INTRODUCTION
Background to the research
1.1.1 The importance of new product development (NPD)
In recent years, both scholars and industry professionals have recognized the vital significance of new product development (NPD) for organizational survival and renewal NPD enables companies to diversify and adapt to the fast-paced changes in market dynamics and technology, making it essential for long-term success Moreover, it serves as a key driver of competitive advantage and overall prosperity for firms.
Research indicates that new products can significantly impact company sales, with Pessemier & Root (1973) noting they may represent up to 50% of sales across various industries A study by the American Productivity & Quality Center (APQC) and Product Development Institute (PDI) found that new products launched between 2008 and 2010 contributed to 27.3% of annual sales and 25.2% of profits (Cooper & Edgett, 2012) Notably, the top 25% of performers achieved even higher figures, with new products accounting for 36.3% of sales and 30.5% of profits (Cooper & Edgett, 2012) Additionally, the Comparative Performance Assessment Study (CPAS) by the Product Development & Management Association (PDMA) reported that new products introduced from 2007 to 2011 generated 31.1% of sales and 30.8% of profits (Markham & Lee).
2013) With regard to the top-performing 25% of firms, new products accounted for 47.9% of sales and 48.5% of profits (Markham & Lee 2013) The figures from these
2 two recent studies highlight that new products are playing an increasingly significant role in the future growth of firms
New products can help firms enhance ‘sales, profits and competitive strength’ (Sivadas
Successful new products significantly benefit firms, as highlighted by Dwyer (2000) and Crawford & Di-Benedetto (2015) This has led to a dramatic increase in investment, with nearly $20 billion allocated to new product research and development four decades ago, compared to over $100 billion spent annually today on technical development alone Consequently, countless new products are launched in the marketplace each year, underscoring the critical importance of innovation in business growth.
1.1.2 The high failure rates of new products
Given that new products are important and many firms heavily invest in NPD, the high failure rates of new products are still a challenge that firms have to confront
Approximately 50% of new products developed every year fail (Sivadas & Dwyer
2000) Barczak, Griffin & Kahn (2009) found that the success rates of new products in
Between 1990 and 2004, the new product failure rate was approximately 40%, with success rates for new product projects achieving financial goals like profitability, sales volume, and market share hovering around 50%, according to research by APQC and PDI.
Research indicates that 40% to 50% of new product development (NPD) projects fail to meet their objectives, highlighting a significant challenge in the industry (Cooper & Edgett, 2012; Crawford & Di-Benedetto, 2015; Hoffman, Kopalle & Novak, 2010) These alarming failure rates underscore the urgent need to implement strategies that can effectively reduce NPD failures.
It is important to recognize that companies do not need to eliminate failure rates entirely for two main reasons Firstly, achieving a 100% success rate for new products is an unrealistic ideal; contemporary research, such as the CPAS study, indicates that even the top 25% of performers only achieve a success rate of 82.2% (Markham & Lee, 2013) Secondly, maintaining an excessively low failure rate can suggest a lack of innovation and risk-taking, which are essential for growth and progress in product development.
‘the firm is playing it too safe with close-to-home innovations, while missing out on the (risky) breakthroughs’ (Crawford & Di-Benedetto 2015, p 7)
The significance of New Product Development (NPD) is underscored by the disappointing performance of many new products, highlighting the need for research into the factors that drive new product success (Cooper, 2013) This study aims to explore the key elements that influence the results of NPD projects.
1.1.3 The primary focus of the research
An NPD project resembles a multiplayer game where the actions of all participants, including the project team, leaders, senior management, and external stakeholders like suppliers and customers, significantly influence the performance of new products Both practitioners and academics emphasize that integration across various functional areas within firms is crucial for achieving success in new product development.
In today's turbulent competitive market and rapidly changing technological landscape, firms cannot succeed in isolation Cooperation with external partners has become essential, as many companies lack the necessary internal resources—such as finance, technology, and knowledge—for innovation Additionally, collaborating with others helps firms mitigate the risks associated with innovation.
4 innovation (e.g., technological spillovers, customers’ ignorance of innovation)
Accordingly, our research will focus on both internal factors of firms and their external partners that potentially affect NPD outcomes
Cross-functional integration during the New Product Development (NPD) process is crucial for fostering constructive discussions among team members, which minimizes misunderstandings and promotes a collaborative work environment By combining expertise and resources from various functional areas such as Marketing, Sales, and R&D, firms can enhance their knowledge base, enabling team members to access diverse information and resources to effectively address challenges in the NPD process This collaborative approach not only accelerates problem-solving but also reduces the time to market for new products Additionally, cross-functional integration facilitates the overlap of different NPD stages, further expediting the overall development process.
Eisenhardt 1995, p 362) Finally, cross-functional integration has been well documented as critical success factor of NPD projects (Ernst 2002; Evanschitzky et al 2012; Olson, Walker & Ruekert 1995; Pattikawa, Verwaal & Commandeur 2006; Troy, Hirunyawipada & Paswan 2008)
In the realm of New Product Development (NPD), engaging external partners, particularly customers, is crucial for several reasons While the literature highlights the importance of internal stakeholders like project teams, leaders, and senior management, incorporating customer feedback significantly enhances the NPD process Their involvement not only enriches the development experience but also aligns the final product more closely with market needs.
The role of customer integration in product development remains ambiguous (Brown & Eisenhardt, 1995), with no definitive consensus on its advantages (Ernst, 2002) However, focusing on customer insights significantly enhances understanding of their importance in the New Product Development (NPD) process By actively listening to customer feedback, producers can align more closely with consumer needs, reducing the risk of new product failures and improving financial outcomes such as profitability, sales volume, and market share (Hoffmann, 2012) Ultimately, the relationship with customers is paramount for generating profit compared to other business relationships, including those with suppliers and distributors (Gupta, Lehmann & Stuart, 2004; Srivastava, Shervani & Fahey, 1998) Therefore, fostering strong customer relationships can lead to superior financial performance for new products.
