Mission Impossible

The question needs to be asked, what is the mission of an IT manager? The short history of information systems management shows a slow change of emphasis over time. In the time of Yor (i.e. the beginning), Information Systems were adopted in order to transform transaction processing. Information Systems design showed a low degree of uncertainty and the userbase for which they were initially designed, were at the operational level of the organization.

This was then followed by the addition of the “Management Information Systems” that were grafted onto the existing transaction processing systems. These systems were largely un-integrated monolithic systems, and based on file management concepts. In time, there where various executive support facilities included as the focus changed from a single file to a database orientation, and from un-integrated to more and more integrated systems.

With the impact of Information systems being felt higher and wider in the organization, the opportunity to have an impact on organizational performance has grown greatly. The ambiguity in systems specification ballooned as the focus has changed from process-driven transaction processing to supporting decision making at all levels of the organization. Whether the level of the senior management position in Information systems has changed to reflect this importance, varies from organization to organization.

It is undoubtedly true that organizations must now be sufficiently informed about technology and the opportunities that Information Systems bring in order to keep pace with the changing business environment. This must mean that Information systems managers should be found at all levels of the organization, up to and including the most senior executive positions. It must also mean that non-technical executives need to develop some familiarity with the threats and opportunities of the developing technological environment.

The roles of an IT Manger can vary from company to company. In some companies the IT Manager is responsible for strategic direction and planning, while at other companies the IT Manager may fulfill a purely technical leadership role. Be sure you fully understand this role at your company or during the interview when changing jobs. Also, be aware that as companies grow and change, the roles of the managers will grow and change with it.
The large variation in responsibilities and the constant change in IT organizations and responsibilities can be a great thing for someone’s career. This allows them to start out in a role more suited to your abilities and grow into larger ones. It also means that as the company grows, so must they. Information Technology and Systems is a career that requires continued learning and adaptability. New technologies, systems, and processes are created almost weekly. The bad news is that the role of an IT Manager with all of these key skills and the ever changing landscape is quite often a thankless job. If everything is working the way it was planned and architected, no one knows they exist. However, when it breaks, everyone knows the IT managers name. Keep in mind that to many people an IT Manager can mean many different things. Each department within the organization will have a slightly different perspective of what they believe ITM’s job is and its focus to be.
These barricades are regularly faced by an IT manager in its profession. There are regular neglects on part of the vendors. Sometimes vendors promise to deliver more than they can, for the desire of more earnings. There are regular fluctuations in the market demand. Errors are integral part of any process. There needs to be quality assurance at every step of the process. Sometimes there are internal conflicts which are harmful for the company’s reputation. Also, regular training of the employees to keep them update with the latest trends in technology is necessary. IT Managers should give careful thought to the fact that problems need to be encountered. Anticipating and planning for them can help avoid project delays and budget overruns

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Technology Enabling Strategy

The question needs to be asked, how does technology impact on strategy? Technology strategy is now a fundamental part of an organisation’s success so much so it can be considered that it is a basic function of business, along with the importance of finance strategy and human resource strategy. In my opinion  technology, unlike finance strategy and human resource strategy, can quickly become the enabler of an organizations competitive or strategic advantage.

  • help organisations design and deliver products and services cheaper, faster, more efficiently or more reliably, or help create superior products and services (eg, new production technologies)
  • help organisations identify and manage their costs more effectively in order to maintain cost leadership (eg, new management technologies)
  • facilitate more accessible, effective, efficient and valuable relationships with customers/clients and suppliers (eg, e-business tools)
  • actually become the products and services that the organisation provides to its customers – allowing the customers to work better and improve their quality of life (eg, electronic commerce interface software)
  • harness, capture and help organisations manage the capabilities and power of their productive assets like knowledge, processes, systems and information (eg, knowledge management systems)
  • provide and analyse information with higher levels of speed and accuracy, allowing managers to make better informed decisions;
  • information can be captured and analysed on all the strategically important environments using communications and information technology (eg, more powerful databases)
  • be used to eliminate barriers within organisations and achieve scale and scope efficiencies, even across disparate business units or divisions and geographically spread operations (eg, intranet facilities)

We can conclude from this that, except for scientific research institutions and technology producers, the technology itself isn’t the goal or mission of most organisations. This is an important distinction, in the same way that developing human resources and finances aren’t typically the goals of most organisations. But, all three (technology, people and money) are vital means to help almost every organisation to achieve its goals.  Having the best possible human resources capabilities or competencies, and the best possible financial capabilities or competencies, and the best possible technological capabilities or competencies offer strategic managers and their organisation the tools to achieve strategic or competitive advantage.

