Does the firm s market orientation behaviour influence innovation s success? Manuela Vega-Vázquez, Francisco J. Cossío-Silva and

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1 The current issue and full text archive of this journal is available at wwwemeraldinsightcom/ htm Does the firm s market behaviour influence innovation s success? Manuela Vega-Vázquez, Francisco J Cossío-Silva and David Martín-Ruíz Departamento de Administración de Empresas y ing, Universidad de Sevilla, Sevilla, Spain behaviour 1445 Abstract Purpose This study aims to examine the relationship between a firm s market, product innovation success and market performance Design/methodology/approach Data for the empirical research is obtained from a sample of innovative industrial enterprises based in Andalusia (Southern Spain), all of which were required to have introduced a new product in the preceding three years and to have more than 20 employees Data collection was conducted by means of a postal survey of 294 firms The respondents were either the director of the marketing department or the general manager In all, 85 questionnaires were completed correctly by firms and included in the study, a response rate of 2891 per cent Findings The results support a positive relationship between market and new product success, providing also partial confirmation of the moderating role of product newness in the relationship between market and new product performance Originality/value This work contributes to the literature as follows First, it addresses the previously neglected question of the influence of MO on dimensions other than organisational performance (in the broad sense) The literature has suggested that MO improves the performance of innovations, but few studies have examined the relationship between MO and the characteristics of new products (such as degree of newness and success); nor have they examined the moderating role of degree of product newness Second, the study provides empirical evidence that the relationship between MO and product innovation is influenced by the degree of product newness for the market (NM) Keywords, New products, Organizational performance, Organizational innovation Paper type Research paper 1 Introduction In the current competitive environment, firms are under constant pressure to develop new products and services in response to the changing needs of customers Peters (1984) suggested that a commercial firm is characterised by continuous innovation, total customer satisfaction, and the integrated efforts of all its members Recently, market and innovation capabilities have been posited as characteristic of high-performance firms (Deshpandé and Farley, 1999) Although the relationship between market (MO) and economic performance has been widely studied, the effect of MO on product innovation s success has not received so much attention (Ramaseshan et al, 2002) Indeed, it has been suggested that market may rely on constructs such as innovation or innovativeness to influence and explain market performance (Menguc and Auh, 2006) Some studies have contended that market-oriented firms create new products and Management Decision Vol 50 No 8, 2012 pp q Emerald Group Publishing Limited DOI /

2 MD 50, services that transform customers needs ( Jaworski and Kohli, 1993) Deshpandé et al (1993) argue that a strong MO leads to superior performance in innovation and success with new products Conversely, Bennett and Cooper (1981) have argued that a strong MO can lead to new products that are mere imitations of existing ones Thus, listening to current customers too attentively can be a barrier to the development of new technologies, reducing a firm s competitiveness If this view is correct, MO represents a systematic bias against radical innovation Our key research question is therefore is whether MO promotes or hinders product innovation s success, and how innovation influences the firm s market performance To date, there is little empirical evidence about the relationship between MO and product innovation, except for Atuahene-Gima (1996), and Tsai et al (2008) 2 Literature review and development of hypotheses 21 and firm s innovation s behaviour Kohli and Jaworski (1990) contend that MO can be understood as an innovative behaviour They argue that the generation and dissemination of market intelligence, as well as the organisation s response to this intelligence, represent the first stage of innovative behaviour According to Doyle and Hooley (1992), companies that are oriented to achieve long-run market share are more proactive, are more likely to develop new products, and are more likely to assume calculated risks These findings confirm that firms designated by them as marketing philosophers are more likely to adopt a proactive attitude to new product development Oktemgil and Greenley (1997) note three organisational capabilities that characterise innovative firms: (1) an ability to respond to market opportunities; (2) an ability to respond with marketing activities to these market opportunities; and (3) an ability to pursue opportunities rapidly Recently, market-sensing and market-learning capabilities have been linked with market in an effort to integrate the resource-based view of the firm with marketing theory (Foley and Fahy, 2009) Miller et al (1988) demonstrated that strategies with a high level of analysis and interaction create opportunities for innovation Slater and Narver (1994b) argue that innovation and new-product development are more likely to occur in market-oriented businesses Similarly, Varadarajan and Jayachandran (1999) contended that an effective innovative capability is dependent on firms understanding their customers, and that such understanding is more likely to emerge in a market-oriented culture According to Lukas and Ferrell (2000), innovative firms differ from less-innovative firms in their emphasis on MO Atuahene-Gima (1996) and Varadarajan and Jayachandran (1999) adopted a similar perspective in positing MO as a fundamental factor in the development of innovations The present study contends that market-oriented firms can be expected to see product development in marketing terms as a means of satisfying customer needs and generating growth opportunities for themselves (Vorhies et al, 1999) From an empirical perspective, there is considerable support for the contention that MO has a

