New Product Development Portfolios: Identifying the antecedents and consequences of decision-making processes

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Identifying the antecedents and consequences

of decision-making processes

NEW PRODUCT

DEVELOPMENT

PORTFOLIOS

Linda Kester

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Linda Kester l.kester@tudelft.nl

Ph.D. thesis, Delft University of Technology ISBN 978-90-8570-780-6

Cover design by Theo Howard, TWH Creative Printed by CPI Wöhrmann Print Service

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Identifying the antecedents and consequences

of decision-making processes

ter verkrijging van de graad van doctor aan de Technische Universiteit Delft,

op gezag van de Rector Magnificus prof.ir. K.C.A.M. Luyben, voorzitter van het College voor Promoties,

in het openbaar te verdedigen op vrijdag 16 september 2011 om 10.00 uur door

Linda KESTER

Ingenieur Industrieel Ontwerpen geboren te Amsterdam.

NEW PRODUCT

DEVELOPMENT

PORTFOLIOS

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Dit proefschrift is goedgekeurd door de promotoren: Prof. dr. E.J. Hultink

Prof. dr. A. Griffin

Samenstelling promotiecommissie: Rector Magnificus, voorzitter

Prof. dr. E.J. Hultink, Technische Universiteit Delft, promotor Prof. dr. A. Griffin, University of Utah, promotor

Prof. dr. T. Elfring, Vrije Universiteit Amsterdam

Prof. dr. F. Langerak, Technische Universiteit Eindhoven Prof. mr. dr. ir. S.C. Santema, Technische Universiteit Delft Prof. dr. B. Van Looy, Katholieke Universiteit Leuven Prof. dr. H.W. Volberda, Erasmus Universiteit Rotterdam

Prof. dr. J.P.L. Schoormans, Technische Universiteit Delft, reservelid

l.kester@tudelft.nl

Ph.D. thesis, Delft University of Technology ISBN 978-90-8570-780-6

Financial support for this thesis was received from the Marketing Science Institute (MSI), the Institute for the Study of Business Markets (ISBM), and from the Product Development & Management Association (PDMA)

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“I thank my fortune for it,

My ventures are not in one bottom trusted,

Nor to one place; nor is my whole estate

Upon the fortune of this present year.”

(The Merchant of Venice, Shakespeare, 1600)

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ACKNOWLEDGEMENTS

When I started this Ph.D. project I knew little about doing research. However, I did know that I was intrigued about that one particular topic: portfolio decision-making. I also knew that I was curious, impatient, and incredibly eager to learn. Well, after four years I am still impatient, still curious, and grateful for everything that I have learnt so far (and convinced that I will continue to learn for as long as I can). However, the most important lessons for me over the past four years did not come from textbooks, but from people.

I was privileged to be granted access to four inspiring firms to interview their people, study their documents, and observe their meetings. Through this, I was able to understand how they made portfolio decisions, whether they were good decisions or poor ones. They were open to my never ending questions, listened to my critical feedback, and gave me their trust. Thank you, for having opened your doors to me.

I am also grateful to all those 466 managers whom I have sometimes literally ‘stalked’ to fill out my questionnaire. By taking the time to answer my questions, you have helped to bring academic research and practice closer together.

However, the cornerstones of my Ph.D. project were my two supervisors: Abbie and Erik Jan. You were able to give me what I needed to continue to develop myself as a researcher, teacher, and person. Your feedback was always constructive, and your support genuine. With comments like: “it’s ok... for a first draft” and “take at least one full day a week off” you have definitely spurred me on with my learning curve!

Thank you, Abbie, for adopting me four years ago as your ‘academic daughter’ and putting up with my lack of sense of direction from the very first day we met :-). And thank you for taking me into your house and into your life. You and Ken are the best!

Erik Jan, first you became my mentor during my Master’s, then you became my promotor for my Ph.D., and you became my friend. Thank you for all the laughs in between the hard work and for the endless teasing. I may be blonde, but you cannot type! ;-)

I would also like to thank my parents who have always supported and believed in me. You encouraged me to follow my heart and create my own path, whether I was in New Zealand, China, the US or The Netherlands. Thank you Wout, my ‘little’ brother, for the times when you taught me more about life than you can imagine. And thank you Sarah, Cynthia and Tessa for sticking with me and distracting me from work through dinners, talks and giggles.

Last but not least, I want to thank you Bart for always being there and showing me what is truly important in my life. Thank you for being you.

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LIST OF TABLES

Chapter 1. Introducing portfolio management

Table 1. Self-reported success rate of new products (adapted from Barczak et al., 2009) 28 Table 2. An outline of the doctoral thesis 33

Chapter 2. Literature review

Table 3. Portfolio classification dimensions and characteristics (adapted from Cooper

et al., 2001) 42

Table 4. Historically most popular standardized portfolio matrices (adapted from

Wind and Douglas, 1981) 56

Table 5. Definitions of intuition, adapted from Dane and Pratt (2007) 71

Chapter 3. Building a portfolio decision-making model

Table 6. Multiple case study sample 84

Table 7. Dealing with reliability and validity issues in multiple case study research 85

Table 8. Collected data 87

Table 9. The constructs of portfolio decision-making effectiveness 92 Table 10. The constructs of the portfolio decision-making processes 99 Table 11. The constructs of the portfolio decision input generating processes 115

Table 12. Cultural factors in portfolio decision-making 128

Table 13. Summary of the main propositions 135

Table 14. How the dimensions of portfolio decision-making effectiveness link to the

extant literature 136

Table 15. How the processes of portfolio decision-making link to the extant literature 139 Table 16. How the decision input generating processes link to the extant literature 141 Table 17. How the cultural factors link to the extant literature 143

Chapter 4. Testing the portfolio decision-making model

Table 18. Response and non-response rates 159

Table 19. Firm sample overview 160

Table 20. Firm sample characteristics 160

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Table 22. Measurement scales and their psychometric properties 166 Table 23. Correlation matrix and Cronbach’s alpha (** p < .01; * p < .05) 172 Table 24. Squared correlation matrix and average variance extracted (AVE) 173

Table 25. Multi-group analysis 175

Table 26. Multitrait-multimethod analysis 176

Table 27. Direct effect model: portfolio decision-making processes 179 Table 28. Direct effect model: portfolio decision-making processes (without evidence) 179 Table 29. Direct effect model: decision input generating processes 180

