International Journal of Entrepreneurial Behaviour & Research

Determinants of new product performance in small firms

Michele O'Dwyer Ann Ledwith
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Michele O'Dwyer Ann Ledwith, (2009),"Determinants of new product performance in small firms",
International Journal of Entrepreneurial Behaviour & Research, Vol. 15 Iss 2 pp. 124 - 136
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IJEBR
15,2
124
Received 19 December 2007
Revised 4 June 2008
Accepted 24 October 2008
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International Journal of
Entrepreneurial Behaviour &
Research
Vol. 15 No. 2, 2009
pp. 124-136
q Emerald Group Publishing Limited
1355-2554
DOI 10.1108/13552550910944548
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1355-2554.htm
Determinants of new product
performance in small firms
Michele O’Dwyer
Kemmy Business School, University of Limerick, Limerick, Ireland, and
Ann Ledwith
College of Engineering, University of Limerick, Limerick, Ireland
Abstract
Purpose – The purpose of this paper is to explore the determinants of new product performance in
small firms; specifically, the impact of customer orientation, competitor orientation, interfunctional
co-ordination, product launch proficiency and product advantage.
Design/methodology/approach – Based on previous studies a model was developed addressing
determinants of new product and organisational performance (customer orientation, competitor
orientation, interfunctional co-ordination, product advantage, and product launch proficiency). These
relationships were explored using data collected from 26 small firms in Ireland.
Findings – The results indicate that competitor orientation and product launch proficiency are
strongly linked to new product performance and organisational performance in small firms.
Additionally, they illustrate a lack of significant relationships between performance and customer
orientation, interfunctional coordination and product advantage, thus suggesting that the existing
large firm models explored may not be fully applicable to small firms.
Practical implications – Small firms need to ensure that they know their competitors, as
competitor orientation is linked with both new product performance and organisational performance.
Originality/value – While the importance of market orientation and new product development to
the survival and success of firms is well supported in the literature, the study demonstrates clearly
that the measures used, and relationships found, in large firms do not all apply in small firms.
Keywords Product development, Small enterprises, Small to medium-sized enterprises,
Organizational performance
Paper type Research paper
Introduction
This paper extends research on market orientation and new product development in
small firms. It explores the behaviour of small firms in managing the interaction and
combined impact of these two variables on organisational performance. Market
orientation is defined as “the set of beliefs that puts the customers’ interest first while
not excluding that of all other stakeholders, in order to develop a long term profit”
(Desphandé et al., 1993, p. 27), and “a culture in which organisations strive to create
superior value for their customers (and superior performance for the business) by
focusing on customer needs and long –term profitability” (Becherer et al., 2001, p. 1).
The principal literature defining and exploring market orientation has seen the
development of measurement scales and propositions correlating market orientation,
through a variety of mechanisms, to business performance (Desphandé et al., 1993;
Narver and Slater, 1990; Kohli and Jaworski, 1990). The research has been categorised
into four perspectives by Demirbag et al. (2006); the market intelligence perspective
(Jaworski et al., 2000; Kohli and Jaworski, 1990); the customer focused perspective
 (Li et al., 2006; Desphandé et al., 1993); the strategic perspective (Gatignon and Xuereb, Determinants of
1997) and the culture based behavioural perspective (Slater and Narver, 1999; Narver
and Slater, 1990).
new product
Narver and Slater (1990) complement Kohli and Jaworski’s (1990) view of market performance
orientation by proposing that it consists of three behavioural components:
(1) customer orientation;
(2) competitor orientation; and 125
(3) interfunctional coordination.

These three components, as summarised by Narver and Slater (1990, p. 21), represent
“the activities of market information acquisition and dissemination and the
coordinated creation of customer value”.
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Several authors have suggested that the link between market orientation and
organisational performance is moderated by new product performance and proficiency
in new product launch activities (Langerak et al., 2004; Atuahene-Gima, 1995; Baker
and Sinkula, 1999; Gatignon and Xuereb, 1997; Han et al., 1998). In addition, Henard
and Szymanski (2001) found that product advantage is a dominant driver of new
product performance, while Langerak et al. (2004) reported a positive significant
relationship between new product advantage and market orientation. These
relationships, between market orientation, product launch proficiency, product
advantage, and, new product and organisational performance are explored in the
following sections.

