Available online at www.sciencedirect.com Journal of Business Research 61 (2008) 753 – 764 Size, strategic, and market orientation affects on innovation Sylvie Laforet ⁎ The University of Sheffield, Management School, 9 Mappin Street, Sheffield S1 4DT, UK Received 1 January 2007; received in revised form 1 July 2007; accepted 15 August 2007 Abstract Based on a random sample of 500 South Yorkshire non-hi-tech manufacturing small, medium-sized enterprises (SMEs) the quantitative findings support the hypothesis that size, strategic, and market orientation associate with innovation. The results show that prospectors are medium-sized companies and small companies, defenders. Prospectors are more innovative and market-oriented than defenders. The findings reveal that to succeed in an intense competitive environment, non-hi-tech manufacturing SMEs have to be proactive toward market opportunities, receptive to innovation and take the lead in new product innovation. However, their weaknesses include a lack of flexibility, a partial open culture and an organizational structure that impedes sustained innovation. This study addresses a gap in the literature, by linking innovation to the strategic orientation of the firm instead of examining firms' specific characteristics or the effects of external environment and structural factors. The research focuses on non-hi-tech manufacturing SMEs. © 2007 Elsevier Inc. All rights reserved. Keywords: Innovation; Strategic orientation; Market orientation; Size; Non-high-tech manufacturing SMEs 1. Introduction Companies worldwide of different sizes and sectors are operating in an increasingly dynamic, complex and unpredictable environment. This increase suggests that many firms seek new ways of conducting their business through some kind of innovation to make a profit and stay ahead of the competition. In particular, intense global competition, rapid technology changes and product variety proliferation are part of the characteristics of the new manufacturing environment (Pun, 2004). While large manufacturing companies can often invest in new technologies and equipment, providing world-class skills, training to their workforce and winning new markets this is hardly the case for small companies (Laforet and Tann, 2006, p. 364). Nevertheless, research shows that new small firms are continually entering the market with new ideas, products and processes (De Jong and Marsili, 2006). A number of British small, medium-size manufacturing enterprises (SMMEs) have survived and thrived through the release of innovative new products (Laforet and Tann, 2006). Thus the contention is that small firms that innovate successfully would increase their ⁎ Tel.: +44 114 2223341; fax: +44 114 2223348. E-mail address: firstname.lastname@example.org. 0148-2963/$ - see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2007.08.002 chances of survival and growth (Cefis and Marsili, 2003; De Jong et al., 2004). However, successful innovation is a complex task for a SME that does not have the means and know-how to invest in R&D activities (Avermaete et al., 2003) or cannot always convert research and development into effective innovation. Furthermore, O'Regan et al. (2006) note the many difficulties SMEs have are often organization-specific. Whilst researchers often examine innovation in the context of large firms, they overlook innovation within small firms. The innovation literature in SMEs remains fragmented and usually concentrates on single case studies or qualitative interviews with managers. Moreover, the work in this area focuses mainly on firm-specific characteristic on innovation, the effect of external environment and structural factors, which are more appropriate for large firms instead of the strategic and market orientation of the firm, including factors such as closeness to customers, flexibility which are advantageous to SMEs (Salavou et al., 2004). Researchers also pay little attention to sectors or industries when studying innovation factors in SMEs (De Jong and Marsili, 2006; Laforet and Tann, 2006). This paper examines the relationship between size, strategic, market orientation and innovation in non-hi-tech SMMEs. This is because non-high-tech SMMEs face intense global competition, as mentioned above. Innovation is fundamental to these 754 S. Laforet / Journal of Business Research 61 (2008) 753–764 companies in order to survive and maintain their competitiveness in the marketplace (Laforet and Tann, 2006). The paper starts with a discussion of factors determining innovation, outlines a review of literature, from which hypotheses are drawn and tested on a random sample of 500 South Yorkshire SMMEs. Hypotheses are then compared with findings and conclusions drawn. researches, it is hypothesised that size has an effect on innovation due to a lack of financial and human resources. A small firm (5–20 employees) would have more difficulty in finding the financial support for technical work, human resource, plant and equipment, marketing and promotions when compared to medium-sized firms (21–201 employees). 2. Size and innovation H1a. Medium-sized firms are more innovative than small firms. Many studies examine the issue of innovation relating to company size with inconclusive findings. Schumpeter (1942) hypothesizes that large firms have an advantage over small companies as their financial might allow them to be the most capable innovators. Ettlie and Rubenstein (1987) find the type of innovation moderates the size relationship. They argue that large companies can access to key resources and would be able to take on more radical innovations, which often require additional funds for technical work, capital investment for plant and equipment as well as marketing and promotions compared to small companies. Although large companies have sufficient resources for investing in innovation, they suffer from a variety of issues that may make them less innovative. For example, larger firms tend to create a bureaucracy that is un-favourable to an atmosphere encouraging creativity (Kamien and Schwartz, 1975), and tend to be less flexible than smaller firms (Cohen and Klepper, 1996). Extensive research carried out to test Schumpeter's hypothesis (McNulty, 1974; Lunn, 1982; Cohen