Operations, Information and Decisions Papers

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Journal Article

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The Journal of Product Innovation Management





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Throughout the pages of JPIM and other publications, researchers and practitioners devote considerable effort to identifying the dimensions of new-product development (NPD) performance that relate most closely to business success. Although we may hope to unveil a set of universal truths about the relationship between NPD performance and business success, the relevant NPD performance measures appear to depend on the industry in which a firm competes.

In fact, Christian Terwiesch, Christoph Loch, and Martin Niederkofler suggest that the overall relevance of NPD performance to business success depends on the firm's competitive market environment. In a study of 86 business units operating in 12 different electronics industries worldwide, they develop a market contingency framework for understanding the impact of NPD performance on a firm's profitability. Their study uses data from the “Excellence in Electronics” project, a joint research effort by Stanford University, the University of Augsburg, and McKinsey & Co.

They describe market context in terms of three dimensions: market share, market growth, and external stability—that is, the average product life cycle duration in the market. Looking at all 86 business units in the study, they find that industry membership accounts for 23% of the variance in profits, with 18 percent of the variance determined by industry profitability and 5% by the three dimensions of market context. For the firms in the study, development performance has the most significant effect in slow-growth markets and in markets with long product life cycles. In these stable industries, low development intensity, product line freshness, and technical product performance increase profitability.

The results indicate that NPD performance plays a much more important role for explaining the profitability of dominant firms than that of the low-market-share firms in the study. NPD performance explains 30% of the profitability variance among the high-market-share business units in the study, but none of the variance for the low-market-share business units. Although the profitability of the smaller firms in the study is driven primarily by the industry environment, these firms can compete on the basis of superior technical performance.

Copyright/Permission Statement

This is the peer reviewed version of the following article: Terwiesch, C., & Loch, C. (1998). When product development performance makes a difference: A statistical analysis in the electronics industry. Journal of Product Innovation Management, 15(1), 3-15. , which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1111/1540-5885.1510003/abstract. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving [link to http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms].



Date Posted: 27 November 2017

This document has been peer reviewed.