Individual Assignment

PRODUCT DEVELOPMENT MANAGEMENT

Lecturer: Ir. Evo S. Hariandja, MM

Class of R-41A
29109106 Dian Gita Utami

CASE :

Reading Materials:
1. Putting The Service-Profit Chain to Work
2. R&D Comes to Services:
Bank of America’s Pathbreaking Experiment
3. Zero Defections: Quality comes to Services

MASTER OF BUSINESS ADMINISTRATION

INSTITUT TEKNOLOGI BANDUNG
2010
 [M B A I T B] [ Global Project Management ]

CASE :

“Bank of America”

1. How would you characterize Bank of America’s new system for new developing
services? Focus on its process, organization, management, and culture.

Answer

Bank of America new system, for the new developing service is Incremental
Innovations  Service Improvements

The I&D Market’s Product and Service Innovation Process

It’s a work in progress – it is in itself an experiment. Refinements have been made

every stage of its development. Some of its elements have proved successful;
some haven’t. But through its successes and its failures, the effort has revealed an
enormous amount about what a true R&D operation might look like inside a
291.09.106 | Dian Gita Utami
 [M B A I T B] [ Global Project Management ]

service business. They are not trying to achieve big leaps in terms of innovation.
They are committed to improving innovation and willing to learn from mistakes.

The organization, Management & Culture:

It lacked any formal infrastructure for developing new ideas. Until relatively
recently, Bank of America had never made innovation a priority. However,
recognizing several years ago that it needed to improve its innovation
performance, the bank decided to create a new corporate unit called the
innovation and development (I&D) team.

The management is divided by customer, geography, and product. They very much
interested in innovation which is evident from its approval of 50% more resources
to the I&D Market. The management wants to focus on improving existing service
and introduce new service all geared towards increasing customer satisfaction
index and attracting new customers.

Each employee has the freedom, authority, and responsibility to do the right thing
for clients, customers, communities — and each other. They take collective
responsibility for the quality of client and customer experiences. The culture built
driven by cost reduction, and consolidation. Have a passion for achieving results
and winning — for the clients and customers, for the teammates and communities
and for shareholders. Decisive leaders at every level, communicating vision and
taking action to help build a better future.

2. Compare Bank of America’s approach to other product development systems.

What are the differences? What are the similarities? Does it matter if it is a
product or service that is being developed?

Answer

The difference is that only Bank of America that did the innovation in all area while
the others innovate only in specific area, like The Fifth/Third Bank in Ohio only
innovated on the cost side, while Washington Mutual (WAMU) innovated on the
service side.

The innovation in service and products industries differs because of the

contrasting general characteristics of the two offerings. Typically service
innovations require much less capital investment, due to the labor intensive
nature of services. Service innovations usually require less R&D, require less in

291.09.106 | Dian Gita Utami

 [M B A I T B] [ Global Project Management ]

fixed assets, and need less investment on patents and licenses for the
development of new services.

Some of the competing firms tend to duplicate services offered by their

competitors. But products are hard to duplicate as it involves patents and licenses.
However, it is not as easy as it may appear to imitate a competitor’s service
innovation. Though capital investment may be low, organizational aspects play a
larger role in the success of service innovation.

Also it does not matter if it is a product or a service which is being developed, as

long as the process of innovation from conceptualization of ideas, planning, design
and implementation is followed.

3. What is the role of experimentation? How can companies maximize their

learning from experimentation?

Answer

Experimentation is important to the growth of all organizations. It helps the

discovery and creation of knowledge and leads to the development and
improvement of products, processes, and business models. Central to
experimentation is the use of models, prototypes, controlled environments, and
computer simulations that allow innovators to reflect on, improvise with, and
evaluate the many ideas that are generated.

Companies can maximize their learning from experimentation (Stefan Thomke):

- Anticipate and exploit early information through "front loaded" innovation

processes. Early experimentation allows companies to explore multiple ideas,
which ultimately results in better products and services.

- Experiment frequently, but don't overload the organization. Although

companies can save money by lumping experiments into one large test,
experimenting more frequently minimizes problem-solving delays and the cost
of redesign. Given that new technologies drastically reduce the cost of testing,
the need for frequent experimentation becomes more vital. But companies
must be prepared to handle the increasing load of information that comes
with greater experimentation.

- Integrate new and traditional technologies to unlock performance. New

technologies like computer simulation are impressive, but they may not
achieve more than 70% or 80% of their traditional counterparts' performance.
Thus companies can more effectively enhance overall performance and enjoy
291.09.106 | Dian Gita Utami
 [M B A I T B] [ Global Project Management ]

the benefits of faster and cheaper experimentation by jointly implementing

new and traditional technologies.

- Organize for rapid experimentation. Integral to innovation and learning is the

ability to experiment quickly. Rapid experimentation resulted in new insights
that vastly improved the products.

- Fail early and often, but avoid mistakes. Novel ideas are bound to fail, which is
why early failures are necessary to eliminate unfavorable options quickly and
enhance learning. Experiments that result in failure are not failed experiments.

- Manage projects as experiments. Projects are powerful mechanisms for

managing change, knowledge creation, and the introduction of new
technologies.

Corporations like Bank of America, BMW, and IDEO have used factors such as
fidelity, cost, iteration time, capacity, strategy, signal-to-noise ratio, and type of
experiment to maximize learning from projects. These companies have achieved a
balance in managing the following dual objectives: (1) finishing projects on time
and within budget and (2) using projects as experiments for learning.

4. Decision point: Should Butler and Brady accept ten additional bank branches
into its experimentation portfolio? Why or why not? Please be prepared to
discuss your specific plans on how they should respond to senior management’s
offer.

Answer

The decision consideration:

Butler and Brady, are faced with the decision regarding whether or not to accept
ten additional bank branches into the groups experimentation portfolio. The ten
additional branches would be located in many far-reaching locations across the
country which could have both positive and negative effects on the innovation and
development department.

Positive effects:

As the amount of floor space available to conduct experiments is a major

limitation on the group’s ability to process their ideas, this would be a major
positive contributing factor of the additional branches, and would allow them
to work through their substantial experiment backlog (over 50) much sooner.

291.09.106 | Dian Gita Utami

 [M B A I T B] [ Global Project Management ]

In addition to this benefit, the effects of different geographic locations could be

studied in conjunction with the experiments themselves. Some members on
the team had expressed concern regarding whether geographic location had
any affect with regard to the success of any particular experiment, and the use
of experimental branches in different areas of the country could prove this case
one way or another. It would be essential for the team to discern this due to
the fact that the entire purpose of the experiments are to develop products
that will increase customer satisfaction across all of Bank of Americas branches,
not just those in Atlanta.

Negative effects:

There are negative effects of having to utilize the extra ten branches. Given the
limited budget and resources, doubts exist with whether or not it would be
feasible in terms of budget and labor required in order to actually develop the
branches to the standards required for them to be included in the program. An
extensive amount of training would need to take place with the staff at these
branches, as well as the implications of having to manage and measure
experiments in branches across the country. When the team had initially added
five more branches in Atlanta alone, they experienced significant strain on their
resources and time.

The decision:

Butler and Brady should accept the ten additional banks branches into its
experimentation portfolio, on the condition that their budget is expanded by the
amount required in order to utilize these branches effectively and make them
suitable for inclusion in the development process. This would allow them to
reduce their experiment backlog and would encourage faster implementation of
their successful developments across the entire bank. This could allow for faster
repayment of the company’s investment in the I&D Team.

291.09.106 | Dian Gita Utami