Petty, along with the rest of the sport is in serious economic trouble. Workers have been laid off , ticket sale are struggling and lost corporate sponsors are causing even the most financially sound teams to merge with one another. Even the biggest NASCAR race on the planet at Daytona International Speedway struggled selling tickets. Prices had to be reduced for thousands of tickets in order to sell out the race.

In the teams garages, mergers and alliances have been forged as sponsors have disappeared and teams have come together to combine resources. Reports estimate that as many as 1,000 employees have been laid off throughout the industry. Owner of Hendrick Motorsports, Rick Hendrick explains what the economy has done to the financial outlook of the sport.

“I think it brings us all back to earth. There are just so many people that have never been through anything like this. So I think it will teach us all a lesson, not just in Nascar and racing, but just in the way the public goes about the way they spend their money.”

Even foundations of the sport like Petty Enterprises whom competed in the first Nascar race, which was in Charlotte, N.C., in 1949 are feeling the heat. The team lost its primary sponsor, Cheerios, and was not able to replace it, thus was forced to merge with Gillett Evernham Motorsports.

In NASCAR, team owners assume the majority share of the risk by investing heavily in people and equipment. It can cost $10 million to recruit a successful driver and $25 million a year to race one car (Most teams race 2-4 cars). The rich sponsorship deals signed during the fat years (peak in 2005), and new sponsor money is drying up. For example, Domino’s Pizza, a primary sponsor of Michael Waltrip Racing, and Eastman Kodak, a sponsor of Penske Racing, ended their partnership after last season. Also gone from teams are Coors Light and Tide, once foundations of corporate sponsorship in the sport.

Not only is the high reliance on corporate sponsorship affecting NASCAR, but the untouchable NFL as well.

Dallas Cowboys new 1.1 billion dollar stadium was under intense pressure during early 2008 to sell the naming rights to their facility. Florida-based Naming Rights Association Exec Dir Walter McGivney explained that

“Corporate bankruptcies and consolidations reduce what was already a small pool of businesses that could bid. I am aware of at least three or four large deals that are on hold. The bright spot for the Cowboys could be that companies will still look for business opportunities with a premier team at a world-class stadium. Even in a down market, the great ZIP codes maintain their value or perhaps don’t lose as much of their value. I don’t think [the economy] affects the Cowboys stadium. That is such a unique property.”

Earlier in the decade, big corporate sponsors would have been pounding on the door to have the opportunity to grab the naming rights of “America’s Team” stadium. In today financial market, however, sponsors are less inclined to spend the big bucks on outlandish marketing deals.

In Philadelphia, the Wachovia Center, home to my teams, the NBA’s 76ers and the NHL’s Flyers could undergo a name change about Wachovia was recently sold to Citigroup. Officials were meeting with their lawyers reviewing the likely impact of the purchase on naming rights to the Wachovia Center. Naming rights are also in question in the usually financially sound New York area.

In Brooklyn, according to the NY Post, Nets Owner CEO Bruce Ratner said his plan to break ground on the $4 billion dollar Atlantic Yards Project, including the Nets’ $950 million dollar Barclays Center, has to be pushed back six months due to problems with obtaining corporate sponsorship. As a result the team won’t be able to move to Brooklyn until at least 2011. With the delay, the Nets’ $400 million dollar naming-rights deal with Barclays (main sponsor of the English Premier league) is in question because the deal “was contingent on Ratner’s having his entire project financing set by the end of November.” The Nets, who are co-owned by hip-hop mogul and artist, Jay-Z, are hoping to make a serious run at signing NBA mega-ultra-superstar (yea he is that big) LeBron James when he becomes a free agent in the summer of 2010. They were also hoping to open the Barclays Center in the fall of 2010 and unveil their new stud at the same time. If the $400 million dollar naming rights deal from Barclays goes away, the Nets will have to rethink this entire project and their ability to sign someone like James to a lucrative contract.

These are just a few examples of the effects of the lack of corporate finance in today’s sports world, but the trend is highly troubling. Teams do not possess the liquidity alone to build huge stadium and create big contracts to acquire star athletes, thus they rely on big corporations to fill in these holes. Without the sponsorships, team need to adapt to the less favorable environment, which ultimately means wiser spending and organizational structure.

Sources Used:

“Bad Economy Could Lead to Naming Rights Changes.” Berger, Sports Business Radio. September 30, 2008.

“NASCAR’s Trouble at the Track.” Jack Gage, Forbes.com, February 9, 2009.

“Economy Catches Up to NASCAR’s Big Names.” Viv Bernstein, The New York Times. February 14, 2009.

The Arena Football League has lain off all but four to five workers in its New York and Chicago offices. The League hopes to emerge from its one-year hiatus in a more cost-efficient form in 2010. AFL Commissioner Ed Policy explains the one year hiatus,

“Every owner is committed to going forward. The question was do we restructure while we play or take a timeout and field teams again in 2010. The decision was that trying to do it on the fly would be a challenge, but doing it on the fly in the worst economy any one of us has seen would have been irresponsible.”

The AFL, during the break, will restructure its overall organizational model, hopefully streamlining its league office with emphasis on revenue generation and centralizing marketing initiatives. When arena Football does return to the spotlight, Policy believes in a full financial and fan-base recovery, but foresees a different situation with sponsors.

