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Customer orientation and future

market focus in NSD

Customer
orientation

Bas Hillebrand
Institute for Management Research,
Radboud University Nijmegen, Nijmegen, The Netherlands

Ron G.M. Kemp

Netherlands Competition Authority, The Hague, The Netherlands and
Management Studies Group, Wageningen University, Wageningen,
The Netherlands, and

67
Received 8 September 2009
Revised 16 December 2009,
16 February 2010
Accepted 19 February 2010

Edwin J. Nijssen
School of Industrial Engineering,
Eindhoven University of Technology, Eindhoven, The Netherlands
Abstract
Purpose The aim of this paper is to investigate the differential effect of customer orientation and
future market focus on organization inertia and firm innovativeness of small and medium-sized
enterprises (SMEs) in the business-to-business service industry. It is motivated by the observation that
small and medium-sized service firms proxy to customers may lead to incremental service improvement
in response to customer requests for customization and improvement, but may derail programs for more
innovative services.
Design/methodology/approach A survey among 217 small and medium-sized service firms is
used to test the hypotheses developed. The data are analyzed using a path model and Lisrel software.
Findings The results show that customer orientation breeds inertia, whereas future market focus
increases the willingness to cannibalize existing technology, service portfolio and routines, which in
turn stimulates firm innovativeness.
Research limitations/implications The results suggest that it is important to distinguish
between customer orientation and future market focus, and that particularly small and medium-sized
firms may require both orientations for sustained firm performance. Future research may be directed at
developing tools for monitoring against inertia and helping managers to decide more objectively when
to listen to their current customers and when not to.
Practical implications The results suggest managers should complement customer orientation
with activities and management attention geared towards developing future market vision.
Originality/value This study is one of the first to simultaneously investigate the role of customer
orientation and future market focus for small and medium-sized firms in the service industry.
Keywords Customer orientation, Innovation, Small to medium-sized enterprises
Paper type Research paper

1. Introduction
The marketing literature suggests that being close to the customer can benefit a firms
innovation and competitive advantage (Adams et al., 1998). Firms that are closer to
their customers are in an excellent position to receive feedback and learn more from
The authors thank Patrick Vermeulen for his contribution to earlier versions of this paper and
Jurriaan Nijholt for comments on a previous version.

Journal of Service Management

Vol. 22 No. 1, 2011
pp. 67-84
q Emerald Group Publishing Limited
1757-5818
DOI 10.1108/09564231111106929

JOSM
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these customers, enabling them to react more quickly and more efficiently to customers
changing wants and needs. These firms may even engage in close cooperation or
co-creation for new product or service development with key customers.
However, recent studies draw attention to the limitations of close customer ties.
For instance, Atuahene-Gima (2005) shows that customer orientation benefits incremental
innovation but negatively influences firms radical innovation. Christensen (1997) shows
that firms that are very close to and dependent on current customers may focus too much
on fulfilling these particular customers needs and may, as a result, miss catching new
trends and technologies. Bonner and Walker (2004) also point to a possible dark side
(Anderson and Jap, 2005) of close customer relations, showing that embedded customer
relationships can help incremental but hinder radical innovation.
In response, some scholars suggest that firms should focus on current customers (here
labeled as customer orientation), but also keep an eye on future customer and market
developments, that is on emerging needs and wants in the marketplace (future market
focus). For example, Slater and Narver (1998 p. 1002) promote a focus on latent customer
needs and future markets to escape the tyranny of the served market. Firms with a
future market focus are less reluctant to leave the past behind and develop and introduce
innovative new products or services than their less future-oriented counterparts.
The aim of this study is to investigate the differential effects of customer orientation and
future market focus, through a firms inertial forces, on firm innovativeness in the context
of business-to-business (B2B) small and medium-sized enterprises (SMEs) involved in new
service development. Inertia concerns a firms reluctance to change (Leonard-Barton,
1995). Following Chandy and Tellis (1998) and Nijssen et al. (2005), we conceptualize it as
the firms lack of willingness to cannibalize sales, routines and prior investments, which
has been shown to be an important determinant of firm innovativeness (Chandy and Tellis,
1998). Firm innovativeness refers to the degree to which a firm develops and introduces
innovative new products and services on a regular basis. It reflects the degree to which,
compared to other industry members, a firm turns out products and services that are
radically different and that depart from preexisting product and service concepts.
This study contributes to the literature in three ways. First, this study adds to a debate
in the literature on being market-led or driving the market (Jaworski et al., 2000; Slater
and Narver, 1998). This debate suggests that paying attention to current customers may
make a firm market-led. Customer orientation may curtail a firms innovativeness and
make its new products and services less effective from a strategic point of view
(Christensen, 1997). Future market focus may counterbalance this. However, this debate
has been largely conceptual. This study empirically investigates the differential effects of
customer orientation and future market focus, leading to a more integrated view of the
mechanisms at work, and a better understanding of these competing concepts.
Second, by focusing on service innovations, this study adds to the still limited
research strand of service innovation literature. Although the service sector
is responsible for more than two-third of a countrys gross national product in most
developed countries (CIA, 2009), academic attention for service innovations is limited
( Johne and Storey, 1998; Stevens and Dimitriadis, 2005). The new service development
literature has mainly focused on the organization of the development process ( Johne and
Storey, 1998; de Jong and Vermeulen, 2003; Stevens and Dimitriadis, 2005; Alam, 2006).
It has allocated less attention to radical service innovations (Droege et al., 2009)
and the effect of a firms orientation on service innovation (see, for example,

