The Effects of Decentralization in Strategy‐Making and National Culture on NPD Portfolio Planning

Traditionally, the understanding among scholars and practitioners has been that a portfolio of NPD projects is the expression of a firm's strategy and thus it must support the strategy. In keeping with this view, the current study focuses on new product development (NPD) portfolio planning, which is defined as a firm's effort to formulate portfolio decisions using a defined innovation strategy. Connecting portfolio decisions to a defined innovation strategy has been associated with higher innovation success. Surprisingly, empirical research indicates that portfolio decisions do not always support the company's innovation strategy. Furthermore, during recent years, an increasing number of authors underscore the importance of responsiveness and adaptability in portfolio decision‐making. The current study addresses these two issues by examining a direct effect of decentralization in strategy‐making on NPD portfolio planning, and a moderating effect of decentralization in strategy‐making on the relationship between NPD portfolio planning and NPD program success. The study also examines the influence of national culture on the proposed relationships. The theoretical model was tested using data from the 2012 PDMA Comparative Performance Assessment Study. Findings indicate that NPD portfolio planning positively influences NPD program success. Also, results revealed inverted U‐shaped direct and moderating effects, respectively, of decentralization in strategy‐making on NPD portfolio planning, and of decentralization in strategy‐making on the relationship between NPD portfolio planning and NPD program success. With regard to the moderating effect of national culture, results indicate that uncertainty avoidance does not moderate the relationship between NPD portfolio planning and NPD program success. Nonetheless, we found significant moderating effects of individualism and power distance on the curvilinear relationship between decentralization in strategy‐making and NPD portfolio planning.     

Managerial Political Behavior in Innovation Portfolio Management: A Sensegiving and Sensebreaking Process

By applying formalized innovation portfolio management systems, firms seek to ensure an alignment of their goals and strategy with their employees' different abilities, actions, and outcomes. However, research indicates that nonrational, political behavior also determines formalized innovation portfolio management decision‐making processes. Research on political behavior in respect of innovation portfolio management usually conceptualizes political behavior as a set of self‐serving activities, such as negotiation, bargaining, coalition building, and acquiring power, aimed at protecting, maintaining, or promoting an actor's self‐interest and power. Consequently, extant research tends to focus on political behavior's dysfunctional impacts on decision‐making processes and their subsequent outcomes. This paper challenges this negativity bias by exploring a novel, neutral specification of political behavior and its relation to innovation portfolio management decision‐making processes. By conducting an automotive industry case study focusing on the innovation portfolio management decision‐making processes, the paper analyzed the data from 43 interviewees. The conceptual model shows that managers' political capabilities determine their ability to behave politically. According to the results, political behavior comprises the activities that prepare the stage and orchestrate others in order to form a political coalition. Furthermore, results show that political behavior functions as a sensegiving and a sensebreaking process, with managers seeking to shape an innovation project's understanding according to their interests and to influence portfolio decisions. The resulting novel specification of political behavior extends the construct's scope and validity by investigating their functional and dysfunctional aspects, and by indicating that a political sensemaking process complements formalized innovation portfolio management decision‐making processes.     

Alliance portfolios and firm performance: A study of value creation and appropriation in the U.S. software industry

This study reveals the multifaceted contribution of alliance portfolios to firms' market performance. Extending prior research that has stressed the value‐creation effect of network resources, it uncovers how prominent partners may undermine a firm's capacity to appropriate value from its alliance portfolio. Analysis of a comprehensive panel dataset of 367 software firms and their 20,779 alliances suggests that the contribution of network resources to value creation varies with the complementarity of those resources. Furthermore, the relative bargaining power of partners in the alliance portfolio constrains the firm's appropriation capacity, especially when many of these partners compete in the focal firm's industry. In turn, the firm's market performance improves with the intensity of competition among partners in its alliance portfolio. These findings advance network research by highlighting the trade‐offs that alliance portfolios impose on firms that seek to manage and leverage their alliances. Copyright © 2007 John Wiley & Sons, Ltd.     

