Many companies today are making new product development a central

Question

﻿Many companies today are making new product development a central element of their competitive strategy. Because the potential benefits of successful product innovation are great-prolonged growth, superior financial returns, and strong investor interest-many companies offer employees incentives such as promotions and bonuses for developing new products, incentives not offered for innovations in other areas of the business. Firms' priorities can also be shaped by their measurement systems since these systems can directly measure returns from new products more immediately than they can measure returns from Investments in such areas as organizational restructuring or Innovations in marketing.

But the organizational culture of such companies can hurt them in the marketplace because a narrow focus on product development can ultimately detract from a firm's performance. For instance, a company's ability to profit from new products can be severely hampered if it has neglected other functions and business processes. If a company develops a superior new product but is unable to distribute and promote it rapidly, competitors with better distribution systems may copy the product and introduce it into the market before the innovator can profit from its innovation. In contrast, effective distribution, marketing, and accounting systems-that is, strong overall business systems-can act as entry barriers, deterring would-be competitors from entering a particular market   1 
 1. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about organizational culture?

A. Organizational culture is the primary determinant of a company's competitive position in a given market.
B. Many companies' organizational cultures are such that employee contributions in certain areas that might enhance those companies' competitiveness are not rewarded.
C. The narrowness of many companies' organizational cultures is evident in those companies' failure to reward sufficiently those employees who help to develop successful new products.
D. A company's organizational culture is likely to undergo significant change if the company is able to develop a new product and market it successfully.
E. The nature of a company's organizational culture tends to be more evident in its distribution system than in its degree of commitment to new product development.

2 
﻿ 2. The primary purpose of the passage is to

A. explain the way in which a particular aspect of organizational culture affects employees' performance 
B. explain why new product development confers less advantage on companies today than it did in the past
C. argue that a particular strategy for enhancing a company's position against competitors may prove unsuccessful
D. argue that a company's organizational culture may be more important than its competitive strategy in ensuring financial success
E. suggest a way in which companies can increase their profits without developing new products

3 
 3. ﻿The passage suggests which of the following about companies' investment in the development of new products?

A. Heavy investment in the development of new products is a less risky business practice than most business leaders believe.
B. Companies might invest less heavily in the development of new products if company executives felt equally able to measure the results of investments in all areas of business innovation.
C. Companies are most likely to focus their investment on the development of new products if they perceive competitors to lack strong overall business systems.
D. While investment in the development of new products can bring greater returns to companies than can investment in other areas of a business, the benefits are usually short-lived.
E. It is generally more expensive for companies to invest in the development of new products than to invest in such things as organizational restructuring or the development of new marketing practices.

MartyMurray · Accepted Answer

Explanation for Question 1

1. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about organizational culture?

A. Organizational culture is the primary determinant of a company's competitive position in a given market.

We can see that the author feels that organizational culture is a determinant of a company's competitive position in that the author says, "the organizational culture of such companies can hurt them in the marketplace," and says, "effective distribution, marketing, and accounting systems ... can act as entry barriers, deterring would-be competitors from entering a particular market."

However, this choice has a failure point in that the author does not indicate that organizational culture is "the primary (most important) determinant" of a company's competitive position in a given market.

After all the fact that the organizational culture of a company "can hurt" it in the marketplace or support the existence of "entry barriers" doesn't mean that organizational culture is "the primary determinant" of a company's competitive position.

Eliminate.

B. Many companies' organizational cultures are such that employee contributions in certain areas that might enhance those companies' competitiveness are not rewarded.

The author says that "many companies  offer employees incentives  such as promotions and bonuses for developing new products, incentives  not offered  for innovations in other areas of the business." Companies' offering incentives can be considered ways in which employee contributions are "rewarded."

Then, the author indicates that strength in areas of businesses other than new product development, such as "distribution, marketing, and accounting systems," can enhance companies' competitiveness.

We see that, if the author is saying that incentives, i.e. rewards, are not offered in areas of the business other than new product development and that strength in areas of businesses other than new product development can enhance competitiveness, then the author would likely agree that "Many companies' organizational cultures are such that employee contributions in certain areas that might enhance those companies' competitiveness are not rewarded."

