J PROD INNOV MANAG 2003;20:338–355

r 2003 Product Development & Management Association

The Role of Resource Access, Market Considerations, and the

Nature of Innovation in Pursuit of Standards in the New Product
Development Process

Arvind Sahay and Debra Riley*

Standards influence new product development (NPD) in high-technology markets.

However, existing work on standards has focused exclusively on one aspect of
standards—compatibility standards. This article has the following goals. First, we
delineate the concept of customer interface standards as distinct from compatibility
standards. This distinction is important from a product development and technology
adoption perspective. Second, we propose and show that antecedent factors may
motivate a firm differently about the emphasis that the firm should put on a type of
standard (compatibility or customer interface) that it follows. For example, we
propose that appropriability regime affects pursuit of customer interface standards
and compatibility standards differently. Finally, we illustrate how resource access
and the nature of the innovation also influence a firm’s decision to pursue a standard
type. Finally, we propose that pursuit of different standards (customer interface or
compatibility) affects the NPD process in terms of (1) sourcing and dissemination
of technology and (2) the customer utility for the product, which influences
adoption.
We collected perceptual data from a sample of marketing and technology
managers in high-tech industries in the UK using both formative and reflective
scales to measure the constructs. Analysis of the data using LISREL supports our
contention that compatibility standards and customer interface standards are
distinct constructs and that appropriability regime influences compatibility
standards and customer interface standards differently. We also find that pursuit
of compatibility standards helps a firm to create direct externalities pursuit of
customer interface standards helps firms to develop indirect network externalities
and technological advantage in the market.
Our findings have the following implications. First, managers need to account
explicitly for the difference between compatibility and customer interface
standards, as resource allocation decisions during the NPD process will determine
where a firm puts more focus. The choices made by the firm—as to whether it
pursues compatibility standards or customer interface standards—will determine
the type of advantage that it can gain in the market. Given a firm’s situation at a
point in time, a greater focus on one standard type rather than the other may be the
right approach. Such choices will influence resource allocation in the product
development process.

Address correspondence to Arvind Sahay, London Business * The authors would like to thank the editor, Abbie Griffin, and the
School, Sussex Place, Regent’s Park, London NW1 4SA, UK. two anonymous reviewers whose extensive and insightful comments
Telephone: (44)-(0)171-262-5050; E-mail: asahay@london.edu. have helped to improve the manuscript.
PURSUIT OF STANDARDS IN THE NPD PROCESS
Introduction
U
nderstanding standards and their use during
the product development process in high-
technology markets is an important require-
ment for success in the early stages of the product life
cycle (Rosen et al., 1988). Standards influence
technological development, and are a source of
competitive advantage in high-tech markets (Besen
and Farrell, 1994). Microsoft (operating systems),
Critikon (blood pressure monitors), and Novell
(networking software) have pursued appropriate
(and differing) standards during the product devel-
opment process, to achieve great success in the
market. Yet research on standards and new product
development is focused only on one dimension of
standards—compatibility. A restricted view of com-
patibility as the unidimensional standard construct is
a serious nomological gap. The focus on compat-
ibility standards, we argue, has ignored the customer
interface—the interaction between the customer and
the product for deriving benefits—as a location of
standards that firms can also leverage in the product
development process.
Consequently, we lack an understanding of the
factors that influence the choice of different standard
types and how this choice influences the product
development process; is there a trade-off in pursuing
compatibility standards as opposed to customer
interface standards? As Langlois (1992, p. 16) points
out, the success of a new product depends on whether
it is an understandable product and easy to use—the
customer interface makes a difference.
BIOGRAPHICAL SKETCHES
Arvind Sahay is assistant professor of marketing at London
Business School. He has a background in engineering and worked
for four years in manufacturing and financial services before
completing a Ph.D. from the University of Texas in 1996. His
research interests span technology and marketing, new product
development, cooperative relationships among firms, electronic
commerce, competitive strategy, and international marketing. He
has published in the Journal of Marketing, European Journal of
Marketing, and the Journal of International Business Studies. He has
consulted for high-technology firms in Europe, Asia, and North
America.
Debra Riley is principal lecturer in marketing at Kingston Business
School. She has over ten years of work experience in the UK and
U.S. in high-technology companies. She completed her MBA at the
University of Texas before studying for a Ph.D. at London Business
School. Her research interests lie in the areas of technology
marketing and new product development.
J PROD INNOV MANAG 339
2003;20:338–355
In this article, we delineate the concept of customer
interface standards as distinct from compatibility
standards and use supporting data to show that these
constructs are distinct. We propose and show that
antecedent factors may motivate a firm differently
about the emphasis that the firm should put on a type
of standard (compatibility or customer interface) to
be followed. For example, appropriability regime
affects pursuit of customer interface standards and
compatibility standards differently. Finally, we illus-
trate how resource access and the nature of the
innovation also influence a firm’s decision to pursue a
standard type. The pursuit of different standards
(customer interface or compatibility) affects the NPD
process in terms of (1) sourcing and dissemination of
technology and (2) the customer utility for the
product, which influences adoption.
The article is organized as follows. In the next
section, we define ‘‘standards’’ and develop defini-
tions of compatibility and customer interface stan-
dards, and relate it to the relevant product
development literature. Next, we develop a concep-
tual framework that draws from the resource-based
view of the firm (Barney, 1991) and the innovation
management approach (Rogers, 1995). We identify
antecedent factors that lead to a firm’s choice of
standards and discuss how these antecedent factors
can influence a firm’s choice of standards differently.
We then discuss how different standards contribute to
different customer utility elements that lead to success
in the market. This is followed by analysis of survey
data to test the proposed hypotheses. In the final
section, we discuss the results and propose theoretical
and managerial implications along with directions for
future research.
The Nature of Standards
We define a standard as a technological format
(consisting of technical specifications) that has been
agreed to by either one firm or a set of firms
(formally, informally, or inadvertently), that has
come into existence, may be promoted as a basis for
reference and use outside the firm(s), and/or at least
one or more of the relevant potential users (the firm,
its consumers, complementary product vendors,
suppliers, and other related producers) have adopted
the format. This is consistent with situations before
the emergence of dominant design (Anderson and
Tushman, 1990) and encapsulates prior views on
340 J PROD INNOV MANAG A. SAHAY AND D. RILEY
2003;20:338–355

