An Analysis of Several New Product Performance Metrics

For most ¯rms, new product development is the engine for growth and pro¯tability. A ¯rm's new product success depends on its ability to manage the product development process in a way that employs scarce resources to achieve the goal of the ¯rm as well as the speci¯c project's objectives. Simple and measurable performance metrics have been proposed and applied in order to monitor and compensate the development teams. In this paper, we develop a modeling framework in order to analyze the implications of setting managerial priorities for three commonly used new product performance metrics: 1) time-to-market, 2) product performance, and 3) total development cost. We model new product development as a `product performance production' process that requires scarce development resources. Setting a target for development teams for each of these performance metrics can constrain this performance production process and thereby a®ect the other performance metrics. We model the constrained process as a restricted case of a general process which does not have such constraints. We benchmark each constrained process against the optimal, unrestricted process with respect to the level of the resource intensity employed during the development process, the time-to-market, and the performance level of the new product at launch. We show that an overly ambitious time-to-market target leads to an upward bias in resource intensity usage and a downward bias in product performance (i.e., evolutionary product innovation.) In addition, our results suggest that the target time-to-market approach may ignore the e®ect of cannibalization and thus can perform suboptimally if a signi¯cant degree of cannibalization in the existing product market is expected. Given a target product performance, we show that the coordination between marketing and R&D is easier because the resulting development resource intensity and time to market decisions becomes separable. However, an overly ambitious product performance target leads to an upward bias in the development resource intensity and a delayed product launch that misses the window of opportunity. Finally, we show that the target development cost approach can lead a downward bias in product performance and a premature product launch. The above analyses are performed for a monopolistic ¯rm and they are extended to passive and active competitive environment.