Innovation Orientation in New Product A Unified Framework of Backward-Looking and Forward-Looking Perspectives

This study develops an integrated framework to reconcile different theoretical lenses on how firms respond to expected competitive threats with different innovation orientations in new product development. The framework unifies both the forward-looking and backward-looking perspectives of organizational decision-making. We theorize how a firm’s past performance feedback (a key backward-looking factor) shapes the relationship between expected competitive threats (a key forward-looking factor) and product innovation orientation by influencing the firm’s sense of controllability, and how this effect is influenced by the firm’s information technology (IT) investment and alliance network structure. Based on an empirical analysis of 1,571 public US firms, we find that past performance feedback has a positive moderating effect on the relationship between expected competitive threats and product exploration orientation. Specifically, when the firm has unfavorable past performance feedback, the relationship between expected competitive threats and product exploration orientation is significantly negative, as predicted by the threat-rigidity theory. However, when the firm has favorable past performance feedback, this relationship becomes positive, as predicted by the Behavioral Theory of the Firm. We theorize and empirically verify that the sense of controllability derived from past performance feedback explains firms’ divergence in the framing of competitive threats and subsequent production innovation decision-making. Moreover, we find that the positive moderating effect of past performance feedback is alleviated when the firm has higher information processing capabilities (proxied by higher IT investment) or more external information access (proxied by a higher level of structural holes in its alliance network). Further examination suggests that greater information processing capabilities and information access allow firms to maintain a sense of control when expecting heightened competitive threats. These findings highlight the importance of information within the unified theoretical framework of both the backward-looking and forward-looking perspectives for product innovation.