Atuahene-Gima (1996b) and Agarwal et al. (2003) for notable exceptions). We also focus
on service firms because more than product firms they rely on customer co-creation for
developing new products/services (Shostack, 1987; Zeithaml et al., 1985). This close
cooperation will benefit service quality but may bias service development towards
current customers (Cooper and de Brentani, 1991; Storey and Easingwood, 1996).
Third, we add to the literature of customer and market orientation of SMEs. Research in
this area has focused on antecedents of adoption (Blankson and Cheng, 2005), the effect
of market orientation on SME performance (Pelham, 2000; Kara et al., 2005) and some
management process-related issues (Golann, 2006), but the SME literature has not
investigated the differentiating effects of customer orientation and future market focus,
and its underlying mechanisms. Our study may be especially important for SMEs because
they have a bias towards current customers. Many chief executive officers (CEOs) of SMEs
report that they face a constant struggle with dominant customers to maintain control
over the direction of innovation (Fischer and Reuber, 2004, p. 691). Owing to the dilemma
of keeping current customers happy and ensuring continued relations on the one hand,
and developing a viable innovation portfolio to address evolving and emerging needs of
new customer groups on the other hand, SMEs would benefit greatly from a good
understanding of the role of customer orientation in combination with future market focus.
The remainder of this paper is structured as follows. Section 2 elaborates on the
distinction between customer orientation and future market focus. Section 3 introduces
the conceptual model and the hypotheses concerning the effects of customer orientation
and future market focus on inertia and firm innovativeness. To empirically test the
model, the study uses a Dutch sample of 217 small and medium-sized B2B service firms
involved in service innovation which is described in Section 4. Section 5 outlines the
results. The paper closes with a discussion of the findings, the management implications
and suggestions for further research.
2. Customer orientation vs future market focus
The importance of a customer orientation for firm survival is well acknowledged in the
marketing literature. It has been repeatedly argued that firms should sufficiently
understand their target customers to be able to create superior value for them (Narver
and Slater, 1990). A customer orientation is at the heart of successful programs that
enable firms to constantly improve their offerings to customers (Lukas and Maignan,
1996). It benefits a firms new product or service development, helps to increase
perceived product/service quality and ultimately raises customer loyalty.
However, some authors have warned about potential negative effects of a strong
customer orientation. Relying too much on existing market definition and overt
customer attention, firms may become subject to the tyranny of the served market
(Slater and Narver, 1998). Being very close to the currently served market biases
perceptions and enhances management beliefs that can prevent responding effectively
to emerging trends and new technologies (Tripsas, 1997). Close involvement with
current customers instills existing beliefs about the market and leads to reduced
management attention and funds for new emerging trends and technologies (Bonner and
Walker, 2004; Christensen, 1997). Consequently, it results in a shift towards improved
solutions rather than real, more radical innovation that may create new markets.
That is, it results in an unbalanced focus on keeping the status quo as compared to
proactively shaping customer and/or markets (Jaworski et al., 2000, p. 45).

