nd

F.

t, Mic

0th St

ivers

002; a

some

ge b

proposed relationships. Lastly, implications are offered on the antecedents and consequences of organizational innovativeness.

firms capacity to engage in innovation; that is, the introduc-

tion of new processes, products, or ideas in the organization.

how the drivers of innovativeness operate under varying

conditions in the firms external environment.

Industrial Marketing ManagemStalker, 1961; Hurley, Hult, & Tomas, 1998; Porter, 1990;

Schumpeter, 1934). It is through innovativeness that indus-

trial managers devise solutions to business problems and

challenges, which provide the basis for the survival and

success of the firm well into the future. Innovativeness is one

of the factors over which the management has considerable

control. However, studies on the factors that give rise to

innovativeness in the firm have produced mixed results

effect of three key organizational orientations posited from

the literature on innovativeness, (2) the hypothesized effect

of innovativeness on business performance, and (3) the role

of environmental characteristics in moderating the relation-

ship among the orientations, innovativeness, and business

performance. Findings can help the management to better

understand what types of orientations should be encouraged

with a view to increasing the level of innovativeness amongThis capacity to innovate is among the most important

factors that impact on business performance (e.g., Burns &

To address these issues, a sample of large (Fortune 500)

industrial-based firms is investigated to determine (1) theKeywords: Innovativeness; Market orientation; Learning orientation; Entrepreneurial orientation; Performance; Market turbulence

1. Introduction

A key component in the success of industrial firms is the

extent of their innovativeness. Innovativeness relates to the

innovation contributes to business performance, relatively

little is known about the drivers of innovativeness and how

those drivers operate via innovativeness to collectively

influence performance. Moreover, little is known aboutD 2003 Elsevier Inc. All rights reserved.environmental context? Accordingly, we draw on various theoretical perspectives to develop hypotheses that propose market orientation,

entrepreneurial orientation, and learning orientation as key antecedents to innovativeness, as well as a direct relationship between

innovativeness and business performance. A model is devised and tested that examines these relationships in general and in the context of

varying market turbulence. Findings confirm the validity of the model and afford various insights on the role of market turbulence in theInnovativeness: Its antecedents a

G. Tomas M. Hulta,*, RobertaEppley Center, Eli Broad Graduate School of Managemen

bFordham University, 113 West 6cCollege of Business, Florida State Un

Received 30 December 2

Abstract

In this study, we address three research questions: (1) Why are

innovativeness has on business performance? (3) Does the linka(Abratt & Lombard, 1993; Henard & Szymanski, 2001;

Poolton & Barclay, 1998). While it is generally agreed that

0019-8501/$ see front matter D 2003 Elsevier Inc. All rights reserved.

doi:10.1016/j.indmarman.2003.08.015

* Corresponding author. Tel.: +1-517-353-4336; fax: +1-517-432-1009.

E-mail addresses: hult@msu.edu (G.T.M. Hult),

hurley1@ix.netcom.com (R.F. Hurley), gknight@cob.fsu.edu

(G.A. Knight).1 Tel.: +1-212-636-6760; fax: +1-212-765-5573.2 Tel.: +1-850-644-1140; fax: +1-850-644-4098.impact on business performance

Hurleyb,1, Gary A. Knightc,2

higan State University, East Lansing, MI 48824-1121, USA

reet, New York, NY 10023, USA

ity, Tallahassee, FL 32306-1110, USA

ccepted 21 August 2003

industrial firms more innovative than others? (2) What effect does

etween innovativeness and business performance depend on the

ent 33 (2004) 429438industrial firms.

Based on a review of relevant literature and theoretical

conceptionalizations, we will argue that among the key

antecedents to innovativeness are the constructs of market

orientation, learning orientation, and entrepreneurial orien-

tation. Researchers have emphasized the importance of

market orientation (Jaworski & Kohli, 1993; Narver &

Slater, 1990) and learning orientation (Sinkula, 1994; Slater

HPHighlight

& Narver, 1995) in developing a competitive advantage

(Day, 1994). Recently, research on competitive advantage

has highlighted the importance of entrepreneurial orienta-

tion (Lumpkin & Dess, 1996). While the positional advan-

tage of firms has been suggested to be a function of market

orientation, learning orientation, entrepreneurial orientation,

and innovativeness, no study has examined the linkages

among these constructs in an integrated manner. As such,

we do not know how these constructs interact to influence

business performance. This study intends to shed new and

important light on these constructs and the interrelationships

among them. Specifically, we devise a theory-based struc-

tural equation model that links these constructs together. We

then conduct a survey-based study of multinational firms

that market industrial goods to evaluate the validity of

linkages posited in the model.

tion addressed in this paper is how each of key antecedents

and innovativeness are related and how they collectively

enable the organization to adapt and perform. We now

examine these factors in depth to highlight relationships

among them and their association with business perfor-

mance. The linkages proposed among the constructs inves-

tigated here are illustrated in Fig. 1.

