truthful to say that this mode is far from the most
optimal in driving new features into the Nokia portfolio, and hence it has required
much more effort and patience from the IPC team members.
73
In addition to the applications and enablers there was plenty of work in the
standardisation area where Nokia's position in forums like Internet Engineering
Task Force (IETF) got dramatically better over the last three years. This is often
seemingly invisible work that has huge consequences for the future direction of our
industry, and should be kept active at least on present levels.
One, very important aspect of IPC’s mode of working was piloting and direct
interface to the customer front. We did test and pilot our implementations in real
life and on live networks, and this was an essential part of our work.
This cannot be underlined enough, since all these IP based applications are living
manifestations of end-to-end implementations. In end-to-end environments every
aspect starting from the user interface through SW layers and HW to air interface,
through all network elements and possible servers and eventually to other
terminal(s) user interfaces create a chain where all elements are part of the total
user experience. These things cannot be simulated in laboratory conditions only!
In these exercises we did also get valuable help from the network side to get all
elements in place, and all in all, had very good interaction and collaboration on
many fronts. Also this aspect demonstrates in real life the need for end-to-end
understanding.
One crucial aspect of this piloting was the fact that our people and R&D teams did
know directly what was happening on the customer front and thus could react fast
and also did have real motivation to make the needed modifications fast.
The learning from this is that it is worthwhile to have a dedicated, very technology-
oriented customer interface, as the feedback is often directly applicable to products
in a short-to-mid time frame, which allows Nokia to come up with products that
have immediate pull on the market.
All in all, IPC did demonstrate in a concrete manner that 1+1 can be more than 2.
Our team could deliver things which would not have been possible if they had acted
as isolated islands across the Nokia's organisation.
I'm personally honoured that I have had the possibility to work with such a capable
and innovative team!
Although IPC will cease to exist at the end of this year, the things we have done
will be part of Nokia assets and thus help in making something new possible:
something that wouldn't be there without the effort put in by all of you who have
been part of IPC over these years.”
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4.3 The reliability and validity of the research
This research has proceeded with iterative cycles increasing the researcher’s
understanding about the research subject. The research method used follows the
characteristics of normative action research. One basic element in action research is the
subjectivity of the researcher. It has to be confessed that the researcher is a central
instrument in the research. In qualitative research the main criteria for reliability is the
researcher, and thus the evaluation of reliability concerns the whole research process
(Eskola & Suoranta 1999).
Excessive reliance on participant observation notes can severely distort conclusions
towards the researcher's personal preferences. This is especially true in action research,
where the researcher may be subconsciously tempted to manufacture self-serving
explanations for the lack of success of some of his or her own interventions in the client
organisation. The over-reliance on participant observation notes is likely to lead to invalid
research findings. Sometimes there is a researcher preference bias towards one
explanation, because it may seem to lead to more "relevant" scientific findings that
another explanation, which may look like a relatively trivial finding. The action
researcher has to consider objectivity during the research. The action researcher cannot be
strictly objective, but however, he or she should take this into account. The researcher
should at least try to recognise his or her biases and values. Especially in participatory
action research, objectivity is an important issue; the researcher behaves more or less
subjectively.
Qualitative research focuses on only a few cases and aims at analysing them
thoroughly. The criteria for the data in a scientific sense stand on the quality, not on the
quantity. The responsibility of the action researcher is to pick out the data under his or her
research. Action research and qualitative research in general is based on no hypothesis,
i.e. the researcher does not have preconsiderations on the subject under study or the
results of the research. However, the researcher has the history and former experiences,
and they cannot be ignored during the research. These experiences must not limit actions
during the research. The action researcher should create a new hypothesis, not prove an
existing hypothesis.
Yin (2003) proposes four tests to establish the quality of any empirical social research:
construct validity, internal validity, external validity, and reliability.
To meet the test of construct validity, a researcher must be sure to cover two steps: (1)
select the specific types of changes that are to be studied and (2) demonstrate that the
selected measures of these changes actually reflect the specific types of change that have
been selected. (Yin 2003). The research problem of this study was viewed from five
different perspectives utilising a cyclical, iterative research method. Each perspective was
reflected through existing theories and research papers were written as four journal
articles and one conference paper. Quantitative data for competence development
(research paper 2), technology pilots (research paper 4) and software reliability (research
paper 5) are already, or in the near future will be, available. Unfortunately, the effects and
measures for business model changes are not available yet.
Yin (2003) argues that on one hand, internal validity is a concern for studies where the
researcher tries to determine whether event x led to event y. If the researcher incorrectly
75
concludes that there is a causal relationship between x and y without knowing that a third
factor, z, may actually have caused y, the research design has failed to deal with a threat
to internal validity. On the other hand, the concern about internal validity may be
extended to the broader problem of making inferences. In the research environment there
evidently were intermediate factors. As this research was conducted via sequential,
iterative cycles from five viewpoints during several years, these criteria are met.
External validity deals with the problem of knowing whether the research findings can
be generalised beyond the immediate context of the study. The analyst should try to
generalise the findings to “theory” (Yin 2003). The research environment was unique, but
the dissertation consists of five research papers that provide the theories and their
exploitation in practice in the case unit. In that sense, the research findings can be
generalised. However, one has to keep in mind that the research environment was just
one R&D unit in one company and the research questions were focused just to solve the
questions set in that unit.
The objective of testing reliability is to ensure that, if a later researcher followed
exactly the procedures described by an earlier researcher and conducted the same study
all over again, he or she would arrive at the same findings and conclusions (Yin 2003).
As already mentioned, the research and the research environment were unique in nature
and it is impossible to conduct exactly the same research; business environment is ever-
changing, technologies are replaced by new ones, people with their tacit knowledge move
from one position to another, etc.
4.4 Exploitation of the research
The contributions of this research benefit the case company. Individual studies introduced
in the research papers can also be utilised outside the case company, one by one or all
together. Next, the exploitation of the research papers is discussed.
Business models. There are different definitions for business models. Despite the
definition, each company should reconsider its business model to prepare itself for new
situations, especially in a changing business environment. For some industries this is of
vital importance. This research paper builds business models from three elements -
offering, value creation systems, and revenue modes – and proposes a framework for
describing and building business models and a framework for business model evaluation.
These frameworks can be exploited when considering the most appropriate business
model for a company.
Competence development. The research paper on competence development utilises a
theoretical foundation of the learning organisation, organisational learning, organisational
culture, knowledge management and project orientation. The research introduces a
framework for project management competence development. The framework consists of
five elements: Project Academia training program, Project Coaching Principles
workshops, Case Coach Simulation model, Coffee Room Culture and Visual
Management concept, the Pit Stop facilitation method, and N1Race as web based
learning environment. This framework can be utilised as a whole or its elements can be
76
exploited one by one. The framework gives a foundation for a company to use it as such,
or to modify it to correspond to the company’s special needs.
Process renewal. TQM and BPR form the theoretical foundation for the research on
process renewal in the research paper. The research paper talks about experiences from
praxis when process renewal is driven by disruptive technologies. Of course, the situation
in each company dealing with process renewal topics is different, but still the description
given in the paper might give new ideas to a company facing with the same situation.
Technology piloting. NPD process, product platforms, continuous innovation and
disruptive technologies change the prevailing situation in industries introducing new
breakthrough products and lead to new approaches in new product development. The
probe and learn process is validated by this study. The constructed piloting process is
embedded in the NPD process in the case unit. The piloting process, utilisation of the
probe and learn process and customer involvement in the case unit give valuable
information for other companies as well.
Product reliability. The research on software reliability estimation exploits the
theoretical foundation of quality, reliability, and estimation of software reliability by
introducing seven software reliability estimation methods and their evaluation in the case
unit. Additionally, the methods are situated in the NPD process of the case unit. This
study tells how software reliability estimation can be conducted in practice, since the
literature claims that more than one hundred reliability models are introduced, however
not implemented in practice.
5 Summary
Today’s telecommunications business environment is ever-changing; there is always a
new technology on the way to replace the current ones. The speed of change seems to
increase more in high tech industries than in traditional ones. This means that business
cycles in high tech industries are shorter than in other industries. This research emerged
from this turbulent environment. On one hand the purpose of this research was to
understand the changing environment, and on the other hand to pursue action and
research in order to create more applicable processes and better capabilities for the case
unit and case company operating in these new circumstances.
The research problem of this study was stated as follows:
What kind of operational mode is needed to introduce disruptive technologies?
To be able to give a solution to the problem, this research was approached from different
perspectives with five research questions, each of which is discussed in an individual
research paper. Thus, each research paper corresponds to one research question rooted
from the research problem i.e., missing refined and established methods, processes, and
operational mode to promote development and implementation of disruptive
technologies.
Table 9 summarises the research questions and their contributions.
78
Table 9. Research questions and contributions.
# Research question Contribution
RQ1 How to build and evaluate
business models?
- Framework for creating and building business models
- Framework for evaluating business models
- Business model scenarios and a proposal for evaluating them
RQ2 How to develop
competences?
- Framework for project management competence development
RQ3 How to renew processes? - Process renewal procedure
- Experiences on process renewal driven by disruptive
technologies compared with management-driven process
renewal
RQ4 How to involve
customers?
- Introducing technology piloting concept in product development
framework
- Experiences from customer involvement in pilot projects
RQ5 How to estimate
reliability of products?
- Integration of software reliability estimation methods to product
development framework
- Evaluation of software reliability estimation methods in the case
unit
The research questions are intertwined; they are related to each other, even though their
focus is different. Each of these areas is large and would be worth further study.
However, this scope was chosen as an initial move. The research questions - from one to
five – move from a wider to a narrower subject matter. These perspectives were chosen in
order to understand the nature of the operating area as a whole since the operational mode
consists of different elements.
As a conclusion, when introducing disruptive technologies the operational mode
requires reconsidering business models; the old and proven way of doing business is not
adequate any more. The new operational mode also requires special attention to
competence development; in particular tacit knowledge is highlighted in project-oriented
business. A framework for competence development gives a solid basis for development
of competences and knowledge management. Further, the old and proven processes and
quality tools used in development of continuous improvement products are no longer
appropriate; process renewal is required to move to adaptable, flexible processes. The
new operational mode requires more intensive customer involvement in product
development; with highly innovative products customers are often unable to give specific
requirements, as the technology is new and customers lack experience with such
products. Technology pilot projects offer an efficient and effective way to involve
customers in product development in the R&D phase. The customer point of view is also
spotlighted in reliability estimation; reliable estimates of software reliability support
managerial decision-making as to when to launch the software.
The contributions of this research benefit the case company. Individual studies
introduced in the research papers can also be utilised outside the case company, one by
one or all together. The research environment was quickly changing and research results
focusing on changes in different sub-areas gave valuable input for the case unit IPC,
which consisted of both R&D functions and business development activities. IPC was an
79
experimental and temporary organisation, whose main objective was to find an efficient
and fast way to develop new applications, technological enablers, and features for the use
of NPD projects utilising new, disruptive technologies. IPC acted as a pioneer and an
adventurist in creating and testing new technologies that would provide new
opportunities for customers. IPC was established in 2002. From the very beginning it was
planned to be a temporary organisation, and today it does not exist as such, but is merged
with its operational mode and processes in the permanent Nokia organisational structure.
IPC worked, in its way, for new technologies.
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Original publications
I Suikki R, Goman A & Haapasalo H (2006) A framework for creating business
models – a challenge in convergence of high clock speed industry. International
Journal of Business Environment 1(2): 211-233.
II Suikki R, Tromstedt R & Haapasalo H (2006) Project management competence
development framework in turbulent business environment. Technovation 26: 723-
738.
III Suikki R (2007) Process Renewal Driven by Disruptive Technologies. International
Journal of Business Innovation and Research 1(3): 281-295.
IV Suikki R & Haapasalo H (2006) Business impact of technology piloting – model for
analysis in different phases of development cycle. International Journal of Innovation
and Technology Management 3(2): 209-235.
V Suikki R (2006) Practical Use of Software Reliability Methods in New Product
Development. Proceedings of the 32
nd
EUROMICRO Conference on Software
Engineering and Advanced Applications, EUROMICRO SEAA 2006,
Cavtat/Dubrovnik, Croatia, 232-239.
Reprinted with permission of the copyright holders.
Original publications are not included in the electronic version of the dissertation.
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CHANGING BUSINESS
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This research addresses the approach that, along with introducing disruptive technologies in the mobile and IP convergence era, a new operational mode is needed in the new product development (NPD) process. This study approaches the operational mode from five perspectives: business environment, competence development, process renewal, running technology pilots, and product reliability.
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ACTA
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Raija Suikki
CHANGING BUSINESS
ENVIRONMENT—EFFECTS OF
CONTINUOUS INNOVATIONS
AND DISRUPTIVE TECHNOLOGIES
FACULTY OF TECHNOLOGY,
DEPARTMENT OF INDUSTRIAL ENGINEERING AND MANAGEMENT,
UNIVERSITY OF OULU
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ACTA UNI VERS I TATI S OULUENS I S
C Te c h n i c a 2 6 5
RAIJA SUIKKI
CHANGING BUSINESS
ENVIRONMENT—EFFECTS OF
CONTINUOUS INNOVATIONS AND
DISRUPTIVE TECHNOLOGIES
Academic dissertation to be presented, with the assent of
the Faculty of Technology of the University of Oulu, for
public defence in Auditorium IT116, Linnanmaa, on
February 23rd, 2007, at 12 noon
OULUN YLI OPI STO, OULU 2007
Copyright © 2007
Acta Univ. Oul. C 265, 2007
Supervised by
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Reviewed by
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Suikki, Raija, Changing business environment—effects of continuous innovations
and disruptive technologies
Faculty of Technology, University of Oulu, P.O.Box 4000, FI-90014 University of Oulu, Finland,
Department of Industrial Engineering and Management, University of Oulu, P.O.Box 4610, FI-
90014 University of Oulu, Finland
Acta Univ. Oul. C 265, 2007
Oulu, Finland
Abstract
Today's turbulent business environment, which is characterised by uncertainty and inability to predict
the future, is extremely challenging. Mobile and Internet Protocol (IP) convergence, which brings
together technologies and services from the mobile and Internet domains, has been identified as a
discontinuity in the mobile telecommunications business. Additionally, new disruptive technologies
are introduced together with new, complex products.
This research addresses the approach that, along with introducing disruptive technologies in the
mobile and IP convergence era, a new operational mode is needed in the new product development
(NPD) process. This study approaches the operational mode from five perspectives: business
environment, competence development, process renewal, running technology pilots, and product
reliability.
The research on the business environment area proposes two frameworks: one for building and
describing and another for evaluating business models. The study on competence development
arrives at the conclusion to propose a project management competence development framework. The
third research perspective suggests that, when the business environment is changing, and disruptive
technologies and continuous innovations create new kinds of products, it is likely that processes need
renewal. Running technology pilots to involve customers early enough in new product development
is proposed in the fourth research area. Finally, the fifth research topic proposes that it is essential for
companies to be able to estimate the reliability of their products during the product development
phase.
It is concluded that the new operational mode when introducing disruptive technologies requires
reconsidering business models, special attention to competence development, process renewal,
customer involvement in new product development, and requires a means to guarantee software
reliability.
Keywords: competence development, disruptive technology, mobile and IP convergence,
process renewal, product reliability
To my parents
Acknowledgements
It all started in spring 2000, when my daughter Mervi matriculated and started her
university studies at Tampere University of Technology. Today, both of us are finalising
our studies.
Twenty years had gone from the date when I finalized my Master’s thesis. In autumn
2000, I contacted professor Pekka Kess, who gave me my first look at post-graduate
studies in general, and then professor Harri Haapasalo promised to supervise my studies.
Early in my studies, Harri advised me to form a steering group for them. And so I did.
The members of the steering group were Harri from the University of Oulu, professor
Pekka Abrahamsson from VTT Electronics, and Senior Program Manager Arto Pussinen
from Nokia. We had meetings several times a year. At the meetings I received very
valuable and fruitful advice and guidance for my research. Practically all the time Arto,
Pekka and Harri were available to answer my questions and support my work. I deeply
appreciate the support and encouragement I have received from Arto, my line manager at
Nokia, who made it possible to use our working environment as the research
environment. Many thanks to Harri, a co-author and an advisor, who tirelessly led me in
the work of a researcher and Pekka who gave valuable words of advice and
recommendations for my research papers and this thesis. Without you, Harri, Pekka and
Arto, this thesis would not have been possible.
I thank professor Veikko Seppänen for supervising my complementary studies in
software development. Many thanks to my other co-authors, Anni Goman and Raija
Tromstedt. In addition, I want to thank the whole former IPC personnel, and especially,
Markku Jurmu for his support in writing the publication of technology piloting. I am
grateful to Neil Jackson and Paul Rennison, who helped by proofreading the English of
my research papers.
Thanks to the personnel of Department of Industrial Engineering and Management of
the University of Oulu. It was a delightful and rewarding month when I stayed in your
office in January 2006 writing my thesis. It was nice to work as a real researcher.
I want to thank the pre-examiners of this study, professor Mika Hannula from
Tampere University of Technology and professor Oddur Benediktsson from the
University of Iceland for their valuable comments and recommendations.
This work took six years, and I appreciate how supportive my family has been – my
parents Anna-Liisa and Antti Kuusela, my brother Kari Kuusela and his family, my sister
Tuija Kuusela-Korva and her family. With this work I want to encourage my godson Antti
in his future studies. Especially, I want to thank my daughter Mervi and her family - Sami
and Tuuli - for their support and interest in my work. Finally, I thank my life-companion
Matti for his continuous support, endless trust and tireless encouragement during my
work.
