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The impact of organizational capabilities on the development of radical and incremental product innovation and product innovation performance.

Academics and practitioners acknowledge the importance of product innovation to increasing quality of life, increasing firms' marketing and financial performance (Govindarajan and Kopalle, 2006; Henard and Szymanski, 2001; Sivadas and Dwyer, 2000), and sustaining firms' business in the market (Bharadwaj et al., 1993; Day and Wensley, 1988). Product innovation is one of the factors that help firms to cope with several kinds of competitive pressure, such as shortened product life-cycles, demand uncertainty, and technological turbulence (Godener and Soderquist, 2004; Ziamou and Ratneshwar, 2003).

Organization capabilities play a crucial role in successfully developing new products (Brentani and Kleinschmidt, 2004). Firms must therefore define a pattern of organization which matches the type of new products they wish to develop (Damanpour, 1991; Jansen et al., 2006). Many studies investigate the organizational capabilities that affect the development of new products (Wind and Mahajan, 1997). However, a large proportion of those studies focus on radically new products, i.e., products that offer new benefits or attributes previously unknown to the market (Sorescu et al., 2003). Fewer studies focus on incrementally new products, i.e., products that are developed based on existing products or add some features to existing products.

This paper investigates the impact of organizational capabilities on the development of radical and incremental product innovation. This paper empirically and simultaneously compares antecedents (organizational factors), mediators (product innovation), and consequences (performance) of the development of radical and incremental product innovation. Further, this paper examines the impact of product innovation on the performance of firms. Finally, conceptual models explaining the relationships among these factors are proposed.

The findings will help academics and practitioners to better understand the role of organizational capabilities on the development of each type of product innovation. In addition, the importance of product innovation on firm performance is presented. Contributions, limitations, and future research are also discussed.

LITERATURE REVIEW

Definition of Product Innovation

There are many definitions of product innovation. The popular terms used to classify the degree of new product innovation are radical and incremental product innovation (Atuahene-Gima, 2005; Gatignon et al., 2002). However, these terms have diverse definitions. For example, Gatignon and Xuereb (1997) and Kristina and Dean (2005) consider product innovation in terms of technology; Cooper (2000) and Govindarajan and Kopalle, (2006), define product innovation in terms of customer's opinion.

Kristina and Dean (2005) propose that product innovation may be evaluated in terms of the differentiated technological characteristics of the product. The two criteria for the evaluation are: (1) novelty, which is the need to be dissimilar from prior technologies and (2) uniqueness, which is the need to be dissimilar from current technology. Anderson and Tushman (1991: 27) define product innovation only in terms of radical innovation. They define product innovation as "technological discontinuities that advance by an order of magnitude the technological state-of-the-art which characterizes an industry" (Anderson and Tushman, 1991). Anderson and Tushman (1991) explain product discontinuities as technological breakthroughs which produce fundamentally different product forms that possessed a decisive cost, performance, or quality advantage over prior product forms. Product discontinuities also represent a new way of making something, i.e., novel product architecture. Radical products are the result of technological discontinuities.

From the customer's perspective, Christensen (1997) classifies disruptive product innovation as involving the creation of new products that bring a very different value proposition in a market than product created using previously available technologies. Cooper (2000) suggests that radical product innovation and disruptive or discontinuous product innovation, created a new dimension to the customer's perspective. Ziamou and Ratneshwar (2003) define product innovation as creating a novel set of benefits available to customers, although the physical shape of the product offered might not be new to the market. Olshavsky and Spreng (1996), however, note that it is difficult for customers to form evaluations or make expectations regarding product innovation. Moreover, customers may reject new products if they are still satisfied with present products or if new products do not meet expectations. Hence, it is very important for firms to know the expectations of customers so that firms can position their new products as differentiated from their competitors.

Each firm has different objectives for developing new products because each firm has different resources (e.g., staff, capital, and organizational capabilities) and external pressures (e.g., demand uncertainty, competitors, and technological change) (Barney, 1991; Wernerfelt, 1984). For example, some firms may want to promote themselves as innovative firms or they want to offer new features and benefits to customers in the market. So, these firms develop radical products to meet their objective. However, other firms may develop incremental products to serve the additional needs of their customers. Also, in the case of a shortage of technology and/or technical skills, firms may develop incremental products based on existing products by improving the performance of those products.

Based on the prior definitions of product innovation, this paper focuses on product innovation from the customer's perspective. The reason is that new products would succeed if new products are developed to satisfy a perceived need of customers, rather than being developed to take advantage of new technologies (Brown and Eisenhardt, 1995; Hoonsopon and Ruenrom, 2010; Voss and Voss, 2000; Ziamou and Ratneshwar, 2003). Thus, this study applies the definition of radical and incremental product innovation from Hoonsopon and Ruenrom (2009). Radical product innovation is defined as "the development of products that have a different set of features and performance attributes that create a set of benefits different from that of existing products from the customer's perspective" (Hoonsopon and Ruenrom, 2009: 156). Incremental product innovation is defined as "the development of products that have minor changes in attributes, and the benefits from these changes are minimal from the customer's perspective" (Hoonsopon and Ruenrom, 2009: 156).

