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New product development flexibility in a competitive environment

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  • Kettunen, Janne
  • Grushka-Cockayne, Yael
  • Degraeve, Zeger
  • De Reyck, Bert

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.

Suggested Citation

  • Kettunen, Janne & Grushka-Cockayne, Yael & Degraeve, Zeger & De Reyck, Bert, 2015. "New product development flexibility in a competitive environment," European Journal of Operational Research, Elsevier, vol. 244(3), pages 892-904.
    • Handle: RePEc:eee:ejores:v:244:y:2015:i:3:p:892-904
    DOI: 10.1016/j.ejor.2015.02.016
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    2. Kirti Nayal & Shashank Kumar & Rakesh D. Raut & Maciel M. Queiroz & Pragati Priyadarshinee & Balkrishna E. Narkhede, 2022. "Supply chain firm performance in circular economy and digital era to achieve sustainable development goals," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 1058-1073, March.
    3. Bistline, John E. & Comello, Stephen D. & Sahoo, Anshuman, 2018. "Managerial flexibility in levelized cost measures: A framework for incorporating uncertainty in energy investment decisions," Energy, Elsevier, vol. 151(C), pages 211-225.
    4. Abdulkareem Awwad & Abdel Latef M. Anouze & Nelson Oly Ndubisi, 2022. "Green Customer and Supplier Integration for Competitive Advantage: The Mediation Effect of Sustainable Product Innovation," Sustainability, MDPI, vol. 14(16), pages 1-19, August.
    5. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
    6. Yilmaz, Omer Faruk & Ozcelik, Gokhan & Yeni, Fatma Betul, 2020. "Lean holistic fuzzy methodology employing cross-functional worker teams for new product development projects: A real case study from high-tech industry," European Journal of Operational Research, Elsevier, vol. 282(3), pages 989-1010.

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