IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 54, NO.
4, NOVEMBER 2007
Information Technology, Organizational Structure,
and New Product Development—The Mediating
Effect of Cross-Functional Team Interaction
Chung-Jen Chen
Abstract—The main purpose of this study is to examine the rela-
tionships among information technology, organizational structure,
cross-functional team interaction, and the performance of new
product development (NPD). Regression analysis was used to test
the hypotheses in a sample of 102 NPD cases. The findings suggest
that the degree of investment and training on information technol-
ogy is positively related to cross-functional team interaction; that
when the organizational structure is more decentralized and less
formalized, cross-functional team interaction is more favorable;
and that cross-functional team interaction is positively related the
performance of NPD. This study contributes to the theoretical de-
velopment of a conceptual model in examining the mediating role
of cross-functional team interaction between contextual variables
and the outcome of NPD. The empirical evidences support the
process-oriented view, and indicate that information technology
and organizational structure can deliver a better performance of
NPD but do so primarily through improving cross-functional team
interaction. This study provides the theory building, explanatory
variance, missing in the literature that did not look at the black
box of relationships between information technology, organiza-
tional structure, and outcome of NPD. Managerial implications
and future research directions are discussed.
Index Terms—Information technology (IT), new product devel-
opment (NPD), organizational structure, team interaction.
I. INTRODUCTION
EW products provide increased sales, profits, and compet-
N itive strength for most organizations [70]. A study of more
than 700 of the Fortune 1000 companies indicates that new prod-
ucts could provide approximately one-third of their profits [9].
The survival of firms is increasingly determined by their success
in new product development (NPD) [14], [68]. On average, more
than one-third of a corporation’s revenue comes from products
that did not exist five years ago [49]. Recently, as the environ-
ment becomes increasingly competitive due to the globalization
of markets and continually changing technologies, it appears
strategically important for firms to innovate their products in
a timely manner [41]. These competitive pressures have made
the cross-functional team the method of choice by which orga-
nizations generate and deploy new products [19], [29]. Cross-
functional teams consist of members from different functional
Manuscript received November 1, 2004; revised November 1, 2005 and
October 1, 2006. Review of this manuscript was arranged by Department Editor
R. Keller.
The author is with the Graduate Institute of Business Administration, Col-
lege of Management, National Taiwan University, Taipei 10617, Taiwan, R.O.C.
(e-mail: chungjen@management.ntu.edu.tw).
Digital Object Identifier 10.1109/TEM.2007.906831
0018-9391/$25.00 © 2007 IEEE
687
areas such as research, engineering, manufacturing, and mar-
keting [34]. Cross-functional teams are thought to facilitate the
product development process because they bring together per-
sons from different disciplines and functions that have pertinent
expertise about the proposed innovation problems [33], [41].
Due to the increasing importance of cross-functional teams
in product development settings, a number of research scholars
have paid attention to examine the effect of cross-functional
team on the performance of the NPD. Prior empirical lit-
erature that used cross-functional team characteristics as an
antecedent of project performance provided somewhat of a
mixed picture of both positive [43], [84] and negative ef-
fects [11], [21]. Other prior studies, based on demography–
process–performance model, empirically identify the interme-
diating roles of communication, conflict, and coordination be-
tween functional diversity and team leader characteristics, and
project performance [34], [58], [81]. These studies illustrate
the importance of team interaction such as communication and
coordination because they play a critical role between cross-
functional team characteristics and the project performance.
The study presented in this paper is of another variety: in-
stead of studying the effects of cross-functional team char-
acteristics, we keep them as control variables and paid our
attention to examine the effects of two variables, information
technology (IT) and organizational structure, on the team in-
teraction, and then, on the NPD performance. Brynjolfsson
et al. [10] suggested the effects of complementarity of the struc-
ture factor and IT factor, indicating that firm’s performance is
greatest when they emphasize on both IT and organization struc-
ture. Measuring IT’s contributions in isolation without consider-
ing contextual variables cannot produce a meaningful indication
of IT’s business value [38].
Accordingly, we sought to answer the research questions that
focused on the role of team interaction of cross-functional teams
between these two theoretically plausible variables and the out-
comes of NPD. First, does cross-functional team interaction
intervene between IT and the outcomes of NPD in an impor-
tant way? IT has been mentioned for its possible role in cre-
ating competitive advantage for firms [4], [12]. Owing to its
increasingly popular use, many prior studies have worked on
investigating how IT affects the company’s performance [38],
[45], [59], [60], [62], [72], [73], [75]. Their findings are quite
inconsistent. Some researchers found that IT does not provide
benefits for firms [60], [73], [75], while others argued that IT
has improved firm’s performance significantly [59], [62]. At-
tributing the inconclusiveness to conceptual limitations, several
688 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 54, NO. 4, NOVEMBER 2007
scholars have stressed the need for better theoretical models that
trace the path from IT investment to business value [7], [42].
