Organizational Capacity and Market Orientation

INFORMATION TO USERS
This manuscript has been reproduced from the microfilm master. UMI films
the text directly from the original or copy submitted. Thus, some thesis and
dissertation copies are in typewriter face, while others may be from any type of
computer printer.
The quality of this reproduction is dependent upon the quality of the

copy submitted. Broken or indistinct print, colored or poor quality illustrations
and photographs, print bleedthrough, substandard margins, and improper
alignment can adversely affect reproduction.
In the unlikely event that the author did not send UMI a complete manuscript
and there are missing pages, these will be noted. Also, if unauthorized
copyright material had to be removed, a note will indicate the deletion.
Oversize materials (e.g., maps, drawings, charts) are reproduced by

sectioning the original, beginning at the upper left-hand comer and continuing
from left to right in equal sections with small overlaps.
Photographs included in the original manuscript have been reproduced

xerographicaliy in this copy. Higher quality 6" x 9” black and white
photographic prints are available for any photographs or illustrations a p p e a r in g
in this copy for an additional charge. Contact UMI directly to order.
ProQuest Information and Learning

300 North Zeeb Road, Ann Arbor, Ml 48106-1346 USA
800-521-0600
Reproduced with permission o f the copyright owner. Further reproduction prohibited without permission.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
ALLIANT INTERNATIONAL UNIVERSITY
Los Angeles
COLLEGE OF ORGANIZATIONAL STUDIES
A STUDY OF THE RELATIONSHIP BETWEEN ORGANIZATIONAL CAPACITY
TO INNOVATE AND MARKET ORIENTATION IN A FAST FOOD CO M PANY
A dissertation submitted to the faculty of the College of Organizational Studies in
partial fulfillment of the requirements for the degree of Doctor of Philosophy in
Psychology at Alliant International University, Los Angeles, California
by
Diane P. Haaga
2002
UMI Number: 3043469
Copyright 2002 by
Haaga, Diane P.
Ail rights reserved.
___ ®
UMI
UMI Microform 3043469
Copyright 2002 by ProQuest Information and Learning Company.
All rights reserved. This microform edition is protected against
unauthorized copying under Title 17, United States Code.
ProQuest Information and Learning Company

300 North Zeeb Road
P.O. Box 1346
Ann Arbor, Ml 48106-1346
Copyright by
Diane P. Haaga
2002
ALLIANT INTERNATIONAL UNIVERSITY Los Angeles
The dissertation of Diane P. Haaga, directed and approved by the

candidate’s Committee, has been accepted by the Faculty of the College
of Organizational Studies, in partial fulfillment of the requirement for the
Degree of
DOCTOR OF PHILOSOPHY
/2 ! t * liDl
DATE
Dissertation Committee:
Calvin C. Hoffman, Ph.D., irperson
/Theodora Ting Chau, Ph.D
David R. Richey, Ph.D
ii
DEDICATION
This dissertation is dedicated to my mother, Pauline P. Haaga, who died
on June 2, 1997. I want to thank my mother for her gift of friendship, spiritual
guidance and unconditional love and support.
iii
TABLE OF CONTENTS
Page
Dedication................................................................................................................ iii
List of Tables............................................................................................................ vii
List of Figures......................................................................................................... viii
List of Appendices................................................................................................. ix
Acknowledgements................................................................................................ x
V it a ............................................................................................................................ xii
Abstract of the Dissertation................................................................................. xiii
CHAPTER I IN TR O D U C TIO N........................................................................... 1
Innovation and Organizational Perform ance...................................... 3

Managing Innovation Capability in Organizations.............................. 5
Market Orientation and Organizational Performance......................... 13
Managing Market Orientation in Organizations.................................. 14
Measuring Market Orientation............................................................... 15
Fast Food Industries............................................................................... 15
Purpose of the S tu d y............................................................................... 16
Significance.............................................................................................. 17
Research Questions............................................................................... 18
Research Question 1 .................................................................. 20
Research Question 2 ................................................................... 20
Definition of T e rm s ................................................................................... 21
CHAPTER II REVIEW OF THE L IT E R A T U R E .............................................. 23
The Importance of Innovation................................................................ 23

Constructs Related to Innovation.......................................................... 26
Definitions of Innovation............................................................. 26
Summary......................................................................................... 28
Innovation, Learning Organization, and Knowledge
M anagem ent................................................................................................. 29
Learning Organization and Innovation..................................... 29
Knowledge Creating Organizations and Innovation................ 34
Summary......................................................................................... 39
Building Organizational Capacity to Innovate...................................... 39
Market Orientation and Organization Learning....................... 39
Innovation Capability A udit.......................................................... 47
Summary......................................................................................... 50
iv
CHAPTER III M E T H O D O L O G Y ......................................................................... 53
Organizational S e ttin g ............................................................................... 53

Research Subjects/Sam ple..................................................................... 54
Part 1 ................................................................................................ 54
Part 2 ................................................................................................ 54
Instrumentation.......................................................................................... 54
Instrument 1: Innovation Capability A u d it................................ 55
ICA Reliability and V alidity............................................................. 55
Instrument 2: MARKOR S c a le ................................................... 55
MARKOR Reliability and Validity............................................... 57
Procedures................................................................................................... 59
Research Questions and Hypotheses................................................... 59
Research Question 1 ....................................................................... 59
Research Question 2 ..................................................................... 59
Data Analysis S trateg y............................................................................. 60
Limitations of this S tu d y ............................................................................ 60
CHAPTER IV R E S U L T S ....................................................................................... 62
Demographic Inform ation......................................................................... 62

Testing of the Research Questions and Hypotheses......................... 64
Hypothesis 1 a .................................................................................. 64
Factor Analysis of IC A .................................................................. 64
Factor Analysis of the M A R K O R ................................................ 65
Hypothesis 1 b .................................................................................. 69
Reliability of the ICA and M A R K O R .......................................... 69
S u m m ary.......................................................................................... 72
Hypothesis 2 ...................................................................................... 72
Hypothesis 2 a -2 f ...............................................................................72
Psychometric Evaluation of M easu res................................................... 73
S u m m ary......................................................................................................... 76
CHAPTER V D IS C U S S IO N .................................................................................... 79
Discussion of the Hypotheses................................................................... 79

Research Question 1 ................................................................................... 80
Hypothesis 1 a .................................................................................. 80
Hypothesis 1 b .................................................................................. 80
Research Question 2 ................................................................................... 88
Hypothesis 2 ...................................................................................... 88
Hypothesis 2 a -2 f ...............................................................................88
The Relationship between ICA andM A R K O R ...................................... 89
Implications of the Findings........................................................................ 91
Limitations of the S tudy............................................................................... 93
Recommendations for Future R esearch..................................................95
Conclusions................................................................................................... 96
R eferences................................................................................................................. 97
Appendices............................................................................................................... 106
vi
LIST OF TABLES
Table 1. Definitions of Innovation............................................................. 27
Table 2. Model of Innovation Capability Audit Dimensions................. 56
Table 3. Survey of Market Information U s e ............................................. 58
Table 4. Comprehensive Demographics................................................. 63
Table 5. Revised Hypotheses.................................................................... 66
Table 6. ICA Factor Analysis R esults....................................................... 67
Table 7. Descriptive Statistics of the IC A ................................................. 68
Table 8. MARKOR Factor Analysis Results............................................. 70
Table 9. Descriptive Statistics of the M A R K O R ...................................... 71
Table 10. Factor Correlation Matrix of the IC A ........................................... 74
Table 11. Factor Correlation Matrix of the M A R K O R ............................... 75
Table 12. Correlation of ICA Total with MARKOR (4 Factors) Total and
Abbreviated MARKOR (3 Factors) T o ta l.................................. 77
vii
LIST OF FIGURES
Figure 1. A Model of the Relationship between ICA and M ARKO R 19
Figure 2. Business Concept Innovation M o d e l........................................... 25
Figure 3. A Conceptual Framework of Market Orientation,

Learning Orientation, and Organizational Performance ....... 43
Figure 4. Business Concept Innovation M o d el........................................... 52
Figure 5. Correlation of ICA Total with Abbreviated MARKOR Total ... 78
Figure 6. Original ICA D om ains..................................................................... 82
Figure 7. Revised ICA D om ains.................................................................... 83
Figure 8. Original MARKOR Dimensions.................................................... 85
Figure 9. Revised MARKOR Dimensions................................................... 86
Figure 10. Abbreviated MARKOR Dimensions............................................ 87
viii
LIST OF APPENDICES
APPENDIX A. Innovation Capability Audit Survey (IC A )............................. 106
A PPEND IX B. Market Orientation Scale (MARKOR)..................................... 107
ix
ACKNOWLEDGEMENTS
There are a number of people whom I would like to thank, as this
dissertation could not have been completed without their time and support. In
addition, all of these individuals have had an impact on my life, for which I am
honored and grateful.
First and foremost to my family, Mom & Dad, Luanne, Susan & Robbie,
Kelin, Claire, Champ, Patty & Adam, Matthew, Emily, Jenna, Charlie, Robert, and
Grandmother Michelle Alexander. I also want to extend a special thank you to
my best friend Patricia, and her dog, Sarah, who opened up their hearts and
home to me.
In addition to my family, I want to thank my dissertation committee
members, Dr. Cal Hoffman, Dr. Theodora Chau, and Dr. Dave Richey. Cal as
my chair, your patience over the course of countless conversations, discussions,
and edits, helped guide me through the process to produce a quality dissertation.
Theodora helped me through her quiet competence to see the nature of OD in a
much broader context. Her patience with my master’s thesis taught me to
appreciate action research. Dave provided friendship and mentoring that
encouraged me to pursue my doctorate and follow my heart.
To the members of my class: Claudia, Tennille, Manuelle, Sohee, Jenea,
and Yoti, for always being helpful and supportive, and to Stacey for her guidance
and encouragement, having gone before me in this process.
To my friends Dean & Jamey, Annette, Loree, Ester, Bill, Pam, Sandy and
Mary; for years of friendship, fun, support, and unconditional acceptance.
To my previous graduate professors, Dr. Betty J. Newlon, Dr. Richard L.
Erickson, and Dr. Phil J. Lauver, for preparing me for a professional career in
psychology and helping me to become the researcher and consultant that I am
today. A special thanks to Dr. Betty “J” for her wisdom, humor and belief in me.
I want to thank the participating organization, in particular, the People
Development Department, who gave me the support and coaching to accomplish
this goal. In addition, I want to especially thank Mark Wilson, whose coaching
and support afforded me the opportunity to learn more about building people
capabilities in organizations.
In addition, a special thanks to Dave Francis, for his work on identifying
innovation and capability constructs that he used to create an organizational
audit tool.
xi
VITA
October 9, 1954 Bom, New York
1976 B.A., State University of New York,

College of Arts and Science at
Plattsburgh
1978 M.A., University of Arizona
1980-1985 Director, Counseling Center, Fort Lewis

College, Durango, Colorado
1986-1990 Management Consultant, Lorber-Kamai

Consulting Group, Orange, California
1990-1991 Human Resources Representative, IDM

Corporation, Long Beach, California
1991-1994 Director of Human Resources, Shapell

Industries Inc., Beverly Hills, California
1994-1998 Director of Human Resources, The

William Lyon Property Management
Company, Newport Beach, California
2000 M.S., California School of Professional

Psychology, Los Angeles
2001-2002 Intern/Internal Consultant, People

Development, Taco Bell Corporation,
Irvine, California
2002 Ph.D., Organizational Psychology,

