Industrial Marketing Management 33 (2004) 429 – 438

Innovativeness: Its antecedents and impact on business performance
G. Tomas M. Hulta,*, Robert F. Hurleyb,1, Gary A. Knightc,2
a

Eppley Center, Eli Broad Graduate School of Management, Michigan State University, East Lansing, MI 48824-1121, USA b Fordham University, 113 West 60th Street, New York, NY 10023, USA c College of Business, Florida State University, Tallahassee, FL 32306-1110, USA Received 30 December 2002; accepted 21 August 2003

Abstract In this study, we address three research questions: (1) Why are some industrial firms more innovative than others? (2) What effect does innovativeness has on business performance? (3) Does the linkage between innovativeness and business performance depend on the environmental context? Accordingly, we draw on various theoretical perspectives to develop hypotheses that propose market orientation, entrepreneurial orientation, and learning orientation as key antecedents to innovativeness, as well as a direct relationship between innovativeness and business performance. A model is devised and tested that examines these relationships in general and in the context of varying market turbulence. Findings confirm the validity of the model and afford various insights on the role of market turbulence in the proposed relationships. Lastly, implications are offered on the antecedents and consequences of organizational innovativeness. D 2003 Elsevier Inc. All rights reserved.
Keywords: Innovativeness; Market orientation; Learning orientation; Entrepreneurial orientation; Performance; Market turbulence

1. Introduction A key component in the success of industrial firms is the extent of their innovativeness. Innovativeness relates to the firm’s capacity to engage in innovation; that is, the introduction of new processes, products, or ideas in the organization. This capacity to innovate is among the most important factors that impact on business performance (e.g., Burns & Stalker, 1961; Hurley, Hult, & Tomas, 1998; Porter, 1990; Schumpeter, 1934). It is through innovativeness that industrial managers devise solutions to business problems and challenges, which provide the basis for the survival and success of the firm well into the future. Innovativeness is one of the factors over which the management has considerable control. However, studies on the factors that give rise to innovativeness in the firm have produced mixed results (Abratt & Lombard, 1993; Henard & Szymanski, 2001; Poolton & Barclay, 1998). While it is generally agreed that
* Corresponding author. Tel.: +1-517-353-4336; fax: +1-517-432-1009. E-mail addresses: hult@msu.edu (G.T.M. Hult), hurley1@ix.netcom.com (R.F. Hurley), gknight@cob.fsu.edu (G.A. Knight). 1 Tel.: +1-212-636-6760; fax: +1-212-765-5573. 2 Tel.: +1-850-644-1140; fax: +1-850-644-4098. 0019-8501/$ – see front matter D 2003 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2003.08.015

innovation contributes to business performance, relatively little is known about the drivers of innovativeness and how those drivers operate via innovativeness to collectively influence performance. Moreover, little is known about how the drivers of innovativeness operate under varying conditions in the firm’s external environment. To address these issues, a sample of large (Fortune 500) industrial-based firms is investigated to determine (1) the effect of three key organizational orientations posited from the literature on innovativeness, (2) the hypothesized effect of innovativeness on business performance, and (3) the role of environmental characteristics in moderating the relationship among the orientations, innovativeness, and business performance. Findings can help the management to better understand what types of orientations should be encouraged with a view to increasing the level of innovativeness among industrial firms. Based on a review of relevant literature and theoretical conceptionalizations, we will argue that among the key antecedents to innovativeness are the constructs of market orientation, learning orientation, and entrepreneurial orientation. Researchers have emphasized the importance of market orientation (Jaworski & Kohli, 1993; Narver & Slater, 1990) and learning orientation (Sinkula, 1994; Slater

