Lead innovative thinking and practice
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New product development and innovation are the cornerstones of 3M’s continued success. According to the Australian Bureau of Statistics, innovation is : “The process of introducing new or significantly improved goods or services and/or implementing new or significantly improved processes”.
3M celebrates its long history of innovation by turning innovators into company legends. In 1925, Dick Drew famously visited a customer’s auto production plant and discovered that the growing demand for two-tone cars meant that workers needed a solution to create cleaner paint lines. After some research, and testing, a new product – masking tape – was born.
Product development occurs when investment in research and development leads to new and innovative products. This usually involves phases such as idea generation, testing, engineering, prototype creation, commercialisation, manufacturing and marketing. It can take many years for a product to reach the market and product development also represents significant capital investment; hence 3M uses the term, ‘patient money’.
3M adds 500 innovative new products every year to its 60,000+ product- line. Many of these products are ground-breaking, newly-invented products, unique in the marketplace and protected by patents.
2 What is innovation? 3M prides itself on being a customer-focused organisation. “We understand our customers’ expectations and make sure that we exceed their expectations…Loyal customers stay with you, are more receptive to new products and recommend you to others.”
The customer-focused organisation is an important part of continuous improvement and Total Quality Management (TQM). A TQM organisation consists of a number of interdependent internal stakeholders or customers. These individuals, groups, departments and units supply to, and rely on, another individual, group, department or unit within that same organisation. These internal customers combine to improve quality throughout all processes and create better quality output for the end-users; the external customers.
3M first used microreplication technology back in the 1960s to improve overhead projector lenses and in doing so learned more about optics and optical lenses. Over the next 40 years the results of this innovation flowed on to all sorts of areas…in traffic lights, lane markers, X-ray scanning, LCD film, electronics and more.
This philosophy of 3M applies equally to internal customers, demonstrated through the interdependence of its 45 technology platforms and diverse global operations; as well as to external customers.
Each of the three broad categories of innovation applies to 3M.
1. Innovation in goods and services occurs when new and improved goods and services are developed or where new uses are found for existing goods or services.
2. Innovation in operational processes occurs when organisations implement significant positive change in their methods of production of goods and/or services.
3M describes the four fundamental reasons driving innovation as; personal satisfaction, competitiveness, growth and survival. New products are the lifeblood of 3M and the company builds innovation into all of its operations. 3M’s innovation is the deliberate product, “…of a complex set of principles and practices which support and encourage the coupling of technology and creativity to satisfy customer needs.” It is also no accident that 3M, a company driven by cutting- edge technological innovation, believes that successful innovation is in reality accomplished by its people.
3M’s senior management empowers employees to work with determination and imagination to create innovative solutions. Customers are consulted so that they can provide input and feedback to the process of innovation and product development. This commitment to inclusive leadership resulted in 3M ranking No. 1 on Chief Executive magazine’s 2008’s Best Companies for Leaders list.
A further strength of 3M’s organisational structure is that 3,000 of their 10,000+ technical employees are located outside the USA. These technical employees work in research-based laboratories in 34 countries or in Customer Technology Centres in 30 countries. The result is a highly-skilled global workforce uniquely positioned to create proactive solutions in response to specific customer needs.
This localisation of innovation is demonstrated through 3M’s diverse research and development centres; optical manufacture and testing in Poland, electronics in Japan, water filtration in India and dental products in the UK and other markets. 3M provide locally-based product development resulting in customised solutions that subsequently result in global replication through the entire company.
To support innovation, 3M allocates 6-7 percent of its entire sales revenue ($1.4b in 2008) to research and development. This heavy investment also means that staff can devote 15 percent of their work time to self-directed projects. It is no surprise that the company was ranked World’s 4th Best R&D Company in 2007.
With a vision “to be the most innovative enterprise and preferred supplier in the markets we serve”, 3M prides itself on its history of innovation – reinforced through its brand promise, “practical and ingenious solutions that help customers succeed”.
Key values underpinning 3M’s continual success include its commitment to:
• Satisfy our customers with superior quality and value
• Provide investors with an attractive return through sustained, high- quality growth
• Respect our social and physical environments
• Be a company employees are proud to be part of.
3M has 45 core technology platforms ranging from adhesives, biotechnology and films through to nanotechnology, optoelectronics and wound management. The 60,000 products developed through these technology platforms satisfy consumer needs in six market- focused businesses.
1 Introduction – A Century of Innovation 3M is a global diversified materials science company and a powerful, diverse and integrated enterprise. Although 3M identifies its core competency simply as “applying coatings to backings”, the company’s operations extend far beyond this. 3M, famous for its consumer brands such as Scotch® Tape and Post-it ® Notes, also creates thousands of industrial products used by manufacturers and service providers to create their own products.
From its beginnings in 1902 as Minnesota Mining and Manufacturing, 3M has grown to achieve sales revenue of $US25.3 billion and an operating income of $US3.5 billion in 2008. The company has over 79,000 employees with approximately 13 percent employed directly as technical staff. As a truly global presence, 3M services almost 200 national markets, and operates subsidiary companies, such as 3M Australia, in more than 60 countries. Almost 64 percent of 3M’s entire sales revenue originates from international operations.
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for a modern world Innovation, ideas and solutions
Consumer and Office: Adhesives and wovens such as Scotch ® brand, Scotch-Brite ®, Post-it ® and more.
Display and Graphics: Films for electronic displays, touch screens, reflective materials for highway safety and more.
Electro and Communications: Electrical tapes, copper and fibre-optic cabling and more.
Health Care: Medical, surgical, pharmaceutical and dental products and more.
Industrial and Transportation: Abrasives, specialty adhesives and tapes, as well as automotive, aerospace
and marine industrial products and more.
Safety, Security and Protection Services: Respiratory protection systems, anti-counterfeiting
security films, cleaning products and more.
Benchmarked the business’s performance.
