Market orientation and innovation

Abstract

The relationship between market orientation and innovation, particularly product newness, has been debated for decades. We report an empirical study of 158 manufacturing and 117 services firms in Australia to examine the influence of market orientation on innovation characteristics and performance. The results indicate that market orientation has significant relationships with innovation characteristics such as innovation-marketing fit, product advantage, and interfunctional teamwork but not with product newness and innovation-technology fit. Further, after controlling for the effect of these innovation characteristics, we found that in both the product and service innovation samples, market orientation makes a significant contribution to the innovation project's impact performance, as measured by its intermediate benefits for the firm. However, it has little effect on its market success, as measured by sales and profit performance. Surprisingly, the results do not confirm our hypothesis that market orientation will have a stronger impact on service innovation performance than on product innovation performance. Research and managerial implications of these findings are presented.