product. research on competitive advantage has highlighted the importance of entrepreneurial orientation (Lumpkin & Dess.. the relationships among these constructs are assessed and discussed. The principal ques- tion addressed in this paper is how each of key antecedents and innovativeness are related and how they collectively enable the organization to adapt and perform. 1973. a new production process. Much of the firm’s innovativeness hinges on the extent to which managers acquire and act on market intelligence. 1998).430 G.M. In the methods section. we do not know how these constructs interact to influence business performance. Specifically. Next. Van de Ven (1986) refers to this as the management of the organization’s cultural attention in order to recognize the need for new ideas and action within the organization.T. 1. An innovation can be a new product or service. learning orientation. Hult et al. Openness includes whether the members of an organization are willing to consider the adoption of an innovation or whether they are resistant to it. 1986). or idea in the organization (Damanpour. Kim. we assess the plausibility of market orientation. When specific orientations are embedded in organizational culture. 1. groups. 1991. the study sample of 181 firms is discussed and the construct measures are evaluated.. / Industrial Marketing Management 33 (2004) 429–438 & Narver. Background and hypotheses Culture reflects norms. Hurley et al. Business performance is defined here as the achievement of organizational goals related to Fig. A culture that supports the execution of a strategy is difficult to copy and thus can become a sustainable competitive advantage (Barney. values. 1996. Damanpour. 2. 1998). We begin by examining how innovativeness has been related to organizational adaptation and performance in the context of relevant theoretical perspectives. While the positional advantage of firms has been suggested to be a function of market orientation. Hypothesized model. and entrepreneurial orientation as antecedents to innovativeness and offer a collection of associated hypotheses. Next. and beliefs that reinforce behaviors ultimately related to business performance. p. learning orientation. Organizations without the capacity to innovate may invest time and resources in studying markets but are unable to translate this knowledge into practice. and Holbek (1973) suggest that one of the stages of the innovativeness process is initiation. The adoption of innovation is generally intended to contribute to the performance or effectiveness of the firm (e. Certain types of innovations such as administrative innovations that improve internal operations may have no direct or immediate impact on the marketplace (Han. p. Duncan.g. The linkages proposed among the constructs investigated here are illustrated in Fig. 1995) in developing a competitive advantage (Day. Zaltman. We now examine these factors in depth to highlight relationships among them and their association with business performance. Innovativeness is defined here as the capacity to introduce of some new process. or a new structure or administrative system. and innovativeness. 64). As such. 1991). entrepreneurial orientation. and persons within the firm. 1994). Recently. This study intends to shed new and important light on these constructs and the interrelationships among them.. the intensity and consistency of resultant behaviors are augmented across situations. . A critical part of the initiation stage is cultural ‘‘openness to the innovation’’ (Zaltman et al. 1996). we devise a theory-based structural equation model that links these constructs together. 136). Innovativeness is primarily distinguished from entrepreneurial orientation in that it does not require new market entry (Lumpkin & Dess. Organizations that act are responsive to markets. no study has examined the linkages among these constructs in an integrated manner. & Srivastava. We then conduct a survey-based study of multinational firms that market industrial goods to evaluate the validity of linkages posited in the model.

it would be ‘‘counter cultural. 1990).’’ Fritz (1996) found that market orientation is important for corporate success. (1998). Two different conceptualizations of learning orientation can be set forth.T. p. Hurley et al. Porter. we hypothesize. To some degree. Han et al.’’ Innovativeness is an important managerial function because it has been consistently linked to business performance. 1996. These constellations of behaviors. Accordingly. a market orientation is incomplete if practitioners do not understand the modus operandi that gives rise to creating superior buyer value.1. thereby contributing to its performance (e. practices. Innovation is a means for changing an organization.1998). Farley. and symbols that demonstrate a concern for markets. (1998) and Hurley et al. Market orientation and innovativeness Kohli and Jaworski (1993) define market orientation as a set of ongoing behaviors and activities related to generation. whether as a response to changes that occur in its internal or external environment or as a preemptive move taken to influence an environment. Accordingly. Day’s (1994) conceptualization holds that market-oriented companies have processes for collecting market intelligence and integrating them with strategic decision-making processes. Most recently. 1985). which facilitate integration and implementation. processes. Fiol. Slater and Narver (1995) also adopt this definition. Kohli & Jaworski. Lane. Huber (1991) defines learning orientation broadly as the development of new knowledge or insights that have the potential to influence behavior through its values and beliefs within the culture of the organization. that is.’’ Thus. Damanpour. The more stringent definition of learning orientation requires that learning results in new behaviors (Argyris & Schon. extant literature has not yet addressed the issue of how market orientation and innovativeness operate together to affect company performance. Much later.. This discussion leads to our first hypothesis. Narver and Slater (1990) emphasize that market orientation refers to a culture that places a high priority on creating buyer value while considering other stakeholders and emphasizing responsiveness to market information. Arguably. and processes that continue to meet the needs of the evolving market. and Webster (1993) speculated on a strong linkage between market orientation and innovativeness for achieving superior business performance outcomes. market orientation is an aspect of culture and is a latent construct whose indicators are values. as well as the accomplishment of general firm strategic objectives. 1990).. and so forth. it can be argued that translating market intelligence into action is part of a larger planning and decision-making process that affects even internally oriented changes. We argue that learning orientation occurs primarily at the culture level of the firm and is likely to be mediated by factors that impact directly on business performance. services. 1991.. firms must adopt innovations over time and the most important innovations are those that allow the firm to achieve some sort of competitive advantage.g. H1: The magnitude of innovativeness is positively related to the magnitude of business performance.M. Henard and Szymanski (2001) highlighted empirical work that suggests that market orientation contributes to new product success. characterizes an organization’s disposition to deliver superior value to its customers continuously. Henard & Szymanski. Slater and Narver (1994b) view innovativeness as one of the core value-creating capabilities that drives the market orientation – performance relationship. H2: The magnitude of market orientation is positively related to the magnitude of innovativeness. 56) have argued that ‘‘a market orientation essentially involves doing something new or different in response to market conditions. Crossan. 1984) helps to explain how firms derive competitive advantages by channeling resources into the development of new products. Jaworski and Kohli (1993. (1973) propose that innovativeness is the medium for business success in the wake of appropriate intelligence gathering and decision making (cf. 2. ‘‘market orientation. and routines form behavioral syndromes in the organization defined as culture. 31) state. The resource-based view (Wernerfelt.2. dissemination.g. Learning orientation and innovativeness Learning orientation has to do with the development of new knowledge in the organization (Cohen & Sproull. 1999). / Industrial Marketing Management 33 (2004) 429–438 431 profitability and growth in sales and markets share. Zaltman et al. 1978. & White. In their seminal work. Sinkula (1994) refers to this demonstration or manifestation of . Deshpande. and responsiveness to market intelligence. it may be viewed as a form of innovative behavior. We argue that in market-oriented organizations. Because environments evolve. Hult et al. 2001. beliefs. (1998. He suggests that market intelligence comes from outside– in processes that link with spanning processes (e.G.g. 2. With the exception of work by Han et al. it is likely that innovative processes naturally flow out of a focus on being market oriented. as a corporate culture. strategic planning). p. While many scholars include responsiveness to markets as a part of market orientation (e. this position is shared by Day (1994) who views market orientation as ongoing behaviors or processes via market sensing and buyer linking. While the linkage suggested by this hypothesis is generally known to be true.. Consistent with this view. it is important to assess it here as a foundation for other explanations and hypotheses that follow. Industrial firms with a market orientation are likely to devise and adapt products. behaving or introducing a process that inhibits a market focus would feel wrong and would most likely result in some censure.

in an environment where product preferences are constantly changing. 1994a. Managers must correctly ascertain the nature of the relevant environment and formulate strategies accordingly. 1998. Entrepreneurial orientation has long been associated with proactive competitive posture.M. market turbulence reflects rapidly changing buyer preferences. He continually searches for new opportunities and problems and he initiates improvement projects to deal with these’’ (Mintzber. Slater and Narver (1995. 1973. and performance (e.. Thus.432 G. Entrepreneurial orientation and innovativeness Entrepreneurial orientation can be regarded as entailing aspects of new entry and especially how new entry is undertaken (Lumpkin & Dess. Slater and Narver (1994a) have argued that the long-term effects of having a market orientation are cost effective and generally beneficial. Miller & Friesen. 