m4a2_om

Please see attachments. Due Friday, 7/20.

Designing Value-Based Service

As the rate of innovation increases, companies face expanding product/service lines, shorter product and service lifecycles, and more frequent product/service transitions. All of these can bring tremendous value but also pose enormous challenges and risks.

The article “The Art of Managing New Product Transitions” by Erhun, Gonclave, and Hopman from the readings for this module includes a matrix titled “Product Factors and Risk Drivers” which focuses on Intel, a company that manufactures high-tech products. Based on your readings and research, address the following issues:

· Redesign the product risk factor matrix so that the factors are appropriate for a services firm that delivers traditional tax accounting and audit services. For example, among the supply risks, assume that the company relies on individuals with specific knowledge of the tax law in the jurisdictions where its clients operate, be it state, federal, or foreign.

· Now, assume that the firm wants to develop a management consultancy practice. (Alternatively, you may choose to add a legal services line instead.). Create a separate new matrix that summarizes the additional risk factors for this firm launching a management consultancy or legal services line. What additional risk factors are you adding to your matrix?

· Explain how the business risks differ between traditional tax and audit services and management consulting services. In your opinion, what are the three biggest risks the firm faces if it diversifies into the new service line?

· Recommend whether the firm should organically grow into a consultancy service or acquire a third party to achieve new goals. Justify your recommendations.

Develop a 10-slide presentation in PowerPoint format. Apply APA standards to citation of sources.

Reference Citation:

Erhun, F., Gonçalves, P., & Hopman, J. (2007). The art of managing new product transitions. MIT Sloan Management Review, 48(3), 73-73. Retrieved from http://search.proquest.com/docview/224964759?accountid=34899

The Art of Managing
New Product Transition

s

S P R I N G 2 0 0 7 V O L . 4 8 N O .

3

R E P R I N T N U M B E R 4 8 3 1

1

Feryal Erhun, Paulo Conçalves and

Jay Hopman

Please note that gray areas reflect artwork that has
been intentionally removed. The substantive content of
the article appears as originally published.

Faster time to market and shorter product life cycles are pushing compa-nies into more frequent product transitions, requiring managers to
confront the potential rewards and challenges associated with product intro-

ductions and phaseouts. Several studies show that most new products fail in

the marketplace for a variety of reasons,1 and both academics and practitio-

ners have identified strategies for improving the chances of success.2 With a

few exceptions, these studies focus on the success of a single product.3

However, companies often struggle with product transitions even when

the new product meets all the requirements for success. Consider, for

example, two consecutive generations of high-volume micropro-

cessors that we observed at Intel Corp., the U.S. semiconductor

manufacturer. For the sake of this discussion, we will refer to the

products as X and Y. (See “About the Research,” p. 74.)

Intel originally designed X as a transitional product to pave the

way for a stronger performance trajectory than was occurring with

the previous platform. While X itself performed only slightly better

than the previous generation at launch, its design allowed for perfor-

mance gains later based on a wide array of computing benchmarks.

Intel planned to move a substantial portion of the market to X and

then complete the transition to Y, which offered similar performance

at lower cost.

Unfortunately, the transition to X did not go smoothly. With capac-

ity in place to support a moderately strong ramp up, early production led to

excess inventory. X’s failure to meet customers’ needs and inability to usurp

sales from its predecessor resulted in continued demand and short supply for

the prior product. Consequently, competitors succeeded at increasing unit

sales of their products.

Intel quickly realized that there were problems with X’s components and

pricing strategy. Management seized upon several measures to improve sales,

including rebates, but X continued to languish. As the introduction of Y ap-

proached, the company started an ambitious marketing campaign and price

cut to spur sales and regain market share. These actions led to record demand

for Y, exceeding all expectations. With limited production capacity, Intel

SPRING 2007 MIT SLOAN MANAGEMENT REVIEW 73

P R O D U C T D E V E L O P M E N T

The Art of Managing
New Product Transitions

Feryal Erhun is an assistant professor of management science and engineering at
Stanford University, in Palo Alto, California. Paulo Gonçalves is an assistant professor of
management science at the University of Miami, in Coral Gables, Florida. Jay Hopman is
a strategic analyst and researcher at Intel Corp., in Folsom, California. Comment on this
article or contact the authors through smrfeedback@mit.edu.

