organizational and environmental factors as moderators of the relationship between multidimensional...

8/11/2019 Organizational and Environmental Factors as Moderators of the Relationship Between Multidimensional Innovation and Performance

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Copyright eContent Management Pty Ltd. Innovation: Management, policy & practice(2013) 15(2): 224244.

In a global economy, it is not sufficient to

participate in highly competitive markets,achieve restructuring, follow low-cost strategies,or create products and processes that exceed tech-nological barriers. Success requires a greater com-petence, in the form of innovation. Aragn andSnchez (2005) conclude that the most profitableand productive type of organization is one thattakes a proactive stance in its behavior and inte-grates groups oriented toward product, process,and marketing forms of innovation. Thus, the

adoption of innovation as a proactive strategy pres-ents a response to changes in the sector, technology,competition, demands, the market resource avail-ability, or executive initiatives, all with the ultimategoal of differentiating the firm from the others andimprovising its business performance (Jensen, Vanden Bosch, & Volberda, 2006).

In recent years, research on innovation hasincreased, and it has become a basic requirementfor enterprises. The most relevant literature on

organizational innovation entails the relationshipbetween innovation and business performance

(Damanpour & Evan, 1984; Damanpour, Walker,

& Avellaneda, 2009; Li & Atuahene-Gima,2001). Some studies reveal a positive relation-ship and suggest empirical generalizations, yetexceptions exist that find no relationship or evena negative one. The diversity in the results maystem from heterogeneous methods, measures, andpopulations, as well as the variety of firm charac-teristics, strategies, sectors of activity, competitivestructures, contexts, socioeconomic environ-ments, and so on.

On the one hand, researchers have exploredvarious perspectives to understand the nature ofinnovation. Today, multidimensional approacheschallenge one-dimensional methods, with theproposition that each type of innovation exhibits itsown characteristics. Typologies of innovation havebeen proposed since the 1970s (Zaltman, Duncan,& Holbek, 1973). The distinction between prod-uct and process innovation has prompted vaststudy; other investigations incorporate technologi-

cal and administrative innovations (managementand organization). For example, Maravelakis,

Organizational and environmental factors as moderators of the

relationship between multidimensional innovation and performance

EVELYNGARCA-ZAMORA, SCARGONZLEZ-BENITOANDPABLOA MUOZ-GALLEGO

Department of Administration and Business Economics, University of Salamanca,Salamanca, Spain

Abstract: Primary objectives: This article provides empirical evidence regarding the moderating role oforganizational and environmental factors in the relationship between innovation and business performance. Researchdesign and methods:Specifically, it analyses the relationship between different types of innovation and performance andestablishes two blocks of hypotheses regarding the possible moderating effects of business factors (e.g., firm size with regardto structure, market orientation with respect to the organizational culture), and the business environment, relative to thesector and competition. The empirical analysis includes 440 Spanish companies and encompasses four sectors of activity:Industry, construction, agriculture, and services. Results and conclusions:Marketing, management, and product innova-tion actions provide the best performance for companies. Such results are moderated by organizational and environmental

factors. The role of market orientation and environmental dynamism are specially significant on relationship. Originality/

value:Previous literature on moderates of the innovationperformance relationship is limited. This research contributeon several aspects: (1) Determine the size and market orientation act as moderators of the relationship; (2) differenti-ate whether the individual moderators differently affect any particular act of innovation (management, organization,marketing, product or production processes); (3) distinguish between various types of business performance indicators and

grouping them according to their effectiveness, efficiency or adaptability.

Keywords: multidimensional innovation, business performance, moderating effects, size, market orientation,environmental dynamism, competitive intensity


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eContent Management Pty Ltd Moderators of the relationship between innovation and performance

encompasses four sectors of activity: industry,construction, agriculture, and services.

The next section presents the theoretical frame-work and a review of literature about innovationadoptions, results, and determinants. After the

presentation of the empirical data derivation, thisarticle continues with its interpretation, followedby some conclusions and implications of this study.

