Pioneering versus incremental innovation: Review and research propositions

46 J PROD INNOV MANAG 1994:11:46-61

0000

Pioneering Versus Incremental Innovation: Review and Research Propositions

Abdul Ali

Marketing’s role in supporting a company’s efforts to Introduction develop pioneering and incremental products can be

quite diferent. Abdul Ali examines published articles Acceleration in the rate of technological development,

and offers a set of propositions to show how several shorter product life cycles, more intense competition

factors influence the product development decision. He due to maturing of markets and globalization, and a

cites examples fi-om the business world to illustrate fragmentation of the marketplace due to changing demographics, has forced firms to increasingly rely on

these propositions. This article suggests that a firm new products for sales and profitability. A Booz, Allen should take into account several factors relating to its and Hamilton survey of 700 companies in 1982 capabilities, along with various project and market reported that these companies expected 31% of their

characteristics, in order to decide what products it profits over the following five years to come from new

should develop. products [13]. In fact, some observers of new product trends in the US expect that by the year 2000,50% of profits will come from products that are five years old or less [9 11. This increasing importance of new products deserves more attention from researchers and practitioners alike.

There are several categories of new products in terms of their newness to the company and marketplace [77, p. 3111. Because of scarce resources and high stakes, it is becoming increasingly important to know what type of new products to actively seek and select for development [ 181. There are instances where a firm is successful by developing a major innovative product (e.g., Apple in the personal computer market and Honda in the car market). Similarly, there are cases where a firm is equally successful by improving existing products (e.g., IBM in the personal computer market and Toyota in the car market). Further, Cooper found in an empirical study that technology-push ideas were as likely to succeed as market-pull products [24]. The 1982 Booz, Allen, and Hamilton survey reported

Address correspondence to Abdul Ali, Ph.D., Assistant Professor of that only 10% of all new products introduced over the

Marketing, University of Maryland, College Park, MD 20742. last five years were “new-to-the-world” products

0 1994 Elsevier Science Inc. 655 Avenue of the America\, New York, NY 10010

0737-6782/94/$7.00

NEW PRODUCTS: REVIEW AND RESEARCH PROPOSITIONS

BIOGRAPHICAL SKETCH

Abdul Ali is Assistant Professor of Marketing at the College of

Business and Management at the University of Maryland, College

Park. He received his bachelor’s degree in engineering from the

Indian Institute of Technology, and a Ph.D. in marketing from

Purdue University. Dr. Ali researches and lectures in the field of

product and pricing management, new product development, and

marketing research. He has published articles in the Journal of

Business Research, Management Science, and Managerial and

Decision Economics.

[ 131. At the same time, the survey reported that advances in electronics technology prompted a larger percentage of new-to-the-world product introductions in the information processing industry (over 20%) and in the instruments and controls industry (15%). This implies that several factors influence the type of product development across industries and raises the important research question: what factors influence the type of product development across industries and firms?

This article addresses this important question. Past researchers have looked into several issues concerning new product development and management. Empirical research has investigated the new product development process [28,133], identified what steps a firm needs to carry out, and what impact each step has on new product outcomes [27], and assessed the role of models in supporting and improving the new product development process [83]. Empirical investigations have also identified the possible factors that underlie new product success, suggested what separates suc- cesses from failures [24,25,28,61,105], and stressed the need for developing a new product development strategy for companies that can provide a comprehen- sive activity and directional mandate for managers [29,30]. The analysis of environmental and situational factors will help a company in developing such a new product development strategy, including new product selections that are appropriate for the company’s operation. However, relatively few studies investigate the influence of factors on selection of new products [l&135].

The main focus of this study is to review mostly environmental and situational factors that have an impact on the selection of new products based on pioneering or incremental technology. In this respect, this article complements the study of Johne and Snelson [61] that reviewed internal or controllable factors associated with achieving success in a “bread-

J PROD INNOV MANAG 47 1994; 1 I :4&61

and-butter” type of development. This article addresses the issues of developing practice strategies for new product selection given differences in environmental and situational variables. The focus in this article is consistent with Cooper and Kleinschmidt’s suggestion that the environmental/situational variables remain valid screening criteria for project selection though the controllable variables are the dominant factors in new product success [28]. Further, Yoon and Lilien suggest that success of the original new industrial product depends heavily on uncontrollable market variables [ 1351.

Management scientists have investigated the project selection and resource allocation problems of new product development at the project level [4,11,23,35,120] and analyzed the selection of product portfolio for firms that operate with multiproducts in multimarkets [ 13 1,132]. However, project selection models focus on prioritizing candidates as the basis for choosing winners, whereas most real-world project selection decisions involve more than simply setting priorities or choosing the best project [ 1211. What concerns managers most is the selection of a new product that is “appropriate” for the company. Internal and environmental factors determine what types of new products are appropriate for a company. Moreover, in some cases new product selection may involve evaluating a single opportunity rather than sets of alternatives available to a company. Also, researchers criticized portfolio models by citing that such models have their roots in financial investment portfolio theory, whereas product investments by firms are structurally different from financial market investments [36,37,130]. Research scholars have recognized these shortcomings of existing models and methods. At a recent conference, participants recommended an interdisciplinary approach to investigate the product development process [ 1281. The purpose of this article is to review the findings from the economic and management literature in a way that provides an interdisciplinary perspective and a useful basis for marketing scholars to further research types of product development. By analyzing various interrelated factors that influence the nature of product development, this review may improve our understanding of the types of new products a firm develops, and stimulate further research on the topic.

This article dichotomizes new products as “pioneering” or “truly innovative” products versus “incremental” or “modified” versions of existing products. Though in the real world, new products may

48 J PROD INNOV MANACi 1994;11:46-61

come with varying levels of newness to both the market place and company, we focus here on these two cases to contrast and isolate the influence of several factors on selection of new products. The study of these two dissimilar types of innovation will provide better insight into the influence of situational and environmental factors in selection of different types of new products. This is consistent with the past literature. For example, Yoon and Lilien studied the effects of market characteristics and strategy on performance on two different types of new industrial products and found that the “original new products” and “reformulated new products” were heterogene- ous in key strategic aspects of their R&D and marketing activities [ 1351. The idea of product development in this article is similar to what Ro- bertson called radical or discontinuous versus incremental or continuous innovation [loll. We define pioneering products as technological breakthroughs. Managers design such products to find specific uses or markets for a promising new technology and expect them to take a relatively longer time to develop. However, while such pioneering products may be risky investments, they also tend to produce hand- some returns if commercialized [85]. This notion of pioneering products is similar to what Kleinschmidt and Cooper called highly innovative products, which they found likely to be more successful akin to low innovative products rather than the less successful moderately innovation products [75]. We define incremental products as product line extensions or modifications of existing products. Managers design such products to satisfy a perceived market need and expect these products to take a relatively shorter time to develop.

The competition between Pratt & Whitney and General Electric (GE) in the jet-engine market provides a useful illustration for our categorization of two types of innovations (see, for example, the Wall Street Journal, January 22,1988). After a thirty-year domina- tion, Pratt & Whitney lost the market lead to GE in 1985. In the early 198Os, Pratt & Whitney decided to invest $1 billion in manufacturing a new, mid-size engine to power Boeing’s odd-sized 757 plane. GE did not follow suit. GE, meanwhile, had been working away at improving its engines for the large 747 aircraft to the point where its engine was improved in some technical areas and cheaper. So, Pratt & Whitney decided to build a brand new big engine at a cost of $1 billion to overcome GE’s gains in unit manufacturing cost. Ex post, we may think that Pratt & Whitney has

A. ALI

Sim Kntry Harriers

Incumbent . Enlq ‘Timing

. I.icensing

Figure 1. Framework product development.

for investigation into the nature of

undertaken a riskier but potentially more lucrative line of new product development, whereas GE was involved in product modification. Pratt & Whitney may be using this product selection strategy to exploit is comparative advantage and preclude the possibility of GE following a similar strategy. Of course, if Pratt & Whitney had the resources to pursue both types of product development projects, it may have been better off choosing a diversified portfolio.

