Abstract

http://ssrn.com/abstract=1095333
 
 

References (48)



 
 

Citations (6)



 


 



Revenue Driven Resource Allocation: Funding Authority, Incentives, and New Product Development Portfolio Management


Raul O. Chao


University of Virginia - Darden School of Business

Stelios Kavadias


University of Cambridge - Judge Business School

Cheryl Gaimon


Georgia Institute of Technology - Operations Management Area

February 1, 2008

Management Science, Vol. 55, No. 9, pp. 1556-1569, 2009

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.

Number of Pages in PDF File: 14

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

JEL Classification: O31, O32, C61, M52

Accepted Paper Series


Download This Paper

Date posted: February 25, 2008 ; Last revised: July 1, 2014

Suggested Citation

Chao, Raul O. and Kavadias, Stelios and Gaimon, Cheryl, Revenue Driven Resource Allocation: Funding Authority, Incentives, and New Product Development Portfolio Management (February 1, 2008). Management Science, Vol. 55, No. 9, pp. 1556-1569, 2009. Available at SSRN: http://ssrn.com/abstract=1095333

Contact Information

Raul O. Chao (Contact Author)
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
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
Cheryl Gaimon
Georgia Institute of Technology - Operations Management Area ( email )
755 Ferst Drive
Atlanta, GA 30332-0250
United States
404-894-4934 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 1,627
Downloads: 278
Download Rank: 62,369
References:  48
Citations:  6
Paper comments
No comments have been made on this paper

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.328 seconds