Proceedings of 5th European Business Research Conference
10 - 11 September 2015, St. Regis Hotel, Rome, Italy, ISBN: 978-1-922069-83-2
Market Orientation and Sustainable Competitive Advantage:
The mediating role of Service Delivery Innovation
Alireza fazlzadeh*, Younis Jabarzadeh** and Masoud Vardast***
Reaching superior performance is an important factor to resist erosion by
competitors in today’s competitive world. This gets much more attention from
service companies as big players of modern economies. This paper
examines the mediating role of service delivery innovation in the interaction
between market orientation and sustainable competitive advantage in the
service context. Data was gathered from 48 Iranian bank and insurance
companies. Smart-PLS was used to analyse the research model. The
findings show that market orientation, directly and indirectly through service
delivery innovation, has significant effect on sustainable competitive
advantage. Based on the results, although imitation is widespread between
service firms, it is evident that service delivery innovation is an antecedent to
sustainable competitive advantage in service firms that develop long term
relationships with their customers. Also findings suggest that by
implementing an appropriate culture that gives attention to customer needs
and wants, financial service companies can increase innovation in their
service delivery and create superior value for customers.
JEL Codes: M10 and O31
1. Introduction
As competition get tighter in the markets, achieving better performance gets much more
attention and importance. This trend force companies toward innovation in their operations
in order to resist erosion from competitors and gain sustainable competitive advantage. As
services become the dominant logic of today’s businesses, product competition have
replaced with service competition (Vargo and Lusch, 2004; Gronroos, 2008; Kandampully,
2002).
Crafting better marketing strategies requires better scanning and understanding of
markets, customer needs and providing products and services that fit to those needs
(Kotler and Clarke, 1987). Every person in the organizations, from top managers to front
line employees should contribute in improving market intelligence in the organizations.
Literature suggests that market orientation can help firms in achieving sustainable
competitive advantage directly and indirectly through innovative activities.
*
Dr. Alireza Fazlzadeh, Faculty of Economics, Management and Business, University of Tabriz, Iran. Email:
fazlzadeh_acc@yahoo.com, Tel: +984133300054
**
Dr. Younis Jabarzadeh, Faculty of Economics, Management and Business, University of Tabriz, Iran.
Email: yjabarzade@gmail.com, Tel: +9833396814
***
Masoud Vardast, Faculty of Economics, Management and Business, University of Tabriz, Iran. Email:
m.vardast92@ms.tabrizu.ac.ir, Tel: +989144043036
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Proceedings of 5th European Business Research Conference
10 - 11 September 2015, St. Regis Hotel, Rome, Italy, ISBN: 978-1-922069-83-2
Copying successful innovations between competitors, especially in service context, could
diminish their advantages. But there is a need to study this concept in service industries
that firms develop long-term relationships with their customers.
2. Literature Review
In this section we will present a review of the literature on service delivery innovation and
then develop the research hypothesis base on the results of the previous studies.
2.1) Market Orientation
Marketing literature defines market orientation as an organizational culture which
effectively and efficiently leads to superior performance and thus competitive advantage.
Market orientation consists of concentrating on customers and competitors and
cooperative usage of organizational resources (Narver and Slater, 1990). Several studies
relate market orientation to innovation (Agrawal et al., 2003; Han et al., 1998; Hult et al.,
2004). That is because market orientation enables better adaption of innovation to market
needs (Jimenez, and Valle, 2008). There are two dimensions for market orientation that
includes proactive market orientation and responsive market orientation. Responsive
market orientation tries to find and satisfy those needs and wants of customers that is
expressed by themselves (Narver, 2004). While proactive firms go after new knowledge
(Tsai et al., 2008). For successful innovation processes, market orientation is an essential
(Kohli and jaworski, 1990). Therefore to achieve profitability on the long term basis, market
orientation plays an important role. Studies suggest that market orientation acts as an
antecedent to firms’ sustainability (Hunt, 2011) however it has the greatest effect in firms
that has become market oriented, before their competitors (Kumar et al., 2011).
2.2) Service Delivery Innovation
In today’s modern economies that services have big part in economic growth, we should
take new approaches to businesses and see businesses as service businesses.
Innovation creates new opportunities for business, so it is important in economic growths.
Innovation can take place in four ways: innovation in products, processes, positioning and
paradigm (Francis and Bessant, 2005). Open innovation is a paradigm in which companies
use ideas from inside and outside environment to achieve their business goals
(Chesbrough, 2011). Generally service innovation is incremental (Storey and Kahn, 2010)
and most companies use imitation of successful strategies as their specific way of
innovation (Easingwood, 1986; Hooley and Mann, 1988; Scheuing and Johnson, 1989).