Keep.

C. The narrowness of many companies' organizational cultures is evident in those companies' failure to reward sufficiently those employees who help to develop successful new products.

This choice is basically the opposite of what the author discusses in the passage.

The author discusses companies that "offer employees incentives such as promotions and bonuses for developing new products, incentives not offered for innovations in other areas of the business" and describes these companies a having "a narrow focus on product development."

So, the author seems to believe that companies that do, rather than fail to, reward "employees who help to develop new products" have narrow company cultures

Meanwhile, the author never indicates that companies that do not "reward sufficiently those employees who help to develop successful new products" have narrow company cultures.

Eliminate.

D. A company's organizational culture is likely to undergo significant change if the company is able to develop a new product and market it successfully.

The author indicates that a company's organizational culture can be affected by "the potential benefits of successful product innovation" and by "measurement systems" but not by the actual development and successful marketing of a new product.

Eliminate.

E. The nature of a company's organizational culture tends to be more evident in its distribution system than in its degree of commitment to new product development.

In discussing companies that "are making new product development a central element of their competitive strategy," the author talks as if focus on "new product development" is a defining aspect of these companies' cultures, and the author does not indicate in any way that a company's "distribution system" indicates more about the company's culture than "the company's degree of commitment to new product development."

So, we have no reason to believe that the author would be likely to agree with this choice.

Eliminate.

The correct answer is (B).

Explanation for Question 2

﻿ 2. The primary purpose of the passage is to

A. explain the way in which a particular aspect of organizational culture affects employees' performance

This choice is tricky since the passage does mention "incentives" offered to employees, which would likely "affect employees' performance."

However, if we carefully review what the passage says, rather than going with vibe or a vague impression of what the passage says, we see that, in actuality, the passage never once mentions how anything affects employees' performance.

Eliminate.

B. explain why new product development confers less advantage on companies today than it did in the past

The passage never compares how much advantage new product development confers today with how much it did in the past and never says anything about today versus the past.

Eliminate.

C. argue that a particular strategy for enhancing a company's position against competitors may prove unsuccessful

To me, this choice is not a perfect answer because the passage does not really directly argue that companies' "making new product development a central element of their competitive strategy" may prove unsuccessful. Rather, the passage discusses reasons why that strategy may not be ideal without ever stating the conclusion that it "may prove unsuccessful."

At the same time, what the passage says does support the conclusion that focusing on new product development "may prove unsuccessful." So, the passage can be considered effectively an argument that the strategy of focusing on new product development may prove unsuccessful.

Keep.

D. argue that a company's organizational culture may be more important than its competitive strategy in ensuring financial success

Rather than compare the importance of a company's organizational culture with that of its competitive strategy, the passage indicates that a company's organizational culture results in it's competitive strategy. So, basically, the passage indicates that the two are interwoven rather than indicates that one is more important than the other in ensuring financial success.

Eliminate.

E. suggest a way in which companies can increase their profits without developing new products

The passage does mention some ways in which companies can enhance competitiveness other than by developing new products. However, mentioning those ways is not the primary purpose of the passage. Rather, those ways are mentioned in the context of a broader discussion of the effects of focusing narrowly on product development.

Also, the author never says that the mentioned ways of enhancing competitiveness can use used by companies to "increase their profits without developing new products." Rather, the author discusses using those way in contexts that could involve developing, or copying, new products, saying that "competitors with better distribution systems may copy the product and introduce it into the market before the innovator can profit from its innovation" and that "strong overall business systems ... can act as entry barriers, deterring would-be competitors from entering a particular market," which market the company could have entered by developing a new product.

So, this choice both is too narrow to capture the primary purpose and does not match what the passage does.

Eliminate.

The correct answer is (C).

Explanation for Question 3

3. ﻿The passage suggests which of the following about companies' investment in the development of new products?

A. Heavy investment in the development of new products is a less risky business practice than most business leaders believe.

