Determinants of Alliance Portfolio Complexity and Its Effect on Innovative Performance of Companies*

Alliance formation is often described as a mechanism used by firms to increase voluntary knowledge transfers. Access to external knowledge has been increasingly recognized as a main source of a firm's innovativeness. A phenomenon that has recently emerged is alliance portfolio complexity. In line with recent studies this article develops a measure of portfolio complexity in technology partnerships in terms of diversity of elements of the alliance portfolio with which a firm must interact. The analysis considers an alliance portfolio that includes different partnership types (competitor, customer, supplier, and university and research center). So far factors that determine portfolio complexity and its impact on technological performance of firms have remained largely unexplored. This article examines firms' decisions to form alliance portfolios of foreign and domestic partners by two groups of firms: innovators (firms that are successful in introducing new products to the market), and imitators (firms that are successful at introducing products which are not new to the market). This study also assesses a nonlinear impact of the portfolio complexity measure on firms' innovative performance. The empirical models are estimated using data on more than 1800 firms from two consecutive Community Innovation Surveys conducted in 1998 and 2000 in the Netherlands. The results suggest that alliance portfolios of innovators are broader in terms of the different types of alliance partners as compared to those of imitators. This finding underlines the importance of establishing a “radar function” of links to various different partners in accessing novel information. Specifically, the results indicate that foremost innovators have a strong propensity to form portfolios consisting of international alliances. This underlines the importance of this type of partnership in the face of the growing internationalization of R&D and global technology sourcing. Being an innovator or imitator also increases the propensity to form a portfolio of domestic alliances, relative to non‐innovators; but this propensity is not stronger for innovators. Innovators appear to derive benefit from both intensive (exploitative) and broad (explorative) use of external information sources. The former type of sourcing is more important for innovators, while the latter is more important for imitators. Finally, alliance complexity is found to have an inverse U‐shape relationship to innovative performance. On the one hand, complexity facilitates learning and innovativeness; on the other hand, each organization has a certain management capacity to deal with complexity which sets limits on the amount of alliance portfolio complexity that can be managed within the firm. This clearly suggests that firms face a certain cognitive limit in terms of the degree of complexity they can handle. Despite the noted advantages of an increasing level of alliance portfolio complexity firms will at a certain stage reach a specific inflection point after which marginal costs of managing complexity are higher than the expected benefits from this increased complexity.     

An Ecological Perspective on New Product Failure: The Effects of Competitive Overcrowding

Practitioners and researchers have carefully explored the causes of new product failures. Studies have been conducted, results analyzed, and recommendations offered. Yet despite these efforts, new product failure rates have not decreased. In fact, they appear to be increasing in some product categories. Are we missing something? Noting that most research on new product failures has focused on a firm's activities in specific projects, William H. Redmond proposes that new product outcomes might also be influenced by macro-level or environmental factors. By focusing on environmental factors rather than a firm's activities in specific projects, we might better understand why competent firms in one industry consistently experience higher failure rates than those of firms that are no more competent, but operate in a different industry. For example, failure rates for new food products are consistently higher than those for new industrial products. With no evidence that product development professionals in industrial firms are simply superior to their counterparts in the food industry, Dr. Redmond suggests that we need to look beyond specific product development projects and consider the effects of the market in which these products are introduced. Encouraged by past successes, many firms in the food manufacturing business seek sales growth through the development and introduction of additional new products. Over time, this creates a market in which customer demand is fragmented into increasingly small niches and distribution channels are flooded with product choices. As a result, the failure of a new product is more likely than it might have been under less crowded conditions. In much the same way that the population of deer on an island is limited by the available food and physical space, food products are apparently faced with the market equivalent of natural selection. In the absence of available market niches and a clear competitive advantage, a new product's chances for success are meager. In a market that is overcrowded by existing products and new product introductions, it becomes increasingly difficult and uneconomical to identify opportunities for meaningful differentiation. On the other hand, industrial products face a much different set of environmental conditions. Compared to the food manufacturing business, relatively few new industrial products are introduced, and those introductions are typically successful. In most cases, the new products are simply replacements for inefficient or obsolete products. In such an environment, failed introductions are probably the result of errors in the product development process.     

