Performance measures and management control in new product development

Approximate reading time: 2-3 min. An explorative study was conducted to investigate financial management with focus on performance measurements in product development. The study focused on three aspects of management control which managers for product development consider to be important. These aspects were:

1. Product development’s position in the company’s organizational structure
2. The product development process itself
3. The link between product development and performance measurements

 

Primary data was collected from managers for product development units through interviews, workshops and a survey. For each financial management aspect studied, researchers examined current practices, recent changes, and how management is linked to strategy.

 

performance measurements

How are performance measurements used in product development?

The researchers found that product development features are high in the organizations. It was seen that the need to integrate product development and strategy, and the transfer of information from product development to marketing at commercialization, stimulated higher reporting levels in the organizations.

Furthermore, the result also shows the need to integrate product development and strategy. This resulted in product development / strategy steps in the already well-defined phases of product development processes.

However, the integration between product development and strategy was not well reflected in the performance measure. The companies in the study used various financial and non-financial performance measures, yet relatively few companies reported that these performance measures were linked to the company’s strategies. Product Development Unit managers generally expressed dissatisfaction with the performance measure, and companies seemed to seek more effective alternative performance measures. One tends to want to rely more on non-financial than financial performance measures, as these measures provide better real-time data, more thorough evaluation of progression, and increase the likelihood of success.

 

Take aways:

  • Product development should be governed at a high organizational level, as product development is coupled with the company’s strategy
  • The integration between product development and strategy should be done early in the product development process
  • Use both financial and non-financial performance measures in product development processes, focusing on the latter

 

References:

Hertenstein, J.H., Platt, M.B., 2000. Performance measures and management control in new product development. Accounting Horizons 14 (3), 303–323.

Available at: http://aaajournals.org/doi/abs/10.2308/acch.2000.14.3.303

 

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