Organizational Capabilities

Product innovation is an important factor that can increase the competitive advantage of a firm over its competitors. Product innovation helps firms not only to differentiate themselves from their competitors by providing unique and superior benefits to their customers (Zhou et al., 2005), but also to enhance their cost advantage over competitors by introducing similar products at a lower cost (Gatignon and Xuereb, 1997; Porter, 1985). Firms must continuously respond to changing external factors such as demand uncertainty, competitors, and technological turbulence to maintain their competitive advantage and sustain their business in the long run.

Organizational capabilities are one of the potential sources of competitive advantage (Barney, 1986; Bharadwaj et al., 1993). The pressure of competition stimulates firms to develop not only product innovation but also new organization method (Zander and Kogut, 1995). In the dynamic market caused by innovation and diversity of competitions, firms that adapt their organizational capabilities (e.g., culture and structure) to fit with the firm's strategies will maintain their advantages over competitors (Grant, 1996). Further, sustainable competitive advantage depends on building core competences with firms whose organizational capabilities are one of the core competencies that can be deployed across various types of product innovation (Prahalad and Hamel, 1990). Kim et al. (2012) argue that the ability to adopt organizational capabilities helps firms to respond to various changes such as customer needs, technological turbulence, and new product development cost. In addition, firms that have a high degree of organizational capability can increase the speed of launching new products to the market (Zander and Kogut, 1995).

Adopting organizational capability has many ways. In terms of quality improvement, it is useful to firms to create radical and incremental product innovations (Kim et al., 2012). For routine-based firms, appropriately adopting organizational capability to increase efficiency of quality improvement process helps develop staffs to create new products that slightly differ from competitors in terms of quality. Also, efficiency of the quality improvement process makes these new products respond quickly to the customer needs and to reduce development costs of these new products (Nair, 2006).

Customers have become more sophisticated and technology has rapidly changed. Customers have high expectations to require radical new products that serve to their satisfactions. Radical new products must have unique features, attributes, design, and benefits superior to all existing products in the market. Many firms fail to launch radical new products to serve their customers because traditional organization structure (e.g., high bureaucracy and formalization) cannot adapt to deal with these situations (Koufteros et al., 2001). To cope with these situations, organizations must be redesigned to fit with the development of radical new products. For example, Tellis et al. (2009) suggest that firms willing to adopt their organization cultures such as future orientation and risk tolerance by top management increase the successful rate of developing radical product. Coalition between development team and senior management will reduce the success of developing radical product projects which development team may be against from cannibalization reason (Sethi et al., 2012).

Therefore, the ability of firms that change organizational culture and structure (such as changing from bureaucracy to flat organization, and from top-down review to peer to peer review, and from control to freedom) to fit with product innovation strategy is to increase the outcome of the firm's strategies over competitors, leading to the increase in competitive advantage in the long run.

The conceptual models explaining the impact of organizational capabilities on the development of radical and incremental product innovation and on the performance of firms are shown in Figure I and II.

HYPOTHESES

Organizational culture refers to a system of shared values, beliefs, and meaning held by staff in an organization that characterizes the ways the firm manages its business (Barney, 1986). Organizational cultures play an important role in developing new products (Brentani and Kleinschmidt, 2004). So, firms must define a pattern of organizational culture which matches the type of new products they wish to develop (Damanpour, 1991; Jansen et al., 2006). This study investigates the effect of organizational culture, specifically vision and top management support, on product innovation.

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

Vision

Larwood el al. (1995: 740) suggest that vision is "the art of seeing things invisible." Vision influences the strategic planning of firms (Larwood et al., 1995) such as determining what type of new product firms produce. Vision support must match an organization's resources and market needs (Brown and Eisenhardt, 1995) and help ensure objectives and strategy' within the development team (Tessarolo, 2007). Further, vision clarity helps staff in the development team know how to develop new products (Manimala et al., 2005) and to reduce the need for redesign and respecification (Kessler and Chakrabarti, 1996). Moreover, vision stability is also important because firms that change their vision frequently will create confusion, ambiguity, and conflict within the development team (Lynn and Akgtin, 2001). So, product innovation will benefit from a clear, supportive, and stable vision.

It is hypothesized in this paper that vision affects product innovation positively. This leads to the following hypotheses:

H1a: Vision has a positive impact on radical product innovation.

H1b: Vision has a positive impact on incremental product innovation.

