Designing Cost-Competitive Technology Products through Cost Management

As manufacturing innovations spread throughout leading organizations, product development becomes a more important source of competitive advantage. Within product development, cost management receives increasing attention. To date, cost management in new product development focuses primarily on target costing, a management practice used inside the product development process by the development team. Although this practice is appropriate for products competing mainly on costs, it presents several limit ations when factors such as technology, time-to-market, or customer needs are more pressing. Based on observations from a field study of product development cost practices in high-technology firms and evidence from field studies described elsewhere, this paper identifies alternative practices to manage costs during product development. These alternative practices that facilitate cost management around the projects rather than managing costs inside product development projects are: parallel cost management teams, modular design for cost, clearly defined cost management strategies and cost policies, and product portfolio planning. Companies in our sample use them to manage costs during product development, when cost management is most effective, but still keep the attention of development teams focused on the critical success factors of time-to-market, technology, and customer needs.