BEHAVIORAL RESEARCH IN ACCOUNTING

Volume 19, 2007

pp. 19–41

New Product Development: How Cost

Information Precision Affects Designer
Focus and Behavior in a Multiple
Objective Setting
Donna M. Booker
University of Cincinnati
Andrea R. Drake
University of Cincinnati
Dan L. Heitger
Miami University
ABSTRACT: The development of new products that satisfy customer needs in a cost-
effective manner is key to survival for many organizations. The role that cost information
plays in new product development (NPD), such as its effect on designers’ focus and
crucial NPD performance measures, is unclear. This experimental study extends exist-
ing accounting NPD research by investigating the effect of two levels of cost infor-
mation precision (specific versus relative) and new products (radical versus incremental)
on designers’ focus and two common NPD performance measures: product cost and
product features. The results indicate that compared to relative cost information, spe-
cific cost information increases designers’ focus on cost minimization for incremental
but not radical products. However, providing designers with specific cost information
results in more cost-effective designs for both types of products. In addition, contrary
to expectations, more cost-effective designs do not come at the expense of reduced
product features. The results show that the role played by cost information in NPD is
more complex than has been suggested in prior literature.
Keywords: new product development (NPD); cost information precision; design trade-
offs; activity-based cost information.
Data Availability: Data are available from the authors upon request.

INTRODUCTION

T
he development of new products that satisfy customer needs in a cost-effective man-
ner is a key objective in the strategy of many organizations (Davila 2000; Schilling
and Hill 1998; Brown and Eisenhardt 1995). The issue of product cost in new product

We are grateful for helpful comments and suggestions from anonymous reviewers, Brian Ballou, Joe Fisher, Steve
Kaplan, Joan Luft, Sue Ravenscroft, Terry Shevlin, Monte Swain, Wallace Wood, and participants at the 2002
American Accounting Association Annual Meeting, 2003 Managerial Accounting Research Conference, University
of Cincinnati, and the University of Melbourne workshops. We appreciate the financial support of the University
of Cincinnati.

19
20 Booker, Drake, and Heitger

development (NPD) is critical for many firms given that the majority of a product’s cost is
locked in at the design stage and cannot be lowered significantly by subsequent manufac-
turing process changes (Davila and Wouters 2004; Cooper and Chew 1996; Raffish 1991).
As noted by Hertenstein and Platt (1998, 50), ‘‘between 75 percent and 90 percent of a
product’s costs are predetermined when the product design is finished.’’ Similarly, Tornberg
et al. (2002, 75) stress that ‘‘the most effective way to control costs is to design them out
of the products.’’
Despite the importance of cost considerations during the design process, few studies
specifically examine the effects of incorporating cost information into the NPD process
(Davila 2000; Hertenstein and Platt 2000, 2001). NPD is a particularly relevant context in
which to examine the behavioral effects of cost information because it is a complex setting
where designers often need to balance multiple objectives in an environment with uncertain
outcomes. For example, in addition to cost, designers need to consider product specifica-
tions, time-to-market constraints, and incorporating features that create customer value.
Thus, unlike simpler settings where cost minimization is an explicit priority and introducing
cost information is likely to result in better cost-related decisions, prior research suggests
that the complexity of NPD makes the behavioral impact of cost information unclear. We
examine a complex setting where multiple performance measures are included to examine
the tradeoffs designers encounter when designing products in an environment in which
multiple factors must be considered.
An examination of existing studies indicates the potential for two different behavioral
effects. First, cost information may act as a detrimental distraction by focusing designer
attention toward cost considerations and away from other objectives, such as product fea-
tures. The result may be a deficient product that does not meet customer needs. Second,
cost information may be a beneficial addition to the information designers have available
to them by allowing them to design products that are more cost effective (Bonner et al.
2002; Hertenstein and Platt 2001; Davila 2000; Dröge et al. 2000; Nixon 1998; Gupta and
Wilemon 1996; Cooper 1995).
The literature on NPD suggests that the extent to which cost information has either of
these two different effects may depend on the level of innovation required to design the
new product to meet customer needs. For example, some new products require only minor,
incremental changes to an existing product whereas others require extensive, radical
changes to an existing product. We contend that these two types of new products, which
we label as incremental and radical, respectively, place different cognitive demands on
designers, which are expected to affect their ability and willingness to incorporate cost
information into the design process.
This experimental study addresses two basic questions related to these different effects
of cost information on designer behavior. First, how are designers affected by having precise
(e.g., specific) versus imprecise (e.g., relative) cost information and second, are the effects
of cost information precision different depending on the product type being designed? The
precision of the available cost information is important given that prior accounting research
shows that it affects the perceived uncertainty of the information that, in turn, can affect
the extent of its use in financial markets decision-making (Hirst et al. 1999; Pownall et al.
1993; Kim and Verrecchia 1991; Holthausen and Verrecchia 1988). These studies indicate
that more precise information is associated with less uncertainty. However, whether less
uncertainty leads to a greater use of the information internally, such as in NPD, may depend
on the particular decision making context.
In addition, information precision is an important variable to examine because it (1)
likely is affected by changes in the organization’s cost system or information system, and

Behavioral Research in Accounting, 2007

New Product Development 21

(2) varies across NPD settings in that existing literature suggests that precise cost infor-
mation is not always provided or made available to designers (Siddens 2001; Ellsworth
1998). We define precision in an NPD context as either specific cost information or relative
cost information for each design option. In particular, designers provided with specific costs
are told the exact dollar cost for each design option. Designers provided with relative
costs are told how costly design options are with respect to other design options (e.g., large
blocks cost more than small blocks). Our definition of precision involves either a single
number for a given option cost (i.e., specific cost information) or an indication of whether
the given option cost is greater (or less) than some second referent option (i.e., relative cost
information). Thus, our definition differs from the traditional definition of precision used
in prior accounting research, such as Hirst et al. (1999) involving management earnings
forecasts, in that the decision maker in our study is concerned with information relating
two items, instead of a range for a single item (such as a range for an earnings forecast).
Our definition of precision for relative cost information is appropriate in an NPD setting
because some designers are likely to have a notion of the costs of a given option in the
design process relative to another option, rather than a range of costs for each option
(Siddens 2001; Ellsworth 1998).
We hypothesize that cost information precision and new product type interactively
affect designer behavior and resulting product designs. The dependent variables measured
include designers’ focus on cost during the design process and objective measures of their
behavior reflected in the products designed. The objective measures include the cost ef-
fectiveness and features of the products designed. We include these measures because of
companies’ need to simultaneously cut costs and introduce products that possess relevant
features (Gupta and Wilemon 1996; Kumpe and Bolwijn 1994; Gupta et al. 1992). Also,
NPD managers report product innovation (i.e., product features) and product cost as
the most frequently used non-financial and financial performance measures, respectively
(Hertenstein and Platt 2000).1
The results show that providing designers with specific cost information increases their
perceived focus on cost for incremental products but not for radical products. However, for
both product types, designers who are given specific cost information design products that
are more cost effective. Thus, although specific cost information does not significantly
increase radical product designers’ perceived effort to reduce costs, it does result in more
cost-effective design choices. In addition, contrary to expectations, the results indicate that
specific cost information has no effect on the extent to which designers incorporate the
product’s main feature into their design for this experimental setting.
The remainder of the paper is organized as follows: The next section analyzes relevant
literature and develops hypotheses. The third section explains the experimental design. The
fourth section presents the results. Finally, the fifth section concludes with a discussion and
implications for future research.

