New Product Development of Segway


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New Product Development of Segway

  1. 1. Introduction <br />New product development is said to be the lifeblood of a company. This is especially true today than ever before in history. Today's economic environment doesn't lend itself well to trying to sell more of the same (Hill, 2009). Companies that hope to exist must now evolve new products at an increasing rate to enhance their competitive posture or even to survive. There are no sacred niches that can be harvested for long periods of time (Annachino, 2003: xvii). Consumers demand innovation even more in the toughest of time. New product innovation or development thus has the potential to mitigate economic downturns and position manufacturers for the upswing with increased market share and an innovative product line. It also gives distributors a viable, cost-saving product to pass on to end-users (Hill, 2009). As a result, this study aims to investigate the new product development process to understand how new products are created in a methodological manner to help companies improve its performance in the current business environment. <br />An interesting and controversial case is chosen for this study, namely the Segway case. Through dissecting the new product development process of Segway, problems are identified and recommendations on how management can get involved in the production process are also provided. This study is immensely useful because of the phenomenal nature of how the idea of Segway came about and how it was created. From analyzing Segway, many lessons can be learnt and applied to new product development in future. <br />Problem <br />The failure of Segway, as a new product, to live up to its expectations in terms of sales in units and revenue, profit level, and public perception and acceptance after its launch presents the main problem for this study. The solutions are believed to stem from improvements and recommendations that can be made from the new product development process of Segway, which will be subsequently analysed. Throughout the study, secondary data is mostly utilized. Hence this poses a limitation to the objectivity and timeliness of the study due to the fact that most information sources are written by non-Segway personnel and ranging from 2001 to date. <br />Theory <br />The importance of new product development (NPD) has grown dramatically over the last few decades, and is now the dominant driver of competition in many industries. In industries such as automobiles, biotechnology, consumer and industrial electronics, computer software and pharmaceuticals, companies often depend on products introduced within the last five years for more than 50 percent of their annual sales. However, new product failure rates are still very high. Many R&D projects never result in a commercial product, and between 33 and 60% of all new products that reach the market place fail to generate an economic return (Blagoevski-Trazof, 2007: 195). <br />In order to recoup investment in NPD and make an economic return in an environment characterized by rapid product obsolescence and market fragmentation, a company’s new product must meet the following two basic objectives: 1) minimize time-to-market and 2) maximize the fit between customer requirements and product characteristics (Blagoevski-Trazof, 2007: 197).<br />Minimizing time-to-market is necessary for several reasons. A company that is slow to market with a particular product or technology is unlikely to fully amortize the costs of development before that product or technology generation becomes obsolete. Companies with compressed NPD cycle time are more likely to be the first to introduce products that embody new technologies. As such, they are better positioned to capture the advantages of a leader of a market segment. These companies can build brand loyalty, attract clients in a number of stages of new product acceptance way before the competitors, use scarce assets, and create switching costs that tie consumers to the company. In many industries, issues of dominant design are paramount. When a new technology is being introduced in the market competing products and technologies are often based on different standards. Different companies will promote different technological standards, and the company that establishes its particular design as the dominant standard can expect enormous financial rewards, while those that fail may be locked out (Blagoevski-Trazof, 2007: 198).<br />For a new product to achieve significant and rapid market penetration, it must match such customer requirements as new features, superior quality and attractive pricing. Despite the obvious importance of this imperative, numerous studies have documented the lack of fit between new product attributes and customer requirements. This is the major cause of declines in a new product sales and adoption (Blagoevski-Trazof, 2007: 198). <br />According to Crawford and Benedetto (2009: 24), the new product development process consists of five stages:<br />Phase 1: Opportunity identification and selection<br />This phase entails generating new products opportunities as spinouts of the ongoing business operation, new products suggestions, changes in marketing plan, resource changes, and new needs/wants in the market place. Research, evaluation, validation and ranking of these opportunities are needed. Major ones should be given a preliminary strategic statement to guide further work on them. <br />Phase 2: Concept generation<br />A high potential or