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

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  • Jürgen Mihm

    () (INSEAD, 77305 Fontainebleau Cedex, France)

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.

Suggested Citation

  • Jürgen Mihm, 2010. "Incentives in New Product Development Projects and the Role of Target Costing," Management Science, INFORMS, vol. 56(8), pages 1324-1344, August.
  • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:8:p:1324-1344
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    File URL: http://dx.doi.org/10.1287/mnsc.1100.1175
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. repec:eee:ejores:v:261:y:2017:i:3:p:1066-1084 is not listed on IDEAS
    2. Elena Katok & Enno Siemsen, 2011. "Why Genius Leads to Adversity: Experimental Evidence on the Reputational Effects of Task Difficulty Choices," Management Science, INFORMS, vol. 57(6), pages 1042-1054, June.
    3. Wenqiang Xiao & Yi Xu, 2012. "The Impact of Royalty Contract Revision in a Multistage Strategic R&D Alliance," Management Science, INFORMS, vol. 58(12), pages 2251-2271, December.
    4. 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.
    5. Bock, Stefan & Pütz, Markus, 2017. "Implementing Value Engineering based on a multidimensional quality-oriented control calculus within a Target Costing and Target Pricing approach," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 146-158.
    6. repec:spr:jmgtco:v:28:y:2017:i:2:d:10.1007_s00187-016-0243-4 is not listed on IDEAS
    7. Kai Yang & Yanfei Lan & Ruiqing Zhao, 2017. "Monitoring mechanisms in new product development with risk-averse project manager," Journal of Intelligent Manufacturing, Springer, vol. 28(3), pages 667-681, March.
    8. Gopalakrishnan, Mohan & Libby, Theresa & Samuels, Janet A. & Swenson, Dan, 2015. "The effect of cost goal specificity and new product development process on cost reduction performance," Accounting, Organizations and Society, Elsevier, vol. 42(C), pages 1-11.
    9. Kerkhove, L.P. & Vanhoucke, M., 2016. "Incentive contract design for projects: The owner׳s perspective," Omega, Elsevier, vol. 62(C), pages 93-114.

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