Investment In Product Development Research Articles

How Management Accountants Purposefully Create Cash Flow Forecasts in Capital Budgeting: A Field Study of Product Development Decisions*

ABSTRACTIn capital budgeting, management accountants may have their own agendas when they are creating cash flow forecasts and recommending particular capital investments. What are the mechanisms management accountants can use to influence cash flow forecasts in capital budgeting? This field study investigates how management accountants prepared cash flow forecasts for product development investment decisions at a car company. We describe in detail two instances of the technical design of new cars, the preparation of cash flow forecasts, and decisions on capital investment projects. When management accountants monetarily quantify various kinds of inputs, they not only make pragmatic choices as part of their normal work of dealing with complexity and uncertainty, but they also purposefully intervene in various ways to make their cash flow forecast support a particular capital investment. These interventions can be differentiated in terms of their nature (qualitative or quantitative) and timing (initiating or counteracting). This field study contributes a conceptualization and empirical evidence on accounting tactics in the context of capital budgeting.

Dynamics in the evolution of circular sourcing strategies: Evidence from German frontrunners sourcing for recycled plastics

Firms’ circular sourcing strategies are essential for the transition to a circular economy as they enhance circularity both within individual firms and across industries. A key barrier to the implementation of such strategies is that many approaches still offer a static perspective on resource use without addressing its evolutionary characteristics and dynamic interdependencies over time. Based on the assumption that companies’ strategic procurement decisions on recyclate markets show temporal patterns depending on the development of these markets (“marketness”), the dynamics in the complex cause-and-effect structures of circular procurement strategies are analysed longitudinally with the help of causal loop diagrams. Employing a comparative case-study design with the example of German frontrunners sourcing recycled plastics, the paper addresses three recyclate markets at various stages of development, ranging from the emerging market of recovered plastic litter, through the developing market of plastic recyclate from mixed post-consumer packaging waste, towards the well-established market of recycled deposit bottles. The results reveal ideal-typical longitudinal patterns of company leaders’ strong commitment to sustainability, facilitated by flexible organisational structures, significant investment in product development, sound supplier relationship management and brand building to sway consumer preferences towards circular products, indicating that market-shaping activities are key in long-term shifts towards circular market transitions. By understanding the dynamics of circular sourcing and their relationship with the development stage of recyclate markets, the study sheds light on potential governance measures to scale-up plastic recyclate markets for a circular plastics economy. It concludes that overall dynamics point to a steady development of firms’ circular sourcing strategies and a rapid growth in recyclate application, involving complex challenges of resource circularity that call for carefully targeted regulatory policies.

Financing strategy to support a product development of aluminium finished goods (case study: PT. XYZ)

Nowadays, the use of wood materials for construction is starting to be reduced because it can cause global warming due to cutting down forests. There are changes in the construction used aluminium materials such as frames and doors. There is an increasing demand for aluminium products which is an opportunity for companies to develop products. Currently the company manufactures aluminium profile products (semi-finished goods), so the company needs to develop aluminium finished goods products to increase profits and brand image. The investment required by the company is 11,232,000,000 rupiah to develop aluminium finished goods products. This research uses financial feasibility study, then selects the best investment financing. Net Present Value (NPV), Profitability Index (PI), Internal Rate of Return (IRR), Payback Period (PP), and Return on Investment (ROI) are used as variables for determining investment. There are four financing alternatives, including internal financing, bank, leasing and IPO. The results showed that bank financing provided the highest NPV and ROI with an NPV value of 1,546,356,903, Profitability Index (PI) of 1.14, Internal Rate of Return (IRR) of 10.09%, Payback Period of 4 years 1 month, Return on Investment (ROI) of 28.24% and US Index of 4.71. Thus, the results of this research recommend using bank financing for investment in product development.