3 positive effect on an organisation s capacity to introduce new products in response to market needs (Narver and Slater, 1990) On the basis of the above arguments, the following hypothesis is proposed: H1 An organisation s market is positively related to its degree of innovation behaviour (DPI) 22 Degree of product newness The degree of product newness (DPN) can be described as radical or incremental Radical innovations involve technological changes that represent non-linear improvements in the product (McKee, 1992) The more risky, original, and creative the innovation, the more radical it is (Zaltman et al, 1973) In contrast, incremental innovations involve minor adjustments to the current technology (Dewar and Dutton, 1986), representing adaptation within a particular technological paradigm In some cases, incremental innovations represent rapid improvements in the early generations of a product, but incremental performance reaches a limit and the rate of improvement declines over time (Baker and Sinkula, 1999) The relationship between MO and DPN has been a subject of intense debate, and two opposing positions have developed One view is that a focus on the market diminishes the incentive to assume risks, thus inhibiting the development of radical innovations (Atuahene-Gima and Ko, 2001) According to this view, customers describe their needs in terms of familiar products because individuals have limited knowledge about what is technologically possible to satisfy their desires The opposing view is that MO encourages the development of innovations that are compatible with customer desires and needs (Cooper, 1979) According to this view, market-oriented behaviours reinforce product innovation by providing a source of ideas for new products and improvements to existing products (Goldenberg et al, 2001) There is some empirical evidence supporting the second view Atuahene-Gima (1996) finds only weak support for the existence of a negative relationship between MO and DPN Moreover, Lukas and Ferrell (2000) demonstrated that a focus on the market had a significant positive effect on DPN Based on a questionnaire survey of a sample of 227 high-technology firms in Taiwan, Li and Lin (2008) find that proactive market has greater impact on radical innovation than responsive market ; and then, those effects would be moderated by external and organisational factors On the other hand, Lawton and Parasuraman (1980) failed to establish a significant relationship between implementation of the marketing concept and DPN, and Gatignon and Xuereb (1997) actually found a negative relationship between MO and DPN In accordance with Atuahene-Gima (1996), the present study contends that DPN should be viewed from two perspectives: (1) that of the customer; and (2) that of the firm behaviour 1447 From the customer s perspective, DPN refers to the extent to which an innovation is compatible with the customer s previous experiences From the firm s perspective, DPN refers to the degree of difference between an innovation and existing products in the market

