Managing risk tolerance and cross-functional integration for innovation success

In this study, our key premise is that -contrary to what is often assumed- to invest in cross-functional integration is not always a productive approach to increase new product development (NPD) success. We find that the effects of cross-functional integration on NPD success is conditional upon the type of market or technology opportunity a company is pursuing -as we hypothesized: if a company pursues an opportunity that is surrounded by much risk, high levels of cross-functional integration are warranted to increase NPD success, but this is not true for low-risk opportunities. In the current business context however, companies tend to decrease their risk tolerance (they become risk averse) and increase their cross-functional integration during periods of lagging NPD performance. Contrary to our expectations, we do not find evidence that cross-functional structures are particularly helpful in assimilating a high quantity of knowledge. These findings suggest a need to differentiate between the quantity and quality of the knowledge to be assimilated when assessing whether cross-functional integration enhances a NPD team’s information processing capabilities or not.