Strategic and operational decision support for managing market and technological risks in new product development

Abstract

Product development contains risk in terms of quality, cost and dura-tion. Increasing market uncertainty and enhanced technological com-plexity amplify the risk. In the market, customer preference is unpre-dictable since market rapidly changes. Unreliable forecasting of market condition enhances downward sales risk. As actual customer preference deviates from the forecasting, the sales of products decrease. In physi-cal and functional domain, products have been complex as multiple functionalities are equipped on products. Complex product architecture increases technological risk since most sub-systems are changed by the introduction of new technologies. Fast industry clockspeed, further-more, forces companies to develop products within short duration. To develop complex products under limited resources and short duration, companies adopt diverse design strategies. Major development types can be categorized as incremental design, innovative design and prod-uct family design. The present thesis provides the novel design method or strategic decision model for each development type to manage de-velopment risk. Incremental design causes changes to an existing product by modi-fying or adding sub-systems. In the perspective of development process management, changes prolong duration and raise cost with increasing design change jobs. The change management of a complex product is challenging since changes are stochastically propagated to multiple sub-systems. The present study proposes the novel change management method, active batching, to accommodate the complex and uncertain characteristics of change propagation. Active batching composes multi-ple probable change requests as a batch, based on the prediction of change propagation. It saves cost by eliminating multiple setups and redundant execution. It also avoids unnecessary waiting to compose a batch, which accelerates development process. Numerical study on heli-copter development project validates that active batching moves Pareto frontier line of project performance into the direction of low cost and short duration. Enhanced expertise of suppliers changes the pattern of innovative design. In the new trend, product developers rely on module develop-ment to suppliers and focus on integration. Industrial-architecture ena-bles suppliers to concentrate on the development of specific modules. Design-select decision becomes critical to developers. Since product performance is mainly determined by basic performance of constituting modules, the design or selection of module is crucial in product devel-opment. The present study provides analytic design-select decision model. Although design-select decision and subsequent product inte-gration are emphasized in empirical studies, there has been no analytical study. The proposed model formulates product performance with re-spect to module performance and the degree of integration. Product performance model is expanded into product introduction model in a duopoly. Two decisions are closely related since there is intrinsic trade-off between product performance and time to market. Numerical stud-ies provide managerial insights on the comprehensive decision in vari-ous environments. Implementation of the model on smartphone flagship market explains the decision logics of companies. The uncertainty of customer preference is the one of major risk sources of product family design. The specifications of products are determined based on the forecasting of customer preference in the fu-ture. Forecasting error of customer preference amplifies the downward market risk. As actual customer preference deviates from the prediction, the satisfaction degree of customers to products decreases. The present study proposes the novel product family design method, product option strategy, to accommodate the forecasting error. Under the strategy op-tions refer to products which might be released, depending on actual customer preference. The company possesses release flexibility, the right to release a maximum-utility product among the product option set. The proposed strategy also attempts to manage operational complexity by controlling the number of modules and products. The strategy is imple-mented by the two-stage decision model with heuristic algorithm. The decision model accommodates the requests from the industry which requires logical decision mechanism to persuade internal stakeholders. Product option strategy is applied to product family design of LCD TV. The results of case study advocate the importance of product family design under the consideration of release flexibility.