urgent opportunity is selected and customer involvement begins. Available new product concepts that fit the opportunity are collected and new ones are generated as well. <br />Phase 3: Concept evaluation<br />New products concepts are evaluated on technical, marketing and financial criteria. The best two or three are chosen from ranking. <br />Phase 4: Development<br />In terms of technical tasks, the full development process and its deliverables are specified including designing prototypes, testing and validating prototypes, scaling up production and market testing. In terms of marketing tasks, preparation for strategy, tactics, launch details for marketing plan, business plan and product augmentation are needed. <br />Phase 5: Launch <br />Commercialization of the development is executed by beginning distribution and sale of the new product. The launch programme must also be managed to achieve the goals and objectives set in the product innovation charter (PIC).<br />Typically, R&D and marketing departments provide input into the opportunity identification and concept generation stages; R&D takes the lead in concept design, and manufacturing takes the lead in development. According to critics, one problem with such system emerges at the concept design stage, when R&D engineers fail to communicate directly with manufacturing engineers. As a result, development proceeds without manufacturing requirements in mind. A sequential process has no early warning system to indicate that planned features are not manufacturable (Blagoevski-Trazof, 2007: 201).To rectify this problem and compress NPD time, a company should use a partly parallel process. The development, for example, should start long before concept evaluation is finalized, thereby establishing closer coordination between these different stages and minimizing the chances that R&D will design products difficult or costly to manufacture. This should shorten the NPD cycle time (Blagoevski-Trazof, 2007: 202) to save cost and ensure the products are created as intended. <br />Presentation of the firm<br />Segway Inc., a US-based international company, is named after its flagship product, the Segway Personal Transporter (PT), the first self-balancing transportation device in the world. The company was founded by Dean Kamen in 1999 with the vision to develop highly-efficient, zero-emission transportation solutions using “dynamic stabilization” technology. Segway went on sale for the first time to the public on in 2002. As of 2007, Segway had a worldwide distribution presence in 60 countries, including South Africa. As of 2008, over 1,000 police and security agencies are using Segway PT’s in their patrolling operations worldwide (Segway 1, 2009). <br />Current revenue figures for Segway is unavailable, however, in 2003, the company’s revenue was about US $25 million and the sales volume was 6,000 units, falling short of the 50,000 to 100,000 expected unit sales from management (Amstrong, 2006). In September 2006, the company had to recall 23,500 units sold to date due to a software flaw that could cause the scooters’ wheels to instantly reverse direction and potentially injure riders (CIO, 2006). More recently, according to CEO Jim Norrod, sales have risen to an all-time high in 2008 due to the rising fuel cost prompting corporate consumers such as universities, police force, security companies, and large retailers to switch from cars and scooters to Segway to save on fuel. Mr. Norrod said he expected sales of the second quarter of 2008 to jump 50% from a year earlier, versus a 25% year-over-year increase in the first quarter (The Wall Street Journal, 2008). <br />Empirical study<br />Opportunity identification and Selection<br />The concept of Segway as a human transporter came to Dean Kamen when he saw a special opportunity to create a new discovery to replace the car and solve the problem of congestion, air pollution and dependency on fuel in urban living. " Cars are great for going long distances," Kamen said, " but it makes no sense at all for people in cities to use a 4,000-lb. piece of metal to haul their 150-lb. bodies around town." In the future he envisions, cars will be banished from urban centers to make room for millions of " empowered pedestrians" (Heilemann, 2001: 1). That led him and his company to focus on creating devices that took up a minimal amount of space, were extremely maneuverable and could operate on pedestrian sidewalks and pathways (Segway 1, 2009).<br />One of the resources that was considered was the IBOT wheelchair, a six-wheel machine that goes up and down curbs, cruises effortlessly through sand or gravel, and even climbs stairs to help improve mobility for the disabled. More amazing still, the IBOT features something called standing mode, in which it rises up on its wheels and lifts its occupant to eye level while maintaining balance with such stability that it can't be knocked over even by a violent shove. While working on this invention, it dawned on Kamen that it was possible to put a human being into the same system where the machine acts as an extension of your body. Exactly how the Segway achieves this effect isn't easy to explain, but Kamen offers one: " When you walk, you're really in what's called a controlled fall. You off-balance yourself, putting one foot in front of the other and falling onto them over and over again. In the same way, when you use a Segway, there's a gyroscope that acts like your inner ear, a computer that acts like your brain, motors that act like your muscles, wheels that act like your feet. Suddenly, you feel like