Innovativeness is defined here as the capacity to intro-

duce of some new process, product, or idea in the organi-

zation (Damanpour, 1991; Hurley et al., 1998). An

innovation can be a new product or service, a new produc-

tion process, or a new structure or administrative system.

Certain types of innovations such as administrative innova-

tions that improve internal operations may have no direct or

immediate impact on the marketplace (Han, Kim, & Srivas-

tava, 1998). Zaltman, Duncan, and Holbek (1973) suggest

G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 4294384302. Background and hypotheses

Culture reflects norms, values, and beliefs that reinforce

behaviors ultimately related to business performance. When

specific orientations are embedded in organizational culture,

the intensity and consistency of resultant behaviors are

augmented across situations, groups, and persons within

the firm. A culture that supports the execution of a strategy

is difficult to copy and thus can become a sustainable

competitive advantage (Barney, 1986). The principal ques-We begin by examining how innovativeness has been

related to organizational adaptation and performance in the

context of relevant theoretical perspectives. Next, we assess

the plausibility of market orientation, learning orientation,

and entrepreneurial orientation as antecedents to innova-

tiveness and offer a collection of associated hypotheses. In

the methods section, the study sample of 181 firms is

discussed and the construct measures are evaluated. Next,

the relationships among these constructs are assessed and

discussed.Fig. 1. Hypothesithat one of the stages of the innovativeness process is

initiation. A critical part of the initiation stage is cultural

openness to the innovation (Zaltman et al., 1973, p. 64).

Openness includes whether the members of an organization

are willing to consider the adoption of an innovation or

whether they are resistant to it. Van de Ven (1986) refers to

this as the management of the organizations cultural atten-

tion in order to recognize the need for new ideas and action

within the organization.

Innovativeness is primarily distinguished from entrepre-

neurial orientation in that it does not require new market

entry (Lumpkin & Dess, 1996, p. 136). Much of the firms

innovativeness hinges on the extent to which managers

acquire and act on market intelligence. Organizations that

act are responsive to markets. Organizations without the

capacity to innovate may invest time and resources in

studying markets but are unable to translate this knowledge

into practice.

The adoption of innovation is generally intended to

contribute to the performance or effectiveness of the firm

(e.g., Damanpour, 1991). Business performance is defined

here as the achievement of organizational goals related tozed model.

ketingprofitability and growth in sales and markets share, as well

as the accomplishment of general firm strategic objectives.

The resource-based view (Wernerfelt, 1984) helps to explain

how firms derive competitive advantages by channeling

resources into the development of new products, processes,

and so forth. Innovation is a means for changing an

organization, whether as a response to changes that occur

in its internal or external environment or as a preemptive

move taken to influence an environment. Because environ-

ments evolve, firms must adopt innovations over time and

the most important innovations are those that allow the firm

to achieve some sort of competitive advantage, thereby

contributing to its performance (e.g., Damanpour, 1991;

Henard & Szymanski, 2001; Porter, 1990). This discussion

leads to our first hypothesis.

H1: The magnitude of innovativeness is positively related to

the magnitude of business performance.

While the linkage suggested by this hypothesis is gener-

ally known to be true, it is important to assess it here as a

foundation for other explanations and hypotheses that

follow.

2.1. Market orientation and innovativeness

Kohli and Jaworski (1993) define market orientation as a

set of ongoing behaviors and activities related to generation,

dissemination, and responsiveness to market intelligence. To

some degree, this position is shared by Day (1994) who

views market orientation as ongoing behaviors or processes

via market sensing and buyer linking. Han et al. (1998, p.

31) state, market orientation, as a corporate culture, char-

acterizes an organizations disposition to deliver superior

value to its customers continuously. Fritz (1996) found that

market orientation is important for corporate success. We

argue that in market-oriented organizations, behaving or

introducing a process that inhibits a market focus would feel

wrong and would most likely result in some censure; that is,

it would be counter cultural. Thus, market orientation is

an aspect of culture and is a latent construct whose indica-

tors are values, beliefs, and symbols that demonstrate a

concern for markets.

Narver and Slater (1990) emphasize that market orienta-

tion refers to a culture that places a high priority on creating

buyer value while considering other stakeholders and em-

phasizing responsiveness to market information. Days

(1994) conceptualization holds that market-oriented compa-

nies have processes for collecting market intelligence and

integrating them with strategic decision-making processes.

He suggests that market intelligence comes from outsidein

processes that link with spanning processes (e.g., strategic

planning), which facilitate integration and implementation.

