New Product Design Strategy Analysis: A Modeling Framework

Abstract

The development of new products inevitably leads to tradeoffs among product performance, time to market, and development costs. In addition, the unit cost of the product, which is determined by the product performance, is also affected by the design process. In this paper, we present a model framework that examines the interaction of these factors. We derive several managerial insights that have important implications for new product strategy planning. The model framework is applied to evaluate five industry practices: 1) the traditional approach (iterative), 2) the target costing approach, 3) the target performance approach, 4) the target timing approach, and 5) an approach based on minimizing break-even time. Each practice is a restricted case of an optimal procedure which considers all factors simultaneously. Our model framework allows us to benchmark each practice against the optimal procedure with respect to the size of the development team, time to market, new product performance level target, and unit cost of the product.

This research is partially supported by a grant from the Center for Manufacturing and Logistics Research, The Wharton School, University of Pennsylvania and NSF Grant #522571.