and Mowery, 1987; Amato et al., 1981) have mixed results (Acs and Audretsch, 1987; Acs and Audretsch, 1991; Cohen and Klepper, 1996). Kamien and Schwartz (1975) claim that there is little support for the idea that innovation increases with firm size, with the notable exception of the chemical industry. Rothwell and Zegveld (1986) further examine firm size and innovation across several industries, reject the idea that innovation is related to size but with the industry cycle, which varies with technology, markets and government policy. More recent research suggests that small and large firms are more innovative than those of intermediate size (Bertschek and Entorf, 1996). White et al. (1988) also suggest that there are advantages with the smallest firms (b20 employees) and the larger firms (50+ employees) but not the intermediate group (20–49 employees), which lack the best of either world. The smallest firms have the benefit of individualism while the larger firms the benefit of more resources and systems. Others have concluded that large firms have an advantage in markets characterized by imperfect competition, while small firms have an advantage in markets characterized by pure competition (Acs and Audretsch, 1987). Finally, large firms in low-tech industries have an advantage over small firms, but no difference exists in high-tech industries (Acs and Audretsch, 1991). Current research (Wagner and Hansen, 2005) on lowtech industry find that firm size impacts on innovation type. This study concerns with non-high-tech manufacturing SMEs. Based on Audretsch and Acs's, Wagner and Hansen's 3. Size and strategic orientation H1. Company size relates to innovation. According to O'Regan and Ghobadian's (2005) adaptation of Miles and Snow's classification of company strategic orientation, a defender type company will compete on the basis of price, quality, delivery or service and operate efficiency based on a strong emphasize on maintaining existing markets. It follows that a defender type company will tend to be a reactor, thus reacting to a market place based on observing the experiences of others and a preference for the short-term. While a prospector type company, will continually seek opportunities and use flexibility to adapt and respond rapidly and creatively to the changing external environment. This type of company will tend to be an analyser focusing on efficient and increased production following a full analysis of directional strategy and how to compete. Although the above authors distinguish between a reactor and a prospector, this study treats a defender analogous to a reactor and a prospector analogous to an analyser (see explanation in the Method section). In the literature, strategic orientation also takes from the corporate-wide perspective. In this study, the author believes small firms will focus on maintaining existing markets and competing on price and quality rather than being at the forefront of innovation. Their objective is to have reasonable returns and concentrate on what they do well thus, small firms will take on the role of a defender and mediumsized firms will act more like a prospector. H2. Strategic orientation relates to company size. H2a. Prospectors will be medium-sized companies and defenders, will be small size companies. 4. Size and market orientation Liu (1995) shows that medium-sized firms adopted a market orientation to a lesser extent than large and extra-large firms; While he also finds no difference in the level of market orientation between large and extra-large companies. Although no studies so far compare market orientation between mediumsized and small firms, small business researchers contend that internal organisational factors and external forces exert a considerable influence on SME business performance to the extent that the adoption of customer orientation is minimal (AppiahAdu and Singh, 1998). However, Sexton and Van Auken (1985) argue that since many SMEs are noted for their lack of long range focus, strategic orientation and systematic decisionmaking, customer orientation could be a critical determinant of performance. Appiah-Adu further argue that for smaller firms, S. Laforet / Journal of Business Research 61 (2008) 753–764 755 which are often characterised by ad hoc and short-term decision-making tactics, a customer orientation strategy could provide them with an organisation-wide focus for formulating objectives, guiding decisions and directing actions. Laforet and Tann (2006) show that customer focus is one of the drivers of manufacturing SMEs innovativeness. For SMEs customer orientation is likely to be a vital success criteria because, such firms generally lack the financial resources to explore other sources of business profitability, such as research and development, competitive advantage, low cost leadership or skilled staff to develop effective planning strategies (Pelham and Wilson, 1996). Therefore, it follows that market orientation should not relate to size as it is important and could affect the performance of company of any size. case, strategic orientation does not relate to operating environment and, prospectors and defenders should operate in very similar environments. H3. Market orientation does not relate to company size. H5. Strategic orientation does not relate to process innovation. H3a. Medium-sized firms are not more market-oriented than small firms. H5a. Prospectors do not emphasize more systems and technology than defenders. 