If anything, this choice conflicts with what the passage says. After all, the passage indicates that "a narrow focus on product development can ultimately detract from a firm's performance," which could be taken as indicating that "heavy investment in the development of new products" may be more risky than the leaders who engage in it believe.

Eliminate.

B. Companies might invest less heavily in the development of new products if company executives felt equally able to measure the results of investments in all areas of business innovation.

In the first paragraph, the passage says the following in the context of discussing the fact that "﻿Many companies today are making new product development a central element of their competitive strategy.":

Firms' priorities can also be shaped by their measurement systems since these systems can directly measure returns from new products more immediately than they can measure returns from investments in such areas as organizational restructuring or innovations in marketing.

We see that the passage is suggesting that one reason why companies "are making new product development a central element of their competitive strategy" is simply that they can measure the effects of new product development more immediately than they can measure the effects of investments in other areas.

So, in effect, the passage is also suggesting what this choice says. After all, if companies focus on product development because they can measure its effects better than they can the effects of other investments, then it follows that they "might invest less heavily in the development of new products if company executives felt equally able to measure the results of investments in all areas of business innovation."

Keep

C. Companies are most likely to focus their investment on the development of new products if they perceive competitors to lack strong overall business systems.

The passage never suggests this. In fact, it suggest that companies may focus their investment on the development of new products even though competitors have strong overall business systems, mentioning this type of situation: "If a company develops a superior new product but is unable to distribute and promote it rapidly, competitors with better distribution systems may copy the product and introduce it into the market before the innovator can profit from its innovation."

Eliminate.

D. While investment in the development of new products can bring greater returns to companies than can investment in other areas of a business, the benefits are usually short-lived.

This choice may have the vibe of being correct, but it's not supported by the passage. In fact it has multiple failure points.

For one thing, the passage never says that "development of new products can bring  greater  returns to companies than can investment in other areas of a business." If we look carefully, we see that it says that the "potential benefits" of development of new products include "superior financial returns," but the passage does not say that other investments cannot also lead to "superior financial returns," which are returns greater than those achieved by other companies rather than greater than those achieved by investing in other ways.

Also, one of the "potential benefits" of investment in development of new products the passage mentions is "prolonged growth." So, we see that the passage does not say that the benefits are "usually short-lived." Rather, for all we know from what the passage says, they are often "prolonged."

Eliminate.

E. It is generally more expensive for companies to invest in the development of new products than to invest in such things as organizational restructuring or the development of new marketing practices.

The passage never compares how expensive it is for companies to invest in the development of new products with how expensive it is to invest in such things as organizational restructuring or the development of new marketing practices. In fact, the passage never mentions how expensive any investments are. It focuses on the effects of the investments.

Eliminate.

The correct answer is (B).

AbhinavKumar · Answer

Two important terms that jumped at me while reading the passage are:
Competitive Strategy - Things companies do pertaining to great-prolonged growth, superior financial returns, and strong investor interest
Organizational culture - Other functions and business processes i.e. distribution, marketing etc...

I am going to devote this post to the first question of the above passage.
1. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about organizational culture?

A. Organizational culture is the primary determinant of a company's competitive position in a given market.
B. Many companies' organizational cultures are such that employee contributions in certain areas that might enhance those companies' competitiveness are not rewarded.
C. The narrowness of many companies' organizational cultures is evident in those companies' failure to reward sufficiently those employees who help to develop successful new products.
D. A company's organizational culture is likely to undergo significant change if the company is able to develop a new product and market it successfully.
E. The nature of a company's organizational culture tends to be more evident in its distribution system than in its degree of commitment to new product development.

I agree with the explanations provided by MartyMurray regarding explanations to eliminate options A, D, and C, but, for the sake of clearing my own doubts in options B and E, here is what I think of them.

