Towards an integrative framework of performance in product development projects

Journal of Engineering

and Technology

Management,

10 (1993)

363

363-392

Elsevier

Towards an integrative framework of performance in product development projects Paul A. Emmanuelides Department

of Business

Policy, SDA Bocconi

School of Business Administration,

Milan, Italy

Abstract This paper aims to identify the factors that are associated with high performance in product development projects. The study takes a multidisciplinary approach in order to first explore key characteristics of product development processes. A synthesis of literatures from the fields of organization theory, strategic management, innovation management, project management, and group effectiveness provides the necessary theoretical foundations for analyzing the complex organizational processes that are involved in a typical product development project. The theoretical development that follows leads to the formulation of a series of propositions regarding relationships between product development performance dimensions and a variety of factors. An integrative framework that summarizes the proposed relationships is then developed. The paper con..cludes with a discussion that focuses on key elements of product-development strategies and management processes and how these can be controlled in order to enhance product development performance. Keywords.

Product development; R&D management; Interfunctional groups

1. Introduction Effective product development is instrumental for the long-term vitality of the modern firm, especially those in high-velocity environments. Intense global competition, the accelerating pace of technological advancement, and increasingly sophisticated customer tastes are some of the recent trends that have made product development a critical dimension of competition. Research findings provide dramatic evidence for the central role of new product introduction to the new competitive arena. Surveys of the Fortune 1000 companies (Fracker, 1984; Booz Allen and Hamilton, 1982) estimated that the contribution of new products to corporate profits was over 30% (over 40% for high-technology firms) in the early 198Os, and is expanding rapidly. It becomes apparent that Correspondence to: Professor Paul A. Emmanuelides, Department of Business Policy, SDA Bocconi School of Business Administration, Via Bocconi, 8,20136 Milano, Italy.

0923-4748/93/$06.00

0 1993 Elsevier Science Publishers B.V. All rights reserved.

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continuous product development is increasingly becoming a prerequisite for business survival rather than an alternative viable competitive strategy. Furthermore, firms that outperform their competitors in product development activities will gain a clear competitive edge. The strategic importance of product development performance has received unequivocal support in the literature (Clark and Fujimoto, 1989,199l; Johne and Snelson, 1988). The next logical questions to be asked are: What determines product development performance? Why are some firms more effective than others? What explains wide differences in product development performance between industries, among firms in the same industry, or among projects in the same firm? What are the principles that underlie superior product development performance? Which factors can be controlled by the innovating firm and which are determined by the external environment? Under what circumstances is product development performance associated with market success? Questions of great theoretical and practical significance like the above provided the motivation for this research. The major goal of this paper is to shed light on the factors that lead to superior product development performance. A model of product development performance is developed on the basis of theoryderived hypotheses. The model’s main dependent variable is product development performance. Before proceeding to the literature review and the theoretical development, it becomes crucial at this point to provide a concise definition of product development performance, the dependent variable of interest. 2. Definition performance

and strategic significance

of product development

Several studies of product development projects have used new product commercial success as the leading indicator of product development performance (Myers and Marquis, 1969; Rothwell, 1972; Souder, 1987; Calantone and di Benedetto, 1988). Commercial success or market performance of a new product is of utmost importance to the innovating firm since it expresses the ability of this product to attract and satisfy customers and to do so profitably. Commercial success, however, is a function of several factors, many of which lie outside the range of the development team. Factors such as advertising intensity, pricing strategies, distribution strategies, and macro-economic conditions may very well affect market performance of the new product without necessarily being correlated to effective or ineffective product development practices. Thus, new product market performance cannot be viewed as a direct product development project outcome. It is rather a second-order effect in the sense that it is affected by preceding project outcomes as well as a host of other factors. Product development performance at the project level must be defined

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as the set of project outcomes that can enhance the competitiveness of the new product and increase its probability for commercial success. Consistent with the project management literature, performance in product development projects will be defined here as a three-dimensional construct. It will include a time-related dimension, defined as total product development time, an efficiency-related dimension, defined as development productivity, and a qualitative dimension, defined as total design quality of the new product. As will be discussed below, all three performance parameters are key project outcomes and have the inherent capability to enhance new product performance in the marketplace. 2.1. Development time New product development is associated with change, be it technological change embodied in a new product, commercialization of an already existing technology into a new product form, or redirection of organizational energies into new activities. As with any other form of change, product development incorporates an underlying time dimension, and it can only be meaningfully assessed as magnitude of change over time. Product development time is the metric that will be used to track the time dimension of a development project. It is defined here as the total calendar time that elapses between project initiation and market introduction of the new product. Product development time is an extremely important project parameter since it measures the capability of a company to move quickly from intangible ideas to physical products on a given project. This fast development capability has significant competitive implications, given the relative nature of competition and the fast pace of environmental change that characterizes most of today’s competitive environment. Fast development capability increases the level of a firm’s responsiveness to technological, competitive, or market changes by making possible the use of the most updated information allowing a firm to outpace its competitors. New products are not developed in a vacuum. Product developers draw technological expertise from a constantly evolving body of scientific and technological knowledge in order to develop new products. New product marketers target market segments and customers whose tastes are continuously changing. Strategists position new products in the marketplace to compete against products of rival companies whose moves cannot be accurately forecasted during early development phases. Scientific and technological advancement, constantly evolving customer preferences, and new competitive developments generate a continuous stream of new market opportunities and threats. Fast developers enjoy an information-based competitive advantage by gaining access to the most updated information regarding technological solutions, market trends, and upcoming competitor moves. They are in a better position, for example, to exploit technology or market-driven opportunities by incorporat-

