The effects of product development network positions on product performance and confidentiality performance

• Published date: 01 October 2020
• Date: 01 October 2020
• Author: Brett J. Massimino,Aravind Chandrasekaran,John V. Gray,Yingchao Lan
• DOI: http://doi.org/10.1002/joom.1105

RESEARCH ARTICLE

The effects of product development network positions

on product performance and confidentiality performance

Yingchao Lan

1

| Brett J. Massimino

2

| John V. Gray

3

|

Aravind Chandrasekaran

3

1

College of Business, University of

Nebraska-Lincoln, Lincoln, Nebraska

2

School of Business, Virginia

Commonwealth University, Richmond,

Virginia

3

Fisher College of Business, The Ohio

State University, Columbus, Ohio

Correspondence

Yingchao Lan, College of Business,

University of Nebraska-Lincoln, 511V

Howard L. Hawks Hall, 730 N. 14th

Street, Lincoln, NE 68588.

Email: yingchao.lan@unl.edu

Funding information

Risk Institute in Fisher College of Business

Handling Editors: Subodha Kumar,

Sriram Narayanan, Fabrizio Salvador

Abstract

Product development networks facilitate access to information, knowledge,

and technologies that are otherwise difficult to obtain during innovation activi-

ties. Most current research on networks focuses on studying product perfor-

mance benefits, but ignores the potential negative effects on confidentiality

performance. Addressing this gap, we investigate how two key components of

a firm's network position—network centrality and structural holes—affect

both product and confidentiality performance. To do this, we assemble a panel

of 1,468 electronic video games designed and developed by 591 developers over

an 11-year period. We find that higher network centrality relates to better

product performance but worse confidentiality performance. Meanwhile, firms

spanning more structural holes enjoy better performance across both dimen-

sions. In an exploratory analysis, we find that product novelty strengthens the

positive relationship between network centrality and product performance but

mutes the positive relationship between structural holes and product perfor-

mance. We discuss the importance of these findings to the literature on inno-

vation in inter-organizational networks.

KEYWORDS

product development network, confidentiality performance, product performance, network

positions

1|INTRODUCTION

To develop new products and processes, organizations

increasingly rely on extended product development net-

works composed of both direct and indirect linkages

(Anderson & Parker, 2013; Eppinger & Chitkara, 2006;

Santos, Doz, & Williamson, 2004). These linkages facilitate

access to otherwise difficult-to-obtain information, knowl-

edge,andtechnologies(Bellamy,Ghosh,&Hora,2014;

Choi & Kim, 2008). Such access has been shown to benefit

product performance (Baum, Calabrese, & Silverman, 2000;

Baum, Cowan, & Jonard, 2014; Borgatti & Li, 2009), defined

as the extent to which new methods,ideas,concepts,and

technologies were effectively integrated into the finished

product (Griffin & Hauser, 1996; Griffin & Page, 1993). The

benefits of extended product development networks have

been evidenced in a variety of industry settings such as

high-tech electronics (e.g., Apple; Kosner, 2014), automo-

biles (e.g., Toyota; Hatch & Dyer, 2004), and aerospace

(e.g., Boeing; Ro, 2013).

The same linkages that enable inter-organizational

collaboration can also become conduits for transmitting

information and knowledge to unauthorized parties

(Hernandez & Menon, 2017). This, in turn, can harm

confidentiality performance, defined as whether a prod-

uct's privacy is maintained before its official release

Received: 16 October 2018 Revised: 9 April 2020 Accepted: 26 May 2020

DOI: 10.1002/joom.1105

866 © 2020 The Association for Supply Chain Management, Inc. J Oper Manag. 2020;66:866–894.wileyonlinelibrary.com/journal/joom

(Black, 2016; Massimino, Gray, & Boyer, 2017). Recent

high-profile iPhone design leakages originating from

partners, for instance, illustrate the challenges that prod-

uct design and development in extended networks can

pose to confidentiality (Kelly, 2018).

Long a concern for firms (Bruce, Leverick, Littler, &

Wilson, 1995), confidentiality has become increasingly

important in today's digital era, where parties can copy,

store, and transmit information and knowledge with

unprecedented ease (Holmström, Holweg, Lawson, Pil, &

Wagner, 2019; Westerman, Bonnet, & McAfee, 2012).