All experience is not created equal: learning,adapting, and focusing in product portfolio management

This study explores the contingencies relating firm experience to product development capabilities, focusing on experience type (breadth versus depth) and timing (prior versus concurrent). Results from empirical tests in the U.S. mutual fund industry offer two primary findings. First, firms increase proficiency at adapting their processes to address new opportunities as they accumulate experience in entering new niches, but face initial hurdles broadening their experience base. Second, concurrent learning is capacity constrained, as product quality increases in the number of products introduced simultaneously in one niche, but quality decreases as the firm's concurrent portfolio of new products broadens. Jointly, these findings highlight that dynamic capabilities are built through prior adaptation experience and that management of a product development portfolio is an important managerial capability. Copyright © 2011 John Wiley & Sons, Ltd.     

Product development cycle time for business-to-business products

For a number of years, firms have been implementing changes in the way they develop new products, changes that are targeted at reducing overall product development cycle times. And over the years, a number of academics have conducted research trying to understand the factors that are related to reducing new product development (NPD) times. But the question remains — just how long does product development generally take in absolute numbers? Information on how long product development takes is helpful to firms for planning and controlling the flow of products into the marketplace and in determining resource needs for NPD. Other than anecdotal data pertaining to particular projects that have been commercialized by particular firms, very little hard data have been reported on this topic. This article analyzes data to quantify average cycle times for physical goods commercialized by business-to-business (B2B) firms. The data are a subset of a much larger data set from the Product Development & Management Association's (PDMA) Best Practices research. The analysis presents average product development cycle times for four different types of projects (new-to-the-world, new-to-the-firm, next generation improvements and incremental improvements), presents evidence of the lack of a relationship between cycle time and success and looks at factors that are associated with differences in the length of product development cycle times.     

Scientific foundation,patents, and new product introductions of biotechnology and pharmaceutical firms

Absorptive capacity (ACAP) has long been used in the research of technology firms as an indication of knowledge acquisition. This paper links knowledge input using new product introductions (NPI), to commercial output, addressing one of the key criticisms of research and development expenditures as a measure of an organization's effort. We propose that firms with a strong basic science foundation such as biology and chemistry seek to advance their scientific knowledge in addition to developing and selling innovative products. In contrast, corporations with a more applied focus forego fundamental scientific advancement and concentrate their actions on the development of innovative products. Results from a sample of 487 firms over a 10‐year period indicated that firms with an applied science foundation had greater numbers of NPIs, both breakthrough and innovative, suggesting that a solutions‐based approach had greater value in terms of innovative output. The pursuit of science may build knowledge, but a clear link between increased ACAP and innovative output was not found. Our results also suggest that basic science firms have a positive relationship with both breakthrough and incremental NPIs using merger and acquisition activities. Applied science firms found university alliances useful in generating NPIs.     

The Survival of New Products

We study the survival of new products in a market with horizontal product differentiation and rapid product turnover. Our data set consists of monthly sales for all new products in the Swedish beer market during 1989–1995. Results show that products with low and decreasing market shares have high hazard rates. The hazard rates are also dependent on firm characteristics; products from firms with the largest market shares face a greater risk of being withdrawn. We argue that high hazard rates of new products can help to explain high failure rates of new firms.     

Do firms sell forward for strategic reasons? An application to the wholesale market for natural gas

Cournot models of oligopolistic interaction in forward and spot markets have shown that firms may sell forward for risk-hedging reasons only, or for both risk-hedging and strategic considerations. Using data from the Dutch wholesale market for natural gas where we observe the number of players, spot and forward sales, churn rates and prices, this paper presents evidence that strategic reasons play an important role at explaining the observed firms’ hedging activity. Our test for strategic behavior is based on the theoretical relationship between the number of sellers and the incentives to sell forward: if risk-hedging is the only motive behind firms’ decision to sell forward, then hedging activity ought to decrease in the number of firms; otherwise, if strategic reasons are relevant, then firms incentives to sell forward should increase in the number of competitors.     

Per-customer quantity limit and price discrimination: Evidence from the U.S. residential mortgage market

Theoretically, if firms face a regulatory per-customer quantity limit, they should have an incentive to discriminatively charge high-demand customers higher prices and make them just willing to buy a quantity equal to the limit. In the U.S. residential mortgage industry, mortgages with origination balances above the conforming loan limits cannot be guaranteed by government-sponsored enterprises, which make lenders face a per-customer quantity limit. This paper finds that borrowers bunching at the limit pay higher interest rates due to price discrimination. This study rules out the alternative explanation that those borrowers are of higher risk (lending cost) than other borrowers.     

