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Ordered to Innovate: A Longitudinal Examination of the Early Periods of a New Product Development Process Implementation in a Manufacturing Firm Ordered to Innovate: A Longitudinal Examination of the Early Periods of a New Product Development Process Implementation in a Manufacturing Firm Serdar S. Durmuşoğlu, Roger J. Calantone, and Regina C. McNally Firms can generate rather long-lasting growth spurts through continuous innovation. Moreover, literature suggests that, when growing organically, firm performance is enhanced through a revenue expansion emphasis encompassing new-to-the-world or new-to-the-firm physical goods or service augmentations. This organic approach usually outper- forms cost-reduction programs, which often yield minor improvements to existing products; or an emphasis on simultaneous revenue expansion and cost reduction. While this finding has the major implication that firms should focus and generate more radical new products for long-term success, there is need for research that investigates how firms should implement the strategy change to organic growth via innovation. The authors present a case study, which suggests that in the short run, it might be better to commence a revenue expansion strategy by focusing on incremental new product development (NPD) efforts, rather than focusing too much on new-to-the-world or new-to-the-firm products. Moreover, analyses of the rich, multimethod data, collected over a two-and-a-half-year interaction with the focal firm, illustrates that to increase success prospects of an organic innovation strategy, managers should not only engage incrementally innovative new product projects initially, but also ensure proficiency in commercializing the new product with cross-functional NPD teams. Thus, in early stages of organization transformation, the merits of the organic growth strategy will be swiftly demonstrated, the cross-functional teaming skills are learned and tested, and the new strategy becomes institutionalized. While somewhat contradictory to other studies on this topic, this more evolutionary exploration provides a new perspective for organizational change, especially when a firm is ordered to innovate. In conclusion, the insights gleaned in this study shed light on the journey from stagnating firm to a successful serial innovator via formalized NPD process implementation. Introduction T he resilient firm pursues organic growth inseveral ways, but the primary mandate is throughnew product offerings. Developing new tangible goods and services, using one’s differential competitive advantages, is critical to gain both market shares as well as revenue growth. Unquestionably, achieving share gain in a mature industry is extremely difficult, while it would be easier in a rapidly expanding market or one where competitors are weak. This challenge elevates where a firm’s dominant market share is the objective of hostile others. Consequently, the only viable revenue sustaining strategy in this situation is to pursue growth through consistent introduction of new products. To the degree these new products can be differentiated from competi- tors’ offerings, they will be more price inelastic (Boulding, Lee, and Staelin, 1994), and the firm can subsequently demand price premiums (Farquhar, 1989). For implementing a revenue growth strategy via product innovation, researchers have numerous sugges- tions about the factors that lead to success. First, the strategic planning and goal-setting theory (Chakravarthy and Lorange, 1991) prescribe certain actions for success. These can be summarized as strategy and goal formula- tion, implementation, evaluation, and goal modification based on the progress achieved (Van de Ven and Poole, 1995). However, implementation of a strategy, defined as the “how-to-do-it” aspects like organizational issues and implementation of specific programs (Bonoma, 1984), is the crucial link between the strategy formulated and the intended superior performance (Hultink, Griffin, Robben, and Hart, 1998; Noble and Mokwa, 1999; Salomo, Weise, and Gemunden, 2007). This is because a marketing strat- egy can be easily imitated by the competition, but its implementation can take many years, and its success is subject to numerous contingencies involved (Gebhardt, Address correspondence to: Serdar S. Durmuşoğlu, Management and Marketing Department, School of Business Administration, University of Dayton, 703 Miriam Hall, 300 College Park, Dayton, OH 45469-2271. E-mail:
[email protected]. Tel: 937-229-3540. J PROD INNOV MANAG 2013;30(4):712–731 © 2013 Product Development & Management Association DOI: 10.1111/jpim.12016 Carpenter, and Sherry, 2006). Although the necessary condition for marketing strategy success, i.e., formula- tion, has been thoroughly investigated, to-date, there is limited investigation on the sufficient condition to achieve the desired ends: implementation (Gebhardt et al., 2006; Sashittal and Jassawalla, 2001). The research gap persists in the NPD domain as well. There are specific recommendations for successful NPD: success depends upon a combination of product charac- teristics such as relative quality, meeting customer needs, price, and innovativeness; firm strategy characteristics such as marketing synergy; firm process characteristics such as structured approach, senior management support, fast cycle time, market orientation, customer input, cross- functionality, and proficiency in predevelopment, market- ing, technological, and launch tasks; and marketplace characteristics such as low likelihood of competitive response and market potential (Henard and Szymanski, 2001). While these insights are helpful for managers in formulating the goals and the end state their firms should strive for, there is lack of research in situations where firms start the journey to change their emphasis to organic revenue growth via NPD. The goal of this paper is to address the research gaps in this area. This study provides several contributions. First, while the proficient execution of NPD phase tasks is necessary