standards (Besen and Farrell, 1994; David and
Greenstein, 1990; De Monthoux, 1988; Putnam,
Hayes, and Bartlett, Inc., 1981). Note that a standard
can exist within or across firms or industries. Using
this overarching definition, we define two types of
standards: (1) compatibility standards and (2) custo-
mer interface standards. Table 1 gives definitions of
these standards with examples.
Compatibility Standards
A compatibility standard is the standard that refers to
the technical specifications that define the fit and
interaction between components in a product or
between the product and complementary products. A
compatibility standard describes the manner in which
components in an end-product come together or
products come together with complementary pro-
ducts. Few high-technology products function in
isolation. They usually interact with numerous other
hardware and software units upon which they depend
for optimal performance (Bucklin and Sengupta,
1993). For instance, the Intel microprocessor archi-
tecture interfaces with a PCI bus within a PC through
a compatibility standard.
Customer Interface Standards
A customer interface standard refers to the technical
specifications that determine the pattern of interaction
that is utilized between the individual user and an end-
product for deriving benefits. It provides a consistent
interface format that reduces uncertainty, and sim-
plifies usage for the consumer. How an individual
interacts with Microsoft’s combination of Windows
operating system and application software is an
example of a customer interface standard that is
based on certain technical specifications. As consu-
mers become familiar with a particular interface, it
becomes costly for them to switch to another product
offering the same functional benefits but requiring a
different pattern of interaction with the product.
Developing the skills necessary to use high-tech
products requires technology-specific learning. In
effect, when a customer interface standard becomes
‘‘established,’’ the product and user develop a
complementarity (Dhebar, 1995, p. 138), increasing
the product’s utility. Familiarity makes it costly to
switch to another product offering the same func-
tional benefits but requiring a different pattern of
interaction (Klemperer, 1987; Wernerfelt, 1985; Weiss
and Heide, 1993). Studies confirm the importance of
customers’ use practices in product adoption (e.g.,
Tornatzsky and Klein, 1981). Thus consistency of the
interface, and ease and simplicity in use reflect
underlying customer interface standards as they
influence customer switching behavior.
Customer interface standards are particularly
strong in markets where product usage is complicated
or difficult, or where health and safety concerns exist
as in medical equipment markets. SIMS Deltec has
established a customer interface standard for their
ambulatory infusion pump range called CADD.
Ambulatory infusion pumps allow patients to remain
mobile while receiving infusion therapy, and have
elaborate set-up and usage protocols. CADD pumps
have a substantial installed base of clinicians,
particularly field-based nurses, who are familiar with

Table 1. Standards and Proposed Standards Typology

Standards: ‘‘A standard is a technological format that has been agreed to by either one firm or a set of firms
(formally, informally, or inadvertently), that has come into existence, is promoted as a basis for reference and use,
and/or at least some of the relevant potential users (consumers or complementary product vendors and other related
producers) have adopted the format.’’
Type of Standard Definition Examples

Compatibility Standard The standard that refers to the technical specifications Software interconnectivity standards (OLE,
that define the fit and interaction between components ODBC, MAPI); cellular telephony roaming
in a product or between products and complementary interface standards; microprocessor and PCI
products. bus interconnection standards in a PC