In order to understand the interaction of several factors influencing the type of product development, this article structures the review according to Figure 1. Figure 1 displays a survey of the factors that have been studied in the economics and management literature with regard to their impact on the type of product development decisions. Although the review here is not an exhaustive one, it attempts to capture the underlying relationship between several key factors and the nature of innovative activity and refers, wherever possible, to the relevant work done in the management area. Moreover, we cite only those findings from the economics literature that are most likely to be relevant to marketing scholars. For an integrative review on the subject in the economics area, see Kamien and Schwartz [67], Reinganum [ 1001, and Scherer [ 1091. The factors studied here are organized under three broad headings: firm or industry characteristics, market characteristics, and innovation characteristics. Not only do we consider the direct effects of these factors on the type of product development, but also we discuss the interaction effects of these factors throughout this article.

NEW PRODUCTS: REVIEW AND RESEARCH PROPOSITIONS J PROD INNOV MANAG 49 1994;11:46-61

This study derives a number of propositions from the

review and provides some examples from the market

place in support of the propositions. See Table 1 for a

summary of the propositions derived here.

The remainder of this article is organized as follows:

First, we review the literature on firm or industry

characteristics. Firm structure and behavior are linked

to the nature of the product development process.

Then, we discuss the market characteristics in terms of

customer, competition, demand substitutability, and

technology. Next, we report the findings from the

investigation of innovation characteristics in terms of

technological uncertainty. Finally, we derive the

implications for marketing managers and outline

future research directions.

Firm or Industry Characteristics

The content of this section closely follows the structure-conduct paradigm developed by industrial organization economists. Scherer suggests that con-

duct or behavior of firms depends upon the structure of the relevant market, which includes, among other

Table 1. Summary of Propositions

Firm size

Entry barriers

Incumbent market leader

Entry timing

Licensing

Technology

Sequence of innovations

Competition

Customer

Uncertainty

PI

P2

P3

P4

P.5

P6

P7

P8

P9

PlO

factors, the number and size distribution of firms and

the presence or absence of barriers to entry for new

firms [109].

Structure

Concerning structure, key factors that have received

attention in the literature include firm size [ 109,112],

entry barriers [21,64,1 lo], and incumbent monopoly

[6,54,72,97].

Firm size. Foremost among those who propose that

large firms do more innovation is Schumpeter.

Schumpeter states that the larger firms are more

efficient in conducting R&D [113]. Galbraith also

emphasizes the importance of firm size by asserting

that the costs of technological innovation in modem

times are so great they can be borne only by large firms

[49]. Scherer further listed some advantages for large

firms [109].

1. Research is both risky and expensive, which may

put small firms in a dangerous position.

2. Economies of scale exist for large firms.

Introduction of pioneering products is more likely to increase with firm size.

Companies in an industry with moderate entry barriers will develop more pioneering products than would those in an industry with either low- or very high-entry barriers.

(a) Potential entrants, more often than incumbents, will develop more pioneering products which replace existing products.

(b) Incumbents, more often than entrants, will develop more modified versions of existing products. However, once preempted by an entrant, they are more likely to be fast followers.

The success of a pioneering product (modified product) will be more likely to increase with flexibility in R&D and manufacturing skills (marketing skills).

Large firms will be less likely to license out a major product innovation, but will do so when multiple innovations are available (or anticipated). Small firms, however, will be more likely to license out a major product innovation.

The consumer durable industry will have more pioneering products than would the consumer nondurable industry.

In an industry where technology is changing very rapidly, different firms participating in that industry will more likely develop a stream of pioneering products than would a single firm creating a persistent monopoly.

As the number of firms in an industry increases, the rate of introduction of pioneering products (modified products) increases (declines).

In an industry with anticipation for future innovation leading to a new product standard, a firm may

be more successful by developing an incremental innovation in the short term.

Firms, on average, will select a project for a risky pioneering product development that has high probability of early discovery

50 J PROD INNOV MANAG A. AL1 1994;11:46-61

3. Learning effects and benefits from scale economies are realized in other parts of the large firm’s operations.

4. Large firms can make process innovations and have economic advantages.

However, Scherer’s contention that riskiness and costliness of innovation deter small firms from

developing new products may not hold in cases where the lack of new product development may force a small firm to exit the market. Further, risk aversion of individual decision makers and over-organization may create a disadvantage for large firms. Whereas Scherer [107] and Phlips 1941 found a significant relationship between size and inventive effort, Mansfield did not find any such relationship [84]. Schmookler suggests that beyond some magnitude, size does not appear conducive to the innovation effort or output [ 1121.

Ettlie and Rubenstein propose similar hypotheses and find empirical support to argue that one of the major reasons for inconsistencies in research findings on organizational size and product innovation is that the type of innovation has not been taken into account [39]. For example, smaller companies produce the greatest number of new products per million dollars of research and development than do bigger ones (Busi- neck America, June 1986, p. 2-7). Scherer suggests that small firms may be at their best in the early, most inventive stages of the process of technical advance, while large corporations enjoy a comparative advantage in detailed development generating relatively few patentable inventions [ 1091. It may be optimal that a small firm, often developing a pioneering product, is acquired by a large firm, which, in turn, commercial- izes the innovative product. Thus, there is a need to distinguish between early-phase and late-phase activity in the process to study the effect of firm size on new product development. Development and introduction of pioneering products are more likely to increase with

firm size up to a point, beyond which increasing size does not contribute to more radical product development, but rather continues to help in commercializing innovative products acquired from small firms. On the basis of the mixed results, we propose the following:

Pl . Introduction of pioneering products is more likely

to increase with firm size.

The above proposition has some support in the business world. Companies are making the distinction between technology and innovation. Northern Tele-

corn, for example, depends on Bell-Northern Research Ltd. to continue to develop the innovative products and systems that will support Northern Telecom’s climb to the top ranks of the world telecommunications industry [106]. The proposition implies that smaller firms may develop new products internally, whereas larger firms may license or acquire new products from external sources. Companies like Johnson and Johnson, Du Pont, and Upjohn systematically search for technologies that can be appropriated from outside their own labs [30].

Entry barriers. The disparate innovation activity between large and small companies can be attributed to some extent to the imperfect market condition created by entry barriers. Acs and Audretsch observe that large companies tend to have a relative innovative advantage in industries that are capital intensive, concentrated, highly unionized, and produce a differentiated product [2]. This suggests that a large firm has an advantage in developing an innovative product in an industry with high-entry barriers. This raises the question: How will small firms, who may have some advantages in an industry with low-entry barriers reap the benefits from their innovations when entry into the market is relatively easy ? Comanor suggests that industries with moderate entry barriers will have more R&D activities relative to their size [21]. This is because easy entry and subsequent erosion of profit in industries with low-entry barriers, or insulation from the threat of new competition in industries with high-entry barriers, can dull a firm’s incentive to

conduct R&D. While Comanor’s suggestion concerns the extent of R&D activities in an industry, we can extend his argument to the product development activities of industries with different levels of entry barriers. Pioneering products may be a more risky investment due to greater variability of return when compared to minor product development [ 131. As a result, companies in an industry with low-entry barriers may not recover full investment costs and profits from development pioneering products because of easy entry, and companies in an industry with high-entry barriers may have no incentive to develop highly uncertain innovative products. This suggests that entry barriers have a nonlinear effect on introduction rates of pioneering products, and, further, that the effect is an inverted U. We may summarize this argument as follows:

P2. Companies in an industry with moderate entry barriers will develop more pioneering products than

NEW PRODUCTS: REVIEW AND RESEARCH PROPOSITIONS J PROD INNOV MANAG 51 1994; 1 I :46-61

would those in an industry with either low- or very high-entry barriers.

In an industry with high-entry barriers, innovation can be encouraged by inducing competition through deregulation (e.g., airline industry), breaking up of a large company (e.g., AT&T), or forced licensing (e.g., ready-to-eat breakfast cereal industry). In an industry with low-entry barriers, firms can develop partnerships to share the burden of an innovation. For example, the small gas-turbine industry has lower financial entry barriers when compared to the large gas-turbine industry [80]. In this market, Rolls-Royce has joined with MTU and Turbomeca in the development of the MTR 390, a small gas turbine; similarly Textron Lycoming and Pratt & Whitney have been discussing a range of agreements with several engine makers for the development of a small gas turbine [80].

