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EVALUATING THE IMPACT OF

COLLABORATIVE PRODUCT COMMERCE ON THE


PRODUCT DEVELOPMENT LIFECYCLE

RAJIV D. BANKER
INDRANIL R. BARDHAN

Center for Practice and Research in Software Management (PRISM)


School of Management
The University of Texas at Dallas
Richardson, TX 75083

This white paper is also available from the Working Paper series of the PRISM Center at the
University of Texas at Dallas (www.utdallas.edu/prism). An earlier version was presented at
the Workshop on Information Systems and Economics (WISE) in December 2001 in New
Orleans, LA. Please do not quote without written permission from the authors. All
correspondence may be directed to bardhan@utdallas.edu.
Banker and Bardhan, 2002

Abstract
New collaboration-based information technologies have enabled companies to compete more efficiently

in a global networked economy by enhancing the interactions and information transfer in the supply

chain associated with the product design and development lifecycle. In this research, we empirically

investigate the relationships between investment in collaborative product commerce (CPC) and product

development process variables such as product quality, complexity, development cycle time, and user

satisfaction. Our findings indicate that collaboration in product design and development, resulting from

implementation of a CPC solution, had a significant and positive impact on product quality, product

time-to-market, and user satisfaction. This research also provides insights into the role of business

process maturity in moderating the impact of CPC software on the outcomes of product development.

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Banker and Bardhan, 2002

1.0 Introduction

The accelerating rate of technological in software that improves the efficiency of


change, coupled with growing demand for the product development lifecycle.
customized products has dramatically Collaborative Product Commerce (CPC)
reduced product lifecycles. There is is a relatively new technology that has been
increasing reliance on the use of information introduced to streamline product
technology to manage the product development processes that are not well
development lifecycle. Newer collaboration- structured or require significant manual
based information technologies have intervention. CPC is a class of software and
enabled faster and more accurate product services that use Internet technology to
development cycles (Carroll, 2001; permit individuals to collaboratively share
Bhambri, 2000; Johnson, 2000). The vision intellectual data, improving the
of such collaborative software is to harness development, manufacture, and management
the speed and efficiency of Web-based of products throughout the entire lifecycle
technologies to optimize supply, design, (Carroll, 2001). This sharing of intellectual
manufacturing and distribution channels data related to the delivery of a product
across the extended enterprise by enabling requires an ability to encapsulate a business
faster and more accurate exchange of process and extend that process across the
information across business processes entire supply chain. Specific business
(Smith and Reinertsen, 1998). In other processes that can be facilitated through
words, collaboration technologies provide collaboration include product design,
the enabling platform for companies to sourcing, change request management,
collaborate with their customers, suppliers channel management, and distribution.
and partners in a global networked The basic premise of investment in CPC
economy. software is that improvement in cycle time,
Considerable attention has been paid in cost and quality can be simultaneously
supply chain management and information attained by improving the effectiveness of
systems research to study the impact of key the product development process. These
processes and technologies on the supply improvements are thought to arise from
chain lifecycle. However, little attention has reduction in product development cycle time
been given to the economic impact of and reduced rework associated with mature
information systems on product lifecycle business processes and investments in CPC
management. In their recent survey article tools.
on product development research, Krishnan In this white paper, we summarize the
and Ulrich (2001) conclude that “… the results of our empirical research to
benefit of new tools to manage product investigate the relationships between
knowledge and support development investment in CPC software and product
decision making within the extended development process variables such as
enterprise needs to be explored in greater product quality, complexity, development
detail …” Considering that improvements in cycle time, and overall productivity. Data
product design and development costs have on CPC implementations in thirty-five
a significant impact on overall product cost companies were studied to evaluate research
and time-to-market, more attention needs to hypotheses about factors that influence the
be paid to studying the impact of investment benefits from investment in CPC. This
research also provides insights into the

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Banker and Bardhan, 2002

moderating role of business process maturity SProduct Design Verification and


on the product development lifecycle, and Manufacturing Development that consists
how process maturity improves the overall of output design and design verification
efficiency of product development. testing
SPilot Production and Product
Introduction which involves product
2.0 Collaborative Product Commerce marketing plans and customer approval of
pilot samples
As shown in Figure 1, Collaborative The six-phase product development
Product Commerce (CPC) involves lifecycle consists of several sub-processes
management of all product data, applied and activities as described in Figure 2.
across the extended enterprise including
suppliers and customers and using the Figure 2: Product Design and
Internet (or other Internet-based Development Processes
technologies). The collaborative focus of Product
Concept &
Product
Development
Research &
Developmen
Product
Development
Product
Design
Pilot
Production &
Initiation Proposal t & Verification & Product
CPC is the emphasis on sharing engineering Manufacturing
Design
Manufacturing
Development
Introduction

information with suppliers and customers.


