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.     

Radical Product Innovation Capability: Literature Review,Synthesis, and Illustrative Research Propositions

Product innovation is a key to organizational renewal and success. Relative to other forms of innovation, radical product innovations offer unprecedented customer benefits, substantial cost reductions, or the ability to create new businesses, any of which should lead to superior organizational performance. In other words, a radical product innovation capability is a dynamic capability, one that enables the organization to maintain alignment with rapidly evolving customer needs in high‐velocity environments. Extensive research has been conducted on the antecedents to an incremental/general product innovation capability, and meta‐analyses have been conducted to integrate the results from the various studies. However, whether and how a radical product innovation capability differs from an incremental product innovation capability is also critical. The purpose of this work is to develop a testable model of the antecedents to radical product innovation success. Based on an extensive literature review, a comprehensive set of organizational components that comprise a firm's radical product innovation capability is identified. These organizational components include senior leadership, organizational culture, organizational architecture, the radical product innovation development process, and the product launch strategy. Of course, each of these components has subcomponents that provide even more texture. This review highlights how the components of a radical innovation capability function differently from those for an incremental capability. In addition, this review strongly suggests that the direct effects models that dominate this literature underestimate the complexity of the interplay of components that comprise a radical product innovation capability. Thus, a model to demonstrate this interplay of these organizational components is provided. Illustrative research propositions are offered to provide guidance to researchers. Suggestions for executives and managers who are involved in the product development process and for scholars who seek to advance the state of knowledge in this area are offered in the conclusion.     

Organizational Attributes,Market Growth,and Product Innovation

Extensive research has shown that organizational attributes affect product innovation. Extending this literature, this article delimits two general categories of organizational attributes and relates them to product innovation. Organizational attributes can be either control oriented or flexibility oriented. Control‐oriented organizational attributes strive to realize organizational activities as intended, while flexibility‐oriented attributes allow organizational activities to emerge in a directed way. The classical institutional theory suggests that organizational attributes, no matter whether they are control oriented or flexibility oriented, serve two major functions: a constraining function and an enabling function. Recognizing the dual functions of organizational attributes, this article argues that both types of organizational attributes are indispensable for the functioning of innovative organizations and that the impacts of control‐oriented organizational attributes on product innovation decrease with market growth, while the impacts of flexibility‐oriented organizational attributes on product innovation increase with market growth. Empirical results largely support these hypotheses. Strategic planning, as a control‐oriented organizational attribute, is positively associated with product innovativeness, regardless of the market growth rate. The effectiveness of other organizational attributes, including formalization and organizational redundancy, varies with market conditions. As the rate of market growth increases, formalization becomes less effective for, but never becomes detrimental to, product innovativeness. Conversely, as the rate of market growth increases, organizational redundancy becomes more effective for product innovativeness. Overall, the results show that both control‐oriented and flexibility‐oriented elements are indispensable for the design of innovative organizations.     

Breakeven Time on New Product Launches: An Investigation of the Drivers and Impact on Firm Performance

The ability to break even faster on new product projects is becoming increasingly critical for firms in fast‐moving industries where continually reinvesting in research and development efforts matters greatly for survival. However, most research to date has focused on studying the impact of two primary innovation outcomes: sales and profits. The exclusive emphasis on sales and profit may be warranted for certain types of goods such as durable goods, but when examining the effects of new products in fast‐moving consumer goods or in the entrepreneurial sphere, where cash to cash matters greatly for survival, it is critical for both researchers and practitioners to not only consider the profits and sales generated by the new product but also the time to breakeven. This paper develops a theoretical framework using the competency‐based literature to examine the effects of innovation drivers (customer idea source, speed to market, product quality, and product newness) on breakeven time (BET) and project profits, and their subsequent impact on firm performance. A three‐stage least square estimation method was employed using longitudinal data on 945 new product development projects and launches in the morning (breakfast) foods category. The results clearly pinpoint that for successful product innovation, managers need to consider the time taken to breakeven on new product development. Specifically, the results demonstrate that speed to market and product quality shorten BET, but customer idea source extends BET. Second, the analysis also empirically demonstrates that BET is an equally effective predictor of firm performance as project profits in the short run, but significantly a stronger predictor of firm performance in the long run (t + four years), suggesting that BET should be regarded as a superior leading indicator of firm performance versus product profitability for fast‐moving consumer goods segment. This is an important finding that suggests firms that recoup their cash investments more quickly experience greater short‐term and significantly more long‐term success.     

