Time-to-Market, Window of Opportunity, and Salvageability of a New Product Development

Abstract

The Time-to-Market in the presence of a window of opportunity is analyzed using a probabilistic model; i.e.; a model where the completion time of new product development is a random variable characterized by a gamma distribution. Two cases are considered: the first, a case where the discounted return-on-investment exceeds the return expected from a conservative investment - e.g. investment in bonds - termed "the profitable case"; and; the second, a case where the discounted return-on-investment just balances the cost of new product development, termed "the salvageable case". The model constructed is focused on the financial aspects of new product development. It allows a decision-maker to monitor, as well as terminate, a project based on its expected value (at any time prior to completion) by computing the mean time-to-market that provides profit, investment salvage, or loss.

The mean time-to-market computed by the model may be compared with that estimated by the technology development team for decision-making purposes.

Finally, in the presence of a window of opportunity and for the specific cases analyzed, we recommend to always keep the expenditure rate lower than the expected return rate. This will provide the decision-maker a salvageable exit opportunity if project termination is decided.

Keywords: Time-to-market, Window-of-opportunity, Salvageability, New product development, NPD

JEL Classification: C3, C60, D92, G31, L20, O30, O32