Oulu, December 2006 Raija Suikki
List of abbreviations
BBN Bayesian Belief Networks
BPR Business Process Re-engineering
FMEA Failure Mode and Effect Analysis
DfSS Design for Six Sigma
ICT Information and Communication Technologies
IEEE Institute of Electrical and Electronics Engineers
IP Internet Protocol
IPC Internet Protocol Convergence Business Program
ISO International Organization of Standardization
NIST National Institute of Standards and Technology
NPD New product development
ODC Orthogonal Defect Classification
PMCD Project Management Competence Development
QFD Quality Function Deployment
R&D Research and Development
RQ Research Question
SRE Software Reliability Engineering
TQM Total Quality Management
XP Extreme Programming
List of figures
Fig. 1. Research framework........................................................................................... 25
Fig. 2. Research path ..................................................................................................... 26
Fig. 3. Iteration in normative research. .......................................................................... 29
Fig. 4. Action research process modified from Susman & Evered (1978). ................... 30
Fig. 5. Research approach.............................................................................................. 32
Fig. 6. Technology adoption life cycle (Moore, 1998). ................................................. 34
Fig. 7. S curves modified from Christensen (1997) and Moore (1998). ........................ 36
Fig. 8. Ulrich’s & Eppinger’s (1995) generic new product development
process compared to the Stage-Gate model introduced by Cooper
(2001). ................................................................................................................ 50
Fig. 9. Project management competence development framework. .............................. 59
Fig. 10. The Stage-Gate (Cooper 2001) analogy in relation to the piloting
process in the case unit. ...................................................................................... 63
Fig. 11. Software reliability estimation methods in relation to stages of the NPD
process in the case unit. ...................................................................................... 65
Fig. 12. Connection of the research papers to the new operational mode........................ 67
List of tables
Table 1. Research questions. ......................................................................................... 24
Table 2. Overview of research papers. .......................................................................... 27
Table 3. Characteristics in the business context of new product development
(Den Ouden 2006). .......................................................................................... 38
Table 4. Framework for describing and building business models................................ 57
Table 5. Business model evaluation framework (adapted from Slywotzky
(1996) and Hamel (2000)). .............................................................................. 58
Table 6. Process renewal procedure in the case unit...................................................... 61
Table 7. Summary of research contributions. ................................................................ 69
Table 8. Research contributions to the case company. .................................................. 72
Table 9. Research questions and contributions.............................................................. 78
List of original publications
This thesis is based on the following publications:
I Suikki R, Goman A & Haapasalo H (2006) A framework for creating business
models – a challenge in convergence of high clock speed industry. International
Journal of Business Environment 1(2): 211-233.
II Suikki R, Tromstedt R & Haapasalo H (2006) Project management competence
development framework in turbulent business environment. Technovation 26: 723-
738.
III Suikki R (2007) Process Renewal Driven by Disruptive Technologies. International
Journal of Business Innovation and Research 1(3): 281-295.
IV Suikki R & Haapasalo H (2006) Business impact of technology piloting – model for
analysis in different phases of development cycle. International Journal of Innovation
and Technology Management 3(2): 209-235.
V Suikki R (2006) Practical Use of Software Reliability Methods in New Product
Development. Proceedings of the 32
nd
EUROMICRO Conference on Software
Engineering and Advanced Applications, EUROMICRO SEAA 2006,
Cavtat/Dubrovnik, Croatia, 232-239.
Contents
Abstract
Acknowledgements
List of abbreviations
List of figures
List of tables
List of original publications
Contents
Introduction ...................................................................................................................... 19
1.1 Background and overview...................................................................................... 19
1.2 Research environment ............................................................................................ 23
1.3 Research objectives and scope................................................................................ 24
1.4 Research strategy and research papers.................................................................... 26
1.5 Research approach.................................................................................................. 27
1.6 Structure of the thesis ............................................................................................. 32
2 Theoretical foundation................................................................................................... 33
2.1 Changes in industries.............................................................................................. 33
2.2 Business environment............................................................................................. 39
2.2.1 Business models ............................................................................................ 39
2.2.2 Building business models .............................................................................. 41
2.2.3 Evaluating business models........................................................................... 42
2.3 Organisational learning........................................................................................... 44
2.3.1 Competence development ............................................................................. 44
2.3.2 Learning organisation and organisational learning........................................ 45
2.3.3 Organisational culture ................................................................................... 46
2.3.4 Knowledge management ............................................................................... 47
2.4 Quality management and process renewal.............................................................. 48
2.5 Pilot projects........................................................................................................... 50
2.5.1 Conventional product development............................................................... 50
2.5.2 Discontinuous product development ............................................................. 51
2.5.3 Prototypes and early trials ............................................................................. 52
2.6 Product reliability ................................................................................................... 53
2.7 Exploitation of the theoretical foundation .............................................................. 55
3 Models for management in a disruptive business environment ..................................... 56
3.1 A framework for creating business models – a challenge in convergence a
of high clock speed industry.................................................................................. 56
3.2 Project management competence development framework in a turbulent
business environment ............................................................................................ 58
3.3 Process renewal driven by disruptive technologies ................................................ 60
3.4 Business impact of technology piloting – model for analysis in different
phases of the development cycle ........................................................................... 62
3.5 Practical use of software reliability methods in new product development............ 64
4 Evaluation and discussion ............................................................................................. 66
4.1 Logical chain of inferences..................................................................................... 66
4.2 Implications ............................................................................................................ 68
4.2.1 Theoretical implications ................................................................................ 68
4.2.2 Managerial implications ................................................................................ 70
4.3 The reliability and validity of the research ............................................................. 74
4.4 Exploitation of the research.................................................................................... 75
5 Summary ....................................................................................................................... 77
References
Original publications
Introduction
This research was initiated as a response to better understand what kind of operational
mode is needed to promote the development and implementation of new disruptive
technologies in the telecommunications industry.
The case unit of this research was the Internet Protocol Convergence Business
Program (briefly IPC), a temporary Research and Development (R&D) unit that operated
in Nokia Mobile Phones and later in the Nokia Multimedia business group. The Nokia
Multimedia business group makes advanced telecommunication products such as devices
and solutions for imaging, games, media, and businesses. IPC was founded in 2002, and
it was discontinued at the end of 2004, when the personnel and ongoing projects were
merged with its operational mode and processes in the permanent organisational
structures of Nokia Multimedia. IPC consisted of both conventional R&D functions and
business development activities and had roughly one hundred employees. IPC was an
experimental organisation whose main objective was to find an efficient and fast way to
develop new applications, technological enablers, and features for the use of New
Product Development (NPD) projects. IPC acted as a pioneer and an adventurist in
creating and testing new technologies that would provide new opportunities for
customers.
1.1 Background and overview
Today’s telecommunications business environment, which is characterised by uncertainty
and the inability to predict the future, is challenging: the business environment is
changing quickly and the market requires new products with ever shorter product
development cycle times. So-called disruptive technologies (Christensen 1997) might
cause major changes in a business model and radically alter market positions. Paap &
Katz (2004) define disruption as follows: “The disruption in the term ‘disruptive
technology’ is not an attribute of technology. Rather, it describes the effect that some
technologies appear to have on markets affected by technology-based innovation and the
frequent downturn in the success of major firms that compete in those markets when they
fail to adopt the new technology in a timely way. It is a disruption in the business model.”
20
We still live in a time of hyper-competition (D’Aveni 1995), which leads to the
situation where cycle-times in product development are ever shorter. We talk about
breakthrough products that require radical innovations, i.e. discontinuous improvement.
They are riskier than less innovative products, because the product itself is new, the
market is unknown, and time to market needs consideration (Deszca et al. 1999, Leeman
& Winer 1997). According to Moore (1999), products that require us to change our
current mode of behaviour or to modify other products and services we rely on are called
discontinuous innovations, while continuous innovations refer to the normal upgrading of
products. The ability to innovate continuously and faster than competitors is vital to a
company’s competitive advantage (e.g. Costanzo 2004).
Convergence is a phenomenon in which two or more existing technologies, markets,
producers, boundaries, or value chains combine to create a new force that is more
powerful and efficient than the sum of its parts (Hartman et al. 2000). Mobile and IP
(Internet Protocol) convergence brings together technologies and services from the
mobile and Internet domains (e.g. Darby 1999, Kari & Kilpeläinen 2001, Sengodan et al.
2000). The old and proven ways of doing business are no longer sufficient for success.
One of the challenges is to create a profitable business model for the mobile and IP
convergence era (e.g. Kari & Kilpeläinen 2001, Kelly et al. 2002, Steinbock 2001). The
mobile handset manufacturers’ proven way of doing business was selling mobile
terminals in a highly competitive market. These terminals were embedded systems,
incorporating software and hardware. Lately, however, an alternative approach has been
introduced: software is nowadays also sold separately from hardware. In the mobile and
IP convergence era, the significance of this development will be even more emphasised.
This means, that in addition to selling mobile terminals as embedded systems, the
consumers can be offered the possibility to buy additional software applications for their
devices. As a consequence, the mobile IP software application business is emerging.
Disruptive technological changes in the NPD process require the development of new
competences. Companies that are willing to survive in competition must react to the
changes quickly. According to Nyhan (1998) competence development is seen as one of
the critical strategic factors ensuring companies’ competitiveness. Competence is difficult
to ensure, because it is distributed in several levels of the company. Examples of these
levels are strategic or operative, and technological or business competence. However,
winning corporations must acquire these competences. In high clock speed industries,
where product life cycles are short, this acquisition process is even more complex,
because the content of the competence may not be known long beforehand. These
boundary conditions have given rise to much discussion (e.g. Ivergard 2000) about how
to gain these competences and create organisational and learning environments, such as
learning organisations, which foster employees’ skills and sense of initiative and
responsibility. The latest management and leadership literature (e.g. Sydänmaanlakka
2003, Ivergard 2000, Laughton & Otteweil 2003) stresses the managers’ and leaders’ role
in this kind of environment i.e., business competence management inside the
organisation. Common answers to meet these challenges are the learning organisation,
new ways of doing things, teamwork, communications, focus, and self-management. The
organisation’s role is to provide conditions to ensure this kind of competence
development (Senge 1994, White et al. 1996, Goldberger 1999). Project management
competence consists of knowing the project environment, project management skills,
21
leadership skills, and personal growth. Furthermore, Cavaleri & Fearon (2000) propose
that project management structures provide a natural home for organisational learning.
Project-oriented business management is one approach to manage turbulent business. For
future challenges managers need better knowledge of project management, better
understanding of the project orientation in business and the turbulence of the environment
they are working in.
When moving from development of continuous improvement products to continuous
innovation products, old and fit for use processes might not be appropriate any more;
process renewal should be considered along with the new operational mode. Possible
approaches to process renewal are total quality management (TQM) (e.g. Dale 1999) and
business process reengineering (BPR) (e.g. Hammer & Champy 1993). TQM, a
management system that aims at long-term continuous improvement in customer
satisfaction and real costs (e.g. Fazel 2003), has been used in countless companies since
its launch. BPR, on the other hand, is the rapid and radical redesign of strategic processes
to optimise the workflow and productivity in an organisation. It is generally accepted that
TQM can generate a sustainable competitive advantage (e.g. Prajogo & Sohal 2001), and
the importance of tools and techniques for TQM improvement has been proved (e.g. Tarí
& Sabater 2004). Chong & Rundus (2003) claim that the higher the degree of market
competition the more positive are the relationships between TQM practices of customer
focus and product design and organisational performance. Numerous papers have been
published on the relationship of TQM and BPR, and their similarities and differences
(e.g. Ahire & Waller 1994, Fazel 2003, Gore 1999, O’Neill & Sohal 1999). Fazel (2003)
says that both TQM and BPR embrace the same ideas and goals for organisational
improvements and both encourage employee empowerment, teamwork, quality, change,
and focus on the customer. Similarly, many studies give proposals on how to use TQM
and BPR. Fazel (2003) concludes that TQM and BPR should be used to complement each
other; TQM extends a successful BPR program, and BPR is the turning point of a TQM
initiative. Also O’Neill & Sohal (1999) summarise other authors’ ideas that TQM and
BPR should form an integrated strategic management system within organisations. They
say that both continuous and discontinuous improvements are needed.
Lately, one more challenge is recognised: to identify customers’ requirements when
technology platforms are unfolding, products are still in development and customers lack
experience with the products (Deszca et al. 1999). In addition to moving from continuous
improvement to continuous innovation, product and project management has changed
substantially in the telecommunications industry. This is partly a consequence of moving
from the traditional, so-called waterfall model, to an incremental software development
process (see e.g. Haapasalo & Ylihoikka 2004). All this sets new requirements for
companies’ R&D activities and on reliability and the other quality attributes of their
products.
Testing has gained a lot of attention in recent literature (Pol & Veenendaal 1998, Staab
2002, Davis 1997, Black 2004), as well as verification and validation (IEEE (1012-2004),
NIST 1996). However, verification and validation focus on testing against specifications
rather than validating business needs. ISO 9000-3 defines design verification as an
activity that develops procedures that specify how design outputs, at every stage of the
product design and development process, should be verified. The idea is that these
procedures should verify that outputs satisfy design-input requirements. This is clearly a
22
technical activity which takes place inside a company. Further, ISO 9000-3 defines
validation as an activity that develops procedures to validate the assumption that the
newly designed products will meet customer needs. Outsiders to the company are
connected to the product development process, firstly, when developing design validation
procedures that confirm that the new product performs properly under all real-world
operating conditions, secondly, confirming that the new product will meet every
legitimate customer need and expectation, and thirdly, ensuring that validations are
carried out early in the design process whenever this will help guarantee that customer
needs will be met. The conventional NPD process is viewed as a multi-phase process
starting from idea generation and progressing through to commercial launch (e.g. Lynn et
al. 1996). However, when facing the challenges described above, the sequential phases of
the steps no longer more work optimally even when there is an overflowing volume of
tools inside the phases (Ulrich & Eppinger 1995). Instead, the newfound NPD process
emphasises probing and learning from the experience gained through sequential probes
(Lynn et al. 1996).
Until now, as already said, mobile handset manufacturers have sold mobile terminals
that are embedded systems, incorporating software and hardware. The current trend is
that the proportion of software in the devices is ever-increasing, and further, software is
also sold separately from hardware. Consequently, in embedded systems where both
hardware and software component reliabilities are combined to get system reliability,
demands for software reliability increase. Therefore, software reliability is in the
spotlight. The source of failures in software is design faults, whereas the principal source
in hardware has generally been physical deterioration (Musa et al. 1987, Pressman 2001).
Estimating software reliability seems to be difficult. Assessing or predicting software
reliability is one of the biggest challenges in the software industry. The first software
reliability model was created in 1972 (Lyu & Nikora 1992). So far, more than one
hundred software reliability models have been developed (Kan 2003). However, none of
them has achieved the status of a de facto standard. Software reliability estimation is
important as it provides a means to predict software maturity i.e., when the software is
ready for release, and also to manage software risks during the different R&D phases of
NPD projects.
Despite changes in the business environment and the introduction of new innovative
products, the NPD process is still the solid foundation for product development, even
though it requires updating due to the above-mentioned facts. Ulrich & Eppinger (1995)
presented the generally known NPD process that includes five phases: concept
development, system-level design, detail design, testing and refinement, and production
ramp-up. Cooper’s (2001) new product process includes product development, in-house
product testing, customer tests of the product, trial sell, trial/pilot production or operation.
Cooper’s (2001) Stage-Gate process is a conceptual and operational model for moving a
new product project from idea to launch. Stage-Gate breaks the innovation process into a
predetermined set of stages, each stage consisting of a set of prescribed, cross-functional,
and parallel activities. Generally these kinds of models focus on developers’ interests to
verify specifications, not to adjust features to the customers, even undefined needs. Den
Ouden (2006) talks about the business creation process. She uses the term “business
creation process”, because it has a wider scope than NPD process. It includes the main
processes such as strategy, new product development, manufacturing, market
23
introduction, and sales and service. In each of these processes decisions are made that
influence the end user experience, and if the product is falling short of the end user’s
expectation, they are dissatisfied and might complain (Den Ouden 2006).
1.2 Research environment
According to Kostamo (2001), in the 1990’s in the mobile telecommunications industry
there were only a few players who had a big market share. The distribution channels of
mobile phones included telecommunications operators, retail sale chains owned by them,
and various distribution enterprises. Today, there are thousands of players in the
playground. After switching to the mobile Internet world, the playground became more
complex. Digital data transfer, data processing and multimedia technologies are brought
to wireless communications with the Internet. All of them are still evolving. In the
Internet playground the essential players include terminal manufacturers, software
houses, Internet- and data network equipment manufacturers, mainframe-, server- and
memory device manufacturers, and telecommunications operators including IP operators,
content providers and portals. The relationships between them are complex. Thus, the
case company is faced with a wholly new competitive environment.
The market structure is likely to evolve, and the roles of players change and intervene
in formerly restricted areas of other players (Kostamo 2001).
Zoller et al. (1999) say that numerous groups of players are all willing to take
advantage of the new mobile world, which will increase competition. Mobile device
manufacturers will face the threat of new players that, in some cases, will have the skills
and technology they lack. Powerful industry alliances and joint ventures are trying to
define standards. The winners will shape how the market will develop.
Chesbrough & Rosenbloom (2002) argue that the inherent value of a technology
remains latent until it is commercialised in some way. If the technology does not fit in the
current business, it is essential the companies expand their perspectives to be able to find
the right business model in order to capture value from that technology. Even though a
technology seems to embody attractive potential value proposition, its commercialisation
can fail, if the firm does not discover the proper business model capable of realising that
value.
According to Chesbrough & Rosenbloom (2002), it is often difficult for firms to
manage innovations that do not fit into their previous experience, when their earlier
beliefs and practices do not apply. When attempting to commercialise promising new
technological capabilities, current perspectives can pose a constraint. Especially when old
models have been successful, they provide both a source of value realisation, and a
potential source of cognitive bias. Even if a technology makes little or no business sense
in a traditional business model, it may capture great value when brought to market with a
different model. A business model integrates earlier perspectives into a coherent
framework that takes technological characteristics and potentials as inputs, and converts
them through customers and markets into economic outputs. It is thus conceived as a
focusing device that mediates between technology development and economic value
creation.