Profitability and the lifecycle of firms

Abstract Using data on private and public firms, this study documents that profitability follows a hump shape over the lifecycle of a firm. Profitability rises with age for young firms, remains elevated, and then declines slowly for mature firms. A dynamic lifecycle model captures the observed age profile of profitability. Investment in product development generates profitability increases for young firms while wage pressures from more productive entrants lead to profitability declines for mature firms. The model generates the lifecycle behavior of financing and growth documented in the literature, even though it contains no financial frictions. It also implies greater sensitivity of financing and growth to age for young firms, a prediction supported by empirical tests. Taken together, these findings indicate that profitability dynamics influence the financing and growth of firms over the lifecycle.

Technological Peer Pressure and Product Disclosure

ABSTRACT We introduce a firm-specific measure of the technological aspect of competition—technological peer pressure—and examine firm-initiated product development-related press releases. We argue that empirical examinations of the theorized negative relation between competition and disclosure require the type of voluntary disclosure to be relevant to the dimension of competition under examination to ensure that firms incur significant proprietary costs of disclosure. In other words, many types of disclosure do not provide actionable information to competitors and, thus, should not be affected by that dimension of competition. We expect a negative relation between technological peer pressure and product disclosure because the latter reveals firms' strategies, allocations, and progress of technological investments in product development to competitors. In contrast, we do not expect a negative relation between technological peer pressure and management earnings forecasts—the most common type of voluntary disclosure used in accounting research. Our test results are consistent with these expectations. Data Availability: All data are available from public sources. Our TPP Measure is available for download, please see the link in Appendix G.

Winner-Take-All, Take-Most or Pay-Some? Optimal Protection of Innovation in a Dynamic Model of Product Development

In a model of investment in product development in duopoly we study the implications of different costs of innovating and imitating for firm strategies and optimal IP protection, relating these to the dynamic characteristics of a stochastic demand. A critical relative cost is identified that determines whether strategic competition takes the form of attrition or preemption, with industry value being maximized when firms neither stall nor hasten entry. Provided that demand growth and volatility are sufficiently low, as typically arises in mature industries, it is socially desirable to provide innovators with complete protection (winner-take-all), implying a preemption race. But when demand is rapidly expanding and highly unpredictable a social optimum can involve a low level of protection, implying attrition, albeit with a positive lower bound for the optimal level of imitation cost (winner-pays-some). Industry profits increase if firms can commit not to seek stronger IP protection once they have innovated, providing a rationale for open standards. While buyouts have ambiguous welfare effects, simple licensing schemes are welfare improving.

Contrasting trends in the Northeast United States groundfish and scallop processing industries

In the northeast United States, groundfish landings have declined almost continually since 1983. Fresh groundfish processors have redeployed their marketing capital by substituting other seafood products in place of regional groundfish and expanding into different markets. Meanwhile, northeast U.S. Atlantic sea scallop landings sharply increased starting in 1998, peaked in 2004, remained relatively constant until declining in 2013 and 2014. In order to leverage their favorable access to increased landings, scallop processors invested in development of new products, such as individually quick frozen (IQF) scallops, and invested in marketing activities to attract new customers, including those located in foreign nations. This behavior is consistent with Montgomery and Wernerfelt's theory of diversification in response to excess capacity of firm-specific resources and investments in product development and marketing in firm specific resources. Price and quantity indicators were used to examine the effects of shifting landings and composition of landings on exvessel values. These indicators show that declines in groundfish exvessel values were driven by declining quantities, which is consistent with processors substituting other products rather than biding up exvessel prices. Increases in scallop exvessel values were driven by both increasing prices for all sizes and by increasing quantities for large scallops, which is consistent with investment in marketing for larger scallops.

