23. Size, strategic, and market orientation affects on innovation

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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: s.laforet@sheffield.ac.uk.
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
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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
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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.
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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.
Further research should use a larger sample size to validate
the theory and focuses on specific sectors within the non-hi-tech
manufacturing industry, though this study does not find sectors
to influence innovation. Companies operating in the same sector
may well follow the same pattern. Further study could examine
763
the effects of size, strategic, market orientation on innovations
using multiple linear regression analysis. A qualitative approach
will also provide more insights on organizational culture, risktaking attitude and how companies can organize themselves to
sustain innovation.
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