Information Distribution,Utilization, and Decisions by New Product Development Teams

Typically, organizations use new product development processes composed of activities followed by decision points, where projects are continued or abandoned. A decision maker likely possesses some common information also held by other decision makers and some unique information (that only she/he possesses). If a team relies mainly on overlapping, or common, information, decisions may suffer, but if they share and utilize information originally possessed by a subset of individual members, better decisions can be made. In this paper, the authors designed and conducted four studies to examine the effects of information distribution and utilization on new product team decision‐making. In study 1, the findings show that team members tend to use information possessed by everyone (i.e., common information) but neglect critical information possessed only by one of them (i.e., unique information). This common information bias results in suboptimal new product continuation decisions. In study 2, the interplay between the common information bias and team commitment to the NPD project favored by unique information is examined. The results show that although commitment influences new product development team decisions, the common information bias is stronger. Study 3 was conducted to rule out an alternative explanation for the effect of information distribution—the perception of information importance. In study 4, the focal hypotheses were re‐tested using a different sample to add confidence in the findings.     

Evaluating Product Plans Using Real Options

Product planning helps a company to strategically plan its current and future product platforms and offer product variants in the marketplace. Product platforming is widely touted as a successful strategy for mass customization. However, due diligence should be exercised before implementing any product platform strategy. The product planning exercise should account for future uncertainties. Traditional financial tools such as the net present value (NPV) are static since they do not compensate for any exogenous and endogenous uncertainties during the course of the project. The crux of the problem lies in the evaluation model that is used for evaluating the product planning projects. While many view uncertainties in a product planning project as problematic, it can also be viewed as a source of new opportunities. We argue that uncertainties should be an integral part of the evaluation model. If the future possibilities (or strategic options) are not considered in the evaluation model, a corporation may face a “myopic syndrome”.

In this article, we consider two important product planning decisions—platform decisions and product variant decisions. The platform decision involves strategic selection of a concept product platform from various possible alternative concept product platforms. The product variant decision involves deciding how long a company should continue to offer its current product variant in the marketplace and whether the existing product variant should be discontinued, scaled down, or scaled up with additional product features. To address the two aforementioned decisions, we developed a real options–based methodology that considers technical, project implementation, and market-related uncertainties. The proposed methodology uses a binomial and quadranomial lattice approach to build a decision tree. Product planning decisions at various decision tree nodes are evaluated using a risk-neutral option valuation methodology. We demonstrate the working of the proposed methodology using an illustrative example.     

Alternatives to the U.S. Antitrust Agency approach to market definition

Shortcomings of the U.S. Antitrust Agency Guidelines method of market definition include failure to focus on competition, the need for cost data, and discontinuities. Two alternative approaches are presented which avoid these problems and the Guidelines' inclusion of substitutes on an all-or-nothing basis. One alternative focuses on the size of a change in capacity of a substitute that would be needed to have the same effects as a unit change in capacity of an initial item. The second proposed alternative offers a simple operational method of giving practical content to the “reasonable interchangeability” concept which is a prominent feature of U.S. Supreme Court decisions. The alternative approaches are evaluated in comparison to that of the Guidelines and some modified versions of the latter.     

Exploring Portfolio Decision‐Making Processes*

Portfolio management is the set of activities that allows a firm to select, develop, and commercialize a pipeline of new products aligned with the firm's strategy that will enable it to continue to grow profitably over the long term. To appropriately manage the firm's new product portfolio, decisions must be made about which projects to fund, to what levels, at what point in time. Previous research has investigated portfolio management decisions as individually discrete decisions. Significant streams of research have investigated both project selection and project termination decisions. This research project shows, however, that portfolio decision making may be better understood if it is considered as an integrated system of processes that considers these decisions simultaneously, along with other decisions such as those to continue a project with reduced funding. Using in‐depth data from four diverse case studies, we use a grounded theory approach to develop a general model of how firms make new product portfolio decisions. According to the findings from these cases, effective portfolio decision‐making processes produce a portfolio mindset, focus effort on the right projects, and allow agile decision making across the portfolio's set of projects. Effective portfolio decision making is the result of the interaction between three types of decision‐making processes that managers use in making decisions: evidence‐, power‐, and opinion‐based. Being able to use each of these types of processes to make decisions depends upon having the data inputs that they require. Three domain‐based decision input‐generating processes (i.e., cross‐functional collaboration, practices of critical thinking, and practices of market immersion) are associated with making evidence‐based portfolio decisions. In addition, organizational politics produces the inputs that are associated with power‐based portfolio decision making, while managerial intuition is associated with opinion‐based portfolio decision making. Firm cultural factors, including trust, collective ambition, and leadership style, are associated with how these evidence‐, power‐ and opinion‐based processes are combined into an overall portfolio decision making process, and whether the firm's processes are more rational and objectively made, or more politically and intuitively made. The article presents propositions for how the decision‐making processes interact in their associations with decision‐making effectiveness.     

