Using A Structural Equation Model To Assess The Performance of NPD Projects Walid Belassi Management Science Department, Athabasca University, Canada.
[email protected] Oya Tukel Operations Management Department, Cleveland State University, USA.
[email protected] Abstract The paper proposes a structural equation model that investigates the relationships among the variables determining the performance of New Product Development (NPD) projects. The proposed model is empirically tested using 100 U.S. firms. The empirical relationships validated by the empirical study lead to the development of a decision support scheme that helps the launching of successful new products.
1.
Introduction
Management issues regarding the successful implementation of NPD projects have been gaining an increasing attention in the last two decades due to the alarmingly high failure rate in developing new products (Page, 1993; Crawford, 1987; Crawford, 1979). Studies report that new consumer packaged goods fail to live up to management’s expectations eighty percent of the time (Lynn et. al, 1996), and industrial product launches fail thirty percent of the time (Cooper, 1992). To improve the likelihood of NPD success, this study introduces a structural equation model that investigates the determinants of NPD project performance. The model is comprehensive, it identifies all possible relationships among strategic and project level variables. However, in this study we focus on testing hypotheses regarding the nature of relationships organizations maintain with their suppliers, the type of products they developed, and the level of involvement of functional units in NPD projects, and the effect of these relationships on the performance of NPD projects.
2.
The Proposed Model
The model we propose has four constituents: the dimensions of organizational culture, the project level variables, variables defining the uncertainty of the technological and competitive environments, and project performance measures. Project level variables include, project structure, NP type, buyersupplier relationship, and the involvement of the marketing and manufacturing departments in the new product development process. We develop our own scales for measuring the dimensions of organizational culture, NP types, buyer-supplier relationships, marketing and manufacturing departments' involvement. The measure we used for project performance is a combined measure of customer satisfaction, commercial success and the technical outcome of the NPD project. To empirically test the model, a sample of organizations is selected and studied using direct mail collection procedure. Questionnaire was mailed to upper level managers responsible for (or involved in) developing new products in 500 organizations located in the U.S. All 375 organizations
listed in the Moodys database are surveyed. The study also includes organizations from the Fortune 500 list developed by the fortune magazine. The organizations are randomly selected. Managers are asked to inform us about the culture of their organization and their common practices in developing and implementing NPDs. The questionnaire is designed and tested using an iterative process including expert validation and pretest using a small number of business executives not included in the sample frame. To test goodness of fit of the model, three groups of measures are used: measures of absolute fit, measures of comparative fit, and measures of parsimony. The measures indicate a very good fit of the model to the data. The structural equation model also shows a high predictive power of the performance of NPD projects.
3. Results Our study indicates that organizations with higher levels of supplier involvement, who back up their suppliers financially more often, who own shares in their suppliers' companies, and who have longer contracts with their suppliers are more successful in developing new products than their counterparts. Such organizations also tend to get their manufacturing department early involved in the development process of their new products. Despite the positive relationship between buyer-supplier relationship and NPD project success, organizations do not maintain a high level of relationship with their suppliers at all times. Organizations tend to decrease their relationship with their suppliers when the degree of uncertainty of the technological environment is high. Organizations that get their marketing departments involved early in the development process tend to develop more successful products, yet they also tend to develop less number of products than their counterparts. On the contrary to marketing involvement, manufacturing involvement did not show any significant effects on project performance. Yet, organizations tend to increase the level of involvement of their manufacturing departments when they are developing new-concept products, as compared to familiar-concept products. REFERENCES Crawford C.M. (1987) “New Product Failure Rates: A Reprise,” Research Management, 30, 20-24. Crawford C.M. (1979) “New Product Failure Rates: Facts and Fallacies,” Research Management, 22, 9-13. Cooper R.G. (1992) “Identifying Industrial New Product Success: Project New Prod,” Industrial Marketing Management, 8, 124-135. Lynn G.S., Valentine W.S. and Wright R.C. (1996) “A Benchcasing Study of New Product and Process Development,” Engineering Management Journal, 8, 5-13. Page A.L. (1993) “Assessing New Product Development Practices and Performance: Establishing Crucial Norma,” Journal of Product Innovation Management, 10, 273-290.