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ing new technologies and updated market information into new product design faster than their competitors. Fast developers also benefit from the “moving target” effect. Reduced project lead times increase the accuracy of technological, market, and competitive forecasting at the beginning of the project. Thus, product designers in a fast-cycle company can more accurately predict the economic and market conditions that will prevail at the time of market introduction. On that basis, they can modify their design accordingly at early design stages and increase the probability of market acceptance. Fast competitors also enjoy greater strategic flexibility by having the opportunity to choose between alternative timing strategies. They may choose to pursue a first- or second-mover strategy. Under conditions favoring first movers, a fast innovator can be first-to-market and enjoy advantages such as temporary monopoly conditions, technological leadership, preemption of critical assets, and erection of buyer switching costs (Lieberman and Montgomery, 1988). Under conditions favoring second movers, a firm with fast development capability may deliberately pursue a second-to-market strategy. Under such circumstances more significant benefits can be gained by rapidly incorporating successful features of pioneering products and effectively competing on other dimensions (Birnbaum-More, 1990). 2.2. Total design quality The strategic importance of product quality and its ability to enhance a product’s competitiveness in the marketplace is well recognized (Juran, 1979 ). Findings from empirical studies seem to be in agreement with the intuitionderived connection between product quality and competitiveness. Studies based on the PIMS data base, for example, have showed that quality of products or services is positively correlated with financial performance indicators such as return on investment and market share (Buzzel and Gale, 1987). On the basis of their PIMS-based empirical findings, Buzzell and Gale characterize product quality as the most important single factor affecting a business unit’s performance in the long run. Since most decisions that determine the functioning and character of a new product are taken in the product planning and development phase, it is safe to conclude that the roots of a product’s quality largely lie in its development process. Once design specifications are set, key product characteristics that affect final product quality are also set. What remains to be done after product development is large-scale production of the new product according to predetermined specifications. It becomes obvious that decisions about product characteristics that are taken during product development have a decisive effect on final product quality. In fact, it is surprising that most quality-related studies have focused extensively on the role of manufacturing on product quality without emphasizing the critical effects of product development on product quality.

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Manufacturing, at best, can ensure that a product’s design and operating characteristics meet standards that were developed and articulated during the product development stage. This limits manufacturing’s ability to enhance product quality to a single dimension, conformance quality (the ability of a firm to accurately produce a given product design in large numbers) (Garvin, 1988). On the other hand, design processes that are incorporated in product development stages affect product quality across multiple quality dimensions including product performance, feature availability, aesthetics, reliability, and ease of service. Decisions and actions taken during product development affect final product quality in direct and indirect ways. Directly, by incorporating quality attributes into the design of the new product, and indirectly, by designing the product in a way that will enhance the firm’s ability to produce the design within specifications. New product design quality, an outcome of any product development project, will be treated here as a key dimension of product development performance since it constitutes an important determinant of final product quality. Design quality, like any other form of quality, is relatively easy to recognize, and yet extremely difficult to define, let alone operationalize and measure. The most effective approach for addressing the above problem has been the disaggregation of the concept of quality into its component elements. Garvin (1988) and Plsek (1987) have proposed frameworks with multiple quality dimensions that are easier to conceptualize and manage. This paper will follow a similar approach and will view design quality as a multi-dimensional construct. A framework similar to Garvin’s quality framework but modified to accommodate the nuances of design quality includes the following dimensions: - performance; a set of attributes that refer to the primary operating characteristics of a product; - feature availability; inclusion of secondary desirable product characteristics; - reliability; a measure of the effect of product design on the probability of product malfunctioning; - durability; a measure of the effect of product design on expected operational product life; - producibility; the extent to which product design facilitates manufacturing/ assembly; _ serviceability; the extent to which product design allows for ease of repair; _ user-friendliness; the extent to which product design addresses human physiological and physiological characteristics of users regarding ease and effectiveness of use; - interconnectedness; the ability of the product to be upgraded or to operate in conjunction with other products or accessories. - styling/aesthetics; the property of the product to be aesthetically appealing to its target customers. The above framework provides a basis for defining and operationalizing the

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concept of design quality. Subjective and objective measures of individual design quality dimensions will be developed at a later stage in order to empirically test the theoretical model proposed in this paper. 2.3. Development

productivity

Development productivity is the third key performance parameter in product development projects. It refers to the level of resources required to carry out a given development project. Such resources typically include human resources, materials, equipment, facilities, and services a firm may use. A firm with higher development productivity than its competitors can make more efficient use of such resources and will be able to accomplish more with the same amount of resources or achieve the same effect with fewer resources. High development productivity can lead to comparative advantage in a variety of ways. High productivity has a direct effect on development cost. More efficient use of resources will result in lower development cost for a given project. This will have a positive effect on return on investment for a given project and, most importantly, it will increase the economic feasibility of attractive projects that would have been infeasible under conditions of low productivity. A development cost advantage due to high productivity gains increases in importance with project magnitude. In big development projects, such as the development of a supercomputer or an aeroplane, a small productivity advantage can lead to savings of several million dollars. Besides gaining direct savings due to high development productivity, a firm can strategically use its productivity advantage in a variety of other ways. At any given time it can have a greater number of development projects in progress when compared to a competitor with a comparable resource base. This effect can intensify given the scarcity of certain critical development resources such as experienced engineers or effective project managers. This higher multiproject capability can allow productive firms to support broader product lines, increase their product renewal rate, and more effectively exploit diversification opportunities that become available. High development productivity quickly frees scarce organizational resources from a specific development project to be used in other development projects as needed. Thus, high development productivity results in higher resource flexibility, accelerates inter-project learning processes, and allows a firm to more effectively pursue its product development strategies. 2.4. Total product development performance Thus far we have discussed single dimensions of product development performance. Development time, design quality, and design productivity, however critical they might be, must not be pursued in isolation. Even in cases when

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speed is critical, for example, fast development of an inferior-quality product, or fast development of a superb product coupled with extremely unproductive use of organizational resources may not yield the desired results. Firms must pursue a reasonable combination of all three performance dimensions with emphasis on the ones that are considered to be of highest priority. In order to track development performance gains across all three dimensions simultaneously, two global indices of product development performance will be used in this paper. The first index, the Total Development Performance Score (TDPS ) , assigns equal importance to the three performance dimensions whereas the second index, the Total Development Performance Score-Weighted (TDPSW), weighs the importance of each performance dimension according to the firm’s strategic priorities. 3. Theoretical background The previous section defined product development performance, the dependent variable of interest, and established its strategic importance. What needs to be done now is to identify the factors that are associated with product development performance. In order to identify these factors it is necessary to first lay the theoretical foundations that will allow us to explore important characteristics of product development processes in greater detail. 3.1.