4 MD 50, On the basis of the theoretical and empirical arguments discussed previously, the following hypotheses are proposed: H2a An organisation s market is negatively related to the degree of product newness (DPN) from the customer s perspective H2b An organisation s market is negatively related to the degree of product newness (DPN) from the organisation s perspective 23 MO and new product performance (innovation s success) -oriented firms should have a better understanding of their customers desires and needs, as well as more knowledge about their competitors activities and market trends This understanding of the market should reduce the risk of failure of new products (Cooper, 1984) To the extent that MO enhances compatibility between new products and customer desires and needs, MO should increase the likelihood of success of innovations (Atuahene-Gima, 1995; Cooper and Kleinschmidt, 1987) Theoretical and empirical research supports the contention that MO reinforces new product performance (Slater and Narver, 1994a; Appiah-Adu, 1997; Baker and Sinkula, 1999) In a large sample of high-technology companies from six countries, the degree of success of new products was positively related to MO (defined in terms of customer and market intelligence) in every country but South Korea (Wren et al, 2000) Similar findings have been obtained in China (Zhang and Duan, 2010) and Singapore (Ramaseshan et al, 2002) Cooper (1984) concludes that firms with superior performance are characterised by three features: (1) a technological ; (2) a market ; and (3) a focus on the product With respect to the second of these, Cooper (1984) argued that a strong MO ensured that new ideas were derived from market needs According to this approach, better knowledge of environmental conditions should help a market-oriented firm to reduce the failure rate of new products (Cooper, 1994) Most authors have traditionally defined new product performance from the firm s perspective in terms of profitability However, Cooper and Kleinschmidt (1987) contend that new product performance is a three-dimensional concept: (1) financial performance; (2) degree to which the new product opens up new opportunities (in terms of new product categories and new market areas); and (3) market impact This view is in accordance with common practice among many firms, who use more than one indicator to measure new product performance (Griffin and Page, 1993) These measures include: contribution to profit; sales volume; return on investment; and market share

5 In accordance with Atuahene-Gima (1996), the present study assesses new product performance in terms of market performance and project performance The first is concerned with the sales, profits, and market share of the new product The second measures the advantages of the innovation project in terms of cost efficiencies provided and reinforcement of the sales and profitability of the firm s other products In accordance with these arguments, the following hypotheses are proposed: H3a An organisation s market is positively related to new product market performance H3b An organisation s market is positively related to new product project performance behaviour Moderating effect of DPN on relationship between MO and new product performance Business performance has been linked to MO and an innovative culture (Deshpandé et al, 1993) Moreover, various authors have posited product innovation as a factor in the relationship between MO and business performance either as a mediating variable (Noble et al, 2002) or as a moderating variable (Salavou and Papastathopoulou, 2001) However, few authors have attempted to integrate MO and DPN with an operational indicator of performance (such as new product success) One exception is Atuahene-Gima (1995), who posited several factors as moderating the relationship between MO and the success of new products, one of which was DPN (as perceived by both the firm and its customers) The present study argues that MO has a stronger influence on the performance of radical innovations than incremental ones This contention is founded on the premise that radical innovations require more learning and more intense behavioural change than do incremental innovations In addition, the development of radical innovations is likely to involve greater uncertainty, and firms developing radical innovations are therefore likely to require a stronger MO to face the greater risk associated with such innovations On the basis of these arguments, the following hypothesis is proposed: H4 The relationship between market (MO) and new product performance is moderated by the degree of product newness (DPN) 3 Methodology 31 Sample & data collection Data for the empirical research is obtained from a sample of innovative industrial enterprises based in Andalusia (Southern Spain), all of which were required to have introduced a new product in the preceding three years and have more than 20 employees The selection of the sample is based on available directories and databases (Andalucía Económica No 122, Dicodi 2000, Ranking prestige 2002) Data collection is conducted by means of a postal survey of 294 firms The respondents were either the director of the marketing department or the general manager In all, 85 questionnaires have been correctly completed by firms and included in the study, a response rate of 2891 per cent This response rate is similar to previous research in the topic of new product development (Atuahene-Gima and Evangelista, 2000) Tables I, II, III, IV and V show the main descriptive statistics of the study