Innovation management in renewable energy sector

As a result of the globalization of knowledge, shortening of the innovation cycle and the aggravation of the price situation, the diffusion of innovation has accelerated. The protection of innovation has become even more important for companies in technologyintensive industries. Legal and actual patent right strategies complement one another, in order to amortize the investment in product development. Climate change is one of today’s truly global challenges, affecting all aspects of socio-economic development in every region of the world. Technology development and its rapid diffusion are considered crucial for tackling the climate change challenge. At the global level, the last decades have seen a continuous expansion of inventive activity in renewable energy technologies. The growth in Renewable Energy (RE) inventions has been much faster than in other technologies, and RE today represents nearly 6% of global invention activity, up from 1.5% in 1990. This paper discusses about global innovation activity in the last five years in the renewable energy sector and describes the Innovation and Technology Management process for supporting managerial decision making.

Failure to Launch: What the Rejection of Lumbar Total Disk Replacement Tells us About American Spine Surgery.

Spine surgeon survey. The objective was to investigate the failure of widespread adoption of lumbar total disk replacement (L-TDR) in the United States. L-TDR has been available for use in the United States since 2005. L-TDR has not gained wide acceptance as a treatment for degenerative disk disease despite substantial investments in product development and positive results in randomized controlled trials. Estimates of the number of L-TDR procedures performed in the United States from 2005 to 2010 were calculated using the Nationwide Inpatient Sample database. Insurance policies were assessed for L-TDR coverage through Internet search. Finally, an 18-question survey regarding surgeons' opinions toward L-TDR was distributed to the members of North American Spine Society. The estimated number of primary L-TDR procedures performed in the United States decreased from 3650 in 2005 to 1863 in 2010, whereas revision L-TDR procedures increased from 420 to 499. Of 14 major insurers, 11 (78.6%) do not cover L-TDR. In total, 613 spine surgeons responded to the survey. Over half of respondents (51.1%, 313/612) have performed L-TDR, although only 44.6% (136/305) of initial adopters currently perform the surgery. However, 81.5% (106/130) of those currently performing L-TDR have been satisfied with the results. When asked about their perceptions of L-TDR, 65.0% (367/565) indicated a lack of insurance coverage for L-TDR in their region, 54.9% (310/565) worry about long-term complications, and 52.7% (298/565) worry about the technical challenges of revision. Despite early enthusiasm for L-TDR, wide adoption has not occurred. A primary reason for this failure seems to be a lack of insurance coverage, despite intermediate-term clinical success. In addition, surgeons continue to express concerns regarding long-term outcomes and the technical difficulties of revision. This case study of a failed surgical innovation may signal increasing involvement of payers in clinical decision-making and may be instructive to surgeons, policymakers, and manufacturers.

Architecture, Performance, and Investment in Product Development Networks

Firms engaging in product development (PD) face the imperative problem of allocating scarce development resources to a multitude of opportunities. In this paper, we propose a mathematical formulation to optimize PD investment or resource allocation decisions. The model maximizes the performance of a product under development, based on its architecture and the firm's available resource, by choosing the optimal resource allocation across product modules and design rules that govern the relationships between these modules. Results based on a comprehensive experiment (with various architectural patterns, escalating number of dependencies, and different problem sizes) shed light on three important hypotheses. First, product architecture affects resource allocation decisions and ultimately product performance. The second hypothesis tests whether modular or integral architectures can attain higher performance levels based on our formulation. A third hypothesis states that there is a shift in the temporal allocation of resources from design rules to individual modules, thus supporting the move from integral to modular architectures as the product evolves across multiple generations. Finally, the model and the experimental results provide design and managerial insights to both development engineers and managers. Specifically, for development engineers, the model and its analysis provide guidance for selecting the product architecture which leads to maximum performance. For development managers, the model and its analysis assist in deciding the optimal budget proportions to be allocated to modules and to design rules, given a fixed architecture and budget.

Optimal utilisation level for lean product development in a multitasking context

Flow of information is of utmost importance during product development (PD) endeavours with timely feedback supporting the resolution of higher risk elements. PD task size, multitasking and resource utilisation levels of the PD system influence information flow and the value ultimately realised from the investment in PD. In this paper, a model incorporating a methodology developed using queuing theory, and in particular, results obtained for Jackson networks are extended to help engineering management to improve PD task flow and consequently become more ‘lean’. Considered factors include: optimal PD task size and multitasking (focus) level as well as the utilisation level of PD resources. Empirical data were collected from a case study company and compared to optimal values. The benefits of the proposed model and approaches are discussed.

