Communication Flows In International Product Innovation Teams

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Communication Flows in International Product Innovation Teams Rudy K. Moenaert, Filip Caeldries, Annouk Lievens, and Elke Wauters

Recently, we have witnessed a strong growth in the internationalization of many firms’ product development activities. However, the lack of attention devoted by scientific research to the management of international innovation contrasts sharply with the importance attached to it as a cornerstone of international business success. Although several empirical studies and normative theories have specified the communication requirements in innovation teams, an empirically based insight is definitely needed on the communication requirements and requirements that prevail in the complex context of international innovation teams, in which the participants are located in different company units, countries, and cultures. This article addresses the following research question: viewing international innovation as an interfunctional activity, what are the communication requirements an international innovation team is facing, and what are the communication capabilities (interface mechanisms) that may be adopted to initiate, develop, and launch the new product effectively and efficiently? An extensive case study research project was designed to develop a comprehensive theoretical framework. Over a two year time period, the research team has investigated selected innovation projects in four European multinational corporations. The analysis of the case study data suggests five requirements that determine the effectiveness and efficiency of communication in international product development teams: network transparency, knowledge codification, knowledge credibility, communication cost, secrecy. To cope with these communication requirements, organizations may create firm level capabilities (parallel structures, cross-functional and inter-unit climate, communication infrastructure, goal congruence) and team level capabilities (core team, team leadership, formalization, procedural justice). The evidence from the in-depth case study research indicates that these mechanisms provide a parsimonious and powerful approach to address the communication requirements in international product innovation teams. After the information processing framework proposed by Tushman and Nadler [124], the adoption of these mechanisms is expected to improve innovation effectiveness. This holds important consequences for the management of international product innovation projects. First, the innovating firm must balance centralization and Address correspondence to Rudy K. Monenaert, University of Ghent, Faculty of Economics and Business Administration, Hoveniersberg 24, 9000, Ghent, Belgium. J PROD INNOV MANAG 2000;17:360 –377 © 2000 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

0737-6782/00/$–see front matter PII S0737-6782(00)00048-5

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decentralization, employ formal as well as informal strategies, and integrate ad-hoc and permanent strategies. Second, it highlights the critical role of the project leader. Given the fact that companies often select the most available person, rather than the best person for the job, the allocation of light weight project leaders may create heavyweight problems in international teams. Third, following the argument in favor of procedural justice, the absence of involvement may severely hinder cross-functional commitment to international innovation projects. Fourth, the innovating firm must also actively manage the communication flows with external parties. Failure to do so may result in flawed specifications, and a limited understanding about product design and market strategies. © 2000 Elsevier Science Inc.

Introduction

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ncreased knowledge intensity in many industries suggests that the future competitive position of companies is increasingly determined by their innovative capacity [6,28,66]. For instance, Franko observed [40], after an empirical survey of 83 enterprises in six industries, that: “ . . . in sectors where American firms experienced major losses of world market share during the decade of the 1970s, U.S. firm’s R&D intensity was low relative to European and to Japanese competitors” (p. 460). Although many scientists have examined the relationship between a firm’s technological strategy and its competitive advantage, the external validity of these studies would seem to be limited as they have almost always been restricted to the study of this relationship in a national context [e.g., 13,50,72,115,116,129]. Thus, Ghoshal and Bartlett [42] observed that “not one of the over 4,000 studies on the topic of innovations . . . has focused specifically on the innovation process in the setting of a multinational corporation” (p. 499). The lack of attention devoted by scientific research to the management of international innovation contrasts sharply with the importance attached to it as a cornerstone of international business success [23]. Within the emerging literature on the management of international R&D three streams of research may be distinguished: 1) the process of internationalization and localization of R&D [e.g., 23,39,48,53,68,69,82,103], 2) the organization of international innovation processes [7,15,42,44,92], and 3) the impact of national culture on the management of innovation processes [16,56,62,110]. Within the economic literature, the internationalization of R&D has recently been awarded substantial attention. This stream of economic research addresses the antecedents and charac-

teristics of so-called national innovation systems [87,89,93,120]. Although important research contributions have been made to this emerging field, tangible recommendations tend to be rather scarce. As a consequence, Cheng and Bolon [14] recently noticed that “business scholars are presently ill prepared to provide researchbased recommendations on how to manage multinational R&D” [p. 2]. In this paper, the authors focus on the organization process of international innovation, and particularly on the communication flows during such projects. We define technological product innovation as a product whose development requires that an organization invests human, financial, or technical resources, to acquire new or unknown technologies, or to combine known technologies in a novel way [81]. A technology is defined as the practical application of scientific or technical knowledge [64]. An international product innovation project is defined as an innovation project for which the functional responsibilities on R&D, production and marketing are not concentrated in one single country. In view of the subject of this article, it must be observed that this definition excludes colocation [43] as a potential integration mechanism.

Research Method Research Question Scholars in the field of innovation have traditionally viewed innovation as an information processing activity [see e.g., 3,16,26,27,71,104,113,130]. The innovation team obtains information on markets, technologies, competitors, and resources [113], and translates this information into a product design and a product strategy. Viewing innovation teams as information process-

