Fit Among Business Strategy, Strategy Formality, and Dynamic Capability Development in New Product Development

Author:Nuran Acur, Lale Gumusluoglu
DOI:http://doi.org/10.1111/emre.12070
Publication Date:01 Jun 2016
Fit Among Business Strategy, Strategy
Formality, and Dynamic Capability
Development in New Product Development
Lale Gumusluoglu1and Nuran Acur2,3
1Faculty of Business Administration, Bilkent University, Ankara, Turkey
2Faculty of Business, Ozyegin University, Istanbul,
3Turkey and University of Strathclyde, Glasgow, UK
Taking new product development (NPD) as the unit of analysis, this study, based on strategic fit approach,
investigates the effects of NPD strategy formality and dynamic capabilities (sensing, seizing, and reconfiguring) on
NPD performance for different business strategy types (prospectors, analyzers, defenders). The sample of the study
includes 203 companies from nine countries: Australia, Denmark, Finland, Norway, the Netherlands, Slovakia,
Portugal, Spain, and Turkey. The study finds that a formal NPD strategy is an important driver of NPD
performance for all companies regardless of the strategy pursued. Of the dynamic capabilities, sensing capabilities
have significant performance effects for all strategy types. Seizing capabilities have stronger effect on NPD
performance for prospectors and analyzers, than for defenders while reconfiguring capabilities is a driver of
performance only for defenders. Furthermore, dynamic capabilities explain NPD performance above and beyond
strategizing, irrespective of the strategy pursued.
Keywords: NPD strategy formality; dynamic capabilities; business strategy; NPD performance
Introduction
With the growing level of competition across industries,
dynamic capability development in new product devel-
opment (NPD) has been at the heart of product
competition for more than a decade (e.g., Brown and
Eisenhardt, 1995; Deeds et al., 1999; Marsh and Stock,
2003; Prieto et al., 2009). Dynamic capabilities consist
of ‘specific strategic and organizational processes that
create value for firms within dynamic markets by
manipulating resources into new value-creating strat-
egies’ (Eisenhardt and Martin, 2000: 1106). Dynamic
capability literature claims that a firm’s competitive
advantage is informed by its business strategy that
exploits its assets, resources and competences in a sys-
tematic way (O’Connor, 2008). Accordingly, dynamic
capabilities are about a firm’s ability to acquire, inte-
grate, and adapt its skills and resources to the rapidly
changing environment (Teece et al., 1997; Teece, 2007;
Wu, 2007; Easterby-Smith and Prieto, 2008). Firms
differ considerably in their efforts to develop business
strategies and dynamic capabilities in product competi-
tion, which can yield a range of diverse performance
affects (e.g., Day, 1994; Eisenhardt and Martin, 2000).
Yet despite the theoretical and managerial importance of
this issue, researchers know little about how different
capabilities should be organized for NPD in firms with
different business strategies. Furthermore, the ability to
generate new products is also suggested to be dependent
on a clearly defined strategy (i.e., NPD strategy formal-
ity) (Cooper et al., 2004). In this vein, our research ques-
tion is: How can NPD strategy formality and dynamic
capabilities lead to superior NPD performance for firms
with different business strategies?
Examining this complicated theoretical and mana-
gerial problem raises two significant challenges. First,
the development of dynamic capabilities and business
strategies are each viewed as multidimensional phenom-
ena involving many differentbut related issues. Yetstrat-
egy scholars frame the relationships between these
phenomena in holistic terms as the role of dynamic
capabilities in implementing business strategy. Put dif-
ferently, how well a firm implements a business strategy
is influenced by how well it adapts its products, pro-
cesses, and organizational routines (i.e., dynamic capa-
bilities) to the requirements of its environment. Teece
Correspondence: Lale Gumusluoglu, Faculty of Business Administra-
tion, Bilkent University, 06800 Bilkent Ankara Turkey. Tel:
90-312-2902319; Fax: 90-312-2664958; E-mail: tomruk@bilkent.edu.tr
DOI: 10.1111/emre.12070
© 2016 European Academy of Management
European Management Review, Vol. 13, (201 )
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et al. (1997) suggest that, in dynamic environments,
firms should not only have strong resources (resource-
based view; RBV), they must also have strong
organizational routines for developing and renewing
those resources and organizational capabilities, specifi-
cally, sensing, seizing, and reconfiguring capabilities.
