Investigating the Drivers of Innovation and New Products

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Investigating the Drivers of Innovation and New Product Success:

A Comparison of Strategic Orientations

Angela Paladino

The notion of producing innovations and achieving new product success has received a

great deal of attention. Though many have investigated these effects in marketing and

various fields within management, there has been little cross-fertilization between

fields of study to explain the basis for this superior performance. Though research has

examined the resource-based view (RBV) and market orientation individually, nonehas evaluated and compared their effect on firm innovation and new product success in

one study. Furthermore, although empirical work has been conducted between market

orientation and organizational learning, comparatively less research has been con-

ducted to evaluate the relationship between organizational learning and the RBV to

examine their combined effects on a firms ability to innovate and succeed. Subse-

quently, the purpose of the present article is to investigate whether a focus on the

customer (i.e., market orientation) or the firm (i.e., RBV) will drive the ability to

(1) innovate within the firm and (2) succeed in terms of new product success, finan-

cial performance, market share, and customer value. The present article examines the

relationship between organizational learning and the RBV and market orientation. It

presents an empirically testable framework that investigates the relationship thatRBV and market orientation have with performance outcomes. Data were collected

from 249 senior executives. LISREL was applied to evaluate the relationships. Con-

firmatory factor analysis and related techniques were applied to assess the robustness

of the measures used. Findings show that organizational learning is strongly associ-

ated with market orientation, which in turn impacts various performance outcomes

including customer value. The RBV had a significant relationship with new product

success. These results suggest that managers seeking innovation and new product

success should focus less on the provision of customer value. Instead they should look

toward developing their resources within the firm, including investing in human re-

sources, to ultimately provide value to the firm. Findings indicate that this unique

offeringinnovationswill have an indirect effect on customer value and financial

performance. In contrast, those in pursuit of positive financial performance and cus-

tomer value should focus on the development of market orientation. Even though this

will not necessarily lead to the development of innovative processes and new product

success according to the present study, this approach may lead to a greater market

share in the long term. This article reviews theoretical and managerial implications in

more depth, providing an impetus for further research.

The author is grateful for the invaluable feedback provided by Abbie Griffin on an earlier version of this article. The author also thanks theeditor, Anthony Di Benedetto, anonymous reviewers of the European Institute for the Advanced Studies of Management and the Journal of ProductInnovation Management, as well as the participants at the 13th Annual Product Innovation Management conference in Milan, for their feedbackthat helped to improve this article. This study was supported by a Faculty of Economics & Commerce Grant from the University of Melbourne.

Address correspondence to: Angela Paladino, Department of Management and Marketing, Level 4, Alan Gilbert Building, University of Mel-bourne, Victoria 3010 Australia. Tel.: 61 3 8344 1916. Fax: 61 3 9348 1921. E-mail: [email protected].

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Introduction

T

he resource-based view (RBV) and market

orientation (MO) have independently re-

ceived notable attention in the management

and marketing literatures, respectively, as bases of ex-plaining the attainment of a competitive advantage.

Supporters of the RBV emphasize the importance of

exploiting firm resources to achieve a marketplace ad-

vantage, whereas proponents of market orientation

emphasize the importance of customer value.

The RBV addresses how a firms resources drive its

performance in a dynamic competitive environment

(Collis and Montgomery, 1995). The ultimate objective

is to create persistent above-normal returns and superior

resource value to the firm by developing and deploying

unique and costly to imitate resource bundles to exploitenvironmental opportunities or to neutralize threats

(Peteraf, 1993; Teece, Pisano, and Shuen, 1997). In con-

trast, the ultimate objective of the market-oriented firm

is to create superior value for the customer (Kohli and

Jaworski, 1990; Narver and Slater, 1990).

The relationship among market orientation, re-

source orientation (RO), and elements of short- and

long-term performance has not previously been ex-

amined in one piece of research. Indeed, there is a

dearth of research that examines market orientation

and multiple performance measures at the one time

(Baker and Sinkula, 2005). The present article aims toaddress this gap. Additionally, this study responds to

calls for (1) cross-disciplinary research, particularly in

the areas of marketing and strategic management

(e.g., Hauser, Tellis, and Griffin, 2005); (2) compara-

tive studies of diverse strategic orientations on per-

formance (e.g., Noble, Sinha, and Ajith, 2002); and

(3) research investigating the relationship between

resource-based strategies and innovation (e.g., Karn-

iouchina, Victorino, and Verma, 2006).

Similarly, an understanding of the drivers of new

product success is also becoming increasingly perti-

nent. This variable has a demonstrated effect on prod-

uct performance, especially in highly competitive andvolatile environments that increase rates of technical

obsolescence and shorten product life cycles (Griffin,

1997; Langerak, Hultink, and Robben, 2004). Finally,

Montoya-Weiss and Calantone (1994) identified only

two studies out of more than 47 that had employed

the use of path analysis, calling for the increased use

of these sophisticated techniques.

Accordingly, the present article contrasts the ef-

fects of two strategic orientations to evaluate if and

how resource orientation and market orientation

drive innovation, new product success, and diverseelements of performance using structural equation

modeling. The study also takes into account the rela-

tionships between performance variables such as, for

example, between product quality and new product

success, where there has been a dearth of research

(Henard and Szymanski, 2001).

The present article is organized as follows. A review

of the RBV and market orientation is provided and

contrasted, followed by a brief introduction to resource

orientation. The article then reviews relevant organi-

zational learning literature, which is positioned in this

article as a key driver of the two nominated strategic

orientations. This is followed by a presentation of the

relevant hypotheses. A discussion of the methodology,

measures, and results are then provided. Finally, the

conclusions and implications are presented.

A Review of Learning and the Drivers ofPerformance

The Resource-Based View

The RBV aims to clarify how a firms resources drive

its performance in a dynamic competitive environ-

ment (Collis and Montgomery, 1995). Unlike market

orientation, the RBV is primarily internally oriented

in that its focus lies with the development and de-

ployment of unique bundles of firm resources. It is

concerned with accumulating a unique resource base

that is immobile and heterogeneous (Barney, 1991).

Hence, firms devote effort to generating a resource

base that will be difficult and costly, if not impossible,

to imitate. It then uses this resource base to exploit

BIOGRAPHICAL SKETCH

Dr. Angela Paladino is senior lecturer in the Department of Man-agement and Marketing at the University of Melbourne, Australia.

She received a Chancellors Medal for Excellence in a Ph.D. disser-

tation from the University of Melbourne and recognition for teach-

ing excellence at the undergraduate and postgraduate levels at the

university. Her research has appeared in numerous academic jour-

nals, conference proceedings, and books, including those published

by the American Marketing Association, the Academy of Market-

ing Science, the Strategic Management Society, as well as in Man-

agement International Review, Business Horizons, Management

Decision, and Journal of Customer Behaviour. Dr. Paladino active-

ly researches in strategic marketing, innovation management, and

environmental marketing and is consistently engaged with industry

and government organizations.

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opportunities or to neutralize threats that arise in the

external environment.

Market Orientation

Market orientation is defined as the organizational

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 (Narver and Slater, 1990, p. 21).

Many researchers increasingly refer to market orien-

tation as a strategy, recognizing the impact that its

pursuit has on a firms long-term decision-making

strategies (Greenley, 1995). Similarly, Moorman and

Rust (1999, p. 484) recently established how market

orientation is a value-based strategic philosophy

manifesting itself in behaviors designed to keep the

firm close to the customer. [Conversely, it is] the mar-

keting function that is a collection of capabilities

needed to implement the output of a strong market

orientation.

