• Selected
• Entire List

Abstract:
Developing the "right" new products is critical to firm success and is often cited as a key competitive dimension. This paper explores new product development (NPD) portfolio strategy and the balance between incremental and radical innovation. We characterize innovative effort through a normative theoretical framework that addresses a popular practice in NPD portfolio management: the use of strategic buckets. Strategic buckets encourage the division of the overall NPD resource budget into smaller, more focused budgets that are defined by the type of innovative effort (incremental or radical). We show that time commitment determines the balance between incremental and radical innovation. When managers execute this balance, they are often confounded by: (i) environmental complexity, defined as the number of unknown interdependencies among technology and market parameters that determine product performance; and (ii) environmental instability, the probability of changes to the underlying performance functions. Although both of these factors confound managers, we find that they have completely opposite effects on the NPD portfolio balance. Environmental complexity shifts the balance toward radical innovation. Conversely, environmental instability shifts the balance toward incremental innovation. Risk considerations and implications for theory and practice are also discussed.

New Product Development, NPD Portfolio Strategy, Incremental and Radical Innovation, Strategic Buckets, Complexity Theory

Abstract:
The first step in transforming strategy from a hopeful statement about the future to an operational reality is to allocate resources to innovation and new product development (NPD) programs. We explore how funding authority affects a manager's allocation of resources between multiple programs in a portfolio. Funding may be either fixed or variable depending on the extent to which the manager is free to use revenue derived from existing product sales to fund NPD efforts. Our results indicate that the allocation of resources between existing product improvement (relatively incremental projects) and new product development (more radical projects) depends critically on the funding authority. We find that the use of variable funding drives higher effort toward improving existing products and developing new products. However, variable funding induces the manager to focus on existing product improvement to a greater degree than new product development, and leads to an incremental balance in the NPD portfolio. In addition, we highlight a substitution effect between explicit incentives (compensation parameters) and implicit incentives (career concerns). Explicit incentives are reduced as career concerns become more salient.

Innovation and New Product Development, Resource Allocation Strategy, Portfolio Strategy, Organization Design, Incentives

Abstract:
A key metric for the assessment of innovative activity at the firm level is R&D intensity. R&D intensity is the ratio of a firm's R&D investment to its revenue (the percentage of revenue that is reinvested in R&D). Empirical and anecdotal evidence suggests that R&D intensity within an industry is remarkably consistent. Despite this consistency in R&D spending, firms tend to be differentiated with respect to their NPD portfolio strategy and overall performance. This study aims to explain the observed consistency in R&D intensity for firms within an industry, despite the varying choices in terms of how much the firm invests in R&D and how resources are allocated among projects in a portfolio. We consider the implications of firm level factors, such as NPD portfolio composition, as well as industry level factors, such as competition intensity and environmental stability. We find that R&D intensity alone does not explain firm performance. Rather, it is the proper alignment between R&D intensity (how much the firm invests) and NPD portfolio strategy (how the firm invests the money) that drives profitability. More importantly, the proper alignment critically depends on two industry factors: competition intensity and environmental stability.

Abstract:
A key metric for the assessment of innovative activity at the firm level is R&D intensity. R&D intensity is the ratio of a firm's R&D investment to its revenue (the percentage of revenue that is reinvested in R&D). Empirical and anecdotal evidence suggests that R&D intensity within an industry is remarkably consistent. Despite this consistency in R&D spending, firms tend to be differentiated with respect to their NPD portfolio strategy and overall performance. This study aims to explain the observed consistency in R&D intensity for firms within an industry, despite the varying choices in terms of how much the firm invests in R&D and how resources are allocated among projects in a portfolio. We consider the implications of firm level factors, such as NPD portfolio composition, as well as industry level factors, such as competition intensity and environmental stability. We find that R&D intensity alone does not explain firm performance. Rather, it is the proper alignment between R&D intensity (how much the firm invests) and NPD portfolio strategy (how the firm invests the money) that drives profitability. More importantly, the proper alignment critically depends on two industry factors - competition intensity and environmental stability.

Research and Development, New Product Development, R&D Intensity, Innovation, Portfolio Management

Abstract:
The United States Patent and Trademark Office (USPTO) experiences overwelming demand for patents in Class 705: Business Methods. The current resources and process design are not sufficient to handle the incoming patents, and the result is extremely long wait times for patents to be granted. This technical note describes the history of the USPTO, the Business Methods Class, and the process for granting patents.

process analysis, queuing