Industrial Marketing Management 33 (2004) 429 438

Innovativeness: Its antecedents and impact on business performance

G. Tomas M. Hulta,*, Robert F. Hurleyb,1, Gary A. Knightc,2
a

Eppley Center, Eli Broad Graduate School of Management, Michigan State University, East Lansing, MI 48824-1121, USA b Fordham University, 113 West 60th Street, New York, NY 10023, USA c College of Business, Florida State University, Tallahassee, FL 32306-1110, USA Received 30 December 2002; accepted 21 August 2003

Abstract In this study, we address three research questions: (1) Why are some industrial firms more innovative than others? (2) What effect does innovativeness has on business performance? (3) Does the linkage between innovativeness and business performance depend on the environmental context? Accordingly, we draw on various theoretical perspectives to develop hypotheses that propose market orientation, entrepreneurial orientation, and learning orientation as key antecedents to innovativeness, as well as a direct relationship between innovativeness and business performance. A model is devised and tested that examines these relationships in general and in the context of varying market turbulence. Findings confirm the validity of the model and afford various insights on the role of market turbulence in the proposed relationships. Lastly, implications are offered on the antecedents and consequences of organizational innovativeness. D 2003 Elsevier Inc. All rights reserved.
Keywords: Innovativeness; Market orientation; Learning orientation; Entrepreneurial orientation; Performance; Market turbulence

1. Introduction A key component in the success of industrial firms is the extent of their innovativeness. Innovativeness relates to the firms capacity to engage in innovation; that is, the introduction of new processes, products, or ideas in the organization. This capacity to innovate is among the most important factors that impact on business performance (e.g., Burns & Stalker, 1961; Hurley, Hult, & Tomas, 1998; Porter, 1990; Schumpeter, 1934). It is through innovativeness that industrial managers devise solutions to business problems and challenges, which provide the basis for the survival and success of the firm well into the future. Innovativeness is one of the factors over which the management has considerable control. However, studies on the factors that give rise to innovativeness in the firm have produced mixed results (Abratt & Lombard, 1993; Henard & Szymanski, 2001; Poolton & Barclay, 1998). While it is generally agreed that
* Corresponding author. Tel.: +1-517-353-4336; fax: +1-517-432-1009. E-mail addresses: hult@msu.edu (G.T.M. Hult), hurley1@ix.netcom.com (R.F. Hurley), gknight@cob.fsu.edu (G.A. Knight). 1 Tel.: +1-212-636-6760; fax: +1-212-765-5573. 2 Tel.: +1-850-644-1140; fax: +1-850-644-4098. 0019-8501/$ see front matter D 2003 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2003.08.015

innovation contributes to business performance, relatively little is known about the drivers of innovativeness and how those drivers operate via innovativeness to collectively influence performance. Moreover, little is known about how the drivers of innovativeness operate under varying conditions in the firms external environment. To address these issues, a sample of large (Fortune 500) industrial-based firms is investigated to determine (1) the effect of three key organizational orientations posited from the literature on innovativeness, (2) the hypothesized effect of innovativeness on business performance, and (3) the role of environmental characteristics in moderating the relationship among the orientations, innovativeness, and business performance. Findings can help the management to better understand what types of orientations should be encouraged with a view to increasing the level of innovativeness among industrial firms. Based on a review of relevant literature and theoretical conceptionalizations, we will argue that among the key antecedents to innovativeness are the constructs of market orientation, learning orientation, and entrepreneurial orientation. Researchers have emphasized the importance of market orientation (Jaworski & Kohli, 1993; Narver & Slater, 1990) and learning orientation (Sinkula, 1994; Slater

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& Narver, 1995) in developing a competitive advantage (Day, 1994). Recently, research on competitive advantage has highlighted the importance of entrepreneurial orientation (Lumpkin & Dess, 1996). While the positional advantage of firms has been suggested to be a function of market orientation, learning orientation, entrepreneurial orientation, and innovativeness, no study has examined the linkages among these constructs in an integrated manner. As such, we do not know how these constructs interact to influence business performance. This study intends to shed new and important light on these constructs and the interrelationships among them. Specifically, we devise a theory-based structural equation model that links these constructs together. We then conduct a survey-based study of multinational firms that market industrial goods to evaluate the validity of linkages posited in the model. We begin by examining how innovativeness has been related to organizational adaptation and performance in the context of relevant theoretical perspectives. Next, we assess the plausibility of market orientation, learning orientation, and entrepreneurial orientation as antecedents to innovativeness and offer a collection of associated hypotheses. In the methods section, the study sample of 181 firms is discussed and the construct measures are evaluated. Next, the relationships among these constructs are assessed and discussed.