These strategic or competitive advantages enable or empower the strategic manager to more quickly and effectively achieve the organisation’s strategic vision, outcomes and goals. Consequently, technology has become one of the foundation strategies that organisational strategists must understand.

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Why invest in Information Technology and Systems

Managing the deployment of Information Technology and Systems (ITS) is a challenging and taxing task. On the one side, the media discuss the positive impact that ITS can have on an organizations operations, and on the other side, there is no real tangible evidence that investment in ITS is associated with a measurable improvement in the financial performance of the organization.

In the mid 1980s, research showed (#1) that the use of ITS can add to an organizations competitive advantage because of its effects on the organizational operational environment and practices. Also this research showed that organizations which did invest performed better. Nevertheless, Later research in the early 1990s (#2) found that although there was a relationship between organizational performance and the amount of investment in ITS for business processes, however this was not true for strategic investment. Both of these pieces of research where written over 15 years ago and most medium to large organizations have become a lot more mature in their approach to investing in ITS.

My experience is that in some circumstances systems for business processes can provide a strategic impact on the cost of doing business, and on the products and services with which the organization is involved. We are still facing some difficulties in coming to terms with specifying strategic systems. The lack of a demonstrated association between ITS investment and organizational performance has been called the ‘productivity paradox’. The reasons for a lack of empirical evidence include:

  • Lack of an adequate model for the timing of any benefits flowing from investment in ITS, benefits would undoubtedly lag investment, but how long those lags are remains moot.
  • Investment might possibly give rise to improved performance in some projects but these benefits are squandered on unsuccessful systems the possibility that no benefits are actually realized.
  • Problems with the research, such as difficulty of measuring improved performance and linking ITS to financial performance.

The rule of thumb is that roughly eighty per cent of ITS projects fail for one reason or another. That fact alone makes it difficult to see how investment in ITS can be justified. This provides a constant cause of friction between IT managers and financial controllers.  It gets even worse, the productivity paradox is accentuated by a corresponding paradox.  If the investment in ITS is at best an uncertain pursuit and at worst completely ineffective, why do experienced and successful managers continue to invest in ITS? You would ask either these managers must be mad or there are apparent benefits to be gained from investing in ITS that are not being identified by the empirical research. In my opinion, it is a mix of both.

Due to some research in 2000 (#3) three views concerning the productivity paradox are put forward. The first is that simply investment in ITS is such a small part of the overall investment in an organization that the effect of this investment is difficult to perceive.  The second theme is that the research suffered from mis-measurement problems and that when this was taken into account, the literature did reveal a significant relationship between investment in ITS and organizational output.  Finally, that the view is that the paradox is a result of mismanagement.  In this analysis, the researches did not address the effect of the organizations competitors’ actions. Therefore, any attempt to identify the outcome of investment in ITS will always be threatened by an inability to hold other influences static. They were able to demonstrate that there was a positive correlation between investment in ITS and organizational performance for those organizations that are recognized for good management of their IS. This provides a rational base for the importance with which managers view ITS, and a pressing justification for studying and improving ITS Management.

In conclusion, a key business value of IT is to improve process integration and flexibility, reducing defects, compressing process-cycle-times, reducing costs and buffers at interfaces, decreasing operational exceptions that climb through the management hierarchy, and freeing up management time for decision making. If a organization  develops a superior strategic capability for identifying the key processes where cost and value drivers lie, and deploy the right IT system to those processes, it will improve efficiency and effectiveness. This does not mean any IT investment aimed to improved process integration will create economic value. Sound IT management directs such investment to those initiatives with a positive business case. A good starting point is to create a process architecture for the business, and identify critical processes, those with the greatest sensitivity to financial and strategic goals. These are the leverage points for investments, where small improvements in process integration create greater value for fundamental stakeholders.


#1 Porter ME & Millar VE, 1985, ‘How information gives you competitive advantage’, Harvard Business Review, vol. 63, no. 4, pp. 149-160.