Augmenting innovation project portfolio management performance: the mediating effect of management perception and satisfaction

Firms face the challenge of efficiently and effectively investing scarce resources in innovation projects in order to sustain or develop a firm's long‐term competitive advantage and sustainable growth. Innovation project portfolio management (IPPM) describes a firm's dynamic capability to assess the challenge of evaluating, selecting, and prioritizing innovation projects. The particular impacts of method usage, criteria usage, IPPM design, information availability, and internal interactions on management perception and satisfaction as well as on IPPM performance and innovativeness are hypothesized and tested. We found that methods and criteria play a negligible role in the IPPM context. IPPM design elements, like transparency and formality, are key drivers of high IPPM performance. Information availability is a key construct in driving IPPM performance, as well as management perception and satisfaction. Relevance of IPPM is supported by revealing IPPM performance's positive impact on firm performance, innovation project performance, and firm's innovativeness.     

The Impact of Product Portfolio Strategy on Financial Performance: The Roles of Product Development and Market Entry Decisions

Innovation is one of the most important issues facing business today. The major difficulty in managing innovation is that managers must do so against a constantly shifting backdrop as technologies, competitors, and markets constantly evolve. Managers determine the product portfolio through key decisions about product development and market entry. Key strategic questions are what portfolio strategies provide the greatest reward. The purpose of this study is to understand the relative financial values of each component of a product portfolio. Specifically, the paper examines the short‐term and long‐term financial impacts of product development strategy and market entry strategy. These strategies reflect two critical tensions that must be balanced in product portfolio decision making and essentially determine a firm's product portfolio. In doing so, the paper also investigates how a firm's capabilities drive each component of a product portfolio. From the empirical analyses in the context of the biomedical device industry, the paper found important insights regarding product portfolio strategies. First, a large product portfolio helps a firm's financial performance. In particular, the pioneering new products have strongest impacts on short‐term performances, and nonpioneering mature products do not provide significant contribution. Second, the results indicate a persistent first‐mover advantage. The first‐to‐market new products yield not only an immediate effect, but also persistent long‐term effects, suggesting that it is important to be first in the market even though there may be short‐term losses. Third, the results suggest the need to balance between “mature” and “new” products. Also, firms need to balance “first‐to‐market” and “late‐entered” products. Because a new or pioneering product requires more resource, it may hurt other products in the portfolio. Thus, without support from mature or follower products, new products and pioneering products alone may not increase firm sales or profit. Fourth, from a long‐term perspective, the paper found that the financial market only rewards a firm's overall capability to deliver new products first in the marketplace. Thus, short‐term performance is mainly driven by product‐level innovativeness, whereas firm‐level innovativeness enhances forward‐looking long‐term performance. Fifth, the paper also found that pioneering new products are driven by integrating both primary and complementary technological capabilities. And nonpioneering new products are mainly driven by the capabilities in primary technology domain. These results provide important insight into the relative value and timing of return on investment in radical versus incremental innovation and alternative market entry strategies. By understanding the performance trade‐offs of these different factors in the short and long term, one can develop better guidelines for optimizing innovation strategies, and their dependence on both external and internal environmental conditions.     

Pawn to Save a Chariot,or Drawbridge Into the Fort? Firms' Disclosure During Standard Setting and Complementary Technologies Within Ecosystems

Research summary: W ithin an ecosystem, standard setting coordinates development of complementary technologies across firms. But each firm can itself own multiple of these complementary technologies. We study how a firm's own complementary technologies influence its disclosure inclination during standard setting. We identify a tradeoff: disclosure increases value‐creation of the firm's non‐disclosed complementary technologies, but also heightens expropriation risk. Using data on the U.S. communications equipment industry 1991–2008, we show that the firm's complementary technologies increase its disclosure inclination when its technological areas are less crowded, but decrease such inclination when there are SSO members with strong expropriation abilities. Findings stress that disclosure involves but a piece of the firm's portfolio; a systemic perspective of the entire portfolio provides a more comprehensive picture of value‐creation during standard setting . Managerial summary: W hy should a firm disclose its key technology to participate in standard setting within an ecosystem? We urge managers to think beyond “disclosing to ensure compatibility with other firms' complementary technologies within the ecosystem” as a motivation, to also consider how disclosure affects the firm's own complementary technologies within its portfolio. Disclosure in one technological area makes the firm's nondisclosed complementary technologies in other areas more valuable to itself, especially with fewer rivals competing in these other areas. But disclosure also renders the firm susceptible to losing these complementary technologies to rivals, especially when rivals have strong expropriation abilities. Analyzing disclosure decisions by communication equipment firms, we show that this tradeoff is indeed a relevant consideration in managers' strategic calculations when participating in standard setting . Copyright © 2017 John Wiley & Sons, Ltd.     

