{"72342":{"#nid":"72342","#data":{"type":"news","title":"Profits Crash When Firms Delay Product Launches","body":[{"value":"\u003Cp\u003EAs Microsoft recently demonstrated with its belated Office 2007 software package and Vista operating system, postponing new product launches can take a heavy toll on the bottom line, according to a new study.\u003C\/p\u003E\n\u003Cp\u003E\u0022We find that product introduction delays have a statistically significant negative effect on profitability,\u0022 says Vinod Singhal, an operations management professor at Georgia Tech College of Management. \u0022The effect of the delay is negative regardless of when it occurred in the product development process or the time of year of the announcement.\u0022\u003C\/p\u003E\n\u003Cp\u003ECompanies in the pharmaceutical, hardware, and software industries are particularly susceptible to negative fallout from delayed launches because their products tend to be much more highly anticipated than, say, a new brand of soda, note Singhal and his research collaborator, Kevin Hendricks, operations management professor at the Wilfrid Laurier University.\n\u003C\/p\u003E\n\u003Cp\u003E\u0022Software and hardware firms operate in a highly dynamic environment, characterized by short product life cycles, intense competition, rapid changes in product and process technology, and high growth rates in demand,\u0022 Singhal says. \u0022Although product life cycles in the pharmaceutical industry are longer, delays in product introductions shorten the period of exclusivity granted by patent protection. In the meantime, doctors start prescribing other drugs.\u0022\n\u003C\/p\u003E\n\u003Cp\u003ESurprisingly, little previous research has attempted to estimate the economic consequences of postponed product launches on these industries, write Singhal and Hendricks in their study, \u0022The Effect of Product Introduction Delays on Operating Performance.\u0022\n\u003C\/p\u003E\n\u003Cp\u003EIn the recent case of Microsoft, the company lost 10 percent of expected sales from June to December 2006 because of delays getting Vista and Office 2007 into the marketplace. Sony also suffered greatly last year when design issues kept its highly anticipated Playstation 3 videogame machines off store shelves for months longer than originally planned.\n\u003C\/p\u003E\n\u003Cp\u003EProduct introduction delays can have a number of negative consequences on revenues, note the researchers. \u0022In a competitive industry, customers may not be willing to wait, choosing to buy a competitor\u0027s product instead,\u0022 Singhal says. \u0022When product life cycles are short, delays reduce the window of opportunity to generate revenues. Delays can also cause the product to become obsolete faster.\u0022\n\u003C\/p\u003E\n\u003Cp\u003ESinghal and Hendricks analyzed the financial performance of a diverse set of over 450 publicly traded firms that experienced product introduction delays from 1987 to 2003.  In the study, the researchers used operating income to measure profitability. They consider operating income (sales minus the cost of goods sold as well as general, administrative, and selling expenses) the best measure because it is not obscured by tax considerations, interest expenses, etc.\n\u003C\/p\u003E\n\u003Cp\u003EExamining operating performance both before and after product delay announcements, the researchers found that the median decline in return on assets ranged from 2.7 to 3.4 percent (mean decline of 6.0 to 7.7 percent) over a three-year period around the year of the delay announcement. The median decline in return on sales ranged from 1.5 to 3.1 percent (mean decline of 12.6 to 19.6 percent), while the median decline in sales over assets ranged from 5.9 to 11.0 percent (mean decline of 9.3 to 11.5 percent).\n\u003C\/p\u003E\n\u003Cp\u003EAnnouncements of product delays decreased average shareholder value by about 12 percent, according to the researchers. \u0022Our results suggest that negative stock market reaction to product introduction delays is actually quite rational given the impact of delays on profitability,\u0022 they write.\n\u003C\/p\u003E\n\u003Cp\u003EReasons for delayed product launches vary, including poor management of the development process, lack of coordination among different functional areas, and shortages of resources, note the researchers. \u0022Our results underscore the importance of planning and executing the launch of new products,\u0022 Singhal says. \u0022More attention should be paid to product development and innovation issues.\u0022\n\u003C\/p\u003E\n\u003Cp\u003E\u003Cstrong\u003EWriter:\u003C\/strong\u003E Brad Dixon, College of Management\u003C\/p\u003E","summary":null,"format":"limited_html"}],"field_subtitle":[{"value":"Study Shows Cost of Firms Failing to Launch Products on Time"}],"field_summary":[{"value":"As Microsoft recently demonstrated with its belated Office 2007 software package and Vista operating system, postponing new product launches can take a heavy toll on the bottom line, according to a new study.","format":"limited_html"}],"field_summary_sentence":[{"value":"Failure to launch products on time hurts profits"}],"uid":"27301","created_gmt":"2007-02-08 01:00:00","changed_gmt":"2016-10-08 03:01:37","author":"Elizabeth Campell","boilerplate_text":"","field_publication":"","field_article_url":"","dateline":{"date":"2007-02-08T00:00:00-05:00","iso_date":"2007-02-08T00:00:00-05:00","tz":"America\/New_York"},"extras":[],"hg_media":{"72343":{"id":"72343","type":"image","title":"Vinod Singhal","body":null,"created":"1449177454","gmt_created":"2015-12-03 21:17:34","changed":"1475894656","gmt_changed":"2016-10-08 02:44:16"}},"media_ids":["72343"],"related_links":[{"url":"http:\/\/mgt.gatech.edu\/directory\/singhal.html","title":"Singhal Faculty Page"}],"groups":[{"id":"1214","name":"News Room"}],"categories":[{"id":"139","name":"Business"},{"id":"145","name":"Engineering"},{"id":"135","name":"Research"}],"keywords":[{"id":"1072","name":"Business"},{"id":"2496","name":"launch"},{"id":"233","name":"Logistics"},{"id":"1052","name":"Management"},{"id":"2499","name":"operations"},{"id":"681","name":"product"},{"id":"2498","name":"profit"},{"id":"2497","name":"Vinod Singhal"}],"core_research_areas":[],"news_room_topics":[],"event_categories":[],"invited_audience":[],"affiliations":[],"classification":[],"areas_of_expertise":[],"news_and_recent_appearances":[],"phone":[],"contact":[{"value":"\u003Cstrong\u003ELisa Grovenstein\u003C\/strong\u003E\u003Cbr \/\u003ECommunications \u0026amp; Marketing\u003Cbr \/\u003E\u003Ca href=\u0022http:\/\/www.gatech.edu\/contact\/index.html?id=lgrovenste3\u0022\u003EContact Lisa Grovenstein\u003C\/a\u003E\u003Cbr \/\u003E\u003Cstrong\u003E404-894-8835\u003C\/strong\u003E","format":"limited_html"}],"email":["lisa.grovenstein@comm.gatech.edu"],"slides":[],"orientation":[],"userdata":""}}}