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

• Published date: 01 June 2016
• Date: 01 June 2016
• DOI: http://doi.org/10.1111/emre.12070
• Author: Nuran Acur,Lale Gumusluoglu

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

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