California School of Professional
Psychology, Los Angeles, California
Publications
Haaga, Diane P., Erickson, Richard L., & Newlon, Betty J. (1980). College
Entry Expectations of Older Students, Arizona Personnel and Guidance
Association Journal, 6, 1, 20-24.
Presentations
Organizational Capacity to Innovate in Relation to Market Orientation.
Taco Bell Corporation, Executive Team, January 2002.
xii
ABSTRACT OF THE DISSERTATION
The Relationship between Organizational Capacity to Innovate and Market
Orientation in a Fast Food Company
by
Diane P. Haaga
Doctor of Philosophy in Organizational Psychology
ALLIANT INTERNATIONAL UNIVERSITY, Los Angeles
COLLEGE OF ORGANIZATIONAL STUDIES
2002
Dr. Calvin C. Hoffman, Ph.D., Chairperson
New markets today are very different than markets just a few years ago.
Competitive advantage comes from strategies and processes that allow
organizations to react quickly to take advantage of evolving global markets.
Central to this notion of keeping pace with changes in capital markets is the
concept of innovation.
Innovation can encompass a new product, a new process, a new service
for the customer, and/or create a new way of doing business. Innovation is
invention that has produced economic value (Foster & Kaplan, 2001). According
to Hamel (2000), the capacity to re-conceive existing business models in ways
that create new value for customers, and produce new wealth will become the
defining competitive advantage in this new economy.
XIII
There is currently little empirical literature to test the relationship between
innovation and organizational effectiveness. Innovation is a complex and
multifaceted construct. In addition, the literature is lacking any empirical
evidence regarding ways to measure organizational capacity for innovation.
The purpose of this research study was to gain a greater understanding of
the relationship between organizational capacity to innovate and market
orientation necessary to sustain competitive advantage in this global economy.
This study analyzed the reliability and validity of an instrument designed to
assess organizational capacity for innovation. Participant data was obtained
from confidential surveys conducted in a fast food company.
This study found that the Innovation Capability Audit (ICA) is a valid and
reliable instrument for assessing organizational capacity for innovation. The
factor analyses performed on the ICA revealed distinct dimensions of
organizational drivers necessary to foster innovation. In addition, these findings
support Berthod, Hulbert & Pitt’s (1999) argument that innovation and market
orientation interact in a “facilitative manner.”
xiv
CHAPTER I
INTRODUCTION
In the 1920’s, when the first Standard & Poor’s (S&P) Index was compiled,
a listed company had a life expectancy of at least 65 years. In 1998, the annual
turnover rate of S&P companies was nearly 10 percent, implying a lifetime of only
10 years (McGrath, 2001). The capital markets (markets where capital is
exchanged) encourage the creation of corporations, permit their operational
excellence (as long as they sustain competitive advantage) and then remove
them when they lose their ability to perform. Joseph Alois Schumpeter, the
great Austrian-American economist of the 1930’s and ‘40 ’s, called this process of
creation and removal “the gales of creative destruction” (Foster & Kaplan, 2001).
It seems that corporations are built on the assumption of continuity, where the
focus is on operational excellence. Capital markets, on the other hand, are built
on the assumption of discontinuity, where the focus is on creation and
destruction. The very processes that help organizations exist over time may
actually prevent organizations from recognizing and accepting the need for
change. In other words, an inherent struggle develops between the need for
organizations to maintain control over existing operations and the need to create
the kind of culture that will allow for new ideas and re-invention.
Peter Drucker actually predicted ‘T h e Age of Discontinuity” in his 1969
book titled, The Age of Discontinuity: Guidelines to our Changing Society.
The Age of Discontinuity is a result of four powerful economic forces:
1. The increasing efficiency of business, due to significant declines in capital
costs resulting from technological advances.
2. The increasing efficiency of capital markets.
3. The rise in national liquidity.
4. Strengthened fiscal management by the federal government.
Incumbent companies have an unparalleled opportunity to take advantage of
current conditions, however, most of these companies will not survive because
they are too slow to keep pace with change in the market necessary to sustain
competitive advantage (Foster & Kaplan, 2001). Central to this notion of keeping
pace and discontinuity is innovation.
Innovation can encompass a new product, a new process, a new service
for the customer, and/or a new way of doing business. Innovation is invention
that has produced economic value (Foster & Kaplan, 2001). Without economic
value there really is no innovation. According to Kuczmarski (1996), a continuous
stream of new products and services will be the norm for competing in the 21st
Century. Ultimately, what is most important to the creation of value for
organizations is innovation (Gundling, 2000).
Clearly, new products and services will be the key to corporate prosperity.
They drive corporate profits, share prices, market shares and revenues.
The innovation game is speeding up as a result of these four innovation drivers
(Cooper, 1993):
1. Technology advances
2. Rapidly changing customer needs
3. Shorter product life cycles
4. Increased global competition
Call it Hamel’s Law of Innovation, but “for every 1,000 ideas, only 100
will have enough commercial promise to merit a small-scale experiment, only ten
of those will warrant a substantial financial commitment, and of those, only a
couple will turn out to be unqualified successes” (Hamel, 2001, p. 130). New
products are critical to an organizations long- term success and ability to weather
the “gales of destruction.”
According to Hamel (2000, p. 10) “the gap between what can be imagined
and what can be accomplished has never been smaller.” In addition, Hamel
states that “by the time an organization has wrung the last 5 percent of efficiency
out of the “how”, someone else will have invented a new “what” (p. 12). Inventing
new “whats” is the key to thriving in this new global economy. The capacity to
“re-conceive existing business models in ways that create new value for
customers, knock competitors off balance, and produce new wealth” (p. 17) will
become the defining competitive advantage in this new economy.
Innovation and Organizational Performance
According to a February 2000 Economist article, the Price Waterhouse
Coopers 1999 study on innovation, revealed that innovation will be the “dominant
value proposition for the next Century” (Kuczmarksi, 2000). One of the findings
of this study on innovation revealed that there was a relationship between
innovation and financial performance. Companies that were generating more
than 80% of sales from new products and services often doubled their market
capitalization over a 5-year period (2000). Few companies actually measure
their innovation efforts. Actually, less than 58% of companies formally measured
innovation on any scale within their organizations and fewer than 5% actually
measured a return on investments.
While there is agreement on the importance of the relationship between
innovation and organizational performance, there is little empirical literature to
test the relationship between innovation and organizational effectiveness. There
are a number of reasons to explain this. First, there is a void in the literature with
respect to studying the constructs related to innovation. Hurley & Hult (1998)
introduced two innovation constructs, namely, innovativeness and the capacity to
innovate. Innovativeness is the notion of openness to new ideas as an aspect of
an organization’s orientation toward innovation (1998). The capacity to innovate,
a term first used by Bums & Stalker (1961), is the ability of the organization to
successfully adopt or implement new ideas, processes, or products. Innovative
capacity relates to what Cohen & Leventhal (1990) call absorptive capacity. This
capacity to innovate can be measured by the number of innovations an
organization is able to adopt or successfully implement.
In addition to the void in the literature regarding the constructs of
innovation, the literature is lacking any empirical evidence regarding ways to
measure innovation capability. While there is limited empirical research on the
constructs of innovation and the ability to measure innovation capability in
organizations, it is clear that the construct of innovation capability has important
practical implications for organizations, OD practitioners, and researchers.
Managing Innovation Capability in Organizations
Understanding the organizational characteristics that lead to innovation
and the management of that process, from an empirical point of view, is also a
challenge. History tells us that most large companies are not radical innovators.
According to Marketing Intelligence Service’s Innovation Ratings, more than
25,000 new consumer packaged goods were launched in 1998, most of them by
large companies. Over 93 percent of these were judged to be “not significantly
innovative” (Stringer, 2000). Another recent study of the growth records of the
Fortune 50 sponsored by Hewlett-Packard and the Corporate Strategy Board
concluded that the single biggest growth inhibitor for large companies was
“mismanagement of the innovation process” (2000). The above two studies
illustrate that the issues surrounding the capacity to innovate deal with creation of
new and different ideas, as well as implementation and execution issues around
innovation.
Stringer (2000) also states that most of the largest U.S. companies want
to be innovative, but are “poorly equipped to implement a growth strategy based
on radical innovation because most large companies are genetically programmed
to preserve the status quo” (p.72). Many of these large organizations lack the
strategy, structure, culture, leadership practices, or employees to harness radical
new ideas. Stringer (2000) summarizes the innovation dilemma with the
following four points:
1. Often times it costs large companies too much money to embrace radical new
ideas.
2. Structure and cultures often discourage the entrepreneurial spirit that
accompanies bringing new ideas to market.
3. Most research & development departments have multiple demands placed on
them to simultaneously develop their existing products and services, while
searching for new opportunities.
4. Finally, large companies do not attract or retain radical innovators. Research
shows that the motivational profile that is most likely to be successful in a
large company is one dominated by the need for power, not the need for
achievement.
Unless companies deploy strategies to innovate, build organizational cultures
that support and encourage innovation, understand the processes involved in
implementing organizational change, and employ the people necessary to
harness innovation, “more imaginative minds will capture tomorrow’s wealth”
(Hamel, 2000, p.62).
According to Christensen & Overdorf (2000), the reason that innovation
seems to be so difficult for established companies is that they employ very
capable people and then focus their energies within organizational structures
whose processes and values were not designed for the task at hand.
Christensen & Overdorf’s research suggest that three factors affect what a
company can and cannot do: its resources, its processes, and its values.
Managers must therefore create new “organizational space” to cope with
changes in sustaining or disruptive innovations; innovations that create entirely
new markets through the introduction of new products or services (2001). There
are three ways to do that:
1. Create new organizational structures within corporate boundaries in which
new processes can be developed.
2. Spin out an independent organization from the existing organization and
develop within it the new processes and values required to solve the new
problem.
3. Acquire a different organization whose processes and values closely match
the requirements of the new task.
Christensen & Overdorf (2000) caution that “in their studies, they have never
seen a company succeed in addressing a change that disrupts its mainstream
values without the personal, attentive oversight of the CEO- precisely because of
the power of values in shaping the normal resource allocation process” (p. 74).
Kuczmarski (1996) outlines ten key innovation insights:
1. Failure is an intrinsic part of innovation.
2. Companies that have a new product’s strategy in place are more successful.
3. Using multi-functional teams is critical to success.
4. A systematic, well-defined, and commonly understood new product
development process is critical to success.
5. Compensation incentives that support innovation are critical to success.
6. Top management commitment is the foundation for success.
7. Companies that track Retum-On Investments (ROI’s) with some type of
Innovation Index Score are more successful.
8. Companies that have portfolios of diversified new product types.
9. The customer is why! Companies that begin the new product development
process by looking at the consumer/customer- identified problems are apt to
be more successful.
10.The organizational culture supports new product development by having well-
defined team values and norms to guide behavior.
In addition to the above innovation insights, similar secrets for the
successful management of the innovation process were drawn by Tom Peters in
his book, The Circle of Innovation, (1997). These insights are as follows:
1. Distance is dead- W e are all next door neighbors. Incrementalism is
innovation’s worst enemy.
2. Destruction is cool- Destruction of an organization is job no. 1, before the
competition does it to you.
3. You cannot live without an eraser- Forgetting, not learning, is the highest art.
4. W e are all “Michelangelos”- Convert every jobholder into a “Business
Person”.
5. Welcome to the white-collar revolution- if you cannot say why you make your
company a better place, you are out.
6. All value comes from the professional services- Make staff units the vital
centers of intellectual capital accumulation, rather than the prime sources of
bureaucratic drag.
7. The intermediary is doomed- Organizations as we know them are
disappearing. The customers are running our organizations. For example,
Charles Schwab re-invented their business model to allow the customer more
flexibility and control in achieving financial goals.
8. The system is the solution-Systems are the glue. For example, “Southwest
Airlines is a company of about 21,000 people, who
totally/passionately/beautifully focus on the well-being of 25 million airline
passengers”.
9. Create waves of lust- “Wow” lusted after products and services. The Ritz
Carlton is a great example of a company that excels at the ultimate guest
satisfaction and continued customer loyalty.
10 .The Age of the Brand- Great examples of branding includes, Tommy Hilfiger,
Martha Stewart, Intel, and Starbucks.
11 .Become a connoisseur of talent- Recruit diversity!
12.lt is a W oman’s World- Women purchase well over half the U.S. GDP
(commercial and consumer goods).
13. Little things are the only things- as markets get more and more crowded;
design is often the best tool in services and/or manufacturing for sustainable
differentiation. A good example of this is the SO NY Corporation.
14. Love all; serve all- Obsess on service. A great example is the Walt Disney
Corporation.
15. W e are here to live out loud- Passion, enthusiasm and demands for the truth
will be important leadership traits.
Tom Peters also studied the success of managing innovation from Silicon Valley
companies. Many of the suggestions listed below are about creating the type of
organizational culture that fosters innovation. The suggestions are as follows:
1. Organizations need tolerance of failure
2. The pursuit of risks
3. Willingness to reinvest
4. Enthusiasm for change
5. Promotion based on merit
6. Obsession with developing new products
7. Openness to collaboration
8. Variety
Frances Horibe (2001) subscribes to the notion of leveraging visionaries,
“dissenters” and other “troublemakers” in creating an innovation culture. Horibe
believes that “organizations fail to innovate because they do not recognize that,
by its nature, innovation is disruptive to settled patterns. This disruption takes
the form of dissent- of people wanting to go in a different direction from the norm.
Rather than suppress these dissenting voices, organizations need to encourage
their expression” (p. 24).
Most companies do not have a process for generating fresh ideas, or
for tracking dozens of experiments and then committing to those that have
promise (Hamel, 2001). In Hamel’s words, “many companies have created
“innovation ghettos” that are divorced from innovation in the core business. The
fear of cannibalization is so overpowering and the constraints of orthodoxy so
10
absolute that the only way to innovate is to create a separate organization filled
with native-born entrepreneurs” (2001, p .131).
Although many organizations face challenges in creating a culture that
sustains innovation, one company continues to emerge as a perennial winner in
Fortune magazine’s list of ‘T h e Ten Most Admired Corporations,” namely 3M.
3M ’s name is synonymous with innovation. Fortune described 3M as “a kind of
corporate petri dish that fosters a culture of innovation” (Bartlett, 1995, p.1). One
of the common themes in the variety of stories of innovation that permeated
through 3M was the way in which individual persistence and commitment often
triumphed over management’s indifference and/or rejection of new ideas. In
addition, management continued to advance the strategic imperative to increase
sales from new products and bring innovations to market faster. In essence, 3M
relies on the following simple rules for its success:
1. Keep divisions small
2. Tolerate failure
3. Motivate the champions
4. Stay close to the customer
5. Share the wealth
6. Don’t kill a project- if an idea cannot find a home in one of 3M ’s divisions, a
staff person can devote 15% of his/her time to prove the idea workable. For
those who need seed money, there are a number of grants in excess of
$50,000 awarded each year.
11
In addition to 3M, there are many other companies who are innovative and who
foster the belief that innovation capability is a process that can be managed. It is
this researcher’s belief that all companies can manage the innovation process,
but the challenge is in creating a culture that sustains innovation. According to
Jeffery (2001, p. 76), the real challenge is to find a way for “individuals and
organizations to feel comfortable in a place of chaos and order simultaneously.”
There appears to be literature on the importance of creativity and
innovation as it relates to organizational performance and competitive advantage,
but there is a smaller body of research that focuses on the organizational
characteristics that lead to innovation. For example, Woodman, Sawyer, and
Griffin (1993) proposed that organizational culture, rewards, and resources are
determinants of creative behavior in organizations. Similarly, Amabile, Conti,
Coon, Lazenby, and Herron, (1996) found that the perceived work environment
influences the level of creativity in organizations. Damanpour (1991), in a study
of the antecedents of organizational innovation, found that managerial attitude
toward change, and internal and external communication were positively related
to innovation (Chandler, 2000).
One study by Chandler, Keller and Lyon (2000) sought to test a
contingency-model linking innovation-supportive culture, environment, and firm
performance. A sample of 429 employees in 23 small to medium-sized
manufacturing firms was used to identify constructs associated with an innovative
culture. Management and reward system support were both positively related to
an innovative culture. There was no direct relationship between an innovative
12
culture and an organizations performance; however, when the competitive
environment is changing rapidly firm earnings are enhanced by an innovative
culture. In general, Chandler’s (2000) research is supportive of the findings in
previous research on innovation (Amabile et a., 1996). In addition, the results
suggest that among small and medium-sized companies, company size and
formalization tend to inhibit employee perceptions of an innovation supportive
culture.
Market Orientation and Organizational Performance
According to Kohli and Jaworski 1990; Narver and Slater 1990, market
orientation is defined as the process of generating and disseminating market
intelligence for the purpose of creating superior buyer value. There are three
components of market orientation: (a) customer orientation, (b) competitor
orientation, and (c) inter-functional coordination. Customer orientation and
competitor orientation represent an emphasis on collecting and processing
information pertaining to customer preferences and competitor capabilities. Inter
functional coordination involves the coordinated application of organizational
resources to synthesize and disseminate market intelligence (Narver and Slater
1990; Slater and Narver 1994). Researchers in the area of market orientation
have defined the market-oriented firm as one that successfully applies the market
concept.
Organizations committed to a market orientation focus usually focus their
major innovative effort on enlarging the size of the market in which they
participate. They accomplish this by introducing new products and services, by
13
promoting new applications for existing products, and by searching out new
classes of customers who have not used existing products. According to
Webster (1997), merely being market or customer oriented is not enough.
Constant innovation was necessary to deliver better value to consumers in a
competitive marketplace. In addition, customer or market orientation alone is
insufficient to ensure long-term prosperity, a perspective which is supported by
recent empirical research (Deshpande, 1997). For long-term prosperity, an
organization must not only retain customers, but must “simultaneously innovate
to ensure the creation of new customers and the means to satisfying their future
needs and wants- a process that has been termed- “organizational ambidexterity”
(Tushman, 1996, p. 174). Hamel and Prahalad (1991), also argue that being first
to market, combined with continual innovation, is the key to survival in a turbulent
business environment.
Managing Market Orientation in Organizations
A strong market orientation- a market-driven and customer-focused new
product process is critical to success. Unfortunately, a strong market orientation
is missing in the majority of organizations’ new product projects (Cooper, 1993).
Marketing activities tend to be the weakest-rated activities of the entire new
product process. These activities include poor market research; inadequate
market analysis; weak market studies, test markets, and market launch; and
inadequate resources devoted to marketing activities.
It is this researcher’s opinion that the process of market orientation can be
managed. 3M has traditionally been cited for having an enviable new product
14
track record. An innovative corporate culture and climate are often cited as 3M ’s
secrets to success. The challenges involved in balancing a strong market
orientation with an equally strong innovation orientation have implications for
leaders of today’s organizations, researchers and OD practitioners.
Measuring Market Orientation
The most widely used and accepted instrument for measuring market
orientation is the MARKOR scale (Kohli et al., 1993). A strong market orientation
is required to focus an organization on those external environmental events that
are likely to affect their ability to maximize customer satisfaction in relation to
their competitors. The fact that there is an established measure of market
orientation available to organizations has strong implications for OD practitioners
working with organizations who are assessing innovation capability in relation to
market orientation.
Fast Food Industries
Fast Food Industries are really no different than other service industries
trying to capture consumers in a globally competitive marketplace. The success
of these quick service restaurants, whether company-owned or franchised, is
entirely dependent upon the on-going stream of new products and services the
company is able to generate to satisfy the need for constant stimulation of its
customer/market base. No longer is operational excellence and speed of service
enough, rather new business concept innovation and nonlinear innovation
(Hamel, 2000). Nonlinear innovation requires a company to imagine entirely
novel solutions to customer wants and needs. Industry revolutionaries, on the
15
other hand, take the entire business concept, rather than just the product or
service, as the beginning point for innovation. For many in the quick-service
restaurant industry, new business concept innovation is about re-defining “brand
essence”, not just about developing new food concepts and service excellence.
Purpose of the Study
The purpose of this study would be to be to gain a greater understanding
of the relationship between an organization’s capacity to innovate and achieve a
market orientation necessary to sustain competitive advantage in this global
economy. There is no doubt that globalization is one of the most important
trends that will affect organizations in the 21st century, and those organizations
unable to compete will be left behind. At the core of understanding an
organization’s capacity to innovate and market orientation is the need to
empirically assess the organizational drivers that will support an organization’s
capacity to create innovation and build wealth-generating strategies.
According to Hamel (2000), much like Deming, Juran and other early
leaders of the quality movement, new innovation practices must be invented.
Creating a company-wide capacity for innovation will be no less challenging than
creating organizations practicing the tenets of quality and continuous
improvement.
This researcher has located a published instrument called The Innovation
Capability Audit (ICA), developed by Dave Francis, Ph.D., in 1998. This
instrument has not been validated and is currently being used as an action-
research tool; from which organizations can conduct gap analyses and establish
16
action plans for change. Dr. Francis has identified six domains and eighteen
dimensions of innovation capability. The six domains include direction, capability,
culture, learning, structure and process, and decision making. The items in this
research instrument were drawn from research and case studies that address the
preconditions for organizational innovation. At present, no one universally
agreed-on model of innovative capacity exists. As such, only face validity has
been established.
One purpose of this research would be to validate this qualitative
instrument. Successful validation of this instrument would allow practitioners to
assist companies in “inventing new practice” by focusing on the domains and
dimensions that truly reflect an organization’s capability to innovate.
In addition to validating the Innovation Capability Audit, this researcher
would correlate the ICA instrument with a second instrument, called the Market
Orientation or MARKOR scale, developed by Kohli in 1993. The MARKOR scale
is a well- established and accepted measure of market orientation, according to
Sinkula & Baker, 1999.
Significance
The significance of this research will be to empirically study the
organizational drivers that support an organization’s capacity to innovate in the
context of a market orientation. The findings of this research study would prove
beneficial to companies, consultants and other OD practitioners whose charge it
is to shape the organizations of the 21st century. Essentially, “as a total
community, U.S. businesses need to come up with new ideas and approaches to
17
make Fortune 1000 companies the leaders and sculptors of global innovation”
(Kuczmarski, 2000, p. 251). The Innovation Capability instrument could become
a means to assisting these organizations by identifying the salient organizational
drivers needed to achieve business excellence.
In addition, organizations can gain greater insight into competitive
advantage by understanding how the concepts of market orientation and an
organization’s capacity to innovate are related. A strong market orientation, or
external customer focus, is necessary to maximize customer satisfaction. An
organization’s capacity to innovate, or internal focus, is necessary to meet the
demands of constant value creation in new products and services.
Research Questions
It is evident from a review of the literature that further research on the
constructs of innovativeness and capacity to innovate, in relation to market
orientation, would advance research on innovation and organizational
performance and competitive advantage. Figure 1 represents a model for
investigating the relationship between ICA and MARKOR.
It is the goal of this researcher to advance our understanding of the area
of organizational innovation and market orientation by empirically validating an
instrument that could assess an organization’s capacity to innovate
(R1=Research Questionl). Secondly, this researcher would use the validated
Innovation Capability Audit (ICA) and correlate it with an already existing
validated instrument used to operationalize market orientation, called the
MARKOR scale (R2= Research Question 2).
18
R2
ICA MARKOR
(Organizational (External
Drivers) Marketplace)
R1
Figure 1. A model of the relationship between ICA and MARKOR.
19
This quantitative field research study contains two research questions:
Research question 1.
Is the Innovation Capability Audit (ICA) a valid and reliable instrument for
assessing an organization’s capacity to innovate?
Hypothesis 1a: The factor analysis of the ICA will yield six distinct domains that
drive organizational innovation.
Hypothesis 1b: Item analyses will demonstrate that alpha coefficients for each of
the six domains will be .70 or greater.
Are there significant correlations between ICA score and MARKOR score?
Hypothesis 2: There will be a significant correlation between the total ICA score
and the total MARKOR score.
Hypothesis 2a: There will be a significant correlation between MARKOR score
and the ICA dimension of Direction.
Hypothesis 2b: There will be a significant correlation between MARKOR score
and the ICA dimension of Capability.
Hypothesis 2c: There will be a significant correlation between MARKOR score
and the ICA dimension of Culture.
Hypothesis 2d: There will be a significant correlation between MARKOR score
and the ICA dimension of Learning.
Hypothesis 2e: There will be a significant correlation between MARKOR score
and the ICA dimension of Structure and Process.
20
Hypothesis 2f: There will be a significant correlation between MARKOR score
and the ICA dimension of Decision-Making.
Definition of Terms
Innovation- Innovation will be defined by Hurley & Hult (1998). Innovativeness
(openness to new ideas) and capacity to innovate (ability to adopt or implement
new ideas, products and/or processes, and services).
Market Orientation- Market Orientation will be defined by Kohli (1993). Market
orientation is defined as the process of generating, disseminating and responding
to market information pertaining to current and future customer needs.
Learning Organization- Learning Organization will be defined by Senge (1990).
Learning organizations are organizations where people continually expand their
capacity to create the results they truly desire, where new and expansive
patterns of thinking are nurtured, where collective aspirations are set free, and
where people are continually learning how to learn together.
Knowledge Creating Organizations- Knowledge management will be defined by
Knapp (1998). Knowledge management is a set of processes for transferring
intellectual capital to value-processes such as innovation and knowledge creation
and knowledge acquisition, organization, application, sharing and replenishment.
Organizational Culture- Culture will be defined by Schein (1985). Culture is a
pattern of basic assumptions- invented, discovered, or developed by a given
group as it leams to cope with its problems of external adaptation and internal
integration- that has worked well enough to be considered valid, therefore, to be
21
taught to new members as the correct way to perceive, think, and feel in relation
to those problems.
22
CHAPTER II
REVIEW OF THE LITERATURE
The Importance of Innovation
“At first people refuse to believe that a strange new thing can be done,
and then they begin to hope it can be done, then they see it can be done, then it
is done, and all the world wonders why it was not done centuries ago”
(Kuzmarski, 1996, p. 189).
New markets today are very different than markets just a few years ago.
The pace of change is dramatic. With these dramatic changes in market
conditions, companies are experiencing changes in the rules for how business is
conducted and how value and wealth is created. CEO’s today are focused on
innovative strategies, where speed and decisiveness are key qualities for
success. Competitive advantage comes from strategies and processes that
allow organizations to react quickly to take advantage of evolving global markets.
According to Means & Faulkner (2000), the capacity to create value in our New
Economy relates not just to creating new options, but the capacity to select and
implement the best possible options for success. The successful companies in
this New Economy are following very different business models and ideas
(2000). Rules to follow include:
1. The past is not the prologue
2. Business excellence and discipline are essential
3. Companies must be e-enabled
4. Innovation valuation and performance measurement are key
23
5. Dynamic innovation is now the strategy
6. Strong business management
7. Freedom to incubate and fail
8. Management decisiveness and courage to make big bets
9. A new style of organization and management
The consumer market clearly acknowledges those companies that can both
innovate and successfully implement new products and services. In terms of
innovation strategy, Means & Faulkner believe that “companies must
institutionalize innovation and create an agile and responsive culture that
embraces change and disruption rather than simply reacting to it” (p.28).
More recently Gary Hamel (2000) talked about the need to “out-innovate the
innovators.” Any business concept, no matter how significant, will rapidly lose its
economic efficiency. According to Hamel, Bill Gates of Microsoft Corporation is
the only corporate leader who truly understands the dynamics of the new
industrial order. In a recent Gallup survey, 500 CEO’s were asked “W ho took
advantage of change in your industry over the past 10 years- newcomers,
traditional competitors, or your own company? 62% of the CEOs said the
newcomers had succeeded by changing the rules. Radical or non-linear
innovation is the only way to ensure future competitive advantage. Hamel (2000)
believes that customer needs will be met through new business concept inno
vation. Figure 2 represents Hamel’s model of innovation.
24
BEYOND CONTINUOUS IMPROVEMENT
Nonlinear Business Concept

