Resource Allocation Processes for New Product Development: Empowerment, Control...Or Both? The Value of Strategic Buckets

Hutchison‐Krupat, Jeremy; Kavadias, Stylianos

doi:10.2139/ssrn.1694844

Cited by 3 publications

(1 citation statement)

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“…Similarly, Mihm (2010) shows that when engineers face the threat of penalties for (over) designing components leading to cost overruns, the firm can reduce the expenditure of those engineers. Hutchison-Krupat and Kavadias (2010) analytically show that in a setting of endogenous project risk, higher penalties cause managers to reduce their investment, which ultimately makes otherwise favorable projects appear unfavorable in the eyes of senior management. All of these studies share a common thread in terms of the negative effect that penalties ("the stick") have as opposed to the positive effect of rewards ("the carrot").…”

Section: Financial Rewards and Penaltiesmentioning

confidence: 99%

Tolerance for Failure and Incentives for Collaborative Innovation

Hutchison‐Krupat

Chao

2014

Production and Operations Management

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M ost organizations employ collaborative teams to manage innovation projects. Although the use of collaborative innovation teams is a good starting point, an organization's ability to innovate can be enhanced by managing risktaking behavior through monetary incentive schemes and through an organizational culture that tolerates failure. This article reports the results of two controlled experiments aimed at understanding how tolerance for failure and incentives impact the decisions of individuals engaged in a collaborative innovation initiative. A key element of our experiments is the notion of endogenous project risk, which we define as the explicit link between resources allocated to a project and the likelihood of project success. We observe that when penalties are low, the amount of risk an individual assumes is fairly insensitive to the rewards that are offered. In an analogous result, when individuals make decisions alone (rather than collaboratively), higher tolerance for failure does little to increase the amount of risk an individual is willing to take. Taken together, these results highlight the importance of implicit incentives that are created as a result of project and organizational characteristics.

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Section: Financial Rewards and Penaltiesmentioning

confidence: 99%