The Effect of OperLP on FirmLP, and the Role of ProdLP in Mediating this Effect

3.3.1.1. The Relationship between OperLP and FirmLP

Developing new products characterised by competitive advantages increases the firm’s market performance, overall financial performance, and long-term viability (Kim et al., 2014). Achieving a superior operational performance (in terms of NP quality, NPD’s time and cost) improves the overall firm performance with reference to the customer loyalty, market share, overall profitability, break-even time, and return on investment (García et al., 2008; Jayaram & Narasimhan, 2007; Mishra & Shah, 2009; Yang, 2012).

Firstly, NP advantage (i.e., a differentiated and superior product that delivers value-for-money, high relative quality, and meets customer needs better than competitors) enhances NPD performance outcomes (Cooper & Kleinschmidt, 1995c; Montoya-Weiss

& Calantone, 1994; Rese & Baier, 2011). Specifically, NP advantage has significant positive effects on the NP’s contributions to enhance the firms overall sales, profits, market share, and opening windows of market opportunities for a firm (Baker &

Sinkula, 2005; Calantone & Knight, 2000; Cooper & Kleinschmidt, 1995c; Kim et al., 2013; Song & Parry, 1996, 1997a; Terwiesch et al., 1998), as well as long-term performance, such as customer loyalty and return on investment (Molina-Castillo et al., 2011, 2013).

Secondly, regardless of the fundamental competitive strategy adopted (Davis et al., 2002), and the level of market and technological turbulence (Calantone et al., 2003), NPD time superiority improves NPD performance outcomes. Precisely, NPD time superiority has significant positive effects on the overall firm performance with regard to sales, profitability, return on investment, and market share (Baker & Sinkula, 2005;

Calantone et al., 2003; Chen et al., 2005; Davis et al., 2002; Langerak & Hultink, 2005;

Sheng et al., 2013).

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Thirdly, high NP’s development and launching costs can lead to NP’s market failure, while achieving a superior NP’s development and launching cost would enhance the firm’s market performance (Tatikonda & Montoya-Weiss, 2001). As high NPD cost may limit a firm’s ability to position a NP at a competitive price, it can lead to lower sales and a decrease in the firm’s short- and long-term profitability (García et al., 2008).

Thus, it is posited that:

H1: OperLP has a positive and significant direct effect on FirmLP (H1: OperLP→FirmLP =

a

3.3.1.2. The Mediating Role of ProdLP in the Relationship between OperLP and FirmLP

Besides the evidence provided by product innovation literature that a high level of OperLP improves FirmLP, the mechanism by which this effect is achieved is less researched. It is argued here that the effect of OperLP on FirmLP is achieved through ProdLP.

Firstly, accomplishing a high OperLP can enhance ProdLP. The three operational outcomes (product quality, time-to-market, and unit cost) represent key product development capabilities for a firm. The achievement of operational outcomes predicts the achievement of market outcomes. Under varying conditions of technological, market, and environmental uncertainties (Tatikonda & Montoya-Weiss, 2001), achieving a superior operational performance (in terms of NP quality, NPD’s time and cost) enhances the NP’s market performance, such as NP’s customer satisfaction, sales, profitability, and commercial success (García et al., 2008; Gunday et al., 2011; Mishra

& Shah, 2009; Tatikonda & Montoya-Weiss, 2001; Yang, 2012).

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With regard to superior NP quality, several studies found that firms that develop and launch a differentiated NP, characterised by a superior quality in relation to the competing products, are rewarded with significant improvements in NP performance concerning NP’s customer satisfaction, sales, and profits (Calantone & di Benedetto, 1988; Calantone et al., 1996; Cooper & Kleinschmidt, 1995c; Kim & Atuahene-Gima, 2010; Kim et al., 2013; Langerak et al., 2004a; Molina-Castillo et al., 2011, 2013;

Weiss & Calantone, 1994; Rodríguez-Pinto et al., 2011; Song & Montoya-Weiss, 2001; Song & Parry, 1997a, b, 1999; Song et al., 1997a; Zhao et al., 2015).

In relation to NPD time, prior works shows that, regardless of the technological uncertainty (Chen et al., 2005), as well as the legal, technological, and competitive’s environments (Chryssochoidis & Wong, 1998), achieving a superior NP development and launching time in terms of NPD timeliness and NP speed-to-market has a significant positive effect on the overall NP success with regard to NP’s customer acceptance, sales, and profitability (Chen et al., 2005; Chryssochoidis & Wong, 2000;

Kessler & Bierly, 2002; Kim & Atuahene-Gima, 2010; Stanko et al., 2012).