New product launches

are highly complex

and can pose major

challenges to companies.

But managing the

interplay between

product generations

can greatly increase

the chances for success.

Feryal Erhun,

Paulo Gonçalves and

Jay Hopman

P R O D U C T D E V E L O P M E N T

struggled to meet demand for some products within the Y family.

Finally, after several months, Intel succeeded in balancing demand

and supply, eventually regaining the market share it had lost.

Coordinating supply and demand between two product gen-

erations can be a difficult and costly problem. Although Intel’s Y

met all the requirements for a successful product introduction,

marketing and pricing decisions enacted in response to limited

market acceptance of X significantly shaped the outcome of the

Y launch. Intel’s operations management team did its best to

satisfy customers through the transition. However, customers

were frustrated by supply shortages, and the transition had sub-

stantial costs: lost revenues from discounting Y, marketing

campaign expenses, significant investments in capital equipment

and expedited shipping.

If the success of a single product is highly uncertain and can

pose a major challenge to companies, the interplay between gen-

erations of products greatly increases the level of complexity. For

example, when General Motors Corp. redesigned its Cadillac Se-

ville and Eldorado models in 1992, supply and demand problems

followed. Based on its initial forecasts, GM had allocated half of

the capacity of its Detroit-Hamtramck plant to the redesigned

Cadillacs, with the remainder going to Buicks and Oldsmobiles.

But demand quickly exceeded supply, leading to the loss of thou-

sands of potential customers. By the time GM was able to produce

enough of the most popular models, the damage had already

been done.4 Cisco Systems Inc. had a similar experience in early

1998 with the launch of product 3S-0, which was designed to ap-

peal to the lower end of the market. Unfortunately, because of its

impressive performance-price ratio, it cannibalized sales from

higher-end products. As a result,

sales of higher-end products suf-

fered, but the new product

revenue did not compensate for

the lost sales.

5

Companies must learn to man-

age transitions to sustain their

competitive advantage. Our field

studies at Intel show that while

numerous factors affect the rate

and success of product transitions,

inadequate information sharing

and coordination among groups

is one of the more important chal-

lenges to successful transitions.6

Lack of information can prevent

managers from adequately assess-

ing the state of the transition and

impair the effective design and

implementation of contingency

planning in the face of unexpected

changes. For instance, during Intel’s product X-Y transition, the

marketing team did not thoroughly investigate the production ca-

pacity upside to support the new marketing plan for product Y,

leading to supply shortages.

The alignment of actions and decisions across different inter-

nal groups and across organizations helps level expectations and

synchronize responses across the various teams involved in the

transition, thereby improving the company’s ability to anticipate

and react to environmental changes. The ability to adapt to

change while meeting market objectives is a critical aspect of

managing product transitions. To promote alignment across

groups and the development of prevention and mitigation strate-

gies, we have developed a framework and a process for helping

managers make decisions during product transitions.

Using our framework, managers can design and implement

appropriate policies to ramp up sales for new products and ramp

down sales for existing products, balancing the supply and the

demand for both so that combined sales can grow smoothly. (See

“Smooth and Troubled Product Transitions.”)

Although the approach does not eliminate the uncertainty of

product transitions, it provides managers with an overall under-

standing of the risks and challenges and suggests possible courses

of action. Early experience suggests that the process can lead to

more robust, efficient and effective product transitions. 7

Managing Product Transitions
The process of managing product transitions begins by identify-

ing specific market objectives. Once these have been selected,

companies need to understand the product drivers and risks and

74 MIT SLOAN MANAGEMENT REVIEW SPRING 2007

Our research is based on a three-year study between 2001 and 2004 at Intel Corp. on the

risks and drivers affecting product transitions. We conducted about 40 semi-structured inter-

views with managers in supply chain management, demand forecasting, sales, marketing

and product development. After studying multiple historical and current product transitions

at Intel, we learned that smooth transitions are difficult to achieve. The complexity of de-

mand and supply dynamics causes tremendous uncertainty before a product launch that is

not fully resolved until several quarters after it. We observed that functional teams across the

organization had access to specific information (for example, about macroeconomic condi-

tions in Asia or the availability of a particular part) that had significant bearing on the relative

demand and supply of old and new products. However, the lack of a formal mechanism to ag-

gregate and utilize such diverse information frequently caused misalignment. We saw the

need for a new process to overcome this obstacle. The process we designed begins with de-

fining a specific market objective. Subsequent steps involve identifying and measuring a set

of factors across departments for each product (old and new) to assess product drivers and

risks; exploring possible risks arising from interactions between products using the transition

grid; and developing a transition playbook, including prevention and contingency strategies

with which to manage and mitigate transition risks.