2. Background and hypotheses Culture reflects norms, values, and beliefs that reinforce behaviors ultimately related to business performance. When specific orientations are embedded in organizational culture, the intensity and consistency of resultant behaviors are augmented across situations, groups, and persons within the firm. A culture that supports the execution of a strategy is difficult to copy and thus can become a sustainable competitive advantage (Barney, 1986). The principal ques-

tion addressed in this paper is how each of key antecedents and innovativeness are related and how they collectively enable the organization to adapt and perform. We now examine these factors in depth to highlight relationships among them and their association with business performance. The linkages proposed among the constructs investigated here are illustrated in Fig. 1. Innovativeness is defined here as the capacity to introduce of some new process, product, or idea in the organization (Damanpour, 1991; Hurley et al., 1998). An innovation can be a new product or service, a new production process, or a new structure or administrative system. Certain types of innovations such as administrative innovations that improve internal operations may have no direct or immediate impact on the marketplace (Han, Kim, & Srivastava, 1998). Zaltman, Duncan, and Holbek (1973) suggest that one of the stages of the innovativeness process is initiation. A critical part of the initiation stage is cultural openness to the innovation (Zaltman et al., 1973, p. 64). Openness includes whether the members of an organization are willing to consider the adoption of an innovation or whether they are resistant to it. Van de Ven (1986) refers to this as the management of the organizations cultural attention in order to recognize the need for new ideas and action within the organization. Innovativeness is primarily distinguished from entrepreneurial orientation in that it does not require new market entry (Lumpkin & Dess, 1996, p. 136). Much of the firms innovativeness hinges on the extent to which managers acquire and act on market intelligence. Organizations that act are responsive to markets. Organizations without the capacity to innovate may invest time and resources in studying markets but are unable to translate this knowledge into practice. The adoption of innovation is generally intended to contribute to the performance or effectiveness of the firm (e.g., Damanpour, 1991). Business performance is defined here as the achievement of organizational goals related to

Fig. 1. Hypothesized model.

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profitability and growth in sales and markets share, as well as the accomplishment of general firm strategic objectives. The resource-based view (Wernerfelt, 1984) helps to explain how firms derive competitive advantages by channeling resources into the development of new products, processes, and so forth. Innovation is a means for changing an organization, whether as a response to changes that occur in its internal or external environment or as a preemptive move taken to influence an environment. Because environments evolve, firms must adopt innovations over time and the most important innovations are those that allow the firm to achieve some sort of competitive advantage, thereby contributing to its performance (e.g., Damanpour, 1991; Henard & Szymanski, 2001; Porter, 1990). This discussion leads to our first hypothesis. H1: The magnitude of innovativeness is positively related to the magnitude of business performance. While the linkage suggested by this hypothesis is generally known to be true, it is important to assess it here as a foundation for other explanations and hypotheses that follow. 2.1. Market orientation and innovativeness Kohli and Jaworski (1993) define market orientation as a set of ongoing behaviors and activities related to generation, dissemination, and responsiveness to market intelligence. To some degree, this position is shared by Day (1994) who views market orientation as ongoing behaviors or processes via market sensing and buyer linking. Han et al. (1998, p. 31) state, market orientation, as a corporate culture, characterizes an organizations disposition to deliver superior value to its customers continuously. Fritz (1996) found that market orientation is important for corporate success. We argue that in market-oriented organizations, behaving or introducing a process that inhibits a market focus would feel wrong and would most likely result in some censure; that is, it would be counter cultural. Thus, market orientation is an aspect of culture and is a latent construct whose indicators are values, beliefs, and symbols that demonstrate a concern for markets. Narver and Slater (1990) emphasize that market orientation refers to a culture that places a high priority on creating buyer value while considering other stakeholders and emphasizing responsiveness to market information. Days (1994) conceptualization holds that market-oriented companies have processes for collecting market intelligence and integrating them with strategic decision-making processes. He suggests that market intelligence comes from outside in processes that link with spanning processes (e.g., strategic planning), which facilitate integration and implementation. These constellations of behaviors, practices, and routines form behavioral syndromes in the organization defined as culture.

