Resource Allocation Processes for New Product Development: Empowerment, Control...Or Both? The Value of Strategic Bucket

Time, Date, Venue

22 March 2011, Tuesday 15.00-16.30

University College London

1st floor Exec-ed room, Engineering Front Building
("Malet place" in Google maps)


The decision to fund a particular new product development (NPD) initiative has substantial implications for firm performance. However, at the time resource decisions are made, initiatives are rarely well defined; decisions rely on specialized knowledge residing at different levels within the organization. In response, firms employ processes that either emphasize control over budgeting (top-down), or exploit the detailed knowledge from lower ranks in the organizational hierarchy (bottom-up). We address the challenges associated with choosing the ``right'' resource allocation process (RAP), given two important factors: (i) the asymmetry of information between stakeholders (how refined is the knowledge of the initiative's difficulty), and (ii) the organizational norms that affect managerial choices, i.e. a firm's ``tolerance for failure'' towards managers of NPD initiatives. Our normative model accounts for the agency setting, and explicates the features associated with the ``right'' RAP: how decision rights are distributed between stakeholders, and the form of compensation employed. No single RAP is dominant for all initiatives, even within a single organization. Bottom-up empowerment is beneficial for initiatives with greater expected difficulty, whereas top-down control is better for more standard initiatives. We also consider ``hybrid'' processes and find that a RAP based on an industry practice known as \emph{strategic buckets} can offer the firm better results (higher profitability, and a larger set of opportunities) than either top-down or bottom-up processes. We offer a theoretical justification for the use of strategic buckets, and reveal an interesting side effect of organizational norms that penalize managers for failure: they enable the implementation of ``hybrid'' processes without the need for complex and impractical compensation schemes. Implications for project selection are discussed.


Stylianos (Stelios) Kavadias is the Edward J. Brown Jr. Associate Professor of Technology and Operations Management at the College of Management of Georgia Tech. His research focuses on the challenges that arise during the new product development (NPD) project portfolio selection decisions, and on the management of product co-development efforts (e.g. effectiveness and decision making in cross-functional product development teams). Stelios has received the 2nd prize in the George B. Dantzig Competition (INFORMS), and the Brady Family award for research excellence (Georgia Tech). He currently serves as the Department editor for the NPD, R&D and Project Management department of Production and Operations Management (POM) journal, and as an Associate Editor for Management Science’s Entrepreneurship and Innovation Department, and POM's Management of Technology department. His research has appeared on different academic outlets (Management Science, POM). He teaches NPD/Innovation elective courses in the regular, part-time and Executive MBA programs at Georgia Tech, as well as in open enrollment and custom executive programs at the Huang Executive Education Center at Georgia Tech’s College of Management. He has authored several case studies of Fortune 500 corporations (e.g. Microsoft, Saturn, Whirlpool, 3M, AT&T), and he has often spoken at corporate audiences (e.g. NCR leadership team, IHG Global IT conference, Pfizer Innovation Taskforce). He received his undergraduate Diploma in Electrical and Computer Engineering from NTUA (National Technical University of Athens), and his Ph.D. from INSEAD in France.