you have on a pair of magic sneakers, and instead of falling forward, you go sailing across the room." (Heilemann, 2001: 2)<br />Concept Generation<br />To generate the concept for Segway, the company must identify the consumer problems and try to solve them. <br />The first problem is of Segway not being taken seriously by consumers who regard this invention as simply a high-end toy, a jet ski on wheels for the riches with money to splurge on. Thus the team decides to concentrate at first on major corporations, universities and government agencies--large, solid, established institutions--rather than dive straight into the consumer marketplace (Heilemann, 2001: 3). <br />The second problem is that consumers need a vehicle that does not take up space like a car to in order to reduce congestion. Thus Segway has to be designed to occupy minimal space, slightly larger than a person, to solve this problem. Also, Segway needs to be small enough to get around crowded warehouses where tight corridors make it difficult to use bulkier vehicles or crowed pedestrian areas such as airports or amusement parks where larger vehicles are not allowed in. Additionally, consumers want to minimize the hassle in parking large vehicles such as cars in crowed public places, hence Segway must be light weight and small so that consumers can carry with them inside the destination (Harris, 2008: 3). <br />The third problem is that consumers being environmentally conscious want a vehicle that does not consume fuel like the bicycle. Also, by not consuming gasoline, consumers can save on additional expenses caused by the rising fuel costs. Thus Segway must be designed not to run on fuel, but rather on electricity (Harris, 2008: 3). <br />The last problem is that of safety whereby traffic regulators question the level of safety of this new vehicle in terms of its accident probability, driver protection measures, and chances of vehicle breakdown and collision. Thus Segway must be equipped with three computerized keys that set speed and performance limits to ensure safety on pedestrian pavements (Heilemann, 2001: 4). <br />Concept Evaluation <br />In order to evaluate the concept, a scoring model for full screen of the Segway concept must be created. <br />Category Factor ScaleScoreWeight (1-5)Weighted scoreTechnical accomplishment Technical task difficulty 1: difficult 5: easy4416Research skills required1: none5: perfect fit5315Development skills required1: none5: perfect fit428Technical equipment/processes1: none5: have them5315Rate of technological change1: high5: stable5210Designing superiority assurance1: none5: high5210Security of design 1: none5: have patent5210Technical services required 1: none5: have it all236Manufacturing equipment/processes1: none5: have them 3515Vendor cooperation 1: none5: have them236Likelihood of competitive cost1: above competition5: 20% less122Likelihood of quality product1: below current levels 5: leadership5525Likelihood speed of to market1: 2 years or more5: under 6 months155Team people available 1: none5: have them339Dollar investments required1: over 20 million5: under 1 million122Legal issues 1: major5: minor 236Total160Commercial accomplishment Market volatility1: high5: stable248Probable market share1: low5: high5420Probable product life1: short5: long428Sales force requirements1: no experience5: very familiar144Promotion requirements1: no experience5: very familiar248Target customer1: strangers5: close236Distributors1: no relationship5: current/strong4416Retailers 1: no relationship5: current/strong248Importance of task to user1: trivial 5: critical5315Degree of unmet need1: none5: totally5420Likelihood of filling need1: low5: high5315Competition to be faced1: tough5: weak4312Environmental effects1: negative5: positive5315Global applications1: none5: fits global5315Probable profit1: low5: high248Total 178<br />From the full screen, it is understood that the Segway concept should be developed because of its high scores in potential technical accomplishment and commercial accomplishment. <br />The sales forecast method done by Segway is unavailable; however, according to the founder Dean Kamen, before selling a single Segway, he predicted that his company would sell 10,000 units per week, or 50,000 units a year (Rivlin, 2003). <br />Development <br />An important part of concept development is design. Segway’s design centers mostly on technology as the company claims that it develops systems, not individual components (Segway 2, 2009). The technology is all designed for ease of manufacture, differentiation, meeting customer needs, and the environment. The different design functions that Segway has include:<br />Dynamic stabilization<br />That's fancy speak for the technology that enables balancing. It's proprietary and full of benefits such as incredible maneuverability (true zero turning radius), a small footprint and providing a fantastically unique riding experience (Segway 2, 2009).<br />Electric propulsion<br />Besides being clean and extremely efficient, electric propulsion enables fine adjustments to be made to each wheel (for turning and smoothing out the ride), and a precise, software-based approach to traction control and braking (Segway 2, 2009).<br />Smart battery management <br />Segway is one of the world's largest customers of large format batteries, and was at the forefront of the development of Lithium Ion batteries for transportation. Advanced sensing is applied to allow for more efficient energy use that leads to a longer battery life. Also, Segway adds in regenerative braking capability (being able to recharge while decelerating) through smart battery technology (Segway 2, 2009).