#2 Weill P, 1992, ‘The relationship between investment in information technology and firm performance: A study of the valve manufacturing sector’, Information Systems Research, vol. 3, no. 4, pp. 307-333.

#3 Stratopoulos T & Dehning B, 2000, ‘Does successful investment in information technology solve the productivity paradox?’, Information & Management, no. 38, pp. 103-117


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The Role of an IT Manager

I’ve been in my role as a senior manager responsible for Information Technology for 3 years now, and I sometimes start to wonder how it all comes to get.  The role of a senior manager responsible for Information Technology-related matters has changed over the last fifty years or so. If you look at In the 1960s and 70s, mainframes were the major Information Technology technology, and the role of the senior Information Technology person was to ensure that these systems delivered support to the organization in the form of automated manual systems.

As micro processes became commonplace, the role of the senior Information Technology person changed to incorporate a facilitation  role, ensuring that various pieces of equipment could operate together by developing and managing an Information Technology architecture in an overall plan of how the technology was configured for the organization.

When the Internet and especially the World Wide Web started empowering business organizations, the role of the IT manager changed yet again. The role became one to of providing opportunities to the business to expand. Mostly in a strategic advisory role that meant more visibility for Information Technology.

It is now very common for the senior Information Technology manager to be a member of the executive management team. As a senior manager, the role has many responsibilities. However, from the perspective of planning, the following general aspects of the CIO/ senior Information Technology manager role can be identified:

1. Managing the organization’s Information Technology – in an organization of any size or type, there will be considerable investment in both people and equipment, and many new initiatives will require project-based teams to be staffed and managed.

2. The protection and management of the organization’s intellectual property –  Securing it from both external and internal threats. As well as providing systems that allows the staff to easily manage their knowledge capital, for example document management systems

3. Providing a vision for the future – as part of the executive management team, the CIO has the responsibility to keep colleagues informed of the potential offered by Information Technology developments.

4. Financial management of the Information Technology investment. The amount of organization funds committed to Information Technology can be considerable, and this needs careful management.

Until recently, the prime qualification for a CIO was a technical one, and certainly technical knowledge is important to the position. However, it is evident that a knowledge of overall business functions is equally important, and CIO’s are now required to have a broader view of the organization than one solely based in technology.  In the end I still I find it hard to tell the CEO when he calls me to fix his desktop issues that I’ve got more important things to do. In the end you still need to give the impression that all the technology is under control.

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Aligning IT with the business

I just got back from a presentation by a local IT services provider today. They where trying to beat the drum of IT infrastructure (all ways get my blood up). For me the key word that connects IT and the business is alignment! When I say this I mean that its about ensuring that the IT infrastructure and services are supporting the business by providing value (being a profit-maker or a force multiplier) rather than being a drain on resources (just being an overhead).

Achieving alignment is not easy, especially for organizations that have a large investment in legacy systems like mine. These systems have often been developed to support the business, eg, by automating procedures to improve efficiency. On the other hand, IT systems are now being developed so as to enable business initiatives. The process of alignment is about having IT systems that can respond to business needs.

IT infrastructure needs to support innovative projects.

This point is about investment: in research and development (related to IT). While being high risk (it may not pay dividends), if successful, it could give the business a distinct advantage in the marketplace. This again implies a sound understanding and acceptance of the potential that IT has to contribute to the organization’s overall strategy. IT is a tool, but by its nature it is a tool that can be used in many different ways, some of which are still (probably) yet to be discovered. Successful organizations grab advantages wherever they can.

Business and IT managers are working together more effectively.

This observation implies that there is a growing understanding of interdependence between those using the benefits of IT and those charged with providing it. In the early days of IT, new system development was often a case of ‘define the project and wait for the results some time in the future’. A common outcome of this approach was increasing lead time to delivery, often of a system that was no longer what was needed by the business. A move to collaborative development methodologies, where new systems are considered the joint responsibility of both users and developers has resulted in more effective (value-adding) systems.

Just being involved in strategy development doesn’t necessarily make a CIO valuable.

Although it has taken some time for many organizations to include IT executives on their strategic planning committees, some organizations have yet to understand the strategic potential of technology, seeing IT as only a tool, rather than as also offering the possibility of new ways of doing business, and new products. To facilitate this shift in perception of IT, CIOs need to be proactive in seeking out new technologies and during strategic planning sessions, in terms that are meaningful to their colleagues, promoting them as possibilities offering value.