$13 billion of sales revenue was generated through sales of pressure sensitive adhesives across 24 divisions.
3M’s six businesses
Ask your customers what quality is –
then never let the standard slip.
“ ”
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3 Developing a culture of innovation One of the most celebrated aspects of 3M’s entrepreneurial workplace culture is the 15 percent rule that encourages employees to explore and work together to generate ideas. Product development is driven by the cross-fertilisation of ideas and new technologies shared across the entire company. “Products belong to divisions, but technologies and ideas belong to the company.” 3M has developed six principles of innovation to support this culture.
Build a Vision Effective leadership means that employees understand the importance of achieving 3M’s vision. Innovation is a cornerstone of 3M’s self-image and the company prides itself on a culture of success stories by celebrating the achievement of its people. The importance of innovation is communicated and reinforced which replicates success.
Foresight It is vital to, “…anticipate the structure of the future before it arrives.” 3M can solve articulated needs, whereby the customer knows and communicates what they need; as well as unarticulated needs, whereby 3M proactively provides a solution for a problem that the customers don’t yet realise they have!
Going beyond 3M sets goals to challenge their people to strive for significant improvements. One objective is to generate 30 percent of all sales from new products introduced in the past four years. However 3M’s commitment to stretching
goals is demonstrated through an additional objective; to cut the time for new products to reach the market by a further 50 percent.
Empowerment Back in the 1940s McKnight said, “Hire good people and leave them alone”, and this philosophy is still paramount. 3M’s management believes that employees need freedom to achieve their goals. Empowered employees are given both responsibility and accountability for key tasks. The company trusts employees, provides direction, support and resources, with minimal interference. This collaborative management style is effective when dealing with intrinsically motivated and highly-qualified professionals.
Communication 3M feels that successful people need to work with others. Management communicates the vision, employees communicate opportunities to management – the dialogue extends into multiple channels throughout the organisation.
3M use technical forums, trade fairs and conferences to encourage networking and ideas sharing. Staff use part of their 15 percent self-managed time to help people from other areas. Networking occurs internally across platforms and externally through customer feedback and joint ventures. Staff can be transferred locally and globally and apply their particular expertise on projects. This adds value by sharing both expertise and the experience of 3M’s diverse global culture.
Rewards and recognition 3M believes that the most effective type of reward is recognition through technical and corporate awards and promotions. 3M’s celebrated Innovator Award is given to individuals who use their 15 percent self-directed work time to develop a new product or technology. The highly prestigious Circle of Technical Excellence honours extra effort, motivation and creativity.
3M have a dual career structure that maintains parity between technical and corporate staff. Outstanding technical employees can be promoted into positions such as Corporate Scientist or they can move into management with the same opportunities for salary, benefits and other privileges. This encourages top performers to stay with the company.
4 Creating innovative applications The Australian passport is the most widely held identity document used in the Australian community. Over many decades the Australian Government, through the Department of Foreign Affairs and Trade (DFAT) has built a reputation for producing high quality, innovative passports that are recognised as being amongst the most secure in the world.
Since the early 1980s 3M has worked collaboratively with DFAT to deliver a series of unique laminates that secure the data page against fraudulent alteration. The data page contains the holder’s personal details, signature and facial image. To manufacture security laminates, 3M leverages a range of core technologies and
processes including adhesives, vapour coat processing, optics, moulding and specialty materials.
In the early 1980s, the practice was to adhere a photograph of the passport holder to the data page and cover it with a security laminate. While best practice at the time, it was open to the risk of fraudulent photo substitution. DFAT, in partnership with 3M, innovatively applied advances in digital printing technology to issue a passport with a colour facial image and signature digitally printed into the passport, a world first in passports. This evolution occurred over three phases, Dawn I, Dawn II and Dawn III.
Dawn I was designed to create a passport with a laser printed machine readable zone (MRZ) and was successfully introduced in 1985. It was the first passport in the world to achieve 100 percent reading accuracy in the MRZ and set a new standard. A patent was lodged on behalf of the Australian government to cover what became known as ‘reverse imaging technology’ and 3M were engaged to commercialise the technology.
Dawn II used the reverse imaging technology to directly image a black and white photograph into the reverse side of the laminate, a world first for DFAT and 3M.
Dawn III built on the technology developed in the preceding phases of the project and culminated in the first passport with the holder’s facial image and signature digitally printed in full colour being issued on the 4th May 1994. The 3M laminate also contained new covert security features including images of the Australian Coat of Arms, which were visible under coaxial light, and three stylised kangaroos securing the signature label and a corner of the facial image. These innovations were another world first for DFAT and 3M and significantly reduced the security risk of photo substitution and data alteration.
In 2003, the next generation of 3M laminate allowed DFAT to add the first ‘floating image technology’ seen on passports. Lasers were used during manufacture to create images of kangaroos and emus within the laminate that appear to ‘float’ above and sink below the surface as the page is viewed from different angles.
In 2009, the 3M laminate was redesigned and enhanced to incorporate a continuous Australian wave pattern visible only under UV light. Today, this is one of the key features used by border control authorities to validate the integrity of the passport.
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5 Conclusion 3M has emerged as a global leader in providing practical solutions and is home to some of the world’s most recognisable brands.
Although a technologically-oriented company, 3M feels that its success stems from the quality of its people. 3M has a diverse global workforce of naturally inquisitive and highly-trained technical specialists that is supported throughout the entire corporation by a progressive and people-centred management philosophy.
3M delights both in reinforcing the principles laid down by some of its key early executives and also celebrating the ongoing success of its current staff.
With a continual emphasis on innovation and product development 3M is committed to finding solutions for its diverse group of customers. Management is also committed to encouraging and supporting staff in their pursuit of excellence. The company attributes much of its success to the 15 percent rule which allows staff to search for proactive solutions for difficult problems.