Subjective Performance Assessment of Innovation Projects*

Performance assessment of innovation projects is a central issue in innovation management research. Using existing literature, a model is developed to assess the performance of new product and new service development projects. In this model, project performance is defined as a combination of a formatively indicated operational performance construct and a reflectively indicated product performance construct. The validity of this model is tested based on a sample of 219 innovation projects assessed by innovation managers. Using only the innovation managers' responses, it is, however, not possible to distinguish between operational and product performance. The impact of common method bias and informant bias is subsequently assessed using a subsample of 128 of these 219 innovation projects that are assessed by the innovation manager and the project leader. These latter results show that operational and product performance are two distinct constructs. In addition, the multitrait–multimethod analyses show that especially the more abstract items of performance, such as the perceptions of quality, captured knowledge, competitive advantage, gained reputation, and customer satisfaction, suffer from random error and informant bias. Project leaders appear to be better informed to assess operational performance, while innovation managers are better in assessing product performance. The paper concludes with a qualitative comparison of several alternative performance models: the project performance model as derived from the literature, a similar (misspecified) reflective performance model, two stand‐alone models in which operational and product performance are assessed separately, and a mixed model that uses a combination of innovation managers' and project managers' data. Based on this comparison, it is advised to use either the stand‐alone models for operational performance and product performance or the mixed model whereby the project leader assesses operational performance and the innovation manager the product performance of an innovation project.     

Innovation orientations and their effects on business performance: contrasting small‐ and medium‐sized service firms

This study examines the relative performance of small‐ versus medium‐sized service firms with respect to innovation orientations and their effect on business performance. We examine the effect of innovation on business performance between the two groups of firms, exploring differences in innovation orientation on performance between the groups of small‐ and medium‐sized firms. We also examine differences within each group, exploring the extent to which innovation focus differs within each group. The empirical data were drawn from 180 managers in Australian service small and medium enterprises. The findings suggest that while there is no difference between small‐ and medium‐sized firms with respect to their innovation orientations, significant differences exist between the firm's size with respect to the effect of innovation orientations on business performance. Specifically, exploitation innovation has a stronger effect on business performance among small firms compared with medium‐sized firms, and exploration innovation shows a stronger effect on business performance among medium‐sized firms compared with small firms. Overall, the findings show important relative differences between innovation orientations and business performance across different sized firms.     

Application and performance impact of stage–gate systems – the role services in the firm’s business focus

Although service innovation is important, knowledge of new product and service development, including the positive effect of stage‐and‐gate‐type systems, has been derived almost exclusively from studies in the manufacturing sector. In the present paper, we address two important questions: How do differences in the firm’s business focus, which describes whether a firm puts more emphasis on products or services in its business activities, influence the usage of such formal innovation processes? Is stage‐and‐gate‐type systems’ impact on innovation program performance contingent on the firm’s business focus? Unlike previous studies, we not only differentiate service and manufacturing by industry classification codes but also apply a continuous measure to take into account the blurring of boundaries between the manufacturing and service businesses. Based on a comprehensive discussion of service‐specific characteristics and their implications for innovation management and using a cross‐industry, multi‐informant sample of innovation programs from 272 firms with 1,985 informants, we find empirical support for firms with a stronger focus on the service business being less likely to use stage‐and‐gate‐type systems. Furthermore, the use of stage‐and‐gate‐type systems fosters innovation program performance, and this effect becomes stronger as the business focus shifts toward services. This result implies that service‐based firms can benefit from stage‐and‐gate‐type systems to a greater extent than product‐based firms. Our research also demonstrates the gap between the desired level of innovation process formalization and its current usage in practice, especially for firms with a dominating service business.     