Comparing the RBV and Market Orientation

It is arguable that firms pursuing a RBV leverage their

resources in search of an appropriate market. The

primary focus rests with the internal environment,

followed by an evaluation of how the external envi-

ronment fits. Hence, analysis begins internally and

progresses outward toward the market. In contrast, a

firm adhering to market orientation commences with

an examination of customer needs and then seeks to

develop the resources required to serve this market.

The focus rests with the external environment, fol-

lowed by the internal environment. Hence, analysis

begins externally and progresses inward toward the

firm. These sentiments are echoed by Kahn (2001),

who acknowledged that market orientation has an

external focus (through customer and competitor ori-entations) and an internal focus (through interdepart-

mental integration).

Internally focused firms are most likely to gauge

the strength of their position, whereas externally

focused firms rely on the market for standards to

attain (Day, 1990). As a result, these internally

focused firms risk neglecting to seek opportunities

that provide scope to better serve their customers and

to imitate their competitors. These firms are also in

danger of overlooking important competitive forces.

Similarly, market-oriented firms might provide prod-

ucts and services to customers they are ill-equipped to

serve, whereas resource-based firms may miss major

changes in the marketplace that would require the

development of new capabilities. Alternatively, these

firms may create assets that add little value to the

companys market strength (Verdin and Williamson,1994).

As the RBV is a theory of the firm, it cannot be

tested in its current form. Thus, a construct that ap-

plies the precepts of the RBV was used. The resource

orientation (RO) scale assesses the extent to which a

firm is oriented toward the development of valuable

and unique resource bundles (Paladino, 2006; Pala-

dino, Whitwell, and Widing, 2006). Resource orien-

tation, which describes the degree to which a firm

practices a RBV, is composed of three dimensions:

synergy, uniqueness, and dynamism. Thus, this stra-tegic orientation is assessed at the same level of mar-

ket orientation, an alternate strategic orientation. A

driver of these strategic orientations is now reviewed.

Organizational Learning

Organizational learning (OL) requires management to

continuously question practices and to share their

knowledge to ensure that learning pervades all deci-

sions and becomes embedded in decision rules (Hult,

1998). Three crucial areas warrant attention by those

wishing to pursue learning: (1) value, which is pro-

vided to customers through goods and services; (2)

continuous renewal of company operations and pro-

cesses; and (3) distinct resources (Belohlav, 1996).

This requires the company to engage in continuous

experimentation, learning, and resource recombina-

tions (Galunic and Rodan, 1998; Slocum, McGill, and

Tei, 1993; Webster, 1994).

Organizations that engage in learning not only rec-

ognize and exploit opportunities but in time, are also

capable of creating new opportunities (Belohlav,1996). A firm who is able to control the marketplace

through its resources would be ideally equipped to do

this. Learning is manifest in the knowledge, experi-

ence, and information of an organization (Mahoney,

1995). This will help an entity to keep up with and to

stay ahead of competitors. This will also entail listen-

ing more closely to customer complaints to revitalize

areas of the company that require attention (Slocum,

McGill, and Tei, 1993). Hence, organizational learn-

ing is related to elements of a resource orientation and

RBV and market orientation.

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Hypotheses

Organizational Learning and Resource Orientation

It is proposed that both resource orientation and

market orientation are influenced by organizationallearning. Organizational learning is history dependent

(Mahoney, 1995) and has a major influence on a

firms value systems and behavior that form (e.g.,

Sinkula, Baker, and Noordewier, 1997). Learning is

intrinsic in a resource orientation and is composed of

both internal (i.e., doing, using, and failing) and ex-

ternal activities (i.e., learning from, for example, com-

petitors and customers) (Chiesa and Barbeschi, 1994).

Resource orientation views firms that continually im-

prove their capabilities through their experience as

being able to learn. Such firms question how resources

can be developed. Furthermore, organizational learn-

ing assists a firm in accumulating its base of resources

by learning how to acquire, process, store, and

retrieve information (Mahoney, 1995).

Interfirm collaboration allows firms to engage in ex-

ternal projects and to reconsider organizational pro-

cesses and strategies. This external collaboration is an

effective mechanism through which to stimulate learn-

ing (Dodgson, 1993). It is also strongly related to the

need for a firm to adopt an external orientation in uni-

son with an internal position to be able to continually

respond to the rapidly changing environment and toanticipate future opportunities. Thus, in this respect,

organizational learning acts as an antecedent of resource

orientation. Hence, consider the following hypothesis:

H1: The greater the organizational learning, the higher

the resource orientation.

Organizational Learning and Market Orientation

A number of characteristics distinguish learning pro-

cesses that are almost analogous to a number of as-pects of market orientation (Day, 1990). These

include open-minded inquiry (whereby decisions are

made from the market-back), widespread information

distribution, mutually informed mental modes, and

an accessible memory of what has been learned. Most

important, however, is that a company act on the in-

formation received and then evaluates outcomes,

prompting further learning to take place (Sinkula,

Baker, and Noordewier, 1997). These aspects are all

strongly associated with interfunctional coordination,

a key component of market orientation. Organiza-

tional learning is argued to influence market-oriented

thought processes and related behaviors, whereby

a strong orientation toward learning is needed to

engender the type of market orientation processes

required to allow a firm to develop a competitive

advantage (Baker and Sinkula, 1999). Research sug-gests that information acquisition takes place from

organizational experiences or memory, providing fur-

ther support that organizational learning acts an

antecedent of market orientation (Slater and Narver,

1995). Thus, consider the following hypothesis:

H2: The greater the organizational learning, the higher

the market orientation.

The Effects of Resource and Market Orientationson Performance

Performance is a multidimensional construct consist-

ing of more than simply financial performance (e.g.,

Baker and Sinkula, 2005; Henderson and Cockburn,

1994; Jaworski and Kohli, 1993). Though many have

limited the assessment of performance to financial

outcomes, it is only recently that researchers have

recognized that customer outcomes are just as valu-

able as indicators of performance. Here, market ori-

entation and resource orientation are posited to have

an impact on a number of outcomes as detailed in

Figure 1.

The literature has indicated that formidable re-

lationships exist between distinct resources and

capabilities and performance (e.g., Sharma and

Vredenburg, 1998) and between market orientation

and performance (Baker and Sinkula, 2005; Jaworski

and Kohli, 1993; Kohli and Jaworski, 1990; Narver

and Slater, 1990; Slater and Narver, 1994). Consistent

with the extant literature, financial performance is as-

sessed in the present study. It is argued that a resource

orientation will enable a firm to accumulate uniquebundles of resources that are difficult to replicate by

competitors that enable them to increase financial

performance.

Overall performance measures are used to assess a

firms general perception of its relative performance.

Though some research has shown a positive relation-

ship between market orientation and overall perfor-

mance (Slater and Narver, 1994), other literature has

demonstrated that a negative or negligible relation-

ship exists (e.g., Han, Kim, and Srivastava, 1998).

Although there is no empirical support for such a


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relationship for resource orientation, research sug-

gests that a positive relationship between resource

orientation and overall performance should ensue as

evidenced by the positive relationship between dis-

tinct, valuable capabilities and resources and perfor-

mance (e.g., Barney, 1991; Henderson and Cockburn,

1994; Sharma and Vredenburg, 1998).

H3: The greater the resource orientation, the greater

(a) financial performance and (b) overall firm perfor-

mance.

H4: The greater the market orientation, the greater

(a) financial performance and (b) overall firm perfor-

mance.

