Innovation Across Cultures

According to a 2004 Comparative Performance Assessment Study by the Product Development and Management Association Foundation, nearly 30 percent of sales and profits are obtained from products that are fewer than five years old. This may be why, in the midst of a suffering economy, companies such as Tide and Starbucks are launching new and innovative products. But what are the necessary strategies for successful product innovation?

Wayne DeSarbo, the Mary Jean and Frank P. Smeal Distinguished Professor of Marketing at Penn State’s Smeal College of Business, along with co-authors C. Anthony Di Benedetto from Temple University and Michael Song from the University of Missouri, looks at the relationship between strategic capabilities and radical innovation in a cross-national context by sampling firms in the United States, China, and Japan.

Receiving the 2008 Best Paper Award from IEEE Transactions on Engineering Management, their study, “Strategic Capabilities and Radical Innovation: An Empirical Study in Three Countries,” examines five strategic capabilities as drivers of the development and launch of radical innovations, which are defined as products that “involve the discovery of new technologies and the creation of new markets.”

Although there are many strategic capabilities, the researchers focus on five that are precursors to competitive advantage and long-term success: marketing, technology, market linking, information technology, and management-related capabilities.

In order to properly assess the drivers of radical innovation among the three countries, the researchers take into account their different cultural surroundings. Japanese and Chinese cultures value collectivism, long-term orientations, and cohesiveness, while the United States is a more individualistic and competitive society that values short-term orientations.

The differences among business environments in the United States, Japan, and China play a role in the way strategic capabilities impact radical innovation as well. Researchers believe all the strategic capabilities will be significantly positively related to radical innovation, and stress that the “firm’s ability to understand customer needs and match them to emerging technologies is critical to converting the technology into a successful innovation.”

In contrast, DeSarbo, Benedetto, and Song hypothesize that technological capabilities are more positively related to radical innovation in both Japan and China than in the United States.

Overall, all five capabilities are consistent with the “twin stream” new product development literature, which states that successful product innovation typically requires strengths in both marketing and technology. “In earlier stages, technical-related capabilities will be most critical, while at later stages, the ability to differentiate products and to reduce costs will grow in importance,” say the researchers.

After gathering empirical data from 376 firms in the United States, Japan, and China, who collectively developed a total of 380 radical innovations, the researchers find evidence that overall, technology and information technology capabilities are significantly and positively related to radical product innovation. They also find significant differences among the three countries concerning drivers of radical innovation.

In the United States and Japan, the researchers discover the role of marketing capabilities in radical product innovation, but the technology capability has the largest factor effect in both China and Japan. Surprisingly, they find that marketing and market-linking capabilities are significantly and negatively related to radical innovation in China.

“Relative to the Japan and U.S. sample, the China sample may over represent suppliers of foreign firms,” say the researchers. “It is possible that marketing and market linking capabilities are less important to firms that act largely as suppliers to firms who work for foreign business clients, than to firms that produce for local private customers.” They advise Chinese firms to invest in improving technology capabilities, not marketing-related capabilities, as that would be inefficient.

DeSarbo and his co-authors also suggest that managers of firms prioritizing radical innovation should use this information to insure that their scarce financial resources are put toward the strategic capability that is the greatest driver of radical innovation. “In the extreme, we find evidence that too much investment in marketing-related capability actually decreases the rate of radical innovation in China,” say the researchers, “More often, ill-advised investment in capabilities is wasteful.”