For example, some prior studies have adopted a process-oriented
view that examines the effects of IT on intermediate business
processes [6], [48], [71]. IT is not simply a tool for automating
existing processes, but is more importantly an enabler of orga-
nizational changes, such as in communication and coordination,
that can lead to improve firm’s performance [18]. In this study,
we adopted this process-oriented view to examine how IT can
enable the interaction among team members and then on the
performance of NPD.
Second, we would like to know how cross-functional team
interaction affects the relationship between organizational struc-
ture and the outcomes of NPD. The organization of work has
been recognized as a critical element in influencing the produc-
tivity in companies [23], [32], [56]. Organizational structure pro-
vides the task and authority relationships that predetermine the
way people work [31]. In the NPD literature, little has been done
in investigating the role of organizational structure in the process
or outcome of the NPD [70], [82]. This deficiency is serious be-
cause organizational structuring of the workflow is the primary
mechanism available to the firm for implementing, executing,
and controlling NPD activities or other activities [54], [57].
Therefore, in this study, we attempted to examine whether orga-
nizational structure will directly affect the outcome of NPD? Or
will it play the indirect role in affecting the performance of NPD
through the intermediate variable such as team interaction?
Accordingly, the main purpose of this study is to examine the
mediating effects of cross-functional team interaction between
IT, organizational structure, and the performance of NPD. The
rest of this paper is set as follows. The next section considers
the previous literature and sets the hypotheses of this study.
Following that is the methodology for the study. Then, the paper
presents the results of the empirical study in achieving the goals
as mentioned earlier. Discussion and conclusions are provided
in the last section.
II. BACKGROUND
A. Cross-Functional Team
Cross-functional team has been a popular topic discussed in
NPD literature in the last two decades [67], [80]. Prior empiri-
cal literature provided somewhat mixed picture of both positive
and negative effects of cross-functional teams. Some research
reported that cross-functional teams could enhance new product
performance because they can bring together people from dif-
ferent functional areas so that they can communicate and bring
coordinated knowledge to bear on the project [43], [84]. How-
ever, reports from some studies indicated that cross-functional
teams do not always work well because the members can be
dissatisfied or distracted; agreement may be elusive; and con-
flicts and misunderstandings among functional departments may
win over cooperation, group cohesiveness, and consensus build-
ing [11], [21], [74].
Some prior studies used contingent model to explore the rea-
sons of the mixed results [41], [53]. Olson et al. [53] studied
45 NPD groups and found that functional diversity enhanced
effectiveness and timeliness when the product being devel-
oped was new and innovative, and the coordination mecha-
nism was participative. In a study of 43 cross-functional teams,
Lovelace et al. [41] found that the effect of task disagreement on
team outcomes depended on how free members felt to express
task-related doubts, and how collaboratively or contentiously
these doubts were expressed.
Other prior studies used demography–process–performance
model to examine the intermediating roles of communication,
conflict, team learning, and coordination between functional
diversity and team leader characteristics, and project perfor-
mance [1], [29], [34], [58], [67], [81].
Ancona and Caldwell [1] proposed a demography–process–
performance model by studying 45 NPD teams in high-
technology firms to examine the mediating effects of ex-
ternal communications and internal process on the project
performance. Their results indicated that functional diversity
increase project performance through external communica-
tions via contacts out the project team. Following Ancona and
Caldwell’s [1] work, Hauptman and Hirji [29], investigating 50
cross-national project teams, found that cross-functional teams
have more two-way communication, and result in higher project
performance and member satisfaction. Also, Keller [34] inves-
tigated 93 cross-functional teams to study the effects of func-
tional diversity, through external and internal communications,
on the project performance and group cohesiveness. The results
showed that functional diversity had indirect effects through
external communications on the performance.
Pelled et al. [58] used conflict as intervening variable to ex-
amine the effects of diversity on the performance. They found
that functional diversity drove task conflict, while multiple types
of diversity drove emotional conflict. Also, the results showed
that task conflict has more favorable effects on cognitive task
performance than that of emotional conflict. Using data of
229 members from 52 high-tech new product projects, Sarin and
McDermott [67] found that team learning played the mediating
effects between team leader characteristics and innovativeness
and speed to market of the new products. Webber [81] proposed
that leadership and trust can facilitate the team success through
team processes in terms of communication, coordination, and
cooperation.
The proposed models of prior research highlight the impor-
tance of intervening variables, such as communications and co-
ordination, for the project performance and contribute to the
conceptual basis of the present study. Also, Denison et al. [19]
developed a diagnostic model of cross-functional groups that
focused on three domains including organizational context, in-
ternal process, and outcome measures. The authors suggested
that future researchers can study the effect of structural arrange-
ments on team effectiveness, which triggers our motive in ex-
amining how organizational structure and IT affect the outcome
of NPD through team interaction.
B. Information Technology
IT construct, in this study, refers to the amount of investment
in IT infrastructure such as hardware and software [7], [18] and
CHEN: IT, ORGANIZATIONAL STRUCTURE, AND NPD—THE MEDIATING EFFECT OF CROSS-FUNCTIONAL TEAM INTERACTION
the extent to which the employees are trained in operating the IT
infrastructure [10], [55]. The physical IT assets which form the
core of a firm’s overall IT infrastructure comprise the computer
and communication technologies and the shareable technical
platforms and databases [7], [65].