6 MD 50, Table I Descriptive statistics of sample firms: CNAE types 32 Questionnaire and measures The questionnaire is developed in Spanish on the basis of the relevant literature and the opinions of various academic experts (see 322) All scales used to measure the various constructs utilised five-point Likert-type scales Details of the constructs and scales are described next CNAE % Food and drinks (group 15) 365 Chemical (group 24) 82 Rubber and plastic (group 25) 82 Other minerals products non metal (group 26) 259 Metallic products (group 28) 129 Heavy machinery (group 29) 59 Other transportation equipment (group 35) 24 Total 100 Company structure % Table II Descriptive statistics of sample firms: company structure of sample firms Independent 776 Matrix 59 Dependent 118 Group 24 Associated 12 Don t answer 12 Total 100 Size % Table III Descriptive statistics of sample firms: size of sample firms employees employees employees employees employees 165 Total 100 Position % Table IV Descriptive statistics of sample firms: position of respondent in firm Manager 554 ing manager 373 Other 72 Total 100

7 321 We follow the scale proposed by Kohli et al (1993) to measure for MO This scale conceives MO from a behavioural perspective, as a process of information management The scale has been widely used in previous research (Verhees and Meulenberg, 2004) For convenience purposes, the present study uses the shorter 20-item version The scale consists of three dimensions: (1) intelligence generation: obtaining, analysing, and interpreting the forces that influence customers needs and preferences; (2) intelligence dissemination: the process of information exchange within the organisation; and (3) responsiveness: the response action by the whole organisation to the market intelligence generated and disseminated behaviour New product As a result of opinions provided by managers and experts in product innovation, a definition of a new product is provided in the present study A new product is defined as a product in which one of the product s essential qualities is perceived by the customer as: a novelty; satisfying different needs or meeting the same needs more closely; and offering greater value to the customer This definition of a new product has been included in the questionnaire as a frame of reference for the set of questions about new products All questions about the degree of product newness (DPN) and new product success referred to the preceding three years 323 Degree of product innovation (DPI) In accordance with Han et al (1998), an organisation s DPI has been measured by the absolute number of new products it had introduced into the market 324 Degree of product newness (DPN) To assess DPN, the study adopted the two dimensions proposed by Atuahene-Gima (1995): (1) Newness for the market (NM): the effort required of consumers to adapt to a new product; measured using six items on a five-point Likert-type scale ð1 ¼ strongly disagree to 5 ¼ strongly agree ) Years in position %, 10 years years years years years years 167 Don t answer 12 Total 100 Table V Descriptive statistics of sample firms: years in position

8 MD 50,8 (2) Newness for the organisation: assessed by asking respondents to identify a product innovation as being: an improvement in an existing product; an extension of an existing product line; and 1452 a new product line for the firm and/or the market 325 New product success In accordance with Atuahene-Gima (1995), two dimensions of new product performance were assessed: (1) performance (MP): the extent to which new products achieved their objectives in terms of: market share; sales level; sales growth; and profits; measured using four items on a scale ranging from 1 ( unsuccessful ) to 5 ( very successful ) (2) Project performance (PP): the extent to which new products: provided a proprietary advantage; achieved cost efficiencies; improved the sales or profitability of the firm s existing products; enabled cost reductions; substantially lower costs for the firm; and opened up new markets and opportunities for the firm; measured by six items on a scale ranging from 1 ( not at all ) to 5 ( substantially ) It is apparent that most measures asked for subjective assessments of performance This is done because it is often difficult to obtain objective indicators of performance The use of such subjective measures of performance has been endorsed by Venkatraman and Ramanujam (1987) Moreover, such subjective measures of performance have been habitually used in the literature ( Jaworski and Kohli, 1993; Narver et al, 2000) 4 Analysis and results 41 Measurement models: validity and reliability Internal consistency of each scale has been evaluated using Cronbach s alpha coefficient This indicator is also used to refine the items of each scale An exploratory factor analysis of the dimensionality of the scales has been also conducted Finally, a confirmatory factor analysis (CFA) of the measurement scales is used to build the measurement model of the latent variables SPSS 111 and AMOS 4 were used in the analyses Tables VI, VII, VIII and IX show the results of the measurement model After refinement, the reliability of the MO scale and its internal consistency has been confirmed by the reliability of the individual items, the average variance extracted, and

