How firms achieve entry into new‐to‐the‐firm product markets is an important but overlooked topic. Some aspiring entrants fail during product development, and they miss the opportunity to enter. In such contexts, firms often take action to de‐risk entry, for example, by drawing upon the experience of top executives with market‐specific expertise obtained in prior jobs. However, the empirical evidence from this study shows that beyond a narrow threshold, greater prior experience in the top executive team was associated with a greater likelihood of failed entry attempts among the firms that I tracked over two decades in the biotechnology industry. This result held across product markets with low and high degrees of dynamism. Based on the literature on dynamic managerial capabilities, where entry into new markets indicates managers’ ability to reconfigure organizational resources and adapt to a changing environment, this study’s main contribution is to illustrate how and why experience matters for entry.
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.
KeywordsBehavioral theory of the firm, exploration/exploitation, organizational learning, product development, research and development, startups
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