Recent studies have consistently shown that confidential-

ity losses for digital products correspond to reduced prod-

uct revenues and lower market performance (Lu,

Wang, & Bendle, 2019; Ma, Montgomery, & Smith, 2016;

Ponemon Institute, 2015). Once a product's confidential-

ity has been lost, moreover, its subsequent diffusion or

reproduction can be extremely difficult to prevent

(Katila, Rosenberger, & Eisenhardt, 2008). Consequently,

confidentiality performance may now, or in the very near

future, rival the importance of product performance

as industries continue their digital transformations

(Massimino, Gray, & Lan, 2018). Despite calls for more

research (Collins & Hansen, 2011; Kelly, 2018; Parker,

Van Alstyne, & Choudary, 2016; Valdes-Dapena, 2013;

Zetter, 2015), very few studies have examined the rela-

tionship between product development networks and

confidentiality outcomes.

We argue that leveraging product development net-

works may pose differing outcomes regarding product and

confidentiality performance. We focus on two well-

established components of a firm's network position: net-

work centrality and structural holes (Ahuja, 2000; Schil-

ling & Phelps, 2007). Network centrality refers to the extent

to which a focal firm is directly and indirectly connected to

other firms in its extended network (Bonacich, 1972;

Borgatti & Li, 2009; Choi & Krause, 2006; Freeman, 1978;

Kim, Choi, Yan, & Dooley, 2011). Prior research has argued

that network centrality reduces the effort required to access

or disseminate information through an extended network

(Freeman, 1978) and lessens the distortion of dynamic

information and knowledge (Ahuja, 2000; Bellamy et al.,

2014; Kim et al., 2011). Structural holes represent the extent

to which a firm spans connections between otherwise dis-

connected partners (Burt, 1992, 2002).

Regarding the relationship between structural holes

and performance, two divergent models have emerged:

Burt's (1992) structural holes theory and Coleman's (1988,

1990) network closure theory. Burt's structural holes the-

ory asserts spanning more structural holes facilitates

innovation by granting access to diverse information and

improving information control (Gilsing, Nooteboom,

Vanhaverbeke, Duysters, & Oord, 2008; Kumar & Zaheer,

2019; Narasimhan & Narayanan, 2013). Coleman's net-

work closure theory, in contrast, suggests that spanning

fewer structural holes improves innovation performance

because of connected partners’shared norms (Baum et al.,

2000; Paruchuri, 2010; Sosa, 2011). Our study considers

both perspectives.

Although previous studies have examined the link

between a firm's network position and innovation out-

comes, much less is known about confidentiality protec-

tion. One exception is a recent study by Massimino

et al. (2017) which examined the confidentiality implica-

tions of a focal firm's central geographic location but did

not consider the centrality in its product development

network. Divergent views on structural holes, moreover,

may produce disparate projections on the relationship

between structural holes and confidentiality perfor-

mance. A projection drawing on Burt's (1992) structural

holes theory would find spanning more structural holes

improves confidentiality performance, buoyed by better

information control. A projection drawing on Col-

eman's (1988, 1990) network closure theory, however,

would find spanning more structural holes weakens con-

fidentiality performance because the focal firm would

struggle to sanction opportunistic behaviors.

Our research addresses the aforementioned gaps in the

literature by investigating the following research question:

Does network position (specifically,network centrality and/or

structural holes)in a product development network affect

product performance and confidentiality performance differ-

ently? We test hypotheses related to this question by

employing a longitudinal data set encompassing 1,468 elec-

tronic video game (EVG) products, 591 product develop-

ment companies, and an 11-year period. Consistent with

contemporary research (e.g., Girotra, Terwiesch, & Ulrich,

2010; Wooten & Ulrich, 2015), we measure product perfor-

mance using ratings from professional critics who synthesize

several dimensions (e.g., story presentation, graphics, game-

play mechanics, artificial intelligence, and game design) into

a single quantitative measure. Following recent empirical

research, we measure confidentiality performance as a

binary outcome, determined by whether a fully functional

game leaked to an illicit chann el before its official

release date (Lu et al., 2019; Ma, Mo ntgomery, Singh, &

Smith, 2014; Massimino et al ., 2017). Results suggest th at

network centrality is associa ted with improved product

performance but worsened con fidentiality performance;

this suggests network cent rality creates an inherent

trade-off between these two performance dimensions.

On the other hand, we find that the d egree to which a

firm spans structural holes re lates to both improved

product and confidentiality p erformance.

To better understand how product characteristics affect

the relationships between network positions and the two

LAN ET AL.867