Do Prior Experiences of Top Executives Enable or Hinder Product Market Entry?

• Published date: 01 November 2019
• Author: Hakan Ener
• Date: 01 November 2019
• DOI: http://doi.org/10.1111/joms.12401

© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies

Do Prior Experiences of Top Executives Enable or

Hinder Product Market Entry?

Hakan Ener

Illinois State University

ABST RACT How firms a chieve entry into new-to-the-f irm product markets is an importa nt but

overlooked topic. Some aspiring ent rants fail during product development, and t hey mis s the

opportunit y to enter. In such contexts, f irms often take action to de -risk entry, for example, by

drawing upon t he exper ience of top executives w ith market-specific exp ert ise obtained in prior

jobs. However, the empirical evidence from t his study shows that beyond a narrow th reshold,

greater prior exper ience in the top e xecutive tea m was associated with a greater l ikelihood of

failed entry at tempts among the firms th at I trac ked over two decades in the biotechnology

industry. This re sult held across product markets with low and high deg rees of dynamism.

Based on the literatu re on dynamic managerial c apabilities, where entry into new markets

indicates mana gers’ ability to reconfig ure organizational resources a nd adapt to a changing

environment, th is study’s main contribution is to illust rate how and why experience matters for

ent ry.

Keywo rds: dynamic manag erial capabilities, exper ience, product market entr y, top executive

teams

INTRODUCTION

Product market entry attempts occur more frequently t han actual entries (Ma rkman

and Waldron, 2014). Failure to enter may occur when an aspiri ng entrant is unable to

generate new products or services. For example, entry may require the generati ng of in-

novative products in a rapidly chang ing industry where there is major uncertainty about

which technologies to use and which customers to serve ( Eggers, 2012). In such contexts,

there is a signif icant risk of failure, which restr icts product market entry despite large

investments in the development of new products.

The question of how firms overcome these challenges and reduce the risk of failure to

enter into new product markets is an important one. Despite its importance, very little

Journal of Man agement Studi es 56:7 November 2019

doi:10.1111/j oms.1 2401

Address for re prints: Hak an Ener, College of Business, Il linois State Universit y, Norma l, IL, 61790-5580,

USA (hener@ ilstu.edu).

134 6 H. Ener

© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies

research exists on pre-entry, i.e., the period leading up to actual product market entry

(see Hawk et al., 2013 for a recent exception). In a recent review of the market entry lit-

erature, scholars have concluded that the prior studies tend to portray entry as an event

(Zachary et al., 2015), and they have called for more research that examines what hap-

pens prior to entry. The objective of the present study is to address the following general

research topic: ‘What explains the differences between aspiring entrants that fail to enter

a product market versus those that accomplish entry?’

Prior to entry, top executive teams make two types of key decisions. First, they search

for and choose what product(s) the firm should develop. This involves determining which

types of products are likely to generate demand and feasible to develop with the resources

available to the firm. Second, top executive teams choose how to allocate resources for the

development of such products or services. However, these decisions may not be equally

effective in different contexts: top executive teams in fast-changing contexts face greater

challenges in choosing which products to develop as well as a higher risk of failure in the

actual development process (Clark and Fujimoto, 1991; Leonard-Barton, 1992).

A case in point is the biotechnology industry where a large proportion of aspiring

entrants end up failing to enter because they are unable to develop safe and effective

products. This problem is not unique to de novo start-up entrants attempting to develop

their first product, whose resource constraints may explain some of their difficulties in

achieving entry. What seems more challenging and interesting for scholars to explain is

that larger, more established firms attempting entry into new product markets (de alio

entrants) have also had very high failure rates despite having access to more resources,

including their top executive teams that presumably had an advantage over the found-

er-led de novo entrants in terms of their ability to mitigate biases in decision-making such

as overconfidence (Shepherd et al., 2015). However, comprehensive analyses show that

the failure rate of biotechnology product development projects has been above 90 per

cent among de novo and de alio entrants alike (Bains, 2004). Failing often inevitably has

important economic consequences for firms and their resource providers. Pisano (2006)

found that the cumulative profits of all firms in the biotechnology industry have hovered

around zero for nearly three decades in the United States, yielding disappointing finan-

cial returns for many of the investors that backed these companies.

