Innovation, marketing strategy, environment, and performance
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Innovation, Marketing and Performance
Franklyn A. Manu MORGAN STATE UNIVERSITY
Ven Sriram MORGAN STATE UNIVERSITY
The contribution of innovation to corporate survival and growth is an accepted notion in much of management. Typologies of strategic orientations of companies based on innovation have been developed and analyzed. Most of these typologies focus on a single dimension of innovation. This study, using the PIMS database, develops a typology of businesses based on multiple dimensions of innovation and examines their marketing strategies and performance. Results suggest that innovative types have different marketing orientations and performance levels, some of which confirm findings based on other typologies. A major implication in terms of pe~ormance is that great care must be taken in adopting an innovation posture. For example, extremely aggressive rates of product introductions are associated with poor marketing (absolute and relative market share) and financial performance but high market share growth. Pioneering a market results in superior all around performance, whereas late entry is associated with poor performance. The findings suggest a need to examine the type of innovation, the type of performance outcome, and the time frame for assessment when evaluating the type of performance outcome, and the time frame for assessment when evaluating the contributions of innovation to corporate survival and growth. j BUSN aES 1996. 35.79--91
trategic orientation refers to how an organization uses strategy to adapt to and/or change aspects of its envi- ronment for a more favorable alignment. This orientation
has been described variously as strategic choice, strategic thrust, strategic fit, and strategic predisposition (Chaffee, 1985). An organization can adapt or align itself to its environment in a variety of ways. This multiplicity of options has led to the de- velopment of generic strategies or strategic archetypes from classifications of how different organizations adapt to their environments. Additionally, there has been some research on
Address correspondence to: Franklyn A. Manu, Business Administration Department, School of Business and Management, Morgan State University, Baltimore, MD 21239.
generic business strategies, environment, and performance linkages (e.g., Galbraith and Schendel, 1983; Douglas and Rhee, 1989; Wright et al., 1991a; Doyle and Hooley, 1992; Hooley, Lynch, and Jobber, 1992; Wong and Saunders, 1993). Included in these strategic archetypes are classification schemes based on organizational innovativeness (Ansoff and Stewart, 1967; Freeman, 1974; Miles and Snow, 1978).
Original developers of typologies relating to innovative be- havior did not offer much detail about functional policies as- sociated with those strategies. Subsequent researchers in the area have attempted to remedy some of these deficiencies by adding specifics of organizational behavior in such areas as production, marketing, and asset management. Related to this issue is the operationalization of innovation orientation. Previ- ous research on the subject has used single variable constructs based on such factors as timing of market entry (Ansoff and Stewart, 1967), research and development (R&D) expenditures (Freeman, 1974), and rate of change of products and markets (Miles and Snow, 1978). Each of these studies contributes to an understanding of the importance of a particular dimension of innovativeness, but there appears to be not as much con- sideration of how these different dimensions link together. We cannot, for example, tell how rate of new product introduc- tion, timing of market entry, and R&D expenditures, when taken together, relate to strategy and performance. Consequently, we do not get a very full picture of the links between innovation orientation, marketing strategy, and performance.
We aim at extending previous work by identifying different types of innovation orientation based on multiple dimensions of innovativeness. This approach should provide a more com- prehensive and more realistic picture of what is involved in innovation as a strategy. More specifically, this study aims at: (1) developing a typology of innovation orientation using mul- tiple variables relating to innovativeness; and (2) comparing the environments, marketing strategy attributes, and perfor- mance levels associated with each of the identified types.
Journal of Business Research 35, 79-91 (1996) 1996 Elsevier Science Inc. 655 Avenue of the Americas, New York, NY 10010
ISSN 0148-2963/961515.00 SSDI 0148-2963(95)00056-X
80 J Busn Res F.A. Manu and V. Sriram 1996:35:79-91
Literature Review The basic premise of this study is that different innovation orien- tations are different forms of adaptation and are associated with different environments, marketing strategies, and performance levels. In this section, previous research relating to innovation orientation is discussed, and suggested links to environments, marketing strategy, and performance implications are noted.