As discussed earlier, introducing new products into the market is indispensable to the profitability and growth of firms (Booz, Allen & Hamilton 1982; Markham & Lee
Despite advancements in product development, new product failure rates remain high This highlights the importance of cross-functional integration and customer involvement in new product development (NPD) projects As noted by Crawford & Di-Benedetto (2015), successful product development requires collaboration among various functions and active participation from customers Consequently, this study aims to explore the factors associated with cross-functional and customer integration that may influence NPD outcomes The following section outlines the specific research problems and objectives of this study.
Research problems and objectives
Research on cross-functional integration primarily examines the connection between successful integration and new product performance, as demonstrated in studies by Ayers et al (1997), Gupta et al (1986), and others However, there is a notable lack of research exploring how cross-functional integration mechanisms impact new product development (NPD) performance, with limited studies conducted by Leenders & Wierenga (2002) and Moenaert et al addressing this gap.
Despite their contributions, these studies have notable limitations Kahn & McDonough (1997a) focused solely on co-location as an integration mechanism, hindering a broader understanding of integration processes Additionally, since new product development (NPD) performance is a multi-dimensional concept, relying on a single performance measure, as seen in the works of Moenaert et al (1994) and Leenders & Wierenga (2002), offers an incomplete perspective Therefore, it is essential to approach the findings of these studies with caution.
He, Sun, and Chen (2016) inadequately measured certain variables in their study Specifically, they utilized co-location and liaison roles as indicators of job rotation; however, these two mechanisms of cross-functional integration differ significantly from job rotation in both theoretical and practical contexts.
To tackle the gap in research regarding the influence of cross-functional integration mechanisms on new product development (NPD) performance, our study aims to address this issue by answering a critical question.
Research question 1: Which cross-functional integration mechanisms affect the outcomes of NPD projects?
With respect to research on customer integration into NPD, numerous studies emphasize the relationship between achieved customer integration and new product performance (e.g., Bonner 2010; Campbell & Cooper 1999; Chang & Taylor 2016; Cui
Identifying the right customer is crucial for reducing market risks and enhancing the likelihood of success in business ventures (Enkel, Perez-Freije & Gassmann, 2017; Fang, 2008; Maidique & Zirger, 1984; Menguc, Auh & Yannopoulos, 2014).
2005, p 433), empirical studies focusing on which kinds of customers are suitable for integration purpose are relatively rare (Hoffman, Kopalle & Novak 2010; Laage-
Only two published studies to date have explored the impact of customer characteristics on new product development (NPD) outcomes: Gruner & Homburg (2000) and Carbonell, Rodriguez-Escudero & Pujari (2012) (Hellman, Linda & Perna, 2014).
There are also some drawbacks in these two studies For instance, Carbonell,
Rodriguez-Escudero & Pujari (2012) proposed only two types of customers, namely
The research on "lead users" and "close customers" has restricted our comprehension of customer characteristics in the new product development (NPD) process Additionally, Gruner & Homburg (2000) viewed new product performance as a uni-dimensional construct, which limited the understanding of NPD performance in a broader context.
Accordingly, to address the shortage of research on the effects of customer characteristics on NPD projects and the aforementioned problems, we aim to answer the second research question:
Research question 2: Which customer characteristics affect the outcomes of NPD projects?
Research contributions
The present study makes several contributions to NPD literature and business practice, which are presented as follows
This study is grounded in two theoretical frameworks: the information processing perspective and resource dependence theory, which highlight their significance and complementarity in understanding complex social systems like the new product development (NPD) process Our findings suggest that employing multiple theoretical lenses is essential for comprehensive research in this area.
Second, derived from two theories mentioned above, this study proposes numerous relationships between cross-functional integration mechanisms, customer characteristics, and NPD outcomes, and then empirically tests these relationships
Therefore, our study adds to the limited research on the effects of cross-functional integration mechanisms and customer characteristics on NPD performance
Our research offers a more detailed understanding of the factors influencing New Product Development (NPD) performance by analyzing the impact of eight cross-functional integration mechanisms and five customer characteristics on three distinct outcomes of NPD projects, surpassing the insights provided by existing studies in this field.
This research enhances our understanding of the effectiveness of various cross-functional integration mechanisms on new product development (NPD) outcomes by testing their effects simultaneously.
Our study addresses the need for research on customer characteristics that significantly influence new product development (NPD) performance, highlighting which types of customers offer the most valuable insights for the innovation process (Griffin et al.).
2013), and therefore addresses this gap in the literature
The research aims to understand whether both cross-functional integration mechanisms and customer characteristics have significant and positive effects on NPD performance
If they do, this is managerially important because managers can put time and effort into both of these areas to maximize the likelihood that new products will be successful
Understanding the effectiveness of integration mechanisms allows firms to select the most suitable options, reducing implementation costs and minimizing workplace conflict This approach fosters cooperation and knowledge sharing across functional areas, ultimately enhancing the performance of New Product Development (NPD) projects Additionally, recognizing the impact of various customer types on NPD performance enables firms to choose the right customers to engage in these projects, further optimizing outcomes.
Engaging with 10 customers is crucial for businesses as it enables them to gather valuable insights while conserving resources This approach accelerates the speed of new product development (NPD) and lowers associated costs By aligning new products with genuine customer needs, companies can significantly enhance the success rate of their product launches.
Methodology
This research employs a deductive methodology grounded in the information processing perspective and resource dependence theory, leading to the development of a conceptual model that illustrates the relationships between cross-functional integration mechanisms, customer characteristics, and new product development (NPD) outcomes Hypotheses regarding these constructs are formulated based on theoretical insights Data is gathered from marketing, sales, product, and brand managers involved in NPD projects within Australian firms The proposed hypotheses are then empirically tested using variance-based structural equation modeling (PLS-SEM) with SmartPLS 3 software.
