Incentives in a Stage-Gate Process

Chao, Raul O.; Lichtendahl, Kenneth C.; Grushka‐Cockayne, Yael

doi:10.2139/ssrn.1738531

Cited by 18 publications

(24 citation statements)

References 43 publications

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“…In particular, the marginal effort cost at zero is zero, which implies that the contractor need not entail a loss without the effort invested to complete the project. This assumption is in accordance with the practical fact, which has been used in Chao al. (2014) and Yang et al (2014) and implies increasing marginal cost of effort.…”

Section: Notations and Assumptionssupporting

confidence: 82%

Impacts of uncertain project duration and asymmetric risk sensitivity information in project management

Yang

Zhao

Lan

2015

Int Trans Operational Res

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This paper investigates the impacts of uncertain project duration and asymmetric risk sensitivity information on the structure of incentive contract and profits in project management where a risk‐neutral project manager (she) engages a risk‐averse contractor (he) to complete a project. The project manager offers a duration‐based incentive contract to the contractor to ensure that he invests his effort to shorten the project duration and reports his risk sensitivity information truthfully. Within the framework of principal‐agent theory, we first develop a duration‐based incentive contract model, and then derive the optimal contract mechanism by solving its equivalent optimal control problem with Pontryagin maximum principle. We show that if the contractor is highly risk averse and the project duration is highly volatile, the project manager should lower the penalty term to motivate the contractor to make duration‐reduction efforts. Moreover, comparing with the symmetric information scenario, we find that the project manager distorts the penalty term for all contractor's risk types (but the lowest) downward. Our results show that the project manager is more willing to acquire the contractor's risk sensitivity information under the uncertain project duration. The results also suggest that from the project manager's perspective, it is beneficial to have better information about the contractor's risk sensitivity by using a numerical analysis.

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Section: Notations and Assumptionssupporting

confidence: 82%

Impacts of uncertain project duration and asymmetric risk sensitivity information in project management

Yang

Zhao

Lan

2015

Int Trans Operational Res

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“…This stream of work focuses on various types of agency problems in an inter-organizational innovation context, such as moral hazard (Bhaskaran and Krishnan, 2009), adverse selection (Crama et al, 2016), and holdup problem (Bhattacharya et al, 2015). The innovation problem context is also modeled differently, varying on aspects such as intra-versus inter-organizational innovation (Bhaskaran and Krishnan, 2009;Chao et al, 2014), single versus multiple suppliers (Che and Gale, 2003;Wang and Shin, 2015), single versus multiple stages (Chao et al, 2014;Rahmani et al, 2016), the party with the decision right (buyer versus supplier) (Agrawal and Oraiopoulos, 2016), and the types of uncertainty considered (market versus project) (Savva and Scholtes, 2014). Finally, the literature also examines various types of contracts, such as revenue-sharing (Savva and Scholtes, 2014), renegotiation (Plambeck and Taylor, 2007), and milestone/delaying contracts (Bhattacharya et al, 2015).…”

Section: Literature Reviewmentioning

confidence: 99%

Incentivizing supplier participation in buyer innovation: Experimental evidence of non‐optimal contractual behaviors

Yan

Ribbink

Pun

2018

J of Ops Management

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Original equipment manufacturers increasingly involve suppliers in new product development (NPD) projects. How companies design a contract to motivate supplier participation is an important but under‐examined empirical question. Analytical studies have started to examine the optimal contract that aligns buyer‐supplier incentives in joint NPD projects, but empirical evidence is scarce about the actual contracts offered by buying companies. Bridging the analytical and empirical literature, this paper compares optimal contracting derived from a parsimonious analytical model with actual behaviors observed in an experiment. In particular, we focus on how project uncertainty, buying company effort share, and buyer risk aversion influence three contractual decisions: total investment level, revenue share and fixed fee. Our results indicate significant differences between the optimal and actual behaviors. We identify various types of non‐optimal contractual behaviors, which we explain from a risk aversion as well as a bounded rationality perspective. Overall, our findings contribute to the literature by showing that (1) the actual contractual behaviors could differ significantly from the optimal ones, (2) the actual contract design is sensitive to changes in project uncertainty and buying company effort share, and (3) the significant roles of risk aversion and bounded rationality in explaining the non‐optimal contractual behaviors.

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“…First, complexity often emerges from the size of the NPD project where it relates to the number of technologies, components or functions being developed (Chapman & Hyland, 2004;Griffin, 1997a;Kim & Wilemon, 2003;Nightingale, 2000) and to the number of organisations or business functions that are involved in the project (Dougherty, 2017;Kim & Wilemon, 2003). Second, complexity stems from the nature of the development activities, such as the number of different development tasks and their interdependence (Ahmad et al, 2013;Chapman & Hyland, 2004;Dooley & Van de Ven, 1999;McCarthy et al, 2006), as well as the novelty of these tasks (Chao et al, 2014;Maggitti, Smith, & Katila, 2013;Tatikonda & Rosenthal, 2000).…”

Section: Complexity Of Npd Processesmentioning

confidence: 99%

“…To understand the complexity of NPD projects, existing studies have analysed the properties of the system involved in NPD projects (Dooley & Van de Ven, 1999;McCarthy, Tsinopoulos, Allen, & Rose-Anderssen, 2006;Mihm, Loch, & Huchzermeier, 2003), outlined how to design NPD processes to handle complexity (Chao, Lichtendahl, & Grushka-Cockayne, 2014;Iansiti & MacCormack, 1997) and unravelled practices that individuals and companies use to manage complexity (Chapman & Hyland, 2004;Dunne & Dougherty, 2016;Griffin, 1997a). Yet, prior research has not been able to put forward an approach that would capture the causal complexity (e.g., Misangyi et al, 2017) inherent in the NPD processes.…”

Section: Introductionmentioning

confidence: 99%

Causal complexity of new product development processes: a mechanism-based approach

Sihvonen

Pajunen

2018

Innovation

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The outcomes of new product development (NPD) processes are dependent on the interplay of several interdependent activities. One product development activity can be dependent on the presence or absence of other activities, different kinds of NDP processes may lead to the same outcome, and specific kinds of activities may have a positive effect in one process but no effect in other processes. However, we currently lack means to examine and explain this causal complexity inherent in NPD processes. To address this issue, we introduce mechanism-based approach as a way to capture conjunctural and equifinal causal relations. We build this approach on the philosophical literature on mechanism-based explanations and the methodological opportunities provided by the qualitative comparative analysis (QCA) to identify how the activities of entities are configured together to generate outcomes. We elaborate this approach by presenting an in-depth historical analysis of the NPD projects of Vaisala, a meteorological instrument company. We discover and suggest that the company's NPD projects were driven by three mechanisms (ideation, evaluation and commercialisation) and that each of them were actualised by a set of different activity configurations. Accordingly, we contribute to the NPD and innovation literature by showing how mechanism-based explanations take into account both the abstract theorisation of NPD processes and their inherent causal complexity.

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Incentives in a Stage-Gate Process

Cited by 18 publications

References 43 publications

Impacts of uncertain project duration and asymmetric risk sensitivity information in project management

Impacts of uncertain project duration and asymmetric risk sensitivity information in project management

Incentivizing supplier participation in buyer innovation: Experimental evidence of non‐optimal contractual behaviors

Causal complexity of new product development processes: a mechanism-based approach

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