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BIOGRAPHICAL SKETCHES Rudy K. Moenaert holds a licentiate degree in applied economic sciences from the University of Antwerp (cum laude), and an MBA from the same university (magna cum laude). He earned his doctoral degree from the University of Ghent (summa cum laude). Rudy Moenaert is professor of marketing at the University of Ghent (Faculty of Economics and Business; Vlerick School of Management) in Belgium and Nyenrode University (Center for Supply Chain Research) in the Netherlands. He is a regular teacher in executive management programs. He has published in journals such as the Journal of Product Innovation Management, R&D Management, Management Science, IEEE Transactions on Engineering Management, and the Journal of Management Studies. His current research interests focus on the international management of product innovation, the management of innovation programs, the marketing of product innovations, and Internet marketing. Filip Caeldries holds a licentiate degree in economic sciences from the University of Ghent (cum laude), and an MBA from the same university (magna cum laude). He earned his PhD at Purdue University, and joined the faculty at the Stern School of Business of New York University (U.S.A.). At present, he is on the faculty of Tilburg University (the Netherlands). Filip Caeldries has published in the Journal of Socio-Economics, Journal of Product Innovation Management, Long Range Planning, Advances in Strategic Management, and Research in Global Strategic Management. He is a regular teacher in executive programs. His present research focuses on the international management of research and development, strategic management and the globalization of markets. Annouk Lievens holds a licentiate degree in applied economic sciences (magna cum laude) and a PhD (summa cum laude) from the Free University of Brussels. Her research interests and publications centre on financial services marketing, organizational communication and communication networks in financial service organizations, and the innovation process of services. At present, she is a Senior Research Fellow and an Assistant Professor of Marketing at the Department of Marketing and Marketing Research of Maastricht University. Elke Wauters graduated as commercial engineer from the Free University of Brussels (magna cum laude). Subsequently, she conducted a two year research project on international innovation management, working together with Rudy Moenaert and Annouk Lievens. She then joined her husband in Saudi Arabia, where she was active in the Commercial Section of the Brazilian Embassy, and as a private French tutor to members of the Saudi Royal Family. Recently, she moved to Singapore where she will be monitoring the investment interests of Lernout & Hauspie and Flanders Language Valley Fund.

ing (sub)systems, a successful organizational architecture for managing international innovation projects suggests matching the information processing capabilities to the information processing requirements [124]. Although the information processing paradigm has often been used in the study of ‘national’ innovation processes, it has not yet been applied to an international product development setting.

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The extant literature on organizing international R&D exhibits important additional deficiencies. First, in most studies the level of analysis is the organization. The focal research question concerns the effective and efficient integration of internationally dispersed R&D units [e.g., 11,37,49,69]. However, the resource allocation for new product development activities most often occurs on a project basis [2]. Second, most studies are confined to the R&D function. The ‘national’ studies have consistently shown the importance of integrated product development, for example, an effective and efficient level of cooperation between R&D, marketing and production [20,76,77,105,114]. It is difficult to conceive that cross-functional integration would be unimportant in an international setting. In sum then, the research question of the present study has been defined as follows: viewing international innovation as an interfunctional activity, what are the communication requirements an international innovation team is facing, and what are the communication capabilities (interface mechanisms) that may be adopted to initiate, develop and launch the new product effectively and efficiently? Research Method To examine the nature and the impact of interfunctional cooperation during the international planning, development, and launch of a new product, a case study research design was defined. Examining real situations in detail, this method fits the exploratory purpose of the research question [10,31,128], enabling the research team to develop practical guidelines. Given the research needs, that is, the development of a comprehensive theoretical framework (a nomological network [21]), this could be best accomplished by the in-depth and in-situ study of real situations. Over a two year time period, the research team has investigated four case studies. These four case studies, all situated in European multinational corporations [MNCs], were selected through purposive, dimensional sampling [88]. The companies investigated differed along two dimensions: market type (end consumer vs. business-to-business) and company size (small vs. big). Previous theoretical and empirical studies suggest that the nature of the market and the size of the innovating company influence the organization of cross-functional interfaces [4,81,126]. The companies differed widely in terms of size, structure, and culture. For instance, HouseCare employs more

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than 300,000 employees, whereas SteelTech and FoodCorp employ less than 100 employees. This has consequences in terms of their R&D staff, for example, HouseCare employs a staff of more than 30,000 R&D employees whereas FoodCorp employs only four employees in R&D. Size is not the only discriminatory variable. For instance, whereas FoodCorp and SteelTech are comparable in size, the structure and culture at FoodCorp are highly formalized, whereas the structure and culture at SteelTech are of a very informal nature. Before starting the data collection process, full cooperation of senior management was secured. Individual innovation projects were selected as such critical incidents [38] provide a good vehicle for the in-situ study of innovation [17,84]. Table 1 shows the four case studies conducted by the research team. In agreement with the participating companies, a pseudonym is used. In addition, the subject of the product development project is mentioned. A more detailed description is given in Table 2. For each case study, the research team collected data by means of 1) desk research [e.g., reports, brochures, market research studies, project notes] and 2) comprehensive field research interviews. The checklist for the interviews was based on an extensive literature study. In each of the four cases, interviews were organized with teams inside the firm (R&D, marketing, production, procurement) as well as outside the firm (research centers, suppliers, etc.). The decision to also involve outside parties was necessary as several of the participating companies intensively worked together with research institutes, suppliers, customers (and sometimes competitors) to develop a new product. Not including outside parties would result in a biased assessment of the communication flows. The transcripts of the interviews were analyzed using the open coding method outlined by Strauss and Table 1. Field Sites and Innovation Projects (Critical Incidents) Market

Company size Small Big

End Consumer

Business-to-business

FoodCorp (yogurt) HouseCare (air cleaner)

SteelTech (steel coating) EuroTruck (truck)

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Corbin [119]. Using the data, four separate research cases were written, followed by a briefing in the participating companies by the research team. This briefing enabled the research team to compare the findings with the insights of the key actors involved, and to clarify any remaining ambiguities. At the end of this two year case study research project, a general feedback workshop was organized, in which all the companies involved participated. In this article, we report on the findings of this case study research. The objective of the present research concerns the development of a nomological network of the communication requirements and communication capabilities that influence the efficiency and effectiveness of international product development activities. At present, research efforts have not comprehensively addressed this important issue. The absence of a holistic stance indicates a major shortcoming in the extant literature: “When the [nomological] network is very incomplete, having many strands missing entirely and some constructs tied in only by tenuous threads, then the ‘implicit’ definition of these constructs is disturbingly loose: one might say that the meaning of the constructs is underdetermined. Since the meaning of theoretical constructs is set forth by stating the laws in which they occur, our incomplete knowledge of the laws of nature produces a vagueness in our constructs” [21, p. 69, emphasis added]. Although the nomological network developed in this article is grounded in the case study data collected [119], we decided not to ignore the fragmented theories and findings published in the extant literature. Indeed, for the sake of theoretical parsimony and integration, published theories and evidence in a wide variety of research domains have been used. It is precisely the “interchange between theories and empirical research” [59, p. 18] that constitutes the core of scientific research. In doing so, we aimed to formulate a parsimonious and generic taxonomy of communication requirements in international product development teams. In addition, the theoretical model formulated on the basis of the case study data relates these communication requirements to the required communication capabilities.