Regarding NPD cost, there is evidence that the NP development and launching cost efficiency has a significant positive effect on the NP performance (e.g., Kim &

Atuahene-Gima, 2010). High NPD costs can lead to the NP’s market failure, while realising superior NPD costs significantly enhances the NP’s market performance (Tatikonda & Montoya-Weiss, 2001). Increasing NPD costs may limit a firm’s ability to position a NP at a competitive price in the target markets, and thus can lead to lower NP’s sales and profitability (García et al., 2008).

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Secondly, achieving a high ProdLP can boost FirmLP. A well-established finding by previous studies is that NP success contributes to improving the overall firm performance (e.g., Langerak et al., 2004a, b). Griffin (1997) reported that best-practice firms achieve 49% of their sales and profits from launched new products within the last five years. In addition, Baker and Sinkula (2005) confirmed that the attainment of an enhanced market share for a firm is subject to its NP success. Furthermore, Langerak and Hultink’s (2005) study provides an empirical evidence that NP profitability boosts the firm’s financial performance. In order to meet their sales and profits objectives, firms cannot depend on their current product offerings only; instead, firms should pursue the continuous development and launching of successful new products (Langerak & Hultink, 2005; Langerak et al., 2004a, b). Moreover, Hooley et al. (2005) and Gunday et al. (2011) indicated that achieving a superior NP’s market performance leads to significant improvements in the firm’s overall financial performance. In a recent study, Thoumrungroje and Racela (2013) reported a significant positive association between NP performance and firm performance. Chang et al. (2014) and Kim et al. (2014) confirmed these findings by asserting that NP performance has a strong significant positive effect on the overall firm performance in terms of sales, profitability, and market share.

Thirdly, a well-timed accomplishment of NP’s development and launching permits firms to achieve substantial cost reduction, larger market segment coverage, more profits, and a leading position in the target markets (Lee & Wong, 2012). Although realising a superior NP quality might lead to a significant improvement in firm success, it is insufficient for achieving firm success (Calantone & Knight, 2000). Instead, the concurrent pursuit of the competitive capabilities (NP quality, NPD’s time and cost) is the recommended way that leads to an enhancement in the ultimate firm performance (Jayaram & Narasimhan, 2007).

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Therefore, achieving a superior overall operational performance constitutes the first step towards improving the overall firm performance (Mishra & Shah, 2009). The effect of NP speed-to-market on firm performance is not simple and direct (Ittner & Larcker, 1997). Additionally, both NP differentiation and NP development and launching cost have significant positive indirect effects on firm performance (Calantone & Knight, 2000). With this respect, Hooley et al. (2005) highlighted the importance of customer and market performance as routes to attain superior firm financial performance.

Specifically, Anderson et al. (1994) and Langerak et al. (2004a) proved that achieving a superior NP advantage leads to an improved NP performance (e.g., customer satisfaction), which in turn enhances the overall firm performance (e.g., profitability).

Customers typically purchase new products that offer superior value, are unique, and provide an advantage relative to competing products. Therefore, it is possible for customers who perceive a superior NP advantage to be satisfied with it, which in turn can lead to frequent purchasing of that new product at a premium price accompanied by purchasing of other products and offerings of the firm.

Thus, firms that develop and launch a superior new product that appeals to target markets are rewarded with significant improvements in their NP performance and consequently their overall firm performance, such as sales growth and profitability (Anderson et al., 1994; Narver & Slater, 1990; Sandvik & Sandvik, 2003; Sandvik et al., 2011). In a recent study, Gunday et al. (2011) indicated that the effect of operational performance (in terms of NP quality, NPD’s time and cost) on firm’s financial performance is channelled through market performance. Kim et al. (2014) confirmed these findings by asserting that developing differentiated products enhances market performance, which consequently improves the firm’s overall financial performance.

Accordingly, it is hypothesised that:

H2: ProdLP mediates the effect of OperLP on FirmLP (H2: OperLP→ProdLP→FirmLP =

a

a

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3.3.2. The Effect of PEProf on ProdLP, and the Role of OperLP in Mediating this