Table 30. Direct effect model: NPD portfolio success (P20) 181

Table 31. Direct effect model: NPD portfolio balance 181

Table 32. Direct effect model: portfolio decision-making effectiveness (P19) 181 Table 33. Mediation effect model: portfolio decision-making effectiveness on NPD

portfolio success 185

Table 34. Mediation effect model: portfolio decision-making processes on balance 185 Table 35. Mediation effect model: portfolio decision-making processes on NPD

portfolio success 186

Table 36. Direct effect model: Balance on market performance 187

Table 37. Mediation model: portfolio decision-making effectiveness on market

performance 188

Table 38. Mediation model: input generating processes on portfolio

decision-making effectiveness 188

Table 39. Mediation effects in the portfolio decision-making model 189

Table 40. Comparison of structural models 191

Chapter 5. Discussion

Table 41. Organizational initiatives that may influence a firm’s portfolio

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LIST OF FIGURES

Chapter 1. Introducing portfolio management

Figure 1. Typical Stage-Gate representation adapted from Cooper (1990) 26 Figure 2. NPD project portfolios, results from Booz Allen Hamilton (1982) and the

PDMA best practices studies (Griffin, 1997b; Barczak et al., 2009) 27

Chapter 2. Literature review

Figure 3. A typical risk-reward bubble diagram (circle size = annual resources,

circle color = market segment, circle pattern = technology platform) 41 Figure 4. Representation of 469 projects in an NPD portfolio with the concurrent consideration of nine variables (left); and relative attractiveness of different projects (right) (adapted from

Linton et al., 2002) 43

Figure 5. An example of a typical BCG portfolio matrix 55

Chapter 3. Building a portfolio decision-making model

Figure 6. The general model of portfolio decision-making 89

Figure 7. Politically powered decision-making 104

Figure 8. Opinion-based decision-making 110

Figure 9. Market immersion continuum 123

Figure 10. USMD strengths and weaknesses in portfolio decision-making 147 Figure 11. EUFS strengths and weaknesses in portfolio decision-making 147 Figure 12. USFd strengths and weaknesses in portfolio decision-making 148 Figure 13. EUFd strengths and weaknesses in portfolio decision-making 148

Chapter 4. Testing the portfolio decision-making model

Figure 14. The extended and refined portfolio decision-making model 155

Figure 15. Survey response time 162

Figure 16. Composition of the aggregated multi-informant sample 177

Figure 17. Confirmation and rejection of the direct effect propositions 183 Figure 18. Final model: direct and indirect effects based on three structural

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Chapter 5. Discussion

Figure 19. A diagnostic framework for analyzing a firm’s strengths and weaknesses in

portfolio decision-making 211

Figure 20. Strengths and weaknesses in USMD’s portfolio decision-making 214 Figure 21. Strengths and weaknesses in EUFd’s portfolio decision-making 215

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SUMMARY

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SUMMARY

Over the past three decades, firms have increasingly sought and implemented new product development (NPD) processes, first to help them develop individual new products efficiently and effectively, and later to manage their NPD activities from a more holistic perspective for the overall portfolio of the firm. However, making NPD portfolio decisions is difficult as firms constantly need to decide, within the limits of the funds that they have to spend on NPD, which products to invest how much in at what point in time. They need to do so while simultaneously evaluating their potential and ongoing NPD projects against the firm’s overall strategic goals.

While examples in the business press have highlighted the positive impact of proficient portfolio decision-making on firm performance, research also has emphasized how poor portfolio decision-making may negatively impact performance. For example, when Texas Instruments was surpassed by its competitors in the early 1990s, they had to radically refocus their NPD portfolio decision-making to survive in the long run. This firm effectively redeployed resources from continuing to develop large volume, low-cost commodity products to developing new specialty products that would grow along with future markets in LED lighting and solar energy, bolstering their portfolios in those areas (Texas Instruments Annual Report, 2009). Many firms have encountered challenges in making effective portfolio decisions, which have resulted in portfolio overload and strategic dilution, where the NPD portfolio does not reflect the strategic goals and priorities of the firm. In the longer term, these situations can lead to significantly lower firm performance.

Even though the importance of effective NPD portfolio decision-making for future business growth has been generally recognized (Hauser et al., 2006; Chao and Kavadias, 2008), little is known about how firms actually make these decisions and what constitutes effective portfolio decision-making. The present research fills part of this gap in the extant knowledge by investigating the antecedents and consequences of NPD portfolio decision-making processes.

NPD portfolio decision-making is in essence a strategic decision-making process that transfers a firm’s strategic objectives across the NPD portfolio through the constant (re) allocation of the firm’s development resources. The literature on NPD portfolio decision-making has its roots in two theoretical perspectives: the innovation management and the strategic decision-making literatures.

The innovation management literature has identified three goals for what successful portfolios should look like: strategic alignment, balance, and maximal value (Cooper et al., 2001). This literature has shown that managers use project ratings across multiple criteria as well as their intuition in selecting projects for portfolios. It also shows that they tend to escalate their commitments to projects that are in development, whether or not projects are expected to remain profitable as development proceeds. Such escalation of commitment may lead to strategic dilution and portfolio overload.

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While the innovation management literature has produced important findings related to portfolio characteristics and individual NPD project selection and termination decisions, research on portfolio decision-making is fragmented and has not provided sufficient insight to understand how firms actually make portfolio decisions. This literature has not identified how firms can achieve successful portfolios through the portfolio decision-making processes they use.

The strategic decision-making literature has investigated several processes that firms use in making strategic decisions and to which outcomes these processes may lead. This literature has produced inconsistent findings about the relationship between specific decision-making approaches, such as rationality, politics, and intuition, and firm performance. An overarching commonality that may explain some of these differential results is the absence of decision quality variables that may mediate between the decision-making processes used and firm performance.

Synthesizing across the combined streams of research in innovation management and strategic decision-making reveals two major research gaps: 1) the absence of a holistic perspective of how strategic NPD portfolio decisions are made in firms; and 2) a lack of knowledge about how effective portfolio decision-making quality should be defined. In order to address these gaps, this research first used an inductive, qualitative research methodology to build a model of portfolio decision-making, and then used a deductive quantitative methodology to test the model of portfolio decision-making.

The inductive qualitative research used four case studies to identify how firms make portfolio decisions and to understand how portfolio decision-making quality should be defined. Through this in-depth study of these four firms’ portfolio decision-making processes, an initial model of portfolio decision-making that consists of four building blocks was built (see Figure 6 for the complete model):

• Dimensions of portfolio decision-making effectiveness; • Portfolio decision-making processes;

• Decision input generating processes; and • Cultural factors.