IT has been widely recognized important to a firm’s survival
and growth. Since the mid-1990s, the infusion of information
technologies in product development has raised the importance
of IT in NPD [24], [49]. Despite the widely held belief of the
importance of IT, scholars are still struggling to specify the
underlying mechanisms linking IT to firm’s and group’s per-
formance [7], [72]. Some prior studies have adopted a process-
oriented view to examine the effects of IT on intermediate busi-
ness processes [6], [48], [71]. For example, Barua et al. [6], using
data from the manufacturing sector, indicated that the impact of
investment in IT is captured at lower organizational levels by
intermediate variables, such as inventory turnover, and then, in
turn, affects output measures. Theoretical developments in pro-
cess innovation and business process engineering have provided
additional support for the process-oriented view that attempts to
link IT to firm level performance variables through intermediate
process variables [17], [28].
In the NPD, team interaction is likely to be an intermediate
process between IT and the outcome. Prior studies on computer-
based message systems or electronic mail systems reported that
these systems improved communications by reducing dysfunc-
tional features of meetings, conversations, written mail, and
telephone calls [15], [30], [47]. NPD is widely regarded as
a risky and complicated process in terms of time consump-
tion, large investment, and complex coordination among cross-
functional members [67]. Hameri and Nihtila [27] suggested
that networked IT applications through Internet can play an
important role in NPD efforts because such tools can provide
effective media for communicating and disseminating informa-
tion. Many of the challenges involved in the shift toward a
product development chain or network—where the NPD team
players accomplish their tasks simultaneously—cannot be ad-
dressed without the collaboration facilitated by IT. The new
product team members from different specialized functions
may utilize IT as a flexible communication and coordination
platform as they work simultaneously on the project. Informa-
tion systems, especially those supported by telecommunications
capabilities, can facilitate the growth of communications net-
work among experts [39]. Beside face-to-face meetings, team
members can hold visual conference to exchange ideas and
do discussions, especially when they are in different locations.
Also, the latest work can be captured by other team members
through the database in real time. IT is viewed as useful to prod-
uct innovation of cross-functional team since it can coordinate
the activities of different functions effectively, and make com-
munication and information exchange among functions more
convenient.
The other dimension of IT construct is employee’s IT training.
Many prior studies measure IT as capital spending, but do not
study whether such spending is transformed into functions, or
whether such functions are actually used. A unique characteris-
tic of the information system is the likely gap between spending,
689
functions, and use [38]. Despite the availability of the hardware
and software, many users may not be familiar with them, or may
even do not know how to use them in their work. Many firms
engage in high IT investments without deriving any benefits
from IT [7]. IT training can let employees understand how to
use IT infrastructure and what benefits that IT can bring to them
in their work. In terms of technology acceptance perspective,
IT training can change the employees’ attitude toward using the
information systems, and thus, determine whether they will ac-
tually use it in their work [77], [83]. Also, through IT training,
employees can improve their technical and managerial skills in
operating and managing the IT assets. From the resource-based
perspective, Bharadwaj [7] suggested that firms with strong hu-
man IT resources, which include technical and managerial IT
skills, are able to communicate and coordinate with business
units more efficiently. Similarly, in the cross-functional team set-
ting, team members with high skills in operating and managing
IT infrastructure are also able to communicate and coordinate
well among themselves. Overall, the investment and training on
IT is expected to be a strong antecedent of cross-functional
team interaction. These observations underpin the first
hypothesis.
Hypothesis 1: The degree of investment and training on infor-
mation technology is positively related to the cross-functional
team interaction during the new product development period.
C. Organizational Structure
Besides IT, organizational structure, such as decentralization
and formalization, is also likely to affect the cross-functional
team interaction during the NPD period [16], [26], [46], [82].
The organizational structure within which teams exist can have a
significant impact on how teams function but it has largely been
ignored in the team literature [76]. Decentralization refers to the
degree to which decision making is pushed down to the man-
agers who are closest to the action [69]. Under the increasingly
competitive environment, product managers may need more au-
thority to make the decisions necessary to adapt to the changing
environment [44]. Lower managers are closer to the action, and
typically, have more detailed knowledge about problems and
how best to solve them than top managers [76]. Decentralizing
decision-making power to the cross-functional team can make
the team members from different disciplines more willing to par-
ticipate during the NPD period. The communication frequency
is more likely to be increased, and the discussions among team
members will be very contentious but constructive. By creating
a participating decision-making situation, the resulting decision
will be acceptable to every member because they had the op-
portunity to provide inputs and further communicate their ideas
during the decision-making process [82]. Since the consensus
is made among the team members, the coordination will be
easier and smother. On the other hand, in centralized organiza-
tional structure, coordination and problem resolution occur at
higher level of hierarchy. Team members may not be able to
recognize problems due to their limited understanding of the
overall process, and even when they recognize the problems,
they do not have the authority to correct the problems without
690 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 54, NO. 4, NOVEMBER 2007
management approval [40]. Centralization creates a nonpartic-
ipatory environment that reduces communication among par-
ticipants, commitment, and involvement with the NPD projects
[16], [26], [46].
