Academic journal article Journal of Applied Management and Entrepreneurship

Looking for a Reason: Escalation in New Product Development

Academic journal article Journal of Applied Management and Entrepreneurship

Looking for a Reason: Escalation in New Product Development

Article excerpt

Executive Summary

The purpose of this study was to qualitatively investigate structural determinants of escalation of commitment (EC) in the new product development (NPD) setting. The results of an experiment, in which MBA student subjects assumed the role of NPD decision-makers, indicate that rationale to escalate commitment may be related to the three structural determinants under investigation: strategic NPD orientation, level of NPD risk and the NPD time frame. The results also indicate that different rationale may be used for escalating and de-escalating commitment. As a result of this study, perhaps scholars and practitioners alike will be encouraged to pursue additional research into structural determinants of escalation and de-escalation of commitment impacting NPD professionals, so that a better understanding of the phenomena in the NPD environment will result.

Introduction

Firms engage in new product development (NPD) in order to gain or maintain a competitive stance in the marketplace. Some firms place a strategic focus on research and development of new products, seeking "pioneer" advantages associated with being the first to commercialize new products (Lim, Sharkey & Heinricks, 2006). Other firms pursue a strategic path to gain "follower" advantages, and use NPD to improve products that already exist. In both "pioneer" and "follower" firms, significant resources are funneled into NPD.

However, the NPD process does not always result in commercial success. Even though half of firms' sales and profits result from products commercialized within the previous five years (Schmidt & Calantone, 2002), it cannot be ignored that new product failure is the outcome about 40% of the time (Stevens & Burley, 1997). While new product failure may be due to inaccurate forecasts and assessments early in the NPD process, it may be just as likely to be a victim of changes in the external business environment (e.g., a superior competitive brand introduction, or new market research indicating a shift in consumer preferences). Current literature in NPD has focused on the ability of the NPD decision-maker to make critical judgments on whether or not to continue NPD when negative information is presented. The purpose of this research is to provide a better understanding of three determinants that may influence NPD decision-makers when negative information is presented.

New Product Development

New product development (NPD) is a cross-functional process involving marketing, operations, finance and other functional areas of an organization (Schmidt, Montoya- Weiss & Massey, 2001). NPD involves multiple activities, beginning with idea generation and culminating in commercialization. In the typical NPD process, new product ideas are submitted to formalized series of assessments with a singular goal of identifying the idea that offers the most potential (typically, profit potential) for the firm. Early assessments focus on the "fit" of the new product idea with the firm's strategic mission and operational strengths, and progress to greater investigation to include concept testing and assessments of expected costs and sales. The decision to pursue research and development of a prototype and actual product represents a turning point in the NPD process: it is in the research and development phase that NPD costs accelerate rapidly, and it is expected (in most firms) that successful commercialization of the product will result in a significant return on investment (Schmidt & Calantone, 2002).

There are decision points, or gates, that exist after every major NPD activity, or stage, is accomplished. Typically, individuals in charge of the work during stages are at the tactical level of the organization, and will report progress to the strategic decision-makers at the gates, who subsequently make the call to continue or to stop NPD (Schmidt & Calantone, 2002; Schmidt, et al. …

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