Customer
orientation

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Therefore, it has been argued that a firm also needs to have attention for emerging
needs and future market developments (Narver et al., 2004; Atuahene-Gima et al., 2005;
Ketchen et al., 2007), i.e. a future market focus. Firms with a future market focus understand
that current customers are often incapable of articulating their latent (future) needs and
are not a good source for identifying potentially new customer segments. A focus on lead
users and new customer segments rather than current customers is more likely to result in
ideas for truly innovative new products and services (Roy et al., 2004; von Hippel, 1988).
The distinction between customer orientation and future market focus is closely
related to the debate on being market- (or customer)-driven vs driving markets
(Jaworski et al., 2000; Slater and Narver, 1998). Some authors argue that firms should go
beyond adhering to current customer needs and adapting their offerings to existing
customer preferences. Rather, they should also include a sensitivity to future market
trends (Narver et al., 2004; Atuahene-Gima et al., 2005; Ketchen et al., 2007). So, they should
not only be customer oriented but also have a future market focus (Ketchen et al., 2007).
Customer orientation and future market focus are different but related constructs.
We define customer orientation as the degree to which a firm believes it should try to
understand and satisfy current customers needs and wants. Strong customer
orientation will breed inertia because organizational decisions that run against the
interest of the current customer group may be prone to criticism and resistance from
organizational members. As a result, innovations especially competence-destroying
ones may lack initial legitimacy because they use up resources otherwise allocated to
the current customers cause (Christensen, 1997; Hill and Rothaermel, 2003).
Future market focus is defined as a firms predisposition of openness to new market
trends and business models. It refers to a more elaborate search mode for new business
opportunities beyond the scope of that of current products, technologies and customers.
Consequently, future market focus prevents a firm from becoming myopic and inert and
stimulates it to move forward (Chandy and Tellis, 1998). Future market focus helps a
firm to put the requests from current customers into perspective by directing attention
towards new trends in the marketplace at large.
The previous discussion suggests that inertia may be a pivotal construct to
understand the differential effects of customer orientation and future market focus on
firm innovativeness. Whereas a strong customer orientation is expected to increase
inertia by endorsing existing customer beliefs, future market focus will decrease it by
introducing influx from customers from, for instance, emerging market segments and
sensitivity to new technological trends. Chandy and Tellis (1998) conceptualize this
inertia as reduction in a firms willingness to cannibalize its product or service portfolio,
routines and prior investments in resources. We use willingness to cannibalize as a
central construct in our model, which we develop in Section 3.
3. Model and hypotheses
We first discuss a baseline model of innovation and then add customer orientation and
future market focus as the main constructs of interest for this study. Figure 1 shows
the model.
3.1 Baseline model
The extant innovation literature suggests two mechanisms that influence firm
innovativeness and reliably relate to capabilities of exploiting current and exploring new

technologies (Oliver, 1997; Drejer, 2004). The first mechanism involves service research
and development (R&D) strength and refers to the R&D capital of the service firm, i.e. the
level to which the service firm has resources and capacity for new service technology
development compared to its competitors (Kleinknecht, 2000; Drew, 1995; Li and
Calantone, 1998), and draws on the research-based view. Strong R&D capabilities for
creating new service technology and services development will positively affect the level
and number of new services a firm introduces in the marketplace, and help build a
sustainable competitive position. Thomke (2003) confirms that innovative service firms
heavily invest in service R&D.
The second mechanism draws from path dependency theory to emphasize a social
mechanism rooted in organizational inertia (Leonard-Barton, 1995). Specifically, this study
conceptualizes inertia as a lack of willingness to cannibalize, which refers to the extent to
which a firm is prepared to reduce the actual or potential value of its investments (Chandy
and Tellis, 1998). Willingness to cannibalize involves three separate dimensions of inertia
referring to a reluctance to cannibalize sales of current services, current organizational
routines and prior investments (Nijssen et al., 2005). Nijssen et al. (2005) point out that this
differentiation is particularly relevant when studying service innovation because service
innovations inherently involve changes to the service delivery process and routines that
are embedded in the organizational structure and social relationships. Biasing attention
and decision making in favor of current activities, this social context generally acts as an
important inhibiting factor to innovation (Leonard-Barton, 1992). In addition, many service
innovations require major investments in service delivery technologies (e.g. the
IT-infrastructure) that make previous investments in service delivery technologies
obsolete (Tatikonda and Zeithaml, 2001).
Empirical studies provide substantial support across multiple industries for both
mechanisms (Chandy and Tellis, 1998; Li and Calantone, 1998). Consequently, we do not
formulate hypotheses for this central pathway. Reconfirming the relationships of the
baseline model will provide a foundation for researching the effects of the core variables
of this study.