“Even with the down economy, I don’t think we anticipated much of a drop-off in attendance.We think we were well-positioned with an average ticket approximately $24. The problem is with sponsorship dollars, primarily those related directly and indirectly to the automobile and mortgage industries. The long-standing cliché is that the economy in sports is somewhat bulletproof. In our mind, it might be considered somewhat bullet-resistant, but this has been a bazooka.”

Casey Wasserman, owner of the Los Angeles Avengers, is looking past the now, and into the future of the league which will hopefully make a full recovery.

“It’s important for the Arena Football League to think about the next 20 years, and the economic model, combined with the economic environment we’re in currently doesn’t allow us to take that perspective. By suspending play for the year — in cooperation with our players and our partners — it allows us to get the perspective to try and make the decisions that are in the best interest of the long-term viability of the league.”

By taking a year off, Wasserman said, the 16-team league is hoping to mitigate potential losses, regroup and create economic efficiencies such as a more centralized marketing structure. The AFL, which was founded in 1987 and is the longest-standing U.S. football league besides the NFL, has never taken a season off. The AFL needs to restructure in order to better adapt to the surrounding business environment. This falls along the line of a Contingency Model which emphasizes the importance of balancing organizational structure with the surrounding environment. I guess in no organizational structure in the current environment is the best option for AFL franchises. Similar to the AFL, the WNBA is also feeling the pinch of the economy.

The Houston Comets, a franchise that won the first four WNBA championships, is officially disbanding. The currently league-owned team could not find a person in this economy willing to throw up big bucks to become an owner, thus the team had to break up. To compare the Comets with a male sport, it would be like the Los Angeles Lakers going under. WNBA president Donna Orender failed to comment much on the move, but assessed the overall health of the league.

“You have to build on strength. My outlook is to build on the fact that the league has great momentum and in Houston we didn’t have the enough runway to get a deal done in time for the 2009 season. So right now we have to move on.”

The WNBA is also struggling on the job front. Similar to recent moves by the NBA, the WNBA could not find placement for staff of the Comets which will result in the loss of 37 jobs. Even through the team is disbanded for now, Orender, much like the AFL, hopes once the economy settles down, talks could resume and a possible return could be arranged.

“You can’t ignore the fact this team was the engine that drove the league. We appreciate the fan base. With the affection the fans in the city have for the team, maybe one day the corporate and city leaders will aggregate their resources and resurrect a formidable franchise.”

This quote leads directly into my final post concerning the decline in corporate sponsorship in all professional sports.

Sources Used:

“WNBA Disbands Comets Because New Owners Couldn’t be Found.” Mechelle Voepel, Associated Press. December 3, 2009

“Tough Economy has non-major Sports Struggling to Stay Afloat.” Seth Livingstone, USA Today. January 14th, 2009.

“Sports, too, Hit Hard by the economy.” Dan McGrath, USA Today. December 16, 2008

Not even the nation’s wealthiest baseball franchise is immune from the economic downturn. Recently, New York Yankees’ brand new stadium has plenty of empty seats, and it’s not in the nose bleed section. It’s the seats behind and to the side of home plate, the cleverly named Legends seating. At $2,675 per ticket, a family of four has to make a choice whether to spend a day at the ballpark or pay for their groceries, car payments, mortgage ect. Even Yankee operating partner Hal Steinbrenner seemed to understand.

“I think if anybody in any business had known where this economy was going to go, they would have done things differently. Look, there’s no doubt small amounts of our tickets might be over-priced.”

In response to the negative turnout to games, the Yankees have begun to decrease ticket prices on luxury seating in hopes of bringing in more fans, especially in a time when they need to pay for their ridiculously expensive new stadium. As TV cameras pick up the patchy attendance with every pitch, it serves as a little prick to the nation’s richest baseball franchise. The media response to the seating situation was enormous, sparking speculation that the Yankees were feeling the pressure of trying to pay for the league’s highest total players salaries. (Three of their players, Alex Rodriguez, Jason Giambi, and Derek Jeter have the league’s three highest salaries)

“We’re done talking about seats,” Yankees president Randy Levine said. “We’re not talking about seats.”

But fans notice the effects the economy is having on the ballpark. “It’s been pretty phenomenal,” said Aaron Feldstein, a native Californian who lived in Brooklyn for a couple of years and now resides in Baltimore. He was part of the far-from-sellout crowd at the Yankees’ 9-7 victory in 14 innings over the Oakland Athletics. At the game, Legend Suite section was about 80 percent empty, and the upper deck, which have been mostly full throughout the season were a quarter empty. Some Fans remember what it used to be like in the old Yankees stadium

“I remember watching and you couldn’t find an empty seat at Yankee Stadium. And now right behind home plate there’s 15 to 20,” said the 29-year-old Feldstein. The Yankee’s are not the only large and popular New York franchise to feel the economic pinch.

The Mets have similar issues at their new Citifield , where the top ticket is a little over $800 and empty seats have been rampant. And at PNC Park in Pittsburgh, a field level seat can be had for $32 to watch a Pirates team that is playing really well considering they have been awful in the past. And those seats are mostly empty.

Many teams, like the Arizona Diamond Banks, have begun knew programs in hope of helping their fans purchase tickets and attend games. In a move unheard of in MLB history, the Diamond Backs gave out 41 season tickets to 14 different families in the Arizona worth approximately 100,000 dollars. However they are not the only MLB attempting to make ticket purchases a little easier for their fans. The Marlins are doing their part to reach out to the South Florida community.