Given the high economic risks, firms typically take a variety of measures to de-risk

entry; that is, to reduce the risk associated with potential failure in entry. Given that firms

lack organizational experience in new-to-the-firm markets, they may seek to leverage the

market-specific expertise obtained by top executives who have previously worked in the

same product markets where the firms intend to enter. Indeed, scholars have found that,

prior to entry, firms often recruit executives with market-specific experience, with similar

patterns in the pharmaceutical industry (Diestre et al., 2015) and in the semiconductor

industry (Boeker, 1997).

The literature on dynamic managerial capabilities is particularly relevant for under-

standing how the product market knowledge of experienced top executive teams may

affect their ability to achieve entry. Dynamic managerial capabilities are the capabil-

ities with which managers build, integrate, and reconfigure organizational resources

and competences (Adner and Helfat, 2003). Each entry into a new-to-the-firm product

Do Prior Experiences of Top Executives Enable 1347

© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies

market involves building an organizational competence to identify and serve previously

unserved customers, as well as deploying resources to generate the products that those

customers demand. When executives possess such capabilities, it should be more likely

for firms to achieve market entry objectives. Whether past market-specific experience

actually enables executives to achieve entry is the specific research gap that this study

addresses.

In the next section, I build on the recent research and outline why experience is likely

to exert both positive and negative influences on top executive teams’ ability to effectively

navigate market entry. Taking these influences jointly into consideration, I argue that the

effect of experience may be curvilinear and inversely U-shaped; that is, initially positive

and then negative beyond a threshold. Empirical analyses of a sample of biotechnol-

ogy firms support this claim. I also theorize about and find evidence of how fast-paced

change in the product markets may exacerbate these effects. The main contribution of

this study is to illustrate how and why experience influences managers’ ability to effec-

tively lead entry into new product markets, which scholars have viewed as an import-

ant indicator of dynamic managerial capabilities (Helfat and Martin, 2015). This brings

greater theoretical clarity to the literatures on dynamic managerial capabilities and on

market entry, whereby incorporating the positive and negative effects of experience can

help to explain why some executives are more effective at achieving market entry.

THEORY AND HYPOTHESES

Given top executives’ influence in select ing promising product ideas prior to entry, firms

often draw upon their knowledge, which arises from experience obtained through pre-

vious positions with var ious employers for which they developed products for the same

market. These top executives are key sources of knowledge to assess the gaps that may

exist in the market and the types of products that might fil l those gaps. Therefore, it is

not surprising that firms often couple market entry with recr uiting top executives who

possess prior market-specif ic experience (Boeker, 1997; Diestre et al., 2015).

The literature on dynamic managerial capabilities is relevant for understanding how

experience may relate to top executives’ ability to lead market entry. Adner and Helfat

(2003) theorized that developing dynamic managerial capabilities depends on three types

of managerial attributes. These are cognition (mental models and beliefs), human cap-

ital, and social capital, constructs that I define below. They proposed that variation in

these attributes helps to explain differences in managers’ ability to implement strategic

changes, including but not limited to market entry. However, this literature has not yet

fully incorporated a growing body of evidence to suggest that increasing levels of experi-

ence may influence these three attributes in different ways, and not always positively. For

example, experience may enhance human and social capital (Kor, 2003) but create rigid-

ity in mental models (Dane, 2010), thereby generating opposing influences on managers’

ability to conceive and implement initiatives involving strategic change, such as market

entry. This is a theoretical tension that the literature on dynamic managerial capabilities

has not thus far addressed. This study addresses this tension in the context of market

entry, which is a key indicator of reconfiguring organizational resources for growth.