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This article focuses on conditions that make cross-functional cooperation in new product development projects more or less productive. We investigate 40 NPD projects in the consumer electronics and pharmaceuticals industries in which R&D and marketing played key roles. We find that the contributions of cross-functional cooperation to NPD success are contingent on the type of market and technology opportunities being pursued. More specifically, our results suggest that when a project team pursues an opportunity characterized by high levels of technological and market risks, investments in high levels of cross-functional cooperation are warranted to increase NPD success. We do not find evidence that cross-functional cooperation moderates the relationship between the openness of an NPD project towards external information and knowledge and its performance. This suggests that less integrated project teams could achieve similar results as more integrated teams in terms of processing large quantities of information and knowledge without incurring the costs that may stem from high levels of cross-functional cooperation.

Nalco – a global leader in water treatment solutions– recently announced that it had cut costs and aimed to speed up innovation and increase productivity by realigning its organization to adopt an integrated business management approach. Functional responsibilities were no longer separated and division leaders were given responsibility for capabilities and resources in different areas, including sales, marketing, supply chain management, research, finance and human resources. The feeling was that this type of cross-functional responsibility ‘…will ensure that all efforts are aligned on winning in the marketplace’.1 Nalco’s move illustrates two important aspects of business today; first, it points to the importance of new product development for gaining competitive advantage, and second to the widespread belief in the benefits of cross-functional integration for the success of such initiatives. The extant literature has described the notion of integration between different functional areas to accomplish organizational tasks more efficiently and effectively in different terms, including cross-functional coordination, integration, communication, and cooperation. In this article we use the latter of these - ‘cross-functional cooperation’ - to refer to organizational members of different functional areas who exhibit ‘joint behavior toward some goal of common interest’ – in this case, success in new product development (NPD).3 Consistent with prior research, we operationalize cross-functional cooperation for NPD success in terms of the amount of information and knowledge shared between the functions core to NPD - research, development and marketing - and the ease with which it is shared. We adopt a contingency approach, examining the conditions under which cross-functional integration in NPD projects may be more or less effective and productive, which is important to understand, given that cross-functional cooperation is a resource investment decision. Functional heterogeneity in NPD settings does not in itself promote such desirable outcomes; purposeful managerial actions are generally needed to use it productively. This may take time and resources away from other important tasks at hand, so may in turn hinder performance at some point. In this article we examine in depth whether cross-functional cooperation is particularly effective in the case of NPD projects with high market and technological risks, and where there is considerable openness towards outside information, both of which are recognized as critical factors that can influence NPD success. Existing research suggests that the greater the risk attached to an NPD project, the more likely it is to fail; and that the more open an NPD project team is to external information and knowledge, the more likely the project is to succeed.5 There is, however, little research available that examines how cross-functional cooperation may moderate these relationships. Does it improve the odds of success for high-risk NPD projects, or for those that are open to external information and knowledge? This article takes some steps towards answering these questions. Whereas it seems reasonable to expect that firms will adapt their strategies according to the degree of risk attached to an NPD project or to their openness towards external information, there is also evidence that suggests that, in practice, companies do not balance their level of cross-functional cooperation against the levels of risk or openness in their projects. For example, when companies’ new products suffer high failure rates, there is a natural tendency for them to seek to reduce risk. This may be done first by limiting the pursuit of technologies or market opportunities perceived to be associated with high levels of risk and, second, by increasing the level of cross-functional cooperation in NPD projects. However, using both risk-reduction strategies at the same time can create an undesired spiral where more cross-functional cooperation is used to counter less risk, where a theoretically more effective ‘fit’ would be to reduce cross-functional ties where less risk is present. Understanding the conditions under which cross-functional cooperation may be more or less effective is more likely to be useful to managers than a general insight that cross-functional cooperation is positively related with performance. To examine how cross-functional cooperation may contribute to NPD success, we integrate two different streams of research. The first is research on NPD, which in general points to the benefits of cross-functional cooperation in increasing the pool of available information and knowledge and its more effective and efficient processing. The second research stream, grounded in applied psychology and organizational behavior literature, suggests that functionally diverse teams, as well as having a potentially positive impact, may also be negatively related with performance, due to interpersonal dislikes and relational conflicts, and low levels of group cohesion and identification with and commitment to the team, to name only a few potential problems. The following section provides a brief review of the relevant literature on cross-functional cooperation in NPD and the broader team diversity literature. We develop two hypotheses and test them using data about NPD projects developed in the consumer electronics and pharmaceuticals industries. We then describe our research method and present our findings, and our final section discusses implications for management and makes suggestions for future research.