Team owner Jeffrey Loria has enacted programs attempting to make attending Marlins home games possible to those hurt by the lagging economy. Loria said when asked about why these programs were necessary,

“We are proud to introduce a lineup of industry-leading ticketing initiatives designed to give South Florida baseball fans some economic relief while attending Marlins games. These new programs will continue to keep Marlins baseball the best entertainment value in South Florida and allow our fans to experience our brand in the best way possible: live at the park.”

Among the initiatives are Marlins Mortgage Payout, which ties in to the SuperSaturdays concert promotions. The Marlins official website promotes:

On 11 of the 13 SuperSaturdays, one fan will be awarded a check for up to $2,500 toward his or her monthly mortgage or rent payment. During the June 20 game with the Yankees and the Sept. 26 game with the Mets, a fan at each game will be awarded a check for up to $15,000 toward: 1) the principal on his or her mortgage, or 2) the remainder of the winner’s annual lease. South Florida fans are encouraged to log onto www.marlins.com and enter the Marlins Mortgage Payout.

The team’s vice president of marketing, Sean Flynn explains these new programs are solely a reaction to the failing economy surrounding the league and its loyal fans.

“It’s our response to what’s happened with the economy. We always want to position the Marlins to be the best entertainment value out there. We look for initiatives that speak directly toward that.”

Also, in response to the high unemployment rate in the Southern Florida area, the team has introduced Marlins Workforce Mondays. Unemployed residents have the opportunity to take advantage of up to four complimentary tickets to select Monday night home games.

In such a volatile market, MLB teams must take a normative approach to their business management. If teams do not adjust to the changing market phenomenon, their franchise could possibly lose serious money. Teams that are adjusting are gaining ever more loyal fans, and the undying support of the community. I believe all teams in the MLB should take note of these economic based initiatives and begin to think about implementing these programs themselves. It will go a long way in securing baseball’s future and the love of the game in America.

Sources Used:

“D-Backs gives Back to the Fans.” Rick Reilly, ESPN The Magizine. April 20, 2009.

“Pricey Seats at new Yankee Stadium a Bronx Bomb.” Ronald Blum. The Associated Press. April 22, 2009

“Marlins Unviel Economic Initiatives.” Joe Frisaro. MLB.com. March 27, 2009

“It’s a different business atmosphere than 20 to 30 years ago. Originally, we worried about selling tickets. Now we’ve got to worry about selling tickets, about keeping media partners happy, operating stadiums, keeping fans happy in the stadium, servicing debts. We need a structure that works long-term. We can’t expect the fans to pay more and more and more. We have to hold all our expenses down and labor is just one of them.” “

The new “atmosphere” McNair describes shows why leagues are tightening the belts on spending, ticket sales, and cooperate sponsors. The days of ticket and concession sales constituting as the major revenue source is over, kaput! Owner now have to worry about gathering money from corporate sponsors in order to raise liquidity to fund new stadiums and high profile athletes demanding millions upon millions of dollars. Take the Dallas Cowboys for example. Considered “America’s Team” by many, and boasts the newest and most high tech stadium in the NFL. The Dallas Cowboys open their $1.1 billion stadium last summer, and they struggled to place might a corporate name on it. With the Cowboys’ atop the NFL value list and their popularity so high, selling naming rights would seem an easy chore. This proved to be an wrong conclusion.

“We’re not naive to what’s going on in the country and the economic crisis,” Cowboys vice president Stephen Jones said. “We’re very respectful of that now. Obviously, there are some factors when you’re opening a new building in this economy.”

Jones’s concerns are not solely a problem faced by the Cowboys, but also the rest of the NFL. In the recent NFL’s Chief Bargaining Agreement, CBA, meeting held annually to asses rule changes and the overall health of the league, the economy was at the top of the list of potential problems pertaining 2009-10 season. With all the NFL owners present, Commissioner Robert Goodell addressed the leagues overall economic status, and the pay agreements with NFL players.

During his opening address in front of the owners, Commissioner Roger Goodell emphasized a need to strengthen the league’s economic foundation, even as several owners consider exercising a clause to opt out of the collective bargaining agreement. According to a recent Sports Business Journal report, the league’s $9 billion debt exceeds the amount of any other sports league. When I first read this statistic my first reaction was how is the most popular league in America with revenues exceeding $6 billion dollars a year facing a financial debt? The answer is stadiums. Goodell explains,

“When you get into an economy like we’ve gotten into now, when margins are tight and interest rates can flare quickly, with respect to stadium financing, that can really put significant impact on the clubs.”

Although Goodell hopes to reduce $30 million in debt over three years, the bigger target is the collective bargaining agreement, enacted two years ago, dictates that nearly 60% of total football revenues is paid to players. So for those of you wondering why athletes get paid the big bucks, there you go.

Players union chief, Gene Upshaw, has declared there will be no “givebacks” from players, and negotiations on the subject has been on a stand still. Goodell, during his address explained that given rising costs, the league will “absolutely” approach the union this year about modifying the CBA.

“At some point in time,” Goodell said, “the economics become untenable, and the players need to recognize these risks.”

This sentiment is also reflected by the owners of these highly paid athletes

Denver Broncos owner Pat Bowlen acknowledged, “Our labor deal is not working. That is the most significant concern.”

NFL owners are not alone in their concerns over the struggling economy. Edmonton Oilers owner and CEO Patrick LaForged described their situation which reflects many of the same concerns NFL owners have.