An information processing view

Product development can be viewed as a process by which intangible product ideas and data on markets and technologies are transformed into new knowledge for commercial production. From that perspective, product development activities can be seen as transactions that are integrated into an overall system of information retrieval, creation, screening, use, and dissemination. The main output of this complex cognitive processing scheme is not a physical product, even though prototypes are developed at various stages, but rather a knowledge base about the new product. This knowledge base contains information assets in a form that can be readily appropriated and deployed into production processes. The information-processing perspective (Galbraith, 1973; Moenaert and Souder, 1990; Tushman, 1988) provides a fruitful approach for studying such a knowledge-intensive organizational process as product development. Information-processing models conceive organizational units as social networks that possess information-processing capacities. Alternative organizational forms and communication patterns correspond to different capacities for processing information. Effectiveness will be related to the fit between available information-processing capacities and information-processing requirements of the project task. In the case of product development, unpredictable external con-

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tingencies and the ill-defined nature of the work increase the amount of information that needs to be processed. This has important implications for project organization. 3.2. Uncertainty introduction and reduction Information-processing analysts define uncertainty as the difference between the amount of information required to perform a task and the amount of information already possessed by the organization (Galbraith, 1971). There are three major sources of uncertainty in product development projects: uncertainty that originates from the external environment, the internal environment, and the project definition. Uncertainty from the external environment includes customer uncertainty, technological uncertainty, supplier uncertainty, and competition uncertainty. Information about customer responses, supplier capabilities, technological solutions, and competitor moves needs to be collected and incorporated into the product design process. The task of gathering and using information about external contingencies becomes extremely complicated under conditions of environmental turbulence and unpredictability. Internal uncertainty stems from the non-routine nature of the work involved in product development. Uncertainty inherent in product development activities and high levels of task interdependence limit the ability of organizations to preplan and allocate needed resources ahead of time. Resource uncertainty, coupled with incomplete technical and organizational knowledge on effective project execution, increases the amount of information that needs to be processed during product development. The third type of uncertainty, project definition uncertainty, is not captured by the traditional definition of uncertainty as information that needs to be processed to perform a given task. It is related to the content of the development project, the product itself, and not to the process of carrying out the development project. The nature and the final form of the product under development is often vaguely defined, if defined at all, at the beginning of the development process. Put simply, organizations often set out to develop new products without complete knowledge of the desired project outcome. Decisions that substantially affect product design are often taken as the development process unfolds and reveals new information. In that sense, the imbedded development team serves both to reduce uncertainty for strategic planners and also to introduce it (Fryxell, 1990 ) . These three types of uncertainty are typically interrelated in product development projects (Fig. 1). For example, increased uncertainty about customer tastes (external uncertainty) will make the choice between alternative product designs extremely difficult (project definition uncertainty), and that will in turn complicate resource allocation plans (internal uncertainty). They all

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External

Uncertainty

Technological Supplier

I

Competition Market

Fig.

1.

Product development uncertainty.

combine to pose a major challenge on product development units and organizations. To cope effectively with high levels of uncertainty, organizations must employ organizational forms with high information-processing capacities for product development purposes. 3.3. Coping with uncertainty: Structural-contingency view and transaction cost perspective Structural-contingency theorists have long viewed task uncertainty as a key variable on which alternative organizational designs are contingent (Burns and Stalker, 1961; Lawrence and Lorsch, 1967; Stinchombe, 1959; Thompson, 1967). As task uncertainty increases, so must the information-processing capacity of organizational units, in order for task execution to be effective. For highly uncertain tasks, as in product development, “organic” rather than “mechanistic” organizational forms become more appropriate (Burns and Stalker, 1961). Organic structures are characterized by low work formalization, wider spans of control, less centralized decision-making, dense lateral communications, and participative rather than hierarchical control structures. Such forms can adapt flexibly to changing conditions and unforseen requirements for action since they rely on lateral communications rather than standardized procedures for the integration of their differentiated subunits. Furthermore, participative rather than hierarchical modes of control in organic structures are more efficient in governing transactions under conditions of high performance ambiguity, as in the case of product development (Purser et al., 1992; Ouchi, 1980 ) . 3.4. The need for integrative action Product development is typically a collective achievement, not an individual activity. No single individual can master the diverse knowledge which is re-

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quired in today’s demanding environment in order to effectively and efficiently conceptualize, design, produce, and market new products. A division of labor among specialists who are best qualified to perform specific tasks is the logical way to overcome problems imposed by the cognitive limitations of individuals (March and Simon, 1958). The problem that arises, however, is one of integration: how to apply specialized expertise and yet achieve a coordinated effort. Product development units are faced with the classic organizational dilemma: achieving a balance between the conflicting needs for and demands of differentiation and integration. The traditional organizational approach for dealing with the above problem (division of labor to achieve efficiency and hierarchical controls to achieve unity of effort) becomes inappropriate in the case of product development. It typically leads to segmentalist thinking which assumes that problems can be carved into pieces and be assigned to experts who work in isolation (Kanter, 1983). Such an approach does not encourage lateral information sharing nor does it ensure that multiple perspectives will be taken into account in decisionmaking. The reciprocal nature of task interdependence in development projects necessitates real-time adjustment and continual redefinition of individual tasks through interaction with others. 3.5. Product development: A case of reciprocal interdependence All product development projects are characterized by high levels of reciprocal interdependence between parties that participate in, are interested in, or are affected by product design decisions (Fig. 2). Stakeholders include top management, functional groups such as industrial design, product engineering, purchasing, manufacturing, quality control, marketing, and service as well as external constituents such as suppliers and customers. Reciprocal interdependence refers to the situation in which the output of any one party poses contingencies for others (Thompson, 1967). In the case of new product development, any product design modification proposed by one of the interested parties will unavoidably have an impact on the others. Product design must

Fig. 2. Reciprocal interdependence in product development projects.