Alignment between IT and the business is necessary for growth.

Growth implies change, and it is necessary for the IT infrastructure and services to be able to support this change in the organization. One aspect of this is the capacity of the IT infrastructure to absorb additional demands (eg, in transaction rates or more sophisticated communication needs, such as multimedia). Another is the ability to quickly respond to initiatives – this requires a services culture to be in place that focuses on the need to supply business value as its prime driver. However, striking the appropriate balance between future capacity and current costs is not necessarily easy.

As already mentioned, alignment of IT with the business is not necessarily achieved easily or quickly. Organizational culture (which, for example, may dictate who sits on strategic planning committees) takes time to change. Developing the role of the CIO into a meaningful business role also takes time. Changing financial priorities to accommodate research IT projects involves a new perception of the IT tool.

An important current debate is: Is IT strategic? Not everyone believes that IT is as important to an organization’s overall strategy, many in my organization, as the previous section implies. Some commentators believe that IT is now just an infrastructure technology and is no longer capable of providing a competitive advantage. I don’t agree, this mainly happens because CEOs are not asking enough of their IT infrastructure.

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Build on Core Competencies

How to guide the direction of new enterprises for the Prefex group by organically using the skills and abilities that it already possesses?


Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage.


A core competency is a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria:

1.  It provides consumer benefits

2.  It is not easy for competitors to imitate

3.  It can be leveraged widely to many products and markets.

A core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication.

Core competencies are particular strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value. Core competencies are the collective learning in organizations, and involve how to coordinate diverse production skills and integrate multiple streams of technologies. It is communication, an involvement and a deep commitment to working across organizational boundaries. Few companies are likely to build world leadership in more than five or six fundamental competencies.

The Company

For a software company the key skills may be in the overall simplicity and utility of the program for users or alternatively in the high quality of software code writing they have achieved. Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company’s environment. They are flexible and evolve over time. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change.

Core competencies are the skills that enable a business to deliver a fundamental customer benefit – in other words: what is it that causes customers to choose one product over another? To identify core competencies in a particular market, ask questions such as “why is the customer willing to pay more or less for one product or service than another?” “What is a customer actually paying for?

A core competence should be “competitively unique”: In many industries, most skills can be considered a prerequisite for participation and do not provide any significant competitor differentiation. To qualify as “core”, a competence should be something that other competitors wish they had within their own business.

A competence which is central to the business’s operations but which is not exceptional in some way should not be considered as a core competence, as it will not differentiate the business from any other similar businesses. For example, a process which uses common computer components and is staffed by people with only basic training cannot be regarded as a core competence. Such a process is highly unlikely to generate a differentiated advantage over rival businesses. However it is possible to develop such a process into a core competence with suitable investment in equipment and training.

It follows from the concept of Core Competencies that resources that are standardised or easily available will not enable a business to achieve a competitive advantage over rivals.

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Tips on managing Software Teams

If you want to succeed as a leader, you can only do it by setting up your team members to succeed.

Here are a few fundamental leadership tips for managing your team to peak performance. Keep in mind that these tips are aimed at leaders who manage knowledge workers and project managers in IT. The equation can be a little different if you are managing people in a strict production environment, although many of the principles may still apply.

Put your best performers on your biggest opportunities

When you have a big opportunity that could propel your organisation forward, you need to step back and think about who is the best person to lead the charge. In addition to finding someone who has the talent for the work involved or who has a passion for the subject matter, you need to look at who has a track record of success. Big opportunities come around only once in a while, and they can be lost. So even if it means taking someone off something important, you should always put your best performers on your biggest opportunities.

Focus on results and productivity and not the time clock

When you manage salaried knowledge workers, you should almost never have rigid clock-in/clock-out times unless there is a coverage issue in relation to serving customers (e.g., maintaining adequate help desk coverage during call hours). Instead, set clear goals that you know should take your employees about 40 hours/week to accomplish. Require that they show up on time for important meetings and are available during the team’s general working hours. Provide them with the tools to access their work remotely, when needed. Then let them manage their own time. This sends the message that you trust your employees. If you’ve got people you don’t trust, that’s another issue. Manage them up until you do trust them or manage them out to their next opportunity.