THEORETICALFRAMEWORKANDHYPOTHESES

Relationship between innovation andbusiness performanceInnovation leads to change. Innovative companiesmust adjust their intrinsic and extrinsic functionsto respond to the demands of the environmentand thus maintain and improve business perfor-mance. Companies struggling to maintain aninnovative advantage perceive and attract newopportunities that might grant them efficiencyand effectiveness. Nevertheless, innovation alwaysinvolves risk and success is never assured.

A positive and significant causal relationshipbetween innovation and performance has beenwidely demonstrated, from Schumpeter (1934)and his theory of dynamic economies to Zaltmanet al. (1973) to more recent studies (Alpay,

Bodur, Ylmaz, & Bykbalc, 2012; Bhaskaran,2006; Damanpour et al., 2009; Han, Kim, &Srivastava, 1998; Lin & Chen, 2007; Liu & Wu,2011; Mavondo, Chimhanzi, & Stewart, 2005).

Different types of innovation can generate dif-ferent results (Damanpour et al., 2009). The man-agement and organizational innovation improvesshort-term profitability when it is about continuousinnovation within the organization, generatingbetter profitability because the whole organiza-

tion gets involved in a changing environment andconstant improvement to achieve greater efficiency.Furthermore, matters relating to commercial inno-vation, both in marketing and product, open newmarkets and product consumption promoting animprovement in the market share and sales growth.Market innovation opens new ways of serving mar-kets and allows generating more appropriate offers.The technological innovation in products or pro-cesses creates competitiveness and market value to

add value to organization in their role in the com-petitive market (Lin & Chen, 2007).

Bilalis, Antoniadis, Jones, and Moustakis (2006)measure organizational innovation according tothree areas: product, process, and administration.Lin and Chen (2007) add innovation and strategicmarketing to the list.

On the other hand, empirical studies of orga-nizational and environmental characteristics andtheir moderating roles in the relationship betweeninnovation and performance produce inconclu-sive results. Although some certain business andenvironmental circumstances apply more gener-ally, evidence regarding the moderating effectsremains limited. An analysis of the moderatorsof the relationship might reveal where to directeffort and resources to implement multidimen-sional innovation appropriately; it also can detailthe phenomena that enhance or condition thoseinfluential moderators.

This complexity when approaching innova-tion and its consequences underlies the aim ofthis study: to measure the relationship betweeninnovation and business performance by addingorganizational and environmental moderatingfactors that may interact in innovation imple-mentations. Accordingly, this study offers fourmain contributions. First, innovation comprises

five types: management, organization, marketing,product, and productive processes. Thus, it is pos-sible to estimate innovation relationships from amultidimensional perspective. Second, organi-zational performance differentiates indicators ofeffectiveness, efficiency, and adaptability (Walker& Ruekert, 1987), as well as financial and opera-tional indicators (Venkatraman & Ramanujam,1986). Evaluations of the consequences of inno-vation and the moderating effects of the envi-

ronment thus can reflect short-, medium-, andlong-term perspectives. Third, the moderatorsentail two types: the organizational factors suchas size and market orientation and the environ-mental factors that originate from environmentaldynamism, including the degree of volatility indemand, competitive rivalry, new product intro-duction, technological and process changes, andso on. A more specific factor also focuses on com-petitive intensity. Fourth, the empirical analysis

includes 440 Spanish companies (190 large, 250small- to medium-sized enterprises, SMEs) and


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Evelyn Garca-Zamora, scar Gnzalez-Benito and Pablo A Muoz-Gallego eContent Management Pty Ltd

market orientation as a moderator because: (1) Itis a cultural trait widely studied since the early1990s; (2) it captures and measures the readi-ness of the company toward customer satisfac-tion is a necessary condition for the long-term

profitability; and (3) much of the innovationefforts aim to provide greater value to the targetconsumers. Therefore, market orientation helpfirms to develop successful innovation becausefocus innovation effort on consumers needs. Inother words, the ability to innovate is not enoughbecause it requires market orientation to have apositive impact on the performance (Matsuno,Mentzer, & zsomer, 2002).