Examining Proactive Strategic Decision‐Making Flexibility in New Product Development

While strategic flexibility is widely accepted as a prerequisite for a firm's success, its application in strategic decision making to a firm's new product development (NPD) activities is limited to only a few studies. Furthermore, many organizations still have difficulties creating proactive strategic flexibility in their decision‐making processes. Past research studies have largely ignored the relationship between strategic decision‐making flexibility and firms' resources and/or capabilities and success in the context of NPD. This study advances strategic flexibility by adopting the proactive approach of NPD decision‐making flexibility and by examining its role in translating organizational resources and capabilities into NPD success. This study draws upon the resources, capabilities (i.e., flexibility), and performance framework to show how proactive strategic decision‐making flexibility plays a crucial role in developing new products that can create new opportunities and comply with market needs. Therefore, this research aims to (1) develop an operational definition of strategic decision‐making flexibility and (2) propose a framework to understand the drivers and the subsequent new product performance outcomes of strategic decision‐making flexibility. This study adopts the proactive perspective of strategic decision‐making flexibility and defines it as a capability that enables firms to develop NPD strategies to respond to future changes in the environment. The analysis, based on data collected from 103 European firms, shows that that the effects of long‐term orientation, strategic planning, internal commitment, and innovative climate on proactive strategic decision‐making flexibility are significant. The findings indicate specifically the roles of both champions and gatekeepers, who infuse a firm's knowledge with a clear understanding of its resources, constraints, and market needs, thereby enhancing decision makers' motivation to behave proactively to precipitate transformation. The results also reveal a positive association between proactive strategic decision‐making flexibility and NPD performance outcomes. As such, strategic flexibility provides firms with an ability to adapt to changing environments and to create new market opportunities, product, and technological arenas, and to deliver successful new products. When firms open new market, technological, and product arenas, they can easily foresee their new demands and changes and successfully deliver new products, meeting customer needs/demands, and offering benefits such as quality, cost, and timeliness. This study therefore provides a valuable reference point for future research in strategic decision‐making flexibility in NPD.     

The contingent effects of political strategies on firm performance: A political network perspective

Research Summary: We examine the performance impact of corporate political strategies by analyzing the relationships among firms and various government institutions. While a firm's political connections to a focal government with decision‐making authority enhance performance, connections to a rival government competing with the focal government harm performance, particularly when the rivalry is intense. Firms can neutralize the negative effect from this political rivalry by using direct or indirect connections to a constraining government with power over the focal government. We find support for our conjectures based on an analysis of interactions among Chinese steel firms and the central and provincial governments in acquisition decisions during the industry's consolidation period of 1999–2010. Managerial Summary: Firms invest in political capital in order to influence public policies in their favor. However, the government is a not a monolithic entity and the relationships among various government institutions can alter and even reverse the effects of a firm's political strategy. This research shows that a firm's political connections can be both an asset and a liability. That is, although firms benefit from their connections to governments with decision‐making authority, they can be caught in the crossfire when there is a rivalry between governments. Furthermore, our research suggests that firms can cope with the negative impact from political rivalry by taking advantage of the structural relationships within the political system and influencing governments that have constraining power.     

Boards of Directors,Innovation, and Performance: An Exploration at Multiple Levels

This work reports on an investigation of the dynamics of governance over breakthrough innovation within Fortune 1000 firms. The primary research question investigates the boundary of agency theory within the firm. Using agency and stakeholder theoretic perspectives, the study tests the hypothesis that innovation will thrive in firms that combine a board of directors operating in accordance with a high agency theoretic focus in addition to an innovation governance board operating deeper within the firm that employs a strong stakeholder theoretic orientation in its behavior. The model is tested with data from 98 large firms. Results suggest that the relationship between board of directors' behavior and the firm's overall innovativeness is mediated by innovation decision‐making boards that (1) promote projects that are breakthrough in scope, (2) incorporate input of diverse constituencies within the firm, (3) exhibit patience with financial results, and (4) engage in frequent, informal interactions with project teams. Firms exhibiting high board of director agency orientation in combination with loyalty to mandate, patient financial capital disposition, inclusiveness, and project team interaction as described above for innovation governance board decision‐making prove to be the most innovative as measured by external indicators. For firm innovativeness, consolidated managerial power and behavior is frequently present at the upper levels of the firm, but must be broken down at deeper levels of the firm. This research offers implications to innovation decision‐makers as to how to proceed if the intent is to offer commercializably successful breakthrough innovations.     

