Design Architecture and Introduction Timing for Rapidly Improving Industrial Products

Abstract

Technological advances present firms in many industries with opportunities to substantially improve their product's capabilities in short periods of time. Customers who invest in these products may, however, react adversely to rapid improvements that make their previous versions obsolete by deferring their purchase. In industrial markets, there is an emerging trend of sequentially improving products designed to be upgraded in a modular fashion. We study the impact of product architecture and introduction timing on the launch of rapidly improving products. We find that by localizing performance improvements in a sequence of upgradable modules of the product, a firm can better manage the introduction of rapidly improving products. Specifically, we show that modular upgradability can reduce the need for slowing the pace of innovation or forgoing upgrade pricing. The additional flexibility in pricing and timing makes the modular, upgradable approach preferable to an integrated architecture, even in some situations where there may be distinct performance or cost-related disadvantages to pursuing the modular architecture. We differentiate between proprietary and nonproprietary approaches to modular upgradability and consider the implications for profits. Our central contribution in this paper is the innovative integration of product architecture with pricing and timing decisions for managing the introduction of rapidly improving products.