Customer
orientation

71

3.2 Customer orientations role

In service firms in particular, a customer-oriented culture is key for creating superior
value and developing new services (Edvardsson and Olsson, 1996). Using current
Baseline model
H1a
Customer
orientation

H1b
H1c

Firm
innovativeness

Willingness to
cannibalize
routines

H2a+
Future market
focus

Willingness to
cannibalize
sales

H2b+
H2c+

Willingness to
cannibalize
investments

Service R&D
strength

Figure 1.
Conceptual model of the
effects of customer
orientation and future
market focus on firm
innovativeness

JOSM
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72

customer satisfaction as a central tenet or organizational value, service firms tend to be

responsive to customers requests for improved service quality and delivery (Cooper and
de Brentani, 1991; Storey and Easingwood, 1996). Afraid to alienate current customers,
firms focusing on their current customers tend to cling to services in their current
portfolio rather than introducing new services. Especially, SMEs experience the
pressure to not jeopardize current sales of dominant customers due to the strong ripple
effects it may have on firm profitability. Firms with a strong customer orientation thus
will be most concerned about negative effects on current sales and hence may be less
inclined to change their service portfolio. Thus:
H1a. Customer orientation negatively influences willingness to cannibalize current
sales.
Customer orientation also negatively influences the firms willingness to cannibalize
current routines of the organization. While customer-oriented service firms will aim to
increase service quality to increase the satisfaction levels of current customers
(Atuahene-Gima, 1996a), such activities typically involve incremental changes to
existing routines rather than innovative changes of the firms value generating processes
(Slater and Narver, 1998). This constant process of refining and fine-tuning of current
routines may bias the organizations mental maps and cognitive schemes (Danneels,
2003). It results in a path-dependent process of increasingly becoming used to thinking
and acting in line with an existing way of working, making the firm rigid for more
fundamental responses to changes in the marketplace (Danneels, 2003). Consequently,
we expect a decrease of willingness to cannibalize existing routines with increasing
attention for current customers (Tripsas and Gavetti, 2000; Leonard-Barton, 1992). Thus:
H1b. Customer orientation negatively influences willingness to cannibalize existing
routines.
Firms that have strong links with current customers run the danger of becoming
financially dependent on these customers, reducing their strategic flexibility
(Christensen, 1997). It will make them reluctant to burn the bridges that brought the
firm across, i.e. to make previous technological investments obsolete and adopt new
service technologies (Christensen, 1997). As a result, these firms tend to optimize and
improve existing service technologies rather than replace them with new service
technologies that are also able to address emerging needs of the broader market. Hence:
H1c. Customer orientation negatively influences willingness to cannibalize prior
investments.
3.3 Future market focus role
Alert to emerging needs, new customer segments and technological trends in the
marketplace, firms with a future market focus have a proactive rather than reactive stance
to business. Using various tactics (such as hiring futurists and launching low cost
experimental products), firms with a future market focus are able to anticipate the future
and develop a vision of their organization within that future (Brown and Eisenhardt, 1997).
Consistent with this, serious service innovation has been argued to involve envisioning
new services (Johne, 1993) and to require a long-term perspective (Johne, 1999; Avlonitis and
Papastathopoulou, 2000). A future market focus makes firms more aware of market-related
developments and their potential effects on the firm. It broadens the horizons of managers

and alerts them to new technologies, competitors, and customers (Chandy and Tellis,
1998, p. 479). This increased awareness makes firms with a strong future market focus
more willing to cannibalize their current sales, prior investments and existing routines.
First, their focus on future market trends will make them more willing to cannibalize
sales. Aware that new services wax and wane, their marketing department will have a
more dynamic perception of the firms portfolio. Managers who expect obsolescence
[. . .] perceive that continuing with the existing technology will lead to a major loss in
market position (Chandy et al., 2003, p. 4). They consider new services as a necessity to
capture additional, newly developing markets but also to sustain their competitive
positioning. As a result they will be less worried about substitution of current sales by
new activities; they see it as a necessity. Hence:
H2a. Future market focus positively influences willingness to cannibalize current
sales.
Second, top management attention of firms with a future market focus will be more
long-term oriented than that of their less future focused counterparts. Such firms
recognize the need to adjust existing strategies to changes in the market environment
(Geletkanycz, 1997). In the process, they will also be prepared to make changes to
existing routines, for example, by monitoring their capabilities and evaluating them on
their relevance to overcome rigidity (Schreyogg and Kliesch-Eberl, 2007). It reflects the
firms recognition that existing routines have become obsolete and need to be replaced:
H2b. Future market focus positively influences willingness to cannibalize existing
routines.
Third, more focused on making explicit estimations of future returns, firms with a future
market focus are less vulnerable to the sunk cost fallacy (Tan and Yates, 1995). The sunk
cost fallacy refers to the tendency of people to hang on to investments made in the past,
irrespective of the value of these investments for the future. Making explicit estimations
of future returns helps firms to forget about previous investments and focus on the
investments that need to be made for future activities. They have venturing capabilities
typically associated with entrepreneurial firms (Ardichvili et al., 2003). Hence:
H2c. Future market focus positively influences willingness to cannibalize prior
investments.
4. Method
4.1 Sample
The model was tested using cross-sectional data, drawing the respondents from a panel
of a semi-governmental Dutch research agency. The panel is representative for SMEs in
The Netherlands. The research agency randomly invites SMEs to participate in the
panel and as soon as firms drop out of the panel new SMEs are requested to join the
panel, thus ensuring that the panel remains representative at all times.
For this study all B2B service firms in the panel were approached. We asked them
whether their firm had developed and launched at least one new service in the past
three years and, if so, invited them to participate in our research. Recent innovations that
these firms had developed included, for instance, innovative new retail concepts,
electronic financial services and digital property evaluations.