Innovation Innovation
Continuous Business Process

Improvement Improvement
Component System
Figure 2. Business concept innovation model.
Note. Reprinted by permission of Harvard Business School Press. From Leading

the Revolution (p. 17) by Gary Hamel. Boston, MA 2002. Copyright 2000 Gary
Hamel.
25
Constructs Related to Innovation
Definitions of innovation.
One of the challenges facing the research community is that the construct
of innovation is multi-faceted. For example, Table 1 outlines the definitions of
innovation that evolved over the last forty years.
The capacity to innovate, a term coined by Bums and Stalker (1961), is
the ability of the organization to successfully adopt or implement new ideas,
processes, or products. Innovative capacity relates to what Cohen and Levinthal
(1990) call absorptive capacity. The number of innovations an organization is
able to adopt or successfully implement can measure this capacity. Firms that
have a greater capacity to innovate are able to develop a competitive advantage
and achieve higher levels of organizational performance and effectiveness.
Thompson’s (1965, p.36) classic definition of innovation is the “generation,
acceptance and implementation of new ideas, processes, products or services.”
Zaltman, Duncan, and Holbek’s (1973, p. 2) definition of innovation is “an idea,
practice or material artifact perceived as new by the relevant unit of adoption.”
More recently, Amabile’s (1996, p.25) definition of innovation is the “successful
implementation of creative ideas within an organization.”
Zaltman, Duncan, and Holbek (1973) suggest that there are two different
stages of the innovation process, namely, initiation and implementation. A critical
aspect of the initiation stage is “openness to the innovation” (p.64) which is
determined by whether members of the organization are willing to consider the
adoption of or are resistant to innovation. Van de Ven (1986) refers to this as the
26
Table 1
Definitions of Innovation
1. Bums & Stalker (1961) The capacity to innovate is the ability of an

organization to successfully adopt or implement
new ideas, processes, or products.
2. Thompson (1965) The generation, acceptance and implementation

of new ideas, processes, products or service.
3. Zaltman, Duncan & Holbek (1973) An idea, practice or material artifact perceived
as new by the relevant unit of adoption.
4.Damanpour (1991) Technical innovations pertain to products,

sen/ices, and production process technology;
they are related to basic work activities and can
concern either product or process, whereas
administrative innovations involve organizational
structure and administrative process; they are
indirectly related to basic work activities of an
organization.
5. Nonaka & Takeuchi (1995) Organizational knowledge creation is the key to

distinctive ways that companies, particularly
Japanese companies, innovate. They are adept
at bringing about innovation continuously,
incrementally, and spirally. Knowledge moves
more in a spiral vs. linear fashion. Processes
are never ending and iterative.
6. Amabile (1996) The successful implementation of creative ideas

within an organization.
7. Peters (1997) Innovation is about design and brand position

and the culture that is needed to foster
innovation.
8. Hurley & Hult (1998) Innovation is defined by innovativeness or

openness to new ideas; and the capacity to
innovate, as measured by the number of
innovations implemented.
9. Hamel (2000) Innovation is defined as radical or non-linear and