<br />Intuitive user interfaces<br />Segway's approach to user control is that of minimalism and a natural connection between man and machine. The innovative sensing technologies allow for more than traditional controls that haven't changed dramatically since the introduction of the automatic transmission (Segway 2, 2009).<br />Digital dashboard<br />Speed, battery life, and other connectivity information are all conveyed over a secure wireless connection to a handheld device that can be mounted on the dash (Segway 2, 2009).<br />Launch <br />In 2000, for almost a full year before it was revealed to the public, Segway was one of the most eagerly anticipated pieces of new technology in history. Shrouded in secrecy, known only by the codenames 'Ginger' or 'IT', the device was the subject of unprecedented speculation about what it might be, or do (Telegraph, 2008). Statements from business and technical luminaries who were among the privileged few to have actually seen Ginger fuelled wildly imaginative conjecture about a technological miracle from the pages of science fiction. It was a hydrogen-powered hovercraft; a magnetic anti-gravity device; a time-travel machine; a mind-reading robot (Telegraph, 2008). Thus when Segway was revealed to the US, it was an anti-climax. Coupled with the high price, Segway never got a chance with consumers afterwards. <br />'I think that the hype it got was going to doom it... nothing in the world could ever meet the expectations that people had for it.” said Dean Kamen in defending the subsequent under performance of Segway (Telegraph, 2008). <br />Kamen later described the information leak about Segway as 'the single worst thing that has ever happened to me in business'. Marketing studies conducted for Segway before the launch estimated that the device would sell 31 million units during its first 10 to 15 years; six years later, just 23,500 machines had been sold worldwide (Telegraph, 2008).<br />Hence it can be concluded that Segway had made a mistake in adopting a miscalculated pre-launch marketing strategy. It did not control the hype built by external parties and did not have any contingency plan after the launch to change public perceptions. Also, product failures causing the recall of units sold (CIO, 2006) did not speak well for Segway’s image even after its launch. The solution of an upgrade campaign whereby customers can bring their Segways to dealers to get their software updated was useful but insufficient to reverse public opinions (Saturley, 2006). <br />The channel of distribution that Segway chose for its launch proved to be a failure too because by distributing through, the consumers do not get a full experience of riding a Segway. Moreover, the high cost of shipping forced Segway to rethink its points of sale to dealership rather than Internet retail (Saturley, 2006). <br />Analysis <br />From the empirical study, it can be seen that Segway succeeded in many of its new product development phases. Analysis of each phase is provided as follows. <br />Phase 1: Opportunity identification and selection<br />Segway’s founder, Dean Kamen, has been sharp in managing to spin out an opportunity for a human transporter using the ongoing business operation that he was working on. The vision he had for a new vehicle that is capable of improving the urban lifestyle by reducing congestion, pollution and dependence on fuel also helped him to strengthen this opportunity and increase its credibility in selling the idea. Thus this phase has been achieved successfully. <br />Phase 2: Concept generation<br />In terms of identifying potential problems consumers might face and solving them, Segway only succeed in the problem of making the vehicle small and fuel independent. It is still found wanting in the price aspect, as Segway is still too expensive for an alternative to a car. Also, the safety aspect is significantly lacking because of the many software glitches causing the recall and its inability to convince authorities of its safety measures. Thus Segway has performed poorly in this phase. <br />Phase 3: Concept evaluation<br />In this phase, the full screen has been useful in analyzing the potential of Segway in the marketplace. However, when it comes to the sales forecast, it is proven to be too high. It is not possible to conclude which forecasting method had been used. However, the company should have been much more thorough and modest in forecasting the demand for Segway by using appropriate forecasting methods as this is a brand new product type that had never been introduced before. This phase is therefore poorly executed. <br />Phase 4: Development <br />With regards to the technical tasks, Segway has been extremely impressive in its designing process. Its technologies serve the objectives of the vehicle well and in an advanced manner. Thus this phase has been a success. <br />Phase 5: Launch<br />Segway did not manage its launch properly, reflected by the poorly controlled pre-launch hype in the media leading to subsequent anti-climax among the public, the wrong choice of distribution channel to sell the product, and its insufficient advertising during its critical first few years. This phase has brought Segway from the most anticipated idea a few years back to the laughing stock of the technology community. <br />Conclusion<br />From the analysis, a few recommendations are provided on how the company management can get more involved in the new product development process of Segway. <br />In terms