Much of the existing research in this area stresses the need for greater cross-functional cooperation to obtain better NPD performance, without taking into consideration that the impact of cross-functional cooperation can be conditional upon certain factors, and that there are costs involved. In this article, we suggested that when an NPD project has a high risk level (due to its pursuit of unknown technologies or markets) or is open to a wide range of different external information sources, the marginal effect of cross-functional cooperation on NPD success is increased. The rationale behind our hypotheses is that cross-functional cooperation will result in greater processing/absorption capabilities, and that these benefits will outweigh the psychosocial costs of more conflict, stress, and so forth. On the basis of our empirical research findings, we can conclude that simply increasing the level of cross-functional cooperation is not sufficient in itself to improve NPD success - the characteristics of the specific NPD project must be taken explicitly into account. Figure 2 and Figure 3 show how the degree of cross-functional integration utilized in NPD strategies can act to assist these strategies’ success, or can be wasteful of management effort, according to different project characteristics. Bringing successful new products to the market involves a long process of information collection and processing, cooperation and learning. Our research has shown that, where an NPD strategy accepts considerable uncertainty and risk, greater cross-functional cooperation will be effective. The ability to detect and act upon high-risk signals successfully may ultimately result in sustained competitive advantage, as few companies will pursue the same signal and the positions thus attained can be better defended in less crowded markets.32 Thus, figure 2 shows that companies adopting a high degree of cross-functional cooperation in high-risk projects will position themselves in the ‘competitive hit’ arena (upper right quadrant), but addressing high risk/uncertainty developments without this investment is likely to be a ‘no hit’ strategy (upper left quadrant). If, on the other hand, the risk associated with an NPD project is low, it can be successful (a ‘hit’) with a lower level of cross-functional cooperation, or even none (lower left quadrant), and, in fact, large investments made to increase cross-function cooperation in such situations would be unlikely to be particularly beneficial, and can be characterized as being wasteful (lower right quadrant). Our results echo previous researchers' findings, that NPD projects open to external information are likely to be more successful. However, contrary to our Hypothesis 2 expectations, projects with high levels of openness do not seem to benefit from high degrees of cross-functional cooperation. This finding suggests that a large supply of (and thus easier access to) information and knowledge makes it possible for less cross-functionally integrated NPD teams to achieve similar results as more integrated NPD teams, without bearing the greater costs such cooperation is likely to entail. Figure 3 shows that, if openness levels are high, a competitive hit strategy may be achieved even where the degree of cross-functional cooperation is low, and that in such a situation investing in increasing cross-functional cooperation would be a waste of resources. We argue that many organizations exhibit a mismatch between the level of risk they take with their new products and the level of cross-functional cooperation they employ. It seems that, in general, companies tend to be a bit too conservative with the levels of risk they find acceptable, especially in relation to the cross-functional practices they have installed. Companies have a natural tendency to pursue the same - less risky and uncertain - signals, which result in very competitive markets conditions at launch. This, in turn, generally leads to NPD investments yielding lower rents, further reinforcing the tendency to lower risk in a vicious cycle. On the other hand, the cycle in terms of cross-functional cooperation tends to go the other way - as companies perform worse, they tend to invest more in cross-functional cooperation. Our study shows that some 38% of companies exhibit sub-optimal fit, either ‘undershooting’ in terms of risk or ‘overshooting’ on cross-functional cooperation (i.e., putting them in the bottom right ‘wasteful’ quadrant of Figure 2), while a smaller percentage (15%) employs less cross-functional cooperation than they really need (as in the top left ‘no-hit’ quadrant. In more general terms, our study suggests a need for ‘systems thinking’ when developing business strategy, since the decisions a company makes in one specific area or field can seriously affect its effectiveness in another. In the context of this research, when a company adjusts the level of risk attached to its NPD development projects over time, it should adjust the level of cross-functional cooperation accordingly: not doing so will result in wasted resources due to higher failure rates