For a company whose core competency might be described as ‘making things stick’, 3M has developed an innovative entrepreneurial workplace culture that its stakeholders seem more than happy to be stuck with.
In 1941, 3M executive William McKnight developed a progressive, employee-focused philosophy supporting risk-taking and innovation
that still permeates the company’s workplace culture today.
“Mistakes will be made, but if a person is essentially right, the mistakes…are not as serious
in the long run as the mistakes management will make if it is dictatorial…”
“As our business grows, it becomes increasingly necessary to delegate responsibility and to encourage…initiative…”
“Management that is destructively critical when mistakes are made kills initiative. And it is essential that we have many
people with initiative if we are to continue to grow.”
GLOSSARY Brand promise The set of benefits associated with an organisation’s products. The brand promise is developed and reinforced through the organisation’s ability and commitment to deliver satisfaction for its customers.
Commercialisation The process of transforming the results of research projects into marketable products or services. Commercialisation is a component of the broader innovation process.
Customer-focused organisation An organisation that emphasises customers as its most important stakeholder and often focuses on both internal and external customers as stakeholders.
Innovation A new and creative idea, product or service. The process of converting knowledge and ideas into better ways of doing business or into new or improved products and services that are valued by the community. The innovation process incorporates research and development, commercialisation and technology diffusion.
Product development The process of developing new products or an aspect of the product management process whereby a product is changed, enhanced or modified to better align with the needs of the market.
Values The beliefs a company stands for, often including what behaviours are expected from employees.
Vision The statement of an organisation’s current and future business goals.
Workplace culture The practical day-to-day demonstration of those formal or informal values and behaviours within an organisation that originate from its corporate culture.
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Carsales_Case_Study_Ed_6.pdf
He launched a business that immediately raised the quality and quantity of information available to buyers and sellers to achieve a sale. The continued diversification of the business from automotive products into a range of aligned channels, markets and geographies such as the sale of industry equipment further typifies entrepreneurship – looking for new ideas, managing the risks involved, but achieving commercial success. Underpinning this is innovation, which will be covered in detail later in this case study.
Seeing a market need is one thing but the capacity to meet that need relies on sound business planning. Figure 2 provides the application of some of the key elements of a business plan that would have applied to carsales.com when the business was first conceived back in the mid 1990s.
Figure 2:
3 Standing out from the competition Marketing researchers and authors of Blue Ocean Strategy, W Chan Kim and Renee Mauborgne, contend that in order for a business to be successful they must create ‘blue oceans’ of uncontested market space ripe for growth. Such strategic moves, termed ‘value innovation’, create powerful leaps in value for both the business and its buyers, rendering rivals obsolete and unleashing new demand. Creating a blue ocean will largely come about through the development of unique selling points (USPs). This is very much the story of carsales.com. The first unique selling point has emerged from the philosophy of the business-which is, to achieve a sale, not simply focus on creating another classified advertising avenue. This has led to the application of sophisticated, robust and efficient technologies that clearly help people sell things. carsales.com’s heritage is derived from automotive software, ensuring they have a specialised understanding
of the business and future opportunities. The specific characteristics of this technology-based USP include:
A range of robust online platforms
Intuitive and accurate search functionality
Quick and effective online ad creation
Detailed data and information to enhance the buying and selling experience
Immediate connectivity between buyers and sellers.
This USP has greatly contributed to carsales.com’s market leading position. The company holds the number one position by the key metrics (measures) in relation to traffic and revenue as shown in Figure 3 below.
Figure 3:
4 Creating a culture of innovation A culture of innovation means creativity and new ideas become central to the internal environment of the business. It is a part of day to day decision making through to medium and longer term planning. A culture of innovation is very much reflected in the application of software technology that underpins the carsales.com web-based buying and selling experience, but is evident in many other areas of the business. Some of these are as follows:
• As the use of mobile phones continues to grow beyond just a facility to make calls and send messages, carsales.com has developed mobile websites to optimise viewing on customer mobiles and making it more convenient.
everything else will follow. These three factors will be the focus of the material that follows.
Before looking at various aspects of the carsales.com business model, let us examine the company background and structure. Founded in 1997, and led by CEO Greg Roebuck for the past eight years, there are four major divisions under the carsales network umbrella:
• Private (for individuals who wish to buy or sell auto, bike, marine, homes, general classifieds and industry products)
• Dealer (for businesses that trade in auto, bike, marine, homes, general classifieds and industry products)
• Dealer and Data Services (support and research products for Dealers and Manufacturers)
• Display Adverting (for businesses that wish to advertise their products to the carsales customer base, i.e. Banner Advertising).
There are 26 brands, as indicated in Figure 1 below, where buyers and sellers can trade goods such as cars, bikes, boats (the focus of this case study) caravans, industry equipment and most recently homes.
This structure provides a range of revenue streams for the business. In relation to the automotive section of the business, carsales.com receives a significant proportion of its revenue from display advertisers, and motor vehicle dealers who pay for each enquiry they get from the website. In addition private sellers pay a fee for advertising their products on these sites.
2 Filling a market need carsales.com’s continued success and growth in the market is largely due to the entrepreneurship that commenced with Greg Roebuck, which has continued with the incubation of creative ideas within the business. Greg was shocked by the inconsistency of information provided in traditional classified advertisements. As an entrepreneur, he recognised an opportunity and did something about it!
1 Introduction For many Australians, gone are the days of trawling through newspaper classifieds in search of a bargain. Instead, they are carrying out their shopping online – from the weekly supermarket shop to big ticket items such as a cars, bikes and boats. carsales.com Ltd, Australia’s number one online automotive classifieds business, is at the forefront of this significant change in consumer behaviour.