24
1.3 Research objectives and scope
The main research problem arises from the fact that there has only been a little research
done on the operational mode, processes, and practices for promoting development and
implementation of disruptive technologies. The case unit lacked refined and established
methods, processes and operational mode to introduce disruptive technologies. An
efficient and effective operational mode is needed to assure profitable breakthrough in the
market, to guarantee competitive advantage over rivals, and to react quickly to changes in
the business environment and technological development. In particular, a quick response
is required when disruptive technologies are introduced by competitors and the case
company has to catch up with the leader to remain competitive in the new situation.
The research problem of this study is stated as follows:
What kind of operational mode is needed to introduce disruptive technologies?
This problem is approached from five different perspectives - business environment,
competence development, process renewal, running technology pilots, and product
reliability - where five research questions (RQ) are formed (table 1) for compiling the
research findings as a whole.
Table 1. Research questions.
# Research question
RQ1 How to build and evaluate business models?
RQ2 How to develop competences?
RQ3 How to renew processes?
RQ4 How to involve customers?
RQ5 How to estimate the reliability of products?
These research questions are related to each other, even though their focus is different.
The research questions - from one to five – move from a wider to a narrower subject
matter. Fig.1 depicts the scope of the thesis - the individual research areas are illustrated
with a cone. The cone depicts the change in the width of the perspective when moving
from one research area to another; the deeper one goes into the cone the narrower the
perspective becomes. When considering business models one must also keep in view
other industries, not just the case company. When competence development is studied,
other industries are considered, but the main focus is in the case company. Going further
in the cone, process renewal focuses more on the case unit and discusses how the renewal
was experienced in the case unit. Finally, the perspective regarding running technology
pilots and product reliability studies is on the project level.
The research subjects were chosen in order to understand the nature of the operating
area as a whole. Each of these areas is large and would be worth further studies.
However, this scope was chosen as an initial move. The first research question (RQ1)
considers the business environment to create the basis for selecting an appropriate and
profitable business model. The second research question (RQ2) reviews competence
development to guarantee the company’s ability and capability to succeed in introducing
new technologies. The third research question (RQ3) examines processes and practices
25
and their renewal driven by disruptive technologies. The fourth research question (RQ4)
goes deeper in the technology and its implementation, and investigates customer
involvement in the NPD process; customer satisfaction is one of the primary drivers of
most contemporary companies. Finally, the fifth research question (RQ5) discusses the
estimation of reliability – especially software reliability as great part of a new technology
is implemented through software.
Considering organisational dimensions, the scope of the research on business models
(RQ1) is valid on the company level and even beyond the case company. Competence
development (RQ2) research is discussed from the overall viewpoint of the case
company. When progressing to studies of process renewal (RQ3), running technology
pilots (RQ4), and product reliability (RQ5), the scope decreases in the organisational
dimension from a business unit to a project level.
Fig. 1. Research framework.
The five research perspectives were chosen at the very beginning of the research. The
focus within the perspectives might have changed a bit, but however, the main research
areas remained the same during the whole study.
Inputs to this research were disruptive technologies and mobile and IP convergence. In
this study they are taken as given and investigating reasons for identifying them are
outside the scope of this research. This research does not cover the implemented
technologies themselves or different instances of quality. The reasoning behind the
foundation of IPC is out of the scope of this research, too. Agile software development
(e.g. Beck et al. (2005) and in particular Extreme Programming (XP), a software
26
engineering methodology, which can be considered to be an extreme case of a pilot
project where the customer participates in the development directly, are outside the scope
of this thesis. However, customer involvement is considered in the fourth research paper
discussing pilot projects, when introducing new technologies. Fig. 2 demonstrates the
“research path” of this research. The five research questions or research subjects are
marked by a circle with the text “RQx”. The circles without any text inside depict other
possible research subjects that were left out of this research. Fig. 2 illustrates that the
highlighted path is just one of many possible paths. The figure shows that this research
covers just the chosen research subjects. Of course, there were numerous other subjects to
select, but these were topical to the case unit at the time when this research was
conducted. The figure shows also that there is room for further study.
Fig. 2. Research path.
1.4 Research strategy and research papers
In this thesis, the research problem is divided into five research questions, which have
different aspects, still related to each other, as described in the previous chapter. Each
research question is answered with the help of a published article, a research paper. Each
research paper provides a partial solution to the research problem. This thesis combines
the contributions of the research papers to give a solution to the original research
problem.
Thus, this thesis is a collection of five original publications with this summary. Four of
them are journal articles and one article was published in a refereed international
27
conference. I have been the primary author in all of the original publications. In the
papers accompanied by other writers I ensured the novelty of the contributions and
incorporated them to give additional value to this research as a whole and to the research
environment. In the research paper concerning business models, then I condensed the
study into a more compact presentation and assessed its relation to the current
knowledge. In the research paper concerning competence development, in addition to
compression of text, I evaluated the significance of the framework studied in a wider
perspective. In the paper discussing technology pilots, I reviewed the literature with the
other writer, but the research data was studied and analysed by me. Table 2 lists the
articles and combines them with the research questions.
Table 2. Overview of research papers.
# Title Authors Publication Research
question
I A framework for creating business models
– a challenge in convergence of high clock
speed industry
Suikki, R.,
Goman, A.,
Haapasalo, H.
International Journal of Business
Environment, 2006, 1(2): 211-233
RQ1
II Project management competence
development framework in turbulent
business environment
Suikki, R.,
Tromstedt, R.,
Haapasalo, H.
Technovation, 2006, 26: 723-738 RQ2
III Process Renewal Driven by Disruptive
Technologies
Suikki, R International Journal of Business
Innovation and Research, 2007, 1(3):
281-295
RQ3
IV Business impact of technology piloting –
model for analysis in different phases of
development cycle
Suikki, R.,
Haapasalo, H.
International Journal of Innovation
and Technology Management, 2006,
3(2): 209-235
RQ4
V Practical Use of Software Reliability
Methods in New Product Development
Suikki, R. Proceedings of the 32
nd
EUROMICRO Conference on
Software Engineering and Advanced
Applications, EUROMICRO SEAA
2006, Cavtat/Dubrovnik, Croatia,
232-239
RQ5
1.5 Research approach
In the main, this research follows normative and action research approaches. However,
other approaches are used as well, as the thesis is composed of five research papers:
constructive research, participant observation research, and case study research
approaches. Principally the study follows a qualitative research approach. However, a
quantitative research approach is also used in some research papers.
There are different methods and paradigms available to support different scientific
approaches. The main thing is to choose methods that support the scientific problem by
applying thinking and interpretation, which leads to the desired end result. Normative
28
research is looking for results which can be utilised when developing current activities or
creating something new. Descriptive research tries to describe the phenomena by creating
concepts, describing processes, etc. in order to increase the understanding of the
phenomena.
This research aims at understanding the changing environment and, based on the
increased understanding, to improve working methods, operations, and practices. A
normative research approach supports this target. Additionally, the researcher acted in the
case unit studied, and therefore was able to participate in the actions conducted and was
also able to change and modify the actions taken. Thus, an action research approach
provides the prerequisites for this study.
The target of normative research is to gather facts and also to point out in which
respects the object of study can be improved. Normative research includes evaluation of
the present state of things and also of the direction of future development. Normative
research produces the theory of practice for a professional activity, which can consist of
recommendations, rules, standards, algorithms, advice or other tools for improving the
object of study (e.g. Olkkonen 1993).
According to Routio (2006), in its simplest layout, the normative process of research
and development might consist of a linear series of simple decisions e.g., defining the
target, defining which factors in the context can be modified and which not, planning
how to reach the target, selecting the best alternative, making a detailed plan of action,
submitting practical proposals to the people that can decide on the operations in practice.
However, many normative projects deal with complex practical problems, and it is
impossible to proceed directly to the synthesis and proposal. Hence, iteration is needed
which is illustrated by a spiral (see Fig. 3). The iteration includes steps: (1) evaluative
description of the initial state and defining the needed improvements, (2) analysis, (3)
synthesis, and (4) evaluation. The steps follow Deming’s (1986) Plan-Do-Check-Act
cycle.
29
Fig. 3. Iteration in normative research.
By repeating the sequence from 2 to 4, an acceptable result is usually found.
The term “action research” was introduced by Kurt Lewin in 1946 (Susman & Evered
1978). According to Avison et al. (1999) action research combines theory and practice
through change and reflection in a problematic situation. Action research is an iterative
process involving researchers and practitioners acting together on a particular cycle of
activities, including problem diagnosis, action intervention, and reflective learning. The
action research process is illustrated in Fig. 4.
30
Fig. 4. Action research process modified from Susman & Evered (1978).
Susman & Evered (1978) list six characteristics of action research: (1) Action research
is future oriented in dealing with the practical concerns of people. (2) Action research is
collaborative; interdependence between the researcher and the client system is essential.
(3) Action research implies system development; the aim in action research is to build
structures, system, and competences, and to modify the relationships of the system. (4)
Action research generates theory grounded in action; theory provides a guide where to
concentrate and for generating possible courses of action to solve the problems of
members of the organisation. (5) Action research is agnostic; theories and prescriptions
for action are the product of previously taken action and are subject to re-examination
and reformulation in every new research situation. (6) Action research is situational;
many of the relationships between people, events, and things are a function of the
situation as relevant actors currently define it.
Baskerville (1999) says that the various forms of action research share some agreed
characteristics, and they distinguish action research from other approaches for social
enquiry. He lists four common characteristics: (1) an action and change orientation; (2) a
problem focus; (3) an “organic” process involving systematic and sometimes iterative
stages; and (4) collaboration among participants. Different types of action research
according to Avison et al. (1999) are: (1) action research focusing on change and
reflection; (2) action science trying to resolve conflicts between espoused and applied
theories; (3) participatory action research emphasising participant collaboration; and (4)
action learning for programmed instruction and experiential learning. Dick (2000)
characterises action research as cyclic, participative, reflective and qualitative. An
important advantage of action research is that it can achieve results without which the
research would have been ignored.
31
Action research also brings problems for the researcher. Representing mostly
qualitative approach, Baskerville (1999) claims that the lack of generally agreed criteria
for action research complicates the publication review process. Both Avison et al. (1999)
and Baskerville (1999) insist on exactness from researchers in their research approach,
research aim, theory, and method to avoid professional problems. E.g. their work might
be described as consulting instead of research. Ethical aspects should also be considered
to guarantee the success of the research.
Many authors (e.g. Susman & Evered 1978, Schön 1983, Baskerville 1999) claim that
research methods and techniques have become more complicated, situations of practice
are more problematic and characterised by uncertainty, disorder, complexity, continuous
changes etc., and that human organisations can only be understood as whole entities.
Baskerville (1999) says that the fundamental contention of the action researcher is that
complex social processes can be best studied by introducing changes into these processes
and observing the effects of the changes.
Schön (1983) writes about “reflection-in-action” meaning the professional manager’s
thought process. “Reflection-in-action” clarifies the struggle between art and science.
According to Schön (1983) research is institutionally separate from practice, connected to
it by defined relationships of exchange. Researchers provide the basic and applied
science from which to derive techniques for solving the problems of practice.
Practitioners furnish researchers with problems of study and with tests of the utility of
research results. There is a gap between professional knowledge and the demands of real-
world practice. Schön (1983) writes that in the spontaneous, intuitive performance of the
actions of everyday life one shows himself or herself to be knowledgeable in a special
way, however, not being able to say what he or she knows. One’s knowing is tacit,
implicit in the patterns of action.
This research is characterised as normative action research, which seeks models for
everyday business-related problems by means of action research. This research, as a
whole, follows the characteristics of participatory action research, which combines theory
and practice through change and reflection in a problematic situation by the researcher
and practitioners. In this study the researcher belonged to the community where the
research was done. The researcher had several roles in this research; a planner, leader,
facilitator, teacher, observer, and reporter. Action research is an iterative process
involving the researcher and practitioners acting together on a particular cycle of
activities. Action research addresses complex real-life problems and the immediate
concerns of practitioners. All this applies to this research.
Fig. 5 illustrates the research approach of this thesis. Each research question
corresponds to one iterative cycle of the action research process. The five research papers
form a chain of sequential action research cycles. Iterations in a cycle and each cycle in
the chain of cycles add understanding and knowledge to the research environment.
32
Fig. 5. Research approach.
1.6 Structure of the thesis
The thesis consists of five individually published papers and this summary, which is
organised as follows: Chapter 2 presents the theoretical foundation for the research.
Chapter 3 summarises the five published papers, which are included at full length in the
Appendix. In chapter 4 the overall findings of the study are presented by addressing the
research questions based on the research contributions and findings from the individual
papers. Finally, chapter 5 summarises the research.
2 Theoretical foundation
2.1 Changes in industries
Many industries are today faced with ever-increasing speed. Moore’s law (Moore 1965),
which predicts that the transistor density of semiconductor chips would double roughly
every 18 months, describes the speed of technology development well. Despite the fact
that Moore’s law was published more than forty years ago, it is still often referred to.
Today, businesses shift their portfolio of products towards more innovative products with
higher degrees of uncertainty. At the same time, changes in industries have a much larger
impact than before and it is becoming increasingly difficult to achieve product quality
targets.
Goldratt (1990) writes about a process of ongoing improvement, which can sustain a
company’s excellent performance in the long run. He argues that before we can deal with
the improvement of any system, we must first define the system’s global goal and
recognise the role of the system’s constraints. A constraint is anything that limits a system
from achieving higher performance versus its goal. Goldratt (1990) proposes to rethink
the current situation once more and precisely define – verbalise - the problem caused by
constraints. He argues that all our inventions, decisions, and convictions are based only
on intuition. What is missing is the ability to verbalise our intuition, to provoke it, focus it
and cast it precisely into words. As long as proper verbalisation is not used, we ourselves
will act in ways that contradict our own intuition.
Moore (1998, 1999) writes about the development of high-tech markets. He advises
how to move from an early market dominated by a few visionary customers to a
mainstream market dominated by a large group of customers who are pragmatists in
orientation. He presents a technology adoption life cycle, a model for understanding the
acceptance of new products (see Fig. 6). He proposes that a new technology product is
adopted first by a few innovators, who are technologists and pursue new technology
products aggressively. The next group buying new technology products are early
adopters, who find it easy to understand and appreciate the benefits of a new technology.
The early majority are driven by a strong sense of practicality and are ready to wait to see
how other people adopt new products before buying. The people in the late majority wait
34
until products have become an established standard before buying them. The last group is
laggards, who don’t want anything to do with new technology; they buy a technological
product when it is buried so deep inside another product that they don’t even know it is
there. According to the technology adoption life cycle the way to develop a high-tech
market is to work the curve left to right (see Fig. 6), focusing first on innovators, early
adopters, early majority, late majority, and finally on laggards. In addition to expanding
the market, there is another motive, namely keeping ahead of the next emerging
technology, the idea of a window of opportunity.
Fig. 6. Technology adoption life cycle (Moore, 1998).
Christensen describes (1997) how new technologies can initiate discontinuities in
industries. Disruptive technologies might cause major changes in a business model and
radically alter market positions. Only seldom can a market leader keep its position.
Typically, in a discontinuity created by disruptive technologies, market dominance is
changed to new players and the market share of the previous leader collapses. A
newcomer or a previous minor player takes a major part of market share and profits.
Christensen (1997) characterises disruptive new technology as a technology that is
originally not demanded by the industry’s mainstream customers or markets, but by a
small niche market or a totally different customer segment. The new technology later also
replaces the earlier mainstream technology.
According to Christensen (1997) a market leader is usually very carefully trying to
respond to its customers’ needs and therefore is tempted to neglect a new market that is
not seen important enough to be interesting. A new business opportunity might also be
undetected, because the market segment is different from the current one. E.g. customers
and delivery channel are different from existing ones, thus remaining undetected. If the
market leader is a technology-oriented company, it might even be able to develop the new
35
technology first. Anyhow, this new technology is usually not utilised. A market leading
mainstream company will most often not focus its manufacturing or marketing efforts to
a new and unknown business segment, because the new market size is too small or
customers are not recognised. In a fierce market share fight, all available resources are
focused on boosting the currently profitable business, and assets are not directed to new
uncertain areas. Technology development effort is directed to the sustaining technologies.
This kind of market arrogance leaves a door open for a company that decides to enter the
industry through this initially niche market, which might later grow to be the mainstream.
Moore (1998) discusses discontinuous innovations as paradigm shifts. These shifts
begin with new category products that incorporate breakthrough technology. At first, the
market resists these products and the changes they introduce. But in many cases, finally,
there comes a flashpoint of change when the entire marketplace shifts its loyalty from the
old technology to the new.
Many authors (e.g. Matthews 1991, Christensen 1997, Moore 1998, Hakkarainen
2006) write about replacing old technologies with new ones. At first, the performance of
a new technology is usually rather low, but it improves until the technology reaches the
improvement period of its lifecycle, when the improvement becomes rapid. Progress
slows down in the mature period and comes to an end when limits of the technology are
reached. This is described as S-curves. New disruptive technologies are typically initially
not competitive with mature, older technologies. But the S-curve effect typical to a new
technology’s performance improvement vs. time or development effort might change
financial positions. Fig. 7 is based on Christensen’s (1997) presentation and is
complemented by Moore’s (1998) subsequent stages in the life-cycle model i.e., “bowling
alley”, “tornado”, and “main street”.
36
Fig. 7. S curves modified from Christensen (1997) and Moore (1998).