5. Strategic orientation and innovation 5.3. Culture 5.1. Product innovation O'Regan et al. (2006) propose that innovation is driven by a company's culture, leadership and strategic planning. These authors find that high performing firms have stronger and more defined leadership and culture styles compared with low performing firms. As such, an empowerment culture, transformational and human resources leadership as well as staff creativity associate with successful innovation. Similarly, Ozsomer et al. (1997) suggest that, a proactive strategic posture usually leads to a flexible organizational structure that promotes innovativeness. Slater et al. (2006) further argue due to the constant search for opportunities prospectors must maintain flexibility so that it can adapt to new information. Ozsomer et al. (1997) suggest that innovativeness associates with a proactive strategic posture, which consists of a firm being aggressive, competitive and risk taker. Proactive firms differentiate themselves from their competitors by changing their production methods and products. O'Regan and Ghobadian (2005) focusing on electronics and engineering SMEs, show that firms tend to place greater emphasis on innovation in turbulent operating environments, which are characterised by short product cycle, rapid technological change and intense rivalry. Furthermore, research shows prospector type firms, those that ‘continually seeking opportunities and using flexibility to adapt and respond rapidly and creatively to the changing external environment’ as mentioned above, engage in developing new products by introducing newly patented products as opposed to modify an existing product, as in the case of defender type companies. Prospectors also deploy more new process technologies and leading management practices compared with defenders in turbulent environments. Slater et al. (2006) citing Miles and Snow (1978) assert that prospectors' primary capability is finding and exploiting new product and market opportunities. H4. Strategic orientation associates with new product innovation. H4a. Prospectors engage more in new product development than defenders (i.e., exhibit a higher degree of product innovation i.e., will have more new product ideas, product launched, patents and designs). H4b. Prospectors are more innovative than defenders (typically, innovation prize is used to estimate company innovativeness). This study focuses on non-hi-tech manufacturing SMEs a majority of the sample companies will operate in a non-turbulent, mature nevertheless competitive environment. Therefore, in this 5.2. Process innovation Based on O'Regan and Ghobadian's rationale, in non-turbulent environments strategic orientation is unlikely to have an impact on process innovation and therefore, in non-hi-tech SMMEs prospectors will not emphasize more systems and technology or machinery and equipment than defenders. However, prospectors are likely to seek market opportunities and will be more flexible than defenders (e.g. O'Regan and Ghobadian, 2005; Zhou et al., 2005). H6. Prospectors have an empowerment culture and flexible organizational structure to support innovation. H 6a . Prospectors have an open culture that facilitates innovation. H6b. Prospectors empower their employees. H6c. Prospectors reward their employees. 5.4. Innovation strategy and continuous improvement Other studies also show that the extent to which small businesses innovate successfully will depend on their capacity to plan ahead, to have a clear strategy and to manage strategically (Georgellis et al., 2000; Beaver and Prince, 2002; Salavou et al., 2004). Veliyath and Shortell (1993), studied the hospital industry find that prospectors have significantly greater market research competence, extent of key personnel involvement and innovativeness of strategy than defenders. Dougherty and Hardy (1996) also suggest that for an organization to develop the capacity for sustained innovation, it must have three elements: available resources, collaborative structures and processes to solve 756 S. Laforet / Journal of Business Research 61 (2008) 753–764 problems, (referring continuous improvement and cross-functional teams as mentioned above) and innovation in the business strategy. Hence: H7. Companies that have a strategic orientation will have an innovation strategy. H7a. Prospectors have innovation as part of their business strategy. H8. Strategic orientation associates with continuous improvement (and/or sustained innovation). H8a. Prospectors have an employee suggestion scheme as opposed to defenders. H8b. Prospectors emphasize cross-functional teams as opposed to defenders. 6. Market orientation and innovation Past research examines market orientation in relation to company performance, new product development and competitive structures of companies. In terms of new product development, Atuahene-Gima (1996) finds that market orientation has a positive impact on new product performance at the early stage of the PLC and incremental product innovation. On the other hand, Salavou (2005) suggests that technology orientation has a significant direct effect on product innovativeness in SME instead. Appiah-Adu and Singh (1998) also find a link between customer orientation, new product success and company performance. However, they indicate that high levels of market dynamism and competitive intensity do not necessarily result in an increased emphasis on customer orientation in SMEs. H9. Market orientation relates to innovation to include product innovation, process innovation and organizational culture. 7. Market orientation and strategic orientation The literature includes few studies examining the relationship between market orientation and strategic orientation. The author found two studies on the subject: one, by Slater and Narver (1994) and the other by, Morgan and Strong (1998). The latter concerns with the association between market orientation and strategic orientation in the context of medium and large firms, shows that market orientation is: 1. associated with a company's proactive-ness — referring to those with new approaches to markets. 