is more than just developing new products
services.
27
management of the firm’s attention in order to recognize the need for new ideas
and action in the organization.
Drawing on Zaltman, Duncan, and Holbek’s (1973) differentiation of the
initiation and implementation stages of innovation, Hurley & Hult (1998) introduce
two innovation constructs with respect to models of market orientation: (a)
innovativeness and (b) the capacity to innovate. Innovativeness is the notion of
openness to new ideas as an aspect of an organization’s culture. Innovativeness
of the culture is a measure of the organization’s orientation toward innovation.
Hurley & Hult (1998) argue that there are antecedents to innovativeness; that is,
various characteristics of an organization’s culture, such as emphasis on
learning, participative decision making, support and collaboration, and power
sharing, that affect whether the organization has an innovation orientation.
Hurley & Hult’s (1998) model is a conceptualization of how innovation
replaces organizational learning as the central mechanism by which
organizations develop capabilities and adapt to their environments. Learning
orientation, along with other aspects of organizational culture, functions as an
antecedent to an innovation orientation. “It is the orientation to innovation and
the capacity to implement innovations that determine whether the organization’s
market and learning orientations will lead to the development of the organization
and the achievement of superior performance” (p.49).
Summary.
The variety of definitions for innovation would imply that innovation is a
multi-faceted construct. Innovation is also a continuous learning and non-linear
28
knowledge creating process, as articulated in the examples of innovation stages,
circles and spirals.
Innovation, Learning Organization, and Knowledge Management
Learning organization and innovation.
Marquardt (1996) defines the learning organization as “ an organization
that leams powerfully and collectively, continually transforming itself to more
effectively manage knowledge. Learning organizations empower their people to
leam as they work, utilizing technology to maximize learning and production” (p.
229). Organizational learning, on the other hand, is defined as “how learning
occurs on an organization-wide basis” (p. 203). Organizational learning is also
defined by Watkins & Marsick (1993) as “changed organizational capacity for
doing something new” (p.152).
Characteristics of learning organizations (Gilley, 2000) include:
1. Focus on creativity and generative learning
2. Continuous access to information and data resources that are important to an
organization’s success
3. Workers network in an innovative, community-like manner, inside and outside
the organization
4. The organizational climate encourages, rewards, and accelerates individual
and group learning
5. Change is embraced, while surprises and failures are viewed as opportunities
to leam
6. Everyone is driven by a desire for quality and continuous improvement.
29
Organizational conditions, or critical success factors necessary for building
a learning organization, according to Chawla (1995) are:
1. Senior management must be committed to making learning capability a key
part of its ongoing competitive advantage.
2. A compelling vision of the desired learning organization that people feel part
of and excited by.
3. A clear blue print for change.
4. Milestones- identified, achieved, and celebrated.
5. Committed leadership willing to model desired changes and drive fear out of
the organization.
6. Immediate corrective action with leaders who resist change.
7. Senior management committed to significant investment of time and
resources.
8. A performance-management system that links compensation to achievement
of the desired vision.
9. Encouragement and acknowledgment of experimentation, collaboration,
innovation, and new paradigms.
10. Urgency, but no quick fixes.
11. Multiple feedback structures
12. Multiple learning channels
Peter Senge, probably the most widely regarded as one of the leading
experts on learning organizations, defines the learning organization as
“organizations where people continually expand their capacity to create the
30
results they truly desire, where new and expansive patterns of thinking are
nurtured, where collective aspirations are set free, and where people are
continually learning how to leam together" (1990, p. 49). Senge has identified
five “disciplines” that should be viewed as guiding principles of learning
organizations. The five principles are:
1. Personal Mastery- This is the discipline of continually clarifying and
deepening our personal vision, of focusing our energies, of developing
patience, and of seeing reality objectively.
2. Building Shared Vision- This discipline involves the skills of unearthing shared
pictures of the future that foster genuine commitment and enrollment into a
shared vision instead of compliance.
3. Mental Models- The discipline of working with mental models starts with
learning to unearth our internal pictures of the world, bringing them to the
surface and holding them rigorously to scrutiny.
4. Team Learning- This discipline starts with dialogue- the capacity of members
of a team to suspend assumptions and inter into genuine “thinking together.”
5. Systems Thinking- This discipline, which is the cornerstone of how
organizations view the world, ties together the other four disciplines and is
what keeps each of them from simply becoming fads. Systems thinking
means being able to see feedback as a reciprocal flow of influence and
moving beyond linear thinking and viewing actions as systems that occur in
circles of causality.
31
Learning processes continue to play a major role in emerging theories on
competitive advantage (Dickson 1996: Hunt and Morgan 1996). Recently, the
debate regarding the extent of the role of learning processes in creating and
maintaining an organization’s competitive advantage has heightened. According
to Baker & Sinkula (1999), a learning orientation is an organizational
characteristic that shows the value an organization places not only on quickly
responding to changes in the environment but on always challenging the
assumptions that frame an organization’s relationship with the environment.
Argyris & Schon (1978) distinguished between singleloop or adaptive
learning and doubleloop or generative learning. Most organizations practice
singleloop learning, where error correction occurs but does not involve a change
in organizational norms. A change in norms typically occurs when a mismatch of
outcomes to expectations is detected. Doubleloop learning differs from adaptive
learning in that it leads to a change in organizational norms. Generative learning
is a key point in that this type of learning reflects an organization’s capacity to
actually change “its view of the world” by unlearning out-dated perspectives and
replacing them with systems and procedures that may create or maintain
competitive advantage (Dickson, 1996). Learning orientation then is reflected by
a set of knowledge-questioning values (Sinkula et al.,1997). Firms with strong
learning orientations encourage and often insist employees constantly challenge
organizational norms and the status quo. Values that are associated with an
organization’s learning capabilities center around its (a) commitment to learning,
(b) open-mindedness, and (c) shared vision (Day, 1991, 1994a; Senge, 1990,
32
1992; Sinkula et al., 1997). Organizations that are committed to learning value
the need to understand the cause and effects of their actions.
Sinkula & Baker’s research asserts that organizations have a greater
likelihood of creating sustainable competitive advantage if they have both a
strong learning orientation and market orientation. Sinkula & Baker (1999)
conducted a nationwide direct mail survey. The majority of the instrument used
in the assessment was composed of items used in past research on market
orientation and organizational learning (Jaworski & Kohli, 1993; Kohli et al. 1993;
Narver and Slater 1990; Sinkula et al. 1997). They used a commercially available
list of business executives, who held, at minimum, a vice-presidential rank.
These executives were from a broad range of industries. Half of the sample was
composed of firms with more than $500 million in sales and the other half
composed of smaller firms. A total of 2,000 questionnaires were mailed: half to
marketing executives and half to non-marketers. The survey response rate was
21%. About 47% of the responses came from firms with sales of less than $500
million. A greater percentage of responses came from marketers (60%) than non
marketers (40%).
The results of Sinkula & Baker’s study provided empirical validation of
Slater and Narver’s (1995) claim that as important as market orientation is, it
must be complemented by an appropriate climate for learning. The results are
consistent with their argument that organizations need both entrepreneurial and
market oriented culture elements to breed the adaptive learning behavior
required for success. In addition, the main effect of market orientation on new
33
product success replicates Slater and Narver’s (1994) findings, this time with a
different measure of market orientation, the MARKOR scale. The main effect of
learning orientation is uniformly significant and positive across all three
dependent measures (commitment to learning, shared vision, and open-
mindedness) and is an important extension of recent views of the role of higher
order learning on building and sustaining competitive advantage (Day, 1994).
According to Baker & Sinkula (1999), in the absence of market orientation
or learning orientation, “it would be better for an organization to have a strong
market orientation. A strong market orientation is likely to breed the type of
adaptive learning that can keep an organization competitive in a dynamic market.
A strong learning orientation may lead to an occasional “home run,” but the
beneficial effect of breakthrough innovations may be short lived if they are not
followed up by market-oriented processes that enable organizations to make
necessary strategic and tactical adjustments in responses to changes in the
external market” (p. 422). This research addressed the gap in the literature by
finding a significant effect of an internal environmental moderator of market
orientation, namely, learning orientation. To date, no one has operationalized
and tested learning orientation in such a way.
Knowledge creating organizations and innovation.
In addition to the literature on organizational learning, there is an entire
body of research dealing with knowledge management and the knowledge-
creating company. Coleman (1998) defines knowledge management as “a fluid
mix of framed experience, values, and contextual information and expert insight
34
that provides a framework for evaluating and incorporating new experiences and
information. It originates and is applied in the minds of “knowers.” In
organizations, knowledge often becomes embedded not only in documents or
repositories, but also in organizational routines, processes, practices and norms”
(p. 122).
Because the concept of knowledge management is in its formative stages,
there is no one set, agreed upon definition. According to Knapp (1998),
“knowledge management is a set of processes for transferring intellectual capital
to value-processes such as innovation and knowledge creation and knowledge
acquisition, organization, application, sharing, and replenishment”(p.3). Coopers
& Lybrand (Knapp, 1998) defined knowledge management as “the art of
transforming information and intellectual assets into enduring value for our
client’s and our people”(p.3).
According to Coleman (1998), the term knowledge management may
have been derived from an expression of Peter Drucker in 1998, concerning the
knowledge of workers as individuals who make up the new economy and whose
currency is knowledge. Coleman defines knowledge management as “the
process by which individual learning and experience is accessed, reflected upon,
shared and used to foster enhanced individual knowledge and organizational
value”(p.122). Knowledge is power and for an increasing number of companies
around the world, knowledge is a limitless source of capital. An organization’s
knowledge is the sum total of the experience and brainpower of its people, its
products and processes, and its clients.
35
Knowledge management is one of the keys to success in the 21st Century.
Our intellectual assets are our most important source of competitive advantage.
Estimates of the amount of corporate know-how that resides within the minds of
its employees range from 50% to 90% (Duhon, 1998). Organizations in all
industries, in all sectors of the economy, are beginning to focus on their
knowledge assets. The services sector, for which knowledge is the primary
asset, has led the way, followed by companies, such as banking, that are more
transactional in nature. In today’s economy, where increased focus is placed on
value-added service, organizations must be able to harness intellectual capital in
relation to their core business.
Japanese companies historically have been successful because of their
skills and expertise at “organizational knowledge creation” (Nonaka & Takeuchi,
1995). Organizational knowledge creation is defined by Nonaka as “the
capability of a company as a whole to create new knowledge, disseminate it
through-out the entire organization, and embody it in products, services, and
systems” (p.3).
Nonaka and Takeuchi (1995) distinguish between two types of knowledge:
explicit and tacit. Explicit knowledge is defined as knowledge that is “formal,
unambiguous, systematic, falsifiable and scientific.” “American companies tend
to view knowledge as explicit. Tacit knowledge is defined as knowledge that is
intuitive, bodily, interpretive, ambiguous, nonlinear and difficult to reduce to
scientific equation” (p. 8). Japanese companies are more inclined to value tacit
knowledge.
36
Tacit knowledge is also personal, context-specific, and therefore, difficult
to formalize and communicate. Explicit or “codified* knowledge, refers to
knowledge that is transmittable in formal, systematic language. People acquire
knowledge by actively creating and organizing their own experiences. Tacit
knowledge also includes cognitive and technical elements centered on “mental
models”, in which people create working models of the world by making and
manipulating analogies in their minds. Mental models allow people to perceive
and define the world. The articulation of tacit mental models is a key factor in
creating new knowledge (1995).
According to Nonaka & Takeuchi (1995), organizational knowledge
creation is a continuous and dynamic interaction between tacit and explicit
knowledge. Contents of knowledge interact with each other in the spiral of
knowledge creation, also called ‘knowledge spirals.” Organizational knowledge
creation is a spiral process, starting at the individual level and moves through
expanding communities of interaction that cross organizational boundaries.
Organizational knowledge creation is the key to distinctive ways that
Japanese companies innovate. They are adept at bringing about innovation
“continuously, incrementally, and spirally” (p. 4). The Japanese are also known
for their “willingness to abandon what has long been successful” (p.5). Nonaka &
Takeuchi believe that it is this trait of making the existing advantage obsolete that
is found in all successful companies, not just the Japanese companies.
The following guidelines for implementing knowledge-creation programs
indicate that this process can be managed in organizations (1995):
37
1. Create a knowledge vision
2. Develop a knowledge crew
3. Build a high-density field of interaction at the front line
4. Piggy-back on the new product development process
5. Adopt “middle-up-down” management
6. Switch to a hyper-text organization
7. Construct a knowledge network with the outside world
There is some support in the literature to empirically support knowledge
management and its relationship to organizational effectiveness. According to a
new study by Ipsos-Reid and Microsoft Canada Co., a majority of Canadian
business leaders indicated that knowledge management (km) practices have
created value by improving organizational effectiveness, delivering customer
value, and improving product innovation and delivery. According to Doucet
(2001), the study revealed that 65% of Canadian companies practicing
knowledge management believed it had given their organization a competitive
advantage. 91% agree that knowledge management practices have succeeded
in creating value in improving organizational effectiveness. 88% agree
knowledge management practices have succeeded in delivering customer value.
According to 89%, the positive impact of KM practices extends to employee
satisfaction. This study appears to be one of the first to measure the prevalence
of knowledge management, investigate what specific knowledge management
practices are in place in Canadian organizations and determine the success and
impact of knowledge management practices. Finally, in terms of managing the
38
knowledge management process, this study revealed the top three knowledge
management processes in place: 1) the development of an Intranet, 2)
conducting events for sharing knowledge throughout an organization, and 3) the
use of software to encourage sharing and collaboration.
Summary.
Building a learning organization and a knowledge creation organization is
an essential prerequisite for business excellence and fostering an innovative
culture. There are strong implications for the leaders of our organizations, as
well as OD practitioners who support their efforts, to more effectively understand
how to create the organizational cultures necessary to achieve greater innovation
and sustaining competitive advantage.
Building Organizational Capacity to Innovate
Market orientation and organizational learning.
There appears to be numerous interpretations of market orientation (Day
1994; Deshpande, Farley, and Webster 1993; Kohli and Jaworski 1990; Narver
and Slater 1990). All have an operational focus on market information
processing (MIP) activities regarding customers and competitors, specifically
information acquisition, information distribution, and the ability to behaviorally
respond to what is received. For example, Kohli and Jaworski (1990) define
market orientation as “the organization-wide generation of market intelligence
pertaining to current and future customer needs, dissemination of intelligence
across departments, and organization-wide responsiveness to it” (p.6). In 1993,
Kohli, Jaworski, and Kumar (1993) conducted a study to develop a measure of
39
the construct of market orientation. Key aspects of the research methodology
included several rounds of pre-testing, a single-informant assessment, and a
multi-informant (both marketing and non-marketing executives) replication and
extension. The term key informant is defined in this research as an
organizational member, who because of their specific knowledge are in a unique
position to report on the phenomenon being studied. The multi-informant results
indicated that the proposed 20-item market orientation scale (MARKOR) may
best be represented by a factor structure that consists of one factor for
dissemination and responsiveness, one marketing informant factor, and one non
marketing informant factor. Considering the informant factors, the validation
tests are moderately supportive of the market orientation construct. Slater and
Narver (1995, p.67) define market orientation as “the culture that (1) places the
highest priority on the profitable creation and maintenance of superior customer
value while considering the interests of other stakeholders; (2) provides norms
for behavior regarding the organizational development and responsiveness to
market information.”
Recent research suggests that, from a measurement perspective, treating
market orientation as a set of behaviors and processes rather than as an aspect
of culture (values and beliefs) may have some merit, but that both perspectives
are valuable. Hurley and Hult (1998) argue that both market and learning
orientation can be manifest at various levels in an organization (an organization’s
strategy, processes, structure, behaviors, and culture). They go on to further
suggest that the deepest manifestations of market and learning orientations are
40
at the cultural level, where over time, stories, reinforcement of behaviors, and the
creation of organizational processes produce a basic assumption among
employees that customers and learning are important (cf Schein 1985). Day
(1994) suggests that culture unifies organizational capabilities into a cohesive
whole. Strong support exists in current marketing literature that market
orientation can be embedded in the culture of an organization and affect market
vigilance and action.
Jaworski and Kohli (1993, p. 56) suggest that because “a market
orientation essentially involves doing something new or different in response to
market conditions, it may be viewed as a form of innovative behavior.” Jaworski
and Kohli (1996), in later research, suggest that market orientation is an
antecedent to innovation, i.e., that market orientation causes innovation.
Berthon, Hulbert, & Pitt (1999) argue that market orientation and innovation
orientation are two distinct constructs that can interact in a facilitative manner.
Merely being market or customer oriented is not enough to sustain long term
prosperity. To sustain competitive advantage, organizations must not only meet
the needs of existing customers; they must simultaneously innovate and create
new customers. The process of creating new customers and satisfying their
future needs and wants has been coined “organizational ambidexterity”
(Tushman & O ’Reilly, 1997).
Sinkula & Baker (1999) empirically studied the effect of market orientation
and learning orientation on organizational performance. As mentioned earlier,
this study was a cross-sectional study conducted using a commercially available
41
list of business executives who held, at minimum, a vice-presidential rank.
These executives came from a broad section of industries. Figure 3 illustrates the
action between an internal focus on learning orientation and an external focus on
market orientation.
Market orientation was operationalized with the MARKOR scale (Kohli et
al. 1993). Again, the three dimensions of the MARKOR scale are Intelligence
Generation, Intelligence Dissemination, and Responsiveness. Learning
orientation was adapted from the scale developed by Sinkula et al. (1997) and
includes commitment to learning, shared vision, and open-mindedness.
Organizational performance was operationalized using change in relative market
share, new product success and overall performance. Change in market share
was measured as related to the largest competitor (AMS), (Day, 1977). New
product success is a new scale that is grounded in Moorman’s (1995) and
Moorman and Miner’s (1997) work in the area of new product performance,
timeliness, and creativity. This study entailed nine hypotheses:
1. There is a positive relationship between an organization’s market orientation
and its overall performance.
and its change in relative market share.
and its new product success.
4. There is a positive relationship between an organization’s learning orientation
and its overall performance.
42
Learning
Orientation
(INTERNAL)
•*r
Market
Orientation Organizational
(EXTERNAL) Performance
(OUTCOME)
Figure 3. A conceptual framework of market orientation, learning orientation, and

