“ A Comparison of Organizational Factors Influencing New Product Success in Internal and Alliance Based Products ”

New products provide increased sales, profits, and competitive strength for most organizations. However, nearly 50 percent of the new products that are introduced each year fail. Organizations thus find themselves in a double bind. On the one hand they have to consistently innovate to remain competitive, but on the other hand innovation is risky and expensive. Many organizations are forming business alliances to quicken the pace of and reduce risks associated with innovation. Yet, by some estimates, 70 percent of these alliances fail. Many of the prescriptions for successful alliance management clash with recommendations for effective innovation management. Using the Zirger-Maidique model, this paper develops testable hypotheses by integrating the new products and alliance literature. Internal new product development 2 : (NPD) efforts are compared and contrasted with new product development efforts conducted under alliances. The model is tested with data from a sample survey in the semiconductor manufacturing context and replicated in the healthcare sector. Results suggest that cooperative competency, clarity of agreement, fit, and clan-oriented administrative mechanisms contribute to new product success. The importance of various factors in the model on internal and external NPD is discussed. INTRODUCTION New products provide increased sales, profits, and competitive strength for most organizations. Many successful corporations such as JVC (which pioneered the VHS format for home VCRs) and Apple Computer owe their fortunes to new products they developed (Cooper 1993). A study of more than 700 Fortune 1000 companies indicated that new products would provide about a third of their profits over the next five years (Booz, Allen, and Hamilton 1982). On the other hand, nearly 50 percent of the new products that are introduced in the market place each year fail, causing considerable financial loss and embarrassment to their promoters (Business Week 1993; Zirger and Maidique 1990). At the extreme, Ford Motor Co. lost $250 million with the Edsel in 1958 and RCA’s failed VideoDisc player launched in 1981 cost them $500 million (Salmans 1984). Thus, many organizations are entering business alliances to offset many of the pitfalls associated with the innovation process. A business alliance is “an ongoing, formal, business relationship between two or more independent organizations to achieve common goals” (Sheth and Paxvatiyar 1992, p. 72). Organizations enter alliances to quicken the pace of innovation, overcome budgetary constraints, spread out risks, and gain access to resources (e.g., technological, financial) not otherwise available to them (Bleeke and Ernst 1993, Varadarajan and Cunningham 1995). For example, Intel has entered into an alliance with Hewlett-Packard to develop a single computers (Wall Street Journal 1994). Nevertheless, many alliances Some estimates put the failure rate of computer chip capable of running software in both PCs and large tend to be unstable and a large number of these fail (Gates 1993). alliances as high as 70 percent (Business Week 1986; Parkhe 1993). The potential for conflict and a clash of interest among alliance partners is inherent. Either party can opportunistically use the alliance to learn the other’s business or technological secrets (Bucklin and Sengupta 1993). Furthermore, because alliances are largely self-governing; there are no practical higher authorities who cti ensure that errant partners will be brought in line (Parkhe 1993).