2. a company's market intelligence — referring to a company's problem solving skills and intelligence gathering, which is a dimension of a firm's strategic orientation; and a company's anticipation regarding the trends in technology, demographics, regulation, industry rules and competitive space. This foresight would allow companies to take a more long-term view on their activities. Morgan and Strong also find a negative relationship between market orientation and defensive type companies as well as aggressive type and, risky type companies. These authors Table 1 Demographics sample of companies n % Company size by no. of employees 5–10 11–20 21–50 51–100 101–150 151–200 201 Total Missing Total 22 15 5 7 5 1 4 59 1 60 36.7 25 8.3 11.7 8.3 1.7 6.6 98.3 1.7 100 Sector Control sys/design manufacturing Materials handling Cutting tools Metal manufacturing Automotive parts Medical manufacturing High-end exclusive gift manufacturing Security manufacturing Cuttlery manufacturing General manufacturing Engineering manufacturing Retail manufacturing Traffic signal manufacturing Industrial electron system Sealing tech/corporate clothing/ Defence manufacturing Mining/tunneling industrial Total Missing Total 2 3 2 2 3 4 2 4 2 6 4 5 3 3 3 2 2 53 7 60 Date of establishment 1800 1900 2000 Total Missing Total 6 40 9 55 5 60 Operating environment Short PLC, rapid technological change Mature mkt, stable environment Short PlC, rapid technological change, intense rivalry Mature mkt, stable environment intense rivalry Total Missing Total 8 34 10 4 56 4 60 13.3 56.7 16.7 6.7 93.3 6.7 100 Strategic orientation Defender Prospector Total Missing Total 37 22 59 1 60 61.7 36.7 98.3 1.7 100 suggest that aggressive type companies might be aggressive pushers and non-innovative companies. While, their contention for the null association between risky-ness and market orientation is, that market-oriented firms tend to experience limited S. Laforet / Journal of Business Research 61 (2008) 753–764 risk because of their continuous monitoring of customer and competitor environments. This study examines the following hypotheses: H10. Strategic orientation relates to market orientation. H10a. Prospectors have a higher degree of market orientation than defenders. 8. Method The study consists of a mail survey among Chief executives/ owners of 500 South Yorkshire-based manufacturing firms. South Yorkshire Business Link issues a list of companies from their database. The companies surveyed subject to a breakdown by company size in terms of the number of employees and by a regional breakdown of manufacturing industry by sub-sectors. The sample includes only companies with less than 250 employees and those operate in the following sub-sectors: general manufacturing, engineering, industrial and retail manufacturing, automobile, medical, security and defence manufacturing (see Table 1). The sample includes mainly non-high-tech companies. Of the 500 questionnaires posted, a total of 60 usable returned questionnaires obtained, giving a response rate of 12%. The questionnaire aims to obtain first, factual information on companies' practices of innovation in three areas: new product development, process innovation and continuous improvement; second, managers' perceptions of their culture and working environment, the company's business strategy, strategic and market orientation, as well as operating environment. The questionnaire consists of seven sections: the company background (i.e., sector, no of employees, establishment date, etc.), the level of engagement in new product development (in terms of new product ideas introduced, new products launched and improvements in the last 5 years), investment level in systems and technology, continuous improvement and organization for new product development, company culture and ways of working, the company's business strategy/strategic and market orientation (see definition below) as well as the company's perception of their operating environment (such as an environment that has a short product life cycle/rapid technological change, or a mature market/ stable environment, etc.). This study uses O'Regan and Ghobadian's (2005) definition of strategic orientation. However, the study considers a defender analogous to a reactor and a prospector analogous to an analyzer because one cannot clearly classify companies into a single strategy type (Ghosh et al., 2001). These authors assign prospectors and analyzers into one group and, defenders and reactors in another for analysis purposes. Woodside et al. (1999) also argue that not all organizations must be identifiably as fitting one archetype and, that some of them are best identified as representing an ambiguous strategic type. Using Conant et al.'s (1990) scale, these authors classify organizations as defenders, prospectors, analyzers or reactors depending on the archetypal response option the most often selected. Some researchers see market orientation as an organizational response to consumer needs and tastes (Narver and Slater, 1990; 757 Ruekert, 1992). Marketing orientation focuses on an organizational culture that puts the customer first. Further, the literature highlights that companies need to strike a balance between market orientation and production to achieve performance outcomes desired (Fritz, 1996; Wong and Saunders, 1993 ). The literature indicates several interpretations of market orientation however, these all seem to concentrate on three themes: customer, competitor orientation and coordination between different functions within an organization. In this study, the following are taking into account when determining company's market orientation: meeting current and future needs of customers, monitoring/analysing competitor movements, the environment and technological factors as well as sharing customer information between different functions/groups within the company. The literature describes a number of definitions of innovation and measures of a firm's innovativeness but, none agrees on a common basis for measuring a company's innovativeness (Avermaete et al., 2003). Benchmarking literature suggests a number of indicators: 1. Company's position in the marketplace. 2. Percentage sales from products introduced in the last 5 years. 3. Capital intensive innovations e.g. implementation of ISO9000. 4. Performance measurement in innovation to include the rate of new product development in net sale amounts, the rate of profitability of new products, rate of R&D investments in a given period. 5. Factors leading to successful innovation such as clarity of understanding customer requirements, understanding how the market operates and being familiar with customer requirements. 