Academic journal article Journal of Small Business Management

Market Orientation, Innovativeness, Product Innovation, and Performance in Small Firms *

Academic journal article Journal of Small Business Management

Market Orientation, Innovativeness, Product Innovation, and Performance in Small Firms *

Article excerpt

Journal of Small Business Management 2004 42(2), pp. 134-154

Most research on market orientation, innovation and performance is related to big enterprises and small and medium-sized enterprises (SMEs). In this study a model is developed to investigate the combined effect of market orientation and innovativeness on product innovation and company performance, for small firms. A specific feature of our research is that we use an objective measure for product innovation in contrast to the self-reported measures commonly used in research on innovation. To test our model data from 152 rose growers were used. This study's results show that the owner's innovativeness permeates all variables in the model and has a positive influence on market orientation, innovation, and performance. An interesting research result is also that customer market intelligence influences product innovation positively or negatively, depending on whether the innovativeness of the owner in the new product domain is weak or strong.

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It is accepted widely that market orientation has a positive influence on the performance of firms (Deshpande 1999; Jaworski and Kohli 1993; Narver and Slater 1990). This relationship not only has been established firmly for large companies but also has been found in research on small and medium-sized enterprises (SMEs) (Pelham 2000). In analyzing the relationship between market orientation and performance, innovation has been identified as an instrumental variable. In this context, elaborate theories and frameworks about the relationship between market orientation and innovation have been proposed (Jaworski, Kohli, and Sahay 2000; Connor 1999; Slater and Narver 1998, 1999; Han, Kim, and Srivastava 1998; Hurley and Hult 1998; Atuahene-Gima 1996; Slater and Narver 1995). They focus in particular on large firms and only to a lesser extent on small firms. However, it is doubtful whether the type of relationship between market orientation and innovation being ascertained for large firms can be generalized to small firms, because innovation in small firms is different from innovation in large firms (Audretsch 2001; Tether 1998; Eden, Levitas, and Martinez 1997; Van Dijk et al. 1997; Cohen and Klepper 1992; Acs and Audretsch 1988). It is important to fill up that gap in our knowledge about small firms because of the importance of innovation and small businesses for today's economy (Robbins et al. 2000). This study contributes to this matter by developing and testing a model of the relationship among market orientation, innovativeness, product innovation, and performance in small firms. In this context, the small firm is defined as one that is run and is controlled under the direct supervision of the owner. This article is structured as follows. First, the concepts and notions on market orientation and innovation relevant to this research are reviewed. Second, market orientation and innovation for small firms are specified, and a model is proposed that expresses the relationship among market orientation, innovation, and performance in small firms. Hypotheses on these relationships are presented. This study's model is tested on a specific type of small firm: rose growers in The Netherlands. Finally, managerial implications of the results are discussed, and suggestions for further research are made.

Conceptual Framework

Market Orientation

Two seminal articles, those of Narver and Slater (1990) and of Kohli and Jaworski (1990), coined the concept of market orientation in the early 1990s. Narver and Slater (1990) represent the cultural perspective on market orientation. They define market orientation as "the organization culture that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers and, thus, continuous superior performance for the business" (p. 21). They state that market orientation consists of three behavioral components: customer orientation, competitor orientation, and interfunctional coordination. …

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