Incumbent market leader. A factor that should play an important role in the type of product development decision is the effect of existing products and projects already underway in a company’s choice of product development strategy. An incumbent fun-t with a large share in the existing product market may have less incentive to develop pioneering products which may displace the demand for its existing product. The findings in the economic literature suggest that an incumbent’s choice of product development is sensitive to the degree of technological uncertainty in the production of the innovation. When innovation is highly uncertain, a firm that currently enjoys a large market share will invest at a lower rate than would a potential entrant for an innovation which promises the winner a large share of the market [ 1001. This is because the incumbent firm receives profit flows before successful innovation. The period is of random length, but is stochastically shorter the more the incumbent (or the potential entrant) invests. The incumbent has relatively less incentive than the entrant to shorten the period of its incumbency, when he is not sure about the success of developing a product with highly uncertain returns. When innovation is certain, the opposite is true. Here the incumbent monopolist has a greater incentive to preempt product development than would a potential entrant because he or she is sure of successful product development and has more at stake than an entrant [54]. Aron and Lazear also argued that new entrants and firms that are less dominant in existing markets are likely to open up new markets, because such firms enjoy a relative benefit from high-variance strategies and are affected differ-

ently by cannibalization than are incumbents [5]. It is more likely that pioneering product development involves more uncertainty in comparison to minor product development. However, one wonders, might not the incumbent firm recognize that if it does not develop the new product, its potential rival will, and, therefore, it should develop the new product to maintain its position in the market. The incumbent firm may not introduce the new product to shorten the reward stream of its existing product. However, once an entrant introduces a new product, the incumbent firm may want to be a fast follower. Conner found that when the leading firm deliberately decides to forego being a first-mover in a new market, it may spend more than its challengers on research and development, thereby retaining a competitive advantage [22]. Under such a strategy, Conner found that the leading company will develop a new generation of its product and then shelve the new product until a competitor successfully challenges the old one. We may summarize the discussion as follows:

P3 (a) Potential entrants, more often than incumbents, will develop more pioneering products which replace existing products.

(b) Incumbents, more often than entrants, will develop more modified versions of existing products. However, once preempted by an entrant, they are more

likely to be fast followers.

Even when a leading firm does not develop a new product earlier to put it on a shelf, it may want to be a fast follower once some other firm has developed a new product. For example, Toyota Motor Corp., Japan’s largest automobile maker, has earned that distinction by allowing competitors to take risks with new models and overseas ventures before following in their footsteps [ 193.

Behavior

While the relationship between industry structure and R&D activities has received considerable attention among economists, firm conduct or behavior has not been much explored. Needham pointed out that the profit for any particular invention, and, therefore, the incentive to invent, will depend not only on the output levels of individual firms but. also on their R&D behavior [90]. Key factors that have received attention in the economics and management science literature and are reviewed here are the market timing and entry

52 J PROD INNOV MANAG A. AL1 1994:11:46-61

decision [8,66,81,103,111,124], and licensing [6,50,68,7 1,116]. For an excellent review of the impact of controllable and behavioral variables on the success of incremental innovation in the management literature, see Johne and Snelson [61].

Entry timing. The trade-off between the advantages and disadvantages of being the pioneer or the follower is the major issue for the entry strategy decision [8,95,103,111,124]. A murket pioneer is defined in the literature as the first entrant in a new market with a pioneering product [ 1111. Robinson and Fomell studied the sources of pioneer advantages and found that pioneers tended to have high-quality products, broader product lines, and lower prices. In convenience goods, market pioneers gained additional advantages due to distribution effects. Pioneers also benefited in markets with low price and low-purchase frequency, which suggests brand name advantages [ 1031. Urban et al. investigate the market share effects of being a pioneering brand and suggest that the order of entry of a brand into a consumer product category is inversely related to its market share [ 1241. Similarly, in a simulated market environment, Green and Ryan found that the three entry strategy components, (1) timing of entry, (2) magnitude of investment, and (3) degree of competitive advantage, were closely associated with the performance of the firms [56]. Fersht- man, Mahajan, and Muller, however, suggest that mere order of entry has no relevance to market share in the long run [42]. Rather, it is the effect of order of entry on production costs, advertising costs, price elasticity, and, by implication, quality, distribution, and breadth of line that matter. Olleros has further extended his argument by claiming that a certain type of technological superiority may harm the chance of survival of the pioneering firm and suggests that in order to improve its future survival and prosperity, a firm should make its initial technological breakthrough available to other firms and use its monopoly position in first-generation technologies to carve out for itself a secure position in second- and third-generation technologies [92]. McIn- tyre [87] suggests that sales for radically new products often depend on the development of an associated infrastructure. In other words, success of a pioneer is not ensured just by developing a radical innovation if the product is “ahead of its time.” Recently, Robin- son, Fomell, and Sullivan suggested that initial market pioneer skills and resources differ from, but are not superior to, later entrants [ 1041. They found that pioneers, early followers, and late entrants tend to have different skill and resource patterns. For example,

Robinson et al. suggest that a relatively small firm skilled in marketing is well suited for late entry in a market niche [ 1041. Their findings are based on Abell’s hypothesis that market evolution changes success requirements [ 11. Although superior resources and skills focus on the competencies of a firm (supply-side factor), the success of a new product also depends on the needs and expectations of the market (demand-side factor). For true innovation, the product launched will be at an early stage of its life cycle and demand will be “fluid” at this stage. Thus, a firm not only needs to ensure the availability of R&D and manufacturing resources and skills to develop an innovative product, but also it should be flexible enough with these resources and skills so that the innovative product can successfully meet the “fluid” demand pattern at this stage.

A firm needs to be flexible in a market where technology is changing rapidly along with customers’ preferences. Peters, for example, suggests that today’s management wisdom is predicated on stability, and none of its tools, such as basic accounting practices, can cope with the new rate of change [93]. The answers to this problem are speed, flexibility, and responsive- ness, born of new (especially information-based) technology. A large body of literature has been published on flexible manufacturing which shows that flexible manufacturing improves productivity and inventory turnover [31]. The emphasis here is that a firm also needs to be flexible with other functional skills to gain success with its new product.

The timing of introduction is critical for an innovative product which often changes the market in many fundamental ways. Lilien and Yoon highlighted this importance of perfect timing by suggesting that the timing of market entry is a qualitative strategic decision as well as a quantitative, tactical decision [8 11. The qualitative decision is typically addressed as an entry-strategy problem: Should a firm try to be a pioneer or a follower? The authors mentioned above have studied this strategic aspect of the order of entry decision. The quantitative decision of market entry is typically addressed as an entry-time problem: When should a new product enter the market? Kalish and Lilien suggest that when introducing a new technology, significant penalties may be associated with mistiming introduction [66]. The tactical decision of entry time is a problem of balancing the risks of premature entry and the missed opportunity of late entry. The problem is further aggravated when the entire product life cycle is short, as in many high-tech

NEW PRODUCTS: REVIEW AND RESEARCH PROPOSITIONS J PROD INNOV MANAG 53 1994:11:46-61

markets. In that case, firms may, most often, miss the right timing of entry. Mixed results of success are then expected for pioneers. Lilien and Yoon observe that the likelihood of success for the first and second entrants tends to be lower than that for the third and fourth entrants and the likelihood of success for the

third and fourth entrants tends to be higher than that for the fifth and six entrants [81]. In other words, the result suggests that there is a nonlinear relationship between the order of entry and the likelihood of new product success which is very different from the earlier findings. We can then summarize the above discussion as follows:

P4. The success of a pioneering product (modified product) will be more likely to increase with flexibility in R&D and manufacturing skills (marketing skills).

Note that the above proposition only implies that a firm’s proficiency and flexibility in technical skills are more critical for its pioneering product’s success. It is understood that a firm still needs to carry out activities that make up the new product process to enhance its chance of success [27,28]. There is some evidence that US companies are recognizing this need for flexibility. Some large companies essentially transform them- selves into small companies by adopting the flexible task-oriented methods of those organizations and dividing major development programs into segments that are assigned to individual teams for parallel execution [38]. For example, “intrapreneuring,” wherein established companies allow their creative employees to function as entrepreneurs within the organization, is becoming popular as a way to stimulate innovation [69]. An example of this trend is AT&T’s policy of giving financial and organizational support to personnel committed to researching, developing, and marketing original ideas [60]. 3M and other companies have similar programs. Also, some companies are now contracting with independent research organizations to obtain flexibility and low overhead to venture into new arenas [43]. It often makes good business sense to go outside for expertise in an unfamiliar technology. The David Sarnoff Research Center is one such example of a contract- research facility that sells its services to such corporate clients as GE and Thomson SA of France [65]. Licensing, which we will discuss next, is another example of ensuring a flexible R&D policy. Similarly, contract manufacturing is gaining popularity among large companies as a way to gain flexibility in their

operations. The Wall Street Journal recently reported that contract manufacturing-in the US electronics market, a $4 billion-a-year industry dominated by small concerns-is expanding at an annual rate of 12% [ 1141. For example, Comptronix Corporation makes electronic components for Northern Telecom Ltd.