While many scholars include responsiveness to markets as a part of market orientation (e.g., Kohli & Jaworski, 1990), it can be argued that translating market intelligence into action is part of a larger planning and decision-making process that affects even internally oriented changes. Industrial firms with a market orientation are likely to devise and adapt products, services, and processes that continue to meet the needs of the evolving market. Accordingly, it is likely that innovative processes naturally flow out of a focus on being market oriented. Consistent with this view, Jaworski and Kohli (1993, p. 56) have argued that a market orientation essentially involves doing something new or different in response to market conditions, it may be viewed as a form of innovative behavior. Innovativeness is an important managerial function because it has been consistently linked to business performance. With the exception of work by Han et al. (1998) and Hurley et al. (1998), extant literature has not yet addressed the issue of how market orientation and innovativeness operate together to affect company performance. Arguably, a market orientation is incomplete if practitioners do not understand the modus operandi that gives rise to creating superior buyer value. Slater and Narver (1994b) view innovativeness as one of the core value-creating capabilities that drives the market orientation performance relationship. In their seminal work, Zaltman et al. (1973) propose that innovativeness is the medium for business success in the wake of appropriate intelligence gathering and decision making (cf. Hurley et al.,1998). Much later, Deshpande, Farley, and Webster (1993) speculated on a strong linkage between market orientation and innovativeness for achieving superior business performance outcomes. Most recently, Henard and Szymanski (2001) highlighted empirical work that suggests that market orientation contributes to new product success. Accordingly, we hypothesize, H2: The magnitude of market orientation is positively related to the magnitude of innovativeness. 2.2. Learning orientation and innovativeness Learning orientation has to do with the development of new knowledge in the organization (Cohen & Sproull, 1996; Crossan, Lane, & White, 1999). We argue that learning orientation occurs primarily at the culture level of the firm and is likely to be mediated by factors that impact directly on business performance. Two different conceptualizations of learning orientation can be set forth. Huber (1991) defines learning orientation broadly as the development of new knowledge or insights that have the potential to influence behavior through its values and beliefs within the culture of the organization. Slater and Narver (1995) also adopt this definition. The more stringent definition of learning orientation requires that learning results in new behaviors (Argyris & Schon, 1978; Fiol, 1985). Sinkula (1994) refers to this demonstration or manifestation of

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learning as augmented knowledge, recognizing that the ability to apply knowledge implies a greater level of learning. Clearly, however, learning and innovativeness are separate constructs that are interrelated. In focusing on learning orientation as a cultural construct, we adopt Hubers (1991) definition emphasizing cognition to distinguish learning orientation from innovativeness. Specifically, we focus on the organizations commitment to learning (Sinkula, Baker, & Noordewier, 1997, p. 309) and learning orientation (Hult & Thomas, 1998, p.197). Slater and Narver (1995) suggest that learning orientation is directly related to new product success. Calantone, Cavusgil, and Zhao (2002) also have demonstrated a linkage among learning orientation, innovation, and performance in the firm. These ideas lead to the next hypothesis. H3: The magnitude of learning orientation is positively related to the magnitude of innovativeness. 2.3. Entrepreneurial orientation and innovativeness Entrepreneurial orientation can be regarded as entailing aspects of new entry and especially how new entry is undertaken (Lumpkin & Dess, 1996). Defining entrepreneurial orientation as the processes, practices, and decisionmaking activities that lead to new entry is consistent with Slater & Narvers (1993, 1995) conceptualization. Slater and Narver (1995, p. 68) suggest that entrepreneurial values enhance the creation of new businesses within the existing business and the renewal or revival of ongoing businesses that have become stagnant or require transformation. Entrepreneurial orientation suggests a proclivity toward creation of new products and ventures and a proactiveness and competitive aggressiveness that embodies a bold action-oriented positioning (Cooper & Dunkelberg, 1986; Cooper, Woo & Dunkelberg, 1989). Thus, entrepreneurial orientation is characterized by boldness and tolerance for risk that lead to new market entry (Naman & Slevin, 1993; Lumpkin & Dess, 1996) but which may not include a concern for market analysis or learning endeavors (Hurley et al., 1998). Building on Lumpkin and Dess (1996) and Naman and Slevin (1993), we distinguish entrepreneurial orientation from market orientation, innovativeness, and learning orientation in that entrepreneurial orientation embodies strategies and actions that the firm may undertake in order to actualize corporate orientations and goals. Entrepreneurial orientation has long been associated with proactive competitive posture, management proclivity for risky projects, and the firms need to engage in bold, wideranging acts to achieve objectives (Covin & Slevin, 1989; Miller, 1987). The manager as entrepreneur is responsible for the initiation and design of much of the controlled change in his organization. He continually searches for new opportunities and problems and he initiates improvement projects to deal with these (Mintzber, 1973, p. 168).

