New product development flexibility in a competitive environment

Abstract

Managerial flexibility can have a significant impact on the value of new product development projects. We investigate how the market environment in which a firm operates influences the value and use of development flexibility. We characterize the market environment according to two dimensions, namely (i) its intensity, and (ii) its degree of innovation. We show that these two market characteristics can have a different effect on the value of flexibility. In particular, we show that more intense or innovative environments may increase or decrease the value of flexibility. For instance, we demonstrate that the option to defer a product launch is typically most valuable when there is little competition. We find, however, that under certain conditions defer options may be highly valuable in more competitive environments. We also consider the value associated with the flexibility to switch development strategies, from a focus on incremental innovations to more risky groundbreaking products. We find that such a switching option is most valuable when the market is characterized by incremental innovations and by relatively intense competition. Our insights can help firms understand how managerial flexibility should be explored, and how it might depend on the nature of the environment in which they operate.Keywords: project management; OR in research and development; product development; dynamic programming 1 2

Customer relationship management and new product development in designing a robust supply chain

“…Moreover, Kettunen et al [23] presented a model for considering the conditions organizations face while developing new products. They investigated the right time of introducing products to the market and showed the positive and negative aspects of delaying or accelerating product introduction.…”

NPD project portfolio selection using reinvestment strategy in competitive environment

“…ain focus of analysis Key Tools (Gerchak & Parlar, 1999) The competitive situation between two firms for resource allocation on limited R&D projects Game theory (Souza, 2004) The competition between two firms for introducing new products to market Game theory (Chao & Kavadias, 2008) Balance between incremental and radical innovations for developing right new products in portfolio Strategic Bucket (Golany & Rothblum, 2008) Investments in development projects within competitive environments under uncertainty Linear Programming (Solak et al, 2010) (Wei & Chang, 2011) Uncertainty and impact of several criteria on decision making for selecting new products Fuzzy Linear Programming (Canbolat et al, 2012) A race among multiple firms that compete over the development of a product Game theory (Belenky, 2012) Reinvesting during time horizon in project portfolio selection Boolean Programming (Wang & Yang, 2012) Managerial flexibility in an innovative R&D project Real Options (Lin & Zhou, 2013) The Cross-market effect on R&D project portfolio Game theory (Hassanzadeh et al, 2014) Imprecise information in objective of R&D project selection Robust Optimization (Jafarzadeh et al, 2015) Flexible time horizon considering reinvestment in project selection Integer Programming (Kettunen et al, 2015) Managerial flexibility for developing new product in competitive environment Dynamic Programming (Wang & Song, 2016) Time-dependent budget on reinvestment strategy Integer Programming…”

“…According to Kettunen et al (2015) two market characteristics namely (i) competitive intensity of the market environment, and (ii) the market's degree of innovation demonstrates market's condition. To understand these concepts and adopt them in our model, let; …”

“…Also, any NPD project is susceptible to uncertainty regarding the success of its development. This uncertainty relates to the commercial success of the resulting product, which is influenced by market conditions (Kettunen et al, 2015). There is a high risk of R&D based innovation being commercialized, especially in the innovation transfer process which is a concern to many entrepreneurs and researchers (Karaveg et al, 2015).…”

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“…NPD is not only the first step to achieve customer satisfaction but also increase competitiveness (Schilke, 2014;Kettunen et al, 2015 (Singer et al, 2014;Lawson et al, 2015).…”