Concept Project Plan Concept Prototype
Design outputs Marketing plan
document Review verification tests implementation
Design Inputs
Figure 1: Collaborative Product Product
Requirement Product
Prelim. BOM Customer
approval of
Design
verification Quality Control
testing system
Commerce s Strategy Prelim. supplier prototype
selection
evaluation
Production
Suppliers Company Prelim. product Certified Design
Customers material on order Prelim. process
specifications Prelim. capability study
manufacturing Final BOM
Operator
Prelim. test process plan
instructions End of line audit
Plan Manufacturing
Partners Final Eng. Test Plans
Pilot run Preventive
Plan
production maintenance plan
Mfg. process process
Prototype Plans Customer
Control Plan
Production approval of pilot
Capital approval verification & samples
Final product
validation testing
specification

CPC encompasses management and


sharing of product design and development
data that is generated in each phase of the
product development lifecycle. The six The information, that supports the
major phases that comprise the product various tasks comprising the product
development lifecycle, include: development lifecycle, resides on many
SProduct Concept and Initiation different systems and in multiple locations.
that involves conceptualizing the product Systems that organize and control this
requirements information are called Collaborative Product
SProduct Development Proposal Commerce (CPC) systems.
that involves developing a preliminary Several articles in the popular press
project plan and product specifications. have touted the perceived benefits of CPC
SResearch and Development that (Carroll, 2001; Welty & Becerra-Fernandez,
comprises concept review, preliminary bill 2001) such as:
of materials (BOM) and finalizing product • Faster cycle time for new designs
design specifications. and engineering changes
SProduct Development and • Increased engineering productivity
Manufacturing Design that consists of ° Less time spent searching for
prototype verification, final BOM, and data and chasing approvals
capital approval for product development ° Reduction in overlapping or
inconsistent designs

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Banker and Bardhan, 2002

° Re-use of existing parts and In the area of collaborative product


design know-how planning, several reports have touted the
• Fewer new parts introduced, and less numerous benefits of collaboration by
cost per part multiple partners within the supply chain
• Significant improvement in the (Carroll, 2001). Some of these benefits are
quality of product data faster cycle times for new designs and
• Improved ability to share product engineering changes, increased engineering
data with suppliers, to seek design input, productivity, significant improvements in
solicit quotes, and discuss changes the quality of product data. These benefits
However, these perceived benefits are result in reduced inventory and less rework
based on anecdotal evidence and have not and the improved ability to share product
been supported by field-based research data with suppliers, and to seek design input,
studies. Our white paper is a result of the solicit quotes, and discuss changes.
first research effort aimed at studying the However, IT researchers have not
inter-relationships between the variables that investigated the productivity impact of CPC
comprise the product design and technologies on the product development
development lifecycle. Our research also lifecycle.
indicates that it is not enough to realize these In software engineering research, the
benefits by implementing the CPC software lifecycle cost impact of quality in software
in a stand-alone manner. Rather, companies products was examined by Krishnan et al.
which reported significant benefits from (2000). They found that improved
CPC also reengineered their business conformance quality in system software
processes in a manner that facilitated the products led to significant improvement in
exchange of intellectual capital and business life-cycle productivity. Further studies by
process logic for improving the design and Harter et al. (2000) have investigated the
development of existing and future products. relationship between process maturity, cycle
time and quality on overall cost of software
development. Their findings, based on data
3.0 Prior Research for thirty software products at a large
software development company, reveal that
Prior research investigating the improvements in process maturity lead to
economic impact of information technology higher quality which, in turn, leads to
(IT) has been focused at two different levels. reduced cycle time and software
Several studies have looked at the economic development cost. These findings provide
impact of IT and computer investments on empirical support in the context of software
overall productivity and firm output (Barua production for existing theories of cycle
et al., 1995; Brynjolfsson and Hitt, 1993; time and cost benefits of improved quality
Brynjolfsson and Yang, 1996; Chircu and derived from process improvement. The
Kauffman, 2000). While the early work on quality, cost, process and cycle time trade-
small samples did not find a productivity offs associated with software development is
impact (Loveman, 1994), more recent work inherent in other forms of new product
has consistently found a positive correlation development as well. For instance, Bohn
between computers and productivity and
firm output.1 Morey (1990) found that deployment of a new cash
register point-of-sale and order coordination
1
A small number of studies have focused on the technology at a large fast-food restaurant chain
productivity impact of specific information reduced materials waste and improved operational
technologies. For instance, Banker, Kauffman, and efficiency.