Licensing. The discussion so far has concentrated on the incentives to innovation where the inventing firm will commercialize the new product in the market place. The possibility of market sharing through licensing out is another important element of firm conduct that has received attention among economists and management scholars. A company may rely on external methods such as inward technology licensing (ITL) instead of internal R&D to develop a new product. Atuahene-Gima suggests that organizational characteristics, management perceptions and characteristics, and availability of ITL opportunities may influence a firm’s decision to adopt ITL in place of internal R&D [7]. Also, many companies evaluate licensing to unaffiliated firms as an alternative to foreign direct investment when they consider manufacturing in foreign markets. Adam et al. suggest that companies with high licensing operations tend to be relatively large in their industry, highly diversified, spend a relatively higher proportion of their value- added on R&D, and have less foreign experience [3]. Also, a firm may not license its pioneering products, but will likely license minor innovations if firms are approximately equally efficient regarding production cost prior to innovation, and the licensing is of a fixed-fee type [71]. The finding is based on the assumption that licensing will occur if, and only if, it raises the producers’ joint profits. That is, the licensing negotiation results in a Pareto-efficient outcome. This is true for a single innovation where the licensing of small innovations is profitable whenever an industry- wide cost increase would reduce industry profits. Katz and Shapiro suggest that this will not occur in the case of a drastic innovation that affords the innovator an effective monopoly [7 11. This may work for a large firm, but a small firm may lack marketing experience and resources to exploit the opportunities that a major innovation provides. Small firms may be more successful by licensing the technology to large firms. Shepard further suggests that when buyers care about price and quality, licensing induces quality competition and permits the supplying firms to make a quality commitment that would not be credible for one firm [117]. In a market where multiple innovations are anticipated, a successful innovator may find another

54 J PROD INNOV MANAG 1994:11:46-61

A. ALJ

incentive to license its innovation. Gallini has shown

that a successful innovator may license its current new

technology to reduce the incentive of a potential

entrant to develop its own, possibly better, technology

[50]. Gallini and Winter further suggest that such

strategic licensing is more likely to occur when the

firms’ production costs differ widely [51]. The low-cost firm has an incentive to offer a license to the

high-cost firm in order to make further research by the

high-cost firm unattractive, while at the same time the

low-cost firm economizes on development expendi-

tures through licensing. From the existing literature on

licensing, we can suggest:

P5. Large firms will be less likely to license out a

major product innovation, but will do so when

multiple innovations are available (or anticipated).

Small firms, however, will be more likely to license

out a major product innovation.

Small firms may be more successful by licensing

the technology to large firms. For example, Mips Computer System, Inc., a $40 million, privately held company has licensed its reduced instruction set computing (RISC) architecture design to such giant systems companies as Digital Equipment Corporation (DEC) and Tandem Computer, Inc. This has increased total market awareness of the design and contributed 40% of $10 million to $15 million pretax net incomes in 1989 [86]. Similarly, Newtech Development, a Sydney, Australia-based company, has formed a licensing arrangement with large corporations like General Motors to expand its business in the USA

[ 151. A large company may license the technology to others in order to establish its technology over the

competitive one. Sony, for example, negotiated licensing arrangements with other marketers in the

hope that the spread of its 8-mm video technology

would ensure the format’s survival over the competitive format of 0.5-inch tape marketed by RCA, Panasonic, Hitachi, and others [73]. Also, a large company may license new technology to discourage

others from developing newer technology. Himont, Inc., a specialty chemical firm, has licensed its

Spheripol process to such polymakers as Hoechst and

Aristech. When asked about the logic of selling the ideas that have made it rich, its chairman suggested that soon the company would be introducing newer technology that the company hopes will keep it ahead

of the pack [781.

Market Characteristics

Technology

Opportunity. Comanor associates technological opportunity with ease of achieving product differentiation [20]. He hypothesizes that research effort would be greater in industries where the prospects for successful product differentiation are better. He also suggests that the level of R&D expenditures may be higher in nondurable goods than durable goods markets because of greater opportunities for product differentiation in the former case. Nondurable goods are tangible goods that normally are consumed in one or a few uses (e.g., food items, toiletries), whereas durable goods are tangible goods that normally survive many uses (e.g., refrigerators and other home appli- ances, machine tools, and clothing) [77, p. 4331. Shrieves suggests additional reasons for a greater R&D activity level in the nondurable goods market [118]. He argues that the rate of imitation of innovations would be greater in the nondurable consumer goods and material input industries than it would in the nonspecialized producer goods or specialized equipment industries for two reasons: (1) technological complexity is probably less for the former classes of products; and (2) the incentive to imitate is probably greater in consumer goods and material inputs as these types of goods have higher purchase frequency. However, greater R&D activity in the nondurable goods market does not ensure the development of a greater proportion of pioneering products. If the technological complexity is less in nondurable goods markets, then lack of appropriability and high spillover of new technology will induce firms not to develop pioneering products. Spence suggests that the appropriability problem is a unique one for R&D [ 1221. If R&D for the single firm is not appropriable, the initial incentive to do R&D is reduced. The research findings then suggest the following:

P6. The consumer-durable industry will have more pioneering products than would the consumer non-

durable industry.

A survey of 700 US companies conducted by Booz, Allen and Hamilton found empirical support for this statement [ 131. The survey findings suggest that the consumer-durable industry will have more new-to-the- world products than the consumer nondurable indus-

try.

NEW PRODUCTS: REVIEW AND RESEARCH PROPOSITIONS J PROD INNOV MANAG 1994; I1:46-61

55

Sequence of innovations. The discussion so far has

concentrated on the case of a single innovation.

Reinganum develops a model of industry evolution

based upon a sequence of innovations that highlights the

dynamic evolution of the market [99]. The industry is

characterized by a turnover of technological leadership

rather than a single continuing leader, as at any given

time an incumbent does not want to forfeit any existing

stream of profit by inventing a drastic innovation. It is in

this sense that the equilibrium process resembles

Schumpeter’s “process of creative destruction.” Vick-

ers, using a two-firm model, finds that when the product

market is very competitive, there is increasing domi-

nance by one firm which wins most or all of the races;

but when it is not very competitive, there is a process of

“action-reaction” in which market leadership is con-

stantly changing hands [127]. Delbano extends the

results of Vickers by examining the consequences on the

evolution of market structure of having payoffs that

depend on the technological history of the firms [34].

Delbano’s model suggests that with incremental innova-

tions, increasing dominance (i.e., technology leadership

is strengthened over time) seems more likely than

catching up (i.e., technology leadership is progressively

eroded by a rival). All three models implicitly assume

that multiple innovations are possible in a sequential

manner and a firm’s product development decisions are

based on a planning horizon that anticipates such

multiple innovations; but this is possible only in a

handful of industries where rapid technological change

shortens the product life cycle. We can summarize the

findings as follows:

P7. In an industry where technology is changing very rapidly, different firms participating in that industry

will more likely develop a stream of pioneering

products than would a single firm creating a persistent

monopoly.

Note that this finding is consistent with the

argument that technical knowledge is dispersed across

firms [ 1231. Geroski and Pomroy, based on a dynamic

model applied to ten years of data (1970-l 979) for

seventy-three UK industries, suggest that innovation

and changes in market concentration interact in a

relatively rapid, mutually reinforcing, but rather weak

spiral of increasing innovation and decreasing concen-

tration [53]. In other words, different firms develop the

sequence of innovations.