Build consensus by letting people know “why”

One of your key responsibilities in management is communicating about new initiatives and strategy changes. The worst thing you can do is surprise your staff members with a fully formed idea about a new way to do something that will drastically alter their day-to-day work. When you spring it on them, people will naturally be defensive and skeptical. Whenever possible, give people an informal heads-up that a change is coming and let them know some of the reasoning involved. They will be glad you kept them in the loop. If they don’t agree with the reasoning, they can express their dissent. They might even bring up a caveat or a gotcha that should be considered before the final plan is solidified. An even better course of action is to have a brainstorming session with your team when you are still formulating a new idea or strategy change, so you can gather their ideas and feedback. You may sometimes have to spring something on your team, but make sure that you limit those occasions. Even then, take the time to let them know the reasoning behind the decision.

Align people with the stuff they are good at

Make sure you have the right people in the right seats. This is especially true if you take over the management of a team that is already in place. Take stock of all the talents you have on the team and reshuffle the deck if it means that your team has a better chance of success. Don’t keep someone in a job role just because they’ve been doing it for long time if you truly think their talents are better suited and could make a bigger contribution in another role. Employees might be reluctant to move in a case like this, so you may need to work hard to convince them that the change is in their best interest, as well as the best interest of the company.

Align people with the projects they are passionate about

Another part of getting people in the right seats is finding what your employees are genuinely passionate about and seeing if they are ways to align them with job roles that let them channel some of that passion. Occasionally, that can mean putting someone in an area where they don’t have much experience. But if their previous work history makes you think they can succeed in that role, it’s usually worth it because their passion will fuel a strong desire to learn and grow. Once they’re up to speed, that passion can become a strong driver of innovation and growth.

Find the balance between aggressive and realistic goals

Create a culture of performance by setting aggressive goals and holding your employees accountable for regularly reporting on their progress. However, the goals can’t be so aggressive that your employees quickly fall behind and feel like they can never realistically achieve them. Otherwise, they will quit stretching to reach the goals. That means that you have to regularly re-evaluate the goals (at least on a quarterly basis) to decide whether they need to be scaled down or scaled up.

Trust your people

Knowledge workers typically have jobs that require creative solutions and decision-making. They need to stay sharp mentally to achieve top performance. The onus is on management to create an atmosphere that fosters and encourages that kind of creativity. One of the best things you can do is to let your employees know that you trust them and that you have faith in their ability to do the job, solve the problem, and/or meet the deadline. If you don’t trust them, again, you need to manage them up or manage them out.

Don’t provide all the answers

make your employees think

You are the manager. You are the leader. That does not mean that you have a monopoly on all of the good ideas. If your employees are hesitant to make decisions without asking your opinion first, you haven’t properly empowered them. If your employees aren’t making enough of their own decisions, you should change your tactics. When they present you with information and ask what to do about a situation, push the ball back into their court and ask them, “What do you think?” They might be surprised at first, but after you do that several times, they’ll start thinking it through before they come to you so that they’re fully prepared to discuss the matter and make a recommendation. That’s a good thing, because they’re usually closer to the customer and more familiar with the details of the work. You need their opinions. And you need them to make some of their own decisions.

Avoid blame

In any business (or organisational enterprise), there are going to be times when you fail, and there will be things that simply don’t pan out the way you had hoped. Do a post-mortem (even if it’s informal) to figure out what went wrong and learn from it. If there were egregious errors made by individuals, deal with them privately. If necessary, let the person know your expectations for how this should be handled in the future. Don’t publicly blame individuals — either directly or indirectly — in meetings or team e-mails. If you do, you risk creating an atmosphere in which people are so afraid to make mistakes that they don’t spend enough time doing the proactive and creative work necessary to avoid future problems — or more important, to drive new innovations.

Foster innovation by killing projects the right way

Another important part of fostering innovation is knowing how to kill projects effectively and gracefully. There are times when failed initiatives will expose the weaknesses of certain employees, but there are plenty of times when you have good employees working on projects that simply don’t pan out. Figuring out the difference between those two scenarios is part of becoming a good manager. If it’s a good person on a bad project, the person who was running the project isn’t any less talented because the project didn’t materialise. So make sure you use the project as a learning experience and reassign the person to something new without excessive hand-wringing. Otherwise, you will make your employees overly risk-averse, and they will be reluctant to jump into the next big project or to make bold moves when managing the project. That type of atmosphere can quickly stifle progress.

