atuahene gima1

Kwaku Atuahene-Gima

Resolving the Capability–RigidityParadox in New Product Innovation

Managers face an important strategic dilemma in product innovation: how to exploit existing product innovationcompetencies (competence exploitation) while avoiding their dysfunctional rigidity effects by renewing and replac-ing them with entirely new competencies (competence exploration). Although the resolution of what is termed the“capability–rigidity paradox” is considered a fundamental managerial task in enhancing product innovation out-comes and the firm’s competitive advantage, it has received little research attention. The author argues and findssupport that market orientation provides a key to this paradox. Specifically, customer and competitor orientationsensure simultaneous investments in exploiting existing product innovation competencies and exploring new ones.The author also finds that the effects of these orientations on competence exploitation and exploration are differ-entially moderated by interfunctional coordination and perceived market opportunity. Regarding outcomes, compe-tence exploitation and exploration have opposing relationships with incremental and radical innovation perfor-mance. However, the relationship between competence exploration and radical innovation performance ispositively moderated by interfunctional coordination. Overall, the results of this study suggest that market orienta-tion can prevent a firm from becoming operationally efficient but strategically inefficient by simultaneously engen-dering competence exploitation and exploration, which are differentially related to incremental and radical productinnovation outcomes.

Kwaku Atuahene-Gima is Professor of Marketing and Innovation Manage-ment, China Europe International Business School (CEIBS) in Shanghai(e-mail: [email protected]). The author thanks the three anonymous JMreviewers for their constructive feedback. Previous versions of this articlealso benefited from comments and suggestions by Namwoon Kim, StanSlater, Ian Wilkinson, and Rajan Varadarajan. The article also benefitedfrom presentations at the Center for Innovation Management and Organi-zational Change, Department of Management, City University of HongKong, and at the 2004 annual meeting of the Academy of ManagementConference in New Orleans. The author thanks Liang Xiangfen, GuoqingGuo, and Victor Lee for their assistance in developing the instrument andcollecting the data and Ziguang Chen for assisting in analysis of the data.The work described in this article was fully supported by a grant from theResearch Grants Council of the Hong Kong Special AdministrativeRegion, China (No. CityU 1121/02H).

1In line with other researchers (e.g., Danneels 2002; Day 1994;Grant 1996; Henderson and Cockburn 1994), I use the word “com-petence” interchangeably with ”capability.”

In the development of new products, firms face an impor-tant strategic dilemma: Exploiting existing competenciesmay provide short-term success, but competence

exploitation can become a hindrance to the firm’s long-termviability by stifling the exploration of new competenciesand the development of radical innovations (Levinthal andMarch 1993; March 1991). Although many firms are adeptat exploiting existing capabilities, they appear to falter insimultaneously developing new ones (Dougherty 1992;O’Reilly and Tushman 2004). Leonard-Barton (1992) aptlyterms this phenomenon the “capability–rigidity paradox.”1

Many business observers (e.g., Abell 1999; Williamson1999) view the resolution of this paradox as perhaps thetoughest managerial challenge in sustaining a firm’s com-

petitive advantage. Although the literature is replete withwarnings about the dire consequences for firms unable toresolve this paradox, to date, attempts to find a solutionhave been limited to anecdotal reports (e.g., Abell 1999)and a few case studies (e.g., Danneels 2002; Dougherty1992; Leonard-Barton 1992).

This study attempts to resolve this paradox and, indoing so, addresses four research gaps in the extant market-ing literature. First, the essence of the capability–rigidityparadox is that competence exploitation tends to crowd outcompetence exploration (Leonard-Barton 1992). Thus, thekey to the paradox may be organizational factors that canensure simultaneous investments in both the exploitation ofexisting product innovation capabilities and the explorationof new ones. The firm’s market orientation appears to besuch a factor because scholars (e.g., Day 1994, p. 41; Hur-ley and Hult 1998, p. 47) posit that market orientation is aprecursor to capability building. Reports of how DuPontovercame its problems in developing radical innovations(BusinessWeek 2003b, p. 103), Woolworth’s renewed abilityto respond to upstart competitors such as Wal-Mart(Williamson 1999, pp. 119–20), and Hewlett-Packard’sleadership position in the printer business (BusinessWeek2003a) appear to concur with this proposition. In each case,the firm’s resource allocations to exploit existing capabili-ties and to develop new ones were affected substantially byits knowledge of current and future customers andcompetitors.

Second, despite market orientation’s potential to unlockone of the most intriguing managerial dilemmas in productinnovation, previous studies have examined its effect on thefirm’s innovation performance with little attention to thepossible mediation by product innovation competenceexploitation and exploration (e.g., Atuahene-Gima 1995,1996; Baker and Sinkula 1999; Lukas and Ferrell 2000). In

61Journal of MarketingVol. 69 (October 2005), 61–83

© 2005, American Marketing AssociationISSN: 0022-2429 (print), 1547-7185 (electronic)

62 / Journal of Marketing, October 2005

related research, Noble, Sinha, and Kumar (2002) find thatexploitation mediates the link between competitor orienta-tion and firm performance, and Han, Kim, and Srivastava(1998) show that innovativeness mediates the link betweencustomer orientation and performance but not betweencompetitor orientation or interfunctional coordination andperformance. However, these studies did not examineexploitation and exploration simultaneously. Noble, Sinha,and Kumar (2002, pp. 35–36) argue that high-performingfirms not only gather market intelligence but also translateknowledge into learning and insightful strategic actions.Thus, they speculate that because exploration is a moreactive process involving programmatic discovery of newresources and technologies, it may play a more importantrole than exploitation in the transition of customer and com-petitor orientations to firm performance. With a focus onproduct innovation, in this study, I highlight the previouslyoverlooked differential mediating roles of competenceexploitation and exploration because findings could providesupport for the central role that marketing theory ascribes toinnovation capabilities in the link between market orienta-tion and innovation performance (Day 1994; Hurley andHult 1998). For managers, support for a full or partial medi-ation will provide evidence of the differential power of thefacets of market orientation on innovation competencies,thus ensuring better resource allocation decisions.

Third, resolving the capability–rigidity paradox alsorequires insights into why firms that have analogous cus-tomer and competitor knowledge exhibit differential capac-ities for competence exploitation and exploration. Grant(1996, p. 380) notes that the source of competitive advan-tage is how knowledge is coordinated and integrated amongfunctional units rather than knowledge itself. This observa-tion implies the need to examine the moderating role of thefirm’s coordination mechanisms in its use of customer andcompetitor knowledge. Although interfunctional coordina-tion is a key knowledge integration mechanism (Gatignonand Xuereb 1997), few studies examine how it facilitatesthe effects of customer and competitor orientations on thefirm’s product innovation competencies.