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Respondents were general managers. In SMEs the general manager often is also
(partly) owner and typically has a good overview of all aspects of the firm, including the
innovation processes. A pretest of 60 companies (not included in the final sample)
showed that respondents had no problem in answering the questions and items,
suggesting that our choice to use a survey was appropriate.
Of the firms engaged in new service development 282 firms cooperated (68 per cent
response rate). After deleting cases with missing values (in one or more of the constructs)
a final, net sample of 217 service organizations was obtained. Table I provides several
characteristics of the sample. In accordance with the panel-structure, five service
industries dominated the sample, i.e. trade/repair, financial services, rental companies,
transportation and hotel/catering. Further, 90 per cent of the responding firms
has , 100 employees, confirming that the sample indeed exists of SMEs.
4.2 Measurements
The questions pertaining to this study were integrated in a larger questionnaire put to
the panel in January 2003 and responses were collected using computer aided telephone
interviews. All telephone interviewers were briefed beforehand to increase consistent
execution and prevent influencing the informant. Customary incentives were used to
increase the response rate.
Owing to the phone interview and being part of a larger scale panel research, the
number of items per construct was limited. The measurement of the constructs was
based on existing scales taken from the extant market orientation and innovation
literatures. The Appendix provides the operationalizations of the study constructs and
shows that most items were measured using a five-point Likert scale ranging from
strongly agree to strongly disagree. The measures for the construct of willingness to
cannibalize were borrowed from Nijssen et al. (2005), and used two items for each of the
three dimensions of willingness to cannibalize routines, sales and prior investments,
respectively. The questions for service R&D strength of the company included
two questions regarding how strong the company was in R&D compared to its
competitors and how R&D expenditures compared to the main competitors, and was
based on Li and Calantone (1998). The two-item measures for customer orientation and
future market focus were based on Desphande and Farley (1998) and Chandy and Tellis
(1998), respectively. The measure for firm innovativeness was also based on Chandy and
Tellis (1998). One item tapped firm reputation as a radical service innovator in its
industry; the other addressed the firms level of proactiveness in bringing ground
breaking service innovations to market.