6. Innovation and business objectives should reflect a balanced approach with short and long-term objectives. In addition, Zairi (1995) suggests a need for product and process-based goals. The DTI and CBI use ten indicators as an arbitral measure of company innovativeness as follows: number of new product ideas a company had in last 5 years; number of new product(s) launched in last 5 years; number of product(s) improvement introduced in last 5 years; innovation prize(s); when the newest product introduced; the percentage of sales from this product; extent to which major customers provide specification for new product(s); level of investment in systems and technology for office; level of investment in systems and technology for shop floor and new or improved ways of working in last 5 years. This study examines innovation in terms of new product development, process innovation, continuous improvement, culture and working environment. With regard to new product development, an innovative company is determined by the number of new product ideas the company has, the number of new products launched and improved in the last 5 years as well as whether the company has patented products, designs, copyrights and/or won innovation prizes. This kind of hard facts can be readily obtained from companies. An innovative company is also determined by its emphasis on process innovation or level of investment in systems and technology, continuous improvement and a culture that supports innovation. In this study, these will be referred as innovation practices. Therefore, an innovative company expects to lead in innovation practices and in new product innovation. 758 S. Laforet / Journal of Business Research 61 (2008) 753–764 Table 2 Percentage of companies engaging in NPD and won innovation prizes by company size (by number of employees) No. of employees 5–20 21–201 NP ideas 0 1–4 5–9 10–14 14+ (p = .092) n = 32 9.3 25.9 11.1 13 0 n = 22 0 16.7 7.4 11.1 5.6 NPL 0 1 2 3 4 4+ (p = .335) n = 36 10.5 17.5 12.3 3.5 15.8 3.5 n = 21 1.8 7 8.8 5.3 7 7 NPI 0 1–4 5–9 10–14 14+ (p = .137) n = 37 13.6 23.7 11.9 10.2 3.4 n = 22 1.7 13.6 3.4 13.6 5.1 PP Yes No (p = .013) n = 33 5.5 54.5 n = 22 14.5 25.5 Designs Yes No (p = .592) n = 35 23.6 40 n = 20 10.9 25.5 Copyrights Yes No (p = .718) n = 34 9.6 55.8 n = 18 3.8 30.8 IP won Yes No (p = .02) n = 34 3.6 58.2 n = 21 10.9 27.3 This study aims to test a broad hypothesis, which states that company size, strategic, market orientation associate with innovation at three levels: product innovation, process innovation and organizational culture/strategy, using descriptive statistics. This is mainly because the study involves large numbers of companies and, the focus is on finding typical patterns and the variation, which one may expect. 9. Results 9.1. Demographics sample of companies The sample consists of 62% of small companies of five to twenty employees (of which, 37% of companies employing five to Table 3 Company strategic orientation by company size Co. size 5–20 21–201 (p = .023) Defender Prospector n = 37 46.6 17.2 n = 21 15.5 20.7 ten staff and 25%, 11–20 staff). The remaining includes companies with 21 employees and above, up to 203 employees (Table 1). The majority of companies (76%) were established in 1800 and 1900. Only 15% of those surveyed were established in 2000s. More than half of companies surveyed, state that they operate either in a mature market and stable environment (57%) and/or a mature, stable environment with intense rivalry market (7%). The remaining states that they operate in a short PLC with rapid technological changes market (13.5%), a short PLC with rapid technological change and intense rivalry (17%). Sixty two percent companies perceive themselves as defenders and 37% as prospectors. 9.2. Size, innovation, strategic and market orientation The results show that medium-sized companies (21–201 employees) have more patented products and have won more Table 4 Market orientation by company size No of employees 5–20 21–201 Sharing customer info with Different function/grp in the co. Yes No n = 35 62.5 77.1 22.9 n = 21 37.5 95.2 4.8 (p = .075) How often do you look at the way your customers and mkt have changed Hardly at all Occasionally Often Regularly All the time n = 37 n = 21 8.1 10.8 10 6 14 4.8 14.3 3 6 8 (p = .679) n = 32 n = 21 25 12.5 18.8 43.8 28.6 9.5 23.8 38.1 (p = .937) n = 29 n = 20 34.5 6.9 31 27.6 29 25 15 35 20 20 (p = .576) How often does your co. find out what competitors are doing On a daily basis On a weekly basis On a monthly basis Beyond a month How often does your co. find out about the environment and techno changes On a daily basis On a weekly basis On a monthly basis Beyond a month Other S. Laforet / Journal of Business Research 61 (2008) 753–764 Table 5 Percentage of companies engaging in NPD and won innovation prizes according to last 5 years Defender Prospector NP ideas 0 1–4 5–9 10–14 14+ n = 32 7.4 25.9 14.8 11.1 0 n = 22 0 16.7 3.7 14.8 5.6 (p = .033) NP launched 0 1 2 3 4 4+ n = 36 10.5 21.1 12.3 1.8 12.3 5.3 n = 21 0 3.5 8.8 7 12.3 5.3 (p = .033) NP improvements 0 1–4 5–9 10–14 14+ n = 37 13.6 15 5.1 15.3 3.4 n = 22 1.7 7 10.2 8.5 5.1 (p = .118) Patented products Yes No n = 34 7.3 54.5 n =21 12.7 25.5 (p = .05) Designs Yes No n = 36 21.8 43.6 n = 19 12.7 21.8 (p = .795) Copyrights Yes No n = 35 7.7 59.6 n = 17 5.8 26.9 (p = .538) Innovation prizes won Yes No n = 35 5.5 58.2 n = 20 9.1 27.3 (p = .048) innovation prizes than small companies (5–20 employees). Hence, the results support H1 (Table 2). Table 3 shows that 47% of companies of up to 20 employees are defenders compared with 15.5% of that of those with up to 201 employees (p b .05). Therefore, the results support H2. The results show that market orientation does not relate to company size (p N .05) (Table 4). Hence, the results support H3. 9.3. Strategic orientation and innovation 9.3.1. New product innovations Table 5 shows the relationship between strategic orientation and new product innovation. The results show prospectors engaging more in new product development than defenders. 759 Table 6 Percentage of companies emphasizing system and technology according to strategic orientation Defender IS09000/1 A manual IIP CAD CAM Quality function deployment Failure modes/effect analysis Kanban Other (p = .008) Prospector n = 32 n = 19 5.9 25.5 2 11.8 5.9 2 3.9 0 2 0 2 0 7.8 2 0 7.8 9.8 0 Typically, prospectors have a higher number of new product ideas, new products launched and patented than defenders. The former are also more innovative than the latter. The number of innovation prizes won by prospectors is nearly double than defenders (p b .05). Therefore, the results support H4a, H4b and H4. 