These ideas point to entrepreneurial orientations antecedent role to innovativeness. Thus, H4: The magnitude of entrepreneurial orientation is positively related to the magnitude of innovativeness. 2.4. The role of market turbulence Scholars suggest that managerial choice may be severely influenced by the moderating effect of the external business environment (Greenley & Oktemgil, 1997). Managers must correctly ascertain the nature of the relevant environment and formulate strategies accordingly. A number of researchers have argued that market turbulence influences the relationships among firm culture, strategy, and performance (e.g., Greenley & Foxall, 1998; Jaworski & Kohli, 1993; Miller, 1987; Moorman & Miner, 1998; Slater & Narver, 1994a, 1995). Langerak, Peelen, and Commandeur (1997) suggest that successful new product development depends on the characteristics of the competitive environment in which the industrial firm operates. However, conceptual arguments and empirical findings relating the constructs investigated here to market turbulence are absent or inconclusive. In this study, market turbulence reflects rapidly changing buyer preferences, wide-ranging needs and wants, ongoing buyer entry and exit from the marketplace, and constant emphasis on offering new products. Our earlier discussion combined with findings from a substantial body of past research suggests a strong linkage between various types of innovative activities and company performance (e.g., Han et al., 1998; Hurley et al., 1998; Miller, 1983; Miller & Friesen, 1978; Zaltman et al., 1973). In addition, much of this research has suggested that innovativeness is particularly important when the industrial firm is faced with substantial market turbulence and other types of environmental disturbances. That is, in an environment where product preferences are constantly changing, buyers are continuously seeking new products, and new buyers are entering on a regular basis, it will be important for industrial firms to engage in innovative activities in order to achieve superior performance. Thus, we hypothesize that, H5: The effect of innovativeness on business performance is greater under high market turbulence than under low market turbulence. In turbulent environments, Slater and Narver (1994a) have argued that the long-term effects of having a market orientation are cost effective and generally beneficial. Jaworski and Kohli (1993) suggest that the relationship between a market orientation and performance appears to hold across a variety of contexts, emphasizing the role of market orientation in supporting performance regardless of the firms external circumstances. It is not likely cost effective to vary the level of market orientation with changing market conditions, and it is doubtful that most firms will be skillful

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enough to do so successfully. Therefore, we believe that the management at industrial firms will encourage a relatively constant level of market orientation, regardless of the state of the firms external environment. This notion is tested in the next hypothesis, H6: The effect of market orientation on innovativeness will not differ significantly despite differences in the degree of market turbulence in the firms external environment. Learning orientation also has been conceptualized as a critical culture-level variable that emphasizes ongoing development of insights and general knowledge. As with market orientation, the top management should want to permanently establish a learning orientation across the entire firm in order to enjoy the various benefits that it confers. Specifically, we anticipate that it will be important for the industrial firm to maintain a constant level of learning orientation, regardless of the state of the external market environment. Consequently, we anticipate that H7: The effect of learning orientation on innovativeness will not differ significantly despite differences in the degree of market turbulence in the external environment. Entrepreneurial orientation is viewed as an incremental process within the firm through which innovation results. As with a market orientation and a learning orientation, once developed, managers are likely to maintain their entrepreneurial orientation and the linkage between this construct and performance is likely to hold across a variety of contexts. That is, among industrial firms that are strongly entrepreneurial and to the extent it exists at the culture level of the firm, it is unlikely that managers will seek to vary the level of entrepreneurial orientation to suit changing market conditions. These thoughts lead to our final hypothesis: H8: The effect of entrepreneurial orientation on innovativeness will not differ significantly despite differences in the degree of market turbulence in the external environment.