Industry

Table I.
Demographic profile
of sample

Trade and repair

Hotel and catering
Transport
Rental
Financial services
Other services

%
24.0
10.2
16.2
19.2
21.6
9.0

Company age
Years
%
# 10
11 # 25
26 # 50
51 # 75
.75
Unknown

26.3
30.5
15.6
6.6
15.6
5.4

Company size
No. of employees

#9
10 # 49
50 # 99
100 # 150

21.6
31.7
37.1
9.0

Unknown

0.6

4.3 Method of analysis

The data analyses included two principal stages using SPSS and Lisrel. First, the
internal consistency of the constructs was examined based on confirmatory factor
analyses and Cronbachs a. The reliability analysis shows acceptable levels of internal
consistency. The as range between 0.67 for future market focus to 0.85 for firm
innovativeness, indicating acceptable levels of internal consistency (Table II). The
correlation matrix (Table II) shows that correlations are low to moderate with highest
correlation found between R&D strength and firm innovativeness (0.62), indicating that
multicollinearity is not a problem. In the second phase, the data were analyzed using
Lisrel software (version 8.5). The covariance matrix was used as input matrix. The mean
value and the SD of firm innovativeness is 2.9 (on a five points scale) and 1.28,
respectively, suggesting an adequate level of variation.
Company size, measured by the number of employees, was added as a control
variable. Because the data were collected using a single survey instrument we also tested
for common method bias using Harmans one factor test (Podsakoff and Organ, 1986).
An unrotated factor analysis including all of survey items results in eight factors with
the largest single factor accounting for 25.1 per cent of the variance, suggesting that
common method bias is not a serious problem.
5. Results
Table III shows the results of the hypothesized model of firm innovativeness. The overall
fit of the model is satisfactory (x 2 123.84, df 85, p 0.0038). The comparative fit
index (CFI) and non-normed fit index (NNFI), both relative fit indices, are 0.97 and 0.96,
respectively. The absolute indicators of fit root mean-square residual (RMR) and the root
mean square error of approximation (RMSEA) are 0.091 and 0.046 (90 per cent
CI 0.027-0.063), respectively. Together, these results suggest that the proposed model is
an adequate explanation of the observed covariances and variances among the study
constructs. In addition, the proposed relationships explain nontrivial variances. The
variance explained of the different dependent constructs varies between (R 2 0.11) for
willingness to cannibalize investments, to (R 2 0.73) for firm innovativeness.
First, the results show that most of the relationships of the baseline model are
significant (at 5 per cent or more): service R&D strength and willingness to cannibalize,
except for willingness to cannibalize sales, significantly influence firm innovativeness.
Thus, as anticipated, firm innovativeness is the result of both R&D capital and a firms
ability to overcome inertia; a firm that is strong in service R&D (b 0.34) and willing to
cannibalize on routines (b 0.27) and previous investments (b 0.16) is more likely to
develop and introduce innovative new services.
Second, the results show that customer orientation negatively influences willingness
to cannibalize current sales (b 2 0.33) and prior investments (b 2 0.25), which
provides support for H1a and H1c, respectively. No influence of customer orientation
on willingness to cannibalize routines (b 2 0.00, p . 0.1) is found. So, the findings do
not support H1b.
The results show a positive impact of future market focus on all three dimensions of
willingness to cannibalize as anticipated. The influence is smallest for willingness to
cannibalize prior investments (b 0.35), and largest for willingness to cannibalize sales
and routines (b 0.71 and 0.77, respectively). This provides support for H2a-H2c.
It confirms that future market focus helps a service SME to overcome

Customer
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75

Table II.
Correlation matrix and
reliabilities of the study
constructs

2.9
4.0
2.7
2.6
3.3
4.4
3.3

1.28
0.85
1.15
1.32
0.72
0.47
1.08

SD
(0.85)
0.27 * *
0.29 * *
0.34 * *
0.62 * *
0.04
0.46 * *

Firm
innovativeness
(0.73)
0.30 * *
0.09
0.12 *
0.27 * *
0.42 * *

W2c
routines

(0.68)
0.14 *
2 0.12
0.24 * *

W2c
investments

(0.75)
0.04
0.46 * *

Service R&D
strength

(0.72)
0.38 * *

Customer
orientation

(0.67)

Future market
focus

a reliabilities between brackets are on the diagonal; W2c, willingness to cannibalize

(0.72)
0.15 *
0.16 *
2 0.08
0.35 * *

W2c sales

76

Notes: Significance at: *p , 0.05 and * *p , 0.01 (two tailed); cronbachs

Firm innovativeness
W2c routines
W2c sales
W2c investments
Service R&D strength
Customer orientation
Future market focus

Mean

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0.73

2.5 * *

2.5 * *
2.1 *
1.5

3.2 * *

Note: Significance at: *p , 0.05 and * *p , 0.01 (one tailed)

Service R&D strength

0.34
Willingness to cannibalize
Routines
0.27
Investments
0.16
Sales
0.15
Customer orientation
Future market focus
Company size
0.54
R2
Model fit: x2 123.84, df 85 ( p 0.0038)

Independent constructs

Firm
innovativeness
b
t-value

22.5 * *
3.3 * *
21.8 *
20.00
0.77
20.62

0.46

2 0.0
3.1 * *
2 2.3 *

Willingness to
cannibalize routines
b
t-value

0.29
RMR 0.091
RMSEA 0.046 (CI 90% 0.027-0.063)

20.33
0.71
20.42

Willingness to
cannibalize sales
b
t-value

Dependent constructs

NNFI 0.96
CFI 0.97

2 0.25
0.35
2 0.03
0.11

2 2.0 *
2.2 *
2 0.2

Willingness to
cannibalize
investments
b
t-value

Customer
orientation

77

Table III.
Results of the estimated
coefficients for the
drivers of firm
innovativeness in the
context of services

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the inertia to innovate. It helps the SME to remain focused on the market and other
new business opportunities.
Finally, the control variable (firm size) shows that large firms are indeed more
innovative (b 0.54). However, we also note that larger firms experience more inertia
where willingness to cannibalize sales and routines are involved (b 2 0.42 and 2 0.62,
respectively). It confirms that small firms are more agile where innovation is concerned.