About the Research

SLOANREVIEW.MIT.EDU/SMR

conduct a factor assessment, which involves monitoring and

measuring the factors affecting both old and new products. The

process also necessitates a detailed analysis of the risks arising

from interactions between products and the development of a

transition playbook, which amounts to a catalog of primary and

contingency strategies for preventing and mitigating transition

risks. As market conditions change, managers need to be pre-

pared to initiate the process again.

Identifying Product Drivers and Risks Our research on multiple
generations of products at Intel suggests numerous factors

that affect the adoption rate and success of a new product.

The factors fall into two general categories of risks and drivers:

demand and supply. Although either a demand risk or a supply

risk can lead to a complete product failure, successful product

introductions depend on a balance between demand and sup-

ply. Demand risks reflect the market’s uncertainty about a new

product (for example, concerns about product attributes and

transition policies). Supply risks often stem from the challenges

of utilizing new manufacturing processes or product designs,

or the difficulties of producing and distributing the product.

Across demand and supply risks, we focused on a set of factors

that influence the success of product transitions. (See “Product

Drivers and Risk Factors,” p. 76.)

The eight factors cover most of the risks affecting the adop-

tion rate of a new product. They encompass product features

(product capability); process features (internal execution); supply

chain features (external alignment and execution); managerial

policies (pricing, timing and marketing); and externalities (envi-

ronmental indicators and competition).

Although organizations may have access to de-

tailed information about the product drivers and

the risk factors affecting them, individual func-

tional groups rarely have a complete picture of the

overall forces impacting a product introduction.

Our process provides a method for developing a

cross-organizational transition assessment. This

structured and repeatable process benchmarks the

prospects and sales forecasts of new products

against the experience of current and prior genera-

tions of products.

Assessing Relevant Factors Effective planning de-
pends on collaboration and shared insight across

the organization. If the best information is distrib-

uted among many different groups, the most one

can expect is disjointed decisions. During the fac-

tor assessment phase, managers conduct a complete

evaluation of the risks impacting a product, high-

lighting the different challenges. This provides

managers with an opportunity to make decisions based on spe-

cific information.

To assess the actual values of specific factors, it is necessary to

interview key players in functional groups involved in managing

the new product (including marketing, sales, planning and fore-

casting). Each group scores all eight factors from their particular

vantage point, using a five-point scale (with one very favorable

and five very unfavorable). The scores can be compared with

baselines from past products. Since different functional groups

typically have privileged understanding and information about

specific areas, each group scores every factor and documents the

reasons motivating their scores. Sharing the comments and con-

solidating the information provides everyone with an

understanding of how each group assesses the overall risks for a

given product. After meeting with all groups, a cross-functional

product management team can develop a composite score for

each factor, providing a simple metric for the state of a product.

(See “Mapping Intel’s Transition from X to Y,” p. 78.)

Since managerial and environmental changes continually im-

pact product sales, updating factor assessments allows managers

to identify risky areas and evaluate the results of previously im-

plemented strategies. In our experience, however, updating

information too frequently can be a distraction since it often

takes time for strategies to kick in. Frequent updates may also

induce managers to take premature or unnecessary actions. The

frequency of updates should depend on the industry in question

and the life expectancy of the products. For example, in high

tech, the appropriate interval between updates might be monthly,

whereas in other industries it might be no more than every quar-

ter or any time a significant change occurs in one of the factors

SPRING 2007 MIT SLOAN MANAGEMENT REVIEW 75

New product transitions should be organized to allow companies to

increase sales over time without disrupting sales or profitability. When

transitions are rocky, total revenues decline.

Smooth and Troubled Product Transitions

SLOANREVIEW.MIT.EDU/SMR

Time (years)

Sales
(units/month)

71 2 3 4 5 6

Old
Product

New
Product

New
Generation

Total Sales

P R O D U C T D E V E L O P M E N T

76 MIT SLOAN MANAGEMENT REVIEW SPRING 2007

(such as competitors launching a marketing campaign or lower-

ing their prices). Managers should balance the availability of new

information and the amount of time required for decisions to

have a measurable impact.