Product quality is concerned with the degree to

which the product meets or exceeds a customers

expectations (Day, 1990). It encompasses the corpo-

rations assessment of the product merits and charac-teristics relative to competitors in addition to a

products design quality and the extent to which the

product is fit for consumer use (Day, 1990). Quality

levels are only achieved if a company has the internal

mechanisms, external dynamics, and performance

standards to pursue excellence. This is related to re-

source and market orientations, whereby an increase

in both will increase product quality. Quality and

market orientation have been empirically shown to be

positively and significantly related (Caruna, Pitt, and

Berthon, 1998).

Research has demonstrated that increasing percep-

tions of quality has a positive influence on a firms

financial performance (Anderson, Fornell, and Lehm-

ann, 1994). Hence, resources should be allocated and

developed to improve this. Companies must have sys-

tems in place that allow them to monitor both the

customer and the competitor and to disseminate this

information across all company functions to develop

and maintain a strong market position. This enables

the company to use its internal resources to be re-

sponsive to consumer needs. Firms need to establish

and develop resources that are required to understand

these customer requirements and to deliver promised

value. Few have analyzed the impact of unique firm

resources on quality. To preserve quality, a company

needs to continually invest in its resource base.


the product quality.

H6: The greater the market orientation, the greater the

product quality.

Although most innovation research has examined

its impact on performance, relatively few studies an-

alyze how firm strategies influence innovation and

new product success in one investigation (Jaworski

and Kohli, 1996). Innovation is an organizational

spanning and continuous process that must continu-

ally change in response to and in anticipation of

changing environmental conditions (e.g., changing

Resource

Orientation

Market

Orientation

Strategic Orientation Performance OutcomesAntecedent

New Product

Success

Customer

Value

Overall

Performance

Financial

Performance

Organizational

Learning

Control Variables

Buyer Power

Supplier Power

Entry Barriers

Threat of Substitutes

Competitive Rivalry

Product

Quality

Innovation

Figure 1. Contrasting the Effects of Organizational Learning, Resource Orientation, and Market Orientation on Innovation andPerformance


A. PALADINO


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customer need, competitor offerings) (Pitt and Clarke,

1999). New product success constitutes the very end of

the innovation process (Perez-Bustamante, 1999).

Recent research suggests that market orientation

leads to new product success directly (e.g., Atuahene-

Gima, 1995; Baker and Sinkula, 2005; Kahn, 2001; Weiand Morgan, 2004) or through successful innovation

(Slater and Narver, 1998). Each component of market

orientation may impact innovation. For example, firms

that focus strongly on their customers may be able to

learn from their customers, hence enabling them to an-

ticipate customer latent needs and to devise truly inno-

vative offerings on a continuous basis (Han, Kim, and

Srivastava, 1998). Roberts (1990) argues that the pos-

itive relationship between market orientation and new

product success emanates from firms evolution toward

market orientation by devoting more resources andtime to structures and processes that engender an un-

derstanding of their customers.

Some studies have claimed that a market orienta-

tion is led by the customer, thereby detracting from

the ability to innovate. In fact, some have found there

to be no direct relationship between market orienta-

tion and new product performance when examined

empirically (e.g., Kirca, Jayachandran, and Bearden,

2005; Langerak, Hultink, and Robben, 2004). There is

nonetheless a plethora of work that depicts the oppo-

site to be the case. Such studies suggest that it is

indeed an in-depth understanding of consumer re-

quirements, coupled with a detailed knowledge of the

market that enables an organization to develop suc-

cessful new products (e.g., Atuahene-Gima, Slater,

and Olson, 2005). Though some studies have distin-

guished between proactive and reactive market orien-

tation, their findings still illustrate the positive

relationship that market orientation has with innova-

tion and new product success (e.g., Atuahene-Gima,

Slater, and Olson, 2005; Narver, Slater, and Mac-

Lachlan, 2004; Slater and Mohr, 2006). Research in-

dicates that a market orientation augments the abilityof management to influence the effectiveness of inno-

vation activity. Hence, although market orientation is

anticipated to lead to innovative offerings to the mar-

ketplace, it is anticipated to only indirectly lead to

new product success through customer value.

Customers are not always the key to innovation

(e.g., Higgins, 1996). Firms occasionally need to lead

customers to recognize their latent needs. This is il-

lustrated through a number of innovative products

that have been presented to the market such as the

Sony Walkman or a CD player. According to a

resource orientation, innovations refer to new combi-

nations of existing resources and skills. To facilitate

innovation, the firm must be able to create dynamic

routines, to foster collective learning, and to transfer

information and skills within the organization (Pala-

dino, 2006). The control of such resources will aug-ment the firms propensity to innovate. In addition,

these resources need to embody the necessary resource

attributes such as complexity and tacitness to aug-

ment the attractiveness of the innovation (Grant,

1991).

Firms should be able to leverage their resources to

exploit opportunities and to influence the market con-

text in which they compete through innovation. Some

studies have investigated the role of core skills and

competences (e.g., product planning) and have dem-

onstrated their positive relationship with innovationand new product success in industry-specific studies

(e.g., Muffatto and Panizzolo, 1996). Although firms

may not be able to sustain superior profits from one

innovation, they are, however, able to use their abil-

ities and resources to continually innovate (Roberts,

1998). Similarly, superior firm resources may also

translate into new product success, as they enable

firms to attain more market power and thus compet-

itive advantage (Gatignon and Xuereb, 1997). As

such, firms are able to dedicate many resources to in-

novation design and implementation. New products

succeed because of three primary reasons: (1) their

uniqueness or superiority; (2) managements posses-

sion of market knowledge; and (3) marketing profi-

ciency or the possession of technical or production

synergies (Hooley, Saunders, and Piercy, 1998, p.

370). These attributes are all highly associated with

elements of both market orientation and a resource

orientation.


the level of innovation of the firm.


the level of new product success.

H9: The greater the market orientation, the greater the

level of innovation of the firm.


the level of new product success.

From the preceding discussion, market-determined

factors and a commitment to the customer appear to

be the most crucial elements to new product success,


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whereas the resource endowment of the firm appears

to be more pertinent for a products innovativeness.

This suggests that new product success will be more

highly associated with a market orientation as com-

pared with a resource orientation. On the other hand,

it appears a resource orientation is more importantthan market orientation for innovations to be real-

ized. Thus, both market orientation and resource-

dependent strategies are important for innovation,

implying that a balance of both internal and external

requirements will ultimately allow the firm to succeed.

Similarly, as a result of the different starting points of

analysis, a number of different outcomes are expected.

For example, the focus of market orientation seems to

be on customer analysis, followed by competitors and

then the company. Hence, it is likely that market ori-

entation will be most strongly associated with cus-tomer outcomes, such as customer value more so than

financial outcomes. Similarly, the RBV is strongly as-

sociated with internal processes and systems. Thus,

resource orientation would be most strongly associ-

ated with dynamic outcomes, such as innovation as

compared with customer outcomes. Hence, consider

the following hypotheses:

H11: Resource orientation will have a greater influence

on innovation than market orientation.

H12: Market orientation will have a greater influence

on new product success than resource orientation.

Although customer value has been widely re-

searched in the marketing literature, research has

not examined its relationship with the RBV: Cus-

tomer value is a customers perceived preference for

and evaluation of those product attributes, attribute

performances, and consequences arising from use that

facilitate (or block) achieving the customers goals

and purposes in use situations (Woodruff, 1997,

p. 142). Conversely, market orientation is driven bythe need to provide customers with value. All em-

ployees should be motivated to provide customers

with value and must be able to create and deliver

procedures that provide value (Day, 1990). Customer

value will only be created when a firm is able to fully

exploit and leverage its critical resources. This has

implications for resource orientation. A firm exists

primarily to provide customers with a product or

service, as customers cannot satisfy all of their needs

in an effective and efficient manner (Slater, 1997).