These constellations of behaviors, practices, and routines

G.T.M. Hult et al. / Industrial Marform behavioral syndromes in the organization defined as

culture.While many scholars include responsiveness to markets

as a part of market orientation (e.g., Kohli & Jaworski,

1990), it can be argued that translating market intelligence

into action is part of a larger planning and decision-making

process that affects even internally oriented changes. Indus-

trial firms with a market orientation are likely to devise and

adapt products, services, and processes that continue to meet

the needs of the evolving market. Accordingly, it is likely

that innovative processes naturally flow out of a focus on

being market oriented. Consistent with this view, Jaworski

and Kohli (1993, p. 56) have argued that a market

orientation essentially involves doing something new or

different in response to market conditions, it may be viewed

as a form of innovative behavior. Innovativeness is an

important managerial function because it has been consis-

tently linked to business performance. With the exception of

work by Han et al. (1998) and Hurley et al. (1998), extant

literature has not yet addressed the issue of how market

orientation and innovativeness operate together to affect

company performance. Arguably, a market orientation is

incomplete if practitioners do not understand the modus

operandi that gives rise to creating superior buyer value.

Slater and Narver (1994b) view innovativeness as one of the

core value-creating capabilities that drives the market ori-

entationperformance relationship. In their seminal work,

Zaltman et al. (1973) propose that innovativeness is the

medium for business success in the wake of appropriate

intelligence gathering and decision making (cf. Hurley et

al.,1998). Much later, Deshpande, Farley, and Webster

(1993) speculated on a strong linkage between market

orientation and innovativeness for achieving superior busi-

ness performance outcomes. Most recently, Henard and

Szymanski (2001) highlighted empirical work that suggests

that market orientation contributes to new product success.

Accordingly, we hypothesize,

H2: The magnitude of market orientation is positively

related to the magnitude of innovativeness.

2.2. Learning orientation and innovativeness

Learning orientation has to do with the development of

new knowledge in the organization (Cohen & Sproull, 1996;

Crossan, Lane, & White, 1999). We argue that learning

orientation occurs primarily at the culture level of the firm

and is likely to be mediated by factors that impact directly

on business performance. Two different conceptualizations

of learning orientation can be set forth. Huber (1991)

defines learning orientation broadly as the development of

new knowledge or insights that have the potential to

influence behavior through its values and beliefs within

the culture of the organization. Slater and Narver (1995)

also adopt this definition. The more stringent definition of

learning orientation requires that learning results in new

Management 33 (2004) 429438 431behaviors (Argyris & Schon, 1978; Fiol, 1985). Sinkula

(1994) refers to this demonstration or manifestation of

ketinglearning as augmented knowledge, recognizing that the

ability to apply knowledge implies a greater level of

learning. Clearly, however, learning and innovativeness

are separate constructs that are interrelated. In focusing on

learning orientation as a cultural construct, we adopt Hub-

ers (1991) definition emphasizing cognition to distinguish

learning orientation from innovativeness. Specifically, we

focus on the organizations commitment to learning

(Sinkula, Baker, & Noordewier, 1997, p. 309) and learning

orientation (Hult & Thomas, 1998, p.197). Slater and

Narver (1995) suggest that learning orientation is directly

related to new product success. Calantone, Cavusgil, and

Zhao (2002) also have demonstrated a linkage among

learning orientation, innovation, and performance in the

firm. These ideas lead to the next hypothesis.

H3: The magnitude of learning orientation is positively

related to the magnitude of innovativeness.

2.3. Entrepreneurial orientation and innovativeness

Entrepreneurial orientation can be regarded as entailing

aspects of new entry and especially how new entry is

undertaken (Lumpkin & Dess, 1996). Defining entrepre-

neurial orientation as the processes, practices, and decision-

making activities that lead to new entry is consistent with

Slater & Narvers (1993, 1995) conceptualization. Slater

and Narver (1995, p. 68) suggest that entrepreneurial values

enhance the creation of new businesses within the existing

business and the renewal or revival of ongoing businesses

that have become stagnant or require transformation.

Entrepreneurial orientation suggests a proclivity toward

creation of new products and ventures and a proactiveness

and competitive aggressiveness that embodies a bold

action-oriented positioning (Cooper & Dunkelberg, 1986;

Cooper, Woo & Dunkelberg, 1989). Thus, entrepreneurial

orientation is characterized by boldness and tolerance for

risk that lead to new market entry (Naman & Slevin,

1993; Lumpkin & Dess, 1996) but which may not include

a concern for market analysis or learning endeavors

(Hurley et al., 1998). Building on Lumpkin and Dess

(1996) and Naman and Slevin (1993), we distinguish

entrepreneurial orientation from market orientation, inno-

vativeness, and learning orientation in that entrepreneurial

orientation embodies strategies and actions that the firm

may undertake in order to actualize corporate orientations

and goals.