Competition

Besides investigating the relationship between market structure and R&D activity in an industry, economists

have also studied the impact of competition on the innovation process. The importance of the competitive effect on product development strategy is evident from the fact that most of the propositions discussed in this article are derived under competitive settings. To avoid

repetition, we focus this section on the following issue: How does the nature of competition in the existing market as well as the anticipated competitive behavior concerning the new product affect firms’ product development strategies? Scherer was the first to suggest that rivalry stimulates rapid development of new products [ 1081. Whereas Lee and Wilde [79] found support for Scherer’s argument, Loury suggested that as the number of firms in an industry increases, the equilibrium level of firm investment declines [82]. A difference in cost specification attributes this to difference in equilibrium results. Loury assumed that firms commit R&D expenditures up front [82], whereas Lee and Wilde assumed that expenditures occur over time and firms can stop investing once someone has succeeded [79]. It is more likely that managers will commit up-front development expenditures on product modification projects than on pioneering projects which are by nature highly uncertain. Dasgupta and Stiglitz distinguished the competition in R&D from the competition in product markets [33]. They show that competition in the current product market reduces the level of innovation (relative to monopoly), whereas competition in R&D increases the level of innovation possibly beyond the socially optimal level. Katz and Ordover suggest that cooperative decision making among firms will decrease incentives for R&D if the innovators are product-market competitors and intellectual property rights are strong [70]. In other words, competition and not cooperation will induce innovation. The competition in R&D is more likely to be relevant for pioneering

products which managers design to find specific uses or markets for a promising technology (“technology- push” products), and the competition in the current product market is more likely to be relevant for modified versions of existing products which managers design to satisfy a perceived market need (“demand-pull” products). The research findings then suggest the following:

P8. As the number of firms in an industry increases, the rate of introduction of pioneering products

(modified products) increases (declines).

56 J PROD INNOV MANAG A. ALI 1994;11:46dl

The Wall Street Journal reported that a competitive battle between US Surgical Corporation and Johnson and Johnson spurred innovations in surgical devices [ 1341. Similarly, alternative interexchange carriers (IXC) offer competitive prices for a variety of services in a market dominated by AT&T, US Sprint, and MCI. On a large scale, these carriers are spurring competition and innovation in the market [41].

Customer

Although the focus, so far, has been upon the manner in which market structure affects the supply of inventions, Fixler examines the effect of the structure of the invention-buying industry upon the incentive to invent and concludes that the existence of supply-side advantages for a monopoly is not sufficient for the claim that a monopoly provides the greatest incentive to invent [44]. Fixler suggests that by appropriately specifying the per-unit cost differential, either a competitive buying industry or a monopoly buyer can be made to provide the greatest incentive to invent.

Reinganum presents a static game theoretic model of a firm’s decision to adopt a technological innovation of uncertain profitability and determines the (Nash equilibrium) range of initial production costs for which each firm prefers to adopt the innovation [97]. It is generally observed that firms do not adopt an innovation simultaneously. The heterogeneity of firms in terms of (1) differential access to information regarding innovation, (2) managerial willingness to take risk, (3) declining adoption cost over time, and (4) positive or negative externalities upon the remaining nonadopters of an industry, generates the diffusion of an innovation over time [ 1001. Also, an adopting organization most often follows a sequence of config- urations across discrete levels of use to incorporate an innovation [136]. In that case, a firm that develops innovative products would be better off by developing successive generations of new products that should incrementally build onto the functionality achieved from previous generations. Farrell and Saloner show that in cases where the adoption of an innovation confers positive externalities upon all users (e.g., VCR format, computer software), a firm may find it optimal to wait until its more eager rivals have adopted it [40]. Further, Balcer and Lippman find that the critical lag length-beyond which the firm immediately adopts the best available technology increases with the anticipated rate of future innovation [9]. We can then suggest that in an industry where technology is

changing rapidly and the adoption of an innovation confers a positive externality on the remaining nonadopters, a firm may be more successful by developing a modified product because its customers may buy the modified product to remain competitive in the short term and wait for the pioneering technology until the technology standard is established and the value of the adoption of new technology outweighs the cost of adoption with the increased numbers of early adopters. Further, Foster suggests that development of such hybrid technology may buy some time for a defender [45]. For example, Goodyear developed bias-belted radials in response to Michelin’s introduction of radial tires [45]. We can summarize these arguments as follows:

P9. In an industry with anticipation for future innovation leading to a new product standard, a firm may be more successful by developing an incremental

innovation in the short term.

A case in point is the innovation of high-definition television (HDTV). It is likely to be three to four years before HDTV becomes a reality in the US. As it is now proposed, HDTV would require a reassignment of all broadcast channels and would mean that customers must replace all existing sets with expensive new receivers [74]. Although the Federal Communications Commission has yet to decide which of three standards (US, Japanese, or European) to choose, it has been suggested that improved definition TV (IDTV), which operates within the present transmission format, is a way of getting into the digital TV market [20]. Some companies have already developed hybrid technology to enter the market. NBC, Thomson Consumer Electronics (formerly known as RCA Consumer Electronics), and RCA’s former David Sarnoff Re- search Center, for example, have unveiled a hybrid system through which present broadcasting equipment could be used to produce both conventional and wide-screen pictures with somewhat enhanced resolu- tion [114].

Innovation Characteristics

Uncertainties

According to Arrow, one of the important reasons for market failure in resource allocation is uncertainty about the invention [6]. Uncertainties are of two types. A firm is subject to technological uncertainty in the

NEW PRODUCTS: REVIEW AND RESEARCH PROPOSITIONS J PROD INNOV MANAG 51 1994; I 1:46-61

sense that it cannot predict with certainty the amount of R&D required to complete the innovation as well as its duration, outcome, and value. Furthermore, market uncertainties exist because rival firms may simultaneously choose to invest in their own inventions. Economists have studied the problem of selecting a portfolio of projects by investigating the effects of a “winner take all” patent mechanism on the riskiness of the research strategies chosen by competing firms as well as on the firms’ incentives to undertake similar research projects. Dasgupta and Maskin suggest that private aversion to losing the R&D race leads firms to select too high an expected rate of technological change and excessively risky projects. Firms also select overly similar research projects on average [32]. Klette and De Meza identify the economic reasons for the firms’ selecting riskier projects [76]. According to them, the mean preserving spread (adding more probability weights to the tails of a completion time distribution of a project while leaving the mean completion time unchanged) of riskier projects raises the present value of an R&D program and enhances the change that the first success will occur early. Hence, for a private firm engaged in a patent race, it is especially important to choose a research program that raises the probability of early discovery. We can summarize these arguments as follows:

PI 0. Firms, on average, will select a project for a risky pioneering product development that has high probability of early discovery.

We, however, do not observe the above normative implication in the real world. Hayes and Wheelwright offer a number of explanations for the reluctance on the part of managers to introduce risky, pioneering products including managerial aversion to risk, as observed through their tendency to minimize errors of commission while tolerating high errors of omission [17,59].

Conclusions

The importance of new products is readily apparent from the extent to which firms rely on new products for profitability. However, a large portion of the new products developed by US firms are not innovative enough to improve the competitive positions of the firms. It has been suggested that US firms focus on short-term results rather than longer-term goals and capabilities may explain their loss of competitive

advantage to foreign firms [59], and consequently, US firms are not spending enough on R&D, particularly in high-tech products which will be the driving force for future growth and profitability [89]. Such under- investment in R&D will hurt the competitive position of US firms since R&D spending intensity is found to be strongly associated with subsequent growth in sales [88]. To improve their competitive position in global markets, US companies need to improve product development and management, but to do so requires a better understanding of that process. For example, Rabin0 and Wright highlight the inadequacy of the traditional cost accounting system in the changing competitive and technological environment and propose a cost accounting approach that enhances product planning and an evaluation of product launch programs [96].

Past researchers have looked into several issues concerning the new product development process and identified factors underlying new product success. We can say that the emphasis in the literature has been on identification of activities that a firm should carry out in improving its new product success. Although it is useful for a firm to know what types of activities it should carry out in developing a new product, likewise it is useful to know for what types of new products it should undertake such activities. This is important since different types of new products have different objectives, different marketing programs, and are introduced in different environments [135]. We at- tempt to investigate the influence of factors on types of new products that a firm will develop. This article provides an interdisciplinary perspective of the factors that have an impact on new product selection. We develop a set of propositions to show how several factors influence the type of product development decision.