satisfy a variety of objectives and constraints posed by the interested parties which are often conflicting. Managing design trade-offs and resolving conflicts in a timely manner requires a fair amount of coordination. Reciprocal interdependence is most effectively coordinated by mutual adjustment (Thompson, 1967). Mutual adjustment involves the transmission of new information during the process of action and the joint development and adoption of new courses of action in the light of this new information. Managing reciprocal interdependence in product development projects requires simultaneous mutual adjustment among the multiple parties involved. This is extremely demanding in terms of communication effort and cost. In such cases, organizations can economize in coordination costs by forming cross-functional project groupings in order to accomplish the coordination that cannot be contained by departmentalization (Mintzberg, 1979; Thompson, 1967). 3.6. Teams as coordination mechanisms The use of teams as organizational nuclei for product development projects can potentially facilitate lateral communications and promote coordination of efforts. A team can act as a “nonconventional” integration mechanism and provide a vehicle for cross-functional learning, adaptation, and cultural bonding to occur. Training, socialization, and interaction within the development unit will promote “shared division of labor”, a state in which each team member develops the capacity to “think globally while acting locally”. Under a team arrangement, individuals are more likely to develop an understanding of the essential considerations and constraints of all aspects of the project in addition to those that relate to their own functional specialty (Imai et al., 1988; Larson, 1988; Van de Ven, 1986). This type of holistic and integrative thinking that can be developed in project groups will facilitate innovative and interdependent action (Souder, 1987)) which is necessary in order to effectively cope with problems that arise due to the non-routine nature of product development work (Pasmore and Gurley, 1991). Despite their tremendous potential advantages as integrative mechanisms, cross-functional teams are not always the best organizational forms for carrying out product development projects. In certain cases organizations may not have the required resources to maintain the redundant functions that are involved in multiple cross-functional teams. Cross-functional teams may be too costly or simply not justifiable for development projects characterized by lower levels of uncertainty (Johne and Snelson, 1988). For the purposes of this paper, the term “product development team” is defined broadly to include the total pool of human resources involved in a product development project. In that sense, a development team (which may or may not be cross-functional and effectively integrated) is associated with every project. The use of product development groups is one of many different work group

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applications in organizational settings (Hackman, 1990; Sundstrom et al., 1990). Product development groups differ from other work groups in several critical respects. Development groups usually face an unusual mix of autonomy and dependence (Badawy, 1992; Gersick and Davis-Sacks, 1990)) they have a temporal scope, they are performing non-routine tasks, and they are exposed to high levels of external uncertainty. The idiosyncratic nature of development groups makes them a unique case for analysis. 4. The arguments and propositions The main objective of this paper is to identify the factors that determine product development performance. An appropriate starting point for this analysis is the observation that development performance varies significantly by industry as well as by firm and by project within the same industry (Clark and Fujimoto, 1991). This observation leads to the following assertion: There are factors affecting product development performance at the industry, company, and development project levels. Factors from all levels must be included in a comprehensive model of product development performance. The discussion that follows draws heavily on the theoretical development of the previous section in order to develop a series of propositions regarding how related variables are expected to affect product development performance. The proposed relationships are graphically depicted in Fig. 3. 4.1.Group-related variables Internal differentiation/integration Several studies have shown that, under conditions of high uncertainty, effectiveness is associated with high differentiation and integration within any organization or organization unit (Kwandalla, 1977; Lawrence and Lorsch, 1967; Woodward, 1958). A state of high differentiation and integration increases the organizational capacity for processing information and allows for uncertainty reduction and effective task execution to occur in a timely manner. Product development teams are typically faced with conditions of high technical, organizational, and market uncertainty. Large amounts of information about technical details of new products and processes, project organization forms, and customer preferences are generally unavailable at the beginning of the project. Conditions of high uncertainty imply greater information processing requirements and necessitate greater information processing capacities. Given the cognitive limitations of individuals, high information processing capacity can only be achieved through a collective effort. The knowledge which is required to effectively carry out the complex task of product development is usually dispersed throughout the organization. It typically resides at the level of functional departments where it has been accumulated and preserved as

Fig. 3. Determinants

-i-t

performance.

PRODUCT DEVELOPMENT STRATEGK INTENT

of product development

Organizalion + Top Managemenl Support + Resource Availability + Mfg. Flexibility/Speed + Transaction Eftiiiency + Innovation Experience

Group + Differentialion + Inlegration + Decision Authority i External Communication

PRODUCT DEVELOPMENT CAPABII.ITY

_ _

Project Scope - Newness - Complexily

CONTEXTUAL FACTORS

*

Development Time Design Qualily R&D Prwhclivily

Dt~VlXOPMENT PERFORMANCE

I

Enwonmenlal Dynamism

7

(adjusled)

PERFORMANCE

OTHER FACfORS

specialized expertise for the effective execution of individual tasks. The development team must tap into this specialized knowledge by including functional experts in the development effort. Individuals from diverse functional groups can expand the team’s pool of cognitive resources by participating in the development activities from an early stage. Skill diversity among members of the team will result in increased information processing capability and, ultimately, in increased time effectiveness. In addition to its positive effect on reducing development time, skill diversity is also expected to be associated with better quality of new product design. Skill diversity among members of the development team will be associated with pluralism of opinions and multiplicity of views reflecting individual or departmental differences. Multiplicity of opinions will lead to conflicts to be resolved as the group convenes. The team will then search out new alternative solutions that synthesize seemingly conflicting points of view and satisfy the criteria of as many individuals and departments as possible. This conflict resolution process will result in a higher quality of design decisions, as viewed from the point of view of the overall organization (Galbraith, 1973 ). On the contrary, if affected functional departments are not represented in the development process, they will attempt to meet their individual objectives by imposing constraints on product design at later development stages. Multiple design constraints at later design stages often lead to conflicting engineering specifications, suboptimal design decisions, and time-consuming changes. Inclusion of specialists and multi-functional representation in the development team is expected to facilitate communication and allow for conflict resolution to occur earlier in the development process, thereby reducing product development time, and increasing design quality. Proposition 1. High skill differentiation among members of the development group will be associated with reduced development time, higher design quality, and higher Product Development Performance indices. High skill differentiation among members of the group provides a measure of the complementarity of the group members’ specific areas of expertise. In that sense, skill differentiation is a measure of diversity and is not the equivalent of the sociotechnical principle of redundant functions (Van de Ven, 1986) that refers to the situation in which people develop an understanding of all aspects of the process in addition to those immediately needed to perform their individual assignments. In order for information-processing capacity and development effectiveness gains to materialize, however, high skill differentiation must be coupled with high levels of team integration. Skill differentiation often leads to differences in cognitive and emotional orientations among people with different backgrounds (Lawrence and Lorsch, 1967). High-level in-

