The implementation of exploratory strategy through exploratory capabilities to

enhance new product performance

This section discusses the extent to which exploratory R&D and exploratory marketing enable a firm to implement its exploratory strategy and enhance its new product performance. Figure 3.2 illustrates the relationships between exploratory strategy, exploratory R&D and marketing capabilities, and new product performance. As noted in Section 3.3, exploratory strategy represents the firm’s emphasis on new product-market opportunities, new and innovative products, and emerging customer needs (He & Wong, 2004; Siren et al., 2012). Therefore, exploratory strategy emphasises offering new products and solutions to the market rather than upgrading (i.e., updating, improving) the firms’ established products (He & Wong, 2004; Smith & Tushman, 2005). According to Harmancioglu et al. (2009), the development and marketing of highly innovative products may have a poor fit with prior technologies and marketing routines within firms. Therefore, the implementation of exploratory strategy is challenging, as firms may face deficiencies in existing routines in their

76

efforts to enter new product-market domains (see He & Wong, 2004; Atuahene-Gima, 2005). In this sense, exploratory R&D and exploratory marketing can assist in overcoming deficiencies in existing routines in their efforts to implement exploratory strategy (McCarthy & Gordon, 2011). 6

Figure 3.2 – Hypotheses 1 and 2

In particular, exploratory R&D represents the generation and deployment of new R&D routines to physically develop (i.e., create) a new product (He & Wong, 2004; Atuahene- Gima, 2005; Jansen et al., 2005; Danneels, 2008). Specifically, exploratory R&D results in the generation of new routines that provide the capacity to generate new solutions for emerging customer problems, identify promising new technologies, learn new product development skills, and create innovative features that have not been offered by competitors before (Jansen et al., 2006; Danneels, 2008; Peng et al., 2008). Therefore, exploratory R&D allows the implementation of exploratory strategy by employing new technologies and routines required to create new products that offer unique benefits to customers (i.e., new

6. This study does not develop hypotheses related to the relationships between exploratory strategy, exploitative R&D and marketing capabilities, and new product performance. The underlying reasons are discussed in Appendix ІІ.

H1a H1b H2

Exploratory Strategy

Exploratory R&D

New Product Performance

Corporate-Level Business-Level Performance Outcome

Exploratory Marketing Exploratory R&D

×

77

solutions, innovative features). Such benefits provide a compelling reason for customers to buy and use a new product (Langerak, 2003; Langerak et al., 2004). Customers are more willing to buy a new product that offers superior and unique benefits over existing products offered by others (Veldhuizen, Hultink, & Griffin, 2006; Kim & Atuahene-Gima, 2010). According to Langerak et al. (2004), the sales potential, market share, and profitability of a new product depends on the unique benefits that the product offers to customers (see also Cooper, 1985; Li & Calantone, 1998; Henard & Szymanski, 2001). To this end, exploratory R&D results in the generation of new R&D routines required to implement exploratory strategy and enhance new product performance. This implies that exploratory R&D acts as an intervening mechanism between exploratory strategy and new product performance (see the discussion related to the strategy implementation role of market orientation in Homburg et al., 2004, p. 1332). Therefore,

H1a: Exploratory R&D mediates the relationship between exploratory strategy and new product performance.

Given the identified role of exploratory R&D in the implementation of exploratory strategy, it may not be sufficient in isolation to enable a firm to enter into new product- market domains. As noted before, marketing capability enables firms to communicate with customers and link its products with customers (Moorman & Rust, 1999; Vorhies, Harker, & Rao, 1999). Therefore, marketing capability supports a firm’s effort to achieve its strategic objectives and enter new product-market domains. As the marketing of highly innovative products may have a poor fit with prior marketing routines within firms (Harmancioglu et al., 2009), the deployment of exploratory marketing can assist in overcoming deficiencies in existing routines to implement exploratory strategy. Exploratory marketing represents the

78

generation and deployment of new marketing routines to link a new product to customers (Kyriakopoulos & Moorman, 2004; Atuahene-Gima, 2005; Danneels, 2008). Specifically, exploratory marketing provides the capacity to link a new product with customers using new sales methods, new pricing systems, new promotion methods, marketing communication methods, and new distribution channels (Kyriakopoulos & Moorman, 2004; Danneels, 2008). Such new methods can also assist in increasing customer awareness regarding the benefits of a new product’s features and encourage customers to purchase a new product. In addition, exploratory marketing can offer superior (i.e., unique, differentiated) benefits to customers and persuade them to buy a new product through advanced sales and distribution routines. For example, the virtual groceries in subways (i.e., Tesco in South Korea) help customers to enjoy the benefits of an innovative and unique purchasing and delivery system.