This article investigates the impact of environmental and situational factors on two types of product innovations, based on the understanding that such a review will contrast the influence of factors on two dissimilar innovations. Also, it reflects the managerial concern that a firm should balance its new product portfolio between technically ambitious pioneering products and market or cost-driven incremental products that flow from customer analysis. This article proposes that in determining the type of products to develop, a firm should consider factors such as: (1) firm size, incumbency, entry barriers, entry timing, and licensing (firm characteristics); (2) technological opportunity, competition, and future development (mar-

58 J PROD INNOV MANAG A. AL1 1994;11:46-61

ket characteristics); and (3) technical uncertainties associated with product development (project charac-

teristics).

Managerial Implications

While the theory of what factors influence the type of

product development is of academic interest, it is also important to marketing managers, as is evident from the fact that firms are increasingly relying on new products for profitability. It is important because the types of strategies and tactics managers will use to develop and market new products will depend upon the underlying factors influencing the new product success rate. This article suggests that a firm should take into account several factors (firm, project, and market characteristics) besides development costs and expected reward flows to decide what products it should develop.

The analysis of environmental and situational factors (firm, project, and market characteristics) is a necessary condition for effective planning including new product development. Such analysis helps in identifying internal strengths and weaknesses and external threats and opportunities that a company can use to assess the adequacy of its current performance and generate appropriate strategies for improvement. These strategies then decree what types of new products are the best fit for a company. Moreover, the strategy that a firm uses to develop a particular type of new product is closely linked to the performance results that a firm achieves [26]. Crawford found that many companies are increasingly using such strategic techniques to develop a set of policies and objectives designed to guide new product development [29]. He called such policy and objective statements the Product Innovation Charter. Internal and environmental factors influence the Product Innovation Charter and, consequently, types of new products companies develop. For example, a small firm operating in a competitive and technologically vola- tile market may focus on R&D skills, follow a controlled growth objective, commit to a program of selective innovation based on exploiting in-house technology, and intend to market a pioneering quality product. From the propositions developed in this article, we may draw the following tentative guide- lines for new product selection for companies operating in a given environment:

1. A firm, irrespective of its size, will be more likely to innovate in an industry with moderate entry barriers, for the durable goods product market or in an industry with intense competitive activity.

2. A firm may be more successful developing a hybrid technology when customers wait for the emergence of a dominant standard for an innovative technology or when customers anticipate further innovations.

3. A relatively small firm should either continuously strive to be innovative and whenever possible license out its technology to expand its business or enter late a market niche with suitable market skills.

4. And, a relatively large incumbent should not take its position for granted and should continuously keep itself abreast of new technology so that once preempted, it can be a fast follower.

Future Research Directions

This article presents a framework for types of product development and derives a set of propositions from the review of the economics and management literature. There are several issues that are not addressed in this article. The foremost of them is that we need to empirically validate all propositions. Most noteworthy in the existing literature is the absence of any empirical work aimed at testing and validating the proposed models. Reinganum made a survey of game theoretic models of R&D and suggests that the researchers must extend these models in more realistic directions and must make attempts to gather the specific data required to test these models directly (98,100]. Further, we need to investigate some other factors, such as the managerial decision-making process, which have influence on new product selection.

This article derives the propositions from the perspective of a firm undertaking a single product development project-true innovation versus product modification. In reality, a firm routinely undertakes a portfolio of product developments. It is worthwhile, then, to suggest some directions than can be pursued further. Concerning product line selection, should a firm develop close substitute products to strengthen its position in a product market or develop distant substitute products to reduce vulnerability that arises from operating in a single market? On the one hand, Schmalensee suggests that brand proliferation (read close substitute) by the incumbent firms deters costly entry [ 1 lo]. When proliferation causes each brand to


have a relatively low market share, the share any potential entrant can hope to obtain is even lower, since an entrant must locate between existing brands, thus crowding the characteristic space even further. On the other hand, Brander and Eaton suggest that if all firms in an industry develop distant substitute products, the consequent competition may be so intense as to deter entry [ 141. There is need for a theory that can explain these suggestions for product line development.

We recommend here a flexible approach to conduct new product development to ensure success in a market where technology is changing rapidly along with customers’ preferences and expectations. In this area there are numbers of interesting research ques- tions. Should a firm achieve flexibility by taking a license of a competing technology or should it hire a contract-research firm to do parallel research? When is it best for a firm to commit itself irrevocably to product design and features, and when should it seek to change the design or features of its product to meet the changing demand? Should it develop and sell a successive generation of products in a phased manner or simultaneously if possible? Further, how does the size of a firm affect these decisions? Clearly, there is scope for further theoretical and empirical work in this area to improve our understanding of product development decisions.

The author would like to thank Gabriel Biehal, Carol Emerson,

Robert Krapfel, and Sanjit Sengupta for their comments on the

earlier draft of this paper, as well as two anonymous reviewers and

the editor for their helpful comments and suggestions.

References I.

2.

3.

4.

5.

6.

Abell, D. F. Strategic windows. Journal ofMarketing 412-26 (July 1978).

Acs, 2. J. and Audretsch, D. B. Innovation, market structure, and firm size. Review of Economics and Sfafisfics 69:567-574 (November 1987).

Adam, Y., Ong, C. H., and Pearson, A. W. Licensing as an alternative to foreign direct investment: An empirical investigation. Journal of Product Innovation Manqemenf 5( 1):32-49 (March 1988).

Aldrich, C. and Morton, T. E. Optimal funding paths for a class of risky R&D projects. Managemenr Science 21:491-500 (January 1975).

Aron, D. J. and Lazear, E. P. The introduction of new products. American Economic Review 80:421-426 (May 1990).

Arrow, K. J. Economic welfare and the allocation of resources for invention. In: Rare and Direction of Incenrive Acriviry. National Bureau of Economic Research, Princeton University Press, 1962, pp. 609-625.

7.

8.

9.

IO.

I I.

12.

13.

I 4.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

J PROD INNOV MANAG 59 I 994; I I :4&6 1

Atuahene-Gima, K. Inward licensing as an alternative to internal R&D in new product development: A conceptual framework. Journal of Product Innovation Management 9(2): 156167 (June 1992).

Bain, J. S. Barriers to Competinon. Cambridge, MA: Harvard University Press, 1956.

Balcer, Y. and Lippman, S. A. Technological expectations and adoption of improved technology. Journal of Economic Theory 34292-318 (1984).

Baumol, W., Panzar, J., and Willig, R. Contestable Markets and the Theory of Industry Structure. San Diego, CA: Harcourt Brace Jovanovich, 1982.

Baker, N. R. R&D project selection models: An assessment. IEEE Transactions On Engineering Managemenf 2 I : 165-l 7 I (November 1974).

Bhattacharya, S. and Mookherjee, D. Portfolio choice in research and development. Rand Journal of Economics 17:594605 (Winter 1986).

Booz, Allen and Hamilton. New Products for the 1980’s. New York, NY, 1982.

Brander, J. A. and Eaton J. Product line rivalry. The American Economic Review 74:323-334 (June 1984).

Brooks, K. Newtech’s strategy for a U.S. business. Chemical Week I38:70-74 (June 18, 1986).

Bulow, J. I., Geanakoplos, J. D., and Klempcrer, P. D. Multimarket oligopoly: Strategic substitutes and complements. Journal ofPo/ifica/ Economy 3:488-5 I 1 (June 1985).

Business Week. Marketing: The new priority, a splintered mass market forces companies to target their products. 96106 (November 21, 1983).

Calantone, R. and Cooper, R. G. New product scenarios: Prospects for success. Journal of Marketing 45:48-60 (Spring 1981).

Caplen, B. Staying ahead by following. Asian Business 26:24-30 (April 1990).

Cohen, A. Look sharp, suppliers: HDTV will be a great show. Elecrronic Business 14:28,30 (April I, 1988).

Comanor, W. S. Market structure, product differentiation, and industrial research. Quarterly Journal of Economics 8 I (4):639-657 (1967).

Conner, K. R. Strategies for product cannibalism. Strategic Manage- ment Journal (Special Issue), 9:9-26 (Summer 1988).

Cooley, S. C., Hehmeyer, J., and Sweeney, R. J. Modeling R&D resource allocation. Research Management 40 (January-February 1986).

Cooper, R. G. Identifying industrial new product success and failure. Industrial Marketing Management 8: 124-l 35 (I 979).

Cooper, R. G. The dimensions of industrial new product success and failure. Journal of Marketing 43(3) (Summer 1979).

