Design Architecture and Introduction Timing for Rapidly Improving Industrial Products

Technological advances present rms in many industries with opportunities to substantially improve their product's capabilities in short periods of time. Customers who invest in these products may, however, react adversely to rapid improvements that obsoletes their previous versions by deferring their purchase. In industrial markets, there is an emerging trend of sequentially improving products designed to be upgraded in a modular fashion. We study in this paper the impact of product architecture and introduction timing on the launch of rapidly improving products. We nd that by localizing performance improvements in a sequence of upgradable modules of the product, a rm can better manage the introduction of rapidly improving products. Speci cally, we show that modular upgradability can reduce the need for slowing the pace of innovation or foregoing upgrade pricing. The additional exibility in pricing and timing makes the modular upgradable approach preferable over an integrated architecture, even in some situations where there may be distinct performance or cost-related disadvantages to pursuing the modular architecture. We di erentiate between proprietary and non-proprietary approaches to modular upgradability and consider the implications for pro ts. Our central contribution in this paper is the innovative integration of product architecture with pricing and timing decisions for managing the introduction of rapidly improving products. (