In:
Manufacturing & Service Operations Management, Institute for Operations Research and the Management Sciences (INFORMS), Vol. 23, No. 6 ( 2021-11), p. 1505-1523
Abstract:
Problem definition: Firms developing novel and innovative products regularly face a canonical product development and introduction problem: introduce a proven and immediately available product or delay product introduction until the successful development of an advanced version. Academic/practical relevance: Limited access to resources for the development of an advanced version adds another wrinkle to this problem, particularly for cash-constrained start-ups. For such start-ups, the introduction of an on-hand product can generate additional funds to support the development of an advanced product. However, the lower performance of the on-hand product can negatively impact the perception of the firm’s future products and lower future profitability. Methodology: We study the trade-off between revenues that an on-hand product generates for research and development funding and the negative effect it has on future profits. We characterize the optimal introduction timing of the on-hand product as a function of the financial resource constraints, the interdependence between these sequential products and the cost of development. Results: We identify important differences between the optimal product introduction strategies of a start-up and an established firm. Specifically, although it is always optimal for an established firm to accelerate the launch of a better-quality on-hand product, a start-up might find it optimal to delay its launch. The impact of technological failure and different forms of learning on the optimal strategy of the start-up are also explored. We translate our analytical findings into a managerial framework and illustrate these results using examples from the pharmaceutical and medical devices industries.
Type of Medium:
Online Resource
ISSN:
1523-4614
,
1526-5498
DOI:
10.1287/msom.2020.0895
Language:
English
Publisher:
Institute for Operations Research and the Management Sciences (INFORMS)
Publication Date:
2021
detail.hit.zdb_id:
2023273-1
SSG:
3,2
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