Entrepreneurial orientation has long been associated with

proactive competitive posture, management proclivity for

risky projects, and the firms need to engage in bold, wide-

ranging acts to achieve objectives (Covin & Slevin, 1989;

Miller, 1987). The manager as entrepreneur is responsible

for the initiation and design of much of the controlled

change in his organization. He continually searches for

G.T.M. Hult et al. / Industrial Mar432new opportunities and problems and he initiates improve-

ment projects to deal with these (Mintzber, 1973, p. 168).Scholars suggest that managerial choice may be severe-

ly influenced by the moderating effect of the external

business environment (Greenley & Oktemgil, 1997). Man-

agers must correctly ascertain the nature of the relevant

environment and formulate strategies accordingly. A num-

ber of researchers have argued that market turbulence

influences the relationships among firm culture, strategy,

and performance (e.g., Greenley & Foxall, 1998; Jaworski

& Kohli, 1993; Miller, 1987; Moorman & Miner, 1998;

Slater & Narver, 1994a, 1995). Langerak, Peelen, and

Commandeur (1997) suggest that successful new product

development depends on the characteristics of the compet-

itive environment in which the industrial firm operates.

However, conceptual arguments and empirical findings

relating the constructs investigated here to market turbu-

lence are absent or inconclusive.

In this study, market turbulence reflects rapidly changing

buyer preferences, wide-ranging needs and wants, ongoing

buyer entry and exit from the marketplace, and constant

emphasis on offering new products. Our earlier discussion

combined with findings from a substantial body of past

research suggests a strong linkage between various types of

innovative activities and company performance (e.g., Han et

al., 1998; Hurley et al., 1998; Miller, 1983; Miller &

Friesen, 1978; Zaltman et al., 1973). In addition, much of

this research has suggested that innovativeness is particu-

larly important when the industrial firm is faced with

substantial market turbulence and other types of environ-

mental disturbances. That is, in an environment where

product preferences are constantly changing, buyers are

continuously seeking new products, and new buyers are

entering on a regular basis, it will be important for industrial

firms to engage in innovative activities in order to achieve

superior performance. Thus, we hypothesize that,

H5: The effect of innovativeness on business performance is

greater under high market turbulence than under low market

turbulence.

In turbulent environments, Slater and Narver (1994a)

have argued that the long-term effects of having a market

orientation are cost effective and generally beneficial. Jawor-

ski and Kohli (1993) suggest that the relationship between a

market orientation and performance appears to hold across a

variety of contexts, emphasizing the role of market orienta-

tion in supporting performance regardless of the firms

external circumstances. It is not likely cost effective to varyThese ideas point to entrepreneurial orientations antecedent

role to innovativeness. Thus,

H4: The magnitude of entrepreneurial orientation is

positively related to the magnitude of innovativeness.

2.4. The role of market turbulence

Management 33 (2004) 429438the level of market orientation with changing market con-

ditions, and it is doubtful that most firms will be skillful

permanently establish a learning orientation across the entire

firm in order to enjoy the various benefits that it confers.

ketingof contexts. That is, among industrial firms that are

strongly entrepreneurial and to the extent it exists at the

culture level of the firm, it is unlikely that managers will seek

to vary the level of entrepreneurial orientation to suit

changing market conditions. These thoughts lead to our final

hypothesis:

H8: The effect of entrepreneurial orientation on innovative-

ness will not differ significantly despite differences in the

degree of market turbulence in the external environment.

3. Method

The sampling frame of 1000 firms with sales above

US$100 million per year and an identifiable marketing

manager was drawn from Dun & Bradstreet Information

Services. It is the marketing manager who typically must

establish the industrial firms market orientation (e.g.,

Narver, Slater, & Tietje, 1998). Strategic business units

(SBUs) were targeted to develop a comprehensive under-

standing of a broad range of culture and strategy elements

and their effect on performance. The marketing executives

were used as key informants in assessing all the con-

structs described above, an approach applied in numerousSpecifically, we anticipate that it will be important for the

industrial firm to maintain a constant level of learning

orientation, regardless of the state of the external market

environment. Consequently, we anticipate that

H7: The effect of learning orientation on innovativeness

will not differ significantly despite differences in the degree

of market turbulence in the external environment.

Entrepreneurial orientation is viewed as an incremental

process within the firm through which innovation results.

As with a market orientation and a learning orientation,

once developed, managers are likely to maintain their

entrepreneurial orientation and the linkage between this

construct and performance is likely to hold across a varietyenough to do so successfully. Therefore, we believe that the

management at industrial firms will encourage a relatively

constant level of market orientation, regardless of the state of

the firms external environment. This notion is tested in the

next hypothesis,

H6: The effect of market orientation on innovativeness will

not differ significantly despite differences in the degree of

market turbulence in the firms external environment.

Learning orientation also has been conceptualized as a

critical culture-level variable that emphasizes ongoing de-

velopment of insights and general knowledge. As with

market orientation, the top management should want to

G.T.M. Hult et al. / Industrial Marstudies (e.g., Gatignon & Xuereb, 1997; Moorman & Miner,

1997; Han et al., 1998) and follows Huber and Powers(1985) guidelines on how to get quality data from single

informants.