Relatedly, Day (1994) observes that managers’ mentalmodels provide a shared ideology that enables collectiveinterpretation of market reality, and thus these models playa key role in managerial decisions about capabilityenhancement and renewal. This insight resonates withresearch showing that managers are more willing to investresources in new strategic initiatives when the market situa-tion is interpreted as an opportunity rather than as a threat(Dutton and Jackson 1987; White, Varadarajan, and Dacin2003). Despite its salience, no studies report on how man-agers’ interpretations of the market situation influence theirdecisions on product innovation competencies. I contendthat the differential ability of firms to transform analogouscustomer and competitor knowledge into product innova-tion competencies lies in their differential interfunctionalcoordination abilities and in the interpretation of the marketsituation as an opportunity rather than as a threat (i.e., per-ceived market opportunity).

Fourth, competence exploitation and exploration arebelieved to have direct but opposing and interactive rela-

tionships with incremental and radical innovations (seeLevinthal and March 1993; March 1991). Thus, a search fora solution to the capability–rigidity paradox necessarilyrequires the determination of whether by enhancing incre-mental innovations competence exploitation crowds outcompetence exploration and inhibits radical innovations(Leonard-Barton 1992). More important, the interactiveeffect of competence exploitation and exploration deter-mines the nature of their balance, which ensures the firm’ssimultaneous pursuit of incremental and radical innova-tions. In addressing this research gap, I also note thatresearchers in both marketing (e.g., Day and Wensley 1988,p. 7; Gatignon and Xuereb 1997) and strategy (e.g., Grant1996; Henderson and Cockburn 1994) observe that superiorresources are converted into positional advantages throughthe firm’s knowledge integration processes. Thus, I suggestthat interfunctional coordination not only transforms cus-tomer and competitor orientations into product innovationcapabilities but also plays the dual role of integrating inno-vation capabilities to facilitate incremental and radical inno-vations. Figure 1 presents the conceptual model I tested toaddress the previously identified research gaps.

Theory DevelopmentSuccessful product innovation demands that a firm mustexploit its existing competencies while trying to avoid theirdysfunctional rigidity effects by renewing and replacingthem with entirely new ones (Leonard-Barton 1992). Acompetence or capability refers to the knowledge, skills,and related routines that constitute a firm’s ability to createand deliver superior customer value (Day 1994, p. 38).Thus, it reflects behavior processes that engender proce-dural knowledge or skill (i.e., knowing how to do some-thing) (Kogut and Zander 1992). This definition reflects thenotion that competencies are developed through pathdependent learning processes (Henderson and Cockburn1994). In this study, competence exploitation refers to thetendency of a firm to invest resources to refine and extendits existing product innovation knowledge, skills, and pro-cesses. Its aims are greater efficiency and reliability ofexisting innovation activities. In contrast, competenceexploration refers to the tendency of a firm to investresources to acquire entirely new knowledge, skills, andprocesses. Its objective is to attain flexibility and novelty inproduct innovation through increased variation and experi-mentation. This distinction draws on March’s (1991, p. 85)view of exploitation as “the refinement and extension ofexisting competencies, technologies, and paradigms” andexploration as “experimentation with new alternatives thathave returns that are uncertain, distant, and often negative.”Exploitation and exploration reflect an organizational atti-tude that manifests in investment decisions (Chandy andTellis 1998, p. 477). Because the benefits of exploration aredistant and uncertain, managers tend to put more resourcesinto exploitation than into exploration (March 1991). Thus,the key to the capability–rigidity paradox may be factorsthat can prevent exploitation from crowding out explorationso that the firm can develop incremental and radical innova-tions simultaneously. The resource-based view (RBV) of

Resolving the Capability–Rigidity Paradox / 63

Notes: For the sake of clarity, I do not include the interaction effects of competence exploitation and exploration on incremental and radicalinnovation performance.

FIGURE 1Conceptual Model of the Relationships Among Market Orientation, Product Innovation Competencies,

and Innovation Performance

Customer Orientation

Competitor Orientation

Perceived market opportunity

Competence exploitation

Incremental innovation

performance

Radical innovation

performance

Competence exploration

Interfunctional coordination

Control Variables•Firm size•Organizational slack•Behavior control•Output control•Product development alliance•Environmental turbulence•Market launch capability

Denotes relationships supported in this study

Denotes relationships not supported in this study

the firm and marketing theory suggest that the componentsof market orientation play this role.

Effects of Customer and Competitor Orientationson Product Innovation Competence

The first component of market orientation, customer orien-tation, involves generating information about current andfuture customers and disseminating and using it within thefirm. The second, competitor orientation, refers to generat-ing information about current and future competitors anddisseminating and using it within the firm (Jaworski andKohli 1993; Narver and Slater 1990). The RBV argues thatthe performance differences among firms result fromknowledge resources that can be used to create idiosyn-cratic, inimitable internal capabilities (Amit and Schoe-maker 1993; Barney 1991). Managers exercise discretionover the use of firm resources by making decisions to con-

vert them into superior products and services (Penrose1959). Thus, Kogut and Zander (1992, p. 384) note that “thetheoretical challenge is to understand the knowledge base ofthe firm as leading to a set of capabilities that enhance thechances of growth and survival.” Therefore, according tothe RBV, competitive advantage results not from the merepossession and control of rare and valuable resources butrather from the idiosyncratic internal competencies bywhich a firm translates its resources into superior customervalue (Amit and Schoemaker 1993; Barney 1991). Suchinternal competencies sustain competitive advantagebecause they are difficult for competitors to imitate (Reedand DeFillippi 1990).

Market knowledge is a resource with which managerscan uncover current capability deficiencies in the firm andemerging market opportunities that may require the devel-opment of new capabilities. Thus, the RBV scholars affirm


that a firm’s internal capabilities are a function of its inter-actions with the market, the opportunities available to it,and the limitations of its current capabilities (Schroeder,Bates, and Junttila 2002, p. 106). For this reason, Cockburn,Henderson, and Stern (2000) observe that managers aresensitive to environmental cues such that the origins of thefirm’s competitive advantage may lie in their ability toinvest in appropriate internal competencies in response tothose cues. Barney and Zajac (1994, p. 6) echo this view,noting that “as firms learn how to overcome specific com-petitive challenges, they develop potentially valuableresources and capabilities.” Levinthal and Myatt (1994, p.46) also explain that how a firm’s capabilities evolve is inti-mately linked with its knowledge about how the competi-tive markets it serves evolve.

