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Time Compression

McKinsey & Co. has conducted research suggesting that for high-tech products, being 50% over budget has little impact on overall product profitability, whereas being six months late reduces profitability by one third.10 The reason for this is simple: the product life cycle.

When a new product enters a market, it begins a period of exponential growth before eventually the growth slows as the market matures, then growth flattens, and eventually the product becomes obsolescent, “growth” turns negative, and volume falls, perhaps to zero. This is the classic S-curve.

Early in the life cycle, margins can be relatively high. These margins attract new entrants, which often compete on price, driving margins lower and, in turn, driving industry consolidation or exits from the business. Although a fast-follower strategy can be effective, first-mover advantage typically is associated with higher margins. Moreover, network effects and virtuous cycles can result in ecosystem partners tying their fortunes to the early market participants, creating stable relationships that can make it difficult for late entrants to gain any meaningful share.

Finally, there is a time value of money: Even if there were no difference in nominal revenue, having that same revenue a year or two earlier is worth more.

The net result is that the raw speed of time to market makes a key difference in financial results through these different drivers.

Rob Shelton leads Growth & Innovation within PricewaterhouseCoopers’ ...