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Pitney Bowes Inc: Innovation Process

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    Euchner’s main concern is whether Stamp Expression was the right product to promote to market. Based on analysis below, it is found that Amita project has several pitfalls which led to the slow initial sales and possible failure in growing this product. It would be better if Pitney Bowes uses acquisition to grow the small business segment. Analysis Innovation Process and personnel One major issue that Pitney Bowes had is the total separation between their two essential roles, product engineering and future-scanning, in innovation process.

    For Amita’s innovation process, all concept development and commercial feasibility are being done in AC&T without engaging product engineering team. If product engineering team has been involved earlier, the lack of real-time support would be spot and the time spent on all feasibility activities would not be wasted. Furthermore, as many people have a say to the project, Amita has gone through much iteration which made project size growing and cost adding. Another issue was the personnel recruited to the company for leading the company growth.

    Neil Metviner, Dan Kohn and Lisa Somer were all hired in the sales team from credit card and consumer bank background. It is doubtful whether they had enough retail experience to define target markets and strategy to attract customers. Customer-input innovation AC&T’s approach to finding new growth opportunities was “customer-centered innovation”. The drawback of customer input innovation is that customer should not be trusted to come up with solutions. Rather, customer should be asked only for what they want a new product or service to do for them (Ulwick, 2002).

    Although AC&T has employed staff of anthropologists, designers, engineers etc to understand customers’ unspoken needs and values, the judgment on whether to include functionality, like to hook the machine directly to telephone jack or PC, was made by asking ONE single client in the focus group. Decision would far better be made by asking more interviewees with different backgrounds in order to avoid personal preference. Furthermore, AC&T are heavily influenced by MIT professor Eric Von Hippel, who believed observing lead users do with products can yield insight into what further improvement and product ideas.

    This fact maybe true but normal user wants may not be covered, as well as requirements from non-customers. Product features In order to keep the manufacturing cost low, some important features, like ability to produce coloured image, are being removed from the product. Removing this feature has actually hurt the product potential because this is a function which stamp. com, who already possessed 85% of market share, already had. It is always extremely difficult for a company to tackle into a market which has already been dominated by a big player.

    In order to do so, it must have a product with functionalities matching with competitors in addition to new innovative features which can be a selling point for the product. In Amita’s case, the product is still not as good comparing with stamp. com. Target market Although Murray Martin, COO, indicated that they should reinvent in existing market space to ensure an ongoing healthy core, one point they did not investigate is that how much growth this industry will have in the upcoming future; and whether innovation is worth doing based on the growth rate.

    According to the U. S. Postal Service, the number of delivery points for residential is increasing while that for Business has been steady for years. This shows that residential postage service seems to be generating more revenue than business service. Yet Pitney Bowes’s postage meters and new Amita project were targeting to small businesses. Spending capital on this segment with limited growth may not be optimal. Recommendation The core business of Pitney Bowes is to produce and lease postage meters.

    To determine whether it should innovate very close to existing business or explore ideas that can push envelop at Pitney Bowes, a few aspects should be reviewed. Firstly, assuming the doctrine of innovating close to core was true, what are the things that we should take into account? Project team personnel It is very important that staffs from different backgrounds are engaged in formulating innovative products. In general, the innovation project team should involve the below personnel: •Sales team – they understand the industry and customer needs.

    They know the company target segments and whether this product aligns with company value propositions. •Engineering and technology team – similar to AC&T, they are responsible for creative thinking. What are the important features that this product can deliver? Is it something brand new in the market? Or is it a product which is made to match the market demand? •Product management team –This important role is the bridge between the technology and sales team. They understand from sales team what product features can match the market needs and the price range the market is willing to pay.

    They communicate with engineering team on the required feature of the product and to manage the product cost. This is a very critical role as they look at the innovative product from both business and management perspective. Technology team can invent some world-class products which rock the market, yet whether the product can meet the client requirement within a reasonable cost, it will be for this team should examine. In Stamp expression case, product engineering is only involved after feasibility analysis done by AC&T.