9.3.2. Process innovation With respect to the use of systems and technology, the results show that defenders use a manual more than prospectors (25.5% for defenders compared with 2% for prospectors). However, the proportion of prospector use systems and technology was only 38% (Table 6). Furthermore, the results show no significant difference in the proportion of defenders and prospectors investing in machinery and equipment in the past five years (p N .05). Therefore, the results support H5 and H5a. 9.3.3. Innovation strategy and culture The findings support the hypothesis that prospectors have innovation as part of their business strategy (H7) but, reject the hypothesis that prospectors have a flexible and open culture Table 7 Percentage of defender and prospector that have innovation in company strategy Defender Prospector Innovation featuring in co. objective Yes No n = 34 43.6 18.2 n = 21 36.4 1.8 (p = .026) Co. publicity Yes No n = 32 35.8 24.5 n = 21 35.8 3.8 (p = .014) Co. vision Yes No n = 33 46.2 17.3 n = 19 36.5 0 (p = .012) Co. business plans Yes No n = 32 42.3 19.2 n = 20 36.5 1.9 (p = .024) 760 S. Laforet / Journal of Business Research 61 (2008) 753–764 Table 8 Percentage of companies emphasizing innovative culture according to strategic orientation Defender Company employees contributing ideas for new/improved w.o.w. Shop floor (p = .336) Office staff (p = .105) Managers (p = .709) n = 33 v.little/little 18.5 26.6 3.8 Prospector soso 22.2 10.2 7.4 a lot/great Deal 20.4 22.5 51.9 n = 21 v.little/little 7.5 4.1 0 Do you reward an employee/grp of employees for coming up with new ideas Yes No (p = .029) n = 37 20.7 43.1 n = 21 22.4 13.8 Do employees have freedom to act without supervision if they notice something wrong or can think of a new way of doing things Yes No (p = .382) n = 37 n = 21 56.9 6.9 29.3 6.9 Can employees feel free to disagree with their supervisors on ways of working n = 36 v.little/little 5.4 soso 20 a lot/great 40 n = 19 v.little/little Deal 1.8 soso 7.4 14.3 1.9 a lot/great Deal 24.4 22.4 35.2 soso 10.9 a lot/great Deal 21.8 (p = .389) (refer H6a and H6b). Table 7 shows that prospectors have innovation featuring in the company's objective, company's publicity, company's vision and business plans (p b .05). Hence, the results support H7a. However, no clear evidence of a flexible and open culture that supports innovation found in prospector type companies. The results also show prospectors do not place a great emphasize on employees' empowerment (referring statements: employees having the freedom to act and to disagree with their supervisors on ways of working (p N .05). Therefore, the results do not support H6a and H6b. However, prospectors reward employees for coming up with new ideas more than defenders (p N .05) (Table 8). Hence, the results support H6c. Therefore, the results partially confirm H6. 9.3.4. Continuous improvement Table 9 shows the emphasis on continuous improvement by defenders and prospectors. No significant difference found between the former and the latter with respect to cross-functional team, whether the company has an employee suggestion scheme and everyone knows the criteria for evaluating NP proposals. However, the results show that in defender type companies, the CEO/owner tend to take the lead in evaluating new ideas for products and processes in the company; whereas in prospector type companies this is more widespread, with an emphasize on the manufacturing manager, taking the lead for these activities (p b .05). Regarding the implementation of NPD in the company, the results show a widespread from within the management and NPD team in both defenders and prospectors companies. Table 9 also shows that both defenders and prospectors do not perceive ‘teams’ as part of the company's focus. Therefore, the results reject H8a and H8b. Table 9 Percentage of companies emphasizing continuous improvement according to strategic orientation Defender Prospector Does your company have an employee suggestion n = 36 scheme Yes 25 No 39.3 Does your company have a cross-functional team when n = 36 developing a NP Yes 24.1 No 37.9 n = 20 19.6 14.3 (p = .164) n = 22 24.1 13.8 (p = .067) Everyone knows the criteria for evaluating NP proposals n = 37 Yes 32.8 No 31 n = 21 24.1 12.1 (p = .258) Who takes the lead in implementing NPD in your co. MD/CEO/owner NPD team Manufacturer manager Mkting manager Other n = 17 8.9 8.9 2.2 13.3 4.4 (p = .078) n = 28 40 8.9 4.4 6.7 2.2 Who evaluates new ideas for products, processes in yr n = 30 co. MD/CEO/owner 35.4 NPD team 10.4 Manufacturer manager 2.1 Mkting manager 12.5 Other 2.1 n = 18 6.3 4.2 8.3 14.6 4.2 (p = .027) S. Laforet / Journal of Business Research 61 (2008) 753–764 761 Table 10 Market orientation by new product development 10. Discussion and conclusions How often do you look at the way your customers and mkt have changed Hardly at all Occasionally Often Regularly All the time The findings overall support the broad hypothesis that size, strategic and market orientation associate with innovation. Strategic orientation associates with new product innovation and a company's innovativeness but, not with process innovation nor with sustained innovation. Regarding market orientation, keeping abreast with what competitors are doing, keeping upto-date with the environment and technological changes are more important for innovative companies than finding out how to meet current and future needs of customers. Competitors' activities also influence new product innovations. Prospectors are more innovative, have a stronger market orientation (but not customer focus) and larger in size than defenders. However, they do not use or invest more in systems and technology than defenders. Neither do they have an environment that facilitates and sustains innovation. This reflects in their lack of continuous improvement. The results of this study agree to an extent, with Woodside et al. (1999) who examine the relationships between strategic types, distinctive marketing competencies and organizational performance that reactor or defender organizations, in comparison with prospector or analyzer organizations, develop inferior marketing competencies related to knowledge about customers and competitors. But, the study cannot confirm whether