3. Method The sampling frame of 1000 firms with sales above US$100 million per year and an identifiable marketing manager was drawn from Dun & Bradstreet Information Services. It is the marketing manager who typically must establish the industrial firms market orientation (e.g., Narver, Slater, & Tietje, 1998). Strategic business units (SBUs) were targeted to develop a comprehensive understanding of a broad range of culture and strategy elements and their effect on performance. The marketing executives were used as key informants in assessing all the constructs described above, an approach applied in numerous studies (e.g., Gatignon & Xuereb, 1997; Moorman & Miner, 1997; Han et al., 1998) and follows Huber and Powers

(1985) guidelines on how to get quality data from single informants. Following the completion of a pretest with eight academics and seven marketing executives and a pilot study of 36 marketing executives to assess the quality of the research design, 1000 questionnaires were mailed in three separate waves to the marketing executives along with preaddressed postage-paid envelopes and a cover letter explaining the purpose of the study and the confidentiality of responses. This procedure resulted in the return of 181 completed, usable questionnaires; a response rate of just over 19% after accounting for undeliverable surveys. Two tests were used to assess nonresponse bias. First, the extrapolation procedure of Armstrong and Overton (1977) was used to compare early and late responding firms on the mean values of study variables in Fig. 1. Second, we compared groupings of respondents with nonrespondents on the average size of the organizations, sales volume, and age based on the data provided in the Duns Market Identifiers File. Neither the subjective Armstrong and Overton (1977) procedure nor the objective analysis using the data in the Duns Market Identifiers File revealed any results that would suggest a nonresponse bias. Following data collection, the measures were subjected to a purification process involving a series of reliability and validity assessments in two confirmatory factor analysis (CFA) models (exogenous and endogenous factors) using LISREL (Jo reskog & So rbom, 1997, 2000), with the correlation matrices as input into the analyses. Because of sample size restrictions and to allow for a direct test of the dimensionality of the constructs, this approach was selected instead of a single CFA model to fit the constraints of a fiveto-one ratio of sample size to parameter estimates (Bentler & Cho, 1988). Table 1 summarizes the means, standard deviations, average variances extracted, construct reliabilities, loadings, fit indices, intercorrelations, and shared variances for the purified measures. All purified measures were seven-point Likert scales anchored by strongly disagree and strongly agree. To measure market orientation, we used the scale of Narver and Slater (1990) that, following purification, consisted of 15 items and assessed the subfactors of competitor orientation, customer orientation, and interfunctional coordination. Innovativeness was quantified using the five-item scale from Hurley et al. (1998). The scale for entrepreneurial orientation used five items adapted from Naman and Slevin (1993), Covin and Slevin (1989), and originally devised by Khandwalla (1977). Learning orientation was measured using four items derived from Baker and Sinkula (1999), Hult and Thomas (1998), and Sinkula et al. (1997). The scale for performance assessed profitability, growth in sales, and market share, as well as general performance and, following purification, consisted of five items. Lastly, market turbulence was measured using a five-item scale derived from Jaworski and Kohli (1993) and based on the earlier work of Miller (1987).

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Table 1 Summary statistics of the measurement analysis (n = 181)a Model/variable Mean S.D. Variance extracted (%) 52.50 59.67 59.20 60.80 57.40 60.50 53.00 38.00 Reliability Coefficients v2 df D2 RNI CFI RMSR RMSEA NCP ECVI

Exogenous CO CU INT IN ENT LO Endogenous PERF MT

750 5.36 5.49 4.64 5.25 4.43 5.64 5.22 4.36 1.10 1.07 1.15 1.15 1.27 1.02 1.22 1.16 .82 .90 .88 .88 .88 .85 .84 .74 .68 .78 .63 .82 .63 .87 .62 .86 .61 .87 .50 .92 115 .46 .90 .46 .80

362

.89

.89

.89

.06

.08

388

4.98

50

.90

.90

.90

.07

.08

65

.95

Intercorrelations and shared variances of measures (n = 181)b Variable 1. 2. 3. 4. 5. 6. 7. 8. Competitor orientation Customer orientation Interfunctional coordination Innovativeness Entrepreneurial orientation Learning orientation Performance Market turbulence
a

1 .64 .68 .49 .49 .50 .38 .17

2 .41 .72 .60 .55 .57 .50 .14

3 .46 .52 .55 .56 .56 .46 .24

4 .24 .36 .30 .61 .51 .47 .28

5 .24 .30 .31 .37 .45 .47 .41

6 .25 .32 .31 .26 .20 .30 .20

7 .14 .25 .21 .22 .22 .09 .11

8 .03 .02 .06 .08 .17 .04 .01

Exogenous (firm culture model) = competitor orientation (CO), customer orientation (CU), interfunctional coordination (INT), innovativeness (IN), entrepreneurial orientation (ENT), and learning orientation (LO). Endogenous = performance (PERF) and market turbulence (MT). All coefficients were significant at the P < .01 level. b The correlations are included in the lower triangle of the matrix. For the multiattribute variables, all correlations are significant at the P < .05 level except the relationship between market turbulence and performance. Shared variances are included in the upper triangle of the matrix.