Linking Product Development Outcomes to Market Valuation of the Firm: The Case of the U.S. Pharmaceutical Industry*

The purpose of this research was to examine empirically the effects of new product development outcomes on overall firm performance. To do so, first product development and finance literature were connected to develop three testable hypotheses. Next, an event study was conducted in order to explore whether the changes in the stock market valuation of firms are influenced by the outcomes of efforts to develop new products. The pharmaceutical industry was chosen as the empirical context for the present study's analysis largely because the gate‐keeping role played by the Food and Drug Administration (FDA) provides a specific event date on which to focus the event study methodology. As such, this study's events were dates of public announcements of the FDA decisions to approve or to reject the New Drug Applications submitted by the sponsoring firms. Consistent with the efficient market hypothesis, this study's results show that market valuations are responsive strongly and cleanly to the success or failure of new product development efforts. Hence, one of this study's key results suggests that financial markets may be attuned sharply to product development outcomes in publicly traded firms. This study also finds that financial market losses from product development failures were much larger in magnitude than financial market gains from product development successes—indicating an asymmetry in the response of financial markets to the success and failure of new product development efforts. Hence, another implication of this study's results is that managers should factor in a substantial risk premium when considering substantial new development projects. The present study's results also imply that managers should refrain from hyping new products and perhaps even should restrain the enthusiasm that the financial community may build before the product fully is developed. The effect on firm value is severe when expectations about an anticipated new product are not fulfilled. Managers in effect should take care to build reasonable and realistic expectations about potential new products.     

Product line strategies of new entrants in an established industry: evidence from the U.S. bicycle industry

A firm's product line breadth in a given market has both benefits and costs; these effects can be more clearly seen by examining not only the number of products a firm offers, but also the degree of complexity that the product line represents. The effects of breadth are particularly important for new entrants in a relatively mature industry and I examine the breadth–survival relation on new entrants in the bicycle industry in the period 1993–98. I find that firms offering a greater number of products, those with very simple and very complex product lines, and those whose product lines have a moderate degree of overlap with rivals have the highest survival rates. Copyright © 2006 John Wiley & Sons, Ltd.     

Entry timing,exploration, and firm survival in the early U.S. bicycle industry

We explore the relationship between a firm's entry timing and its probability of surviving the early, uncertain period of its industry, and consider the trade‐off between entering early and potentially establishing a strong position in the industry vs. waiting until technological uncertainty is reduced. We hypothesize that, owing to inertial forces, firms that enter the industry at the earliest point in its history are least likely to make the conversion to the product generation that becomes the dominant design in the industry. Exploration through the introduction of new products appears to reflect a local search process and retards the transition to the dominant design. We also hypothesize that, though firms entering early may exhibit longer life spans, their advantages are limited to the period before the emergence of the dominant design. We test our hypotheses in the early U.S. bicycle industry, and find evidence consistent with the idea that inertia limits firms' abilities to make the transition between generations of product configurations. Copyright © 2006 John Wiley & Sons, Ltd.     

Surviving the gales of creative destruction: the determinants of product turnover

Innovative industries are often characterized by rapid product turnover. Product longevity may be driven by both a product's position within a market as well as its position within a firm's larger product portfolio. However, we have little understanding of the relative importance of these factors in determining product turnover and how they interact as an industry evolves. Although researchers have invested substantial effort in analyzing firm survival and turnover, there are far fewer studies of the determinants of product survival and turnover. We use hazard rate models and count regression models to describe the behavior of firms and their products with a new and detailed database on the laser printer industry. We show, first, that competition and market structure variables have a large impact on both speeding product exit and delaying product entry. Second, there is some evidence that firms that have maintained a high market share for a number of years keep their products on the market longer than those with lower market share. Finally, firms with high innovative capacity tend to enter markets frequently, but withdraw their products at average rates. Firms with strong brands tend to introduce few products and withdraw their products slowly. With these findings, the paper links product entry and exit decisions to the broader literature on firm strategic and product management. Copyright © 2006 John Wiley & Sons, Ltd.     

Market Vision and the Front End of NPD for Radical Innovation: The Impact of Moderating Effects

“Market vision” is a mental model that helps focus the organization on a new market application for an advanced technology during the fuzzy front end of the new product development process. Previous research demonstrates that firms involved in the development of radically new, high‐tech products need to develop a market visioning competence (MVC) in order to develop an effective market vision (MV), and these capabilities, in turn, have been found to have a positive effect on key aspects of the early performance (EP) of these firms—specifically, the ability to attract capital and early success with customers. Based on a major empirical study of the nanotechnology sector, the research described in this paper takes an important step forward by focusing on factors in both the external and internal environment of the firm, and their moderating impact on the paths that link MVC, MV, and EP. External structural factors relevant to the firm's competitive environment as well as internal factors, including firm resources, size, incumbency, and technology, are shown to have significant moderating effects both on the way in which MV unfolds and on its capacity for affecting positive returns for the firm when undertaking radical innovation. Five of seven hypotheses were supported by the research. Both level of incumbency (the extent to which the firm has taken part in previous generations of a given technology) and resource availability are shown to positively impact the link between MVC and MV. Also, appropriability (i.e., protection for innovations) and reputation of the firm were found to positively impact the path to EP. Finally, a low level of industry concentration—that is, a large number of small firms—were found to have a positive effect on the path to EP. In sum, the findings support the structure of the model and the majority of the hypothesized moderating relationships, suggesting important implications for management.     