According to Christensen (1997), new technology development teams might be able to
develop a new technology to a level where the old technology’s capabilities are also
exceeded in the mainstream market, and also the mainstream turns to the new technology.
New technology performance improves rapidly and with minor efforts in the beginning of
the development life cycle, but later on even a minor improvement in technology requires
huge effort. Sometimes the new disruptive technology’s performance does not exceed the
old technology performance. The old technology can maintain its advantage and the new
technology remains in its original market segment. A second option is that after a fierce
improvement phase (rapidly rising part of S-curve) the new technology exceeds the old
technology’s performance. In the case of crossing S-curves, the new technology replaces
the old one quite rapidly in the mainstream market, thus causing a radical change in
product demand. If the new technology also introduces changes in business concept, or
changes in how value-added is allocated to the value chain, the impact is even more
radical.
Perhaps the clearest case of crossing S-curves in the cellular telecommunication
industry history has been the introduction of digital technology. At the starting point,
digital mobile terminals were much worse in performance than analogue mobile phones,
thus making the analogue phones more preferred by end users. After a few years of
technology development, the digital phones’ performance clearly exceeded the
performance of the analogue ones, thus changing the end-user preference to the digital
phones.
37
Christensen (1997) argues that leadership in sustaining technologies may not be
essential, but leadership in disruptive technologies creates enormous value. He suggests
that large companies should seek to embed the project in an organisation that is small
enough to be motivated by the opportunity offered by a disruptive technology in its early
years. Christensen (1997) claims that this can be done either by spinning out an
independent organisation or by acquiring an appropriately small company.
Den Ouden’s (2006) study deals with introducing new technologies to the consumer
electronics industry. The study reveals that the number of customer complaints in
consumer electronics industry is ever-increasing and that consumers do not only
complain about technical product failures, but also about non-technical product failures.
Non-technical failures occur when the product does not satisfy their expectations, but
does function technically. Den Ouden (2006) lists four major trends that influence
product quality and reliability: (1) increasingly complex products, (2) strong pressure on
time-to-market and fast adoption cycles with fewer product generations, (3) increasingly
globalised economy, and (4) decreasing tolerance of customers for quality problems;
consumers are returning products when they are not satisfied, even when the product is
technically functioning according to the specification. Consumer complaints, especially
complaints of non-technical failures, are caused by a wide range of decisions taken in the
business creation process. In many cases it is no longer feasible to improve on consumer
complaints in the current range of products. Improvement will have to be made over
product generations. This means that it will not be sufficient to make adaptations in the
business creation process as such, but the product innovation cycle will need to be
adapted. The product innovation cycle should include learning from complaints with
previous products and aim at prevention of consumer complaints in new products.
Currently many businesses are facing an increasing number of consumer complaints,
despite the application of quality tools that were proved to be very powerful in the past.
The traditional quality and reliability field monitoring systems are set up for technical
failures only. They check if the product is functioning according to the technical
specification. Problems of a non-technical nature are classified as “Failure Not Found”
and causes of these problems are still unknown. Den Ouden (2006) claims that the
available approaches/tools to fulfil product quality and reliability are not sufficient any
more, even they were applicable earlier with continuous improvement products; the
approaches studied were: project management, quality management, customer/user
centred design, learning in and across projects, Quality Function Deployment (QFD),
consumer involvement in idea generation, evaluating and testing with consumers, risk
management and Failure Mode and Effect Analysis (FMEA), Design for Six Sigma
(DfSS) and robust design, and quality and reliability testing. Instead of choosing one
preferred approach, Den Ouden proposes an adaptable approach, which, however, still
needs further study.
To understand the challenges industries have today, one must realise the changing
environment of the businesses. A comparison of the mid-nineties and present-day
situation reveals major differences in the business context. Table 3 shows the main
characteristics.
38
Table 3. Characteristics in the business context of new product development (Den Ouden
2006).
Until mid-nineties Nowadays
Business strategy Maintaining market share through
production of high volumes and selling at
competitive prices
Growth of turnover and profit through
attractive, innovative products at higher
price points
Product portfolio Incremental innovations; existing
technologies to existing markets (Garcia &
Calantone 2002)
Really new products; new technologies to
existing markets or existing technologies to
new markets (Garcia & Calantone 2002)
Number of
product
generations to
reach commodity
> 10: enough time to learn consumer
expectations and improve technical product
quality and reliability
~3: no time to learn over product
generations
Main uncertainty Technology, in relation to cost effective
mass production
Market, in relation to attractiveness of
product and expectations of consumers on
the product functions
Product
complexity
Low: limited functions and connectivity
options
High: multiple-functions and connectivity
options
Consumer
expectations
Known, due to stable markets and
incremental innovations
Unknown, due to dynamics in market and
decision to introduce really new products
Role of
specification
Fixed and complete at start, stable through
the project
Evolving over time
The present-day telecommunications industry is changing continuously; existing
technologies are replaced by newer ones, moving from sustaining technologies to
disruptive technologies is happening, products are becoming ever more complex, the
business environment is changing, etc. Telecommunication devices have evolved from
“just” mobile phones to advanced devices including sophisticated features and services,
e.g. imaging, music, videos, games, multimedia messaging. Den Ouden (2006) deals with
introducing new technologies in the form of innovative products in consumer electronics
industry. Her studies are very relevant, as the same phenomena are also happening in the
telecommunications industry. The ideas presented by Christensen (1997) and Moore
(1998, 1999) deal with the macro level of the business environment in general, not any
specific industry. It gives a firm standpoint for further studies. This research tries to solve
problematic situations on the case company level: what kind of business model is
appropriate, which new competences are needed and how to acquire them, are current
processes suitable for implementing disruptive technologies, how to involve customers in
new product development, and how to ensure reliability of software during the R&D
phase. The next chapters (2.2 – 2.6) cover theories on these topics and chapter 2.7
describes the utilisation of these theories.
39
2.2 Business environment
The telecommunications industry is in the middle of convergence, which means networks
and terminals dedicated to a given purpose will gradually disappear or merge. (Teleware
2001). Mobile and IP convergence brings together technologies and services from the
mobile and Internet domains. This will open up many new opportunities. (See e.g. Darby
1999, Kari & Kilpeläinen 2001, Sengodan et al. 2000.) A lot is expected from the
convergence of the two most successful innovations of the telecommunications industry,
the Internet and mobile communications (Kelly et al. 2002).
In other words, according to many authors (e.g. Kari & Kilpeläinen 2001, Kelly et al.
2002, Steinbock 2001), the rapidly evolving mobile telecommunications business is
experiencing a discontinuity on the brink of a new era, caused by mobile and IP
convergence. This discontinuity opens up opportunities, but it also brings a considerable
amount of uncertainty to the business. The old and proven ways of doing business are no
longer sufficient for success. The difficulty is in finding the right ways to take advantage
of the opportunities and profiting from them. One of the challenges is to create a
profitable business model for the mobile and IP convergence era.
Several writers (Kostamo 2001, Kari & Kilpeläinen 2001, Zoller et al. 1999, Barret &
Ahonen 2002) propose that the mobile handset manufacturers’ proven way of doing
business is selling mobile terminals in the highly competitive market. These terminals are
embedded systems, incorporating software and the hardware. Lately, however, an
alternative way has been introduced: software is nowadays also sold separately from
hardware. New services and applications will be created and offered by numbers of
service developers, even by end users. User-generated content will also drive the
development, but naturally also network operators and third party service providers will
create services. It is still unclear as to with which devices the combining of Internet and
mobility will be achieved. It is only certain, that there will be no single terminal type, but
multiple solutions.
The product could also be software, which is an example of information goods. The
cost structure of producing information differs from the usual: the fixed cost is high but
marginal cost is low. Furthermore, with advances in technology, the cost of distributing
information is falling considerably (Shapiro & Varian 1999). Digital products can be
transmitted over the Internet instantly and at almost no measurable marginal cost (De et
al. 2001). Kostamo (2001) writes that in the mobile and IP convergence era there are a lot
more players in the game than before and at the same time technologies are evolving
rapidly and business models are transforming. The market structure is likely to evolve,
and the roles of players change and intervene in formerly restricted areas of other players.
2.2.1 Business models
Timmers (1998), Magretta (2002), and Hamel (2000) note that literature has not been
consistent in using the business model concept. A variety of terms are used to mean
roughly the same, including business model, business design (e.g. Bovet & Martha
2000a, Kalakota & Robinson 1999, Slywotzky 1996), and business concept (e.g. Hamel
40
2000). In this research, a business model describes (1) the offering, (2) the value chain or
network, and (3) the revenue model of the enterprise. The chosen elements are those that
are of most interest in this study.
As Normann & Ramírez (1994) discuss, a clear distinction between products and
services can no longer be drawn. Offering is a concept that is comprised of them both: it
is used to refer to any output of a value creation system (the producer or supplier) that is
an input to another (the customer). Offerings consist of three components: physical
goods, services, and ideas or information. The goal of any offering is to create value for
the customer. (Band 1991, Kotler 1997, Normann & Ramírez 1994.) Kotler (1997) has
presented five levels of an offering – core benefit, basic product, expected product,
augmented product, and potential product - each of which adds more customer value.
Activity to create value is the basic building block of business (Normann & Ramírez
1994). The concept of value chain was originally developed by Porter (1985). He refers
to a company’s internal value chain. Later the concept has also been used to denote an
industry-wide value chain, which Porter names value system (see also Kotler 1997,
Hoover et al. 2001). Lately this has been widely replaced by the term value network, as
the nature of business has evolved towards networked environments (Allee 1999). In
value constellations, co-production of value is an essential term; it refers to supplier and
customer working together in the joint value creation process, and thus helping each other
to create value (Normann & Ramírez 1994). Wikström et al. (1994) describe the same
model as value star. The company needs to define its strategic position in relation to the
customer’s value creation process, around which the value star is composed. The modern
networks that are emerging with e-business, generally share the characteristics of the
traditional networks, but differentiate themselves through digitality (Sweet 2001, Bovet
& Martha 2000b, Tapscott et al. 2000). Amit & Zott (2001) have created a model of the
sources of value creation in e-business: they are efficiency, complementarities (that are
present whenever having a bundle of goods together), lock-in (manifested as switching
costs), and novelty.
Revenue model is an inherent part of a business model. It describes how the company
finances its operations, i.e. how and from whom the revenue is generated (Rajala et al.
2001). The company should define its revenue model in conjunction with identifying the
market in which the company will compete (Chesbrough & Rosenbloom 2002).
Shapiro & Varian (1999) and Shy (2001) discuss ICT (Information and
Communication Technologies) industries. They claim that ICT industries belong to so-
called network markets that include e.g. the telephone, email, the Internet, computer
hardware, and computer software. The cost structure of ICT goods differs from the usual:
the fixed cost is high but marginal cost is low, practically negligible. This kind of cost
structure implies that the average cost function declines sharply with the number of
copies sold. Thus a competitive equilibrium does not exist, and markets of this type will
often be characterised by dominant leaders that capture most of the market.
41
2.2.2 Building business models
Porter (2001) questions the value of business models. He argues that simply having a
business model is an extremely weak foundation for building a company, and that no
business model can be evaluated independently of industry structure. Moreover,
according to him, the business model approach to management leads to faulty thinking
and self-deception.
Nevertheless, contrary views do exist. As Magretta (2002) argues, a good business
model is essential for an organisation to succeed, yet this does not mean that a business
model alone would be enough – a company still needs a competitive strategy. It is clear,
that a business model alone is no magic solution, nor can it be evaluated without putting
it into the right context. However, used in the right way, business modelling is an efficient
management tool. When used correctly, a business model forces managers to think
closely about their businesses. A model can by itself create a strong competitive
advantage, and it can be used to get the whole organisation aligned around the kind of
value the company wants to create. A good business model can become a powerful tool
for improving execution.
In addition, companies have to consciously and continuously improve their business
models. Slywotzky (1996) says that value migrates from outmoded, economically
obsolete business designs to new ones that more effectively create utility for the customer
and capture value for the producer. Sooner or later, every business model reaches the
point of diminishing returns: traditional business models just do not keep on bringing
ever growing revenues forever. Therefore, business model innovation is obligatory to be
able to create new wealth (Hamel 2000). The business design dimension is no longer an
optional part, but it is elementary for a company intending to stay in business (Kalakota
& Robinson 1999).
Constructing a business design requires making a number of critical choices. If the
business design is to succeed, its elements must be aligned with customers’ most
important priorities, and the elements must be tested for consistency with each other to
ensure that the business design functions as a coherent, mutually reinforcing whole.
Building a powerful business model is challenging. Therefore, a set of questions can be
used to help in selecting the most powerful elements as Slywotzky (1996) proposes. The
foundation of a business design is a set of basic assumptions about customers and
economics. These assumptions profoundly influence the design’s overall strength and
viability, and therefore must be examined carefully and made explicit. The next task is
defining those elements that match customers’ most important priorities. Having
established the core of the offering that will create utility for the chosen customers, the
task is to define how the organisation delivers that utility and the degree to which it can
earn a profit while doing so.
Hamel & Prahalad (1996) propose a somewhat similar approach, which is also based
on answering some key questions about the concept of served market, revenue and
market structure, configuration of skills and assets, and flexibility and adaptability.
The third approach, based on question lists, is that of Hamel (2000). His framework
for unpacking the business model consists of four major components: core strategy,
strategic resources, customer interface, and value network. Each of these has several
42
subcomponents. The four major components are linked together by three bridge
components: configuration of activities, customer benefits, and company boundaries.
Underpinning the business model are four factors that determine its profit potential:
efficiency, uniqueness, fit, and profit boosters.
Timmers (1998) approaches the question of building a business model with a different
method. He presents a systematic approach for identifying business model architectures,
which is based on company internal value chain deconstruction and reconstruction, i.e.
identifying the elements of the value chain and possible ways of integrating information
along the chain. The framework thus consists of three elements (Timmers 1998):
? Value chain deconstruction, which means identifying the elements of the value chain.
? Interaction patterns, which can be one-to-one, one-to-many, many-to-one, many-to-
many.
? Value chain reconstruction, that is integration of information processing across a
number of steps of the value chain.
The possible business model architectures are then constructed by combining interaction
patterns with value chain integration.
The last approach presented has characteristics from the two different types of
approaches discussed above. To create an innovative business design, first some
questions need to be answered. Kalakota & Robinson (1999) suggest that after answering
the questions, there are three steps in business design. The first step is self-diagnosis.
Before beginning to create an e-business design, the company must be diagnosed. There
are three categories of companies: market leaders, early adopters or visionaries, and the
silent majority. One has to see where in the picture one’s company is, and if the position
is not desirable, make a path to get where one would rather be. The second step is
reversing the value chain. Success depends on creating new product offerings in which
customers see value. Successful companies no longer just add value; they invent it. To
achieve this, the traditional value-chain thinking must be revised. In contrast to the
traditional inside-out models, by which businesses define themselves in terms of the
products they produce, the business design has to be outside in, and the strategy has to
revolve around the customer. Customer needs must be the starting point for creating new
offerings. Business designs are an outcome of the reconfiguration and integration of
competences, channels, application infrastructure, and employee talent. The creation of a
business design is inseparably linked to the management of change. Change is not an
uncontrolled activity; choosing a narrow focus sets the boundaries of change. Thus, this is
the third step. As there are few organisations that can do many things well, a narrow
focus is often more powerful than a much broader one.
2.2.3 Evaluating business models
As Magretta’s (2002) definition of business model has two components: a story that
describes how an enterprise works, and modelling the behaviour of business numerically,
so does the way she evaluates business models. There are two tests that a successful
business model must pass: the story must make sense, and the calculations must show
ability to make profit. Just as in a good story, elements of a good business model include
43
precisely delineated characters, plausible motivations, and a plot that turns on an insight
about value. When it comes to numerical modelling, a spreadsheet is only as good as the
assumptions that go into it, and these assumptions about economics and motivations of a
model are really tested only in the marketplace. Magretta (2002) continues that in order
for a business model to be successful, it has to represent a better way than the existing
alternatives, either by offering more value to a group of customers or by completely
replacing the old way of doing things. The really powerful business models do not just
shift existing revenues among companies, but they create new, incremental demand.
Assessing a business design’s value creating power requires a detailed understanding
of how well that design meets customers’ most important priorities, both today and in the
future. An equally important task is evaluating the ability of the business design to
capture profit. Business design evaluation requires answering the following questions
(Slywotzky 1996):
? What are the basic customer and economic assumptions on which the business design
is built? Are the assumptions valid? What could change them?
? What are customers’ most important priorities? Are they changing?
? What elements of the business design match the customers’ most important priorities?
How well are they served? Are there priorities that are not well served?
? What differentiates the business design from competitors’ designs? Do the customers
care about that differentiation?
? Are competitors’ business designs based on the same basic assumptions?
? Is the business design internally consistent? Are there elements that do not support the
meeting of customer priorities?
? How cost effective is the business design?
? Can the business design recapture value? How sustainable and defensible is that
mechanism?
? How long will the business design be sustainable? Will some changes in customer
priorities require changes in it?
? Are alternative designs already being employed that meet the next cycle of customer
priorities better?
According to Hamel (2000) there are four factors to consider in determining the wealth
potential of any business concept: its efficiency, uniqueness, internal consistency or fit,
and exploitation of profit boosters. The extent to which the business concept is an
efficient way of delivering customer benefits is elementary to create wealth. A business
model must be efficient in the sense that the value customers place on the benefits
delivered exceeds the cost of producing those benefits. A business concept also needs to
be unique: the greater the convergence among business models, the less the chance for
above-average profits. The goal is not uniqueness for its own sake, but to create a
business model that is unique in its conception and execution. To produce profits, a
business model must be unique in ways that are valued by customers. A business concept
generates profits when all its elements are mutually reinforcing, i.e. the degree of fit
among the elements of the business concept is high. A business concept has to be
internally consistent – all its parts must work together for the same goal. The last factor is
the extent to which the business concept exploits profit boosters that have the potential to
generate above-average returns. There are a dozen profit boosters that can help to
44
generate high profits: one or two of these should be built into the business model. The
profit boosters can be grouped under four categories: increasing returns (network effects,
positive feedback effects, learning effects), competitor lock-out (pre-emption, choke
points, customer lock-in), strategic economies (scale, focus, scope), and strategic
flexibility (portfolio breadth, operating agility, low breakeven point).
