Distributed Development and Product Line Decision Making

Abstract:     
Distributed product development, in which a firm's new product design happens in more than one geographic location, is becoming increasingly prevalent in a number of industries. While the cost savings from distributed development has received significant attention, some of the deeper implications of such development are just beginning to be understood. Motivated by our field work at software and electronic firms, we formulate a model to understand the linkages between the various drivers of distributed development such as capacity constraints and cost differences and its market implications such as customer response to remotely developed products. Analysis of the model helps unearth a subtle interaction between a firm's distributed development practice and its product management decisions. Although distributed development makes it optimal for the firm to limit market coverage and offer an exclusive higher-end offering under some conditions, a product line that expands market coverage is optimal under some other conditions. Interestingly, product line optimality occurs only at intermediate values of cost advantage, capacity limits and customer perception of quality loss due to distributed development. These supply-demand interactions provide an explanation for the versioning of development-intensive goods that so far has puzzled scholars. Our analysis underscores the need for product managers to go beyond the cost savings of distributed development and integrate their product line design decision with distributed development decision making.

Keywords: Product Line Design and Development, Global Distribution of Work

working papers series