organizational performance.
43
and its change in relative market share.
and its new product success.
7. The greater an organization’s learning orientation, the stronger the positive
relationship between its market orientation and its change in relative market
share.
8. The greater an organization’s learning orientation, the stronger the positive
relationship between its market orientation and its overall performance.
9. The greater an organization’s learning orientation, the weaker the positive
effect of market orientation on new product success.
Ordinary least square regression was employed to test the hypotheses. Three
separate regressions were specified (one for each of the performance measures)
that, in the predictive set, included the multiplicative interaction of market
orientation and learning orientation as well as their first-order (main) effects.
Market orientation evidenced a significant positive relationship with AMS
(change in market share relative to a firm’s largest competitor), (b=.266, p <.05),
furnishing support for Hypothesis 1. B’s are provided rather than standardized
coefficients because standardized coefficients were not provided in this article.
Market orientation also had a significant positive relationship with new product
success (b=.465, p<.01), providing support for Hypothesis 2. Hypothesis 3
predicted that market orientation was positively related to overall performance
(b=.355, p<.05).
44
Learning orientation was significantly related to AMS (b=.302, p<.01),
offering support for Hypothesis 4. Learning orientation also exhibited a
significant positive relationship with new product success (b=.403, p< .010,
providing support for Hypothesis 5. Hypothesis 6, which proposed that learning
orientation was positively related to overall performance, was supported as well
(b=.392, p< .01). Hypothesis 7 predicted that the strength of the relationship
between market orientation and AMS would increase as learning orientation
increased. A significant interaction effect in the hypothesized direction (b=.240,
p< .05), contributed support for Hypothesis 7.
Hypothesis 8 posited that the strength of the relationship between market
orientation and overall performance would be heightened as learning orientation
increased. Results indicated that the interaction effect associated with
Hypothesis 8 was not significant. Hence, Hypothesis 8 was not supported.
Hypothesis 9 proposed that the strength of the relationship between market
orientation and new product success would be weakened as learning orientation
increased. The results showed a significant interaction effect in the hypothesized
direction (b= -.233, p <.05), offering support for Hypothesis 9.
The results of this study provide empirical validation of Slater and Narveris
(1995) claim that as important as market orientation is, it must be complemented
by an appropriate climate for learning. The results are consistent with their
argument that organizations need both market-oriented and entrepreneurial
culture elements to foster adaptive and generative learning behaviors necessary
for success. The results also support the notion that a strong learning orientation
45
is prerequisite to engendering the type of superior market-oriented processes
that are capable of creating or sustaining competitive advantage and, thus, that
are capable of building market share relative to an organization’s largest
competitor. Essentially, market-oriented behaviors, without a strong learning
orientation, are less likely to enhance a rate of performance improvement that
exceeds that of its competitors.
The significance of the above research addressed a gap in the literature
by finding a significant effect of an internal environmental moderator of market
orientation, namely, learning orientation. To date, no one had operationalized
and tested learning orientation in such a manner. “Organizations engaging in
market-oriented behaviors without appropriate learning environments are likely to
be able to adapt to current products and programs to the market. But they are
less likely to foster competitive advantage unless their internal environment
encourages generative learning, thereby allowing them to lead customers and
competitors”(Sinkula & Baker, 1999, p. 424).
The results of the above study are not without limitations, specifically, the
cross-sectional nature of the data limited the degree to which the researchers
were able to explore organizational improvement over time. The sample was
primarily large, well-established organizations. The authors conclude that it
would be interesting to study the learning process in smaller, perhaps struggling
organizations.
46
Innovation capability audit.
Empirical literature by Hurley & Hult (1998) addresses a void in the
literature on market orientation and learning orientation by incorporating
constructs that pertain to innovation. The constructs are innovativeness and the
capacity to innovate. Innovativeness is the notion of openness to new ideas as
an aspect of an organization’s culture. Innovative capacity is the ability of an
organization to adopt or implement new ideas. Hurley & Hult (1998) argue that
there are various aspects of an organization’s culture, such as emphasis on
learning, participative decision making, support and collaboration, and power
sharing, that affect whether the organization has an innovation orientation.
Culture was operationalized by using an instrument developed by Burke (1989)
to measure people’s perceptions of group culture. Evidently, The Burke
Instrument (1989) was used instead of more popular measures because the
sponsoring agency had used this instrument in the past.
Hurley & Hult (1998) conducted this study with employees of a large
research and development agency of the U.S. federal government, for whom
innovation was of vital importance. In total, 20,088 questionnaires were sent out,
with a response rate of 48%. Respondents came from 10 different organizations
within this agency. There were five hypotheses in this study:
1. After controlling for certain structural properties (group size), the more a
group’s culture is characterized by innovativeness, the greater the number of
innovative outcomes (innovative capacity) the group will produce.
47
2. The more a group’s culture emphasizes participative and open decision
making, the greater its cultural innovativeness.
3. The more a group’s culture emphasizes support and collaboration, the greater
its cultural innovativenss.
4. The more a group’s culture emphasizes power sharing, the greater its cultural
innovativeness.
5. The more a groups culture emphasizes learning and development, the
greater its cultural innovativeness.
The results of the regression analysis confirmed H 1 , that the level of group
innovativeness was significantly related to the number of suggestion awards
(beta=.33, t=2.52, p< .01). Furthermore, a commonality analysis revealed that
10.9% of the variance in the number of suggestion awards was explained
uniquely by group innovativeness. H2-H5 hypothesized that higher levels of the
four dimensions of culture at the group level (i.e., participative decision making,
support and collaboration, power sharing, and emphasis on learning
development) would be associated with higher ratings of group innovativeness.
Multiple regression was used to test these hypotheses. The results of the
regression analysis confirm H2 (participative decision making), (b=.35, p,.01)
and H5 (learning and development), (b=.62, p,.01) but not H3 (support and
collaboration), (b= -.09, p,.01) or H4 (power sharing), (b=-.03, p,.01). The results
of the above study indicate that, after controlling for group size, the
innovativeness of an organization’s culture had a significant and positive effect
on innovative capacity. When the organization’s culture is characterized by more
48
receptivity to new ideas and innovation, it is associated with higher levels of
innovation. The significant effect of organizational innovativeness on innovative
capacity suggested that organizational culture and innovation are important
constructs. Hurley & Hult suggest that these constructs be addressed more fully
in research on market orientation and learning orientation, in which the primary
focus would be on understanding the process of organizational adaptation,
responsiveness, and performance. The main limitation of the above study was in
its inability to generalize, as the population studied was a single agency of the
U.S. government that was not necessarily operating in a competitive
environment. Introducing innovation into models of market orientation and
performance could supplement or possibly even replace organizational learning
constructs.
Recent research suggests that organizational culture and innovation
constructs should be further explored. This researcher believes that the survey
developed by Dave Francis, 1998, would contribute to the research literature by
giving us a tool that would assess an organization’s capacity to innovate. He
proposes six organizational drivers that can be used to assess an organization’s
capacity to innovate. The six drivers are as follows:
1 .Direction- Direction is comprised of innovating leadership, where top managers
share a driving vision of the organization’s future and create a culture within
which innovation thrives. Direction also includes having a well-developed
strategy that identifies capabilities, technologies, product, services, and key
processes necessary for achieving competitive advantage in the market.
49
2. Capability- Exceptional individuals are recruited, rewarded, respected and
retained. The organization continually develops the capabilities needed to
support a stream of innovation, such as state-of-the-art technologies. Finally,
capability is reflected in an organization’s ability to put new ideas into action.
3. Culture-The management philosophy supports able individuals to take
initiatives and become empowered. Innovation is also expected at all levels
within an organization. An innovation culture welcomes change and
discontinuity.
4. Learning- Challenge and learning are continuous processes. Those with a
knowledge specialty guide the organization into the future. Cooperative links or
“fruitful linkages” are maintained with the outside world and are win-win
collaborations.
5. Structure and Processes- The structure of an organization helps not hinders
the innovation process. Those who make things happen are supported and
empowered. There are effective processes for managing new product/process
development.
6. Decision Making- innovations are guided by a theory of what needs to change
and how. Timely and wise decisions are taken about initiatives. Innovation
projects are owned by senior managers and driven through.
Summary.
Building an organization’s capacity to innovate will result from both a strong
internal focus on building a culture that fosters innovation, and an external focus
that is directed towards a strong market orientation. Business concept innovation
50
will be the defining competitive advantage. As Hamel states, daring new
business concepts are both radical and systemic. Figure 4 illustrates Hamel’s
model.
51
BEYOND CONTINUOUS IMPROVEMENT
Nonlinear Business Concept

Innovation Innovation
Continuous Business Process

Improvement Improvement
Component System
Figure 4. Business concept innovation model.
Note. Reprinted by permission of Harvard Business School Press. From Leading

the Revolution (p. 17) by Gary Hamel. Boston, MA 2002. Copyright 2000 Gary
Hamel.
52
CHAPTER III
METHODOLOGY
This was a quantitative, non-experimental research study designed to
assess the relationship between an organization’s capacity to innovate in relation
to its market orientation. In this chapter, the researcher will give an overview of
the organizational setting used in this study. In addition, the research subjects
and sample are reviewed. The research design, questions, and hypotheses are
also outlined. Finally, the data analysis strategy is discussed.
Organizational Setting
The organizational setting for this research study was a division of a large
fast food company. This company has over 7,000 restaurants worldwide and
operates in a globally competitive marketplace. The industry was chosen as a
single-orientation site as part of a field research study. This division is engaged in
the operation, development, franchising and licensing system of both traditional
and non-traditional restaurant units. Non-traditional restaurant units include
express units and kiosks that have a more limited menu and operate in non-
traditional locations such as airports, gas and convenience stores, stadiums,
amusement parks and colleges, where a full-scale outlet would not be practical
or efficient. Currently, while this division of the largest restaurant company
operates mainly non-traditional units, it still owns a significant number of
traditional units. The success of this division, regardless of whether the units are
traditional or non-traditional, is entirely dependent upon the ongoing stream of
53
new products the company is able to generate to satisfy the need for constant
stimulation of its customer/market base.
Research Subjects/Sample
Part 1.
The subjects for Part 1 of this study were chosen from the corporate
headquarters, whose sample population was 230 employees (N=230). The
subjects were both exempt and non-exempt personnel. Positions ranged from
administrative to the executive level and spanned across all functional areas
such as executive, finance, human resources, marketing, quality, operations,
business development, facilities management, legal, technology or information
services, and franchise/licensee operations. The senior level executives were
white males, ranging in age from 45-70, and many executives held advanced
degrees in their respective disciplines. The demographics of the entire population
included a broad ethnic representation, however, the majority of the population
was Caucasian.
Part 2.
The subjects for Part 2 of this study were 60 employees (N=60) chosen from
within the sample of 230 employees. The 60 employees were selected from the
marketing department and included the functions of consumer insights, brand
communications, field marketing, value, foods and media services.
Instrumentation
There were two research instruments used in this research study:
54
Instrument 1: Innovation Capability Audit.
The first was a questionnaire survey (see Appendix A) called the
Innovation Capability Audit (ICA). This survey was designed by Dave Francis,
1998 and contained 54 questions designed to assess an organizational capacity
for innovation. The scale consisted of a six-point Likert-type scale, with no
midpoint. Response categories ranged from “to little or no extent” to “totally” in
response to questions regarding how true was a particular statement. For the
purposes of this research study, the instrument was revised to a five-point Likert
type scale, to include a midpoint.
The model of the ICA is illustrated in Table 2. The ICA contained six
domains. Each domain consisted of three dimensions each, for a total of 18
dimensions. Finally, there were nine survey items for each of the six domains,
for a total number of 54 items.
ICA reliability and validity.
The ICA was used primarily as an action research tool and to date there
was no research to establish construct validity. High levels of face validity
existed as the items were drawn from research and case studies that addressed
the preconditions for organizational innovation.
Instrument 2: MARKOR scale.
The second research instrument was a questionnaire survey (see Appendix B)
called the MARKOR scale, a measure of market orientation. This survey
consisted of 20 questions designed to assess organizational approach to
55
Table 2
Model of Innovation Capability Audit Dimension
Domains Dimensions
1. Direction Innovating Leadership

Strategic Advantage
Prudent Radicalism
2. Capability Exceptional Individuals

Competencies
Capable Implementation
3. Culture Selective Empowerment

Innovation Demanded
High Enrollment
4. Learning Continuous Learning

Respect for Master
Fruitful Linkages
5. Structure and Processes Apt Organizational Form

Supported Champions
High-Performing New Product Process
6. Decision Making Mental Maps

Sound Decision Processes
Resourced Initiatives
Note: Adopted from Dave Francis, 1998 Annual, Consulting, 2, p.118-121.
56
collecting, disseminating, and interpreting information. The scale consisted of a
five-point Likert-type scale, with response categories ranging from “strongly
disagree” to “strongly agree “in response to questions about market orientation.
In addition, the five-point Likert type scale of the MARKOR was consistent with
the five-point scale used in the ICA.
Table 3 illustrates the MARKOR instrument. There were three domains of
market information as mentioned above. The first, generates intelligence,
consisted of six survey items: the second, disseminates intelligence, consisted of
five survey items; and the third, responsive to marketplace, consisted of nine
survey items, for a grand total of 20 survey items.
MARKOR reliability and validity.
The MARKOR instrument was a well-established and accepted measure
of market orientation. Despite the prior research and findings of accepted
measures of market orientation, Sinkula & Baker (1999) used confirmatory factor
analysis (CFA) to test the three dimensions (Intelligence Generation, Dissem
ination, and Responsiveness). Findings revealed an adequate overall model fit
(CFI=.85, GFI=.88, XAsup2A(167)=491.13, RMSEA=.06). As expected, all factor
loadings were significant (t values ranging from 3.47 to 9.91). This confirmatory
factor analysis, as opposed to exploratory factor analysis further strengthened
the acceptability of the MARKOR instrument. In addition, the reliability estimates
for the 20-item MARKOR scale were very strong, with an alpha=.88.
57
Table 3
Survey of Market Information Use
Market Information Sample Questions
1. Generates Intelligence 1. We are slow to detect changes in

our customer’s product preferences.
2. Disseminates Intelligence 2. Data on customer satisfaction are

disseminated at all levels in this
organization on a regular basis.
3. Responsiveness to Marketplace 3.The positive resolution of

customer complaints is a top priority
in this organization.
Note: Adopted from ‘T h e Synergistic effect of market orientation and learning

orientation on organizational performance” by William E. Baker & James M.
Sinkula, 1999, Academy of Marketing Science Journal, 27, 4, p. 418.
58
Procedures
The ICA survey (see Appendix A) was administered to all employees (N=230) at
this single site. In addition, each employee received a self-addressed, inter-office
envelope, marked confidential, for return, to the principal investigator. 60 (N=60)
of the 230 employees received a combined survey that included both the ICA
survey and the MAKOR survey (see Appendix B). Each of these 60 employees
also received a self-addressed, inter-office envelope, marked confidential, for
return, to the principal investigator.
Research Questions and Hypotheses
This quantitative research study contained two research questions:
assessing organizational capacity to innovate?
Hypothesis 1a: The factor analysis of the ICA will yield six distinct domains that
drive organizational innovation.
Hypothesis 1b: Item analyses will demonstrate that alpha coefficients for each of
the six domains will be .70 or greater.
Is there a significant correlation between the ICA score and MARKOR score?
Hypothesis 2: There will be a significant correlation between the total ICA score
and the total MAKOR score.
Hypothesis 2a: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Direction.
59
Hypothesis 2b: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Capability.
Hypothesis 2c: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Culture.
Hypothesis 2d: There will be a significant correlation the total MARKOR score
and the ICA dimension of Learning.
Hypothesis 2e: There will be a significant correlation between the total MARKOR
score between and the ICA dimension of Structure and Process.
Hypothesis 2f: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Decision-Making.
Data Analysis Strategy
The data analysis strategy consisted of examining the factor structure of the six
domains of the ICA to learn if there were six distinct domains from the sample of
230 employees. Secondly, the reliability for each of the six domains was
analyzed to assess whether the alpha coefficients were .70 or greater. The
resulting domains were correlated to the MARKOR scale, from the sample of 60.
The data analysis strategy used to assess the correlation was the Pearson
product-moment correlation.
Limitations of this Study
First and foremost, the obvious limitation in this study was the unknown validity
and reliability of the ICA instrument. Secondly, the small sample size, N=60, of
the combined survey, was also problematic. The combined survey was only
administered to one department, at the request of the client. In addition, the fact
60
that this was a single-site field research study, of one particular company (fast
food service industry), made it difficult to generalize the results. The fact that the
sample was from one geographic location, Southern California, also limited
generalizability of the findings. Finally, a correlational research design also
established research constraints.
61
CHAPTER IV
RESULTS
In this chapter, the results are presented. The chapter begins with an
introduction, followed by demographic information, the results of the statistical
analyses and the testing of each hypothesis. The chapter concludes with a
summary.
Demographic Information
The sample for this study was comprised of employees who worked at the
restaurant support center of this fast food company. The first part of this study
involved 230 total possible respondents (N=230). 87 surveys were returned, for
a response rate of 38%. The second part of this study comprised employees who
worked in the marketing department of the corporate offices. Out of the 60 total
possible respondents (N=60), 27 surveys were returned, for a response rate of
45%.
The sample consisted of 87 participants, 65.5% (n=57) of whom were
women and 34.5% (n=30) of whom were men. This demographic data was
consistent with archival data collected from the participating organization, in
which women represent 57% of the workforce. Table 4 illustrates the
frequencies and percentages of the demographic data. Age was broken down
into four groups, with ages between 20-29 at 20.7% (n=18), ages between 30-39
at 42.5% (n= 37), ages between 40-49 at 21.8% (n=19), and ages 50+ at 14.9%
(n= 13). Job category was broken into two groups, nonexempt at 21.8% (n=19)
and exempt at 78.2% (n=68).
62
Table 4
Comprehensive Demographics
Gender n Percentaae
Female 57 65.5
Male 30 34.5
Aae n Percentaae
20-29 18 20.7
30-39 37 42.5
40-49% 19 21.8
504- 13 14.9
Job Cateaorv n Percentaae
Non-Exempt 19 21.8
ExemDt 68 78.2
Tenure n Percentaae
0-1 Years 21 24.1