reactors Copyrights last 5 years Yes No n=7 n = 45 0 4 1 5 0 13 0 10 6 13 (p = .048) How often does your co. find out New product ideas last 5 yrs what competitors are doing 0 1–4 5–9 10–14 n=5 n = 19 n = 10 n = 12 On a daily basis 1 1 3 4 On a weekly basis 1 2 0 3 On a monthly basis 0 3 4 4 Beyond a month 3 13 3 1 (p = .009) How often does your co. find out about the environment and techno changes On a daily basis On a weekly basis On a monthly basis Beyond a month Other 14+ n=3 3 0 0 0 Copyrights last 5 years Yes No n=7 n = 35 1 12 2 0 3 13 1 9 0 1 (p = .023) 9.4. Market orientation and innovation The results show an association between keeping abreast with what competitors are doing and keeping up-to-date with the environment and technological changes and, companies' innovativeness. Keeping up with competition also influence new product ideas (p b .05) and environmental and, technological change affect patents and copyrights (p b .05) (Table 10). However, the results do not support the relationship between customer orientation and a company's innovativeness (p N .05). Therefore, the findings partially support H9. 9.5. Market orientation and strategic orientation Table 11 shows the relationship between companies' strategic orientation and market orientation. Prospectors are more active in keeping up-to-date with market changes including keeping abreast with what competitors are doing and how customers evolve (p N .05). Similarly, prospectors tend to find out about the environment and technological change on a daily basis compared with defenders who did it on a monthly basis (p N .05). However, Table 12 shows no significant difference between prospectors and defenders in terms of customer orientation, referring to ‘things that companies do to meet current and future needs of customers’ (p N .05). The results also show no significant difference between prospectors and defenders in terms of sharing of customer information between different functions/groups within the company (Table 11). Therefore, the results partly support H10 and H10a. Table 11 Strategic orientation according to company market orientation Defender Prospector Sharing customer info with different function/grp in the n = 34 co. Yes 47.3 No 14.5 How often do you look at the way your customers and mkt have changed Hardly at all Occasionally Often Regularly All the time How often does your co. find out what competitors are doing On a daily basis On a weekly basis On a monthly basis Beyond a month How often does your co. find out about the environment and techno changes On a daily basis On a weekly basis On a monthly basis Beyond a month Other n = 21 36.4 1.8 (p = .068) n = 36 n = 22 6.9 10.3 19 12.1 13.8 0 1.7 5.2 8.6 22.4 (p = .027) n = 32 n = 20 9.6 3.8 13.5 34.6 17.3 5.8 7.7 7.7 (p = .033) n = 28 n = 20 12.5 2.1 22.9 18.8 2.1 18.8 8.3 8.3 6.3 0 (p = .073) 762 S. Laforet / Journal of Business Research 61 (2008) 753–764 Table 12 Customer orientation according to strategic orientation Things that companies do to meet current and future needs of customers Defender Dialogue with customers Inform customers of our intention See what competitors offer Trend analysis Speculative ideas Legislation, change in macro/micro environment Previous experience of our Manager Market research Market demands Product test Affiliation, knowledge Thro' problem solving, competitors' feedback By anticipating their needs Component drawings Prospector n = 29 n = 20 32.1 2 2 0 0 0 2 2 2 2 2 0 2 2 p N .05 22 0 0 2 2 2 0 2 0 0 2 4.1 2 0 are inferior to prospectors in terms of planning, skills, service offerings to customers and image management ability. The findings also agree with Ghosh et al.'s (2001) study on key success factors in Singaporean SMEs that prospectors displaying higher capability while defenders concentrating on achieving efficiency. That is, prospectors are more innovative than defenders, have strong market orientation, strong vision, access to technology and resources. In particular, the micro firms employing 5 to 10 and 11 to 20 staff have less means to invest in systems and technology than those with up to 201 employees. The findings agree to an extent, that prospectors display some teamwork when evaluating new product ideas and processes (refer Results section) but, disagree on prospectors being more customer focus than defenders, use IT more, have strong management commitment and support, more flexible than defenders as well as, able to develop and sustain capability. In terms of customer orientation, the results of this study concur with Zhou et al.'s (2005) findings that customer orientation has no impact or even hinders innovation in marketbased innovations (or market-oriented companies). Customer orientation has a positive impact and facilitates techno-based innovations (or techno-based companies), which address the needs of mainstream customers (Zhou et al., 2005: p. 54). When a market becomes highly competitive differentiation becomes more difficult. By targeting new and un-served segments, firms can introduce innovations that seize opportunities in emerging markets (Zhou et al., 2005: p. 55). Thus, when consumer preference change rapidly market-oriented firms tend to introduce more innovative products to lead rather than follow the market. As shown above, competitors and environmental factors influence product innovation instead of customers. Consistent with Ghosh et al. (2001), typically, prospectors will try to be the first mover in new product and market areas, while defenders are more concerned with achieving efficiency. Similarly, Zhou et al. also find that technology orientation has an impact on techno-based innovation and has no impact on market-based innovations. As such company commitment to R&D, acquisition of new technology and applications of latest technology. According to the authors, these would benefit techno-based-companies more than non-techno-based companies. This explains why prospectors or innovative companies in the sample did not emphasize process innovation or systems and technology. The results also, support O'Regan and Ghobadian's (2005) findings that prospectors tend to deploy more new process technologies only in turbulent environments. Zhou et al. further argue that possessing new technology