What do they know? The effects of outside director acquisition experience on firm acquisition performance

This article contributes to the literature on board effectiveness by being perhaps the first to systematically examine how the nature of outside directors' prior experience, and resulting expertise, will influence the performance of a focal firm's strategic initiatives. Our theoretical model is grounded in the psychological literature on expertise and its role in group decision making effectiveness. We focus on outside director expertise in acquisition decision making, and its implications for the performance of the acquisitions of a focal firm. Our conceptual framework indicates that directors will develop expertise in making particular kinds of acquisition decisions (e.g., related or unrelated acquisitions or acquisitions in specific industries or product markets) through their past experiences at other firms with decisions about those specific types of acquisitions, and we predict that this experience and expertise will have positive effects on the performance of a focal firm's acquisitions. We extend our theoretical model to consider the conditions under which relevant director experience will prove most beneficial. Our model predicts that outside director acquisition expertise will deliver the greatest benefits when the focal firm's board is independent from management. We find empirical support for all of our hypotheses. In considering how and when director experience and resulting expertise may influence the performance of corporate acquisitions, our theory and results help to highlight a potential second main focus for research on the long‐standing question of what factors render boards of directors effective. Copyright © 2008 John Wiley & Sons, Ltd.     

Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes

This article investigates how alliance portfolio composition affects young firms' outcomes. Drawing on signaling theory, we propose how alliance portfolio composition—number, functional domains (R&D, manufacturing, and marketing), and single‐purpose or multi‐purpose nature of alliances within the portfolio—may affect a firm's likelihood of achieving a liquidity event (IPO or acquisition). We study 8,600 U.S.‐based, VC‐backed firms during the period of 1990 to 2002 from 10 industry sectors. We find that alliance portfolios (to a certain extent) increase a firm's liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi‐function alliances within portfolios. Copyright © 2013 John Wiley & Sons, Ltd.     

Measuring and Utilizing Corporate Risk Tolerance to Improve Investment Decision Making

Strategic investment decisions are generally characterized by financial risk as well as an irrevocable commitment of significant amounts of capital. The firm's willingness to undertake financial risks plays an important role in the investment decision making process. A comprehensive economic decision analysis to evaluate strategic investment decisions requires a measure of the firm's tolerance for financial risk. This article describes a decision analysis–based technique for assessing managerial risk tolerance as well as managers' ability to be consistent in terms of their financial risk taking. These assessments are then utilized to assist the firm in establishing a corporate risk policy that can guide strategic decisions under uncertainty. The study firm is a business unit within a U.S.-based major oil company with an annual capital budget of approximately $400 million. Our findings suggest that managers are generally risk averse but struggle in terms of being consistent in their financial risk-taking decisions. This work enabled the firm to implement a financial risk tolerance that could be utilized in the economic decision analysis of investment decisions.     

Improving Screening Decision Making through Transactive Memory Systems: A Field Study

In screening decisions, senior managers from various disciplines need to collaborate to evaluate innovation project proposals and decide about the allocation of scarce resources to selected projects. Screening decisions are complex and made under high levels of uncertainty, and are considered to be one of senior management's most challenging tasks. In the present field study, screening decision making is investigated from the perspective of a Transactive Memory System (TMS). TMS theory explains how cross‐disciplinary groups of people in interdependent relationships gain, store, combine, and utilize their knowledge in solving complex problems. According to this theory, a TMS emerges to the extent that team members manage to synchronize three core socio‐cognitive processes—specialization, building credibility, and coordination—to achieve team objectives. A theoretical model summarizing antecedents and consequences of the emergence of a TMS in a screening context is proposed and investigated using structural equation modeling. Data from 136 screening committees were used. Results show that the degree to which a committee acts as a TMS is positively related to decision‐making effectiveness as well as efficiency in a screening context. Transformational leadership and an open organizational climate are shown to act as antecedents of TMS emergence. Theoretical and managerial implications of these findings are discussed.     