While all companies have to develop these three com-
ponents of dynamic capabilities to adapt to the rapidly
changing environment, the ability to do so ‘is not uni-
formly distributed amongst enterprises’ (Teece, 2007:
1323). Accordingly, the extent to which firms might
develop each of these capabilities is dependent on many
factors such as their strategies, structures, established
capabilities, complementary assets, and administrative
routines. For example, leader companies might invest
heavily in identifying market opportunities to maintain
their leadership positions, while others might emphasize
reconfiguring their existing competences to address the
needs of their current customers.
Successfully organizing dynamic capabilities for dif-
ferent business strategies involves resolving multiple
and conflicting strategic possibilities to match environ-
mental changes. Scholars suggest that various dimen-
sions of dynamic capabilities can be assessed in terms of
their ‘fitness’ (Matsuno and Mentzer, 2000; Augier and
Teece, 2007; Teece, 2007). Accordingly, the business
strategy pursued by a firm influences the relative empha-
sis it might put on capability development (McKee et al.,
1989; Zhou and Li, 2010). The alignment of dynamic
capabilities with a firm’s strategy and environment is the
basis of this contingency approach to strategy (McKee
et al., 1989; Di Benedetto and Song, 2003; Song et al.,
2007; Zhou and Li, 2010). Although strategic manage-
ment scholars state that a firm has competitive advantage
in NPD when its dynamic capabilities fit its business
strategy (Di Benedetto and Song, 2003; Harreld et al.,
2007), the wide range of possible levels of fitness makes
the identification of ‘correct’ configurations of dynamic
capabilities needed for a particular business strategy dif-
ficult and complex. Therefore, the first challenge that
strategy and NPD scholars face lies in assessing how the
different components of dynamic capabilities can be
organized to enable the implementation of particular
business strategies in product competition. Hence, we
suggest that for different business strategies, different
components of dynamic capabilities (i.e., sensing,
seizing, and reconfiguring) are more important for their
effects on NPD performance.
In a similar vein, we suggest that the extent to which
firms formalize their NPD strategies is dependent on
their business strategy.Although several studies suggest
that firms need clearly defined strategies on which to
focus their efforts and allocate resources, and a plan for
carrying out their goals (Cooper et al., 2004), previous
research yielded inconsistent findings about the strategy
formality-performance link. Hence, we introduce
business strategy as a contingency factor in this link and
suggest that the extent to which NPD strategy formality
influences NPD performance is dependent on business
strategy.
The second problem area in the strategy domain
relates with whether competitive advantage stems from
investing in dynamic capability development, rather
than in strategy formalization. Hence, scholars point
out that dynamic capabilities can affect performance
above and beyond strategizing. While in general strat-
egies are outward-looking, since they are a result of
managerial responses to external environmental condi-
tions (Fiegenbaum and Thomas, 2004; Veliyath and
Shortell, 1993), dynamic capabilities are inward-
looking and focus on how to integrate and rejuvenate a
firm’s resources (Zhou and Li, 2010). Accordingly,
Teece et al. (1997: 509) state that ‘[i]dentifying new
opportunities and organizing effectively and efficiently
to embrace them are generally more fundamental to
private wealth creation than is strategizing.’ Based on
these observations, this study aims to co-examine the
effects of dynamic capabilities and NPD strategy for-
mality on NPD performance.
The purpose of this paper, therefore, is to investigate
how business strategy, NPD strategy formality and
dynamic capabilities engage, if at all, to affect NPD
performance. To this end, we explore the impact of
NPD strategy formality and dynamic capabilities on
NPD success. As noted previously, we focus on the three
core components of dynamic capability (e.g., sensing,
seizing, and reconfiguring capabilities) to examine this
relationship because the extent to which firms focus on
these components depends on their business strategy
(Teece, 2007). We examine each component for their
relationships to different business strategies based on the
Miles and Snow (1978) typology (prospectors, analyzers
and defenders) and examine their individual influences
on NPD performance. Here, Miles and Snow’s (1978)
typology provides a way to conceptualize the major
decisions that companies must make when they seek to
fit their strategy formalization and dynamic capability
development activities with their business strategies. In
summary, we present a framework that synthesizes the
knowledge in strategy formalization and dynamic capa-
bility development in the context of NPD and business
strategy literature to understand their links to NPD per-
formance. We also take environmental characteristics
into account to identify the contingencies for our study.
Our study makes four contributions. First, we fill a
major knowledge gap by providing empirical support for
theorized links between dynamic capability, business
strategy, and NPD performance. This helps managers
understand how to organize and develop dynamic capa-
bilities to meet the implementation requirements of dif-
ferent business strategies and why this is important in
driving NPD performance. Second, our study examines
L. Gumusluoglu and N. Acur
© 2016 European Academy of Management
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