This is also usual in banking and insurance companies (Davidson et al.,1989; Teiveira and
Ziskin, 1993). Although imitation is widespread between service companies, but it seems
that service firms yet rely on innovation to create customer value and ensure growth
(Moller et al., 2008). Some researchers have confirmed that this approach
could lead to achieve competitive advantage (De Bretani, 1991; Matear et al., 2004), and a
number of others believe that its benefits can be sustained (Kaplan, 2000; Morris and
Westbrook, 1996; Storey and kahn, 2010; Bharadwaj et al., 1993; Gustafson and Johnson,
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Proceedings of 5th European Business Research Conference
10 - 11 September 2015, St. Regis Hotel, Rome, Italy, ISBN: 978-1-922069-83-2
2003; Kandampully and Dudy, 1999). This debate is still inconclusive but there is a need to
study the sustainability of benefits from innovation, in such service firms that long term
relationship with customers is obvious.
2.3) Sustainable competitive advantage
Competitive advantage is the ability of companies to attract more customers than
competitors relying on organizational capacities and capabilities. A company’s competitive
advantage will sustain when it’s resources and capabilities has the features such as being
valuable, rare, incomplete emulation capability and lack of stability over time (Barney,
1991). Bharadwaj et al. (1993) suggest that is result of a range of outcomes from
company’s innovative activities that enables them to achieve superior performance and
competitive position in the market. Day and Wensley (1988) identified two basis for
competitive advantage which are superior skills and resources. When documentation
strategies accompany with documentation strategies, could lead to sustainable competitive
advantage (Storey and Kahn, 2010). Sustainability of the competitive advantage depends
on difference in capabilities that the strategy was built upon (Hall, 1993).
Based on the literature review presented, we develop the following hypothesis:
H1: Market orientation is positively related to service delivery innovation.
H2: Market orientation is positively related to sustainable competitive advantage.
H3: Service delivery innovation is positively related to sustainable competitive advantage.
3. Methodology and Model
Based on the developed hypothesis figure 1 shows the research conceptual model:
Figure1: conceptual model
Service
Delivery
Innovation
Market
orientation
Sustainable
Competitive
Advantage
In order to gather the necessary data on variables, we conducted a 5-point Likert response
format type questionnaire during July 2015. Iranian banks and insurance companies were
selected as population. The methodology includes empirical testing of the proposed
research framework. Middle and senior executives from marketing and human resource
management departments were approached. Out of a total of 195 distributed
questionnaire, data was collected from 120 correctly answered questionnaire. That is 48
organizations (29 banks and 19 insurance companies) out of 62 organizations (33 banks
and 29 insurance companies). Table 1 presents the profile of respondents.
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Proceedings of 5th European Business Research Conference
10 - 11 September 2015, St. Regis Hotel, Rome, Italy, ISBN: 978-1-922069-83-2
Table 1. Profile of Participants
Variables
sample, N=120
Gender
Female
Male
Age
Under 30
30 – 40
40 – 50
Above 50
Education level
Diploma
Associate
Bachelor
Master
PhD or higher
percentage
22
98
18.3 %
81.7 %
22
67
26
5
18.3 %
55.8 %
21.7 %
4.2 %
1
1
53
59
6
0.8 %
0.8 %
44.2 %
49.2 %
5%
4. The Findings
An 18-item scale was developed in designing questionnaire. And questions were adopted
from previous studies. To analyze and test the hypothesis, Smart-PLS 3 was used. At first
we analyze the correlation between variables using spearman correlation coefficient.
Spearman test and calculating the descriptive statistics were done using SPSS 21. Table 2
represents the results.
Table 2. Descriptive statistics and correlation between variables
variables
Mean
St.d
Market
orientation
Service delivery
innovation
Market
orientation
3.95
0.60
1.00
Service delivery
innovation
4.17
0.51
0.72*
1.00
Sustainable
competitive
advantage
3.99
0.50
0.62*
0.63*
Sustainable
competitive
advantage
1.00
*p<0.05
Table 3 shows the results of analyzing the measurement model. It includes results of
confirmatory analysis, T-values and Cronbach’s alpha for the outer model. As shown in
table 3, all factor loadings except SCA2 are significantly above 0.4 and so related T-values
are above 2; so they can significantly represent their relative latent variable. SCA2 should
be omitted from the construction due to lower T-value that is not significant at p=0.05.