Discriminating against Explorative Failure: Evidence from Investments in Film Production

In the behavioral theory of the firm literature, the mechanism of problemistic search predicts that organizational failures foster risk-taking changes. However, real-world observations that failures fail to serve as such a trigger in many firms run counter to this general view. This study investigates how firms’ learning from negative performance feedback can be misdirected from institutional concerns. I classified performance feedback from multiple products of firms into two categories: categorical feedback from exploitation and exploration. When failures are attributed to executives’ prior engagement in exploration-deviation from the institutionalized norm of doing business, executives risk more severe punishment from shareholders and board members, and thus show more sensitive reaction by significantly decreasing their subsequent investment in exploration. I examine this phenomenon based on new product development investments of film producer organizations in the United States from 2000 to 2012. My result of a Tobit panel analysis showed that explorative categorical feedback more significantly moderated the effects of firm-level feedback on firms’ investments, supporting my hypothesis

Marketing or sales: the executive decision

Purpose – The purpose of this paper is to explore and analyze the differences in organizations that choose to have a sales executive versus a marketing executive on the leadership team. Design/methodology/approach – Our study examined 315 marketing and sales executives across 246 US firms taken from the S & P 1500. Findings – Our findings suggest that the company choice of marketing or sales executive positions is driven by its customer base, branding strategy, investment in product development, and industry. The choice of executive is also associated with its firm valuation and cash flow performance. Research limitations/implications – Further research might want to examine companies that include both a sales and marketing executive as part of the leadership team and explore industry characteristics and customer base surrounding that decision. Originality/value – Research has looked at the relationship between the marketing and sales functions but has rarely taken into account the performance of companies that emphasize sales and/or marketing leadership in its executive team. This paper analyzes the differences in organizations that choose among marketing versus sales executives or an executive overseeing the dual sales and marketing function.

Marine Algae: a Source of Biomass for Biotechnological Applications.

Biomass derived from marine microalgae and macroalgae is globally recognized as a source of valuable chemical constituents with applications in the agri-horticultural sector (including animal feeds and health and plant stimulants), as human food and food ingredients as well as in the nutraceutical, cosmeceutical, and pharmaceutical industries. Algal biomass supply of sufficient quality and quantity however remains a concern with increasing environmental pressures conflicting with the growing demand. Recent attempts in supplying consistent, safe and environmentally acceptable biomass through cultivation of (macro- and micro-) algal biomass have concentrated on characterizing natural variability in bioactives, and optimizing cultivated materials through strain selection and hybridization, as well as breeding and, more recently, genetic improvements of biomass. Biotechnological tools including metabolomics, transcriptomics, and genomics have recently been extended to algae but, in comparison to microbial or plant biomass, still remain underdeveloped. Current progress in algal biotechnology is driven by an increased demand for new sources of biomass due to several global challenges, new discoveries and technologies available as well as an increased global awareness of the many applications of algae. Algal diversity and complexity provides significant potential provided that shortages in suitable and safe biomass can be met, and consumer demands are matched by commercial investment in product development.

Cuban School Dictionaries for First-Language Learners: A Shared Experience

One of the reasons why many publishing houses hesitate when allocating resources to the development of more advanced concepts of school dictionaries for first-language learners is the relatively poor sales and corresponding profits coming from this category of dictionaries. A major challenge is therefore how to change the situation, stimulate the use and sales of school dictionar­ies, and guarantee the necessary investment in product development. This contribution will take up this challenge. It will give no final answer, but it will discuss an experience with a Cuban school dictionary which has reached its target users in large numbers. The contribution will particularly look at the multi-fac­eted relation between lexicographers and users which characterises the Cuban dic­tionary project. The objective is not to copy this or any other experience but to inspire lexicogra­phers looking for alternative solutions to a problem which is affecting both school children and lexi­cographers in many countries and language communities.