Customer Interface The standard that refers to the technical specification Infusion pumps (syringe, bag, or ambulatory
Standard that defines the pattern of interaction that is utilized cassette); PC graphic user interfaces (Windows,
between the individual user and an end product for Mac, Unix); robotic surgery video interfaces
deriving benefits. (RDOC)
PURSUIT OF STANDARDS IN THE NPD PROCESS
the intricacies of CADD programming and operation.
Customer interface standards have been largely
ignored in the literature, as we show below.
Standards and NPD
The development of innovations and standards has
been shown to be closely linked (Henderson and
Clark, 1990; Tushman and Anderson, 1986). Product
development in high-tech markets involves explicit
decisions about standards. In high-tech markets,
products are composed of an increasing number of
technologies that complement each other in providing
benefits. These complementarities depend on the
physical or functional fit between: (1) components
within the product, (2) the product (component) and
other products (components) with which it is typically
used, and/or (3) the product and the user (Dhebar,
1995, p. 138). This implies that success requires
attention to the ‘‘fit’’ between components and
between the product and users; that is, both compat-
ibility and customer interface standards are impor-
tant.
However, there is little or no consideration of
different standard types in the NPD process. Conse-
quently, there has also been little research into how
different standard types are influenced by different
factors and how a firm’s choice of standard affects
customer utility for the product. The focus of our
research is on the time of design competition and
H1a (-)
Mode of Access to
Complementary
Assets H1b (+)
H2a (+)
Learning
H2b (+)
Costs
H3a (-)
Strength of Propensity to
Appropriability Pursue Customer
Regime H3b(+)** Interface Standard
H4a(+)
Nature of
Innovation H4b(+)
Figure 1. Hypothesized Relationships in Resource Access, Market Considerations, and Nature of Innovation in Standards Formation
in the New Product Development Process
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2003;20:338–355
substitution before a dominant design emerges and
where incompatible technologies coexist. Pursuit of a
standard type means taking steps to achieve the
relevant specifications, whether within or across
industries and firms. Converging SIC codes mean
that technical specifications are likely to cross SIC
boundaries. Note also that while we postulate
compatibility and customer interface standards as
distinct constructs, they may well be correlated (Besen
and Farrell, 1994; Dhebar, 1996), as they partake of
underlying commonalities and may flow from related
technical specifications.
Conceptual Framework
Our framework draws from the resource-based view
of the firm (Barney, 1991; Penrose, 1959), the
innovation management approach (Rogers, 1995),
and product innovation, and is shown in Figure 1.
Firm Resource Characteristics: Mode of
Access to Complementary Assets
While all firms attempt to leverage their access to
resources into competitive advantage, there is firm
heterogeneity in the level of access to resources. In
addition, the firm’s distinctive competence involves
making better use of its resources (Penrose, 1959,
p. 54). Use of resources, thus, represents a source of
Direct
Network
Propensity To
H5a(+) Externalities
Pursue
Compatibility
H6a(+)
Standard
Technological
Advantage
H6b(+)
H5b(+)
Indirect
Network
Externalities
342 J PROD INNOV MANAG
2003;20:338–355
advantage for a firm, and influences the choice of a
standard to pursue. Access to technological comple-
mentary assets is a key driver in the product
development process (Tornatzsky and Klein, 1981).
Access to complementary assets influences the devel-
opment of standards in an industry, and is one reason
that imitators sometimes outperform innovators
(Church and Gandal, 1996; Teece, 1986b). Firms
access complementary assets either through vertical
integration or through contractual arrangements.
Complementary assets are those particular techni-
cal (e.g., complementary technologies) and nontech-
nical resources or capabilities (e.g., marketing,
distribution, or service) that contribute toward the
composition of a ‘‘whole’’ product and influence
technology selection (Schilling, 1998). For example,
software training courses and manuals supplement
the core product offering (software) and serve to
reinforce user demand (Shurmer, 1993). Complemen-
tary assets may also be complementary products that
function in tandem with the firm’s product in
providing, or increasing, benefits to the customer. In
diabetes care, insulin injections and blood sugar
monitoring systems are complementary products that
provide optimal benefits to the patient when used
together. We focus on technological complementary
assets in this article. Firms access these technological
complementary assets either through vertical integra-
tion or through contractual means. The degree of
vertical integration firms possess has been shown to
influence the development of standards (Adams and
Brock, 1982; Matutes and Regibeau, 1992). Contrac-
tual arrangements, such as licensing, alliances, second
sourcing, and attracting complementary suppliers,
also influence standardization (Axelrod et al., 1995;
Conner and Rumelt, 1991).
Vertical integration refers to the extent to which a
firm is actively engaged in different stages of the
product transformation process. When a firm is
vertically integrated, there is a lesser need for
negotiation with other firms in order to ensure that
its product components fit with components made by
other vendors because it makes all the components
and the interfaces itself. The integrated firm may have
an incentive to manipulate component interfaces as a
means of temporarily reducing competition (Green-
stein, 1990). A vertically integrated firm that changes
existing component interfaces does so within the
boundaries of the firm; it does not pursue compat-
ibility standards in the market. However, when no
one firm has the technological resources to develop a
A. SAHAY AND D. RILEY
high-tech product for the consumer by itself, firms
access complementary assets through contractual
means. Contractual forms such as alliances can create
and influence technological standards (Axelrod et al.,
1995).
When a firm obtains complementary assets
through contractual means, it shares knowledge at
the component interface. This exchange is easier for
partners if the interface specifications between com-
ponents and complementary products are codified.
Knowledge required for the development of techno-
logical innovations has two components: codified or
tacit (Polanyi, 1958; Teece, 1986). Codified knowl-
edge is easily transmitted, such as through designs
and specifications. The need for a fixed interface is
even stronger when there are many components
whose interfaces require compatibility and the differ-
ent components are made by different firms. The
desire to reduce the transaction costs with its partners
through exchange of codified knowledge provides an
incentive for the firm to pursue compatibility
standards.
In contrast to codified knowledge, tacit knowledge
associated with a technological innovation is difficult
to articulate and therefore difficult to transfer. A
customer interface standard requires the firm to have
an in-depth understanding of the patterns and
methods by which consumers use a product. This
information is less likely to be documented within the
company and even if it is, is more costly to transfer to
another firm because the knowledge is experiential
and not well understood or replicated, and if available
is embedded in complex organizational routines
(Kogut, 1988, p. 323). Because knowledge of how
consumers use products is also potentially valuable
information, the incentive to transfer information is
less, especially in horizontal alliances. As product
usage determines customer interface standards, they
are more closely related to the acquisition and use of
tacit knowledge—something that firms do not do in
contractual partnerships (Dutta and Weiss, 1997). It
is, therefore, less likely that a firm that obtains
complementary assets through contractual means will
pursue a customer interface standard.
In contrast, a firm that accesses complementary
assets through vertical integration has a greater
potential to tailor the end product to meet customer
needs. It will have greater access to information and
does not need to expend resources in negotiating,
monitoring, and enforcing exchange with other firms.
Vertical integration has also been found to be
PURSUIT OF STANDARDS IN THE NPD PROCESS
positively related to increased new product develop-
ment (Collier et al., 1984; Buzzell and Gale, 1987).
Thus, vertical integration provides greater influence
over the end product’s design, which increases the
likelihood of pursuing a customer interface standard.
H1a: The more a firm accesses technological
complementary assets through vertical integration,
