Quantifying Project Efficiency in New Product Development: Benefits and Pitfalls

New product development is a major determinant of a company’s competitive advantage. However, the complex project environment aggravates objective performance assessments. Relying on decision heuristics, managers give space to subjectivity. Prior research finds that these decisions are subject to optimistic bias that leads to escalation of managerial commitment. We aim at reducing the subjective leeway in decision making by developing an efficiency-based tool that systematically guides managerial attention based on objectified information. In an in-depth case study we demonstrate that the data envelopment analysis (DEA) represents a method that can be reasonably implemented in a product development context complementing existing metrics. A promising implementation is required to address potential pitfalls: homogeneity of the project base; reliability of the estimated output metrics; consistent data availability on project-level; thoughtful interpretation of the results by experts; promotion of organizational acceptance of metric.