1
Target costing is one method used by firms as a strategic tool to reduce costs (Cooper and Slagmulder 1999;
Shank and Fisher 1999). We did not use a target costing context because we wanted to examine how cost
information type affects designers’ focus when a tradeoff exists between multiple performance measures as a
result of designers being evaluated based on both revenues and costs. A target costing context, in which designers
are evaluated only on costs or a ‘‘target goal’’ for total product cost, likely, would lead designers to adopt a
cost minimization focus regardless of the type of cost information provided. Also, while cost information is
necessary for target costing, the scope of target costing (i.e., identifying the target selling price and profit margin)
was not part of our study.

Behavioral Research in Accounting, 2007

22 Booker, Drake, and Heitger

HYPOTHESIS DEVELOPMENT
Cost Information in New Product Development Settings
The effects of cost information on the new product development process are unclear
(Griffin 1997; Gupta and Wilemon 1996). Two different views exist concerning whether
the provision of cost information to designers is beneficial or deleterious (Davila 2000).
One view is that giving designers cost information distracts them from focusing on product
features or other performance measures, which is seen as detrimental (Bonner et al. 2002;
Anderson and Sedatole 1998; Taguchi et al. 1989). For example, Davila and Wouters (2004,
24) state that ‘‘development teams’ attention is the scarcest resource in project develop-
ment’’ and suggest shifting attention to cost may not be the best course of action when
technology, time-to-market, or customer needs are critical to a project’s success. Another
view is that providing designers with cost information makes it easier for them to choose
cost-effective options, which potentially is beneficial (Tornberg et al. 2002; Hertenstein and
Platt 2001; Nixon 1998).
Implicit in these views is the assumption that providing different types of cost infor-
mation to designers differentially changes their focus toward cost considerations and away
from other objectives. We empirically examine this assumption by manipulating the level
of precision of the cost information possessed by designers and measuring the extent to
which they report that they allocated effort towards reducing product cost while designing
a new product. Given that a complete lack of cost information is unlikely, the two levels
of precision we examine in this study consist of relative cost information (which serves as
a ‘‘base case’’) and specific cost information. Unlike prior research, we do not provide a
range of costs but rather provide relative costs that are indicative of typical NPD settings.
New product designers possess cost information regarding products and product fea-
tures that can vary from relative to specific (Gupta and King 1997; Cooper and Kaplan
1987). Relative cost information provides designers with only the rank ordering of costs
for options in a given category (i.e., option 1 costs more than option 2). We examine the
effect of providing designers with either specific or relative cost information. However, in
practice designers are likely to possess the relative type of cost information simply as a
result of design experience and common task knowledge (Siddens 2001; Ellsworth 1998).
For example, an automobile parts designer likely realizes that the cost of a part made out
of titanium is greater than the cost of the same part made out of steel. However, with
relative cost information, designers do not know with certainty the magnitude of the dif-
ference in costs across options (e.g., how much more costly the titanium part is compared
to the steel part) or the resulting total product cost for a combination of options.
In contrast, specific cost information provides designers with exact dollar amounts for
the cost of options in a given category (i.e., option 1 costs $20 and option 2 costs $10).
With specific cost information, designers know with a high degree of certainty the mag-
nitude of the difference in costs across options and the resulting total product cost for a
combination of options for any one point in time. In contrast to relative cost information,
specific cost information typically must be provided to designers via the firm’s cost system
or some other inquiry (e.g., working with auto parts suppliers to determine the specific cost
of various components). That is, by examining the attribute of information precision, we
provide some evidence as to the benefits of investments in the information system.
Prior research supports the idea that relative cost information involves greater uncer-
tainty than specific cost information. For example, the results of a study conducted by
Teigen and Brun (1999) suggest that non-specific verbal presentations, such as ‘‘a good
chance,’’ are perceived as more vague (i.e., uncertain) than specific numerical presentations,

Behavioral Research in Accounting, 2007

New Product Development 23

such as ‘‘90 percent.’’ Compared to specific cost information, designers likely perceive
relative cost information as vague and uncertain.
Uncertainty is important because it has been found to affect individual attitudes and
behavior in numerous settings (van den Bos 2001; Wright and Cordery 1999; Hirst et al.
1999; Kim and Verrecchia 1991; Einhorn and Hogarth 1985). As noted by Weary and
Jacobson (1997, 839) ‘‘the need to reduce uncertainty about the social world has been
viewed as a fundamental motivation underlying individuals’ search for and processing of
causal information’’ (emphasis added). Overall, these studies suggest that uncertainty in
a new product design environment is likely to affect designers’ behavior. Specifically, in a
setting where priorities among multiple performance objectives must be set, the uncertainty
associated with relative cost information is expected to make product cost minimization a
less attainable design objective. Thus, designers with relative cost information are expected
to lessen their focus on product cost in favor of other focal points, such as the product’s
features, that are viewed as more attainable. In contrast, designers given specific cost in-
formation are more likely to view cost minimization as a viable design strategy because
specific cost information eliminates the uncertainty related to a products’ final cost.
Further, Dilla and Stone (1997) suggest that individuals require more cognitive effort
(e.g., take more time) to acquire and use cues that are presented in words (e.g., relative
cost information) versus numbers (e.g., specific cost information). While a statement re-
garding a single design option, such as ‘‘titanium costs more than steel,’’ may not be difficult
to process, the task becomes progressively more complex when multiple design options
must be considered simultaneously. Overall, designers given relative cost information com-
pared against designers given specific cost information are expected to be less likely to
pursue cost minimization as a strategic focus because the cost information: (1) possesses
uncertainty with respect to the magnitude of the cost differences between various design
options and, (2) is expressed in words requiring more cognitive effort to process than
numerically expressed cost information.
Alternately, by informing designers of the exact numerical cost of individual design
options, specific cost information gives designers the ability to determine a definite cost for
various product designs. This ability increases the likelihood that designers will consider
cost minimization to be a viable strategic focus. Therefore, compared to relative cost in-
formation, specific cost information is expected to increase designers’ focus on the new
product’s costs.