The business model is focused on helping people sell things, plain and simple, and there are three key factors contributing to the business’s success. Firstly carsales.com is committed to continued innovation, especially in its use of online technology architecture to deliver the best possible quality solutions for all customers. Secondly the business is a youthful, fast-paced business environment reflected in the ongoing development of new digital and advertising channels such as mobile and social media. Thirdly carsales.com is driven by a customer- focused strategy, the belief that if you win the customer,
Figure 1:
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Effective business strategy
Business Plan Element
Application to carsales.com
Business structure
Established initially as a private company
Management Team of major personnel is put together under the leadership of Greg Roebuck the CEO
Key objective To provide a viable alternative to print media advertising, initially in the automotive sector
Market analysis Lack of quality of print based advertising and increasing consumer shift to web-based businesses
Competition Little competition initially but expected movement of part or whole of competitors’ business to a web-based environment or the prospect of new players in the market
Product/service An online advertising business for the automotive market
Product/service production
Development of an innovative web-based business, using complex technologies to manage the buying and selling process.
It took me longer to drive to the dealership than to find the car.
real people. real results.
Buy & sell - where it works!
Source: Nielsen Online Market Intelligence Automotive, July 2010.
UniqUe Browsers of the top foUr aUtomotive classifieds sites in aUstralia
carsales.com.au Trading Post Cars Drive.com.au Carguide.com.au
1,000,000
2,000,000
3,000,000
4,000,000
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for online success
• The company made use of satisfied customers who had contacted the company by engaging them in the development of a new advertising campaign titled ‘Real people. Real results.’ (see example below).
• In late 2009 carsales.com established an innovative social media strategy for the business. This included establishing a ‘Social School’ – an initiative to recruit and train internal staff to become ‘Community Members’ responsible for updating and managing the company’s Facebook and Twitter portals in the correct tone of voice. A related policy was developed that established rules and regulations about using social media in a business form to help ensure that responses to posts were handled in a professional and dignified tone and that no confidential information was posted in these areas. carsales.com use their social media outlets to update followers with the latest company and auto industry news and respond to any customer service queries.
5 Expanding the business Just consider this simple question for a moment. If you want to get the best result in an exam – what will determine that? Obviously the more marks you get on the paper compared to your classmates will determine your success. The same applies to carsales.com – the more cars it sells the better its results. That is why the business is always looking to increase its number of listings through a range of related expansion strategies. Let us briefly examine four key strategies.
1 carsales.com operates a portfolio of automotive and related website based businesses, some of which have been the result of acquisitions. For example in October 2005 carsales.com acquired Trader Online Assets which included the CarPoint.com.au, BoatPoint.com.au and BikePoint.com.au websites. This gave carsales.com control of another leading specialist automotive website publisher, CarPoint.com.au, extending its market leading position in the online automotive classifieds industry.
2 In 2009 the business was listed on the Australian Securities Exchange (ASX). The most obvious benefit of this development is the access to capital markets to support future growth of the company.
3 A broad range of partnerships have been established, including with portals such as NineMSN and Yahoo!7 By promoting carsales.com on these sites, these partnerships increase brand recognition and generate more traffic to the site. In addition carsales.com power a number of search engines on manufacturer websites, including HSV, VW, Mitsubushi, Mazda, FPV, Saab, Holden, Chrysler and Dodge.
4 carsales.com continues to develop new products which are attractive to car buyers, sellers and advertisers. These include developing further niche websites to take advantage of industry trends, providing car buyers with access to greater inventory by combining inventory across carsales’ various sites, improving searching and matching technologies, enhanced car listings and dealer specials, and developing enhanced advertising delivery capability (e.g. mobile, video).
6 Developing new products New product development is a vital expansion strategy. A typical process is highlighted in Figure 4 below.
Figure 4
For carsales.com new products are developed which are attractive to car buyers, sellers and advertisers. These could relate to new niche websites or improved search and match technologies.
Underpinning effective new product development is the need for market research. This can occur in a number of different ways. Firstly carsales.com looks at their peers in other related industries, both in Australia and overseas. These provide a benchmark of technology applications for carsales.com to measure themselves against. Secondly, they keep a close watch on emerging technologies and consider their application to the business. Thirdly, carsales.com might commission independent, third party research to support its own internal research. And finally they tap into the thoughts, ideas and comments expressed within social media.
7 Planning continual business growth The following quote by the CEO, Greg Roebuck, gives us some insight into the future of carsales.com.
The long term business strategy is to continue to protect and grow the core business (automotive related products and services), while extending and enhancing carsales.com’s capability within aligned channels, markets and geographies. It expects to experience growth as the demand for online services across a broad range of products increases compared to print media. As an innovative business new products will be developed such as the previously highlighted mobile phone site that enhances advertising delivery capability. In addition the increasing quantity of data and pricing information will allow carsales.com to leverage into numerous growth opportunities. The future looks bright to say the least!
8 Conclusion Consumer behaviour is increasingly moving into the online environment, particularly for automotive related products. carsales.com has seen this trend, developed an innovative business model that has led to considerable growth and recognition. This business model includes cutting edge online technologies, new product development and strong future growth potential.
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GLOSSARY Acquisition When a company actively seeks to purchase another business, usually through buying a controlling interest in its shares, to facilitate growth and expansion. Benchmark (ing) A process whereby a business uses key performance indicators to compare its performance against objectives, or other similar businesses or industry best practice. Business planning The role of establishing the future direction of the business that involves outlining the series of actions required in a given period. Business strategy A course of future action that a business sets in place which will guide its future activities, decisions and processes. Capital markets Markets that trade in the financial instruments of companies such as shares and bonds. Customer-focused strategy An approach or attitude which emphasises and values the needs and wants of customers. Diversification The participation of a business in a range of different sectors and/or industries. It can result in improved income streams and a method of spreading risk. Entrepreneurship An attitude that is highlighted by a willingness to innovate, take risks and start new business ventures. Innovation A new and creative idea, product or service. The process of converting knowledge and ideas into better ways of doing business or into new or improved products and services that are valued by the community. The innovation process incorporates research and development, commercialisation and technology diffusion. Leverage A frequently used business or marketing term used when a business can use any asset or other obvious positive advantages (such as high brand awareness) to gain a foothold into a new area or market. Listed (company) Public companies whose shares are traded on the Australian Securities Exchange. Market research Finding out information about the characteristics of potential customers to solve marketing problems and help with marketing decisions. Niche A small, narrowly defined section of a market. The needs of this market are usually met by innovative companies with specialist services and activities. Social media The online tools used to share content, profiles, opinions, insights, experiences, perspectives and media itself, thus facilitating conversations and interaction online between groups of people. Includes blogs, message boards, podcasts, micro blogs, lifestreams, bookmarks, networks, communities, wikis, and vlogs. May also be called user- generated content. Unique selling point (USP) The reason/s why somebody should buy from you and not your competition. The unique benefits that your products or services offer consumers.