Magretta (2002) says that even though some considerations of a business model’s
potential can be found, the business model can only be properly tested in the market.
Profits will tell, whether the model is working or not. When managers operate
consciously from a model of how the entire business system will work, every decision,
initiative, and measurement provides feedback. Business modelling can thus be seen as
the managerial equivalent of the scientific method – starting with a hypothesis, which is
then tested in action and revised when necessary. Also Chesbrough & Rosenbloom
(2002) argue that the best measure of the worth of a given business model is the success
of the enterprise. However, one cannot simply infer that good business models lead to
success. It seems that the process of reshaping an initial business model creates learning
opportunities that may contribute importantly to success.
2.3 Organisational learning
Goldberger (1999) argues that healthy individuals and organisations share the same
three characteristics: productivity, innovativeness and resilience. When systems become
excessively regular, there is an increase in predictability and a loss of resiliency, and this
periodicity is bad for organisational health. Healthy behaviour can be described with
words like plasticity, variability, resilience, and productivity. To keep the organisations
healthy, managers should think of themselves more as choreographers, composers and
conductors.
White et al. (1996) offer new organisational perspectives and skills to managers when
guiding managers throughout the turbulence of today's corporate environment. They
argue that change and uncertainty are the new touchstones of leadership excellence. The
business world of today and tomorrow can be seen as a series of fast flowing rapids full
of excitement, challenge, adventure and uncertainty, where risks will be higher and
rewards greater. They identify leadership skills necessary to ride the corporate rapids:
learning from difficult situations or mistakes, maximising one’s energy and using it for
new learning opportunities, understanding simplicity as the means to clear and effective
communication, bringing the focus on teams' various agendas, and being open to new
ideas for learning and growth.
2.3.1 Competence development
Hamel & Prahalad (1994) have defined competence as a bundle of skills and technologies
that enables a company to provide benefits for customers, rather than a single skill or
technology (see also Ivergard 2000, Sydänmaanlakka 2003). Therefore, core competence
is a source of competitive advantage. Westera (2001) has given two perspectives to
45
competence: theoretical and operative. The theoretical perspective means that
competence is conceived as a cognitive structure that facilitates specified behaviour. The
operational perspective covers a broad range of higher-order skills and behaviours that
represent the ability to cope with complex, unpredictable situations; this definition
includes knowledge, skills, attitudes, metacognition, and strategic thinking and
presupposes conscious and intentional decision-making. (See also Nordhaug 1991.)
Argyris & Schön (1978) distinguish between individual and organisational learning in
that individual learning in an organisation may not represent organisational learning
unless members of the organisation act as learning agents for the organisation. When an
organisation learns, the total amount of competences differs from the sum of individuals’
competences in the organisation (Saeed 1998). However, there have to be individuals in
the organisation to develop its competences. In other words, competence is formed from
the results of learning, either the individuals’ or the organisation’s (e.g. Westera 2001).
2.3.2 Learning organisation and organisational learning
Sociotechnical systems conception of a learning organisation, according to Argyris &
Schön (1978), focuses on the idea of collective participation by teams of individuals in
developing new patterns of work, career paths, and arrangements for combining family
and working life. According to this view, individuals can and must learn to redesign their
work, and upper-level managers must learn to create the contexts within which they can
do so.
Senge (1994) writes about ”the art and practice of organisational learning”. His
treatment of the subject unites system thinking with organisational adaptation and with
the realisation of human potential in a mixture that has a distinctly utopian flavour.
Senge’s (1994) prescriptive approach combines the methodology of systems dynamics
with certain ideas adapted from the Argyris & Schön (1978) theory-of-action perspective,
notably an awareness of the importance of the “mental models” held by organisational
practitioners, including those that constrain to facilitate reliable inquiry into
organisational processes.
According to Argyris & Schön (1978), an organisation is a collective made up by
people. Collectivities become organisational when they meet three constitutional
capabilities: to make collective decisions, to delegate authority for action to an individual
in the name of the collectivity, and to say who is and who is not a member of the
collectivity. Under these conditions, it makes sense to say that individuals can act on
behalf of an organisation and to say that on behalf of an organisation individuals can
undertake learning processes that can yield learning outcomes.
Senge (1994) argues that a deep learning cycle constitutes the essence of a learning
organisation – the development not just of new capacities, but also of fundamental shifts
of mind, individually and collectively. The five basic learning disciplines that Senge
(1994) presents are the means by which this deep learning cycle is activated: personal
mastery, mental models, shared vision, team learning, and systems thinking. The
disciplines are vital, but they do not in themselves provide much guidance on how to
begin the journey of building a learning organisation. The work of building a learning
46
organisation takes place within the architecture of guiding ideas, innovations in
infrastructure, and theory, methods, and tools. Guiding ideas shed light on what the
organisation stands for and helps people stay committed. Innovations in infrastructure are
the means through which an organisation makes available resources to support people in
their work. Through developing practical tools and methods, theories are brought to
practical tests, which in turn lead to the improvement of theories. There are many tools
and methods vital in developing a learning organisation. They all help people enhance the
capabilities that characterise learning organisations: aspiration, reflection and
conversation, conceptualisation.
Cavaleri & Fearon (2000) summarise that organisational learning is being adopted at
an increasing rate as part of an integrated package with other synergistic approaches, such
as quality improvement, innovation, and knowledge management. Many leaders see
organisational learning as representing one of the best strategies for increasing an
organisation’s capacity for creating breakthrough innovations.
2.3.3 Organisational culture
Schein (1992) defines organisational culture as the result of team learning. The basic
situation for building a culture arises when a group of people faces a problematic
situation and they have to work together to solve the problem. The process includes a
definition of the problem and a shared perception about the confidence that the solution
works now and later as well. The ability to share includes learning and understanding the
culture, and the new, shared experience starts building a new culture that later becomes
the group’s special characteristic.
Schein (1992) links organisational culture to the idea of a learning organisation. He
argues that in a world of turbulent change, organisations have to learn ever faster, which
calls for a learning culture that functions as a perpetual learning system. The primary task
of a leader in a contemporary organisation is to create and sustain such a culture, which
then, especially in mature organisations, feeds back to shape the leader’s own
assumptions. Schein (1992) defines leadership as the attitude and motivation to examine
and manage culture. He regards the organisation as a group and analyses organisational
culture as a pattern of basic assumptions shared by the group, acquired by solving
problems of adaptation and integration, working well enough to be considered valid, and
therefore, to be taught to new members as the correct way to perceive, think, and feel in
relation to those problems. In organisational learning, basic assumptions shift in the heads
of the group members. Schein (1992) continues that the job of a learning leader is to
promote such shifts by helping the organisation’s members to achieve some degree of
insight and develop motivation to change. Leaders can foster a learning culture by
envisioning it and communicating the vision.
Cavaleri & Fearon (2000) see that organisational learning can never survive as a
viable entity in organisations, as a stand-alone overlay framework on other business
processes, because managers perceive it as an unmanageable process. There is a need to
integrate organisational learning into existing business processes. The adoption of
organisational learning can only happen when managers see it as manageable.
47
2.3.4 Knowledge management
According to new economic theory the most important competitive advantage is the
company’s ability for continuous innovation (e.g. Saeed 1998). Intellectual capital
consists of data, information, and the ability to use information and competence to
constantly create new ideas and innovations. Ståhle & Grönroos (1999) define knowledge
management meaning the methods which are aimed to direct and manage the company's
human capital and intangible assets. The company's ability to innovate depends on the
whole organisation and its resources, and on how it works. The more the company has
connections and relations the more there are possibilities to exchange information. The
intellectual capital is both intangible and dynamic. Ståhle & Grönroos (1999) claim that
the competence, interactions and information flow are the base of an organisation’s
system, but intellectual capital is not only content but also events and action. The process,
which results in the outcome, is as important as the result itself. The company has to
manage its intellectual capital: it has to get the answer how to manage the competence,
relations and information flow.
According to Nonaka & Takeuchi (1995), human knowledge is developed and spread
throughout the organisation as a social interaction between tacit and explicit knowledge.
Organisational knowledge creation is a continuous and dynamic interaction between tacit
and explicit knowledge – the SECI model (Socialisation, Externalisation, Combination,
Internalisation). Socialisation is a process of sharing experiences and thereby creating
tacit knowledge such as mental models and technical skills. An individual can acquire
tacit knowledge directly from others without using language. The key to acquiring tacit
knowledge is experience. Externalisation is about transferring tacit knowledge to explicit
knowledge. Combination converts explicit knowledge to explicit knowledge.
Reconfiguration of existing information through sorting, adding, combining, and
categorising of explicit knowledge can lead to new knowledge. Internalisation converts
explicit knowledge to tacit knowledge. It is closely related to “learning by doing”. When
experience through socialisation, externalisation, and combination is internalised into
individuals’ tacit knowledge bases in the form of shared mental models or technical
know-how, they become valuable assets.
Johannessen & Olsen (2003) argue that competitive advantages based on explicit
knowledge will, to an increasing extent, only provide a short-term advantage. Tacit
knowledge is intimately related to the task-related part of a company’s competence. Thus,
tacit knowledge is wholly embodied in the individual, rooted in practice and experience,
expressed through skilful execution, and transmitted by apprenticeship and training
through watching and doing forms of learning. Tacit knowledge is the most important
proprietary and difficult-to-replicate knowledge that the organisation holds, as it is
invisible, and difficult to imitate.
Organisations are renewed through processes of inductive organisational learning (i.e.,
from the concrete to conceptual level) (Mintzberg & Westley 1992). Several authors
(Savolainen 1999, Yukl 1989, Argyris & Schön 1978) write that implanting new ideas
and ideologies involves innovative behaviour, and learning is the means through which
managerial ideological change occurs. Therefore, learning is an essential aspect in
examining organisational change processes. Change and learning reinforce each other.
48
The increasing pace of change tends to invalidate known answers, demanding continuous
learning. New knowledge is attained through learning, learning generates change, which
can lead to change and can again lead to learning, etc. Learning functions as a mechanism
through which new ideas and ideologies are implanted. Applied to a real-world process of
organisational quality implementation learning occurs through the stages of materialising
ideas, internalising ideas and concepts, gaining support for the idea, preparing a plan of
action and, finally, activity.
Artto et al. (1998) define a project company as a company that delivers products and
solutions to its customers through projects, and its business as project business or project-
oriented business. Project management is a universal concept containing planning and
managing the project-oriented activities. It has evolved in order to plan, coordinate, and
control the complex and diverse activities of modern industrial and commercial projects
(Artto et al. 1998, Lock 2000). Lock (2000) says that the purpose of project management
is to foresee or predict dangers and problems as far as possible to plan, organise and
control activities so that the project can be completed as successfully as possible in spite
of the risks; it starts before any resources are committed, and must continue until all work
is finished. Project business or project-oriented business refers to a company, or rather a
project company, where activities generally are aimed to deliver and implement projects
for its customers (Artto et al. 1998).
Project management is an application of knowledge, skills, tools, and techniques to
project activities to meet project requirements. The project team manages the work of the
projects. The Project Management Institute (PMI) (2000) organises project management
competences into nine basic project management knowledge areas (project integration
management, project scope management, project time management, project cost
management, project quality management, project human resource management, project
communications management, project risk management, project procurement
management) (PMI 2000).
2.4 Quality management and process renewal
Traditional quality management approaches introduced by Deming (1986), Juran (1980),
and Crosby (1979) are widely used in many businesses, but mainly for incremental
innovations. For products requiring continuous innovation these approaches do not seem
to work (Den Ouden 2006). Also Deszca et al. (1999) argue that quality tools that applied
to product development, when the business environment was stable and competition
between companies was not as fierce as today, are not fit for use any more. Additionally,
hard competition requires shifting the portfolio of products towards more innovative
products, which increases the degree of uncertainty. Brombacher (2005) lists four major
trends in the reliability of technical systems:
? Increasingly complex products
? Strong pressure on time-to-market and fast adoption cycles
? Increasingly global economy
? Decreasing tolerance of consumers in quality problems.
49
When moving from the development of continuous improvement products to continuous
innovation products, old and fit for use processes might not be appropriate any more;
process renewal should be considered. Possible approaches to process renewal are TQM
(e.g. Dale 1999) and BPR (e.g. Hammer & Champy 1993). TQM is a management
system aiming at long-term continuous improvements (e.g. Fazel 2003). TQM has been
used in countless companies since its launch. It is generally accepted that TQM can
generate a sustainable competitive advantage (e.g. Prajogo & Sohal 2001, Reed et al.
2000), and the importance of tools and techniques for TQM improvement has been
proved (e.g. Tarí & Sabater 2004). Chong & Rundus (2003) claim that the higher the
degree of market competition the more positive are the relationships between TQM
practices of customer focus and product design and organisational performance. BPR is
the rapid and radical redesign of strategic processes to optimise the workflow and
productivity in an organisation (e.g. Fazel 2003). Numerous papers have been published
on the relationship of TQM and BPR, and their similarities and differences (e.g. Ahire &
Waller 1994, Fazel 2003, Gore 1999, O’Neill & Sohal 1999). Fazel (2003) says that both
TQM and BPR embrace the same ideas and goals for organisational improvements and
both encourage employee empowerment, teamwork, quality, change, and focus on the
customer. Similarly, many studies give proposals on how to use TQM and BPR. Fazel
(2003) concludes that TQM and BPR should be used to complement each other; TQM
extends a successful BPR program, and BPR is the turning point of a TQM initiative.
Also O’Neill & Sohal (1999) summarise other authors’ ideas that TQM and BPR should
form an integrated strategic management system within organisations. They say that both
continuous and discontinuous improvements are needed.
Huffman (1997) argues that organisations should use different improvement strategies
in concert when re-engineering their processes. He proposes the use of four improvement
strategies - “Four Re’s” - in organisational improvement i.e., repair, refinement,
renovation, and reinvention. The first level of repair involves quick fixes, and the second
level of repair removes the root causes of the problem to prevent its return. Refinement is
an approach for making an adequate product, system, process, or activity even better; it
involves continuous improvement. Renovation is an approach taken to achieve major
improvement. A critical aspect of renovation is that the result is transformation, not
replacement. Reinvention is the most demanding improvement strategy. It is initiated
with the belief that improving the current product, system, process, or activity will not be
enough to completely satisfy customer needs. The first action is to imagine that the
current product, system, process, or activity does not exist, and a new one is invented.
Huffman’s (1997) “Four Re’s” have ideas of both TQM and BPR i.e., repair and
refinement can be categorised to TQM including continuous improvement actions, and
renovation and reinvention to BPR, including more radical changes in processes.
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2.5 Pilot projects
2.5.1 Conventional product development
Ulrich & Eppinger (1995) present the widely known NPD process that includes five
phases: concept development, system-level design, detail design, testing and refinement,
and production ramp-up. Additionally, they present five variants of generic development
process applicable to a firm’s unique context: generic (i.e. market pull), technology-push,
platform products, process-intensive, and customised. Cooper (2001) is in line with
Ulrich & Eppinger (1995). Cooper’s (2001) new product process includes product
development, in-house product testing, customer tests of the product, trial sell, trial/pilot
production or operation. Cooper’s (2001) Stage-Gate process is a conceptual and
operational model for moving a new product project from idea to launch. Stage-Gate
breaks the innovation process into a predetermined set of stages, each stage consisting of
a set of prescribed, cross-functional, and parallel activities. Generally these kinds of
models focus on developers’ interests to verify specifications, not to adjust features to the
customers’ even undefined needs. Fig. 8 compares Ulrich’s & Eppinger’s (1995) NPD
process to Cooper’s (2001) Stage-Gate model.
Fig. 8. Ulrich’s & Eppinger’s (1995) generic new product development process compared to
the Stage-Gate model introduced by Cooper (2001).
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Meyer & Lehnerd (1997) define product platform as “a set of subsystems and
interfaces that form a common structure from which a stream of derivative products can
be efficiently developed and produced” and product family as “a set of individual
products that share common technology and address a related set of market applications”.
They say that product portfolios of prosperous firms change through periodic
enhancements to basic product and manufacturing technologies. Some of the changes are
breakthroughs, while others are incremental. Meyer & Lehnerd (1997) talk about “power
tower” meaning an integrative model for managing innovation. The power tower is
needed for effectively managing the evolution of a product family. The power tower
includes market applications, product platforms, and common building blocks. The
common building blocks are: consumer insights, product technologies, manufacturing
processes, and organisational capabilities. Meyer & Lehnerd (1997) also apply the
product family concept to software – the underlying platform, modular add-ins, and
robust, common interfaces linking them together and to the user.
2.5.2 Discontinuous product development
In today’s dynamic telecommunications industry we talk about breakthrough products,
which create or expand a new category, which are new to customers, which often require
customer learning (e.g. Internet), which raise issues related to channels of distribution
and organisational responsibility, and which create the potential for new infrastructure
and add-ons (e.g. multimedia products) (Deszca et al. 1999, Leeman & Winer 1997).
Breakthrough products represent products that require radical innovations.
The conventional NPD process (Cooper 2001, Ulrich & Eppinger 1995, Lynn et al.
1996) presented above is analysis-driven. According to Lynn et al. (1996), with different
techniques companies try to find the right market, the right product, the right price, the
right promotion, and the right channel. However, this process does not apply to products
based on discontinuous innovations in process and product technology. The discontinuous
NPD process places much less emphasis on analysis and much more on probing and
learning from the experience gained through sequential probes. The logic is experimental.