Present Worth of Interest Tax Credits

The widely used concept of a cash flow per project in capital budgeting has serious weaknesses when resources are shared by different projects. Accordingly, the concept of cash flow per project is not used herein. Instead, the project portfolio approach is used in which costs are considered only in the acquisition and utilization of resources; when these costs actually occur. The main conclusion from this approach is that better capital budgeting decisions can be made if the concept of cash flow per project is avoided when resources are shared.     

Networks and the Decision to Persist with Underperforming R&D Projects

Drawing on aspiration level theory and the networks literature, this paper develops a model toward decision makers' persistence with underperforming R&D projects based on the perceived properties of their personal network. The assumption is that positive feedback from network partners motivates persistence, and that this effect is multiplied when the decision makers' network is larger and denser, when network ties are predominantly strong, and when communication frequency within the network is high. The model is tested by a field experiment and conjoint methodology. Analysis of 1632 persistence decisions nested within 51 scientists responsible for R&D projects reveals that more positive feedback enhances persistence of underperforming R&D projects, and that this effect becomes stronger with increasing network size, network density, and communication frequency. These findings extend the project management literature by focusing on the social environment of the decision maker as one so far neglected factor in empirical studies on persistence decisions. Moreover, this study is among the first to investigate contingency relationships between feedback received from network partners and network structure. Finally, while most studies have emphasized that individuals and organizations can profit from their engagements in social networks, this paper suggests a potential dark side of networks by showing that networks can encourage decision makers to persist with their investment in an underperforming—and potentially failing—project. These results can help project managers involved in networking activities to better understand the effects of these activities on their decision policies, and thus draw better and more accurate decisions. Second, this study provides insights into how organizational strategy with respect to dissemination of R&D results and involvement of the organization's R&D managers in the scientific community influences the persistence of underperforming R&D projects, and thereby the organization's R&D expenditures. This can assist top managers to design financial controls and allocate financial resources to managers of underperforming R&D projects in line with the organization's networking strategy.     

Technology development: Determining what to forecast

This article discusses a proven conceptual technique for identifying, classifying, and relating the very large number of complex factors, known and unknown, that enter into venture analysis decisions. Frameworks for reducing complexities to manageable options are proposed. These frameworks highlight areas where additional knowledge— or even invention—is necessary. Planning managers may thus determine their present technological position (where they are in the scheme of the present state of the art), map out possible future developments, reduce the risk of future shock, and determine which alternative should be the subject of in-depth technological forecasts.     

R&D Project Termination Decisions: Processes, Communication, and Personnel Changes

The decision to terminate a project can demoralize project managers and team members, and increase concerns about job security. For these reasons, managers tend to delay project termination decisions. However, delaying project termination diverts scarce R&D resources from higher potential projects. Ramaiya Balachandra, Klaus K. Brockhoff, and Alan W. Pearson describe the results of a study that explores the manner in which managers inform staff of the decision to terminate or continue a project. Survey respondents are the highest ranking R&D managers in 78 large German, British, and U.S. companies. Respondents were asked to describe the procedures they use for monitoring R&D projects and deciding whether to continue a project. Underlying this research is the belief that more effective management of these processes can improve project team effectiveness, employee relations, and morale. All survey respondents use project monitoring procedures. Most use formal procedures, often supplemented with informal procedures. More than one person usually monitors projects. Project managers, their immediate superiors, and project staff typically have these responsibilities, but respondents also indicate that marketing managers often monitor projects. Compared to U.S. companies, European firms typically involve fewer people in project monitoring. U.S. firms involve more non-R&D personnel in these tasks. Most firms focus on monitoring such variables as time, technical success, and probability of technical success. Staff motivation is the least used monitoring variable. Cost control was mentioned more frequently by German respondents than by respondents from other countries. Decisions regarding the fate of a project usually come from individuals not directly involved with the project. Termination decisions are typically communicated in writing; no respondents use staff meetings to relate such decisions. Following the decision to terminate a project, management faces the difficult task of finding suitable jobs for project team members. Rather than assign an entire team to a new project, management typically disbands a team and assigns its members to other teams. The inherently uneven progress of R&D projects complicates these scheduling problems, and thus compounds the career uncertainty caused by project termination decisions.     

