Product Development Strategy

Product Development Strategy

Product Development Strategy Innovation Capacity and Entrepreneurial Firm Performance in High-Tech SMEs Mina Tajvidi Bangor Business School, Bangor University, UK and Azhdar Karami University of Tabriz, Iran and Bangor Business School, Bangor University, UK

Mina Tajvidi and Azhdar Karami 2015 Softcover reprint of the hardcover 1st edition 2015 978-1-137-50137-0 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-56993-9 ISBN 978-1-137-50139-4 (ebook) DOI 10.1057/9781137501394 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress.

This book is dedicated to my life s heroes, mum and dad. You are the love of my life Mina Tajvidi I would like to dedicate this book to my family for their unconditional support Azhdar Karami

Contents List of Figures List of Tables Preface Acknowledgements xi xiii xv xvii 1 Introduction 1 1.1 Introduction 1 1.2 Research background 1 1.2.1 Product development strategy 1 1.2.2 Innovation capacity 2 1.2.3 Entrepreneurial firm performance 3 1.3 Rationale of study 6 1.4 Research objective and questions 7 1.5 Methodology 8 1.6 Summary 9 References 10 2 Literature Review 15 2.1 Introduction 15 2.2 Strategic management 15 2.2.1 Origin of the term strategy 15 2.2.2 The concept of strategic management 16 2.2.3 Definitions of strategy in management 17 2.2.4 Strategic management process 18 2.2.5 Strategic management in small- and medium-sized enterprises (SMEs) 20 2.3 Strategic directions 21 2.3.1 Consolidation strategy 22 2.3.2 Product development strategy 22 2.3.3 Market development strategy 22 2.3.4 Diversification strategy 22 2.3.5 Product development strategy in SMEs 23 2.4 Innovation 28 2.4.1 Innovation capacity 29 vii

viii Contents 2.5 Entrepreneurship 35 2.5.1 The concept of entrepreneurship 35 2.5.2 Entrepreneurial firm performance 36 2.6 Summary 37 References 38 3 Research Strategy 45 3.1 Introduction 45 3.2 Revisiting the research objectives and questions 45 3.3 Research methods and strategy 46 3.3.1 Research philosophy 46 3.3.2 Research approach 49 3.3.2.1 Qualitative or quantitative research 51 3.3.3 Research design 52 3.3.3.1 Source of the data 52 3.3.3.2 Data collection instrument 52 3.3.4 Data collection process 57 3.3.5 Constructing the questionnaire 58 3.3.5.1 Level of measurement 59 3.4 The conceptual framework of the study and research variables 61 3.4.1 Product development strategy variable 62 3.4.2 Innovation capacity variables 62 3.4.3 Entrepreneurial firm performance variable 65 3.5 Characteristics of SMEs 66 3.6 The proposed model and hypotheses 67 3.7 Research choice and data analysis plan 68 3.8 Summary 73 References 73 4 Product Development Strategy 79 4.1 Introduction 79 4.2 Product development and business strategy 79 4.3 New product development process and models 82 4.4 New product development and success factors 90 4.5 Product development and life cycle 92 4.6 New product development, knowledge and learning 96 4.7 New product development and resource management 99 4.8 Organizational knowledge and new product development 101 4.9 Descriptive empirical findings 102 4.9.1 Characteristics of the studied firms 103

Contents ix 4.9.2 Managerial characteristics of the respondents 105 4.9.3 Managerial position of the respondents 107 4.10 Research variables 108 4.10.1 Data measurement process 108 4.10.2 Confirmatory factor analysis 108 4.10.3 Product development strategy and innovation capacity 112 4.10.4 Product development strategy and entrepreneurial firm performance 113 4.11 Summary 115 References 116 5 Innovation Capacity 125 5.1 Introduction 125 5.2 Innovation capacity in SMEs 125 5.3 Innovation typology 127 5.4 Technological innovation 128 5.5 Research and development 129 5.6 Innovation capacity and entrepreneurship 129 5.7 New product development success factors 132 5.8 Innovation capacity, product development strategy and firm performance 133 5.8.1 Product innovation 137 5.8.2 Process innovation 137 5.8.3 Investment in research and development 138 5.9 Moderating role of innovation capacity 138 5.10 Summary 141 References 141 6 Entrepreneurial Firm Performance 147 6.1 Introduction 147 6.2 Entrepreneurship in SMEs 147 6.3 Innovation and entrepreneurship 152 6.4 Risk taking and entrepreneurship 153 6.5 Proactivity and entrepreneurship 154 6.6 Financial performance, turnover/net profit 154 6.7 Entrepreneurship and product development strategy 155 6.8 Entrepreneurial firm performance and innovation capacity 161 6.9 Summary 168 References 169

x Contents 7 Final Lessons and Conclusion 178 7.1 Introduction 178 7.2 Revisiting the research questions and objectives of the study 179 7.3 Summary of major finding 180 7.4 Theoretical contributions 181 7.5 Policy implications 184 7.6 Managerial implications 184 7.7 Limitations of the study and suggestions for future studies 185 References 186 Index of Names 189 Subject Index 196