Hence, firms need to establish resources that are

required to understand these customer requirements

and to deliver the promised value: Firms with a cus-

tomer value that is complemented by appropriate re-

sources and capabilities are best positioned to attract

the capital necessary for the expansion of scale or

scope of activities (Slater, 1997, p. 164). This, how-ever, assumes that customer value already exists: The

key to successful competition is to select market[s] . . .

where the companys skills and resources will deliver

the highest value to customers compared with com-

petitors (Webster, 1994, p. 84). The value of such a

strategy increases if competitors find it difficult to

emulate distinct offerings as a result of inadequate

funds, the absence of human resources, or inadequate

technology. Resource orientation stresses the impor-

tance of a firm being composed of unique resource

bundles that both identify the company and allow itto achieve superior performance (Paladino, 2006).

The provision of customer value is not the firms pri-

mary objective when pursuing a resource orientation.

As such, it is not expected that customer value would

be a direct outcome of resource orientation.

H13: Resource orientation will have no significant

relationship with customer value.


the customer value.

Research Design

The business-unit level of analysis was used to ensure

consistency with previous research (Henderson and

Cockburn, 1994; Narver and Slater, 1990). Data were

collected through use of survey administration. A

multiple-item survey was administered to senior exec-

utives in a sample of 500 top-performing companies in

terms of revenue. The mailing list was obtained from

company listings acquired from Dun & Bradstreet.Respondents were provided with the opportunity of

receiving a report of the findings if they participated.

Such nonmonetary incentives have been shown to in-

crease response rates (Yu and Cooper, 1983). Data for

the final survey were collected from 249 senior executive

informants after two waves of the survey and a final

reminder postcard was sent to respondents. A response

rate of 47% was achieved. Armstrong and Overtons

(1977) procedure of comparing early versus late respon-

dents was employed to assess nonresponse bias. Results

indicated that there was no nonresponse bias.


A. PALADINO


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Scale Measurement and Evaluation

A five-point Likert-type scale format was used to

measure executive assessments of each item. All mul-

ti-item scales used were derived from previously

established measures as detailed in Table 1.

The Narver and Slater (1990) MO scale was

adopted as it was broad in scope and captured an

orientation rather than specific processes and proce-

dures (Moorman and Rust, 1999). Both the RO and

MO scales were subject to confirmatory factor anal-

ysis as the RO scale is relatively new and the MO scale

Table 1. Definition of Measures

Variable Definition

Organizational Learning Organizational learning refers to the development of new knowledge or insights that are potentially able to

influence behaviors. Adopted from Kumar, Subramanian, and Yauger (1998). Items 59. Assessed on a five-

point Likert scale ranging from 15does not describe my company at all to 55describes my company to a

large extent.

Resource Orientation Adopted from Paladino (2006) and Paladino, Whitwell, and Widing (2006). Resource orientation refers to the

extent to which a firm engages in behaviors consistent with the RBV. Items 523. Assessed on a five-point

Likert scale ranging from 15 strongly disagree to 55 strongly agree.

Market Orientation Market orientation refers to the organizational culture that most effectively and efficiently creates the

necessary behavior for the creation of superior value for buyers and thus, continuous superior performance for

the business (Narver and Slater, 1990, p. 21). Adopted from Narver and Slater (1990). Items514. Assessed

on a five-point Likert scale ranging from 15 strongly disagree to 55 strongly agree.

Financial Performance Assessed the organizations profitability, sales growth, operating costs, and return on assets relative to their

competitors. The scales were adapted from Conant, Mokwa, and Varadarajan (1990), Conant, Smart, and

Solano-Mendez (1993), Narver and Slater (1990), and Slater and Narver (1994). The final scales used to assess

a firms performance were assessed on a five-point Likert scale ranging from 1 5much worse to 55much

better.

Product Quality Product quality refers to the ability of a product to perform its functions. The items used in this scale were

adopted from Kohli and Jaworski (1990). Items53. The items were taken directly from Kohli and Jaworskis

(1990) survey instrument. Assessed on a five-point Likert scale ranging from 15 strongly disagree to

55 strongly agree.

New Product Success New product success refers to the ability of a new product or innovation to avoid failure in the marketplace.

Scale adapted from Slater and Narver (1994) and Narver and Slater (1990). Items 53. The final scales used to

assess a firms performance were assessed on a five-point Likert scale ranging from 1 5much worse to

55much better.

Innovation Innovation refers to a firms ability to adopt new ideas, products, and processes successfully. The items used

were adapted from Gatignon and Xuereb (1997). Items57. Assessed on a five-point Likert scale ranging from

15 strongly disagree to 55 strongly agree.

Customer Value Adopted from Paladino (2006), the scale requested respondents for their opinion regarding how they believed

customers would rate them based on a number of customer value issues. The final scale comprised four items

assessed on a five-point Likert scale ranging from 15 strongly disagree to 55 strongly agree. Items52.

Overall Performance Overall performance measures are used to assess a firms general perception of its relative performance.

Adopted from Kohli and Jaworski (1990). Items52; Mean53.29; SD50.90. Assessed on a five-point Likert

scale ranging from 15poor to 55 excellent.

Buyer Power Buyer power refers to the extent to which buyers are able to negotiate lower prices from sellers (Slater and

Narver, 1994, p. 51). The scale items used in this research were adopted from Jaworski and Kohli (1993).

Items5

3. Assessed on a five-point Likert scale ranging from 15

strongly disagree to 55

strongly agree.Supplier Power Supplier power refers to the ability of suppliers to withstand bargaining efforts by their customers and

increase their share of the value created (Day, 1990, p. 114). The scale items used in this research were applied

from Jaworski and Kohli (1993). Items53. Assessed on a five-point Likert scale ranging from 15 strongly

disagree to 55 strongly agree.

Entry Barriers Entry barriers refer to the level of difficulty in entering an industry (Porter, 1980). The items in this scale are

derived from Jaworski and Kohli (1993). Items53. Assessed on a five-point Likert scale ranging from

15 strongly disagree to 55 strongly agree.

Threat of Substitutes Threat of substitutes refers to the ability of competitors to offer comparable products or services to customers

and to provide an alternate avenue of obtaining the same or similar benefit. The items are derived from

Jaworski and Kohli (1993). Items53. Scale Assessed on a five-point Likert scale ranging from 15 strongly

disagree to 55 strongly agree.

Competitive Intensity Competitive intensity is defined as the behavior, resources and ability of competitors to differentiate

(Jaworski and Kohli, 1993, p. 60). The scale items were applied from Jaworski and Kohli (1993). Items56.

Assessed on a five-point Likert scale ranging from 15 strongly disagree to 55 strongly agree.


541


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has been subject to much debate. The items that were

retained from exploratory factor analysis to represent

RO were subject to confirmatory factor analysis.

Driven by theory, several competing factor models

were evaluated: the null model and a single-factor, a

three-factor, and two competing two-factor models.

Results indicated that the hypothesized three-factor

model fit the data best relative to the competing mod-

els using chi-square difference tests (i.e., the differ-

ences yielded were significant) and fit indices.

Furthermore, the improvement in fit of the hypothe-

sized model over the null and competing models was

significant.