new product development process, factors and strategies
Idea Generation
Idea Screening
Concept Development and Testing
Business Analysis
Prototype Development
Test Marketing
Commercialisation
Consumers want the right information, in the right format, right now. It must be complete and
it must be accurate. If you do this really well, all of the time, they will never leave you.
Greg Roebuck, CEO.
“ ”
Buy & sell - where it works!
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Case Study Nike_BSBINN801.pdf
CASE STUDY:
NIKE - Product development from concept to consumer
Introduction
Nike is the world's largest sports and Fitness Company, earning $US14 billion in revenue. The company,
with one of the world's most identifiable logos - the 'swoosh', is a leader in sports equipment research
and development (R&D). Nike identified a gap in the sports shoe market - a shoe which mimics
barefoot running to strengthen runners' feet and legs, giving them more power and speed while
reducing the risk of injury. After extensive R&D, the shoe, Nike Free, was developed. Nike Free was
given an initial, strictly controlled, limited 12-month release before being promoted to consumers
worldwide.
Nike's 'swoosh' is one of the world's most identifiable logos and, in just 32 years, Nike has grown to be
the industry's largest sports and Fitness Company. Revenue for Nike in financial year 2005 was $US
13.7 billion. Nike directly employs approximately 24,300 people and Nike's suppliers, shippers,
retailers and service providers employ close to one million people on six continents.
Nike's mission is:
'To bring inspiration and innovation to every athlete in the world.'
According to Bill Bowerman, one of Nike's founders, "If you have a body, you are an athlete."
In addition, Nike's corporate responsibility mission is to help the company achieve profitable and
sustainable growth and to protect and enhance the brand and company by new ideas and innovation.
Nike believes that corporate responsibility work should not be separate from the business, but should
instead be fully integrated into it. The company's sustainable growth suggests that Nike will be around
for generations to come. The principles of sustainability also require Nike to find ways of generating
profit while minimizing any potentially negative impact on communities or nature.
Nike's mission statement is intentionally broad and outward looking, focusing on the needs of athletes,
and, through its corporate responsibility work, consideration is given to the needs of communities
around the world. Nike's focus is to continually seek to innovate, design and develop products to
improve athletic performance. Its overriding desire is to design products with true performance
innovation and technology benefits which help the athlete perform better. With its latest innovation,
Nike scientists and designers by brainstorming, have developed Nike Free, a sports shoe described as
a foot-strengthening training tool. Tagged 'natural technology', Nike Free has been designed to copy
barefoot running. By running barefoot, the foot is strengthened, gaining greater flexibility and range
of motion which leads to better performance because you are less prone to injuries.
Anticipating the needs of the consumer
Innovation is what sets Nike apart in the industry. It started in 1971 when Bill Bowerman, then a
University of Oregon track coach, poured rubber into his wife's waffle iron hoping to create a new and
better sole for running shoes for his track athletes. The result - a light waffle sole that transformed the
running world. When thinking about what consumers might need in their footwear, the next
innovation came in the form of Nike Air, a durable and lightweight cushioning system for athletic shoes.
Nike had anticipated the need for a shoe which had a cushioning system which lasted longer than
foam, reduced shock and distributed pressure.
Research and development
How does Nike develop its products and decide what does and doesn't make the cut when it comes to
innovation? The Nike Sports Research Laboratory (NSRL) is located on the Nike campus in Portland,
Oregon in the United States of America. The research and development (R&D) center’s role is to
identify the physiological needs of athletes. The NSRL works directly with Nike's design teams and has
established partnerships with major universities throughout Asia, Europe and North America.
To research and develop products, the scientists have an incredible array of measurement and analysis
tools. Their data collection includes virtually every variety of muscle sensor, pressure platform, breath
analyzer, foot scanner and thermal imaging device. There are high-speed video cameras that capture
soccer kick data at 1,000 frames per second and a scanner that produces, in just seconds, a perfect 3D
digital image of your foot.
The NSRL takes an idea, and researches and prepares a design brief. The brief is then passed over to
the company's Innovation Kitchen - an incubator for new projects.
In the first phase of developing what was to become Nike Free, the 'cooks' in the Kitchen took the NSRL
description of 'natural technology' and started asking what sort of shoe people might be looking for
next. In the process of talking to athletes and coaches, the designers spoke to Vin Lananna, then the
track coach at Stanford University, who told them about his unusual training method - having athletes
run on grass without shoes. According to Lananna, the athletes were stronger, healthier and less injury-
prone. This was a great idea but contrary to Nike's business - making and selling sports shoes.
However, the idea led to an extensive biomechanical research project to see exactly what happens
when we run barefoot. Sports shoes provide a certain amount of control or cushioning based on the
notion that they are needed to complement the natural action of the foot. Nike researchers wanted
to know why Lananna's athletes, who ran barefoot in training, raced faster.
The researchers brought in 10 men and 10 women to run barefoot on grass to see exactly how the
body reacts without shoes on. They were videotaped with high-speed cameras to capture their
movements; they had reflective markers attached to their joints to allow easy calculation of joint
angles during their stride, and wafer-thin pressure sensors attached to the bottoms of their feet to
measure their impact with the ground. At the end of the experiment, Nike had the most
comprehensive picture of the biomechanics of barefoot running ever developed.