Top Management Support

Top management support refers to the degree to which top management supports the process of new product development (Brentani and Kleinschmidt, 2004). Products that are supported by and receive commitment from top management are likely to be successful (Brown and Eisenhardt, 1995; Manimala et al., 2005). Without top management support, resources and capital required to develop new products may not be forthcoming. This can be a major impediment to developing new products. Brentani and Kleinschmidt (2004) demonstrate that top management providing guidelines for the development process will improve the quality and performance of new products. Furthermore, top managers can stimulate staff to improve their performance by expressing positive or proactive attitudes (Kuczmarski, 1998) and can reduce development time or communication problems. In addition, monitoring of the process of new product development by top management stimulates staff to develop more innovative new products (Sethi et al., 2001).

In this study, the role of top management support in the process of product innovation is hypothesized as follows:

H2a: Top management support has a positive impact on radical product innovation.

H2b: Top management support has a positive impact on incremental product innovation.

Organizational structure is defined as "the formal arrangement of jobs within an organization" (Robbins and Coulter, 2005: 234). Previous literature has demonstrated the impact of organizational structure on product innovation (Calantone et al., 2010; Damanpour, 1991; Jansen et al., 2006). The effect of organizational structure is different depending on the type of product innovation. This study explores two types of organizational structure and the impact of each type on product innovation: centralization and formalization.

Centralization

Centralization is defined as "the concentration of decision-making authority typically impairs effectiveness because it increases perceptions of bureaucratic structuring, which decreases the favorability of participants' attitudes toward the project and results in increased opportunism" (Sivadas and Dwyer, 2000: 34).

Centralization influences product innovation (Lukas and Menon, 2004). Jansen et al. (2006) reveal that centralization decreases radical product innovation because centralization restricts communication channels between management and staff and reduces idea and solution generation within the development team (Damanpour, 1991; Jaworski and Kohli, 1993; Sheremata, 2000).

On the other hand, centralization has a positive impact on incremental product innovation (Cardinal, 2001), because the development of incrementally new products typically involves small, less radical change, and improvements to serve customer needs quickly (Jansen et al., 2006) and the speed of decision-making is faster (Sheremata, 2000). This contradiction is important here, because it improves the efficiency of information processing.

In this paper, the role of centralization is hypothesized as follows:

H3a: Centralization has a negative impact on radical product innovation.

H3b: Centralization has a positive impact on incremental product innovation.

Formalization

Formalization reflects "the emphasis on following rules and procedures in conducting organizational activities" (Damanpour, 1991: 589). Mintzberg (1980) reveals the importance of formalization as the standardization of work processes, coordination, output, and skill. In addition, formalization can reduce variation within firm.

Formalization detrimentally affects radical product innovation because formalization constructs a framework in the new product development process that reduces the creation of new ideas and decreases the rate of developing new products (Damanpour, 1991; Vega-Jurado et al., 2008). Formalization restricts the planning for and control of unexpected environments (Salomo et al., 2007). Furthermore, formalization decreases market generation and intelligence dissemination (Jaworski and Kohli, 1993), because it limits attention to diversion from existing knowledge and finding customer needs (Jansen et al., 2006).

In contrast, formalization positively affects incremental product innovation (Jansen et al., 2006). This is because incremental product innovation involves using existing routines and because it is related to improving existing benefits extant in a product according to customer needs (Zhou et al., 2005). Formalization assists responses to known environmental phenomena or routine jobs (Olson et al., 2005) and decreases variations in work processes by ensuring rules or procedures are followed (Benner and Tushman, 2003). Thus, formalization helps firms to increase efficiency in incremental new product innovation (Benner and Tushman, 2003; Zander and Kogut, 1995).

Consequently, the role of formalization in this paper is hypothesized as follows:

H4a: Formalization has a negative impact on radical product innovation.

H4b: Formalization has a positive impact on incremental product innovation.

Product Innovation and Market Performance

It is important to deliver superior-quality new products to customers (Brown and Eisenhardt, 1995). New product advantage is defined as "the benefits that customers get from the new products" (Langerak et al., 2004: 82). Previous studies such as Cooper and Kleinschmidt (1987), Kleinschmidt and Cooper (1991), and Langerak et al. (2004) show that attributes of product innovation such as the quality of new products, exceptionality, reliability, and newness, can differentiate a firm's new products from those of its competitors and these attributes can raise the firm's performance.

Product innovation increases market share (Hua and Wemmerlov, 2006). New products that meet customer preferences affect the market share of firms (Robinson, 1990). Min et al. (2006) demonstrate that firms that introduce new products to the market before competitors tend to have a higher market share than competitors. Further, successful new products that serve customer needs increase customer satisfaction (Song et al., 2010). Therefore, in this study, the effect of product innovation on market performance is hypothesized as follows:

H5a: Radical product innovation has a positive impact on market performance.

H5b: Incremental product innovation has a positive impact on market performance.

