Architecture, Performance, and Investment in Product Development Networks

Abstract

Firms engaging in product development (PD) face the imperative problem of allocating scarce development resources to a multitude of opportunities. In this paper, we propose a mathematical formulation to optimize PD investment or resource allocation decisions. The model maximizes the performance of a product under development, based on its architecture and the firm's available resource, by choosing the optimal resource allocation across product modules and design rules that govern the relationships between these modules. Results based on a comprehensive experiment (with various architectural patterns, escalating number of dependencies, and different problem sizes) shed light on three important hypotheses. First, product architecture affects resource allocation decisions and ultimately product performance. The second hypothesis tests whether modular or integral architectures can attain higher performance levels based on our formulation. A third hypothesis states that there is a shift in the temporal allocation of resources from design rules to individual modules, thus supporting the move from integral to modular architectures as the product evolves across multiple generations. Finally, the model and the experimental results provide design and managerial insights to both development engineers and managers. Specifically, for development engineers, the model and its analysis provide guidance for selecting the product architecture which leads to maximum performance. For development managers, the model and its analysis assist in deciding the optimal budget proportions to be allocated to modules and to design rules, given a fixed architecture and budget.