In today’s highly competitive environment, addressing product management throughout its lifecycle in a more comprehensive way has become a necessity. A lot of attention has been paid to the decisions taken within the early stages of product development, which can have a great effect on the entire product life. Knowledge provides a firm with valuable and unique capabilities essential for the successful product development during its early stages. Therefore, a firm must understand how to manipulate its various knowledge sources to enhance its own performance. This article examines the dynamic behavior of the interactions and feedback mechanisms between different sources of knowledge. Using System Dynamics simulation we identify the impacts of a firm’s innovation policy on its innovative performance later in the lifecycle, and find that, in general, focusing on the exploitation of external knowledge sources is a suitable strategy, but various internal factors should be considered as well.