Industry clockspeed and dynamics: appropriate pacing of new product development

Summary form only given. Literature defines an industry´s clockspeed as a measure of the dynamic nature of the industry. Among other things, the rate of new product development is found to be associated with an industry´s clockspeed. We introduce a simple analytic model which explains the relationship between an industry clockspeed and a firm´s own new product development activities, First, an optimal industry clockspeed is derived using a simple Bass diffusion model (1969) as the basis for analysis. The optimal industry clockspeed takes into account the following characteristics: (i) average demand forecasts, (ii) dynamic profits earned over time, (iii) cannibalization of older products, and (iv) technology constraints limiting the pace of new product development. Thus, this model offers managerial insights concerning the dynamics of new product development activities on the industry level. Analytic results derived from this model are important because they offer theoretical insights confirming the existence of an appropriate industry level clockspeed associated with maximal profitability. Specifically, we identify the circumstances under which the optimal industry clockspeed lags that of technology availability. In this case, even though the appropriate technology is available, it is more profitable on the industry level to introduce products at a slower rate than the technology availability. Conversely, we also characterize the situation where the industry clockspeed will equal the pace of technology availability