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Banker and Bardhan, 2002

(1995) reported a field study that provided Figure 3: CPC Model Framework
empirical evidence for the significance of
process effectiveness in enhancing process Time to
Market
(-)
yield and product quality in semiconductor (-)

manufacturing. (-)
(+)
(+)

In collaborative product development, an Product Product


important issue is whether investment in Investment
In CPC
(+) Collaboration
& Learning
Process
Maturity
Design
Complexity
(+) Development
Cost
User
Satis-
faction
CPC tools pays off in terms of reduced cycle
development time, higher product quality, (+)
(-)
(-)
(-) (+)
(+)
and lower cost. Given the growing
importance of CPC software and services (+)

within the domain of supply chain Product


Quality

management, it is important to provide


empirical evidence to substantiate the
benefits (if any) of investment in CPC
software and services. The objective of this
research is to develop and test our
In Figure 3, we specify a model that
hypotheses regarding investment in CPC
integrates four equations to represent
software and its impact on product
outcomes impacted by investments in CPC
development cycle time, quality, design
software - product quality, product
complexity, and cost. We will also
development cycle time, product
investigate the moderating effect of process
development cost, and user satisfaction. A
maturity and its role in determining the
basic premise is that companies who invest
magnitude of impact from investment in
in CPC software will experience significant
CPC software.
improvement in collaboration and learning
across product design and development
teams, and the impact of the CPC software
4.0 Research Hypotheses
on process outcomes is mediated by
increased collaboration activity.
Based on prior research where the
relationships between quality, cost, cycle
time and process maturity have been studied
4.1 Product Quality
in a software engineering environment
The first equation relates quality of the
(Harter et al., 2000, Krishnan et al., 2000),
product development process to investment
we hypothesize several key relationships as
in CPC and process maturity, controlling for
shown below:
the design complexity of the product
development process.

Product Quality = f (Collaboration,


Process maturity, Product design
complexity) (1)

Our definition of product quality is


based on the number of engineering change
orders for the designed product and total
number of product errors. Number of
engineering change orders is defined as the

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Banker and Bardhan, 2002

number of requests for design changes that product quality and process maturity has
are fed into the product design process been viewed from two perspectives. One
Process maturity provides a measure of view is that time-to-market must be traded
the overall effectiveness of the process, off in terms of improvements in quality.
based on the dynamics of the specific However, a contrasting view is that these
company and industry’s environment (such variables are complementary and that
as those driven by customers, markets, improvements in process and quality can
competition and regulatory demands). lead to improvements in the time-to-market
Process maturity was measured based on a (Harter et al., 2000). Our next hypothesis is
modification of the Capability Maturity stated as follows:
Model (CMM) framework to account for the
process dynamics of the industry. The Hypothesis 2 (Time-to-Market and
CMM practices aid in reducing product Collaboration):
errors and in early identification of defects. Collaboration in product design and
As a result, the number of product errors development is associated with reduced
should be lower for products that are time-to-market for the product being
designed with mature business processes developed.
(Harter et al., 2000). This implies:

Hypothesis 1 (Product Quality and


Collaboration): 4.3 Product Development Cost
Collaboration in product design and The third equation relates the product
development is associated with development cost to product quality and
improvement in product design quality time-to-market, controlling for the product
(fewer defects and rework). design complexity.
In equation (1), we control for the effect
of product design complexity. Prior work Product Development Cost = f (Time-to-
has shown that the more complex the market, Product quality, Design complexity)
product design, the higher the likelihood that (3)
errors will be introduced into the product
development process (Munson, 1996). Product development cost refers to the
overall cost incurred in product development
and is analogous to the effort required to
4.2 Time-to-Market develop the product. The conventional
The second equation relates time-to- school of thought asserts that there must be
market to collaboration, process maturity, trade-offs between product development
and product quality, controlling for the cost, quality and time-to-market. However,
product design complexity. as argued in section 4.2, these can be
considered complementary variables and we
Time-to-Market = f (Collaboration, argue that improved quality and shorter
Process maturity, Quality, Design time-to-market are associated with lower
complexity) (2) overall product development cost. Hence,
our hypothesis is:
Time-to-market is the overall time
elapsed from product conceptualization until Hypothesis 3 (Product Development
its final launch and acceptance by the user. Cost):
The relationship between time-to-market,