Put your best performers on your biggest opportunities

When you have a big opportunity that could propel your organisation forward, you need to step back and think about who is the best person to lead the charge. In addition to finding someone who has the talent for the work involved or who has a passion for the subject matter, you need to look at who has a track record of success. Big opportunities come around only once in a while, and they can be lost. So even if it means taking someone off something important, you should always put your best performers on your biggest opportunities.

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Non-Executive Directors Good vs Bad

The Role of Non Executive Directors

A non-executive director (NXD) or outside director is a member of the board of directors of a company who does not form part of the executive management team. He is not an employee of the company or affiliated with it in any other way. They are differentiated from inside directors, who are members of the board who also serve or previously served as executive managers of the company (most often as corporate officers).

The considerable amount of media attention on the issue of corporate governance has highlighted the role of Non-Executive Directors.  It is well documented that Non-Executive Directors can make a significant contribution to company performance regardless of size.

Non-Executive Directors is one way of accelerating the development and growth of SMEs and whether it is a longstanding traditional business or a start-up seeking equity finance, non-executives can bring added value with objectivity drawn from their own experience and skills.

It is normal for Venture Capital investors to place a Non-Executive Director on the Board of the investee company to represent their interests.  This can either be one of its own fund managers or an individual who has sectoral, market, or management expertise which will help delivery of the corporate plan.

Most Venture Capitalists, however, recognise that the chemistry and teamwork between the non-executive and the existing management team is crucial.  As a result, the VC’s Non-Executive Director is there to play an integral role in the development of the company rather than act as a watchdog for their investment.  This availability of outside expertise to the management team represents a valuable asset for most companies, particularly start-ups, and is one reason why Venture Capital is regarded as a value-added source of finance for SMEs.

Non-executive directors have responsibilities in the following areas;

  • Strategy: Non-executive directors should constructively challenge and contribute to the development of strategy.
  • Performance: Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitoring, and where necessary removing, senior management and in succession planning.
  • Risk: Non-executive directors should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and defensible.
  • People: Non-executive directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning.

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Market Testing

What does market testing do?

After products and marketing programs have been developed, they are usually tested in the marketplace. Test marketing is the limited introduction of a product and a marketing program to determine the reactions of potential customers in a market situation. Test marketing allows management to evaluate alternative strategies and to assess how well the various aspects of the marketing mix fit together.

Market testing of a product or service, and its marketing mix (price, promotion, place/distribution channels; and for a service, people, processes and physical evidence) is undertaken for three main reasons:

1. Unlike concept and product use testing, it tests the product and the market strategy concurrently.

2. It provides a measure of synergy between elements of the market mix since the product is tested with its pricing, advertising, promotion, channels used, the merchandising support it receives and other elements of the marketing mix all being exposed to the market simultaneously.

3. It provides an organisation with a more accurate basis for forecasting volume and price, thus creating a more reliable basis for projecting the likely financial performance of the product.

It follows that market testing is used for two purposes:

1. To decide whether or not the individual elements of the marketing mix need some adjustment. For example, if the product ‘oversells’ in the test, it may be decided to raise the price; if it undersells, it may be considered whether or not to increase or adjust the marketing communication strategies.

2. Ultimately, to make a decision about whether or not to proceed with the (usually expensive) launch.

Market testing, if significant in scope, also provides an opportunity for process learning. That is, for coordinating operational aspects of a largescale launch by, for example, improving coordination between sales and marketing or production and logistics.

To understand better what market testing does, it is useful to see how it relates to other major testing steps that the product has undergone previously. Concept testing will confirm or refute ‘lack of need’, whereas product use testing will indicate whether or not the product meets a specific need. Market testing will also indicate whether the marketing strategy for the product is correct or needs adjustment.

Under what conditions is market testing undertaken?

Basically costs increase and problems become harder to solve as a project progresses through the phases in the development cycle. The same principle applies with market testing.

Whether the market testing is done early or late depends on how the factors in the figure are traded off against one another. For example, if cost savings are highly important, the market testing should occur early; if it is critical that the launch be successful, it should be done later. While the above figure indicates trade-offs between market testing early or late in the cycle, a decision must be made about whether to do it at all. Market testing should constitute the last decision hurdle before launch. However, many firms don’t market test at all, or only do so when the launch costs are expected to be very high and the risks associated with the launch are perceived to be unacceptable without more evidence.