2. In addition. Greenley & Foxall. Han et al. H5: The effect of innovativeness on business performance is greater under high market turbulence than under low market turbulence... Cavusgil. we adopt Huber’s (1991) definition emphasizing cognition to distinguish learning orientation from innovativeness. Slater and Narver (1995) suggest that learning orientation is directly related to new product success. Our earlier discussion combined with findings from a substantial body of past research suggests a strong linkage between various types of innovative activities and company performance (e. and Zhao (2002) also have demonstrated a linkage among learning orientation. Zaltman et al. 1998. In this study. management proclivity for risky projects. Entrepreneurial orientation suggests a proclivity toward creation of new products and ventures and a proactiveness and competitive aggressiveness that embodies a bold action-oriented positioning (Cooper & Dunkelberg. Miller. 1987). however. much of this research has suggested that innovativeness is particularly important when the industrial firm is faced with substantial market turbulence and other types of environmental disturbances. In turbulent environments. 1997. Moorman & Miner. 1986. emphasizing the role of market orientation in supporting performance regardless of the firm’s external circumstances. and it is doubtful that most firms will be skillful . we hypothesize that. & Noordewier. recognizing that the ability to apply knowledge implies a greater level of learning. Specifically. 168). Miller. Defining entrepreneurial orientation as the processes. we distinguish entrepreneurial orientation from market orientation.197). A number of researchers have argued that market turbulence influences the relationships among firm culture. 1978. innovativeness. 2. and the firm’s need to engage in ‘‘bold. and Commandeur (1997) suggest that successful new product development depends on the characteristics of the competitive environment in which the industrial firm operates.g. and new buyers are entering on a regular basis. The role of market turbulence Scholars suggest that managerial choice may be severely influenced by the moderating effect of the external business environment (Greenley & Oktemgil. and learning orientation in that entrepreneurial orientation embodies strategies and actions that the firm may undertake in order to actualize corporate orientations and goals.. and constant emphasis on offering new products. 1998. practices. wideranging acts’’ to achieve objectives (Covin & Slevin.3. 1998). Miller. / Industrial Marketing Management 33 (2004) 429–438 learning as augmented knowledge. 1996). Thus. p. Building on Lumpkin and Dess (1996) and Naman and Slevin (1993). it will be important for industrial firms to engage in innovative activities in order to achieve superior performance. That is. innovation. 309) and ‘‘learning orientation’’ (Hult & Thomas. Slater & Narver. H4: The magnitude of entrepreneurial orientation is positively related to the magnitude of innovativeness. and decisionmaking activities that lead to new entry is consistent with Slater & Narver’s (1993. 1993. Clearly. 68) suggest that entrepreneurial values enhance the creation of new businesses within the existing business and the renewal or revival of ongoing businesses that have become stagnant or require transformation. 1998.T.g. Jaworski & Kohli. These ideas lead to the next hypothesis. Hurley et al. Langerak. Peelen.4. The manager as entrepreneur is ‘‘responsible for the initiation and design of much of the controlled change in his organization. Hult et al. p. 1998. entrepreneurial orientation is characterized by boldness and tolerance for risk that lead to new market entry (Naman & Slevin. Lumpkin & Dess. and performance in the firm. buyers are continuously seeking new products.. p. conceptual arguments and empirical findings relating the constructs investigated here to market turbulence are absent or inconclusive. 1983. H3: The magnitude of learning orientation is positively related to the magnitude of innovativeness. 1973). Calantone. ongoing buyer entry and exit from the marketplace. It is not likely cost effective to vary the level of market orientation with changing market conditions. wide-ranging needs and wants. strategy. we focus on the organization’s ‘‘commitment to learning’’ (Sinkula. Baker. 1996) but which may not include a concern for market analysis or learning endeavors (Hurley et al. Thus. These ideas point to entrepreneurial orientation’s antecedent role to innovativeness. However. 1997). Cooper. Jaworski and Kohli (1993) suggest that the relationship between a market orientation and performance appears to hold across a variety of contexts.. 1989. 1993. p. learning and innovativeness are separate constructs that are interrelated. 1995) conceptualization. Woo & Dunkelberg. 1989). 1995). In focusing on learning orientation as a cultural construct. 1987.