Following the completion of a pretest with eight academ-

ics and seven marketing executives and a pilot study of 36

marketing executives to assess the quality of the research

design, 1000 questionnaires were mailed in three separate

waves to the marketing executives along with preaddressed

postage-paid envelopes and a cover letter explaining the

purpose of the study and the confidentiality of responses.

This procedure resulted in the return of 181 completed,

usable questionnaires; a response rate of just over 19% after

accounting for undeliverable surveys. Two tests were used

to assess nonresponse bias. First, the extrapolation proce-

dure of Armstrong and Overton (1977) was used to compare

early and late responding firms on the mean values of study

variables in Fig. 1. Second, we compared groupings of

respondents with nonrespondents on the average size of the

organizations, sales volume, and age based on the data

provided in the Duns Market Identifiers File. Neither the

subjective Armstrong and Overton (1977) procedure nor the

objective analysis using the data in the Duns Market

Identifiers File revealed any results that would suggest a

nonresponse bias.

Following data collection, the measures were subjected

to a purification process involving a series of reliability and

validity assessments in two confirmatory factor analysis

(CFA) models (exogenous and endogenous factors) using

LISREL (Joreskog & Sorbom, 1997, 2000), with the corre-

lation matrices as input into the analyses. Because of sample

size restrictions and to allow for a direct test of the

dimensionality of the constructs, this approach was selected

instead of a single CFA model to fit the constraints of a five-

to-one ratio of sample size to parameter estimates (Bentler

& Cho, 1988). Table 1 summarizes the means, standard

deviations, average variances extracted, construct reliabil-

ities, loadings, fit indices, intercorrelations, and shared

variances for the purified measures.

All purified measures were seven-point Likert scales

anchored by strongly disagree and strongly agree. To

measure market orientation, we used the scale of Narver and

Slater (1990) that, following purification, consisted of 15

items and assessed the subfactors of competitor orientation,

customer orientation, and interfunctional coordination. In-

novativeness was quantified using the five-item scale from

Hurley et al. (1998). The scale for entrepreneurial orienta-

tion used five items adapted from Naman and Slevin (1993),

Covin and Slevin (1989), and originally devised by Khand-

walla (1977). Learning orientation was measured using four

items derived from Baker and Sinkula (1999), Hult and

Thomas (1998), and Sinkula et al. (1997). The scale for

performance assessed profitability, growth in sales, and

market share, as well as general performance and, following

purification, consisted of five items. Lastly, market turbu-

lence was measured using a five-item scale derived from

Management 33 (2004) 429438 433Jaworski and Kohli (1993) and based on the earlier work of

Miller (1987).

oeffic

8 .78

3 .82

3 .87

2 .86

1 .87

0 .92

6 .90

6 .80

4

0

1

7

5

7

1

mer o

ous =

ketingTable 1

Summary statistics of the measurement analysis (n= 181)a

Model/variable Mean S.D. Variance

extracted

(%)

Reliability C

Exogenous

CO 5.36 1.10 52.50 .82 .6

CU 5.49 1.07 59.67 .90 .6

INT 4.64 1.15 59.20 .88 .6

IN 5.25 1.15 60.80 .88 .6

ENT 4.43 1.27 57.40 .88 .6

LO 5.64 1.02 60.50 .85 .5

Endogenous

PERF 5.22 1.22 53.00 .84 .4

MT 4.36 1.16 38.00 .74 .4

Intercorrelations and shared variances of measures (n= 181)b

Variable 1 2 3 4 5

1. Competitor orientation .41 .46 .24 .2

2. Customer orientation .64 .52 .36 .3

3. Interfunctional coordination .68 .72 .30 .3

4. Innovativeness .49 .60 .55 .3

5. Entrepreneurial orientation .49 .55 .56 .61

6. Learning orientation .50 .57 .56 .51 .4

7. Performance .38 .50 .46 .47 .4

8. Market turbulence .17 .14 .24 .28 .4

a Exogenous (firm culture model) = competitor orientation (CO), custo

entrepreneurial orientation (ENT), and learning orientation (LO). Endogen

G.T.M. Hult et al. / Industrial Mar434The model fits were evaluated using the DELTA2 index

(Bollen, 1989), the relative noncentrality index (RNI)

(McDonald & Marsh, 1990), and the comparative fit index

(CFI) (Joreskog& Sorbom, 1997), which have been shown to

be the most stable fit indices by Gerbing and Anderson

(1992). The root mean square residual index (RMSR), root

mean square error of approximation (RMSEA), noncentrality

parameter (NCP), and expected cross-validation index

(ECVI) are included for comparison purposes. The specific

items were evaluated based on the items error variance,

modification index, and residual covariation (Anderson &

Gerbing, 1988; Fornell&Larker, 1981; Joreskog et al., 2000).

