We present a model that suggests possible explanations for the observed proliferation of "pa... more We present a model that suggests possible explanations for the observed proliferation of "pay-per-use" (PPU) business models over the last two decades. Delivering "fractions" of a product as a service offers a cost advantage to customers with lower usage but requires extra delivery costs. Previous research focused on information goods (with negligible production costs) and predicted that PPU, when arising as a differentiation to selling in equilibrium, fundamentally achieves lower profits than selling. We extend the theory by covering goods with any production cost, in duopolistic competition. We show that PPU business models can be more profitable than selling (especially at mid-range production costs), as long as their delivery costs are not too high, a requirement that is more easily fulfilled as new technologies reduce these costs. Moreover, if firms are imperfectly informed about their customers' usage profiles, PPU's effective pricing of customers&#...
Behavioral Operations Management explicitly considers the effects of human behavior in process pe... more Behavioral Operations Management explicitly considers the effects of human behavior in process performance, influenced by cognitive biases, social preferences, and cultural norms. This broadening of Operations is even more critical in the context of the Management of Technology (MOT) than in the operations of established ongoing processes, because in innovation, people do not know well which tasks they will have to perform, they are exposed to risks, and they are subject to emergent interdependencies, all of which push psychological biases and social preferences to the fore. This article gives an overview of important behavioral challenges in MOT, setting them in the context of the phases of the stage gate process on the one hand, and the three levels of individual biases, group member interactions, and large group interactions (e.g., culture) on the other hand. The review suggests that previous work has not addressed a number of important questions in empirical effects and theoreti...
This chapter illustrates the management of uncertainty, of stakeholders, and of contractors, and ... more This chapter illustrates the management of uncertainty, of stakeholders, and of contractors, and then draws on history—the Manhattan Project to develop the atomic bomb, and Cold War-era space and defense projects such as Polaris and Apollo—to show that knowledge of how to overcome these issues has long existed and could be used effectively in some megaprojects today. For example, Manhattan Project manager General Groves realized that big unforeseeable uncertainties in designing atomic weapons required discrete project management skills including flexibility, but these techniques have since been pushed aside in a managerial push for control that became the phased-planning or “stage-gate” process philosophy. While some successes in the 1940s and 1950s may not be repeated today with the same managerial methods, because stakeholder complexity was lower at a time when huge projects served “national priorities,” it is argued that some mid-twentieth-century managerial techniques would help...
It is becoming increasingly common to involve external technology providers in developing new tec... more It is becoming increasingly common to involve external technology providers in developing new technologies and new products. Two important phases involved in working with technology vendors are vendor selection and vendor management. Because for both steps theory development of key decision guidelines is still immature, we use detailed case studies of 31 innovation outsourcing projects at Siemens to develop grounded theory on provider selection criteria and on project management success drivers. A selection criterion often associated with successful outsourcing is the provider's “track record” or previous experience. Our cases suggest that there is no standard “track record” for success but that a “match” between the client firm's outsourcing motivation and the provider's strengths appears to be a necessary condition for a successful outsourcing collaboration. As to the second phase—managing the vendor—we identify a number of operational project success drivers. There se...
Successful application of concurrent development processes (concurrent engineering) requires tigh... more Successful application of concurrent development processes (concurrent engineering) requires tight coordination. To speed development, tasks often proceed in parallel by relying on preliminary information from other tasks, information that has not yet been finalized. This frequently causes substantial rework using as much as 50% of total engineering capacity. Previous studies have either described coordination as a complex social process, or have focused on the frequency, but not the content, of information exchanges. Through extensive fieldwork in a high-end German automotive manufacturer, we develop a framework of preliminary information that distinguishes information precision and information stability. Information precision refers to the accuracy of the information exchanged. Information stability defines the likelihood of changing a piece of information later in the process. This definition of preliminary information allows us to develop a time-dependent model for managing inte...
