Knowledge that Transforms

For most firms, new product development is the engine for growth and profitability. A firm's new product success depends on its ability to manage the product development process in a way that employs scarce resources to achieve the goal of the firm as well as the specific project's objectives. Simple and measurable performance metrics have been proposed and applied to monitor and compensate the development teams. In this paper, we develop a modeling frame work to analyze the implications of setting managerial priorities for three commonly used new product performance metrics: (1) time-to-market, (2) product performance, and (3) total development cost. We model new product development as a “product performance production” process that requires scarce development resources. Setting a target for development teams for each of these performance metrics can constrain this performance production process and, thereby, affect the other performance metrics. We model the constrained process as a restricted case of a general process that does not have such constraints. We benchmark each constrained process against the optimal, unrestricted process with respect to the level of the resource intensity employed during the development process, the time-to-market, and the performance level of the new product at launch. We show that an overly ambitious time-to-market target leads to an upward bias in resource intensity usage and a downward bias in product performance (i.e., evolutionary product innovation). In addition, our results suggest that the target time-to-market approach may ignore the effect of cannibalization and, thus, can perform suboptimally if a significant degree of cannibalization in the existing product market is expected. Given a target product performance, we show that the coordination between marketing and R&D is easier because the resulting development resource intensity and time-to-market decisions becomes separable. However, an overly ambitious product performance target leads to an upward bias in the development resource intensity and a delayed product launch that misses the window of opportunity. Finally, we show that the target development cost approach can lead a downward bias in product performance and a premature product launch. The above analyses are performed for a monopolistic firm, and they are extended to passive and active competitive environment.

The decentralized supply chain management scheme of Lee and Whang (1999) can be viewed as operationalizing the decentralized management scheme implicit in Clark and Scarf (1960). This paper proposes the use of what are called responsibility tokens (RTs) to further facilitate that operationalization. The proposal assumes that a management information system, presumably electronic, is established to monitor inventories and shipment quantities, and to carry out transfer payments between players. As in Lee and Whang(1999), the incentives of the system are aligned, so if each player is brilliantly self-serving, the system optimal solution will result. While the system administrator need not know how the system should be managed, the most upstream player must know how to manage the system optimally for the system optimal solution to be achieved. RTs endow the system with an attractive self-correcting property: An example illustrates that upstream players are given a mechanism and the incentive to correct for downstream overordering. The downstream players who over-order are penalized, but system performance is not degraded much. Extensions and further research are also discussed.