How Customization Ensures Firm Survival
Technology-intensive (TI) firms are facing a prisoner's dilemma of customization, which captures the paradoxical situation where firms pursue customization in order to create customer solutions and survive, but fail to achieve their ideal results due to struggles with being cost effective. By using a contingency framework, this paper discusses (i) the effect of customization (i.e., balancing modularity and solution space freedom) on cross-functional cooperation, (ii) the environmental conditions that affect this relationship (i.e., market and technological turbulence), and (iii) the mediating role of cross-functional cooperation in the relationship between customization and firm financial slack. Based on survey data from 120 respondents, firm financial data, and secondary industry data, the conceptual model and hypotheses are empirically tested through a polynomial response surface analysis. The results show that TI firms may be able to achieve financial slack from customization through cross-functional cooperation, although this mechanism is influenced by market and technological turbulence. The more fine-grained understanding of customization in TI firms based on modularity and solution space freedom enables managers in TI firms to see how they might resolve the prisoner's dilemma of customization. Specifically, different customization approaches sort different levels of cross-functional cooperation, depending on how the shared understanding and goal alignment of functional departments is affected by uncertainties in the market.