Success Factors for Service Innovation: A Meta‐Analysis

Service sectors form a considerable part of the world economy. Contrary to the logical assumption that service innovation research should represent a significant share of all innovation research, the vast majority of innovation studies focus on products as opposed to services. This research presents a meta‐analysis of the antecedents of service innovation performance conducted on 92 independent samples obtained from 114 articles published between 1989 and 2015. This research contributes to our understanding of service innovation in three major ways. First, this is the first meta‐analysis that specifically assesses the relative importance of antecedents of service innovation performance, while also pinpointing the differences in meta‐analytic findings between antecedents of service and product innovation performance. Although there are some universal success factors that transcend the boundaries between services and products, the presence of marked differences implies that it would be wrong to treat the development of new services and new products as the same. Second, the meta‐analysis demonstrates that the antecedents of service innovation performance are contingent on the sector context (i.e., explicit versus tacit services). Comparing results between products and services, and between tacit and explicit services, there appears to be a continuum where explicit services sit interstitial between tacit services on one side and products on the other. Third, the meta‐analysis compares and contrasts the antecedents of two dimensions of service innovation performance (i.e., commercial success and strategic competitive advantage). Previous meta‐analyses treated these two dependent variables collectively, which falls short of identifying issues that may affect management decisions when faced with different objectives. Additionally, this research investigates the effect of several other moderators (i.e., culture, unit of analysis, journal quality, and year of publication) on the relationships between the antecedents and service innovation performance. The results are discussed in relation to their implications for research and managerial practice.     

Does a long‐term orientation create value? Evidence from a regression discontinuity

Research summary : In this paper, we theorize and empirically investigate how a long‐term orientation impacts firm value. To study this relationship, we exploit exogenous changes in executives' long‐term incentives. Specifically, we examine shareholder proposals on long‐term executive compensation that pass or fail by a small margin of votes. The passage of such “close call” proposals is akin to a random assignment of long‐term incentives and hence provides a clean causal estimate. We find that the adoption of such proposals leads to (1) an increase in firm value and operating performance—suggesting that a long‐term orientation is beneficial to companies—and (2) an increase in firms' investments in long‐term strategies such as innovation and stakeholder relationships. Overall, our results are consistent with a “time‐based” agency conflict between shareholders and managers. Managerial summary : This paper shows that corporate short‐termism is hampering business success. We show clear, causal evidence that imposing long‐term incentives on executives—in the form of long‐term executive compensation—improves business performance. Long‐term executive compensation includes restricted stocks, restricted stock options, and long‐term incentive plans. Firms that adopted shareholder resolutions on long‐term compensation experienced a significant increase in their stock price. This stock price increase foreshadowed an increase in operating profits that materialized after two years. We unpack the reasons for these improvements in performance, and find that firms that adopted these shareholder resolutions made more investments in R&D and stakeholder engagement, especially pertaining to employees and the natural environment. Copyright © 2016 John Wiley & Sons, Ltd.     

The impact of racial diversity on intermediate and long‐term performance: The moderating role of environmental context

We conduct a firm‐level, 6‐year longitudinal analysis on the impact that racial diversity in human resources has on financial performance. When considering short‐term performance outcomes, we predict a curvilinear relationship between diversity and performance (i.e., firm productivity). Although we find evidence of a U‐shaped relationship between racial diversity and productivity, the relationship is stronger in service‐oriented relative to manufacturing‐oriented industries and in more stable vs. volatile environments. For longer‐term profitability, we propose and find support for more of a positive linear relationship between diversity and performance (i.e., Tobin's q) than a nonlinear one. This linear effect is stronger and more positive in munificent compared to resource‐scare environments. Thus, we aid in reconciling existing, often contradictory, studies by demonstrating the potential short‐term vs. long‐term impact of racial diversity on performance. We offer implications for future research on diversity considering the current and projected demographic landscape. Copyright © 2007 John Wiley & Sons, Ltd.     