RETRACTED: Integrated knowledge exploitation: The complementarity of product development and technology licensing

In light of increasing licensing, we challenge the common assumption that product development and technology licensing are substitutes. We develop a resource‐based framework, which distinguishes a firm's technological resource base and technology exploitation processes. We further combine survey, patent, and financial data of 228 medium‐sized and large industrial companies to examine the interactions of firms' product development processes and technology licensing processes in order to explain heterogeneity in new product revenues, licensing performance, and firm performance. The results underscore that product development, which indicates innovative capacity, and technology licensing, which indicates desorptive capacity, are complements rather than substitutes in integrated knowledge exploitation in medium‐sized and large firms. This complementarity is particularly pronounced in firms with an emphasis on cross‐licensing and with a strong patent portfolio. Copyright © 2012 John Wiley & Sons, Ltd.     

Postacquisition turnover among U.S. top management teams: an analysis of the effects of foreign vs. domestic acquisitions of U.S. targets

An analysis of postacquisition top management turnover among 168 cross-border and 102 purely domestic acquisitions, and a control group of 120 nonacquired U.S. firms, revealed that turnover rates in firms acquired by non-U.S. acquirers were significantly higher than in firms acquired by other U.S. firms or the control group. Further, the timing of postacquisition turnover differed in the foreign vs. domestic acquisitions. Finally, the nationality of the foreign acquirer was found to be an important predictor of turnover in certain acquisition categories. Theoretical and practical implications are discussed. © 1997 by John Wiley & Sons, Ltd.     

Development of Novel Products Through Intraorganizational and Interorganizational Networks

The pendulum appears to be swinging away from the merger mania of the 1980s, with many leaner-and meaner organizations refocusing on their core competencies. However, these more focused organizations often lack the breadth of skills and expertise necessary for developing products and services which cut across traditional technological and marketing boundaries. Complex product systems such as those under development in the home automation industry include elements from such disparate sectors as consumer electronics, telecommunications, construction, and energy. A narrow focus may prevent the novel forms of innovation necessary for successful development of such products. Using the home automation industry as an example, Joe Tidd examines the challenges involved in the development of complex product systems. When products and services cut across traditional marketing and technological boundaries, radical innovation is difficult because different firms and industries are typically responsible for developing the various subsystems and components. Successful development efforts may require novel forms of innovation–for example, architectural innovation and technology fusion. Architectural innovation involves changes in the way the components of a product are linked together, but leaves the core design concepts untouched. Technology fusion creates new products and market opportunities through the blending of diverse technologies from various fields. Two organizational factors affect a firm's ability to develop and commercialize new products based on novel forms of innovation: the internal organization of the firm, and the firm's links with other organizations, including suppliers, customers, and networks of collaborating organizations. Within a firm, the development of complex product systems is likely to require managing across traditional product-division boundaries. The breadth of competencies required may necessitate strong interfirm linkages. Comparing organizational approaches and the networks of alliances for home automation in the United States, Europe, and Japan, it appears that European firms tend to be more narrowly focused then American and Japanese firms. A rigid focus on core competencies may cause these European firms to overlook the potential for new products. Because various technologies and industries are involved, open networks are more effective than closed networks or alliances. European and American firms tend to favor closed strategic alliances, while Japanese firms typically participate in open networks and overlapping consortia. This approach gives Japanese firms an edge in the home automation industry.     