Communication Requirements in International Innovation The linear communication model [8,101] defines communication as a process in which a source transmits

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Table 2. Concise Description of Innovation Projects (Critical Incidents) 1. FoodCorp. FoodCorp is an independent subsidiary of an international European food company, specializing in soy-based food. Following several failed attempts, FoodCorp has succeeded in the development of soy-based yogurt. The development and production occurred in the company’s headquarters, while the parent company’s UK distributor provided the necessary marketing information. 2. SteelTech. SteelTech specializes in the development of tailor-made sputtered thin films on flexible substrates. In co-operation with a major German label manufacturer, SteelTech developed a retail anti-theft system. The development concerned a film that could be used in an anti-theft system to be commercialized by the German company. 3. HouseCare. The HouseCare corporation viewed the development of a new aircleaner as a market-focused innovation. HouseCare is one of the leading companies worldwide in this industry. The project was formulated to replace another development project that had failed. The project involved some complex modifications to an existing product, that could not be inserted in the existing product development portfolio. The project was partly outsourced to an independent design consultant and a Chinese manufacturer. 4. EuroTruck. The top management of EuroTruck, one of the leading European truck companies, wanted to develop a 7.5 ton truck for the European market. This mid-size segment is very important in Europe, and the company has a very small market share in this particular segment. Product planning and strategy formulation were centralized at the headquarters, design and assembly activities were conducted in the design and development center, and the UK market company was one of the major distributors of the new truck.

information to a receiver through one or more channels. For communication to be effective, two conditions must be met. First, as regards the information source, there must the an intent to share information. Such intent may be absent because the source: 1) is not able to transmit the information, 2) is unwilling to transmit the information, 3) thinks the information is not valuable enough to be transmitted [94]. Second, effective communication also implies that the information transmitted has an effect on the receiver. This effect may be located at one of three levels (Rogers & Agarwala–Rogers, 1976): 1) a change in knowledge (the cognitive component), 2) a change in attitude (the affective component), or 3) a change in overt behavior (the conative component). For communication to be efficient, the intended communication effects must be obtained at the lowest cost possible. Several empirical studies and normative theories specify the communication requirements in innovation teams. For instance, for information to be used, it must be perceived as relevant, novel, credible and comprehensible by the receiver [84]. Also, it assumes that there are people, equipment, and procedures that assess and distribute the needed information in a timely and accurate way [67]. Because international product innovation involves participants located in different countries and cultures, an empirically based insight is definitely needed on the specific communication requirements that prevail in such a complex context. On the basis of our case study data, a parsimonious and generic taxonomy is proposed. We identify three effectiveness requirements (transparency of the communication network, knowledge codification, knowledge credibility) and two efficiency requirements (cost of communication, secrecy).

Transparency of the Communication Network Transparency is defined as the degree to which the communication network is sufficiently clear and accessible, in order to let everyone understand the inputs and progress made [51]. Limited transparency implies that members of a network have problems identifying the relevant persons to transfer information to or to obtain information from. Several of the respondents in our case studies indicated that, even with a limited number of internationally dispersed units, the transparency of the international communication network levels off rapidly. A network of five units involves 10 dyadic links, a network of 10 units involves 45 dyadic links, and a network of 20 units has 190 dyadic links. Stated otherwise, the transparency of a communication network decreases with increasing levels of complexity. Because the initiation of an international innovation project is often characterized by a high level of ambiguity, the development of a transparent communication network often proves to be problematic. Not surprisingly then, the literature on innovation refers to this phase of the product innovation life-cycle as the ‘fuzzy front end’ [85,112]. Knowledge Codification Researchers in the field of international R&D have re-discovered the early work of Polyani [96]. According to Polanyi, some knowledge may be ‘tacit’, that is, it may be difficult to codify. Codification is defined as the individual and collective processes through which knowledge and experience may be structured and made explicit [9]. Although tacit knowledge is often

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associated with knowledge that is specific to an individual (e.g., craftsmanship may be difficult to transfer), problems of codification may also be observed with knowledge that is specific to a team, a company, a group to which a company belongs, or a network of partners and alliances in which the company is embedded [6]. The development of new products in an international context often impedes the process of knowledge codification. First, the different units and functions of an organization develop an idiosyncratic language [79], subculture [70], and a way of exploring and analyzing the environment [61,127]. This is an important problem for companies growing via mergers and acquisitions. Evidence shows that acquisitions to realize growth explain much of the internationalization of R&D [23]. The process of growth via acquisitions is often problematic as the resulting decentralisation of innovation efforts endangers the implementation of geographically concentrated innovation structures required by the constant “ . . . negotiation, renegotiation, and dependence on achieved understandings as the basis of achieving common reinterpretations of new evidence and opportunities” [118, p. 84]. Second, the results of R&D activities are inherently difficult to codify [3,9,27]. Third, international differences in language, culture and context, provide another impediment to codification. Even when translation is feasible, language and related cultural ideosyncracies may lead to unexpected interpretations [45]. Both the theoretical and empirical literature [e.g., 35,55,102,109,122,123] and the anecdotal anthologies [e.g., 5,100] on this subject are numerous. As regards the management of international innovation processes then, the relative abundance of development work in subsidiary units suggests that such R&D tasks may be economically de-linked from headquarter strategic decision-making centers. The geographic decoupling of product development tasks is predicated on the need for high levels of information provision to the local manufacturing, marketing and sales functions [58]. Stated otherwise, because the intra-organizational task interdependencies are localized, product innovation tasks will be performed in close proximity to the centers of production and consumption [e.g., 58,78]. Thus, Lund [74], in a national survey of the locational determinants of R&D site selection decisions, finds that several firms locate R&D units near manufacturing sites because the development of product prototypes requires close cooperation and coordination between manufacturing facil-