New Product Types

A significant difference between new products is the level of innovation or change from
an existing product or product line. New products that consist of relatively minor changes
to an existing product are labeled incremental new products. In contrast, new products that
require significant changes, such as additional functions or a new technology, are labeled
radical new products (Kessler and Chakrabarti 1999). It is unclear from existing research
whether the degree to which cost information precision affects a designer’s focus on cost
depends on how many other objectives or design environment variables the designer must
manage. For instance, it is possible that the effect of an increase in cost information pre-
cision (i.e., from relative to specific cost information) on designer attention depends on
whether the new product is incremental or radical.
Prior research indicates that the type of new product being designed can affect design-
ers’ focus on different objectives (Davila 2000; Kessler and Chakrabarti 1999; McDonough
1993; Tabrizi and Eisenhardt 1993). Compared to incremental products, radical products
require designers to expend more mental effort related to creating or changing the product’s

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24 Booker, Drake, and Heitger

features. In contrast, the design of incremental products is characterized by limited oppor-

tunities or requirements for changing the product’s features. Therefore, designers of radical
products need to use a relatively greater proportion of their total mental capacity to manage
their product’s features (i.e., meet more complicated baseline design requirements, etc.),
whereas it is relatively easy to incorporate product cost into the design process of incre-
mental products. As a result, it is likely that cost consideration is a higher priority to
designers of incremental products than designers of radical products and, thus, the increase
in cost focus resulting from specific cost information likely is greater for incremental prod-
uct designers than for radical product designers. In summary, we predict the following
interactive effect of cost information precision and NPD innovation on cost focus.

H1: Compared to relative cost information, specific cost information increases

designers’ focus on cost, and the increase is greater for incremental NPD
innovation types than for radical NPD innovation types.

The next two hypotheses pertain to the actual outcomes that arise from providing cost
information to new product designers. Different design choices result in differences in new
product performance measures, such as cost effectiveness and product features. With respect
to product cost, studies such as Iselin (1990) suggest that uncertainty affects decision qual-
ity, with greater certainty resulting in better decision quality. This reasoning suggests that
specific cost information, which allows designers to be more certain of the cost of various
product designs, should result in the designer choosing lower cost options. Specifically, the
reduction in uncertainty allows designers to more clearly understand the cost-benefit trade-
offs involved in different product designs, thereby leading to more cost-effective design
choices. Therefore, compared to relative cost information, specific cost information is ex-
pected to result in more cost-effective designs and, consistent with H1, the increase is
expected to be greater for incremental product types. Such a prediction is in line with the
general accounting finding that better cost information leads to better cost-related decisions
(see Sprinkle 2003 for a review).

H2: Compared to relative cost information, specific cost information increases

the cost effectiveness of the product design, and the increase is greater for
incremental NPD innovation types than for radical NPD innovation types.

At first glance, support for H2 may seem a foregone conclusion as it predicts that better
cost information will result in more cost-effective designs. However, within a context such
as NPD where multiple objectives must be managed, there is no guarantee that simply
providing designers with specific cost information will induce them to exert significant
effort towards reducing product costs or that this effort will result in actual reductions in
product cost. If designers explicitly choose to prioritize other objectives, then providing
more precise cost information may have little or no effect on product cost. For example, it
is possible that even though designers know the cost of each option, they instead opt to
adopt a more costly product design in order to maximize product features.
In addition to considering the costs of various designs, product designers also must
decide how much effort to put into choosing and developing their product’s key feature(s).
Product features affect the product’s functioning and value to customers. The argument
against giving designers specific cost information is based on the expectation that doing so
limits creativity (see Bonner et al. 2002; Hertenstein and Platt 2001; Davila 2000; Dröge

Behavioral Research in Accounting, 2007

New Product Development 25

et al. 2000; Nixon 1998; Gupta and Wilemon 1996; Cooper 1995). Bounded rationality
(Baiman 1982) suggests that there are limits to the number of factors that designers can
simultaneously consider and manage in a design environment where multiple factors, such
as product cost, product features, and time-to-market are present. As discussed in the de-
velopment of H1, specific cost information is expected to provide a cost minimization
framework for designers as a way of thinking about design options. However, this increased
focus on cost minimization is expected to lead designers to use their limited cognitive
resources to determine low-cost alternatives, rather than to develop products with increased
features that might be more expensive but also more valuable to customers. Thus, compared
to relative cost information, specific cost information is expected to reduce the extent to
which designers incorporate product features into their design.
We also examine whether the impact of cost information precision on designers’ in-
corporation of product features is affected by the type of new product—incremental or
radical—that is being designed. Hypothesis 1 predicts that designers of incremental prod-
ucts have a greater focus on costs than designers of radical products. This greater focus on
cost suggests that product features decrease to a greater extent for incremental products
than for radical products. Also supporting this line of reasoning is the realization that radical
NPD settings involve a greater proportion of experimentation and iterative problem solving
than incremental NPD settings (Clift and Vandenbosch 1999; Kessler and Chakrabarti 1999)
regardless of the available cost information. Thus, radical products involve a substantially
relatively greater number of design options that yield greater design flexibility and oppor-
tunities to significantly change the products’ features. The flexibility with respect to product
features allows designers of radical products to create product designs that incorporate
targeted cost reductions with less reduction in product features, as compared to the relatively
less flexible design environment present with incremental products. Thus, we expect that
the provision of specific cost information decreases the level of features to a greater extent
for incremental products than for radical products. We predict the following interactive
effect of cost information precision and NPD innovation on product features.

H3: Compared to relative cost information, specific cost information decreases

product features, and the decrease is greater for incremental NPD innovation
types than for radical NPD innovation types.

RESEARCH METHOD
Overview
To test the hypotheses, we employed a 2 ⫻ 2 between subjects experiment. The two
independent variables were the type of new product being designed (incremental or radical)
and the level of cost information precision provided to participants (specific or relative).
One hundred twelve engineering and business students at a large midwestern university
participated in the study and were randomly assigned to one of the four distinct experi-
mental conditions.2 Participants physically created a new product, and their compensation
was based on their products’ profitability. A multiple objective setting was created in that
a product’s profitability was determined by its cost, features, and how quickly the participant

2
Six participants were excluded from all analyses because SPSS stem-and-leaf analysis identified them as outliers.
Excluding the six participants did not qualitatively change the results for H1 or H3. For H2, the main effect for
product type becomes more significant with the outliers (F ⫽ 5.18; p ⫽ .03) than without the outliers as reported
(F ⫽ 3.66; p ⫽ .06). However, no effect is predicted for product type under H2.

Behavioral Research in Accounting, 2007

26 Booker, Drake, and Heitger

finished the design relative to other participants. To maintain the real-world element of
uncertainty in NPD, there was no predetermined strategy that led to the greatest compen-
sation (i.e., highest product profitability).

