Framework of overlapping product development activities to maximize profit

Abstract

Managing the overlapping of product development activities effectively is paramount to shortening lead-time; and hence, it is an important issue in new product development and has been widely studied. To the best of our knowledge, the literature has not yet addressed the topic of maximizing the product-development outcome by overlapping. In this article, a dynamic optimal control model is developed to maximize total profit of the product-development project. The closed form solutions are found, from which managerial insights are derived. Using two parameters, namely, evolution speed (slow and fast) and sensitivity (high and low), we create and examine four environments in our study – slow and high (SH), fast and high (FH), slow and low (SL), and fast and low (FL). Findings are obtained and organized into a framework to help with the management of product-development activities. We find that in most difficult environment, SH, the firm should invest in downstream activities lightly; while in the easiest environment, FL, the firm should invest heavily in downstream activities. In environment FH, the firm should postpone the investment in downstream activities to a later stage, start at a lower level, and increase efforts later at a faster pace. On the other hand, in environment SL, the firm should invest earlier, start at a higher level, and increase efforts at a slower pace. Finally, we develop the conditions and scenarios under which the final results and profits will be higher.