Looking Across Product Generations To understand the risks of a
transition from one product to another, it is important to evalu-

ate the interplay between products. A simple method for doing

this is to study the interactions between demand and supply risks

for the products. Using the composite factor analysis, managers

can assess an overall demand risk and an overall supply risk for

each product by assigning weights to each factor that composes

demand and supply, and then creating a weighted average. For

example, by comparing the overall demand risk of a given prod-

uct to a threshold value, managers can rate the risk above that

level as high and below it as low. As a result, the demand and sup-

ply risks for either the old or the new product can be either high

or low. For any product transition, there are 16 possible combina-

tions of risks, which can be represented in something we call a

transition grid. (See “A Sample Transition Grid: Demand and

Supply Risks of Two Products.”)

Generally, comparative rankings of demand and supply risks

indicate that risks for the new product have a stronger impact on

profitability than risks for the old product and that companies

have less ability to manage demand risks than supply risks.

Therefore, demand risks and new product risks tend to have

higher risk scores than supply risks and old product risks, re-

spectively. Based on comments from the functional groups,

transition team members can use these comparisons to gain in-

sight into key questions, including: Are we producing the right

products? Can we meet customer demand? And do customers

want the products we supply?

Positioning a particular product transition within the grid

enables transition teams to look beyond a single product and

evaluate the potential impact that products may have on each

other. Even when only one of the products is prone to supply or

demand risks, managers should consider potential demand can-

nibalization and spillover effects on the other product as well as

the potential for supply imbalances.

Developing a Transition Playbook Companies often resort to contin-
gency strategies to rescue a product after it is launched. However,

their ability to rescue a product using contingency strategies is

limited.8 Factor analysis and the transition grid provide strategic

and tactical assessment tools for anticipating potential challenges

in launching new products. However, they do nothing to generate

Eight factors significantly contribute to demand and supply risk during product transitions.

Risks Factors Definition (Example)

D
e

m
a

n
d

R
is

k
s

Environmental Indicators Demand due to macroeconomic and business forces/cycles

(overall business climate)

Competition Overall threat posed by competitive products

(market share, manufacturing capacity)

Product/Platform Pricing Product/platform price relative to alternative products

(bill-of-material cost, expected price changes)

Timing Timing relative to past, present and future alternative products

(time since last introduction, time until next introduction)

Marketing Indicators/Policies Positioning and measures of market response

(market size, number of potential product applications, budget size, breadth

and timing of advertising, promotions)

S
u

p
p

ly
R

is
k

s

Product Capability Product capability relative to alternative products

(performance, quality, longevity, reliability, compatibility with previous

generations, complementarity with other products)

External Alignment and Execution Acceptance and drive from supply chain partners

(partners’ ability to manufacture products using state-of-the-art technology

and standards, acceptance of the new product within the product platform)

Internal Execution Ability to supply the product in volume

(execution of internal design, designing products for manufacturability,

manufacturing (or testing) capacity and flexibility, distribution)

Product Drivers and Risk Factors

SLOANREVIEW.MIT.EDU/SMR

specific strategies or fallback alternatives when the original plans

don’t materialize. By assessing the state of a transition early on,

companies can gain an overall understanding of the risks impact-

ing the transition and factors requiring immediate attention,

allowing them to adopt prevention strategies.