Task and Procedures

Each experimental session lasted approximately one hour and involved three to five
participants.3 Only one set of conditions was tested in a given session; that is, for a single
session, all participants had the same cost information (relative or specific), product type
(radical or incremental), and were aware that other participants were designing the same
type of product and had the same cost information.
At the start of each session, participants were asked to complete a pre-experimental
questionnaire to capture demographic information and measure creativity and risk aversion,
which were identified as potential confounding variables. A brief training session followed.
In the training session, participants were told that they were to assume the role of
project leader in designing a new product. The new product they were to design was called
a ‘‘capacitor’’ and was to be constructed out of various LEGO威 blocks. They were shown
an existing product to familiarize them with the types of design choices they could make
when designing their new product and to demonstrate the three main parts of a capacitor—
a base, base towers, and branch towers. For simplicity, participants were required to design
into their product only one main feature, labeled capacity, which varied according to the
design options chosen. In NPD, the features built into a product contribute to the amount
customers are willing to pay for it. Similarly, in our setting, the amount of capacity was
one determinant of the revenue generated by the product. In addition, the design task was
flexible enough that there were numerous ways to reach a given capacity level. Each design
option and its effect on capacity was explained in detail to the participants during the
training session. A reference worksheet that summarized the main relationships was given
to participants to use while designing their product to help them calculate the total capacity
of their design (see Appendix A, Panels 1 and 2).
Participants were informed of the required specifications for the product they would
design, which differed by condition (explained in the next section); however, within a
training session, the condition did not differ. They were then told that their compensation
would be based on the profit generated by their particular product design. This incentive
structure was chosen because past research indicates that the ultimate goal of NPD is
increased firm profitability; thus, designer compensation should be consistent with this goal
(Feldman 1996). The profitability of a designer’s product was determined by three things:
(1) how quickly they finished their design relative to the others in the experimental session;
(2) the cost of the design options chosen; and (3) the product’s capacity. Thus, participants’
pay was based on how well they managed their product’s combination of time-to-market,
cost, and capacity, which is consistent with a multiple objective setting. Every participant
faced the same incentive structure and the same set of multiple objectives (i.e., cost, time,
and capacity) across all four conditions.
To simulate a market in which there is an advantage to bringing new products to market
more quickly than competitors, the revenue earned per unit of capacity decreased for each

3
Some of the sessions had fewer than five participants due to no-shows. We analyzed each hypothesis using data
for all three-person, four-person, and five-person groups separately. In general, the pattern of means is the same
as the pattern of results reported in the paper based on the full sample. Thus, we did not find significant
differences across the subsets of varying group sizes and, therefore, pooled the results regardless of group size.

Behavioral Research in Accounting, 2007

New Product Development 27

participant who completed and turned in their finished design (i.e., the first product com-
pleted in a session earned the greatest revenue per unit of capacity, and the final product
completed earned the least revenue per unit of capacity).4 Thus, participants were in com-
petition with each other to finish their products quickly.5 To qualify as being finished, the
participant had to have a physical product that met the required specifications and a com-
pleted design worksheet showing that they had calculated the capacity of their product.
Specific experimental parameters, such as the reduction in revenue per-unit of capacity for
each market entrant, were chosen through extensive pilot testing such that each of the three
factors (time-to-market, cost, and capacity) could have a significant impact on profitability
if a participant chose to focus on it.6 Participants could choose to take more time to increase
capacity or decrease costs and either of these choices could potentially offset the revenue
lost if others finished their designs sooner. Each participant had to decide how to prioritize
among the multiple measures. For example, finishing first did not automatically guarantee
the highest profit, as profit was a function of order of finish, cost, and capacity.
Each participant worked independently in his or her particular work area and could not
see what others were doing. However, all participants were in the same room and each
completion was announced so that they would know how many had turned in their finished
product and how many were still designing their product. After turning in the physical
product and a design worksheet, participants completed a post-experimental questionnaire
to answer questions concerning their satisfaction with their cost information and to check
the manipulations. Participants then were paid based on a percentage of the profit generated
by their product. The percentages, which varied from 2 percent to 6 percent, were designed
to equalize pay across the four experimental conditions. On average, participants received
approximately $14.
Independent Variables
The type of new product is manipulated by varying the specifications for the new
product (i.e., the number of design choices was different for the two product types). In the
training session, all participants were shown the same existing product and were informed
of how their new product must differ from the existing product. The existing product had
a capacity of 70 units and consisted of all black blocks, a mini base, two large base towers,
and four small branch towers. A radical new product requires substantial changes to the
existing product, while an incremental product requires only minor modifications (i.e., fewer
design choices were available under the incremental condition than under the radical
condition).
Participants in the radical NPD condition were given the following design options:
choice of two types of bases to build upon, two colors and two sizes of LEGO blocks to

4
It is possible that the responses of the last place finishers might be different from the other participants because
the last participant to finish could take more time without incurring additional revenue-based penalties. On
average, the last-place finishers took 3.7 minutes longer to finish than the second-to-last place finishers. By way
of comparison, second-to-last place finishers took 2.0 minutes longer than third-to-last place finishers. We also
analyzed the results without the last-place finishers in the sample and the results are qualitatively the same as
those reported in the paper.
5
In the experiment, time-to-market is operationalized as a relative measure (i.e., within each session, participants’
revenue per-unit of capacity was based on their order of finish). In this first analysis of the tradeoffs among
measures, we opted to use pure markets, thereby making relative time-to-market implications not possible with
the data.
6
In the experiment, each of these performance measures is included in the overall profitability measure used in
participants’ incentive pay scheme. All three measures are included in the incentive scheme so as to convey to
participants that each one is an important determinant of their final pay.

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28 Booker, Drake, and Heitger

use in any combination, and a requirement of a minimum of 300 units of capacity with no
upper limit. An important aspect of the radical setting was that there was no upper limit
on the capacity that could be designed into the product. In contrast, participants in the
incremental NPD condition had only one color to work with, a choice of two types of bases
to build upon, two sizes of LEGO blocks to use, and a requirement that capacity be between
150 and 200 units. Thus, in the incremental condition, participants faced limits on the
amount of capacity they could build into the product and had relatively few choices to
make. In the radical condition, participants were free to design as much capacity into the
product as they wished and had several choices to make. In both the radical and incremental
conditions, participants could choose to use any number of base and branch towers, as long
as they followed the required specifications.7
The level of cost information precision is manipulated by varying the presence or
absence of specific dollar costs for alternative design options. Participants with specific cost
information were given the exact dollar cost of each design option. Those with relative cost
information were given only the relationship between the costs of each option. For example,
one design choice was whether to use large or small blocks in the design. In the relative
cost information condition, participants were informed only that large blocks cost more
than small blocks. In the specific cost information condition, participants were given the
exact dollar cost of each size. In the training session, the relationships between the cost of
different design options were explained in detail such that participants in the relative cost
condition could infer the general cost ordering of options.8 Appendix A, Panels 1 and 2
contain sample worksheets given to participants to use as a reference while they designed
their products.

Dependent Variables
Designer focus on cost is measured by participants’ responses to eight questions con-
cerning their use of the cost information and their focus on cost during the design process
(see Appendix B, Panel 1). Each participant’s summed responses to the eight questions are
used as the dependent variable in tests of H1. For further evidence, participants also ranked
various objectives (e.g., cost minimization, being first to market, capacity maximization)
based on each objective’s importance to them during the task (the lower the numerical
ranking placed on an objective, the greater its importance). Additionally, participants allo-
cated 100 points across the objectives based on their importance in the task.
Product cost is determined by the designer’s product design choices. As such, product
cost is measured as the sum of the individual design choice costs. Design choices include
the size of the base used, and the size, color and number of base and branch towers used
(see Appendix A, Panels 1 and 2). To control for differences in product capacity, cost is
divided by capacity. Product cost per unit of capacity controls for capacity variation and
provides a measure of the product’s cost efficiency. For example, at a given level of capacity,
lower product cost translates into increased cost efficiency. Thus, cost per unit of capacity
is the dependent variable in tests of H2.