Novel startup companies often face not only risk, but also unforeseeable uncertainty (the inabili... more Novel startup companies often face not only risk, but also unforeseeable uncertainty (the inability to recognize and articulate all relevant variables affecting performance). The literature recognizes that established risk planning methods are very powerful when the nature of risks is well understood, but that they are insufficient for managing unforeseeable uncertainty. For this case, two fundamental approaches have been identified: trial-and-error learning, or actively searching for information and repeatedly changing the goals and course of action as new information emerges, and selectionism, or pursuing several approaches in parallel to see ex post what works best. Based on a sample of 58 startups in Shanghai, we test predictions from prior literature on the circumstances under which selectionism or trial-and-error learning leads to higher performance. We find that the best approach depends on a combination of uncertainty and complexity of the startup: risk planning is sufficien...
Companies innovating in dynamic environments face the combined challenge of unforeseeable uncerta... more Companies innovating in dynamic environments face the combined challenge of unforeseeable uncertainty (the inability to recognize the relevant influence variables and their functional relationships; thus, events and actions cannot be planned ahead of time) and high complexity (large number of variables and interactions; this leads to difficulty in assessing optimal actions beforehand). There are two fundamental strategies to manage innovation with unforeseeable uncertainty and complexity: trial and error learning and selectionism. Trial and error learning involves a flexible (unplanned) adjustment of the considered actions and targets to new information about the relevant environment as it emerges. Selectionism involves pursuing several approaches independently of one another and picking the best one ex post. Neither strategy nor project management literatures have compared the relative advantages of the two approaches in the presence of unforeseeable uncertainty and complexity. We ...
Coordination among many interdependent actors in complex product development projects is recogniz... more Coordination among many interdependent actors in complex product development projects is recognized as a key activity in organizational theory. It is well known that this coordination becomes progressively more difficult with project size, but we do not yet sufficiently understand whether this effect can be controlled with frequent and rich communication among project members, or whether it is inevitable. Recent work in complexity theory suggests that a project might form a “rugged landscape,” for which performance deterioration with system size is inevitable. This paper builds a mathematical model of a complex design project that is divided into components (subproblems) and integrated back to the system. The model explicitly represents local component decisions, as well as component interactions in determining system performance. The model shows, first, how a rugged performance landscape arises even from simple components with simple performance functions, if the components are int...
Selecting program portfolios within a budget constraint is an important challenge in the manageme... more Selecting program portfolios within a budget constraint is an important challenge in the management of new product development (NPD). Optimal portfolios are difficult to define because of the combinatorial complexity of project combinations. However, at the aggregate level of the strategic allocation of resources across product lines, investment in a program is not an all-or-nothing decision, but can be adjusted, resulting in a higher or lower program benefit (e.g., higher or lower quality). In some cases, resources can be adjusted even for individual projects. With this insight, one can use marginal analysis to optimally allocate the scarce budget. This article develops a dynamic model of resource allocation, taking into account multiple interacting factors, such as independent or correlated, uncertain market payoffs that change over time, increasing or decreasing returns from the NPD investment, carry-over of the investment benefit over multiple periods, and interactions across ma...
Managerial flexibility has value in the context of uncertain R…D projects, as management can repe... more Managerial flexibility has value in the context of uncertain R…D projects, as management can repeatedly gather information about uncertain project and market characteristics and, based on this information, change its course of action. This value is now well accepted and referred to as “real option value.” We introduce, in addition to the familiar real option of abandonment, the option of corrective action that management can take during the project. The intuition from options pricing theory is that higher uncertainty in project payoffs increases the real option value of managerial decision flexibility. However, R…D managers face uncertainty not only in payoffs, but also from many other sources. We identify five example types of R…D uncertainty, in market payoffs, project budgets, product performance, market requirements, and project schedules. How do they influence the value from managerial flexibility? We find that if uncertainty is resolved or costs/revenues occur after all decisi...