of concept generation, Segway should have identified more customer problems and seriously thought about how to address them. The problems of pricing should have been solved by offering better financing options to purchase the vehicle such as leasing and installments. Also, better safety measure and testing should have been mandated by the management team to ensure the product was ready for the market to avoid recall and public embarrassment. More market research and consumer research would certainly help the management team to understand the concept more and how to succeed. <br />With regards to concept evaluation, better forecasting methods should have been used to realistically predicting the potential sales of Segway in its initial years. The management team was perhaps over optimistic about the potential sales because of the great hype built in the media before the launch. However, many other factors must be considered in order to have an accurate forecast such as consumer perception, willingness to buy, level of disposable income available, legal restrictions, etc. Thus better market research should have been executed to ensure the forecast was not far off from reality and also to reduce waste from over production. <br />Lastly, in terms of launch, the management needed to be much more involved through various channels. The secrecy about the invention should not have been kept for such a long time because the media would blow it out of proportion and shape the public expectation to an almost insurmountable level. Instead partial preview of the new Segway should have been offered to the public in several stages to control the excitement and also to educate the public on what Segway was all about. Much more aggressive marketing in terms of advertising and promotions should have been enforced by the management team to prepare for the launch. Also, the choice of distribution channel should have been better chosen through market research, i.e. asking consumers where they would want to see and buy Segway, how they perceive Segway as a vehicle, etc. Overall, the management team should have more diverse in expertise and professional background, including sales, operations, marketing, finance, etc., not just engineering and technology. This surely would have helped in managing the launch of Segway better. <br />In conclusion, this study has achieved its objective of investigating the new product development process of Segway and drawing lessons for the management team on how to improve on its shortfalls. Throughout the study, many secondary data sources were used as the main source of information. This poses a limitation for the credibility of the study, as no primary data source from the company itself was available. However, interesting and useful insights have been obtained from the research to help the management team improve the performance of Segway moving forward. Specifically given the recent economic downturn, consumers will be much more cautious in transportation choices as their amount of disposable income decreases. Hence Segway needs to position itself much more aggressively as a cost saving, environmentally friendly and convenient alternative to cars and bicycles in order to attract new customers. More importantly, better financing options for aspiring consumers must be provided and the number of points of sale must increase in order to reach the consumers better to push sales and profits. <br />References <br />Amstrong, D. (2006) Segway: A bright idea but business model wobbles. Available at,_Wobbly_Idea_WSJ_2-12-04.htm (Accessed on 10 October 2009)<br />Annacchino, M.A. (2003) New Product Development: from initial idea to product management. Elsevier: USA. <br />Blagoevski-Trazof, A. (2007) Managing New Product Development Process. Available at (Accessed on 10 October 2009)<br />CIO. (2006) Segway recalls all 23,500 scooters sold to date. Available at (Accessed on 10 October 2009)<br />Crawford, M. and Benedetto, A.D. (2009) New Products Management. 9th edition. New York: McGraw-Hill. <br />Harris, T. (2008) How Segways work. Available at (Accessed on 10 October 2009)<br />Heilemann, J. (2001) Reinventing the wheel. Available at,8599,186660,00.html (Accessed on 10 October 2009)<br />Hill, J. (2009) Slow economy? Innovate with new products. Available at (Accessed on 10 October 2009)<br />Rivlin, G. (2003) Segway’s breakdown. Available at (Accessed on 10 October 2009)<br />Saturley, M. (2006) Can Segway fulfill its promise? Available at (Accessed on 10 October 2009)<br />Segway 1. (2009) Company Milestones. Available at (Accessed on 10 October 2009) <br />Segway 2. (2009) Segway Technology and Advanced Development. Available at (Accessed on 10 October 2009)<br />Telegraph. (2008) Dean Kamen: part man, part machine. Available at (Accessed on 10 October 2009) <br />The Wall Street Journal. (2008). Segway slides as gasoline jumps. Available at (Accessed on 10 October 2009) <br />TABLE OF CONTENTS<br /> TOC o " 1-2" u Introduction PAGEREF _Toc243109335 h 1<br />Problem PAGEREF _Toc243109336 h 1<br />Theory PAGEREF _Toc243109337 h 2<br />Presentation of the firm PAGEREF _Toc243109338 h 4<br />Empirical study PAGEREF _Toc243109339 h 5<br />Opportunity identification and Selection PAGEREF _Toc243109340 h 5<br />Concept Generation PAGEREF _Toc243109341 h 5<br />Concept Evaluation PAGEREF _Toc243109342 h 6<br />Development PAGEREF _Toc243109343 h 8<br />Launch PAGEREF _Toc243109344 h 9<br />Analysis PAGEREF _Toc243109345 h 10<br />Conclusion PAGEREF _Toc243109346 h 12<br />References PAGEREF _Toc243109347 h 14<br /> <br />