Cooper, R. G. How new product strategies impact on performance. Journal of Product Innovation Management 1:5-l 8 (January 1984).

Cooper, R. G. and Kleinschmidt, E. G. An investigation into the new products process: Steps, deficiencies, and impact. Journal of Product Innovafion Management 3:7l-85 (June 1986).

Cooper, R. G. and Kleinschmidt, E. G. What separates winners from losers? Journal of Product Innovation Manqemeni 4: 169-l 84 (1987).

Crawford, C. M. Defining the charter for product innovation. Sloan Manqemenr Review 21:3-l 2 (Fall 1980).

Crawford, C. M. New Product Managemenr: Strategic Planning for New Products: The Product Innovation Charter. Boston: Richard D. Irwin Inc., Chapter 3:44-70 (1991).

Cusumano, M. A. Manufacturing innovation: Lessons from the Japanese auto industry. Sloan Managemen? Review 30:29-39 (Fall 1988).

Dasgupta, P. and Maskin, E. The simple economics of research portfolios. Discussion Paper No. 1322. Harvard Institute of Economic Research, Cambridge, MA: Harvard University Press (June 1987).

60 J PROD INNOV MANAG 1994;l 1:46-61

33. Dasgupta, P. and Stiglitz, I. Uncertainty, industry structure and the speed of R&D. Eel/ Journal ofEconomics 11: l-28 (Spring 1980).

34. Delbano, F. Market leadership with a sequence of history dependent patent races. Journa/ ojlndustrial Economics 38:95-101 (September 1989).

35. Deshmukh, S. D. and Chikte, S. D. A unified approach for modeling and analyzing new product R&D decision. TIMS Studies in the

Manqement Sciences 15: 163-I 82 (1980). 36. Devinney, T. M. and Stewart, D. W. Rethinking the product portfolio:

A generalized investment model. Management Science 34(9): 108& 1095 (September 1988).

37. Devinney, T. M., Stewart, D. W., and Shocker, A. D. A note on the application of portfolio ‘theory’: A comment on Cardozo and Smith. Journa/ oj’Marketing 49: 107-I 12 (Fall 1985).

38. DeYoung, G. H. Managing technology speed at warp speed. Electronic Business 1753-57 (January 21, 1991).

39. Ettlie, J. E. and Rubenstein, A. H. Firm size and product innovation. Journal of‘ Product Innovation Management 4: 89- 108 ( 1987).

40. Farrell, J. and Saloner, G. Standardization, compatibility and innovation. Rand Journal ojEconomics 16:7&83 (1985).

41. Feeman, R. R. Alternative carriers spur competition, innovation in IXC marketplace. Networking Management 8:3642 (April 1990).

42. Fershtman, C., Mahajan, V., and Muller, E. Market share pioneering advantage: A theoretical approach. Management Science 36:900-918 (August 1990).

43. Fitzgerald, K. Contract research gains adherents for its flexibility and low overhead. IEEE Spectrum 27( 10):58-60 (October 1990).

44. Fixler, D. J. Uncertainty, market structure and the incentive to invent. Economica 50:407-423 (1982).

45. Foster, R. N. Innovation: The Attacker’s Advantage. New York, NY: Summit Books, 1986.

46. Fox, G. E., and Baker, N. R. Project selection decision making linked to a dynamic environment. Management Science 3 I(1 0): 1272-I 285 (October 1985).

47. Fox, G. E., and Baker, N. R., and Bryant, J. L. Economic models for R&D project selection in the presence of project interactions. Management Science 30:89&902 (July 1984).

48. Fudenberg, D., Gilbert, R. J., Stiglitz, J., and Tirole, J. Preemption, leapfrogging and competition in patent races. European Economic

Review 22:3-3 1 (1983).

49. Galbraith, J. K. American Capitalism: The Concept ojCountervaiIiq Power. Boston: Houghton Mifflin, 1956.

50. Gallini, N. T Deterrence by market sharing: A strategic incentive for licensing. American Economic Review 7493 I-941 ( 1984).

51. Gallini, N. T and Winter, R. A. Licensing in theory of innovation. Bell Journal ojEconomics 161237-252 (1985).

52. Gear, T E. and Cowie, G. C. A note on modeling project interdependence in research and development. Decision Science

11:738-748 (October 1980).

53. Geroski, P. A. and Pomroy, R. Innovation and the evolution of market structure. Journal ofIndustrial Economics 38:299-3 14 (March 1990).

54. Gilbert, R. J. and Newbcry, D. M. G. Preemptive patenting and the persistence of monopoly. American Economic Review 72:514-526 (1982).

55. Goldstein, P. M. and Singer, H. M. A note on economic models for R&D project selection in the presence of project interactions. Management Science 32( 10): 13561360 (1986).

56. Green, D. H. and Ryan, A. B. Entry strategies and market performance: Causal modeling of a business simulation. Journal of

Product Innovation Management 7(1):45-58 (March 1988).

57. Grossman, G. M. and Shapiro, C. Dynamic R&D competition. Economic Journal 971372-387 (1987).

58. Harris, C. and Vickers, J. Perfect equilibrium in a model of race. Review ojEconomic Studies 52: 193-209 (I 985).

59. Hayes, R. H. and Wheelwright, S. C. Restoring Our Competitive

A. ALI

Edge: Competing Through Manujacturing. New York, NY: John Wiley & Sons, 1984.

60. Hoffer, W Spurs for innovation. Nation’s Business 7442-45 (June 1986).

61. Johne, F. A. and Snelson, P. A. Success factors in product innovation: A selective review of the literature. Journal of Product Innovation Management 5: 114-l 28 (1988).

62. Judd, K. L. Closed-Loop Equilibrium in an Innovation Race with Experience. Mimeo (1984).

63. Judd, K. L. Closed-Loop Equilibrium in a Multi-Stage Innovation Race. Discussion Paper No. 647. Evanston, IL: the Center for Mathematical Studies in Economics and Management Science, Northwestern University 1985.

64. Judd, K. L. Credible spatial preemption. Rand Journal of Economics

91(2):153-167.

65. Jurgen, R. K. Samoff Labs: ‘Still crazy’ but coping. IEEE Spectrum, 25:3639 (December 1988).

66. Kalish, S. and Lilien, G. L. A market entry timing model for new technologies. Management Science 32: 194-205 (February 1986).

67. Kamien, M. I. and Schwartz, N. L. Market Structure and Innovation. New York, NY: Cambridge University Press, 1980.

68. Kamien, M. 1. and Tauman, Y. The private value of a patent: A game theoretic analysis. Journal of Economics (Supplement) 4:93-l 18 (1984).

69. Kaplinsky, R. Firm size and technical change in a dynamic contest. The Journal of Industrial Economics 3 1:39-59 (1983).

70. Katz, M. L. and Ordover, J. A. R&D cooperation and competition. Brookings Papers on Economic Activity 137-203 (1990).

71. Katz, M. L. and Shapiro, C. On the licensing of innovations. Rand

Journal of Economics 16504-520 (1985).

72.

73.

74.

75.

76.

77.

78.

79.

80.

81.

82.

83.

84.

85.

Katz, M. L. and Shapiro, C. R&D rivalry with licensing or imitation. American Economic Review 77:402-420 (1987). Kessler, F. Camcorders: The new front in home video wars. Fortune 113:4648 (March 3, 1986).

Kindel, S. A sharper image. Financial World 157:35-36 (August 23, 1988).

Kleinschmidt, E. J., and Cooper, R. G. The impact of product innovativeness on performance. Journal of Product Innovation

MunaRement 8:24@251 (1991).

Klette, T and De Meza, D. Is the market biased against risky R&D? Rand Journal of Economics 17: 133- 139 (Spring 1986).

Kotler, P. Marketing Management, Analysis, Planning & Control, 7th edition. Englewood Cliffs, NJ: Prentice Hall, 1991.

Lappen, A. A. Defying the Law of Gravity. Forbes 143:7677 (April 3, 1989).

Lee, T and Wilde, L. L. Market structure & innovation: A reformulation. Quarterly Journal of Economics 94:429-436 (March 1980).

Lenorovitz, J. M. Small gas turbine makers anticipate intense competition. Aviation Week & Space Technology 129: 109-l IO (September 5, 1988).

Lilien, G. L. and Yoon, E. Timing of competitive market entry. Management Science 36(5):568-585 (1990).