However, this cultural factor is not sufficientfor success, because as noted Otero-Neira, Tapio,and Fernndez (2009, p. 220) the knowledgeof the market only offers an initial input thathas to be converted internally into a concreteresponse allowing the firm to satisfy the detectedneed. The effectiveness of such internal responsesdepends on the resources and capabilities ownedby the company. We introduce the moderatingvariable of the firm size because of its relation-ship with the differences between large and smallcompanies in terms of providing resources, skills

and professionalism to innovation (Ying-Chieh &Cipolla, 2007).

Regarding external factors, Kraft (1989) rec-ognized that they are important determinants ofinnovation, especially those related to competition.Investigators have tried to capture different scenariosthat reflect easily observable dimensions, such as thetype of activity or a country/region (Evangelista &Mastrostefano, 2006). Differentiating by sectorcaptures specific circumstances that characterize

firm activities: Similarly, the surrounding countryor region relates to the firms socio-cultural, eco-nomic, political, legal, and technological context.Another line of research considers the moderatingeffects of aspects directly related to the degree ofcomplexity of the market and the competitive envi-ronment in which companies undertake activities:for example, Kohli and Jaworski (1990) analyzethe relationship between market orientation andperformance according to the influence of market

turbulence, turbulence in the environment, marketgrowth, and competitive intensity.

Some studies point out a negative link (Capon,Farley, & Hoenig, 1990; Li & Atuahene-Gima,2001) or find statistical results that are not con-clusive or imply no relationship (Mole & Worrel,2001). However, according to Damanpour

(1990), the confusion may step from measure-ment methods related to the performance andinnovation variables or organizational and envi-ronmental characteristics.

Since arguments and evidence in favor of posi-tive consequences are stronger, this study assumesthat multidimensional innovation relates posi-tively to business performance, the first hypoth-esis predicts:

H1: Innovation is positively related to businessperformance.

Moderators of the relationship betweeninnovation and performanceThe relationship between innovation and busi-ness performance may be moderated by mul-tiple factors related to both companies and theircontext. They may be referred to as internal andexternal factors. Internal factors are the strate-gies and organizational characteristics that areexpected to facilitate the companys ability to

innovate and improve performance (Gatignon& Xuereb, 1997). External factors are the oppor-tunities, threats and environmental changes thatencourage organizations to operate efficiently andeffectively, and maintain or improve their perfor-mance (Damanpour et al., 2009).

Regarding internal factors, previous studieshave focused on structural features, such as firmsize (Afuah, 1998; Damanpour, 1996; Liu, 1995),age (Hurley & Hult, 1998; Sorensen & Stuart,

2000), or ownership structure (Acha, Gann, &Salter, 2005). More complex factors also mightserve as moderators, such as strategic behavior(Wang, 2008), cultural and entrepreneurial orien-tations (Atuahene-Gima & Ko, 2001), or a marketorientation (Liu, 1995; Matear, Osborne, Garrett,& Gray 2002). Such internal behaviors, in combi-nation with innovation, can exert both synergisticand inhibitory effects on the relationship.

Cultural attributes could affect the formation

and incidence of entrepreneurial and innovativebehavior (Knight, 1997). This study focuses on


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conclude that SMEs do not have a significantadvantage in terms of sales growth, they enjoygreater flexibility than larger firms in terms of costcontrols and lower operating costs.

In light of these findings, the present study

considers whether complementarity between sizeand innovation contributes significantly to busi-ness performance, which would imply a positiveinteraction effect. Most studies that include sizein theoretical models use it just as a control vari-able (Sengupta & Bushman, 1998; Ying-Chieh &Cipolla, 2007); its use as a moderating variable, asin this study, is relatively rare.

However, because successful innovation isexpensive and requires time before the firm earns areturn on its investment, larger companies may getbetter results from innovation, due to their greaterresources. The larger a company, the greaterits research capacity, marketing skills, financialautonomy and experience with developing andimplementing successful new ideas. These capaci-ties help to better orientation of innovation effortsand avoid possible failures. Furthermore, a largercompany can cope more easily with a potentialfinancial or operational failure and correct andreorientate innovation projects. Therefore:

H2: Size of the firm moderates the relationshipbetween innovation and business performance, suchthat being larger increases the contributions of innova-tion to a firms business performance.

