Performance Measures and Management Control in New Product Development

Abstract

An exploratory study was conducted to examine management control issues in new product development (NPD). The study focused on three management control aspects that NPD managers considered important: (1) position of NPD in the firm's organizational structure; (2) NPD process; and (3) NPD performance measures. Primary data were collected from NPD managers via interviews, workshops, and a questionnaire. For each management-control aspect studied, we examined current practice, recent changes, and how the control links to strategy. The NPD function reported fairly high in the organization. The need to integrate NPD and strategy encouraged higher reporting levels, and shifts in reporting from engineering to marketing. The need to integrate NPD and strategy also drove the addition of NPD/strategy steps into already well-defined, phased NPD processes. However, NPD/strategy integration was not well reflected in performance measures. The firms studied used varied financial and nonfinancial performance measures, yet relatively few firms reported that their performance measures reflected key aspects of their strategies. NPD managers generally expressed dissatisfaction with the performance measurements, and firms appeared to be searching for more effective alternatives.