Aligning Goals and Monitoring Suppliers in New Product Development

Involving suppliers in NPD is becoming more important to firms in order to incorporate the latest technology into their products. In such relationships the buying firm is often more powerful than the supplier. However, this paper involves some suppliers that are equally powerful as the buying firm. To study these relationships we apply agency theory on the NPD projects where the buying firm is the principal and the suppliers are the agents. Goal incongruence, control and monitoring of projects are investigated by studying three projects at a high-tech telecommunication firm. To achieve goal alignment, length of the relationship and sharing of technology roadmaps were identified as important mechanisms. In contrast to our expectations, that black-box development would suggest output control, we find that also process and social control are applied in these relationships. Process and social control is present because these suppliers need to be motivated to share technical knowledge. Also, long term commitment from the buying firm was shown to be important. The level of monitoring varied in the projects and depended on the closeness of the relationship as well as the power position of the supplier.