Formalization refers to the degree to which jobs within
the organization are standardized and the extent to which
employee’s behavior is guided by rules and procedures [61]. In
organizations with high formalization, there are explicit rules
and clearly defined procedures covering working processes. The
use of explicit rules and procedures during the NPD period is
likely to impede the spontaneity and flexibility need for internal
innovation [8]. Also, standardization would eliminate the
possibility that team members engage in alternative behaviors.
It even removes the willingness for team members to consider
alternatives as well [76]. Formalization restricts team members’
ability to perform a variety of tasks, as well as the degree
to which they can exercise authority while carrying out the
tasks [50]. Such restrictions can cause frustration and discontent
among team members and will decrease team members’ will-
ingness to provide inputs and further communicate their ideas
for the new product. On the other hand, in organizations with
low formalization, job behaviors are relatively unstructured and
team members have a great deal of freedom in how they do their
work [70]. Since an individual’s discretion on the job is inversely
related to the amount of behavior in that job is preprogrammed
by the organization, the less the formalization, the more input the
individual has into the work, and more communication and coor-
dination are needed for getting the work done. Accordingly, the
less formalized work process is likely to stimulate the interac-
tion among the cross-functional team members during the NPD
period.
Therefore, it is expected that when the organizational struc-
ture is more decentralized and less formalized, cross-functional
team interaction is more favorable during the NPD period. In
light of the aforementioned reasoning, the following hypothesis
is developed.
Hypothesis 2: The degree of centralization and formalization
of organizational structure is negatively related to the cross-
functional team interaction during the new product development
period.
D. Team Interaction
The cross-functional makeup may provide many advantages
to the development of new products such as multiple sources
of information and perspectives, inclusion of downstream con-
cerns in upstream design, and a clearer line-of-sight to the cus-
tomer [34]. However, some prior research has indicated that
cross-functional teams do not always work well [11], [74]. Func-
tional diversity makes teamwork among members of the group
more difficult [1]. Agreement among members may be elusive
and conflicts and misunderstandings may win over cooperation,
team cohesiveness, and consensus building [34]. Accordingly,
the outcome of NPD is inevitably affected by the climate of
team’s interaction.
Team interaction, in this study, refers to the degree of com-
munication among cross-functional team members and the de-
gree of coordination of the innovative activities during the NPD
period. Prior research has provided some clues about the im-
portant role of team interactions on the project outcome [25],
[34], [41], [70]. In terms of communication, team members from
different functional areas are likely to have disagreement and
produce tension during the project period. When the disagree-
ments becomes extensive, team members will become more
committed to their individual positions and consensus become
more difficult to achieve [22]. Positional commitments and lack
of consensus will interfere with the ability of the group to find
integrative and innovative solutions for the project [41]. On the
other hand, if they communicate more frequently and positively,
the disagreements may be compromised and the tension is more
likely to become creative, and thus, leads to increase the speed
by which new products get to the market [35]. Lutz [43] sug-
gested that a cross-functional team will develop better quality
products more quickly and at a lower cost when the team mem-
bers from upstream and downstream functional areas can com-
municate well to bring coordinated knowledge to bear on the
project.
Good coordination is likely to be another critical element to
for the success of NPD [25], [70]. Zirger and Maidique [84]
proposed that beside strong R&D, marketing, and manufactur-
ing prowess, coordination is essential for the success of NPD.
Coordination is the management of interdependencies among
tasks and team members. Lack of familiarity with another unit’s
procedures and personnel can result in the negligence of some
tasks and also the repetition of others. No department alone
possesses the expertise to develop a product that will meet the
requirements of the organization. Innovators need some coor-
dinated mechanisms among the cross-functional team members
to connect departmental thoughts, so that insights possessed by
individual departments can be combined to develop new prod-
ucts through the cross-functional team members that harness
the collective wisdom of all involved. In the absence of proper
coordination, efficiency suffers and goal attainment is delayed
or thwarted [70].
Accordingly, we can expect that when cross-functional team
interaction, including communication and coordination, is more
favorable during the NPD period, the outcome of NPD will be
more satisfied. Following this line of reasoning, the following
hypothesis is proposed.
Hypothesis 3: Cross-functional team interaction is positively
related to the performance of new product development.
Owing to its increasingly popular use, many prior studies
have investigated how IT affects the company’s performance,
but their findings are quite inconsistent. While the debate con-
cerning the extent to which IT can effectively affect the orga-
nizational or group performance, a strong case can be made
that IT may not hold the answer to enhanced performance, but
instead, must be incorporated into the firm or group to pro-
duce positive effects [78]. Therefore, from the process-oriented
viewpoint, there must be an intermediate effect between IT and
performance [7], [48], [71]. In terms of NPD setting, team inter-
action including communication and coordination is the critical
CHEN: IT, ORGANIZATIONAL STRUCTURE, AND NPD—THE MEDIATING EFFECT OF CROSS-FUNCTIONAL TEAM INTERACTION
determinant of project performance according to the previous
hypothesis. IT by itself is ineffective because the ownership
of IT infrastructure cannot automatically improve the outcome.