The Decision to Exploit an R&D Project: Divergent Thinking across Middle and Senior Managers

Research and development (R&D) generates projects, but the question often remains: which projects should be exploited? Building on the innovation, strategy, and managerial cognition literatures, we use a conjoint field experiment to collect data on 4032 decisions made by 126 R&D managers to test how project attributes, strategic context, and managers' characteristics influence innovation exploitation decisions. Using hierarchical linear modeling, we find that (1) experience impacts project exploitation decision policies of middle managers more than senior managers, (2) divergent thinking across middle and senior managers increases with experience, and (3) experienced middle managers diverge from experienced senior managers in their decisions to exploit opportunities by placing greater emphasis on strategic context (relative to competitors and fit within the portfolio) and lesser emphasis on uncertainty (technological and demand). These findings have implications for the strategy and innovation literature.     

Analysis, ranking and selection of R&D projects in a portfolio

A method for the analysis, ranking and selection of R&D projects from a portfolio is outlined and demonstrated. It is proposed that an objective multi-criteria decision making method, Data Envelopment Analysis (DEA), be used to split a portfolio of projects into accept, consider further and reject sub-groups. Next, the 'consider further' group is examined using a subjective method, the Value Creation Model. Such an approach allows for obvious decisions to be automated and complex decisions to be given careful consideration, an approach that is more consistent with how practising managers actually make select/reject decisions. DEA allows for comparison of variables without requiring weights or conversion factors. The relation between research strategy and consideration of categorical data is considered in relation to the research portfolio of the Advanced Technology Division of Bell Laboratories.     

Entry mode and equity level: A multilevel examination of foreign direct investment ownership structure

Over the last two decades, strategy researchers have sought to understand the ownership structure of firms' foreign direct investments (FDI) as reflected in entry mode and equity level. However, prior FDI research has ignored the interrelated nature of these key FDI decisions. In addition, prior research does not fully account for the fact that individual ownership structure decisions occur within the context of a firm's broader FDI portfolio, and thus reflect a wide and frequently unobserved range of parent firm and host nation effects. Our research seeks to address both of these limitations. Using a rich dataset of 4,459 subsidiaries established by 858 Japanese firms across 38 countries over a 9‐year period, we specify a conditional bivariate, cross‐classified multilevel model of FDI ownership structure. Our model enables the joint estimation of entry mode and equity level, accounts for the portfolio nature of FDI, and compares the relative predictive power of transaction cost‐ and experience‐based explanatory variables across both facets of ownership structure. Copyright © 2007 John Wiley & Sons, Ltd.     

Decision making at the front end of innovation: the hidden influence of knowledge and decision criteria

Decision making at the front end of innovation is critical for the success of companies. This paper presents a method, called decision making based on knowledge (DeBK), which was created to analyze the decision‐making process at the front end. The method evaluates the knowledge of project information and the importance of decision criteria, compiling a measure that indicates whether decisions are founded on available knowledge and what criteria are in fact being considered to delineate them. The potential contribution of DeBK is corroborated through two projects that faced decision‐making issues at the front end of innovation.     

Upper management control of new product development projects and project performance

