New-Product Strategy and Industry Clockspeed

Gilvan C. Souza (), Barry L. Bayus () and Harvey M. Wagner ()
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Gilvan C. Souza: The Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742-1815
Barry L. Bayus: Kenan-Flagler Business School, The University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599
Harvey M. Wagner: Kenan-Flagler Business School, The University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599

Management Science, 2004, vol. 50, issue 4, 537-549

Abstract: We study how industry clockspeed, internal firm factors, such as product development, production, and inventory costs, and competitive factors determine a firm's optimal new-product introduction timing and product-quality decisions. We explicitly model market demand uncertainty, a firm's internal cost structure, and competition, using an infinite-horizon Markov decision process. Based on a large-scale numerical analysis, we find that more frequent new-product introductions are optimal under faster clockspeed conditions. In addition, we find that a firm's optimal product-quality decision is governed by a firm's relative costs of introducing new products with incremental versus more substantial improvements. We show that a time-pacing product introduction strategy results in a production policy with a simple base-stock form and performs well relative to the optimal policy. Our results thus provide analytical support for the managerial belief that industry clockspeed and time to market are closely related.

Keywords: speed to market; time pacing; Markov decision processes (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:50:y:2004:i:4:p:537-549

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