Testing the prototypes
Before Nike Free was known to the athletic world or commercially released, Nike undertook extensive
independent testing. The company used elite athletes as well as everyday runners and a few sports
journalists, i.e. people who exercise and run regularly, to undertake product testing. In a six-month
trial, 110 every-day runners used the shoe. One group, consisting of 30 men and 27 women, wore the
Nike Free shoes for four 30-minute runs, four times a week. The control group - 30 men and 23 women
- used their regular personal training shoes. Outside the four 30-minute runs a week, both groups
continued their usual workout schedules. All participants were tested at the start of the six-month
period on their abilities in many physical areas - shuttle runs, lateral running short sprints, and leg
strength - and were tested again at the end of the six months. These tests measured qualities such as
speed, development, coordination and optimal speed.
Researchers found some slight improvement in the control group, registering a little more speed and
a little more coordination - but not enough to be statistically relevant. However, the test results from
the group wearing the Nike Free shoes showed improvement in all the parameters measured, and
improvements in speed, lateral movement, and coordination were significant - in the 10 to 20 percent
range. That is a significant improvement considering the shoes were worn only two hours a week over
a six-month period. An improvement of one percent in speed could mean a meter’s difference in a
100-metre sprint - often the difference between first and fourth place.
In simple terms, Nike Free was acting not only as a running shoe, but as a training technique! Athletes
in the test group using Nike Free were found to be stronger and more flexible. One of the researchers
put it this way: "Nike Free is a gym for your feet."
Nike's challenge:
"Nike had developed a product that measurably improved athletic performance but flew in the face
of all conventional thinking."
Ensuring correct product positioning
Nike was conscious that Nike Free needed to be positioned as an additional training shoe in your kit
bag, not necessarily as a replacement to your traditional running shoes. Unlike typical athletic shoes,
Nike Free shoes allows the foot to move, flex and grip just as it would if running barefoot. The
advertising and marketing campaigns were carefully crafted to ensure that consumers recognized Nike
Free as a training shoe which could help build additional strength and therefore the ability to train
longer - not as a replacement to its other sports shoes. This product positioning was a balancing act,
requiring careful communication and application.
Education was the key to positioning the shoe in the market. Nike Free was launched under limited
and very tight distribution in the lead up to the major advertising campaign. The shoe was distributed
initially only through running specialty stores before being broadened to general sporting goods stores.
Nike Free was also placed with key people ideas such as running coaches, podiatrists and
physiotherapists with the aim of introducing Nike Free as a new product and training concept before
taking it to the broader market.
Part of the strategy was to take this 'barefoot' shoe directly to runners. To do this, Nike used the tried
and true, labor intensive method of driving mobile vans to areas in the USA, Europe, as well as
Australia, which attracted large amounts of runners. (In the early days of the company, co-founder Phil
Knight sold shoes from a van parked at a local athletics track.) Staffed by running and footwear experts,
offering gait analyses and the chance to test Nike Free, the mobile vans took the 'barefoot' shoe
straight to consumers. This basic tactic engaged consumers on their terms and in their own territory,
letting the Nike Free story be told on an individual basis.
Reaching the consumer
Advertising is synonymous with Nike. In partnership with its advertising agency, Nike has created some
of the world's most attention-grabbing advertising. You may recall some Nike television
advertisements: the cinema epic of soccer players battling it out in the hull of a ship or Pete Sampras
and Andre Agassi playing tennis in the streets of Manhattan.
Nike does not rely solely on television, cinema and outdoor advertising. Nike understands that its
consumers seek information online and as such it targets different online audiences around the world.
The Internet has become an essential component in Nike's marketing campaign.
Nike produces a range of products which are unique to a particular sport or athletic endeavor. Nike's
marketing considers the different needs of athletes and consumers and uses its website to
communicate with these groups via in depth content, product information and athlete insights.
Staff product awareness
Having a new and innovative product is one thing, but a company must ensure staff working in sports
stores understand the product, its benefits and how it should be used. To do this, Nike created a flash-
animated multi-media learning environment. Called Nike Sports Knowledge Underground (Nike SKU),
it mirrors a subway rail system with each 'stop' representing a training activity where new shoes such
as Nike Free are displayed. Participants are taken on a three-minute course explaining design, benefits,
features and top selling points of the shoe. At the end, they take a brief quiz to ensure they know about
the product and can immediately use the information in customer dealings on the shop floor. A
technical specification sheet can be printed to help with customer queries. Appreciating that many
sales people are young, Nike's SKU is like a video game, with information packaged in short sound
bites.
Question:
Please, demonstrate and evaluate the stages involved in the product
development, from conception of an innovation product, through the research
and development stage, to brain storming, production and market risk. (Min
1200 Words, all areas are to be covered)
McDonalds_Case_Study_Ed_4.pdf
convenience of takeaway and fast foods on a regular basis. However, change is pushing the foodservice world in different directions. Advances in healthcare and preventative medicine have stressed the importance of a healthy diet. Increased access to mass communications, such as television and the Internet, has meant that consumers are becoming savvier about health issues, and are demanding better choices in convenience foods.
As the business environment changes, so too do the views of stakeholders. Stakeholders are those groups or individuals who are affected by the activities of a business. McDonald’s Australia stakeholders are diverse, and include:
• Customers – who range from the very young to the elderly
• Business partners – including franchisees and suppliers
• Employees – with more than 65,000 people employed throughout Australia
• Opinion leaders – or people who shape the ideas of the nation, including the government, the media, health professionals, and environmental groups.
Reconciling the interests of stakeholders is crucial to continued business success. Compare it to a three-legged stool. If one leg is weak or not properly aligned, the entire stool is weakened and can topple over. A strong relationship between McDonald’s Australia, its franchisees and its suppliers is essential, with all elements working together to meet customer needs. Responding to a changing business environment is easier if the basic structure is strong.