Driven by theory, several alternative competing

factor models were specified and evaluated for the

MO scale: the null model and a single-factor, a the-

ory-driven three-factor, and two competing two-

factor models. Results indicate that the hypothesized

model fit the data best relative to the competing mod-

els using chi-square difference tests (i.e., differences

yielded were significant) and the alternative fit indices.

The one general higher-order factor in both the MO

and RO scales explains the correlations among thefirst-order factors. Hence, the MO and RO scales were

theorized as second-order factors to customer orien-

tation, competitor orientation, and interfunctional

coordination for MO and uniqueness, synergy, and

dynamism for RO.

The RO model yielded acceptable overall fit to the

data. The fit indices for the second-order hypothesized

model were w2 5223.62 (df5 116), root mean square

error of approximation (RMSEA)5 0.06, root mean

square residual (RMR)50.05, goodness of fit index

(GFI)5 0.90, adjusted goodness of fit index (AGFI)5

0.86, normed fit index (NFI)5 0.84, parsimonious nor-

med fit index (PNFI)5 0.71, and comparative fit index

(CFI)5 0.91. The null model yielded a w2 51359.42

(df5 171). Full results are depicted in Figure 2. Ac-

ceptable standardized loadings (above 0.40) were

achieved indicating acceptable discriminant and con-

vergent validity. Although the standardized loadings

for two items were low, their removal diminished the

GFIs. Hence, the two items were retained and subject

to further testing in the measurement model.

The MO model yielded acceptable overall fit to the

data. The fit indices for the second-order hypothesized

model were w2 5 299.43 (df5 148), RMSEA5 0.06,

RMR5 0.04, GFI5 0.87, AGFI5 0.83, NFI5 0.78,

PNFI5 0.67, and CFI5 0.87. The null model yielded

a w2 5 1359.42 (df5 171).The fit indices attained for

the MO scale revealed acceptable overall fit of the

model to the data with full results depicted in Figure

2. Acceptable loadings were achieved for most indi-

cators indicating acceptable discriminant and conver-

gent validity. Two indicators had low loadings but

were retained and were subject to further testing in the

measurement models.Despite these findings, there is no certainty that

equivalent models that yield the same results do not

exist. This results from the inability to pursue differ-

ent permutations of the second-order factor models

(Marsh and Hocevar, 1985). As a result, the first-

order model was applied for the measurement and

structural models.

Correlation analysis and multiple regression were

used to assess the assumptions of linearity, additivity,

model specification, multicollinearity, and homo-

scedasticity (Berry and Feldman, 1985). LISREL 8

Resource Orientation

Uniqueness Synergy Dynamism

Market Orientation

Competitor

Orientation

Customer

OrientationInterfunctional

Coordination

Figure 2. Confirmatory Factor Analysis Results for Second-Order Factors


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(Jo reskog and So rbom, 1996) was employed to deter-

mine the relationships among organizational learning,

resource orientation, market orientation, and the var-

ious performance indicators. Table 2 provides details

of the summary statistics for each variable in addition

to the correlation matrix.The data set was screened for missing information

and outliers. All variables were initially analyzed

together to evaluate the potential for common method

variance. As no one factor appeared to account for

most of the variance and a number of factors resulted

from the data set, common method variance did not

present a problem (Podsakoff and Organ, 1986). Con-

struct validity was determined using the guidelines

recommended by Churchill (1979). To ensure that no

statistical assumptions about factor analysis were vio-

lated and to determine the viability of the groupingtechnique and the data set for factor analysis, two more

statistical tests were employed: Barletts Test of Spheri-

city and the Kaiser-Meyer-Olkin (KMO) statistic.

Barletts Test of Sphericity and the KMO results

indicated that factor analysis was an appropriate tech-

nique for analyzing the correlation matrices. All con-

structs were subject to exploratory factor analyses

(Hair et al., 1998). Results supported both discrimin-

ant and convergent validity for all constructs.

A two-step approach was adopted as advised by

Gerbing and Anderson (1988). They recommend

the assessment of a measurement model prior to

the estimation of a structural model. To assess the

dimensionality, reliability, and discriminant validity

of the measurement model, the measures were subject

to a further purification process as advised by Chur-

chill (1979) and Gerbing and Anderson (1988). One

measurement model encompassing all elements of the

model could not be used as this violated the recom-

mendation advised by Bentler and Chou (1987) that a

five-to-one ratio of sample size to free parametersshould be followed to yield appropriate significance

tests.

Two measurement models were evaluated prior to

the structural model to purify the scales and to

prevent misspecification in measurement tools

(Pillai, Schriesheim, and Williams, 1999). The mea-

sures were divided into two subsets of theoretically

related variables: (1) the independent variables and

(2) the control and outcome variables (Moorman

and Miner, 1997). Table 3 provides details of the

measurement model parameters and reliability. Theresults indicate that the models fit well with the fit

indices yielding acceptable results. Results indicate

that the number of items used, t-values, the parameter

estimates, and reliability statistics were reflective of

acceptable fit.

Individual item reliability, composite reliability, and

the average variance extracted were calculated (Fornell

and Larcker, 1981). The composite reliability of each

scale and measurement model ranged between 0.61 and

0.98. This exceeds the 0.60 threshold for acceptable re-

liability as recommended by Fornell and Larcker

(1981). This provides further evidence that the

measures used are internally consistent and exhibit

satisfactory reliabilities. The average variance extract-

ed results ranged between 0.47 and 0.90. All results

Table 2. Correlation Matrix and Descriptive Statistics

Variables 1 2 3 4 5 6 7 8 9 10 11 12 13 14

1. Resource Orientation 1.00

2. Market Orientation 0.40 1.00

3. Financial Performance 0.24 0.20 1.00

4. New Product Success 0.24

0.32

0.31

1.005. Innovation 0.37 0.36 0.15 0.42 1.00

6. Product Quality 0.48 0.47 0.19 0.38 0.40 1.00

7. Customer Value 0.24 0.38 0.09 0.30 0.30 0.40 1.00

8. Overall Performance 0.23 0.31 0.52 0.33 0.13 0.26 0.21 1.00

9. Organizational Learning 0.38 0.53 0.30 0.22 0.18 0.37 0.30 0.34 1.00

10. Buyer Power 0.16 0.10 0.13 0.20 0.21 0.13 0.12 0.16 0.14 1.00

11. Supplier Power 0.01 0.00 0.01 0.04 0.00 0.02 0.06 0.04 0.02 0.06 1.00

12. Entry Barriers 0.07 0.00 0.01 0.08 0.15 0.08 0.00 0.13 0.09 0.21 0.01 1.00

13. Threat of Substitutes 0.07 0.02 0.03 0.08 0.06 0.04 0.03 0.06 0.02 0.06 0.02 0.06 1.00

14. Competitive Intensity 0.03 0.06 0.02 0.08 0.09 0.06 0.06 0.00 0.02 0.41 0.20 0.23 0.16 1.00

Mean 3.53 3.84 3.42 3.42 3.19 3.78 3.92 3.29 3.80 3.39 3.06 2.86 2.54 3.46

Standard Deviation 0.43 0.42 0.41 0.75 0.55 0.61 0.59 0.90 0.56 0.74 0.85 0.91 0.89 0.81

Alpha 0.82 0.86 0.86 0.67 0.79 0.76 0.85 0.70 0.90 0.66 0.85 0.60 0.86 0.77

Significant at the po.01 level.


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Table 3. Parameters for Measurement Models and Reliability

Items Parameter Estimates T-Value Cronbachs Alpha

Measurement Model 1

Organizational Learning1. My organization promotes a learning culture 0.63 1.00 0.90

2. In my organization, we question the familiar ways of thinking

and acting.