Market orientation in small firms

Several studies have been conducted regarding market orientation and small firm
behaviour. Blankson and Cheng (2005) found the same approach to market orientation
in the behaviour of small and large firms. In contrast, however, Sriram and Sapeinza
(1991) found differences between marketing orientation in small and large firms
suggesting that they should be studied separately. Becherer et al. (2001) also identified
differences between market orientation in small and large firms reporting that
marketing orientation is weaker in small firms and increases with firm size; it may also
be situation specific (Hill, 2001) varying with the levels of sophistication and
effectiveness of the small firm management. In addition, Pelham (1997b) established
that market orientation is more significant in differentiated markets and in small
industrial firms with low levels of formal planning and market research.
Several studies have linked market orientation with success in small firms. For
example, Peterson (1989) found that the marketing concept is part of the operating
philosophy for small firms, and that profit oriented small firms are more likely to adopt
a market orientation, which Horng and Chen (1998) established had a significant
impact on business performance. Enright (2001) demonstrates that market orientation
and the new product development process are a means to gain financial advantage for
small firms, a link supported by Pelham (1997a) who suggested an indirect relationship
between market orientation and profitability.
Opinions also vary on the mechanisms through which market orientation increases
success. Pelham (1999, p. 40) suggests that a strong market orientation culture may
provide “significant sources of competitive advantage for small firms with limited
resources to pursue a low-cost based or R&D spending-based strategies, but with
 IJEBR greater capacity for customer contact and flexibility/adaptability”. Furthermore,
15,2 Pelham (2000) established a positive association between market orientation, with
relative emphasis on growth/differentiation strategy, and performance in small firms, a
finding echoed by Kara et al. (2005) who found a significant positive link between
market orientation and performance in small firms.
In exploring the market orientation of small business Blankson et al. (2006) found an
126 emphasis on competitiveness and satisfaction of customer needs. While Verhees and
Meulenberg (2004) found that market orientation was useful in the selection of an
attractive product assortment and customer market intelligence, which is related
positively to performance of small firms. Pelham (1997a) suggests that small firms
with higher levels of market orientation are more likely to command higher prices
because of better quality and reliability, reduce new product development (NPD) failure
and thus NPD costs, gain higher market share and achieve greater economies of scale.
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In addition, Pelham (1997a, p. 67) established that enhanced market orientation in

small firms leads to “more effective new product development, improved relative
product quality and improved customer retention”.
In summary the presence of a positive relationship between the adoption of a
market orientation and organisational performance in small firms is well established in
literature (Kolar, 2006; Aldas-Manzano et al., 2005; Lafferty and Hult, 2001; Desphandé
et al., 1993; Ruekert, 1992; Narver and Slater, 1990). Market orientation is frequently
claimed to improve organisational performance on the basis that organisations that are
market-oriented are better able to track and respond to customer needs and
preferences, and can therefore better satisfy customers and hence perform at higher
levels (Kolar, 2006; Tay and Morgan, 2002; Ramaseshan et al., 2002; Lafferty and Hult,
2001).
This positive relationship is echoed in market orientation and new product
performance literature where innovation and new product development are identified
as core value-creating capabilities through which a market-oriented culture leads to
superior business performance (Slater and Narver, 1994b). In addition, Atuahene-Gima
(1995) found that the relationship between market orientation and new product
performance depended on the degree of product newness, the intensity of competition
and the stage of the product life cycle. A comprehensive study by Gatignon and Xuereb
(1997) showed how strategic orientation, including market orientation, of a firm has a
positive influence on product innovation and performance, concluding that a market
orientation will lead to greater benefits from the firm’s marketing and new product
development activities. Das and He (2006, p. 114) note that “small firms have been
found to have higher rates of innovation compared to their share of sales or number of
employees”, in many instances SMEs have used marketing orientation as a means of
overcoming barriers to innovation (Freel, 1999).
A review of literature on market orientation and new product launch proficiency
illustrates that the choice of launch strategy for a new product is a “crucial decision”
made by marketing managers (Hultink and Schoormans, 1995). “In high tech
industries, being the first to launch a new product can bring significant benefits such
as greater market share and price premiums, whereas conversely the delay of the
introduction of new products may lead to a loss of market share or even more critically
a loss of goodwill” (Rosas-Vega and Vokurka, 2000, p. 157). Furthermore, Debruyne
 et al. (2002) found that the greater the amount of marketing resources a firm invests in Determinants of
the development and the launch of a new product, the higher its probability of success. new product
A market-oriented culture enhances an organisation’s product development
proficiency and gives an advantage over organisations that are not market-oriented performance
(Narver and Slater, 1990). Hultink and Schoormans (1995) and Langerak et al. (2004)
suggest that a market-oriented culture is related positively to product advantage and
launch proficiency and, in turn, this leads to superior new product performance and 127
organisational performance. Furthermore, Langerak et al. (2004) found that the ability
of market-oriented firms to develop and to launch products successfully, leads to
superior new product performance and, in turn, organisational performance.
In summation, small firm literature demonstrates positive relationships between
market orientation, new product development and financial advantage (Enright, 2001);
market orientation and profitability (Pelham, 1997a); market orientation and
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competitiveness and customer satisfaction (Blankson et al., 2006); market orientation