Marketing theory coincides with these tenets of theRBV. For example, Day’s (1994, p. 41) thesis on capabili-ties of market-driven firms posits that the superior market-sensing capabilities of firms “inform and guide both span-ning and inside-out capabilities,” such as productdevelopment capabilities. Several other studies note thatmarket orientation plays a role in building firm capabilitiesfor innovation (Atuahene-Gima and Ko 2001; Hurley andHult 1998; Slater and Narver 1995; Sorescu, Chandy, andPrabhu 2003) and for dealing with economic crisis (Grewaland Tansuhaj 2001). Some scholars suggest that a focus oncurrent market conditions could lead a firm into a “compe-tency trap” by diverting attention away from emerging cus-tomers and competitors (Christensen and Bower 1996).However, Barnett, Greve, and Park (1994, p. 12) argue thatan awareness of changing market conditions “can causecurrent practices in the organization to be considered inade-quate. Hence, a firm that faces competition is more likely torefine current routines or to make innovations” (emphasisadded). In particular, market-oriented firms not onlyrespond to current market conditions but also anticipatefuture market conditions (Chandy and Tellis 1998; Day1994; Kohli and Jaworski 1990; Slater and Narver 1995).With deeper knowledge of the current and future customersand competitors, managers become dissatisfied with theinadequacies of current capabilities, which results in invest-ments in new capabilities (Huff, Huff, and Thomas 1992)and insightful strategic change (Noble, Sinha, and Kumar2002, p. 35). In brief, both the RBV and marketing theoryindicate that a firm cannot exploit its existing innovationcapabilities or develop new ones without knowledge ofmarket conditions. Thus:

H1: Customer orientation is positively related to (a) compe-tence exploitation and (b) competence exploration.

H2: Competitor orientation is positively related to (a) compe-tence exploitation and (b) competence exploration.

The moderating role of interfunctional coordination.This construct refers to the degree to which the functionalunits in the firm interact, communicate, and coordinate withone another to collect and use market information (Jaworskiand Kohli 1993; Narver and Slater 1990). Knowledge hasattributes (e.g., complexity, tacitness) that make it difficultto create and transfer it within the firm (Galunic and Rodan

1998; Kogut and Zander 1992; Szulanski 1996). Thus,Grant (1996) and other researchers (e.g., Zahra, Ireland, andHitt 2000; Zahra and Nielson 2002) note that the conversionof knowledge into value-creating processes depends on thefirm’s knowledge integration mechanisms. Interfunctionalcoordination enables firms to synthesize, integrate, andapply current and newly acquired external knowledge (Hen-derson and Cockburn 1994; Kogut and Zander 1992). Mar-keting scholars acknowledge the internal stickiness of mar-ket knowledge and highlight the integrative role ofinterfunctional coordination (Day 1994, p. 44; Olson,Walker, and Ruekert 1995). Building on this literature, Isuggest that interfunctional coordination moderates theeffects of customer and competitor orientations on productinnovation competencies for two reasons. First, it results inlateral communication that deepens knowledge flows acrossfunctional boundaries. By enhancing efficient knowledgeexchange, it ensures that the firm generates new and broad-ened insights from market knowledge through constantreinterpretation of each functional perspective (Grant 1996;Kohli and Jaworski 1990). Second, interfunctional coordi-nation builds trust among different functional units, creatingconditions for harnessing the diverse functional perspec-tives in the use of market information (Jaworski and Kohli1993; Narver and Slater 1990). This permits a critical, unbi-ased assessment of the firm’s product innovation competen-cies and enables the cross-fertilization of ideas that ensurebetter decisions about refining existing competencies anddeveloping new ones (Zahra, Ireland, and Hitt 2000).

H3: The positive effect of customer orientation on (a) compe-tence exploitation and (b) competence exploration isstronger when interfunctional coordination is high thanwhen it is low.

H4: The positive effect of competitor orientation on (a) com-petence exploitation and (b) competence exploration isstronger when interfunctional coordination is high thanwhen it is low.

The moderating role of perceived market opportunity.This construct refers to the tendency of managers to inter-pret a market situation as having positive rather than nega-tive implications for the firm, as representing a potentialgain rather than loss, and as being controllable rather thanuncontrollable. Opportunities and threats are the mentalschemata that commonly underlie managers’ interpretationsof the market environment. Dutton and Jackson (1987, p.80, emphases in original) describe a threat as a “negativesituation in which loss is likely and over which one has rel-atively little control,” and an opportunity as a “positive situ-ation in which gain is likely and over which one has a fairamount of control.” Because a market situation typicallyinvolves both threats and opportunities, it is often definedby the three continua: positive–negative, gain–loss, andcontrollable–uncontrollable (Thomas, Clark, and Gioia1993); these are reflected in the preceding definition of per-ceived market opportunity.

Mental models shape managerial interpretations of amarket situation, thereby significantly influencing how afirm’s market orientation affects the development and use ofits capabilities (Day 1994, p. 43). Managers who perceive


threats rather than opportunities in the market tend tobecome risk averse and respond to market events by focus-ing on current domains in which they perceive greater con-trol in order to improve efficiency and reliability of opera-tions (Thomas, Clark, and Gioia 1993). In contrast,managers who perceive market opportunities engage inactions that involve greater risk and resource commitments(Dutton and Jackson 1987). It follows that perceived marketopportunity is more likely to enhance competence explo-ration than competence exploitation. In addition, perceivedmarket opportunity is more likely to amplify the positiveeffect of customer and competitor orientations on compe-tence exploration than on competence exploitation. Thelogic is that such a mental model imbues managers withgreater boldness and proactiveness, thus encouraging amore critical assessment of the efficacy of the firm’s currentcompetencies. Interpretation of a market situation as anopportunity also helps engender greater support in the firmfor initiatives to overcome its competence deficiencies totake advantage of the opportunity discovered (White,Varadarajan, and Dacin 2003).

H5: The positive effect of customer orientation (a) on compe-tence exploitation is weaker when the perceived marketopportunity is high than when it is low and (b) on compe-tence exploration is stronger when the perceived marketopportunity is high than when it is low.

H6: The positive effect of competitor orientation (a) on com-petence exploitation is weaker when the perceived marketopportunity is high than when it is low and (b) on compe-tence exploration is stronger when the perceived marketopportunity is high than when it is low.

Effects of Competence Exploitation andExploration on Innovation Performance

Resolving the capability–rigidity paradox also requires anassessment of the effects of the firm’s product innovationcompetencies on its performance in incremental and radicalinnovations (Dougherty 1992; Leonard-Barton 1992). Per-formance refers to the number of new product innovationsintroduced by the firm, percentage of sales of new productinnovations, and the relative frequency of introducing inno-vations compared with competitors. Incremental innova-tions are product improvements and line extensions that areusually aimed at satisfying the needs of existing customers.They involve small changes in technology and little devia-tion from the current product-market experiences of thefirm. In contrast, radical innovations involve fundamentalchanges in technology for the firm, typically address theneeds of emerging customers, are new to the firm and/orindustry, and offer substantial new benefits to customers(Chandy and Tellis 1998). Exploiting existing competenciesincreases efficiency and productivity through the search forand use of solutions to customer problems in the neighbor-hood of the firm’s current experience (March 1991). Thus,competence exploitation increases incremental innovationsand may hinder radical innovations because it focuses atten-tion on variety reduction and productivity improvements inexisting products (Christensen and Bower 1996; Danneels2002). Competence exploration involves experimentationthat focuses on emerging markets and technologies for

ideas to produce radical rather than incremental innovationsthat offer entirely new value for customers. Leonard-Barton(1992) finds that current competencies lead to new productprojects that align with those competencies and hinderthose lacking such alignment.