Rather than having to react to problems in the heat of battle,

companies can use prevention strategies to help identify the le-

vers that may have the most direct impact on the outcomes they

are trying to achieve. Some levers can impact several high-risk

factors at once, but only in a longer time frame. As such, these

holistic levers target the product road maps rather than the im-

mediate transition. Others affect specific factors that hinder

supply or demand during the transition at hand. Managers con-

sidering prevention strategies need to consider cost as well as ease

of implementation, recognizing which levers are available and

which ones they control. For example, companies can have strong

influence over pricing, the timing of product introductions,

product capability and internal execution but only indirect con-

SPRING 2007 MIT SLOAN MANAGEMENT REVIEW 77

Rank

Old Product New Product

Comment
Risk

Category

Demand
Risk

Supply
Risk

Demand
Risk
Supply
Risk

1 Low Low Low Low Most desirable transition. 1

2 High Low Low Low Customers do not want old product
(indifferent to line below).

1

3 Low High Low Low Limited availability of old product
indifferent to line above).

1

4 High High Low Low Customers do not want old product;
challenging to supply it.

2

5 Low Low Low High Challenging to supply new product. 2

6 Low Low High Low Customers do not want new product. 3

7 Low Low High High Customers do not want new product;
challenging to supply it.

3

8 High Low Low High Challenging to supply new product;
customers do not want old.

4

9 Low High Low High Challenging to supply either product. 4

10 High Low High Low Customers do not want either product. 5

11 Low High High Low Customers do not want new product;
challenging to supply old.

5

12 High High Low High Customers want new product; challeng-
ing to supply it.

5

13 Low High High High Customers want old product; challenging
to supply old and new.

5

14 High High High Low Can only supply new product, but cus-
tomers do not want it.

5

15 High Low High High Can only supply old product, but cus-
tomers do not want it.

5

16 High High High High Customers do not want either product;
challenging to supply them.

5

A Sample Transition Grid: Demand and Supply Risks of Two Products

The table below provides a snapshot assessment of a typical transition. When both products have high demand or supply risks,

the product interactions may further intensify the risks. For example, demand risk is high for both generations of products in

rows 10, 14, 15 and 16, suggesting that managers need to monitor inventories closely.

SLOANREVIEW.MIT.EDU/SMR

78 MIT SLOAN MANAGEMENT REVIEW SPRING 2007

P R O D U C T D E V E L O P M E N T

trol over what their competitors do. Managers need to be mindful

that prevention strategies can have unintended consequences;

once they signal a new strategy, competitors might follow suit.

Weighing these kinds of considerations in advance allows

managers to address potential weaknesses before they become

crippling. Although a well-designed strategy often takes several

factors into account, companies are frequently most vulnerable

to factors they have the least control over and rely too heavily on

the factors they can control most easily. For instance, a company

might have several different ways to mitigate the risk of a supply

problem caused by development or production issues. One op-

tion may be to increase prices, thereby reducing the likelihood

In transitioning from product X to product Y, Intel’s primary market objective was to recover market share lost by X. The transition

was built on four main factors. On the demand side, the product/platform pricing risk fell from high (for X) to medium (for Y) based

on lower component costs and price cuts that accompanied the launch of Y. The risk linked to marketing indicators also improved,

from medium to low, since the price-performance ratio made Y an attractive mainstream product. In addition, external alignment

improved from medium to low as customers, many of whom had resisted X, looked forward to using Y. On the supply side, risk asso-

ciated with internal execution rose (from low to medium) for two main reasons: Capacity for producing Y was limited, and the

higher-speed products in the Y family reduced factory output. (Since Y was larger than X, it required more factory runs to produce

the same number of units.) Overall, the factor assessment process highlighted the differences between the two products: There was

high demand risk for X, whereas for Y there was little demand risk but some new supply risk.

Based on this analysis, it should not have been surprising that Y would cannibalize sales of X. In fact, that is what happened: Intel

faced shortages of Y and excess inventory of X. An effective strategy for Intel would have been to set a higher price for Y rather than of-

fering it at a discount. As contingencies, Intel could have lowered the price of X in hopes of promoting sales and allocated more

manufacturing capacity to Y. Such actions would have rebalanced demand between the two products both in the short term and in the

long term. Although price discounting and a marketing campaign potentially might have helped X, using them on Y led to shortages.

Intel recouped its lost market share in the quarters following the launch of Y, so the transition achieved some success. However,

the lack of supply strained customer relationships, and by pushing factories to the limit and operating with insufficient inventory,

Intel’s operating costs rose during that period.