Market Performance and Financial Performance

Buzzell et al. (1975) suggest that market share and ROI have a positive relationship, in that, the higher the market share, the greater the firm's profit margin. Further, Zeithaml (2000) demonstrates that market share increases the sales of firms. Loveman (1998) and Reichheld et al. (2000) reveal that customer loyalty has a positive correlation with profitability and revenue growth. Additionally, customer satisfaction improves the financial performance of firms (Anderson et al., 2004). In this paper, the effect of product innovation on financial performance is hypothesized as follows:

H6a: Market performance of radical product innovation has a positive impact on financial performance of radical product innovation.

H6b: Market performance of incremental product innovation has a positive impact on financial performance of incremental product innovation.

Research Methodology

The population and sampling frame in this study were manufacturing firms that had their own products. The firms came from five industries: agriculture, biotechnological, energy, food, and pharmaceutical industrial sectors. All the firms were located in Thailand. The list of firms was gathered from various sources, such as the National Center for Genetic Engineering and Biotechnology (BIOTEC), The Federation of Thai Industries (FTI), National Food Institute (NFI), National Innovation Agency (NIA), and the Siamlist database. The unit of analysis in this study was managers or higher of firms in sampling frame who had responsibility for or involvement in developing new products.

The population in the sampling frame was approximately 2,000, and a questionnaire was sent to these firms. Total returned questionnaires were 392, a response rate of 19.6 percent. Of 392 returned questionnaires, 66 questionnaires were deleted because (1) respondents declined participation, (2) respondents incompletely answered the questionnaire, (3) firms were not manufacturers, and/or (4) firms were manufacturers but they were not in the scope of the study. After cleaning the data, the number of questionnaires used for the analysis was 326.

This paper classified firms that employed radical and incremental product innovation by using a rating scale. This method was recommended by Zhou et al. (2005). In the questionnaire, respondents rated their new products ranging from 1 (no innovation) to 6 (radical innovation) based on how well their products corresponded to the following definition of innovative products: "products that involve a different set of features and performance attributes which make a novel set of benefits available compared to existing products from a customer perspective."

If respondents rated their new products from 1 to 3, this was considered incremental product innovation. If respondents rated their new products from 4 to 6, this was considered radical product innovation. As a result, 204 firms were considered to be employing radical product innovation, while 122 firms were employing incremental product innovation.

Analysis

Structural equation modeling (SEM) with the maximum likelihood estimation method was used to test the measurement models of the two conceptual models. In addition, SEM was used to test the hypotheses in the structural models of the two conceptual models. The data was analyzed using LISREL 8.52.

To reduce the complexity of the conceptual model, the effect of four control variables (type of industry, firm's income, firm age, and firm size) was tested using the analysis of variance (ANOVA) technique. If the results revealed insignificant mean differences among groups of each construct, it could be concluded that these variables should not be included in the models. The findings showed that all constructs in the two models had insignificant mean differences among groups at a level of significance 0.05. Hence, none of the control variables were included in the analysis.

Measures

All measurement items were translated to Thai using the back translation technique to confirm conceptual equivalence and to increase the understanding of questions in the questionnaire by respondents. The measurement items for all constructs in the proposed models are evaluated and adapted to fit with the Thai environment. That is, the measurement items of constructs are applied and borrowed from past literatures (such as Langerak et al., 2004) while some constructs (radical and incremental product innovation constructs) are newly created. To measure the degree of product innovation, this study uses a self-ranking scale which has advantages and limitations. Langerak and Hultink (2006: 209-210) reveal advantages and limitations of self-ranking product innovation. The first advantage of self-ranking is effectiveness because subjective measurement can capture the perceptions of respondents on the degree of product innovation. Secondly, objective measures on product innovation are not possible to achieve. Thirdly, self-ranking is reliable and valid. Finally, self-ranking has been used in previous product innovation research such as De Luca and Atuahene-Gima (2007) and Gatignon and Xuereb (1997). There are three limitations of using self-ranking. Firstly, evaluation of the degree of product innovation by respondents had variation. Secondly, self-ranking lacks external verification of respondents' answers, so it may decrease reliability and validity of an evaluation of respondents. Thirdly, respondents may overestimate the degree of innovation in their products. Notwithstanding the limitations of self-ranking, this study uses self-ranking to classify product innovation and consideration is given to these limitations in interpretation of the results. All measurement items were measured using seven-point rating scales and these are provided in the Appendix. The respondent profiles are shown in Tables 1 and 2 and the basic description of the constructs of the radical and incremental product innovation models are shown in Tables 3 and 4.

To increase the reliability and validity of the results, the reliability and validity of the measurement and structural models was tested following Anderson and Gerbing (1988). To assess reliability, Cronbach's alpha was used to test the reliability of seven constructs in the two conceptual models. The findings showed that all constructs in the two models had Cronbach's alpha higher than 0.7, meaning they met the level suggested by Cronbach (1951). For the radical product innovation model, the constructs had Cronbach's alpha ranging from 0.808 (RAD) to 0.919 (FP), and for the incremental product innovation model, the constructs had Cronbach's alpha ranging from 0.858 (CEN) to 0.930 (FP).