it is unlikely that managers will seek to vary the level of entrepreneurial orientation to suit changing market conditions. we anticipate that it will be important for the industrial firm to maintain a constant level of learning orientation. 2000). Second. Learning orientation was measured using four items derived from Baker and Sinkula (1999). average variances extracted.G. 1997. we compared groupings of respondents with nonrespondents on the average size of the organizations. Innovativeness was quantified using the five-item scale from Hurley et al. growth in sales.g. Covin and Slevin (1989).g.T. this approach was selected instead of a single CFA model to fit the constraints of a fiveto-one ratio of sample size to parameter estimates (Bentler & Cho. Hult and Thomas (1998).. / Industrial Marketing Management 33 (2004) 429–438 433 enough to do so successfully. The scale for entrepreneurial orientation used five items adapted from Naman and Slevin (1993). Two tests were used to assess nonresponse bias. fit indices. following purification. consisted of 15 items and assessed the subfactors of competitor orientation. and interfunctional coordination. and shared variances for the purified measures. once developed. the extrapolation procedure of Armstrong and Overton (1977) was used to compare early and late responding firms on the mean values of study variables in Fig. market turbulence was measured using a five-item scale derived from Jaworski and Kohli (1993) and based on the earlier work of Miller (1987). & Tietje. regardless of the state of the firm’s external environment. an approach applied in numerous studies (e. 1997. Han et al. loadings. Entrepreneurial orientation is viewed as an incremental process within the firm through which innovation results. Table 1 summarizes the means. we believe that the management at industrial firms will encourage a relatively constant level of market orientation. The marketing executives were used as key informants in assessing all the constructs described above. customer orientation. As with a market orientation and a learning orientation. and age based on the data provided in the Dun’s Market Identifiers File. and originally devised by Khandwalla (1977). Narver. Specifically. Gatignon & Xuereb.’’ To measure market orientation. with the correlation matrices as input into the analyses. This notion is tested in the next hypothesis. the measures were subjected to a purification process involving a series of reliability and validity assessments in two confirmatory factor analysis (CFA) models (exogenous and endogenous factors) using LISREL (Jo ¨ reskog & So ¨ rbom. 1000 questionnaires were mailed in three separate waves to the marketing executives along with preaddressed postage-paid envelopes and a cover letter explaining the purpose of the study and the confidentiality of responses. 1997. intercorrelations. and market share. as well as general performance and. we anticipate that H7: The effect of learning orientation on innovativeness will not differ significantly despite differences in the degree of market turbulence in the external environment. construct reliabilities. Method The sampling frame of 1000 firms with sales above US$100 million per year and an identifiable marketing manager was drawn from Dun & Bradstreet Information Services. .. (1998). standard deviations. managers are likely to maintain their entrepreneurial orientation and the linkage between this construct and performance is likely to hold across a variety of contexts. Therefore. regardless of the state of the external market environment. we used the scale of Narver and Slater (1990) that. 1. Following the completion of a pretest with eight academics and seven marketing executives and a pilot study of 36 marketing executives to assess the quality of the research design. Consequently. These thoughts lead to our final hypothesis: H8: The effect of entrepreneurial orientation on innovativeness will not differ significantly despite differences in the degree of market turbulence in the external environment. As with market orientation. Learning orientation also has been conceptualized as a critical culture-level variable that emphasizes ongoing development of insights and general knowledge. First. (1997). This procedure resulted in the return of 181 completed. Neither the subjective Armstrong and Overton (1977) procedure nor the objective analysis using the data in the Dun’s Market Identifiers File revealed any results that would suggest a nonresponse bias. All purified measures were seven-point Likert scales anchored by ‘‘strongly disagree’’ and ‘‘strongly agree. following purification. sales volume. the top management should want to permanently establish a learning orientation across the entire firm in order to enjoy the various benefits that it confers. Lastly. among industrial firms that are strongly entrepreneurial and to the extent it exists at the culture level of the firm. consisted of five items. Strategic business units (SBUs) were targeted to develop a comprehensive understanding of a broad range of culture and strategy elements and their effect on performance. H6: The effect of market orientation on innovativeness will not differ significantly despite differences in the degree of market turbulence in the firm’s external environment. Because of sample size restrictions and to allow for a direct test of the dimensionality of the constructs. That is. 1998) and follows Huber and Power’s (1985) guidelines on how to get quality data from single informants. The scale for performance assessed profitability. Following data collection. Moorman & Miner. 3. 1988). It is the marketing manager who typically must establish the industrial firm’s market orientation (e. Slater.M. and Sinkula et al. 1998). usable questionnaires. a response rate of just over 19% after accounting for undeliverable surveys. Hult et al..