the lower the propensity to pursue compatibility
standards.
H1b: The more a firm accesses technological
complementary assets through vertical integration,
the greater the propensity to pursue customer inter-
face standards.
Market Characteristics: Learning Costs
Market characteristics affect technology-related firm
decisions in the process of innovation diffusion
(Rogers, 1995). Markets are comprised of customers,
products, and their use of products. Consumers
derive utility through product usage and consumers
learn through experience when using a product (Hoch
and Deighton, 1989). Having learned one way of
obtaining benefits, the costs of learning a different
method to obtain similar benefits will rise. Learning
costs are a part of the experience of consuming a
high-tech product, and play an important role in their
adoption and diffusion of new technologies.
Increased demands are placed on potential users to
develop skills related to the use of new technologies.
‘‘Learning costs’’ refer to the loss of productivity
when a user changes to a new product or technology.
For example, there is a cost incurred in learning a new
word processing package that has the same functions
as others on the market, but where the functions and
supporting documentation are organized differently.
Brand-specific consumer learning costs have been found
to lead to less price sensitivity and greater brand loyalty
(McWilliams and Zilberman, 1996; Nilssen, 1992;
Jovanovic and Nyarko, 1996). The higher the con-
sumer’s learning requirement for a new alternative, the
slower the rate of adoption (Shugan, 1980; Heide and
Weiss, 1995). Firms create the incentive to adopt by
making choice easier through standardization.
By establishing a customer interface standard, a
firm encourages the consumers to adopt a distinct
pattern of interaction with the product. When the
learning costs associated with this pattern are high,
there is a disincentive for the customer to change to a
different product that claims to provide improved
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2003;20:338–355
benefits. Studies in ergonomics and human-computer
interface have revealed that consistency across inter-
faces reduces consumer learning time, improves a
product’s performance for consumers, and can result
in higher adoption rates for new products (Nielsen,
1989). A consistent finding is that humans have
limited cognitive resources and allocate them judi-
ciously when they interact with standardized custo-
mer interfaces, in order to reduce user error (Mitta
and Packebush, 1995; Vincent and Rasmussen, 1992).
How customers solve problems related to use of a
technology and the success of that technology is
influenced by the extent to which customer prefer-
ences relate to product features and the customer
learning related to those features (Clark, 1985, p. 244).
At the same time, vendors and complementary
product providers reduce their learning costs by
simplifying the interface between the product and
other complementary products or between compo-
nents. Consumers and vendors need only learn one
means of interfacing products as opposed to several
if no standard exists. For example, Open Market (an
E-commerce software provider) and Visa are pursu-
ing both compatibility and customer interface stan-
dards, together called OBI (Open Buying on the
Internet) for consumers and retailers to reduce the
high learning costs. Success in these markets depends
on standards. Given the preceding discussion, we
suggest that:
H2a: The higher the learning costs associated with
the product market, the greater the propensity to
pursue compatibility standards.
H2b: The higher the learning costs associated with
the product market, the greater the propensity to
pursue customer interface standards.
Market Characteristics: Appropriability
Regime
Appropriability refers to the technological (and legal
environment) features that make it easier for the
owner of the technology to benefit from the technol-
ogy (Teece, 1986a). Stronger appropriability regimes
prevent rival firms from reverse engineering a
technology owned by another firm, and thus enable
innovators to derive ‘‘economic rents’’ from their
innovations (Anderson and Tushman, 1990). Because
no one firm makes all the technologies and compo-
nents in high-tech products, even under strong
appropriability regimes, compatibility requirements
344 J PROD INNOV MANAG
2003;20:338–355
at the interfaces with complementary products and
technologies force some sharing of technology,
implying that firms are less able to extract all the
rent from their technology—nullifying the effects of
strong appropriability (Kotabe et al., 1996). Analy-
tical models suggest that compatibility between
products and technologies was less likely when firms
had high levels of protection for their respective
offerings (Greenstein, 1990); that is, strong appro-
priability regimes reduce the firm’s incentive to pursue
compatibility standards.
Under strong appropriability, firms also have an
incentive to create situations where the consumer is
closely tied to their products in order to enhance the
return from the technology. The more closely a
customer is ‘‘tied’’ to using the firm’s product, the
higher is the likely return for the firm. For high-tech
products, research suggests that such ‘‘lock-in’’ is
strongest when consumers develop skills that are
product specific and do not readily transfer to other
offerings (Dhebar, 1996). Product-specific skills that
are not easily transferable are emblematic of customer
interface standards because how users interact with a
technology (to derive benefits) is a function of the
underlying technical specifications that determine the
customer interface standard. These product-specific
skills are closely related to the product interface,
which flows from the customer interface standard; a
firm pursuing a customer interface standard does not
preclude other firms also pursuing that standard.
Apple’s lawsuits against Microsoft for protecting the
look and feel of its graphic user interface were
indicative of a firm’s desire to protect its user interface
standard; however, it was unsuccessful—an indica-
tion of a weak appropriability regime in that area.
Thus, strong appropriability regimes would encou-
rage pursuit of customer interface standards. In
summary:
H3a: The stronger the appropriability regime, the
lower the propensity to pursue compatibility stan-
dards.
H3b: The stronger the appropriability regime, the
greater the propensity to pursue customer interface
standards.
The Nature of Innovation: Radical versus
Incremental Innovation
From the perspective of the firm, a product innova-
tion can be radical or incremental (Henderson and
A. SAHAY AND D. RILEY
Clark, 1990). When the innovation is radical, the firm
needs to make many changes in the interfaces of its
technology with those of other technologies that are
owned by other firms. In high-tech markets, products
are composed of different technologies that are
owned by different companies. A firm may be more
successful developing a technology that depends on
inputs from other firms when customers wait for the
emergence of a dominant standard for an innovative
technology or when customers expect further innova-
tions (Ali, 1994). The need to make changes in the
interface suggests that the firm will attempt to manage
the standards at the interface to minimize the
investments that it needs to make; that is, more
radical innovations will lead to firms pursuing
compatibility standards.
Simultaneously, the firm also wants to minimize
the level of consumer uncertainty that can arise from
the introduction of a radical innovation. Consumers
tend to have entrenched preference structures and
may not want to learn new skills (Moreau et al.,
2001). The success of radically new products,
especially high-technology innovations, often depends
on (1) the development of associated services that
consumers can use easily (McIntyre, 1988) and (2) the
familiarity of consumers with, and the ease of use of,
the new interface. The preceding discussion suggests
that:
H4a: The more radical the innovation, the greater
the propensity to pursue compatibility standards.
H4b: The more radical the innovation, the greater
the propensity to pursue customer interface stan-
dards.
Standards and Customer Utility during New
Product Development
In the previous sections we addressed the impact of
firm resource, market, and innovation characteristics
on the firm’s choice of standard type. We now
examine the implications of choosing one or the
other standard type on the utility (benefit) experi-
enced by the customer as embodied in new product
attributes. In this article, we focus on two principal
sources of customer benefits: I(1) network benefits
(called network externalities) and (2) direct product
benefits (termed technological advantage). Both
sources of benefit are direct consequences of stan-
dards. Network externalities and/or technological
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2003;20:338–355