According to experienced market researcher in Procter & Gamble indicated that market testing was skipped when the following conditions:  capital investmentent is small forecasts of volumes are conservative organisation knows the business well advertising is ready and successfully tested  These are the likely conditions when a product is a minor line extension or modification.

The opposite of these conditions often applies with new-toworld products and, unless secrecy is important, these tend be market tested more frequently.  The high cost of test marketing is not purely financial. One unavoidable problem is that test marketing exposes the new product and its marketing mix to competitors before introduction. Thus, the element of surprise is lost. Competitors can also sabotage, or ‘jam’, a testing program by introducing their own sales promotion, pricing or advertising campaign. The purpose of this is to hide or distort the normal conditions that the testing firm might expect in the market.

Different Approaches to Market Testing

Simulated test markets

These markets are described as: Advertising and other promotional material for several products, including the test product, are shown to members of the product’s target market. These people are then taken to shop at either a mock store or a real store, where their purchases are recorded. Shopper behaviour, including repeat purchasing, is monitored to assess the product’s likely performance under true market conditions.

These are more commonly used for consumer products and, because they are ordinarily undertaken as early as possible in the development effort, they are often referred to as ‘pre-market’ tests. The central idea is to secure estimates of ‘trial purchasing’ and ‘repeat purchasing’.

Full-market testing

This involves choosing representative parts of a market in which the new product is to be launched. These typically consist of geographic areas that are sufficiently large so that the actual advertising campaign that will be used during launch can be used in the test market; eg, a city, or province.

For example, Pepsi Cola used Canada to test some new soft drinks it was planning to launch in the US; Westpac tested a number of new financial products in Newcastle, NSW prior to launching in the larger cities of Australia’s eastern seaboard. Normal distribution is used to outlets and intermediaries, normal merchandising methods are used, etc, but distribution is limited to these ‘test markets’.


Because new products are tested in real-world conditions, when the test is successful, the risks of total failure of a launch are minimised.

Test marketing allows fine-tuning of the marketing mix because it provides a wealth of real-time hard data about the market as a whole (as long as the test market is a representative sample of the wider market).

They provide basic information that may be necessary to better manage the supply chain; eg, whether storage humidity, temperature or handling conditions are such that products deteriorate during shipment. They can serve as a ‘dry-run’ for a national or international launch, and organisational problems can be highlighted and addressed.

Disadvantages: As mentioned earlier,  they invariably signal the organisation’s intentions to competitors. This may be positive if a competitor reacts to a test market the way it would on, say, a national basis (ie, indicating what competitive strategies the full launch will need to account for). However, test market areas may be sabotaged by the competitor. Examples of cases where this has occurred with some well-known new products and brands in the US

They are very expensive. In the US, direct costs of test markets range from $AUD500,000 to $AUD750,000 per city, depending on the duration and other conditions of the test. The costs of a test may exceed the marketing launch budget of many new products in Australia, and therefore reduce the potential for profit, at least in the short term. In addition to direct costs, there are numerous indirect costs associated with test marketing, including product preparation, training and internal analysis of results.

They take time. It is not unusual for full test marketing programs to last for a year. They ordinarily range between six months to as much as three years in duration, depending on the purchase cycle of the product.

Claims about their value-in-use vary significantly. For example, an AC Nielsen study of 204 health and beauty aids concluded that the odds would only be 50/50 that actual sales of the new products would be within +/- 10% of test point shares.

Roll outs

This technique involves choosing an area that serves as an early sample – and acts as the platform for future expansion. The product is launched in one area, lessons are learned, the market mix adjusted, and so on. The product is then progressively rolled out nationally (or internationally) based on what is being learned in the sample market. Thus, the lessons from the sample inform the wider market roll-out.

The areas chosen are typically not representative of the broader population (as in the case of test markets); rather, they have some special characteristic. For example, the sample market might be particularly accessible (close by), or the organisation may want to first run the sample roll-out in an area where competition is particularly tough. An accessible area might be chosen so that information can flow quickly and at a lower cost to the decision makers; the tough competition approach may be used to test the product in worse-case conditions; ie, ‘if we can succeed here, we can succeed anywhere’.