The portfolio decision-making model proposes that portfolio decision-making effectiveness is defined as having a portfolio mindset, being focused, and being agile. Decision-making effectiveness is influenced by three portfolio decision-Decision-making processes: evidence-based, politically powered, and opinion-based decision-making. It also proposes how the three portfolio decision-making processes are influenced by three decision input generating processes: cross-functional collaboration, critical thinking, and market immersion. Finally, it describes the role that three cultural factors (i.e., strategic collective ambition, trust, and transformational leadership) may play in making portfolio decisions. The portfolio decision-making model formed the theoretical foundation from which the next research phase drew to extend, refine, and test several propositions using a quantitative survey methodology.

First, the portfolio decision-making model was extended by linking the three dimensions of portfolio decision-making effectiveness to the dimensions of NPD portfolio success as defined by Cooper et al. (2001). It was further extended to include the links between portfolio

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success and market performance: the real outcome of interest to managers. The model also was refined, excluding the cultural factors from further empirical inquiry in this thesis because each of these cultural factors linked to complex constructs in the extant literature. More (qualitative) research is needed to understand their potential influence on portfolio decision-making. Figure 14 presents the final theoretical model.

A multi-informant survey methodology was used to test the propositions in the portfolio decision-making model. Data collection resulted in 399 completed questionnaires from 205 medium to large firms operating in various industries in The Netherlands, which led to a final dyadic sample of 189 firms. The relationships in the portfolio decision-making model were investigated with multiple regression analysis and structural equation modeling. The results empirically supported most propositions in the portfolio decision-making model. The findings suggest that firms achieve effective portfolio decision-making processes through the simultaneous use of three different processes of portfolio decision-making that are influenced by three organizational decision input generating processes. The results also suggest that portfolio decision-making effectiveness positively contributes to achieving a successful NPD portfolio, which in turn helps the firm to obtain enhanced market performance. Figure 18 presents the empirically tested portfolio decision-making model.

The results of this research contribute to the literature and to improving managerial practice in several ways.

First, it shows that the entire system of portfolio decision-making needs to be considered to achieve successful portfolios that help firms to improve their market performance, rather than just considering project selection or termination decisions individually, as has been the practice in the past.

Second, while the general convention is that managers should strive to be rational in how they make decisions about their NPD portfolio, this research also suggests that multiple theoretical lenses are necessary to understand how managers simultaneously deal with rational, political and intuitive considerations in making portfolio decisions.

Third, this research finds that evidence-based decision-making and the use of intuitive experience represent two distinct processes that can coexist in portfolio decision-making, contradicting the previously published literature.

Fourth, this research finds that cross-functional collaboration across all major disciplines, critical thinking, and in-depth market immersion produce inputs needed to make effective portfolio decisions, which extends existing theory that has predominantly focused on a direct relationship between these concepts and NPD performance.

The portfolio decision-making model developed and tested in this research may contribute to managerial practice by functioning as a diagnostic framework for managers to help them identify their firm’s strengths and weaknesses in portfolio decision-making. As such, it may help them to understand how their firm can improve their portfolio decision-making to become more effective. Finally, this research also identified for managers several important initiatives that other firms have implemented to overcome some of their weaknesses in making effective portfolio decisions.

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SAMENVATTING

De afgelopen decennia hebben bedrijven processen geïmplementeerd voor het efficiënter en effectiever ontwikkelen van nieuwe producten. In eerste instantie lag de nadruk vooral op de ontwikkeling van op zichzelf staande nieuwe producten, maar steeds vaker realiseren bedrijven zich dat het nemen van beslissingen over het gehele portfolio essentieel is. Het nemen van deze beslissingen houdt in dat het bedrijf moet beslissen welke producten zij wel en niet willen ontwikkelen binnen de grenzen van het ontwikkelingsbudget. Ook moeten bedrijven hun portfolio continu evalueren in relatie tot de strategische doelen van het bedrijf.

Verschillende voorbeelden uit de managementliteratuur laten zien hoe bedrijven op de lange termijn succesvol blijven door de portfolio beslissingen die zij nemen. Texas Instruments heeft in de jaren ’90 bijvoorbeeld zijn focus in portfoliobesluitvorming moeten verleggen toen het van verschillende kanten ingehaald werd door de concurrentie. Dit bedrijf verlegde zijn koers van producten met een groot volume en lage productiekosten, naar geavanceerde technologieën, zoals nieuwe producten met LED en zonne-energie om nieuwe markten te veroveren (Texas Instruments Annual Report, 2009). Veel bedrijven zijn niet in staat gebleken om de juiste beslissingen te nemen en kregen te maken met problemen zoals een te omvangrijk portfolio (te veel projecten voor de beschikbare resources) en een gat tussen de strategische doelen van het bedrijf en de samenstelling van het portfolio (het portfolio representeert niet langer de strategische doelen). Deze problemen leiden op de lange termijn tot een vermindering van het bedrijfsresultaat.

Ondanks dat het belang van effectieve portfoliobesluitvorming algemeen erkend wordt (Hauser et al., 2006; Chao and Kavadias, 2008), is er tot op heden nog maar weinig bekend over de manier waarop bedrijven deze beslissingen nemen en wat effectieve portfoliobesluitvorming inhoudt. Dit onderzoek vult een deel van de leemte in de huidige kennis op door te onderzoeken wat de antecedenten en consequenties zijn van portfolio besluitvormingsprocessen.

Bestudering van de literatuur laat zien dat het nemen van portfoliobeslissingen een besluitvormingsproces is, waarbij de strategische doelstellingen van het bedrijf vertaald worden in de samenstelling van een productontwikkelingportfolio door het toewijzen van ontwikkelingsresources. De literatuur over portfoliobesluitvorming heeft zijn oorsprong in de innovatie management- en strategische besluitvormingsliteratuur.

De innovatiemanagementliteratuur heeft drie doelen gedefinieerd voor succesvolle portfolio’s: het portfolio moet uitgebalanceerd zijn, in lijn zijn met de strategie van het bedrijf en maximale waarde opleveren (Cooper et al., 2001). De innovatiemanagementliteratuur laat ook zien dat managers bij het selecteren van projecten voor hun portfolio gebruik maken van projectscores op verschillende criteria in combinatie met hun intuïtie. Als projecten eenmaal opgenomen zijn in het ontwikkelingsportfolio zijn managers vaak onrealistisch optimistisch, waardoor zij moeilijk afscheid kunnen nemen van verliesgevende projecten en deze tegen

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beter weten in continueren. Het blijven investeren in verliesgevende projecten leidt tot zwakke portfolio’s die niet langer overeenstemmen met de strategie, een lagere waarde hebben en niet in balans zijn, omdat men door het continueren van verliesgevende projecten geen ruimte creëert voor nieuwe, potentieel winstgevende initiatieven.

