Investigating the Drivers of Innovation and New Products

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  Investigating the Drivers of Innovation and New Product Success:A Comparison of Strategic Orientations à Angela Paladino The notion of producing innovations and achieving new product success has received a great deal of attention. Though many have investigated these effects in marketing and various fields within management, there has been little cross-fertilization between fields of study to explain the basis for this superior performance. Though research hasexamined the resource-based view (RBV) and market orientation individually, nonehas evaluated and compared their effect on firm innovation and new product success inone study. Furthermore, although empirical work has been conducted between marketorientation and organizational learning, comparatively less research has been con-ducted to evaluate the relationship between organizational learning and the RBV toexamine their combined effects on a firm’s ability to innovate and succeed. Subse-quently, the purpose of the present article is to investigate whether a focus on thecustomer (i.e., market orientation) or the firm (i.e., RBV) will drive the ability to(1) innovate within the firm and (2) succeed in terms of new product success, finan-cial performance, market share, and customer value. The present article examines therelationship between organizational learning and the RBV and market orientation. It presents an empirically testable framework that investigates the relationship thatRBV and market orientation have with performance outcomes. Data were collected  from 249 senior executives. LISREL was applied to evaluate the relationships. Con- firmatory factor analysis and related techniques were applied to assess the robustnessof the measures used. Findings show that organizational learning is strongly associ-ated with market orientation, which in turn impacts various performance outcomesincluding customer value. The RBV had a significant relationship with new productsuccess. These results suggest that managers seeking innovation and new productsuccess should focus less on the provision of customer value. Instead they should looktoward developing their resources within the firm, including investing in human re-sources, to ultimately provide value to the firm. Findings indicate that this uniqueoffering—innovations—will have an indirect effect on customer value and financial  performance. In contrast, those in pursuit of positive financial performance and cus-tomer value should focus on the development of market orientation. Even though thiswill not necessarily lead to the development of innovative processes and new productsuccess according to the present study, this approach may lead to a greater marketshare in the long term. This article reviews theoretical and managerial implications inmore depth, providing an impetus for further research. à The author is grateful for the invaluable feedback provided by Abbie Griffin on an earlier version of this article. The author also thanks theeditor, Anthony Di Benedetto, anonymous reviewers of the European Institute for the Advanced Studies of Management and the Journal of ProductInnovation Management , as well as the participants at the 13th Annual Product Innovation Management conference in Milan, for their feedbackthat helped to improve this article. This study was supported by a Faculty of Economics & Commerce Grant from the University of Melbourne.Address correspondence to: Angela Paladino, Department of Management and Marketing, Level 4, Alan Gilbert Building, University of Mel-bourne, Victoria 3010 Australia. Tel.: þ 61 3 8344 1916. Fax: þ 61 3 9348 1921. E-mail: a.paladino@unimelb.edu.au.J PROD INNOV MANAG 2007;24:534–553 r 2007 Product Development & Management Association  Introduction T he resource-based view (RBV) and marketorientation (MO) have independently re-ceived notable attention in the managementand marketing literatures, respectively, as bases of ex-plaining the attainment of a competitive advantage.Supporters of the RBV emphasize the importance of exploiting firm resources to achieve a marketplace ad-vantage, whereas proponents of market orientationemphasize the importance of customer value.The RBV addresses how a firm’s resources drive itsperformance in a dynamic competitive environment(Collis and Montgomery, 1995). The ultimate objectiveis to create persistent above-normal returns and superiorresource value to the firm by developing and deployingunique and costly to imitate resource bundles to exploitenvironmental opportunities or to neutralize threats(Peteraf, 1993; Teece, Pisano, and Shuen, 1997). In con-trast, the ultimate objective of the market-oriented firmis to create superior value for the customer (Kohli andJaworski, 1990; Narver and Slater, 1990).The relationship among market orientation, re-source orientation (RO), and elements of short- andlong-term performance has not previously been ex-amined in one piece of research. Indeed, there is adearth of research that examines market orientationand multiple performance measures at the one time(Baker and Sinkula, 2005). The present article aims toaddress this gap. Additionally, this study responds tocalls for (1) cross-disciplinary research, particularly inthe areas of marketing and strategic management(e.g., Hauser, Tellis, and Griffin, 2005); (2) compara-tive studies of diverse strategic orientations on per-formance (e.g., Noble, Sinha, and Ajith, 2002); and(3) research investigating the relationship betweenresource-based strategies and innovation (e.g., Karn-iouchina, Victorino, and Verma, 2006).Similarly, an understanding of the drivers of newproduct success is also becoming increasingly perti-nent. This variable has a demonstrated effect on prod-uct performance, especially in highly competitive andvolatile environments that increase rates of technicalobsolescence and shorten product life cycles (Griffin,1997; Langerak, Hultink, and Robben, 2004). Finally,Montoya-Weiss and