377

tegration mechanisms will be needed to ensure dense communication and proper coordination of activities in highly differentiated teams. Integration has been defined as the quality of the state of collaboration that exists among functions and which is required to achieve unity of effort by the demands of the environment (Lawrence and Lorsch, 1967). It becomes obvious that high levels of skill differentiation required in product development projects make integration ever more difficult (Gupta et al., 1986). The challenge is immense: project managers must orchestrate the efforts of individuals with a wide range of specialties and emotional orientations and integrate their work into a meaningful whole. Several integration mechanisms have been proposed as means for achieving coordination of efforts in organizational settings. Proposed integration mechanisms include, in order of increasing level of integration, hierarchical rules, standardization of tasks, skills, or outputs, scheduling procedures, direct contact communications, establishment of liaison roles, creation of task forces and teams, establishment of integrating roles, and adoption of matrix structures (Galbraith, 1973; Mintzberg, 1979). These integration devices vary greatly in terms of cost, communication effort, and level of integration. It should also be noted that they are not mutually exclusive but rather cumulative, in the sense that higher forms are added to, not substituted for, lower forms of integration. Different forms of integration are most effective depending on the level of information-processing requirements. In most product development projects, high information-processing require,ments are expected to justify the costs necessary for achieving high levels of integration. The use of high-level integration mechanisms appropriate for project-based (temporary) coordination is expected to be associated with increased development performance. High-level integration mechanisms appropriate for managing development projects include the use of temporary crossfunctional project teams, the establishment of liaison roles between functions, and the establishment of integrating roles represented by project leaders. Higher-level integration mechanisms such as the use of permanent groupings and/or matrix organizational structures may not be appropriate because of their permanent nature. Such integration devices are expected to enhance communications between members of the development team as well as between the functional groups that are involved in, or affected by, product development decisions. Close functional coupling will promote interfunctional learning, and allow for joint problem-solving and collective decision-making. Intense socialization among group members with diverse knowledge backgrounds will be necessary in order to overcome language barriers and work towards the development of shared frameworks. Team integration can be facilitated by full-time involvement and co-location of some core-team members, informal communications, socialization of team members, awareness and sharing of common goals, group cohe-

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sion, availability of group-based rewards, use of information technologies for intra-team communications, and effective leadership of the project manager. High team integration is expected to increase time effectiveness and design quality by promoting the closer coupling of interdependent organizational functions. This state of interfunctional coordination is necessary to avoid fragmentation and design suboptimization, to promote cross-functional thinking, and to move from a sequential to a parallel mode of operations during the development process (Van de Ven, 1986). Proposition 2. High levels of internal integration among members of the development group will be associated with reduced development time, higher design quality, and higher Product Development Performance indices. Team autonomy and decision-making authority Effectiveness of a product development team often hinges on its ability to buffer certain design activities against excessive outside interference ( Ancona and Caldwell, 1990). Frequent interventions and requests for design changes may cause disruptions and generate delays in the development process. Stalk and Hout (1990) refer to this source of development delay as “feature creep”. Managers with higher authority than the project manager often interrupt the development process at later design stages in order to add or change a product feature. Thus, new product engineering is subjected to successive, unproductive, and time-consuming design revisions. Besides its negative effect on development speed and productivity, this conflict between hierarchical influence and knowledge-based influence is expected to also affect negatively design quality. To the extent that hierarchical power overwrites expertise-based power, design decisions will be suboptimized. The above described problem can be effectively addressed by delegating decision-making authority over new product design to the development team. Ideally, the team should enjoy relative autonomy and maintain control over product design while simultaneously collaborating harmoniously with external parties. Top management, functional managers, suppliers, and other interested parties should be invited to participate in the design process from the beginning. They should not be allowed, however, to impose design solutions without consulting the team or delay the development process at later stages without significant reasons or in the name of minor improvements and modifications. As a product development manager put it, “... the teams should be relatively autonomous to minimize interference from the functional managers.” (Gupta and Wilemon, 1990). Relative team autonomy, decision-making authority, and responsibility of the team over the project will be instrumental in guarding against such interventions.

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Proposition 3. The degree of autonomy and decision-making responsibility of the development team will be positively associated with reduced development time, design quality, development productivity, and Total Development Performance indices. External dependence Product development teams depend on their task environments in a variety of ways. They must obtain information, resources, and support from external parties, both inside and outside the organization (Aldrich, 1979). Human and financial resources, access to design and test facilities, information about customer wants, and information about supplier manufacturing capabilities are some of the elements that the development team needs to obtain from its external environment. At the same time external constituents depend on the team’s output. The design of the end product must fit into top management’s strategy, it must satisfy functional group objectives, it must be compatible with suppliers’ production capabilities, and it must satisfy customer wants. This reciprocally interdependent relationship can be coordinated in a faster, more effective, and more efficient manner by mutual adjustment which necessitates frequent communication between the group and its external constituents (Allen, 1977). Proposition 4. Frequent communication between the team and its external constituents will be positively associated with reduced development time, design quality, development productivity, and Total Development Performance indices. 4.2. Organizational factors Top management support A critical factor for the success of any product development effort is top management’s commitment and support throughout the entire development cycle (Rosenau, 1988; Wolff, 1988; Zirger and Maidique, 1990). Product development teams depend heavily on top management for acquisition of necessary resources, approval of design proposals, securing of required legitimacy, and delegation of necessary decision-making authority. Top management’s support for the development team and commitment to the development project secures access to required resources and enables the team to proceed with the development project in a more productive, effective, and timely fashion (Badawy, 1991). Proposition 5. Top management support for the development team and commitment to the development project will be positively associated with reduced development time, design quality, devel-