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ities and R&D personnel. To illustrate, SteelTech’s R&D facilities and those of a major customer are only 25 kilometers apart, resulting in a significant reduction of the transaction costs associated with coordinating their R&D program. “When SteelTech produces a sample at 2:00 p.m., we have it available for testing at 3:30 p.m. Often, SteelTech’s personnel stay with us while we’re testing the sample. They have all the information available almost immediately”. The localization of task interdependencies may usefully be explained using von Hippel’s [125] stickydata thesis. Development tasks will need to be performed in close geographic proximity of demand due to: 1) the high degree of data stickiness associated with localized user requirements, 2) the relatively low costs of duplication and diffusion associated with the mature technologies in use at the local innovation unit [125], and 3) the localized investment in complementary data needed to establish resident absorptive capacity [18]. Given the relatively high degree of mobility of the technologies in use then, the problems of knowledge codification associated with localized user requirements suggests locating the locus of innovation next to the sources of customer demand. Problems of knowledge codification in international product innovation projects are key to understanding and optimizing the choice of geographic location of innovation activities. That is, the geographical location of innovation tasks is strongly determined by the costs of data codification, replication and diffusion, relative to the cost of transferring the locus of problem-solving. More specifically, the locus of problem-solving will be found in that geographical location where data and problem-solving capacity can be brought together at the lowest cost. Knowledge Credibility Previous research on ‘national’ innovation projects has shown that cross-functional interfaces are often embedded in a negative climate [114]. Such a climate has a strong negative effect on the quality of cross-functional communication. It reduces the credibility of received information, and consequently the receptivity towards this information [25,81,84]. In an international context, cultural stereotyping may further deteriorate the attitude units hold vis-a`-vis each other. Especially the relationship between headquarters and the foreign subsidiaries tends to be sensitive to this process. Because of the commonality in the scientific back-

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ground of scientists and engineers, achieved through their training and their professional career, some scholars argue that this problem is less important in the context of international R&D teams [23,41,63]. Three remarks must be made concerning this argument. First, from the perspective of integrated new product development, an innovation team does not only consist of scientists and engineers. Second, recent theoretical and empirical cross-cultural research shows that scientists and engineers are not immune to the influence of the ethnic culture to which they belong [32,54,56,62,75, 82,90,110]. Third, culture must not only be understood from an ethnic point of view [55], but also from an organizational point of view [108]. Consistent with earlier studies in this field [24], several of our case studies show that these “socio-cultural qualities that develop within organizations” [111, p. 344] may strongly differ between the departments and the subsidiaries of one company. In sum then, these arguments suggest a problem of knowledge credibility in the context of international innovation projects. Interestingly, at SteelTech knowledge credibility was not perceived to be an important problem as many of the protagonists in the new product development process at SteelTech (including its network of external partners) had all graduated from the same university department, thus sharing a similar ‘imprinting’. Cost of Communication The distance between team members is an obvious barrier to interpersonal communication. The seminal research by Allen [3] showed that the probability of two R&D professionals communicating with each other strongly depends on the distance separating those professionals. Thus, Allen found a five percentage likelihood of weekly communication between two engineers or scientists who are located 30 or more meters from each other. He concluded that “For weekly contact, it is only within the first thirty meters that separation has any real effect on the probability of communication” [3, p. 240]. Observing this critical distance of thirty meters, one might be tempted to conclude that the problem of distance in international communication is a ‘nonissue’. However, one of the early studies in this field concludes that the frequency of communication between a central research laboratory and a foreign subsidiary further declines exponentially with distance. The geographically nearest units communicated ten

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times more with the central research laboratory than the more distant units [57]. In a study of 150 researchers belonging to the same company, Tomlin [121] concluded that the likelihood of communication between two researchers working at different locations, and working in different departments and on different projects, was less than 0.2%. If two persons worked on the same project, the likelihood increased to 23%. If they worked in the same department the likelihood of communication was 15%. The innovation capacity of a firm is determined by the cohesiveness of the communication flows linking individual competencies [18]. Thus, there is the need for frequent, direct communication in order to build a trust relationship [22,36]. However, the costs, expressed in money as well as time, associated with personal communication in international new product development teams, may become prohibitive. Time and cost constraints may create a high degree of resource uncertainty in complex innovation structures involving multiple geographically separated units. Thus, Egelhoff [30] observes that transnational network structures “ . . . need unusually high amounts of nonroutine-reciprocal information-processing capacity in order to respond to the variety of changing opportunities. [T]he various horizontal information-processing mechanisms that provide this kind of capacity . . . are people intensive, in the sense that they employ large amounts of managers’ and key employees’s time. They are costly and difficult to control when contrasted with more routine and sequential information-processing mechanisms” [30, p. 363]. Anecdotal evidence may be found in a (nonrepresentative) sample of companies with geographically dispersed R&D-units in which it was found that traveling expenditures amounted to three to seven percent of the total R&D budget [25]. Such costs are also very visible to the organization, e.g., travel tickets and expenditures, absence in the office. The companies in our study all attempted to economize on international meetings and face-to-face conversations. Alternative modes of communication were therefore often used. To illustrate, the implementation of a videoconferencing system led to a 75 percentage reduction of the innovation traveling budget at EuroTruck. However, the capacity of information technology to reduce the level of resource uncertainty will likely be limited as “ . . . its viability and effectiveness will depend critically on the robustness of the underlying social structure. This implies that one has to be careful in substituting face-to-face ties with electronic ones. It is vital

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to maintain a critical ratio of face-to-face to electronic interaction” [91, p. 304, see also 25]. Secrecy The innovation activities a company deploys are often of great strategic importance. Secrecy is best assured when these activities are geographically concentrated [24,99]. When an organization develops innovation activities in multiple geographical locations, it will invariably try to limit information leaks. The internationalization of a firm’s activities increases the likelihood of information leaks. Such information leaks may lead to substantial opportunity costs: competitors may develop a pre-emptive strategy, or may reduce the lead time needed to launch a competitive product in the market place. Therefore, certain information may be concealed because of strategic reasons. To illustrate, in FoodCorp, the German subsidiary was not informed about the new product development project, in order to prevent the information from reaching customers and leaking to the competition. The policy not to inform subsidiaries often belongs to the ‘administrative heritage’ [7] of some companies. This was clearly the case with HouseCare where important market information was generally not shared with suppliers. Communication Requirements: Synthesis Thus, using the information processing framework, developed by Tushman and Nadler [124], two major communication requirements have been identified. The effectiveness requirement is determined by the transparency of the communication network, the knowledge credibility of the various members of the communication network, and the codification of the knowledge that must be communicated. The efficiency requirement is determined by the cost of international communication and knowledge secrecy. Each of these elements may also be viewed from a cost perspective. Except for the cost of international communication, the other four elements relate to opportunity costs. Limited transparency of the communication network implies that the relevant members of the network may not be identified, and information does not reach those needing it. A low level of knowledge codification implies that useful information may not be encoded. A low level of knowledge credibility implies that communicated information may not be used. A low level of information secrecy implies that competitors may take advantage of knowledge generated in the firm.

