Journal Articles

New-Product Strategy and Industry Clockspeed

2004, Management Science

Gilvan C. Souza, Barry L. Bayus, Harvey M. Wagner

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.

Citation

Souza, Gilvan C., Barry L. Bayus, and Harvey M. Wagner (2004), "New-Product Strategy and Industry Clockspeed," Management Science, Vol. 50, No. 4, April, pp. 537-549.