Product cost analysis during pre-development

OF DOCTORAL DISSERTATION AALTO UNIVERSITY SCHOOL OF SCIENCE AND TECHNOLOGY P.O. BOX 11000, FI-00076 AALTO http://www.aalto.fi Author: Frank Bescherer Name of the dissertation: Product cost analysis during pre-development Manuscript submitted 24. May 2010 Manuscript revised Date of the defence 29. October 2010 Monograph Article dissertation (summary + original articles) Faculty Faculty of Information and Natural Sciences Department Industrial Engineering and Management Field of research Industrial Management Opponent(s) Prof. Poul Israelsen and Prof. Petri Suomala Supervisor Prof. Eero Eloranta Instructor Dr. Jouko Karjalainen Abstract Competitive product prices and target cost together with excellent functionality and quality are essential for innovations. Non-competitive costs are a failure factor, making product cost an input to innovation, not an outcome of it. Correct decision making before technology selections and cost lock-ins help to lower future product cost. The scope of this thesis is product cost analysis during pre-development – a gap in literature – as it is seen as critical activity, given the importance, the sums at stake and the high failure risk of innovations. The objective of this study is to identify, classify and describe how new product development ideas can be analyzed with cost information gathered and to study why it is done the way it is. The research uses a qualitative methodology and is done as an empirical seven-company multiple case study. Besides its descriptive part, this study uses a contingency approach to formulate theoretical outlines based on organizational contingencies of the case companies. The results start with descriptions of managerial practices. Further results are the identification of organizational contingencies, such as e.g. the innovation funnel type, that impact the product cost analysis during predevelopment. Further findings are interconnections and dependencies leading to specific tool families and evolution patterns of first time cost tool use in pre-development. Besides known tool uses, a novel tool – called directional costing – has been discovered.Competitive product prices and target cost together with excellent functionality and quality are essential for innovations. Non-competitive costs are a failure factor, making product cost an input to innovation, not an outcome of it. Correct decision making before technology selections and cost lock-ins help to lower future product cost. The scope of this thesis is product cost analysis during pre-development – a gap in literature – as it is seen as critical activity, given the importance, the sums at stake and the high failure risk of innovations. The objective of this study is to identify, classify and describe how new product development ideas can be analyzed with cost information gathered and to study why it is done the way it is. The research uses a qualitative methodology and is done as an empirical seven-company multiple case study. Besides its descriptive part, this study uses a contingency approach to formulate theoretical outlines based on organizational contingencies of the case companies. The results start with descriptions of managerial practices. Further results are the identification of organizational contingencies, such as e.g. the innovation funnel type, that impact the product cost analysis during predevelopment. Further findings are interconnections and dependencies leading to specific tool families and evolution patterns of first time cost tool use in pre-development. Besides known tool uses, a novel tool – called directional costing – has been discovered.