and learning orientation (LO). The critical value (Dv1 >3. 3.41 – . 7. innovativeness (IN). 1990).D.41 6 . All coefficients were significant at the P < .82 .40 60.15 1.21 .434 G.61 .46 . 2000). Bagozzi & Yi.50 .24 4 .22 4.15 1.62 – . interfunctional coordination (INT).84 . b The correlations are included in the lower triangle of the matrix.14 3 . Competitor orientation Customer orientation Interfunctional coordination Innovativeness Entrepreneurial orientation Learning orientation Performance Market turbulence a 1 – . 1988.30 .36 5. once constraining the phi (/) coefficient to unity and once freeing this parameter. A chi-square (v2) difference test was then performed on the nested models to assess if the v2 values were significantly lower for the unconstrained models (Anderson & Gerbing.55 .50 59. For the multiattribute variables.88 .05 level except the relationship between market turbulence and performance.24 .47 . An initial level of discriminant validity was established by calculating the shared variances between each pair of constructs and verifying that it was lower than the average variance extracted for the individual constructs (Fornell & Larker.82 for the combination of the competitor orientation/interxfunctional coordination scales (Udf = 26 = 83. Analysis and results All hypotheses were tested via structural equations modeling (SEM) using LISREL. Since two measurement models were used to assess the scale properties (i. 1997).36 1.68 .30 – .61 – .90 . 5.37 – .46 . and expected cross-validation index (ECVI) are included for comparison purposes.72 .38 .25 .17 . root mean square error of approximation (RMSEA).08 65 .67 59. 2. entrepreneurial orientation (ENT).90 .08 . Discriminant validity was assessed in a two-step process.89 .89 . 1989). The pairwise results (where U is the unconstrained and C is the constrained estimates) range from a low 2 D v1 = 38.92 115 .64 5. The root mean square residual index (RMSR).51 . 2 1982).25 4.49) to a high Dv1 = 327. 4. discriminant validity was found to achieve a satisfactory level among all measures in the study (Table 1). 4.00 Reliability Coefficients v2 df D2 RNI CFI RMSR RMSEA NCP ECVI Exogenous CO CU INT IN ENT LO Endogenous PERF MT 750 5. Fornell & Larker.00 38. including examining the coefficients and their associated t values and assessing the average variance extracted for each construct (cf. Jo ¨ reskog et al.90 .08 388 4.01 – Exogenous (firm culture model) = competitor orientation (CO).02 1.49 4.56 . 1988.56 .80 57.06 .02 . Hult et al.36 .28 5 .30 .47 .10 1.20 60. 6. which have been shown to be the most stable fit indices by Gerbing and Anderson (1992).71 for the combination of the learning orientation/business performance scales (Udf = 26 = 78.31 . the relative noncentrality index (RNI) (McDonald & Marsh.98 50 .87 .90 .49 .27 1. we used a procedure recommended by Anderson (1987) and Bagozzi and Phillips (1982) to further assess discriminant validity between the study measures.64 5.26 . the scales used in this study were viewed as reliable and valid. Shared variances are included in the upper triangle of the matrix.90 . customer orientation.45 .14 .22 .20 7 . Pairs of constructs involving all possible scale combinations were assessed in a series of two-factor CFA models using LISREL. The three dimensions of market orientation (competitor orientation.80).64 .86 .85 .07 .01 level.43 5. and the comparative fit index (CFI) (Jo ¨ reskog & So ¨ rbom.60 .24 .95 Intercorrelations and shared variances of measures (n = 181)b Variable 1.49 .52 – . C | df = 27 = 405.50 53. exogenous and endogenous models).11 8 . Based on the overall measurement analysis. 1981.17 2 .55 . Endogenous = performance (PERF) and market turbulence (MT).82 .46 – .63 – .74 .50 . Fornell & Larker.89 .67.M.31 .88 .80 362 ..25 . Using these stringent criteria. .07 1. The model fits were evaluated using the DELTA2 index (Bollen.09 – . 1981). noncentrality parameter (NCP).22 . Construct reliability was calculated using the procedures suggested by Fornell and Larcker (1981).87 .09. / Industrial Marketing Management 33 (2004) 429–438 Table 1 Summary statistics of the measurement analysis (n = 181)a Model/variable Mean S.84) was exceeded in all cases. Variance extracted (%) 52.63 – .46 – . all correlations are significant at the P < .03 .. and residual covariation (Anderson & Gerbing.22 1. 1981).32 .T. 2 C | df = 27 = 122. The specific items were evaluated based on the item’s error variance.88 .50 – .68 – . Each model was run twice. modification index.04 .16 . 8.e.20 – .57 .78 .06 . customer orientation (CU).