Loury, G. C. Market structure and innovation. Quarter/y Journal oj Economics 93:395-410 (August 1979).

Mahajan, V. and Wind J. New products models: Practice, shortcomings and desired improvements. Journal of Product Innovation Management 9: 128-l 39 (June 1992).

Mansfield, E. Industrial Research and Technological Innovation-An

Econometric Analysis, Norton for the Cowles Foundation for Research in Economics at Yale University, 1968.

Mansfield, E. and Wagner, S. Organization and strategic factors associated with probabilities of success in industrial R&D. The Journal of Business 48: 179-l 98 (April 1975).


86. McCreadie, J. Big lessons from small computers: Mips computer systems. EIectronic Business 15:3435 (April 3, 1989).

87. McIntyre, S. H. Perspective: Market adaptation as a process in the product life cycle of radical innovations and high technology products. Journal of Product Innovation Management S(2): 140-I 49

(June 1988).

88. Morbey, G. K. R&D: Its relationship to company performance. Journal of Product Innovation Management 5(3): 191-200 (Septem- ber 1988).

89. Murray, A. US economy leads Japan’s_but for how long? The Wall

Street Journal I l&A8 (June 13, 1990).

90. Needham, D. Market structure and firms’ R&D behavior. Journal of Industrial Economics 23:241-255 (June 1975).

91. O’Connor, P. New product ventures to spell success for industrial firms. Marketing News 20:5 (July 4, 1986).

92. Olleros, F.-J. Emerging industries and the burnout of pioneers. Journal oj’froduct Innovation Management 3(1):5-l 8 (March 1986).

93.

94.

95.

96.

97.

98.

99.

100.

101.

102.

103.

104.

105.

106.

107.

108.

109.

1 IO.

III.

Peters, T New products, new markets, new competition, new thinking. Economist 3 IO: 19-22 (March 4, 1989).

Phlips, L. Research. Eflects of Industrial concentration: A Cross- Section Analysis for the Common Market. Amsterdam: North- Holland, pp 119- 142, 197 I. Porter, M. E. Competitive Advantage: Creating and Sustaining Superior Perjormance. New York, NY: The Free Press, 1985.

Rabino, S. and Wright, A. Accelerated product introductions and emerging managerial accounting perspectives: Implications for marketing managers in the technology sector. Journal of Product fnnovation Management, 1 O(2): 126 135 (March 1993).

Reinganum, J. F. Nash equilibrium search for the best alternative. Journal of Economic Theory 30: 139-l 52 (June 1983).

Reinganum, J. F. Innovation and industry evolution. Quarter/y Journal of Economics Review 74:6/X% (May 1984).

Reinganum, J. F. Innovation and industry evolution. Quarter/y Journal of Economics 8 l-99 ( 1985).

Reinganum, J. F. The timing of innovation. In: Handbook oj Industrial Organization. R. Schmalensee and R. D. Willig (eds). New York, NY: North-Holland, pp. 849-908, 1989.

Robertson, T S. innovative Behavior and Communication. New York, NY: Holt, 1971.

Robertson, T S. and Gatignion, H. Competitive effects on technology diffusion. Journal oj’Marketinh 50: I-12 (July 1986).

Robinson, W. T and Fomell, C. Sources of market pioneer advantages in consumer goods industries. Journal of’ Marketing Research 22:305-3 17 (August 1985).

Robinson, W. T., Fomell, C., and Sullivan, M. Are market pioneers intrinsically stronger than later entrants? Strategic Management Journal 13:609624 (1992).

Rubenstein, A. H., Chakrabarti, A. K., O’Keefe, R. D., Souder, W. E., and Young, H.C. Factors influencing innovation success at the project level. Research Manqement 16: 15-20 (May 1976).

Sakus, G. A. The challenge of innovation. Telesis 16(3):2&33 (1989).

Scherer, F. M. Size of firm, oligopoly and research: A comment. Canadian Journal of Economics & Political Science 3 I (2):256-266 (May 1965).

Scherer, F. M. Research and development resource allocation under rivalry. Quarterly Journal of Economics 8 I :359-394 (I 967).

Scherer, F. M. Industrial Market Structure and Economic Perform- ance. Boston, MA: Houghton Mijjlin, 1990.

Schmalensee, R. Entry deterrence in the ready-to-eat breakfast cereal industry. Bell Journal of Economics 9(2):305-327 (1978).

Schmalensee, R. Product differentiation advantages of pioneering brands. American Economic Review 72: 159-l 80 (June 1982).

112.

113.

114.

115.

116.

117.

118.

119.

120.

121.

122.

123.

124.

125.

126.

127.

128.

129.

130.

131.

132.

133.

134.

135.

136.

J PROD INNOV MANAG 61 1994:11:46-61

Schmookler, J. The size of firm and the growth of knowledge. In: Patents, Inventions and Economic Change. Z. Griliches and L. Hurweiz (eds.) Cambridge, MA: Harvard University Press, 1972.

Schumpeter J. A. Capitalism, Socialism and Democracy, 3d ed. New York, NY: Harper & Row, 1950.

Seghets, F. Television makers are dreaming of a wild crispness. Business Week 108-I 09 (December 2 1, 1987).

Selz, M. Small companies thrive by taking over some specialized tasks for big concerns. The Wall Street Journal I 17:B 1 (September 11, 1991).

Shapiro, C. Patent licensing and R&D rivalry. American Economic

Review 75(2):25-30 (May 1985).

Shepard, A. Licensing to enhance demand for new technologies. Rand

Journal of Economics 18:36&368 (Autumn 1987).

Shrieves, R. E. Market structure and innovation: A new perspective. Journal of Industrial Economics 327-347 (June 1978).

Singh, N. and Vives, X. Price and quantity competition in a differentiated duopoly. Rand Journal of Economics 15:546554 (Winter 1984).

Souder, W. E. Analytical effectiveness of mathematical models for R&D projection selection. Management Society 19:907-923 (April 1973).

Souder, W. E. and Mandakovic, T R&D project selection models. Research Management 2936-42 (July-August 1986).

Spcnce, M. Cost reduction, competition and industry performance. Econometrica 52( 1): 101-121 (January 1984).

Teece, D. T. Strategic alliances and technological innovation. Working paper. Berkeley, CA: Walter A. Hass School of Business, University of California at Berkeley, 1990.

Urban, G. L., Carter, T., Gaskin, S., and Mucha, Z. Market share rewards to pioneering brands: An empirical analysis and strategic implications. Management Science 32:645-659 (June 1986).

Uri, B. Z. and Fixler, D. J. Market structure and product innovation. Southern Economic Journal 48(2):437-448 (1981).

Utterback, J. M. and Abernathy, W J. A dynamic model of process and product innovation. Omega 3(6):639-656 (December 1975).

Vickers, J. The evolution of market structure when there is a sequence of innovations. Journal oj’lndustrial Economics 35: l-l 2 (September 1986).

Weinberg, B. D. Roles for Research and Models in Improving New

Product Development. Marketing Science Institute, Cambridge, MA: Report No. 9t- 120 (December 1990).

Weitzman, M. Optimal search for the best alternative. Econometrica 47(1):641-654 (1979).

Werenerfelt, B. The capital asset pricing model and strategic planning. Management Science 3 I:5 10 (April 1985).

Wind, Y. J. Product Policy: Concepts, Methods, and Strategy.

Reading, MA: Addison-Wesley Publishing Company, 1982.

Wind, Y. J., Mahajan, V., and Swire, D. T An empirical comparison of standardized portfolio models. Journal of Marketing 47:89-99 (Spring 1983).

Wind, Y. J., and Mahajan, V. Perspective: New product development process: A perspective for reexamination. Journal of Product fnnovation Management 5:304-310 (1988).

Winslow, R. A competitive battle to sell surgery devices is spurring innovations. The Wall Street Journal 117:A I, A8 (April 16, 1991).

Yoon, E., and Lilien, G. L. New industrial product performance: The effects of market characteristics and strategy. Journal of Product Innovation Management 3: 134-I 44 (I 985).

Zmud, R. W. and Apple. E. L. Measuring technology incorporation/ infusion. Journal of Product Innovation Management 9(2): 148-I 55 (June 1992).

Documents

Pioneering versus incremental innovation: Review and research propositions