Coordination, specialization, and incentives in product development organization

Abstract

Recent empirical research on product development in the world auto industry indicates that projects with less specialized task assignments and "stronger" (heavyweight) project managers have better performance. The best project organization thus appears to have characteristics of both centralized and decentralized coordination. The shift to such organizational form has been observed worldwide in the 1980s and is expected to continue in the 1990s. The purpose of the paper is to seek to understand this observation from the viewpoints of information economics. It is argued that the heavyweight project manager system performs better not just because of its strong coordination capability but because of the centralized responsibility for concept creation and the centralized strong incentive system. It is shown that under this system, project participants are optimally induced to have broader task assignments: Strong product managers and the low levels of specialization appear in conjunction. These features result from the growing significance of "product integrity" more than functionality of a few dimensions of the new product.