From Experience: Linking Product Innovation to Business Growth

Industry pundits often take managers to task for their supposedly myopic approach to planning and decision making. These sweeping generalizations gloss over the complex challenges confronting the managers who must ensure that their firms enjoy ongoing revenue growth opportunities. In place of pat answers, those managers require analysis and planning tools that offer clearer insights into the effects their decisions have on their firms' continued business success. As Marv Patterson points out, however, determining the effects of product innovation decisions poses a particular challenge for management, because the consequences of those decisions typically do not become evident until long after the decisions have been made. Presenting a conceptual model that links product innovation activities to revenue growth, he identifies three drivers of revenue growth, and explains how these growth drivers are linked by a set of mathematical relationships that can be presented in the form of an enterprise-specific growth table. He applies the model to three types of enterprises, and he discusses the key implications that the model holds for the business leaders who must keep shareholders satisfied. He depicts the relationship between a company and its customers as a closed-loop system in which the company converts labor, parts, and material into products, which it delivers to customers. The company invests a portion of the resulting revenue stream in the resources that generate new products. By effectively and continually applying a sufficiently large investment in this innovation engine, the company creates an ongoing stream of new products. The revenues from these new products more than offset the drop in revenues from products that are approaching obsolescence. He identifies three factors that drive revenue growth from these investments in the innovation engine: the fraction of revenues invested in product innovation, new product revenue gain, and the behavior of revenue over time for a particular business. Using a graph called a product vintage chart, he demonstrates that for a large company, the revenue contributions of a particular new-product year (or vintage) fall into a regular pattern over time, which enables a company to determine mathematical relationships for revenue growth as a function of R&D investment and new product revenue growth. In this way, senior managers can gain clearer understanding of the interplay between product innovation, R&D investment, revenue growth, and profitability over time.     

Inconclusive Innovation “Returns”: A Meta‐Analysis of Research on Innovation in New Product Development*

This research on studies that have empirically examined the construct innovation provides a meta‐analysis of the marketing, management, and new product literatures. The study extends previous meta‐analytic works by drawing on 70 independent samples from 64 studies (published from 1970 to 2006) with a total sample size of 12,921. The overall objective is to propose a synthesized model that includes technological turbulence, market turbulence, customer orientation, competitor orientation, organizational structure, innovation, and new product performance. Six baseline hypotheses were developed and tested. The goal is not only to derive empirical generalizations from these literatures but also to investigate sources of inconsistencies in the findings. Four substantive and two methodological artifacts were tested to determine whether they moderate model relationships (i.e., whether the effect sizes differ for any of the six baseline hypotheses). The potential moderators were project versus program level of analysis, the nature of change required by the innovation, service versus product, country of the data's origin, continuous versus categorical measurement, and the number of scales used. From a theoretical perspective, the results corroborated the resource‐based view framework regarding the determinants and the performance outcome of innovation. New product performance (the performance outcome) is a direct consequence of innovation, and this effect is stronger when the data are collected from Western countries. This relationship holds regardless of whether the level of analysis is the new product program versus project or whether the innovation is a product or a service, a robust result relevant to researchers and managers alike. As for the determinants of innovation, the results were as follows. While market turbulence is overall not a direct antecedent to innovation, technological turbulence is overall positively related (especially when market discontinuities are considered or when the data are collected from Asian countries). Customer orientation encourages new product innovation overall, but especially at the program (as opposed to project) level in Western countries. The effect of competitor orientation is also positive. The results for either orientation construct or either turbulence construct held whether the level of analysis was project versus program or whether services versus products were examined. However, the relationship of mechanistic organizational structures to innovation, although positive in the overall sample, did vary by product (positive) versus service (negative).     

Control of intellectual assets in client relationships: implications for innovation

This empirical study of business‐to‐business service firms examines the determinants and effects of control rights to intellectual assets in a property rights theoretic framework. Regression analyses using survey data suggest that service suppliers that retain control over their intellectual output are more innovative. In long‐term relationships, service firms' clients may thus be better off balancing their need to control outsourced activities with the suppliers' incentives to invest in learning and innovation. Additionally, and aligned with property rights theoretic predictions, service suppliers' bargaining power and their indispensability in service projects are positively associated with their ability to retain control rights. In contrast, innovation capabilities are not very significant in determining control rights allocation between service suppliers and their clients. Copyright © 2008 John Wiley & Sons, Ltd.     