and business performance (Kara et al., 2005; Enright, 2001; Pelham, 2000; Horng and
Chen, 1998). However, literature has not explored in detail the nature of the relationship
between market orientation and new product performance and organisational
performance. Understanding this relationship is essential in guiding entrepreneurial
behaviour towards improved small business performance.

Methodology
The exploratory research reported in this paper is based on a survey of 26 small high
technology firms. The firms included in the survey were selected from within the
mid-west of Ireland to represent the industry sectors active within the Irish economy.
Firm size was classified in terms of employment levels and annual turnover, in-line
with the definition of small and medium-sized enterprises (SMEs) adopted by the EU
Commission in May 2005 (see http://europa.eu.int/comm/enterprise/enterprise_policy
accessed 31 July 2007). Small firms were defined as those having fewer than 250
employees and an annual turnover below e50 million.
To date market orientation has largely been defined in terms of large firms, this has
resulted in the market orientation of small firms being measured using constructs
developed to address large firm issues and performance. However, there is strong
support for viewing small firms differently from large firms (Pollard and Jemicz, 2006;
Brooksbank et al., 1999; Liu, 1995; Meziou, 1991; Bell and Emory, 1971) rather than
treating them simply as “small large firms”. Thus a central element of the research
methodology was testing large firm constructs within a small firm context.
The research instrument was a structured questionnaire that was administered via
a postal and electronic mail survey. The instrument addressed the following research
measures; market orientation, product launch proficiency, new product performance,
organisational performance, product advantage and market description. These
measures were utilised to explore relationships between the elements of market
orientation (customer orientation, competitor orientation and interfunctional
coordination), product advantage and product launch proficiency and performance
in SMEs, specifically new product performance and organisational performance as
illustrated in Figure 1.
The research constructs utilised were seven-point Likert-type scales developed by
Langerak et al. (2004) and Atuahene-Gima (1995). The reliability of these measures was
 IJEBR
15,2

128

Figure 1.
Research model
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calculating using Cronbach alpha, where a coefficient alpha of greater than 0.7 was
required. Table I illustrates that all measures were reliable and summarises the
number of items, means, and standard deviation of the measures used for the sample of
26 small firms.

Results
Table I summarises the research measures used and also highlights dissimilarities
between the components of market orientation, notably the difference between
customer and competitor orientations. The variations between the levels of customer
orientation, competitor orientation and interfunctional coordination are further
explored in Table II illustrating that customer orientation (5.4 6) is significantly higher
than competitor orientation (4.91); in addition (as shown in Table I), customer
orientation has a lower standard deviation (0.81) than competitor orientation (1.03),
demonstrating that small firms are consistently better at customer orientation.