380

opment productivity, and Total Development Performance indices. Resource availability Effective product development depends on the availability of required resources such as financial resources, human resources, specialized equipment, and facilities. Given the uncertainty characterizing most product development projects, additional resource requirements may be generated during later development stages. Required resources, if possessed by the organization, can be readily made available to the product development team. This can be achieved through resource re-allocation or simple transfer of available slack resources to the product development team. On the other hand, outsourcing unavailable specialized resources needed by the product development team is expected to take more time and delay product development. Given resource allocation inflexibilities, delays due to lack or shortage of required resources are often translated into less productive uses of resources already committed to the project. Resource unavailabilities can also be translated into compromised quality levels when unavailable required resources are substituted with available resources of inferior quality. Proposition 6. Availability of resources necessary for product development within the organization will be positively associated with reduced development time, design quality, development productivity, and Total Development Performance indices. Innovation strategy/experience A firm’s innovative orientation is expected to have a positive impact on its ability to develop new products faster, better, and more productively. Firms with aggressive product innovation strategies are more likely to have developed organizational structures and cultures conducive to effective development of new products (Miles and Snow, 1978). Such firms have accumulated organizational experience on managing product development projects. Experienced organizations are confronted with lower levels of technological and organizational uncertainty (Brown and Utterback, 1985; Galbraith, 1977). They have developed effective operating procedures and information about cause-effect relationships that will allow them to perform better along all three dimensions of product development. The positive impact of this learning effect is expected to be stronger when organizations are experienced in developing products similar to the product under development or employing technologies related to the technologies required for new product development (Badawy, 1993 ). Proposition 7. The level of product innovation activity and organizational experience in developing similar products or employing re-

381

lated technologies will be positively associated with reduced development time, design quality, development productivity, and Total Development Performance indices. Manufacturing flexibility/throughput capability New products typically generate new manufacturing process requirements.

Several activities embedded in the product development process, such as prototype fabrication, tool construction, pilot run, and production startup are essentially manufacturing process activities (Clark and Fujimoto, 1991). To the extent that existing manufacturing systems are flexible enough, they can accommodate these additional manufacturing processing requirements without substantial delays. For example, an already existing mixed-model production line can in many cases handle effectively the final assembly of a new product. Setting up a new production line is thus avoided, with notable gains in development speed and productivity. Though not considered part of the product development process, commercial production can affect development time since it occurs before market introduction (Crawford, 1987; Hayes et al., 1988). Production usually starts well in advance of market introduction to ensure proper distribution and new product availability. Since product development time has been defined as total calendar time between product conceptualization and market introduction, it is expected that the ability to shorten manufacturing throughput time during production startup will be associated with reduced product development time. Proposition 8. Manufacturing flexibility and fast throughput capability will be positively associated with reduced development time, development productivity, and Total Development Performance indices. Transaction

efficiency

Developing a new product often requires the design and manufacture of specialized components that are parts of the product under development. Such parts can be either outsourced or developed in-house. These two options correspond to reliance on markets or hierarchies as two alternative modes for governing acquisition transactions (Williamson, 1975). While the advantages and disadvantages of make-versus-buy decisions are well documented (Harrigan, 1985; Hayes and Wheelwright, 1984), the effect of such decisions on product development performance has not been adequately explored. It is proposed here that transaction efficiency and the resulting effect on product development performance will depend on the level of cooperation with suppliers and the degree of vertical integration. Under conditions of cooperative behavior in buyer-supplier relations, suppliers will be more likely to get involved in the product development process from the early stages. This will result in bet-

382

ter coordination between suppliers and the product development team and, ultimately, in enhanced development performance across all dimensions. Conversely, if buyer-supplier relationships are not cooperative, high levels of coordination may not be achieved. In such cases a firm can reduce development time, increase productivity, and improve design quality by internalizing acquisition transactions through vertical integration. Proposition 9. Efficiency of specialized component acquisition transactions will be positively associated with reduced development time, design quality, development productivity, and Total Development Performance indices. 4.3. Strategic intent All of the factors examined so far, at both the group and the organization level, are expected to enhance an organization’s high performance development capability. Organizational capability alone, however, does not suffice to yield the desired results. It must be coupled with an appropriate product development strategy that states, implicitly or explicitly, the objectives of the development program and the relative importance of the three performance dimensions for any given project. Organizations will achieve reduced development time and/or high design quality and/or high development productivity to the extent that they have both the capability and the will to do so. Proposition 10. The relationship between development capability and product development performance will be mediated by product development strategic intent regarding relative priorities of development performance dimensions. 4.4. Contextual factors: Industry/environment

Dynamism The pace of technological, market, and competitive change is expected to have an indirect effect on development time. Fast pace of technological or market change will create more opportunities for product innovations but it will also shrink product life-cycles. Shortened product life-cycles will impose pressures on innovating firms to pursue development time reduction strategies in order to place new products in the market as early as possible. This way, there will be enough time between market introduction and product obsolescence to recover the initial R&D investment and realize profits. Competitive dynamism and unpredictability of competitor moves is expected to increase the strategic impetus of firms to pre-empt market niches by developing and marketing new products faster (Porter, 1985). In sum, increased technological, market, and

383

competitive dynamism makes fast product development more critical. This will impose pressures on firms operating in dynamic environments to implement development time reduction strategies. Proposition 11. Technological, competitive, and market dynamism will be associated with reduced development times and higher Total Development Performance indices. Regulatory requirements New product introduction may be dependent on approval by regulatory

agencies as in the case of pharmaceuticals, chemicals, food products, and cosmetics. Regulatory approval usually involves lengthy testing procedures that are often outside the direct control of the innovating company and are likely to lengthen development time. Managing the dependencies on regulatory agency decisions and putting additional effort to conform to regulatory standards is expected to have a negative effect on development productivity. Proposition 12. Presence of regulatory requirements for new product approval will be associated with longer development time, reduced development productivity, and lower Total Development Performance indices. 4.5. Contextual Product

factors: project scope

newness

The radicalness of a new product and the newness of the technologies that it embodies will increase the level of development uncertainty. A team confronted with high uncertainty will have to process additional technical and conceptual information and develop new ways of performing the task at hand (Brown and Utterback, 1985; Dewer and Dutton, 1986 ). Gathering additional information and developing new operational methods during project execution is expected to lengthen the required development time and decrease development productivity. Proposition 13. The newness of the product under development will be associated with longer development time and lower development productivity. Project complexity

The level of technological complexity of a development project is expected to have a direct effect on the amount of information that needs to be processed and the corresponding required development time.