Complementors’ Behavior: Cause of Complementors’ Undesirable Product Launch to Multi-sided Markets

Expectation of both sales and profit acts as an incentive structure for complementors, such as software vender, record rebels, TV program studio and so on. Because this expectation changes along with the product lifecycle progress, complementors’ behavior tends to be undesirable for multi-sided platform operators. Thus multi-sided platform operators have to manage the quality and variety of complements developed by external companies in order to sustain their sound ecosystem and to keep them growing. Otherwise the moral hazard problems between multi-sided platform operators and complementors cause the market failure of multi-sided platform to destroy their ecosystem. In this paper, I illustrated the mechanism of the moral hazard problem occurring firstly. Secondly I discussed the methodology to control the complementors’ product development investment especially focusing on the price structure of platforms. At the last section I drew the limitation of the price structure control method from the discussion.

Solar photovoltaics: oligopsony, non-market decision-making and the paradoxical persistence of unprofitability

Record volumes of solar PV power plant installations have been achieved on the back of feed-in-tariffs and fiscal incentives. On the supply side, however, equipment manufacturers have been filing for bankruptcy protection in quick succession. This paper is an attempt to unravel the mystery underlying this inequilibrium, and to suggest a way forward for the solar PV sector to thrive. The price-cost margins are driven to unsustainable levels by an oligopsonistic, small buyer group facing up to a fragmented vendor base. Hence, given the pressure on manufacturers to supply large quantities within the short subsidy time-windows and the consequent emphasis on scale economies, process improvements have dominated product improvements and investments in product development and research have been marginal, if at all. The solar PV industry needs to invest in building goodwill through superior service provision and to rediscover its roots in decentralised generation, which is clearly more cost-effective, efficient, environment-friendly and genuinely sustainable.

Management Insights

Management Insights

Investigação sobre a existência de inovações disruptivas das grandes empresas multinacionais para o mercado brasileiro de baixa renda

O objetivo deste estudo foi identificar se grandes empresas multinacionais no mercado brasileiro, antes focadas prioritariamente nas classes de maior poder aquisitivo, promoveram algum tipo de inovação, particularmente inovações disruptivas, a fim de atender ao emergente mercado de baixa renda, impactando a gestão da produção e/ou cadeia de suprimentos dessas multinacionais. Para isso foi utilizado o método de estudo de casos múltiplos, estudando-se as empresas Nestlé, Unilever e Johnson & Johnson. Os resultados mostraram que as multinacionais que atuam no mercado brasileiro estudadas não promoveram inovações disruptivas para atuar na base da pirâmide, pois consideraram que a faixa de classes D e E não é atrativa o suficiente para investirem no desenvolvimento de produtos para essa faixa, atendendo preferencialmente a classe C através de pequenas modificações em produtos e distribuição. Dessa forma, não foram encontradas evidências de inovações disruptivas, mas inovações sustentadoras e incrementais ligadas à adequação de produtos existentes.

Ergonomic analysis of workplaces in the iron casting industrial pole in Claudio, Minas Gerais - Brazil

Brazil is currently recognized as the 10th largest producer of castings, and the city of Cláudio, MG is known worldwide as the "Greatest foundry and metallurgical pole in Latin America", with more than 80 companies. However, this large number of enterprises and increasing investments in product development has demanded an increase in manpower and working hours of workers in the sector, proportionally increasing the incidence of occupational related health problems like RSI (repetitive strain injury), WMSDs (work-related musculoskeletal disorders) and industrial accidents. This article aims to characterize the industry from previously conducted case studies to relate the main causes of occupational diseases and outline possible interventions through design, showing how this tool can contribute to improve the working environment, workplace, tools and equipment through ergonomics adjustments.