7
In addition to the capacity specifications for radical and incremental product types, the following specifications
were given to all participants: (1) All base towers must be completely attached to the base; (2) The sides of
separate towers cannot touch each other; (3) All towers must be three blocks high; and (4) A completed design
must have at least two base towers.
8
It is possible from the information given in the relative cost condition to determine the least and most costly
combination of options. However, to maintain uncertainty, the exact magnitude of cost differences cannot be
determined.

Behavioral Research in Accounting, 2007

New Product Development 29

Product capacity is determined by the designer’s product design choices. As such,

capacity is measured as the sum of the individual design choice capacities (see Appendix
A, Panels 1 and 2) and is the dependent variable in tests of H3. Participants in all conditions
knew the capacity associated with each design option and could easily calculate the total
capacity of any product design. Therefore, there was no uncertainty related to a product’s
capacity.

RESULTS
Manipulation Checks
Several five-point Likert items contained in the post-experiment questionnaire were
designed to measure whether participants understood various aspects of the experimental
context. The list of questions is contained in Appendix B, Panel 2. All questions contained
in Appendix B, Panel 2 were scaled from 1 (strongly disagree) to 5 (strongly agree).
The mean summed responses to questions 1 and 2 indicate that participants correctly
understood whether they were designing an incremental or a radical product (means ⫽ 8.5
versus 4.4; t ⫽ 14.3; p ⬍ .01). Responses to question 3 are consistent with participants
understanding whether they were given specific or relative cost information (2.2 versus 4.0;
t ⫽ 9.3; p ⬍ .01). Responses to questions 4 and 5 indicate that participants in all conditions
understood equally well the impact of time-to-market rankings and that their individual pay
increased as the profitability of their product increased (mean score was 4 or above in all
conditions). Finally, the responses to questions 6 and 7 indicate that participants understood
that differences in design choices resulted in different product costs (mean summed re-
sponses was 7.9 or greater in all conditions). Thus, the manipulations were successful.

Sample Characteristics and Control Variables

The majority of participants in the study were male (58 percent) and members of the
senior class (80 percent). The average age of participants was 22 years and engineering,
marketing, and information systems majors comprised the majority of the sample (30 per-
cent, 25 percent, and 15 percent, respectively).9 There were no significant differences in
class standing, ethnicity, gender, or age across experimental conditions. Grade point aver-
age, SAT, ACT, and GMAT scores were measured as possible covariates. Although GPA
and ACT scores were lower in the radical product conditions, such differences were not
materially significant (i.e., 3.0 versus 3.1 GPA and 25 versus 27 ACT scores) and including
them in the analysis did not materially affect the significance of the variables of interest
for any of the hypotheses. Additional control variables included number of years of work
experience in a design environment, number of children, familiarity with LEGO products,
and creativity. None of these variables was significantly different across experimental con-
ditions nor materially affected the results.10

9
For the most part, business and engineering students did not behave differently. Including MAJOR (business or
engineering) as a covariate for each hypothesis test does not affect any of the reported results. Thus, all partic-
ipants’ responses were pooled and analyzed collectively.
10
Relative risk aversion was measured as an additional control variable. This variable was measured with a ten-
item instrument asking participants to make several choices between a fixed amount of money and a gamble,
yielding an equal expected value. Relative risk aversion was measured because of the potential that risk pref-
erences might affect participants’ strategic choices. The results indicate that slightly more risk-averse participants
were present within the incremental product conditions. Controlling for this variable in the analyses does not
affect the results of the tests of hypotheses.

Behavioral Research in Accounting, 2007

30 Booker, Drake, and Heitger

Tests of Hypotheses
Hypothesis 1 predicts that, compared to relative cost information, specific cost infor-
mation increases designers’ focus on cost in the development process and that the increase
is greater for incremental products than for radical products. Participants were given a series
of questions on the post-experimental questionnaire to measure their focus on cost.11 The
reliability of the eight questions as a one-item factor is .82 (see Appendix B, Panel 1 for
questions).12 The mean summed responses are shown in Panel A of Table 1. Overall, par-
ticipants with specific cost information self-reported a greater focus on costs (mean ⫽ 26.77,
Std. Dev. ⫽ 5.02) than participants with relative cost information (mean ⫽ 23.72, Std. Dev.
⫽ 5.73). Panel B contains the ANOVA results, which indicate a significant main effect for
cost information (F ⫽ 7.86, p ⫽ .006). Also, Table 1, Panels A and B indicate no significant
differences across product type (F ⫽ .01, p ⫽ .911).
In addition, the ANOVA results indicate the lack of a significant interaction between
cost information and product type (F ⫽ 1.80, p ⫽ .182), which is inconsistent with H1.
While the means are in the right direction (i.e., increasing precision from relative to specific
cost information does increase focus on cost and more so for incremental products), the
interactive effect is not significant.
Looking at participants’ focus on cost (see Table 1, Panel A), there is a large mean
difference across cost information type for incremental products (22.96 versus 27.34), but
there is little difference across cost information type for radical products (24.50 versus
26.04). Separate t-tests performed on the radical and incremental product groups indicate
strong support only for incremental products. Specifically, for incremental products, the
focus on cost is significantly greater under specific cost information than under relative cost
information (t ⫽ 3.24, p ⫽ .002). For radical products, focus on cost is not statistically
different across the cost information types (t ⫽ .94, p ⫽ .35). Thus, the main effect for
cost information shown in Table 1 Panel B (F ⫽ 7.86, p ⫽ .006) seems to be driven by
specific cost information increasing a designer’s focus on costs for incremental products.
The case included five different objectives. To measure the relative importance of the
different objectives, participants were asked to (1) rank each of five objectives in terms of
importance to them during the design process, and (2) assign 100 points across the five
objectives, with more points indicating greater importance. For participants designing in-
cremental products, those with relative cost information gave cost minimization an average
ranking of 3.22, while those with specific cost information gave an average ranking of 2.10
(Panel C of Table 1). A Mann-Whitney test shown in Table 1, Panel C indicated that cost
was ranked significantly higher in importance for those with specific cost information (p
⫽ .003).13 In contrast, for participants designing radical products, there was no significant
difference in the average ranking given to cost minimization (2.69 for relative compared
against 2.17 for specific) across the two cost information types (see Table 1, Panel C).