0.73 8.99

3. Our organizational value promotes open-mindedness. 0.77 9.33

4. My organization proactively questions long-held routines,

assumptions, and beliefs.

0.72 8.96

5. Members of management team act as learning agents for the

organization, responding to changes in the external and internal

environment.

0.63 8.01

6. Our organization has a strong commitment to learning. 0.73 13.41

7. People in my organization have a shared vision about

organizational expectations.

0.72 8.92

8. We believe that vision sharing is crucial for our organizations

proactive approach to managing environmental changes.

0.65 8.20

9. Our shared vision provides a focus for learning that fostersenergy, commitment, and purpose among organizational

members.

0.72 8.88

Resource Orientation

Uniqueness

1. We constantly strive to ensure that our resources cannot be

easily identified by competitors.

0.55 1.00 0.82

2. We constantly strive to ensure that our resources cannot be

easily imitated by competitors.

0.79 8.17

3. We have dedicated much time and effort to ensure that it would

be difficult for another company to acquire the same resources

we have.

0.76 8.00

4. We constantly strive to ensure that it would be almost

impossible to use our combination of resources in another

corporation.

0.72 7.76

5. We monitor our key resources to determine if competitorswould be able to replicate them.

0.68 7.55

6. Our strategy is geared toward ensuring competitors would find it

difficult to imitate our resource base.

0.76 8.03

7. We try to make certain that our competitors find it difficult to

determine the resources that may lead to our success.

0.54 6.49

Synergy

1. We share key resources across departments to ensure they lack a

clearly identified owner.

0.90 1.00

2. We work to ensure our resources span, or provide benefits, to

several departments.

0.85 12.34

3. We work to ensure our resources span, or provide benefits, to

different levels within the company.

0.57 8.70

Dynamism

1. We integrate a number of resources to increase our efficiency

and effectiveness.

0.60 1.00

2. We work to ensure our resources act as triggers for collective

learning within the company.

0.68 7.07

3. We work to ensure our resources act as triggers for innovation

within the company.

0.64 6.82

4. We work to ensure our resources act as triggers for collaborative

problem solving with stakeholders.

0.56 6.24

5. Our resources are the principle drivers used to develop strategies

that enable us to achieve efficiency or effectiveness

0.50 5.81

Market Orientation

Competitor Focus

1. Our salespeople regularly share information within our business

concerning competitors strategies.

0.61 1.00 0.86

2. We respond rapidly to competitive actions that threaten us. 0.58 6.61

0.70 7.47


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Table 3. (Contd.)


Measurement Model 1

3. We target customers and customer groups in which we have or

can develop a competitive advantage.4. Top management regularly discusses competitors strengths and

strategies.

0.60 6.79

Customer Focus

1. Our objectives are driven primarily by customer satisfaction. 0.64 1.00

2. We constantly monitor our level of commitment and orientation

toward customers.

0.70 8.59

3. Our strategy for competitive advantage is based on our

understanding of our customers needs.

0.70 8.61

4. Our market strategies are driven by our understanding of

possibilities for creating value for our customers.

0.66 8.21

5. We measure customer satisfaction systematically and frequently. 0.53 6.81

6. We give close attention to after-sales service. 0.58 7.35

Interfunctional Coordination

1. Information on customers, marketing successes, and marketing

failures are communicated across functions in the business

0.52 1.00

2. All of our functionsnot just marketing and salesare

responsive to and integrated in serving markets.

0.71 6.78

3. All of our managers understand how the entire business can

contribute to creating customer value.

0.69 6.68

4. We share programs and resources with other business units in

the corporation.

0.56 5.94

Measurement Model Fit Statisticsa

RMSEA50.05; RMR50.04; GFI50.83; AGFI50.80; NFI50.74; PNFI50.67; CFI50.88.

Measurement Model 2 Parameter Estimates T-Value Cronbachs Alpha

Financial Performance

1. Your organizations return on investment relative to your

competitors

0.92 1.00 0.86

2. Your organizations sales growth relative to your competitors 0.51 8.12

3. Your organizations return on assets relative to your

competitors

0.91 8.88

4. Your organizations total operating costs relative to your

competitors

0.57 9.42

Overall Performance

1. Overall performance of the firm last year 0.77 1.00 0.70

2. Overall performance of the firm relative to major competitors

last year

0.92 11.50

Innovation

1. The quality of our new products or services is superior to that of

our competitors.

0.86 1.00 0.79

2. Our product or service designin terms of functionality and

featuresis superior compared with our competitors.

0.89 14.98

3. Overall, we have an advantage over our competitors in terms ofthe superior product or service we offer our customers. 0.72 11.99

4. Our new products or services are minor improvements in a

current technology.

0.49 5.42

5. Our new products or services incorporate a large new body of

technological knowledge.

0.55 5.31

6. Overall, our new products or services are similar to our main

competitors products or services.

0.67 5.83

7. The applications of our new products or services are totally

different from the applications of our main competitors

products or services.

0.70 5.89

Product Quality

1. Our customers often praise our service quality. 0.74 1.00 0.76

2. The quality of our products and services is better than that of

our major competitors.

0.58 8.18


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yielded approached or exceeded the 0.50 recommended

threshold, indicating that the variance due to measure-

ment error is smaller than the variance captured by

the construct. It also provides a preliminary indication

that the validity of the construct may be acceptable and

that the specified indicators sufficiently represent the

constructs they are intended to quantify (Hair et al.,

1998).

T-values associated with all items exceeded the 1.96

threshold for the 0.01 level of significance. The overall

reliabilities of all items in both models ranged between

0.41 and 0.96, yielding a mean item reliability of 0.68.

Composite reliability and the average variance ex-

tracted results indicated that the measures were inter-

nally consistent and reliable. Cronbachs alpha ranged

between 0.60 and 0.90. All exceed the 0.50 threshold

Table 3. (Contd.)


Measurement Model 1

3. Our customers are firmly convinced that we offer very good

quality products and services.

0.88 11.17

Customer Value

1. In terms of quality provided to customers for the price paid, we

provide good value relative to competitors

0.82 1.00 0.85

2. Overall, our customers are very satisfied with our product

quality relative to the price they pay.

0.93 11.92

New Product Success

1. Your organizations new product success rate relative to your

competitors.

0.59 1.00 0.67

2. Your organizations revenue from new products relative to your

competitors.

0.90 7.11

3. Your organizations profitability from new products relative to

your competitors.

0.42 5.31

Competitive Rivalry

1. Competition in our industry is cut-throat. 0.81 1.00 0.77

2. There are many promotion wars in our industry. 0.54 7.60

3. Anything that one competitor can offer, others can match

readily.

0.77 10.41

4. Price competition is a hallmark of our industry. 0.56 7.79

Buyer Power

1. Our major customers are in a strong bargaining position with us. 0.71 1.00 0.66

2. Our customers see little difference between our products and

those of our competitors.

0.59 6.51

3. We pretty much have to comply with our customers demands,

even if they are unreasonable.

0.58 6.41

Entry Barriers

1. It is easy for new players to enter our industry. 0.58 1.00 0.60

2. Potential entrants into our industry can expect strong retaliation

from existing players.

0.71 3.28

Threat of Substitutes

1. Competitors outside our industry offer viable substitutes for our

products.

0.80 1.00 0.86

2. We are constantly under pressure from substitute products

offered by other industries.

0.96 13.74

3. The prices we can charge for our products are constantly under

pressure from substitute products.