2-5 years 28 32.2
6-9 Years 22 25.3
104- 16 18.4
Job Function n Percentaae
Finance 8 9.2
Human Resources 27 31.0
Marketing 27 31.0
Operations 11 12.6
Technology & Quality 8 9.2
Franchise/License 2 2.3
Other 4 4.6
Ethnicitv n Percentaae
Caucasian 72 82.8
Afro-American 3 3.4
Asian 3 3.4
Hispanic 5 5.7
Other 4 4.6
Overall 87 100.00
63
Tenure with the company was broken into four groups, with tenure between 0-1
years at 24.1% (n= 21), tenure between 2-5 years at 32.2% (n=28), tenure
between 6-9 years at 25.3% (n=22), and tenure beyond 10 years at 18.4%
(n=16). Job function was self-reported into six categories, namely: Finance at
9.2 % (n=8), Human Resources at 31% (n=27), Marketing at 31% (n=27),
Operations at 12.6% (n=11), Technology & Quality at 9.2% (n=8),
Franchise/License at 2.3% (n=2), and Other at 4.6% (n=4). Ethnicity was self-
reported into four categories, with Caucasian at 82.8% (n=72), Afro-American at
3.4% (n= 3), Asian at 3.4% (n=3), Hispanic at 5.7% (n=5), and Other at 4.6%
(n=4).
Testing of the Research Questions and Hypotheses
Hypothesis 1a.
The factor analysis of the ICA will yield six distinct domains that drive
organizational innovation.
Factor analysis of ICA.
Factor analysis is an exploratory multivariate technique used to assess the
dimensionality of a set of variables. Factor analysis was performed on Francis’s
(1998) ICA survey instrument. Replacement of missing values for survey item
questions was handled using the mean. Francis (1998), originally proposed six
distinct domains, namely: direction (questions 1-3, 19-21, & 37-39); capability
64
(questions 4-6, 22-24, 40-42); culture (questions 7-9, 25-27, 43-45); learning
(questions 10-12, 28-30, 46-48); structure and processes (questions 13-15, 31-
33, 49-51); and decision making (questions 16-18, 34-36, 52-54).
Using a principal components analysis, and a Varimax rotation, six factors were
extracted. Since the six factors extracted from the Varimax rotation were
different from the original six domains proposed by Francis, it was necessary to
revise the original hypotheses to reflect these differences in domains. Table 5
illustrates the original hypotheses and the revised hypotheses. Table 6 illustrates
the six interpretable factors and the high loading variables for the new factor
structures. The naming of the factors was subjective, but included questions with
loadings of .53 or greater. The resulting six domain names were as follows:
organizational culture (questions 9, 8, 4, 44, 25), supporting change (questions
37, 40, 35, 27, 34), capability (questions 48, 5, 39, 41); agility (questions 3, 33, 6,
31); decision making (questions 21, 16, 54, 22); and collaboration (questions 29,
11, 13). Descriptive statistics for the six-Factor ICA are illustrated in Table 7.
Factor analysis of the MARKOR.
Factor analysis was performed on Kohli’s (1993) MARKOR survey
instrument. Replacement of missing values for survey item questions was
handled using the mean. Kohli originally identified three dimensions of market
orientation, namely: generates intelligence (questions 1-6), disseminates
intelligence (questions 7-11), and responsiveness to the market place (questions
12 - 20 ).
65
Table 5
Revised Hypotheses
Original Hypotheses Revised Hypotheses
1 .There will be a significant correlation 1 .There will be a significant correlation

between total MARKOR score and ICA between total MARKOR score and ICA
dimension of Direction. dimension of Organizational Culture.
2.There will be a significant correlation 2.There will be a significant correlation

dimension of Capability. dimension of Supporting Change.

dimension of Culture. dimension of Capability.

dimension of Learning. dimension of Agility.

dimension of Structure and Process. dimension of Decision-Making.

dimension of Decision-Making. dimension of Collaboration.
66
Table 6
ICA Factor Analysis Results
Factor 1 (Organizational Culture)

Q 9. People welcome change .70
Q 8. All employees innovate .65
Q 4. Creative individuals rewarded .61
Q 44. Appraised based on being innovative .59
Q 25. Employees speak up .59
Factor 2 (Supporting Change)

Q 37. Leader tough on those who block change .64
Q 40. Exceptional individuals fit into organization .63
Q 35. Support/kill initiatives by those who understand .57
Q 27. 100% support of management’s plan .55
Q 34. Leading change can describe advantages .55
Factor 3 (Capability)
Q 48. Learn through links with partners .68
Q 5. Adopter of state-of-the-art technology .63
Q 39. Management history of bold decisions .55
Q 41. Investing in capabilities to win in future .53
Factor 4 (Aailitv)
Q 3. Radical changes quickly implemented .68
Q 33.Take ideas and quickly turn into products .62
Q 6. Company good at getting things done .60
Q 31. No unnecessary bureaucracy .55
Factor 5 (Decision Making)

Q 21. Careful thought before making radical decisions .69
Q 16. Understand new ideas before making a change .68
Q 54. Managers take responsibility for major initiatives .65
Q 22. Outstanding individuals highly valued .58
Factor 6 (Collaboration!
Q 29. Technical specialists share knowledge .65
Q 11. Technical experts influential in decision making .59
Q 13. Extensive collaboration between teams & departments .54
67
Table 7
Descriptive Statistics of the ICA
Factor Name Mean Standard Deviation
1. Organizational Culture 3.0 .66

2. Supporting Change 3.0 .61
3. Capability 2.9 .67
4. Agility 3.0 .67
5. Decision Making 3.3 .66
6. Collaboration 3.2 .63
68
The construct of market orientation was operationalized with the MARKOR scale.
Using a principal components analysis, and a Varimax rotation, four interpretable
factors were extracted. Table 8 illustrates the four factors and high loading
variables. The naming of the factors was subjective, but included questions with
loadings of .53 or greater. The resulting four domain names were as follows:
responsiveness to the external marketplace (questions 5, 13, 3, 12); identifying
customer needs (questions 1, 2, 4); customer focus (questions 18,16,10); and
finally, internal communication (questions 8, 17, 15). Descriptive statistics for the
four- factor MARKOR survey are illustrated in Table 9.
Hypothesis 1b.
Item analyses will demonstrate that alpha coefficients for each of the six
domains of the ICA will be .70 or greater. Item analysis will demonstrate that
alpha coefficients for each of the four domains of MARKOR will be .70 or greater.
Reliability of the ICA and MARKOR.
Reliability is reflected in the internal consistency of a measure based on
the average correlation among items within a scale, the degree of uni
dimensionality or inter-scale agreement that exists between individual items, and
the overall construct. This study found that the reliability estimates for the six
domains of the ICA were .90, .88, .84, .87, .84, and .80, respectively. This study
also found that the reliability estimates for the four domains of the MARKOR
were .72, .86, .75, .72, respectively. These estimates are well above the .70
alpha threshold recommended by Nunnally (1978) for the test of scale reliability.
69
Table 8
MARKOR Factor Analysis Results
Factors and High Loading Variables Factor Loadings
Factor 1 (Responsiveness to the External Marketplace)
Q 5. Slow to detect shifts in our industry .83

Q 13. React slowly to changing customer needs .78
Q 3. Slow to detect changes in customer preferences .73
Q 12. Slow to respond to competitors’ price changes .69
Factor 2 (Identifying Customer Needs)
Q 1. Meet customers 2x/year to learn about future needs .85

Q 2. W e do in-house market research .78
Q 4. Poll end users 2x/year to assess quality of products .76
Factor 3 (Customer Focus)
Q 18. Positive resolution of customer complaints a priority .84

Q 16. Immediate response to competitor campaign . .70
Q 10. Data on customer satisfaction disseminated .65
Factor 4 (Internal Communication)
Q 8. Marketing meets with other departments .86

Q 17. Activities of departments well coordinated .75
Q 15. Departments meet to plan responses to change .68
70
Table 9
Descriptive Statistics of the MARKOR
Factor Name Mean Standard Deviation
1. Responsiveness to the Marketplace 2.9 .61
2. Identifying Customer Needs 3.6 .80
3. Customer Focus 3.6 .68
4. Internal Communication 3.0 .75
71
Summary.
The factor analyses conducted on the ICA revealed six distinct domains,
although some of the domains were not the original ones named by Francis. In
addition, while some of the domain names remained the same, the questions
comprising those domains were different than the original questions developed
by Francis. Thus, hypothesis 1a was supported. In addition, item analyses
demonstrated that the ICA was a reliable instrument as evidenced by strong
Cronbach alpha coefficients. Thus, hypothesis 1b was supported.
Are there significant correlations between the ICA score and total MARKOR
score?
Hypothesis 2.
There will be a significant correlation between the total ICA score and the total
MARKOR score.
Hypotheses 2a-2f.
Hypothesis 2a: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Organizational Culture.
Hypothesis 2b: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Supporting Change.
Hypothesis 2c: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Capability.
Hypothesis 2d: There will be a significant correlation the total MARKOR score
and the ICA dimension of Agility.
72
Hypothesis 2e: There will be a significant correlation between the total MARKOR
score between and the ICA dimension of Decision-Making.
Hypothesis 2f: There will be a significant correlation between the total MARKOR
score and the ICA dimension of Collaboration.
Psychometric Evaluation of Measures
The six-factor ICA dimensions revealed positive intercorrelations. ICA
intercorrelations among the six factors are presented in Table 10. All correlations
were significant at the p<.01 level. The revised four-factors of the MARKOR
revealed positive intercorrelations for all of the factors except Factor 1,
(responsiveness to the external marketplace), which revealed negative
intercorrelations with the other three factors, as shown in Table 11.
As a result of examining the questions comprising Factor 1, a second correlation
analysis was conducted, this time deleting Factor 1. The correlation coefficients
for the abbreviated MARKOR revealed positive intercorrelations with the
remaining three factors, and is also shown in Table 11 .Correlation coefficients of
ICA total and MARKOR total (four-factor) and abbreviated MARKOR (three-
factor) total are presented in Table 12. The results of statistical analyses
indicated that the total ICA score was found to be significantly related to the
abbreviated total MARKOR score (r=.64. p<.01). Thus, hypothesis 2 was
supported. Table 12 also illustrates the results of hypothesis testing of hypothesis
2a-2f. The results of the statistical analyses indicated that all six factors of the
ICA were positively correlated with the abbreviated total MARKOR.
73
Table 10
Factor Correlation Matrix of the ICA
Factors 1 2 3 4 5 6
1. Culture (.90)
2. Change .70** (.88)
3. Capability .66** .78** (.84)
4. Agility .68** .73** .74** (.87)
5. Decision Making .63** .73** .65** .65** (.84)
6. Collaboration .67** .62** .61** .64** .65** (-80)
N=87
*p<.05
**p<.01
2-tailed significance
( ) values on the diagonal are scale coefficient alphas
74
Table 11
Factor Correlation Matrix of the MARKOR
Factors 1 2 3 4
1. Responsiveness to the (-72)

marketplace.
2. Identifying customer -.29 (-86)

needs.
3. Customer focus. -.37 .48* (-75)
4. Internal communication -.26 .26 .27 (.72)
N=27
*p<.05
**p<.01
( ) values on the diagonal are scale coefficient alphas
75
Table 12
Correlation o f ICA Total with MARKOR (4 Factors) Total and Abbreviated

MARKOR (3 Factors) Total
ICA Factors MARKOR Total Abbreviated MARKOR
1. Factor1 .37* .53*'

(Organizational Culture)
2. Factor 2 (Supporting .28 .49**

Change)
3. Factor 3 (Capability) .41* .57**
4. Factor 4 (Agility) .30 .45*
5. Factor 5 (Decision .34 .43*

Making)
6. Factor 6 .61** .70**

(Collaboration)
ICA Total .47** .64**
N=27
p<.05*
p<.or*
Note: The abbreviated MARKOR consists of three factors (Factors

Factor 1 was deleted.
76
The results of the Pearson-product moment correlations were as follows: Factor
1 (Organizational Culture), (r=.53, p<.01), Factor 2 ( Supporting Change), (r= .49,
p<.01), Factor 3, (Capability), (r=.57, p<.01), Factor 4 (Agility), (r=.45, p<.05)),
Factor 5 (Decision Making), (r=.43, p<.05), and Factor 6 (Collaboration, (r=.70,
p<.01). Factor 6 (Collaboration) was the strongest correlation. The two weakest
factors were Factor5 (Decision Making) and Factor 4 (Agility), both with
significance at the p<.05 level. Thus, hypotheses 2a-2f were also supported. A
scatterplot of the strong positive linear relationship between total ICA total and
abbreviated MARKOR total is presented in Figure 5.
In sum, the Pearson-product moment correlation coefficient examined the
linear relationship between the individual six factors of the ICA, an instrument
designed to measure organizational capacity to innovate, and the MARKOR, an
instrument designed to measure organizational market orientation. The results of
the correlational analyses indicated that all correlations were statistically
significant and were greater than .43. The correlations also demonstrated a
positive relationship between organizational capacity to innovate and market
orientation.
Summary
This chapter summarized the findings from the study including the
demographics of the research participants, and the results from the two research
questions and six corresponding hypotheses. Further statistical analyses
revealed that all research hypotheses were supported.
77
Correlation of ICA Total with abbreviated MARKOR Total
MARKOR Total
Figure 5. Correlation of ICA Total with abbreviated MARKOR Total.
78
CHAPTER V
DISCUSSION
The purpose of this dissertation was to gain a greater understanding of the
relationship between organizational capacity for innovation in relation to market
orientation. More specifically, the current research focused on the testing of a
qualitative instrument, namely, Francis’s Innovation Capability Audit, which was
designed to measure organizational capacity for innovation. This research added
to the body of knowledge on innovative capacity because, at present, no one
universally agreed upon model of innovative capacity exists. A secondary
objective included testing Kohli’s instrument, namely, the MARKOR, a well-
established and accepted measure of market orientation.
This chapter provides a discussion and interpretation of the results
presented in the previous chapter. In addition, implications for researchers,
organizational management, and consultants are discussed. Further, the
limitations of this investigation and the generalizability of the findings are
presented. Finally, based on the questions and issues raised by this study,
areas for future research are presented.
Discussion of the Hypotheses
For the purposes of understanding the relationship between organizational
capacity to innovate and market orientation, one of two main research questions
guided the study. The first research question is as follows:
79
Research Question 1
This research question served as the foundation for the following two hypotheses
presented in this study.
Hypothesis 1a.
Hypothesis 1a stated that a factor analysis of the ICA would yield six
distinct domains that drive organizational innovation.
This hypothesis was supported. The researcher found that the factor
analyses conducted on the ICA revealed six distinct domains, although some of
the domains were not the original ones proposed by Francis. In addition, while
some of the domain names remained the same, the questions comprising those
domains were different from the original questions composed by Francis.
Hypothesis 1b.
Hypothesis 1b stated that item analyses of the ICA will demonstrate that
alpha coefficients for each of the six domains will be .70 or greater.
This hypothesis was supported. The researcher found that reliability
estimates for the six domains of the ICA were very strong, ranging from .80 - .90.
Overall, the results of the factor analyses and reliability estimates for the
ICA indicated that this instrument is both valid and reliable. Further, the research
demonstrates that innovation is a multi-faceted construct.
80
The results of the factor analysis conducted on the ICA revealed six
distinct domains, namely, organizational culture, supporting change, capability,
agility, decision making, and collaboration. Figure 6 illustrates the original ICA
domains as proposed by the author. Figure 7 illustrates the revised ICA domains
revealed by this research study.
These dimensions are consistent with the findings in the literature
concerning the importance of organizational culture and building people
capability (Stringer, 2000) necessary to bring about innovation. Peters (1997)
also suggested the need to create organizational cultures that foster innovation
and emphasize the following: risk taking environment, tolerating failure, having
the enthusiasm to change, being collaborative, and finally, staying close to the
customer. In addition, Means & Faulkner (2000) talked about the need to
“institutionalize innovation” as part of the corporate culture. The results are also
consistent with the findings of Hurley & Hult’s (1998) model of how innovation is
the central mechanism by which organizations develop capabilities and adapt to
their environments.
In addition to the importance of building innovative cultures and people
capability, the findings are consistent with Foster & Kaplan (2001) in terms of
embracing change and discontinuity and building agile and responsive
organizations. Finally, the results relate to Stringer’s (2000) studies on the
importance of supporting change. Stringer found that large companies are
typically programmed to preserve the “status quo.”
81
Original ICA Domains
Decision
Making Direction
Structure &
Capability
Process
Learning Culture
Figure 6. Original ICA domains.
82
Revised ICA Domains
Collaboration Culture
Decision Supporting
Making Change
Agility Capability
Figure 7. Revised ICA domains.
83
The results of the factor analysis conducted on the MARKOR revealed
four distinct dimensions of market orientation, namely, responsiveness to the
market place, identifying customer needs, customer focus, and internal
communication. Kohli (1993) originally found three factors, namely, generates
intelligence, disseminates intelligence, and responds to the marketplace. Figure
8 illustrates the original MARKOR dimensions proposed by the author. Figure 9
illustrates the revised MARKOR dimensions revealed by this research study. In
addition, reliability estimates for the four dimensions of MARKOR were strong as
well, ranging from .72 - .86. Figure 10 represents the abbreviated (three factor)
MARKOR dimensions revealed by this study.
The four dimensions found in this research study are consistent with the
research literature on market orientation, specifically, Kohli & Jaworski (1990);
Narver & Slater (1990), who described the three components of market
orientation to include customer orientation, competitor orientation and inter
functional coordination. Customer and competitor orientation involve collecting
and processing information about customer preferences and competitor
capabilities. These components are necessary to create superior buyer value.
These findings are consistent with the literature in that in addition to
having a strong innovation culture, it is important to have a strong market
orientation. It is of little value to organizations to develop new products and
services that are either not responding to customer needs and wants nor creating
new customers and new markets.
The second research question is as follows;
84
Original MARKOR Dimensions
Responsive to G enerates
Marketplace Intelligence
Disseminates
Intelligence
Figure 8. Original MARKOR dimensions.
85
Revised MARKOR Dimensions
R esponsiveness
Internal to the
C o m m u n ic a tio n ^ - Marketplace
Identifying — _ Custom er Focus