B. Many companies' organizational cultures are such that employee contributions in certain areas that might enhance those companies' competitiveness are not rewarded.
This is a tough choice IMO. This is so because we are forced to connect many dots in the passage to reach this particular inference. The passage mentions "many companies offer employees incentives such as promotions and bonuses for developing new products" ALSO, we are later told in the last paragraph that Organizational culture may be a factor deterring would-be competitors from entering a particular market. So there it is - if companies reward employees for new product development but organizational cultural challenges prevent the companies from earning the financial stand they desire, that may have a domino effect on the employees whose contributions in certain areas that might enhance those companies will go in vain.

I hope this makes sense and sums up what option B is trying to say. I'll keep it

E. The nature of a company's organizational culture tends to be more evident in its distribution system than in its degree of commitment to new product development.
Here is where the problem starts. Remember I mentioned some definitions at the top of the post; Definitions that I extracted from the passage itself.
The second paragraph begins with - "But the organizational culture of such companies can hurt them in the marketplace because a narrow focus on product development can ultimately detract from a firm's performance." This solidifies the understanding that New product development is great! we want that. BUT the deterministic factor of a company's success is NOT ONLY the gains from the new product it launches, but the nature of Organizational culture - Other functions and business processes i.e. distribution, marketing etc. - too
So can we say that "The nature of a company's organizational culture tends to be more evident in its distribution system than in its degree of commitment to new product development", IMO yes we can. I'll keep it too!

So now we have 2 potentially correct choices. The problem arises due to the fact that there exists maybe a hairline of a difference in the logic of these choices, and to put it bluntly, both statements are true in my opinion. These options seem convoluted as well as many new questions/choices of the new GMAT focus edition. (not only RC but CR too!)

I see many recent posts tagged with Source: GMAT Prep (Focus) but these questions are either attempted by very few people or there exists only one expert explanation in the discussion, with no further trailing questions or doubts following up on that explanation

As a matter of fact, I got all the 3 questions "WRONG" for this particular passage at hand

But I chose to go with discussing 1st question to put my thoughts forward on how I viewed the passage and its questions... I welcome more experts to correct me where I went wrong while reading the passage which landed me believing both B and E options are correct !!

MartyMurray GMATNinja KarishmaB Your guidance will be most appreciated

As a matter of fact, I got all the 3 questions "WRONG" for this particular passage at hand

But I chose to go with discussing 1st question to put my thoughts forward on how I viewed the passage and its questions... I welcome more experts to correct me where I went wrong while reading the passage which landed me believing both B and E options are correct !! MartyMurray GMATNinja KarishmaB Your guidance will be most appreciated

KarishmaB · Answer

What I glean from the passage about the term 'organizational culture' is 'what does the company focus on more and on what does it focus less.'

One culture - focus on innovation, less on marketing
Another culture - focus on marketing, less on innovation
etc.

"But the organizational culture of such companies can hurt them in the marketplace because a narrow focus on product development can ultimately detract from a firm's performance."

'Organizational culture' will include everything. Does the company focus on product development? On marketing? On sales channels? On sound accounting policies? etc. The culture includes every aspect of the company.

Question 1.

Look at the question now:

1. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about organizational culture?

It's what I like to call an extrapolatory kind of question. I will need to go a step ahead to get to the answer. It will not be available directly from the passage.

(E) The nature of a company's organizational culture tends to be more evident in its distribution system than in its degree of commitment to new product development

I know that 'organizational culture' is showcased in everything - in the effectiveness of its distribution system as well s in its 'commitment to new product development'
I cannot find anything that makes me believe that the author thinks that 'the effectiveness of its distribution system' makes the culture more evident. To find a company's culture, I will need to find out about everything.

(B) Many companies' organizational cultures are such that employee contributions in certain areas that might enhance those companies' competitiveness are not rewarded.

From the passage:
Many companies today are making new product development a central element of their competitive strategy...
... many companies offer employees incentives such as promotions and bonuses for developing new products, incentives not offered for innovations in other areas of the business....
... But the organizational culture of such companies can hurt them in the marketplace because a narrow focus on product development can ultimately detract from a firm's performance.... 
...  competitors  with better systems (who do not have this narrow focus) will copy and distribute ...

These highlighted competitors are the 'many companies' that the option (B) is talking about. The author is hence likely to agree with option (B).

