Donna M. Booker
University of Cincinnati
Andrea Drake
University of Cincinnati
Axel K. D. Schulz
University of Melbourne
Abstract: Given that a majority of a new products manufacturing cost is determined during the design stage, it makes sense for firms to begin the cost management process at this stage rather than waiting for the product to go into production. One way to potentially reduce costs is to give product designers relevant cost information to use while they are developing a new product. This experiment examines how two types of cost information (volume-based vs. activity-based) and two pay systems (flat-wage and goal-based) interact to affect designer choices, strategic focus and new product costs. Despite the fact that neither pay system links cost with designer pay, we hypothesize that designers will be influenced by the cost information provided and will design products consistent with a cost minimization strategy. The results are consistent with this prediction in that both forms of cost information influenced designer choices. However product costs were not fully optimal, suggesting that an explicit link between pay and new product cost may be needed to induce a cost minimizing strategy.
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