H7: Competence exploitation is (a) positively related to incre-mental innovation performance and (b) negatively relatedto radical innovation performance.

H8: Competence exploration is (a) negatively related to incre-mental innovation performance and (b) positively relatedto radical innovation performance.

March (1991) argues for a balance between exploitationand exploration tendencies, cautioning that a firm that is toooriented toward exploitation is likely to suffer because of alack of novel ideas. Similarly, a firm that is too orientedtoward exploration suffers the costs of experimentationwithout gaining many of its benefits because it exhibits toomany new and risky ideas and little refinement of its exist-ing competencies. This notion of balance reflects the RBVtenet that competitive advantage is a function of the uniquebundling of heterogeneous resources and capabilities thatincreases the complexity and ambiguity of organizationalactions (Amit and Schoemaker 1993; Barney 1991). Forexample, according to Reed and DeFillippi (1990, p. 93,emphasis added), “ambiguity may be derived from the com-plexity of skills and/or resource interactions within compe-tencies and from interaction between competencies.” Fromthis perspective, the interaction between competenceexploitation and exploration reflects a complex capabilitywhose value exists only in their relationship (Colbert 2004).Although each of competence exploitation and explorationmay affect a firm’s innovation performance, their interrela-tionship provides an additional source of competitiveadvantage beyond those provided by each one individually(see Colbert 2004, p. 349). This notion of balance is ofteninterpreted as implying that firms need to combine highexploitation with high exploration to achieve superior per-formance. However, this overlooks March’s (1991) cautionthat both exploitation and exploration have inherent limita-tions. Indeed, exploitation and exploration thrive under dif-ferent organizational conditions, which makes their combi-nation difficult (O’Reilly and Tushman 2004).

Thus, Nerkar (2003) argues that the notion of balancecould also imply that a high (low) exploitation needs to becoupled with a low (high) exploration to enhance firm per-formance. Too much exploration could be costly becausethe firm may move from one new idea to the next withoutexploiting prior learning and experience (Levinthal andMarch 1993; March 1991). In addition, novel products maybe underdeveloped, and their fit with customer needs maybe unknown. A dose of exploitation tempers these potentialexcesses of exploration by helping the firm evaluate andassimilate new ideas more effectively (Danneels 2002).Similarly, too much competence exploitation involves costsbecause the firm lacks the novel skills and knowledge togenerate new insights in product innovation (March 1991).Overcoming these costs requires a dose of exploration(March 1991, p. 71). Given the different notions of balance,I posit the following nondirectional hypotheses:


H9: The interaction between competence exploration andexploitation is related to (a) incremental innovation per-formance and (b) radical innovation performance.

The moderating role of interfunctional coordination.The RBV suggests that it is the heterogeneity not only ofcompetence endowments but also of competence deploy-ment abilities that accounts for differences in competitiveadvantage among firms (Barney 1991). The competitiveadvantage that a firm’s capabilities confer depends largelyon the efficiency with which they are integrated (Day andWensley 1988; Grant 1996). For example, Henderson andCockburn (1994, p. 65) suggest that a firm’s competitiveadvantage is enhanced when its “component competencies”(i.e., knowledge and skills) are combined with “architec-tural competencies” (i.e., the ability to coordinate an exten-sive flow of information within the firm to use componentcompetencies). Without such coordination, conflicts andmistrust among functions stand in the way of a firm’s effec-tive use of its capabilities (Zahra and Nielson 2002). Inter-functional coordination reduces cross-functional conflictand promotes commitment and the efficient combination ofdifferent functional insights that are necessary for turning afirm’s competencies into superior customer value (Kohliand Jaworski 1990; Olson, Walker, and Ruekert 1995).Indeed, Gatignon and Xuereb (1997) find that interfunc-tional coordination enables the firm to use its resources toachieve desired innovation characteristics and outcomes.Thus, I posit that interfunctional coordination strengthensthe positive and weakens the negative aspects of compe-tence exploitation and exploration on incremental and radi-cal innovation performance. Formally,

H10: The positive effect of competence exploitation on incre-mental innovation performance is stronger when inter-functional coordination is high than when it is low.

H11: The negative effect of competence exploitation on radicalinnovation performance is weaker when interfunctionalcoordination is high than when it is low.

H12: The negative effect of competence exploration on incre-mental innovation performance is weaker when inter-functional coordination is high than when it is low.

H13: The positive effect of competence exploration on radicalinnovation performance is stronger when interfunctionalcoordination is high than when it is low.

Other Potential Antecedent Factors

In addition to the previously described factors, productinnovation competencies and outcomes may be affected byseveral other firm-specific and environmental factors. Forexample, firms with domain defensive strategies tend todefend their existing markets by preserving traditionalproduct lines, suggesting a tendency for competenceexploitation and incremental innovation. In contrast, firmsthat pursue domain offensive strategies have high first-mover predispositions and thus a penchant for new compe-tencies to develop radical innovations (Abell 1993, 1999).The firm’s willingness to cannibalize (i.e., its propensity toreduce the actual or potential value of its investments incurrent products), its incumbency, and the degree of domi-nance of the firm in the industry all may influence the

firm’s tendencies for competence exploitation and explo-ration and for incremental and radical innovations (Chandy,Prabhu, and Antia 2003; Chandy and Tellis 1998, 2000).

The firm’s new product control systems are particularlysalient for innovation competencies and their outcomes(e.g., Cardinal 2001; Olson, Walker, and Ruekert 1995)because they affect managers’ assessment of performancerisk (Atuahene-Gima and Li 2002; Hitt et al. 1996). Specif-ically, output control (the measurement and reward of pro-ject teams based on results achieved) encourages low-riskactivities, such as competence exploitation and incrementalinnovations. This is because project members bear a dispro-portionate share of the project’s performance risk and thusdevelop risk-averse behaviors. In contrast, behavior control(the measurement and reward for the achievement ofprocess and strategic objectives rather than their outcomes)engenders exploration and radical innovations by encourag-ing risk-seeking behaviors (Hitt et al. 1996). Factors such asfirm size and slack reflect greater resources and marketpower to exploit existing competencies, build new ones, anddevelop innovations (Chandy and Tellis 1998; Gatignon andXuereb 1997). In addition, product development alliancesalso affect a firm’s innovation capabilities and success byexposing it to external knowledge and opportunities (Li andAtuahene-Gima 2002; Rindfleisch and Moorman 2001).