Answer (B)

thelastskybender · Answer

P1: Most companies today-> focus new prod. develop.  
P2: Cons:1) narrow focus( other areas may lack)
 soln: overall biz system

1. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about organizational culture?

A. Organizational culture is the primary determinant of a company's competitive position in a given market.   
B. Many companies' organizational cultures are such that employee contributions in certain areas that might enhance those companies' competitiveness are not rewarded.    
C. The narrowness of many companies' organizational cultures is evident in those companies' failure to reward sufficiently those employees who help to develop successful new products.    
D. A company's organizational culture is likely to undergo significant change if the company is able to develop a new product and market it successfully.   
E. The nature of a company's organizational culture tends to be more evident in its distribution system than in its degree of commitment to new product development.

EthanTheTutor · Answer

Hi Marty. I'm having a very hard time convincing myself that C is better than D (and I'd like to, because I'm working on getting my 800). Without knowing the correct answer was C, would you have picked it over D?

This doesn't directly support D, in that it doesn't suggest that organizational culture is  more  important than competitive strategy, but the support for C is at best no more direct than this.

Similar to the previous quote.

Similar to above.

On its own, D would not be my first pick as at no point is it explicit that organizational culture is  more  important than competitive strategy... but the answer choice says  may be  more important, and the passage provides a reasonable basis from which to argue that this may be the case.

Similarly, as you point out, the passage never explicitly states that focusing on new product development may be an unsuccessful strategy. It gives examples of why that might be the case. The passage also gives examples of why the negative impact of problems with organizational culture might outweigh the positive effects of innovation, if a company can't take advantage of the opportunities that innovation provides.

The superiority of C over D feels very subtle and unconvincing.

npepitone · Answer

I'm confused about Q3, choice c. Per Marty Murray:
---
 
---
If a company believes that they have a superior new product and their competitors are perceived to lack strong overall business systems, wouldn't that company then have an advantage in that they would be able to distribute and promote it more rapidly than their competitors? I don't see why this choice would be eliminated.

EthanTheTutor · Answer

The question isn't, "what is true?" The question is, "what did the passage say?"

SergejK · Answer

KarishmaB : In Question 3, all the other choices are clearly incorrect. Even if choice D sounds plausible, it provides a comparison between investment alternatives that we cannot infer from the passage. However, choice B talks about that investments in products would decrease which is also nowhere stated. This choice assumes finite resources. But we cannot infer that the company would invest in one alternative INSTEAD of the other. I feel like it uses an additional assumption to arrive at this inference.  It implies that companies would otherwise invest in other areas, if they could be measured. Nowhere does it state that to achieve that, they would reduce investments in product development. It's like making a car faster by investing in a strong motor but divesting in tires.  What am I missing?

KarishmaB · Answer

Question 3.

3. ﻿The passage suggests which of the following about companies' investment in the development of new products?

It is an infer question. The passage doesn't mention it but suggests it.

A. Heavy investment in the development of new products is a less risky business practice than most business leaders believe. 
 
 Risk is not discussed. Besides, the entire passage focusses on why heavy investment in the development of new products may not be a good idea. Hence incorrect option.

B. Companies might invest less heavily in the development of new products if company executives felt equally able to measure the results of investments in all areas of business innovation.

Given in the passage: 
 Firms' priorities can also be shaped by their measurement systems since these systems can directly measure returns from new products more immediately than they can measure returns from Investments in such areas as organizational restructuring or Innovations in marketing.

"Firms priorities" means they are prioritising one area over another (so resources are limited, which is also realistic). Because returns from development of new products can be directly measured, more money is invested in development of new products. So it stands to reason that companies might invest less heavily in the development of new products if company executives felt equally able to measure the results of investments in all areas of business innovation.

C. Companies are most likely to focus their investment on the development of new products if they perceive competitors to lack strong overall business systems.

When are companies "most" likely to focus their investment on new products, we cannot say. 
The passage does seem to suggest that if competitors lack strong overall business systems, the company is likely to be able to derive benefit from its new product, but what prompts a company to invest in new products is not the lack of competitor's systems. It is the ability to measure returns that prompts companies to invest more, as far as the passage goes.