Innovation Orientation The concept of innovation orientation has been operational- ized in a number of ways. Ansoff and Stewart (1967) devel- oped a typology of strategies based on the timing of entry of a technologically intensive firm into an emerging industry. This timing of entry represents an aspect of innovativeness, with earlier entry indicating a greater degree of innovativeness. In this typology, "first to market" strategy is the most innovative, followed by "follow the leader," "application engineering," and "me-too" strategies, in that order. The underlying implications of this timing of market entry for R&D, marketing, and manufac- turing form the basis of this typology. The typology highlights the importance of timing of market entry in influencing strategy and suggests that it is a major indicator of innovation orientation.
Freeman (1974) also developed a classification of strategic options available for firms faced with changes in their techno- logical environments. This typology relates to the innovative efforts of firms and their focus, primarily in terms of R&D ex- penditures. Based on their posture toward R&D expenditure, "offensive," "defensive," "dependent," "traditional," and "oppor- tunist" firms were identified.
Miles and Snow (1978) and Snow and Hrebiniak (1980) based their notion of innovation orientation on the rate at which organizations changed their products and markets. They fo- cused on the self-perceptions of top managers in the industries they studied to identify the archetypes of the typology, and their associated charateristics. Viewing this as subjective, Hambrick (1983) offered an operationalization based on actions relative to the competition. His classifying variable was relative per- cent of new products, which is the difference between a busi- ness's percent of new products sales as a proportion of total sales and that of its three largest competitors. Contrary to some of his arguments, however (1983, p. 8), he used an absolute percent of new products variable in parts of his analysis. Based on these operationalizations four types of organizations were identified. Prospectors have a strong concern for product and market innovation and attempt to pioneer in those areas. Defenders have narrow product-market domains, conduct lit- tle or no new product-market development, and pay a great deal of attention to improving efficiency of operations. Reac- tors are unable to respond effectively to their environments and only make adjustments when forced to do so by environmen- tal pressures. Analyzers are a hybrid of the first two types, prospectors and defenders.
Cooper (1984) focused on the new product programs of suc- cessful and unsuccessful firms. Each firm's product innovation
program was characterized by a number of dimensions describ- ing the program orientation, types of products, types of mar- kets, technology type, and program commitment. Five strategy types were identified as follows: technologically driven, bal- anced, technologically deficient, low-budget conservative, and high-budget diverse. The general conclusion of the study was that, whereas both the strategy adopted and the type of indus- try had an influence on program performance, a firm's charac- teristics did not.
These strategic typologies provide a useful theoretical back- ground for examining how organizations interact with their en- vironments and the strategies that result. The issue of adapting has become very important in strategic marketing because of a number of environmental factors such as increasing compet- itive pressure, rapid technological change, deregulation, and increasing emphasis on quality (Day and Wensley, 1983; Jain, 1985). These changes in the environment now mean that mar- keting must take a more proactive view of the external envi- ronment, and this calls for further research on what kinds of marketing strategies are associated with different organizational types (Day and Wensley, 1983; Zeithaml and Zeithaml, 1984).
Innovation Orientation and Marketing Strategy As Hambrick (1983) indicated, strategic behavior guides an or- ganization's alignment with its environment and shapes its stra- tegic attributes and competencies. Thus, different innovative types should have different marketing strategy attributes.
Miles and Snow (1978), Snow and Hrebiniak (1980), Ham- brick (1983), and McDaniel and Kolari (1987) suggested that prospectors devoted more resources to marketing-related ac- tivities than defenders. Prospectors should therefore exhibit higher expenditures for advertising, personal selling, and sales promotion as well as prices higher than those of other types of businesses. The Miles and Snow typology also suggested that defenders, with their greater engineering competence, would have a lower level of costs and therefore a greater ability to charge lower prices. These views ignore the potential use of a penetration pricing strategy by a product innovative busi- ness or market level pricing by lower cost businesses to cap- ture higher margins. Thus, the evidence is mixed with respect to pricing.