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Proposition 1: The communication requirements in an international new product development team encompass both effectiveness requirements [maximization of network transparency, knowledge codification and knowledge credibility] and efficiency requirements [given the effectiveness requirements, minimization of communication cost and maximization of secrecy].

Communication Capabilities in International Innovation To organize cross-functional communication flows in an effective and efficient way, companies have developed several interface mechanisms. These interface mechanisms may be viewed as communication capabilities [124]. Two types of capabilities may be distinguished, for example, firm capabilities and team capabilities. Firm Capabilities Parallel Structures. De Meyer and Mizushima [23] point out that “[T]he choice of where to position oneself on the scale from absolute freedom to absolute control appears to be the central management decision in global R&D management” [p. 140]. In practice, this problem is often worked out by the design of a parallel structure [12], very often using an international steering committee [33,45]. In our field sites, these international steering committees were defined along technological disciplines and/or product line dimensions, and operated parallel to the “formal hierarchy and structure” [12, p. 9]. In addition, they were sometimes also differentiated in terms of the expected output: 1) decision making for an innovation project or a program, 2) strategy formulation for the company, or 3) gatekeeping. To illustrate, at FoodCorp, the new product development process is structured around two teams: a technical R&D team and a market-oriented innovation team. The yogurt project emerged in a discussion between the two teams. Parallel structures, such as those at FoodCorp, do not only assume an important part in the planning of innovation activities, but they also serve as an important platform for information transfer within the company. First, these activities create an informal network of persons who have periodic face-to-face meetings

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with each other. The members of international steering committees have the opportunity to build an international and interfunctional orientation. Moreover, these steering committees enable the participants to share information regarding their personal, task-specific communication network [69]. Second, participants become involved in the definition and determination of the innovation strategy. The structuring and formalization of an innovation project during the “fuzzy front end”, with the intention of optimizing the communication flows, often turns out to be a contradiction in terms. This phase of a project often needs an informal and decentralized approach [113]. It is precisely one of the merits of the adoption of parallel structures that the involvement of parties belonging to various functions and units, subsequently creates project commitment and crossfunctional harmony. Proposition 2: The adoption of parallel structures enables the innovating firm to lower communication costs, maintain information secrecy, and improve network transparency, knowledge codification and knowledge credibility. Cross-functional and Interunit Climate. Next to formal integration mechanisms (such as parallel structures), MNCs often rely on the firm’s organizational climate as a means for achieving normative integration, that is, consistency in purpose among disparate actors. Thus, it is not uncommon for cross-functional innovation teams to take time out to build organizational cohesion via personnel assignments, task-forces, reward systems, etc. However, cross-functional teams may not enjoy total freedom in designing their transactional structure as they are anchored to the firm’s overall administrative heritage. To illustrate, at FoodCorp, an antagonistic relationship between the central R&D-department of the parent company and the rest of the company had prevailed for many years. This was mostly because of the self-willed behavior of a former R&D-manager, with the process of cultural stereotyping acting as a reinforcement. For example, some employees of FoodCorp mentioned that the Dutch management style of the R&D manager did not match with the Flemish working culture. Obviously then, increasing the effectiveness and efficiency of FoodCorp’s innovation units requires a proactive approach to using the cross-functional climate for the purpose of normative integration.

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Recently, the existence of a harmonious crossfunctional climate has significantly enhanced the credibility of all parties involved. Argues one managers: “It is a matter of trust. First they have to evaluate you. That takes about a year. You can promise them anything. But will you deliver? They have to be able to see what you’re worth. You can only communicate when they trust you”. Thus, the following proposition is postulated: Proposition 3: A harmonious cross-functional and interunit climate improves knowledge credibility in international product innovation teams. Communication Infrastructure. The new communication media have a great impact on both the effectiveness and efficiency of cross-functional communication flows. Video conferencing and uniform direct access documentation systems provide effective modes of communication at low variable cost. To illustrate, at FoodCorp, the deployment of a communication infrastructure involving, among others, a systematic information classification and retrieval system has generated significant cost savings by limiting unnecessary (i.e., repetitive) cross functional communication flows. In addition, the low variable cost of these new communication media enhances the organization of meetings and the sharing of information that would never take place otherwise. Thus, such communication media provide additional opportunities for team members to exchange information. However, consistent with earlier research [25], several of our case studies suggest that personal relationships and trust between employees are a prerequisite for electronic communication to be efficient. In the absence of regular face-to-face contacts which help to maintain a relationship, the usefulness of electronic communication media will be limited [25,69]. Furthermore, electronic communication is at present very suitable for making appointments or schedules, but not really for moral support or emotional issues. Finally, the use of electronic communication may lead to incidental information leaks. Thus: Proposition 4: The deployment of a communication infrastructure enables the innovating firm to lower communication costs and improve network transparency, but may decrease information secrecy in international product innovation teams.