Definitions of key terms
For clarification, the key term definitions adopted in this study are presented as follows
New products refer to ‘all new offerings that a firm develops, whether they are new products, new technologies the firm can license out, or new services’ (Yli-Renko & Janakiraman 2008, p 132)
New product development (NPD) refers to ‘the overall process of strategy, organization, concept generation, product and marketing plan creation and evaluation, and commercialization of a new product’ (Kahn et al 2013, p 458)
The New Product Development (NPD) process is a structured series of tasks that outlines how companies consistently transform innovative ideas into marketable products or services This disciplined approach ensures that organizations effectively manage the journey from concept to commercialization, facilitating the successful launch of new offerings in the competitive marketplace.
Integration refers to the degree to which ‘separate parties work together in a cooperative manner to arrive at mutually acceptable outcomes’ (O’Leary-Kelly & Flores 2002, p 226)
Cross-functional integration involves the extent of interaction and communication, the level of information sharing, the degree of coordination, and the degree of joint involvement among departments engaged in new product development (NPD).
Cross-functional integration mechanisms refer to the methods or practices that firms employ to achieve the expected levels of cross-functional integration between departments involved in NPD projects
Customers are the subsequent participants in the value chain to whom a company sells its products to generate revenue, and they may not always be the end users of those products (Yli-Renko & Janakiraman, 2008).
Customer integration, often synonymous with customer involvement, highlights the degree to which customers participate in the new product development (NPD) process within companies This interchangeable use of the terms is supported by numerous studies, including the work of Zogaj and Bretschneider (2012), and will be reflected in our research.
Research scope
Several studies have examined the impact of cross-functional integration mechanisms and customer characteristics on new product development (NPD) performance, focusing on data from a single industry to enhance the internal validity of their findings (Gruner & Homburg, 2000).
To enhance the generalizability of their findings, we gathered data from a diverse range of industries in Australia, including Machinery and Equipment Manufacturing, Food Product Manufacturing, Chemical Manufacturing, Telecommunications Services, and Medical and Health Care Services.
Our research focuses on the NPD project as the unit of analysis for several reasons Firstly, many NPD studies are conducted at the project level, suggesting that this approach may yield more significant insights compared to studies at the program or organizational levels (Chen, Damanpour & Reilly 2010; Ernst 2002) Secondly, one key outcome of our research is NPD speed, which is most directly relevant at the project level (Kessler & Chakrabarti 1996, p 1149) Lastly, analyzing at the project level allows us to capture unique situational attributes that influence both the processes and outcomes of specific projects (Kessler, Bierly & ).
Outline of the thesis
This thesis consists of six chapters Chapter 1 , introduces background to the research, and provides an overview of the research problems and objectives It then briefly
13 describes the contributions, methodology, and scope of the study The key terms used throughout this study are also defined in this chapter
Chapter 2 reviews the NPD literature to identify research gaps in the field Firstly, it reviews the factors driving NPD success Second, it explains why we investigate the effects of cross-functional integration mechanisms and customer characteristics on NPD performance Next, it focuses on research on cross-functional mechanisms, and characteristics of customers who are engaged in the NPD process to highlight the relevance of these factors to our study Finally, it provides an overview of the multi- dimensional typology of NPD performance
Chapter 3 provides the theoretical background for our research including the information processing perspective and resource dependence theory Based upon this theoretical background, we propose a conceptual framework and develop hypotheses for the relationships between different cross-functional integration mechanisms, customer characteristics, and the outcomes of NPD process
Chapter 4 describes the research philosophy, research approach, research strategy, and the design of our research It also presents the data collection and data analysis procedure of the study
Chapter 5 presents the data analysis results Firstly, it displays the results of data examination Next, the descriptive findings are presented After that, it reveals the results of the measurement model and structural model assessment Finally, the outcomes of importance-performance matrix analysis and common method bias tests are showed
Chapter 6 concludes the thesis by discussing research results, suggesting the theoretical and practical implications of the research findings, acknowledging the limitations, and proposing directions for future research
LITERATURE REVIEW
Introduction
Our research focuses on identifying the key determinants of successful new product development (NPD) We begin by reviewing the factors that contribute to NPD success, followed by an exploration of the impact of cross-functional integration mechanisms and customer characteristics on NPD projects Emphasizing the significance of these elements, we delve into the research surrounding cross-functional integration and the traits of customers involved in the NPD process Lastly, we provide an overview of the multi-dimensional aspects of NPD performance.
Success factors of NPD projects
New Product Development (NPD) is essential for the survival and growth of firms, prompting both academics and practitioners to explore factors that enhance the success of NPD projects Numerous success factors have been documented in literature, with key contributions from Montoya-Weiss & Calantone, Henard & Szymanski, Pattikawa et al., and Evanschitzky et al This synthesis of determinants of NPD success is summarized in Table 2.1.
Table 2.1 Typical success factors of NPD projects
Predevelopment task proficiency Market competitiveness
External relations Product price Company resources
Technological proficiency Project/organization size
Customer input Cross-functional integration Cross-functional communication (Sources: Montoya-Weiss & Calantone (1994), Henard & Szymanski (2001), Pattikawa, Verwaal & Commandeur (2006), and Evanschitzky et al (2012))
Table 2.1 categorizes the success factors of new products into five key areas: marketplace characteristics, organizational characteristics, product characteristics, strategy characteristics, and process characteristics Each of these categories plays a crucial role in determining the overall success of new product development.
Marketplace characteristics encompass key elements that define the target market, including market potential, market competitiveness, and environmental uncertainty Market potential indicates the size and growth of demand, along with the level of customer need for a specific product type In contrast, market competitiveness highlights the intensity of competition in the marketplace, focusing on aspects such as price, quality, service, and distribution systems Understanding these characteristics is crucial for businesses aiming to navigate and succeed in their respective markets.
