Examining the Interaction Effect of Cost Information Types and Strategy on the Effectiveness of New Product Development: An Experimental Study

IntroductionGiven a highly competitive environment, companies must manage costs properly, especially at the new product development (NPD) stage, if they want to survive. This is because for some companies, product cost is mostly predetermined during the design process (Davila and Wouters 2004; Cooper and Chew 1996; Raffish 1991). More specifically, Hertenstein and Platt (1998, p. 50) note, 'between 75 percent and 90 percent of a product's costs are predetermined when the product design is finished. ' Similarly, Tornberg et al. (2002, p. 75) stress that 'the most effective way to control costs is to design them out of the products. 'Extant literature in NPD (e.g. Booker et al., 2007; Davila and Wouters 2004; Davila 2000; Hertenstein and Platt 2000; Nixon 1998) have recognized the important role of cost information in NPD stage. However, there is no consensus on how cost information affects product design process. For example, Booker et al. (2007) observe that cost information is beneficial for product designers and allows them to design products more effectively. On the other hand, cost information may cause designers to neglect product features and more to focus on cost. This may result in product that does not meet customer needs.Conflicting views of cost information role in NPD has not been fully resolved. As a consequence, there have been growing calls for management accounting scholars to address the role of cost information in product innovation more thoroughly. At least there are two issues should be explored by more thorough studies. First, there is a need to explore further the role of different type of information in supporting product development teams (Zahay 2011; Frishammar 2005, 2007); and second, there is also a need to address the role of strategy (Kleinscmidt 2010; Citrin 2007) because of its possible congruence with cost information in NPD.Zahay (2011) notes that research in NPD should address whether different form of information affect NPD effectiveness differently. Understanding the diversity of forms of information that must be incorporated into the project and across projects over time may help support the needs of product development teams. Additionally, Frishammar (2005, 2007) notice that despite the general agreed-upon importance of acquiring, sharing, and using information in NPD, knowledge about what kind of information needed is lacking.Booker et al. (2007) have investigated the effect of two different kinds of cost information, specific and relative, on product cost effectiveness. They expect there is a trade off between cost effectiveness and product features for incremental product design facilitated by more precise cost information. However, their results did not support their expectation. Pointing out at their results, there is a need to examine the effect of various kinds of information on product development process since a better knowledge about the effect of different kinds of information in NPD will give a clearer explanation on cost information role in NPD.Citrin's (2007) study demonstrates the importance of congruence between strategy and information in the context of NPD. Contingent role of strategy in the success of NPD also revealed by Kleinschmidt (2010) and Parry (2009). Drawing on strategy link and its related information-processing requirement in early work by Galbraith (1973) which has been corroborated by succeeding works, such as Kleinschmidt (2010), Parry (2009) and Citrin (2007), it can be inferred that the effect of information used by NPD designers on NPD performance possibly depends on specific strategy orientation in NPD process.Management accounting literature has referred to this notion, including the ones proposed by Davila (2000) and Booker (2007). However, Davila (2000) study on the relation between cost information and strategy together with its positive effect upon performance has not taken into account cost information type difference. …