11. S. Total (standardized) effects on business performance. NCP = 19.44). market orientation was found to be significantly related to innovativeness in the high market turbulence group (.94. the nature of relationships between innovativeness and key variables that drive it.94. / Industrial Marketing Management 33 (2004) 429–438 435 and interfunctional coordination. and all hypothesized relationships except for H5 and H6 were supported.40. We thereby fill a significant gap in understanding innovativeness.60. RNI=. We also provide an analysis of the influence of low versus high market turbulence on the constructs included in the main model. innovativeness is positively related to business performance (.D. 2 we report on the total (standardized) effects of all the antecedent constructs on business performance. and performance). learning orientation. t value = 2.19. = 1. P < . findings revealed that the effect of innovativeness on business performance was not significantly different ( P < . the sample was split at the median value of market turbulence (median = 4. The individual items were used for each of the other latent constructs in the study (i.M. RNI=. t value = 2.94. In evaluating the results of the model tests (Fig.11. P < . as portrayed here. P < . The first model provided in a good fit to the data (v2 = 360.G. entrepreneurial orientation. RMSR=. entrepreneurial orientation. summated scales have been used in numerous past studies.01). On the other hand.46.01).18. On the other hand.20. df = 20. P < . P < . RMSR=.36. ECVI = 0..39.08.12.50. t value = 6. All coefficients are standardized. CFI=. Coefficients greater than .66) and high (n = 80.38. entrepreneurial orientation had a significant effect on innovativeness in both the high turbulence (.05.20. P < . in Fig.94. Moreover. in examining the moderating relationships posited in H5 – H8. with regard to H1. are market orientation.59.01).05 for the low turbulence group). 2. suggesting a lack of support for H5.01) but not in the low market turbulence group (.e. two-group model was estimated in LISREL and resulted in a good fit to the data (v2 = 323. t value = 2. = 0.21. 2 is insignificant. df = 10. t value = 5. Next.31. 1990) were individually summated and used as indicators of the latent market orientation construct. supporting H7. 5. t value = 1. and the effect of innovativeness on organizational performance.70. t value = 3. learning orientation is positively related to innovativeness (.01).94.25. Discussion and implications Our study addresses the impact of innovativeness on performance and key antecedents to innovativeness in a comprehensive. P < . t value = 4. S. S. RMSEA=. suggesting support for H8. Hult et al. D2=. empirically verified model. mean = 5. NCP = 19. t value = 2.T.27). This implies that innovativeness partially mediates the relationship between market orientation and performance and between entrepreneurial orientation and performance. entrepreneurial orientation is positively related to innovativeness. in order to have an effect on business performance.05 for the high turbulence group and . 1998).01).67.29.08. innovativeness. suggesting that learning orientation must be mediated by some other construct. t value = 5. CFI=.02). Narver & Slater.D. A second. Specifically.79. Moreover. Lastly. RMSEA=. and innovativeness. 1) in the low and high market turbulence groups. ECVI=. Concerning H2. the direct effect of learning orientation on performance in Fig.05) and low turbulence groups (.11. The results provide an initial benchmark of organizational culture and strategy Fig. mean = 3.16) into two groups representing low (n = 86.17 are significant at P < .73) market turbulence. A SEM model was developed and tested in the analyses for each of H1 – H4 and H5 – H8. In support of H3. P < .96. Despite some shortcomings (cf.45. implying a lack of support for H6.13. .D. the effect of learning orientation on innovativeness did not significantly differ across the two groups (. such as innovativeness. The strongest overall drivers of performance.05) across the these groups. market orientation is positively related to innovativeness (. P < . Moreover. = 0. supporting H4 (. D2=. Oczkowski & Farrell. to provide further understanding of the relationships among the constructs.94.73.075.