Measurement items were tested for content validity by one academic in the marketing area and six practitioners in population of the study. Also, testing for convergence, discriminant, and construct validity of the measurement models was conducted by confirmatory factor analysis. Construct reliability was applied to test the convergence validity of constructs. Construct reliability should be greater than 0.7 for good reliability and validity (Hair et al., 2006). The findings show that, for the radical product innovation model, the constructs have construct reliability ranging from 0.75 (RAD) to 0.89 (CEN). For the incremental product innovation model, the constructs have construct reliability ranging from 0.73 (INC) to 0.87 (FP).

For the correlation matrix, some constructs have high correlation with other constructs which can be interpreted as indiscrimination between two constructs. To confirm discriminant validity, two approaches are used to assess discriminant validity. The first approach is to compare variance extracted and the square of the correlation between the two constructs (Fornell and Larcker, 1981). The rule of thumb is that variance extracted is greater than the square of the correlation between the two constructs verifies discriminant validity (Hair et al., 2006). The results show that all constructs in the two conceptual models reveal dicriminant validity. Another approach for testing discriminant validity is to compare Cronbach's alpha ([alpha]) of a construct and its correlation with other constructs. Ghiselli et al. (1981) suggest that discriminant validity of the construct can be achieved if ct is higher than correlations with other constructs. The findings reveal that all constructs have discriminated with others.

Construct validity of the measurement models was assessed. The models provide a reasonable fit to the data in terms of all fit indices recommended by Carmines and McIver (1981); Hair et al. (2006); Marsh et al. (1996: 318). For radical product innovation, [chi square]/d.f < 2 (2,553.95/1,379); p-value = 0.000; RMSEA = 0.065; NFI = 0.934; CFI = 0.965; IFI = 0.965; and RFI = 0.926. For incremental product innovation, [chi square]/d.f < 2 (2,320.11/1,379); p-value = 0.000; RMSEA = 0.075; NFI = 0.927; CFI = 0.962; IFI = 0.962; and RFI = 0.918.

RESULTS

The analysis is separated into two parts: the radical and incremental product innovation models. The results are shown in Tables 5 and 6.

H1a predicts the impact of vision on radical product innovation. The result shows that this hypothesis is statistically significant (2, = 0.57, p < 0.01). Therefore, H1a is supported.

However, H2a is not supported ([gamma] = 0.00, p > 0.1). The possible explanation is that top managers may only suggest an opinion or strategy for new product development, but they may not support other resources for developing new products (Brentani and Kleinschmidt, 2004). Moreover, in developing radical product innovation, new and various ideas from several departments and management levels may generate some conflicts between top management and development staff. Managers may avoid these problems by postponing or canceling the development of radical products that deviate from the current product.

It is hypothesized that centralization has a negative impact on radical product innovation. This prediction is not supported because the coefficient is insignificant ([gamma] = 0.01, p > 0.1). The explanation could be that new ideas for developing a new product to meet customer needs may come from development teams who are closer with customers than top management. Valuable information for developing radical new products always comes from the market (Schreier and Prugl, 2008). So, top management may accept the ideas and information from a development team to be the way for the development of radical products rather than top management assigning the work process to the development team for developing radical products.

The results show that formalization (H4) does not have an impact on the development of radical product innovation. ([gamma] = 0.13, p > 0.1). In previous literatures, formalization decreased the success of development of radical product innovation (Damanpour, 1991; Jaworski and Kohli, 1993). It was because formalization might limit the new ideas of a development team. Nonetheless, well-designed rules and regulations may encourage unity and cooperation among teams from various departments. Thus, well-designed rules and regulations may be benefits for contributing bureaucratic and formalization to organization (Alder and Borys, 1996). Besides, codification efforts of new ideas from internal organization (staffs) and external stimuli (customers, competitors, technological changes, etc.) in written rules and regulations might help the firm to disseminate these new ideas to develop radical product innovation.

Consistent with H5a, radical product innovation increases the marketing performance of firms ([beta] = 0.84, p < 0.01). Thus, this hypothesis is confirmed. Also, researchers expect that market performance is positively related to marketing performance (H6a). The finding supports the hypothesis ([beta] = 0.76, p < 0.01).

Vision does not have an impact on incremental product innovation ([gamma] = 0.02, p > 0.1). Hence, H1b is not supported. The explanation might be that incremental products are modified from current products, thus a clear vision about how to modify a product exists. Resources for developing incremental products, such as production processes, materials, or staff, may be the same with current job. So, vision that leads to the creation of supporting resources for the development of incremental products may not be needed.