Factor Product X Score Product Y Score

Environmental
Indicators

Demand and economy relatively slow;

no imminent improvement on horizon

3 Demand and economy relatively slow;

no imminent improvement on horizon
3

Competition Competing products are better aligned
to mainstream market

3 Competitors’ sales strong relative

to historical levels but limited by

manufacturing capacity

2.75

Product/
Platform Pricing

Platform cost significantly higher than

prior generation

4 Reduction in overall platform cost and

marketing decision to cut prices

2.5

Timing Released less than one year after prior
generation; Y known to be only a few

quarters away

3.5 Release closely follows X; Y will not be

replaced in the near term

3

Marketing
Indicators

Positioned toward higher end of market

with higher price and performance

2.75 Price reduction brings product back to

mainstream market segments

1.5

Product
Capability

Faster clock speed than prior generation,

but benchmarks show only modest

performance gains in many applications

3.5 Potential clock speed is high, but overall

speed gains are impaired by localized

bottlenecks

2.5

External
Alignment and
Execution

Strong resistance to adopting some new

technologies in the platform; higher

materials cost; platform architecture

will change with Y

3.5 New architecture and accompanying plat-

form materials cost reduction bring record

number of design wins; price cuts enable

greater performance at lower price points

2

Internal
Execution/Risk

Supply positioned for moderately paced

ramp up

1 Decreased supply capability due to less

efficient production and lower yields

associated with road map acceleration

2

Mapping Intel’s Transition From X to Y

SLOANREVIEW.MIT.EDU/SMR

SPRING 2007 MIT SLOAN MANAGEMENT REVIEW 79

that the products customers order

are out of stock. This approach

could shift demand to the future,

but it may prompt customers to

buy competing products. In con-

sidering their options, companies

need to evaluate the costs. Rather

than increase prices, the company

may be better off outsourcing ca-

pacity to other producers. But that

is not always feasible in light of

concerns about proprietary infor-

mation and lead times. To preserve

the option of using outsourcing as

a contingency strategy when the

need arises, companies may need a

corresponding prevention strategy

to line up alternative resources

ahead of time.
Once companies complete their

transition risk assessments, man-

agers can create playbooks

containing relevant transition sce-

narios, prevention strategies and

contingency strategies. A good

playbook identifies events or sce-

narios that lead to major risks,

assesses the impact these events

may have on new and current

products and lays out prevention

and contingency strategies for the

transition team. (See “A Sample

Transition Playbook.”)

Even well-planned and well-executed product transitions

often require strategy updates. By mapping out prevention strat-

egies, risks and contingency strategies in advance, a transition

playbook can minimize risks. It allows managers to monitor key

supply and demand risk indicators, so they can make strategy

revisions and invoke contingency strategies as needed.

Although companies place enormous emphasis on new prod-

uct introductions, products with many successful attributes still

experience difficulty when they interact in unexpected ways with

current products. Transition mapping provides a structured ap-

proach to collecting information and coordinating actions across

the organization. It pulls together the key differences in perspec-

tives from different functional groups, saving companies from

some of the second-guessing and manipulation that often occurs

when important information is revealed later. While our process

was developed at Intel and has been used successfully in transi-

tions there, it can be applied broadly to different settings. The

implementation details will change depending on the industry,

the company and the product, but the overall methodology will

stay essentially the same.

EVALUATING PRODUCT INTERACTIONS is central to the success of

product transitions. By anticipating risks, companies can seek

ways to align their products. Playbooks can help managers de-

velop robust prevention and contingency strategies to deal with

the supply and demand risks identified by the transition grid.

They can help managers see potential shifts in the business envi-

ronment before they occur, allowing managers to make timely

adjustments that are particularly critical for products with short

life cycles and long production delays.

REFERENCES

1. See, for example, G.S. Lynn and R.R. Reilly, “Blockbusters: The Five
Keys to Developing Great New Products” (New York: HarperBusiness,
2002); E.E. Bobrow and D.W. Shafer, “Pioneering New Products: A

A transition playbook identifies relevant scenarios and maps their impact on old products

(OP) and new products (NP) to outline possible prevention and contingency strategies.

Scenarios should be developed in response to risks identified in the factor assessment

and the transition grid.