advantage are key customer utility elements that First, compatibility standards encourage the devel-
influence new product adoption decisions (Shy, 1996). opment of a uniform technological platform for
which suppliers can create a wider variety of
complementary products (Besen and Farrell, 1994).
Complementary products, which conform to an
Network Externalities interface that vendors and complementary product
producers are familiar with, will be more useful as
Network externalities represent the utility a given user
compared to incompatible products or components.
derives from a product that is dependent on the
This acts to further encourage the development of
number of other users in the same ‘‘network’’ (Katz
complementary products (Sengupta, 1998), increasing
and Shapiro, 1985). They may be generated directly
the size of the network of people using that product;
from the number of users that can connect to a
more persons can connect to the network, exchange
network from a technological standpoint—a fax
data, and get increased benefits simply by virtue of a
machine becomes more useful as the number of fax
larger number of people using that product. Compat-
owners increases. Externalities can also be generated
ibility of a mobile phone with MMS facility with an
indirectly—as more users purchase a PC, the variety
Ethernet Card increases the value of the phone; as
of complementary software and services increases;
more users get an MMS mobile phone, more pictures
more customers become familiar with using those
can be sent to more phones, increasing the value of
applications—they develop application-specific skills,
the MMS mobile phone to the user. Thus, pursuit of
increasing the value of the network to which the skill
compatibility standards enhances direct network
applies.
externalities. Compatibility standards cannot affect
As the network grows, the opportunities to use the
indirect network externalities because compatibility
product increase and the variety of complementary
between products does not necessarily lead to
products and services offered increases, vis-à-vis
increased user skills.
competitors with smaller networks. The larger in-
Secondly, a firm can increase the network benefits
stalled base facilitates easier information exchange
associated with the product through a customer
with other users familiar with the product. These
interface standard. When a customer interface stan-
effects serve to make the product’s performance more
dard starts getting popular, the ‘‘network’’ of users
valuable to the consumer compared to competitive
skilled in using that product increases. This network
offerings with smaller networks of complementary
is of direct benefit to the consumer as a source of
product providers and users.
reference and information, particularly where the
product is functionally complex; this is an indirect
benefit that flows from user skills. As stated earlier,
Standards and Network Externalities users skills can also contribute to the growth of
complementary products and services by discouraging
A sponsor of open systems ‘‘compatibility’’ standard suppliers from adopting a different interface. Once
may gain competitive advantage through enhanced they have developed a skill, users avoid acquiring
network effects (Gabel, 1987; Conner and Rumelt, alternative skills, due to learning and switching costs
1991; Garud and Kumaraswamy, 1993). Because (Klemperer, 1987). Therefore, we propose:
externalities confer an advantage to a firm(s) that is
H5a: The greater the propensity to pursue compat-
part of the network, we consider network externality
ibility standards, the greater the direct network
creation and management to be within the ambit of
externality related to a product.
managerial discretion. It is, of course, possible for
H5b: The greater the propensity to pursue customer
firms to benefit from externalities through serendipity
interface standards, the greater the indirect network
rather than foresight (e.g., Besen and Farrell, 1994);
externality related to a product.
however, in the early stages of a technology adoption
cycle, standard formation and dissemination will
precede externality formation. By focusing on the Technological Advantage
complementarities (interrelationships) in a given
product market, a firm can enhance the network In contrast to network effects, direct product benefits
benefits perceived by the consumer in two ways. (processing speed of graphics, clarity of a voice call on
346 J PROD INNOV MANAG
2003;20:338–355
the mobile phone, percentage completion of mobile
phone calls) arise from the inherent technological
capabilities of the product. These technological
capabilities represent advantage for the firm if they
can be translated into perceived performance super-
iority for the consumer. We categorise advantage
gained in this way as stemming from technological
advantage. Firms create and attempt to sustain
competitive advantage through the introduction of
technologically advanced products (Lawless and
Anderson, 1996; Banbury and Mitchell, 1995).
Standards and Technological Advantage
Compatible products provide enhanced or new
benefits through interaction among themselves, thus
delivering increased technological advantage. Inter-
action among components is important because
combinations of technologies can lead to further
innovations. Whereas each advancement in a compo-
nent can perform enhanced functions on its own,
together a group of interacting components can do
things that none alone can do, thereby increasing the
benefits offered by the interacting technologies. The
Wright brothers used the interaction of emerging
technologies in two components when they invented
the airplane. The first was the gasoline engine
designed in the 1880s and the second was the
advancement in aerodynamics developed from experi-
ments on gliders (McGrath, 1995).
When product performance depends on the inter-
action with other products (such as between computer
hardware and software components), a compatibility
standard, which embraces a broad range of periph-
erals, increases the technological edge of the product
(Langlois and Robertson, 1992). Diffusion studies
have highlighted the enhanced configuration possibi-
lities of the PC over minicomputers and mainframes
as an illustration of the product advantage PC
technology represented over previous generations
(Goslar, 1987).
At the end-user level, user benefits from high-tech
products reach the consumer through the customer
interface. One line of thought suggests that because
users derive benefits through a customer interface,
any technological gains at the component level or
improvements resulting from component interactions
have to be delivered within the constraints of the
customer interface standard. For example, existing
customer interfaces on bank ATMs severely restrict
A. SAHAY AND D. RILEY
the range of services that can be delivered to
consumers, despite the availability of advanced
technologies capable of delivering greater benefits.
However, according to the product development
and adoption literature, perceived ease of use and
perceived usefulness drive perceptions of technologi-
cal advantage and, therefore, adoption of a technol-
ogy (Davis et al., 1989; Szajna, 1994, 1996). The
existence of customer interface standards is analogous
to a product that is easy to use and is useful and
therefore confers a technological advantage.
Our data set draws predominantly from SIC codes
36 (electronic and electrical equipment), 48 (commu-
nications), and 74 (Software), where technological
standards play an important role and where ease of
use and usefulness have a greater influence on product
development and adoption. Even in the early stages of
the technology life cycle, the usability of the product
is a stronger determinant of the technological
advantage that it confers than the compatibility with
other products. Innovators who adopt new technol-
ogies first are techno savvy, and prefer to mix and
match different products themselves (Moore, 1991).
This mixing and matching requires high usability. On
balance, because the counter argument has a time
element that cannot be accommodated by cross-
sectional data, we believe that the pursuit of the
customer interface standard would increase techno-
logical advantage. In view of the above, we suggest
that:
H6a: The greater the pursuit of compatibility
standards, the greater the technological advantage
associated with the product.
H6b: The greater the propensity to pursue customer
interface standards, the greater the technological
advantage associated with the product.
Data Collection and Analysis
The hypotheses were tested using data collected
through a cross-industry survey of UK marketing
and/or technology managers operating in high-tech
markets.
Data Collection
The aim of the study is to test the model across a
range of high-technology industries and environmen-
tal conditions. A taxonomic approach to model
building also requires a database that has both depth
PURSUIT OF STANDARDS IN THE NPD PROCESS
and breadth if it is to be successful (McKelvey, 1975).
Therefore, in order to substantiate the purported
relationships among firm resource, market, and
innovation characteristics, and standards selection
and outcomes, a multi-industry analysis is desirable.
The subjects for this study are managers associated
with product development, marketing, and technol-
ogy operating in a broad range of high-technology
industries. The survey collected data from a key
contact in each company who had had sufficient
knowledge of industry, firm, product, and demand
factors. The key informant method has generated
some debate, identifying potential sources of error
in informant reports, such as position bias and
vested interests (Philips, 1981). However, research
indicates that informants can describe organiza-
tional-level phenomena if appropriate selection
procedures are used (e.g., Weiss and Heide, 1993).
The study gathers perceptual data from managers; it
is the firm’s perceptions of its product market that
drive actions, and the data will reflect this perspective.
It has been demonstrated that this approach to
data collection is generally reliable and valid (e.g.,
Schwenk, 1985).
The sample consisted of managers of private and
public sector firms within the computer software,
computer peripheral, telecommunications, computer
hardware, consumer electronics, pharmaceuticals,
and industrial equipment industries. Firms selected
from these industry groups are categorized as
manufacturers of their respective products and
engage in new product development, technology
innovation, or both. Firms were selected if they had
an established UK office, regardless of whether
development actually took place in the UK. On the
basis of these industry and position criteria, execu-
tives and their associated firms were aggregated from
three sources. The first two were published direc-
tories; the 1999 fame on-line company directory and
the 1998 software company directory, from which
1081 companies were selected. The third was from a
national database supplied by AP Information
Services, from which 686 companies were obtained.
A total of 1767 firms were identified, of which there
were 600 computer software, 550 computer hardware
and peripherals, 167 consumer electronics, 200 tele-
communications, 45 medical equipment manufac-
turers, 55 pharmaceutical, and 150 industrial
equipment companies.
Questionnaires were mailed with a cover letter,
asking them to respond by including a self-addressed,
J PROD INNOV MANAG 347
2003;20:338–355
postage-paid envelope. Of the original 1767 surveys, a
total of 244 were returned marked ‘‘person no longer
at company,’’ ‘‘address undeliverable,’’ ‘‘company no
longer at address,’’ or simply ‘‘return to sender.’’ This
reduced the actual sampled frame to 1523 companies.
Both the questionnaire and the cover letter asked the
respondents to answer the questions in relation to a
product that was in the early stages of its life cycle.
The respondent was presented with a definition of the
life cycle to aid in this decision; responses selected for
analysis satisfied these criteria.
Response rate was enhanced using several meth-
ods, as advocated in the literature. First, a pre-
announcing letter was sent two weeks prior to the
survey mailing, introducing the study, its potential
value, and the importance of the executive’s partici-
pation. Second, the survey packet contained a
personalized cover letter (where contact names were
available), reiterating the points of the preannouncing
letter and offering respondents a copy of the survey
results and research conclusions. Third, a follow-up
mailing was sent to all nonrespondents four weeks
after the initial mailing. Throughout this process, the
confidentiality of the results was emphasized.
Of the surveyed executives, 134 (a response rate of
8.8%) responded to the survey within three months of
the initial mailing after one reminder. In order to
obtain a higher response rate, a telephone survey firm
was hired to obtain additional responses. The
questionnaire was modified slightly for ease of read-
ing aloud; however, individuals remained consistent
with the printed survey. A random selection of 500
companies was chosen from the remaining sample
frame of 1409 firms, proportionally representing the
industry classifications. An additional 100 surveys
were obtained approximately five months after the
initial mailing, giving a total of 234 responses and a
final response rate of 15.3%. This is in line with
other published work in the product innovation
literature (e.g., Bucklin and Sengupta, 1993;
Sengupta, 1998).
Data Set Description
The responses varied across a number of industries.
These were: computer hardware and peripheral
manufacturers (19), computer software firms (60),
consumer services (14), telecommunications (19),
industrial equipment (59), consumer electronics (11),
consumer durables (8), and ‘‘other’’ (43). One
348 J PROD INNOV MANAG A. SAHAY AND D. RILEY
2003;20:338–355

