Case Study: Organize for Product Development Stevens Corporation is a multi-division manufacturing company with diversified products serving the aerospace, automotive, and medical markets. Its medical instruments division is located in the Midwest and has a plant with over 1,000 employees. It sells various medical instruments, such as analyzers, monitoring equipment, and testing instruments to hospitals and medical laboratories. It is a market leader, and its business has been steady. It has a very good reputation and commands a premium price for its products. However, the business is not growing as fast as the rest of Stevens' divisions or as fast as the board of directors thinks it should. They feel that the division's management has become complacent. There are several new competitors entering the market with products that have more features and lower prices. Last year, the chief executive officer told Kareem, general manager of the medical instruments division, that he had to start developing new and enhanced products in order not to lose market share to the emerging competitors. Kareem has worked his entire 20-year career in the division and is an electronics engineer who worked on many of the current products.

He thinks they are still quality products and that the marketing department needs to do a better job of convincing the customers that Stevens' products are still the best value compared to unproven competitors' products. He also thinks that the manufacturing department can reduce costs through tougher negotiations with suppliers and by making process improvements. He believes that Stevens' reputation will eventually knock the new competitors' products out of the market. Therefore, he is hesitant to allocate any more resources to any product development efforts than are necessary to pacify the CEO and board of directors. He wants to maintain the division's profit margin, which is used to determine his year-end bonus. Kareem's approach was to establish four product development teams. Each team was assigned a different product that was being threatened by competitor products, with the goal of developing enhancements that would match or beat the competing products. He simply assigned each of his four department managers to head the four product development teams. He thought this would create some friendly rivalry. The four department managers are:

• Tanya-Manager, Marketing

• Khalid-Manager, Electronic Engineering

• Lee-Manager, Computer Systems Engineering

• Tony-Manager, Manufacturing Kareem has been getting more frequent questions from the CEO about the status of the product developments. Kareem knows that progress has been slow, and that he really has not put a priority on it because he believes Stevens will simply outlast its competitors, who, he thinks, are losing money on their lower priced products. Kareem had his annual performance review sessions with his department managers last week and asked them about the product development projects. Here is what each of them told him: Tanya, manager of marketing, said that none of the managers, including Kareem, are giving priority to the product development projects because they are too busy with their regular work. She said the product development efforts should be market-driven, not engineering-driven. The other product development teams led by Khalid and Lee are not interested in any input from the Marketing Department; they just want to develop highly sophisticated, over engineered products that will be too complicated for customers to use. She also said that Tony is only interested in how to make any new products cheaper, not necessarily better, because he thinks that a lower manufacturing cost per unit is the ultimate goal.

Tanya suggested to Kareem that he approve a new position of product development manager, who should report directly to her and would have full responsibility for all product development projects. She told Kareem that several key people from each of the other departments should be permanently reassigned to the product development manager to work solely on product development projects. Tanya also expressed her belief that the other three department managers seem to side with each other against her because she is a woman and has only been with the division a short time. She accused them of being a bunch of "good old boys" who have never gone outside the plant to talk with customers in the 20 plus years they have all been there. If Kareem does not approve hiring a product development manager who would report to her, Tanya said, she would seriously have to reconsider her interest in staying at Stevens Corporation. She has an excellent reputation in the industry; many other companies would welcome her. Kareem knows that it took him a while to fill the marketing manager position, and he had had to pay a higher salary than he had wanted to get Tanya to come to Stevens. Khalid, manager of electronic engineering, told Kareem that the product development projects are not progressing because the computer systems engineering department is always fighting among themselves about whether product features should be done with hardware or software. He said that Lee has already announced that he intends to retire at the end of the year.

Khalid told Kareem that when Lee retires, he should not be replaced; rather, the computer systems engineering department should be merged into Khalid's department. He said he would then have better control over the product development projects, which should be led by engineering anyway because all product enhancements require engineering and design expertise. He saw no need for marketing or manufacturing to be involved. He said marketing's job should be to sell the products engineering develops, and it's manufacturing's job to make the products the way engineering designs them. He also said that by not replacing Lee, Kareem can make up some of the money paid for the "overpriced" marketing manager. Lee, manager of computer systems engineering, told Kareem that he had evaluated the competitors' products and the big difference is that their products are software based whereas Stevens' products are electronics based, as they have been for years. Lee reminded Kareem that it was years ago that both of them engineered those electronic products. But today it is a different environment, with new technologies and approaches, and Stevens has to redesign its products to be software based. He suggested that when he retires at the end of the year, Kareem should appoint Nicole as the new manager of the computer systems engineering department. Lee believes that Nicole is young, bright, knows software design better than anyone in his department, and could do a great job in leading the product development projects.

She has a master's degree in computer engineering and an MBA. She is interested in having Stevens' products meet customers' needs. Nicole frequently has discussions with Tanya about marketing and customers and competitors. Lee told Kareem that if Nicole is not promoted, she will probably leave Stevens and go to another company, maybe even one of the competitors, where her talents might be better utilized. Tony, manager of manufacturing, told Kareem that he (Kareem) needs to get more involved in the product development projects and "start knocking some heads together." He said marketing and Khalid and Lee are trying to make too many changes to the products, and that will just increase the price or reduce profit margins. Tony believes that the other managers have no concern for costs or any manufacturing process changes that would have to be made. Tony suggested that Kareem start having regular product development status meetings to find out what is "really" going on and see all the "politics." He said all the other department managers care only about their own department looking good, and they are not willing to share information or cooperate with the other teams. As a result, all the product development teams were suffering, and it was getting worse each day.

He told Kareem that what started out as a friendly rivalry among the teams has turned into outright nasty competition. He again warned Kareem to do something before it begins to drag down the corporation's overall profitability and the CEO has all their jobs or even recommends selling the division to a competitor. Finally, the CEO calls Kareem to a meeting and tells him that the latest marketing report shows the medical instruments division has lost market share for the second consecutive quarter and wants to know why Kareem does not have any new product enhancements out in the market yet. Kareem admitted that he has not been on top of the product development efforts and has not given them the priority that he should. He thought the competitors would fold. Kareem discussed his approach to establishing the product development teams and the feedback he just got from his department managers. The CEO was not happy and told Kareem that he was relying too much on doing things in the same old ways and that he had better look for new ideas and approaches or his position would be in jeopardy. The CEO told Kareem that the situation is critical, and the board of directors is losing their patience. When the board hired her as CEO last year, they expected her to move Stevens from a good national company to a great global one, and that all the other divisions are moving in that direction while the medical instruments division is staying flat in spite of an increasing global market for their products. The CEO told Kareem that she is going to bring in a management consultant to evaluate what is going on in his division and make recommendations to her about how to get the product development effort organized and on an accelerated track.

CASE QUESTIONS You are the management consultant hired by the CEO.

1. How would you initiate your assignment with Kareem and the department managers?

2. Develop a list of questions you would ask.

3. Assuming the department managers tell you the same things they told Kareem, what recommendations would you make to the CEO, including any changes to the organizational structure, to improve the management of product development projects?

4. What guidelines would you recommend for how the departments or new functions should work together on product development projects?