9 Intelligence generation a Intelligence dissemination b Responsiveness c Items St loading CR R 2 St loading CR R 2 St loading CR R 2 d MO MO MO d 0515 MO MO d 0426 MO MO MO MO MO MO MO MO Notes: Overall variance extracted: VE: 0547 R 2 : 0779; a VE: 0431 R 2 : 0602; b VE: 0567 R 2 : 0796; c VE: 0529 R 2 : 0899; d Initial loading was fixed to one behaviour 1453 Table VI Measurement model: market Understanding a Effort b Items St loading CR R 2 St loading CR R 2 c NM NM NM c 0415 NM NM Notes: Overall variance extracted: VE: 0519 R 2 : 0627; a VE: 0741 R 2 : 0847; b VE: 0743 R 2 : 0896; c Initial loading was fixed to one Table VII Measurement model: newness for the market Items St loading CR R 2 MP MP MP MP Notes: Overall variance extracted: Alpha: VE: 0671 R 2 :0890; a Initial loading was fixed to one a Table VIII Measurement model: market performance Items St loading CR R 2 PP PP PP PP Notes: Overall variance extracted: Alpha: VE: 0509 R 2 :0795; a Initial loading was fixed to one a Table IX Measurement model: project performance

10 MD 50, the reliability of the overall construct The standardised loadings of the indicators and the critical ratios of the items confirm the existence of convergent validity As shown in Table X, the correlations among the different dimensions do not exceed 08 Moreover, none of the squared correlations exceed the variance of the different constructs It can be concluded that there is discriminant validity among them The three dimensions obtained for the MO construct intelligence generation, dissemination, and responsiveness are very similar to those proposed in the theoretical model The scale for the degree of product newness from the market s perspective (NM) obtains a Cronbach s alpha of 0743 An exploratory factor analysis has been conducted using principal components analysis with Varimax rotation, which reveals the existence of two factors that explained 6739 per cent of the variance The first three items load on the first factor (that is, degree of understanding that the new product required of the customer) and the others on the second factor (that is, the effort required of the customer in adopting the new product) Following a confirmatory factor analysis, we discarded item NM1 As can be seen in Tables VI, VII, VIII and IX, both dimensions of the construct were reliable (greater than 07) and the variances extracted exceeds the minimum acceptable of 05 Moreover, the variances extracted are greater than the squared correlation between the two dimensions (0135) These results demonstrate that there is discriminant validity among the different dimensions The same analysis has been conducted on the scales measuring the success of the new products market performance (MP) and project performance (PP) 42 Structural model The structural model proposes a single exogenous variable (market ) and four endogenous variables (degree of product innovation, degree of product newness for the market, new product market performance, and new product project performance) The MO construct is measured in terms of its three dimensions by averaging the items of each dimension The degree of product newness for the market (NM) is a second-order construct, and the items of each of its two dimensions have been grouped into a single measure performance (MP) and project performance (PP) are represented by the items of their respective scales As noted above, the degree of product innovation (DPI) has been estimated using a single indicator the number of new products (Han et al, 1998) The structural model appears in Figure 1 As shown in Table XI, all the variables are significantly related to their respective constructs thus confirming the proposed relationships among the items and the constructs To assess whether these items are sufficient to represent their respective latent variables, we estimate the reliability of the constructs and the variances extracted for each construct that have more than one item (see Table XII) Intelligence generation Intelligence dissemination Table X Correlations Intelligence generation 1 Intelligence dissemination Responsiveness

11 behaviour 1455 Figure 1 Structural model The correlations among the various constructs are weak (see Table XIII) The strongest correlation (0353) stands between MO and new product market performance However, the average variance extracted of the constructs exceeds the squared correlation in all cases supporting the existence of discriminant validity To fit the structural model, relationships that were not significant were eliminated Table XIV shows the results of the fit, which can generally be considered acceptable