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Banker and Bardhan, 2002

Time-to-market and product quality are ln(Product Quality) = α0 + α1 * ln(Process


associated with lower overall product Maturity) + α2 * ln(Collaboration) +
development costs. α3 * ln(Design Complexity) + α4 * ln(Process
Maturity) * ln(Collaboration) + ε1 (5)

4.4 User Satisfaction ln(Time-to-Market) = β0 + β1 * ln(Process


The fourth equation relates user Maturity) + β2 * ln(Collaboration) + β3 *
satisfaction to collaboration, product quality, ln(Design Complexity) + β4 * ln(Product
time-to-market, and product development Quality) + β5 * ln(Process Maturity) *
cost. ln(Collaboration) + ε2 (6)
User satisfaction = f
(Collaboration, Time-to-market, ln(Product Development Cost) = δ0 + δ1 *
Product quality, Product development ln(Time-to-Market) + δ2 * ln(Design
Complexity) + δ3 * ln(Product Quality) + ε3
cost)
(7)
(4)
ln(User Satisfaction) = γ0 + γ1 * ln(Time-to-
User satisfaction refers to the Market) + γ2 * ln(Product Development Cost) +
satisfaction of the design engineers and γ3 * ln(Product Quality) + γ4 *
product development teams who are ln(Collaboration) + ε4 (8)
intimately involved in using the CPC
software for product design and
development activities. Since one of the Our model is specified as a simultaneous
goals of collaboration software is to improve system of equations represented in equations
communication and learning across product (5), (6), (7) and (8). This is a recursive
development teams, we posit that system of equations that can be estimated
collaboration should have a positive impact efficiently using ordinary least squares
on user satisfaction. (OLS) if the errors across equations are
uncorrelated. However, because each
Hypotheses 4 (User Satisfaction and observation in any equation is related to
Collaboration): corresponding observations that correspond
Collaboration in product design and to the same company in the other equations,
development is associated with greater user it may be possible that the error terms in the
satisfaction. regressions are correlated. Therefore, for
consistent and efficient estimation, we
Prior research in software product estimated the system of equations using
development has shown that the effects of seemingly unrelated regressions (SUR) that
process maturity and design complexity on allows for correlation of disturbances across
time-to-market, quality and development equations (Lahiri and Schmidt, 1978;
effort are not linear. (Banker and Kemerer, Greene, 1997).
1989; Banker and Slaughter, 1997). Thus a
generic multiplicative specification of our
models is adopted through logarithmic
transformation of the variables (Davidson
and Mackinnon, 1985). The estimation
model is represented by the following
system of equations:

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Banker and Bardhan, 2002

5.0 Research Data

A cross-sectional survey methodology


was employed for data collection. Product
design and development managers of 55
companies, who use CPC software as the
basic engine for product design
collaboration and engineering, were
contacted for this research project. The
survey questionnaire was initially tested
using a small sample of potential
respondents (companies). Based on the
initial test, modifications were made and the
final version of the questionnaire was mailed
out. Of the initial sample of 55 companies,
12 did not respond with relevant data within
the project data collection time frame. Eight
companies provided incomplete data. A
total of 35 companies responded with data to
the entire questionnaire. An industry profile
of the study participants is shown in Table 1.

Table 1: Distribution of Study


Participants by Industry

Industry Category Number of


Participants
Industrial Products 9
Automotive 13
Medical 4
Aerospace / Defense 5
Hi-tech / Electronics 10
Other 2
TOTAL 43