Construct reliability was calculated using the procedures

suggested by Fornell and Larcker (1981), including exam-

ining the coefficients and their associated t values and

assessing the average variance extracted for each construct

(cf. Bagozzi & Yi, 1988; Fornell & Larker, 1981). Discrim-

inant validity was assessed in a two-step process. An initial

level of discriminant validity was established by calculating

the shared variances between each pair of constructs and

verifying that it was lower than the average variance

extracted for the individual constructs (Fornell & Larker,

1981). Using these stringent criteria, discriminant validity

was found to achieve a satisfactory level among all meas-

ures in the study (Table 1).

Since two measurement models were used to assess the

scale properties (i.e., exogenous and endogenous models),

significant at the P < .01 level.b The correlations are included in the lower triangle of the matrix. For the mul

the relationship between market turbulence and performance. Shared variances ar750 362 .89 .89 .89 .06 .08 388 4.98

115 50 .90 .90 .90 .07 .08 65 .95

6 7 8

.25 .14 .03

.32 .25 .02

.31 .21 .06

.26 .22 .08

.20 .22 .17

.09 .04

.30 .01

.20 .11

rientation (CU), interfunctional coordination (INT), innovativeness (IN),

performance (PERF) and market turbulence (MT). All coefficients wereients v2 df D2 RNI CFI RMSR RMSEA NCP ECVI

Management 33 (2004) 429438we used a procedure recommended by Anderson (1987) and

Bagozzi and Phillips (1982) to further assess discriminant

validity between the study measures. Pairs of constructs

involving all possible scale combinations were assessed in a

series of two-factor CFA models using LISREL. Each

model was run twice, once constraining the phi (/) coeffi-cient to unity and once freeing this parameter. A chi-square

(v2) difference test was then performed on the nestedmodels to assess if the v2 values were significantly lowerfor the unconstrained models (Anderson & Gerbing,

1982). The critical value (Dv12>3.84) was exceeded in all

cases. The pairwise results (where U is the unconstrained

and C is the constrained estimates) range from a low

Dv12 = 38.82 for the combination of the competitor orienta-

tion/interxfunctional coordination scales (Udf = 26 = 83.67,

C | df = 27 = 122.49) to a high Dv12 = 327.71 for the combina-

tion of the learning orientation/business performance scales

(Udf = 26 = 78.09, C | df = 27 = 405.80). Based on the overall

measurement analysis, the scales used in this study were

viewed as reliable and valid.

4. Analysis and results

All hypotheses were tested via structural equations mod-

eling (SEM) using LISREL. The three dimensions of market

orientation (competitor orientation, customer orientation,

tiattribute variables, all correlations are significant at the P< .05 level except

e included in the upper triangle of the matrix.

and interfunctional coordination; Narver & Slater, 1990)

were individually summated and used as indicators of the

latent market orientation construct. Despite some shortcom-

ings (cf. Oczkowski & Farrell, 1998), summated scales have

been used in numerous past studies. The individual items

were used for each of the other latent constructs in the study

(i.e., learning orientation, innovativeness, entrepreneurial

orientation, and performance).

A SEM model was developed and tested in the analyses

for each of H1H4 and H5H8. The first model provided in

a good fit to the data (v2 = 360.79, df = 10, D2=.94, RNI=.94,CFI=.94, RMSR=.075, RMSEA=.19, NCP = 19.96,

ECVI = 0.27), and all hypothesized relationships except for

H5 and H6 were supported. Specifically, with regard to H1,

innovativeness is positively related to business performance

(.45, t value = 6.70, P < .01). Concerning H2, market orien-

value = 4.11, P < .01) but not in the low market turbulence

group (.11, t value = 1.02), implying a lack of support for

H6. On the other hand, the effect of learning orientation on

innovativeness did not significantly differ across the two

groups (.21, t value = 2.08, P < .05 for the high turbulence

group and .20, t value = 2.13, P < .05 for the low turbulence

group), supporting H7. Moreover, entrepreneurial orienta-

tion had a significant effect on innovativeness in both the

high turbulence (.20, t value = 2.11, P < .05) and low turbu-

lence groups (.50, t value = 5.31, P < .01), suggesting sup-

port for H8.

Lastly, to provide further understanding of the relation-

ships among the constructs, in Fig. 2 we report on the total

(standardized) effects of all the antecedent constructs on

business performance. The strongest overall drivers of per-

formance, as portrayed here, are market orientation, entre-

Our study addresses the impact of innovativeness on

performance and key antecedents to innovativeness in a

G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438 435tation is positively related to innovativeness (.29, t val-

ue = 3.73, P < .01). In support of H3, learning orientation is

positively related to innovativeness (.18, t value = 2.60,

P < .01). Moreover, entrepreneurial orientation is positively

related to innovativeness, supporting H4 (.36, t value = 5.38,

P < .01).