12 MD 50, Table XI Measurement model Items St loading CR R 2 St loading CR R 2 St loading CR R 2 St loading CR R 2 St loading CR R 2 Degree of product newness for the market performance Project performance Degree of product innovation 0050 UNDERST 0296 a IG ID R 0886 a 0785 NNP EFFORT MP MP MP MP a 0599 PP PP PP PP a 0256 a Note: a Initial loading was fixed to one

13 Table XV shows the standardised coefficients of the causal relationships proposed in the model It is apparent that the only relationship of statistical significance appears between MO and new product market performance The results confirmed the existence of a positive and significant relationship between MO and success H3a is therefore confirmed The relationship between MO Degree of product newness for the market performance Project Performance Reliability Variances extracted behaviour 1457 Table XII Reliability of the constructs and the variances extracted Degree of product innovation Degree of product newness for the market performance Project Performance Degree of product innovation Degree of product newness for the market performance Table XIII Correlations between the constructs Goodness of fit absolute measures Df 13 x 2 (sig) (0117) Noncentrality parameter (NCP) 6218 Goodness-of-fit index (GFI) 0942 Relative goodness-of-fit index (RGFI) 0983 Root mean square residual (RMSR) 0067 Root mean square error of approximation (RMSEA) 0075 Goodness-of-fit incremental measures Adjusted goodness-of-fit index (AGFI) 0875 Relative adjusted goodness-of-fit index (RAGFI) 0962 Normed fit index (NFI) 0934 Comparative fit index (CFI) 0977 Table XIV Goodness of fit measurement model MO-Innovation Relationship St loading CR! Degree of product innovation ! Degree of product newness for the market ! performance ! Project performance Table XV Structural equation modelling MO-Innovation

14 MD 50, and success (as measured by project performance) is not significant, although the sign of the relationship is positive H3b is not supported The relationship between MO and the introduction of new products into the market is also not significant H1 is not supported either Similar comments apply to the relationship between MO and degree of product newness for the market (NM) H2a is not supported H2b propose a negative relationship between MO and degree of product newness for the organisation To test this hypothesis, the firms in the sample have been sorted in two groups on the basis of their level of MO relative to the median An ANOVA failed to demonstrate any significant difference between both groups H2b cannot be supported H4 postulates that the relationship between MO and new product performance is moderated by the degree of product newness (DPN) To test this hypothesis, we conduct a multi-group analysis The sample of firms is divided into two groups on the basis of their degree of newness for the market relative to the median Table XVI shows the results of this analysis Group 1 represents the incremental innovations whereas Group 2 represents the radical innovations It is apparent that the effect of MO on market performance is significant only for Group 1 (incremental innovations) The differences between the standardised loadings in both groups are statistically significant (critical coefficient 217) With regard to the effect of MO on project performance, there are statistically significant differences between the standardised loadings of the two groups (critical coefficient 2243), although the effect is only moderately significant (significance level 01; critical coefficient 179) in Group 2 (radical innovations) The new products that have been classified by respondents as improvements in existing products or extensions in the product line are included in the group of incremental innovations, whereas the new products representing new product lines or totally new products belong to the radical innovation group Not all the critical ratios of the loadings are significant The analysis thus failed to confirm the moderating role of DPN (newness for the organisation) (Table XVII) 5 Discussion The present findings offer only partial empirical support for the contention that MO has a positive impact on product innovation In the present study, it is apparent that the activities of MO (generation of market information, dissemination of that information, and organisational response) are not related to an organisation s degree of Group 1 Group 2 Table XVI Multigroup analysis Relationship St loading CR St loading CR! performance NS! Project performance NS R 2 ( performance) 0306 R 2 (Project performance) 008 Notes: x 2 : 3760; Sig ¼ 0065; CFI ¼ 0910; MFI ¼ 932; RMSEA ¼ 0075 NS ¼ Not significant

