R&D intensity, marketing intensity, and organizational performance.

Companies have recognized that one of the routes to sustainable competitive advantage is to invest in both marketing and R&D. In the past, in technologically-intensive industries, internal R&D was a valuable strategic asset allowing companies to generate superior return on their R&D investments (Chesbrough, 2003). However, of late, the leading technological companies have encountered significant competition from firms that conduct little or no research. These competitors have found ways to reap profits by effectively marketing or commercializing innovations from other firms (Chesbrough, 2003). Similarly, in marketing-intensive industries, companies that are able to offer products with attributes better or different than those offered by their competitors, often by integrating superior technology, are rewarded by the customers (Ruekert and Walker, 1987). Organizations that achieve a competitive advantage in marketing-intensive industries, therefore, also focus on R&D to generate products that appeal to their customers.

Thus, regardless of the industry to which an organization belongs, in order to gain a sustainable competitive advantage, there is a compelling need for investments in both the marketing and the R&D functions (Craumer et al., 2002; Walwyn, 2005). Surprisingly, there is little research in the business discipline on the outcomes of investing in both these vital functions. Prior research in marketing and management has been confined to three sets of studies. In the first set of studies, researchers have focused on the impact of marketing and R&D integration on various organizational processes such as new product development, product life cycles, development time, and knowledge diffusion. The second set of studies has focused on the impact of marketing investments or R&D investments on the bottom line without considering the joint impact of these two vital functions (Lee and O'Neill, 2003). Third, earlier studies have been limited to single industries. For example, in a single industry study, Wright, Kroll, Chan and Hamel (1991) have argued that successful firms were those that were efficient marketers, or those which spend relatively heavily on R&D as well as marketing. Lin, Lee, and Hung (2006), likewise, have argued for the joint impact of R&D and commercialization efforts on performance in technology-intensive industries. In today's environment, with increased off-shoring of the manufacturing function by U.S.-based industries to other nations, marketing and R&D have emerged as key functions in the value chain for all major manufacturing and service industries. This study makes two notable contributions to the field. First, it is the first study, to our knowledge, to examine the implications of the joint impact of marketing and R&D investments on organizational performance in a wide range of industries and, second, it employs lagged organizational performance to test the major hypothesis.

Based on anecdotal evidence in this area, this study empirically tests the hypothesis that investments in both marketing and R&D are necessary for superior organizational performance. No company exemplifies this argument better than Procter & Gamble, the leading consumer products company. Procter & Gamble has a unique approach to innovation and has based its competitive advantage on understanding customers, acquiring, developing, and applying technology across its broad array of product categories and making connections between consumer wants and what technology can deliver (www.pg.com). Recently, to increase productivity in the R&D and marketing interface, the company has developed a new model for innovation entitled, "connect and develop" (Huston and Sakkab, 2006). A second company to base its competitive advantage on linking R&D and marketing is Silicon Graphics which obtained input from its customers to incorporate video conferencing into its successful desktop offerings (Andrews, 1999). In the consumer electronics industry, Samsung recently created a new position, Chief Customer Officer, to handle both marketing and R&D, amply illustrating the joint role of these two critical functions (Oh, 2007). Finally, in an interview with Tom Stewart, the CEO of General Electric Company, Jeffrey Immelt has argued that even in high-tech companies such as GE, investing in marketing and commercializing the fruits of innovation is a source of competitive advantage (Immelt and Stewart, 2006).

CONCEPTUAL BACKGROUND

Malhotra, Citrin and Shainesh (2004) argue that the constant fluctuation in the value of technology companies highlights the importance of this sector to the global economy and draws attention to the crucial role of marketing in the profitability of technology companies. A review of the research in the business discipline on the importance of marketing and R&D, and their implications for various organizational processes, reveals that these studies do not consider the joint impact of marketing and R&D on organizational performance. Most studies are confined to an examination of the process issues involving the role of marketing-R&D integration (Griffin and Hauser, 1996; Parry and Song, 1993). Second, studies in this area have paid little attention to the implications of marketing and R&D to an organization's overall success (Godener and Soderquist, 2004). However, these two sets of studies shed important light on the implications of joint R&D-Marketing investments on organizational performance as detailed below.

The research on the R&D-Marketing interface has focused on its impact on new product development (henceforth, NPD) and development time, its implication for patents and product life cycles, and influence on knowledge diffusion (Chimhanzi, 2004). Researchers argue that organizations must have the capability to come up with innovations constantly and the ability to commercialize these innovations into products that meet or exceed customer expectations (Lyon and Ferrier, 2002; Mohr et al., 2005; Walwyn, 2005). Theories applied to understand this process include information processing, resource dependency, and sociopolitics (Atuahene-Gima et al., 2000). The R&D-Marketing interface as it relates to NPD has been studied in several industries, including telecommunications (Rein, 2004), computers (Ayers and Dahlstrom, 1997), electronics (Godener and Soderquist, 2004), and manufacturing (Robinson and Chiang, 2002). These studies highlight the importance of marketing-R&D investments and integration to competitive advantage. The integration of marketing and R&D aids in cross-functional personnel participation and influence, establishing product schedules, assessing customer requirements, and evaluating competitive actions (Ayers and Dahlstrom, 1997). This integration also aids in product design and in the development of a technical strategy that responds to the market requirements (Rein, 2004). Of late, NPD is playing a vital role in deciding the fortunes of the energy industry. As consumers are beginning to exert power on governments in various countries to implement renewable portfolio standards and require utilities to generate an increasing amount of electricity using renewable sources, organizations are, consequently, directly marketing to their customers. Governments too encourage organizations to invest in alternate energy by providing them with tax breaks.

Extension of patent life is the second area to benefit from investments in marketing and R&D, especially in the pharmaceutical industry. Appropriability, defined as the inability to capture the full benefits of innovation, is a problem faced by pharmaceutical companies (Vinod and Rao, 2000). Companies specializing in patented drugs require high levels of both R&D intensity and advertising intensity to offset the appropriability problem. Often, it takes years for a company to reap the benefits of its investments. To counter this problem and to extend the life of patented drugs, companies in this industry have resorted to market positioning and aggressive advertising. This strategy ensures continued customer loyalty, enabling the company to reap profits long after the patent on its drugs expire. In the computer and telecommunications industries where product life cycles are short, and as increasing proportions of R&D are outsourced, linking the market place with the laboratory becomes even more important (Horwitch, 2005) to ensure that products continue to meet the demands of the customers. Apple is a great example of a company that invests considerably in product innovation and at the same time spends aggressively in marketing the benefits of its products to its customers, as evidenced from its recent introduction of the Iphone in summer 2007.

A third area to benefit from investments and integration of marketing and R&D is the organization itself via the diffusion of knowledge throughout the firm (Gassenheimer and Manolis, 2001). General Electric has based its competitive advantage on understanding customers, and being customer- and market-driven. General Electric invests heavily in marketing and R&D and, via information technology, fosters the diffusion of knowledge across its diverse business units and functions within and between business units (Mohr et al., 2005).

From the above arguments, it is clear that investments in R&D and marketing are likely to yield superior performance via NPD and cycle-time reduction, product life extension, and knowledge diffusion (Rein, 2004; Barker and Mueller, 2002) in a wide range of industries. Extending the findings of Wright et al. (1991), who found support for the relationship between R&D and marketing investments and organizational success in a single industry, it is argued that this is applicable to a wide range of industries. These arguments lead to the following hypothesis:

Hypothesis: Organizations that make higher investments in both R&D and marketing, relative to the median investments made in the major industry to which they belong, are likely to enjoy superior performance.

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