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http://ssrn.com/abstract=1095038
 
 

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A Theoretical Framework for Managing the NPD Portfolio: When and How to Use Strategic Buckets


Raul O. Chao


University of Virginia - Darden School of Business

Stelios Kavadias


University of Cambridge - Judge Business School

May 1, 2008

Management Science, Vol. 54, No. 5, pp. 907-921, 2008

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.

Number of Pages in PDF File: 32

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

JEL Classification: L1, O3, O31, O32, C61, G31, D83, D92

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Date posted: February 19, 2008 ; Last revised: June 9, 2014

Suggested Citation

Chao, Raul O. and Kavadias, Stelios, A Theoretical Framework for Managing the NPD Portfolio: When and How to Use Strategic Buckets (May 1, 2008). Management Science, Vol. 54, No. 5, pp. 907-921, 2008. Available at SSRN: http://ssrn.com/abstract=1095038

Contact Information

Raul O. Chao
University of Virginia (UVA) - Darden School of Business ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-982-2681 (Phone)
Stylianos Kavadias (Contact Author)
University of Cambridge - Judge Business School ( email )
Trumpington Street
Cambridge, Cambridgeshire CB2 1AG
United Kingdom
HOME PAGE: http://www.jbs.cam.ac.uk/research/kavadiass.html
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