With regard to the other organizational variable,market orientation includes the set of values,beliefs, activities, processes and behaviors thatderive from the implementation of the market-ing concept (Kohli & Jaworski, 1990). They are

essential for monitoring market opportunitiesand strengthening innovative initiatives orientedtoward customers. According to the Resource-Based Theory (Barney, 1991; Grant, 1991;Mahoney & Pandian, 1992; Peteraf, 1993), thisorganizational culture strengthens other factorsto optimize business performance (Deshpande& Farley, 2004; Slater & Naver, 1995), increasesales, improve market positions, increase adapta-tion capacity, prevent customer switching, and

attain higher profit margins (Markides, 1997).Evidence that market orientation contributes to

We have considered environmental factors asmoderating variables of the relationship because:(1) Environmental changes (opportunities andthreats) alert businesses about the importance ofincorporating continuous changes that optimize

their processes and functions; (2) the externalpressure serves to improve the organization inits services and products; (3) the environmentalinfluence can cause desirable yields and improvethe level of competition (Salavou, Baltas, &Lioukas, 2004). We focused on moderatingthe measure originally proposed by Kohli andJaworski (1990). We address both the overallmoderating role of environmental dynamism andthe more specific moderating role of competitiveintensity.

This study undertakes an investigation of themoderating effects of size and market orientation,as organizational factors, and of environmentaldynamism and competitive intensity, two envi-ronmental factors.

Organizational factorsOrganizational moderating factors relate to thesize of the company, as a structural factor, and itsmarket orientation, as a cultural factor.

Multiple studies address size as an antecedentof organizational performance (Aiken & Hage,1971; Cummings & Paramita, 1977; Delaney &Huselid, 1996; Kalleberg & Leicht, 1991; OCass& Weerawardena, 2009; Smith, Guthrie, &Chen, 1986) and innovation (Acs & Audretsch,1988; Arias-Aranda, Miguela-Rata, & Rodrguez-Duarte, 2001; Evangelista & Mastrostefano,2006; Rogers, 2004). As a likely determinantof innovation (Cohen & Klepper, 1996; Yin &

Zuscovitch, 1998) size has not been conclusivewhen studies compare companies of various sizes(e.g., Avermaete, Viaene, Morgan, & Crawford,2003). However, SMEs enjoy behavioral advan-tages in that they are more entrepreneurial, flexible,and fast; large firms have financial, technological,and human resource advantages in their efforts todevelop innovation (Rothwell & Dodgson, 1994;Shaffer, 2002). In terms of business performance,size influences both financial and operational mea-

sures (Sengupta & Bushman, 1998; Ying-Chieh& Cipolla, 2007); though Hsueh and Tu (2004)


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H3: Market orientation moderates the relationshipbetween innovation and performance, such that beingmore market-oriented increases the contributions ofinnovation to a firms business performance.

Environmental factors

Environmental characteristics also might drivethe relationship between innovation and per-formance. Innovative behavior is influenced byan atmosphere of uncertainty and dynamism,because many factors are beyond the control ofthe company (Littunen, 2000), and externaloperations influence success likelihoods (Porter,1979). Proactive, innovative, and risky behaviorsmight also take advantage of challenging environ-mental conditions, because they mean possibleopportunities (Atuahene-Gima, 1995; Covin &Slevin, 1989). Therefore, environmental dyna-mism and turbulence should influence the rela-tionship between innovation and performance(Chaveerug & Ussahawanitchakit, 2008; Pelham& Wilson, 1996). Russell and Russell (1992)confirm that dynamic, hostile environments pro-mote innovation, encouraging high levels of com-petitiveness and business performance. However,Meyer and Utterback (1995) conclude that suchenvironmental factors do not necessarily lead to

success.This study considers first the moderating effect

of a global measure of environmental dynamism,which likely affects strategic innovation actionsand influences its effect on business performance(Covin & Slevin, 1991; Miles & Snow, 1978;Russell & Russell, 1992; Souza, Bayus, & Wagner,2004). Such global approach to environmentaldynamism refers as a whole to market, competi-tive and technological turbulence. Second, our

study also considers a more specific measure ofenvironmental uncertainty focused on competi-tive intensity. Competitive intensity refers to hos-tility or dynamism, as reflected in the degree ofcompetitive rivalry in the market. It becomesmanifests in the aggressive actions of competitors.