While some degree of freedom and flexibility is an essential ingredient to productive cross‐functional NPD teams, upper‐managers are faced with the challenge of instituting effective control mechanisms which head projects in the right strategic direction, monitor progress toward organizational and project goals, and allow for adjustments in the project if necessary. But too much or the wrong type of control may constrain the team's creativity, impede their progress, and injure their ultimate performance. Therefore, this study examines formal and interactive control mechanisms available to upper‐managers in controlling new product development (NPD) projects, and the relationship between these mechanisms and NPD project performance. Formal output and process controls are examined which consist of the setting and monitoring of outcomes, such as goals, schedule and budgets, and of processes and procedures, respectively. This study also looks at how the effectiveness of these control mechanisms may be contingent upon the degree of innovativeness in the project and the degree to which the project is part of a broad product program. In addition, the use of formal rewards for achieving team performance as opposed to rewards for individual achievement is investigated. Lastly, interactive controls are examined which consist of upper‐managers interacting directly with project members in the development of strategy and operational goals and procedures prior to the start of the project, and upper‐managers intervening in project decision‐making. Questionnaire data are collected on 95 projects across a variety of industries. The findings suggest that while NPD projects teams need some level of strategic direction concerning the objectives to be accomplished and the procedures to be followed, upper‐level managers can exert too much control. In particular, the findings showed a negative association between the use of upper manager‐imposed process controls and project performance. The findings also indicated that the degree to which upper‐managers intervened in project‐level decisions during the project was negatively related to project performance. However, the results showed support for the notion that early and interactive decision‐making on control mechanisms is important for effective projects. In particular, early team member and upper‐management involvement in the setting of operational controls, such as goals and procedures for monitoring and evaluating the project, was positively associated with project performance. This study provides additional insight into our understanding of upper‐management support in new product development. The study suggests that upper‐managers can over control with the wrong type of controls, and suggests effective ways of implementing participative and interactive control mechanisms.     

Networks and the Decision to Persist with Underperforming R&D Projects

Drawing on aspiration level theory and the networks literature, this paper develops a model toward decision makers' persistence with underperforming R&D projects based on the perceived properties of their personal network. The assumption is that positive feedback from network partners motivates persistence, and that this effect is multiplied when the decision makers' network is larger and denser, when network ties are predominantly strong, and when communication frequency within the network is high. The model is tested by a field experiment and conjoint methodology. Analysis of 1632 persistence decisions nested within 51 scientists responsible for R&D projects reveals that more positive feedback enhances persistence of underperforming R&D projects, and that this effect becomes stronger with increasing network size, network density, and communication frequency. These findings extend the project management literature by focusing on the social environment of the decision maker as one so far neglected factor in empirical studies on persistence decisions. Moreover, this study is among the first to investigate contingency relationships between feedback received from network partners and network structure. Finally, while most studies have emphasized that individuals and organizations can profit from their engagements in social networks, this paper suggests a potential dark side of networks by showing that networks can encourage decision makers to persist with their investment in an underperforming—and potentially failing—project. These results can help project managers involved in networking activities to better understand the effects of these activities on their decision policies, and thus draw better and more accurate decisions. Second, this study provides insights into how organizational strategy with respect to dissemination of R&D results and involvement of the organization's R&D managers in the scientific community influences the persistence of underperforming R&D projects, and thereby the organization's R&D expenditures. This can assist top managers to design financial controls and allocate financial resources to managers of underperforming R&D projects in line with the organization's networking strategy.     

Selecting Influential Business-to-Business Customers in New Product Development: Relational Embeddedness and Knowledge Heterogeneity Considerations

This study examines how the most influential business‐to‐business (B2B) customers, both existing and potential, involved in providing input to a new product development (NPD) project influence new product advantage. As the relational literature suggests, involving customers who have had close and embedded relationships with a firm's new product organization, such as a firm's largest customers, and customers who have been involved in past collaborative activities, should lead to the development of superior products. To the contrary, the innovation literature suggests that a firm may become too close to its large, embedded customers resulting in less innovation and in lower performing products. Also, the relationship between the heterogeneity of the knowledge of the most influential customers and new product advantage is examined. A contingency perspective is hypothesized such that the degree of product newness sought in the project moderates the effects of both relational embeddedness and knowledge heterogeneity on new product advantage. Empirical findings from a sample of 137 NPD projects support this contingency view. For projects seeking to develop incremental products, where the product being developed is an extension or an enhancement to an existing product, new product advantage tended to be higher in projects using embedded or homogeneous customers. For incremental projects, projects using less‐embedded or heterogeneous customers tended to have lower product performance. For projects following a highly innovative product strategy, new product advantage tended to be higher in projects that involved heterogeneous customers. These heterogeneous customers provided NPD projects with a diversity of perspectives, competencies, and experiences that fostered significant product innovations. The study contributes to the literature by empirically testing relational and innovation theories in NPD projects and by providing evidence on the importance of relational embeddedness and knowledge heterogeneity in selecting influential customers in NPD projects.