The difference between the conventional and the discontinuous NPD processes results
from identified uncertainties; the market is ill-defined and evolving, the technology is ill-
defined and evolving, and the two interact. Lynn et al. (1996) concludes that it is virtually
impossible to predict what product will eventually be offered, at what price, to whom,
when, and where.
According to Lynn et al. (1996), in the probe and learn process, companies run a series
of market experiments; companies develop their products by probing potential markets
with early versions of their products, by learning from the probes, and probing again. The
initial products are not final versions of the product, and are more like prototypes. The
probe and learn process starts with introducing an early version of the product to a
probable initial market. Probing with immature versions of the product serves as a means
for learning about the technology and the market. Probing and learning is an iterative
process.
52
Cole (2002) agrees with Lynn et al. (1996) that companies can develop products by
probing potential markets with early versions of products, learning from mistakes,
modifying the product, and probing again. Product development is seen as a non-linear
process with backward and forward movements. Probing markets with immature versions
of the products makes sense if they serve as a vehicle for learning. However, this process
may cause decrease in market trust and satisfaction. Also this process may be too time-
consuming. Cole (2002) claims that the probe and learn process lies at the heart of
continuous innovation, and captures the essence of continuous improvement. He even
extends probe and learn to Probe-Test-Evaluate-Learn, and says that it is an accelerated
Plan-Do-Check-Act cycle. Finally, he argues that probe and learn is about organisational
renewal, and it is associated with quick learning and the acceleration of the product
development process.
2.5.3 Prototypes and early trials
Deszca et al. (1999) propose the identification and inclusion of customer opinions when
breakthrough products are in question. The success of a new product depends on
anticipating future requirements. This makes the work even harder, because customers
have no historical experience with similar products and are unable to articulate needs into
new product ideas. Therefore, education about the new products and the usage contexts
are required. Prototype market testing is a means to answer the questions: who is the
customer, what should the product contain, how should it function, and what
infrastructure is needed to support it. However, prototype market testing might cause
confusion, as early prototypes may substantially differ from finalised products. Another
alternative is to wait until the product is fully designed, which again increases
development time. Lynn et al. (1996) propose that prototypes and early trials are used in
an iterative and sequential fashion to enhance learning.
Ulrich & Eppinger (1995) define a prototype as “an approximation of the product
along one or more dimensions of interest”. Under this definition, any entity that exhibits
some aspect of the product that is of interest to the development team can be viewed as a
prototype. Prototypes can be usually classified along two dimensions. The first dimension
is the degree to which a prototype is physical as opposed to analytical. Physical
prototypes are tangible artefacts created to approximate the product. Analytical
prototypes represent the product in a non-tangible, usually mathematical, manner. The
second dimension is the degree to which a prototype is comprehensive as opposed to
focused. A comprehensive prototype corresponds closely to the everyday use of the word
prototype, in that it is a full-scale, fully operational version of the product. Focused
prototypes implement one, or a few, of the attributes of a product. Within a product
development project, prototypes are used as learning tools, they enrich communication,
they are used to ensure successful integration, and prototypes are used to demonstrate that
the product has achieved a desired level of functionality. In addition to the advantages
prototyping provides for product development, Cole (2002) highlights the benefits of
prototyping for quality improvement. Prototyping enables early error detection and
thereby reduces engineering changes, thus reducing design iterations.
53
Den Ouden (2006) argues that a new class of non-technical problems contributes in a
large part to the ever increasing number of customer complaints on innovative new
products. She says that current analyses of customer feedback mainly focus on checking
if the product meets technical specifications. These analyses show a rising volume of
customer feedback where no failure could be established. Den Ouden’s (2006) study
reveals that customers complain not only about technical failures but also when the
product does not satisfy their expectations. Running pilots might be one way to involve
customers in product development to get the first ideas of customers’ expectations.
2.6 Product reliability
Reputation is integral in quality, reliability, delivery, and price. Quality, which is simply
meeting the customer requirements, is the most important of these competitive weapons.
Part of the acceptability of a product or service will depend on its ability to function
satisfactorily over a period of time; this aspect of performance is called reliability (e.g.,
Musa 1999, Musa et al. 1987, Oakland 1995, O’Connor 1995). According to Jones
(1996), quality and reliability logically belong together, and good quality guarantees
reliable products. ISO/IEC 9126 (ISO 1991) provides a framework for the evaluation of
software quality. It defines six software quality attributes:
? Functionality: are the required functions available, including interoperability and
security
? Reliability: maturity, fault tolerance and recoverability
? Usability: how easy it is to understand, learn, operate the software system
? Efficiency: performance and resource behaviour
? Maintainability: how easy is it to modify the software
? Portability: can the software easily be transferred to another environment, including
installability
Testing is a means to find out the level of reliability. Musa (1999) defines two types of
software reliability engineering testing i.e., reliability growth testing, which aims at
finding and removing faults, and certification testing, with which a binary decision will
be made: accept or reject the software. Testing has gained a lot of attention in the recent
literature (Pol & Veenendaal 1998, Staab 2002, Davis 1997, Black 2004). Also the
combination of verification and validation seems to be known in standards such as 1012-
2004 IEEE and NIST (1996). ISO 9000-3 defines design verification as an activity that
develops procedures that specify how design outputs, at every stage of the product design
and development process, should be verified. The idea is that these procedures should
verify that outputs satisfy design-input requirements. The same standard (ISO 9000-3)
defines validation as an activity that develops procedures to validate the assumption that
the newly designed products will meet customer needs.
Jones (1996) argues that planning and estimation are the reflections of measuring, and
that metrics are increasingly used to estimate the future. Neil & Fenton (1996) affirm that
the most important requirement of software metrics is to provide information to support
quantitative managerial decision-making during the software lifecycle. They say that the
54
main motivators for using metrics are the desire to assess or predict effort/cost of
development processes and the desire to assess or predict the quality of software
products.
The field of hardware reliability has been established for some time, but the field of
software reliability is a newer one. When embedded systems are considered, both
hardware and software are incorporated, and consequently, hardware and software
component reliabilities are combined to get system reliability. The source of failures in
software is design faults, whereas the principal source in hardware has generally been
physical deterioration (Musa et al. 1987, Pressman 2001). Estimating software reliability
seems to be difficult. When software has been released, users give feedback about
software reliability, which is too late. Fenton & Neil (1999) argue that organisations are
still asking how they can predict the quality of their software before it is used despite the
substantial research effort spent attempting to find an answer to this question over the last
30 years. According to Kan (2003) this research area has been one of the most active in
the software industry. He says that more than one hundred reliability models have been
published in scientific journals and conferences. However, not so many models have been
tested in a real environment with real data, he says. Problems in the use of reliability
models appear because data collection is expensive, models are difficult to understand,
and simply, because they do not work in practice.
Wood (1996) argues that the number of defects remaining in software helps decide if
the product is ready for delivery or if more testing is needed and for how long. This
information provides an estimate of failures customers are going to meet when using the
software and it helps define the appropriate maintenance level. There are lots of papers
advocating statistical model, metrics, and solutions trying to answer the question “Can we
predict the quality of our software before we use it?” Generally, efforts have tended to
concentrate solely on one of the following problem perspectives (Neil & Fenton 1996):
? Predicting the number of defects in the system using software size and complexity
metrics.
? Inferring the number of defects from testing information.
? Assessing the impact of design or process maturity on defect count.
Fenton & Neil (1999), Fenton & Neil (2000), Neil & Fenton (1996) argue that, despite
statistical methods, – as discussed above - also other approaches for software reliability
estimation exist. For example Bayesian Belief Networks (BBN) stands for causal
analysis. A BBN is a graphical network combined with an associated set of probability
tables. The nodes of the network represent uncertain variables and the arcs represent the
causal/relevance relationships between the variables. BBN enables reasoning under
uncertainty and combines the advantages of an intuitive visual representation with a
sound mathematical basis in Bayesian probability. With BBN, it is possible to articulate
expert beliefs about the dependencies between different variables and to consistently
propagate the impact of evidence on the probabilities of uncertain outcomes.
Chillarege (1994) claims that Orthogonal Defect Classification (ODC) is a technique
that bridges the gap between statistical and causal models. Analysis of ODC data
provides a valuable diagnostics method for evaluating the various phases of the software
life cycle and the maturity of the product. ODC provides a means to understand the
dynamics of software development by using classification of defects, so that they provide
55
measurements (e.g. Chillarege 1994, IBM 2002). ODC means that a defect is categorised
into classes that collectively point to the part of the process which needs attention.
2.7 Exploitation of the theoretical foundation
Previously, the general theoretical background (in chapter 2.1) and theoretical foundation
for each research paper (in chapters 2.2 – 2.6) was reviewed. Next, the exploitation of the
theoretical foundation will be presented for each research paper i.e., for each research
question.
Business models. There are different definitions for business models. This research
builds business models from three elements: offering, value creation systems, and
revenue modes (e.g., Normann & Ramírez 1994, Kotler 1997, Porter 1985, Hoover et al.
2001, Shapiro & Varian 1999). Based on - above all - Slywotzky (1996), Hamel &
Prahaland (1996), Hamel (2000), Timmers (1998), and Kalakota & Robinson (1999), a
framework for describing and building business models was created. Additionally, the
business model evaluation framework introduced in this research is founded on the
evaluation criteria presented by Slywotzky (1996) and Hamel (2000).
Competence development. The theoretical foundation for competence development
lies on learning organisation, organisational learning, knowledge management and project
orientation (e.g., Argyris & Schön 1978, Senge 1994, Nonaka & Takeuchi 1995, Artto et
al. 1998), which are enabled by organisational culture (Shein 1992). These, above all, are
utilised in building a framework for project management competence development.
Project management competences are categorised to project management knowledge
areas according to PMI (2000).
Process renewal. TQM and BPR form the theoretical foundation for the research on
process renewal. In the literature TQM and BPR are seen as complementing each other or
as a continuation of each other (e.g., Fazel 2003, O’Neill & Sohal 1999). Huffman’s
(1997) “Four Re’s” model combines ideas of TQM and BPR. The model is utilised in the
research paper on process renewal, where experiences of praxis are preferential.
Technology piloting. NPD process (Ulrich & Eppinger 1995, Cooper 2001) and
product platforms (Meyer & Lehnerd 1997) form the basis for new product development.
However, continuous innovation and disruptive technologies change the situation
(Deszca et al. 1999, Cole 2002, Costanzo 2004) and lead to new approaches in new
product development; the probe and learn process (Lynn at al. 1996) increases its
importance. The research paper on running technology pilots validates the probe and
learn process.
Product reliability. The theoretical background in the fifth research paper deals with
quality and reliability and views the estimation of software reliability. Despite more than
one hundred reliability models (Kan 2003), published studies still raise a problem: can
the reliability of software be predicted before it is in use? (e.g. Neil & Fenton 1996,
Wood 1996, Kan 2003). The research on software reliability estimation exploits the
theoretical foundation in practice; Musa (1999) gives a firm standpoint for software
reliability estimation.
3 Models for management in a disruptive business
environment
This chapter presents the individual research contributions of the research papers.
3.1 A framework for creating business models – a challenge in
convergence a of high clock speed industry
The research paper discusses business models that could prevail and succeed in the
mobile IP software application business. The paper presents two frameworks: one for
describing and building, the other for evaluating business models. Additionally, based on
four existing business models, six alternative scenarios of business models for mobile and
IP convergence were created. The scenarios were named to reflect the model they
represent. “Old and proven” effectively follows the proven model of the case company in
selling mobile devices as embedded systems. “Configure-to-order” adds mass-
customisation to this paradigm: it allows end users to select which additional applications
they wish to incorporate in the product they are purchasing. “Software house”
concentrates on selling software applications independently of hardware: it aims at
building a massive volume of sales and a dominant position in the mobile IP software
application market. “Internet store” aims at making the whole purchasing process easy
and enjoyable. It utilises the Internet as the sole sales and distribution channel for the
applications, and builds a community around its online store. In the “Content-driven”
scenario the application is bundled in a third party’s service offering, and does not have a
separate price for the end user. The third parties receive the applications free of charge,
but are required to pay a commission from the revenues gained from the service usage.
“Open software” frees the software and source code for downloading from the Internet,
thus being a loss leader model: the software is provided free with the hope that it boosts
the hardware sales. Finally, this paper presents a proposal on how to evaluate the business
models using the defined evaluation framework.
A framework for describing and building business models (table 4) was created in
order to form a commensurable way to describe business models. It ensures that multiple
57
aspects are considered when designing business models, and it also provides formalism
for building business models. The business model evaluation framework created (table 5)
provides a set of diverse dimensions for the assessment of business models. The
framework offers a sound basis for business model evaluation and it enables
comparability of estimations.
Table 4. Framework for describing and building business models.
Dimension Component Description
Composition What is the offering: what physical, information and service aspects are
included?
Customer Who is the customer? (If relevant, identify both end and direct customer.)
Offering
Sales approach Sales channel, distribution, billing (how do customers pay)?
Structure Networked or chain? Position of the firm?
Network players Who are the players? What are their roles? The relationships between
players and the firm?
Value
creation
system
Network size The amount of the players, i.e. how many customers, suppliers etc.?
Basic logic How and from whom is the revenue generated, i.e. where in the business
system the firm takes profit?
Cost and pricing
structure
What kind of cost structure in producing the offering (fixed and marginal
costs)? Value-based or cost-based pricing? For what do customers pay:
bundling or unbundling?
Market Which market is served? Size of the market? Market structure (dominant
player, diversified)?
Revenue
model
Share of total
value
How big a portion of the total value created in the network can the firm
capture with the revenue model?
58
Table 5. Business model evaluation framework (adapted from Slywotzky (1996) and
Hamel (2000)).
Dimension Questions to consider
Suitability How well does the model meet customers’ most important priorities? Are there priorities
that are not served? Is it likely, that the priorities will change and thus make the model
obsolete?
Internal
consistency
How internally consistent is the model? Do all the parts work together for the same goal?
Do the elements positively reinforce each other? Are there conflicting elements or
elements that do not support the meeting of customer priorities?
Uniqueness Does the model differ from those of competitors, or the “average” within the industry in
conception and execution? Is it unique in ways that are valued by customers and benefit
them?
Efficiency What value do customers derive from the offering? What costs does the firm incur in
providing that value? Does the value customers place on the benefits exceed the cost of
producing them, i.e. is the model an efficient way of delivering customer benefits?
Ability to capture
value
Can the model recapture value? Does it capture a sufficiently large portion of the total
value created in the network? Are these mechanisms sustainable and defensible?
Economic
considerations
Is the revenue model sound? Are the cost and pricing structures reasonable? Is the market
large enough? How cost effective is the model?
Future potential Does the model represent a better way than the existing alternatives? Will the model meet
the customers’ priorities also in the future? How long will the model be sustainable? Are
alternative models being employed that meet the next cycle of customer priorities better?
Feasibility Is the model realistic? How easy is it to implement? Is it possible to “sell the idea” to other
network players? How probable is it that the model would work in practice?
This paper points out the possibility and practicality of business model designing and
evaluation to be utilised in a revolution phase of an industry. It is reasonable to have
frameworks to analyse the changes in industry rapidly, because the sooner changes in the
industry or need for business model re-development are realised the more competitive the
changes are in the new environment.
3.2 Project management competence development framework in a
turbulent business environment
The research paper introduces the Project Management Competence Development
(PMCD) framework, which is based on the learning organisation, organisational learning,
organisational culture, knowledge management, and project management. The PMCD
framework was created to develop project management competences in a systematic and
sustainable way. It includes a long term competence development activity (Project
Academia), and short-term activities (N1Race, Project Coaching Principles -workshops,
Case Coach Leadership simulation, and Coffee Room Culture and Visual Management).
All these activities represent continuous learning and improvement, knowledge sharing
and experiential learning.
59
The PMCD framework is illustrated in Fig. 9.
Fig. 9. Project management competence development framework.
Uncertainty and inability to predict the future characterise today’s business
environment. Use of information and control systems and their compliance with pre-
defined goals, objectives, and best practices may not necessarily lead to long-term
organisational capabilities. Disruptive technologies also impact. This is the current world,
which challenges the underlying assumptions i.e., ”accepted way of doing things.” This
world needs the capability to understand the problems given by the changing conditions
afresh. The focus is not only on finding the right answers but also on finding the right
questions. Competence management focuses on ”doing the right thing” instead of ”doing
things right”. To remain aligned with the dynamically changing needs of the business
environment, organisations need to continuously assess their internal theories of business
for ongoing effectiveness. This is the only viable means for ensuring that today's ”core
competences” do not become the ”core rigidities” of tomorrow.
Project orientation gives a flexible standpoint for the deliveries, which means that the
environment is understood beforehand as being dynamic. If we look at this from the
competence point of view, it gives us a valid basis, because competence is also seen as
dynamic in nature and the acquisition process has to be kept continuously ongoing. This
paper describes a framework for competence development appropriate for dynamic,
project-oriented business.
60
3.3 Process renewal driven by disruptive technologies
The research paper presents experiences of process renewal driven by disruptive
technologies in the case unit. The paper presents strategies used in process renewal and
what are the findings when disruptive technologies drive the change. New technologies,
continuous innovation, and changes in today’s business environment cause chaos in the
prevailing circumstances; the old and proven way of doing business requires changes in
the operational mode. This research proves several authors’ (e.g. Ahire & Waller 1994,
Fazel 2003, Gore 1999) ideas of combining the approaches of TQM and BPR.