Environmental turbulence reflects rapid market andtechnological changes that managers perceive as hostile andstressful conditions for their firm. Turbulence often renderscurrent firm competencies obsolete (Tushman and Nelson1990), leading managers to upgrade existing capabilitiesand develop entirely new ones (Day 1994). Finally, marketlaunch capability, which refers to the firm’s ability to designand implement new product launch activities effectively,should affect innovation performance (Day and Wensley1998). Although this review shows several potential controlfactors in testing the proposed model, Figure 1 shows thevariables for which data were available.

Research Methods

Sample and Data CollectionChina is an ideal context for this study because the com-plexity and dynamism of this transitional environmentmeans that firms must confront the challenges of new (oftendysfunctional) competition and also collapsing capabilities(Li and Atuahene-Gima 2001, 2002). Thus, scholars suggestthat success in China’s market requires both prospector(exploration) and defender (exploitation) orientations (Luoand Park 2001, p. 145). As a testimony to the importance ofmarket orientation in competence exploitation and explo-ration, Luo (2002, p. 60) reports that Kodak’s success inChina is due to the adaptation of its existing competenciesand the development of new ones to respond to marketchanges.

The instrument was prepared in English and then trans-lated into Chinese. It was checked for accuracy followingthe conventional back-translation process. It was tested with25 managers who had at least three years’ business experi-ence in China to ensure the face validity and appropriate-


2The interviewer returned each completed questionnaire alongwith the business card of the respondent. This procedure facilitates(1) quality control by allowing for independent verificationthrough telephone calls to ascertain that the informants were inter-viewed and that they completed the questionnaires and (2) thedelivery of the summary of the research results to informants.

ness of the measures in the Chinese context. The samplewas 500 firms located in Guangdong province; they wererandomly selected from a mailing list of 1650 electronicsfirms provided by a local consulting firm. An interviewerscheduled appointments with two key informants in eachfirm, presented the questionnaire to them, and collected thequestionnaire after completion. In China, this procedure iscritical for ensuring quality control and reliability of thedata (Li and Atuahene-Gima 2001, 2002).2 I received 227usable questionnaires for a participation rate of 45.4%.Given the on-site data collection, a test of response bias bycomparing early and late respondents was not appropriate. Icompared a sample of participating and nonparticipatingfirms. The analysis of variance test was not significant forfirm age (F = 1.05), number of employees (F = .98), andsales (F = 1.32), suggesting no response bias.

To assess informants’ quality, they indicated on a seven-point scale their degree of knowledge (1 = “very limitedknowledge,” 7 = “very substantial knowledge”) about theissues under study. The means for the first and second infor-mants were 6.22 and 6.31, respectively. The first informant(marketing managers 75%, chief executive officers [CEOs]20%, and research and development [R&D] managers 5%;mean industry experience = 12.50 years; mean firm experi-ence = 9.45 years) gave data on customer and competitororientations, incremental and radical innovations, environ-mental turbulence, market launch capability, and productdevelopment alliances. The second informant (marketingmanagers 25%, CEOs 60%, and R&D managers 15%;mean industry experience = 13.97 years; mean firm experi-ence = 10.69 years) provided data on competence exploita-tion and exploration, interfunctional coordination, per-ceived market opportunity, slack, firm size, output, andbehavior controls. This procedure separates the informantsfor the measures for the main predictor and criterion vari-ables, thus eliminating common method bias (Slater andAtuahene-Gima 2004). I pooled the data because the analy-sis of variance test showed that the constructs did not differsignificantly (p > .10) among different respondents.

Measures and Validation

Table 1 reports the measures and their sources. I ran twoconfirmatory factor analyses, grouping measures of theoret-ically related constructs to ensure acceptable parameterestimate-to-observation ratios. The fit indexes reported inTable 1 indicate that each model fits the data reasonablywell. All the t-values for the estimated factor loadings forthe theoretical constructs are significant, suggesting conver-gent and discriminant validity. I conducted a series of con-firmatory factor analyses to test whether a two-factor modelof their measures would fit better than a one-factor modelfor every pair of constructs (Bagozzi, Yi, and Philips 1991).As further evidence of the discriminant validity of the mea-

3The results of the most closely related theoretical constructs inthe study are as follows: customer orientation versus competitororientation (constrained model: χ2 = 457.16, degrees of freedom[d.f.] = 44; unconstrained model: χ2 = 136.52, d.f. = 43; χ2 differ-ence = 320.64, d.f. = 1), customer orientation versus incrementalinnovation performance (constrained model: χ2 = 246.91, d.f. =35; unconstrained model: χ2 = 91.78, d.f. = 34; χ2 difference =155.13, d.f. = 1), customer orientation versus radical innovationperformance (constrained model: χ2 = 337.55, d.f. = 44; uncon-strained model: χ2 = 121.03, d.f. = 43; χ2 difference = 216.52,d.f. = 1), competitor orientation versus incremental innovation per-formance (constrained model: χ2 = 197.75, d.f. = 14; uncon-strained model: χ2 = 35.76, d.f. = 13; χ2 difference = 161.99, d.f. =1), competitor orientation versus radical innovation performance(constrained model: χ2 = 361.82, d.f. = 20; unconstrained model:χ2 = 30.20, d.f. = 19; χ2 difference = 331.62, d.f. = 1), perceivedmarket opportunity versus interfunctional coordination (con-strained model: χ2 = 633.83, d.f. = 35; unconstrained model: χ2 =73.86, d.f. = 34; χ2 difference = 559.97, d.f. = 1), competenceexploitation versus competence exploration (constrained model:χ2 = 567.81, d.f. = 28; unconstrained model: χ2 = 77.67, d.f. = 27;χ2 difference = 490.14, d.f. = 1), incremental versus radical inno-vation performance (constrained model: χ2 = 163.49, d.f. = 14;unconstrained model: χ2 = 17.76, d.f. = 13; χ2 difference =145.73, d.f. = 1), and behavior control versus output control (con-strained model: χ2 = 212.46, d.f. = 9; unconstrained model: χ2 =13.76, d.f. = 8; χ2 difference = 198.70, d.f. = 1). All chi-square dif-ferences are significant at the .001 level.

4The interrater reliability for each construct measured with mul-tiple items are as follows: customer orientation (r = .89, p < .01),competitor orientation (r = .82, p < .01), interfunctional coordina-tion (r = .73, p < .01), perceived market opportunity (r = .87, p <.01), competence exploitation (r = .79, p = .01), competenceexploration (r = .77, p < .01), incremental innovation performance(r = .67, p < .01), radical innovation performance (r = .88, p < .01),organizational slack (r = .86, p < .01), environmental turbulence(r = .95, p < .01), behavior control (r = .69, p < .01), output control(r = .63, p < .01), product development alliance (r = .81, p < .01),and market launch capability (r = .87, p < .01).

sures, in each case, the chi-square for the constrained modelwas significantly greater than the chi-square for the uncon-strained model.3 The composite reliability for each con-struct is greater than the recommended .70. All but compe-tence exploitation met the required .50 threshold foraverage variance extracted.

