Neale, C.W. (1994). Successful New Product Development: A Capital Budgeting Perspective.Journal of Marketing Management, 10(4), 283-296.

Format: Peer-reviewed article

Type: Research — Non-experimental

Experience level of reader: Fundamental

Annotation: A survey is used to identify the link between business and financial evaluations and new product success. Although typically lacking from new product development processes, structured and detailed examinations of markets and budgeting have a significant impact on the success of new product development efforts. The sophistication of capital budgeting systems is also linked with higher rates of new product development success, although causation has yet to be proven. Overall it was found that investments in new product development were more successful when coupled with coherent administrative procedures, sound evaluation methods, and effective control.

Setting(s) to which the reported activities/findings are relevant: Large business, Small business (less than 500 employees)

Knowledge user(s) to whom the piece of literature may be relevant: Manufacturers, Policy Makers

Knowledge user level addressed by the literature: Organization

This article uses the Commercial Devices and Services version of the NtK Model

Model: Investment success likely to result from a framework including coherent administrative procedures, sound evaluation methods, and effective control.
Survey with significant findings.

• Sound evaluation methods are needed for new product success, including strategic screenings of new product proposals; utilization of market research; and primary and secondary valuation using a variety of methods such as net present value or Payback.
  Survey with significant findings.
  Occurrence of finding within the model: Gate 2, Step 1.5, Step 4.12, Step 4.7, Step 4.3, Step 2.2, Step 4.13, Step 7.7, Step 7.3

• Organizations should have coherent administrative procedures, including information-gathering systems reviewing new opportunities; flexible capital budgets that extend beyond two years; up-to-date capital budgeting manuals; full time capital budgeting staff; regular reviews of hurdle rates; and a capital appropriation committee to vet projects.
  Survey with significant findings
  Occurrence of finding within the model: Gate 2, Step 1.5, Step 4.12, Step 4.7, Step 4.3, Step 2.2, Step 4.13, Step 7.7, Step 7.3

• Effective control is required for new product success. To achieve this, new product development projects should be regularly monitored and should enjoy grace periods.
  Survey with significant findings.
  Occurrence of finding within the model: Gate 1, Gate 2, Gate 3, Gate 4, Gate 5, Gate 6, Gate 7, Gate 8, Gate 9

Tip: Higher levels of sophistication in capital budgeting are associated with new product development success.
Survey with significant findings.
Occurrence of finding within the model: Step 4.10, Step 1.5, Step 4.12, Step 4.7, Step 4.3, Step 4.13, Step 7.7, Step 7.3

Barrier: Financial evaluation dilemma- Flimsy data may result in the elimination of potentially successful projects. However, failure to evaluate at an early stage (using any and all available data) results in new product development failure. (Hayes & Abernathy, 1980; Hayes & Garvin, 1982; Pearson, 1986)
Occurrence of finding within the model: Step 1.5, Step 4.7, Step 4.3, Step 2.2, Step 4.13, Step 7.7, Step 7.3