This research examines how firms manage crises in new product development (NPD), and suggests that a high level of perceived crisis can result in better new product performance. In addition, the role of team communication is underlined in the relationship between perceived crisis and new product performance. Team communication is categorized into two types: formal vs. informal, each playing a distinct role in crisis management. More importantly, this study argues that there exist dual routes in the crisis-performance relationship: mediation and moderation. A survey study is implemented for hypothesis testing, and data is collected from 119 NPD teams in high-tech industries. Results show that formal communication partially mediates the relationship between perceived crisis and new product performance, and that there is also a direct effect of perceived crisis on performance. Meanwhile, formal communication negatively moderates the direct effect of perceived crisis on new product performance, while informal communication positively moderates this effect. The co-existence of mediation and moderation results in a managerial dilemma regarding formal communication: it positively mediates but negatively moderates the crisis-performance link. Findings suggest that informal communication can play a complementary role in offsetting the negative influence of formal communication.

Introduction

This research aims to examine how firms manage crises through team communication in new product development (NPD). As NPD becomes more frequent, firms are seeing less than stellar returns on investment (Michelsen, 2008). In spite of this fact, they are more eager to provide customers with new products even though a crisis can be on the horizon (Zook and Allen, 2016). Most firms employ measures to limit the downside exposure should a negative event occur. But crises can lead to catastrophic outcomes, putting firms on the brink of annihilation. Classic events including the Bhopal tragedy (Shrivastava et al., 1988) and Tylenol scare (Pearson and Mitroff, 1993) severely threatened the survival of Union Carbide and Johnson & Johnson, respectively. A recent crisis of Volkswagen’s emissions scandal had the same impact on the firm (Jennings, 2015). The field of NPD is never immune from the crisis. For example, the Italian auto manufacturer, Fiat, sought to deviate from its core of low-cost, affordable cars to that of competing on product differentiation but economic conditions in Europe were not fertile to embrace such a change (Financial Times, 2012), thereby plunging it further into debt while its competitors gained market share. On the other hand, NPD can in fact deliver an organization from a crisis. Firms experiencing a crisis often have unique opportunities of risking more on a new product that can ensure their survival. Along with proper management of the NPD process, a new product can be successfully launched, which becomes a solution for this crisis (Akgün et al., 2006). For example, prior to Nintendo’s Wii console, the firm had yielded considerable market share to Sony and Microsoft. In 2006, falling sales and a shrinking market share called for a drastic change. Nintendo developed and launched the first gaming console that involved the gamer using his/her body as a control for the avatar. This radical innovation catapulted Nintendo as a major player in its industry (Binns et al., 2014). Following this logic, this research suggests that NPD can be a solution and therefore a key outcome for crisis management. The innovation literature provides insights into many best practices of successful NPD teams. The commonly adopted idea-to-launch process implies certain predictability or a somewhat measurable future. However, the environment is not always stable, which has been highlighted in past studies (e.g., Maltz and Kohli, 1996; Moorman and Miner, 1998). A crisis is a key facet that falls into the category of an unstable environment and therefore studying NPD in such a situation is vital.