KEY CONCEPT

Management controls can be used to overcome the challenge of aligning conflicting corporate strategies with functional tasks, such as new product development.

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IDEA SUMMARY

Corporate strategy rarely offers a clear and unified directive for the company’s functions and business units. Instead, companies often have competing sets of corporate strategies. In a study based on the product development activities of a large food company, researchers from Oregon State University and the University of Auckland demonstrate that strategic alignment challenges can be resolved through management controls. 

The challenge at the pseudonymous FoodCo was the company’s two conflicting strategies: the pursuit of sales growth and the pursuit of profit growth. Investing in growing sales figures can hurt the bottom line. Focusing on increasing profits can often require the elimination of non-profitable products or business units, which reduces overall sales.

Despite this natural tension, the new product development (NPD) function was left with the challenge of launching new products and services that significantly increased the revenues of the company while at the same time significantly increasing the bottom line. 

FoodCo’s new product development process was based on the stage-gate approach: A new product or service idea progressed through four stages—scoping, concept, feasibility, and development—each culminating in a go-no go “gate.” If the verdict was “go,” the idea passed through the gate and moved to the next stage. To reconcile the corporate strategies of high sales growth and high-profit growth, the company creatively applied to this four stage-gate NPD process four management control mechanisms as follows: 

1. Functional Responsibilities. The first management control involved the allocation of corporate strategy responsibilities to different functions. In the first two stage-gates, the new product development function focused on finding ideas within the scope of the company’s strategy; marketing was given the responsibility to ensure that the new ideas and product concepts that emerged from these two stage-gates aligned with the sales growth corporate strategy.  In the feasibility and development stage-gates, the corporate strategy priority shifted to profit growth (as all projects fit the growth strategy), and the NPD function took on this responsibility; the marketing team focused on the 4P’s (product, promotion, price and place). 
2. Project Activities. The project activities in each gate reflected the corporate strategy imperative for that gate. The scoping of new ideas and opportunities in stage-gate 1 and the product concept development and testing activities in stage-gate 2 were driven by the sales growth strategic imperative. Stage-gate 3’s product feasibility activities and stage-gate 4’s development activities, which ultimately focused on determining the design features of the new product, were driven by the company’s profit-growth strategy. 
3. Project Team Members. The project team members in each stage-gate were carefully chosen to achieve the corporate strategy requirement of that stage. In the first two stages, the marketing manager, supported by a cross-functional team of marketers and product developers, made the gate decisions. (External research was added to the team in the Concept Stage.) The senior management team made the gate decisions for stage-gates 3 and 4, supported by a range of functions (NPD, Marketing, Factory, Finance, and the Management Accountant for stage-gate 3, to which was added Procurement, Technical, Sales, Supply Chain, and External Suppliers for the last stage-gate).
4. Project Performance Measures. The product performance measures used in each stage to determine the gate decisions were equally linked to the corporate strategies for each stage. In the first two stages, the NPD and marketing teams focused on non-financial measures such as nutritional value and potential for market growth. In the stage-gate 3 feasibility stage-gate, the performance measure was a single financial measure focused on gross profit margin. The performance measures in the final Development stage-gate were, not surprisingly, wide-ranging as the company made the final decision whether or not to launch. These measures included the financial measures of gross profit margin and payback period and non-financial measures of timeliness to market, project scope and sensory results.

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BUSINESS APPLICATION

The strategic alignment framework in this case study can help NPD managers, members of cross-functional project teams, management accountants and senior managers understand how they can align product development with corporate strategies through the use of different management controls. In this case, the allocation of corporate strategic responsibilities in the different stages-gates influenced each stage-gate’s project activities, which were facilitated through the use of cross-functional project teams and project performance measures. The result: FoodCo managed the tension between the conflicting strategies, and also built alignment between product development projects and corporate strategies.

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FURTHER READING

  Chris Akroyd’s profile at Oregon State University College of Business
  Sharlene Sheetal Narayan Biswas’s profile at The University of Auckland Business School
  Sharon Chuang’s profile on LinkedIn

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REFERENCES

How management control practices enable strategic alignment during the product development process. Chris Akroyd, Sharlene Sheetal Narayan Biswas & Sharon Chuang. Advances in Management Accounting (March 2016). 

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