De strategische besluitvormingsliteratuur heeft onderzocht welke processen bedrijven gebruiken voor het nemen van strategische beslissingen en tot welke uitkomsten deze processen leiden. Echter, de resultaten in deze literatuur zijn niet consistent en er is geen unaniem oordeel over de vraag wanneer rationele, politieke en intuïtieve processen leiden tot betere strategische beslissingen. Een mogelijke verklaring voor deze tegenstrijdige bevindingen is dat onderzoekers besluitvormingsprocessen (bijvoorbeeld een op rationaliteit gebaseerd proces) rechtstreeks hebben gerelateerd aan de prestaties van het bedrijf. Deze prestaties van het bedrijf worden beïnvloed door verschillende factoren, waardoor het logischer zou zijn om variabelen mee te nemen die rechtstreeks de effectiviteit van strategische besluitvormingsprocessen meten.

Samengevat zijn een aantal belangrijke bevindingen beschreven in de literatuur over portfoliokenmerken, het nemen van beslissingen over individuele productontwikkelings-projecten en over de relatie tussen verschillende besluitvormingsprocessen en het bedrijfsresultaat. Onderzoek heeft tot op heden onvoldoende inzicht opgeleverd over de wijze waarop bedrijven tot succesvolle portfolio’s kunnen komen en hoe ze portfoliobeslissingen nemen. Het huidige onderzoek richt zich daarom op de volgende twee leemtes:

1. Het ontbreken van een holistisch perspectief dat aantoont hoe portfolio beslissingen worden genomen in bedrijven.

2. Het ontbreken van kennis over de manier waarop effectieve portfoliobesluitvorming moet worden gedefinieerd.

Voor het onderzoeken van deze leemtes is in dit onderzoek eerst gebruik gemaakt van een inductieve, kwalitatieve onderzoeksmethodologie om een portfolio besluitvormingsmodel te bouwen. Vervolgens is een deductieve, kwantitatieve onderzoeksmethodologie toegepast om het portfolio besluitvormingsmodel op grotere schaal te toetsen.

Het kwalitatieve onderzoek bestond uit een meervoudige casestudie methodologie om inzicht te krijgen in de wijze waarop bedrijven portfolio beslissingen nemen en hoe zij portfolio besluitvormingskwaliteit definiëren.

Door middel van een casestudie bij vier bedrijven is een model ontwikkeld dat bestaat uit vier bouwstenen (zie ook figuur 6 in het proefschrift):

• dimensies van portfolio besluitvormingseffectiviteit • portfolio besluitvormingsprocessen

• input genererende processen • culturele factoren

De dimensies van besluitvormingseffectiviteit zijn: het nemen van beslissingen vanuit een portfolio mindset, een focus op het toewijzen van resources door het stellen van korte termijn prioriteiten die bijdragen aan de lange termijn doelen en flexibiliteit en snelheid in het nemen van portfoliobeslissingen. Besluitvormingseffectiviteit wordt beïnvloed door drie verschillende besluitvormingsprocessen: een op rationaliteit gebaseerd proces, door het

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uitoefenen van politieke macht en door een proces gebaseerd op intuïtie en ervaring. Drie input genererende processen beïnvloeden de drie portfolio besluitvormingsprocessen: de mate van multidisciplinaire samenwerking, het kritisch denkvermogen en de mate waarin het bedrijf zich verdiept in de markt. Tenslotte zijn er drie culturele factoren geïdentificeerd die een rol spelen in het nemen van portfolio beslissingen: de mate van strategische collectieve ambitie, de mate van vertrouwen tussen medewerkers en het hebben van een transformerende leiderschapsstijl.

Dit portfolio besluitvormingsmodel vormde de theoretische fundering voor de volgende onderzoeksfase, die hierop voortbouwde door het model te verfijnen en te toetsen met behulp van een kwantitatieve vragenlijst studie. Eerst werd het model uitgebreid met de dimensies van portfolio succes zoals gedefinieerd door Cooper e.a. (2001). Vervolgens werd het model uitgebreid met de marktprestaties van het bedrijf, de uitkomst waar managers vooral in zijn geïnteresseerd. De culturele factoren zijn niet meegenomen in het kwantitatieve onderzoek. Er is meer kwalitatief onderzoek nodig om te begrijpen welke rol deze complexe factoren spelen in portfoliobesluitvorming. Figuur 14 in dit proefschrift toont het uiteindelijke theoretische model.

De proposities in het portfolio besluitvormingsmodel zijn getoetst door middel van een vragenlijst, waarbij gebruik werd gemaakt van twee informanten per bedrijf. De dataverzameling resulteerde in 399 ingevulde vragenlijsten van 205 middelgrote tot grote bedrijven in Nederland en een uiteindelijke steekproef van 189 bedrijven met twee informanten per bedrijf. De relaties in het portfolio besluitvormingsmodel zijn getoetst met behulp van regressie analyse en structurele modellenanalyse. De resultaten bevestigen de meeste proposities in het model en tonen aan dat bedrijven effectieve portfolio beslissingen nemen door het simultaan gebruik van de drie verschillende besluitvormingsprocessen, welke beïnvloed worden door de drie input generende processen. De resultaten laten verder zien dat besluitvormingseffectiviteit positief bijdraagt aan een succesvol portfolio, welke een positieve invloed heeft op het bedrijfsresultaat. Figuur 18 toont het geteste model.

De onderzoeksresultaten dragen op vier verschillende manieren bij aan de literatuur en hebben tevens belangrijke consequenties voor managers.

Ten eerste laat dit onderzoek zien dat het hele systeem van portfoliobesluitvorming in ogenschouw genomen moet worden om te begrijpen hoe bedrijven tot effectieve portfolio besluitvormingsprocessen komen, die hen op den duur helpen het bedrijfsresultaat te verbeteren. Om te begrijpen hoe bedrijven effectiever kunnen worden in hun portfoliobesluitvorming is het onvoldoende om naar elk project afzonderlijk te kijken.

Ten tweede laat dit onderzoek zien dat er meerdere theoretische perspectieven nodig zijn om te beschrijven hoe managers simultaan gebruik maken van rationele, politieke en intuïtieve processen in effectieve portfoliobesluitvorming.

Ten derde toont dit onderzoek aan dat op rationaliteit en op intuïtie gebaseerde processen naast elkaar kunnen bestaan, wat eerdere bevindingen in de literatuur tegenspreekt.

Ten vierde biedt dit onderzoek een nieuwe kijk op de rol van bekende bedrijfsprocessen, zoals multidisciplinaire samenwerking, kritisch denkvermogen en het verkrijgen van kennis over de markt. Terwijl in de literatuur voorheen vooral gekeken werd naar de directe relatie

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tussen deze factoren en de bedrijfsprestaties op innovatiegebied, toont het huidige onderzoek aan dat deze beschouwd moeten worden als input genererende processen voor het nemen van effectieve portfolio beslissingen.

