How Do Strategy and Leadership Styles Jointly Affect Co‐development and Its Innovation Outcomes?

Co‐development with customers attracts considerable interest as a means to improve companies’ product innovativeness and performance. Forward‐thinking companies integrate co‐development within their business models, but many remain uncertain about which levers best foster its implementation. This study therefore takes a top‐down perspective on ways to stimulate co‐development with customers. Relying on boundary theory and its wider contextualization in relation to resource dependence theory, the authors argue that an innovation‐oriented strategy, combined with transformational and transactional leadership, represents senior management levers for driving general openness and providing strategic directions for innovation, which then helps bridge the boundary with customers and facilitate the co‐development of new products. Data from 135 managers and 415 subordinates reveal that some senior management levers can foster co‐development. Specifically, the results of the hierarchical regression analyses confirm the hypothesized positive interaction effect of innovation‐oriented strategy and transformational leadership, whereas the combination of innovation‐oriented strategy and transactional leadership is not beneficial. The strength of innovation‐oriented strategy as an important senior management lever differs for goods and services, which is not the case for the other two levers. Finally, this study provides a more fine‐grained perspective on the new product frequency outcomes of co‐development, by relying on organizational learning theory. Most research is restricted to linear relationships, but the current investigation unveils an inverted U‐shaped relationship between co‐development and companies’ new product frequency. Hence, companies can profit from co‐development at lower and medium levels, but the common notion of “the more, the better” does not apply to an unlimited degree for co‐development. Practitioner Points Senior managers should implement an innovation‐oriented strategy to provide guidance regarding the company's innovation generation goals in co‐development projects. Companies need to support organizational members with adequate freedom and flexibility in terms of co‐development projects, instead of focusing on fixed goals, expectations, or rewards. If they offer services in particular, companies should initiate appropriate training and coaching for senior managers, to help them better motivate and lead organizational members with a transformational leadership style. Co‐development can be fostered by senior managers from the top but also should be tracked, using management tools and key performance indicators, to recognize negative efficiency trends as early as possible.