Environmental uncertainty refers to the ‘degree of uncertainty due to the general operating environment faced by the firm (e.g., regulatory environment, technology uncertainty)’ (Evanschitzky et al 2012, p 37) Pattikawa, Verwaal & Commandeur
Research by 2006 indicated that market potential, competitiveness, and environmental uncertainty were not key factors in new product development (NPD) success In contrast, Evanschitzky et al (2012) found significant relationships between these marketplace characteristics and new product success This discrepancy highlights the need for further investigation into the ambiguous role of marketplace characteristics as predictors of NPD outcomes.
Success factors for New Product Development (NPD) projects include organizational culture, senior management support, external relations, organization size, centralization, and formalization Organizational culture reflects how daily decisions align with the shared values and norms of the organization, influencing the effectiveness of NPD initiatives.
An organizational culture that fosters innovation is a critical factor distinguishing high-performing organizations from their lower-performing counterparts (Cooper, 2013) This assertion is reinforced by the meta-analyses conducted by Pattikawa, Verwaal, and Commandeur (2006) and Evanschitzky et al (2012), which demonstrate a strong and significant correlation between organizational culture and new product development (NPD) performance.
A supportive organizational culture is essential for fostering product innovation, but the involvement of top management is equally crucial for the success of new products Top management's commitment encompasses their daily engagement, guidance, and oversight of project development, which significantly influences project outcomes.
Evanschitzky et al 2012; Henard & Szymanski 2001; Pattikawa, Verwaal &
Commandeur 2006) The underlying reasoning is that senior management’s support makes available the essential resources for the NPD process (Brown & Eisenhardt 1995; Cooper 2013)
Effective coordination and collaboration between firms play a crucial role in the success of new product development (NPD) projects In contrast, organizational factors such as size and centralization do not significantly influence NPD performance.
Organization size mentioned here refers to the number of employees of the firm
(Pattikawa, Verwaal & Commandeur 2006), and centralization is defined as the degree of ‘centralization or bureaucratization in the organization/project’ (Evanschitzky et al
2012, p 37) Concerning formalization that refers to the degree to which ‘explicit rules and procedures govern decision making in the organization/project’ (Pattikawa,
Research by Evanschitzky et al (2012) identified a significant link between formalization and the success of new products, contrasting with the findings of Pattikawa, Verwaal, and Commandeur (2006), which found no such relationship This discrepancy highlights the need for further investigation into how formalization influences new product development success.
Product characteristics encompass various elements related to products or services, such as pricing and their ability to fulfill customer needs effectively (Henard & Szymanski, 2001) A key factor in the success and profitability of new products is their capacity to deliver superior value and unique benefits to customers, often referred to as new product advantage (Brown & Eisenhardt).
1995; Cooper 2005a) Such products have ‘five times the success rate, over four times the market share, and four times the profitability’ of those with little advantage (Cooper
Successful products effectively meet customer desires and needs, as highlighted by research (Evanschitzky et al 2012; Henard & Szymanski 2001) Additionally, new products that are priced appropriately in relation to their performance are more likely to achieve success in the market (Evanschitzky et al 2012; Henard & Szymanski 2001).
High-tech products generally have a higher likelihood of success than low-tech products, as noted by Henard & Szymanski (2001) However, a recent meta-analysis by Evanschitzky et al (2012) reveals that the correlation between product technological sophistication and the success of new products is actually insignificant.
Regarding product innovativeness (i.e., the newness or radicalness of products), the meta-analyses of Henard & Szymanski (2001) and Pattikawa, Verwaal & Commandeur
In 2006, it was found that product innovativeness did not directly affect new product development (NPD) performance However, this conclusion was contested by Evanschitzky et al in 2012, who highlighted a significant relationship between product innovativeness and the success of new products.
In conclusion, product advantage stands out as the crucial factor for the success of new products among five key characteristics, which also include meeting customer needs, pricing, technological sophistication, and innovativeness However, the impact of product technological sophistication and innovativeness on the success of new product development (NPD) projects remains uncertain.
Strategy characteristics encompass a firm's deliberate actions aimed at achieving a competitive advantage in the marketplace, distinct from factors related to the new product development process (Henard & Szymanski, 2001).
Justification for examining the effects of cross-functional integration
mechanisms and customer characteristics on NPD performance
The success of new product development (NPD) projects can be influenced by five typical groups of success factors, yet the predictive role of certain factors within these groups remains unclear A comprehensive analysis of all these factors exceeds the scope of this discussion.
This study emphasizes the importance of cross-functional integration and customer integration in New Product Development (NPD) projects Key success factors, such as market potential, product advantages, and customer needs, highlight the crucial role customers play in NPD performance By involving customers and focusing on cross-functional integration mechanisms, the study aims to enhance NPD outcomes This approach is grounded in the understanding that customer characteristics significantly influence project success, making their integration essential for improved performance in NPD initiatives.
Cross-functional integration mechanisms and specific customer characteristics play a crucial role in the performance of new product development (NPD) projects, despite not being included in traditional success factor discussions Key mechanisms that can enhance new product success include evaluation and reward procedures, the application of information and communication technology, and job rotation Research indicates that approximately 60% of US firms utilize these integration mechanisms in their NPD efforts Additionally, customer characteristics, particularly those of lead users, have been shown to significantly impact NPD performance.
2000), customers who have a strong and close relationship with firms (Carbonell,
Rodriguez-Escudero & Pujari 2012; Gruner & Homburg 2000), and financially attractive customers (Gruner & Homburg 2000)
Research on cross-functional integration mechanisms and customer characteristics in relation to new product development (NPD) performance is limited Most studies have concentrated on the correlation between successful cross-functional integration and NPD outcomes A meta-analysis by Troy, Hirunyawipada, and Paswan (2008) explored the effects of 12 potential moderators on this relationship, highlighting that cross-functional integration pertains to the integration that has been achieved Additional meta-analyses by Henard & Szymanski (2001), Pattikawa, Verwaal & Commandeur (2006), and Evanschitzky et al have also examined this construct, underscoring its importance in the context of NPD success.
