This research attempts to reconcile conflicting results regarding the speed to market—product quality relationship, their joint impact on product profitability, and their mediation role in the effects of development expenses and cross-functional integration on product profitability. Analysis of archival and survey data collected from new product development (NPD) managers for 1115 different NPD projects in several large U.S. firms suggests: 1) Speed to market and product quality together enhance product profitability, but the impact of speed to market is larger than that of product quality. 2) Development expenses in the fuzzy front end impact product profitability directly and through their impact on speed to market and product quality, while expenses incurred later in development exhibit no impact on profitability. 3) Internal and external cross-functional integration substantially impact product profitability directly and through their impact on speed to market and product quality.
Introduction and Background
Among managers and academics alike it is widely accepted that three main factors impact NPD success: time, quality, and expense. Meta-analyses suggest product quality (i.e., product advantage and meeting customer needs) is the most important factor of the three, followed by time considerations (i.e., speed to market, order of entry, and reduced cycle time) and R&D expenses. The problem is that these three factors are not independent: changes to one factor impact the other two.
For example, speed to market may increase market acceptance because the sooner a firm can launch a new product, the more accurately it can predict customer preferences and develop a product concept customers find attractive. Also, shorter development cycle time reduces the amount of time available to spend development funds. In other words, faster speed may mean higher quality and reduced development expense.
However, faster is not always better in NPD. A particular concern regarding speed to market is that extreme speed may jeopardize product quality as a result of short cuts taken. Speed to market may result from “crashing” the NPD project by allocating more resources than had been planned originally, resulting in higher development expenses as both headcount and coordination expenses grow.
Success, therefore, requires firms to consider simultaneously the impact of speed to market, product quality, and development expense. Conventional wisdom and empirical research suggest managers understand this need, making tradeoffs between these three factors. In addition, different tradeoff arrangements (emphasizing speed, quality, or expense) are equally successful for highly efficient projects.
We investigate these tradeoffs across a large number of NPD projects. Furthermore, we expand the literature by digging more deeply into the role of development expense and by accounting for the impact of cross-functional integration. Specifically, development expense effects are examined during four different phases of the NPD process, thus identifying when and how development expenses contribute to profit. We include cross-functional integration because of its influential role in NPD project success. The conceptual model and hypothesized paths are depicted in Figure 1.
Data were gathered for 1115 NPD projects undertaken by business units or divisions of seven U.S. firms from various industries. All are large conglomerates with over $1 billion in annual sales revenues. The data collection approach combined archival secondary data compilation with survey responses to perceptual measures from senior product development managers intimately involved in the specific new product development projects on which they reported. Survey items were drawn from the extant NPD literature. All raw data were standardized prior to analysis. The data analysis procedure used was the structural equation modeling technique of partial least squares (PLS).
Results and Findings
This research attempts to reconcile conflicting results regarding the speed to market-product quality relationship, their joint impact on product profitability, and their mediation role in the effects of development expenses and cross-functional integration on product profitability. Thus, this study makes two contributions. First, because speed to market and product quality are correlated, simultaneous consideration of both factors and their correlation enhances insight into their joint effect. Second, it provides evidence that speed to market and product quality jointly mediate fuzzy front end development expense and cross-functional integration effects on product profitability.
Key results from the large sample data analysis are:
- Mediators considered jointly:
- Speed to market and product quality enhance product profitability.
- Speed to market is more impactful than product quality on product profitability.
- Development phase expenses:
- Only development expenses in the fuzzy front end impact speed to market, product quality, and product profitability.
- Both speed to market and product quality partially mediate the impact of fuzzy front end phase expenses on product profitability.
- Cross-functional integration:
- Both internal integration and external integration substantially impact product profitability, with internal integration exhibiting the stronger effect.
- Both speed to market and product quality fully mediate the impact of internal integration on product profitability.
- The impact of external integration on product profitability is partially mediated by speed to market, while product quality plays no role in the impact of external integration.
While meta-analysis results suggest that process characteristics are not as influential in new product success as are product, strategy, and market characteristics, processes are necessary to implement strategy and deliver product advantage in real-world environments. This research demonstrates that process matters in delivering product profitability because it positively impacts profits directly as well as indirectly through speed to market and product quality. Moreover, not only should research account for time-quality-expense tradeoffs when examining NPD success, but also the timing of development investments involves tradeoffs with important profit implications.
This article was written by Dr. Regina C. McNally- Senior Lecturer in Strategy at the Kemmy Business School, University of Limerick, and M.Billur Akdeniz and Roger J. Calantone.