384

Proposition 14.Technological complexity of the development project will be associated with longer development time. 4.6. The

relationship

Achieving high product development performance (i.e. faster, more productive development of a high-quality product) is not a means in itself. Development performance is of strategic significance to the extent that it contributes to new product competitiveness. The ultimate indicator of product development success is how well the new product fares in the marketplace. High development performance constitutes a source of competitive advantage to the extent that it is positively associated with market performance indicators. Fast product development makes possible the use of the most updated information about technological developments, customer tastes, and competitive moves. Everything else being equal, products that were developed faster than their rival counterparts will be more competitive since they embody state-ofthe-art technologies and the most recent knowledge on market opportunities and competitor moves. Speed to market constitutes a source of competitive advantage based on information asymmetry that benefits fast innovators. Better design quality creates a differentiation-based asymmetry in the marketplace. High-quality products generate more value for customers and can command prices well above perfect competition equilibrium prices. Everything else being equal, producers of high-quality new products will be able to enjoy higher economic returns. Finally, higher development productivity reduces the amount of investment required for product development. In essence, firms that are more productive in product development than their competitors can achieve the same results with fewer resources. Everything else being equal, they will achieve higher returns on the initial development investment. To the extent that a firm can perform well across all performance dimensions simultaneously, it will reap several of the benefits that were previously discussed. Thus, Total Development Performance Score (TDPS), after being adjusted for project scope and industry effects, will be positively associated with market performance indicators at the product level, such as break-even time (BET) and return on investment (ROI) (House and Price, 1991). Given that market performance is also affected by a multitude of other factors (including advertising intensity, distribution strategy, pricing, quality, etc. ), the relationship between development performance and market performance is expected to be weak. This relationship (and more specifically the development time-market performance relationship) is expected to be stronger in more dynamic environments characterized by a high pace of technological, market, and competitive change. In such environments the information-based advantage

385

resulting from reduced development time intensifies as new information accumulates at accelerated rates. Proposition

15. Indices of product development performance (adjusted for project scope and industry effects ) will be weakly correlated

with market performance of new products. Furthermore, the relationship between development time and market performance will be stronger for more dynamic environments. 5. Discussion

and implications

The proposed framework of Fig. 3 highlights the factors that were identified as determinants of product development performance. These factors were grouped on the basis of level of reference in four basic categories: factors at the development group level, the organization level, the project content level, and the industry/environment level. The same factors can also be categorized on the basis of their inherent nature, their impact on information-processing, and the degree of their controllability as follows: (a) Process Management Factors: Group differentiation, Group integration, Group decision authority, Group external communication. These variables are related to characteristics of structures around which organizations organize their product development activities. All four factors are group-level, fully controllable by the innovating firm, and enhnace information-processing capacity. (b) Strategic content factors: Product development strategic intent, Top management support, Project newness, Project complexity. These variables articulate a firm’s product development strategy. They convey a vision for the new product as conceptualized by the firm’s strategists. They also specify the relative importance of a given project for the firm, express desired project performance outcomes, and define the magnitude of the development project. In fact, these strategic factors can be seen as the drivers of the development project since they put the process in motion by pointing at the direction of what needs to be done. The first two factors, strategic intent and top management support, are organization-level factors that are fully controllable by the innovating firm and constitute supporting factors for information-processing units. The remaining two factors, project newness, and project complexity, are contextual factors at the project level. They are to a large extent controllable by the innovating firm, and result in increased information processing requirements. (c) Organizational competence factors: Resource availability, Manufacturing speed and flexibility, Transaction efficiency, Innovation experience. All these organization-level factors reflect organizational capabilities that

+ -

-

+ +

+ + +

+ -

-

-I-

+ + +

+ + + +

Reduced development time

+ + +

+ + + +

Product development performance

+ +

+ + +

+ + + +

Design quality

-

-

+ + +

+ + +

+ +

Development productivity

ENV ENV

SC SC

oc oc oc

oc

SC SC

MP MP MP MP

•c

+

+ + + +

Type of Information variable” processing capacity

“MP-management process; SC-strategic content; OC-organizational competence; ENV-environmental bFactors that support information-processing units. ‘O-controllable by the firm; G-partially controllable; O-largely uncontrollable.

Dynamism Regulation

Industry/environment

Newness Complexity

Project scope

Strategic intent Top management support Resource availability Manufacturing flexibility/speed Transaction efficiency Innovation experience

Organization

Differentiation Integration Decission authority External communication

Group

Factor

variable.

+

+ + +

+

+

+

+

-

Information processing requirement

and controllability

Supporting factorb

Classification of factors that affect product development performance in terms of type, information-processing,

TABLE 1

0 0

0 cl

0 Q cl

0 0 0

0 0 0 Q

Factor controllability”

387

are supportive of effective product development. All factors are only partially controllable by the innovating firm. Typically, developing any of the above competencies requires a long-term commitment that cannot be easily attained during the life span of a typical development project. (d) Environmental factors: Dynamism, Regulation. Both of these factors reflect attributes of the external environment and are largely uncontrollable by the innovating firm. Both factors increase the amount of information that needs to be processed during project execution. Table 1 provides a panoramic view of all of the above factors, their hypothesized relationships with product development performance dimensions, their impact on information processing, and the degree of their controllability. Several important implications stem from the preceding analysis. 5.1.