In the midst of a dynamic environment, it iscommon to observe changes in the entry and exitbarriers of new competitors, the emergence ofnew competitive strategies, the appearance of new

technologies that replace and/or change produc-tion processes and incorporate new products, and

business performance has emerged across compa-nies, sectors, and countries of different sizes (e.g.,Appiah-Adu, 1998; Gaur, Vasudevan, & Gaur,2011; Gonzlez-Benito & Gonzlez-Benito,2005; Kirca, Jayachandran, & Bearden, 2005),

though some authors report exceptions or ques-tion the wide variety of approaches to formalizingthis relationship.

The relationship between innovation andmarket orientation has also been studied, boththeoretically and empirically, for several decades(Hurley & Hult, 1998; Keskin, 2006; Kster& Vila, 2011; Mavondo et al., 2005; Silva,Moutinho, Coelho, & Marques, 2009; Singh,2003) even in the context of emerging econ-omies (Liu, Luo, & Shi, 2003; Salavou et al.,2004). Most research suggests that innovationrequires a market orientation for efforts to capi-talize on market-driven actions, and a marketorientation needs innovation to respond force-fully and quickly to environmental opportunities(Hult & Ketchen, 2001).

Clearly market orientation relates to innova-tion and business performance (Cambra-Fierro,Hart, Fuster-Mur, & Polo-Redondo, 2011).Nevertheless, does it contribute significantly to

the relationship between innovation and per-formance that is, is there a positive moder-ating effect on this relationship? Matear et al.(2002) proposes that greater levels of marketorientation increase the contribution of innova-tion to business performance. A market orien-tation facilitates understanding of the market,through monitoring consumer preferences andcompetitors actions (Jaworski & Kohli, 1993;Kohli & Jaworski, 1990), which should sup-

port the effective exploitation of innovativeinitiatives Berthon, Hulbert, and Pitt (2004).Moreover, innovation success increases whenthe market orientation introduces the conceptof the client to the company in an effort tobuild a customer-oriented culture and adjustproducts to suit their needs. This effort leadsto increased sales, improved market positioningand image, and more market share. Therefore,market orientation should act as a catalyst

in the relationship between innovation andperformance:


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METHODOLOGY

DataThe sampling frame came from the Dun andBradstreet (2004) database. Initially the study waslimited to small enterprises in the autonomous

Spanish communities of Extremadura and Castileand Len. However, to support a comparisonwith the large enterprises, the sample populationneeded to extend beyond these specific, relativelymarginal regions, to ensure enough large compa-nies in the sample. The sample of large enterprisesthus encompasses the entire national popula-tion. Large and small companies were selectedaccording to their number of employees and salesreported in the previous fiscal year.

The SMEs had to employ between 20 and 99employees and earn less than 50 million Eurosin turnover in the previous fiscal year. We didnttake into account the standards of European com-mission that considers the SMEs employing upto 250 employees because the SME in questionare located in two of the less developed regionsof Spain for this reason the number of employeeswas limited to 99. The large enterprises employedmore than 100 people and earned more than 50million Euros in annual turnover. These criteria

reflect the regional characteristics as well. Smallerfirms located in more peripheral regions shouldexhibit different innovative behavior than largerfirms located in more economically developedregions. The data reveal (Table 1) that 37% of thelarge companies have 100249 employees and63% employ more than 250 people, which alsocoincides with the overall total population statis-tics. A similar relationship emerges between thetotal population of SMEs and the sample, in fur-

ther support of sample validity.According to the Dun and Bradstreet (2004)