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Banker and Bardhan, 2002

All of the respondents had recently SProduct quality (measured as


implemented CPC software as the basic improvement in product defects)
engine for collaboration involving product SProcess maturity
design, engineering, manufacturing and for SProduct design complexity
end-to-end coordination of the product SUser satisfaction
development process, which involves The Process Maturity construct was
customers and suppliers in many cases. developed using the guidelines described in
The data was collected by a combination the Capability Maturity Model (CMM)-
of archival data retrieval and a survey of Integrated Product Design and Development
managers who were very familiar with the (IPDD) framework. The construct is
product development process at their measured based on the following variables:
companies. Product design engineers and process and design concurrency, quantitative
managers were interviewed to obtain key project management, product integration
details of the product development process management, and project requirements
and identify the bottlenecks in the management. A single factor was obtained
development cycle. The survey guidelines with high loadings on each of the four
required that the project manager was with variables that comprise the process maturity
the project from beginning to end, had construct.
interaction with both senior management The Product Design Complexity
and project personnel, and had a significant construct was developed using a
technical understanding of the product. modification of a similar construct
These guidelines assured that the project developed by Novak and Eppinger (2001) in
manager had a broad view of the project that their product development research with
crossed functional boundaries and could automotive companies. The construct was
provide data on the survey questionnaire at developed based on the following variables:
different points in time (before and after number of product components, number of
CPC) in the project effort. new design features, product component
To assess the significance of the relative inter-connectedness, and degree of
impact of CPC, we collected data for each component design re-use. A single factor
variable before and after implementation of was obtained with high loadings for each of
CPC software. Respondents were asked to the four variables.
provide their responses to each question on a
numerical Likert scale with values ranging 6.0 Impact of CPC
from 1 (unsatisfactory / negative impact) to
7 (very satisfactory / positive impact). All respondents to the research survey
Data on the following variables were reported significant savings in time and cost.
collected: Table 2 provides a summary of the time and
SInvestment in CPC (which includes cost savings reported across each phase of
hardware, software, integration, deployment, the product development lifecycle. For
training and support costs) instance, companies reported that time
SCollaboration solutions and their savings in the product concept and initiation
impact on collaboration across product phase was 10% on average, while annual
development teams cost savings in the first full year of operation
SProduct time-to-market (measured as was between $50,000 and $1 Million (the
reduction in cycle time) wide range is explained by the size of the
SProduct development cost (measured company and scope of CPC implementation)
as reduction in cost) with an average cost savings of $100,000.

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Banker and Bardhan, 2002

Table 3: Reported Time and Cost


Table 2: Reported Time and Cost Savings across Functional Areas
Savings across the Product Development
Lifecycle Time Savings Cost Savings
Functional
Time Savings Cost Savings Benefits Range Average Range Average
Business Product Data 10 - $100K -
Process Management 50% 20% $2M $500K
Benefits Range Average Range Average Product Design 10- $50K -
Product Management 30% 20% $1M $150K
Concept & $50K - Product 10- $50K -
initiation 5 - 50% 10% $1M $100K Development 35% 15% $1M $200K
Product New Product $20K -
Development $50K - introduction 5-20% 10% $50K $25K
Proposal 10-50% 15% $1M $100K ECO 10- $20K -
Research and $50K - Evaluation 50% 20% $150K $50K
Development 10-20% 10% $200K $150K ECO 10- $20K -
Product Implementation 25% 15% $1.5M $200K
Development Product 10-
& Reworks 15% 10% N/A N/A
Manufacturing $50K - 10- $100K -
Design 10-50% 15% $1M $200K Design Re-use 15% 10% $5M $500K
Product Design Inventory
Verification & Management N/A N/A N/A N/A
Manufacturing $20K - Internal 10- $100K -
Development 10-50% 20% $750K $100K Collaboration 25% 15% $3M $250K
Pilot $20K - External 10-
Production 10-50% 15% $100K $50K Collaboration 35% 20% N/A N/A

We conducted a similar analysis of We analyzed reported changes in the


reported time and cost savings for each of cost structure of product development before
the eleven functional areas that interface and after implementation of CPC. For
with the product design and development instance, as observed in Table 4, the left-
processes. Table 3 provides a summary of hand column indicates the reported
the savings reported across each functional percentage of cost expended before CPC
area. For instance, companies reported that implementation in each of the six phases of
time savings in product data management the product development lifecycle. The
was 20% on average, while annual cost right-hand column indicates the reported
savings in the first full year of operation was percentage of cost expended after CPC
between $100,000 and $2 million (the wide implementation in each of the six phases of
range is explained by the size of the the product development lifecycle. Table 4
company and scope of CPC implementation) indicates that the reported overall cost after
with an average cost savings of $500,000. CPC implementation is only 75-80% of the
cost before CPC implementation. This
reported reduction in cost can be attributed
to cost savings observed primarily in three
phases: Research and Development, Product
Development & Manufacturing Design, and
Product Design Verification &
Manufacturing Development. This analysis
provides some managerial insight on the

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Banker and Bardhan, 2002

impact of CPC on the costs incurred for each


phase of the product development lifecycle.

Table 4: Change in Product


Development Cost Structure before and
after CPC

Change in
Cost Structure
Benefits by phase Before CPC After CPC
Product Concept &
initiation 5% 3-5%
Product
Development
Proposal 5% 3-5%
Research and
Development 10-15% 5-10%
Product
Development &
Manufacturing
Design 40-50% 40-45%
Product Design
Verification &
Manufacturing
Development 15-20% 10-15%
Pilot Production and
Product Introduction 10-15% 10-15%

100% 75-80%

7.0 Estimation Model Results

Descriptive statistics on the model


variables are summarized in Table 5. The
values represent the scores on a numerical
Likert scale with a range from 1 (very low /
negative impact) to 7 (very high / positive
impact). Our basic premise that investment
in CPC software results in significant
improvement in collaboration activity was
supported by the data.