Scale (mean) n ¼ 26 No. of items Mean Standard deviation Cronbach’s alpha

Customer orientation 7 5.46 0.81 0.782

Competitor orientation 7 4.91 1.03 0.852
Interfunctional coordination 7 5.16 1.04 0.878
Product launch proficiency 20 4.73 0.98 0.940
Table I. Product advantage 8 5.57 0.91 0.827
Summary of research New product performance 17 4.91 0.80 0.915
measures Organisational performance 6 5.22 0.98 0.874

Customer Competitor Interfunctional

Mean orientation orientation coordination

Customer orientation 5.46 –

Table II. Competitor orientation 4.91 3.157 * –
Comparison of market Interfunctional coordination 5.16 1.607 1.131 –
orientation measures
(t-tests) Note: * p , 0:01
 Correlation analysis was performed to explore the relationships between the research Determinants of
model variables. Because of the limited sample size non-parametric (Spearman) new product
analysis was used. This analysis, shown in Table III, revealed (as anticipated) that the
market orientation variables all correlate with each other, that is, there is a significant performance
relationship between customer orientation and competitor orientation (r ¼ 0:557,
p . 0:01); customer orientation and interfunctional coordination (r ¼ 0:515, p . 0:01),
and a less significant relationship between competitor orientation and interfunctional 129
coordination (r ¼ 0:433, p . 0:05).
In exploring relationships between market orientation variables (customer
orientation, competitor orientation and interfunctional co-ordination) and other key
variables, Table III illustrates that only competitor orientation has a significant impact
on performance in small firms. Specifically, there is a significant relationship between
competitor orientation and product launch proficiency (r ¼ 0:545, p . 0:01), competitor
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orientation and new product performance (r ¼ 0:473, p . 0:05* ), competitor orientation

and organisational performance (r ¼ 0:617, p . 0:01).
Additionally, there is a significant relationship between organisational performance
and new product performance (r ¼ 0:724, p . 0:01), and significant relationships were
identified between product launch proficiency and new product performance
(r ¼ 0:607, p . 0:01) and product launch proficiency and organisational
performance (r ¼ 0:556, p . 0:01) as illustrated in Table III.
To further explore the relationships between the key variables of market orientation
and new product performance (Figure 1), regression analysis was performed. Table IV
shows the results of the regression analysis used to explore the relationships between

n ¼ 26 1 2 3 4 5 6 7

Customer orientation 1
Competitor orientation 0.557 * * 1
Interfunctional coordination 0.515 * * 0.433 * 1
Product launch proficiency 0.322 0.545 * * 0.316 1
Product advantage 0.182 0.295 20.148 0.217 1
New product performance 0.149 0.473 * 0.158 0.607 * * 20.045 1 Table III.
Organisational performance 0.277 0.617 * * 0.164 0.556 * * 0.147 0.724 * * 1 Spearman correlation
analysis of model
Notes: * p , 0:05 (two-tailed); * * p , 0:01 (two-tailed) variables

New product performance (standardised coefficients)

Customer orientation 2 0.212

Competitor orientation 0.606 *
Interfunctional coordination 2 0.105
Product launch proficiency 0.298
Product advantage 2 0.166

R2 0.458 Table IV.

F-value 3.382 * Impact ofindependent
variables on new product
Note: * p , 0:05 performance
 IJEBR new product performance and five measures of market and product orientation. Of the
15,2 five measures listed (customer orientation, competitor orientation, interfunctional
coordination, product launch proficiency and product advantage) only competitor
orientation was found to significantly predict new product performance (b ¼ 0:606;
p , 0:05) (R 2 ¼ 0:458). The negative coefficients reported for customer orientation
(2 0.212) interfunctional co-ordination (2 0.105) and product advantage (2 0.166) are
130 surprising, although they are not significant they warrant further investigation.
Given that Table IV also illustrates that the model itself is not highly significant in
predicting new product performance in small firms, a stepwise regression was
conducted and resulted in a model that excluded all variables except competitor
orientation. This model had an R 2 ¼ 0:319, F ¼ 11:267 (p ¼ 0:003), and standardised
coefficient of 0.565 significant at p , 0:01. In addition, the research model also
attempts to predict organisational performance; this is tested in Table V. The model
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was found to be significant (R 2 ¼ 0:725, F ¼ 8:358, p , 0:001). Of the six measures

