The Integrated Effect of Strategic Orientations on Product Innovativeness: Moderating Role of Strategic Flexibility

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1 Available online at Procedia - Social and Behavioral Sciences 65 ( 2012 ) International Congress on Interdisciplinary Business and Social Science 2012 (ICIBSoS 2012) The Integrated Effect of Strategic Orientations on Product Innovativeness: Moderating Role of Strategic Flexibility Sabai Khin*, Noor Hazlina Ahmad, T. Ramayah School of Management, Universiti Sains Malaysia, Penang, Malaysia Abstract Product innovation has been regarded as one of the major sources of competitive advantage. However, not every innovative product is successful in the market. The reasons of failure include not meeting customers needs and technical inferiority against competitors products. Therefore, it is important for organizations to understand customers both latent and expressed needs as well as technological trends to achieve greater product innovativeness. Based on this tenet, this study intends to propose a conceptual framework to understand the relationships between product innovativeness, market orientation, technology orientation, and strategic flexibility The Published Authors. by Published Elsevier by Ltd. Elsevier Selection Ltd. Open and/or access peer-review under CC BY-NC-ND under responsibility license. of JIBES University, Selection and Jakarta peer-review under responsibility of JIBES University, Jakarta Keywords: Strategic orientation, market orientation, technology orientation, strategic flexibility, product innovativeness 1. Introduction Customers nowadays are willing to pay more for innovative products with new features, new design, and new functions especially for technological products. Latest ICT (Information & communication technology) product such as iphone by world s famous company- Apple Inc. is an example of innovative product, which carries not only new but also superior applications and features compared to an ordinary hand phone. As the demand for innovative high-tech products increase, hi-tech firms have no choice but to leverage on their technological capabilities to develop new products with superior features. However, many new products fail in the market due to inability to meet customers need or technical inferiority. Therefore, in order for a firm to successfully commercialize a new product, it is crucial that it pays constant attention to both market and technological trends. In the innovation literature, prior research has * Corresponding author. Tel.: ; fax: address: vykino@gmail.com The Authors. Published by Elsevier Ltd. Open access under CC BY-NC-ND license. Selection and peer-review under responsibility of JIBES University, Jakarta doi: /j.sbspro

2 744 Sabai Khin et al. / Procedia - Social and Behavioral Sciences 65 ( 2012 ) highlighted the importance of market orientation to innovation. Despite the impressive body of work on market orientation-product innovation relationship, gap in the understanding of the technology orientation-product innovation relationship remains, offering opportunities for further research with focus on these two important strategic orientations in a single model. In view of this, this study aims to propose a conceptual model to examine the integrated effect of two types of strategic orientation: market orientation and technology orientation on product innovativeness. 2. Literature Review 2.1. Product innovativeness Neely and Hii (1998, p. 22) define innovativeness as the propensity to innovate and suggest that organisational innovativeness research looks at the factors that contribute to an organisation s tendency towards innovation. In the context of product, product innovativeness is defined by Brockman and Morgan (2003, p. 388) as the degree to which a new product is novel and has generative capacity. In the innovation literature, Rothwell (1994) has identified five generations of innovation management and suggests that each new generation is a response to factors such as technology, market, customers and suppliers. The 3 rd generation model states that technological innovation comes from the coupling of markets needs and technological opportunities, thus it is the result of combination of technology push or market pull forces. Based on this view, if a firm is market oriented, it will feel the market pull that triggers the firm to develop innovative products. Likewise, technology oriented firms which focus on R&D will be responsive to the technology push by engaging in innovation activities. Therefore, literature review on two important types of strategic orientations, market and technology orientation will be discussed to generate research propositions Market orientation Literature review indicates that market orientation is conceptualized from two different perspectives: as culture (Narver & Slater, 1990), and as behaviour (Kohli & Jaworski, 1990). From behavioural point of view, Kohli and Jaworski (1990, p. 3), define market orientation as the organization-wide information generation, dissemination and responsiveness to market intelligence. From cultural point of view, Narver and Slater (1990, p. 21) define market orientation as the organizational culture that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers and, thus, continuous superior performance for the business. They suggest that market orientation is expressed by three behavioral components: customer orientation, competitor orientation and interfunctional coordination. The present study focuses on customer orientation and competitor orientation Customer orientation The concept of customer orientation emphasizes on the importance of customer to firms performance in many aspects including new product development. Narver and Slater (1990, p. 21) define customer orientation as the firm s sufficient understanding of its target buyers in order to be able to create superior value for them continuously. It is crucial to note the on-going controversial debate in the literature concerning the relationship between customer orientation and innovation. A group of researchers advocate the argument that customer orientation favors innovation (e.g., Atuahene-Gima, 1996; Hurley & Hult, 1998; Lukas & Ferrel, 2000; Paladino, 2007; Theoharakis & Hooley, 2008). On contrary, another group suggests that an overemphasis on customers could lead to trivial innovations and myopic research and development (R&D), which might lower the firm s innovative competence (Lawton & Parasuraman, 1980; Christensen & Bower, 1996; Frosch, 1996; Meredith, 2002). The reasons mentioned are that customers are not knowledgeable about the latest market trends or technologies and are inherently short-sighted (MacDonald, 1995). However, the counter argument still needs more empirical support. Despite the questioned relationship between customer orientation and innovation, a