Events/
Scenarios

Demand for
NP higher than
expected

Supply problems
for NP

Demand for
NP lower than
expected

Impact on OP • Demand
cannibalization

• Demand spillover • Demand spillover

Expected
Outcome

• Supply shortage
for NP

• Excess supply for
OP

• Excess demand and
hence possible supply
shortage for OP

• Supply shortage for NP

• Supply shortage
for OP

• Excess supply for NP

Prevention
Strategies

• Supply portfolio

• Product pricing

• Internal execution

• Product design

• Internal execution
(process yield)

• Product pricing

• Product
characteristics

• External alignment
and execution

Contingency
Strategies

• Gradually phase
out OP

• Outsource OP

• Decrease OP price

• Increase NP price

• Allocate more
capacity to NP

• Gradually phase out OP

• Outsource OP or NP

• Decrease OP price

• Increase NP price

• Allocate more capacity
to NP

• Gradually phase
out OP

• Increase OP price

• Increase production
of OP

• Accelerate road map

• Decrease NP price
(rebates/promos)

• Heavy marketing
of NP

• Work on external
alignment and
execution

A Sample Transition Playbook

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80 MIT SLOAN MANAGEMENT REVIEW SPRING 2007

P R O D U C T D E V E L O P M E N T

Market Survival Guide” (New York: Irwin, 1987); and R.M. McMath and T.
Forbes, “What Were They Thinking?” (New York: Crown Business, 1998).

2. See R.G. Cooper, “How New Product Strategies Impact On Perfor-
mance,” Journal of Product Innovation Management 1, no. 1 (January
1984): 5-18.

3. See N.P. Trepanning, “Understanding Fire Fighting in New Product
Development,” Journal of Product Innovation Management 18, no. 5
(September 2001): 285-300. See also C. Billington, H.L. Lee and C.S.
Tang, “Successful Strategies For Product Rollovers,” Sloan Manage-
ment Review 39, no. 3 (spring 1998): 23-30.

4. M.L Fisher, J.H. Hammond, W.H. Obermeyer and A. Raman, “Making
Supply Meet Demand in an Uncertain World,” Harvard Business Review
72, no. 3 (May-June 1994): 83-93.

5. The Cisco Systems transition example is based on a 2001 white
paper, “Strategizing for Success: Cisco Systems Overcomes a Product
Transition Dilemma,” ZDNet UK, London, February 20, 2001, http://
whitepapers.zdnet.co.uk/0,39025945,60045032p-39000468q,00.htm.

6. Billington, Lee and Tang corroborate this finding and present a high-
level process for managing new product transitions. They recommend
dual-product rollovers (that is, introducing the new product before the
end of life of the old one) for transitions with high demand and supply
risks and solo-product rolls (the new product introduction concurring
with the old product’s end of life) for low demand and supply risk envi-
ronments. Oftentimes, however, the industry dictates the choice of solo
versus dual roll. Dual-product roll is standard in the high-tech industry
where product platforms are common, even for products with low de-
mand and supply risks. Further, the process proposed by Billington, Lee
and Tang does not provide much insight into tactical and operational de-
cisions regarding pricing, capability, marketing budgets or product
deployment, all of which can have a substantial impact in the success of
a transition.

7. We tested the transition mapping process, particularly the factor analy-
sis process, using a large-scale product transition at Intel. For this
transition, Intel’s central business planning group felt that sales of the
new product would come in fairly strong. Defining x as the realistic
“whisper” estimate among forecasters, a figure of roughly 1.2x was cir-
culated to drive supply. Meanwhile, estimates aggregated from the
geographical sales organizations suggested lower sales, ranging over
time from 0.65x to 0.9x. Based on the results of the factor analysis and
historical sales in the same product family, the transition mapping team
predicted that sales were unlikely to exceed 0.93x and would likely be
lower. The drivers for this recommendation included solid evidence that
component cost would reduce demand early in the transition and that
the complexity of the new platform posed significant supply risk. Sales
forecasts were revised downward from 1.2x prior to the launch to about
0.9x six weeks after launch and then dropped even lower. By the begin-
ning of the second quarter after launch, the forecast, informed by the
transition mapping process, was trimmed to 0.79x for the first two quar-
ters’ total sales. This helped avoid overbuilding supply for the new
product while maintaining sufficient stocks of the old product. The pro-
cess also supported decisions, such as increasing the marketing
budget, that helped drive product sales early in the life cycle.

8. For example, refer to H.L. Lee and C. Billington, “Managing Supply
Chain Inventory: Pitfalls and Opportunities,” Sloan Management Review
33, no. 3 (spring 1992): 65-73; or G.A. Zsidisin, A. Panelli and R. Upton,
“Purchasing Organization Involvement in Risk Assessments, Contin-
gency Plans, and Risk Management: An Exploratory Study,” Supply
Chain Management 5, no. 4 (2000): 187-198.

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