Publication Type

Journal Article

Version

publishedVersion

Publication Date

8-2015

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.

Keywords

Project management, OR in research and development, Product development, Dynamic programming

Discipline

Business Administration, Management, and Operations | Programming Languages and Compilers

Research Areas

Operations Management

Publication

European Journal of Operational Research

Volume

244

Issue

3

First Page

892

Last Page

904

ISSN

0377-2217

Identifier

10.1016/j.ejor.2015.02.016

Publisher

Elsevier: 24 months

Embargo Period

8-29-2021

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