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Banker and Bardhan, 2002

Table 5: Descriptive Statistics

Variables Before MatrixOne After MatrixOne


Solution Solution
Mean Median Standard Mean Median Standard
Deviation Deviation
Product 3.7 4.0 0.6 5.0 5.0 0.8
Quality
Product 3.4 4.0 0.7 4.9 5.0 1.0
Development
Cost
Product Time- 3.5 4.0 0.7 5.3 6.0 1.0
to-Market
Collaboration 3.4 4.0 0.7 5.5 6.0 0.9

User 3.9 4.0 1.1 5.7 6.0 0.6


satisfaction
Product 3.8 4.7 0.6 4.7 4.8 0.7
Design
Complexity
Process 4.2 4.0 1.3 5.3 5.3 0.8
Maturity

The average collaboration score Figure 4: Product Development


increased from 3.4 (before CPC) to 5.5 variables before and after
(after CPC) on a seven-point Likert scale, CPC implementation
significant at a 1% level2, as shown in Table
5. Several companies also reported 6.2 Product Quality
substantial improvements in process 5.8
maturity, which was aided by process 5.4
Product Dev. Cost

reengineering efforts implemented in 5 Product Time to


conjunction with implementation of the 4.6 Market

MatrixOne CPC solution. Changes in the 4.2 Collaboration


3.8
variables that define the product User Satisfaction
3.4
development process, before and after 3
Process Maturity
implementation of the MatrixOne solution, Before CPC After CPC
is shown graphically in Figure 4.

The regression model, described in


section 4, was estimated using the SUR
procedure. All model variables are
represented by the differences (∆) in their
values before and after implementation of
the Matrixone CPC solution. In other
words, we seek to estimate the relationships
between collaboration and outcomes of the
2
The difference in means was statistically significant product development process based on their
at the 1% level using a student’s t-test.

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Banker and Bardhan, 2002

change in relative magnitude before and Table 6: SUR Estimation Results for
after implementation of CPC. Product Quality3

Variable Parameter t-statistic p-value


7.1 Estimation results for product
quality Intercept -0.503 -1.97 0.058

Results of estimating the SUR model ∆(Process 0.369 ** 1.88 0.071


indicate that collaboration in product design Maturity) *
and development, resulting from ∆(Collaboration)
implementation of CPC, had a significant ∆(Collaboration) -0.208 -0.78 0.439
and positive effect on product quality.
However, the improvement in product
quality due to collaboration is statistically ∆(Design 0.397 * 2.17 0.026
Complexity)
significant only in the presence of higher
levels of process maturity. As shown in ∆(Process -0.074 -0.38 0.708
Table 6, the coefficient for the interaction Maturity)
term ∆ (process maturity * collaboration) is R-square 0.37
statistically significant at the 10% level.
The value of 0.369 for this regression
coefficient means that a 1% improvement in
the interaction term will result in a 0.369% 7.2 Estimation results for product
increase in product quality. From a time-to-market
managerial perspective, the results indicate
that companies should reengineer their Collaboration in product design and
business processes to ensure that they are development due to CPC implementation
sufficiently mature to support the benefits of has a positive effect on reduction in product
design collaboration. time-to-market. As evidenced by the
Design complexity also had a positive statistically significant coefficient of the
impact on product quality, indicating that interaction term ∆ (Process maturity *
higher levels of design re-use and Collaboration), higher process maturity has
component integration (coupling) leads to a positive and significant impact on reducing
less product defects, rework, and time-to-market. From a managerial
engineering change orders, which leads to perspective, this implies companies should
improvement in product quality. first re-engineer their business processes to
maximize the business benefits of
collaboration.