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Goal Congruence. A critical element determining team integration, the case studies suggest, concerns the level of goal congruence between separate units. An important (and often institutionalized) impediment to team integration is the choice of performance parameters which are used to assess local operating units. In the absence of long-term congruent unit goals, emphasis is often put on local and operational activities and short term projects, reflecting the standards on which local units are evaluated. Paraphrasing Gresham’s law, “operational activities drive out strategic activities”. Also, in light of the standards to which they are evaluated, managers of market companies and sales subsidiaries units often prefer riskless, cheaper, incremental and more profitable projects. A group manager of HouseCare summarized this succinctly: “Threeyear managers, four-year plans”. Given the rapid turnover of product and market managers in international firms (often less than three years), these persons tend to postpone radical innovation projects. Goals must be formulated for each unit such that global optimization rather than local optimization is encouraged. To illustrate, FoodCorp’s radical new product development project (soy-based yogurt) had experienced several false starts (covering a five year time period). FoodCorp’s management attributes its failure to get the new product in the market to problems of communication credibility and transparency resulting from the absence of goal congruence across the units involved. “We were all working in different directions. We simply didn’t communicate very well”. Later, goal congruence was increased using several formal management procedures eventually resulting in an effective communication network. At SteelTech, the establishment of goal congruence even involves external parties. Thus, one of SteelTech’s major customers had some of its end customers visit SteelTech so that these end customers were aware of the technological complexities involved in the production process. This ensured convergence in expectations across all parties. Proposition 5: The formulation of congruent unit goals improves knowledge credibility and network transparency in international product innovation teams. Team Capabilities Core Team. Locational differences often spawn linguistic, cultural and contextual problems. Such dif-

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ferences create noise in the communication process. Therefore, short and direct communication channels are preferred over long and indirect channels. Because of the complexity of the communication network, a central and commonly accepted connection point is required. In our study, we observed that the creation of a multifunctional core team is critical to optimizing the information transfer within the project [60]. A core team is defined as a limited group of people responsible for the interfunctional management and coordination of project activities. In EuroTruck, some of the problems were blamed on the absence of a crossfunctional, interunit core team. “The links between different people are rather dissatisfying: because we’re such a big company, it’s so difficult to hold everybody together. In this project, for example, I would definitely have preferred to have—from the beginning—a cross-functional group of people . . . and somebody from product planning to hold all this together. It’s product planning who should order the jobs, but they should have the support from all those people already from the very beginning when they are preparing for strategic decisions”. The use of a core team provides an organizationally defined substitute for the two-step information diffusion process in innovating companies [3]. However, there is an important difference: whereas the two-step process, as it is described in the present literature, essentially involves the diffusion of external information in the company, a core team in a MNC is crucial to the adequate diffusion of internal information within the company. In addition to communication requirements, some other factors also point in the direction of a core team. Indeed, big innovation teams are often characterized by a lack of involvement of some team members [106] and a bad interfunctional climate [114]. Thus, we postulate the following proposition: Proposition 6: The implementation of an international, cross-functional core team enables the innovating firm to lower communication costs, maintain information secrecy, and improve network transparency, knowledge codification and knowledge credibility in international product innovation teams. Team Leadership. Earlier research has shown that the choice of the team leader is an important determi-

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nant of innovation success. Thus, a research study on communication flows between scientists revealed that the relationship between a scientist and his/her head may help to bridge geographical distance [121]. A good project manager possesses a multifunctional and multidisciplinary knowledge, and is met with great respect by his colleagues [16,33,114]. The role accomplished by the project leader in international innovation projects is essential. This person is the driving force, maintains the project continuity as well as the integration of several internal and external functions, prospects and selects the necessary competencies, and bridges the cultural differences and eventual differences in time goals between the units involved, and monitors and controls information flows. Project leaders also possess the necessary indepth experience of how to run a complete product development process in their MNC. This is a good example of tacit knowledge. Such process-related knowledge has been accumulated through experience, and is difficult to codify. Or as someone said: “After 5 years, you know who the players are, and you have direct contacts”. Strong leadership often increases the transparency of the communication network as participants in the innovation project will use the team leader as the principal means for information diffusion. Argues one senior manager at FoodCorp: “[the teamleader] has been managing distributors and agents, and therefore he is the person who knows what is happening in those countries. And because we have a good contact with him, he knows what is happening in our country, so he’s really the link between all the countries”. At EuroTruck, the Chief Project Managers are selected on the basis of their experience: the average age is between 40 and 50 years. However, small companies often do not have a pool from which they can select a heavy-weight project manager. At SteelTech, this problem was solved by using TTM-management (Time-To-Market). In this company, a senior person is appointed as ‘godfather’ to a project. This person is the prime contact person for all involved in the innovation project. This TTM-system generates the support needed from the top management. The creation of the TTM-position has created more transparency in the communication flows. In addition, horizontal integration is also achieved: it creates commitment, since everybody will need something from the inquiring party in the longer run.

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Proposition 7: The appointment of a heavy weight team leader, lowers communication costs and improves information secrecy, network transparency, knowledge codification and knowledge credibility in international product innovation teams. Team Formalization. Unlike past innovation studies [46,47], more recent studies have repeatedly shown that formalization contributes to interfunctional communication [86,107]. This implies that team responsibilities have to be defined explicitly. Thus, a certain level of project protocol is needed to avoid conflicts and inefficiencies. The formalization of innovation activities is an important lever to the improvement of communication between R&D, marketing and production in an international product development project. First, formalization compels all parties involved to exchange information at regular time intervals. In the absence of formal mechanisms, such as action plans and project review meetings, communication depends on the discretionary (and therefore ad hoc) behavior of the team members. Second, the content of such discretionary behavior is to a great extent determined by the available organizational slack. Our data show that even in big firms, limitations in manpower and priorities towards local activities often severely bound the intention to share information. To illustrate, at SteelTech, most of the communication flows are routed over a single manager. Given the enormous workload within the organization, this manager has no time to generate sufficient physical records that can be consulted by others at a later stage. “It would be a disaster for SteelTech if [manager] were to be promoted to another job within the parent company”. As a consequence, SteelTech is currently attempting to increase the codification of all acquired knowledge by formalizing several of the procedural aspects of the innovation project (e.g., documentation, protocols). Although an informal work environment and a certain degree of autonomy are essential to product development, functions, responsibilities, and decision points have to be clearly settled throughout the project life-cycle. “Once autonomy is no longer directed by the organization, it has little more than a random chance to be relevant to the organization” [34, p. 91]. Other elements that can be formalized are: a stringent follow-up of the documents, and the setting of dead-