Another aspect of marketing strategy related to innovation orientation is product-market scope, i.e., product line breadth arid variety in customer types. Prospectorlike organizations, with their constant search for new markets and products, are likely to have broad product-market scopes, whereas defenderlike organizations, with a focus on stability, are likely to have nar- row product-market scopes (Miles and Snow, 1978). An addi- tional influence relates to timing of market entry. Prescott and Visscher (1977) suggested that pioneers develop broader prod- uct lines than later entrants by marketing their products for the largest and most attractive segments. Later entrants are thus left with smaller and less lucrative segments.
Based on the engineering capabilities of defenderlike organi- zations, Miles and Snow (1978) suggested that they would have
Innovation, Marketing Strategy, Environment, and Performance J Busn Res 81 1996:35:79-91
higher quality products through a constant process of refine- ment. They would also offer better service because of their ob- jective of totally serving their chosen market niches. However, product innovators like pioneers and prospectors, may gain a favorable product image due to perceptions of innovative- hess (Porter, 1980) as well as through quality improvements on existing products.
Innovation Orientation and Environment The literature relating to innovation, strategy, and performance suggests a need to take into account environmental factors in both the adoption of various innovation strategies and also in determining their relative effectiveness. This is because inno- vation is considered to be an adaptive mechanism to the envi- ronment in order to survive (Paine and Anderson, 1977; Miller and Friesen, 1983). However, another view is that it is an ac- tivity that falls within the realm of managerial choice (Aldrich and Pfeffer 1975; Miles and Snow, 1978; Hrebiniak andJoyce, 1985) and therefore is not environmentally determined.
The bulk of empirical evidence appears to favor the former view, and a number of variables have been shown to be of im- portance in influencing both the adoption and effectiveness of innovation strategy. Included are such factors as industry and market concentration, product life cycle, innovative opportu- nity and competitive pressure (Moore and Tushman, 1982; Hambrick, 1983; Ravenscraft, 1983; Thietart and Vivas, 1984; Angelmar, 1985; Miller, 1988).
Innovation Orientation and Performance Miles and Snow (1978) suggested that none of their three sta- ble strategy types (prospector, defender, and analyzer) was in- herently superior as long as they were all properly implemented. This Miles and Snow (1978) postulate is based on a notion of the relative immutability of strategy, which constrains organiza- tional adaptation to the environment (Hambrick, 1983). In this view, the nature of the environment is not as important as the proper implementation of a strategy or adaptive mechanism.
Hambrick (1983), in a test of this postulate, rejected it be- cause he found his innovative types associated with different levels of performance. This suggests that not all innovative orien- tations, i.e. the adaptive mechanisms, are appropriate for a given environment. Recent research has also demonstrated the link between market pioneering and superior performance (Lamb- kin, 1988; Conant, Mokwa, and Varadarajan, 1990; Wright et al., 1991b; Lambkin, 1992; Lengnick-Hall, 1992; Robinson, For- nell, and Sullivan, 1992). This further suggests that different innovation orientations are associated with differences in per- formance.
This literature review demonstrates the wide-ranging rela- tionships between different aspects of innovativeness and mar- keting strategies, expenditures and performance, as well as links to environmental context. Again, the point must be made that single variable categorizations of innovativeness do not fully capture the complexities of innovativeness. This is not a criti-
cism, but it is important to recognize that fact before attempt- ing extensions of that work. A multidimensional conceptuali- zation of innovativeness should enable us consider interaction among its various aspects, in terms of timing, inputs and out- puts, and their relationships to marketing strategy attributes, environments, and performance.
Conceptual Basis for an Innovation Typology Theoretical Background As indicated in the introduction and literature review, the the- oretical basis for this study is the notion of strategic choice. This framework has received much less attention in the mar- keting literature (Clark, Varadarajan, and Pride, 1994). Basi- cally, the framework suggests that managers have some degree of influence over their...