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New product development flexibility in a competitive environment

Kettunen, J; Grushka-Cockayne, Y; Degraeve, Z; De Reyck, B; (2015) New product development flexibility in a competitive environment. European Journal of Operational Research , 244 (3) 892 - 904. 10.1016/j.ejor.2015.02.016. Green open access

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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 ground-breaking 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.

Type: Article
Title: New product development flexibility in a competitive environment
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.ejor.2015.02.016
Publisher version: http://dx.doi.org/10.1016/j.ejor.2015.02.016
Language: English
Additional information: © Elsevier 2015. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/. Access may be initially be restricted by the publisher.
Keywords: Project management; OR in research and development; Product development; Dynamic programming
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/1466597
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