C ustom er Needs
Figure 9. Revised MARKOR dimensions.
86
Abbreviated MARKOR Dimensions
Internal
Communication Custom er Focus
Identifying
Customer Needs
Figure 10. Abbreviated MARKOR dimensions.
87
Research Question 2
Are there significant correlations between the ICA score and MARKOR
score?
Hypothesis 2.
Hypothesis 2 stated that there would be a significant correlation between
the total ICA score and the total MARKOR score. This hypothesis was
supported. The researcher found that the total ICA score was significantly
related to the abbreviated total MARKOR score (r=.64, p<.01).
Hypothesis 2a-2f.
Hypothesis 2a stated that there would be a significant correlation between
the abbreviated total MARKOR score and the ICA dimension of Organizational
Change. This hypothesis was supported. The researcher found that the
abbreviated total MARKOR was related to the ICA dimension of organizational
change (r=.53, p<.01).
Hypothesis 2b stated that there would be a significant correlation between
the abbreviated total MARKOR score and the ICA dimension of Supporting
Change. This hypothesis was supported. The researcher found that the
abbreviated total MARKOR was related to the ICA dimension of supporting
change (r=.49, p<.01).
Hypothesis 2c stated that there would be a significant correlation between
the abbreviated total MARKOR score and the ICA dimension of Capability. This
hypothesis was supported. The researcher found that the abbreviated total
MARKOR was related to the ICA dimension of capability (r=.57, p<.01).
88
Hypothesis 2d stated that there would be a significant correlation between
the abbreviated total MARKOR score and the ICA dimension of Agility. This
hypothesis was supported. The researcher found that the abbreviated total
MARKOR was related to the ICA dimension of agility (r=.45, p.05).
Hypothesis 2e stated that there would be a significant correlation between
the abbreviated total MARKOR score and the ICA dimension of Decision-Making.
This hypothesis was supported. The researcher found that the abbreviated total
MARKOR was related to the ICA dimension of decision making (r=.43, p<.05).
Hypothesis 2f stated that there would be a significant correlation between
the abbreviated total MARKOR score and the ICA dimension of Collaboration.
This hypothesis was supported. The researcher found that the abbreviated total
MARKOR was related to the ICA dimension of collaboration (r=.70, p<.01).
The Relationship between ICA and M ARKOR
Prior to conducting the statistical analyses of the relationship between the
total ICA score and the total MARKOR score, it was necessary to examine the
intercorrelations of both the ICA and MARKOR. As discussed in the results
section, the ICA intercorrelations among the six factors were positive and
significant. The MARKOR intercorrelations initially revealed were all positive,
except for Factor 1 (responsiveness to the external market place), which
revealed a negative intercorrelation. O ne explanation for this was thought to be
the small sample size. A closer look at the questions comprising this factor
revealed that the outcome might in some way be related to the fact that this
research site was currently experiencing difficulty in developing innovative new
89
products and services that were responding to the needs of the external
marketplace. In addition to failing to respond to the needs of its customers, this
company was struggling to develop new products and create new market
segments. As such, this researcher deleted Factor 1 and re-ran intercorrelations
on the MARKOR. The result was an abbreviated three-factor MARKOR.
The researcher expected to find significant correlations between the total
ICA score and the total MARKOR score. It appears that innovation and market
orientation might be two distinct constructs. This supports Berthod, Hulbert &
Pitt’s (1999) argument that innovation orientation and market orientation interact
in a “facilitative manner.” In addition, this researcher also expected to find some
significant correlations between the individual dimensions of ICA and the
MARKOR. There are several reasons for finding the expected relationships in
research question two.
As mentioned previously, many of the scales comprising the revised ICA
instrument have been cited in a review of the literature pertaining to what it takes
for organizations to have a strong capacity to innovate. In addition, the
MARKOR consists of scales designed to reflect strong customer and competitor
orientations. One would expect to find a strong relationship between
organizational capacity to innovate and the market orientation of a particular
organization. According to Day (1994), culture unifies organizational capabilities
into a cohesive whole. Strong support exists in the marketing literature that
market orientation might be embedded in the culture of an organization.
90
Implications of the Findings
The implications of this study are applicable to fast food companies and
leaders of those organizations, researchers, and organizational consultants. The
fast food industry is considered by many to operate in a fiercely competitive
environment. Aggressive global expansion has increased fast food sales and
promises to provide strong future growth and earnings. Large, untapped
marketplaces exist for fast food in both industrialized and developing nations.
Company reputation and “brand identity” is paramount to consumers when they
chose a restaurant to patronize. Leaders of fast food companies will need to look
toward innovation to sustain competitive advantage. The leaders will need to
address their new product development processes, as well as the management
of the customer experience. To foster such an innovation culture, it would
behoove these industry leaders to use instruments such as the ICA and
MARKOR, from which to conduct “gap analyses” and make recommendations for
change. Results from a gap analysis would assist industry leaders with the
necessary organizational change efforts required to compete in the global
marketplace.
In addition to implications for leaders of fast food companies, there are
implications for researchers interested in organizational capacity to innovate and
market orientation. A review of the literature indicated that there was really no
one definition of innovation and that the construct of innovation appears to be
multi-faceted. Further refinement of the ICA instrument at the scale/dimension
level would assist researchers to further operationalize the construct for
91
innovation. The results of the factor analysis showed, that while there were six
distinct domains, these domains were not the original ones proposed by the
author. As a result, researchers would be prudent to include a factor analysis of
the ICA to ensure the scales are measuring the construct.
Finally, there are implications for organizational consultants working with
organizations to assess the level of innovativeness related to its market
orientation. It would be helpful for consultants to have a valid and reliable
instrument to assess organizational capacity to innovate. Organizational
consultants could then conduct an assessment to assist clients in shaping their
organizations to more effectively compete in this global marketplace. These
consultants could assist organizations with the process of embracing change and
discontinuity associated with changing markets and more sophisticated
customers.
In addition to consultants having a valid and reliable tool for assessing
organizational capacity to innovate, consultants would benefit from having a valid
and reliable instrument to assess market orientation. The research literature
illustrates the importance of a strong market orientation in relation to
organizational performance. Consultants would be better equipped to assist
organizations with leading vs. lagging indicators of market orientation.
In summary, the implications for organizations, researchers and
organizational consultants involve valid and reliable instruments from which to
assess organizational capacity to innovate and market orientation. Valid and
reliable instruments lead to more effective intervention strategies aimed at
92
developing “organizational ambidexterity” (Tushman, 1996); or the ability to
create new customers and satisfy their needs and wants, as well as improve
current customer loyalty and satisfaction. In essence, these tools might help to
prevent the mismanagement of the innovation process.
Limitations of the Study
In this section, the limitations of the study, in terms of the issues of
external validity are discussed. In addition to issues of generalizability are
concerns about the sample size and method of selection of the sample and
participants.
First and foremost, one limitation of this study is that this study represents
a single-industry case sample, namely, the fast food industry, a service sector
industry. Thus, the results of this study are most generalizable to other quick
service food industries. Generalizability of other industries, such as
manufacturing and health care, is limited.
A second limitation of this study concerns the small sample sizes for both
the ICA and MARKOR instruments. In addition, the sample is from one
geographic location, Southern California, and from only the corporate office
support center. Perhaps the data would have been enriched had the sample
included restaurant employees from both company-owned and franchise/license
restaurants. Front-line employees are actually one of the main “touch” points for
customer satisfaction. Feedback from restaurant employees would have added
to the data as these employees often hear about customer needs, wants and
preferences before corporate support functions. In addition, this particular fast
93
food company is comprised largely of franchisees/licensees, who are often under
greater financial pressures to create new customers and satisfy current
customers with innovative new products and services. Feedback from
franchisee/licensee might have afforded the restaurant support center with the
information regarding the organizational culture and whether the culture currently
helps or hinders innovative capacity,
A third limitation concerned the sampling method, particularly for the
MARKOR. The sample for the MARKOR (N=60) was comprised of just one
corporate office support department, namely the marketing function. The field
research site contact perceived that the marketing group was the only group from
within the support center who could provide valid answers to the market
orientation questions. One explanation for this decision could be that the
corporate office support departments are functionally structured, with some
evidence of cross-functional teams. In many respects, the corporate office
support departments often behave as “functional silos.” Again, the data from the
MARKOR instrument might have been enriched by obtaining random feedback
from other departments, particularly franchisees/licensees and front-line
restaurant employees.
A fourth limitation concerned the unknown validity and reliability of the ICA
instrument. This research study represented preliminary findings on an
instrument, the ICA, which had not previously been tested. Further testing of this
instrument would be necessary before one could conclude that the ICA
accurately measures organizational capacity to innovate. Further research might
94
also reveal whether all domains are equally weighted or whether some
organizational drivers are in fact more important to innovative capacity.
In summary, all of the above limitations may have affected the results of
the statistical analyses with respect to external validity and generalizability to
other populations.
Recommendations for Future Research
There are several salient factors beyond the scope of this study that this
researcher will leave for future investigations. The first area that researchers
should continue to examine is the study’s industry sector. Fast food or quick
service food industries continue to enjoy positive growth rates, particularly in
foreign markets and developing countries. In addition, the fast food industry, like
other service industries is constantly challenged to develop new business
concept innovation that will enhance the customer experience and drive sales.
The new product development process is equally challenging, as it is difficult to
project customer tastes and trends well into the future.
In addition to studying the fast food industry population, this study should
be replicated globally, across industries (manufacturing, service, health care,
non-profit), and throughout an entire organization to include all constituents. The
advantages of broadening the scope of the study would include the ability for
researchers to more closely examine the factor structure of the ICA, at the scale
level, resulting in a more valid measure of organizational capacity to innovate.
While many of the domains originally proposed by Francis were revealed in this
study, one key domain, namely, learning orientation, did not appear in the factor
95
structure. The construct of learning orientation appeared in the review of the
literature (Sinkula & Baker, 1999) as a prerequisite to engendering the type of
superior market-oriented processes that are capable of creating and sustaining
competitive advantage.
In addition to more closely examining the factor structure of the ICA, at
the scale level, future research could examine the factor structure of the
MARKOR as well. The current research study found a four-factor structure
indicating that there may be other marketing behaviors that play a significant role
in the implementation of the marketing concept. Additional research needs to
examine whether the scales are of equal importance or whether some should be
more heavily weighted.
Conclusions
In summary, innovation sometimes requires the vision to predict what the
market may become. As Hamel stated, radical or non-linear innovation is the only
way to ensure future competitive advantage. Just changing new products and/or
service is not enough. Customer needs and loyalty will be met through new
business concept innovation. Future research on instruments designed to
measure innovative capacity will assist us in learning more about the
organizational drivers needed for new business concept innovation.
96
REFERENCES
ABI-lnform Research Edition (2001 ). [On-line]. Available:

www.um i.com /proquest.
Amabile, Teresa M., Conti, Regina, Coon, Heather, Lazen, Jeffrey, &
Herron,Michael. (1996). Assessing the work environment for creativity. Academy
of Management Journal, 39 (October), 2, 54-84.
Argyris, Chris & Schon, Donald A. (1978). Organizational Learning: A

Theory of Action Perspective. Reading, MA:Addison-Wesley.
Ayas, K. (1996). Organizational Learning and Learning Organizations for

Effective Innovation Management, Proceedings of the Symposium on
Organizational Learning, Department of Management Learning, University of
Lancaster, Lancaster, September, 13-24.
Bamay, Jay. (1986). Organizational culture: can it be a source of

sustained competitive advantage? Academy of Management Review, 2 (July),
656-65.
Bartlett, Christopher A. (1995). 3M profile of an innovating company.

Harvard Business School Cases, 1-20.
Berthon, Pierre, Hubert, James M., & Pitt, Leyland F. (1999). To serve or
create? Strategic orientations toward customers and innovation. California
Management Review, 42, 1, 37-58.
Bono, E. (1996). Serious CreativityLLondon, Harper Collins.
Burke, Warner W. (1989). Culture Instrument, Working Paper, Columbia

University.
Bums, Tom & Stalker, G.M. (1961). The Management of Innovation.

London: Tavistock Publishing.
Bums, Tom & Stalker, George M. (1994). The Management of Innovation^

Oxford University Press.
Bushko, David, & Raynor, Michael. (1998). Knowledge management: new

directions for IT consultants. Journal of Management Consulting, 10, 67.
Catanzaro, Thomas E. (1998). Innovation & Creativity. Iowa State

University Press.
97
Chandler, Gaylen N., Keller, Chalon, & Lyon, Douglas W. (2000).
Unraveling the determinants and consequences of an innovative-supportive
organizational culture. Entrepreneurship Theory and Practice, 25, 1, 59-76.
Chaston, Ian, Badger, Beryl, and Sadler-Smith, Eugene. (2001).

Organizational Learning: An empirical assessment of process in small U.K.
manufacturing firms. Journal of Small Business Management, 39, 2, 139-151.
Chawla, Santa, & Renesal, John. (1995). Learning Organizations.

Productivity Press, Portland Oregon.
Christensen, Clayton. (1997). The Innovator’s Dilemma. Boston, MA:

Harvard Business School Press.
Christensen, Clayton M. & Overdorf, Michael. (2000). Meeting the

challenge of disruptive change. Harvard Business ReviewL (March-April), 67-76.
Christiansen, James A. (2000). Competitive Innovation Management:

Techniques to Improve Innovative Performance. St. Martin’s Press.
Cohen, Wesley M. & Levinthal, Daniel A. (1990). Absorptive capacity: a

new perspective on learning and innovation. Administrative Science Quarterly, 35
(March), 128-52.
Coleman, David. (1998). Knowledge management: Bringing value to

information. Computer Reseller News, 789, 119, 122.
Cooper, Robert G. (1993). Winning at New Products. Addison-Wesley

Publishing Co., Inc., MA.
Crosby, P. (1979). Quality is Free: McGraw-Hill, New York.
Damanpour, Fariborg (1991). Organizational innovation: a meta-analysis

of effects of determinants and moderators. Academy of Management Journal, 34
(3), 555-590.
Day, G.S. (1994). The capabilities of market driven organizations, Journal

of Marketing, 58 (October), 37-52.
Deming, W.E. (1996). Out of the crisis. Cambridge, MA: MIT Center for
Advanced Engineering Study.
Denison, D., & Mishra, A. (1995). Toward a theory of organizational

culture and effectiveness. Organization Science, 6, 204-224.
98
Denton, John. (2000). Organizational learning and effectiveness.
Organization Studies, 21A3, 650-652.
Deshpande, Rohit, Farley, John U., & Webster, Frederick E. (1993).