As noted earlier, the new product team members from different
specialized functions can utilize IT as a flexible communication
and coordination platform as they work simultaneously on the
project. Also, the latest work can be captured by other team
members in real time through the database. Therefore, from
the process-oriented point-of-view, cross-functional team inter-
action plays the role of intermediate variable in mediating the
relationship between IT and NPD performance. IT will affect
the outcomes of NPD, but do so primarily through the mediating
influence of cross-functional team interaction. Accordingly, the
following hypothesis is developed.
Hypothesis 4: Cross-functional team interaction mediates the
relationship between information technology and the perfor-
mance of new product development.
One factor that could potentially affect the team effectiveness
is organizational structure [76]. Organizational structuring of the
workflow is the primary mechanism available to the firm for im-
plementing, executing, and controlling NPD activities or other
activities [54], [57]. Organizational structure provides the task
and authority relationships that predetermine the way people
work [31]. As noted earlier, in organizations with low formal-
ization, the lack of explicit rules and procedures will stimulate
the spontaneity and flexibility need for internal innovation [8],
and the less the formalization, the more input the individual has
into the work and more communication and coordination are
needed for getting the work done. By creating a participating
decision-making situation, the communication is more likely to
be increased and since the consensus on the resulting decision
is reached among the team members, the coordination will be
easier and smother. Also, the communication can make the ten-
sion become creative, and the good coordination among team
members can harness the collective wisdom of all involved,
and thus, lead to favorable project outcome. Accordingly, from
the process-oriented point-of-view, we argue that organizational
structure will affect the cross-functional team interaction during
the NPD period, and that cross-functional team interaction will,
in turn, positively affect the performance of NPD. Therefore,
the following hypothesis is developed.
Hypothesis 5: Cross-functional team interaction mediates the
relationship between organizational structure and the perfor-
mance of new product development.
III. RESEARCH METHODS
A. Data Collection and Sample
The unit of analysis is the NPD project. The empirical study
employed a questionnaire approach designed to collect data
for testing the validity of the model and research hypotheses.
Seven-point Likert scales are used. If there is more than one
NPD case using cross-functional team for the subject company
to report in the last three years, the company was asked to
691
choose the most significant one. Variables in the questionnaire
include background information, IT, organizational structure,
cross-functional team interaction, and NPD performance. All
of the independent and dependent variables are measured with
multi-items. For each item, respondents were asked to indicate
the extent to which they agreed along a seven-point Likert-type
scale, ranging from 1 (completely disagree) to 7 (completely
agree).
For the independent variables, a principal component factor
analysis was used to reduce the data, and to develop and test the
validity of meaning constructs. The eigenvalues 1 was used to
determine the number of factors extracted for further analysis
[36]. To ensure convergent validation, items were retained on a
factor if their loadings exceed 0.5 on the primary factor, and to
ensure discriminant validity, no item could load above 0.4 on
any secondary factors. To clarify the loadings, the components
were rotated by varimax rotation method for its simplicity and
rigor [51]. Cronbach’s alpha is calculated to ensure internal
consistency.
To avoid common method variance problem, the question-
naire was divided into two parts, and each part was answered
by different persons. Independent variables and mediating vari-
ables were filled out by the project leaders, while dependent
variables and control variables were answered by the top exec-
utives (i.e., Presidents, Vice Presidents, Directors, or General
Managers). The possibility of nonresponse bias was checked by
comparing the characteristics of the respondents to those of the
original population sample. The calculated t-statistics for the
annual revenue and the age of the company are all statistically
insignificant, suggesting that there are no significant differences
between the respondent and nonrespondent groups.
The population of this study is the top 5000 Taiwanese firms
listed in the yearbook published by the China Credit Information
Service Incorporation. A random stratified sampling method
was used to select 100 firms in each of the five 1000 levels. Five
hundred questionnaires were mailed. Follow-up letters, e-mails,
and phone calls were done after two weeks. Of the 118 question-
naires returned, 16 responses were incomplete. The remaining
102 valid and complete questionnaires were used for the quan-
titative analysis. It represents a useable response rate of 20.4%.
B. Measures
1) Dependent Variable: In this study, NPD performance
construct was measured by ten items, adapted from Cooper [13],
Atuahene-Gima [2], and Sarin and McDermott [67], indicating
the extent to which firms were satisfied with the achievements
in the NPD project. Three factors of NPD performance are
finance, management, and timing. Four items indicating the ex-
tent of the contributions of this project to sales, profits, return
on investment, and market share of the firm were used to mea-
sure the financial performance factor (four items, α = 0.92).