We present a model that suggests possible explanations for the observed proliferation of "pa... more We present a model that suggests possible explanations for the observed proliferation of "pay-per-use" (PPU) business models over the last two decades. Delivering "fractions" of a product as a service offers a cost advantage to customers with lower usage but requires extra delivery costs. Previous research focused on information goods (with negligible production costs) and predicted that PPU, when arising as a differentiation to selling in equilibrium, fundamentally achieves lower profits than selling. We extend the theory by covering goods with any production cost, in duopolistic competition. We show that PPU business models can be more profitable than selling (especially at mid-range production costs), as long as their delivery costs are not too high, a requirement that is more easily fulfilled as new technologies reduce these costs. Moreover, if firms are imperfectly informed about their customers' usage profiles, PPU's effective pricing of customers&#...
Behavioral Operations Management explicitly considers the effects of human behavior in process pe... more Behavioral Operations Management explicitly considers the effects of human behavior in process performance, influenced by cognitive biases, social preferences, and cultural norms. This broadening of Operations is even more critical in the context of the Management of Technology (MOT) than in the operations of established ongoing processes, because in innovation, people do not know well which tasks they will have to perform, they are exposed to risks, and they are subject to emergent interdependencies, all of which push psychological biases and social preferences to the fore. This article gives an overview of important behavioral challenges in MOT, setting them in the context of the phases of the stage gate process on the one hand, and the three levels of individual biases, group member interactions, and large group interactions (e.g., culture) on the other hand. The review suggests that previous work has not addressed a number of important questions in empirical effects and theoreti...
This chapter illustrates the management of uncertainty, of stakeholders, and of contractors, and ... more This chapter illustrates the management of uncertainty, of stakeholders, and of contractors, and then draws on history—the Manhattan Project to develop the atomic bomb, and Cold War-era space and defense projects such as Polaris and Apollo—to show that knowledge of how to overcome these issues has long existed and could be used effectively in some megaprojects today. For example, Manhattan Project manager General Groves realized that big unforeseeable uncertainties in designing atomic weapons required discrete project management skills including flexibility, but these techniques have since been pushed aside in a managerial push for control that became the phased-planning or “stage-gate” process philosophy. While some successes in the 1940s and 1950s may not be repeated today with the same managerial methods, because stakeholder complexity was lower at a time when huge projects served “national priorities,” it is argued that some mid-twentieth-century managerial techniques would help...
It is becoming increasingly common to involve external technology providers in developing new tec... more It is becoming increasingly common to involve external technology providers in developing new technologies and new products. Two important phases involved in working with technology vendors are vendor selection and vendor management. Because for both steps theory development of key decision guidelines is still immature, we use detailed case studies of 31 innovation outsourcing projects at Siemens to develop grounded theory on provider selection criteria and on project management success drivers. A selection criterion often associated with successful outsourcing is the provider's “track record” or previous experience. Our cases suggest that there is no standard “track record” for success but that a “match” between the client firm's outsourcing motivation and the provider's strengths appears to be a necessary condition for a successful outsourcing collaboration. As to the second phase—managing the vendor—we identify a number of operational project success drivers. There se...
Successful application of concurrent development processes (concurrent engineering) requires tigh... more Successful application of concurrent development processes (concurrent engineering) requires tight coordination. To speed development, tasks often proceed in parallel by relying on preliminary information from other tasks, information that has not yet been finalized. This frequently causes substantial rework using as much as 50% of total engineering capacity. Previous studies have either described coordination as a complex social process, or have focused on the frequency, but not the content, of information exchanges. Through extensive fieldwork in a high-end German automotive manufacturer, we develop a framework of preliminary information that distinguishes information precision and information stability. Information precision refers to the accuracy of the information exchanged. Information stability defines the likelihood of changing a piece of information later in the process. This definition of preliminary information allows us to develop a time-dependent model for managing inte...