To assess interrater reliability for the measures, partici-pating firms were interviewed a second time 14 monthsafter the primary survey. Data were received from 127firms. The responses of the first and second respondent inthe second survey were correlated with those of the secondand first respondent in the primary survey. Interrater relia-bility for the variables ranged from r = .95 (p < .01) forenvironmental turbulence to r = .63 (p < .01) for output con-trol. These results provide evidence of the reliability of thedata obtained in the primary survey.4

Analysis and ResultsI used the data obtained from the first (primary) survey forthe analyses. Table 2 presents the correlation matrix anddescriptive statistics of the measures. Examination of theskewness and kurtosis values for all the variables (see Table2) indicated that firm size was skewed. I transformed firmsize by taking its logarithm to ensure normal distribution. I


TAB

LE

1C

on

firm

ato

ry F

acto

r A

nal

ysis

of

Mea

sure

s

Co

nst

ruct

an

d S

ou

rce

Op

erat

ion

al M

easu

res

of

Co

nst

ruct

Mo

del

1M

od

el F

it In

dex

es:

χ2=

662.

89,d

.f.=

423

;χ2

/d.f

.= 1

.57;

RM

SE

A =

.04,

GF

I = .9

0,C

FI =

.93,

and

NN

FI =

.92

SF

La

t-V

alu

e

1.W

e re

gula

rly m

eet

cust

omer

s to

lear

n ab

out

thei

r cu

rren

t an

d po

tent

ial n

eeds

for

new

pro

duct

s..6

812

.10

2.W

e co

nsta

ntly

mon

itor

and

rein

forc

e ou

r un

ders

tand

ing

of t

he c

urre

nt a

nd f

utur

e ne

eds

of c

usto

mer

s..8

013

.93

3.W

e ha

ve a

tho

roug

h kn

owle

dge

abou

t em

ergi

ng c

usto

mer

s an

d th

eir

need

s..8

510

.52

4.In

form

atio

n ab

out

curr

ent

and

futu

re c

usto

mer

s is

inte

grat

ed in

our

pla

ns a

nd s

trat

egie

s..6

510

.52

5.W

e re

gula

rly u

se r

esea

rch

tech

niqu

es s

uch

as fo

cus

grou

ps,

surv

eys,

and

obs

erva

tions

to

gath

er c

usto

mer

in

form

atio

n..8

214

.50

6.W

e ha

ve d

evel

oped

effe

ctiv

e re

latio

nshi

ps w

ith c

usto

mer

s an

d su

pplie

rs t

o fu

lly u

nder

stan

d ne

w

tech

nolo

gica

l dev

elop

men

t th

at a

ffect

cus

tom

ers’

need

s..5

17.

727.

We

syst

emat

ical

ly p

roce

ss a

nd a

naly

ze c

usto

mer

info

rmat

ion

to f

ully

und

erst

and

thei

r im

plic

atio

ns fo

r ou

r bu

sine

ss.

.76

12.9

4

1.W

e re

gula

rly c

olle

ct a

nd in

tegr

ate

info

rmat

ion

abou

t th

e pr

oduc

ts a

nd s

trat

egie

s of

our

com

petit

ors.

.55

8.88

2.W

e sy

stem

atic

ally

col

lect

and

ana

lyze

info

rmat

ion

abou

t po

tent

ial c

ompe

titor

act

iviti

es.

.61

9.13

3.M

anag

ers

in t

his

firm

reg

ular

ly s

hare

info

rmat

ion

abou

t cu

rren

t an

d fu

ture

com

petit

ors

with

in t

he c

ompa

ny.

.69

11.5

14.

Our

kno

wle

dge

of c

urre

nt a

nd p

oten

tial c

ompe

titor

s’st

reng

ths

and

wea

knes

ses

is v

ery

thor

ough

..7

512

.94

1.T

he a

ctiv

ities

of

func

tiona

l uni

ts a

re t

ight

ly c

oord

inat

ed t

o en

sure

bet

ter

use

of o

ur m

arke

t kn

owle

dge.

.60

8.99

2.F

unct

ions

suc

h as

R&

D,

mar

ketin

g, a

nd m

anuf

actu

ring

are

tight

ly in

tegr

ated

in c

ross

-fun

ctio

nal t

eam

s in

th

e pr

oduc

t de

velo

pmen

t pr

oces

ses.

.74

10.8

93.

R&

D a

nd m

arke

ting

and

othe

r fu

nctio

ns r

egul

arly

sha

re m

arke

t in

form

atio

n ab

out

cust

omer

s, t

echn

olog

ies,

an

d co

mpe

titor

s..7

210

.78

4.T

here

is a

hig

h le

vel o

f co

oper

atio

n an

d co

ordi

natio

n am

ong

func

tiona

l uni

ts in

set

ting

the

goal

s an

dpr

iorit

ies

for

the

orga

niza

tion

to e

nsur

e ef

fect

ive

resp

onse

to

mar

ket

cond

ition

s..6

49.

975.

Top

man

agem

ent

prom

otes

com

mun

icat

ion

and

coop

erat

ion

amon

g R

&D

, m

arke

ting,

and

man

ufac

turin

g in

m

arke

t in

form

atio

n ac

quis

ition

and

use

..6

39.

376.

Peo

ple

from

mar

ketin

g, R

&D

, an

d ot

her

func

tions

pla

y im

port

ant

role

s in

maj

or s

trat

egic

mar

ket

deci

sion

s.f

1.%

of

tota

l sal

es f

rom

incr

emen

tal p

rodu

ct in

trod

uced

by

your

fir

m in

the

last

thr

ee y

ears

(le

ss t

han

5%,

5%–1

0%,

11%

–15%

, 16

%–2

0%,

>20

%).

.89

13.2

52.

Thi

s fir

m f

requ

ently

intr

oduc

ed in

crem

enta

l new

pro

duct

s in

to n

ew m

arke

ts in

the

last

thr

ee y

ears

(1

=

“str

ongl

y di

sagr

ee,”

5 =

“st

rong

ly a

gree

”).

.59

7.70

3.C

ompa

red

to y

our

maj

or c

ompe

titor

, th

is f

irm

intr

oduc

ed m

ore

incr

emen

tal n

ew p

rodu

cts

in t

he la

st t

hree

ye

ars

(1 =

“st

rong

ly d

isag

ree,

”5

= “

stro

ngly

agr

ee”)

..6

79.

764.

