Sundar G. Bharadwaj

Making Innovation Happen in Organizations: Individual Creativity Mechanisms, Organizational Creativity Mechanisms or Both?

Marketing managers increasingly face a product innovation dilemma. Managers will have to sell more with fewer new products in an environment where new products are providing lower revenue yields. Therefore, understanding what drives successful innovation is of paramount importance. This paper examines the organizational innovation hypothesis that innovation is a function of individual efforts and organizational systems to facilitate creativity. Our model formulates creativity as a property of thought process that can be acquired and improved through instruction and practice. In this context, individual creativity mechanisms refer to activities undertaken by individual employees within an organization to enhance their capability for developing something, which is meaningful and novel within their work environment. Organizational creativity mechanisms refer to the extent to which the organization has instituted formal approaches and tools, and provided resources to encourage meaningfully novel behaviors within the organization. Using data collected from 634 organizations, we find support for this hypothesis. The results suggest that the presence of both individual and organizational creativity mechanisms led to the highest level of innovation performance. The results also suggest that high levels of organizational creativity mechanisms (even in the presence of low levels of individual creativity) led to significantly superior innovation performance than low levels of organizational and individual creativity mechanisms. The paper also presents managerial and academic implications. This study suggests that it is not enough for organizations to hire creative people and expect the innovation performance of the firm to be superior. Similarly, it is not enough for firms to emphasize management practices to enhance creativity and ignore individual mechanisms. Although it is true that doing either will improve innovation performance, doing both should lead to higher innovation levels. Our understanding of what and how creativity influences innovation performance can be greatly enhanced by additional research that integrates the intrinsic and extrinsic drivers of creativity. Research that examines the role of team creativity efforts in enhancing innovation performance is also vital to an overall improved understanding of creativity, learning, and innovation within organizations.

Customer Satisfaction and Stock Returns Risk

Over the past decade, several studies have argued that customer satisfaction has high relevance for financial markets because it has a significant impact on stock returns. However, little attention has been given to understanding the impact of customer satisfaction on the risk of stock returns. The finance literature suggests that investors that judge performance only in terms of returns place more resources than warranted in risky opportunities, forgo profitable opportunities, and apply misguided performance evaluations. Accordingly, this study develops, tests, and finds empirical support for the hypotheses that positive changes (i.e., improvement) in customer satisfaction result in negative changes (i.e., reduction) in overall and downside systematic and idiosyncratic risk. Using a panel data sample of publicly traded U.S. firms and satisfaction data from the American Customer Satisfaction Index, the study demonstrates that investments in customer satisfaction insulate a firms stock returns from market movements (overall and downside systematic risk) and lower the volatility of its stock returns (overall and downside idiosyncratic risk). The results are robust to alternative measures of risk, model specifications, and concerns related to sample composition criteria raised in some recent studies. Therefore, the results indicate that customer satisfaction is a metric that provides valuable information to financial markets. The robust impact of customer satisfaction on stock returns risk indicates that it would be useful for firms to disclose their customer satisfaction scores in their annual report to shareholders.

Ties That Bind: The Impact of Multiple Types of Ties with a Customer on Sales Growth and Sales Volatility

Suppliers in business-to-business settings are increasingly building a portfolio of multiple types of ties with individual customers. For example, in addition to supplying goods and services, a supplier may have a research-and-development alliance and a marketing alliance with a customer. This study investigates the effect of multiple types of ties with a customer on a suppliers performance with the customer. The findings from panel data on supplier–customer relationships suggest that an increase in the number of different types of ties with a customer results in an increase in supplier sales to the customer and a decrease in sales volatility to that customer. The effect of a change in relationship multiplexity (i.e., number of different types of ties) on the change in sales becomes weaker and its effect on the change in sales volatility becomes stronger as the competitive intensity in the customers industry increases. The results also indicate that the effect of a change in the number of different types of ties on the change in sales volatility becomes stronger when the intangibles intensity in a customers industry increases. The results are robust to alternative measures, alternative estimators, heteroskedasticity, and endogeneity, among other methodological concerns. These findings have clear implications for managing multiple types of ties with a customer and indicate that relationship multiplexity is a valuable nonfinancial metric.

The Impact of Brand Quality on Shareholder Wealth

This study examines the impact of brand quality on three components of shareholder wealth: stock returns, systematic risk, and idiosyncratic risk. The study finds that brand quality enhances shareholder wealth insofar as unanticipated changes in brand quality are positively associated with stock returns and negatively related to changes in idiosyncratic risk. However, unanticipated changes in brand quality can also erode shareholder wealth because they have a positive association with changes in systematic risk. The study introduces a contingency theory view to the marketing–finance interface by analyzing the moderating role of two factors that are widely followed by investors. The results show an unanticipated increase (decrease) in current-period earnings enhances (depletes) the positive impact of unanticipated changes in brand quality on stock returns and mitigates (enhances) their deleterious effects on changes in systematic risk. Similarly, brand quality is more valuable for firms facing increasing competition (i.e., unanticipated decreases in industry concentration). The results are robust to endogeneity concerns and across alternative models. The authors conclude by discussing the nuanced implications of their findings for shareholder wealth, reporting brand quality to investors, and its use in employee evaluation.

