The Differential Impact of NPD Make/Buy Choices on Immediate and Future Product Quality: Insights from the Automobile Industry

Abstract

This paper examines the impact of NPD make/buy choices on product quality using data from the automobile industry. While the business press laments that NPD outsourcing compromises product quality, there is no systematic evidence to support or refute this assertion. Against this backdrop, this study tests a contingency model of the impact of NPD make/buy decisions on immediate and future product quality. The hypotheses are tested using data on NPD make/buy choices of 173 models of 12 automobile firms in the United States between 2007 and 2014. The authors find that while NPD buy has a more positive impact on immediate product quality, NPD make has a more positive impact on future product quality. Further, the immediate product quality impact of NPD buy is stronger when a) technologies are more complex and b) firm NPD capability is higher. In contrast, the future product quality impact of NPD make is stronger when a) there is post-launch adverse feedback and b) firm NPD capability is higher. The study highlights the complex tradeoffs associated with NPD ‘make/buy’ decisions and offers valuable insights on how firms could manage these decisions.

Keywords: New Product Development, Make/Buy, Immediate Product Quality, Future Product Quality