Reduction of new product development cycle time and improvements in product performance have become strategic objectives for many technology-driven firms. These goals may conflict, however, and firms must explicitly consider the tradeoff between them. In this paper the authors introduce a multistage model of new product development process which captures this tradeoff explicitly. They show that if product improvements are additive (over stages), it is optimal to allocate maximal time to the most productive development stage. The authors then indicate how optimal time-to-market and its implied product performance targets vary with exogenous factors such as the size of the potential market, the presence of existing and new products, profit margins, the length of the window of opportunity, the firm’s speed of product improvement, and competitor product performance. they show that some new product development metrics employed in practice, such as minimizing break-even time, can be sub-optimal if firms are striving to maximize profits. The authors also determine the minimal speed of product improvement required for profitably undertaking new product development, and discuss the implications of product replacement which can occur whenever firms introduce successive generations of new products. Finally, they show that an improvement in the speed of product development does not necessarily lead to an earlier time-to-market, but always leads to enhanced products.
