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New Product Development: The Performance and Time-to-Market Tradeoff

Author

Listed:
  • Morris A. Cohen

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6366)

  • Jehoshua Eliasberg

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6366)

  • Teck-Hua Ho

    (Anderson Graduate School of Management, University of California at Los Angeles, Los Angeles, California 90024)

Abstract

Reduction of new product development cycle time and improvements in product performance have become strategic objectives for many technology-driven firms. These goals may conflict, however, and firms must explicitly consider the tradeoff between them. In this paper we introduce a multistage model of new product development process which captures this tradeoff explicitly. We show that if product improvements are additive (over stages), it is optimal to allocate maximal time to the most productive development stage. We then indicate how optimal time-to-market and its implied product performance targets vary with exogenous factors such as the size of the potential market, the presence of existing and new products, profit margins, the length of the window of opportunity, the firm's speed of product improvement, and competitor product performance. We show that some new product development metrics employed in practice, such as minimizing break-even time, can be sub-optimal if firms are striving to maximize profits. We also determine the minimal speed of product improvement required for profitably undertaking new product development, and discuss the implications of product replacement which can occur whenever firms introduce successive generations of new products. Finally, we show that an improvement in the speed of product development does not necessarily lead to an earlier time-to-market, but always leads to enhanced products.

Suggested Citation

  • Morris A. Cohen & Jehoshua Eliasberg & Teck-Hua Ho, 1996. "New Product Development: The Performance and Time-to-Market Tradeoff," Management Science, INFORMS, vol. 42(2), pages 173-186, February.
  • Handle: RePEc:inm:ormnsc:v:42:y:1996:i:2:p:173-186
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    File URL: http://dx.doi.org/10.1287/mnsc.42.2.173
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