The Relationship Of Market Orientation, Innovation Strategy And New Products Development Performance, Based On The Dynamic Management Capabilities Theory

A study of the mechanism that underlies market orientation, innovation decision, and innovation performance: a perspective from dynamic management capabilityAs mentioned in one of famous writings by Peter Drucker, a management legend, business has two basic functions, namely marketing and innovation. As to marketing, the development of its basic theory has caught the attention of numerous academics for years. From the proposition of marketing concept in an early stage to the proposition and measurement of market orientation in a later stage, many academics hold that marketing concept is the foundation of market orientation, and that market orientation is the implementation of marketing concept. Market orientation is a type of organization culture which emphasizes customers, competitors, and internal function coordination to create higher customer value to build competitive advantages. Most scholars argue that market orientation is the core of modern marketing management and strategy. Whether market orientation can improve business performance has been discussed in the academic field for over 30 years. The results of empirical tests, however, are inconsistent. Numerous research results show that there is a significant and positive impact of market orientation on business performance, and some suggest that there is a pretty weak relation between these two variables, while others appears to suggest that there is no significant influence. Therefore, some researchers begin to explain the relationship between the two constructs by introducing intervening variables such as organization learning, innovation, and organizational commitment.Being the other basic function of business, innovation has been defined as new concepts or behavior adopted by an organization by academics. Therefore innovation may be a new product, service, technology, or management method. The positive impact of innovation on business performance has been supported in much research. With the increase of competition intensity, innovation has become more and more important.To meet the need for further research on this topic, scholars start to explore the combined effects of innovation and market orientation on business performance. The empirical tests show that there is a close relation between market orientation level and innovation behavior. The extant literatures mainly focus on examining the impact of market orientation on business performance and the mediating role of innovation in the relationship between market orientation and business performance. However, little is known about the explicit process of how market orientation influence innovation decision.The advanced management theory is the inheritance and development of the research on the role of top management team. It posits that the personality traits of top management and their strategic decisions can influence business performance. Based on this perspective, Adner put forward the concept of dynamic management capability to evaluate managers'ability of making use of firm resources, which in turn predicts the variance of decision making. He proposed that dynamic management capability consist of top management's cognitive pattern, human capital, and social capital. With different dynamic management capability, different decision quality can be obtained by different top management teams in face of constant-changing environment, which in turn leads to different business performance levels.This study tries to fill a gap in the existing literature. In particular, I argue that the three components of dynamic management capability may mediate the relationship between market orientation and business innovation. To elaborate and empirically test this relationship is the focal point of this study.The analysis units in this study are strategic business units attached to large-scale service providers and manufactures. The qualified sample consists of 298 strategic business units. T-test, covariance analysis, and regression analysis, etc. are employed to analyze data and test hypothesizes proposed in this study.The results obtained in this research indicate that market orientation significantly and positively influence both exploration decision and product development decision. It will be helpful for making product development decision to emphasize the importance of customers and competitors in organization culture and business operation and strengthen internal function coordination. In doing that, new opportunities in market will be seized better; the needs of potential customers will be identified with better skills; unique and technically-feasible suggestions for new products will be offered by customers.Second, it is supported in this study that under the condition of facing the same market environment and possessing the same market information and resources, the cognitive factor in the model of dynamic management capability mediates the relationship between market orientation and innovation decision. Different decision makers will make different strategic choices in different steps of such as examining, explaining, and making decisions. The top management teams with high cognitive capability of identifying market opportunities can collect comprehensive information and examine it in detail. In the process of making decision, they focus on all-round information, and then try to evaluate all possible outcomes and develop many alternative methods, trying to find possible opportunities. The top management teams perform conversely, which have low cognitive capability. This reveals that facing the same uncertain environment, the decision makers with high cognitive capability are willing to analyze more information, scan the environment as a whole, and develop total strategy. While the decision makers with low cognitive capability process less information and are more likely to take partial measures.Third, there is no evidence in this research that average education level and the variance of education have significant influence on business innovation decision. It is possible that there are some problems in the current education system. For instance, total inner quality of students is not high, and innovation consciousness is not intense, which cannot match the needs of firms. It is possible that the imperfect mechanism of corporate governance leads to less pressures and motives for managers with higher education to make more contribution to their firms. It is also possible that the intelligence of managers with higher education is not fully made use of, for they are not ideally positioned when they are recruited blindly.Finally, this research demonstrates that the social capital of top management team plays the role of a mediating variable in the process that a firm employs market information to make innovation decision. The external relations can improve business performance in two ways. First, it can provide resources needed for a firm's operation. Second, the friendship between senior managers can promote understanding each firm's operation circumstance. Rich information from it can in turn improve the decision quality.The findings suggest that decision-makers should take the personality trait factor into account while building a top management team, which will contribute to best product innovation performances. Furthermore, marketing managers should identify and deliver information on environmental change of market to managers in other departments, which will make the top management team be aware of their key roles in business innovation. To conclude, this research contributes to marketing theory and managerial practice in many ways.