Success Through Customer-Driven New Product Development: A Comparison of U.S. and New Zealand Small Entrepreneurial High Technology Firms

Although high-tech, entrepreneurial firms may be small in size, they often play a large role in developing innovative products and thus spurring economic growth. Managers from firms of all sizes may gain useful insights by examining the new-product development (NPD) practices of these small, technology-based firms. And in an era of increasingly global competition, those managers can benefit from understanding the NPD practices of firms from various countries. William Souder, David Buisson, and Tony Garrett contribute to that understanding by describing the results of a study that compares the relative NPD proficiency of small, technology-based firms in the United States and New Zealand. The firms participating in the study (26 from the U.S. and 29 from N.Z.) operate in rapidly growing, highly competitive markets characterized by evolving customer needs. The participating companies share similar goals: creating technically superior products with unique features for emerging markets, with the ultimate goal of becoming the product and market leaders within their respective industries. Despite these similarities, the study reveals several important differences between the U.S. and N.Z. participants. Overall, the N.Z. respondents had higher levels of NPD performance than those of their U.S. counterparts. In particular, the relationship marketing and customer-focused NPD practices of the N.Z. firms set them apart from the U.S. firms. Top-level managers from the N.Z. participants report higher levels of satisfaction than their U.S. counterparts with the results of their NPD efforts. The results of the study indicate that repondents from the two countries differ in terms of the focus of their NPD mangement systems and the manner in which they strive to achieve success. For the U.S. firms in the study, their NPD management systems focus on the characteristics of the project manager. The N.Z. respondents place greater emphasis on marketing skills and NPD proficiencies. The results suggest that the higher levels of NPD performance acheived by the N.Z. firms in the study arise from greater insights into their users' needs, together with better capabilities for acting on those insights.     

Should System Firms Develop Complementary Products? A Dynamic Model and an Empirical Test

While Nintendo develops many video games internally, Apple is only marginally involved in the development of iPhone applications. This paper addresses the question: to what extent and how should system firms be involved in the development of complementary products for their “core products”? These core products may include video consoles, electronic book readers, etc. This is a highly relevant question, because the success of core products depends strongly on their complementary products, e.g., video games and electronic books. This study proposes a dynamic model for the degree that system firms should be involved in complementary product development by considering, as contingency factors, the novelty of the core, and the novelty of the complementary products. Both novelties influence the degree to which system firms should be involved in the development of complementary products. In terms of a system firm's involvement, this study makes a distinction between the degree of integration and the degree of ownership. The degree of integration reflects the extent to which the system firm is actively involved in the coordination of the complementary product, e.g., to ensure that the complementary product is optimally aligned with its core product and that the full potential of the core product is achieved. The degree of ownership reflects the extent to which the system firm finances the development of the complementary product and therefore, the degree of formal control authority over the complementary product. This model was tested using data from a survey of 99 development projects for mobile telecommunications applications. The results reveal that integration by the system firm contributes to the performance of complementary products for new core products but has a negative effect if a new complement is developed for a mature core product. In addition, ownership contributes to performance if both the core and complementary products are new. In other circumstances, a clear effect of ownership by the system firm on performance is not found. The implications of our findings are that system firms should be strongly involved in complementary product development when they introduce a new core product, and even more so if the complementary products are new. However, they should decrease their degree of involvement over time as the core product matures and, again, even more so if the complementary product is new. The paper concludes by providing practical implications for system firms in the mobile telecommunications industry and beyond.     

Commercial exploitation of new technologies arising from university research: start-ups and markets for technology

The creation of start-up firms is an important method of commercializing new technologies arising from R&D at universities and other research institutions. Most research into start-ups presumes that these firms develop products or services. However, start-ups may operate through markets for technology by selling or licensing rights to use their technology to other firms – typically established firms – who develop and sell new products or services based on the technology. In this study of 57 public start-up firms created to commercialize the results of university research, we find evidence that (1) operating through markets for technology is a common approach to commercialization, (2) start-ups that operate in markets for technology can be effectively distinguished in practice from start-ups operating through product markets, and (3) there are substantive differences in the business activities of firms depending on whether they operate through product markets or markets for technology.     

Leaders,laggards, and the pursuit of foreign knowledge

This paper analyzes how firms in different technological and market share positions use foreign R&D to augment their technological capabilities. Technology transfer issues and absorptive capacity arguments are examined to analyze the different technological capabilities of leading and lagging firms. In addition, a new strategic rationale (in terms of non‐dominant market share firms) that has not been considered in prior studies analyzing knowledge‐seeking FDI is offered. From a panel dataset which includes information on all foreign R&D investments made by publicly traded Japanese manufacturing firms (from 1974 to 1994), I show that Japanese firms investing in foreign R&D tend to be the non‐dominant market share firms, but also the technologically leading firms across fairly diverse industries. By considering both the technological and market share positions of firms, this study reveals important characteristics that influence when firms use foreign R&D as part of a strategy to augment their technological capabilities. Copyright © 2005 John Wiley & Sons, Ltd.