Contrary to Hypothesis H2b, top management support is not positively related to incremental product innovation ([gamma] = 0.19, p > 0.1). This deviation from the proposed hypothesis might be because improving or developing existing products may not require support from top management since extra resources may not be required for developing incremental products. Also, the development of incremental product may use existing resources. Suggestions or stimulation from top management may not be essential as development teams already know how to improve existing products. This was confirmed in the empirical study by Lynn and Akgun (2001). They reveal that support among team members is the major factor for the development of incremental products, not support from top management.

For Hypothesis H3b, the findings show that centralization has a positive impact on incremental product innovation ([gamma] = 0.33, p < 0.05). Consequently, the result is congruent with the proposed hypothesis. In addition, for H4b, formalization has a partial relationship with incremental product innovation ([gamma] = 0.12, p < 0.1). Therefore, H4b is partially supported.

Consistent with H5b, incremental product innovation increases the marketing performance of the firm ([beta] = 0.49, p < 0.01). Thus, the hypothesis is supported. Finally, the hypothesis that market performance is positively related to financial performance (H6b) is confirmed ([beta] = 1.00, p < 0.01).

Contributions

The empirical findings of this study increase understanding of the impact of organizational capabilities on the development of radical and incremental product innovation. Also, the results show the impact of product innovation on the performance of firms which the summary of research finding is shown in Table 7, 8, and 9. The major contributions of the study are discussed below.

First, the conceptual framework for each type of product innovation can be established. Previous literature focused mainly on the development of radical product innovation, but literature focused on the development of incremental product innovation is scarce. This paper fills some of the gap in the study of the impact of organizational capabilities on the development of incremental product innovation. Further, this paper has established conceptual models to simultaneously explain the impact of antecedents, mediator, and consequences of the process of product innovation, both radical and incremental. These models can also explain the different impacts of organizational capabilities on the development for each type of product innovation.

Second, the concept of competitive advantage is strongly supported in this study. The findings reveal that new products of firms, which offer new and superior benefits to their customers in the market, increase the market and financial performance of firms. Porter (1985) argued that product differentiation is the heart of competitive advantage. Firms which have competitive advantage over their competitors can harvest benefits from their advantage, such as revenue, profit, and market share (Day and Wensley, 1988). In addition, firms can sustain their businesses in the long run by constant investment in the organization (Bharadwaj et al., 1993) to uphold their competitive advantage.

Third, the way that organizational capabilities impact on the development of radical and incremental product innovation has been revealed. The findings of this study reveal that vision is the factor that impacts on the development of radical product innovation. On the other hand, centralization and formalization are the factors that impact the development of incremental product innovation. Managers who have the responsibility to develop new products can apply the results of this paper as guidelines for improving their organization to fit the development of new products. Because of limited resources within firms, managers must organize resources to optimally support the development of new products. In addition, managers can reduce unnecessary allocation of resources to factors that do not have an impact on the development of new products. The success of optimization of firms' resources will increase competitiveness of firms.

Fourth, the constructs in this study can be related to the cultural distances proposed by Hofstede (1983). He argues that there are five dimensions of national culture that affect the organization behavior which two of five dimensions are reflected to the constructs in this study. Centralization is reflected in power distance based on the IBM study (Hofstede et al., 2010: 313). The reason is the extent to which the degree of subordinate must follow the more powerful members (manager or higher). Staff in organizations that have high centralization will follow the command from higher order.

Meanwhile, formalization can be reflected in uncertainty avoidance in the same study. It is because firms that try to control the unpredictable phenomenon will adopt standardized work processes to reduce variability within the firm. Furthermore, formalization is also related to strict work discipline proposed by Hofstede et al. (2010) that strict work discipline is the degree of internal structuring, control, and discipline. In this study, therefore degree of formalization can be a proxy of the cultural differences in terms of uncertainty avoidance.

The findings of the study reveal that cultural distances have different impacts on the development of each type of product innovation. The cultural distances have an impact on the development of incremental innovation, but no impact on the development of radical innovation. These findings fit the result of Hofstede (1983) that Thailand has high power distance (centralization) and uncertainty avoidance (formalization). Also, this argument is supported by report of International Institute for Management Development (IMD) in the year 2008. The results revealed that scientific and technological infrastructure rankings of Thailand are ranked to 37th and 43rd in scientific and technological infrastructure, respectively (IMD, 2008). It can be concluded that organizational culture of firms in Thailand matches with the development of incremental innovation rather than of radical innovation.

Lastly, managers can recognize the impact of new products on the performance of firms. Increasing market and financial performance stimulates firms to develop new products. The findings reveal that both radical and incremental product innovation improve firms' performance because firms enhance their competitive advantage by differentiating new products from their competitors.

LIMITATIONS

Although there are a number of important findings, this paper has some limitations which are described as follows.

The data collection in this study was conducted in only five industrial sectors (agriculture, biotechnological, energy, food, and pharmaceutical sectors). As a result, generalizability of the results beyond the scope of this study may be limited.