In 2012, research highlighted the significance of achieved integration, yet few studies have investigated the impact of cross-functional integration mechanisms on new product performance Most existing research on customer integration has focused on its effects on new product development (NPD) performance However, empirical studies examining the relationship between customer characteristics and NPD outcomes remain limited, as noted by Hoffman, Kopalle, and Novak (2010) and Laage-Hellman, Linda, and Perna (2014).
Table 2.2 Empirical research on the relationship between cross-functional integration and NPD performance
Integration between marketing and R&D has a positive and significant influence on NPD performance
Integration between marketing and manufacturing has a positive and significant influence on NPD performance Kahn (1996);
Integration among various functional areas (especially marketing, R&D, and manufacturing) has a positive and significant influence on NPD performance
Research by Moenaert et al (1994) indicates that project formalization and inter-functional climate are crucial for the success of product innovation, while factors like project centralization and role flexibility show no significant impact Additionally, Kahn & McDonough (1997a) found that co-location does not influence the performance of product development during pre-launch activities or product management during launch and post-launch phases.
According to Leenders & Wierenga (2002), five mechanisms—relocation and physical facilities design, personnel movement, informal social systems, cross-functional team use, and incentives and rewards—do not influence new product development (NPD) performance However, the implementation of information and communication technology positively impacts new product performance, while the use of a cross-functional phase review board has a negative effect.
According to He, Sun & Chen (2016), technical support significantly enhances the speed of new product development (NPD) projects during their later stages Additionally, process standardization plays a crucial role in improving the quality of new products Furthermore, job rotation positively influences both the speed of NPD projects in their later phases and the overall quality of the new products developed.
Table 2.3 Empirical research on the relationship between customer integration and NPD performance
Customer integration improves the performance of NPD projects
Customer involvement does not enhance NPD performance Gruner & Homburg (2000);
Integrating customers in the early stages of new product development, such as idea generation and product concept development, significantly enhances the likelihood of success In contrast, customer involvement during the middle phases, including engineering and development, does not yield the same benefits Engaging customers during prototype testing and market launch, however, remains crucial for achieving favorable outcomes.
Gruner & Homburg (2000) Lead users, close customers, and financially attractive customers positively affect NPD success, whereas technically attractive customers do not
According to Carbonell, Rodriguez-Escudero, and Pujari (2012), lead users significantly enhance the novelty and competitive advantage of services, although they do not influence the speed of market entry In contrast, close customers positively impact both the competitive advantage and the speed to market for new services, but do not contribute to their novelty.
The limited research on cross-functional integration mechanisms and customer characteristics significantly impacts new product development (NPD) performance Kahn & McDonough (1997a) focused solely on co-location as an integration mechanism, restricting a broader understanding of these mechanisms Although Leenders & Wierenga (2002) offered a thorough review of integration mechanisms, their analysis of the link between these mechanisms and new product performance was not exhaustive.
Recent research has highlighted that treating new product performance as a single-dimensional construct leads to an incomplete understanding of its effectiveness This perspective fails to capture the multi-dimensional nature of new product development (NPD) performance, as emphasized by Astebro.
& Michela 2005; Awwad & Akroush 2016; Cooper & Kleinschmidt 1987, 1995a, 1995b; Griffin & Page 1993; Storey et al 2016) In addition to this, they focused only on the pharmaceutical industry, so generalizing their findings was problematic
Research by Moenaert et al (1994) had the same issue as that of Leenders & Wierenga
In their 2002 study, Moenaert et al examined how four marketing-R&D integration mechanisms impact the commercial success of product innovation projects Focusing solely on one aspect of New Product Development (NPD) performance can result in a narrow perspective, as highlighted by Cooper and Kleinschmidt.
The findings of He, Sun & Chen (2016) should be approached with caution due to potential measurement issues in their constructs For example, the construct of technical support encompasses various elements, including quality function deployment and web-based tools, suggesting it should be treated as a formative measure rather than a reflective one Additionally, the measurement of job rotation incorporates items related to co-location and liaison roles, which are fundamentally different from job rotation itself, raising concerns about the validity of using these items to assess job rotation.
Gruner & Homburg (2000) conducted two studies examining how customer characteristics influence new product development (NPD) projects They identified and assessed four key dimensions of new product success: the quality of the new product, financial performance, the quality of the NPD process, and the cost-effectiveness of the new product.
Review of cross-functional integration mechanisms
Cross-functional integration mechanisms are the practices utilized by firms to attain desired levels of collaboration across various functional areas These mechanisms play a crucial role in enhancing integration, as highlighted by research from Im & Nakata (2008) and Pinto.
Integration mechanisms significantly influence various factors in New Product Development (NPD) performance, including knowledge sharing, consensus between marketing and manufacturing, and the effectiveness of cross-functional teams They also help mitigate inter-functional conflict and reduce goal incongruity This article reviews eight key cross-functional integration mechanisms that can enhance NPD outcomes: job rotation, cross-functional teams, cross-functional training, superordinate goals, co-location, information and communication technology, informal coordination, and joint reward systems.
Job rotation or personnel movement is a technique that employees are rotated among different departments or functional areas (Griffin & Hauser 1996; Xie, Song &
Stringfellow 2003) Role flexibility is also a term used to describe this practice (e.g., Garrett, Buisson & Yap 2006; Moenaert et al 1994; Souder & Moenaert 1992) Based on the information processing perspective (e.g., Galbraith 1973, 1977), Souder &
Moenaert (1992) expected that role flexibility could help improve the sharing of information between marketing and R&D personnel so as to reduce uncertainties about
31 customer needs, technology, competitors, and resources The findings of Moenaert et al
(1994) partly support this expectation because R&D’s role flexibility increased information flows from R&D to marketing, but marketing’s role flexibility had no relationship with information flows from marketing to R&D Song, Neeley & Zhao
In 1996, research supported the findings of Souder & Moenaert (1992) by showing that personnel movement significantly improved information exchange between marketing and R&D during both the planning and development stages of new product development (NPD) projects Additionally, job rotation facilitated enhanced two-way communication between R&D/engineering and manufacturing units, further promoting collaboration across departments.