“The last couple of weeks (September 2008) – wow – it’s been killer. I think we’re all concerned. I can only speak for Edmonton but I can say that these are very interesting times, what the stock market is doing and the impact on our major clients, which are businesses. I think we have to all be very mindful that these are tough times. The Canadian teams are not exempt.”

The current economic landscape is one of a number of topics the NHL’s board of governors, aka owners, was briefed about during a meeting in September with NHL commissioner Gary Bettman. Also on the agenda was the possibility of lowering the league’s salary cap which governs the overall amount the team can divvy up amongst it’s players. Unlike the NFL however, Bettman does not see this changing.

“I would be extremely surprised if the slow down in the economy was severe enough that it got to that point,” he said.

The economic crisis has also touched NBA. Recently, Jamie Diamond of JP Morgan Chase help a meeting with NBA owners and the commissioner Robert David Stern in hopes of explaining possible upcoming financial difficulties teams may experience. This isn’t saying some teams have not already felt the effects.

The New Orleans Hornets said they are one of 12 NBA teams tapping into the league’s $200 million line of credit as franchises deal with the recession that started at the end of 2007. Also, the Indiana Pacers said in March that they can no longer afford the expense of operating Conseco Fieldhouse.

Owner’s especially know adays are under extreme pressure to keep their teams out of the hole created by the economy, and in my next post, I will focus on the attempts of Major League Baseball teams to raise revenue in an increasingly unstable market.

Sources Used:

“Economy, CBA, focus of discussions at NFL meetings.” CBSsports.com, March 24, 2009

” JP Morgan’s Jamie Dimon Diagrams Fragile Economy for NBA Owners.” Vince Golle and Scott Soshnick. April 18, 2009

“NFL economy threatens to disrupt the game.” USA Today, Jarret bell. April 1, 2008

While trying to decide whether to buy New England Patriot and Boston Red Sox tickets this upcoming season, Kent Haines, a father of two, has decided to forgo these usually yearly expenditures.

“In this sky-is-falling economy, attending a pro sporting event is last on my list. When you combine the cost of the tickets with the effort it takes to get our fannies in the seats, watching on TV with my wife and kids sounds pretty good right now.” says Haines.

The cost of tickets and surrounding expenditures when going to a game just is not worthy of the return on the investment. In other words, watching the game for often hundreds less on a high definition TV, in today’s economy, enacts a much higher entertainment and overall viewer satisfaction return. Recalling that in May he dropped $250 for tickets, parking, food and a souvenir for himself and his 10-year-old son, Zach, at Fenway Park, Haines echos a sentiment shared by many other sports fans throughout the country. Similar to Haines, who based his purchasing decision on ticket price vs. experience at home, overall sport fan and father of two, Michael Popham has seen his spending on sporting event decreased significantly.

“I am a 27-year-old father of two and my spending on sports has dropped dramatically as the economy has sputtered. In years past I would take both of my kids to games and buy all sorts of concessions and souvenirs. Recently though the quality and quantity of seats that I purchase has diminished and the quantity of money spent during the game also has dramatically dropped. I am a huge baseball fan and every year since I was a child would go to multiple games a month just for the joy of being at the ballpark but now with the high ticket prices and parking fees I will only attend the three games my team comes to town. I would love to take my son to an NFL game but at $200 dollars for two tickets and parking the cost is not worth the return.”

Fathers like Popham, whom as children experienced many sporting event and developed lasting memories, are finding it difficult to provide the same sort of special experiences only found in live sporting arenas. When buying tickets, what many people fail to realize is the cost surrounding the games outside the initial ticket purchase. For example, at a recent Phillies game I attended at Citizen Bank’s Park my upper level seat cost 35 dollars.Throw in parking cost at 10 dollars, hot dog, soda, popcorn, and peanuts cost a combined 17, and finally a pack of Phillies official trading cards at 3 dollars. All these costs calculated together adds up 30 dollars; only five dollars less than what I paid for the ticket in the first place! I could not even imagine the cost if I had to take a son along with me and the costs he would incur. This example demonstrates the growing trend surrounding sporting events. More and more fans are finding it hard to constitute spending a good portion of their pay checks on tickets to games coupled with the other costs surrounding the entire event. While both father Popham and Haines struggle with the choice of buying ticket vs. watching on TV, other fans like Mark Weinstien of Georgia struggle in selecting which events they want to sacrifice.

“The current economic situation impacted me as far as this is the first year in a long time I did not attend a baseball game. I am going to a football game but will have to strongly consider finances when deciding to attend a hockey or a basketball game (something I try to do on a yearly basis also).”

Weinstien still is electing to attend sporting events, but at the same time has the tough decision on which ones to attend. In the past, he has watch live an array of different sporting spectacles, now he has to choose between sports. This idea hit me especially hard because I love every sports team in Philadelphia and having to question my loyalty to different teams in the same city is a extremely disheartening idea. Although the data has not surfaced concerning how the economy has affected viewers between leagues, its will be interesting to see in the future how this conundrum played out. Unlike the examples above, some families plan to attend the same amount of sporting events, while at the same time sacrificing other aspects of their life. Take Adam Stevenson of Toronto for example,

“I am an avid Toronto Blue Jays fan and attend spring training each year. As a family, we attend roughly 5 games a year and spend an average of $200/game including tickets. Will we spend less now? Probably not. That’s because we budget accordingly for the things we enjoy to do. We don’t spend more than we have on things that we THINK we need — baseball included.”

