New product development processes and new product profitability: Exploring the mediating role of speed to market and product quality

Abstract

In new product development, faster is not always better. Conceptually, being faster to market should improve financial performance by improving product quality and reducing development expenses. Empirical support is mixed, however, demonstrating that higher speed to market exhibits an inverted U-shaped relationship with product profitability. Conventional wisdom and empirical research suggest managers make speed to market-product quality-development expense trade-offs. A particular concern regarding speed to market is that extreme speed may jeopardize product quality. Some researchers suggest that speed to market improves product quality while others suggest firms must balance both speed to market and product quality. Also, shorter lead times may be associated with reduced development expenses, but empirical evidence is conflicting. This research attempts to reconcile conflicting results regarding the speed to market-product quality relationship, their joint impact on product profitability, and their mediation role in the effects of development expenses and cross-functional integration on product profitability. Partial least squares (PLS) is used to analyze multiplexed archival and survey data collected from NPD managers for 1115 different NPD projects in several firms. The results support the hypothesized equations, explaining 27% of speed to market variance, 35% of product quality variance, and 45% of product profitability variance. This study makes two contributions. First, because speed to market and product quality are related, simultaneous consideration of both factors enhances insight into their joint effect. Second, it provides evidence that speed to market and product quality jointly mediate development expense by NPD phase and cross-functional integration effects on product profitability. Key results from the large sample data analysis include the following. Speed to market and product quality both enhance product profitability, but the impact of speed to market is larger than that of product quality. Speed to market and product quality partially mediate the impact of fuzzy front end phase expenses on product profitability, while expenses in the latter phases exhibit no impact on the mediators or profitability. Thus, the results suggest that trade-offs are made not only between time, quality, and expense (i.e., if additional expenses are incurred at all), but also that trade-offs relate to when (i.e., in which NPD phase) additional development expenses are incurred. Finally, cross-functional integration (both internal and external) substantially impacts product profitability through a mix of direct and mediated effects. © 2011 Product Development & Management Association.