Keep in mind that change is a two-way street. Businesses are affected by the external environment – but they also help to shape and create that environment. Stakeholders are coming to expect more out of businesses in terms of corporate citizenship. Businesses need to be mindful of the effect they have on the broader community, including the health of its youngest members. McDonald’s Australia’s philosophy is to be continually responsive to market demands, and accept that there is always more to learn. Catriona Noble, the Chief Operating Offi cer of McDonald’s Australia, notes that, ‘Social responsibility challenges are always evolving and we are focused on learning from experts and adapting our operations to maximise the positive impact we can have on our society.’
3 Responding to consumer needs McDonald’s Australia’s approach has been to listen and learn. Market research is the key to ascertaining the needs of customers, and is composed of two key elements: qualitative research and quantitative research.
Qualitative research refers to a technique that uses a relatively small sample group and probing questions. It is generally used as a fi rst step, and its purpose is to defi ne any problems and identify the relevant issues. In other words, it aims to answer the ‘why’ questions, for instance, ‘Why do people use this product? Why is consumption falling?’ etc. The research is transparent, meaning that the purpose of the study and the name of the organisation that commissioned it are disclosed to the people answering the questions. Various techniques are used; including interviews and focus groups, which attempt to unearth people’s deeply held personal opinions and judgements.
Quantitative research takes things one step further, and is often based on information derived from the qualitative research. It involves a larger-scale approach and the collection of statistical data. By the use of questionnaires and opinion polls, information from a suffi ciently large sample can be used to identify and track matters such as market size, market share, and customer satisfaction. In other words, this type of research addresses the ‘how many’ questions, for instance, ‘How many people use this product? How many people are potential consumers of this product?’ and so forth.
In November 2005, McDonald’s Australia undertook a major research project called ‘Project Discovery’. The project made use of both qualitative and quantitative research techniques. The qualitative research involved two- hour, one-on-one interviews with 35 people; while the quantitative research involved telephone interviews with 2,602 people throughout the nation. The results showed some pleasing consumer perceptions, but also revealed areas
name, products, and display methods. Franchisees receive company support and benefi t from the established goodwill of the franchisor.
2 Meeting stakeholder needs in a changing business environment
The business environment is not static. It evolves with time, refl ecting changes in the broader social environment. Our lifestyles are very different to those of our grandparents and even our parents, partly because technological advances have transformed the workplace and the family home. The pace of life is increasing, and many families turn to the
1 Introduction Health and fi tness have become increasingly important issues in the twenty-fi rst century. With concerns about rising obesity levels and a greater understanding of the importance of good nutrition, consumers have been demanding healthier food options. This is perhaps most apparent in the quick service restaurant industry, which has had to undergo something of a revolution in recent years. The choice for the industry was clear: respond to changing consumer needs, or suffer the consequences.
With 761 stores in Australia and 1.2 million customers visiting these stores daily, McDonald’s Australia was in a very good position to undertake the necessary market research required to start making the appropriate changes and thus lead the revolution.
This ability to move with the times is what made the business successful to begin with. The fi rst McDonald’s restaurant opened in 1955 in the United States, and in 1971, Sydney’s western suburbs became the home of the fi rst Australian McDonald’s. A customer focus on family-friendly affordable meals ensured rapid expansion. Around two thirds of Australian McDonald’s restaurants are run by franchisees: see the diagram below. A franchise is a system of selling goods or services, in which a business that already has a successful product (the franchisor) enters into a continuing relationship with other businesses (the franchisees), permitting them to sell their products. The franchisee pays for the right to use the franchisor’s
WA
NT
SA
QLD
NSW
VIC
ACT
40 company owned restaurants 127 franchised restaurants 167 restaurants in total
0 company owned restaurants 14 franchised restaurants 14 restaurants in total
50 company owned restaurants 143 franchised restaurants 193 restaurants in total
0 company owned restaurants 5 franchised restaurants 5 restaurants in total
19 company owned restaurants 40 franchised restaurants 59 restaurants in total
11 company owned restaurants 35 franchised restaurants 46 restaurants in total
0 company owned restaurants 14 franchised restaurants 14 restaurants in total
TAS
125 company owned restaurants 138 franchised restaurants 263 restaurants in total
Addressing
changing food values
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GLOSSARY Brand The trading name of a product that has a high level of recognition in the market place. Successful development of the brand and ‘brand mark’ (identifying symbols and design) is a considerable marketing tool.
Business plan A written document detailing the overall plan for the business in terms of marketing, operations and fi nance.
Corporate citizenship The obligation or responsibility an organisation has to a specifi c group such as the local community, employees and the like and/or to a wider cause or issue such as the environment.
Customer focus An approach or attitude which emphasises and values the needs and wants of customers.
Franchise A franchise is a business relationship between a franchisor (someone who owns the business) and a franchisee (an independent person who pays a fee to use their established business name, expertise and knowledge). Goods or services are standard across a franchised business.
Goodwill An intangible asset based on the reputation and past fi nancial viability of a business.
Market research Finding out information about the characteristics of potential customers to solve marketing problems and help with marketing decisions.
Qualitative research Rigorous research with explicit sampling strategies, systematic analysis of data, and a commitment to examining counter explanations. Ideally, methods should be transparent, allowing the reader to assess the validity and the extent to which results might be applicable to their practice.
Quantitative research A market research technique that attempts to obtain measurable fi ndings from a sample of consumers. The research focuses on measuring and counting facts and the relationships among variables, and seeks to describe observations through statistical analysis of data. It includes experimental and non-experimental research (research that attempts to describe the characteristics of a sample or population).
Social responsibility Where a business undertakes activities that are seen to not just have benefi t for that business (such as adding to shareholder value) but have measurable benefi t (or limited negative outcomes) for the broader society.