Reforming the lifeline program: Regulatory federalism in action?

This paper considers whether common national standards for determining participants' eligibility and designating service providers in the Lifeline program are preferable to a decentralized system where state utility commissions have greater influence over these program parameters. Two recent decisions of the Federal Communications Commission (FCC), a 2016 Order and its reversal in March 2017, on the designation of Eligible Telecommunications Carriers to provide broadband Lifeline service, centered on this question. Statistical analysis of program data demonstrates that state-by-state variations in enrollment may be attributed to state-level policy actions, after controlling for alternative demographic and economic explanations. This paper concludes that national standards may reduce state-by-state variations in program participation rates.     

Making real options work for practitioners: a generic model for valuing R&D projects

We propose a generic valuation framework for the appraisal of R&D projects based on real option theory. The added value of this approach is the presentation of a model that was implemented in a manner that allows corporate decision makers to use real options in an intuitive and standardized way. The project valuation procedure is separated into three main phases: project modeling, data and input collection, and result generation and analysis. The project model represents the structure of the real world R&D project with its investments, expected results, and decisions that need to be taken conditionally on the outcomes of research activities. The project model is represented in the form of a decision tree, where different research results or taken decisions lead to new branches. In this way, every possible situation the project can pass through can be represented. Uncertainties are separated into market uncertainties (e.g., market prices) and project specific, private uncertainties (e.g. uncertainty of research results). For both uncertainties, event trees are constructed which are then combined and merged with the above mentioned decision tree in order to represent the value evolution of the R&D project under given decisions and uncertainties. For every possible state of the project the real option value is calculated. By creating multidimensional trees, a multitude of decision steps and various kinds of real options (e.g., continue, expansion, switch, abandonment) can be modeled. The calculation complexity for the decision trees is given. From the tree structure we can calculate the real option value of starting an R&D project, i.e., the value of undertaking the first investment and thus acquiring the subsequent decision opportunities given by the completion of the first research effort. Furthermore, the optimal exercise strategy is derived from the decision tree. The exercise strategy gives the manager the possibility to have an a priori overview of where an R&D project may lead to, which decisions need to be taken in which circumstances, and when the project needs to be stopped in order not to generate losses. In an in‐depth case study we use an illustrative R&D project to set up and discuss the three phases of project modeling in the real options framework: building the multidimensional decision tree, input generation, and calculation of the real option value as well as the optimal strategy for the R&D project.     

Determinants of the Locations of Alternative Financial Service Providers

Many low-to-moderate income US households rely upon alternative financial service providers (AFSPs) for a variety of credit products and transaction services. The social welfare implications of this segment of the financial services industry are quite controversial. One aspect of the controversy involves the location decisions of AFSPs. This study examines the determinants of the locations of three types of AFSPs: payday lenders, pawnshops, and check-cashing outlets. Using county-level data for the entire country, I find that the number of AFSP outlets per capita is significantly related to demographic characteristics of the county population, measures of the population’s creditworthiness, and the stringency of state laws and regulations that govern AFSPs.     

Salesforce selection that meets federal regulation and management needs

A key problem for industrial marketing management is to develop a selection process that is both legally valid and managerially useful. By applying a selection approach which incorporates both a sequential selection process and a validation procedure, industrial marketers should be able to make better hiring decisions as well as comply with existing governmental regulations.     

Are really new product development projects harder to shut down?

Just as a good houseguest knows when it's time to say good-bye, effective managers must recognize when it's time to terminate a new product development (NPD) project. As a product progresses toward commercialization, a manager's reluctance to terminate a failing project becomes increasingly expensive. Despite this growing expense, however, many managers are reluctant to shut down failing NPD projects. Jeffrey Schmidt and Roger Calantone hypothesize that this reluctance may be even more pronounced for innovative new products than for incremental NPD efforts. They suggest that perhaps the excitement that really new products engender within a company makes managers more reluctant to shut down the NPD project, even in the face of clear-cut evidence that the project is not a winner. To test these assumptions, they conducted a decision-making experiment in which managers were asked to make go/no-go decisions at each stage in a hypothetical NPD project. One project involved an innovative new product; the other project involved an incremental development—that is, a line extension that offered only marginal size and cost reductions compared to current models. At the outset of the experiment, participants were given market share and profit objectives for assessing the new product's performance. At each stage in the hypothetical NPD project, the participants then received updated performance data. The performance data provided to participants was identical for the two hypothetical projects, and fell increasingly farther below the performance objectives as the project progressed. The results of the experiment support the hypothesized relationship between product innovativeness and managers' reluctance to terminate a failing NPD project. Given identical, poor, performance forecasts, the managers who participated in this experiment were more optimistic about the likelihood of success, were more committed to the project, and were more likely to opt for continuing the project when it involved the more innovative product. In fact, the participants were more likely to allow the highly innovative NPD project to proceed all the way through commercialization, notwithstanding the progressively ominous performance feedback.     