Instead of electing to exclude sporting events from their costs, Stevenson has decided to spend less on other aspects in life in order to spend more on sports. Many Americans, myself included, love sporting events so much that they take precedent over other aspects of life. Luckily for me, Philadelphia has been relatively successful, in terms of winning, over the past decade with their sports franchises, but other teams, such has the NFL’s Detroit Lions, have seen their attendance and fan support dwindle over the years. Take Lion’s Brian Blight for example,

“I won’t attend another Detroit Lions game until they prove to me that they are competitive. Matt Millen did not fair well up in Detroit, but that organization stunk long before Mr. Millen arrived at the scene. I wish they would dissolve the whole team!! The Detroit Lions are an embarrassment to the NFL.”

This goes to show that the economy sometimes has no affect on whether tickets sell. The NFL year in and year out has been the most popular and profitable league in America, but if your team fails to win on a consistent basis, fans will begin to question their decision on purchasing tickets. Especially in such an economically troubled place like Detroit, ticket sale will see significant decline is the Lions can not find a way to win at least one game this year. (Lions went 0-17 for the first time in NFL history last year).  In cities like Boston and New York, teams have fared well and championships have been one (Patriots, Celtics, Giants etc.) and it reflects considering both cities boast the highest average ticket prices in America.

The example shown above of real American sports fans and the affects of the economic downturn demonstrate a growing trend. Where fans used to buy tickets on the regular without much thought, now household budget, or totally eliminate live sports expenditure. In my next post, I will evaluate how this startling new sentiment has affected the approach franchises and owners take towards ticket sales and overall profit gathering.

Sources:

“Economy dips and fans react.” Michael McCarthy, USA Today. October 17, 2008

“Sports, too, hit hard by the economy.” Dan McGgrath, Chicago Tribune. December 16 ,2008

Ditch or Stitch!

Great name!

Happy reading.

In today’s globalized world where information flows freer than ever before, the current generation of consumers is more discerning than any other generation in the past. There are more competitors in any given industry. Companies that fail to innovate, or fail to innovate at a fast enough pace face the threat of going out of business. However, it is not just enough to be innovative; almost half of the resources that are used for the research, development, and launch of new products go to products that never make it.

The text of this page is available for modification and reuse under the terms of the GNU Free Documentation License, Version 1.2 and later and under the terms of the Creative Commons Attribute Share-Alike

Companies that have emerged as leaders have continuously worked to overhaul their product innovation processes by adopting sophisticated new product development models. One such model for new product development is the Stage-Gate Product Innovation Process. The model was first introduced by Robert G. Cooper in his book Winning at New Products (Cooper, Winning at New Products: Accelarating the Process from Idea to Launch, 2001) which was originally published in 1986 and revised in 2001.

The Stage-Gate process is a conceptual and operational road map for moving a new-product project from idea to launch. The process divides the effort into distinct stages that are separated by management decision gates (gate-keeping). Cross-functional teams must successfully complete a prescribed set of related cross-functional activities in each stage prior to obtaining management approval to proceed to the next stage of product development (Cooper & Edgett, Stage-Gate, 2009).

The complexity of the Stage-Gate Product Innovation Process, or any new product development model for that matter, makes it necessary that it be implemented with utmost care. A crucial ingredient of this careful implementation is the organization of the product development team that will carry out various tasks in the process. This task of organizing the product development team will be the focus of this paper.

Before tackling the task of optimizing the organization for successful organization, a brief overview of the Stage-Gate Product Innovation Process is provided to give the reader an understanding of the essential ideas involved.

Section I: The Stage-Gate Product Innovation Process – A Brief Overview

The process of product innovation starts with the generation of an idea and ends with the production of the envisioned product. Everything between these two end-points can be seen as a dynamic process, the Stage-Gate Product Innovation Process divides this dynamic process into activity stages and decision points or gates – hence the name Stage-Gate.

As may be apparent, the stages are where the research and development work is completed. The product development team undertakes in the stages the activities that will result in information which will allow for an informed decision to be made at the next decision point, or gate, by the decision-makers, or gatekeepers. It should be noted that each stage is cross-functional i.e., there is no stage restricted to just research, just development, or just marketing; rather each stage has a bit of each of these functional areas involved in it. These functions must be integrated to reduce the speed to market as well as to gather crucial information that is needed to reduce the risk present in the product innovation process. Thus, each subsequent stage is more expensive to complete but also has a lower level of risk – thanks to the work performed in the previous stage and the decision made at the preceding gate to continue work on the new product project.

In addition to the discovery (or idea generation) stage, there are five key stages. These are presented in Table 1 below.

Table 1: Stage descriptions for various stages in the Stage-Gate Product Innovation Process

The Stage-Gate Product Innovation Process can be represented in flowchart form as show in Figure 1 below.

Figure 1: Stage-Gate Product Innovation Process. Source: Product Development Institute, Inc. (http://www.prod-dev.com/stage-gate.php)

Stages

The structure of each stage is similar. Each has a set of activities that the team must undertake according to the project plan. They all involve an integrated analysis of the results of all the functional activities based on the cross-functional interaction (as discussed above). Finally, each stage has some deliverables. This is the presentation of the results of the analysis carried out by the team and its leader that will be used by the gatekeepers at the next gate or decision point.