D. While investment in the development of new products can bring greater returns to companies than can investment in other areas of a business, the benefits are usually short-lived.

We are given: Because the potential benefits of successful product innovation are    great-prolonged growth   , superior financial returns, and strong investor interest...

Hence, option (D) is incorrect.

E. It is generally more expensive for companies to invest in the development of new products than to invest in such things as organizational restructuring or the development of new marketing practices.

No discussion on what is more expensive. The point is that companies choose to invest more in product development. Whether benefit per dollar invested is more in the development of new products or in  development of new marketing practices, we are not given. In fact, the trouble is that we cannot calculate the benefit per dollar invested in   development of new marketing practices. Hence what is more expensive is not known.

Answer (B)

SergejK · Answer

But just because something is realistic, doesn't mean we can infer it. Otherwise we could use realistic assumptions all the time to arrive at inferences, which we are not allowed to. In inference questions we can only use the provided information without additional assumptions, different than in evaluation or conclusion questions. That is why I was a bit reluctant to decide for B.

You are right, the passage states that firm's priorities are reliant on their success measuring ability and this could be understood as if a better measurement could shift the investment focus. But shifting investment focus could mean that more money could be spend on other aspects and that the relative investments could change, not the absolute figures. For all we know, the investments in product development could be the minimum needed investment and reducing this amount could lead to an inability to compete. However, all those are assumptions, equally that no more money could be spend on investments and that it is a zero-sum game. I feel that a clearly presented information shouldn't be debatable. For me, priority could be also a relative term not just an absolute, even if your understanding is more plausible.

Blackcrow1972 · Answer

The passage doesn’t compare organizational culture to competitive strategy as more important in ensuring success. It discusses how a focus on product development (which is part of the strategy) might lead to problems if other areas are neglected, but it doesn't suggest that organizational culture is more important than the competitive strategy.

Blackcrow1972 · Answer

Q2
Option C argues that a particular strategy for enhancing a company's position against competitors may prove unsuccessful.
This fits the passage quite well. The passage argues that a company’s narrow focus on product development may prove unsuccessful if it neglects other important business systems (e.g., distribution, marketing). A company might develop an excellent product, but without strong systems in place, competitors may succeed in capturing the market.
This seems to capture the main argument of the passage. C is a good contender.

OR

The passage highlights that while many companies emphasize new product development as a central competitive strategy due to its potential benefits, this narrow focus can hurt overall company performance if other business functions (like distribution and marketing) are neglected. The author argues that an overemphasis on product innovation, without considering broader business systems, can lead to competitive disadvantages. Thus, the passage critiques a specific strategy (product development focus) and discusses why it may not always lead to success.

Option  D  ("argue that a company's organizational culture may be more important than its competitive strategy in ensuring financial success") is incorrect because the passage does not focus on comparing  organizational culture  with  competitive strategy .
While the passage mentions that companies offer incentives to employees for product innovation (a potential aspect of organizational culture), the primary argument is about the  risks of focusing too narrowly on new product development  without supporting business functions like distribution, marketing, or accounting. The discussion centers on  business priorities and competitive strategies , not on the relative importance of organizational culture versus strategy.

GMAT1034 · Answer

could someone clarify question 1 please? why is D eliminated? Doesnt the passage indicate that if marketing and product development both are focused upon, it would be a better deal. Thanks.

suman94 · Answer

Question 3

I rejected B because it alters the form of the conditional argument.

The passage suggests that "the companies are investing heavily in product development"(A) because "they cannot immediately measure the returns from investment in organizational culture."(B), which translates to if B, then A.

The answer choice says,  If not B (the companies can equally measure the returns),  then not A (they invest less heavily).

Where am I going wrong?

Sajjad1994 · Answer

Question #3  is discussed  here  and  here  in detail.

Thank you!

Many companies today are making new product development a central

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GMAT Reading Comprehension (RC) Questions

Many companies today are making new product development a central

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