15 Degree of product newness for the customers We meet with customers at least once a year to find out what products or services they will need in the future We do a lot of in-house market research We are quick to detect changes in our customer s product preferences We poll end users at least once a year to assess the quality of our products and services We are quick to detect fundamental shifts in our industry (eg competition, technology, regulation) We periodically review the likely effect of changes in our business environment (eg regulation) on customers We have interdepartmental meeting at least once a quarter to discuss market trends and developments ing personnel spend time discussing customers future needs with other functional departments When something important happens to a major customer of market, the whole business knows about it within a short period Data on customer satisfaction are disseminated at all levels in this business on a regular basis When one department finds out something important about competitors, it is quick to alert other departments Does not take us long to decide how to respond to our competitor s price We feel changes in our customer s product or service needs We periodically review our product development efforts to ensure that they are in line with what customers want Several departments get together periodically to plan a response to changes taking place in our business environment If a major competitor were to launch an intensive campaign targeted at our customers, we would implement a response immediately The activities of the different departments in this business are well coordinated Customer complaints are taken into account in this business If we came up with a great marketing plan, we probably would be able to implement it in a timely fashion When we find that customers would like us to modify a product of service, the departments involved make concerted efforts to do so To what extent does each of the following statements describe the new product? It required a major learning effort or experience by customers It took a long time before customers could understand its full advantages The product/service concept was difficult for customers to evaluate or understand It required considerable advance planning by customers before use It involved high changeover cost for the customer Product/service was more complex than we have introduced into the same market (continued) behaviour 1459 Table XVII Measures

16 MD 50, Table XVII Degree of product newness for the organisation New product success performance Project performance Type of new products: 1 product or service improvements ; 2 line extensions ; 3 new product or service lines to the firm ; 4 real, new to-the-world innovations To what extent has the new product/service been successful in meeting its: share objectives since its launch? Sales and customer use objectives since its launch? Sales and customer use growth objectives since its launch? Profit objectives since launch? Did the new product/service: Provide your firm with proprietary advantage such as patents or trade secrets? Achieve important cost efficiencies for the firm? Enhance the sales and customer use of the firm s other products/services? Enhance the profitability of the firm s other products/services? Substantially lower costs for the firm? Open new market and product/service opportunities for the firm? innovation in new products (DPI) In seeking an explanation, it is possible that the influence of MO on product innovation was moderated in the present study by environmental factors These results confirm previous research regarding that MO does not seem to influence product innovation in terms of the number of new product successfully launched to the market In addition, we cannot find support for a relationship between MO and the degree of product newness (for the market and the firm) This result is similar to Bennett and Cooper (1981), while Atuahene-Gima (1996) found only partial support between them On the other hand, the results confirm the positive effect of MO on new product market performance This is consistent with the findings of previous research and suggests that MO emphasises a firm s ability to connect with its customers needs and desires The evidence suggests that businesses that strive to understand their customers and competitors, and then coordinate the activities of all their functions with the aim of creating greater value, achieve greater market success with their new products This result is coherent with research on new products, according to which a new product is more likely to be successful when the organisation is market-oriented The present study found that the effect of MO on market success is moderated by the degree of product newness for the market This is an important finding in relation to previous research More specifically, the influence of MO on new product performance is a function of the newness of the products from the market s perspective (NM) The effect of MO on new product success is manifested more clearly when the innovation is incremental The study thus demonstrates that customers familiarity with new products led to better results in terms of market performance MO appears to have been less important in the success of radical product innovations This result indicates that MO favoured the development of me-too products as was argued by Bennett and Cooper (1981) It appears that customers had difficulty in anticipating