Novel startup companies often face not only risk, but also unforeseeable uncertainty (the inabili... more Novel startup companies often face not only risk, but also unforeseeable uncertainty (the inability to recognize and articulate all relevant variables affecting performance). The literature recognizes that established risk planning methods are very powerful when the nature of risks is well understood, but that they are insufficient for managing unforeseeable uncertainty. For this case, two fundamental approaches have been identified: trial-and-error learning, or actively searching for information and repeatedly changing the goals and course of action as new information emerges, and selectionism, or pursuing several approaches in parallel to see ex post what works best. Based on a sample of 58 startups in Shanghai, we test predictions from prior literature on the circumstances under which selectionism or trial-and-error learning leads to higher performance. We find that the best approach depends on a combination of uncertainty and complexity of the startup: risk planning is sufficien...
Companies innovating in dynamic environments face the combined challenge of unforeseeable uncerta... more Companies innovating in dynamic environments face the combined challenge of unforeseeable uncertainty (the inability to recognize the relevant influence variables and their functional relationships; thus, events and actions cannot be planned ahead of time) and high complexity (large number of variables and interactions; this leads to difficulty in assessing optimal actions beforehand). There are two fundamental strategies to manage innovation with unforeseeable uncertainty and complexity: trial and error learning and selectionism. Trial and error learning involves a flexible (unplanned) adjustment of the considered actions and targets to new information about the relevant environment as it emerges. Selectionism involves pursuing several approaches independently of one another and picking the best one ex post. Neither strategy nor project management literatures have compared the relative advantages of the two approaches in the presence of unforeseeable uncertainty and complexity. We ...
Coordination among many interdependent actors in complex product development projects is recogniz... more Coordination among many interdependent actors in complex product development projects is recognized as a key activity in organizational theory. It is well known that this coordination becomes progressively more difficult with project size, but we do not yet sufficiently understand whether this effect can be controlled with frequent and rich communication among project members, or whether it is inevitable. Recent work in complexity theory suggests that a project might form a “rugged landscape,” for which performance deterioration with system size is inevitable. This paper builds a mathematical model of a complex design project that is divided into components (subproblems) and integrated back to the system. The model explicitly represents local component decisions, as well as component interactions in determining system performance. The model shows, first, how a rugged performance landscape arises even from simple components with simple performance functions, if the components are int...
Selecting program portfolios within a budget constraint is an important challenge in the manageme... more Selecting program portfolios within a budget constraint is an important challenge in the management of new product development (NPD). Optimal portfolios are difficult to define because of the combinatorial complexity of project combinations. However, at the aggregate level of the strategic allocation of resources across product lines, investment in a program is not an all-or-nothing decision, but can be adjusted, resulting in a higher or lower program benefit (e.g., higher or lower quality). In some cases, resources can be adjusted even for individual projects. With this insight, one can use marginal analysis to optimally allocate the scarce budget. This article develops a dynamic model of resource allocation, taking into account multiple interacting factors, such as independent or correlated, uncertain market payoffs that change over time, increasing or decreasing returns from the NPD investment, carry-over of the investment benefit over multiple periods, and interactions across ma...
Managerial flexibility has value in the context of uncertain R…D projects, as management can repe... more Managerial flexibility has value in the context of uncertain R…D projects, as management can repeatedly gather information about uncertain project and market characteristics and, based on this information, change its course of action. This value is now well accepted and referred to as “real option value.” We introduce, in addition to the familiar real option of abandonment, the option of corrective action that management can take during the project. The intuition from options pricing theory is that higher uncertainty in project payoffs increases the real option value of managerial decision flexibility. However, R…D managers face uncertainty not only in payoffs, but also from many other sources. We identify five example types of R…D uncertainty, in market payoffs, project budgets, product performance, market requirements, and project schedules. How do they influence the value from managerial flexibility? We find that if uncertainty is resolved or costs/revenues occur after all decisi...
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