Job rotation fosters positive information sharing and reduces goal incongruity among marketing, R&D, and manufacturing in new product development (NPD) projects It enhances the acquisition, assimilation, and transformation of new external knowledge, while also promoting knowledge generation throughout the NPD process.
In their 2000 study, Song, Xie, and Dyer proposed that rotating personnel among marketing, R&D, and manufacturing roles could reduce the likelihood of marketing managers engaging in avoidance behavior, which is defined as the tendency to overlook conflicts or disagreements between different functions This approach aims to foster collaboration among managers, enhancing teamwork and communication across departments.
Collaborating behavior represents ‘the extent to which the marketing manager seeks the common interests of all functions to achieve an integrative solution’ (Song, Xie & Dyer
2000, p 52) Nevertheless, their results did not support these hypotheses by indicating that job rotation had no relationship with both avoiding behavior and collaborating
Research by Griffin & Hauser (1996) suggests that rotating employees between departments may enhance the collaboration between marketing and R&D teams However, a study conducted by Leenders & Wierenga (2002) found no significant evidence supporting a link between personnel movement and the integration of marketing and R&D functions.
Job rotation has a significant impact on new product development (NPD) performance, as suggested by Griffin & Hauser (1996), who noted that personnel movement enhances marketplace success and shortens the time to market for new products However, Leenders & Wierenga (2002) found no correlation between personnel movement and new product performance, indicating a complex relationship that warrants further investigation.
A recent study (2016) indicates that job rotation enhances the speed of later stages in new product development (NPD) projects and improves product quality This evidence highlights the significance of job rotation in influencing NPD performance, which is the focus of our research.
2.4.2 The use of cross-functional teams
The use of cross-functional teams refers to the extent to which NPD teams consist of members from various relevant functional areas within the firm (Rauniar & Rawski
Cross-functional teams are often referred to by various terms, including "task forces" (Olson, Walker & Ruekert, 1995) and "functional diversity" (Carbonell & Rodriguez, 2006a; Dayan, Elbanna & Di-Benedetto, 2012; Sarin &) These terms highlight the collaborative nature and diverse skill sets that enhance team effectiveness.
McDermott 2003; Sethi, Smith & Park 2001) Reviewing the literature, Griffin &
Hauser (1996) proposed that the cross-functional team use could help improve integration between marketing and R&D This proposition was supported by Leenders
Research by Wierenga (2002) indicates that cross-functional teams significantly improve the integration between marketing and R&D Similarly, Nihtilọ (1999) demonstrated that this approach also fosters better collaboration between R&D and production functions.
The implementation of cross-functional teams effectively minimizes inter-departmental conflicts, particularly between marketing and other key areas such as R&D, manufacturing, and finance This collaborative approach not only reduces rivalry between marketing and R&D but also fosters a more cohesive working environment, enhancing overall organizational performance (Maltz & Kohli, 2000; Maltz, Souder & Kumar).
2001) However, the greater level of functional diversity was found to lead to the greater level of political behavior in NPD teams (Dayan, Elbanna & Di-Benedetto 2012)
Political behavior is defined as ‘intentional acts of influence to enhance or protect the self-interest of individuals or groups’ (Dayan, Elbanna & Di-Benedetto 2012, p 472)
The use of cross-functional teams in new product development (NPD) enhances decision quality by fostering diverse perspectives and knowledge sharing among employees from different backgrounds, as suggested by the information processing perspective (Galbraith, 1973, 1977) and resource dependence theory (Pfeffer & Salancik, 1978) Research by McDonough (2000) and Lee & Chen (2007) supports the notion that cross-functional collaboration positively impacts NPD performance, indicating that companies can achieve better outcomes through the integration of various functional areas in their NPD projects.
Wierenga (2002) did not find any relationship between them More specifically, Griffin
Research indicates that while Hauser (1996) proposed that cross-functional teams could improve marketplace success and accelerate new product development (NPD), the actual relationship is more intricate Studies by Eisenhardt & Tabrizi (1995) and Zirger & Hartley (1996) confirmed that these teams can reduce development time, yet Sarin & McDermott (2003) found no significant correlation Additionally, Carbonell & Rodriguez (2006a) identified an inverted U-shaped relationship, highlighting the complexity of cross-functional team dynamics in NPD speed.
The study reveals a curvilinear relationship between functional diversity and new product development (NPD) speed, where moderate levels of functional diversity enhance NPD speed, but excessive diversity can hinder it Additionally, while functional diversity was expected to show an inverted U-shaped relationship with new product quality and innovativeness, findings indicated no significant correlation with these aspects This underscores the importance of cross-functional teams in influencing NPD performance, which is further explored in our research.
Cross-functional training is a strategic approach designed to help employees gain insights into various functional areas, fostering effective collaboration across departments (Maltz & Kohli 2000) By standardizing terminology, acronyms, and processes, this training breaks down communication barriers, reducing misunderstandings and enhancing interdepartmental cooperation (Arndt, Karande & Landry 2011; Griffin & Hauser 1996) It promotes a deeper understanding of each department's goals, perspectives, and priorities, while also building trust and sensitivity among team members (Maltz & Kohli 2000; Cadogan et al 2005) Ultimately, cross-functional training aims to minimize conflicts and enhance integration across different functional areas.