Het portfolio besluitvormingsmodel dat ontwikkeld en getoetst is in dit onderzoek, kan worden gebruikt door bedrijven om hun sterkte en zwakte punten in portfoliobesluitvorming te identificeren. Met behulp van dit model krijgen managers inzicht in de wijze waarop portfoliobeslissingen genomen worden in hun bedrijf. Tenslotte biedt dit onderzoek managers een set van initiatieven die zij kunnen implementeren om hun portfoliobesluitvorming te verbeteren.

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INTRODUCING

PORTFOLIO

MANAGEMENT

1.

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1. INTRODUCING PORTFOLIO

MANAGEMENT

Firms must continuously develop and introduce new products into the marketplace to achieve and maintain a competitive advantage (Rotharmel et al., 2006; Chao and Kavadias, 2008). Continuous innovation implies that the firm or business unit has multiple products in development at any point in time. However, in order to successfully compete in the market place firms can no longer afford making new product development (NPD) decisions on a project-by-project basis. They must continuously determine –within the limits of the funds that they have to spend on NPD- which products to invest how much in at what point in time. They need to do so while simultaneously evaluating their potential and ongoing NPD projects against the firm’s overall strategic goals. Investing appropriately in product renewal and line extensions within product lines, as well as in developing breakthrough innovations that will open up new market places is essential for any firm’s long-term business growth and success (Hauser et al., 2006; Chao and Kavadias, 2008). This doctoral thesis addresses this important but complex topic of NPD portfolio decision-making.

History has demonstrated how Texas Instruments (TI), a technology-based firm, managed to survive in the long run by radically refocusing their NPD portfolio decision-making. For a long time, TI’s core competence was in high volume, low-cost manufacturing, which resulted in large volume products with little product variety in the portfolio (Prahalad and Hamel, 1990). Thus, when market demand shifted towards differentiated calculators with more and different features, TI was surpassed by its main competitors, Hewlett-Packard and Casio. TI’s core competence turned into a weakness and the firm experienced significant erosion of its market share (Leonard-Barton, 1992; Rotharmel et al., 2006). However, currently, TI has a broad and differentiated product portfolio and is a world leader in digital and analog technologies. The firm has managed to successfully refocus their NPD portfolio decision-making –and even weathered the heavy storms of the financial crisis in 2009- by continuously investing in new products that would grow future markets and bolster their portfolios in those areas. They have effectively redeployed resources from less promising areas and have used these resources efficiently to expand into growing markets, such as China, India and Eastern-Europe, and to penetrate opportunities in LED lighting, and solar energy markets (Texas Instruments Annual Report, 2009). TI managed to make strategic NPD portfolio decisions that helped them to grow their business in the long run.

TI is not the only firm that has recognized the importance of making effective NPD portfolio decisions. Today’s successful companies across several industries emphasize their NPD portfolio focus in their strategic business visions. For example, the CEO of Atari North America recently said in an interview “We are very focused on how we continue to grow as a best

practice company- how we take a look at the portfolio of products we have and how we maximize that portfolio” (Brightman, 2008 in Business Week). Novo Nordisk, a Danish pharmaceutical

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company, states that it is their “broadest diabetes portfolio in the industry” that makes them a world leader in diabetes care (www.novonordisk.com). Finally, Nestlé states as one of their key business principles that they do not “favor short-term profit at the expense of successful

long-term business development” (Nestle Annual Report, 2007).

However, making NPD portfolio decisions is difficult and if not managed proficiently and in line with the firm’s (long-term) strategy, the negative impact of poor portfolio decisions on overall firm performance can be significant (Cooper et al., 2001; Chao and Kavadias, 2008). For example, scientific multinational DuPont got into trouble because they allocated the majority of their annual two billion dollar R&D budget to improve existing product lines rather than to develop new ones (Chao and Kavadias, 2008; Barrett, 2003 in Business Week). Kodak, who for decades was synonymous to photography had to shift their resource allocation decisions towards developing breakthrough technologies in order to catch up with the digital photography market as they were leap frogged by (new) competitors (Chao and Kavadias, 2008; Schoenberger, 2003 in Forbes).

More recent examples of firms losing money due to poor portfolio decisions prevailed in the American car industry. Bill Ford acknowledged in 2006 that it was management’s failure to make the right portfolio decisions that led Ford Motor into financial trouble. General Motors has witnessed their US market share slide from 53% to 20% over the past four decades by continuing to build cars that people did not want to buy (George, 2008 in Business Week). Forced to refocus their efforts in the midst of the economic recession, the three largest US car manufacturers Ford, General Motors and Chrysler, all announced a complete change in new product strategy at the beginning of 2009, to start focusing on building portfolios of more fuel-efficient cars1_{(Fujimura, 2009 in Bloomberg). General Motors announced the elimination}

of three of its major brands, Saturn, Saab and Hummer, and the shrinking of a forth, Pontiac, in order to focus its R&D resources on its remaining core brands: Chevrolet, Buick, GMC, and Cadillac.

The above examples illustrate the importance of proficient NPD portfolio decision-making for generating long-term business success. However, making such decisions is also complex and firms increasingly seek means to help them make more effective portfolio decisions (Cooper et al., 1999; Linton et al., 2002). At the same time, there have been regular calls in the literature to attend to the importance of developing effective NPD portfolio decision-making processes (Cooper et al., 1999, 2001, 2004; Hauser et al., 2006). In spite of these calls, NPD portfolio decision-making is still an underdeveloped area in the literature. We do not know yet how firms make NPD portfolio decisions and how they can be most effective.

Understanding why some firms are more or less successful in making portfolio decisions requires a better understanding of the organizational processes by which firms make these decisions. For successful companies, the NPD portfolio has become the embodiment of their strategy, representing which direction they will move in during the near and far future. Therefore, this research defines new product portfolio making as a strategic decision-making process.

1 At the time of print, the speculations did not include the unforeseen quality issues with Toyota’s fuel efficient cars in 2010.

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The aim of this research is to better understand how firms make strategic NPD portfolio decisions within the context of the organization. One objective is to identify the determinants of portfolio decision-making effectiveness. Another objective is to untangle how firms can organize their strategic portfolio decision-making processes to achieve more effective portfolio decisions. In other words, the central focus of this research is to uncover the antecedents and consequences of strategic NPD portfolio decision-making.