3 Sabai Khin et al. / Procedia - Social and Behavioral Sciences 65 ( 2012 ) bulk of literature has supported the positive link between these two factors. This study argues that a better understanding of customer needs by means of customer orientation allows the firms to offer new and superior products that satisfy customers. Based on this argument, proposition below is put forward. P1: Customer orientation has positive impact on product innovativeness Competitor orientation Narver and Slater (1990) state that competitor orientation means a seller understands the short-term strengths and weaknesses and long-term capabilities and strategies of key potential competitors. Similar to customer orientation, there are inconclusive empirical findings of relationship between competitor orientation and innovativeness in the literature. Studies by authors such as Gatington and Xuerberb (1997), Hurley and Hult (1998), Augusto and Coelho (2007), and Paladino (2007) found significant relationships between competitor orientation and innovativeness. In contrast, there is a group of researchers (e.g., Lukas & Ferrell, 2000; Frambach, et al., 2003), who suggest that competitor orientation negatively affects the introduction of new-to-the-world products. We argue that competitor-orientated firms tend to outperform competitors by coming up with innovative products when they feel the pressure of competition. Therefore, we posit as follow. P2: Competitor orientation has positive impact on product innovativeness Technology orientation Only a few studies have empirically proven that technological orientation has significant impact on innovation (e.g., Gatignon & Xuereb, 1997; Salavou, 2005; Hortinha, Lages & Lages, 2011). Gatignon and Xuereb (1997) suggest that technology orientation means the firm meets new needs of the users and also that technologically-oriented firms tend to invest more in R&D and foster a commitment to the application of new technology within the organization. Moreover, Zhou et al. (2005) finds that technology orientation is positively associated with tech-based innovation but has no effect on marketbased innovation. Despite the inconsistent findings, it has been well-recognized that firms cannot be innovative without focusing on technological trends and R&D. Therefore, they have no choice, but to constantly keep pace with ever-changing trends and enhance their technological capability in order to develop innovative products. It leads us to state the proposition below. P3: Technology orientation has positive impact on product innovativeness Interaction effect of market orientation and technology orientation Besides the direct effect of strategic orientations on innovativeness, this study contends that the integrated effect of strategic orientations also contributes to the product innovativeness of the firms. The interest here is to see whether the complementarity of market orientation and technology orientation is imperative in enhancing the level of innovativeness. Prior studies have examined the direct effect of these two types of orientations but not both in integration. To fill this gap, this study proposes as follow. P4: The interaction between customer orientation and technology orientation has positive impact on product innovativeness. P5: The interaction between competitor orientation and technology orientation has positive impact on product innovativeness.