Social Capital of Young Technology Firms and Their IPO Values: The Complementary Role of Relevant Absorptive Capacity

The strategic importance of business-to-business (B2B) relationships is well recognized, but their financial impact remains equivocal. This study links social capital from three types of B2B networks of young technology firms with their initial public offering (IPO) value. The authors identify three relevant types of absorptive capacity that facilitate the transformation of B2B social capital into IPO value. For the transformation to occur, the authors find that young firms need not only the opportunity to access the resources provided by B2B relationships but also the ability to leverage them through the complementary capability—namely, absorptive capacity. They test the hypotheses on a sample of 177 IPOs, and the results are robust to endogeneity concerns and alternative measures. As one of the first studies in marketing–finance interface to focus on young firms, the findings provide novel insights, such as the deleterious financial consequence of having marketing and research-and-development B2B relationships without the relevant absorptive capacity. The authors conclude with a discussion of managerial implications regarding communicating the value of absorptive capacity, disclosure of marketing-related information, and the importance of marketing for young technology firms.

Asymmetric Roles of Advertising and Marketing Capability in Financial Returns to News: Turning Bad into Good and Good into Great

News reports carrying positive or negative sentiment about a firm influence its stock market performance. This study examines how two firm-controllable marketing factors, advertising and marketing capability, moderate the relationship between news stories and firm stock returns. Analysis of a panel data set of more than 7,000 firm-month observations indicates asymmetric and complementary moderating roles of the two marketing variables: advertising reinforces the favorable impact of positive news on abnormal stock returns, and marketing capability mitigates the adverse impact of negative news. Moreover, these moderating effects operate through different stakeholders. Whereas the moderating effect of marketing capability is due to its influence on customers and thus affects the level and volatility of future cash flows, advertising moderates the effect of news through individual investors’ attention and response to the news. The econometric analysis accounts for potential endogeneity between news reports, stock returns, and marketing variables, and the results are robust to alternative measures and analysis approaches. The findings suggest the need for managers to broaden their stakeholder focus when evaluating advertisings returns and to communicate the value of marketing capability to investors.

Prerelease Buzz Evolution Patterns and New Product Performance

This study examines the dynamics of online buzz over time before product release. Employing functional data analysis, we treat the curve of prerelease buzz evolution trajectory as the unit of analysis and find that the shape of the curve significantly adds power in predicting new product performance compared with using product characteristics and firm advertising alone. Moreover, daily prerelease buzz evolution data enable accurate sales forecasting long before product release, which allows sufficient time for managers to adjust product design and/or marketing strategy. For example, the forecasting accuracy using an early buzz evolution curve ending on the 61st day before product release is not only higher than that using accumulated buzz volume until then but also higher than that using the total volume of all buzz up until product release. Beyond the sales outcome, we find that prerelease buzz is quickly reflected in firm stock returns before product release and reduces the absolute amount of postrelease stock price correction. The model accounts for endogeneity, and the results are robust after controlling for buzz sentiment. We also explore the factors influencing prerelease buzz evolution patterns, thus generating insights into how to manage prerelease buzz dynamics to enhance new product performance.

Satisfaction (Mis)pricing Revisited: Real? Really Big?

The question of whether customer satisfaction is mispriced by the stock market has been debated over the past decade, yet it remains unintegrated with the broader asset pricing literature. The authors critique Fornell, Morgeson, and Hult (2016), focusing on that articles missed opportunities in addressing theoretical lacuna and empirical challenges that might establish the satisfaction mispricing anomaly. In doing so, they distinguish mispricing from value relevance, classify two broad avenues for satisfaction mispricing research, and detail the scope of future research under each avenue. They conclude by summarizing specific research opportunities and presenting implications for managers, investors, and educators that could lead marketing to become a net contributor to the marketing–finance dialogue.

Bayesian Estimation and Clustering of Latent Attitudinal Parameters Using Cross-Sectional Survey Data: Application to an Online Banking Survey

Firms routinely collect cross-sectional survey data on attitudinal constructs such as satisfaction, brand awareness, behavioral intentions etc. from current and prospective customers. The single observation per individual in such survey data offers limited scope for estimation and inference of heterogeneous response parameters, and consequently, for downstream analyses that presuppose a heterogeneous response. We present a Bayesian treatment to this problem. We estimate these individual-specific latent attitudinal parameters, segment the respondents on the basis of these parameters, and finally, empirically validate our clustering solutions. Our approach considers both finite and infinite mixtures of component densities and enables exact finite sample inference on both individual level parameters and cluster level parameters. We examine the performance of the latent class, the mixture of normals and the semiparametric Bayesian estimators under varying conditions of latent data structure, cluster separation and individual-level idiosyncratic variance.