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Product innovation is conventionally treated as a mechanism for organizations to renew their product portfolios. In this paper, we suggest that product innovation not only enables organizations to introduce new products to the market but also challenges organizations to renew their technological capabilities. Capability stretching is the degree to which an organization extends its technological capabilities to bridge the gap between what it has already known and what the development of a new product requires it to know. Capability stretching can be challenging because it involves the acquisition and assimilation of new and distant knowledge. Drawing on a longitudinal study of product introductions in the workstation industry, we find that capability stretching reduces the chance of new product survival. Furthermore, we also find that organizational boundaries moderate the negative relationship between capability stretching and product survival: Vertical integration exacerbates this negative relationship, whereas horizontal boundary mitigates this negative relationship. However, capability stretching can also be rewarding, as it renews technological capabilities and therefore facilitates adaptation to technological changes. We draw implications for the linkages between product innovation and capability development.
Wang et al. (Thu,) studied this question.