and generally expand the firm’s scope of activities. the findings indicated in Fig. the effectiveness of market.. Several contributions to various research streams are noteworthy. Hult et al. or ideas in the organization. That is. regardless of the market turbulence in which the firm operates. we have conceptualized entrepreneurial orientation in terms of proactive and risky acts that organizations undertake to exploit opportunities. This implies that while innovativeness is an important direct driver of performance.g. ongoing buyer entry and exit from the marketplace. to the extent innovativeness is enhanced through the presence of the antecedent orientations highlighted here. While we have argued that market orientation is enduring and rooted in the firm’s basic culture. That is. Next. generating additional competitive advantages because of the benefits that these antecedent constructs provide.M. irrespective of the level of market turbulence facing the firm. Indeed. These results. products. the results imply that innovativeness at least partially mediates the respective relationships among market orientation. managers might well leverage their customer and competitor orientations. empirical findings confirm innovativeness as an important determinant of business performance. 2). Lumpkin & Dess. and constant emphasis on offering new products. 2). 2 suggest that learning orientation has no significant direct effect on performance. These findings further underscore the role of innovativeness in organizational performance. having a market orientation appears to be critical during times of high market turbulence when events. processes. Specifically. which indicates that the absorptive capacity of the firm is linked to the absorptive capacity of the people in the firm. should be interpreted within the scope of this study and the measures used. In our explication. Under high market turbulence. advantages that in turn should translate into innovative activities that give rise to superior products. market orientation appears to be the most important overall determinant of business performance. as well as the interfunctional coordination aspects of market orientation. Having a market orientation may be more important when market composition and preferences are changing rapidly because such conditions may force the firm to modify its products and services more often than when it operates in a stable market. Findings generally suggest that when members of an organization acquire knowledge via the learning process. and entrepreneurial orientations appears to operate at least partially via the medium of innovativeness. learning orientation. in order to support the development of new processes. however. wide-ranging needs and wants. In the direct effects model (Fig. the direct effect of learning orientation in the presence of the other antecedents investigated here is insignificant. While our findings do not contradict this view. that organization acquires the ability to be innovative. In general.436 G. it also appears to be a necessary mediator of the link between learning orientation and performance. The finding is consistent with the work of Cohen and Levinthal (1990). Our results also indicate that learning orientation has a significant antecedent effect on innovativeness. they do suggest that entrepreneurial orientation plays a key role in the develop- . Accordingly. Moreover. evidence from this study underscores the importance of managerial emphasis on the creation of an internal business environment conducive to innovative activities. firms may leverage the advantages associated with a learning orientation to strengthen their innovative capabilities. In past research. without a strong innovative capability. More remarkably. such an orientation appears to play a role for allowing the industrial firm to devise innovative solutions to business problems. firms should be able to create ever superior products. In general. and business performance. and administrative approaches. market orientation appears to strongly influence innovativeness under high market turbulence but not under low market turbulence. This implies that innovative activities are generally important to the success of the industrial firm. particularly when compared to producers with less developed innovative practices.T. managers are advised to improve the innovativeness of their businesses in their efforts to attain superior business performance. That is. our findings highlight the importance of a more integrated and compositional approach to the study of the effect of innovativeness and antecedent orientations on business performance. First. entrepreneurial orientation has been viewed as important for achieving superior performance under high market turbulence (e. oblige the management to draw on organizational resources in order to sustain innovativeness. diversify product lines. as portrayed in the direct effects model (Fig. / Industrial Marketing Management 33 (2004) 429–438 attributes apparent in conjunction with certain contingencies in an organization’s operating environment. entrepreneurial orientation. Moreover. Accordingly. That is. learning orientation may provide little or no value to achieving the performance objectives of the industrial firm. learning. Given that market orientation helps managers to be more connected to the business environment. firms that are market and learning oriented will tend to be more in touch with buyers and understand their markets better. 1996). an outcome like to increase market shares and other performance outcomes. market orientation was found to have a significant and positive effect on innovativeness. As a further contribution. such as rapidly changing buyer preferences. Innovativeness supported by a market orientation and a learning orientation in particular is likely to be more effective. Innovativeness is also likely to be useful for allowing the firm to preempt competitors with new or improved products. the management should seek to be innovative and maintain a continuous state of innovativeness. All of these outcomes can help contribute to achieving sustainable competitive advantage. the finding suggests that there may be occasions when managers do attempt to adjust the construct in light of evolving environmental conditions. This approach may be more fruitful and realistic than previous approaches of examining bivariate relationships between each of the constructs separately.

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