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An option approach to the new product development process: a case study at Philips Electronics

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Abstract:

The paper considers the product development process as a series of (real) options with reducing uncertainty over time. Criteria are developed to decide on speeding up or delaying the development process. The paper demonstrates how, in the R&D phase, any particular project may be assigned within a 2 × 2 matrix of uncertainty versus R&D option value. A similar matrix can be established for the product launch phase. The matrices support portfolio management throughout the different phases of development and enable management to decide on an appropriate point at which to abandon individual projects. The approach originates from applying real options insights into the product development process at Philips Electronics. The paper is illustrated with some actual R&D projects.

Document Type: Original Article

DOI: http://dx.doi.org/10.1111/1467-9310.00206

Affiliations: 1: Erasmus University Rotterdam, and Department of Technology Management, Eindhoven University of Technology, the Netherlands, 2: Universitat Pompeu Fabra, Spain

Publication date: April 1, 2001

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