Next, in examining the moderating relationships posited

in H5H8, the sample was split at the median value of

market turbulence (median = 4.40, S.D. = 1.16) into two

groups representing low (n = 86, mean = 3.39, S.D. = 0.66)

and high (n = 80, mean = 5.25, S.D. = 0.73) market turbu-

lence. A second, two-group model was estimated in LIS-

REL and resulted in a good fit to the data (v2 = 323.67,df = 20, D2=.94, RNI=.94, CFI=.94, RMSR=.08,RMSEA=.12, NCP= 19.59, ECVI=.44).

In evaluating the results of the model tests (Fig. 1) in the

low and high market turbulence groups, findings revealed

that the effect of innovativeness on business performance

was not significantly different (P < .05) across the these

groups, suggesting a lack of support for H5. Moreover,

market orientation was found to be significantly related to

innovativeness in the high market turbulence group (.46, tFig. 2. Total (standardized) effects on business performance. All coefficients acomprehensive, empirically verified model. We thereby fill

a significant gap in understanding innovativeness, the nature

of relationships between innovativeness and key variables

that drive it, and the effect of innovativeness on organiza-

tional performance. We also provide an analysis of the

influence of low versus high market turbulence on the

constructs included in the main model. The results provide

an initial benchmark of organizational culture and strategypreneurial orientation, and innovativeness. This implies that

innovativeness partially mediates the relationship between

market orientation and performance and between entrepre-

neurial orientation and performance. On the other hand, the

direct effect of learning orientation on performance in Fig. 2

is insignificant, suggesting that learning orientation must be

mediated by some other construct, such as innovativeness, in

order to have an effect on business performance.

5. Discussion and implicationsre standardized. Coefficients greater than .17 are significant at P< .05.

ketingattributes apparent in conjunction with certain contingencies

in an organizations operating environment. Several contri-

butions to various research streams are noteworthy. First,

our findings highlight the importance of a more integrated

and compositional approach to the study of the effect of

innovativeness and antecedent orientations on business

performance. This approach may be more fruitful and

realistic than previous approaches of examining bivariate

relationships between each of the constructs separately.

Next, empirical findings confirm innovativeness as an

important determinant of business performance, regardless

of the market turbulence in which the firm operates. This

implies that innovative activities are generally important to

the success of the industrial firm. Accordingly, managers are

advised to improve the innovativeness of their businesses in

their efforts to attain superior business performance. That is,

irrespective of the level of market turbulence facing the

firm, the management should seek to be innovative and

maintain a continuous state of innovativeness. These results,

however, should be interpreted within the scope of this

study and the measures used.

As a further contribution, the results imply that innova-

tiveness at least partially mediates the respective relation-

ships among market orientation, learning orientation,

entrepreneurial orientation, and business performance. In-

deed, the findings indicated in Fig. 2 suggest that learning

orientation has no significant direct effect on performance.

In general, the effectiveness of market, learning, and entre-

preneurial orientations appears to operate at least partially

via the medium of innovativeness. These findings further

underscore the role of innovativeness in organizational

performance. Moreover, to the extent innovativeness is

enhanced through the presence of the antecedent orienta-

tions highlighted here, firms should be able to create ever

superior products, an outcome like to increase market shares

and other performance outcomes, particularly when com-

pared to producers with less developed innovative practices.

Innovativeness is also likely to be useful for allowing the

firm to preempt competitors with new or improved products,

diversify product lines, and generally expand the firms

scope of activities. All of these outcomes can help contrib-

ute to achieving sustainable competitive advantage.

In general, evidence from this study underscores the

importance of managerial emphasis on the creation of an

internal business environment conducive to innovative ac-

tivities. Specifically, market orientation was found to have a

significant and positive effect on innovativeness. In the

direct effects model (Fig. 2), market orientation appears to

be the most important overall determinant of business

performance. Moreover, market orientation appears to

strongly influence innovativeness under high market turbu-

lence but not under low market turbulence. While we have

argued that market orientation is enduring and rooted in the

firms basic culture, the finding suggests that there may be

G.T.M. Hult et al. / Industrial Mar436occasions when managers do attempt to adjust the construct

in light of evolving environmental conditions. That is,having a market orientation appears to be critical during

times of high market turbulence when events, such as rapidly

changing buyer preferences, wide-ranging needs and wants,

ongoing buyer entry and exit from the marketplace, and

constant emphasis on offering new products, oblige the

management to draw on organizational resources in order

to sustain innovativeness. Under high market turbulence,

managers might well leverage their customer and competitor

orientations, as well as the interfunctional coordination

aspects of market orientation, in order to support the devel-

opment of new processes, products, or ideas in the organi-

zation. Given that market orientation helps managers to be

more connected to the business environment, such an orien-

tation appears to play a role for allowing the industrial firm to

devise innovative solutions to business problems. Having a

market orientation may be more important when market

composition and preferences are changing rapidly because

such conditions may force the firm to modify its products

and services more often than when it operates in a stable

market.