Managing Knowledge for Innovation: The Case of Business‐to‐Business Services*

The present study builds a typology of organizational knowledge in business services and empirically examines the effects of knowledge on innovation performance. It is suggested that firms differ with respect to their knowledge creation approaches and that these approaches have implications for firms' innovation activities. A conceptual framework of knowledge assets with degrees of tacitness and collectiveness as the principal axes is used to ground the empirical analysis. The organizational knowledge framework is empirically operationalized using survey data from 167 business service firms and supplementary case study evidence from 16 other firms. It is found that business service improvements and new service introductions are significantly associated with collectively held knowledge, such as codified service solutions or team‐based competences and procedures. In contrast, relying solely on tacit knowledge held by individuals may hamper innovation. The results also suggest that tacit collective knowledge is more closely associated with new service introductions, whereas explicit collective knowledge is associated with service improvements. Tacit collective knowledge is thus conducive. A managerial implication is that new service introductions necessitate team competences and routines, whereas incremental service improvements are more likely if procedures are in place to codify services into explicit solutions or technologies. Thus, the knowledge management approach should depend on the strategic orientation of the service firm toward continuous improvement of existing services or development of completely new services.     

Strategic Value Assessment and Explorative Learning Opportunities with Customers

This study recognizes that collaboration with customers for new product development may bring important financial benefits to firms, but at the same time may seriously hamper explorative learning. Many firms are approached by customers with requests to develop new products for them. While such requests may strengthen customer relationships and result in short‐term financial gains, it may force a firm in technologically undesirable directions. As a result, many firms struggle with the dilemma of, on the one hand, responding to customer requests, and on the other hand, safeguarding the long‐term competitive position of the firm. Firms with strong customer ties are particularly prone to this dilemma. Drawing on opportunity recognition literature, capability monitoring literature as well as goal setting theory, the authors have developed a framework arguing that Strategic Value Assessment (SVA) can help resolve this. SVA is defined as an a priori business evaluation of the value of a particular innovation collaboration, based on anticipated long‐term strategic benefits. It helps innovative firms to focus on collaboration with customers with lead user status and to develop intense relationships, allowing for more effective knowledge transfer and learning. The framework is tested using data collected from a sample of 136 business‐to‐business firms in the Netherlands. The sampling frame was a panel of small and medium‐sized high‐tech enterprises. The study finds positive direct and indirect effects of SVA on explorative learning. In addition, the findings show that the intense collaboration/learning relationship is positively moderated by customer lead user status, and negatively moderated by customer dependence. The findings suggest that SVA is a useful heuristic for managers to utilize opportunities for innovation involving collaboration with customers.     