The model fits were evaluated using the DELTA2 index (Bollen, 1989), the relative noncentrality index (RNI) (McDonald & Marsh, 1990), and the comparative fit index (CFI) (Jo reskog & So rbom, 1997), which have been shown to be the most stable fit indices by Gerbing and Anderson (1992). The root mean square residual index (RMSR), root mean square error of approximation (RMSEA), noncentrality parameter (NCP), and expected cross-validation index (ECVI) are included for comparison purposes. The specific items were evaluated based on the items error variance, modification index, and residual covariation (Anderson & Gerbing, 1988; Fornell & Larker, 1981; Jo reskog et al., 2000). Construct reliability was calculated using the procedures suggested by Fornell and Larcker (1981), including examining the coefficients and their associated t values and assessing the average variance extracted for each construct (cf. Bagozzi & Yi, 1988; Fornell & Larker, 1981). Discriminant validity was assessed in a two-step process. An initial level of discriminant validity was established by calculating the shared variances between each pair of constructs and verifying that it was lower than the average variance extracted for the individual constructs (Fornell & Larker, 1981). Using these stringent criteria, discriminant validity was found to achieve a satisfactory level among all measures in the study (Table 1). Since two measurement models were used to assess the scale properties (i.e., exogenous and endogenous models),

we used a procedure recommended by Anderson (1987) and Bagozzi and Phillips (1982) to further assess discriminant validity between the study measures. Pairs of constructs involving all possible scale combinations were assessed in a series of two-factor CFA models using LISREL. Each model was run twice, once constraining the phi (/) coefficient to unity and once freeing this parameter. A chi-square (v2) difference test was then performed on the nested models to assess if the v2 values were significantly lower for the unconstrained models (Anderson & Gerbing, 2 1982). The critical value (Dv1 >3.84) was exceeded in all cases. The pairwise results (where U is the unconstrained and C is the constrained estimates) range from a low 2 D v1 = 38.82 for the combination of the competitor orientation/interxfunctional coordination scales (Udf = 26 = 83.67, 2 C | df = 27 = 122.49) to a high Dv1 = 327.71 for the combination of the learning orientation/business performance scales (Udf = 26 = 78.09, C | df = 27 = 405.80). Based on the overall measurement analysis, the scales used in this study were viewed as reliable and valid.

4. Analysis and results All hypotheses were tested via structural equations modeling (SEM) using LISREL. The three dimensions of market orientation (competitor orientation, customer orientation,

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and interfunctional coordination; Narver & Slater, 1990) were individually summated and used as indicators of the latent market orientation construct. Despite some shortcomings (cf. Oczkowski & Farrell, 1998), summated scales have been used in numerous past studies. The individual items were used for each of the other latent constructs in the study (i.e., learning orientation, innovativeness, entrepreneurial orientation, and performance). A SEM model was developed and tested in the analyses for each of H1 H4 and H5 H8. The first model provided in a good fit to the data (v2 = 360.79, df = 10, D2=.94, RNI=.94, CFI=.94, RMSR=.075, RMSEA=.19, NCP = 19.96, ECVI = 0.27), and all hypothesized relationships except for H5 and H6 were supported. Specifically, with regard to H1, innovativeness is positively related to business performance (.45, t value = 6.70, P < .01). Concerning H2, market orientation is positively related to innovativeness (.29, t value = 3.73, P < .01). In support of H3, learning orientation is positively related to innovativeness (.18, t value = 2.60, P < .01). Moreover, entrepreneurial orientation is positively related to innovativeness, supporting H4 (.36, t value = 5.38, P < .01). Next, in examining the moderating relationships posited in H5 H8, the sample was split at the median value of market turbulence (median = 4.40, S.D. = 1.16) into two groups representing low (n = 86, mean = 3.39, S.D. = 0.66) and high (n = 80, mean = 5.25, S.D. = 0.73) market turbulence. A second, two-group model was estimated in LISREL and resulted in a good fit to the data (v2 = 323.67, df = 20, D2=.94, RNI=.94, CFI=.94, RMSR=.08, RMSEA=.12, NCP = 19.59, ECVI=.44). In evaluating the results of the model tests (Fig. 1) in the low and high market turbulence groups, findings revealed that the effect of innovativeness on business performance was not significantly different ( P < .05) across the these groups, suggesting a lack of support for H5. Moreover, market orientation was found to be significantly related to innovativeness in the high market turbulence group (.46, t

