Market Orientation, Alliance Governance, and Innovation

Market Orientation, Alliance Governance, and Innovation

Yu Li (Xi'an Jiaotong University, Xi'an, China), Yao Chen (University of Manchester, Manchester, UK), Yuan Li (Shanghai Jiaotong University, Shanghai, China) and Christopher P. Holland (Loughborough University, Leicestershire, UK)
Copyright: © 2019 |Pages: 18
DOI: 10.4018/JGIM.2019010101

Abstract

Relying on resource dependence theory and transaction cost economics, this article discusses the important role of alliance governance as a mediating mechanism in the relationship between market orientation and innovation, and compares the differences between the influences of different dimensions. The article aims to reveal the influence mechanism of different types of alliance governance on the relationship between market orientation and innovation. Based on a sample of 122 Chinese manufacturing enterprises, the article finds that: (1) contractual governance will increase when customer orientation and competitor orientation become higher, and contractual governance will affect radical innovation in a U-shaped way; (2) trust governance will increase when inter-functional coordination become higher, and trust governance has a positive impact on both radical innovation and incremental innovation (II).
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1. Introduction

Market orientation is defined as organization generation of market intelligence pertaining to current and future customer needs, dissemination of intelligence across departments, and organizationwide responsiveness to it (Kohli & Jaworski, 1990). In recent years, the impact of market orientation on innovation has attracted the sustained interest and attention of scholars (Im & Workman, 2004; Zhou, Yim & Tse, 2005; Morgan, Vorhies & Mason, 2009). However, there are different views on this topic that are grouped into three schools of thought. The early research claims that market orientation has a direct impact on innovation, because market orientation as an organizational culture helps companies better understand customer needs and competitors and thus promotes innovation (Narver & Slater, 1993; Jaworski & Kohli, 1990). A second viewpoint is that market-oriented companies are too concerned about the current customer needs to fulfill real innovations (Christensen & Bower, 1996; Voss & Voss, 2000). This group of researchers argues that innovation will not be influenced directly by market orientation as organizational culture, but through some middle mechanisms such as organizational learning and creativity (Zhou, Yim & Tse, 2005, Li & Atuahene-Gima, 2001). Specifically, they find that under different levels of learning orientation, market growth or entrepreneurial orientation, market orientation will lead to different innovative performance (Gatignon & Xuereb, 1997; Hurley & Hult, 1998; Matsuno, Mentzer, & Özsomer, 2002). The most recent thinking advocates a view of market orientation and innovation as multidimensional concepts, which means that the divergent findings in previous research can be explained by the differential effects of multiple dimensions on innovation (Atuahene-Gima & Ko, 2001; Zhou et al., 2007).

The dilemma exists in the managerial practices as well. Nokia, founded in 1865, used to be the NO. 1 brand from 1990 to 2003 in the mobile phone market. However, the market share of Nokia reduced from 39% in 2008 to 25% in 2011, and it was surpassed by the Apple and Samsung in the smart phone market. The paradox is that Nokia always paid large attention to meet customer needs and invested huge money in R&D projects. As its annual report stated, Nokia invested about € 5.8 billion in R&D in 2010, which is more than 4 times of that in its competitor Apple. Many professors in this industry claim that Nokia’s failure is rooted in deficiency of transforming advanced techniques into real innovations creating customer values. Then the question emerges: why a market-oriented firm like Nokia cannot achieve innovations that customers buy?

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