Table 2. Approach to Measuring Constructs

Mode of Access to Complementary Assets The degree to which the firm accesses its R&D, manufacturing, and product
development requirements from within the firm or from outside (formative measure)

Learning Costs The learning investment required

Appropriability Regime How well the firm’s technology is protected

Nature of Innovation Whether the innovation is perceived to be a radical or incremental innovation

Pursuit of a Standard Reflects the organizational efforts to pursue a given standard. Pursuit of consumer
interface items measures the degree to which the company’s development efforts
for the product have focused on ease of use, consistency of the product interface,
and establishment of a specific protocol for product usage. Pursuit of compatibility
standard focuses on the degree to which compatibility with competitive and
complementary products is promoted by the firm.

Network Effects Measures the degree to which a user sees increased benefit from the product by the
existence of other product users, directly or indirectly

Technological Advantage Describes the degree to which the product is viewed as technologically superior and
higher performing by customers as compared to competitive offerings

respondent failed to report industry. Respondents Measure Development

also ranged in the size of firm reported: 48 had
turnover less than d5 M per year, 82 were in the d5 M
to d50 M range, 49 were in the d50 M to d500 M
range, and 26 reported sales of over d500 M per year.
Twenty-nine companies failed to report company
sales.
Nonresponse Bias
Given the difference in data access method and timing
of the survey, it is important to investigate any
response or methodology bias. A randomly selected
15 calls were also made to ask the reasons for the
nonresponse. Lack of a product in the early stages of
its life cycle and the lack of an appropriate respondent
were cited as the main reasons. Nonresponse bias was
tested by comparing early and late respondents (4).
The data set was divided into thirds: (1) those
responding to the first mail survey wave, (2) those
responding to the second wave, and (3) those
responses that resulted from the telephone survey.
When industry level effects were controlled for,
differences between the waves were eliminated. After
controlling for industry level effects, the data were
judged free of biases resulting from data gathered
through different modes and free from nonresponse
bias.
The variables of interest in this study are measured
with 7-point interval scales.1 In most cases, these
measures were anchored at each end of the scale by
‘‘strongly disagree’’ and ‘‘strongly agree.’’ Existing
scales from the literature were adopted where applic-
able to measure the theoretical constructs in the
proposed framework. This was possible for a subset
of the constructs only. New scales were developed for
learning costs, the two standards types, and the two
customer utility constructs (externalities and techno-
logical advantage). The approach to construct scales
and the final scales are shown in Tables 2 and 3.
Externality and Mode of Access to Complementary
Asset variables were formative scales. Pursuit of
standards (whether compatibility or customer inter-
face) was measured through actions of firms that flow
from the existence of the stated technical specifications.
So, for example, a customer interface standard implies
consistent interfaces and simplicity and ease of use.
The procedures adopted in developing the survey
instrument were as follows: (1) we reviewed the
relevant marketing, economics, product innovation,
and technology literatures to develop key dimensions
of the relevant constructs and identified existing
scales; (2) we conducted in-depth interviews from a
convenience sample of seven marketing/technology
1
The majority of questions are formatted as Likert or summated
rating scales.
 PURSUIT OF STANDARDS IN THE NPD PROCESS J PROD INNOV MANAG 349
2003;20:338–355

Table 3. Confirmatory Factor Analysis for Constructs

Construct/Measures Standardized t-value Reliability
Loadings* (CFA)

Appropriability (a50.63; Average Variance Extracted50.35)

The unique features of our product cannot be easily imitated by our competitors. 0.50 6.46 0.25
We protect our competitive advantage by maintaining secrecy regarding product and process 0.73 8.80 0.53
technology.
Our patents prevent our product technology from being duplicated by competitors. 0.51 6.56 0.26
We maintain our competitive advantage by introducing new product features ahead of the 0.49 6.36 0.24
competition.

Learning Costs (a50.82; Average Variance Extracted50.65)

Our product requires a major learning experience by the customer. 0.77 13.16 0.60
Most users need practice to learn to use our product well. 0.83 14.45 0.69
Users have to change their way of doing things when switching to our product from a 0.58 9.00 0.33
competitor.
Most users require training on how to use our product. 0.77 13.04 0.59
Skills acquired in using our product make it less likely for our customers to switch to a 0.51 7.83 0.26
competitor.

Mode of Access to Complementary Assets (formative measure) na na na

Customer Interface Standard (a50.76; Average Variance Extracted50.54)

Our marketing efforts emphasize:
How easy it is for users to interact with the product. 0.56 7.88 0.31
The use of graphics and symbols to simplify product usage. 0.93 12.12 0.86
A set of sequence of operational steps guiding product use. 0.66 9.22 0.44
A consistent user interface through the development of support and training materials. 0.56 10.64 0.49

Nature of Innovation (a50.63; Average Variance Extracted 5)

At the time of introduction, our product represented a major improvement over existing 0.51 7.76 0.54
technology or manufacturing processes.
At the time of introduction, our product represented a major technological advance. 0.65 8.95 0.65

Compatibility Standard (a50.83; Average Variance Extracted50.52)

Our marketing efforts emphasize: 0.78 11.85 0.61
Compatibility with a broad range of complementary products. 0.89 13.59 0.80
Easy exchange of data with other products. 0.62 9.24 0.38
How it can be used in conjunction with complementary products. 0.74 11.36 0.55
Customer’s ability to easily exchange data and information with other users. 0.67 10.70 0.45
How easily the product works with other products.

Technological Advantage (a50.85; Average Variance Extracted50.52)

Our product is viewed as the technology leader in the marketplace. 0.85 14.58 0.72
On average, customers perceive our product to be technically superior to other products on the 0.83 14.25 0.69
market.
On average, customers perceive our product to incorporate cutting edge technology. 0.72 11.67 0.52
On average, customers perceive our product to perform better than other products. 0.64 10.08 0.41

Direct Network Effects (a50.74; Average Variance Extracted50.55)

Our product allows users to communicate or exchange data with each other in the installed base. 0.74 10.56 0.70
An increase in installed base of our product leads directly to more benefits for the user. 0.86 14.21 0.78
A higher installed base means that our users enjoy more benefits simply by virtue of the installed 0.78 10.68 0.62
base.