This paper proposes that the prerequisites for successful process renewal are top
management commitment and confidence in the selected strategy, focusing on customers,
taking their requirements into account and involving them in the development work,
persistency in transferring new ideas, flexible processes, satisfactory quality
management, and competence development. This study addresses the reality that when
technologies change, products are new and innovative, the environment is turbulent, and
product development cycle times are short and then also the way of doing things has to be
reconsidered. A different operational mode, renewed processes, persistence, high
commitment, strong confidence and boldness to do things differently are required when
convincing co-operators, management, and customers.
Table 6 summarises the case unit’s process renewal procedure that is adapted from
Huffman’s (1997) approach – the “Four Re’s”, which are repair, refinement, renovation,
and reinvention. The procedure starts with step ‘Zero’, which gives the initiatives for the
renewal, and moves from the analysis phase up to launching the processes and finally to
capturing the lessons learnt.
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Table 6. Process renewal procedure in the case unit.
Step Description Responsible Method
Zero New operational mode, disruptive technologies,
breakthrough products are the drivers of the renewal
- -
1 Clarify the target of process improvement: flexibility,
practicality, simplicity
Management team
2 Customer requirements are unknown - -
3 Analyse the available process descriptions, identify
needs for modification, identify missing process
descriptions. Which of the Four Re strategies is best
suited to the nature and extent of each initiative:
- problem – repair or
- could be better – refine or
- wide gap – renovate or
- huge gap or not existing - reinvent
Quality manager
4 Repair – conduct root-cause analysis,
refine – brainstorm improvement ideas,
renovate – break down paradigms and apply
innovation,
reinvent – forget current approach and start with clean
slate
Teams, quality
manager as facilitator
Workshops
Repair – develop alternative corrective actions and
choose optimum action,
refine – develop and select appropriate improvements,
renovate – match innovation possibilities to process
requirements,
reinvent – invent new approaches, processes.
Teams, quality
manager as facilitator
Workshops 5
Introduce process descriptions to test and get
immediate feedback.
Quality manager
6 Launch process descriptions Quality manager
7 Capture lessons learnt Teams, quality
manager as facilitator
Workshops
Process renewal driven by disruptive technologies deviates from management-driven
process renewal in the first place in the primary target: what will the processes be like
and what do customers want. The future is unknown; nobody knows what kind of
processes would be most practical, efficient, and productive, and customers do not know
what to expect. Additionally, in order to come out on top the company has to be agile and
fast. Management-driven process renewal is done more controllably, renewal is well
planned, specifications are created, and resources allocated which is different from
process renewal driven by disruptive technologies. The way of process renewal presented
gave many advantages: (1) renewed or adaptable processes could be tested right away
and feedback was received and possible corrections were made rapidly, (2) common
sense fostered practicality and decreased bureaucracy, (3) compatibility of processes was
considered and tested in practice immediately, (4) customer requirements were
considered, as the operational mode involved customers from the very beginning of the
product/service development, and (5) involvement of all employees was guaranteed
62
because they were the best experts to say how to work and thus provided the contents of
the processes.
The starting point, before the process renewal, was that all process descriptions -
except for piloting processes - were available, even though not practicable as such in the
case unit environment. In the end, a workable set of process descriptions was achieved. In
short, the process renewal embraced adaptation of existing processes to the changed
environment, some of the processes needed a longer time period to assure their
functioning, however.
The case unit served as a learning field, where new competences were acquired.
People had to learn the new technologies, how the technologies could be utilised in future
products, what is required from the technological environment, and infrastructure. Above
all, people had to learn and probe new ways of doing things and also transfer the
knowledge to other people.
3.4 Business impact of technology piloting – model for analysis in
different phases of the development cycle
The research paper presents experience from running pilots for the introduction of
disruptive technologies in the telecommunications industry and proposes pilots as a
means to introduce new products and applications. This study opens running pilots up to
a process embedded in the NPD process. The study validates the probe and learn process
(Lynn et al. 1996) and shows the importance of customer involvement in providing new
innovations and enhancement ideas in a technologically advanced environment. This
paper presents and facilitates the actual process of running pilots in order to manage it.
The study was started with a rough model for running pilots for the end product or part
of it in different finalising phases of the NPD process. This idea proved to be good one,
since running pilots is basically a simple operation, even when the detailed
operationalisation is complex. If the requirement specification is completely fixed by the
customer, running pilots means only verification. In cases where the requirements are
unclear validation comes into the picture and the real benefits of running pilots will be
realised on a full scale. This is equally important for both the supplier and the customer.
In validation the most important benefit is in confirming the common understanding of
the requirements. The proposed piloting process is especially applicable when disruptive
technologies are in question. In this case, the future is still unknown, it is not known if the
new technology exceeds the old technology performance, and customers are unable to
formulate what they want. When sustaining technologies are concerned, verification and
validation processes (ISO 9000-3) are more applicable.
Fig. 10 illustrates the case unit’s piloting process, which is embedded in the product
development process. The process contains a chain of sequential trials (shown with the
box with the dashed line in the figure), and thus executes the probe and learn process.
The phases inside the piloting process are sequential, but running pilots is concurrent
with other activities in the product development process. The principles of Cooper’s
(2001) Stage-Gate process were applied in the case unit’s NPD projects.
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In a high speed industry the importance of running pilots is even greater, because the
requirements change in relation to time – so the content of the delivery evolves. The need
for a project model for running pilots comes from the fact that operations should not only
be managed, but also analyzed and compared. Comparison and development are only
possible when utilising a systematic approach. From the efficiency point of view it is
clear that every pilot should be managed as a project – with a clear target, specific start
and end phases and with defined resources.
The idea of Lynn’s et al. (1996) probe and learn process included in the discontinuous
NPD process was proved to be applicable for the purposes of the case unit in introducing
new technologies. Highlighting that the discontinuous NPD process places more
emphasis on probing and learning from the experience gained through sequential probes;
less emphasis is placed on analyses, even though analyses are essential to avoid incorrect
conclusions and to find the root causes of failures. Prevention of errors is important, but
learning from errors seemed to be vital in the environment of the case unit. The logic in
the probe and learn process is experimental, iterative, and incremental. Also the well-
known idea of Stage-Gate (Cooper 2001) was noted to be effective in iterative
development, as it breaks the innovation process into a predetermined set of stages. The
process ensures that all sub-areas of a product development process are considered, and
the process enables progress visibility for top management, thus providing the
preconditions for decision making.
3.5 Practical use of software reliability methods in new product
development
The research paper presents seven software reliability estimation methods studied in the
case company. Despite tens of software reliability models developed since the beginning
of 1970’s, few – if any - of them have worked optimally across projects (Kan 2003). This
paper focuses on investigating the practical use of the methods in real-life complex
development situations and demonstrates how the methods could be applied to the NPD
process in the case unit. The results show that none of the methods operate alone but need
to be combined with each other. The paper focuses on the practicalities of software
reliability estimation and embeds it into the case company’s process framework.
There are both similarities and differences between the methods studied, and also
advantages and disadvantages in each of the methods. Fig. 11 illustrates when each
method could be used in relation to the NPD process stages in the case company. Some of
the methods discussed can be used from the very beginning of the product development
project i.e., before the software is executable, and some methods just after the software is
executable. The figure suggests that it is useful to combine methods to complement each
other.
65
Fig. 11. Software reliability estimation methods in relation to stages of the NPD process in the
case unit.
According to Fenton & Neil (1999, 2000), statistical models have dominated software
metrics, though they often lead to misunderstanding about cause and effect. Therefore,
they propose to use holistic models for software defect prediction, using causal models,
like BBN, as alternative approaches to the single-use models. Software reliability
engineering (SRE) is an approved method (e.g. Musa 1999) for software reliability
estimation, as proved also by this research. In this study, SRE and one of the case unit’s
tailored methods (using the principles of SRE) have emerged as preferred methods – yet,
not totally forgetting other methods.
The study reveals that the biggest obstacle when introducing the software reliability
estimation methods to NPD projects in the case company has been missing enablers i.e.,
automated testing tools, scarce resources, and lacking competences. This study brings out
the importance of data collection and more importantly the analysis of data during the
whole life cycle of the NPD process.
4 Evaluation and discussion
In the previous section individual research papers and their contributions are presented.
In this chapter, the logical deduction to link the papers together is presented, theoretical
and managerial implications of the contributions are discussed, reliability and validity of
the research results are considered, and exploitation of the research results is proposed.
4.1 Logical chain of inferences
Magretta (2002) defines the difference between strategy and a business model as follows:
a business model describes the ensemble where building blocks of business are connected
to each other; competition is not included in a business model, but is part of strategy.
Mobile and IP convergence and disruptive technologies require reconsidering both for an
appropriate business model and strategy. When a business model changes, it is necessary
to rethink competition and competitive advantages as well. Competence development is a
source of competitive advantage and it is essential for a company to acquire new
competences faster and earlier than its competitors. At the same time, when the business
environment is changing, new competences are needed, and disruptive technologies and
continuous innovation create new kinds of products, it is likely that processes need
renewal, and a new operational mode in a company must be introduced to tackle the new
challenges. Furthermore, despite changes in the business environment and despite the
means by which companies try to manage in the ever-changing circumstances, customer
satisfaction is still the driving force for the success of companies. To involve customers
early enough in new product development, running pilots gives means for this.
Additionally, as the proportion of software is ever larger in products and customers are
ever more demanding, the reliability of software, technologies, and products has to be
guaranteed. For companies it is essential to be able to estimate the reliability of their
products during the product development process and not to wait for customer feedback.
The above-mentioned chain of inferences describes how one moves from a wider
perspective to a narrower one (see Fig. 1). Fig. 12 illustrates the connections of the five
perspectives or research papers in another way: the new operational mode is the rallying
point of the individual studies. Despite the straightforward transition from one
67
perspective to another, there are also linkages between all of the perspectives. Next some
examples are given to show how the aspects are intertwined with each other.
Fig. 12. Connection of the research papers to the new operational mode.
When introducing disruptive technologies new business models are required, which
requires acquiring new competences. As the business model is new, learning is essential
and distributing the lessons learnt is vital for the case unit and company. The case unit
acts as a learning field and a learning organisation. Introducing disruptive technologies
and new business models also triggers the need for a new operational mode and process
renewal, as the old and proven practices are not necessarily beneficial any more. Further,
when dealing with new technologies and new products, customer requirements and
expectations must be considered carefully. Running pilots with customers is one means to
involve customers in the NPD process. Finally, despite a novel business model, despite
probably still insufficient new competences, despite new operating practices, and despite
unknown customer expectations, better profitability, productivity and reliability of the
new products must be guaranteed.
From the competence development point of view, refined and practical processes help
to accumulate skills and competences and also help to create a good foundation for a
learning organisation. Additionally, running pilots is an excellent way to develop
competences; quick feedback through pilot projects strengthens learning, as learning
68
from errors is still a firm cornerstone. When competences are in place, it obviously
reduces errors and increases product reliability.
Process renewal is essential when the operational mode changes. Process descriptions
help to align sub-areas and expertise areas as well. The piloting process is a novel process
and with the help of the overall process renewal, the piloting process is also aligned with
the NPD process. Well-defined processes guide concentration on the essential, prevent
overlapping work, help to prevent generating errors and, in this way, minimise rework.
Thus, processes support increased reliability.
Running pilots is a way to detect errors early enough and thus increase product
reliability, and running pilots is a means to test the maturity and reliability of standards
and de factos. Above all, pilot projects help in ascertaining customers’ expectations for
new technologies and new products.
The previous logical deduction leads to the research problem, which was formulated
as: What kind of operational mode is needed to introduce disruptive technologies? The
above-mentioned logical deduction anticipates that an operational mode consists of
different elements, different aspects, and thus, a very simple and short answer is not
possible. As a conclusion, the operational mode when introducing disruptive technologies
requires reconsidering business models; the old and proven way of doing business is not
adequate any more. The new operational mode requires special attention to competence
development; especially tacit knowledge is highlighted in project-oriented business. A
framework for competence development gives a solid basis for development of
competences and knowledge management. Further, the old and proven processes and
quality tools used in development of continuous improvement products are no longer
appropriate; process renewal is required to move to the adaptable, flexible processes. The
new operational mode requires more intensive customer involvement in product
development; with highly innovative products customers are often unable to give specific
requirements as the technology is new and customers lack the experience in such
products. Technology pilots offer an efficient and effective way to involve customers in
product development in the R&D phase. The customer point of view is also in the
spotlight in reliability estimation; reliable estimates of software reliability support
managerial decision-making as to when to launch the software.
4.2 Implications
In chapter 2 the theoretical foundation for the research papers was given, and the research
papers were presented in chapter 3. In this chapter both theoretical and managerial
implications are discussed.
4.2.1 Theoretical implications
Table 7 summarises the theoretical contributions of the five research papers and then,
implications of the research papers are discussed.
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Table 7. Summary of research contributions.
# Title of the paper Contribution Research
questions
I A framework for creating business models –
a challenge in convergence of high clock
speed industry
- Framework for creating and building
business models
- Framework for evaluating business
models
- Business model scenarios and a
proposal for evaluating them
RQ1
II Project management competence
development framework in turbulent business
environment
- Framework for project management
competence development
RQ2
III Process Renewal Driven by Disruptive
Technologies
- Process renewal procedure
- Experiences on process renewal
driven by disruptive technologies
compared with management-driven
process renewal
RQ3
IV Business impact of technology piloting –
model for analysis in different phases of
development cycle
- Introducing technology pilots
concept in product development
framework
- Experiences on customer
involvement in pilot projects
RQ4
V Practical Use of Software Reliability
Methods in New Product Development
- Integration of software reliability
estimation methods to product
development framework
- Evaluation of software reliability
estimation methods in the case unit
RQ5
Business models: The research paper proposes practical tools for building and evaluating
business models and creates business model scenarios. The paper discusses a very topical
issue and is solidly based on existing knowledge. However, when a new business model
is chosen, further studies are still required to analyse how the model works in practice.
The model needs further reconsideration based on the analysis.
Competence development: The paper confirms the importance of the concepts of
learning organisation, organisational learning, knowledge management and organisational
culture. It proposes a practical framework for competence development. The proposed
framework has been used in the case company and the results are promising so far. Still,
as the environment is ever-changing, also the framework needs modifications. There are
future development challenges: how to evaluate the impacts of the framework, how to
create and follow-up career/competence development path, what are the working
methods, etc.
Process renewal: This paper strengthens the idea of existing literature of combining
both TQM and BPR approaches in process development. Experience with the operational
mode and renewed processes of the case unit has been encouraging. However, they still
need further research to find out if they also prove to be favourable in long-term use.
70
Technology piloting: The research paper is based on existing knowledge of the NPD
process, which is complemented with a piloting process that involves customers in
development work. The paper proposes the piloting process applied in the NPD process.
Additionally, the research verifies the probe and learn process. The study proved the
applicability of the presented model for running pilots, but also the utility of the whole
piloting activity. However, piloting activities (process development and analysis) need
continuous evaluation of and reflection on the ever-changing environment. Ultimately,
processes should be defined to reflect the best practices and especially help product
development projects to fulfil their business targets.
Product reliability: This research gives a practical point of view for software reliability
estimation based on existing knowledge of software reliability models. It proposes a
praxis for coping with a very challenging task. However, the studied and, especially, the
preferred methods need continuous evaluation due to the changing environment. In
addition to currently presented methods there are future development challenges: how to
further develop the methods to better respond to the daily practices of NPD projects.
This research as a whole provides one solution for how to investigate and evaluate the
current situation of a company in today’s business environment. One has to keep in mind
that the approach presented is only one possibility of many as to how this can be done.
There are certainly many other ways and aspects to evaluate a company’s possibilities to
cope with the dynamic business environment.
4.2.2 Managerial implications
Fig.1 depicts the scope of the thesis composed of the five individual research papers. The
scope is illustrated with a cone; the deeper one goes into the cone the narrower the
management perspective becomes. The research paper 1 (“A framework for creating
business models – a challenge in convergence of high clock speed industry”) focuses on
business models and discusses the prevailing business environment from the point of
view of the case company, but of course it is relevant also beyond the case company. The
focus area – competence development - of the research paper 2 (“Project management
competence development framework in turbulent business environment”) is more concise
compared to the previous one, and covers the case company; the paper introduces a
framework that is built especially for the case company but is applicable to other
companies and other industries as well. Further, the research paper 3 (“Process renewal
driven by disruptive technologies”) concentrates on experiences from the process renewal
of the case unit as part of the case company; the paper tells experiences of the process
renewal conducted in the case unit. The research paper 4 (“Business impact of technology
piloting – model for analysis in different phases of development cycle”) deals with
technology pilot projects in relation to the NPD process in the case unit; it goes deeper
into the technology development in the case unit. Finally, the research paper 5 (“Practical
use of software reliability methods in new product development”) focuses on software as
part of technology products, and covers the project level in the case unit.
In respect of the different research perspectives, the time frame for these implications
is also different. The implications for new business models will be visible during the long
71
term period. However, today it is known that the business model is different but its
impact in the quantitative meaning is not yet concrete. Practices and tools for competence
development are changing all the time. The proposed competence development
framework introduced in the second research paper has been in use since 2001; data from
it is already presented in the paper. The renewed processes have been in use in the case
unit for about three years. Their impact on daily work is seen as flexibility. However,
quantitative data of the use of the processes is not yet sufficient. With respect to
technology pilot projects, the first trials have been conducted and the lessons learned
have been distributed to later pilot projects. The impact of technology pilot projects is
also visible as quantitative data as can be seen in the fourth research paper. Special
attention is drawn to feedback data collection and analysis in current projects. The
technology piloting process is in use in the case unit. Software reliability estimation
methods introduced in the fifth research paper have the most concrete impact. The
proposed methods are introduced in NPD projects in the case company. Quantitative data
analyses have been done, and a more systematic way to collect and analyse data taken
into use. Commercial modelling tools have been introduced and significant savings in
resources is expected.