In practice, firms have a variety of products. It is hard to find firms which have only one product in this paper. So, the focus in this study has been on the products that have the highest innovation. The findings may be limited for radical product innovation because the sample in this framework combines with firms developing radical products and firms developing both radical and incremental products.

This study is based on Thai's culture. Thai's culture is collectivism, feminine, high power distance, and high uncertainty avoidance. The findings may limit the generalizability to countries that have different cultures such as Western cultures (individualism, masculinity, low power distance, and low uncertainty avoidance).

Future Research

Future research should investigate the definition of radical and incremental product innovation using the customers' perspective (Tellis et al., 2009). Firms and researchers will better understand a product innovation in the eyes of customers. The literature defined product innovation from the researchers' perspective (Booz Allen and Hamilton, 1982) or from the firms' perspective (Govindarajan and Kopalle, 2006) but did not define product innovation from the customers' perspective.

The survey is conducted with firms located in Thailand in five industry sectors. Therefore, the generalizability of the results of this study may be limited. So, surveying different industrial sectors or in different countries for future studies is required to expand the usefulness of these results.

Organizational culture is also an important factor that should be considered in future research. Hofstede et al. (2010) proposes six autonomous dimensions and two sub-dimensions of organizational culture: means-oriented vs. goal-oriented, internally-driven vs. externally-driven, easy-going work discipline vs. strict work discipline, local vs. professional, open system vs. closed system, employee-oriented vs. work-oriented, degree of acceptance of leadership style, and degree of identification with your organization. The impacts of these variables on the development of radical and incremental product innovation have not been investigated.

Some interesting variables such as technological proficiency, launch proficiency, and demand uncertainty are also not investigated in detail regarding their differential impact on the development of radical and incremental product innovation. Future research should be done on these variables because they affect the success of developing new product innovations.

Appendix

Measurement Items

Vision (VIS) (adapted from Lynn and Akgun, 2001; Tessarolo, 2007).

* Clear vision about the characteristics of the new product to be manufactured.

* Clear understanding of the needs of the targeted customers.

* All related departments share the same objectives for the new product to be manufactured.

* Clear and consistent policies towards the goals of the new product from inception of the idea.

Top Management Support (TOP) (adapted from Cooper and Kleinschmidt, 1987).

* Full support of the resources needed for new product development.

* Guidance for the new product development approach.

* Consistent encouragement of employees to present constructive ideas about new product development.

Centralization (CEN) (adapted from Ayers et al., 1997; Olson et al., 2005; Sivadas and Dwyer, 2000).

* Middle and lower-level managers have freedom within their boundary of responsibility. *

* Middle and lower-level managers have freedom in their decisions within their boundary of responsibility. *

* Problems occurring during product development are fixed according to supervisory steps within the boundary of responsibility. *

Formalization (FOR) (adapted from Ayers et al., 1997; Olson et al., 2005).

* Responsibilities of each employee have been clearly assigned.

* Company has clearly assigned the line of work for employees.

* Documents are made in writing for communication between departments.

Radical Product Innovation (RAD) (adapted from Cheng and Shiu, 2008; Garcia and Calantone, 2002; Jansen et al., 2006).

* A significant improvement compared with competitors' products in the eyes of the customers.

* Special benefits for customers not found in the competitors' products.

* Can substitute for similar products in the eyes of the customers.

Incremental Product Innovation (INC) (adapted from Atuahene-Gima, 2005; Garcia and Calantone, 2002; Jansen et al., 2006; Sethi et al., 2001).

* New product is slightly improved compared with the competitors' products in the eyes of the customers.

* Benefits gained from the new product change only slightly in the eyes of the customers.

* New product is an improved version that matches the requirements of the customers better than the existing product.

Marketing Performance (MP) (adapted from Alam, 2003; Im and Workman, 2004; Langerak et al., 2004).

* Customers' acceptance of the new product meets the company's target.

* Customers' satisfaction with the new product meets the company's target.

* New product's ability to gain market share meets the company's target.

* Increased number of customers after the launch of the new product meets the company's target.

Financial Performance (FP) (adapted from De Luca and Atuahene-Gima, 2007).

* Sales quantity of the new product meets the company's target.

* Profit of the new product meets the company's target.

* Revenue of the new product meets the company's target.

Note: * indicates a reverse item.