The managerial performance factor is reflected by firm’s satis-
faction with yield rate, productivity, quality, and utilization of
new technologies (four items, α = 0.96). Two items, includ-
ing whether development of the new product met the planned
692 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 54, NO. 4, NOVEMBER 2007
schedule and whether its introduction was in time, were used to
measure timing performance factor (two items, α = 0.94).
2) Independent Variables: IT construct is a five-item scale,
adapted from Sakaguchi and Dibrell [66], reporting the efforts
that firms have spent in building up their IT capability including
the amount of investment in IT infrastructure and the extent to
which the employees are trained in operating the IT infrastruc-
ture. Exploratory factor analysis, as shown in Table VI in the
Appendix, supported two factors of IT including IT investment
and IT training. The IT investment factor is reflected by firm’s in-
vestment in hardware and software of IT (two items, α = 0.75).
Three items, including on-job training, off-site courses, and pro-
fessional consultancy, were used to measure IT training factor
(three items, α = 0.97).
Organizational structure construct was measured by five
items, adapted from Dewar et al. [20], Oldham and
Hackman [52], and Tata and Prasad [76], indicating the extent
to which firms design their organization to authorize decision-
making power and to standardize the rules and procedures. Two
factors of organizational structure, formalization and central-
ization, were categorized through exploratory factor analysis,
as shown in Table VII in the Appendix. Two items, including
explicit work rules and clearly defined task procedures are in
the factor of formalization (two items, α = 0.87). The central-
ization factor is reflected by three items to indicate the extent
of employee’s autonomy, participation in the decision-making
process, and search for problem solutions from many channels
(three items, α = 0.73). The higher average scores of these three
items mean the less degree of centralization.
Team interaction construct was measured by seven items,
adapted from Olson et al. [53], Keller [34], and Bailetti [3], in-
dicating the degree of communication among cross-functional
team members and the degree of coordination of the innova-
tive activities during the NPD period. Two factors of team in-
teraction, coordination and communication, were categorized
through exploratory factor analysis, as shown in Table VIII in
the Appendix. Four items indicating the extent of formal co-
ordination activities, task assignment plan, work schedule, and
champion behaviors were used to measure coordination (four
items, α = 0.86). The communication factor is reflected by the
frequency of formal meetings and informal contacts and the ex-
tent of consensus reached through communication (three items,
α = 0.92).
3) Control Variables: Eight control variables were included
in the analysis. First, team size was measured as the number
of members working on the NPD team. The second variable is
the team member tenure that was measured as average work-
ing years of the team members. Third, functional diversity was
measured as the number of functional disciplines that had their
members in the NPD team. The fourth variable included is the
type of innovation. It was measured as the dummy variable, and
was coded “0” as incremental innovation and “1” as radical one.
The fifth variable, a firm’s principal industry, was categorized
into three types including high technology, manufacturing, and
service. The sixth control variable included is year of establish-
ment. It was divided into three categories, including less than
10 years, between 11 and 20 years, and more than 20 years,
Fig. 1. Research model.
and coded as 1, 4, and 7. The seventh control variable included
is annual revenue. We categorized the annual revenue into four
categories including less than 500 million New Taiwan dollar
(NT), between 501 million and a billion NT, between a billion
and 5 billion NT, and more than 5 billion NT, and coded as 1, 3,
5, and 7. The final control variable is the number of reported em-
ployees. It was divided into four categories, including less than
500 people, between 501 and 2000 people, between 2001 and
10 000, and more than 10 000 people, and coded as 1, 3, 5, and 7.
IV. RESULTS
This study attempts to understand the relationships among IT,
organization structure, cross-functional team interaction, and
the performance of NPD, as shown in Fig. 1. Table I reports
the means, standard deviations, and correlations of all vari-
ables. Table II displays the results of the ordinary-least-square
regression analyses of the effects of IT and organizational struc-
ture on cross-functional team interaction. Models 1a and 1b in
Table II are the base models that include the control variables.
Models 2a and 2b capture the effects of IT on cross-functional
team interaction. Both models are significant at the p < 0.001
level (R2 = 0.719 and 0.364, respectively). Coefficients of IT
investment are positive and significant for coordination
(β = 0.20, p < 0.05) and communication (β = 0.18, p < 0.05).
Similarly, IT training has positive and significant effects on co-
ordination (β = 0.14, p < 0.01) and communication (β = 0.24,
p < 0.001). These findings support Hypothesis 1, and indicate
that, in general, cross-functional team would achieve a higher
degree of team interaction during the NPD period if firms in-
vest more in building up its IT infrastructure, and give their
employees more training to be familiar with the use of IT.
Models 3a and 3b show the relationships between organiza-
tional structure and cross-functional team interaction. These two
models are both significant at the p < 0.001 level (R2 = 0.750
and 0.431, respectively). Coefficients of formalization are neg-
ative and significant for coordination (β = 0.46, p < 0.001) and
communication (β = 0.49, p < 0.001). Centralization also has
a negative and significant effect on communication (β = 0.29,
p < 0.01). These findings support Hypothesis 2, and indicate
that cross-functional team interaction is more favorable during
the NPD period if the organizational structure is less centralized
and formalized.