0.72 11.88

Supplier Power

1. We have a large number of suppliers to choose from for our

essential inputs (e.g., raw materials).

0.80 1.00 0.85

2. Our major suppliers have the strength to bargain with us

effectively.

0.82 13.12

3. Our major suppliers or vendors have the power to dictate prices

to us.

0.85 13.69

Measurement Model Fit Statisticsa

RMSEA5

0.04; RMR5

0.04; GFI5

0.89; AGFI5

0.86; NFI5

0.86; PNFI5

0.72; CFI5

0.94.a RMSEA, root mean square error of approximation; RMR, root mean square residual; GFI, goodness of fit index; AGFI, adjusted goodness of fitindex; NFI, normed fit index; PNFI, parsimonious normed fit index; CFI, comparative fit index.Represents a fixed parameter.


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deemed acceptable for preliminary stages of research

(Churchill, 1979).

In the first instance, discriminant validity was

assessed by the chi-square difference test. This in-

volved determining the difference between one model

that allowed the correlations between the constructs tobe free and an alternate model that allowed the cor-

relations to be constrained to unity (Gerbing and An-

derson, 1988). This analysis was conducted for one

pair of constructs at a time. The results of the differ-

ence tests confirmed the discriminant validity of the

models. They show that the difference in chi-square is

greater than 3.84 in all instances, despite the loss of

one degree of freedom. The constructs with the free

(i.e., unconstrained) phi coefficient were all found to fit

the data far better than those with a fixed coefficient.

Results

Structural Model

A nested model approach was applied throughout the

analysis. Unidimensionality was satisfied through the

various analyses conducted. In addition, the scales all

exhibited sound psychometric properties of reliability,

convergent validity, and discriminant validity. As a

result, the items were aggregated into a composite for

each factor. This also measured reliability by fixing

the error variance as required. Given the difficulty as-

sociated with estimating such a large variancecovari-

ance matrix (i.e., the number of items exceeded the

number of observations), the number of items for

each construct was reduced. This procedure is consis-

tent with past research (e.g., Baumgartner and Hom-

burg, 1996). The statistics revealed moderate levels of

acceptability. The internal structure of the model was

evaluated whereby the R2 ranged between 0.14 and

0.52. These results were deemed acceptable and con-

sistent with the extant research.

As a single-indicator approach was adopted to testthe structural models, all indicators were converted to

summated scales. Summated scales have the distinct

advantage of accounting for measurement error

through the use of multiple indicators and enable

the researcher to represent multiple elements of a con-

struct in a single measure (Baumgartner and Hom-

burg, 1996; Hair et al., 1998). To avoid the problem of

method bias, reliability was assigned on the basis of

the alpha scores whereby lambda-X and lambda-Y

were set to equal the square root of the reliability of

the scale. As advised by Jo reskog (1993) and Hair

et al. (1998), the error variance of each variable under

examination was set to equal one minus the reliability

of the scale (i.e., coefficient alpha). This procedure

also optimizes the degrees of freedom and has been

successfully adopted in a number of studies (e.g.,

Pillai, Schriesheim, and Williams, 1999).The two-step process recommended by Gerbing

and Anderson (1988) was applied. A hypothesized, a

null, a saturated, and more and less constrained mod-

els were estimated. Based on tests of absolute, incre-

mental, and parsimonious fit, the hypothesized model

was superior to the alternate models. The fit indices

for the hypothesized model were RMSEA5 0.028,

NFI5 0.92, CFI5 0.98, RMR5 0.04, and GFI5

0.94. All indicated more than acceptable fit.

Figure 3 provides details of the significant relation-

ships found and identifies the supported hypotheses.There was no significant relationship found between

resource orientation and customer value, thereby pro-

viding support for H13. Results indicated a signifi-

cant, positive relationship between entry barriers and

overall performance (b5 0.17).

To assess whether or not there were significant dif-

ferences between the beta coefficients for the same

sample, the procedure advised by Cohen and Cohen

(1983) was employed. This method requires one to first

to calculate the inverse of the correlation matrix for

the independent variables. This was followed by an

assessment of the standard error (SE) and the t-statis-

tic to evaluate significance. Alternative methods, such

as the t-test or Fishers r to z transformation, which do

not encompass the inverse matrix, are often incorrectly

employed when searching for significant differences

between beta coefficients. Although these are accept-

able when evaluating significance between two inde-

pendent samples, they are not appropriate when

dealing with the one sample. These tests require the

covariance of the pair of coefficients that are only

found in the inverse matrix (Cohen and Cohen, 1983).

Although a resource orientation yielded a strongerrelationship with innovation (0.33) as compared with

market orientation (0.23), difference testing showed

that this was not statistically significant. Hence, there

was no support for H11. Appendix 1 outlines the full

results of the hypothesized relationships and also

reports on indirect effects.

Discussion and Implications for Management

A principal purpose of this study was to determine the

impact of resource orientation and market orientation


547


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on performance and, in particular, innovative out-

comes. The results indicate that firms pursuing re-

source orientation need to be cautious if they aim to

achieve product quality. Firms with a high degree of

resource orientation will be able to achieve superiority

in the market place as well as to increase the efficiency

and effectiveness of the firms internal operations and

processes. This will allow a firm to offer distinctive

goods and services relative to competitors. This will

primarily serve to provide the firm with value but will

inevitably be able to provide customers with offerings

that satisfy their expectations.

Resource Orientation and Performance

Statistics revealed that resource orientation was sig-

nificantly and positively related to financial perfor-

mance (0.19), product quality (0.40), new product

success (0.13), and innovation (0.33). These resultsare consistent with the present studys expectations

and research that examines the role of specific capa-

bilities and resources on performance outcomes (e.g.,

Henard and Szymanski, 2001; Montoya-Weiss and

Calantone, 1994; Muffatto and Panizzolo, 1996; Web-

ster, 1994). A focus on the development, accumula-

tion, and deployment of a firms unique resource base

will enable a corporation to provide customers with a

valuable product. Firms need to establish and develop

resources that are needed to understand customer

requirements and to deliver promised value. This

ability, together with appropriate resource bundles,

will enable a firm to attain additional capital to in-

crease its size or number of activities (Slater, 1997).

This constant investment in resources encourages in-

novation within the firm and allows it to achieve sat-

isfied employees and to provide customers with

quality products. These assertions are supported

further through the significant total effects found

between resource orientation and all performance

outcomes examined.

Market Orientation and Performance

Statistics revealed that a market orientation was signif-

icantly and positively related to product quality (0.26),

innovation (0.23), customer value (0.21), and overall per-

formance (0.15). These findings are consistent with the

present studys hypotheses and are generally consistent

with past research (e.g., Atuahene-Gima, 1995; Atua-hene-Gima, Slater, and Olson, 2005; Caruna, Pitt, and

Berthon, 1998; Day, 1990; Jaworski and Kohli, 1993;

Langerak, Hultink, and Robben, 2004; Slater and Mohr,

2006; Slater and Narver, 1998). In fact, these findings are

largely consistent with Baker and Sinkula (2005, p. 496),

who proposed that market orientation drives new prod-

uct development by creating a better fit between the

benefits consumers seek and the benefits that a firm pro-

vides its customers. Hence, managers should aim to

identify appropriate tactics that serve to improve market

orientation to maximize these effects in the short term.