Indirect Network Effects (a50.78; Average Variance Extracted50.53)

The number of complementary products offered by other companies has increased as our 0.81 12.94 0.75
product sales increase.
The quantity of published reference material for our product has increased over the life of the 0.79 10.75 0.66
product.
The services offered by other companies relating to our product (such as training and support) 0.75 9.33 0.72
have increased with our installed base.
* These are ‘‘completely standardized’’ factor loadings, and are based on both the latent and observed variables being standardized; parameters are
therefore constrained to have an absolute value of less than 1.
350 J PROD INNOV MANAG
2003;20:338–355
managers in telecommunications, medical equipment,
and software to assess the face validity of the survey
instrument; difficulties or ambiguities with specific
items (such as questions surrounding the consumer
interface standard were identified and adjusted; and
(3) we did a pilot study to assess the convergent
validity of the scale items. Using the approach
suggested by Gerbing and Anderson (1987), item-
total correlations and exploratory factor analysis
were used to refine the scales of the survey.
Construct Validity
Construct validity was assessed with the guidelines
outlined by Churchill (1979) and Gerbing and
Anderson (1987). The measures were revised under
a two-stage process; principal components factor
analysis to ‘‘purify’’ the scales, and confirmatory
factor analysis to confirm the factor structure and
validate the measurement model. Scale reliability was
assessed by computing Cronbach’s alpha (Cronbach,
1951). The results of the confirmatory factor analysis
and reliabilities of the final scales are shown in
Table 3. The correlation among constructs is pro-
vided in Table 4. Discriminant validity among the
revised constructs was then assessed by two indepen-
dent procedures: first, the fit of the factor groups was
compared with a model for which the correlation
between the factors was fixed to be equal to unity.
Because this additional restriction led to a significant
increase in Chi-squared, discriminant validity is
evident. Second, using criterion set forth by Dillon
and Goldstein (1984), the average variance extracted
(AVE) was compared against the variance share
between a construct and other constructs in the
model (i.e., the squared correlation between two
constructs). A greater AVE is indicative of discrimi-
nant validity. As per Bagozzi and Yi (1988), all
constructs pass the criteria of having average variance
extracted greater than 0.30. This supports the view
that customer interface standards and compatibility
standards are distinct constructs.
Structural Equation Modeling
LISREL 8.12 was used to test the hypotheses and
maximum likelihood estimation was used, as the
model was sufficiently identified. Having developed
reliable and valid measurement models using con-
A. SAHAY AND D. RILEY
firmatory factor analysis, LISREL was now applied
to test the structural models (path analysis). The
hypotheses are directional and form a path diagram.
Path diagrams that are nonrecursive are best analyzed
using structural equation modeling (SEM), which
allows the simultaneous estimation of relationships
between many endogenous and exogenous variables.
Unlike most econometric methods, SEM allows
measure-ment error in exogenous and endogenous
constructs and LISREL is the most general implemen-
tation of structural equation modeling (Hayduk, 1989).
In addition, the measurement model feature of
LISREL allows rigorous confirmation of the stability
and validity of the scales and a more accurate
estimation of reliabilities that we are using in addition
to the analysis of the relationship between the
variables (Bollen and Lennox, 1989). LISREL also
allows us to analyze both reflective and formative
constructs together (Steenkaamp and Trijp, 1991).
The significance of the paths were tested using the
t-statistic, with parameter estimates considered sig-
nificantly different from zero when t41.96 (po0.10).
The goodness-of-fit index (GFI) and the adjusted
goodness-of-fit index (AGFI) are widely used, for
which usually a value of 0.90 is considered a good fit
(127). The GFI is based on a ratio of the sum of the
squared discrepancies to the observed variances. The
AGFI adjusts the GFI for degrees of freedom in the
model and is considered a more acceptable measure
of model fit. The same threshold value may be applied
to the comparative fit index (CFI), which is an
incremental fit index. The CFI controls for sample
size and is, therefore, a useful measure for very large
data sets. RMSEA is the root mean squared error of
approximation. An RMSEA of 0.1 (0.05) and below
indicates a good fit (very good fit) (Steiger, 1990). The
model has a chi-squared statistic of 101.71 with 17
degrees of freedom. Fit statistics indicate that the
model is a modest to good fit with a GFI of 0.91, CFI
of 0.89, AGFI of 0.87, and an RMSEA of 0.085. The
parameter estimates along with the t-statistics from
the maximum likelihood estimation are given in
Table 5. The fit indices indicate a modest to good fit.
Similar results are obtained after controlling for the
size of firms, performance uncertainty, and industry.
Results
We observe from Figure 2 that accessing complemen-
tary assets through vertical integration leads to
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2003;20:338–355

Table 4. Correlation Matrix of Measures

Complementary Appropriability Nature of Learning Customer Compatibility Direct Indirect
Assets Innovation Costs interface Std NE NE
Std

Complementary Assets 1
Appropriability 0.150* 1
Nature of Innov 0.125 0.377** 1
Learning Costs 0.017 0.139* 0.166* 1
Cons Interface Std 0.221** 0.215** 0.270** 0.290** 1
Compatibility Std 0.092 0.012 0.181** 0.318** 0.521** 1
Direct NE 0.079 0.046 0.091 0.286** 0.366** .533** 1
Indirect NE 0.021 0.196** 0.227** 0.196** 0.263** .325** 0.368** 1
* 0.05rp
** 0.01rp

Table 5. Parameter Estimates from LISREL

Path Description Standardized t-value Sig.
Paths

Complementary Assets to Compatibility Std 0.07 1.78 ns

Appropriability to Compatibility Std 0.13 2.05 po0.10
Learning Costs to Compatibility Std 0.31 5.00 po0.01
Radical Innovation to Compatibility Std 0.17 2.50 p o 0.05
Complementary Assets to Consumer Interface Std 0.11 1.96 p o 0.10
Appropriability to Customer Interface Std 0.15 2.58 po 0.05
Learning Costs to Customer Interface Std 0.11 1.88 ns
Radical Innovation to Customer Interface Std 0.10 1.71 ns
Compatibility Std to Customer Interface Std 0.46 7.96 po0.01
Compatibility Std to Technological Advantage 0.09 1.23 ns
Customer Interface Std to Technological Advantage 0.30 4.02 po0.01
Compatibility Std to Direct Network Externalities 0.61 11.55 po0.01
Customer Interface Std to Indirect Network Effects 0.26 4.11 po0.01