Evaluation of a mining project under the joint effect of commodity price and exchange rate uncertainties using real options valuation

Cash flows generated by mining projects tend to be volatile and are extensively influenced by exogenous variables, notably commodity prices and exchange rates. The traditional discounted cash flow (DCF) method, which is normally used for economic feasibility studies and mining project evaluations, presents inconsistencies because the method fails to adequately address uncertainties and operational flexibilities and often ignores certain specific market conditions. Numerous studies have been carried out for mining project evaluations using the real options valuation (ROV) technique for assessing commodity price uncertainty, but there is no research on the combined effects of price and exchange rate uncertainties. Therefore, in order to assess the economic viability of a mining project more accurately, the commodity price and its inherent volatility, the exchange rate and its inherent volatility, and the correlation parameters between them have been incorporated into the model and used in the evaluation process. One of the interesting findings revealed in the study is that project values are overestimated if only commodity price uncertainty is considered in evaluating the project value instead of the joint effect of commodity price and exchange rate uncertainties. This new ROV technique will explore the opportunity to utilize an alternative methodology for approximating project values and to identify valuation opportunities to enhance economic gains or to mitigate economic losses, where the DCF valuation method does not.     

Sourcing decisions of project tasks with exponential completion times: Impact on operating profits

When managing a project, a firm must evaluate multiple strategic factors and operational issues before deciding which tasks to keep in-house and which to outsource. We focus on one operational aspect of this evaluation process by examining the impact of different sourcing decisions of project tasks with exponential completion times on operating profits. As an initial attempt, we present two stylized models that capture two simplest types of projects: (a) a project with two “parallel” tasks that can be performed simultaneously and (b) a project with two “serial” tasks that must be performed sequentially. For each model, we determine the optimal operating profit for the case when the firm outsources zero task, one task, or two tasks. These operating profits can be informative for making sourcing decisions of different project tasks.     

Stage‐to‐Stage Information Dependency in the NPD Process: Effective Learning or a Potential Entrapment of NPD Gates?

The new product development (NPD) process is a sequence of stages and gates. Each stage consists of NPD activities that provide NPD managers with information input about the new product project progression. Information input is used for review decisions at gates. Over the course of an NPD process, managers learn about a new product project as to ensure successful launch. The view is that a new product project is shaped by the path of NPD activities it has traveled. Because learning is assumed to take place over the course of the NPD process, stage‐to‐stage information dependency is an assumption of NPD research. A concern raised is that development activities for each NPD stage are rigorously followed by NPD managers. In other words, stage‐to‐stage information dependency may potentially trap NPD managers rather than create effective learning from end to end of the development process. The purpose of this paper is to explore the assumption of stage‐to‐stage information dependency in NPD. The investigated research questions are whether the selection of NPD activities is linked between stages and whether these information dependencies strengthen NPD gate decisions. For the information dependencies identified in the study, the innovation experience characteristics of NPD managers pursuing them and the influence of information dependencies on NPD gate decisions are analyzed so as to provide insights for a discussion of information dependency versus information independency in the NPD process. The applied research method is an experiential simulation of NPD gate decision‐making—NPDGATES. One hundred thirty‐one NPD managers from international product development strategic business units (SBUs) situated in Denmark participated in the study. Logistic regressions were conducted as the basis for the calculation of stage‐to‐stage information dependency probabilities. Based on the study findings, the assumption about information dependency in the NPD process held by NPD research is found to be flawed. End‐to‐end information paths in the NPD process are rare. Further, market condition changes are found to significantly influence the stage‐to‐stage information dependencies demonstrated by NPD managers. It seems that competition becomes a reassurance of NPD efforts. Also, the results show that NPD experience creates inflexibility in relation to the selection of NPD activities. The need for strict process management is strong among experienced NPD managers. In relation to NPD gates, the results show that information dependencies increase priority given to financial decision criteria at gates and lower priority given to customer and market decision criteria. Overall, stage‐to‐stage information dependency seems to create inflexibility that hinders successful NPD process implementation.     