Perspective: The Innovation Dilemma: How to Innovate When the Market Is Mature

Most companies have ambitious growth goals. The trouble is there are only so many sources of market growth. Markets in many countries and industries are mature and increasingly commoditized; achieving growth in market share is expensive; and acquisitions often do not work. For most companies, product development means line extensions, improvements, and product modifications, and only serves to maintain market share. Markets aren't growing, so firms increasingly compete for a piece of a shrinking pie by introducing one insignificant new product after another. The launch of a truly differentiated new product in mature markets is rare these days. As a result, development portfolios have become decidedly less innovative since the mid‐1990s, and R&D productivity is down. The answer is bold innovation—breakthrough products, services and solutions that create growth engines for the future. This means larger‐scope and more systems‐oriented solutions and service packages. Examples such as Apple's iPod are often cited. (Note that Apple did not invent the MP3 player, nor was this opportunity in a blue ocean; in fact there were 43 competitors when Apple launched!) What Apple did succeed in was in identifying an attractive strategic arena (MP3s) where it could leverage its strengths to its advantage and then to develop a solution that solved users’ problems. The result—an easy‐to‐use, easy‐to‐download MP3 system, which also happened to be “cool.” Our benchmarking studies reveal that five vectors must be in place to undertake this type of innovation to yield bolder and more imaginative development projects. First, develop a bold innovation strategy that focuses your business on the right strategic arenas that promise to be engines of real growth. Most businesses focus their efforts in the wrong areas—on flat markets, mature technologies, and tired product categories. Break out of this box towards more promising strategic arenas with extreme opportunities. Next, foster a climate and culture that promotes bolder innovation. Leadership is vital to success. If senior management does not have the appetite for these big concepts, then all your efforts and systems will fail. Senior management plays a vital role here in promoting an innovative climate in your business. Next, create “big ideas” for integrated product‐service solutions. The best methods for generating breakthrough new product ideas are identified in this paper. Then drive these “big concepts” to market quickly via a systematic and disciplined idea‐to‐launch system designed for major innovation initiatives. Just because these projects are imaginative and bold is no reason to throw discipline out the window. In fact, quite the reverse is true. Finally build a solid business case and focus on the winners. Most innovation teams don't get the facts, and consequently build weak business cases; the result is that many worthwhile innovations don't get the support they need to be commercialized. It's essential to do the front‐end homework, and so build a compelling business case. Then make the right investment decisions—evaluating “big concepts” for development when little information is available. Note that financial models don't work well when it comes to evaluating major innovations, because the data are often wrong. But other methods can be used to make these tough go/kill decisions. Illustrations and examples are provided from many industries and companies to show how to implement these five vectors.     

When Is Open Innovation Beneficial? The Role of Strategic Orientation

Various scholars have accomplished a great deal to better understand open innovation effectiveness. Case studies have detailed its performance effects, while other studies showed the effectiveness of an aspect of open innovation, such as collaboration with third parties, external technology commercialization, and cocreation. Though most studies report a positive relation between open innovation and innovation performance, some studies indicate possible negative effects. This has resulted in a call for research on what kind of organizational context suits open innovation best. This study therefore addresses two questions: (1) does performing open innovation activities lead to increased innovation performance, and to which aspects of innovation performance is open innovation most strongly related? (2) what is the moderating impact of various kinds of strategic orientation on the relation between open innovation and innovation performance? In this study, we investigate three types of strategic orientations: entrepreneurial orientation, market orientation, and resource orientation. In a survey among 223 Asian service firms, we first develop and test a comprehensive measurement scale for open innovation that captures the entire range of open innovation activities, including outside‐in activities, inside‐out activities, and coupled activities. The final scale comprises of 10 items and indicates to what extent a firm has implemented open innovation activities. Next, we study the relation between open innovation and innovation performance. The results indicate that performing open innovation activities is significantly and positively related to all four dimensions of innovation performance: new product/service innovativeness, new product/service success, customer performance, and financial performance. The impact of open innovation is not limited to a particular aspect of innovation performance; it positively affects a broad range of innovation performance indicators. Though open innovation is positively related to all four dimensions of innovation performance, the effect sizes are not equal. The impact on new service innovativeness and financial performance is relatively stronger. Regarding the influence of a firm's strategic orientation, we find that all significant moderation effects are positive. This suggests that, in general, having a more explicit strategic orientation enhances the effectiveness of open innovation. When comparing the three strategic orientations, entrepreneurial orientation strengthens the positive performance effects of open innovation significantly more than market orientation and resource orientation do. In turn, market orientation has a significantly stronger moderation effect than resource orientation. These findings provide empirical evidence of the context dependency of open innovation. Especially an entrepreneurial orientation, which is associated with proactive and entrepreneurial processes, seems to create a fertile setting for open innovation.     

When Is a Disruptive Innovation Disruptive?*

A disruptive innovation (i.e., one that dramatically disrupts the current market) is not necessarily a disruptive innovation (as Clayton Christensen defines this term). To aid in understanding why some innovations are more (or less) disruptive to the long‐term health of incumbents, this article offers terminology and a framework complementary to Christensen's work, focusing on the diffusion pattern of the new product. The framework and model presented herein suggest that when an innovation diffuses from the low end upward toward the high end, a pattern called low‐end encroachment, the incumbent may be tempted to overlook its potential impact. Three possible types of low‐end encroachment are illustrated: the fringe‐market, detached‐market, and immediate scenarios. Conversely, when the pattern is one of high‐end encroachment, the impact on the current market is immediate and striking. A three‐step framework is identified to assess the potential diffusion pattern and impact of an innovation, thereby helping a firm determine the threat or opportunity that an innovation represents.     