The five perspectives represent different fields: business models deal with economics,
competence development concerns human resources and personnel management, process
renewal relates to quality management, running pilot projects goes deeper in technology
management, and software reliability applies to software engineering. The purpose of this
“cone approach” is to help understand the wholeness of the situation. However, these
perspectives are not the only ones, just some of them. The aspects chosen were the most
important and topical to the case unit.
The research environment changes quickly and research results focusing on changes in
different sub-areas have given valuable input for managerial decisions. The case unit,
IPC, consisted of both R&D functions and business development activities. It was an
experimental and temporary organisation, whose main objective was to find an efficient
and fast way to develop new applications, technological enablers, and features for the use
of NPD projects utilising new, disruptive technologies. IPC acted as a pioneer and an
adventurist in creating and testing new technologies that provide new opportunities for
customers. IPC was established in 2002 and today it does not exist as such, but is merged
with its operational mode and processes in permanent organisational structures of the
case company. IPC worked in its way for new technologies. Success factors were – above
all – top-management commitment and confidence in the case unit’s work, focusing on
customers, taking their requirements into account and involving them in the development
work, persistency in transferring new ideas, flexible processes, satisfactory quality
management, and competence development. This study addresses the viewpoint that,
when technologies change, products are new and innovative, the environment is
turbulent, and product development cycle times are short, then also the way of doing
things has to be reconsidered. A different operational mode, renewed processes,
persistence, high commitment, strong confidence, and boldness to do things differently
are required when convincing co-operators, management, and customers.
When contemplating this research today as a whole it confirms the managerial
decisions made during the existence of the case unit. The work gives confidence to
managers that their decisions have been fair guesses. From time to time, some decisions
72
have been made based on intuition (according to one manager of IPC). However, one can
say that this intuition is evidence of the tacit knowledge that the people of the case unit
have. Goldratt (1990) writes about intuition and says that all our inventions, decisions,
and convictions are based only on intuition. What is missing is the ability to verbalise our
intuition, to provoke it, focus it and cast it precisely into words. As long as proper
verbalisation is not used, we ourselves will act in ways that contradict our own intuition.
This study can be considered as verbalising the intuition of the key managers.
A summary of contributions to the case company is presented in table 8.
Table 8. Research contributions to the case company.
# Title of the paper Contribution Research
Question
I A framework for creating business
models – a challenge in convergence
of high clock speed industry
Today it is known that the old and proven way of
doing business is not sufficient any more.
Theoretical foundation for building business models
and their evaluation is provided.
RQ1
II Project management competence
development framework in turbulent
business environment
Business environment is changing and new
competences are needed. Project management
competence development framework provides a firm
standpoint for competence development.
RQ2
III Process Renewal Driven by
Disruptive Technologies
Mobile and IP convergence, disruptive technologies
and business agility push to process renewal. The
case unit’s renewed processes give a basis for further
process development.
RQ3
IV Business impact of technology
piloting – model for analysis in
different phases of development
cycle
Customer satisfaction and user experience urge to
customer involvement. Technology pilot projects
involve customers in new product development.
RQ4
V Practical Use of Software Reliability
Methods in New Product
Development
Despite new technologies and changing business
environment the reliability of products is still vital
for success. Methods for software reliability
estimation are introduced to estimate reliability
during R&D phase.
RQ5
Next, an extract from the message of the director of IPC is presented. The message was
sent to IPC personnel on December 27, 2004 ? at the time when it was discontinued as an
independent unit and was merged in the current organisational structure of Nokia
Multimedia (Huotari 2004):
“IPC started approximately three years ago and after a short start-up phase we
concentrated to do architecture, protocols and IP oriented software mainly for
Symbian-based products. Because we didn't have any "own" products it was hard to
drive different requirements to [the technology platform], but somehow we
managed to do it anyway. But it is truthful to say that this mode is far from the most
optimal in driving new features into the Nokia portfolio, and hence it has required
much more effort and patience from the IPC team members.
73
In addition to the applications and enablers there was plenty of work in the
standardisation area where Nokia's position in forums like Internet Engineering
Task Force (IETF) got dramatically better over the last three years. This is often
seemingly invisible work that has huge consequences for the future direction of our
industry, and should be kept active at least on present levels.
One, very important aspect of IPC’s mode of working was piloting and direct
interface to the customer front. We did test and pilot our implementations in real
life and on live networks, and this was an essential part of our work.
This cannot be underlined enough, since all these IP based applications are living
manifestations of end-to-end implementations. In end-to-end environments every
aspect starting from the user interface through SW layers and HW to air interface,
through all network elements and possible servers and eventually to other
terminal(s) user interfaces create a chain where all elements are part of the total
user experience. These things cannot be simulated in laboratory conditions only!
In these exercises we did also get valuable help from the network side to get all
elements in place, and all in all, had very good interaction and collaboration on
many fronts. Also this aspect demonstrates in real life the need for end-to-end
understanding.
One crucial aspect of this piloting was the fact that our people and R&D teams did
know directly what was happening on the customer front and thus could react fast
and also did have real motivation to make the needed modifications fast.
The learning from this is that it is worthwhile to have a dedicated, very technology-
oriented customer interface, as the feedback is often directly applicable to products
in a short-to-mid time frame, which allows Nokia to come up with products that
have immediate pull on the market.
All in all, IPC did demonstrate in a concrete manner that 1+1 can be more than 2.
Our team could deliver things which would not have been possible if they had acted
as isolated islands across the Nokia's organisation.
I'm personally honoured that I have had the possibility to work with such a capable
and innovative team!
Although IPC will cease to exist at the end of this year, the things we have done
will be part of Nokia assets and thus help in making something new possible:
something that wouldn't be there without the effort put in by all of you who have
been part of IPC over these years.”
74
4.3 The reliability and validity of the research
This research has proceeded with iterative cycles increasing the researcher’s
understanding about the research subject. The research method used follows the
characteristics of normative action research. One basic element in action research is the
subjectivity of the researcher. It has to be confessed that the researcher is a central
instrument in the research. In qualitative research the main criteria for reliability is the
researcher, and thus the evaluation of reliability concerns the whole research process
(Eskola & Suoranta 1999).
Excessive reliance on participant observation notes can severely distort conclusions
towards the researcher's personal preferences. This is especially true in action research,
where the researcher may be subconsciously tempted to manufacture self-serving
explanations for the lack of success of some of his or her own interventions in the client
organisation. The over-reliance on participant observation notes is likely to lead to invalid
research findings. Sometimes there is a researcher preference bias towards one
explanation, because it may seem to lead to more "relevant" scientific findings that
another explanation, which may look like a relatively trivial finding. The action
researcher has to consider objectivity during the research. The action researcher cannot be
strictly objective, but however, he or she should take this into account. The researcher
should at least try to recognise his or her biases and values. Especially in participatory
action research, objectivity is an important issue; the researcher behaves more or less
subjectively.
Qualitative research focuses on only a few cases and aims at analysing them
thoroughly. The criteria for the data in a scientific sense stand on the quality, not on the
quantity. The responsibility of the action researcher is to pick out the data under his or her
research. Action research and qualitative research in general is based on no hypothesis,
i.e. the researcher does not have preconsiderations on the subject under study or the
results of the research. However, the researcher has the history and former experiences,
and they cannot be ignored during the research. These experiences must not limit actions
during the research. The action researcher should create a new hypothesis, not prove an
existing hypothesis.
Yin (2003) proposes four tests to establish the quality of any empirical social research:
construct validity, internal validity, external validity, and reliability.
To meet the test of construct validity, a researcher must be sure to cover two steps: (1)
select the specific types of changes that are to be studied and (2) demonstrate that the
selected measures of these changes actually reflect the specific types of change that have
been selected. (Yin 2003). The research problem of this study was viewed from five
different perspectives utilising a cyclical, iterative research method. Each perspective was
reflected through existing theories and research papers were written as four journal
articles and one conference paper. Quantitative data for competence development
(research paper 2), technology pilots (research paper 4) and software reliability (research
paper 5) are already, or in the near future will be, available. Unfortunately, the effects and
measures for business model changes are not available yet.
Yin (2003) argues that on one hand, internal validity is a concern for studies where the
researcher tries to determine whether event x led to event y. If the researcher incorrectly
75
concludes that there is a causal relationship between x and y without knowing that a third
factor, z, may actually have caused y, the research design has failed to deal with a threat
to internal validity. On the other hand, the concern about internal validity may be
extended to the broader problem of making inferences. In the research environment there
evidently were intermediate factors. As this research was conducted via sequential,
iterative cycles from five viewpoints during several years, these criteria are met.
External validity deals with the problem of knowing whether the research findings can
be generalised beyond the immediate context of the study. The analyst should try to
generalise the findings to “theory” (Yin 2003). The research environment was unique, but
the dissertation consists of five research papers that provide the theories and their
exploitation in practice in the case unit. In that sense, the research findings can be
generalised. However, one has to keep in mind that the research environment was just
one R&D unit in one company and the research questions were focused just to solve the
questions set in that unit.
The objective of testing reliability is to ensure that, if a later researcher followed
exactly the procedures described by an earlier researcher and conducted the same study
all over again, he or she would arrive at the same findings and conclusions (Yin 2003).
As already mentioned, the research and the research environment were unique in nature
and it is impossible to conduct exactly the same research; business environment is ever-
changing, technologies are replaced by new ones, people with their tacit knowledge move
from one position to another, etc.
4.4 Exploitation of the research
The contributions of this research benefit the case company. Individual studies introduced
in the research papers can also be utilised outside the case company, one by one or all
together. Next, the exploitation of the research papers is discussed.
Business models. There are different definitions for business models. Despite the
definition, each company should reconsider its business model to prepare itself for new
situations, especially in a changing business environment. For some industries this is of
vital importance. This research paper builds business models from three elements -
offering, value creation systems, and revenue modes – and proposes a framework for
describing and building business models and a framework for business model evaluation.
These frameworks can be exploited when considering the most appropriate business
model for a company.
Competence development. The research paper on competence development utilises a
theoretical foundation of the learning organisation, organisational learning, organisational
culture, knowledge management and project orientation. The research introduces a
framework for project management competence development. The framework consists of
five elements: Project Academia training program, Project Coaching Principles
workshops, Case Coach Simulation model, Coffee Room Culture and Visual
Management concept, the Pit Stop facilitation method, and N1Race as web based
learning environment. This framework can be utilised as a whole or its elements can be
76
exploited one by one. The framework gives a foundation for a company to use it as such,
or to modify it to correspond to the company’s special needs.
Process renewal. TQM and BPR form the theoretical foundation for the research on
process renewal in the research paper. The research paper talks about experiences from
praxis when process renewal is driven by disruptive technologies. Of course, the situation
in each company dealing with process renewal topics is different, but still the description
given in the paper might give new ideas to a company facing with the same situation.
Technology piloting. NPD process, product platforms, continuous innovation and
disruptive technologies change the prevailing situation in industries introducing new
breakthrough products and lead to new approaches in new product development. The
probe and learn process is validated by this study. The constructed piloting process is
embedded in the NPD process in the case unit. The piloting process, utilisation of the
probe and learn process and customer involvement in the case unit give valuable
information for other companies as well.
Product reliability. The research on software reliability estimation exploits the
theoretical foundation of quality, reliability, and estimation of software reliability by
introducing seven software reliability estimation methods and their evaluation in the case
unit. Additionally, the methods are situated in the NPD process of the case unit. This
study tells how software reliability estimation can be conducted in practice, since the
literature claims that more than one hundred reliability models are introduced, however
not implemented in practice.
5 Summary
Today’s telecommunications business environment is ever-changing; there is always a
new technology on the way to replace the current ones. The speed of change seems to
increase more in high tech industries than in traditional ones. This means that business
cycles in high tech industries are shorter than in other industries. This research emerged
from this turbulent environment. On one hand the purpose of this research was to
understand the changing environment, and on the other hand to pursue action and
research in order to create more applicable processes and better capabilities for the case
unit and case company operating in these new circumstances.
The research problem of this study was stated as follows:
What kind of operational mode is needed to introduce disruptive technologies?
To be able to give a solution to the problem, this research was approached from different
perspectives with five research questions, each of which is discussed in an individual
research paper. Thus, each research paper corresponds to one research question rooted
from the research problem i.e., missing refined and established methods, processes, and
operational mode to promote development and implementation of disruptive
technologies.
Table 9 summarises the research questions and their contributions.
78
Table 9. Research questions and contributions.
# Research question Contribution
RQ1 How to build and evaluate
business models?
- Framework for creating and building business models
- Framework for evaluating business models
- Business model scenarios and a proposal for evaluating them
RQ2 How to develop
competences?
- Framework for project management competence development
RQ3 How to renew processes? - Process renewal procedure
- Experiences on process renewal driven by disruptive
technologies compared with management-driven process
renewal
RQ4 How to involve
customers?
- Introducing technology piloting concept in product development
framework
- Experiences from customer involvement in pilot projects
RQ5 How to estimate
reliability of products?
- Integration of software reliability estimation methods to product
development framework
- Evaluation of software reliability estimation methods in the case
unit
The research questions are intertwined; they are related to each other, even though their
focus is different. Each of these areas is large and would be worth further study.
However, this scope was chosen as an initial move. The research questions - from one to
five – move from a wider to a narrower subject matter. These perspectives were chosen in
order to understand the nature of the operating area as a whole since the operational mode
consists of different elements.
As a conclusion, when introducing disruptive technologies the operational mode
requires reconsidering business models; the old and proven way of doing business is not
adequate any more. The new operational mode also requires special attention to
competence development; in particular tacit knowledge is highlighted in project-oriented
business. A framework for competence development gives a solid basis for development
of competences and knowledge management. Further, the old and proven processes and
quality tools used in development of continuous improvement products are no longer
appropriate; process renewal is required to move to adaptable, flexible processes. The
new operational mode requires more intensive customer involvement in product
development; with highly innovative products customers are often unable to give specific
requirements, as the technology is new and customers lack experience with such
products. Technology pilot projects offer an efficient and effective way to involve
customers in product development in the R&D phase. The customer point of view is also
spotlighted in reliability estimation; reliable estimates of software reliability support
managerial decision-making as to when to launch the software.
The contributions of this research benefit the case company. Individual studies
introduced in the research papers can also be utilised outside the case company, one by
one or all together. The research environment was quickly changing and research results
focusing on changes in different sub-areas gave valuable input for the case unit IPC,
which consisted of both R&D functions and business development activities. IPC was an
79
experimental and temporary organisation, whose main objective was to find an efficient
and fast way to develop new applications, technological enablers, and features for the use
of NPD projects utilising new, disruptive technologies. IPC acted as a pioneer and an
adventurist in creating and testing new technologies that would provide new
opportunities for customers. IPC was established in 2002. From the very beginning it was
planned to be a temporary organisation, and today it does not exist as such, but is merged
with its operational mode and processes in the permanent Nokia organisational structure.
IPC worked, in its way, for new technologies.
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Original publications
I Suikki R, Goman A & Haapasalo H (2006) A framework for creating business
models – a challenge in convergence of high clock speed industry. International
Journal of Business Environment 1(2): 211-233.
II Suikki R, Tromstedt R & Haapasalo H (2006) Project management competence
development framework in turbulent business environment. Technovation 26: 723-
738.
III Suikki R (2007) Process Renewal Driven by Disruptive Technologies. International
Journal of Business Innovation and Research 1(3): 281-295.
IV Suikki R & Haapasalo H (2006) Business impact of technology piloting – model for
analysis in different phases of development cycle. International Journal of Innovation
and Technology Management 3(2): 209-235.
V Suikki R (2006) Practical Use of Software Reliability Methods in New Product
Development. Proceedings of the 32
nd
EUROMICRO Conference on Software
Engineering and Advanced Applications, EUROMICRO SEAA 2006,
Cavtat/Dubrovnik, Croatia, 232-239.
Reprinted with permission of the copyright holders.
Original publications are not included in the electronic version of the dissertation.
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250. Iskanius, Päivi (2006) An agile supply chain for a project-oriented steel product
network
251. Rantanen, Rami (2006) Modelling and control of cooking degree in conventional
and modified continuous pulping processes
252. Koskiaho, Jari (2006) Retention performance and hydraulic design of constructed
wetlands treating runoff waters from arable land
253. Koskinen, Miika (2006) Automatic assessment of functional suppression of the
central nervous system due to propofol anesthetic i nfusi on. From EEG
phenomena to a quantitative index
254. Heino, Jyrki (2006) Harjavallan Suurteollisuuspuisto teollisen ekosysteemin
esimerkkinä kehitettäessä hiiliteräksen ympäristömyönteisyyttä
255. Gebus, Sébastien (2006) Knowledge-based decision support systems for
production optimization and quality improvement in the electronics industry
256. Alarousu, Erkki (2006) Low coherence interferometry and optical coherence
tomography in paper measurements
257. Leppäkoski, Kimmo (2006) Utilisation of non-linear modelling methods in flue-
gas oxygen-content control
258. Juutilainen, Ilmari (2006) Modelling of conditional variance and uncertainty using
industrial process data
259. Sorvoja, Hannu (2006) Noninvasive blood pressure pulse detection and blood
pressure determination
260. Pirinen, Pekka (2006) Effective capacity evaluation of advanced wideband CDMA
and UWB radio networks
261. Huuhtanen, Mika (2006) Zeolite catalysts in the reduction of NOx in lean
automotive exhaust gas conditions. Behaviour of catalysts in activity, DRIFT and
TPD studies
262. Rautiainen, Mika (2006) Content-based search and browsing in semantic
multimedia retrieval
263. Häkkilä, Jonna (2006) Usability with context-aware mobile applications. Case
studies and design guidelines
264. Jari Heikkilä ja Jouni Koiso-Kanttila (toim.) (2007) Patinoituu ja paranee—
Moderni puukaupunki -tutkijakoulu 2003–2006
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CHANGING BUSINESS
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