Failure experience in new product development and firm performance

This paper focuses on the relationships between failure experience in product development and two aspects of R&D intensive firms - research conversion efficiency (i.e. the transformation of Research into Development) and financial performance. Based on a longitudinal study on 165 global pharmaceutical firms between 1990 and 2008, the study shows a positive relationship between failure experience and research conversion efficiency, and an inverted U-shaped relationship between failure experience and financial performance. We explore further these relationships by examining the moderating roles that exploration and exploitation play in shaping them: the evidence suggests that where a firm’s exploration experience is low then there is an inverted U shaped relationship between frequent failure experience and increased firm performance.