Cost management in new product development in startups

Most of the costs of a product are defined in the development stage, where the main decisions about the features and characteristics of the product are taken. Thus, decisions and strategies undertaken at this stage are of major importance for the sustainability of the product and ultimately of the business. This is true for traditional and mature companies as well as for new businesses and emergent companies where such processes remain relatively unknown. This study focuses on cost management in new product development in startups. The research path followed this sequence: literature review, specialists panel (Delphi), semistructured interviews (automotive components industry), case study (software industry), semistructured interviews (startups). An exploratory Delphi study comprising two rounds was conducted among 37 international experts and led to the development of a theoretical framework of cost management in new product development with three extensions by increasing level of importance: [1] internal extension (within the company and across multiple departments); [2] a product life-cycle extension (from Target Costing to Kaizen Costing or vice versa); [3] extension of Target Costing or Kaizen Costing to the downstream and upstream of the company (external cost management, which occurs mainly with suppliers but also with clients). Seven companies of the automotive component industry were studied because this industry represents a benchmark of the cost management process where the best practices are applied. The results indicate that cost management in new product development is characterized by chained target costing systems and the application of integrated target costing tools with kaizen costing tools which are used and extended across the supply chain through the use of inter-organizational cost management systems. Furthermore, a case study at a large software development company was conducted. The results suggest that reusable components and outsourcing play an important role in cost management in these companies. In addition, a well-structured scalable architecture and design facilitate the modification and integration of components. Finally, ten startups were studied and results indicate that financial planning and control in startups is very simplistic and done in an ad-hoc manner, but the use of management control systems is necessary to make decisions in a more sustainable way. Startups apply some tools superficially namely, analysis of non-functional requirements, inter-organizational cost management, common modules, continuous testing and kaizen costing (applied to services). From the study of the automotive components industry and the case study at a large software development company, important and additional aspects can be highlighted. A well-structured scalable architecture and design should be improved or implemented in startups, mainly in mass market product companies, since this will allow a greater reuse of software component modules. Continuous integration is much more efficient and brings greater cost savings since later modifications have huge costs. In startups, in most cases, the features and requirements are not valued from the eyes of the customer, leading to the development of more expensive solutions that may not fit the market. The integrated application of tools such as Quality Function Deployment, Value Engineering and Functional Cost Analysis can allow better solutions to be developed in startups.