database, the total population of companies thatfulfilled these selection parameters (with morethan 20 employees) was 2,602 Spanish companies(1,569 large enterprises nationwide, 1,033 SMEsin Castile and Len and Extremadura). An initialcontact by mail presented the project and Gagedpossible interest in participation, followed by tele-phone calls. Of the 1,580 companies that agreed

to participate, 793 were large enterprises across allSpanish regions, and 787 were regionally located

in consumer preferences and tastes (McKee &Varadarajan, 1995). Such uncertainty may havepositive or negative effects, depending on the typeof innovation adopted, on business performance.For example, environmental dynamism might

exert a positive effect if companies are orientedstrategically toward innovation and therefore takeadvantage of such changes (Messenghen, 2003)to: (1) exploit their capabilities and organizationalcharacteristics; (2) adjust their offers and expandtheir commercial efforts to meet market needs;and (3) strengthen their support for R&D andadopt a continuous innovation approach (Meuss& Oerlemans, 2000). Or it might induce negativeimpacts, if the company does not react quicklyand effectively to market pressures or a hostileenvironment, and hinders or misleads the imple-mentation of innovative initiatives, which limitsreturns on the investment and profit margins(Carbonell & Rodriguez, 2006).

The same contradictory arguments apply whenfocusing on competitive intensity. Literature onstrategic management indicates that competitiveintensity might have a positive impact on innova-tion success because it creates opportunities, andstimulates creativeness, that lead to better busi-

ness performance (Jermias, 2006; Porter, 1985).However, other studies suggest no moderating effect(Jadesadalug & Usshawanitchakit, 2008; Phromket& Ussahawanitchakit, 2009), and still others suggesta negative moderating effect that hinders the out-comes (Carbonell & Rodrguez, 2006; Entrialgo,Fernndez, & Vzquez, 2001). Competitive inten-sity implies more competing innovation initiatives,more difficulty to achieve competitive advantageand might increase risk of failure. Therefore, high

competitive intensity might enhance or hinder thepositive consequences of implementing an innova-tive strategy (Fiol, 2001; Freel, 2005). Consideringthese contradictory expectations, the next non-directional hypotheses are proposed:

H4: Environmental dynamism moderates the relation-ship between innovation and business performance.

H5: Competitive intensity moderates the relationshipbetween innovation and business performance.

The hypotheses, and the resultant proposedmodel, appear in Figure 1.


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which reduced the final sample to 440companies (190 large, 250 SMEs).

Measurements

Innovation activitiesInnovation is vital to business activi-ties, because it sets the pace for growthand business success. It also providesa competitive advantage over rivals.Organizational innovation impliesa new idea or practice that initiatesnew products, markets, or produc-tion, organizational, or administra-tive processes (Boer & During, 2001;

Damanpour, 1996; Damanpour et al.,2009); it can be classified according tothree features. First, a radical inno-vation implies the creation of newproducts and processes for new mar-

kets, whereas incremental innovation improves onan existing product or process (Mole & Worral,2001). Second, a cultural or operational innovationcreates new initiatives, ideas, and decisions, andthen it becomes an operational innovation when

it is implemented (Damanpour & Evan, 1984).Third, one-dimensional or multidimensional

SMEs. The questionnaire was sent online or bymail, depending on the respondents preference.

Of the 1,580 companies that agreed to par-ticipate, 498 responded, for an average responserate of 31.5%, including 222 large firms and 276

SMEs. For purification, any companies with exces-sive missing data were removed from the sample,

FIGURE1: HYPOTHETICALMODEL

TABLE1: POPULATIONCHARACTERISTICSACCORDINGTODUNS50,000 ANDSTUDYSAMPLE

Population (DUNS

50.000)

Sample (questionnaire)

Large(N= 1,569)

SMEs(N= 1,033)

Large(N= 190)

SMEs(N= 250)

Sectors

Industry 744 47% 393 38% 93 49% 75 30%

Construction 107 7% 204 20% 26 14% 49 20%

Agriculture 23 1% 37 4% 5 3% 22 9%

Trade-service 695 44% 400 39% 66 35% 104 42%

Employees

250 1,091 70% 119 63%

Dun and Bradstreet (2004) database; data collection.