explored, only new product performance (b ¼ 0:661; p , 0:001) was found to be
significant.
Thus the empirical results show that only competitor orientation is significant in
predicting new product performance, while new product performance is the only model
variable that significantly predicts organisational performance.

Discussion
In considering the empirical findings in the context of the literature certain variances
are apparent. For instance literature on market orientation and organisational
performance suggests a strong positive relationship between these two variables given
that market-oriented firms are better at satisfying customers and therefore perform at a
higher level than firms who are not market orientated (Kolar, 2006; Aldas-Manzano
et al., 2005; Tay and Morgan, 2002; Ramaseshan et al., 2002; Lafferty and Hult, 2001;
Desphandé et al., 1993; Ruekert, 1992; Narver and Slater, 1990). When the three
elements comprising market orientation (customer orientation, competitor orientation,
interfunctional coordination) were explored in the context of their relationship with
organisational performance in small firms, as shown in Table III, the only significant
relationship identified was that between organisational performance and competitor
orientation.

Organisational performance (standardised coefficients)

Customer orientation 0.023

Competitor orientation 0.256
Interfunctional coordination 2 0.580
Product launch proficiency 0.030
Product advantage 0.062
New product performance 0.661 *
Table V.
Impact of independent R2 0.725
variables and F-value 8.358 *
organisational
performance Note: * p , 0:001
 Additionally, literature suggests a positive relationship between market orientation Determinants of
and new product performance (Langerak et al., 2004; Gatignon and Xuereb, 1997; new product
Atuahene-Gima, 1995; Montoya-Weiss and Calantone, 1994). In exploring the impact of
customer orientation, competitor orientation, and interfunctional coordination on new performance
product performance in small firms, again, only competitor orientation was found to be
significant in predicting performance.
The fact that only competitor orientation was significantly related to new product 131
and organisational performance suggests that small firms who are aware of their
competitors, the products they offer and why customers buy from them are more likely
to be successful. Interfunctional coordination was not linked with increased
performance in small firms, however this was not unexpected. Small firms have
been found to enjoy efficient internal communications and integrated management
(Dodgson and Rothwell, 1991). On the other hand, contrary to the research results, a
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relationship between customer orientation and performance in small firms was

anticipated given the integral role of the customer in selecting and purchasing products
and thus improving product and organisational performance. One explanation for this
finding is that all small firms are customer orientated and therefore customer
orientation does not emerge as a distinguishing factor.
Previous studies illustrate a significant positive relationship between new product
performance and organisational performance (Blankson et al., 2006; Golann, 2006; Kara
et al., 2005; Blankson and Cheng, 2005; Salavou et al., 2004; Verhees and Meulenberg,
2004; Blankson and Omar, 2002; Becherer et al., 2001; Enright, 2001; Pelham, 2000;
1999; 1997a, b; Han et al., 1998; Horng and Chen, 1998; Gatignon and Xuereb, 1997;
Slater and Narver, 1994a,b), a proposition supported by this research. Furthermore
literature suggests a significant relationship between product launch proficiency and
new product performance (Langerak et al., 2004; Rosas-Vega and Vokurka, 2000;
Hultink and Schoormans, 1995; Atuahene-Gima, 1995) and organisational performance
(Langerak et al., 2004; Hultink and Schoormans, 1995) while Table III illustrates that
such a relationship exists, the regression analyses reported in Tables IV and V does not
suggest that the relationship is causal. Langerak et al. (2004) and Hultink and
Schoormans (1995) found that product advantage leads to superior new product
performance and organisational performance, a finding, which is not supported by the
research results. Thus the lack of a relationship between product advantage and new
product or organisational performance is worthy of further discussion.
In this study product advantage was measured using eight dimensions that focused
on the degree to which a new product was different from existing products. For
example, some of the measures included: the degree to which a new product offered
unique benefits to customers and whether or not the new product was highly
innovative and radically different from existing products. These dimensions were
taken from Langerak et al. (2004). However, achieving new product success even with a
unique, innovative differentiated product is not always easy especially for small firms.
In some industrial markets compatibility is a key issue, and products that are
incompatible or different from the market norm are more difficult to sell. Yap and
Souder (1994) found that performance superiority and unique features were not linked
with increased success in small US firms. Much of this they attribute to the lack of
influence of small firms in persuading customers to adopt new and different products.
 IJEBR However, notwithstanding this explanation the impact of product advantage on
15,2 performance needs to be explored in more detail.