A decision point or gate serves as a Go/Kill and prioritization decision point. Gates are where mediocre projects are culled out and resources are allocated to the best projects. Gates deal with three quality issues: quality of execution; business rationale; and the quality of the action plan.

Figure 2: Components of Stages in the Stage-Gate Product Innovation Process. Source: Product Development Institute, Inc. (http://www.prod-dev.com/stage-gate.php)

Gates

Like stages, the structure of each gate is similar. Each gate begins with the input of deliverables from the team that handled the activities in the preceding stage’s activities. Next are the criteria which will be used to judge the project in order to make the go/kill decision or to prioritize as necessary. The criteria are usually organized as a scorecard containing both financial and qualitative criteria. Finally, the gates have outputs. These are the results of the gate review. Each gate must produce a clear decision to go/kill, or to prioritize as needed. It must also provide a path forward and the goals and objective for the next stage.

Figure 3: Components of the Gates in the Stage-Gate Product Innovation Process. Source: Product Development Institute, Inc. (http://www.prod-dev.com/stage-gate.php)

Section II: Organizational Structures That Support Strategic Innovation

We have now looked at the Stage-Gate Product Innovation Process in sufficient detail to be able to study various organizational structures and how these may or may not be suitable for the implementation of the Stage-Gate system. The fundamental requirement of the Stage-Gate system is the presence of a cross-functional product development team. This requirement can therefore serve as a starting point, or baseline for any organizational structures that we consider for the purpose of implementing the Stage-Gate system. It is with this basic requirement that we set out to compare and contrast the following organizational structures and later analyze their suitability as organizational structures that are Stage-Gate friendly:

1. Innovation Project Team
2. Expert Network
3. Shared Services Organization
4. Innovation Community of Practice
5. Ambidextrous Organization
6. Innovation Council

Innovation Project Team

Such a team is a virtual group consisting of members who are brought together for a limited period of time in order to identify areas in which opportunities for innovation exist, or to deliver a particular new product project. The team consists of people from different functional areas of the organization, has diverse levels (of authority) and perspectives, as well as different mindsets.

Expert Network

Like an Innovation Project Team, an Expert Network is a virtual group of individuals that may or may not be working together to provide specialized expertise and knowledge on any given topic (related to the new-product project). Although these experts do not interact with each other on a regular basis, such interaction can be arranged in order to address specific issues where the expertise of multiple individuals is required to make a good decision.

If the interactions between experts within the network rise above a certain threshold, such a network may evolve into a Community of Practice (discussed below). These experts may not always be insiders; they could also be experts from outside the organization that are hired to consult with the organization as an external Advisory Board.

Shared Services Organization

In large organizations it may be difficult to provide the necessary resources to all business units (BU) that are involved in innovation processes. Having self-sufficient service units within each business units not only incurs prohibitive costs, it is also detrimental to the consistency that may be expected from various units within an organization. One way to overcome this challenge is to establish corporate-level functional groups to provide essential services like marketing, market research, and research and development. These groups act as a resource to their counterpart functions at the BU-level, only with deeper and broader skill sets than those available within the business units. The corporate-level groups are tightly aligned in order to provide services of maximum value to the business units, while pushing the envelope by exploring new ideas and activities that are not within the scope of the business unit.

Innovation Community of Practice

This is a virtual community supported by a technology platform with online collaborative tools. A Community of Practice, in general, is a self-governing, multi-disciplinary virtual community focusing on learning, generation of knowledge, and the building of capability around a specific topic. For an Innovation Community of Practice, this topic is innovation. Such a community may share several types of information including market research, consumer insights, new product platforms and concepts, procedures and ideas. The goals, level of formality, and size of such a community will change over time. While the initial focus may be on information sharing, the community may become a platform for collaboration in real-time on specific projects. Once such a community becomes successful within an organization, it is recognized and supported by senior management as an enabler and driver of innovation across the organization, and not merely as a rogue activity.

Ambidextrous Organization

Among the various organizational structures described in this section, ambidextrous organizations stand out for being the only non-virtual structural form. This type of organization is a small, autonomous, multi-disciplinary group, whose role is to drive rapid implementation. This tight-knit group typically has its own staff, a physically distinct location, dedicated funding, discrete performance metrics, and often a highly entrepreneurial culture, etc. This relatively independent operating structure is intended to allow the group to effectively manage its own destiny without interference from the larger organization.

With acute resource shortages a reality at many large organizations, functional managers are reluctant to allocate funding and staff. This is especially true for projects that managers believe carry high risk, or that don’t help them meet their own performance goals. The ambidextrous approach establishes strong operating agreements that protect fragile start-ups or experimental ventures, especially in the area of financial and human resource allocation. The ambidextrous organization draws upon selected corporate resources (both initially and over time) and may in some cases have special provisions that facilitate better access to resources or quicker turnaround.

Innovation Council

An innovation council consists of senior members from various functional areas within an organization; its role is to establish corporate priorities for new ventures, and to sponsor and support entrepreneurial efforts that may drive growth in new areas. The innovator – a venture team or individual – with an unfunded idea or business concept presents a proposal to the Council. The Council then provides feedback to the innovators, funds the most promising ventures, provides a variety of resources and facilitates introductions to external groups that can provide support.