Subjective Performance Assessment of Innovation Projects*

Performance assessment of innovation projects is a central issue in innovation management research. Using existing literature, a model is developed to assess the performance of new product and new service development projects. In this model, project performance is defined as a combination of a formatively indicated operational performance construct and a reflectively indicated product performance construct. The validity of this model is tested based on a sample of 219 innovation projects assessed by innovation managers. Using only the innovation managers' responses, it is, however, not possible to distinguish between operational and product performance. The impact of common method bias and informant bias is subsequently assessed using a subsample of 128 of these 219 innovation projects that are assessed by the innovation manager and the project leader. These latter results show that operational and product performance are two distinct constructs. In addition, the multitrait–multimethod analyses show that especially the more abstract items of performance, such as the perceptions of quality, captured knowledge, competitive advantage, gained reputation, and customer satisfaction, suffer from random error and informant bias. Project leaders appear to be better informed to assess operational performance, while innovation managers are better in assessing product performance. The paper concludes with a qualitative comparison of several alternative performance models: the project performance model as derived from the literature, a similar (misspecified) reflective performance model, two stand‐alone models in which operational and product performance are assessed separately, and a mixed model that uses a combination of innovation managers' and project managers' data. Based on this comparison, it is advised to use either the stand‐alone models for operational performance and product performance or the mixed model whereby the project leader assesses operational performance and the innovation manager the product performance of an innovation project.     

Distributed New Product Development Project Based on Internet and World-Wide Web: A Case Study

The deluge of hype about the wonders of the Internet, Intranets, and the World Wide Web continues unabated. At the same time, we hear numerous tales about endless streams of busy signals, broken connections, and painfully slow response times. Surveying the apparent gap between the promise and the often-painful reality, a skeptical manager might reasonably question whether this technology can satisfy the rigorous demands of business users such as product development project teams. In a case study of a large, geographically distributed product development project, Ari-Pekka Hameri and Jukka Nihtila find that Web-based applications can play an important role in new-product development (NPD) efforts. Particularly when projects involve numerous teams from various locations, such tools can provide effective media for communicating and disseminating information. The case study also suggests that these networked information technology (IT) applications can offer important benefits in terms of project and process management. The project described in this study involves a major NPD collaboration, with several independent subprojects and hundreds of team members from various research institutes and companies. The Internet and the World Wide Web provide the media for managing and disseminating project data. Using hypertext links, the Web-based system gives team members easy access to engineering drawings, 3D models, parameter lists, prototype test results, and other engineering information. The point-and-click interface also allows team members to access information about the project structure and schedules, as well as meeting notes, newsgroups, and electronic bulletin boards. Analysis of the file-transfer activities between the Web server and the project groups highlights several important points regarding networked IT applications, information sharing, and project management. First, the system used in this project serves primarily for disseminating information, rather than for fostering collaboration between different groups. Increased collaboration among networked team members probably requires more sophisticated version- and configuration-management capabilities. Second, file-transfer activities typically come in bursts around project milestones; this highlights the essential role that project milestones play in coordinating the work of distributed team members. The electronic media enhance not only the work leading up to milestones, but also the dissemination of decisions made at each milestone.     

Structuring innovation funnels for R&D projects under uncertainty

An innovative R&D project that creates a great business opportunity usually involves high technological and market uncertainty. It is easy to see that developing only one solution approach in the R&D project is too risky. The selectionism or the parallel development strategy can be applied to construct an innovation funnel that increases the flexibility to hedge against the uncertainty. However, little research has been devoted to selection of which alternative solution approaches should be included for the innovation funnel. This research aims to develop a simulation-based methodology that can help R&D managers evaluate and construct an innovation funnel containing promising alternative approaches for a novel R&D project to maximize project profit, while minimizing downside risk within an allowable loss. A new risk measure based on the concept of conditional value-at-risk from the finance literature is defined to evaluate the project downside risk. An example of drug development project is used to illustrate the proposed methodology. We recommend that firms should improve their capabilities on market research, concept screening, and R&D efficiency for taking full advantages of selectionism.     

THE EFFECTS OF CAPACITY ON SALES UNDER ALTERNATIVE VERTICAL CONTRACTS*

Retailer capacity decisions can impact sales for products by affecting, for example, availability and visibility. Using data from the U.S. video rental industry, we report estimates of the effect of capacity on sales under alternative vertical contracts. New monitoring technologies facilitated new supply contracts in this industry, reducing upfront costs of capacity but requiring minimum capacity purchases, strongly impacting stocking decisions. We find that larger capacity (more tapes) for a given title can substantially increase rentals of that title; and that alternative vertical contractual forms for distributing tapes from studios to retailers strongly impacts the relationship between capacity and rentals.