Pre-decision control in new product development investments – Case evidence from the pharmaceutical industry

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Journal Title

Journal ISSN

Volume Title

School of Business | Master's thesis

Authors

Date

2019

Department

Laskentatoimen laitos

Major/Subject

Mcode

Degree programme

Accounting

Language

en

Pages

99

Series

Abstract

New product development (NPD) and innovation create the foundation for organization’s long-term success. The research focusing on management control systems (MCS) in this setting has received a lot of attention during the last decades. Today, it is broadly understood that MCS’s play a key role in balancing the efficiency and flexibility which are both needed in this environment. In the capital budgeting literature growing amount of attention has been paid towards multifaceted nature of the investment process. One item focused by some, but still rather scarce number of scholars are the pre-decision control mechanisms that guide the decision-making prior to the actual decisions. In NPD, investments are often conducted in the stage-gate model making decisions at the gates and actions during the stages highly interrelated. Pharmaceutical industry is highly R&D-orientated and unique when it comes to level of uncertainty or regulative requirements, making it an interesting field to conduct a study focusing on the function of pre-decision controls during the NPD process. Single case study was chosen as a method in order to build a comprehensive and detailed understanding of the phenomenon, and to describe and explain actual practises during the NPD process. Data collected consists of internal and external material related to the case company as well as the NPD process, and most importantly 6 semi-structured interviews conducted with key stakeholders of the process. The case company is a globally acting pharmaceutical company and the focus is on the unit that develops proprietary drugs i.e. NME’s (new molecular entities). The results show that gates and stages are indeed highly interrelated also in this context. Pre-decision controls focusing on procedural rationality such as accounting and formal hierarchy levels became more important when approaching the market, whereas strategy’s role was highest in the beginning. Intuition and strategic fit were important continuously but the focus in intuition shifted towards trust to data and lower level managers from innovativeness when the market was approached. The regulative environment worked as an institutional force that guided also the internal accounting collection and usage when it comes to price negotiations, as the same material was utilized in both external and internal encounters. The most important accounting tool used was the NPV which was also seen as an institutionalised practise inside the organization, even though it was not usually as important as scientific data when it came to actual decision-making. It was however demanded by the top-management most importantly as a communication tool. The increasing amount of scientific data actually also made the NPV more important as a decision-tool by improving its quality and same time revealing what lay behind the numbers.

Description

Thesis advisor

Vaivio, Juhani

Keywords

new product development, management control systems, pre-decision control, capital budgeting

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Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-201907144299

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[gradu] Kauppakorkeakoulu / BIZ