Model implications

In product development projects, as in any other organizational activity, elements of strategy, structure, organizational competence, and environment are affecting the final performance outcome. These elements are mutually interrelated in several complex ways. In the case of product development, for example, a firm that operates in an increasingly dynamic environment (environment ) may decide to pursue a rapid development strategy (strategy). Over time it will develop structures (structure) conducive to rapid product development (performance) and it will accumulate innovation experience (competence). New development strategies must now take into account structural changes, newly developed competencies as well as recent developments in the environment etc. etc. This complex web of relationships that characterizes most organizational phenomena can be approximated at best and not be analyzed in its entirety. Several key relationships and general system tendencies can be proposed on the basis of theoretical reasoning and supported in the light of empirical findings. The framework of Fig. 3 attempts to capture key relationships between elements of project strategy, project organization, organizational competence, and environmental context on the one hand, and product development performance at the project level on the other hand. These hypothesized relationships are only supported by theoretical argumentation and will be empirically tested in subsequent studies. To the extent that the proposed relationships have captured important dynamics of product development processes, they carry important messages for product development managers. Managers can exercise their discretion to decide on product development strategies and structures that are hypothesized to enhance product development performance. The information-processing perspective which was introduced at the begin-

ning of this paper will be employed here as a framework to guide product development improvement decisions. As a general rule, managers should seek to alter key design parameters of product development systems, to the extent that these are controllable, in order to enhance information-processing capacities, reduce information-processing requirements, and provide better support for information-processing units. Managerial implications will now be discussed as they relate to the group, organization, project, and industry level of analysis: At the group level, organizations can enhance product development performance by selecting appropriate structures and communication patterns for their development units. In general, highly differentiated yet integrated teams which are given substantial decision-making authority and have established strong communication ties with their environments will tend to be more effective in information-processing and product development. At the organizational level, top management support and product development strategic intent are the only fully controllable factors. In a company wishing to excel in product development on a particular project, top management must provide ample support to the development team and also make explicit the relative importance assigned to specific performance dimensions. Resource availability, an important supporting factor, may depend on a firm’s financial strength or factors beyond a firm’s control. Nevertheless, provisions can be made for acquisition of resources critical for product development through a re-allocation of existing resources. The fourth supporting factor, manufacturing flexibility and fast throughput capability, can only be enhanced through a commitment to continuous improvement and development of manufacturing systems. Firms that do not possess this functional capability to a satisfactory degree should consider external subcontracting of new product related manufacturing activities as a viable alternative. Transaction efficiency can enhance the level of information-processing capacity and result in higher development performance. Transaction efficiency can be increased by seeking out opportunities for cooperation with suppliers and by establishing the right mix between vertical integration and external acquisition. Finally, innovation experience is the only factor that can improve product development effectiveness by simultaneously enhancing informationprocessing capacities and reducing information-processing requirements. Experienced organizations develop higher information-processing capacities and become more competent in product development due to learning. At the same time, an experienced organization needs to process less information in order to develop a new, and especially related, product. Organizations can achieve higher product development performance by developing product development proficiency through experience and/or by developing new products with a high degree of commonality to existing products. Both strategies require internal mechanisms for storage, transfer, and appropriation of information between

389

development projects, the only difference being that the former needs a longer time horizon to yield desired results than the latter. At the project level, both product newness and project complexity increase the amount of information that needs to be processed, thereby delaying product development, and reducing overall development performance. Both factors, however, can be manipulated by appropriate project strategies. Product newness, and the uncertainty that it introduces, can be reduced by selecting incremental innovation strategies, by imitating features of existing products, or by increasing the number of common, off-the-shelf parts that are carried over and built into the new product. High project complexity can be moderated by simplifying product design and by increasing the work content assigned to external contractors. It should be noted, however, that, unlike product newness, project complexity is only partially at the discretion of the innovating firm. Firms often have the option between incremental and radical product innovation whereas the complexity of the development project may be largely dictated by technical requirements of the product class that the firm is competing in. Nevertheless, firms have the strategic leeway to make project scope decisions that affect both the newness and complexity of the development project. Such decisions can potentially reduce information-processing requirements, accelerate product development, and increase development productivity. At the industry level, both environmental dynamism and product regulation are largely beyond the control of the innovating firm. Both factors increase the amount of information that needs to be processed during product development. They can only be dealt with indirectly; by establishing structures with high information-processing capacities to deal with environmental dynamism, and by establishing communication ties with regulatory bodies to accelerate the process of gaining regulatory clearance. 6. Summary and directions for future research This paper has explored important elements of the product innovation process in order to identify factors that affect product development performance. At a second level of analysis, the paper examined the contribution of product development performance to new product competitiveness. A synthesis of literatures from the fields of organization theory, strategic management, innovation management, and group effectiveness led to the formulation of the propositions that are graphically depicted in the framework of Fig. 3. The proposed framework provides a starting point for studying ,the process of product development and exploring the sources and competitive significance of superior product development performance. Empirical research is needed to statistically validate the model and to determine the relative strength of the proposed relationships. Additional research is also needed to explore the relationships between de-

velopment time, design quality, and development productivity. Traditional Project Management literature would suggest that, given a certain amount of resources, these three performance relationships are inversely related (Rosenau, 1981) . That is, higher quality can be achieved at the expense of time or productivity and vice versa. Several product development studies, however, have reported positive correlations between performance dimensions such as speed and productivity or speed and quality (Clark and Fujimoto, 1991; Hayes et al., 1988; Stalk and Hout, 1990). This seemingly paradoxical finding can probably be attributed to the fact that some of the factors contributing to development speed simultaneously contribute to quality and productivity. Additional research will be needed to clarify the nature of the relationships between the three dimensions of product development performance. Finally, the model developed in this paper was based on the assumption of internal product development. External development mechanisms such as licensing, technological buyouts, R&D consortia, and subcontracting generate a different set of relationships that are not captured in the present article. The ability of firms to achieve higher development performance by resorting to external development sources needs to be examined in future research.

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