The biggest advantage of roll outs is that they give management most of the information and data that can be obtained from a test market, but they concurrently provide the platform for a wider launch.


Market testing can be accomplished using a variety of approaches  whose relevance varies with the nature of the product, its target market  (eg, industrial or consumer) and the purpose of the tests (eg, to secure  data about volumes vs. quality of advertising copy). The most common  methods for consumer goods are:

  • Pseudo sale methods: simulated test markets in which volume and  share forecasts are extrapolated from trial and repeat purchase data  of a sample that does not actually purchase the product.

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First-Mover Advantage

First-mover advantage or FMA is the advantage gained by the initial occupant of a market segment. This advantage may stem from the fact that the first entrant can gain control of resources that followers may not be able to match.  Sometimes the first mover is not able to capitalise on its advantage, leaving the opportunity for another firm to gain second-mover advantage.

FMA is the sometimes insurmountable advantage gained by the initial or “first-moving” significant occupant of a new market segment. This advantage may stem from the fact that the first entrant can gain control of resources that followers may not be able to match. Originally made apparent by the ever booming Internet phenomenon, it has recently been on the decline due to the recent economic situation. It is important to note that the first-mover advantage refers to the first significant company to move into a market, not merely the first company. In order for a company to try and become a first-mover that company needs to figure out if the overall rewards outweigh the beginning/underlying risks. Sometimes first-movers are rewarded with huge profit margins and a monopoly like status. Other times the first-mover is not able to capitalize on its advantage, leaving the opportunity for other firms to compete effectively and efficiently versus their earlier entrants. These individuals then gain a second-mover advantage.

Many new product development and marketing authors refer to ‘first mover’ advantages; the first mover being the firm that first enters the market with a new development: For those products that made it to market, an important outcome is their speed to market and the ability to achieve first mover advantage.

The first mover advantage, if managed appropriately, conveys reputational benefits where the organisation or its brand become known as the preferred or even default term for the product category – such as all personal stereos being referred to as ‘Walkman’ a brand of Sony Corporation. Apart from the ability to charge premium prices if the conditions described above are met, the firm has an opportunity to pioneer a category (or segment of one) and, if adept, build a strong market position before it is attacked by competitors.

The first mover advantage derives from the fact that it is much more difficult for subsequent entrants to dislodge an existing competitor that has established a product technology and product standards, distribution channels, a brand name and other factors that support its position. These have been quantified by comparing the 3-year cumulative performances of two beverage products, as shown in Figure 11.6. The product that was second into the market had to offer higher discounts to the channel partners in order to secure shelf space (selling-in), and spent more on consumer advertising and promotion than originally planned (selling-out). As a consequence, it only generated 20% of the profit that it expected from the product during its first three years in the market.

Industries comprised of established organisations that manufacture products with a high degree of ‘technology churn’ and product obsolescence – that is, the technology constantly evolves at a rapid rate – present a special case. The factors mentioned earlier may not always apply to them. However, first movers within a particular technology are generally able to establish and defend their market positions against later entrants until the technology ‘churns’ again.

1. Consumer-related advantages with the organisation having first choice of profitable segments and positions.

2. Advantages related to occurrence of positive network effects (ie, first mover develops effective networks before competitors enter).

3. Advantages related to the high switching costs for ‘early adopters’.

4. Cost reductions through economies of scale and experience effects.

5. Advantages related to capacity of first mover to operate with greater pricing freedom.

6. Distribution advantages by virtue of having the choice of the best distributors.

7. Advantages related to being able to set technological standards.

8. Supply-based advantages related to pre-empting competitors in securing scarce resources and suppliers.


1. Higher costs due to potentially hidden costs of accelerated NPD, such as risk of trivial innovations driving out more profitable breakthrough innovations.

2. Higher costs as a result of the required investments in early versions of technology.

3. Elevated costs due to more thorough concept and prototype testing.

4. Consumer-based disadvantages related to inability to exploit opportunities arising from shifts in consumers’ preferences and purchase criteria as the market develops.

5. Disadvantages related to being locked in on first generation technology, which prevents firms from taking advantage of the latest technology.

6. Disadvantages related to possible positioning and pricing mistakes inherent with accelerated NPD.

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