11
We cannot know if a participant changed his / her focus over the course of the experiment. For instance, the
response reported at the end of the experiment may have been the participant’s initial focus, ending focus, or
the same focus used consistently throughout the experiment. However, an ANOVA using PLACE (order of
finish) as a covariate yields the same results as reported in the paper. Specifically, as with the results using all
participants, cost information is significant (p ⫽ .007) and neither product type (p ⫽ .885) nor the interaction
between cost system and product type (p ⫽ .116) is significant. In addition, PLACE is insignificant (p ⫽ .350).
Thus, it does not appear that the order in which a participant finished his or her design affected his / her focus
on cost.
12
Confirmatory and exploratory factor analysis also indicated that a one-factor solution was appropriate.
13
Specific cost information did not appear to change participants’ rankings across the other objectives as evidenced
by the lack of significant differences in rankings between participants with specific versus relative cost infor-
mation for the other objectives.

Behavioral Research in Accounting, 2007

New Product Development 31

TABLE 1
Designer Reported Focus on Costs in the Design Process

Panel A: Focus on Costsa—Descriptive Statistics

Cost
Information
Relative Specific Row Means
b
22.96 27.34 25.23
Incremental (5.91) (4.12) (5.48)
Product [27] [29] [56]
Type 24.50 26.04 25.22
Radical (5.54) (5.99) (5.75)
[26] [23] [49]
Column Means 23.72 26.77
(5.73) (5.02)
[53] [52]

Panel B: Focus on Costs—ANOVA Results

SS Df MS F-stat. p-value
Product Type .36 1 .36 0.01 .911
Cost Information 228.79 1 228.79 7.86 .006
Product * Cost 52.50 1 52.50 1.80 .182
Explained 297.54 3 99.18 3.41 .021
Residual 3,238.51 104

Panel C: Mean Rankings and Point Allocations For Cost Minimization

Incremental Mann- Mann-
Product Whitney Radical Product Whitney
Relative Specific Sig. Level Relative Specific Sig. Level
Rankingsc 3.22 2.10 .003 2.69 2.17 .16
Point Allocationsd 20.4 30.7 .03 23.0 31.5 .10
a
Focus on costs is measured by participants’ responses to eight questions (Appendix B, Panel 1).
b
Cells contain mean (standard deviation) and [number of observations].
c
Ranking is measured by participants’ ranking of the objectives; the lower the numerical ranking placed on a
strategy, the greater its importance.
d
Point allocation is measured by participants’ allocation of 100 points across the objectives; the higher the
numerical point allocation, the greater its importance.

Similar results were found when analyzing participants’ point allocations. For incremental
products, there was a significantly greater amount of points allocated to cost when specific
cost information was available than when relative cost information was available. However,
there was no difference in the point allocation for cost for those that designed radical
products.
Hypothesis 2 predicts that, compared to relative cost information, specific cost infor-
mation increases the cost effectiveness of the product design, and the increase is greater
for incremental NPD innovation types than for radical NPD innovation types. Consistent
with H2, Panel A of Table 2 shows that product cost per unit of capacity is less for specific
cost information than for relative cost information for both radical types ($1.33 versus to

Behavioral Research in Accounting, 2007

32 Booker, Drake, and Heitger

TABLE 2
Cost Effectiveness—Cost per Unit of Capacity

Panel A: Cost Effectivenessa—Descriptive Statistics

Cost
Information
Relative Specific Row Means
b
1.74 1.52 1.62
Incremental (.36) (.36) (.37)
Product [27] [30] [57]
Type 1.65 1.33 1.50
Radical (.42) (.33) (.41)
[26] [23] [49]
Column Means 1.69 1.44
(.39) (.35)
[53] [53]

Panel B: ANOVA Results

SS Df MS F-stat. p-value
Product Type .50 1 .50 3.66 .06
Cost Information 1.87 1 1.87 13.82 ⬍.001
Product * Cost .05 1 .05 .40 .53
Explained 2.27 3 .76 5.62 ⬍.001
Residual 13.77 102 .14
a
Cost effectiveness is measured as the product cost (i.e., the sum of the individual design choice costs) divided
by capacity.
b
Cells contain mean (standard deviation) and [number of observations].

$1.65, a 19 percent decrease) and incremental types ($1.52 versus to $1.74, a 13 percent
decrease).14 However, the increase in cost effectiveness is not greater for incremental than
for radical types. The ANOVA results presented in Panel B of Table 2 indicate a significant
main effect for cost information (F ⫽ 13.82, p ⬍ .001), which partially supports H2. Thus,
even though focus on cost was not significantly higher under radical products, designers
still built more cost-effective designs.
Hypothesis 3 predicts that compared to relative cost information, specific cost infor-
mation decreases product features, and the decrease is greater for incremental NPD inno-
vation types than for radical NPD innovation types. Within our experimental setting, the
acceptable capacity range (i.e., the product’s feature) for incremental products was limited
to between 150 and 200 units. In contrast, radical products were specified to have a min-
imum of 300 units of capacity with no upper limit. Thus, there is greater feature flexibility
for radical products than for incremental products. However, contrary to H3, Panel B of

14
The results are qualitatively the same if absolute costs are used instead of cost per unit of capacity. The product
cost is less for specific cost information than for relative cost information for both radical types ($549.74 versus
$691.23, a 20 percent decrease) and incremental types ($282.83 versus $319.63, a 12 percent decrease). Absolute
costs are greater for radical products than incremental products because radical products have two to three times
the capacity of incremental products. The ANOVA results indicate a significant main effect for cost information
(F ⫽ 4.23; p ⫽ .04).

Behavioral Research in Accounting, 2007

New Product Development 33

Table 3 shows that for both radical and incremental new product types, capacity is no
different when participants are provided with specific cost information than when they are
provided with relative cost information (F ⫽ .05, p ⫽ .82). This result is particularly
important for the radical product type, where participants had greater freedom over how
much capacity they designed into their product. Overall, the results do not support H3. It
is possible that the level of capacity was maintained because capacity was linked to com-
pensation or because it was not overly complex to do so.
Hypotheses 2 and 3 emphasize the effect of alternative types of cost information on
the separate objectives of product cost and product features, respectively.15 In contrast,
overall product profitability is a function of these factors plus time-to-market, because
profitability is the net result of participants’ choices regarding these factors, and some
tradeoffs may be more profitable than others. For example, in six of the 26 experimental
sessions (23 percent), the second-place finisher earned a higher profit than the first-place
finisher. As a result, profitability depends on the magnitude of the effect of providing

TABLE 3
Product Features—Capacity

Panel A: Product Capacitya—Descriptive Statistics

Cost
Information
Relative Specific Row Means
b
184.70 190.00 187.49
Incremental (26.22) (33.74) (30.26)
Product [27] [30] [57]
Type 417.54 402.09 410.28
Radical (170.33) (166.06) (166.77)
[26] [23] [49]
Column Means 298.92 282.04
(167.63) (153.50)
[53] [53]

Panel B: ANOVA Results

SS Df MS F-stat. p-value
Product Type 1,299,685 1 1,299,685 95.86 ⬍.001
Cost Information 677 1 677 .05 .82
Product * Cost 2,823 1 2,823 .21 .65
Explained 1,311,210 3 437,071 32.24 ⬍.001
Residual 1,382,918 102 13,558
a
Product capacity is measured as the sum of the individual design choice capacities (Appendix A, Panels 1 and
2).
b
Cells contain mean (standard deviation) and [number of observations].