value = 4.11, P < .01) but not in the low market turbulence group (.11, t value = 1.02), implying a lack of support for H6. On the other hand, the effect of learning orientation on innovativeness did not significantly differ across the two groups (.21, t value = 2.08, P < .05 for the high turbulence group and .20, t value = 2.13, P < .05 for the low turbulence group), supporting H7. Moreover, entrepreneurial orientation had a significant effect on innovativeness in both the high turbulence (.20, t value = 2.11, P < .05) and low turbulence groups (.50, t value = 5.31, P < .01), suggesting support for H8. Lastly, to provide further understanding of the relationships among the constructs, in Fig. 2 we report on the total (standardized) effects of all the antecedent constructs on business performance. The strongest overall drivers of performance, as portrayed here, are market orientation, entrepreneurial orientation, and innovativeness. This implies that innovativeness partially mediates the relationship between market orientation and performance and between entrepreneurial orientation and performance. On the other hand, the direct effect of learning orientation on performance in Fig. 2 is insignificant, suggesting that learning orientation must be mediated by some other construct, such as innovativeness, in order to have an effect on business performance.

5. Discussion and implications Our study addresses the impact of innovativeness on performance and key antecedents to innovativeness in a comprehensive, empirically verified model. We thereby fill a significant gap in understanding innovativeness, the nature of relationships between innovativeness and key variables that drive it, and the effect of innovativeness on organizational performance. We also provide an analysis of the influence of low versus high market turbulence on the constructs included in the main model. The results provide an initial benchmark of organizational culture and strategy

Fig. 2. Total (standardized) effects on business performance. All coefficients are standardized. Coefficients greater than .17 are significant at P < .05.

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attributes apparent in conjunction with certain contingencies in an organizations operating environment. Several contributions to various research streams are noteworthy. First, our findings highlight the importance of a more integrated and compositional approach to the study of the effect of innovativeness and antecedent orientations on business performance. This approach may be more fruitful and realistic than previous approaches of examining bivariate relationships between each of the constructs separately. Next, empirical findings confirm innovativeness as an important determinant of business performance, regardless of the market turbulence in which the firm operates. This implies that innovative activities are generally important to the success of the industrial firm. Accordingly, managers are advised to improve the innovativeness of their businesses in their efforts to attain superior business performance. That is, irrespective of the level of market turbulence facing the firm, the management should seek to be innovative and maintain a continuous state of innovativeness. These results, however, should be interpreted within the scope of this study and the measures used. As a further contribution, the results imply that innovativeness at least partially mediates the respective relationships among market orientation, learning orientation, entrepreneurial orientation, and business performance. Indeed, the findings indicated in Fig. 2 suggest that learning orientation has no significant direct effect on performance. In general, the effectiveness of market, learning, and entrepreneurial orientations appears to operate at least partially via the medium of innovativeness. These findings further underscore the role of innovativeness in organizational performance. Moreover, to the extent innovativeness is enhanced through the presence of the antecedent orientations highlighted here, firms should be able to create ever superior products, an outcome like to increase market shares and other performance outcomes, particularly when compared to producers with less developed innovative practices. Innovativeness is also likely to be useful for allowing the firm to preempt competitors with new or improved products, diversify product lines, and generally expand the firms scope of activities. All of these outcomes can help contribute to achieving sustainable competitive advantage. In general, evidence from this study underscores the importance of managerial emphasis on the creation of an internal business environment conducive to innovative activities. Specifically, market orientation was found to have a significant and positive effect on innovativeness. In the direct effects model (Fig. 2), market orientation appears to be the most important overall determinant of business performance. Moreover, market orientation appears to strongly influence innovativeness under high market turbulence but not under low market turbulence. While we have argued that market orientation is enduring and rooted in the firms basic culture, the finding suggests that there may be occasions when managers do attempt to adjust the construct in light of evolving environmental conditions. That is,