Alongside, the amounts of Cronbach’s alpha for all of the structures are above 0.7. So the
4
Proceedings of 5th European Business Research Conference
10 - 11 September 2015, St. Regis Hotel, Rome, Italy, ISBN: 978-1-922069-83-2
validity of the questionnaire is high (Anderson and Gerbing, 1988). Measurements of
average variance extracted (AVE) are 0.60, 0.53 and 0.64 for market orientation,
sustainable competitive advantage and service delivery innovation respectively. Also
amounts of composite reliability are 0.88, 0.87 and 0.93.
Table 3, The measurement model
Variables
Market orientation
Service Delivery Innovation
Sustainable competitive
Advantage
Indicator
factor loading
t-value
MO1
MO2
MO3
MO4
MO5
SDI1
SDI2
SDI3
SDI4
SDI5
SDI6
SDI7
SCA1
SCA2
SCA3
SCA4
SCA5
SCA6
0.84
0.68
0.74
0.80
0.82
0.72
0.70
0.82
0.85
0.83
0.82
0.83
0.69
0.40
0.72
0.85
0.83
0.79
16.55
6.23
7.43
13.54
23.05
7.13
10.38
14.20
20.72
17.75
11.84
18.79
7.40
1.86
7.27
19.70
10.32
9.95
Cronbach’s Alpha
0.837
0.905
0.816
The following is the results of testing hypothesis using the partial least square (PLS)
approach. Table 4 shows the path coefficient and T-values for research hypothesis.
Findings shows indicate that all hypothesis are fully supported.
Table4. Structural model
Path Coefficient
MO
SDI
MO
SDI
SCA
SCA
0.39
0.80*
0.43*
t-value
12.18
2.84
2.37
*p<0.01
Explanatory variance ( ) for each of the variables is 0.60 and 0.63 for sustainable
competitive advantage and service delivery innovation respectively. The results of the path
estimates of structural model are represented in figure 2.
Figure 2.The results of structural model
0.39
Service
Delivery
Innovation
𝑅 = 0.63
Market
orientation
0.43*
0.80*
Sustainable
Competitive
Advantage
𝑅 =0.60
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Proceedings of 5th European Business Research Conference
10 - 11 September 2015, St. Regis Hotel, Rome, Italy, ISBN: 978-1-922069-83-2
About analyzing the mediating role of service delivery innovation (SDI) in the relationship
between market orientation (MO) and sustainable competitive advantage, table 5 indicates
direct, indirect and total effects of market orientation on sustainable competitive advantage
(SCA). As shown below, the indirect effect of market orientation on SCA through SDI is
less than its direct effect. Therefore SDI partially mediates the relationship between market
orientation and SCA.
Table5. Direct, indirect and total effects of MO on SCA
Direct effect
MO
SCA
0.39
indirect effect
0.35
total effect
0.73
*p<0.01
5. Summary and Conclusions
As the analysis results showed in the previous section, this research supports the findings
of previous researches regarding the effect of market orientation on service delivery
innovation. This is in coordination with several previous studies (Agrawal et al., 2003; Han
et al., 1998; Hult et al., 2004). Managers should understand the importance of
implementing a market oriented culture in their organizations. It is necessary for human
resource departments to design and conduct training programs which can make
employees attentive about customer’s needs and wants.
Researchers in previous studies have suggested that service delivery innovation positively
effects sustainable competitive advantage (Bharadwaj et al., 1993; Storey and Kahn,
2010; Verma and Jayasimha, 2014). This paper support the previous researches.
Although imitation is widespread in service industry an in special financial services, but
companies still rely on innovation to achieve superior performance and competitive
position in the market. This means that advantages from innovation could be sustained in
service context. In today’s highly competitive economy companies should invest greatly in
their innovation and development (I&D) activities with an eye on market requirements in
order to achieve higher position in the markets.
Hunt (2011) and Kumar et al. (2011) in their researches stated that market orientation
contributes to sustainable competitive advantage. The present study also shows that
market orientation positively effects sustainable competitive advantage. Besides, the direct
effect of market orientation on sustainable competitive advantage is higher than its indirect
effect through service delivery innovation. Therefore concentrating on the market from all
parts and employees of an organization is an important factor in achieving sustainable
competitive advantage.
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Proceedings of 5th European Business Research Conference
10 - 11 September 2015, St. Regis Hotel, Rome, Italy, ISBN: 978-1-922069-83-2
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