The remainder of this chapter focuses on explaining the basic principles of portfolio decision-making in the context of NPD. First, it takes an historical perspective and transfers portfolio decision-making concepts as originated in financial theories to making portfolio decisions in the context of NPD. Next, it elucidates how firms have evolved from making individual NPD project decisions to making strategic NPD portfolio decisions and the challenges they have encountered. Finally, this chapter discusses the central aim of this doctoral thesis and emphasizes its academic and managerial relevance. It closes with an outline of the remainder of the book.

1.1. Defining portfolio management

Portfolio decision-making in the context of the development of new products is a new research area that has only recently started to receive attention in the literature. However, the overall concept of managing portfolios of financial entities such as securities and other investment vehicles has a long history in the literature on economics. The basic principle of portfolio management that originated centuries ago rests on the assumption that one should diversify their assets to mitigate portfolio risk. To illustrate the historical impact of portfolio management in economics, consider the following quote by Daniel Bernoulli (1738) in his famous paper ‘Specimen Theoriae Novae de Mensura Sortis’ (Exposition of a New Theory on the Measurement of Risk) (p.32):

“…it is advisable to divide goods which are exposed to some small danger into several portions rather than to risk them all together.”

Although Bernoulli was the first to publish financial portfolio theories in the social sciences, the importance of portfolio management was already recognized long before. More than a century earlier, Shakespeare’s main character Antonio in the Merchant of Venice Act 1 (1600 2_{), assures his friends:}

“…I thank my fortune for it, My ventures are not in one bottom trusted,

Nor to one place; nor is my whole estate Upon the fortune of this present year.”

2 The Merchant of Venice was Shakespeare’s second play in the line of romantic comedies, which he wrote dur-ing the mid-1590s. This play was most likely written in the summer of 1598. The play appeared in five editions before 1642. The first quarto (which includes Act 1) dates from 1600, published by Thomas Heyes in London (Braunmuller, 2000).

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Still, neither Shakespeare nor Bernoulli was the first to recognize the importance of portfolio management. More than 14 centuries ago the Talmud, the Jewish book of tradition and law, prescribed a simple asset allocation strategy (Bogle, 1999 p.78):

“A man should always keep his wealth in three forms: one third in real estate, another in merchandise, and the remainder in liquid assets.”

However, it was not until the 20th century that sophisticated portfolio theories were developed. Modern portfolio management is rooted in financial theories developed in 1952 by Nobel Prize winner Harry Markowitz. His paper ‘Foundations of Portfolio Theory’ in the

Journal of Finance (Markowitz, 1952) laid the foundation for subsequent portfolio theories,

and changed the way in which people think about portfolios. Markowitz (1952) explained how diversification can reduce risk without changing expected portfolio return. In other words, he developed a theory of investments that tries to maximize portfolio returns and minimize risks by carefully choosing a portfolio compiled of different assets. The aim behind the Modern Portfolio Theory is to select a set of investment assets that collectively have an overall lower risk than any individual asset in the set. Mathematically, Modern Portfolio Theory depicts an asset’s return as a normally distributed variable with risk as the standard deviation of return. A portfolio is then modeled as a weighted combination of assets and the return of a portfolio as a weighted combination of the assets’ return. Modern Portfolio Theory seeks to reduce the total risk variance in the portfolio by combining different assets whose returns are not correlated. Providing the mathematical formalization of investment diversification, Markowitz showed that (Rubinstein, 2006 p.102):

“The whole is greater than the sum of its parts” (Aristotle, 350 B.C).

Modern Portfolio Theory assumes that investors are rational and that markets are efficient3

(Markowitz, 1991); two assumptions that often do not hold in the context of NPD portfolio decision-making. NPD portfolio decision-making is a dynamic resource allocation process that has to take into account the strategic considerations across projects in the portfolio, and interdependencies between projects, while dealing with multiple decision makers who are often dispersed across locations (Cooper et al., 2001; Chao and Kavadias, 2008; Lin and Lee, 2011). Firms that develop new products are, like investors in financial assets, typically concerned with risk and return. However, while financial returns in relation to financial assets are characterized as being linear (i.e., number of stocks multiplied by stochastic prices), the return on NPD investments is nonlinear (and highly complex) in the amount of resources spent. Developing new products for existing and new markets is an uncertain and often high risk endeavor, especially when firms develop new technologies or user applications that have not been introduced into the world before. NPD investment decisions have to be made long before the first returns are expected, while firms have to overcome barriers embedded in technical, user, and market risks, to eventually launch the new product.

Even though managing NPD portfolios is different from managing stock portfolios, both phenomena share the underlying rationale of portfolio diversification as introduced by

3 However, the recent worldwide financial crisis debunks this assumption even for financial markets, showing that investors in stock portfolios are rationally bounded and also are influenced by subjective emotions.

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Markowitz (1952). The purpose of portfolio diversification is to reduce portfolio uncertainty (Markowitz, 1991). Thus, in line with Markowitz’s thoughts, it is not an NPD project’s individual risk profile that should be important to managers, but rather they should consider the contribution that each project makes to the total variance of the entire portfolio. According to Markowitz, it is a firm’s entire NPD portfolio that contributes to the achievement of their strategic goals. In other words, diversified NPD portfolios form the lifeblood of any firm that wants to maintain their current business in the short term while achieving long-term strategic growth.

1.2. The evolution of NPD processes: From making individual NPD

project decisions to making portfolio decisions

In the history of mankind, firms have always developed new products. However, the context and processes by which new products are developed have changed over time. While decades ago new products were more the output of smart individuals and serendipitous discovery, firms have more recently become dependent on a steady stream of new products for their survival. Authors generally agree that having effective NPD processes is a prerequisite for survival in fast-changing industries and important in generating business success (Cooper and Kleinschmidt, 1993; McCarthy et al., 2006).

Over the past three decades, firms have increasingly sought and implemented processes, first to help them develop individual new products efficiently and effectively, and later to manage their product development activities from a more holistic perspective for the overall portfolio of the firm. This section first gives an introduction to the historical evolution of NPD processes. Next, it discusses why firms increasingly try to move from making individual NPD decisions to making portfolio decisions and the challenges they encounter.

1.2.1. The development and implementation of formal NPD processes for individual projects

The first NPD models appeared during the mid-1950s, when developed market economies experienced rapid economic growth through industrial expansion. New industries emerged based on technological opportunities in, for example, semiconductors, pharmaceuticals, electronic computing, and the development of new synthetic and composite materials. Innovation during this time was determined by technological invention, also called ‘technology push’ (Rothwell, 1994). Scant attention was paid to the actual NPD process and to the market place.