having a market orientation appears to be critical during times of high market turbulence when events, such as rapidly changing buyer preferences, wide-ranging needs and wants, ongoing buyer entry and exit from the marketplace, and constant emphasis on offering new products, oblige the management to draw on organizational resources in order to sustain innovativeness. Under high market turbulence, managers might well leverage their customer and competitor orientations, as well as the interfunctional coordination aspects of market orientation, in order to support the development of new processes, products, or ideas in the organization. Given that market orientation helps managers to be more connected to the business environment, such an orientation appears to play a role for allowing the industrial firm to devise innovative solutions to business problems. Having a market orientation may be more important when market composition and preferences are changing rapidly because such conditions may force the firm to modify its products and services more often than when it operates in a stable market. Our results also indicate that learning orientation has a significant antecedent effect on innovativeness. Accordingly, firms may leverage the advantages associated with a learning orientation to strengthen their innovative capabilities. Findings generally suggest that when members of an organization acquire knowledge via the learning process, that organization acquires the ability to be innovative. The finding is consistent with the work of Cohen and Levinthal (1990), which indicates that the absorptive capacity of the firm is linked to the absorptive capacity of the people in the firm. More remarkably, as portrayed in the direct effects model (Fig. 2), the direct effect of learning orientation in the presence of the other antecedents investigated here is insignificant. This implies that while innovativeness is an important direct driver of performance, it also appears to be a necessary mediator of the link between learning orientation and performance. That is, without a strong innovative capability, learning orientation may provide little or no value to achieving the performance objectives of the industrial firm. Innovativeness supported by a market orientation and a learning orientation in particular is likely to be more effective, generating additional competitive advantages because of the benefits that these antecedent constructs provide. That is, firms that are market and learning oriented will tend to be more in touch with buyers and understand their markets better, advantages that in turn should translate into innovative activities that give rise to superior products, processes, and administrative approaches. In our explication, we have conceptualized entrepreneurial orientation in terms of proactive and risky acts that organizations undertake to exploit opportunities. In past research, entrepreneurial orientation has been viewed as important for achieving superior performance under high market turbulence (e.g., Lumpkin & Dess, 1996). While our findings do not contradict this view, they do suggest that entrepreneurial orientation plays a key role in the develop-

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ment and maintenance of innovativeness, regardless of the level of market turbulence. The results suggest that entrepreneurial orientation is positively related to innovativeness in the overall analysis and that the effect of entrepreneurial orientation on innovativeness is relatively invariant with different levels of market turbulence. This underscores that entrepreneurial orientation is likely to be an embedded culture-level construct. Overall, the findings imply that entrepreneurial orientation is an important driver of firm innovativeness. To the extent that innovativeness is critical for organizational success, entrepreneurship appears to be an important orientation for managers to foster. While market orientation and learning orientation may help managers to devise superior products, processes, and ideas, it is likely that entrepreneurial orientation provides the stimulus for driving such activities. This is because entrepreneurial orientation embodies the qualities of proactiveness, aggressiveness, and initiative that can propel managers into action on various innovation projects. Accordingly, entrepreneurial orientation might be regarded as the spark that ignites the firm into innovative action. In conclusion, our findings point to several critical factors in the business performance of industrial firms. In the aggregate, little is known about the interrelationships among the integrative elements of market orientation, learning orientation, and entrepreneurial orientation, their effect on innovativeness, and the subsequent effect of innovativeness on business performance. Yet, the evidence introduced here implies that such interrelationships serve to provide sustained advantage to organizations and are therefore important to understand. Innovativeness, in particular, appears to be a key mediator in the web of relationships among the constructs. Looking to the future, the turbulence that characterizes many industries is likely to continue. Under such conditions, organizations are advised to invest in developed their market, learning, and entrepreneurial orientations. Additionally, the management should plan and implement innovative activities within the framework of these antecedent constructs. A central message from the evidence provided is that possession of a strong learning orientation in the absence of organizational innovativeness is likely to be substantially less effective for allowing the firm to achieve its performance goals. If innovativeness is important for organizational performance, the task for the management is to design and implement an organizational culture that embodies market, learning, and entrepreneurial orientations. Decisions regarding the basic culture of the firm are typically taken at the highest levels. On the other hand, decisions regarding innovativeness tend to be taken at more strategic levels within divisions involved with marketing and operations, as well as research and development. Accordingly, to enhance business performance, it is imperative that an organizational structure be devised in which these often discrete areas be integrated within a coordinated framework to ensure that innovative activities reap the benefits that market orienta-

tion, learning orientation, and entrepreneurial orientation can afford. We hope that our findings lead to improved managerial practices and future research that delves more deeply into these constructs and their interrelationships in a variety of settings among industrial firms.

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