15
We did not make a prediction for time-to-market. In absolute time, we expect that increasing precision would
increase time to digest the information and increasing design options would increase the time to evaluate
alternatives. The ANOVA results for absolute time-to-market do show significant main effects for cost infor-
mation (F ⫽ 7.72; p ⬍ .01) and for product type (F ⫽ 58.54; p ⬍ .001). The interaction effect is not significant.

Behavioral Research in Accounting, 2007

34 Booker, Drake, and Heitger

specific cost information on each factor and the hypotheses (H2 and H3) do not predict the
magnitude of these effects. Thus, we do not make a prediction for profitability but post hoc
present the results.16
The results shown in Table 4, Panel B indicate that profitability is not significantly
different (F ⫽ 1.03; p ⫽ .312) under specific cost information than under relative cost
information. Thus, interestingly, compared to relative cost information, specific cost infor-
mation does not have a significant effect on profitability (i.e., the net effect of tradeoffs
among cost, capacity, and time-to-market). In other words, better information (in the form
of specific cost information) does not yield better results as measured by product profit-
ability (given how product profitability was defined in the study).

DISCUSSION AND FUTURE RESEARCH

Although new product development (NPD) has become a key factor in the strategy of
many organizations, the role played by cost information in NPD has received little attention

TABLE 4
Product Profitability

Panel A: Product Profitabilitya—Descriptive Statistics

Cost
Information
Relative Specific Row Means
b
61.74 108.63 86.42
Incremental (141.37) (138.56) (140.64)
Product [27] [30] [57]
Type 233.81 232.04 232.98
Radical (293.45) (290.82) (289.16)
[26] [23] [49]
Column Means 146.15 162.19
(242.76) (224.28)
[53] [53]

Panel B: ANOVA Results

SS Df MS F-stat. p-value
Product Type 568,748 1 568,748 11.74 ⬍.001
Cost Information 49,949 1 49,949 1.03 .312
Product * Cost 1,414 1 1,414 0.03 .865
Number in Groupc 195,069 1 195,069 4.02 .048
Explained 792,317 4 198,079 4.09 .004
Residual 4,894,755 101
a
Product profitability is measured as a function of the product’s cost, the product’s capacity, and the time taken
to finish the product’s design relative to other completed product designs.
b
Cells contain mean (standard deviation) and [number of observations].
c
The number of participants in each experimental session is used as a control variable because sessions with
fewer participants would, all else equal, have higher average individual profits.

16
The results for profitability are qualitatively the same with the outliers except for a marginally significant main
effect for cost information (F ⫽ 2.88; p ⫽ .09).

Behavioral Research in Accounting, 2007

New Product Development 35

from accounting researchers (Davila 2000; Schilling and Hill 1998). This paper extends
prior accounting NPD research by examining the effects of cost information precision and
NPD innovation type on designers’ focus on cost and two frequently used NPD performance
measures—product cost and product features. We examine these particular performance
measures because many NPD settings require firms to make decisions involving tradeoffs
among these multiple performance measures. The paper also extends prior financial markets
accounting research involving information precision by examining internally whether the
level of cost information precision differentially affects NPD designer behavior, depending
upon the type of product being developed.
The results show that the type of cost information provided to designers affects their
design focus. In particular, for incremental products, designers with specific cost informa-
tion report a greater focus on cost than those with relative cost information. Thus, the
provision of specific cost information not only allows designers to reduce product costs by
informing them of the cost of individual design options, but it appears to act as a signal
leading designers to want to focus more on costs. In other words, specific cost information
affects designers’ priorities as well as their possibilities, which might be favorable or un-
favorable depending upon the overall effect on a combination of performance measures.
For both product types, the provision of specific cost information results in more cost-
effective designs. It is interesting to note that designers of radical products successfully
reduced cost to the same degree as designers of incremental products, despite the fact that
specific cost information did not increase cost focus for designers of radical products, as it
did for designers of incremental products. Future research might examine more specifically
how and when designers of radical products compensate (e.g., make equivalent cost-
decreasing design decisions even when focus on cost is not affected by cost information
type) when tradeoffs between multiple factors (i.e., cost, features, etc.) must be considered.
Further, contrary to expectations, more cost-effective designs do not come at the ex-
pense of reduced product features (i.e., capacity). This is especially important in radical
product settings where there are potentially greater opportunities for reducing (or not in-
creasing) product features. Thus, in this time-to-market setting, the provision of specific
cost information yields the beneficial effect of decreased product cost without the delete-
rious effect of decreased product features, such as reduced product capacity. We recognize
that the level of product features might have been maintained because (1) with only one
product feature it was not overly complex to do so, or (2) capacity (product feature) was
linked to compensation. Future research might examine whether more than one product
feature or a different incentive structure yields different results. It is interesting to note that,
in this study, decreasing capacity would also decrease costs, and thus, possibly affect profits
in a positive fashion. Yet, participants did not choose to adopt this course of action for
potentially increasing profits. Taken together, the results begin to develop an understanding
of the role played by cost information in a complex setting, such as the NPD design process.
Several important implications for future research and firms involved in NPD follow
from these results. First, the results suggest that management should realize that designers
might interpret the provision of specific cost information as a signal to increase their focus
on cost minimization rather than simply as better information that should be used in the
same way (i.e., same degree of importance) as before. One implication is that the behavior
of product engineers might be influenced by the type of information they receive, rather
than exclusively through the incentives that they face.
Second, the provision of specific cost information and resulting increased focus on cost
minimization yields tradeoffs for firms juggling multiple NPD performance measures. To
determine whether the provision of specific cost information is favorable or unfavorable,