Review of customer characteristics
Customer involvement is crucial for the successful development of new products and services; however, many firms struggle to integrate customer feedback into their new product development (NPD) processes due to several challenges Firstly, customers often find it difficult to articulate their needs, leading to uncertainty about what they truly want Secondly, excessive focus on customer input can result in niche or unoriginal products that lack innovation Lastly, concerns about confidentiality may deter firms from seeking customer insights, as they fear the potential exposure of sensitive business information.
Involving the right customers in new product development (NPD) projects can help firms overcome 47 key challenges The ideal customers are those who have a clear understanding of their needs and can articulate how to meet them, contributing to innovative product creation while maintaining confidentiality However, identifying these suitable customers poses a significant challenge, as companies often struggle to recognize who the right candidates are.
In this article, we explore five customer types that are considered ideal for businesses: lead users, innovative customers, those with product expertise, price-savvy customers, and financially attractive clients Each of these characteristics can significantly enhance a company's understanding of its target market and drive successful strategies.
2.5.1 Customers with lead user characteristics
The term “lead user” is coined by von-Hippel (1986), and he defines lead users, including user firms and individual users of a given product or service, as those who (1)
Lead users identify emerging marketplace needs well before the majority of consumers do, allowing them to significantly benefit from tailored solutions This proactive approach drives innovation, as these users modify existing products or propose entirely new offerings that are not yet available Rather than focusing on commercialization, lead users innovate primarily to address their own requirements, highlighting the importance of understanding user-driven innovation in product development.
Companies that stay ahead of market trends can create commercially viable ideas that often result in successful new products As a result, experts suggest that firms should engage lead users in the new product development (NPD) process to enhance innovation and market relevance.
1999; Schreier & Prügl 2008; Spann et al 2009) because they provide valuable input and are useful for increasing the success rates of new products (Alam 2011; Spann et al
Lead users play a crucial role in new product development (NPD), as evidenced by various studies highlighting their significant contributions Urban & von-Hippel (1988) found that new product concepts from lead users in the PC-CAD field were highly favored by the majority of users, being both practical and market-friendly (Herstatt & von-Hippel 1992; Olson & Bakke 2001) These innovative ideas can lead to products that are new to the firm and even the world (Lüthje & Herstatt 2004) A study by Lilien et al (2002) at 3M compared the effectiveness of lead user idea-generation techniques to traditional methods, revealing that the former not only gathered both needs and solutions from lead users but also produced more novel ideas Consequently, products developed from lead user insights achieved annual sales over eight times higher than those created through conventional techniques, underscoring the value of leveraging lead users in NPD based on resource dependence theory (Pfeffer & Salancik).
Gruner and Homburg (2000) emphasized that insights from lead users serve as valuable resources for companies aiming to create successful new products Their research demonstrated that engaging lead users in new product development (NPD) projects significantly enhances the likelihood of product success.
49 in circumstances where new products fail and need to be re-launched Harrison &
Biacore, a biotechnology tools producer acquired by GE Healthcare, faced a critical decision to re-launch a failed product or risk losing a €500 million investment, as reported by Waluszewski (2008) By engaging with lead users, Biacore successfully developed new applications and re-launched the product Additionally, research by Carbonell, Rodriguez-Escudero, and Pujari (2012) indicated that while lead users did not influence the speed to market for new services, they significantly enhanced service innovation and competitive advantage This highlights the essential role of lead users in new product development (NPD) projects, prompting our study to explore their impact on NPD outcomes.
Before reviewing innovative customers, we need to discuss one of the findings of
Gruner & Homburg (2000) discovered that customers deemed technically attractive do not influence the success of new products, likely due to differing needs from the broader target market, which can mislead firms in their new product development (NPD) efforts The concept of "technical attractiveness" was evaluated through two key factors: customers' innovativeness and their know-how, indicating that these factors reflect distinct characteristics of customers.
The limited face validity of the construct may explain why this type of customer did not impact new product success Our research breaks down the concept of technically attractive customers, as defined by Gruner & Homburg (2000), into two separate variables: innovative customers and another distinct category.
50 customers with product expertise In this subsection, we discuss innovative customers Customers with product expertise are discussed in the next subsection
Innovative customers are often characterized as individuals who are open to new experiences, willing to embrace change, and eager to explore novel products and services They tend to adopt or purchase new offerings earlier than the average consumer, demonstrating a distinct novelty-seeking behavior Based on the definitions provided by various researchers, innovative customers can be defined as those who actively seek and try new products, services, and technologies ahead of others.
Innovative customers often navigate uncertain usage scenarios in the market, quickly identifying the shortcomings of existing products and suggesting valuable improvements (Schreier & Prügl 2008) Essentially, they can reveal both the problems and potential solutions related to current offerings From the perspective of resource dependence theory (Pfeffer & Salancik 1978), the insights they provide regarding product issues and enhancements serve as a crucial resource for companies aiming to boost their new product development (NPD) success (Gruner & Homburg).
Innovative customers play a crucial role in new product development (NPD) projects, as evidenced by numerous studies that empirically examine the link between customer innovativeness and new product adoption behavior (Foxall, 1995; Goldsmith, Freiden & Eastman, 1995; Im & Bayus).
& Mason 2003; Lassar, Manolis & Lassar 2005; Lu, Yao & Yu 2005) More recently,
Truong et al (2014) found that an innovative product form enhances perceived value, product liking, and purchase intention among innovative consumers They define product form as the visual elements, including color, shape, size, and proportion, that contribute to a product's appearance However, there is a lack of research examining how innovative customers influence new product development (NPD) outcomes Gruner & Homburg (2000) address technically attractive customers, which encompasses both customer innovativeness and know-how, but this does not clarify the effect of innovative customers on NPD performance.
Joseph (2012) highlighted that companies with effective new product development (NPD) engage with "technically eager" customers, who, while not technical experts, are known for their creativity and inventiveness However, the study did not explore the impact of these innovative customers on NPD outcomes This gap in understanding prompts us to investigate the relationship between innovative customers and NPD projects in our research.
