Managing Technology Selection and Development Risk in Competitive Environments
Article first published online: 24 SEP 2010
© 2010 Production and Operations Management Society
Production and Operations Management
Volume 20, Issue 4, pages 541–555, July/August 2011
How to Cite
Bhaskaran, S. R. and Ramachandran, K. (2011), Managing Technology Selection and Development Risk in Competitive Environments. Production and Operations Management, 20: 541–555. doi: 10.1111/j.1937-5956.2010.01165.x
- Issue published online: 7 JUL 2011
- Article first published online: 24 SEP 2010
- History: Received: October 2008; Accepted: February 2010 by Christian Terwiesch, after 3 revisions.
- development uncertainty;
- innovative capacity;
- introduction timing
Managing development decisions for new products based on dynamically evolving technologies is a complex task, especially in highly competitive industries. Product managers often have to choose between introducing an incrementally better, safe new product early and a superior, yet highly risky, product later. Recommendations for managing such performance vs. time-to-market trade-offs often ignore competitive reactions to development decisions. In this paper, we study how a firm could incorporate the presence of a strategic competitor in making technology selection and investment decisions regarding new products. We consider a model in which an innovating firm and its rival can introduce a new product immediately or pursue a more advanced product for later launch. Further, the firm can reduce the uncertainty surrounding product development by dedicating more resources; the effectiveness of this investment depends on the firm's innovative capacity. Our model generates two sets of insights. First, in highly competitive industries, firms can adopt different technologies and effectively use introduction timing to mitigate the effects of price competition. More importantly, the firm could strategically invest in the advanced product to influence its rival's technology choice. We characterize equilibrium development and investment decisions of the firms, and derive innovative capacity hurdles that govern a firm's choice between the risky and safe alternatives. The effects of development flexibility—where firms might have the option to revert to the safe product if the advanced product fails—are also considered.