Behavioral Research in Accounting, 2007

36 Booker, Drake, and Heitger

firms must prioritize among performance measures by estimating and comparing the mag-
nitude of the effects on net income of increasing or decreasing various NPD performance
measures. For example, if cost minimization is the most important performance measure,
firms might decide to provide designers with specific cost information, because specific
cost information reduces product cost without necessarily detracting from the product’s
revenue-generating features (e.g., capacity). However, firms should be aware that specific
cost information might not necessarily increase product profitability, and relative cost in-
formation might be sufficient in certain NPD situations, such as when time-to-market is of
primary importance.17
Third, the study suggests that changes in strategic focus triggered by changes in the
cost information provided to designers depend on the type of new product being developed.
Future research might build upon this finding. For example, a natural extension is to ex-
amine the conditions under which the provision of specific cost information alters the
strategic focus of designers working with radical new products. Also, future research might
examine whether the role of cost information in NPD found in this study extends to other
new product types, such as first generation products where there is no existing product
from which to make changes.
Fourth, as indicated earlier, future research might examine further the effect of cost
information type on product features. For example, future research might extend this paper
by studying an NPD setting in which multiple, rather than only a single, product features
are present. Such research could explain why, contrary to expectations, an increased focus
on product cost minimization did not reduce the extent to which the new design incorpo-
rated the product’s feature. One caveat to these implications is that our experimental setting
is not as complex as certain natural settings, and thus, the results should be interpreted with
caution. Future research might find that the manipulation of incentives, as well as the
manipulation of the cost information provided to designers, can affect designer behavior as
found in this paper.
Finally, examined in their entirety, the results indicate that the two conflicting views of
the role of cost information in NPD offered by previous research need to be expanded. The
two views, which are (1) cost information is detrimental to new product development be-
cause it stifles creativity versus (2) cost information is beneficial because it promotes cost-
effective designs, do not convey the complexity of a setting with multiple tradeoffs. For
example, in our study, specific cost information, as compared to relative cost information,
lead to more cost-effective designs, which at first glance appears to support the second
view. However, specific cost information did not lead to more profitable designs than rel-
ative cost information, which suggests that the general nature of these two views espoused
in the literature should be altered to incorporate these results. Specifically, these results
suggest that cost information does not operate in a vacuum, and designers make tradeoffs
between cost and other NPD variables that affect the final design and hence its profitability.
To the extent designers are able to make profit-increasing tradeoffs, the provision of cost
information will be beneficial. However, if the provision of cost information creates a setting
too complex for designers to make profit-increasing tradeoffs, the provision of cost infor-
mation may create a disadvantage. Future research might build upon this study by further
exploring the exact nature of the role of cost information in NPD. For example, research

17
We are not suggesting that poor quality cost information intentionally be provided to engineers in situations
where product cost is not a top priority. Rather, we are simply suggesting that expending additional resources
to procure high-quality, specific cost information may not be warranted in certain situations.

Behavioral Research in Accounting, 2007

New Product Development 37

might examine how the presentation of cost and other NPD measurement information af-
fects designers’ ability to make profit-increasing tradeoffs.
As with any study, limitations exist. First, this paper does not take into account the
potentially high cost of measuring and providing product designers with specific informa-
tion regarding the cost of design options. Second, the experiment’s participants do not
possess significant product design experience. However, as with many real-world NPD
designers, a significant portion of the participants possessed an engineering education.
Third, the experiment does not account for NPD settings in which first-generation products
are developed. Specific cost information might affect NPD performance measures differ-
ently in first-generation NPD settings. Fourth, this paper reports results from an experi-
mental setting that incorporated a time-to-market strategic setting in which the performance
measures used to compensate designers encompassed both the revenues and costs generated
by their design. A substantial amount of accounting literature shows that the behavioral
effects of accounting information are affected by the type of incentives used (see Bonner
and Sprinkle [2002] for a review of this literature). Thus, the results might differ if the
strategic setting or associated incentives were altered. For example, under a low-cost (e.g.,
target costing) strategic setting, where designers are evaluated only on product cost per-
formance measures, designers might minimize costs at the expense of reducing product
features. Alternatively, Booker et al. (2004) examine a context where designer pay is not
linked to cost performance. Even in that setting, the provision of alternative forms of cost
information affects designers’ choices. Future research might build upon this study by
examining the role of cost information when different NPD strategies, such as low-cost or
customer-focus, or different performance measures are employed.

APPENDIX A
Panel 1: Design Worksheet—Radical Product/Specific Cost Information

Capacity Cost
Base size (check one)
Mini (capacity ⫽ 0, cost ⫽ $60) $
Jumbo (capacity ⫽ 0, cost ⫽ $120) $
Base Towers (towers directly attached to base)
# of
Small red (capacity ⫽ 6 each; cost ⫽ $9 each) $
Large red (capacity ⫽ 12 each; cost ⫽ $24 each) $
Small black (capacity ⫽ 8 each; cost ⫽ $20 each) $
Large black (capacity ⫽ 15 each; cost ⫽ $45 each) $
Branch Towers (towers attached to base towers)
# of
Small red (capacity ⫽ 20 each; cost ⫽ $30 each) $
Large red (capacity ⫽ 30 each; cost ⫽ $60 each) $
Small black (capacity ⫽ 10 each; cost ⫽ $5 each) $
Large black (capacity ⫽ 25 each; cost ⫽ $25 each) $
Totals for this design $
Note: The revenue earned per unit of capacity depends on when you bring your design to market relative to
others. If you are:

Behavioral Research in Accounting, 2007

38 Booker, Drake, and Heitger

First to market: Revenue ⫽ $3.00 per unit of capacity

Second to market: Revenue ⫽ $2.50 per unit of capacity
Third to market: Revenue ⫽ $2.00 per unit of capacity
Fourth to market: Revenue ⫽ $1.50 per unit of capacity
Fifth to market: Revenue ⫽ $1.00 per unit of capacity

Panel 2: Design Worksheet—Incremental Product/Relative Cost Information

Capacity
Base size (check one)
Mini (capacity ⫽ 0)
Jumbo (capacity ⫽ 0)
Jumbo bases cost more than Mini bases
Base Towers (towers directly attached to base)
# of
Small black (capacity ⫽ 8 each)
Large black (capacity ⫽ 15 each)
Large block towers cost more than small block towers
Branch Towers (towers attached to base towers)
# of
Small black (capacity ⫽ 10 each)
Large black (capacity ⫽ 25 each)
Large block towers cost more than small block towers
Total for this design
Note: The revenue earned per unit of capacity depends on when you bring your design to market relative to
others. If you are:
First to market: Revenue ⫽ $3.00 per unit of capacity
Second to market: Revenue ⫽ $2.50 per unit of capacity
Third to market: Revenue ⫽ $2.00 per unit of capacity
Fourth to market: Revenue ⫽ $1.50 per unit of capacity
Fifth to market: Revenue ⫽ $1.00 per unit of capacity

Behavioral Research in Accounting, 2007

New Product Development 39

APPENDIX B
Panel 1: Focus on Costs: List of Questions
For all questions, the scale ranged from 1 (strongly disagree) to 5 (strongly agree).
1. I spent a significant amount of time examining the cost information given for each
design option.
2. I spent most of my effort trying to design a product that would minimize costs.
3. Getting my design to market quickly was more important to me than its cost (Re-
verse scored).
4. I tried to use the lowest cost option for each of my design choices.
5. I focused more on the capacity of my design than on its cost (Reverse scored).
6. The cost of the product I designed was not very important (Reverse scored).
7. The cost information focused my search for the optimal (best) product design
choices.
8. I made my design choices based on the cost information.

Panel 2: Manipulation Checks: List of Questions

1. There was no additional revenue earned if the product had capacity greater than
200 units (Reverse scored).
2. I could use red LEGOs in my design.
3. The cost information given included exact dollar amounts for each design option.
4. The revenue earned per unit of capacity was highest (i.e., $3) if I was first to
market.
5. My bonus pay increased as the profitability of my final product increased.
6. The cost of using a mini base was less than the cost of using a jumbo base.
7. The cost of using large blocks was different than the cost of using small blocks.

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