is not sufficient to develop market-based innovations in the case of market-oriented companies, entrepreneurial values such as being highly proactive toward market opportunities, tolerant of risk, receptive to innovation and initiate change are fundamental. Consistent with Zhou et al.'s findings, the results show that companies have some entrepreneurial values such as being proactive toward market opportunities and receptive to innovation. With regard to flexibility, management commitment and support, ability to develop and sustain capability, it is possible that the companies surveyed are not typical prospectors. They also exhibit analyzers' characteristics i.e., in-between defender and prospector type companies. In a way, this is not surprising as this reflects the nature of many British SMMEs that tend to be more of a defender and analyzer than a prospector type company. As the sample also indicates, 62% of companies surveyed thought of themselves as defenders. This study has several implications for non-high-tech manufacturing SMEs: Firstly, innovation relates to company size. Small firms often have little choice, but to focus on maintaining its existing market and defending its position than expanding its business. Secondly, to succeed in a new intense competitive manufacturing environment non-high-tech manufacturing SMEs have to be more creative and introduce new products (break through innovations or creative innovations) to explore new market opportunities instead of developing products based on customers' wants. They must take the lead in new product innovation rather than follow the market. Similarly, these companies must be more entrepreneurial i.e., more proactive toward market opportunities and receptive to innovation. However, their weaknesses include a lack of flexibility, due to their company hierarchical structure, a partially closed culture, a lack of continuous improvement and an organizational structure that hinders sustained innovation. The literature mentions that organizational flexibility associates with technobased firms undergoing major organizational change (Lund and Gjerding, 1996); while sustained innovation is also difficult in firms with long histories of stable operations (Dougherty and Hardy, 1996). These views are consistent with the operations of the companies under study. As mentioned above, this reflects in that majority of the SMMEs surveyed are defender type companies and do not exhibit typical prospectors' characteristics. Nevertheless, to compete with global competition and, overcome rapid technology change and product variety proliferation in the new manufacturing environment, SMMEs must be able to sustain product innovation. The key to sustaining innovation is company organization. The qualitative data obtained from open-ended questions suggest that, some transformation towards higher level of S. Laforet / Journal of Business Research 61 (2008) 753–764 automation, multi-tasking, multi-skill and cross-job training in the manufacturing industry in the past 5 years, the perceived barriers to innovation are though: financial, market demand and skilled labour. As mentioned above, the micro firms employing 5 to 10 and 11 to 20 staff have less means to invest in systems and technology than those companies with up to 201 employees, which can affect their innovativeness and competitiveness. To conclude, this study makes several contributions to the literature in the field. The study examines innovation in the context of the strategic (and market) orientation of the firm instead of examining the firm's specific characteristics, the factors contributing to innovation from the organization, the entrepreneur, the project team's perspectives and/or, the effect of external environment and structural factors, which are more appropriate for large firms (e.g., Brown, 1998; Goldsmith and Kerr, 1991; Ramachandran and Ramnarayan, 1993; Lipparini and Sobrero, 1994; Georgellis et al., 2000; Beaver and Prince, 2002; Gray, 2002; Mambula and Sawyer, 2004; Salavou et al., 2004). Thus its emphasis is on the link between innovation and strategy. The study contributes to the recent research on strategic orientation, market orientation and competitive structures on innovation and, focuses on the relationship between these rather than examining each factor in isolation as other researches did. Unlike other studies in the field, the data collected for this study comprise of both managers' perceptions of innovation and firms' evidence of innovation practices. This study also goes one step further than the current literature (e.g., Ettlie and Rubenstein, 1987; Salavou et al., 2004; Lee and Tsai, 2005; O'Regan and Ghobadian, 2005), the findings show more specifically, that strategic orientation relates to new product innovations and a company's innovativeness but, does not relate to process innovation. Equally, competitors' activities and environmental factors influence new product development, not the customers. This study also draws similar conclusions with studies on non-high-tech manufacturing firms and Zhou et al.'s Chinese firms. This study agrees to an extent with Woodside et al.'s (1999) study and agrees/disagrees with Ghosh et al.'s (2001) study on key success factors in Singaporean firms. This research focuses on the relationship between size, strategic and market orientation and innovation and finds an interesting link between a firm's innovativeness, its size, strategic (or competitive) and market orientation. Unlike small manufacturing firms, medium-sized manufacturing firms are innovative, exhibit some prospector type characteristics and have strong market orientation. In terms of managerial and policy implications, the study reveals that sustained innovation is an issue in non-high-tech SMMEs. Another issue is size. The results of the study show that small non-hi-tech manufacturing companies take a defensive position and are not at the forefront of innovations compared with medium-sized firms. The reasons for these results are mainly financial and strategic. However, another possible reason may relate to risk-taking attitude, which this study cannot confirm and is the subject of further investigation. 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