Managing New Product Definition in Highly Dynamic Environments

Abstract

In highly dynamic environments, characterized by changing customer preferences and uncertainty about competitive products, managing the development of a new product is a complex managerial task. The traditional practice, recommended in the literature, of reaching a sharp definition early in the new product development (NPD) process may not be optimal, desirable or even feasible in such dynamic situations. Under high uncertainty, forcing early finalization of specifications may result in a firm getting locked into an incorrect definition. Based on our study of NPD in the high technology industry, we present a model of an approach called real-time definition, in which a firm adapts its product definition process to the market and competitive environment. Uncertainty in the product definition is resolved through frequent, repeated interactions with customers and using a flexible development process. We find that early definition is optimal only in a limited set of situations. To maximize its anticipated profits, a firm should tune its definition process to the prevailing level of market uncertainty, the marginal value of information obtained from the customer during the NPD process, and its own risk-profile and internal development capabilities. Effects of competition on a firm's definition approach are also examined, and implications for managers of a NPD process are presented using a conceptual framework.