3
An asterisk (*) indicates statistical significance at
the 5% level. A double asterisk (**) indicates
statistical significance at the 10% level.
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Banker and Bardhan, 2002

Table 7: SUR Estimation Results for Table 8: SUR Estimation Results for
Product Time-to-Market Product Development Cost
Variable Parameter t-statistic p-value Variable Parameter t-statistic p-value
Intercept -0.211 -1.05 0.303 Intercept -4.72 ** -1.72 0.096
∆(Process 0.290** 1.90 0.061 ∆(Time-to- 1.63** 1.79 0.083
Maturity)* Market)
∆(Collaboration)
∆(Design -0.282 -1.46 0.155
∆(Collaboration) 0.464 * 2.20 2.340
Complexity)
∆(Design 0.223 1.62 0.116 ∆(Product 1.36 0.97 0.341
Complexity) Quality)
∆(Product 0.002 0.01 0.99 R-square 0.30
Quality)
∆(Process -0.087 -0.60 0.556
Maturity)
R-square 0.37 7.4 Estimation results for user
satisfaction

7.3 Estimation results for product The primary drivers of user satisfaction
development cost are product quality and collaboration. The
results show that collaboration in product
The primary driver of product design and development has a significant
development cost is product time-to-market. and positive impact in reducing product
Reduction in product time-to-market has a time-to-market and improving quality
positive and statistically significant effect in which, in turn, has a positive and significant
reducing product development cost. impact on user satisfaction. In other words,
Neither product quality nor product collaboration software enables design
design complexity play a significant role in engineers to improve communication, share
determining product development cost. data, and design products faster and more
These results are consistent with our easily, which reduces the product
hypotheses and prior research in software development cycle time and product
development. From a managerial defects/errors, which in turn has a positive
perspective, the results indicate that design and significant impact on user satisfaction.
engineers use collaboration software to Furthermore, our results also indicate that
share designs electronically, store design reduction in product development cost does
documentation, and speed up the design not have a significant impact on user
review process, which reduces the product satisfaction. This is consistent with prior
development cycle time which, in turn, research in product development (Adler et
reduces product development costs. al., 1995).

15
Banker and Bardhan, 2002

Table 9: Estimation Results for User The ability to collaborate effectively and
Satisfaction efficiently across inter-organizational
boundaries becomes critical as companies
Variable Parameter t-statistic p-value conduct a significant number of transactions
through collaborative entities such as e-
Intercept -0.014 -0.06 .953 Markets and other types of “internet
marketplaces.” CPC solutions provide the
∆(Collaboration) 0.482 ** 1.72 .095
transparency and visibility necessary for
companies to share vital supply chain
∆(Time-to- 0.002 0.01 .991
information with their partners, suppliers
Market)
and customers in an effective manner.
∆(Product 0.075 0.43 .668
Development
Figure 5: Impact of CPC on the Product
Cost)
0.364 * 2.30 .029
Development Lifecycle
∆(Product
Quality) User
R-square 0.28 Positive Cost Satisfactio
Cash Reduction
Increased Sustained user
Quality Profitability satisfaction

Time Rapid Time


8.0 Conclusions To Market
Improved
Product Quality

We have empirically studied the impact


Faster product
of investment in collaborative product Investment
in CPC
development cycle time
Time-to-Market: 10-20% Faster
commerce software on the product Product Development Cost: 10-
20% lower
development lifecycle, using data collected Quality: 10-25%% higher

from 35 CPC implementations at several


companies. We have evaluated the
relationships between collaboration using
The development of new information
CPC and performance of the product
technologies appears to be revolutionizing
development process, as measured by four
commerce generally and product
primary outcomes – product time-to-market,
development to a considerable degree
product quality, overall product
(Krishnan and Ulrich, 2001), and this is the
development cost, and user satisfaction.
first academic research in evaluating a new
The impact of collaboration on product
type of information technology, namely
quality was significantly enhanced in the
collaborative product commerce, and
presence of higher levels of process
studying its impact on the product
maturity. In other words, companies were
development lifecycle. Our results are
able to realize greater improvement in
consistent with prior IT research in the
product quality if they also undertook
software development area and operations
business process improvements prior to
management research in the product
implementation of CPC. Our results also
development literature (Adler et al., 1995).
indicate that design collaboration has a
Considering the importance of a globally
significantly positive impact on user
networked economy and the fact that
satisfaction, which is primarily driven by
companies are increasingly collaborating
reduction in product time-to-market and
with customers, suppliers and even with
quality. The overall impacts of
potential competitors, the importance of
collaboration on the product development
CPC cannot be overlooked as a technology
lifecycle are summarized in Figure 5.
16
Banker and Bardhan, 2002

that enables companies to collaborate the intra-organizational boundaries to


efficiently across the value chain (Welty and address question such as: What is the
Becerra-Fernandez, 2001). impact of collaboration on customers’ and
Companies who have implemented the suppliers’ performance? How does value
CPC solution from MatrixOne have realized chain collaboration impact the performance
the tangible and intangible benefits of of the “value network” or “value net” over
collaboration, as evidenced by significant time? These new research areas provide
improvement in the outcomes of the product interesting directions for extending our
development process. Our research was current research.
further supported by anecdotal quotes by
several companies, such as:
Director of PDM, Fortune 500
Industrial Products conglomerate
– “MatrixOne has reduced cycle time
to find the product data dramatically. It has
also forced us to improve the quality of our
data …”
– “MatrixOne has reduced product
design management time for some tasks by a
factor of 60. For example, processing a
change order used to take 60 days, now we
can do it in a day. On the low end of
reduction of cycle time (for other tasks), it
has reduced it by about 10 to one …”

