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Incentives in New Product Development Projects and the Role of Target Costing

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  • Jürgen Mihm

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    (INSEAD, 77305 Fontainebleau Cedex, France)

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    Abstract

    This paper investigates how self-optimizing engineers affect new product development (NPD) project outcomes and development times. A variety of widely used NPD project management approaches, including heavyweight project management, may allow or even encourage engineers to introduce late design changes and exhibit weak cost compliance, reducing the product's profit or competitiveness. Providing specifically designed incentives for individuals can eliminate such encouragement, and thus improve cost compliance and project timeliness. This paper discusses several practical incentive schemes, including profit-sharing contracts and component-level target costing. For many industrial projects, component-level target costing makes the most efficient use of available information to optimize project outcomes and reduce development times.

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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1175
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 56 (2010)
    Issue (Month): 8 (August)
    Pages: 1324-1344

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    Handle: RePEc:inm:ormnsc:v:56:y:2010:i:8:p:1324-1344

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    Related research

    Keywords: R&D management; new product development; incentives; target costing;

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    Cited by:
    1. Wu, Zhengping & Crama, Pascale & Zhu, Wanshan, 2012. "The newsvendor’s optimal incentive contracts for multiple advertisers," European Journal of Operational Research, Elsevier, vol. 220(1), pages 171-181.

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