Num

ber

of in

crem

enta

l pro

duct

s in

trod

uced

by

the

firm

in t

he la

st t

hree

yea

rs (

conv

erte

d in

to f

ive-

poin

tsc

ale:

1–10

, 10

–15,

16–

30,

31–7

5, m

ore

than

75)

.f

1.%

of

tota

l sal

es f

rom

rad

ical

pro

duct

intr

oduc

ed b

y yo

ur f

irm

in t

he la

st t

hree

yea

rs (

less

tha

n 5%

, 5%

–10%

, 11

%–1

5%,

16%

–20%

, >

20%

).8

113

.83

2.N

umbe

r of

rad

ical

pro

duct

s in

trod

uced

by

the

firm

in t

he la

st t

hree

yea

rs (

conv

erte

d in

to a

fiv

e-po

int

scal

e:0–

3, 4

–6,

7–9,

10–

12,

>12

).7

710

.01

3.C

ompa

red

to y

our

maj

or c

ompe

titor

, th

is f

irm

intr

oduc

ed m

ore

radi

cal n

ew p

rodu

cts

in t

he la

st t

hree

yea

rs

(1 =

“st

rong

ly d

isag

ree,

”5

= “

stro

ngly

agr

ee”)

..7

811

.56

4.T

his

firm

fre

quen

tly in

trod

uced

rad

ical

new

pro

duct

s in

to m

arke

ts t

otal

ly n

ew t

o th

e fir

m in

the

last

thr

ee

year

s (1

= “

stro

ngly

dis

agre

e,”

5 =

“st

rong

ly a

gree

”).

.88

14.0

2

Rad

ical

inno

vatio

npe

rfor

man

cec

(Cha

ndy

and

Telli

s19

98)

Incr

emen

tal i

nnov

atio

npe

rfor

man

cec

(Cha

ndy

and

Telli

s19

98)

Inte

rfun

ctio

nal

coor

dina

tionb

(Nar

ver

and

Sla

ter

1990

;Zah

ra a

ndN

iels

on 2

002)

Com

petit

or o

rient

atio

nb(N

arve

r an

d S

late

r19

90)

Cus

tom

er o

rient

atio

nb(N

arve

r an

d S

late

r19

90)


Ove

r th

e la

st t

hree

yea

rs,

to w

hat

exte

nt h

as y

our

firm

1.U

pgra

ded

curr

ent

know

ledg

e an

d sk

ills

for

fam

iliar

pro

duct

s an

d te

chno

logi

es?

.87

16.4

92.

Inve

sted

in e

nhan

cing

ski

lls in

exp

loiti

ng m

atur

e te

chno

logi

es t

hat

impr

ove

prod

uctiv

ity o

f cu

rren

tin

nova

tion

oper

atio

ns?

.89

16.8

53.

Enh

ance

d co

mpe

tenc

ies

in s

earc

hing

for

solu

tions

to

cust

omer

pro

blem

s th

at a

re n

ear

to e

xist

ing

solu

tions

ra

ther

tha

n co

mpl

etel

y ne

w s

olut

ions

?.7

812

.90

4.U

pgra

ded

skill

s in

pro

duct

dev

elop

men

t pr

oces

ses

in w

hich

the

fir

m a

lread

y po

sses

ses

sign

ifica

nt

expe

rienc

e?.6

39.

055.

Str

engt

hene

d ou

r kn

owle

dge

and

skill

s fo

r pr

ojec

ts t

hat

impr

ove

effic

ienc

y of

exi

stin

g in

nova

tion

activ

ities

?.6

89.

89

Ove

r th

e la

st t

hree

yea

rs,

to w

hat

exte

nt h

as y

our

firm

1.A

cqui

red

man

ufac

turin

g te

chno

logi

es a

nd s

kills

ent

irely

new

to

the

firm

?.6

08.

232.

Lear

ned

prod

uct

deve

lopm

ent

skill

s an

d pr

oces

ses

(suc

h as

pro

duct

des

ign,

pro

toty

ping

new

pro

duct

s,

timin

g of

new

pro

duct

intr

oduc

tions

, an

d cu

stom

izin

g pr

oduc

ts fo

r lo

cal m

arke

ts)

entir

ely

new

to

the

indu

stry

?.8

114

.46

3.A

cqui

red

entir

ely

new

man

ager

ial a

nd o

rgan

izat

iona

l ski

lls t

hat

are

impo

rtan

t fo

r in

nova

tion

(suc

h as

fo

reca

stin

g te

chno

logi

cal a

nd c

usto

mer

tre

nds;

iden

tifyi

ng e

mer

ging

mar

kets

and

tec

hnol

ogie

s;co

ordi

natin

g an

d in

tegr

atin

g R

&D

;mar

ketin

g, m

anuf

actu

ring,

and

oth

er f

unct

ions

;man

agin

g th

e pr

oduc

t de

velo

pmen

t pr

oces

s)?

.75

13.3

74.

Lear

ned

new

ski

lls in

are

as s

uch

as f

undi

ng n

ew t

echn

olog

y, s

taffi

ng R

&D

fun

ctio

n, t

rain

ing

and

deve

lopm

ent

of R

&D

, an

d en

gine

erin

g pe

rson

nel f

or t

he f

irst

time?

.73

12.5

75.

Str

engt

hene

d in

nova

tion

skill

s in

are

as w

here

it h

ad n

o pr

ior

expe

rienc

e?.5

16.

75

Mo

del

2M

od

el F

it In

dex

es:

χ2=

481.

07,d

.f.=

297

;χ2

/d.f

.= 1

.62;

RM

SE

A =

.05,

GF

I = .8

7,C

FI =

.93,

and

NN

FI =

91

Indi

cate

you

r de

gree

of

agre

emen

t ab

out

how

wel

l the

se s

tate

men

ts d

escr

ibe

the

mar

ket

and

com

petit

ive

envi

ronm

ent

durin

g th

e la

st t

hree

yea

rs.

1.T

he a

ctio

ns o

f lo

cal a

nd fo

reig

n co

mpe

titor

s in

our

maj

or m

arke

ts w

ere

chan

ging

qui

te r

apid

ly.

.60

7.11

2.Te

chno

logi

cal c

hang

es in

our

indu

stry

wer

e ra

pid

and

unpr

edic

tabl

e..5

56.

773.

The

mar

ket

com

petit

ive

cond

ition

s w

ere

high

ly u

npre

dict

able

..6

510

.56

4.C

usto

mer

s’pr

oduc

t pr

efer

ence

s ch

ange

d qu

ite r

apid

ly.

.51

6.06

5.C

hang

es in

cus

tom

ers’

need

s w

ere

quite

unp

redi

ctab

le.