Toward the end of the 1960s, a period characterized by intensifying competition, corporate emphasis shifted from ‘technology push’ to ‘market pull’ (Rothwell, 1994; Mowery and Rosenberg, 1979). In order to achieve market sales share, firms increasingly focused on developing new products based on existing technologies, and on increasing sales of existing products through the implementation of marketing efforts. Rather than technologies being the source for new product ideas, firms started to focus on the market to obtain new product ideas based on customer needs. Thus, while the technology push era in the 1950s focused

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predominantly on technology without considering market factors, the market pull era in the 1970s considered the market as their primary source for new product ideas, assigning a predominantly reactive role to R&D (Hayes and Abernathy, 1980).

An emerging body of literature in the late 1970s pleaded for using an integrative approach that combined the technology push and market pull perspectives in more structured processes for NPD (Mowery and Rosenberg, 1979; Cooper, 1980). From that point in time, researchers increasingly started to recognize that effective NPD processes can lead to a core competence that helps firms to differentiate themselves from their competitors (Prahalad and Hamel, 1990; Cooper, 1990). However, a benchmark report in 1980 from The Conference Board, an independent business membership and research association, revealed that 63% of managers felt that their new product success rate was low or disappointing (Hopkins, 1980). Other studies during that same period found new product failure rates of 46% (Cooper and De Brentani, 1984). These findings spurred the first efforts to formalize the NPD process (De Brentani and Droge, 1985; Hopkins, 1980; Urban and Hauser, 1980; Cooper, 1985). The initiative that historically had the largest impact on current NPD practices was the development of the Stage-Gate® process by Cooper in the early 1980s.

In his research, Cooper (1990) found that best practice firms developed customized processes for NPD and that these processes showed similarities across firms. From these similarities, Cooper drew on an analogy of production processes, to divide the NPD process into a number of stages with quality check points between each stage. This idea formed the starting point for the Stage-Gate® process as presented in Figure 1. In its most simple form, Stage-Gate® divides the NPD process into a predetermined set of some number of stages, with each stage followed by a gate or ‘go/no-go’ decision point. Each stage contains a series of tasks that need to be completed before the project can move to the next stage. The gates, consisting of a set of criteria that the project must surpass, are in essence quality control mechanisms that help manage risks across the NPD process (De Brentani, 1986; Crawford, 1989; Cooper et al., 2001; Tzokas et al., 2004).

Build business case NPD

IDEA

Scoping Development Testing and

validation

STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5

Production and launch Gate 1 Initial screen NO-GO Gate 2 Second screen NO-GO Business case assessment Gate 3 NO-GO Post-development review Gate 4 NO-GO Pre-launch review Gate 5 NO-GO LAUNCH

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Over the years, the implementation of Stage-Gate® processes has played a central role in the enhancement of NPD proficiency. Research in the mid-1990s found that a high quality NPD process, in combination with sufficient resource support and senior commitment, was one of the most important drivers of new product success, technical success, and profitability of the overall new product program (Montoya-Weiss and Calantone, 1994; Cooper and Kleinschmidt, 1995). A benchmark study conducted by the Product Development & Management Association (PDMA) in 1995 showed that 60% of the surveyed firms used a formal process for managing NPD and that best practice firms had implemented Stage-Gate® processes to a greater extent than the rest of the firms (Griffin, 1997). Best practice firms also had implemented more steps in their Stage-Gate process compared to the rest including a strategy setting step as the first stage of the process (Griffin, 1997).

Interestingly, the increasing popularity of Stage-Gate® over time has not produced significant new product performance improvements. In 2004, the PDMA conducted another benchmark study and found that 69% of the surveyed firms reported using a formal process for NPD, while the average self-reported success rate of new products had not improved since 1990 and had stabilized at around 59% (Barczak et al., 2009). At the same time, firms increasingly started to experience problems in managing their NPD portfolios, and difficulties in making the right decisions about which projects to develop and which to abandon (Cooper et al., 1999, 2001). These results imply that having a formal NPD process in place is no longer a differentiating competence (Barczak et al., 2009).

1.2.2. From managing individual projects to managing the portfolio

The 2004 PDMA benchmark study also found that firms since the 1990s have increasingly focused on more incremental NPD compared to really new products and that they have experienced a decrease in the percentage of sales and profits derived from new products compared to total profit (Barczak et al., 2009). Figure 2 and Table 1 provide an overview.

0% 5% 10% 15% 20% 25% 30% 35% 40% New-to-the-World New-to-the-Firm Additions to Existing Lines

Improvements Repositioning Cost Reduction

% o f N P D P ro je c t P o rt fo li o 1982 1995 2004

Figure 2. NPD project portfolios, results from Booz Allen Hamilton (1982) and the PDMA best practices studies (Griffin, 1997b; Barczak et al., 2009)

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According to Cooper (2008), firms have tended to use Stage-Gate® processes in their original form, which closely resemble rigid and sequentially phased production processes that are well suited for developing individual projects that are incremental in nature. However, Benner and Tushman (2003) argue that while an increase in the amount of process management helps firms develop incremental new products, it also decreases their ability to develop more radical new products. As a result of trying to initiate and develop sufficient numbers of these more incremental projects to fulfill short-term revenue growth goals and withstand increasing competitive pressure, many portfolios have become overloaded with too many projects that no longer reflect the longer term strategic direction of the firm (Cooper et al., 2001; Repenning, 2001; Kester et al., 2009). Consequently, these firms have experienced decreased business success.

Portfolio overload occurs when a firm initiates more NPD projects than their resources can support. As a consequence, managers are constantly occupied solving unanticipated problems, also referred to as ‘firefighting’, which distracts them from focusing on those projects that are truly important in light of the (long-term) strategic goals. Firefighting is defined as:

“…the unplanned allocation of engineers and other resources to fix problems discovered late in a product’s development cycle” (Repenning, 2001 p.286). Firefighting can have problematic

consequences. Projects end up in a queue causing blockages in the development pipeline resulting in new product launch delays and longer cycle times (Repenning, 2001). This is unfortunate, as a firm’s ability to decrease cycle time provides another important differentiator in today’s competitive environment (Langerak and Hultink, 2005, 2006; Calantone and Di Benedetto, 2000). Additionally, development personnel may become demotivated due to increased work pressure and unsatisfying results. With resources and people too thinly spread, the quality of execution may start to suffer, causing an increase in failure rates, reduced market success, and strategic dilution (Cooper et al., 2001; Repenning, 2001).

Strategic dilution means that the NPD portfolio does not reflect the strategic goals and priorities of the firm. As reflected in the PDMA 2004 benchmark findings (Barczak et al., 2009), firms have increasingly adopted a short-term perspective in their NPD development activities, thereby failing to allocate resources to those projects that have a larger impact potential in terms of revenue but also in terms of strategic importance. Firms need to develop these more innovative projects to differentiate themselves from their competitors and to sustain long-term growth (O’Connor, 2008; Cooper, 2008). However, developing such projects may be a risky endeavor that typically entails higher levels of uncertainty and requires more resources than the development of incremental projects (O’Connor, 2008).