Model Chi-square Standardized RMR GFI AGFI CFI RMSEA

101.71 17 d.f. p50.0 0.07 0.91 0.87 0.89 0.085

greater pursuit of customer interface standards, thus
supporting H1(b). However, H1(a), which suggests
that accessing complementary assets through vertical
integration would lead to lower levels of pursuit of
compatibility standards, is not supported, though the
coefficient is near significance. As hypothesized, both
the nature of innovation and learning costs signifi-
cantly affect the pursuit of compatibility standards,
showing support for H2a and H4a. However, the
nature of innovation and learning costs do not affect
the pursuit of customer interface standards. We
discuss this result in the next section.
As predicted, stronger appropriability regimes lead
to a decrease in the pursuit of compatibility stan-
dards, and an increase in the pursuit of customer
interface standards, thus supporting H3a and H3b.
Support was found for the impact of compatibility
standards on direct network externalities and for the
impact of customer interface standards on indirect
network externalities (H5). Finally, whereas customer
interface standards affect technological advantage
(H6b), the path from compatibility standards to
technological advantage is not significant. These
results are summarized by hypotheses in Figure 2.
Discussion
The results broadly support the hypothesized rela-
tionships, lending credence to (1) the idea of a
distinction between customer interface standards
and compatibility standards, (2) the different impact
of antecedent variables on the different standard
types, and (3) the different influence of different
352 J PROD INNOV MANAG
2003;20:338–355
-0.07(t= --1.78 (ns))
Mode of Access to
Complementary
Assets 0.11(t=1.96*)
0.31(t=5.00***)
Learning
0.11
Costs
(ns)
-0.13(t=--2.05*)
Strength of
Appropriability
Regime 0.15
(t=2.58**)
0.17(t=2.50**)
Nature of
Innovation 0.10 (ns)
* p<.10; ** p<.05; *** p<.01
Figure 2. Results of Hypothesized Relationships
standard types on different customer utility con-
structs. The distinction between customer interface
standards and compatibility standards is important
for the following reasons. First, it confirms what has
been hinted at in the literature—that compatibility
standards and customer interface standards are
distinct—though to date, the literature has only
considered compatibility standards explicitly. This
result is, to the best of our knowledge, the first
empirical confirmation that the standard construct
needs further disaggregation, for which we have taken
the first step in this article.
Second, it offers managers an important decision
choice during the product development process in
high-tech markets. For example, when appropriabil-
ity regimes are weak, firms may pursue compatibility
standards, and when they are strong, they have a
stronger propensity to pursue customer interface
standards. Consider the case of the Intel micropro-
cessor architecture that interfaces with a PCI bus
within a PC through a compatibility standard.
Strategic reasons arising from their whole product
development imperative dictates that Intel shares the
interfaces with other complementary product provi-
ders. Sharing interface technology creates a weak
appropriability regime. This is an incentive for Intel
to pursue compatibility standards, which it does by
organizing developer forums. On the other hand,
strong appropriability regimes in wireless technology
means that firms are actively pursuing customer
A. SAHAY AND D. RILEY
Direct
Network
Propensity To
0.61 Externalities
Pursue
t=11.5***
Compatibility
Standard
(ns)
0.5 (t=7.2***) Technological
Advantage
0.30
Propensity to
Pursue Customer (t=4.02***)
Interface Standard 0.26
(t=4.1***)
Indirect
Network
Externalities
interface standards, which will enable them to obtain
more customers.
Third, the results suggest that the product devel-
opment process needs to consider the difference
between compatibility standards and customer inter-
face standards because they infer different externality
benefits that are important in the adoption process.
The choice between the two is determined by the
nature of access to complementary assets and the
strength of the appropriability regime. Emphasis on
compatibility standards due to weak appropriability
regimes would imply a greater level of interaction
with firms that are involved with complementary
technologies during the product development process.
This result suggests that even under conditions where
the technology may be copied, the firm should share
information about its technology with other firms.
Fourth, the results also suggest that where the
direct externalities are desired, firms are better off
pursing compatibility standards. Likewise, if indirect
externalities offer greater benefits to the firm, pursu-
ing customer interface standards is more desirable.
This finding offers a direct link between customer
utility variables and technology parameters that firms
must consider during new product development.
Fifth, a firm pursuing compatibility standards will
need to devote a greater proportion of its develop-
ment efforts to the interfaces of its product with those
of complementary product providers. At the same
time, the firm will also need to devote its promotional
PURSUIT OF STANDARDS IN THE NPD PROCESS
efforts to educating consumers as to the breadth of
products available. Conversely, a firm focusing on a
customer interface standards strategy may focus
greater marketing resources on individual consumers
as opposed to complementary product providers.
Promotional activity might focus on ease of use and
performance attributes of the product.
A puzzling result is the lack of influence of the
nature of innovation and learning costs on customer
interface standards. From a managerial relevance
standpoint, this is useful because it draws a further
demarcation between compatibility standards and
customer interface standards. It may have resulted
from us allowing the correlation between compat-
ibility standards and customer interface standards to
exist in the structural model—allowing the correlation
to exist is a truer picture of the data. A possible
reason for the result is that in the early stages of the
life cycle, learning and the nature of innovation
influence compatibility standards more than customer
interface standards. At the same time, the fact that
customer interface standards affect technological
advantage and compatibility standards do not, offers
powerful support to the theory of reasoned action
approach to technological adoption (Davis et al.,
1989). Accessing complementary assets through
vertical integration not leading to lower levels of
pursuit of compatibility standards, as postulated,
could be due to the nature of the sample that was
single country sampled predominantly from three SIC
codes.
Conclusion
We delineate the concept of customer interface
standards as distinct from compatibility standards,
which has been the focus of researchers. We show that
resource access, the nature of innovation, and market
characteristics influence a firm’s decision to pursue a
standard type differently, and that this decision has
implications for the type of product attribute that is
likely to emerge from the new product development
process.
Implications for Theory
To date, the literature has focused exclusively on
compatibility standards. This research suggests that
this focus, while important, is incomplete. Customer
J PROD INNOV MANAG 353
2003;20:338–355
interface standards also need to be accounted for, in
addition to compatibility standards, to be able to
implement product development processes that will
result in products that have a higher likelihood of
adoption. This suggests a need for new analytical
models and more empirical development.
Implications for Practice
Despite the predominant focus on the functional
interface between products (compatibility) as the sole
measure of a ‘‘standard’’ for the purposes of new
product development, product standardization can
occur along other parameters such as the customer-
product interface. It is important for managers not
only to be aware of this nature and diversity of
standards, but also to understand the standard type
best pursued. The distinction between compatibility
standards and customer interface standards means
that the NPD process has to devote resources to two
types of standards depending on the nature of access
to complementary assets, the learning costs, the
nature of the innovation and the appropriability
regime, and the required customer utility element.
This aspect of new product development has hitherto
not been researched in the literature. Our study is a
first step in this direction. With the advent of more
and more information-based products, where the
interface for consumption (where the customer inter-
face standard resides) determines the consumption
experience and hence the purchase decision, the
distinction between customer interface standards
and compatibility standards cannot be overempha-
sized.
Limitations and Future Research
Our research is based on data collected from
managers in a single country. To be broadly general-
izable, the results need to be replicated in the high-
tech context in a broader set of countries. Further-
more, we have used perceptual data from managers to
delineate various constructs in this exploratory study.
Whereas survey research using key informants has
been shown to provide robust results, it would be
advisable to replicate the results with archival data.
Next, we have not addressed the issue of whether a
firm should attempt to shape or follow a standard.
Clearly, some firms will be better positioned to shape
354 J PROD INNOV MANAG
2003;20:338–355
standards while others would be better positioned to
adapt to or follow an existing standard due to reasons
of size, market power, and past use of standards.
While an important strategic question in their own
right, this issue is not the focus of this research, which
intends to look at the role of standards within the
product development process. Finally, we have
looked at the variable from a product development
perspective; in other contexts, there may well be other
variables that have differing effects on the two
postulated standard constructs when the context
chosen is different. Future research should attempt
to address these questions.
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