Stakeholders A person or group who has an interest in how a business operates or functions. Examples include management, owners, employees, customers, shareholders, the local community and government.
Sustainable The ability of a business/producer to operate successfully over a long period of time. This ability is dependent on the businesses not exhausting the resources (people, natural, physical) used to conduct their operations.
that needed attention, particularly in the area of health. The following graph summarises the results obtained.
To supplement this major research project, McDonald’s Australia conducts regular tracking studies every quarter that measure the customers’ point of view. Customers are asked questions regarding food image, brand image, quality, service, cleanliness and value.
By keeping the questions consistent, changes in customer attitudes can be measured and tracked over time. In addition, the customer service line provides much needed feedback. Its purpose is to answer questions from the public by telephone, and to receive complaints and comments. In 2005, the customer service department received 37,733 contacts from the public: a valuable source of information.
The end result of all this research is that consumers told McDonald’s Australia what they wanted. They wanted more choice, with healthier and lighter food options. They wanted increased visibility in food labelling and more information about what they were eating: how much fat, how much sugar, and how much salt.
4 Creating the changes In order to create the changes, it was fi rst necessary to identify exactly what those changes should be. In 2002, Guy Russo, who was then McDonald’s CEO, started attending obesity summits and participating in obesity forums. He met with key organisations, including the Obesity Taskforce. In the following year, McDonald’s Australia formed a relationship with The Food Group Australia, a group of accredited dieticians, who provide McDonald’s Australia with ongoing advice on nutrition.
Once expert advice was obtained, it was then a matter of translating these lessons and the research fi ndings into concrete menu changes. McDonald’s
Australia took a two-fold approach – improving existing products, and creating new ones. Existing products were improved by methods that include:
• Switching to a canola and sunfl ower oil blend, which is low in saturated fat and trans fatty acids
• Reducing the amount of sugar in buns to fi ve per cent, which is similar to the amount of sugar found in bread rolls in the supermarket
• Reducing the amount of salt
• Creating smaller serve sizes for muffi ns.
New products include:
• The Salad Plus range, with items containing less than 10 grams of fat
• The Deli Choices range, again with items containing less than 10 grams of fat
• The option of multi-grain rolls in the Deli Choice range
• The Pasta Zoo Happy Meal, which contains pasta shapes with no artifi cial colours or fl avours, ‘zoo goo’ or a tomato dipping sauce, and a serve of fat- reduced milk with a fl avouring straw
• New Happy Meal Choices, which include fruit bags, apple juice and water.
McDonald’s Australia was the fi rst quick service restaurant chain to earn the Heart Foundation tick for some of its meals. This makes it easier for customers to select the healthier meal options. Making healthier choices has also been made easier by extensive nutritional labelling, both in-store and on the company website. New packaging includes percentage daily intake information, so customers can see how their food choices relate to their overall daily requirements.
Despite the changes, the new menu options are still in keeping with McDonald’s Australia’s brand. Importantly, the packaging, presentation and service are all recognisably McDonald’s, a brand that already enjoys widespread recognition and success.
5 Communicating with the consumer Making the changes is crucial, but it is equally important to communicate these to the consumer. McDonald’s Australia developed an advertising campaign that had the key goal of communicating their new healthier food options, countering misconceptions within the community.
McDonald’s Australia has made use of various advertising media: print, billboards, radio, television and the Internet. Each media type targets its audience carefully. For instance, different groups of people listen to the radio at different times of the day. Advertising during the morning rush hour is aimed
at people who listen to the radio as they drive to work. It is no surprise that the focus of these commercials is breakfast menus and McCafe coffee. During the day, the radio is more likely to be listened to by the elderly and young stay-at- home parents, whose priorities will differ. Mothers are typically concerned with healthier food options for their children, including the new Happy Meal Choices.
McDonald’s Australia has a reputation as a responsible advertiser, and supports the strict advertising codes that exist for the quick service food industry. It has reduced advertising during children’s television programs by sixty per cent in recent years.
The McDonald’s Australia websites are designed to be appealing to teenagers. They are both interactive and informative, and make use of latest design and technology. The ‘make up your own mind’ website at www.makeupyourownmind.com.au invites the customer into the virtual store, to see what goes on inside McDonald’s Australia to make up their own mind. By having the capacity to include signifi cant amounts of information, the websites are a key part of McDonald’s Australia’s commitment to transparency in their advertising and operations. As well as advertising products, the websites fulfi l another purpose: staff recruitment. Both the ‘make up your own mind’ site and the parent site www.mcdonalds.com.au contain career information – McDonald’s recruitment is not limited and can include parents wanting to re- enter the workforce or students working their way through school or university.
6 Conclusion The quick service restaurant industry, led by McDonald’s Australia, has come a long way towards addressing changing food values. But the story does not end there. McDonald’s Australia is also making signifi cant changes in other areas of its operations: customer service, quality and speed, and its physical impact on the environment. McDonald’s Australia is committed to the use of sustainable business practices, and this will be one of the key areas of focus in the days ahead.
CEO Peter Bush summarised McDonald’s Australia’s attitude when he said, ‘While I am proud of the changes that we have made I believe we still have more to do, which is all part of this exciting journey we are on’.
McDonald’s, Deli Choices and Happy Meal are registered trademarks of McDonald’s Corporation and its Affi liates.
Questions and Extension Activities for McDonald’s are on www.afrbiz.com.au
You will also fi nd links to the McDonald’s website
What are consumers thinking?
Of the people surveyed...
68%
79%
78%
39%
72%
25%
31%
48%
thought McDonald’s was a good trainer of staff
said McDonald’s provides speedy service
said McDonald’s was now improving their food quality
said McDonald’s buys only Australian products
knew McDonald’s supports local charities
said McDonald’s only uses good quality ingredients
thought McDonald’s has a bad reputation
said McDonald’s is excellent value for money
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