CHEN: IT, ORGANIZATIONAL STRUCTURE, AND NPD—THE MEDIATING EFFECT OF CROSS-FUNCTIONAL TEAM INTERACTION 693

TABLE I
CORRELATION MATRIX AND SUMMARY STATISTICS

TABLE II
RESULTS OF REGRESSION ANALYSES OF THE EFFECTS OF IT AND ORGANIZATIONAL STRUCTURE ON CROSS-FUNCTIONAL TEAM INTERACTION

Next, we examined how cross-functional team interaction af-
fects the performance of NPD. Models 4a–4c in Table III are the
base models that include the control variables. Models 5a–5c in
Table III present the effects of the two team interaction factors,
coordination and communication, on the performance of NPD.
These models are all significant (p < 0.001), and yield an R2 of
0.670, 0.559, and 0.571. The results for coordination in models
5a–5c suggest that it is a significant determinant of NPD perfor-
mance (p < 0.001). The positive and significant coefficients of
coordination indicate that firms would get a better performance
of NPD when the development activities are coordinated well.
The positive and significant coefficients of communication (p
< 0.001) indicate that firms would get a better NPD outcome
when cross-functional team members communicate more
frequently and effectively during the development period. In
summary, both factors of cross-functional team interaction
have the expected signs and also have significant effects on the
performance. Accordingly, Hypothesis 3 is supported.
694 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 54, NO. 4, NOVEMBER 2007

TABLE III
RESULTS OF REGRESSION ANALYSES OF THE EFFECTS OF CROSS-FUNCTIONAL TEAM INTERACTION ON THE PERFORMANCE OF NPD

TABLE IV
RESULTS OF REGRESSION ANALYSES OF THE MEDIATING EFFECTS OF CROSS-FUNCTIONAL TEAM INTERACTION BETWEEN IT AND THE PERFORMANCE OF NPD

We also expected that cross-functional team interaction would
mediate the relationships between independent variables (IT and
organizational structure) and the performance of NPD. Follow-
ing Baron and Kenny’s [5] procedure, we first examined the rela-
tionships between the independent variables and the dependent
variable. As shown in models 6a–6c in Table IV, IT investment
and training are both significantly related to the performance of
NPD. Also, models 8a–8c in Table V indicate that formaliza-
tion and centralization both negatively affect the performance
of NPD. Second, as demonstrated in Table II, significant rela-
tionships exist between IT and organizational structure, and the
mediator, team interaction. Third, the results in Table III indi-
cate that both factors of cross-functional team interaction have
significant effects on the performance. Finally, the mediator,
cross-functional team interaction, was included in the models
to examine whether it reduces the effects of the antecedents to
nonsignificance. The results of models 7a–7c in Table IV show
that the effects of IT factors are significantly reduced, most of
them to nonsignificance, in the presence of the mediator, cross-
functional team interaction, and the overall fits of these three
models are all improved (∆R2 = 0.168, 0.147, 0.205). These
findings support Hypothesis 4, and indicate that cross-functional
team interaction plays a mediating role between IT and the per-
formance of NPD. Similarly, the results of models 9a–9c in
Table V show that the effects of organizational structure factors
are reduced to nonsignificance in the presence of the mediator,
cross-functional team interaction, and the overall fits of the three
models are all improved (∆R2 = 0.167, 0.124, 0.125). These
CHEN: IT, ORGANIZATIONAL STRUCTURE, AND NPD—THE MEDIATING EFFECT OF CROSS-FUNCTIONAL TEAM INTERACTION
TABLE V
RESULTS OF REGRESSION ANALYSES OF THE MEDIATING EFFECTS OF CROSS-FUNCTIONAL TEAM INTERACTION
BETWEEN ORGANIZATIONAL STRUCTURE AND THE PERFORMANCE OF NPD
findings support Hypothesis 5, and indicate that cross-functional
team interaction mediates the effects of organizational structure
on the performance of NPD.
V. DISCUSSION AND CONCLUSION
This study examines the role of cross-functional team interac-
tion between IT, organizational structure, and the performance
of NPD. The major findings and the implications are discussed as
follows. First, the results of the regression analysis indicate that
if firms have more investment in IT infrastructure and train em-
ployees more proficiently in operating these IT infrastructures,
the interaction among cross-functional team members will be
more favorable. Also, as the cross-functional team interaction
is more favorable, the outcomes of NPD will be more satisfied.
These findings show that IT can deliver a better performance
of NPD, but primarily do so through the mediating effects of
cross-functional team interaction. The key point is that IT works
its beneficial effects on project performance through increased
communication and coordination of cross-functional team be-
cause IT provides conveniences for members to discussion and
information exchange at any time and place. The present evi-
dence implies that the NPD can be effective if firms utilize IT
to enhance the interaction among cross-functional team mem-
bers. Therefore, firms should understand that the investment in
IT infrastructure and the training of new product team mem-
bers in operating the IT infrastructure should be provided suf-
ficiently. Through the utilization of IT, the communication and
coordination among cross-functional team members will be im-
proved, and accordingly, it will lead to a more satisfied NPD
outcome.