Organizational

Learning

ResourceOrientation

Market

Orientation

Financial

Performance

Product Quality

New Product

Success

Innovation

Customer Value

Overall

Performance

Figure 3. Results of LISREL Analysis (Completely Standardized Coefficients [see Appendix 1 for full results])


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Comparing the Effects of Strategic Orientations onPerformance

Although a resource orientation yielded a stronger

relationship with innovation (0.33) as compared with

market orientation (0.23), difference testing showedthat this was not statistically significant. Similar

findings were derived for product quality. This

indicates that both orientations will enable a firm

to achieve innovativeness and quality through differ-

ent means.

These patterns of results provide further evidence

that a market orientation is most effective for estab-

lishing a compelling work environment to achieve

favorable customer outcomes. This suggests that a

market orientation would be more suited to customer

intensive industries, such as service industries. They

are highly dependent on customers to succeed and re-

quire loyal employees to establish relationships with

these customers and to be competent to service their

needs. Hence, customer outcomes are critical to these

firms. Contrary to expectations, market orientation

was not significantly related to financial outcomes or

new product success directly. This could suggest that

its effects are reflected in performance over time, as

indicated by the significant indirect and total effects,

thereby lending some support to the extant literature.

Resource orientation was most effective to increase

efficiency to produce favorable financial outcomes.This was further supported by the significant total ef-

fects on all performance outcomes. Notably, resource

orientation was not directly related to customer value.

This could suggest that its effects are reflected in per-

formance over time, as indicated by the significant

indirect effects. Hence, resource orientation could

lead to customer value and after a new product de-

veloped by unique resource bundles succeeds in the

marketplace.

Resource orientation thus appears to be most suit-

ed to organizations dealing with suppliers or manu-facturers dealing with stable customer needs. Such

firms do not need to deal with the end user, as often as

a service provider does, and are not as concerned with

the needs of the consumer as much as a market-

oriented firm. Such firms are less dependent on rela-

tionships as compared with service firms. The needs of

customers are not as volatile as in service encounters,

and the customer does not impact the quality of the

transaction as often occurs in service firms (Gale,

1994). Rather, resource-oriented firms focus on what

their resource base enables them to provide to con-

sumers and offer goods and services based on this in-

formation. This allows them to produce a unique

offering to the market that will often strike a chord

with the consumer, leading to its ultimate success.

Hence, resource orientation enhances firm perfor-

mance by improving internal effectiveness and effi-ciency to achieve new product success, whereas

market orientation improves performance by enhanc-

ing customer value. These results suggest that man-

agers seeking new product success should focus less

on customer value and more on resource value. In

contrast, those pursuing customer value should focus

on market orientation.

Comparing the Long-Term Effects Associated with

Strategic Orientations

It is plausible that resource orientation and market

orientation could have lagged effects on performance

in the long term. This is in accordance with Atuahene-

Gima (1995, p. 287), who suggested that market ori-

entation is more likely to enhance the cost efficiency

and performance of the firms entire product portfolio

and to open up new opportunities for the firm that

the market performance of the new product itself.

This is further supported by the significant total

effects found between both orientations and all per-

formance outcomes, with the exception of marketorientation, which only had a significant indirect

effect on financial performance. It is essential that

firms pursuing a resource orientation or market ori-

entation adopt a long-term focus so that appropriate

investments and decisions are made. If a myopic view

is adopted, firms will risk not achieving the positive

outcomes with which these strategic orientations are

associated. These issues could enable executives to

determine whether a resource orientation or market

orientation is best for their firm and hence aid them in

finding new business opportunities to enhance theirperformance.

Emphasis has shifted in the strategic management

literature toward the determination of the sources of

advantage in the marketplace, given that positional

and performance superiority is derived from skill and

resource superiority. Hence, the specific action man-

agement takes to deploy resources and enhance their

quality must be given particular attention by the firm

(Day, 1990). Managers must be attentive to both the

internal and external environments when engaging in

these actions.


549


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The Role of Organizational Learning

Regardless of which strategy they intend to pursue,

firms will need to incorporate learning into their

strategic planning and tactics, as this has a significant

direct impact on market orientation as well as re-source orientation. Management should encourage

and enable their employees to learn continuously

and to critically evaluate their processes, external

needs, and technologies of their customers and com-

petitors. Thus, they will be able to proactively pre-

serve and enhance their capabilities by reducing the

likelihood of ignoring the potential of emerging trends

and practices. They must promote an ongoing stream

of dialogue and inquiry concerning the current scar-

city, value, and inimitability of the firms resources.

Such actions would also permeate organizational val-

ues, knowledge, and behaviors, thereby also impact-

ing the manner in which a market orientation is

developed within the organization.

Limitations and Future Research

Notwithstanding the limitations later outlined, the

present study contributes to the overall understand-

ing of both resource and market orientations. Most

importantly, this research has established both as be-

haviorally based. In doing so, it has allowed the com-

parison of both orientations and has observed the

performance outcomes with which they were most

strongly associated. Such comparisons have not been

investigated in either field of study and provide sig-

nificant contributions to these research areas.

Moreover, it has provided preliminary evidence

that organizational learning plays a significant role

in influencing market and resource orientations.

Though a number of alternative indicators could be

examined in future research, the high degree of ex-

planatory power held by these variables indicates their

substantial effect on both fields of study. This alsoprovides opportunities for future research to reexam-

ine their effects.

This research has demonstrated how the pursuit of a

resource orientation or market orientation may allow a

firm to achieve positive performance outcomes. Future

research might investigate the difference between firms

adopting a high or low degree of market orientation or

resource orientation. If neither one of these approaches

is adopted, it would be expected that these entities

would experience a competitive disadvantage. Hence, it

would be beneficial to analyze whether an organization

may be classified in a matrix with market orientation

(higher and lower) on the x-axis and a resource orien-

tation (higher and lower) on the y-axis. This would

yield four quadrants labeled (1) unfocused (low market

and resource orientation), (2) externally focused (low

resource and high market orientation), (3) internallyfocused (high resource and low market orientation),

and (4) balanced (high market and resource orienta-

tions). From this, one could determine whether the

balanced quadrant would outperform the others. Al-

ternatively, an examination of whether the relative per-

formance of the externally versus internally focused

quadrants is subject to industry conditions would pro-

vide further insights into the effect of the external en-

vironment. Future research would need to investigate

which strategy will yield the most desirable outcomes in

addition to whether the external environment willstrengthen or weaken the relationship between an in-

ternal or external emphasis and performance.

Although the study incorporates a selection of pri-

vate and public sector organizations, it is limited to a

nationwide sample that may inhibit the generalizabil-

ity to international contexts and alternate settings.

This would significantly contribute to the knowledge

by allowing it to be determined if and how these

results differ between industries.

The use of questionnaires as the sole method of

data collection may contribute to common method

variance. Ideally, a combination of methods incorpo-

rating quantitative and qualitative techniques should

be used. Though this would be encouraged for future

research, the assurance of anonymity, budgetary and

time restrictions, and the difficulty in obtaining

industry cooperation precluded the pursuit of alter-

native data collection methods. Moreover, cross-

sectional research only enables the examination of

relationships at one point in time. As a result, causal-

ity could not be determined. Longitudinal data would

be required, suggesting that a replicated study would

be beneficial to increase confidence in measures andmodels assessed in this study.

Though it is important to recognize the limitations

of the research methods and techniques employed, it

is equally important to acknowledge the robustness of

the findings. All methods applied, ranging from data

collection techniques to managing data and data anal-

ysis are derived from widely applied and accepted

psychometric theory. In addition, the statistical tech-

niques provide strong analytical. Hence, the results

and conclusions drawn from these analyses are all

reported with confidence.


A. PALADINO


18/21

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