2004 (Barczak et al., 2009)

1995 (Griffin, 1997b)

1990

(Griffin and Page, 1993) Percent successes 59.0% 59.0% 58.0% Percent success-profits 54.2% 54.6% --New product sales percent of total 28.0% 32.4% 32.6% New product profit percent of total 28.3% 30.6% 33.2%

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Research has indicated that firms that make NPD decisions on a project-by-project basis, rather than on a portfolio basis, have a higher chance of discarding higher impact and higher risk projects, because they typically lack overview in how their overall collection of NPD projects contributes to achieving their (long-term) strategic goals (Cooper et al., 2001; Chao and Kavadias, 2008). Best practice firms are increasingly moving from managing projects individually to making decisions for the complete NPD portfolio (Cooper et al., 1999, 2001; Hauser et al., 2006; Chao and Kavadias, 2008). Therefore, formal NPD processes, such as Stage-Gate®, are no longer sufficient to compete effectively, as they only help manage projects individually and not collectively.

However, despite regular calls in the literature to attend to the importance of developing effective portfolio decision-making processes (Cooper et al., 1999, 2001, 2004; Hauser et al., 2006), insights that prevent or resolve challenges in the daily practice of portfolio decision-making have been few (Eggers, 2006). To date, the focus in the literature still has been on processes for managing individual NPD projects, such as Stage-Gate® processes, or on individual NPD project decision-making, for example, project selection and termination decisions. There is little known about how firms actually make strategic NPD portfolio decisions and how they can be more effective. This is unfortunate as it is a far bigger challenge to maintain an overview of the entire portfolio and to make decisions from a strategic perspective than to make individual NPD project decisions (Cooper et al., 2000).

Thus, while we have obtained insights into how firms can best develop individual NPD projects, we do not know how firms can best organize for making strategic decision for the overall portfolio of the firm.

1.3. Aim of the thesis

Strategic NPD portfolio decision-making is not only an underdeveloped topic in the literature, it also represents a broad and relatively complex area to investigate. This research studies NPD portfolio decision-making by combining insights from the innovation management literature with a strategic decision-making perspective and by using two different research approaches: an inductive qualitative multiple case study and a deductive survey study. The objective is to identify how effective strategic NPD portfolio decision making is defined and what needs to be managed in firms to achieve effective strategic portfolio decisions. It empirically builds, and then tests a theory of portfolio decision-making.

This section first discusses the academic relevance of this research. The section thereafter delineates how the research contributes to improving managerial practice.

1.3.1. Academic relevance

NPD portfolio decisions can be investigated from two different points of view. One can focus on the characteristics of the decisions itself, or one can focus on the processes by which these decisions are made (Hutzschenreuter and Kleindienst, 2006). This research is primarily concerned with the latter and takes an organizational process perspective to strategic NPD portfolio decision-making. This means that the content of the decision is subordinate to the

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process by which it was made. The topic of new product portfolio decision-making spans several theoretical domains: portfolio management, innovation management, and strategic decision-making. This research contributes to each of these domains.

Research in the innovation management literature has explored NPD portfolio decision-making in several ways. First, Cooper and his colleagues (1999, 2000, 2001, 2004) have investigated best practices in new product portfolio management and defined three characteristics of successful portfolios (i.e., strategic alignment, portfolio balance, and maximal value). They found that best practice firms tend to use multiple methods for managing their NPD portfolios (such as using a combination of financial, graphical, and strategic methods) and that these firms evaluate their portfolios in terms of strategic alignment, balance, and maximization of portfolio value. Although their research has provided a starting point for further NPD portfolio research, it is only descriptive and did not investigate the processes by which firms make strategic NPD portfolio decisions. In other words, their research has not revealed how firms can achieve successful portfolios.

In another research thrust, the innovation management literature differentiates between three streams of research that are linked to individual NPD portfolio decisions: project selection (i.e., selecting which NPD projects to take into development), project termination (i.e., deciding to terminate projects that are already in development), and product deletion decisions (i.e., eliminating products from the market). Although each stream of research has produced interesting insights that help to better understand what portfolio decisions are about, they present only fragmented pieces of information about the processes of strategic NPD portfolio decision-making. Thus, from the combined streams of literature in the innovation management domain, it has remained unclear how firms make NPD portfolio decisions and how they can be most effective at it.

To examine how firms make strategic NPD portfolio decisions, this research also draws from the strategic decision-making literature. The strategic decision-making literature has focused on untangling the strategy-process-performance relationship in firms. The central debate in this literature focuses on whether and when rationality leads to better decisions, often measured as firm performance. Findings, however, contradict and while some argue that rationality leads to better decisions, others argue that one should not overlook the potential negative (or positive) effects of politics. Other streams of research in the strategic decision-making domain have investigated the effects on an individual’s intuition on the strategic decision. These findings have, however, not been extended to firm level processes. Overall, contradicting findings prevail in the strategic decision-making literature, which indicates that strategic decision-making may be more complex than previously assumed and that other approaches are necessary to better understand how firms can make effective strategic NPD portfolio decisions.

This research overcomes some of the compartmentalization of previous research and demonstrates that an integrative perspective to strategic NPD portfolio decision-making is imperative to better understand how firms make such decisions and how they can be most effective. I build and then test a model of portfolio decision-making. First, I use an inductive qualitative research approach to investigate the organizational mechanisms of NPD portfolio

New Product Development Portfolios: Identifying the antecedents and consequences of decision-making processes

Identifying the antecedents and consequences

of decision-making processes

NEW PRODUCT

DEVELOPMENT

PORTFOLIOS

Linda Kester

Identifying the antecedents and consequences

of decision-making processes

NEW PRODUCT

DEVELOPMENT

PORTFOLIOS

“I thank my fortune for it,

My ventures are not in one bottom trusted,

Nor to one place; nor is my whole estate

Upon the fortune of this present year.”

(The Merchant of Venice, Shakespeare, 1600)

ACKNOWLEDGEMENTS

CONTENTS

LIST OF TABLES

LIST OF FIGURES

SUMMARY

SUMMARY

SAMENVATTING

INTRODUCING

PORTFOLIO

MANAGEMENT

1.

1. INTRODUCING PORTFOLIO

MANAGEMENT

1.1. Defining portfolio management

1.2. The evolution of NPD processes: From making individual NPD

project decisions to making portfolio decisions

1.3. Aim of the thesis