4 746 Sabai Khin et al. / Procedia - Social and Behavioral Sciences 65 ( 2012 ) Strategic flexibility Buckley (1997) defines strategic flexibility as the ability to take some action in response to external environmental changes. Literature review indicates that the studies, which focus on the relationship between strategic flexibility and innovation is still scarce. A recent study by Zhou and Wu (2010) suggest that strategic flexibility has no direct effect on explorative innovation but instead enhances the positive effect of technological capability on the innovation. The literature findings imply that the impact of firms technological capability is on innovation is contingent on strategic flexibility. Given this view, it is possible that strategic flexibility could either strengthen or weaken the relationships between product innovativeness and market orientation as well as technology orientation. This leads us to following propositions. P5: The greater the strategic flexibility, the greater the positive effect of customer orientation on innovativeness. P6: The greater the strategic flexibility, the greater the positive effect of competitor orientation on innovativeness. P7: The greater the strategic flexibility, the greater the positive effect of technology orientation on innovativeness. 3. Theoretical Framework Based on the preceding discussion, it is apparent that a significant body of research has conceptualized product innovation from strategic approach, but mostly from market orientation. The theoretical framework of this study is based on the notion that a firm s strategic behaviour in terms of market and technology orientation can simultaneously or complementarily contribute to the product innovativeness of the firm. Although significant number of studies has proven the relationship between market orientation and innovation from strategic view, only a few studies have examined the simultaneous impact of both market orientation and technology orientation on product innovation (e.g. Gatignon & Xuereb, 1997; Salavou, 2005; Zhou et al., 2005). However, no study was found to have examined the integrated effect of these two types of strategic orientation on innovation. In addition, this study also conceptualizes strategic flexibility as the moderating factor of relationship between product innovativeness and strategic orientations. Drawing onto the aforementioned literature support, the conceptual model holds product innovativeness as the dependent variable, customer orientation, competitor orientation, technology orientation as independent variables and strategic flexibility as moderating variable. Market Orientation Customer Orientation Competitor Orientation Market Orientation x Technology Orientation Product Innovativeness Technology Orientation Strategic Flexibility Direct effect Interaction effect Moderating effect Fig. 1. Conceptual Model

5 Sabai Khin et al. / Procedia - Social and Behavioral Sciences 65 ( 2012 ) Conclusion This study calls for empirical test of proposed model by highlighting that the key to strategic approach towards product innovation lies in understanding the relationships between a firm s strategic orientations, strategic flexibility and its level of product innovativeness. In particular, the proposed theoretical model helps practitioners and researchers in understanding the mechanism through which innovation can be achieved over time. This study contributes to the innovation literature by shedding light on both direct and integrated effect both market and technology orientation on product innovativeness as well as moderating effect of strategic flexibility, which has been under-researched. The underlying notion of the model is that firms need to have the culture of paying attention to customers need, competitors movements and technological trends to design, develop and commercialize new and superior products to achieve innovative advantage. Although the model favours the idea of paying attention to market, one has to bear in mind that if a firm is too emphasized on market need, it may tend to wait until there is a market demand or customer need to develop a new product, losing out its technological edge against competition. Therefore, it is important to be proactive in taking the market opportunity and also to get the first mover advantage by acting ahead of competitors. By pointing out the important strategic factors affecting product innovativeness, the present study attempts to propose a conceptual model which, if tested empirically, may provide new insights on integrated effect of market and technology orientation on innovativeness and how this effect could be contingent on strategic flexibility of technological firms. References Atuahene-Gima, K. (1996). Market orientation and innovation. Journal of Business Research Policy, 32(2), Augusto, M., & Coelho, F. (2007). Market orientation and new-to-the-world products: Exploring the moderating effects of innovativeness, competitive strength, and environmental forces. Industrial Marketing Management, 38, Brockman, B. K., & Morgan, R. M. (2003). The role of existing knowledge in new product innovativeness and performance. Decision Science, 34(2), Buckley, A. (1997). Valuing tactical and strategic flexibility. Journal of General Management, 22(3), Christensen, C. M., & Bower, J. L. (1996). Customer power, strategic investment, and the failure of leading firms. Strategic Management Journal, 17(3), Frambach, R. T., Prabhu, J., & Verhallen, T. M. M. (2003). The influence of business strategy on new product activity: The role of market orientation. International Journal of Research in Marketing, 20, Frosch, R. A. (1996). The customer for R&D is always wrong. Research Technology Management, 39(November/December ), Gatington, H., & Xuereb, J.-M. (1997). Strategic orientation of the firm and new product performance. Journal of Marketing Research, 34(1), 77. Hortinha, Lages and Lages (2011) and Spanjol, Mühlmeier and Tomczak (2012) Hurley, R. F., & Hult, G. T. M. (1998). Innovation, market orientation, and organizational learning: An integration and empirical examination. Journal of Marketing, 62,

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