In addition, exploratory marketing results in the generation of new marketing communications and new market research routines that allow a firm to interact with customers and identify their emerging needs using new methods (i.e., social networks such as Facebook) (Voola & O'Cass, 2010; Lisboa et al., 2011). In this sense, exploratory marketing provides market knowledge that supports efforts (i.e., prototyping) to create new products with differentiated advantages (Citrin, Lee, & McCullough, 2007; Brettel et al., 2011). Therefore, exploratory marketing allows the implementation of exploratory strategy by supporting the firm’s effort to offer differentiated advantages to customers. This implies that exploratory marketing acts as an intervening mechanism between exploratory strategy and new product differentiation. To this end, exploratory marketing results in the generation of new marketing routines required to implement exploratory strategy and enhance new product performance. This implies that exploratory marketing acts as an intervening mechanism between exploratory strategy and new product performance. Therefore,

79

H1b: Exploratory marketing mediates the relationship between exploratory strategy and new product performance.

As noted before, new product development is a boundary spanning process that integrates inside-out (i.e., R&D) and outside-in (i.e., marketing) capabilities together (Day, 1994; Danneels, 2002). Specifically, a new product development project pertains to making a connection between a specific technology embedded within a firm and a potential market, and cannot be understood as one or the other separately (Danneels, 2002). It is the integration of R&D and marketing that helps to link a particular technology to customers (see also Li & Calantone, 1998). Drawing on Moorman and Slotegraaf (1999), a new product development project is most effective when firms exhibit both R&D and marketing capabilities where new product development can benefit from the integration of the two capabilities. The literature conceptualises the integration of two capabilities (i.e. R&D and marketing) in term of complementarity, combination, and configuration (Moorman & Slotegraaf, 1999; Vorhies et al., 2009). In this study, the integration of R&D and marketing represents the extent that the benefits gained from R&D capability increase with the contribution or increasing level of marketing capability and vice versa (Milogram & Roberts, 1995; Teece et al., 1997; Moorman & Slotegraaf, 1999).

The integration of R&D and marketing leads to the development of a combinative capability that promotes the firm’s effectiveness and/or efficiency to develop and market a new product and limits the rivals’ imitation ability (Walker & Ruekert, 1987; Moorman & Slotegraaf, 1999; Morgan, Slotegraaf, & Vorhies, 2009). In particular, at the pre-development stage of a new product development project, the integration of R&D and marketing enables firms to identify market opportunities and assess the market potential of a specific technology (Sherman, Berkowitz, & Souder, 2005; Brettel et al., 2011). At the development stage, it

80

helps to determine what features are required to meet customer needs, realise what routines and technologies should be deployed to create the product features, and minimise the need for costly redesigns through market-testing (Sherman et al., 2005; Brettel et al., 2011). At the commercialisation stage, staff in the marketing department can train customers and enhance their awareness about the benefits of a new product’s features based on technical information provided by the R&D department (Brettel et al., 2011). Empirical work also shows that the integration of R&D and marketing capabilities leads to superior new product performance (Song & Parry, 1993; Moorman & Slotegraaf, 1999; Song et al., 2005; Leenders & Wierenga, 2008).

Combining arguments related to the integration of R&D and marketing with the organisational ambidexterity theory, this study is interested in the extent to which the integration of exploratory R&D and exploratory marketing enables a firm to implement exploratory strategy and enhance new product performance. Drawing on Milogram and Roberts (1995), the integration of exploratory R&D and exploratory marketing represents the extent that these capabilities mutually reinforce each others impact. Such integration is necessary for several reasons. First, exploratory R&D and exploratory marketing allow a firm to discover new knowledge regarding latent customer needs, emerging product-market opportunities, and new technologies. The integration of new market- and technological- related knowledge can foster the creativity and novelty needed to create innovative (i.e., new, differentiated) products (Citrin et al., 2007; Brettel et al., 2011). However, a firm’s existing market knowledge makes it more likely to develop new products that meet existing customer needs rather than emerging customer needs (see Christensen, 1997; Tripsas & Gavetti, 2000). Furthermore, the integration of market- and technological-related knowledge decreases the potential risk of misfit between a new product’s benefits and emerging customer needs (see Danneels, 2002; Brettel et al., 2011).

81

Second, exploratory R&D is related to the generation of new ideas and innovative technologies, while exploratory marketing allows the evaluation and prediction of the market potential of a specific technology. For example, touch-screen technology can be used to develop a wide range of products (i.e., satellite navigation devices, ATMs, tablet computers, mobile phones, and video game devices), which can be marketed to a variety of customers, from survey engineers to taxi drivers. Third, the integration of exploratory R&D and exploratory marketing empowers customers to comprehend the benefits of a new product’s features (see Brettel et al., 2011). While exploratory marketing seeks new methods to communicate with customers, employees of the R&D department can help the marketing team to train customers and increase customer awareness about the benefits of a new product and thereby increase customer acceptance of the new product. To this end, the integration of exploratory R&D and exploratory marketing enables a firm to generate, deploy, and integrate new routines to implement exploratory strategy and enhance new product performance. This implies that the integration of exploratory R&D and exploratory marketing acts as an intervening mechanism between exploratory strategy and new product performance. Therefore,

H2: The integration of exploratory R&D and marketing capabilities mediates the relationship between exploratory strategy and new product performance.