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

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