for successful NPD, it is assumed that adequate profi- ciency can be achieved over time through learning by doing. However, to achieve the desired performance levels, once implementation has commenced, firms may need to accentuate immediately proficient execution of certain NPD phase tasks because they might be more vital for success, at least in the short term. Further, extant literature asserts that the presence of a certain activity cannot make it a capability (Helfat and Petaraf, 2003) and that some level of excellence or maturity has to be reached in performing it to make it a distinct marketing capability, such as new product development (Vorhies and Morgan, 2005). Therefore, in essence, this study con- tributes to the literature by presenting a detailed account of a manufacturer’s journey in developing a marketing capability, namely product development. Hence, the first research contribution is to extend current literature by investigating the NPD phase tasks that managers should focus on when implementing a new innovation strategy in the form of a new NPD process. More specifically, the case study site, which is a strategic business unit (SBU) of an international conglomerate, was mandated by the top management team to change from a merger and acquisition emphasis to organic growth via product innovation for revenue expansion. The number two and three people in the SBU as well as the group leader of the SBUs in that division were replaced to reinforce the mandate. Meanwhile, newly emerging competitors were busy eroding the SBU’s long- held market share dominance through import-based lower prices. Within this context, the NPD process phases that should get the most attention at the onset of imple- mentation are identified. Second, there is dearth of research specific to effective cross-functional team use when newly implementing an organic growth strategy. Extant literature presents an equivocal effect of cross-functionality on NPD outcomes. Among others, Lee and Chen (2007) and Stock (2006) find significant positive effects, while Ancona and Caldwell (1992) and Pelled, Eisenhardt, and Xin (1999) demonstrate the opposite. These mixed results suggest that cross-functional team use may have varying influ- ences on success depending on the circumstances. As in many behavioral subfields, contextual specificity leads to improved model performance. Therefore, the second con- tribution of the present study is to investigate the effect of cross-functionality specifically in the early phases of implementing a change program to achieve organic growth. Third, recent literature suggests that, when growing organically, firm performance is enhanced through revenue expansion based on new-to-the-world or new-to- the-firm goods or service augmentations; rather than by a BIOGRAPHICAL SKETCHES Dr. Serdar S. Durmuşoğlu is Assistant Professor of Marketing at the School of Business Administration, University of Dayton. He earned his PhD in Marketing from Michigan State University in East Lansing, Michigan. Dr. Durmuşoğlu’s main research area is new product devel- opment (NPD), with special interest in NPD strategy and product inno- vation decisions, interaction of NPD teams with internal departments and external parties, and the effect of information technology on NPD. His work has been published in Journal of Product Innovation Manage- ment, Industrial Marketing Management, and R&D Management, among others. Dr. Roger J. Calantone is the Eli Broad University Chaired Professor of Business and the Marketing Department Chair in the Eli Broad College of Business at Michigan State University. He received his PhD from the University of Massachusetts, Amherst and has published in numerous journals including Journal of Marketing, Journal of Marketing Research, Marketing Science, and Journal of Product Innovation Man- agement, among others. Dr. Regina C. McNally received a PhD in marketing from the University of Illinois at Urbana-Champaign. Her research interests focus on the processes and outcomes of strategic firm decisions. She has published in Journal of Product Innovation Management, Journal of the Academy of Marketing Science, and Journal of Operations Management, among others. EXAMINATION OF EARLY-PERIOD NPD PROCESS IMPLEMENTATION J PROD INNOV MANAG 713 2013;30(4):712–731 cost reduction emphasis including minor improvements to existing products, or by simultaneous revenue expan- sion and cost reduction (cf. Rust, Moorman, and Dickson, et al., 2002). While this finding has the major implication that firms should focus and generate more radical new products for long-term success, there is a need for research that investigates how firms should implement the strategic change to organic growth with new products. Managers should engage incrementally innovative new product projects initially but also ensure proficient com- mercialization within the NPD process with cross- functional NPD team use. Thus, in early stages of organization transformation, the merits of the organic growth strategy are swiftly demonstrated, the cross- functional teaming skills are learned and tested, and the new strategy becomes institutionalized. While somewhat contradictory to other studies on this topic, this more evolutionary exploration provides new perspective for organizational change. Unfortunately, there is lack of empirical research in validating this contention. There- fore, the third contribution of the current study is exam- ining this assertion. In the next section, the characteristics of a market- driven change program and the research setting are pro- vided. Against this background, the hypotheses are presented. Next, the method for the study is presented, followed by data analyses and results. The paper con- cludes with a discussion of the results and managerial implications. Background: Strategic Planning and Goal-Setting Theory and Research Setting Recommended Steps in Change Programs In strategic planning and goal setting theory (Chakravarthy and Lorange, 1991), a necessary trajectory of development the firm must follow to reach the end state is not