The economics of gaining competitive advantage through development speed

Abstract

It is pointed out that rapid product development cycles can produce dramatically superior long-term profits. However, management needs quantitative measures of this improvement, because specific resource allocation decisions rest on exactly how much it is worth to shorten product development cycles. Economic modeling can identify three major factors that cause specific product market segments to be sensitive to development speed. These are rapid rates of improvement in the price/performance of underlying technology, high switching costs for early adopters of the product, and the absence of pronounced manufacturing learning curves. Once management understand the value of development speed it can use this information to help shorten development cycles. Since the techniques used have negative consequences it is important to have appropriate tools to weigh the benefits and costs.<>