Conclusions
Given the strong support in literature for treating small and large firms separately
(Pollard and Jemicz, 2006; Brooksbank et al., 1999; Liu, 1995; Meziou, 1991; Bell and
132 Emory, 1971), this study explored the impact of market orientation elements (customer
orientation, competitor orientation, interfunctional coordination) on new product
development in the context of small firms. The empirical findings demonstrate that of
the three market orientation variables only competitor orientation has an impact on
small firm performance, a finding, which warrants further investigation.
In summary there are six main findings of this study of determinants of new
product performance in small firms. First, competitor orientation is strongly linked
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with new product performance and organizational performance in small firms. Second,
new product performance is strongly linked with organisational performance in small
firms. Third, increased product launch proficiency is linked with increased new
product performance and organisational performance in small firms. Fourth, increased
customer orientation is not linked to increased new product and organisational
performance in small firms. Fifth, interfunctional coordination is not strongly linked
with new product performance or organizational performance. Sixth, better product
advantage was not found to be linked with either better new product performance or
better organizational performance in small firms.
This study has several implications for managers of product development in small
firms. Small firms should be aware of the strong relationship between new product
performance and organisational performance. Firms which are good at developing new
products are found to perform better; this is not a new finding but it is reinforced by
these results. Additionally, the analysis shows that firms who are good at launching
products are more likely to have new product success. This finding is especially
important for small firms as the study identified few other predictors of new product
performance. Furthermore, small firms need to know their competitors as competitor
orientation is linked with both new product performance and organisational
performance. In other words small firms need to know when and why customers
buy from competitors and also what attracts them to competitor’s products.
This study has several limitations, the most obvious being the sample size and the
restricted geographical setting. Both of these limitations can be overcome by extending
the study to other national settings and the authors have already entered discussions to
implement this. Extending the study to additional countries will certainly increase the
sample size but may also introduce differences in management style and customer
relationships based on national culture; this will have to be considered in analysing an
extended set of data.
The research tool used was based closely on one published by Langerak et al. (2004)
which in turn was based on measures developed by earlier researchers. The advantage
of this strategy was that it offered comparability with earlier studies however the
disadvantage was that the research tool was not developed specifically for small firms.
One of the key contributions of this study is that it demonstrates clearly that the
measures used and relationship found in large firms do not all apply in small firms.
The next stage of this research is to explore in more detail how the market orientation
 concept relates to NPD in small firms. The authors plan to do this using a qualitative Determinants of
research strategy. new product
Within the results presented product advantage did not appear to be linked to either
new product performance or organisational performance. This was an unexpected performance
result and, as discussed above, merits further investigation. Additionally, the lack of a
relationship between customer orientation and performance must also be investigated
in further detail. Future studies of these relationships within small firms should be 133
conducted using research measures that have been developed specifically for small
firms as this study has demonstrated some key differences between the impact of
market orientation and product advantage on performance in small firms.

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pp. 276-84.
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customer relationship management: a framework and implications for service providers”,
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Shoham, A.R., Gregory, M. and Kropp, F. (2005), “Market orientation and performance:
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Slater, S.F. and Narver, J.C. (2000), “The positive effect of a market orientation on business
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Corresponding author
Michele O’Dwyer can be contacted at: michele.odwyer@ul.ie

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