Product Innovation in Technology Supply Chains

Abstract

Managers introducing new products with advanced component technologies frequently face the dual task of managing both revenues and profits. This task is made challenging, in part, due to the tendency of new technologies to traverse a sequentially downward path of gradually lowering costs and prices, which limits their initial availability and affordability, crimping market coverage and revenues. In this paper, we focus on this product management challenge, show how it is amplified in a supply chain, and propose a new degree of freedom in a supply chain, namely innovation investment anchoring, that offers product managers and their firms the ability to expand market coverage and improve both revenues and profits. After motivating with a detailed industry field-study, we formally characterize the problem and show that deliberate choice of the innovation investment anchor leads to greater investments in innovation, revenues and profits. We compare and contrast product quality improvement and cost reduction investments in a product management setting. These findings have subtle, but important, implications for firms launching innovative products and aspiring to expand product sales and profits. Specifically, innovating firms in a supply chain should broaden the quest for an investment anchor, offer them incentives to invest, and finely tune the level of innovation investment with product qualities, prices, and quantities for increasing revenues and profits.