As have just been discussed above, we decompose the construct “technically attractive customers” of Gruner & Homburg (2000) into two distinct variables, namely
The multi-dimensional nature of NPD performance
NPD performance is a multi-dimensional concept that encompasses financial performance, market impact, and opportunity window, as identified by Cooper & Kleinschmidt (1987) Financial performance assesses the overall success of new products through metrics such as relative profits, sales objectives, profitability levels, and payback periods Market impact evaluates the influence of new products in both domestic and international markets Opportunity window measures the ability of new products to create new opportunities for the firm, including the introduction of new product categories and expansion into new market areas.
Taking a different angle, Hart (1993) categorized NPD performance into two main groups: financial performance and non-financial performance Financial performance is
The evaluation of performance encompasses sales growth, average profits, and the contribution of new products to turnover This assessment includes a comparison of the focal firm's sales growth against its five largest competitors and the industry benchmark Non-financial performance metrics focus on technological competitiveness, cost and price competitiveness, and the time-to-market for new products Additionally, it is measured by the number of R&D projects undertaken, the number of new product launches, and the percentage of successful product launches.
Griffin & Page (1993) identified five key dimensions of new product performance: financial performance, customer acceptance measures, product-level measures, program-level measures, and firm-level measures They emphasized that financial performance, along with customer and product categories, plays a crucial role in assessing overall product success.
‘all aspects of project-level measures’ (p 295) From this point, we argue that NPD performance can be measured at three main levels, which are firm, program and project levels
At the firm level, the success of new products is evaluated through various metrics, including the Return on Investment (ROI) of the development program, alignment with the current business strategy, and the success or failure rates Key indicators also include the percentage of profits and sales generated by new products, achievement of five-year objectives, and the potential for future opportunities Additionally, overall program success is assessed alongside the percentage of sales and profits that are under patent protection (Griffin & Page, 1996).
In project management, the term "program" often refers to a specific new product initiative or a group of interconnected projects, as highlighted by Cooper & Kleinschmidt (1995a) Understanding this definition is crucial for effective program-level management.
A new product program encompasses all new product initiatives within a company or division, focusing on two key dimensions of new product development (NPD) performance: program impact and program profitability Program impact is assessed through metrics such as the percentage of sales generated by new products, the success rate of these products, their technical performance, and their overall influence on sales and profits In contrast, program profitability evaluates the success of new products in achieving sales and profit goals, their profitability compared to expenditures and competitors, and the overall success of the program in relation to industry rivals.
Cooper & Kleinschmidt (1995b) identified two key performance dimensions of new product development (NPD) projects: financial performance and time performance Financial performance encompasses success rates, profitability ratings, technological success ratings, domestic market share, and their impact on company sales and profits In contrast, time performance focuses on time efficiency and adherence to schedules Additionally, Griffin & Page (1996) introduced three dimensions of NPD success, which include customer-based success, financial success, and technical performance success.
Customer-based success is measured through various metrics, including customer satisfaction, market share, revenue growth, and the overall number of customers In contrast, financial success is determined by achieving profit and margin targets, assessing break-even time, and evaluating the Internal Rate of Return (IRR).
Investment (ROI) Technical performance success is gauged by competitive advantage, innovativeness, meeting performance specs, meeting quality specs, speed to market, launch on time, and development cost
Tatikonda and Montoya-Weiss (2001) proposed an innovative method for classifying the performance dimensions of new product development (NPD) projects, suggesting that new product performance can be assessed through operational outcomes such as product quality, unit cost, and time-to-market, as well as market outcomes including customer satisfaction and relative sales.
Tatikonda & Montoya-Weiss (2001), in the context of new service development,
According to Carbonell, Rodríguez-Escudero, and Pujari (2009), innovation speed and technical quality are key operational outcomes, while competitive superiority and sales performance represent market outcomes Similarly, Cankurtaran, Langerak, and Griffin (2013) identify operational outcomes in new product development (NPD) projects as development costs, market entry timing, technical product quality, and competitive advantage, with market outcomes including customer satisfaction, revenue, sales volume, and market share Financial outcomes encompass break-even time, return on assets and investment, margins, and profitability This multi-dimensional typology of NPD performance suggests a hierarchical structure where operational outcomes serve as primary indicators of new product success, ultimately leading to financial performance (Cankurtaran, Langerak & Griffin 2013; Huang, Soutar).
& Brown 2004) Recall that section 2.2 of this chapter mentions that NPD speed and new product advantage (i.e., operational outcomes) are predictors of NPD success
NPD performance is a multi-dimensional concept analyzed at the project level, focusing on three key dimensions: NPD speed, new product advantage, and financial success of new products The upcoming chapter will elaborate on the rationale for selecting these specific outcomes in evaluating NPD projects.
Conclusion
A review of the literature reveals that eight integration mechanisms and five customer characteristics significantly influence the performance of new product development (NPD) projects To address existing research gaps and issues, we gathered data across various industries to examine the direct impacts of these mechanisms and characteristics on three distinct NPD outcomes.
Various theories elucidate the influence of cross-functional integration mechanisms and customer characteristics, including the information processing perspective (Galbraith, 1973, 1977), resource dependence theory (Pfeffer & Salancik, 1978, 2003), contingency theory of organization (Lawrence & Lorsch, 1967; Thompson, 1967), the resource-based view of firms (Barney, 1991; Lado & Wilson, 1994; Wernerfelt, 1984), knowledge-based theory (Grant, 1996; Spender, 1996), and the input-process-output model of group effectiveness (McGrath).
In this study, we utilize the information processing perspective and resource dependence theory to support our research framework The subsequent chapter will explain the rationale for selecting these theories and will formulate hypotheses regarding the interplay between cross-functional integration mechanisms, customer characteristics, and new product development (NPD) outcomes.