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the production forms of the final product or service(Boer & During, 2001; Utterback, 1994) or theadoption of a new idea that directly influences pro-duction outcomes (Daft, 1978).

These five forms of innovation, as the depen-

dent variables, use single-item measures related toeach dimension, with a seven-point Likert scale(1 = no innovation, 7 = many innovations).Table 2 lists the descriptive data and variable cor-relations; the five innovation measures are highlycorrelated.

Business performanceThis study focuses on four indicators of busi-ness performance, following Gonzlez-Benito,Gonzlez-Benito, & Muoz-Gallego (2009): (1)Profitability, translated into benefits, profit mar-gin, return on investment (ROI), and so on, andmeasured with a single-item referring to economicperformance achieved; (2) market response, or thedemand reaction to products and services offeredby the companies, measured with two items relatedto sales and market share growth; (3) market value,defined as achieving a favorable position in theminds of consumers. This indicator consists oftwo items, customer satisfaction and image/repu-

tation of the company; (4) success with the newproduct, measured by one item.

It is generally accepted that business outcomesare shaped by a multidimensional constructs (e.g.,Varadarajan & Jayachandran, 1999; Venkatraman& Ramanujam, 1986; Walker & Ruekert, 1987),

approach product or process innovation mayreflect a one-dimensional perspective (Baker &Sinkula, 2002; Christensen & Bower, 1996) orconsist of two dimensions, technical and admin-istrative (Damanpour & Evan, 1984; Han et al.,

1998). Overall, multidimensional innovation canbe based on components such as marketing, prod-ucts, organizations, or processes (Atuahene-Gima,1996; Lin & Chen, 2007). Mavondo et al. (2005)note, creating a platform for multidimensionalinnovation might provide new path to financialand operational success. In this research, innova-tion is more in line with a view to incremental,operational and multidimensional innovation.

Such an approach distinguishes among inno-vation in management, organization, marketing,products and processes. Management innovationin deals with the actions in the management andplanning processes of the company (OECD, 2005;Zahra, Neubaum, & Huse, 2000). Organizationalinnovation refers to changes in organizational oradministrative processes (Afuah, 1998; OECD,2005), which in turn affect policies, resource dis-tributions, and other factors associated with thesocial and organizational structure (Daft, 1978;OECD, 2005). Marketing innovation suggests the

introduction of new brands, markets, or marketingmethods (Lin & Chen, 2007; OECD, 2005).Product innovation causes improves the functional-ity and uniqueness of an existing product, such thatmarket share likely increases (Utterback, 1994).Finally, process innovation represents changes in

TABLE2: MEASUREMENTSCALEOFINNOVATION

Items (seven-point Likert scales) Mean SD Correlations

1 2 3 4

Managementinnovation

Implementation of advanced managementtechniques

4.73 1.38

Organizationalinnovation

Implementation of new or alteredorganizational structures

4.56 1.53 0.709***

Marketinginnovation

Significant changes in the sales force, politicalcommunication and distribution channels

4.45 1.62 0.619*** 0.578***

Productinnovation

Changes in product-related aspects such aspackaging, size, and presentation

4.36 1.90 0.343*** 0.403*** 0.480***

Processesinnovation

Changes in the production process anddistribution plants in the means of production

4.42 1.68 0.401** 0.462*** 0.449*** 0.633***

**p


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(1 = much worse than the competition, 7 = muchbetter than the competition). The data in Table 3,which include descriptive details and a reliabilityanalysis, suggest unidimensionality in the multi-item scales (market response and market value),

according to their average. The four dependentmeasures are highly correlated, but the lack of sharedvariance indicates between the performances indica-tors that would be elided if the measure were global.