Director, Engineering, Large OEM


Automotive supplier
– “MatrixOne’s e-Matrix platform for
integrating all the applications is truly Web-
enabled. They traditionally grew up through
PDM, but the Web-enabling aspects of PDM
is something that MatrixOne started long
before others did … MatrixOne helps to
bring greater visibility into the Product
Design Management process, almost a
design encyclopedia or knowledgebase to
the laptops of all those engineers …”

9.0 Future Research


This research opens the door for future
research to explore several new possibilities.
A new direction is to study the impact of
design collaboration on inter-organizational
learning and knowledge management and
study its impact on productivity
improvement. Another possibility includes
studying the impact of collaboration outside
17
Banker and Bardhan, 2002

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ACKNOWLEDGEMENTS

The authors gratefully acknowledge the research support provided by MatrixOne for this
research project and their help in facilitating the data collection from several companies. The
authors also acknowledge comments on an earlier version of this research from Lorin Hitt, Eric
Clemons, Thomas Davenport, and participants at the Workshop on Information Systems and
Economics (WISE) held in New Orleans in December 2001, as well as feedback received from Mark
O’Connell, John Donovan, Lori Webber, Frank Kang, and senior executives of MatrixOne, Inc.

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Banker and Bardhan, 2002

AUTHORS

Rajiv D. Banker is the Ashbel Smith Chair in Accounting and Information Management and the
Director of Accounting and Information Management Programs at the University of Texas at
Dallas. Prior to joining the University of Texas at Dallas he served as a Professor of
Management at Carnegie Mellon University and as the Arthur Andersen Chair in Accounting
and Information Systems at the University of Minnesota.
Dr. Banker is internationally recognized as a leader in interdisciplinary research in
management information systems and software engineering economics. He has received
numerous awards for his research. He has published more than 100 articles in prestigious
research journals including Management Science, MIS Quarterly, Information Systems Research,
Communications of ACM, IEEE Transactions in Software Engineering, Journal of MIS,
Information Technology and Management, Information Economics and Policy, Journal of
Organizational Computing, Operations Research, Accounting Review, Journal of Accounting
and Economics, Journal of Accounting Research, Academy of Management Journal, Strategic
Management Journal, and Econometrica. Dr. Banker has co-edited a book on Strategic
Information Technology Management. He is the Department Editor of the Information Systems
section for Management Science and a Senior Editor for Manufacturing and Service Operations
Management. He has also co-edited special issues on Economics of Operations Management
and on Software Technology Management. His research articles are cited frequently by other
researchers in a wide range of disciplines.
Dr. Banker is an expert in the analysis of complex and emerging strategic problems in the
information age. He specializes in information based competitive strategy, performance
measurement and incentive compensation, productivity and quality metrics, and management of
software development and maintenance. He is the originator of object points and reuse leverage
metrics for software cost estimation. His research has been supported by the National Science
Foundation, the Financial Executives Research Foundation, the Institute of Management
Accountants, and several leading corporations. He has consulted extensively with many
organizations and has been invited to lecture to executives and academics at leading institutions.

Indranil R. Bardhan is Assistant Professor of Accounting and Information Management in the


School of Management at the University of Texas at Dallas. He is also the Co-Director of the
Center for Practice and Research in Software Management (PRISM) at the University of Texas
at Dallas. Prior to joining UT-Dallas, he was a Principal in the Information Technology Strategy
practice of PricewaterhouseCoopers Consulting where he advised senior management of Fortune
500 companies in the area of information technology strategy.
Dr. Bardhan’s current research interests are in the areas of software economics and
management and information technology strategy. He is currently working on several research
projects in these areas, including evaluation of productivity gains from e-business technologies
and their effect on manufacturing performance, and evaluation of the impact of different types of
software development and maintenance practices on organizational performance. His research
interests also span other areas such as business process outsourcing and development of financial
models for prioritization of information technology projects.
He has several publications in leading journals including Operations Research, European
Journal of Operational Research, Annals of Operations Research, Journal of Productivity
Analysis, and has also published articles in two books on Operations Research.

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