of new products or inefficient investments in cross functional cooperation. Similarly, if a company wants to enhance its absorptive capacity, it should first examine the characteristics of the outside knowledge to be absorbed, and then adjust its level of cross-functional cooperation accordingly.33 Investing in increased cross-functional cooperation only seems justified where the outside knowledge has characteristics making it difficult for a company to absorb, for example, because it is not targeted on a firm’s current needs and concerns. Table 3 summarizes the results of our study, which may show managers that they need to reconsider their NPD project portfolios. Even though high-risk NPD projects exploring new, uncertain markets and technologies have a high failure rate, they do ultimately seem to have a higher pay-off, so it seems wise for an NPD project portfolio to have at least one (or a few) high-risk NPD projects. And it pays off more to invest in cross-functional cooperation when a portfolio includes such high-risk activities, since it can enhance the chances of successful outcomes for such ventures. But where an NPD portfolio consists solely of projects that exploit a company’s current technology and market base there is less need to invest in cross-functional cooperation. Companies can invest in mechanisms such as inter-functional job rotation, incentives and reward systems, and collaborative ICT systems to enhance cross-functional cooperation. Söderquist has found the rotation of personnel between functions and/or departments to be a particularly effective instrument to enhance information and knowledge sharing across functions.34 Our results suggest that investing in cross-functional cooperation does not enhance the effectiveness of openness towards information and knowledge. But investing in more openness does seem to enhance NPD performance, although increasing openness requires strong leadership, as NPD teams seem to have a natural preference towards using ‘local’, more easily available, sources rather than new, external (and thus more remote) information and knowledge. Both openness and cross-functional cooperation can also be enhanced by incentives and reward systems, and by collaborative ICT systems. But it seems important to set boundaries when stimulating either factor: too much cross-functional cooperation may lead to group think and a too-good-friends syndrome, which may have a negative influence on the team’s openness to outside information, while too much openness can result in already accumulated company knowledge being neglected, and in ‘information overload’, making it difficult to process the information collected effectively and efficiently. Our study analyzes 40 NPD projects in the electronics and pharmaceuticals industries, and our results may also be valid for industries with similar characteristics, such as (electronic) office products, medical instruments, and consumer beauty products. Future research that uses larger sample sizes, over more companies and more industries, may allow for alternative modeling approaches and more refined assessment of contingency interactions. Although our research was not specifically focused on SMEs, our results may still be interesting for such companies, where limited resources makes it even more pressing that they know how to optimize the success of their NPD projects, whether high-risk or not. Future studies using longitudinal research strategies are needed to untangle how companies can break the two spirals of lagging NPD performance: progressive lowering of risk and increasing cross-functional cooperation, and the resultant sub-optimal fit between the two. Existing research suggest that cross-functional cooperation may be most effective in the early stages of an NPD project, when uncertainty is at its highest35: again, longitudinal studies are appropriate for more in-depth study of how the need for cross-functional cooperation changes over the course of such projects. Future research is also needed to study other circumstances where cross-functional cooperation may be particularly effective - for example, it may increase absorptive capacity most when information and knowledge are difficult to comprehend, and less when it is easily assimilated. In this article, NPD performance was measured using a multi-dimensional scale that covered different performance measures, including financial performance, efficiency of execution, and market impact. The limited number of items per performance measure meant we were unable to examine the impact of cross-functional cooperation on each dimension separately, but these impacts may differ. For example, while greater conflict in functionally heterogeneous groups may hinder efficiency of execution, cross-functional cooperation may also result in more creative and commercially viable products, thus increasing market impact. Future research which studies the effects of cross-functional cooperation on different performance dimensions separately would improve our understanding of its relative contributions to different elements of NPD effort and success.