Product delays take a bite out of the bottom line.

Companies that have stumbled in introducing new products have suffered financially with decreased profitability, reduced revenues and increased costs, according to research conducted by Vinod Singhal, professor of operations management at the Georgia Institute of Technology. The impact on companies of delayed product introduction can be substantial.

"Although many have stressed the importance of shorter time to market, much of the evidence that is offered is in the form of anecdotes and/or case studies," says Singhal in a research paper on the issue. "People tend to look at anecdotes and then forget about them, thinking, 'It's only an anecdote.' But now we have a very systematic and scientifically rigorous study" that links product delays to financial trouble.

Numerous studies have found that product delays have an immediate impact on stock prices, with some finding a decrease in shareholder value ranging from 5.2 percent to 11.4 percent over the first two days from the time of the announcement. This is a large reaction when compared to other corporate events. But the loss of shareholder value is justified when considering what happens to a company's financial performance over the longer term. Stock price declines associated with product delays "are consistent with deterioration in operating performance," says Singhal.

Singhal analyzed 479 product delay announcements that appeared in the Wall Street Journal and the Dow Jones New Service from 1987 to 2003. He looked at the financial numbers of these companies 18 months prior to the delay announcement and 18 months after the announcement.

Over that three-year span, the firms announcing product delays "experienced negative abnormal performance in return on assets, return on sales and sales over assets," writes Singhal. Nearly 59 percent of the firms experienced negative changes in return on assets. The median change in sales over assets was negative 11 percent with nearly 64 percent of the firms experiencing negative changes in sales over assets.

"The evidence also indicates that over this period, total costs over sales increased," according to Singhal. "The median (mean) change in return on sales is negative 16.65 percent with nearly 57 percent of the sample firms experiencing a decline in their return on sales. Overall, these results provide very strong evidence that delays in product introduction negatively affect operating performance. Our evidence provides support for the conjectures and claims made by many academics and practitioners about the value of time-based competition and the call for timely introduction of new products."

The lesson learned from this research: senior executives in companies need to identify the major products that drive profitability and keep very close tabs on their development. "Part of the reason they don't pay attention to this is they don't know what the consequences are," says Singhal. "When bad things happen, people try to wish it away, but here are the hard facts--here is the financial impact that you will see."

CFOs and CEOs of companies need to be constantly asking their operations people about the progress of their products. "Once you get their attention, you see products come out in time because people are aware of the consequences," says Singhal. "One of the things I want to achieve is a wakeup call. Executives have to be involved in this stuff. The same thing happened with supply chain. Supply chain disruptions make a major impact and it's only recently that CFOs have woken up and said, 'We have to be aware of that.' "

For a copy of the study, "The Effect of Product Introduction Delays on Operating Performance," contact Vinod at [e-mail] or by calling him at 404-894-4908.