List of Figures 2.1 Ansoff s strategy options 21 2.2 Types of product innovation 26 2.3 Basic model of product innovation management 27 2.4 Structure of new product development 28 2.5 Conceptual model of innovation capacity 30 2.6 Innovation capability 31 2.7 The innovation orientation of national industry clusters 32 2.8 Integrated model of innovation management 32 2.9 The model of absorptive capacity 34 2.10 The influence of internal and external factors on innovation capacity and firm performance 34 3.1 Deductive approach versus inductive approach 50 3.2 The process of a deductive study 51 3.3 Designing a questionnaire or interview schedule 53 3.4 Types of questionnaire 54 3.5 Flowchart of the data collection process 58 3.6 Hypothesized model of the effect of product development strategy on entrepreneurial firm performance with the moderating role of innovation capacity 68 3.7 The research choices 69 3.8 The hypothetic-deductive research process 71 4.1 New product development as a part of business processes 80 4.2 Cooper s seven-stage new product development 85 4.3 The up-front or predevelopment steps in the NPD 88 4.4 The link between product design and value to the customer 89 4.5 Three pillars of product life management 92 4.6 The product life cycle 93 4.7 A resource-based model of product development 100 4.8 The location of SMEs according to industry 103 4.9 Size of enterprises 104 4.10 Location of studied firms 105 4.11 Path diagram for causal model of product development strategy and innovation capacity 112 4.12 Path diagram for causal model of product development strategy and entrepreneurial firm performance 114 xi

xii List of Figures 4.13 T-value for path diagram for causal model 115 5.1 The path diagram of the research conceptual model 139 6.1 Coefficient path of product development strategy and entrepreneurial performance 159 6.2 T-value of product development strategy and entrepreneurial performance 160 6.3 Coefficient path of innovation capacity and entrepreneurial performance 167 6.4 T-value of innovation capacity and entrepreneurial performance 168

List of Tables 2.1 Comparison of SMEs and large organizations 24 3.1 The two main research philosophies 48 3.2 Features of the two main paradigms 49 3.3 Fundamental differences between quantitative and qualitative methods 52 3.4 Comparison of questionnaires 55 3.5 Main attributes of self-administered questionnaires 55 3.6 Common advantages and disadvantage of web-based surveys 56 3.7 Advantages and disadvantages of postal questionnaires 57 3.8 Types of data applied in this study 60 3.9 Measurement of product development strategy 63 3.10 Measurement of innovation capacity 64 3.11 Measurement of entrepreneurial firm performance 65 3.12 Definitions of SMEs 66 3.13 Research background methodology 70 3.14 Data analysis plan 72 4.1 The different models and phases of new product development 83 4.2 New product development success factors 91 4.3 Life cycle: four basic stages 94 4.4 Previous empirical studies of individual learning in NPD 97 4.5 Previous empirical studies of project team learning in NPD 98 4.6 Age of SMEs 104 4.7 The demographic profile of the respondents in studied SMEs 106 4.8 Cross tabulation of age and work experience of respondents 107 4.9 Construct correlation matrix 109 4.10 Measurement model 110 4.11 Confirmatory factor analysis 111 4.12 Construct structural model PDS and innovation capacity 111 4.13 Construct structural model PDS and entrepreneurial performance 113 5.1 Descriptive statistics of the innovation capacity variables 137 5.2 One-sample test on innovation capacity variables 137 xiii

xiv List of Tables 5.3 Construct structural model 140 6.1 Recent studies regarding strategic directions and entrepreneurial firm performance 157 6.2 Entrepreneurial firm performance, result of t-test 158 6.3 Construct structural model of product development strategy and entrepreneurial firm performance 159 6.4 Studies regarding innovation capacity, strategic directions and entrepreneurial firm performance 165 6.5 Construct structural model of innovation capacity and entrepreneurial firm performance 167

Preface With increased technological change, global competition and a changing business environment, innovation and entrepreneurship are becoming a vital issue in managing small businesses effectively. Small and medium-sized enterprises (SMEs) also play a key role in the business environments in all economies. However, the failure rate of small business in almost all economies is very high. The question is, why do many SMEs fail within the startup and early years of their operation? How can the performance of SMEs be increased and what are the factors associated with successful strategy development and implementation in SMEs? Analysis of the role of innovation capacity in developing new products and services for SMEs operating in the high-tech sector has become attractive to academics and practitioners. The development of new products and services is one of the critical success factors for SMEs, and increases entrepreneurial firm performance. This book is an attempt to shed light on the critical issue of the role of related and unrelated product development and diversification in small and medium enterprises operating in the high-tech sector. The main conceptual framework developed and tested empirically in this research proposes that small and medium enterprises could improve and enhance their entrepreneurial performance if they pursue product development rather than market development strategy. This major theoretical contribution to research in this area is supported theoretically by the resource-based view (RBV) in the strategic management context. The changing nature of the high-tech industry requires an innovative and strategic thinking approach for the firms when it comes to making strategic decisions. Innovation is a core element in the success of SMEs. SMEs potentially have an advantage in the innovation and development of new products. This is due to several characteristics of SMEs, including their flat organizational structure, flexibility and adaptability to rapid changes in the business environment. This book answers some essential questions and makes theoretical and empirical contributions to strategic management in small and medium enterprises. For instance, why should SMEs pursue a product development strategy? How can innovation capacity enhance and facilitate the relationship between the product development strategy and xv

xvi Preface entrepreneurial firm performance? And also, how can entrepreneurial firm performance be increased? One of the major contributions of this book is to test empirically the role of innovation on making strategic decisions in SMEs. The other major contribution of this volume is its use of sophisticated methodology for developing and testing the hypotheses. This research benefits from a quantitative approach and uses structural equations modelling (SEM) methodology for data analysis. We hope that this work adds values to the existing literature and opens and develops new avenues for future research into strategic management in small businesses. Mina Tajvidi Azhdar Karami

Acknowledgements In the pursuit and completion of this book, special thanks and acknowledgement are due to Bangor Business School, Bangor University, UK. We also wish to thank Dr Siwan Mitchelmore, Bangor Business School, Dr Rosalind Jones, Department of Marketing, Birmingham University, and Professor Kostas Nikolopoulos, Bangor Business School, Bangor University for their significant contributions to this work. The authors wish to acknowledge the following for permission to reproduce copyright material: Elsevier, Emerald Group Publishing Limited, and John Wiley and Sons. xvii