Organizational factorsFor the potential moderating effect of size, thisstudy investigates four categories: 250employees. For simplicity, the analysis treatedthe variable as metrical, then transformed it intodichotomous variable (10) to differentiate largefrom small enterprises. The measure of marketorientation uses a multi-item scale is somewhat acombination sequence proposed by Jaworski andKohli (1993) and Gonzlez-Benito et al. (2009).All elements were ranked on a seven-point Likertscale (1 = strongly disagree, 7 = strongly agree).Table 4 provides the correlations, statistical descrip-tions, factor loadings, explained variance from theprincipal component analysis, and Cronbachs

values. The analysis supports the interpretationof market orientation as a one-dimensional con-struct. As seen in Table 4, there is a high correlation

and two classifications are common. Walker andRuekert (1987) differentiate among measures ofeffectiveness or commercial success (e.g., sales,market share, customer satisfaction, perceivedquality), efficiency (profit margin, ROI), and

adaptability which suggest the companys abilityto respond to changes and environmental oppor-tunities (e.g., new product success, weight of newproducts in total turnover). Venkatraman andRamanujam (1986) instead distinguish betweenfinancial and operating performance measures.The former focus on economic results, such assales, profits, or ROI, whereas the latter entailthe intermediate results of an activity that shouldlead to economic success, such as satisfaction, per-ceived quality, or new product development.

This study uses four performance indicators:(1) profitability is an efficient short-term finan-cial result; (2) market response represents a short-term financial result of efficacy; (3) market valueworks as an efficient operating result; and (4) newproduct success is an adaptable medium- andlong-term operating result.

The four indicators appear in the questionnairein relative terms or in comparison with main com-petitors (as in Hult, Snow, & Kandemir, 2003;

Jaworski & Kohli, 1993; Pelham, 2000). All assess-ments reflect series of performance indicators, withanswers recorded on a seven-point Likert scale

TABLE3: MEASUREMENTSCALEOFPERFORMANCE

Items (seven-point

Likert scales)

Media SD Correlations Load

factor

Variance

explained

Cronbachs

1 2 3

Profitability 4.46 1.21 1

Market response 0.683*** 82% 90%Sales growth 4,67 1.21 0.851

Growing market share 4,65 1.24 0.851

Market value 0.530*** 0.560*** 89% 90%

Customer satisfaction 5,37 1.21 0.812

Image/reputation of thecompany

5,44 1.21 0.812

New product success

% Sales from new products/services launched in thelast five years

4.77 10.45 0.429*** 0.455*** 0.573***

***p< 0.001.


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ABLE4:

MEASUREMENTSCALEOFMARKETO

RIENTATION

ource

Items(seven-point

Likertscales)

Mean

SD

Correlations

Load

factor

V

ariance

explained

Cronbachs

1

2

3

4

5

6

7

8

arket

ientatio

n1

Weregularlycollect

informationaboutour

targetmarket.

4.93

1.75

1

0.860

70%

90%

Weregularlycollect

informationonthe

strategiesofour

competitors.

4.72

1.72

0.806***

0.845

Weregularlycollect

informationoncustomer

satisfaction.

5.58

1.59

0.678***0.583***

0.805

Weuseinternalreports

onthestructureand

markettrends.

4.62

1.78

0.680***0.680***0.662***

0.851

Weregularlymeetwiththe

headsofmarketing/salesto

discussmarkettrends.

4.66

1.93

0.675**

0.698***0.599***0.786***

0.858

Weareregularlyinformed

ofcomplaintsand

suggestionsfromour

customers.

5.57

1.58

0.624***0.575***0.763***0.562***0.620***

0.800

Theresponsibleforthe

differentfunctionalunits

meetregularlyto

anticipatedenvironment

changes.

4.66

1.80

0.679***0.694***0.590***0.721***0.733***0.646***

0.851

Ourstrategyisbased

onmarketknowledgein

productivecapacities.

4.52

1.66

0.476***0.521***0.397***0.492***0.521***0.417***0.531***

0.661

Ourpriorityinthenew

productdevelopmentis

basedmoreonconsumer

satisfactionthanobtaining

thebenefitsofproductive

capacity.

4.82

1.65

0.526***0.474***0.516***0.470***0.522***0.563***0.490***0.580***

0.698

hemeasurescamefromGonzlez-BenitoandGonzlez-Benito(2005);thescalew

asadaptedfromJaworskiandKohli(1993);***p

organizational and environmental factors as moderators of the relationship between multidimensional...

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