Process Innovation and Integration in Process‐Oriented Settings: The Case of the Oil Industry

Scholars have long argued that in new product development integrated innovation processes replace sequentially organized ones because of changing capabilities, integration of knowledge, and the increasing importance of market orientation. The intention of this paper is to study whether this also applies in process‐oriented industries. Process‐oriented settings are fundamentally different from product‐oriented ones as the emphasis is on efficiency, clear guidelines, and tacit knowledge, while radical innovation is less important. It is also less obvious why market orientation—a key driver of integration in new product development—should change the way the innovation process is organized, as there is no product to be developed in the first place. A Stage Gate Model could therefore be well‐suited to achieve more efficiency and effectiveness. In order to investigate process innovation in a process‐oriented setting, we decided to study the upstream oil and gas industry, a scale‐intensive, process‐oriented setting that substantially contrasts with traditional science‐driven industries such as biotechnology and pharmaceuticals, where patents are relevant. The particular advantage of this setting is that virtually no product innovation occurs, allowing the isolation of process innovation. Relying on five inductive case studies of major projects (BP's Prudhoe Bay, Chevron's Kern River, Conoco Philips's Ekofisk, ENI's el‐Bouri, and Shell's Troll field), we find that integration occurs in process‐oriented settings but does so for different reasons than in product‐oriented ones. Integration emerges from an innovation mode characterized by: (1) trial and error (not R&D) as the main mode of innovation; (2) the cooperation of experts from different knowledge backgrounds; (3) the development of Information and Communication Technology (ICT), which facilitates this cooperation across disciplines and projects; and (4) the need to increase efficiency as demand outstrips supply. More precisely, demand shapes reward systems and determines whether new raw materials will be used (creating new supply that requires innovation of processes in periods when demand outstrips supply). Supply and reward systems therefore create the conditions where trial and error, integration of knowledge, and ICT development mutually enforce each other, leading to the integration of the innovation process. Besides contributing to the literature on innovation the paper also offers interesting insights for managers. In order to foster innovation in process‐oriented settings they need to provide specialists with room to experiment over extended periods of time, encourage cooperation across disciplines, and create both incentives and systems to facilitate this process. Finally, managers need to consider the ability of staff to cooperate at the outset, when they set up their recruitment process.     

The Role of Marketing Resources in Radical Innovation Activity: Antecedents and Payoffs

While radical product innovations represent significant engines of firm growth, questions remain over whether marketing helps or hurts (1) a firm's radical product innovation activity and (2) its rewards from radical product innovation activity. By attaching an attention‐based view of the firm to a market‐based assets view of marketing, this paper examines the role of three marketing resources—market knowledge, reputation, and relational resources—on radical innovation activity. Our conceptual framework posits differentiated effects among marketing resources as antecedents of radical innovation activity and as moderators of its impact on firms' financial performance. Using a survey of a broad set of high‐tech business‐to‐business (B2B) firms to test hypotheses, it is found that firms with strong relational resources enjoy a higher propensity for, and stronger financial rewards from, radical innovation activity. Reputational resources come with a trade‐off as they hurt the incidence of radical innovation but enhance its financial rewards. However, market knowledge resources appear to hurt both radical innovation activity and its financial rewards. Our results point to the multifaceted role of marketing in radical innovation activity, which is unlikely to come with a single benefit or liability as prior work often posits. Rather, our research heightens the alertness of managers to assess their firms' marketing strength as a bundle of stocks of several marketing resources. Managers must understand the distinct benefits and drawbacks of each resource in developing and launching radical innovations. Our research underscores the differentiated value of marketing in radical innovation activity in B2B high‐tech contrary to the entrenched idea of a limited or even stifling role of marketing in this context.