The manager determines the knowledge development
(KD) strategy for the product design team, which includes the pursuit of problem solving
activities such as testing and experimentation and other induced learning activities such
as training. In addition, the manager determines the rates of KT between the product
and process design teams. We explicitly recognize that the effectiveness of KD and KT
are both interrelated and dynamic. While investments in KD and KT are pursued to
increase the cumulative knowledge embedded in the product and process designs, in
the short-term these investments may uncover errors that trigger rework. Naturally, the
errors reduce the stock of knowledge embedded in the product and process designs,
which drives expected net revenue. Overall, the expected net revenue is comprised of
three components. First, the manager faces uncertainty regarding the time the product
will be successfully launched in the marketplace. A success launch occurs when product
design efforts result in a new product whose functionality meets the needs of the
marketplace. Second, the expected net revenue earned reflects the ability to efficiently
manufacture the product. This dimension of expected net revenue is driver by efforts of
the process design teams. Third, expected net revenue is a function of time to capture
the effect of time-based competition.
We outline conditions where the manager pursues a front-loading or a delay
strategy for KT and KD. We show if the initial level of process design knowledge is small,
the manager optimally delays her peak efforts of KT to the product design team until a
later time when the process design team’s knowledge is larger. In addition, we show that
rework associated with KD or KT impacts the rate and the timing of knowledge creation
for both design teams. In particular, if a high rate of rework is triggered by KT from the
process design team, the manager front-loads KD of the product design team and KT to
the process design team but pursues the delay strategy for the KT to the product design
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team. Lastly, we show drivers of expected net revenue that lead to a complementary
relationship between the manager’s pursuit of KD and KT versus a substitution strategy.