Our results also indicate that learning orientation has a

significant antecedent effect on innovativeness. According-

ly, firms may leverage the advantages associated with a

learning orientation to strengthen their innovative capabili-

ties. Findings generally suggest that when members of an

organization acquire knowledge via the learning process,

that organization acquires the ability to be innovative. The

finding is consistent with the work of Cohen and Levinthal

(1990), which indicates that the absorptive capacity of the

firm is linked to the absorptive capacity of the people in the

firm. More remarkably, as portrayed in the direct effects

model (Fig. 2), the direct effect of learning orientation in the

presence of the other antecedents investigated here is

insignificant. This implies that while innovativeness is an

important direct driver of performance, it also appears to be

a necessary mediator of the link between learning orienta-

tion and performance. That is, without a strong innovative

capability, learning orientation may provide little or no

value to achieving the performance objectives of the indus-

trial firm. Innovativeness supported by a market orientation

and a learning orientation in particular is likely to be more

effective, generating additional competitive advantages be-

cause of the benefits that these antecedent constructs pro-

vide. That is, firms that are market and learning oriented will

tend to be more in touch with buyers and understand their

markets better, advantages that in turn should translate into

innovative activities that give rise to superior products,

processes, and administrative approaches.

In our explication, we have conceptualized entrepreneur-

ial orientation in terms of proactive and risky acts that

organizations undertake to exploit opportunities. In past

research, entrepreneurial orientation has been viewed as

important for achieving superior performance under high

market turbulence (e.g., Lumpkin & Dess, 1996). While our

Management 33 (2004) 429438findings do not contradict this view, they do suggest that

entrepreneurial orientation plays a key role in the develop-

nal, 7, 5368.

Cooper, A. C., Woo, C. Y., & Dunkelberg, W. C. (1989, September). En-

ketingment and maintenance of innovativeness, regardless of the

level of market turbulence. The results suggest that entre-

preneurial orientation is positively related to innovativeness

in the overall analysis and that the effect of entrepreneurial

orientation on innovativeness is relatively invariant with

different levels of market turbulence. This underscores that

entrepreneurial orientation is likely to be an embedded

culture-level construct.

Overall, the findings imply that entrepreneurial orienta-

tion is an important driver of firm innovativeness. To the

extent that innovativeness is critical for organizational suc-

cess, entrepreneurship appears to be an important orientation

for managers to foster. While market orientation and learning

orientation may help managers to devise superior products,

processes, and ideas, it is likely that entrepreneurial orienta-

tion provides the stimulus for driving such activities. This is

because entrepreneurial orientation embodies the qualities of

proactiveness, aggressiveness, and initiative that can propel

managers into action on various innovation projects. Ac-

cordingly, entrepreneurial orientation might be regarded as

the spark that ignites the firm into innovative action.

In conclusion, our findings point to several critical

factors in the business performance of industrial firms. In

the aggregate, little is known about the interrelationships

among the integrative elements of market orientation, learn-

ing orientation, and entrepreneurial orientation, their effect

on innovativeness, and the subsequent effect of innovative-

ness on business performance. Yet, the evidence introduced

here implies that such interrelationships serve to provide

sustained advantage to organizations and are therefore

important to understand. Innovativeness, in particular,

appears to be a key mediator in the web of relationships

among the constructs. Looking to the future, the turbulence

that characterizes many industries is likely to continue.

Under such conditions, organizations are advised to invest

in developed their market, learning, and entrepreneurial

orientations. Additionally, the management should plan

and implement innovative activities within the framework

of these antecedent constructs. A central message from the

evidence provided is that possession of a strong learning

orientation in the absence of organizational innovativeness

is likely to be substantially less effective for allowing the

firm to achieve its performance goals.

If innovativeness is important for organizational perfor-

mance, the task for the management is to design and

implement an organizational culture that embodies market,

learning, and entrepreneurial orientations. Decisions regard-

ing the basic culture of the firm are typically taken at the

highest levels. On the other hand, decisions regarding

innovativeness tend to be taken at more strategic levels

within divisions involved with marketing and operations, as

well as research and development. Accordingly, to enhance

business performance, it is imperative that an organizational

structure be devised in which these often discrete areas be

G.T.M. Hult et al. / Industrial Marintegrated within a coordinated framework to ensure that

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can afford. We hope that our findings lead to improved

managerial practices and future research that delves more

deeply into these constructs and their interrelationships in a

variety of settings among industrial firms.

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Innovativeness: Its antecedents and impact on business performanceIntroductionBackground and hypothesesMarket orientation and innovativenessLearning orientation and innovativenessEntrepreneurial orientation and innovativenessThe role of market turbulence

MethodAnalysis and resultsDiscussion and implicationsReferences