17 their future needs on the basis of their current experiences, thus complicating the development of superior new products It might be necessary for firms to add a technological push to their present customer mix of strategic s The study also found that radical innovations have a moderating effect on the relationship between MO and project success (in terms of cost efficiency, synergies with other products, etc) As suggested in the literature, MO should promote efficiency and effectiveness of organisational activities, thus enhancing performance In the present study, radical innovations involved notable improvements in the efficiency of the product, cost savings in production, etc From the perspective of information-processing theory, firms will require a greater level of MO when introducing innovations that are radical for the market because the degree of change required of consumers in adopting radical innovations will probably require greater learning and behavioural change Firms are likely to require a stronger MO to face this situation However, it should be noted that classification of the new product as radical or incremental from the firm s perspective does not appear to affect the proposed relationship behaviour Implications 61 Theoretical implications This work contributes to the literature in various ways First, it addresses the previously neglected question of the influence of MO on dimensions other than organisational performance (in the broad sense) The literature has suggested that MO improves the performance of innovations, but few previous studies have specifically examined the relationship between MO and the various characteristics of new products (such as their degree of newness and success); nor have they examined the moderating role of degree of product newness These characteristics of innovations have usually been treated in the context of an organisation s overall strategic Second, the study provides empirical evidence that the relationship between MO and product innovation is influenced by the degree of product newness for the market (NM) Third, the results demonstrate the theoretical importance of multiple dimensions in assessing new product performance The findings are coherent with the contention that MO can have differential effects on the various indicators employed to measure performance 62 Managerial implications From the perspective of business management, the main implication of the present study is the demonstration of a significant positive relationship between MO and new product performance If an organisation wishes to develop a superior innovation, it is apparent that it must endeavour to improve its MO because understanding and responding to customers requirements are critical to the success of new products in terms of market share, sales level, sales growth, and profits knowledge allows an organisation to adapt its products to customer needs, thus facilitating solutions that provide value to customers and promote the market success of new products Second, the study has shown that MO has a differential effect on performance, depending on the type of innovation MO is especially important for achieving superior market performance if the innovations are incremental (from the perspective of the

18 MD 50, customers) Firms usually face greater competition with respect to incremental innovations than they do with radical innovations, and the present study shows that this requires a greater level of MO if success is to be achieved 7 Limitations and future research The generalisability of the present results is limited by several factors First, the cross-sectional nature of the research makes it difficult to establish causal relationships with absolute certainty However, the theoretical foundations of the study are sound, and the causal relationships identified here are likely to be valid Generalisability is partially limited by the fact that the organisations considered here are all industrial-sector firms However, the sample is relatively large, and the firms belonged to seven different sectors Finally, the study did not consider other factors that might influence the performance of a new product such as environmental conditions or the individual characteristics of the product In light of the present findings, it is apparent that there is a need to examine the relationship between MO and product innovation in more detail especially with respect to environmental variables that might act as moderators of the relationship between MO and new product performance It would also be useful to extend the timeframe to include longitudinal studies of the long-term effects of MO on product innovation Other indicators could also be introduced to measure degree of product innovation (DPI) and level of new product success References Appiah-Adu, K (1997), and performance: do the findings established in large firms hold in the small business sector?, Journal of Euro-marketing, Vol 6 No 3, pp 1-26 Atuahene-Gima, K (1995), An exploratory analysis of the impact of market on new product performance A contingence approach, The Journal of Product Innovation Management, Vol 12, pp Atuahene-Gima, K (1996), and innovation, Journal of Business Research, Vol 35, pp Atuahene-Gima, K and Evangelista, F (2000), Cross-functional influence in new product development: an exploratory study of marketing and R&D perspectives, Management Science, Vol 46 No 10, pp Atuahene-Gima, K and Ko, A (2001), An empirical investigation of the effect of market and entrepreneurship alignment on product innovation, Organization Science, Vol 12 No 1, pp Baker, WE and Sinkula, JM (1999), The synergistic effect of market and learning on organizational performance, Journal of the Academy of ing Science, Vol 27 No 4, pp Bennett, RC and Cooper, RG (1981), The misuse of marketing: an American tragedy, Business Horizons, Vol 24, pp Cooper, RG (1979), The dimensions of industrial new product success and failure, Journal of ing, Vol 43, pp Cooper, RG (1984), New product strategies: what distinguishes the top performers?, The Journal of Product Innovation Management, Vol 2 No 2, pp Cooper, RG (1994), New product: the factors that drive success, International ing Review, Vol 11 No 1, pp 60-76

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