Second, the present results are also quite instructive in help-
ing to explain the effects of organizational structure on the
695
outcomes of the NPD. The results of the regression analysis
show that there are significant relationships between the organi-
zational structure and the cross-functional team interaction, and
between the cross-functional team interaction and NPD perfor-
mance. These significant relationships led to the indirect rela-
tionship between organization structure and NPD performance.
These findings indicate that if the characteristics of firms’ or-
ganizational structure are less centralized and formalized, the
interaction among cross-functional team members will be more
favorable, and then, the outcomes of NPD will be more satis-
fied. Organizational structure does not have direct effects on the
performance of NPD. However, it leads to increased team in-
teraction, and the indirect path through team interaction results
in better NPD outcomes. These results imply that firms should
design their organizational structure as more decentralized and
less formalized. Since it provides a great deal of freedom for new
product team members to do their work and makes them feel
honored to participate during the NPD period, the lower degree
of centralization and formalization of organizational structure
can be positive on the outcomes through increased communica-
tion and coordination among cross-functional team members.
The theoretical contributions of this study are as follows.
First, this study contributes to the theoretical development of
a conceptual model for explaining the relationships among IT,
organizational structure, cross-functional team interaction, and
the outcomes of NPD. The inconclusiveness of the relation-
ships between IT and the performance has been recognized the
need for better theoretical models to trace the path. Also, little
has been done in the NPD literature in examining the effect
of organizational structure on the outcomes. This deficiency is
serious because organizational structuring of the workflow is
the primary mechanism available to the firm for implementing,
executing, and controlling NPD activities. This study, based on
the process-oriented view, builds up the conceptual model and
696 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 54, NO. 4, NOVEMBER 2007

hypothesizes the mediating role of cross-functional team inter- APPENDIX

action among IT, organizational structure, and the performance
of NPD. TABLE VI
RESULTS OF FACTOR ANALYSIS OF “IT” ITEMS
The second contribution of this study is the derivation of em-
pirical support for the model’s prediction using data from actual
NPD cases. The empirical evidences of this study prove the re-
lationships among IT, organizational structure, cross-functional
team interaction, and the performance of NPD. In terms of IT,
the results provide the theory building, explanatory variance
as missing in the literature that only looks at the black box
of relationships between IT and outcomes. The present results
join other research [6], [48], [71] in pointing the way to the
inclusion of critical intervening variables in conceptual models
explaining the dynamics between IT and the performance. As
to organizational structure, our findings prove its indirect role in
affecting NPD performance through team interaction. The inter- TABLE VII
action among cross-functional team members was empirically RESULTS OF FACTOR ANALYSIS OF “ORGANIZATIONAL STRUCTURE” ITEMS
found to be very critical to the outcomes of NPD. The findings
of this study fill the gap in the NPD literature, that is the lack
of examining these determinants affecting the performance of
NPD. In summary, cross-functional team has been recognized
as the method of choice to generate new products for improv-
ing firms’ competitive advantages. Our findings indicate that
the interaction among cross-functional team members plays the
critical intermediate role between IT, organizational structure,
and the performance of NPD.
This study has some limitations. First, only one NPD case
choosing arbitrarily by respondents, though they were asked to
pick the typical one, may not reflect all the facts since many
firms had more than one NPD experience. Second, NPD is a
longitudinal process. The survey technique can only provide a TABLE VIII
cross-sectional snapshot. Third, our data were obtained through RESULTS OF FACTOR ANALYSIS OF “TEAM INTERACTION” ITEMS
self-report. This aspect of the study does not differ from previous
literature. However, in our study, the likelihood of common
method variance is low because the dependent variable was
obtained from different sources. Fourth, we included several
variables, such as team size, team member tenure, functional
diversity, innovation type, firm size and age, and industry in
the regression models as control variables. However, some of
the team characteristics, such as degree of physical co-location,
team coworking experience, and levels in the organization that
may affect the dependent variable were not considered in the
study. Finally, a problem common to the organizational level
construct research concerning whether an individual response
can represent the intended firm-level situations may exist. To
alleviate this problem, the questionnaire was completed by the
executives and project leaders who are familiar with the topic.
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Chung-Jen Chen received the Doctorate degree
in strategy and technology management from
Rensselaer Polytechnic Institute, Troy, NY, in 1999.
He is currently an Associate Professor with the
Graduate Institute of Business Administration, Col-
lege of Management, National Taiwan University,
Taipei, Taiwan, R.O.C. His papers have been pub-
lished in the IEEE TRANSACTIONS ON ENGINEERING
MANAGEMENT, Information & Management, the In-
ternational Journal of Human Resources Manage-
ment, the Journal of Business Research, R&D Man-
agement, and other journals. His current research interests include technology
management, interfirm collaboration, and entrepreneurship.