Corporate culture, customer orientation, and innovativeness in Japanese firms: a
quadrad analysis. Journal of Marketing 57, (January): 23-37.
Deshpande, R., Farley, J.U., & Webster, E.E. (1997). Factors affecting
organizational performance: A five-country comparison. Marketing Science
institute Report No. 97-108, Cambridge, MA.
Detert, James R., Schroeder, Roger g., & Mauriel John J. (2000). A
framework for linking culture and improvement initiatives in organizations,
Academy of Management. The Academy of Management Review, 25, 4, 850.
Dickson, Peter R. (1996). The static and dynamic mechanisms of

competition: A comment on Hunt & Morgan’s comparative advantage theory.
Journal of Marketing, 60 (October), 102-106.
Doucet, Kristin. (2001). Knowledge management a success in most

Canadian companies. CMA Management; Hamilton, 75, 4, 8-9.
Drucker, P.F. (1969). The Age of Discontinuity: Guidelines to Our

Changing Society. New Brunswick: Transaction Publishers.
Drucker, P.F. (1994). Innovation and Entrepreneuship. Oxford:

Butterworth-Heinemann Ltd.
Duhon, Bryant. (1998). It is all in our heads. Inform, 12, 8-13.
Eskildsen, Jacob K., Dahlgaard, Jens J., & Norgaard, Anders. (1999). The
impact of creativity and learning on business excellence. Total Quality
Management, 10, 4/5, S523-S530.
Foster, Richard. (1986). Innovation: The Attacker’s Advantage. New York:

Summit Books/Simon & Schuster.
Foster, Richard, & Kaplan, Sarah. (2001). Creative Destruction.

McKinsey & Company, Inc.
Francis, Dave. (1998). Innovation capability audit. Consulting, 2X 113-131.
Galbraith, J.R. (1977). Organization Design. Reading, MA: Addison-

Wesley.
99
Garvin,D.A. (1993). Building a learning organization. Harvard Business
Review, 71, 4, 78-91.
Garvin, D.A. (2000). Learning in Action: A Guide to Putting the Learning

Organization to Work. Boston: Harvard Business School Press.
Gilley, Jerry W ., & Maycunich, Ann. (2000). Organizational Learning

Performance and Change: Perseus Publishing, Cambridge Mass.
Gorodesky, Ron. & McCarron, Ed. (2001). Trends in the Quick-Service

Restaurant Industry. Available: www.restaurantreport.com.
Gundling, Ernest. (2000). Innovation: The 3 M Way to Balancing People &

Profit. Kodansha International Inc., NY:NY.
Hamel, G., & Prahalad, C.K. (1991). Corporate imagination and

expeditionary marketing. Harvard Business Review, 69, 4, (July/Augusut), 81-92.
Hamel, G., and CK Prahalad (1993). Strategy as Stretch and Leverage.

Harvard Business Review, (March-April), 75-84.
Hamel, Gary (2000). Leading the Revolution. Harvard Business School

Press, Boston, MA.
Hamel, Gary (2001). Innovation’s New Math. Fortune, (July 19), 130-132.
Han, J.K., Kim, N. & Srivastava, A.K. (1998). Market orientation and
organizational performance: is innovation the missing link? Journal of Marketing,
62, 4 (October), 30-45.
Hargadon, Andrew and Sutton, Robert I. (2000). Building an innovation

factory. Harvard Business Review, (May-June), 157-166.
Higgins, James M. (1995). Innovate or Evaporate. New Management

Publishing Co.
Hippel, Eric. (1988). The Sources of Innovation. New York: Oxford

University Press.
Horibe, Frances. (2001). Creating the Innovation Culture. John Wiley &
Sons, Canada Unlimited.
Hult, G. Tomas M. (1998). Managing the international strategic sourcing

function as a market-driven organizational learning system. Decision Sciences,
29 (I), 191-214.
100
Hunt, Shelby D. & Morgan, Robert M. (1996). The resource advantage
theory of competition: dynamics, path dependencies, and evolutionary
dimensions. Journal of Marketing 60 (October): 107-114.
Hurley, Robert F. & Hult, G. Thomas M. (1998). Innovation, market

orientation, and organizational learning: An integration and empirical
examination. Journal of Marketing, 62, 3, 42-54.
Ivancevich, J.M. 1998. Human Resource Management Boston: Inwin

McGraw Hill.
Janszen, Felix (2000). The Age of Innovation: Profit From Innovation in a

Chaotic World. Financial Times, Prentice Hall.
Jaworski, Bernard J. & Kohli, Ajay K. (1993). Market orientation:

antecedents and consequences. Journal of Marketing 5 7 {July): 53-70.
Jonash, Ronald S. & Semmerlatte, Tom .(1999). The Innovation Premium:

How Next Generation Companies Are Achieving Peak Performance &
Productivity. Perseus Books.
Juran, J.M. (1988). Juran on Planning for Quality. New York: Free Press.
Kanter, R.M. (1983)._The Change Masters: Innovation for Productivity in

the American Corporation. New York: Simon & Schuster.
Knapp, Ellen M. (1998). Knowledge management. Business & Economic

Review, 44, 3-6.
Kohli, Ajay K. & Jaworski, Bernard J. (1990). Market orientation: the

construct, research propositions, and management implications. Journal of
Marketing. 54 (April): 1-18.
Kohli, Ajay K, Jaworski, Bernard J., & Kumar, Ajith. (1993). MARKOR: a
measure of market orientation. Journal of Marketing Research 30 (November):
467-477.
Kotter, J.P. & Heskett, J.L. (1992). Corporate Culture and Performance.
New York, Free Press.
Kuczmarski, Thomas D. (1996). Innovation NTC Publishing Group.
101
Kuczmarski, Thomas, Middlebrooks, Arthur, & Swaddling, J. (2000).
Innovating the Corporation, Creating Value for Customers and Shareholders.
NTC Business Books.
Lee, J. (2000). Knowledge management: the intellectual revolution, IIE

Solutions, 32: 34-37.
Lipshitz, R. & Popper, M. (1996). Building learning organizations: The

design and implementation of organizational learning. Journal of Applied
Behavioral Science, 32:292-306.
Lukas, Bryan A., & Ferrell, OC (2000). The effect of market orientation on
product innovation. Academy of Marketing Science Journal, 28, 2, 239-247.
Marquardt, M. & Reynolds, A. (1994). The Global Learning Organization:

Gaining Competitive Advantage through Continuous Learning. New York:
Richard D. Irwin.
Marquardt, Michael J. (1996). Building the Learning Organization.

McGraw-Hill.
McDermott, Brian. (1998). Sowing the seeds of corporate innovation. The

Journal of Quality and Participation, 21, 18-23.
McGrath, Peter. (2001). The cost of survival. Newsweek, 60.
Means, Grady E. & Faulkner, Matthew (2000). Strategic innovation in the

new economy. The Journal of Business Strategy, 21, 3, 25-29.
Miles, R.E., & Snow, C.C. (1978). Organizational Strategy, Structure, and
Process._New York: McGraw- Hill.
Moorman, Christine. (1995). Organizational market information processes:

Cultural antecedents and new product outcomes. Journal of Market Research,
32, (September), 318-335.
Moorman, Christine, & Miner, Anne S. (1997). The impact of

organizational memory on new product performance and creativity. Journal of
Market Research, 34 (February), 91-106.
Narver, John C. & Slater, Stanley F. (1990). The effect of a market

orientation on business profitability. Journal of Marketing 54 (October): 20-35.
Nonaka, Ikuiro. & Takeuchi, Hirotaka. (1995). The Knowledge-Creating

Company. Oxford University Press, NY:NY.
102
Nunnaly, Jum, C. (1 9 7 8 / Psychometric Theory, 2d e d New York:
McGraw Hill.
Pelham, A., & Wilson, D.T. (1995). Does market orientation matter for
small firms? Marketing Science Institute, Report No. 95-102 (April).
Pelham, A., & Wilson, D.T. (1996), A longitudinal study of the impact of
market structure, firm structure, strategy, and market orientation culture on
dimension of small-firm performance, Journal of the Academy of Marketing
Science 24, 1, 27-43.
Pelham, Alfred M. (2000). Market orientation and other potential

influences on performance in small and medium-sized manufacturing firms,
Journal of Small Business Management, 38± 1, 48-67.
Peters, Tom. (1997). The Circle of Innovation. You Can’t Shrink Your Way
to Greatness. Vintage Books, Random House Inc., NY.
Porter, Michael E. (1998). Clusters and the new economics of

competition. Harvard Business Review, 76, 77-90.
Quinn, James Brian, Baruch, Jordan J., & Zien, Karen Anne. (1997).
Innovation Explosion. The Free Press, NY:NY.
Robinson, Alan G. & Stem, Sam (1998). Corporate Creativity: How

Innovation & Improvement Actually Happen. Berrett Koehler Publications.
Schaefer, Robb D. (1997). Fast Food Industry Analysis. Available: www.

Depaul.edu.
Schein, E.H. (1985). Organizational Culture and Leadership._San

Francisco: Jossey-Bass.
Senge, P.M. (1990). The Fifth Discipline: The Art & Practice of the
Learning Organization. New York:Doubleday.
Senge, Peter. (1999). It’s the learning: the real lesson of the quality
movement. The Journal for Quality and Participation, 22, 6, 34-40.
Shaw, Robert B. & Perkins, Dennis N.T. (1991). Teaching organizations to

leam. Organization Development Journal 9 (Winter): 1-12.
Sigler, Jim. (1999). Best practices and guiding principles--a training guide
to successful developments of a learning organization. Futurics, 23, 1/2, 67-73.
103
Sinkula, James M. (1994). Market information processing and
organizational learning. Journal of Marketing 58 (January): 35-45.
Sinkula, James M., Baker, William, & Noordewier, Thomas G. (1997). A

framework for market-based organizational learning: linking values, knowledge
and behavior. Journal of the Academy of Marketing Science 25 (Fall): 305-318.
Sinkula, James, Baker, William. (1999). The synergistic effect of market

orientation and learning orientation on organizational performance. Academy of
Marketing Science, 27, 4, 411 -427.
Slater, Stanley F. & Narver, John C. (1994). Does competitive

environment moderate the market orientation-performance relationship? Journal
of Marketing 58 (January): 46-55.
Slater, Stanley F., & Narver, John C. (1995). Market orientation and the
learning organization. Journal of Marketing 59 (July): 63-74.
Stewart, Thomas. (1996). 3M fights back. Fortune, 94-99.
Stringer, Robert. (2000). How to manage radical innovation. California

Management Review, 42, 4, 70-88.
Subramania, A. & Nilakanto, S. (1996). Organizational innovativeness:

exploring the relationship between organizational determinants of innovation,
types of innovation, and measures of organizational performance. Omega,
International Journal of Management Science, 24 (6), 63147.
Thomke, Stefan (2001). Enlightened experimentation: the new imperative

for innovation. Harvard Business Review, (February), 67-75.
Tushman, Michael L. & O’Reilly, Charles A., III. (1996). Winning Through
Innovation^ Practical Guide to Leading Organizational Change & Renewal.
Boston,MA: Harvard Business School Press.
Utterback, J.M. (1994). Mastering the Dynamics of Innovation. Boston,

MA:HBS.
Van de Ven, A., and Ferry, D. (19801. Measuring and Assessing

Organizations. New York: Wiley.
Van de Ven, Andrew H.. (1986). Central problems in the management of

innovation. Management Science, 32 (May), 590-607.
104
Webster, F.E. (1992). The changing role of marketing in the corporation.
Journal of Marketing, 5 6 (October), 1-17.
Woodman, R.W., Sawyer, J.E, & Griffin, R.W. (1993). Toward a theory of
organizational creativity. Academy of Management Journal, 18, 2, 293-321.
Wilson, James Q. (1996). Innovation in Organizatons: Notes Toward a

Theory, in Approaches to Organizational Design. J.D. Thompson, ed. Pittsburgh,
PA: University of Pittsburgh Press, 195-218.
Zaltman, Gerald, Duncan, Robert, & Holbek, Jonny. (1973). Innovations

and Organizations. New York: John Wiley & Sons.
105
APPENDIX A
Innovation Capability Audit (ICA)
This survey may be obtained from:
Francis, Dave. (1998). Innovation capability audit. Consulting, 2, 113-131.
106
APPENDIX B
Market Orientation Scale (MARKOR)
This scale may be obtained from:
Jaworski, Bernard J., & Kohli, Ajay K. (1993). MARKOR: A measure of market
orientation, Journal of Marketing Research, 30 (November): 467-477.
107

Organizational Capacity and Market Orientation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Organizational Capacity and Market Orientation

Uploaded by

Copyright:

Available Formats

INFORMATION TO USERS

The quality of this reproduction is dependent upon the quality of the

Oversize materials (e.g., maps, drawings, charts) are reproduced by

Photographs included in the original manuscript have been reproduced

ProQuest Information and Learning

COLLEGE OF ORGANIZATIONAL STUDIES

A STUDY OF THE RELATIONSHIP BETWEEN ORGANIZATIONAL CAPACITY

TO INNOVATE AND MARKET ORIENTATION IN A FAST FOOD CO M PANY

A dissertation submitted to the faculty of the College of Organizational Studies in

partial fulfillment of the requirements for the degree of Doctor of Philosophy in

Psychology at Alliant International University, Los Angeles, California

Ail rights reserved.

ProQuest Information and Learning Company

The dissertation of Diane P. Haaga, directed and approved by the

Calvin C. Hoffman, Ph.D., irperson

/Theodora Ting Chau, Ph.D

David R. Richey, Ph.D

This dissertation is dedicated to my mother, Pauline P. Haaga, who died

guidance and unconditional love and support.

CHAPTER I IN TR O D U C TIO N........................................................................... 1

Innovation and Organizational Perform ance...................................... 3

CHAPTER II REVIEW OF THE L IT E R A T U R E .............................................. 23

The Importance of Innovation................................................................ 23

Organizational S e ttin g ............................................................................... 53

Demographic Inform ation......................................................................... 62

Discussion of the Hypotheses................................................................... 79

Table 1. Definitions of Innovation............................................................. 27

Table 2. Model of Innovation Capability Audit Dimensions................. 56

Table 3. Survey of Market Information U s e ............................................. 58

Table 4. Comprehensive Demographics................................................. 63

Table 5. Revised Hypotheses.................................................................... 66

Table 6. ICA Factor Analysis R esults....................................................... 67

Table 7. Descriptive Statistics of the IC A ................................................. 68

Table 8. MARKOR Factor Analysis Results............................................. 70

Table 9. Descriptive Statistics of the M A R K O R ...................................... 71

Table 10. Factor Correlation Matrix of the IC A ........................................... 74

Table 11. Factor Correlation Matrix of the M A R K O R ............................... 75

Figure 1. A Model of the Relationship between ICA and M ARKO R 19

Figure 2. Business Concept Innovation M o d e l........................................... 25

Figure 3. A Conceptual Framework of Market Orientation,

Figure 4. Business Concept Innovation M o d el........................................... 52

Figure 5. Correlation of ICA Total with Abbreviated MARKOR Total ... 78

Figure 6. Original ICA D om ains..................................................................... 82

Figure 7. Revised ICA D om ains.................................................................... 83

Figure 8. Original MARKOR Dimensions.................................................... 85

Figure 9. Revised MARKOR Dimensions................................................... 86

Figure 10. Abbreviated MARKOR Dimensions............................................ 87

APPENDIX A. Innovation Capability Audit Survey (IC A )............................. 106

A PPEND IX B. Market Orientation Scale (MARKOR)..................................... 107

There are a number of people whom I would like to thank, as this

honored and grateful.

Grandmother Michelle Alexander. I also want to extend a special thank you to

In addition to my family, I want to thank my dissertation committee

my chair, your patience over the course of countless conversations, discussions,

Theodora helped me through her quiet competence to see the nature of OD in a

much broader context. Her patience with my master’s thesis taught me to

appreciate action research. Dave provided friendship and mentoring that

encouraged me to pursue my doctorate and follow my heart.

To the members of my class: Claudia, Tennille, Manuelle, Sohee, Jenea,

and encouragement, having gone before me in this process.

Mary; for years of friendship, fun, support, and unconditional acceptance.

To my previous graduate professors, Dr. Betty J. Newlon, Dr. Richard L.

psychology and helping me to become the researcher and consultant that I am