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lines and goals. Team members know where an assignment comes from, but because of network complexity and the consequent diversity in initiatives, they often do not know the ‘why’ of a particular assignment. Observed one interviewee: “There are too many kings in the process”. Proposition 8: Formalization of team processes lowers communication costs, improves information secrecy, network transparency, knowledge codification and knowledge credibility in international product innovation teams. Procedural Justice. Our case studies support the research findings of Kim and Mauborgne [65] concerning decision-making processes in MNCs, that is, the acceptance and successful implementation of a decision is strongly determined by the proactive involvement of all parties that are affected by this decision. The authors refer to this as ‘procedural justice’. In an international innovation context, procedural justice is very important in the planning phase. Empirical studies indicate that the success of an innovation project depends on the effectiveness of the new product development activities during the early phase of the project life-cycle [19,29,73,85,95,114]. As a consequence, the early and proactive involvement of the various functional parties is essential to the successful translation of a new idea into a commercial success [113]. For example, EuroTruck’s sales had declined in the mid-size segment of the market, and all previous product introductions in this market segment had failed. The development of EuroTruck’s new mid-size truck suffered from a lack of trust and unwillingness to cooperate between the marketing subsidiaries and the headquarter’s central planning unit as the decision to build the new truck was viewed as a unilateral headquarter decision. Indeed, one of the most important marketing subsidiaries for this new product first heard about some key decisions concerning this project via the Financial Times. “We read about our future product strategy in a newspaper”. Not surprisingly then, the headquarter and the subsidiaries of EuroTruck were very suspicious vis-a`-vis the information they received from each other. Ironically, both parties held identical misconceptions of each another. Although EuroTruck’s headquarter and its local subsidiaries considered the after-sales service to be of equal importance

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as the actual sale of the truck itself, they accused each other of paying too much attention to “selling pieces of metal”. Problems during the planning phase tend to create a ‘lock-in’, that is, many interface problems that manifest themselves during the development and the launch phase may be explained by poor communication during the planning phase. Our case studies suggest that a major source of problems concerns the non-involvement of relevant units and individuals during the product specification and strategy formulation activities. Not involving key parties during the start-up of the project means this project will later be perceived as being “thrown over the wall”. This raises suspicion towards the persons who initiated the project and its specifications. Subsidiary units would seem to be especially suspicious towards headquarter-initiated new product ideas. Proposition 9: Procedural justice, through early involvement, increases network transparency and knowledge credibility in international product innovation teams.

Model The analysis of the case study data has suggested five requirements that determine the effectiveness and efficiency of communication in international product development teams: network transparency, knowledge codification, knowledge credibility, communication cost, secrecy. To cope with these communication requirements, organizations may create firm level capabilities (parallel structures, cross-functional and interunit climate, communication infrastructure, goal congruence) and team level capabilities (core team, team leadership, formalization, procedural justice). The evidence from the in-depth case study research indicates that these mechanisms provide a parsimonious but powerful approach to address the communication requirements in international product innovation teams. Following the information processing framework proposed by Tushman and Nadler [124], the adoption of the mechanisms outlined in proposition 2 should improve organizational effectiveness. Concerning the dimension of organizational effectiveness in international new product development, the companies in our sample employed the criteria identified by Clark and Fujimoto [16], that is, product quality, development

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productivity and lead time. Thus, the following proposition is formulated (see Figure 1): Proposition 10: The adoption of the communication capabilities specified in propositions 2 through 9 will contribute to the success of an international new product development project, as measured by the quality of the product, the productivity of the development, and the lead time to market.

Management Implications Managing in a Non-Linear Fashion The implementation of the mechanisms identified in the case study research may not be easy as the design of effective and efficient communication flows in international product development teams often implies the simultaneous implementation of seemingly opposite strategies. First, although some integration mechanisms favor centralization (e.g., core team, team leadership) other integration mechanisms suggest decentralization (e.g., procedural justice, parallel

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structures). Second, some integration mechanisms formalize organizational behavior (e.g., team formalization, goal congruence), whereas other integration mechanisms focus on an informal approach (e.g., cross-functional and inter-unit climate). Third, although team capabilities are implemented on an adhoc basis, firm capabilities tend to be deployed on a permanent basis. Thus, in line with earlier evidence, the relationship between an organizational design variable and its result is seldom linear [34,85,113]. Observes one respondent: “It is very productive when you always know exactly who to turn to during a product development project, and when at the same time you can do this within an informal structure when necessary”. Ignoring the fact that structuring communication in international product development teams must not be approached in a unidimensional way, may lead to problems. One of the marketing employees of a European subsidiary of EuroTruck describes the problems that result from overrelying on a centralized approach: “The initiative for the product definition and launch was to a large extent centralized at the group’s headquarters. If we are shortcutting the system sufficiently, we can react to it. But by definition, it always

Figure 1. Communication Flows in International Product Innovation Teams: Propositional Framework.

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stays a reaction”. In a similar vein, the project coordinator at EuroTruck observed that the rigorous application of the highly formalized and detailed global development process sometimes curtailed the creativity and the flexibility of the innovation team. In international new product development projects, small and medium-sized companies may benefit from scale and resource restrictions, for example, size of the communication network, co-location, informal working environment, and flexible role definition. For instance, the parent companies of FoodCorp and SteelTech were big international enterprises. Employees of both enterprises noticed that persons working in a small company have to operate within a creative, non-stable context. They acknowledged that they would not perform as well in the parent company. However, some adverse effects may also result. For instance, the lack of formalization often creates problems in complex international projects: the euphoria and the frequent communication during the start are gradually replaced by a situation of lethargy and occasional communication. Someone from SteelTech summarizes it this way: “Because of the boundless optimism at SteelTech, in the beginning of the project everyone is convinced that the job will be accomplished within six months, while in fact everybody knows that the project will need four years. And this is SteelTech’s Achilles’ heel: the management of complex, long information flows is just not good enough”.