Section III: Selecting the Best Organizational Structure

Having presented six common organizational structures that are considered to be supportive of innovative activities within an organization, we now move on to the task of selecting the one(s) that are best suited for the implementation of the Stage-Gate Product Innovation Process. In doing so we shall consider, among other factors, the level of integration of various functional areas, the efficient use of resources, the degree of independence of the product development team(s), and the flexibility of the organizational structure in question. In discussing these factors, we will take into account some of the general criticisms offered by Robert Cooper for the general form of some of these organizational structures and why they may not be the most suitable for the implementation of the Stage Gate system.

Interaction and Integration of Functional Areas

The level of interaction and integration between various functional areas of an organization varies greatly among the group of organizational models that have been presented above. Most notably, the level of integration is a factor that cannot be judged very reliably for virtual organizations. However, in theory the highest level of cross-functional interaction would exist in the innovation council, innovation community of practice, and to a lesser degree in the innovation project team.

The interaction and integration of functional areas is most notable in the ambidextrous organization, it is in this organization structure that representative from each functional area involved are physically included in the innovating group.

Efficient Use of Organizational Resources

While all organizational structures and forms strive to achieve maximum efficiency, goals like self-sufficiency, flexibility, and quick response time lead to varying levels of redundancy within an organization. The level of redundancy within virtual organizations is low since no new people are being added to the organization, the only resources required to implement virtual organizational structures are those related to technology platforms and funding required for the activities of the virtual organization.

The level of redundancy in shared service organizations is particularly high because of the very reason for their existence – to provide a corporate-level (or central) resource corresponding to business unit level functional areas. This can be seen as a relatively inefficient use of resources that is only justifiable in large organizations where the benefits of such a structure clearly outweigh the costs.

Independence of the Product Development Team

In most organizational structures discussed here, the product development team is answerable to senior management officials who are not directly involved in the product development and innovation functional area of the organization. This makes it difficult for the product development team to function with complete independence, making it more challenging to introduce new and novel ideas that are high-risk, but may also possess high-potential.

In this regard, the ambidextrous organization provides the most independent operating environment to the product development team because they have their own physical space, funding, resources, and the decision-making ability when it comes to their own project(s). This structure also ensures that the work of the product development team does not affect the other branches of the organization, so in effect the innovation is carried out in isolation with only the macro-level organizational goals and mission guiding it.

Flexibility of the Organizational Structure

This characteristic of organizational structure is similar to the degree of independence enjoyed by the organizations. The independence and flexibility of an organization is directly affects the speed with which innovation can take place. The inability to adapt the organizational structure to changes in the environments, or to have to wait for a long time to get approval from senior management can greatly increase the time taken by the team to respond to changes in the environment. This means that the product development team loses crucial competitive advantage – a loss that over time could prove fatal to even the best of organizations.  

Since only an ambidextrous organization employs an actual physical organization structure to support the innovative function within an organization, it is also the only one that can respond swiftly to environmental changes. This is in part because of the independence of the product development team. They are not competing with other functional areas of the organization for precious resources like manpower and funding, nor are they faced with the uphill task of convincing senior management from several different functional areas to support them.

Criticism of Virtual Organizational Structures

As pointed out earlier, all but one of the organizational structures discussed are virtual organizations. What this means is that the functional structure relies on the organization of individuals from various functional areas, or operational units that are physically separated, and answerable to different members of senior management. Hence, the task of product development and innovation is not their first duty. It is essentially a second layer of responsibilities that makes these individuals an organization.

Robert Cooper expresses deep concern about the ability of such organizations to deliver the services that are needed from an innovation team with the flexibility and agility that should be characteristic of a well-implemented Stage-Gate system. Cooper asks that we ‘organize around a true cross-functional team with empowerment’. The cause of failure in 75 percent of new product development projects is slippage attributable to the following factors:

1. ‘Siloing’ or the need to send decision tasks up and down vertical organizations
2. Use of sequential problem solving, as opposed to parallel processing

While the first attribute may not exist in some organizations that have very flat organizational structures, it is nevertheless introduced to the product development team if it is of the virtual kind. Any decisions that have to be made by a virtual organization need to be sent ‘up’ to senior management officials that exist in the physical structure.

The presence of the first problem, even to a small degree, leads to the amplification of the second problem. It is nearly impossible to efficiently manage a virtual cross-functional team to implement parallel processing. The primary responsibilities of the members to their duties in the physical organization structure do not allow them to dedicate the time and energy that is required to achieve large goals through collaborative work in scenarios where all members have their own areas of specialty and are working simultaneously on tasks that may not be directly related, but are required for the achievement of the overall goal. Such a ‘relay race’, as Cooper calls it, reduces the efficiency of the organization so much that it no longer remains competitive. (Cooper, Winning at New Products: Accelarating the Process from Idea to Launch, 2001)

Section V: Conclusions

In conclusion, I believe that it is best to use an ambidextrous organization structure for the implementation of the Stage-Gate system. This particular organization structure is superior to the others that have been discussed in this article, and also offers a degree of flexibility within itself. An ambidextrous organization may be implemented in two different ways, at two different scales hence catering to the different needs of organization of different sizes. The two possible implementation of an ambidextrous organization are shown in the figure below.

Figure 4: Two ways to implement an ambidextrous organization structure to support the Stage-Gate system. Source: http://www.innovation-point.com/Ambidextrous%20Organizations.pdf

The growth incubator model identified new opportunities and then either established these as new business units, or integrates them into existing business units. Alternatively, a business unit can create and protect its own ambidextrous organization in the form of a new venture house within its own walls. (InnovationPoint, 2004)

With these qualities in mind, it can be concluded that the ambidextrous organization is the best structure to support and sustain the successful implementation of a Stage-Gate system.

