Managing New Product Development Projects in a Competitive Market

Thesis (Ph.D.)--University of Washington, 2013New product development projects play a major role in the modern economy, especially for firms that compete in the most innovative industries. The speed-to-market for new products in these industries is often regarded as a key source of competitive advantage since the first entry has the opportunity to build barriers to deter new entries and/or enjoy monopoly status for a period of time. Shortening the development time to market, however, typically requires higher development costs that may offset, or even outweigh, any anticipated first-mover advantages. The objective of this dissertation is to study the implications of speed-to-market in the context of project management when the project return depends in large part on the time of product introduction to the market relative to that of the competitor. Specifically, we analyze the decision process of a risk neutral firm that wants to maximize the expected profit of a new product development project in a market with potential rivals and a product that can only be marginally differentiated. In the model, expected profit is determined by the timing of the product's entry into the market as well as the firm's management of allocated resources. We formulate a continuous time-cost trade-off project management model under competition. Our model assumes that the market entry time of the competitor is a random variable following a general distribution. We consider both deterministic and stochastic activity durations, both static and dynamic project scheduling policies, and consider two types of payment schemes that reflect most new product markets. In the model for deterministic activity durations, we present analytical results for the static resource allocation policy which offer various managerial insights that help managers better understand the trade-offs and impact of competition on project management strategy. When resource allocation decisions can be made dynamically we develop a heuristic procedure that facilitates managers decision making process to increase or decrease allocated resources to some tasks, or to terminate the project altogether, at various states of the development project. For projects with stochastic activity durations, we develop heuristic scheduling/compression strategies to maximize the expected profit while guaranteeing feasibility of the scheduling solution