Unpacking Experience Effects in Developing Novel Products for New Markets

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Behavioral theory of the firm, exploration/exploitation, organizational learning, product development, research and development, startups


A key process for exploration is to develop products in order to serve new markets. An implicit assumption in the organizational learning literature, not yet tested empirically, is that the increasing breadth of knowledge and experience firms gain by expanding into new product markets (i.e. exploration experience) may enhance their capacity to innovate in the future. We address how firms may find it more challenging to learn from their exploration experience when they develop new technology instead of employing their existing technology to create new products. In our theory and analyses, we address endogeneity by accounting for the behavioral learning process that leads managers to explore new markets following periods of poor firm performance. We test our model using fine-grained data on new product development projects initiated by 52 biopharmaceutical firms between 1979 and 2000 and find empirical support. Our study identifies a theoretical boundary condition on the relationship between exploration experience in new product markets and subsequent performance in developing novel products.


This article was originally published as Hoang, Ha, Ener, Hakan. 2015. Unpacking experience effects in developing novel products for new markets. Strategic Organization, 13(4): 261-283.