    As mentioned above about the three main team players, major hurdles can be discovered earlier if the product engineering team was involved earlier. Furthermore, company should limit that other than the team mentioned above, no one can put additional requirements to the project. This is to control the project scope and not to boost up project cost. In addition to composing the team, we should also consider hiring personnel with correct skill-set. A person with retail experience, even better with postal-related background, would be much more suitable for the role in sales team to drive the product to market.

    Innovative product features – cost-benefit analysis Pitney Bowes should have performed cost-benefit analysis on each functionality it considers putting into Stamp Expression. Below questions should be answered: 1. What are the must-have functionalities? Company should investigate through client discussions. Missing any of these functionalities may lead to customers abandoning the product. 2. What are the desired or innovative functionalities? This step will help Pitney Bowes making the right trade-off among different functionalities.

    A cost-benefit analysis can be done on how much customer demand is for this feature or how much benefit this feature can bring to customers; conversely how much additional cost this feature put onto the product. As the sales team would know the maximum cost they can place for the product, using this analysis AC&T can decide which of these features to put into the product. If there is a value proposition that AC&T considers as mandatory, they should study its commercial feasibility and perform market research. Using these data, they should communicate internally within the company and get support from senior management.

    Only senior support can safeguard the critical value proposition for the product. Target markets Since Stamp. com has already held 85% of market share, Stamp Expression should be used as a disruptive innovation in order for Pitney Bowes to enter the market. Stamp. com charged a premium of 130% over postage value to provide full-colored self-adhesive stamps. One possible strategy for Stamp Expression is to target those customers who require less featuring stamps and those who like to pay less. Only if Pitney Bowes enters as a lower-cost supplier can it get business from existing stamp. om customers. As mentioned in analysis, residential service is a growing segment. Pitney Bowes should investigate the requirement in this segment and see whether Stamp Expression is suitable for them. Besides, as low-cost meters were stacked in inventory due to short-term rental agreement, these meters can be offered to residential families at minimal price. If these meters are offered during Christmas for example, when all families send Christmas cards to others, Pitney Bowes can probably make a seasonal profit. Sales channel

    As seen from slow initial sales, telemarketing may not be a good channel for selling Stamp Expression. Pitney Bowes should try retailing as another channel. Although retailing was proven not working for those old postage meters due to the procedures customer needs to follow, the company can still put the demo product in some retail space to show the launch of product and to get attention from all customers. The most important part is to create a commission scheme for the retail sales to push the product. Innovate close or explore new idea?

    In conclusion, we should consider whether Stamp Expression, as an innovation very close to existing business, is a good solution for core business growth. Pitney Bowes should examine the project cost of Stamp Expression and the revenue foreseen to be generated, keeping in mind that it can only be sold as a disruptive innovation. One alternative it should look at is the cost of acquiring Stamp. com. In this scenario, acquisition maybe much more attractive solution if Amita project cost is high, and besides Pitney Bowes can take all stamp. com market share.

    In contrast, Pitney Bowes caught the opportunity when it saw the growth in direct mailing business. It employed open innovation where it acquired various companies, used their products or technology to create a vertical integration as Mailstream. It was proven a success as it provided with over $250 billion of marketplace opportunities. If Pitney Bowes employs different approach for products, i. e. stamp. com acquisition and open innovation for mailstream, it is possible to generate considerable amount of revenue. Yet, this is NOT to discourage AC&T.

    Innovation is very important for human life as it helps promoting our society to next level, though commercial perspective cannot be forgotten. In industries like postage, where margin is thin and be threatened by new technology like internet, countless investigation and feasibility analysis should be done to make sure that the innovation would have substantial impact to the market. Reference: 1. Christensen, C and Yu, H. 2006, Piney Bowes Inc, Harvard Business School. 2. Ulwick, A. W. 2002. Turn Customer Input into Innovation. Harvard Business Review, January 2002. Pp 81-87

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