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and documentation systems in MNCs often do not enable one to specificy and localize relevant parties and persons. No Involvement, No Commitment Communication among team members during the planning phase of an international innovation influences team integration. Skepticism about the ability to influence the development process often prevails at the sales and marketing subsidiaries. Often, these units are convinced that a substantial information asymmetry exists between the headquarter and its subsidiaries. For reasons of information secrecy, local sales units are often not involved in the innovation process until much later, especially when they have not been assigned a ‘lead country’ role. Unfortunately, as was evident in EuroTruck, such practices also lower the motivation and willingness to support the new product when it is launched in the market. To avoid a lack of commitment, team members from a central unit may want to consult key local subsidiaries during the start of a new project. These consultation processes may be of a very passive nature, revealing as little as possible about the project. Several of our respondents admitted that such communication is often ‘ceremonial’: the purpose is not to acquire novel ideas, but to trigger acceptance. External Communication Flows

Leadership in International Teams The role of the project leader is critical. However, very often, we notice that due to 1) personnel restrictions and 2) priorities towards activities within the local unit, the criterion “the most available person[s] rather than the best person[s] for the job”—as stated by an interviewee—is used for the selection of the project leader and/or coordinator. The selection of less experienced project leaders or project coordinaters not only hampers the cooperation during the project, but is often the primary cause for a bad project start. Because the appointed project manager often does not have sufficient experience and knowledge about the company structure and its processes, some persons and units may not be consulted. They have been “forgotten”. Not because the project leader wants to ignore them, but simply because s/he was not familiar enough with the potentially relevant partners in the communication network of the MNC. This leads to a dysfunctional climate. Adding to this problem, the follow-up

Intense communication between a firm and its suppliers reduces the product development cycle time and improves product quality [16]. However, the international externalization of new product development activities greatly complicates the management of communication flows. In innovation projects characterized by a high level of externalization, the innovating firm must succeed in minimizing communication costs and information leaks, whereas creating a transparent communication network, that allows for the transfer and use of codified knowledge between members of different organizations. The flexible use of rich, interpersonal communication channels is required for the effective exchange of information between persons from different organizations. However, solely relying on informal mechanisms will rarely suffice to deal adequately with an enduring information flow in a complex network of loosely coupled organizations. In practice, the team and firm capabilities we have identified to manage

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communication flows within the new product development team (e.g., the definition of a core team and the appointment of a competent project leader), prove to be useful for the management of ‘external’ communication flows. Consider in this respect the HouseCare case study. Because HouseCare had never cooperated intensively with the selected external design company before, both parties needed to get to know each other. For instance, HouseCare product management did not discover until much later that the design company held a completely different view about the notion ‘working model’. HouseCare management outsourced the production activities to a Chinese company, while their Hong Kong subsidiary acted as a liaison. In order to reduce traveling cost and time, face-to-face meetings between House Care product management and the Chinese manufacturer were kept to a strict minimum. One month prior to the worldwide release of the product to the national sales offices, the Chinese manufacturer discovered a major error in the technical specifications developed by the design company. This development project was later used in a HouseCare workshop on quality management. An executive of the Chinese manufacturer who participated in this workshop described it as “wonderful, but a little bit too late”.

Conclusion In the present study, we have analyzed the communication flows within the context of an international innovation project. First, communication must be effective, that is, an information source must be able to codify knowledge and to locate the relevant receivers of information, who, in turn, must be receptive to this information. Second, communication must also be efficient, that is, given the effectiveness requirements, the cost of communication must be minimized and information leaks must be avoided. In coping with these communication requirements, a company may employ multiple strategies. We distinguished four firm capabilities (parallel structures, cross-functional and interunit climate, communication infrastructure and goal congruence) and four team capabilities (core team, team leadership, team formalization, procedural justice). This article provides a parsimonious propositional model on the communication requirements that must be addressed in the management of communication flows in international product innovation teams. This

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nomological network was developed on the basis of an exploratory in-depth study of four case studies and a literature review. Although we have used a heteregenous sample, the propositions must be tested in a more extensive sample. Thus, the present study needs a quantitative falsification that will contribute empirical evidence of a more conclusive nature. Several important questions could be addressed in future research. First, our research supports recent evidence that effective communication is about more than just uncertainty reduction [84]. In fact, communication (or the lack of it) also determines the attitudes and behaviors of the parties involved. The existing R&D literature explicitly focuses on the cognitive effects of communication. Importantly, however, our research shows that the affective and conative effects are quite important. Decisions that are strongly embedded in the network of the persons involved are better supported. It is difficult to achieve commitment without having established involvement. This study shows that poor communication at the start not only induces cognitive errors (i.e., limited uncertainty reduction) [85,113], but also affective errors (i.e., creation of a bad working climate). Second, the data from the case studies shows that the management of innovation programs is crucial, but often ignored. An innovation program may be defined as a coherent set of overlapping and/or sequential projects in a specific product line. Although innovation resources are allocated to discrete projects, a sustainable competitive advantage is built through several innovation projects [17,52,80,106]. A true program orientation requires a dual strategy [1]: the efficient and effective management of the present project by leveraging already existing know-how within the firm, and contributing to the success of future innovation projects by advancing the existing know-how. In our study, respondents indicated little attention to the interfaces with other projects in the program portfolio. Even if the company has formulated an innovation program strategy (e.g., the use of technology road maps at HouseCare), the resulting structure rarely deals with it adequately (e.g., the absence of a program coordinator, steering committee and product platform). To a great extent, this is caused by the distance between the various parties involved, and the limited transparency of the international communication network. Attention is focused on optimizing the local agenda of activities rather than optimizing global operations. Third, international cooperation with external par-

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ties makes it more difficult for competitors to imitate a firm’s product development capabilities [117]. Whereas the literature on network organizations suggests that networking enables innovative enterprises to learn about the markets, technologies, and competitors [6,19,91,97], the analysis of the case studies shows that firms consider cooperation mostly as an entry ticket to markets and technologies. In only one company did several respondents mention that cooperation was seen as a way to gain insight into the competitive environment. Moreover, we see that the externalization of subtasks is mostly decided on the basis of operational issues (“the company working at the lowest cost gets the offer”), rather than on the basis of strategic considerations [98]. In summary: whereas cooperation with external parties may be of great strategic importance, it is seldom strategically planned.

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The authors gratefully acknowledge the financial support from the Flemish Foundation for Scientific Research [research grant G.0193.95], and thank FoodCorp, HouseCare, SteelTech and EuroTruck for their participation in the present study. In addition, the authors thank the Center for Business Economics and Strategic Management of the Free University of Brussels for its support in conducting this research project. Finally, the authors wish to thank Timothy Devinney, two anonymous referees, Frank Franc¸ois, Arnoud De Meyer, Christophe Van den Bulte and Harry Commandeur for their helpful comments on earlier versions of this paper.

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