Bibliography

Cooper, R. G. (2001). Winning at New Products: Accelarating the Process from Idea to Launch. Cambridge, MA: Perseus Publishing.

Cooper, R. G., & Edgett, S. J. (2009). Stage-Gate. Retrieved May 5, 2009, from Product Development Institute Inc. : http://www.prod-dev.com/stage-gate.php

InnovationPoint. (2004). Organizing for Innovation. Retrieved May 15, 2009, from Innovation Tools: http://www.innovationtools.com/PDF/Organizing_for_Innovation.pdf

Karol, R., & Nelson, B. (2007). New Product Development for Dummies. New Jersey: Wiley Publishing, Inc. .

Go Non-Profit

Interestingly enough, some newspapers (albeit, the small ones) are working to become non-profit organizations. As a non-profit, a newspaper would have some clear advantages. First, a non-profit can receive donations and support from philanthropic organizations that would be tax-deductible, tapping a totally new income stream. This model has been successful for other types of media, especially National Public Radio (NPR) and the Public Broadcasting Service (PBS).

MinnPost

One organization that is currently following the non-profit model is MinnPost.  Started by Joel Kramer, MinnPost is a non-profit newspaper that operates an online newspaper that focuses on the Minneapolis area as well as national news.  It started up with financial support from donors and foundations and hopes to break even using a mix of memberships, advertising, and sponsorships. According to Kramer, MinnPost should be able to breakeven before 2012. From a content perspective, MinnPost publishes many “short quick hits” types of stories to draw in readers. Even though it still publishes long stories with in depth reporting, the shorter stories have been bringing more traffic to the site. It also allows readers to comment on articles, giving readers a way to feel connected to the news source as well as reason to come back more often. The site is also cutting edge when it comes to Web 2.0 features as the site posts links to other sites in the form of affiliates. Affiliates host a link to MinnPost and Minnpost will return the favor.

To make money, the site does have Google Ad Sense ads on its site as well as traditional ads. MinnPost also has started selling sponsorships for certain sections of its online page, which according to Kramer, bring more exposure to the advertisers. The newspaper (if you can call it that) also sells memberships to satisfied customers. There seems to be little incentive for making a donation, besides a tax exemption and a shout out on their site, but from a quick look at its donor list, MinnPost has received a generous amount of donations. It will be interesting to watch MinnPost in the future to gauge its success.

ProPublica

Similarly to MinnPost, is ProPublica. ProPublica is another non-profit newspaper but only receives its financial backing from large foundations, such as the Sandler foundation. Its main purpose is to do investigative reporting, which is a very costly affair and is one of the first things to get cut from a failing newspaper. Investigative reporting has made a huge impact on the American society and has held people accountable for their actions all over the nation, such as the Watergate scandal.  ProPublica is run by some very experienced people including the former managing editor of the Wall Street Journal, the former managing editor of the Oregonian, and the former investigative editor of The New York Times.  ProPublica gives its most important stories to traditional news sources for free and then will later post it on their website. ProPublica has broken some large stories including about a story about the medical personnel involvement in interrogations in Iraq. The story then started a congressional review.

Spot.Us

Another interesting newspaper company is called Spot.Us. Spot.US is basically the Kiva of the newspaper world. Funded by the Knight Foundation, Spot.US connects journalists with the public, similarly to the way that Kiva connects lenders to people in the developing nations. People can go to Spot.Us and submit tips, or stories that they want to have investigated. A reporter will then accept the story and set a fee. Other people can donate money (tax deductible) to have that story written. The story can be picked up by any other news source for free, but if an organization wants exclusive rights, they have to pay 50% of the donor fee back to Spot.Us. Some of that money goes back to the original donors as credits to fund another story. Right now, Spot.Us is focused on the Bay Area and has plans to launch in other cities in the United States. Here is a video explaining the concept. 

As intriguing as Spot.Us is, I do not feel this model will become the archetype of newspapers in the future. I think it can be successful for local areas where people are curious about the issues around them but I do not feel it would be capable of handling large-scale investigative reporting, especially concerning international politics.  Of the three organizations that I profiled, I feel that the Minnpost and ProPublica will become the role models in the newspaper industry. Newspapers cannot expect to turn a profit in the future with the current revenue models that they have in place. They cannot produce a good product without substantial capital investment, which the stock market will not provide to a hurting industry. At the same time, the newspaper industry should not receive government bailout money as it could possible interfere with its objectivity. Instead, most modern newspapers, especially those in financial trouble should restructure as a non-profit organization. This would give them the necessary tax breaks and the ability to receive donations from the public. Modern newspapers need to offer a connection between the news and its readers, like Minnpost has been trying to do. They need to accept the internet and embrace it.

Protecting Democracy

Why do we even need newspapers? Vince Stehle of the Chronicle of Philanthropy sums it up pretty well, “Who cares if newspapers do go out of business? We all should. Newspapers are the first draft of history, and they provide a critical check on the abuse of power by political and corporate interests. A healthy democracy and a just society depend upon a free and vigorous press.” Newspapers keep people accountable and society will always need this important service.  

Here ends my three part series on the newspaper industry. Feel free to comment below.  Part One.  Part Two.