78
6. Discussion
6.1 Theoretical implications
Our study is one of the first to investigate and confirm the suggestion made in the
literature ( Jaworski et al., 2000; Ketchen et al., 2007; Slater and Narver, 1998) that
customer orientation and future market focus have differential effects on the
innovativeness of B2B service SMEs. In doing so it provides more insight in the dark side
of customer relationships, which is needed for a better understanding of the role of
customer relationships in the context of SME service innovation.
Several authors have warned that very close customer relationships may hamper the
development and launch of radical new products. It may result in a firm becoming
customer led and unable to reinvent itself (Slater and Narver, 1998). Custome-oriented
firms are more likely to communicate with current customers who have homogeneous
rather than heterogeneous knowledge, which fosters incremental innovation but
decreases radical new service development (Bonner and Walker, 2004). Our results
confirm the suggestions made in the literature (Christensen, 1997) about this negative
role of customer orientation on firm innovativeness, via increased inertia.
However, in contrast to the literature and our expectations, customer orientation does
not have a significant effect on willingness to cannibalize routines. A possible
explanation is that firms with a high customer orientation may be less reluctant to
change their routines when a change in routines does not directly affect the current
customers way of working or interacting with the firm. In such cases changes in the
routines may actually help the firm to accommodate current customers, making them
less reluctant to cannibalize routines than we anticipated. Another difference between
the literature and our results concerns the lack of evidence for a positive effect of
willingness to cannibalize sales on firm innovativeness. This result could be explained
by the fact that service development mainly deals with developing the pre-requisites for
a service, rather than the service itself (Edvardsson and Olsson, 1996). Less associated
with service replacement, willingness to cannibalizing sales from existing services does
not have a clear effect on innovativeness. Instead hardware (investments) and software
(capabilities) may be more important than the fact that radical new services may make
previous services and the resulting sales obsolete. Consistent with this we do find effects
from willingness to cannibalize routines and investments on innovativeness.
Our results also confirm that a proactive stance towards the market is beneficial for
firm innovativeness (Jaworski et al., 2000; Narver et al., 2004; Ketchen et al., 2007;
von Hippel, 1988). The outcomes show a positive effect of future market focus on all three
dimensions of willingness to cannibalize. Thus, it acts as a countervailing power for
reducing a firms inertia, helping a firm to drive the market rather than have the market
(i.e. current customers) drive the firm. This is consistent with Slater and Narvers (1998)
suggestion to keep track of market developments and emerging of latent needs. According
to the attention-based view of the firm (Hambrick and Mason, 1984; Ocasio, 1997)

firm behavior is the result of how firms channel and distribute the attention of their
decision makers. It suggests that top management has an important role in focusing
employee attention on future market developments and discovering and responding to
latent customer needs. For example, Yadav et al. (2007) show that CEOs choice of what to
focus on has significant implications for how firms detect, develop and deploy new
technologies over time. Our results are consistent with this observation.
Finally, we do not interpret our results to suggest that SMEs should forego customer
orientation in favor of a future market focus. While this study shows that customer
orientation may discourage firms to develop innovative services, a strong focus on current
customers may benefit incremental service improvements (Golann, 2006). That is, it may
help to fine-tune services to the demands of the current market, help to serve current
customers better and thus ensure sales. As both radical and incremental new services are
needed for a firm to perform well in the long term, we suggest that firms need a mix of a
focus on current customers as well as on future ones. This advice is in line with recent calls
for a broadening of the market-orientation concept to include future market focus
(Jaworski et al., 2000; Narver et al., 2004; Ketchen et al., 2007). Firms thus face a balancing
act: on the one hand they need to focus on the future in order to develop and introduce new
products and services, but on the other hand their current customers press them to meet
their wishes and adapt existing services rather than developing radical new services. We
believe such a balance is possible and necessary: while customer orientation and future
market focus have opposite effects, they are not mutually exclusive, as is confirmed by the
positive correlation between them (Table II). Yet, such a balance may be difficult to
accomplish, especially for SMEs who face the pressures from dominant customers
(Fischer and Reuber, 2004).
6.2 Management implications
This study suggests that managers planning to improve their organizations abilities to
develop radical innovations should focus not only on serving current customers but also
on building a future market focus, which stimulates the sensitivity to detect and react to
new customers needs and emerging technology trends. It calls for the use of qualitative
market research techniques next to the regularly used large surveys (Matthing et al., 2004).
Using standard questions, large surveys are not suited for picking up new, emerging
trends. Qualitative research or the development of scenarios (Zeithaml et al., 2006) is more
geared to this task. Based on a case study of the development of a new technology-based
service, Kristensson et al. (2008) suggest that co-creation with customers may be another
useful tactic to use. However, consistent with our results, this should include co-creation
with current customers and lead users. The latter will ensure exposure to heterogeneous
knowledge and new, more radical business opportunities (von Hippel, 1988).
6.3 Limitations and future research
Like any study, this research suffers from some limitations, which also provide
opportunities for further research. First, the cross-sectional design requires caution with
regard to inferences about causality. Future research may use longitudinal data instead.
Such research may also include other dependent variables such as market shares or profits;
this might have a better chance of predicting the long-term performance effects of customer
orientation and future market focus than firm innovativeness alone. Second, although CEO
evaluations tend to be reliable and provide good estimates for strategic issues, data from