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Danupol Hoonsopon

DBA--Chulalongkorn Business School

Chulalongkorn University

Guntalee Ruenrom

Associate Professor in Marketing

Chulalongkorn University
Table 1
Position of Respondent Position

                          Radical Innovation    Incremental Innovation

                        Frequency   Percentage  Frequency   Percentage

Managing director           79         39.9         49         41.2
Vice managing director       8          4.0          9          7.6
Factory manager             12          6.1          6          5.0
R&D manager                 29         14.6          5          4.2
QA and/or QC manager         8          4.0          3          2.5
Marketing manager           16          8.1         10          8.4
Accounting manager           6          3.0          5          4.2
Others                      46         20.2         32         26.9

Total                      204        100          122        100

Table 2
Type of Industry

                     Radical Innovation      Incremental Innovation
Industry
                  Frequency    Percentage   Frequency    Percentage

Agriculture           28          13.7          16          13.1
Biotechnology         18           8.8           7           5.7
Energy                 8           3.9           3           2.5
Food                  99          48.5          65          53.3
Pharmaceutical        33          16.2          21          17.2
Others                18           8.8          10           8.2

Total                204         100.0         122         100.0

Table 3
Basic Descriptive Statistics of the Constructs of Radical Product
Innovation Model

           VIS        TOP        CEN        FOR

VIS        0.68
TOP        0.622 **   0.72
CEN        0.516 **   0.627 **   0.78
FOR        0.496 **   0.469 **   0.557 **   0.74
RAD        0.535 **   0.427 **   0.359 **   0.458 **
MP         0.510 **   0.305 **   0.282 **   0.281 **
FP         0.392 **   0.246 **   0.243 **   0.276 **

[bar.X]    5.280      5.563      5.127      4.951
S.D.       1.061      1.039      1.058      1.228

           RAD        MP         FP

VIS
TOP
CEN
FOR
RAD        0.62
MP         0.506 **   0.60
FP         0.296 **   0.759 **   0.80

[bar.X]    5.363      4.959      4.607
S.D.       1.062      1.036      1.240

Note: Significant level at 0.05.

Variance extracted is shown on the diagonal

Table 4
Basic Descriptive Statistics of the Constructs of Incremental
Product Innovation Model

           VIS        TOP        CEN        FOR

VIS        0.74
TOP        0.748 **   0.76
CEN        0.637 **   0.581 **   0.70
FOR        0.527 **   0.471 **   0.604 **   0.75
INC        0.319 **   0.371 **   0.339 **   0.344 **
MP         0.680 **   0.516 **   0.526 **   0.452 **
FP         0.628 **   0.476 **   0.521 **   0.465 **

[bar.X]    4.161      4.545      4.311      4.464
S.D.       1.457      1.453      1.169      1.311

           INC        MP         FP

VIS
TOP
CEN
FOR
INC        0.68
MP         0.346 **   0.76
FP         0.263 **   0.864 **   0.82

[bar.X]    4.161      3.815      3.734
S.D.       1.391      1.325      1.359

Note: ** Significant level at 0.05

Variance extracted is shown on the diagonal

Table 5
Standardized Parameter Estimates of Radical Product Innovation Model

                                Endogenous Constructs

                               RAD                   MP

                       [gamma]    t-Value     [beta]    t-Value

Exogenous Construct
  VIS (H1a)            0.57 ***     4.88
  TOP (H2a)            0.00         0.01
  CEN (H3a)            0.01         0.08
  FOR (H4a)            0.13         1.48
Endogenous Construct
  RAD (H5a)                                  0.84 ***     6.54
  MP (H6a)

                               FP

                        [beta]    t-Value

Exogenous Construct
  VIS (H1a)
  TOP (H2a)
  CEN (H3a)
  FOR (H4a)
Endogenous Construct
  RAD (H5a)
  MP (H6a)             0.76 ***     7.76

Note: *** Significant level at 0.01

Table 6
Standardized Parameter Estimates of Incremental Product Innovation
Model

                                 Endogenous Constructs

                               INC                   MP

                       [gamma]    t-Value     [beta]    t-Value

Exogenous Construct
  VIS (H1b)            0.02         0.13
  TOP (H26)            0.19         1.18
  CEN (H3b)            0.33 **      2.24
  FOR (H4b)            0.12         1.64
Endogenous Construct
  INC (H5b)                                  0.49 ***     4.78
  MP (H6b)

                               FP

                        [beta]    t-Value

Exogenous Construct
  VIS (H1b)
  TOP (H26)
  CEN (H3b)
  FOR (H4b)
Endogenous Construct
  INC (H5b)
  MP (H6b)             1.00 ***    10.84

Note: *** Significant level at 0.01; ** Significant level at 0.05;
* Significant level at 0.1

Table 7
Summary of Research Finding

                               Radical       Incremental
                             Innovation      Innovation

Vision ([H.sub.1])             Support       Not support
Top Management
Support ([H.sub.2])          Not support     Not support
Centralization ([H.sub.3])   Not support       Support
Formalization ([H.sub.4])    Not support   Partial support

Table 8
Summary of Research Finding

                                     Market       Financial
                                   Performance   Performance

Radical Innovation ([H.sub.5a])      Support         --
Market Performance ([H.sub.6a])        --          Support

Table 9
Summary of Research Finding

                            Market       Financial
                          Performance   Performance

Incremental Innovation      Support         --
(H.sub.5b])

Market Performance            --          Support
(H.sub.6b])
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Date:Sep 22, 2012
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