Calantone (1994) identified onlytwo studies out of more than 47 that had employedthe use of path analysis, calling for the increased useof these sophisticated techniques.Accordingly, the present article contrasts the ef-fects of two strategic orientations to evaluate if andhow resource orientation and market orientationdrive innovation, new product success, and diverseelements of performance using structural equationmodeling. The study also takes into account the rela-tionships between performance variables such as, forexample, between product quality and new productsuccess, where there has been a dearth of research(Henard and Szymanski, 2001).The present article is organized as follows. A reviewof the RBV and market orientation is provided andcontrasted, followed by a brief introduction to resourceorientation. The article then reviews relevant organi-zational learning literature, which is positioned in thisarticle as a key driver of the two nominated strategicorientations. This is followed by a presentation of therelevant hypotheses. A discussion of the methodology,measures, and results are then provided. Finally, theconclusions and implications are presented. A Review of Learning and the Drivers of Performance The Resource-Based View The RBV aims to clarify how a firm’s resources driveits performance in a dynamic competitive environ-ment (Collis and Montgomery, 1995). Unlike marketorientation, the RBV is primarily internally orientedin that its focus lies with the development and de-ployment of unique bundles of firm resources. It isconcerned with accumulating a unique resource basethat is immobile and heterogeneous (Barney, 1991).Hence, firms devote effort to generating a resourcebase that will be difficult and costly, if not impossible,to imitate. It then uses this resource base to exploit BIOGRAPHICAL SKETCH Dr. Angela Paladino is senior lecturer in the Department of Man-agement and Marketing at the University of Melbourne, Australia.She received a Chancellor’s Medal for Excellence in a Ph.D. disser-tation from the University of Melbourne and recognition for teach-ing excellence at the undergraduate and postgraduate levels at theuniversity. Her research has appeared in numerous academic jour-nals, conference proceedings, and books, including those publishedby the American Marketing Association, the Academy of Market-ing Science, the Strategic Management Society, as well as in Man-agement International Review, Business Horizons, ManagementDecision, and Journal of Customer Behaviour . Dr. Paladino active-ly researches in strategic marketing, innovation management, andenvironmental marketing and is consistently engaged with industryand government organizations. INVESTIGATING THE DRIVERS OF INNOVATION AND NEW PRODUCT SUCCESS J PROD INNOV MANAG2007;24:534–553535  opportunities or to neutralize threats that arise in theexternal environment. Market Orientation Market orientation is defined as ‘‘the organizationalculture that most effectively and efficiently creates thenecessary behaviors for the creation of superior valuefor buyers and thus, continuous superior performancefor the business’’ (Narver and Slater, 1990, p. 21).Many researchers increasingly refer to market orien-tation as a strategy, recognizing the impact that itspursuit has on a firm’s long-term decision-makingstrategies (Greenley, 1995). Similarly, Moorman andRust (1999, p. 484) recently established how marketorientation is a ‘‘value-based strategic philosophymanifesting itself in behaviors designed to keep thefirm close to the customer. [Conversely, it is] the mar-keting function that is a collection of capabilitiesneeded to implement the output of a strong marketorientation.’’ Comparing the RBV and Market Orientation It is arguable that firms pursuing a RBV leverage theirresources in search of an appropriate market. Theprimary focus rests with the internal environment,followed by an evaluation of how the external envi-ronment fits. Hence, analysis begins internally andprogresses outward toward the market. In contrast, afirm adhering to market orientation commences withan examination of customer needs and then seeks todevelop the resources required to serve this market.The focus rests with the external environment, fol-lowed by the internal environment. Hence, analysisbegins externally and progresses inward toward thefirm. These sentiments are echoed by Kahn (2001),who acknowledged that market orientation has anexternal focus (through customer and competitor ori-entations) and an internal focus (through interdepart-mental integration).Internally focused firms are most likely to gaugethe strength of their position, whereas externallyfocused firms rely on the market for standards toattain (Day, 1990). As a result, these internallyfocused firms risk neglecting to seek opportunitiesthat provide scope to better serve their customers andto imitate their competitors. These firms are also indanger of overlooking important competitive forces.Similarly, market-oriented firms might provide prod-ucts and services to customers they are ill-equipped toserve, whereas resource-based firms may miss majorchanges in the marketplace that would require thedevelopment of new capabilities. Alternatively, thesefirms may create assets that add little value to thecompany’s market strength (Verdin and Williamson,1994).As the RBV is a theory of the firm, it cannot betested in its current form. Thus, a construct that ap-plies the precepts of the RBV was used. The resourceorientation (RO) scale assesses the extent to which afirm is oriented toward the development of valuableand unique resource bundles (Paladino, 2006; Pala-dino, Whitwell, and Widing, 2006). Resource orien-tation, which describes the degree to which a firmpractices a RBV, is composed of three dimensions:synergy, uniqueness, and dynamism. Thus, this stra-tegic orientation is assessed at the same level of mar-ket orientation, an alternate strategic orientation. Adriver of these strategic orientations is now reviewed. Organizational Learning Organizational learning (OL) requires management tocontinuously question practices and to share theirknowledge to ensure that learning pervades all deci-sions and becomes embedded in decision rules (Hult,1998). Three crucial areas warrant attention by thosewishing to pursue learning: (1) value, which is pro-vided to customers through goods and services; (2)continuous renewal of company operations and pro-cesses; and (3) distinct resources (Belohlav, 1996).This requires the company to engage in continuousexperimentation, learning, and resource recombina-tions (Galunic and Rodan, 1998; Slocum, McGill, andTei, 1993; Webster, 1994).Organizations that engage in learning not only rec-ognize and exploit opportunities but in time, are alsocapable of creating new opportunities (Belohlav,1996). A firm who is able to control the marketplacethrough its resources would be ideally equipped to dothis. Learning is manifest in the knowledge, experi-ence, and information of an organization (Mahoney,1995). This will help an entity to keep up with and tostay ahead of competitors. This will also entail listen-ing more closely to customer complaints to revitalizeareas of the company that require attention (Slocum,McGill, and Tei, 1993). Hence, organizational learn-ing is related to elements of a resource orientation andRBV and market orientation. 536 J PROD INNOV MANAG2007;24:534–553A. PALADINO  Hypotheses Organizational Learning and Resource Orientation It is proposed that both resource orientation andmarket orientation are influenced by organizationallearning. Organizational learning is history dependent(Mahoney, 1995) and has a major influence on afirm’s value systems and behavior that form (e.g.,Sinkula, Baker, and Noordewier, 1997). Learning isintrinsic in a resource orientation and is composed of both internal (i.e., doing, using, and failing) and ex-ternal activities (i.e., learning from, for example, com-petitors and customers) (Chiesa and Barbeschi, 1994).Resource orientation views firms that continually im-prove their capabilities through their experience asbeing able to learn. Such firms question how resourcescan be developed. Furthermore, organizational learn-ing assists a firm in accumulating its base of resourcesby learning how to acquire, process, store, andretrieve information (Mahoney, 1995).Interfirm collaboration allows firms to engage in ex-ternal projects and to reconsider organizational pro-cesses and strategies. This external collaboration is aneffective mechanism through which to stimulate learn-ing (Dodgson, 1993). It is also strongly related to theneed for a firm to adopt an external orientation in uni-son with an internal position to be able to continuallyrespond to the rapidly changing environment and toanticipate future opportunities. Thus, in this respect,organizational learningacts as an antecedent ofresourceorientation. Hence, consider the following hypothesis: H1: The greater the organizational learning, the higherthe resource orientation. Organizational Learning and Market Orientation A number of characteristics distinguish learning pro-cesses that are almost analogous to a number of as-pects of market orientation (Day, 1990). Theseinclude open-minded inquiry (whereby decisions aremade from the market-back), widespread informationdistribution, mutually informed mental modes, andan accessible memory of what has been learned. Mostimportant, however, is that a company act on the in-formation received and then evaluates outcomes,prompting further learning to take place (Sinkula,Baker, and Noordewier, 1997). These aspects are allstrongly associated with interfunctional coordination,a key component of market orientation. Organiza-tional learning is argued to influence market-orientedthought processes and related behaviors, wherebya strong orientation toward learning is needed toengender the type of market orientation processesrequired to allow a firm to develop a competitiveadvantage (Baker and Sinkula, 1999). Research sug-gests that information acquisition takes place fromorganizational experiences or memory, providing fur-ther support that organizational learning acts anantecedent of market orientation (Slater and Narver,1995). Thus, consider the following hypothesis: H2: The greater the organizational learning, the higherthe market orientation. The Effects of Resource and Market Orientationson Performance Performance is a multidimensional construct consist-ing of more than simply financial performance (e.g.,Baker and Sinkula, 2005; Henderson and Cockburn,1994; Jaworski and Kohli, 1993). Though many havelimited the assessment of performance to financialoutcomes, it is only recently that researchers haverecognized that customer outcomes are just as valu-able as indicators of performance. Here, market ori-entation and resource orientation are posited to havean impact on a number of outcomes as detailed inFigure 1.The literature has indicated that formidable re-lationships exist between distinct resources andcapabilities and performance (e.g., Sharma andVredenburg, 1998) and between market orientationand performance (Baker and Sinkula, 2005; Jaworskiand Kohli, 1993; Kohli and Jaworski, 1990; Narverand Slater, 1990; Slater and Narver, 1994). Consistentwith the extant literature, financial performance is as-sessed in the present study. It is argued that a resourceorientation will enable a firm to accumulate uniquebundles of resources that are difficult to replicate bycompetitors that enable them to increase financialperformance.Overall performance measures are used to assess afirm’s general perception of its relative performance.Though some research has shown a positive relation-ship between market orientation and overall perfor-mance (Slater and Narver, 1994), other literature hasdemonstrated that a negative or negligible relation-ship exists (e.g., Han, Kim, and Srivastava, 1998).Although there is no empirical support for such a INVESTIGATING THE DRIVERS OF INNOVATION AND NEW PRODUCT SUCCESS J PROD INNOV MANAG2007;24:534–553537
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