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single respondents may affect results. Future studies may draw on multiple informants
and also use behavioral data. Third, we used a simple model. Although it proved effective
for our study on the differential effects of customer orientation and future market focus,
future research may use a more extensive model to better capture all effects influencing
innovation outcomes. For example, it may include other antecedents of willingness to
cannibalize (e.g. risk attitude and industry dynamics), which were largely omitted in the
current research. Related, we note that most willingness to cannibalize dimensions have a
significant impact on firm innovativeness, but not as much as service R&D strength. The
literature (Chandy and Tellis, 1998), however, has indicated that inertial forces may be very
relevant. Future research could further investigate under what conditions inertial forces
are more or less strong. Fourth, due to the limited sample size we could not fully explore the
combinations of customer orientation and future market focus present in the sample.
However, such an approach may be especially useful when researching ambidextrous
firms. So, we encourage future researchers to follow this road of study[1]. Fifth, extension
of the research to other countries and specific service industries (rather than pooling the
data from several service industries) would increase the generalizability of the findings.
Finally, future research developing tools for monitoring inertia will also be very useful.
This work could build on recent ideas on monitoring function and dynamic capabilities
(Schreyogg and Kliesch-Eberl, 2007). Results from such research could help firms balance
an orientation on current customers with a focus on the future.
Note
1. We thank an anonymous reviewer for this suggestion.
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Appendix. Construct measurements (All items on a five-point strongly
agree-strongly disagree scale except *; (R) 5 reversed)
Customer orientation (Source: Desphande and Farley, 1998). Our company [. . .]:
.
is more customer focused than its competitors; and
.
believes that it exists primarily to satisfy and serve customers.

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Future market focus (Source: Chandy and Tellis, 1998). In our company [. . .]:
.
we constantly think about new services that may fill needs that will come up only a couple
of years from now; and
.
the emphasis is on attracting new customers with future needs.
Willingness to cannibalize (Source: Nijssen et al., 2005; Chandy and Tellis, 1998).
Our company [. . .]:
Cannibalize sales
.
supports new projects even if they could potentially take away sales of existing services;
and
.
is very willing to sacrifice sales of existing services in order to improve sales of its
new services.
Cannibalize investments
.
tends to invest in new, promising technologies even if it causes service facilities to become
obsolete; and
.
has no problem replacing and thus writing off service facilities quickly if it will help to
create a competitive advantage in the marketplace.
Cannibalize routines
.
can easily change its organizational scheme and processes to fit the needs of a new service;
and
.
quickly changes the manner in which it carries out its tasks to fit the needs of a new
service.
Service R&D strength (based on Li and Calantone, 1998):
.
our company has a much stronger service technology base than our main competitor;
.
our company is very strong in developing new technologies and services compared to its
main competitor; and
.
compared to our main competitor our company spends much more/less on R&D *.
Firm innovativeness (based on Chandy and Tellis, 1998). Our company [. . .]:
.
is renown in the industry for its innovative new services; and
.
leads the way in introducing radical service innovations.
Company size
Number of employees *.

Corresponding author
Bas Hillebrand can be contacted at: b.hillebrand@fm.ru.nl

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