.75

12.7

7

In y

our

com

pany

, di

ffere

nt f

unct

ions

suc

h as

R&

D,

mar

ketin

g, a

nd m

anuf

actu

ring

com

mun

icat

e, s

hare

, an

d us

e in

form

atio

n ab

out

curr

ent

and

pros

pect

ive

cust

omer

s, c

ompe

titor

s, a

nd o

ther

mar

ket

info

rmat

ion

in p

rodu

ct

deve

lopm

ent.

Ove

rall,

how

doe

s ea

ch o

f th

e fo

llow

ing

desc

ribe

your

fir

m’s

ten

denc

y in

inte

rpre

ting

new

mar

ket

info

rmat

ion?

We

have

a g

ener

al t

ende

ncy

to v

iew

mar

ket

info

rmat

ion

and

cond

ition

s as

1.R

epre

sent

ing

a lo

ss/g

ain.

7812

.78

2.U

ncon

trol

labl

e/co

ntro

llabl

e..8

515

.51

3.H

avin

g a

nega

tive/

posi

tive

impl

icat

ion

for

the

firm

..8

114

.83

4.R

epre

sent

ing

a th

reat

/opp

ortu

nity

for

the

firm

..7

712

.45

Per

ceiv

ed m

arke

top

port

unity

(D

utto

nan

d Ja

ckso

n 19

87)

Env

ironm

enta

ltu

rbul

ence

b(J

awor

ski

and

Koh

li 19

93)

Com

pete

nce

expl

orat

iond

(Zah

ra,

Irel

and,

and

Hitt

200

0)

Com

pete

nce

expl

oita

tiond

(Zah

ra,

Irel

and,

and

Hitt

200

0)

TAB

LE

1C

on

tin

ued

Co

nst

ruct

an

d S

ou

rce

Op

erat

ion

al M

easu

res

of

Co

nst

ruct

Mo

del

1M

od

el F

it In

dex

es:

χ2=

662.

89,d

.f.=

423

;χ2

/d.f

.= 1

.57;

RM

SE

A =

.04,

GF

I = .9

0,C

FI =

.93,

and

NN

FI =

.92

SF

La

t-V

alu

e


1.T

his

firm

has

unc

omm

itted

res

ourc

es t

hat

can

quic

kly

be u

sed

to f

und

new

str

ateg

ic in

itiat

ives

..7

911

.63

2.T

his

firm

has

few

res

ourc

es a

vaila

ble

in t

he s

hort

run

to

fund

its

initi

ativ

es.(

reve

rse

scor

ed)

.69

8.56

3.W

e ar

e ab

le t

o ob

tain

res

ourc

es a

t sh

ort

notic

e to

sup

port

new

str

ateg

ic in

itiat

ives

..7

39.

974.

We

have

sub

stan

tial r

esou

rces

at

the

disc

retio

n of

man

agem

ent

for

fund

ing

new

str

ateg

ic in

itiat

ives

..5

56.

09

In e

valu

atin

g an

d re

war

ding

new

pro

duct

pro

ject

s te

ams

in t

his

firm

, em

phas

is is

pla

ced

on1.

Ach

ieve

men

t of

fin

anci

al p

erfo

rman

ce o

bjec

tives

..6

08.

962.

The

qua

ntity

and

qua

lity

of t

he f

inal

out

puts

ach

ieve

d..7

110

.81

3.T

he m

arke

t pe

rfor

man

ce o

f pr

oduc

ts.

.80

12.7

54.

Obj

ectiv

e cr

iteria

suc

h as

cos

t sa

ving

s, q

uant

ity o

f ne

w id

eas,

and

pat

ents

file

d.f

In e

valu

atin

g an

d re

war

ding

new

pro

duct

pro

ject

s te

ams

in t

his

firm

, em

phas

is is

pla

ced

on1.

Sub

ject

ive

crite

ria s

uch

as t

he q

ualit

y at

trib

utes

of

the

prod

ucts

..8

612

.75

2.Q

ualit

y of

dec

isio

ns m

ade

rath

er t

han

the

resu

lts a

chie

ved.

.68

10.0

33.

Com

plet

ing

maj

or s

tage

s of

the

dev

elop

men

t pr

oces

s co

st-e

ffect

ivel

y..5

97.

714.

Mee

ting

of s

peci

fic p

rodu

ct d

evel

opm

ent

proc

ess

dead

lines

rat

her

than

the

act

ual r

esul

ts.f

To w

hat

exte

nt d

oes

each

of

the

follo

win

g st

atem

ents

des

crib

e yo

ur f

irm

rel

ativ

e to

you

r m

ajor

com

petit

ors

over

th

e la

st t

hree

yea

rs?

1.M

arke

ted

com

plem

enta

ry n

ew p

rodu

cts

with

oth

er f

irm

s..6

08.

442.

Est

ablis

hed

coop

erat

ive

R&

D a

gree

men

ts w

ith o

ther

fir

ms.

.63

9.30

3.Jo

intly

intr

oduc

ed n

ew p

rodu

cts

to m

arke

t w

ith o

ther

fir

ms.

.60

8.68

4.Jo

intly

des

igne

d an

d m

anuf

actu

red

new

pro

duct

s w

ith o

ther

fir

ms.

.89

13.0

1

To w

hat

exte

nt d

oes

each

of

the

follo

win

g st

atem

ent

desc

ribe

your

fir

m r

elat

ive

to y

our

maj

or c

ompe

titor

s ov

er

the

last

thr

ee y

ears

?1.

Abi

lity

to s

peed

ily in

trod

uce

new

pro

duct

s to

mar

ket.

.75

10.9

82.

Acc

ess

to a

wid

e di

strib

utio

n ne

twor

k fo

r ne

w p

rodu

cts.

.56

7.83

3.A

bilit

y to

dev

elop

cre

ativ

e m

arke

ting

stra

tegi

es fo

r ne

w p

rodu

cts.

.66

9.56

4.A

bilit

y to

inve

st s

igni

fican

t re

sour

ces

in m

arke

ting

new

pro

duct

s..8

212

.04

Mar

ket

laun

chca

pabi

litye

(new

scal

e)

Pro

duct

dev

elop

men

tal

lianc

ese

(Li a

ndA

tuah

ene-

Gim

a20

02)

Beh

avio

r co

ntro

lb(A

tuah

ene-

Gim

a an

dLi

200

2)

Out

put

cont

rolb

(Atu

ahen

e-G

ima

and

Li 2

002)

Org

aniz

atio

nal s

lack

b

(new

sca

le)

TAB

LE

1C

on

tin

ued

Co

nst

ruct

an

d S

ou

rce

Op

erat

ion

al M

easu

res

of

Co

nst

ruct

Mo

del

2M

od

el F

it In

dex

es:

χ2=

481.

07,d

.f.=

297

;χ2

/d.f

.= 1

.62;

RM

SE

A =

.05,

GF

I = .8

7,C

FI =

.93,

and

NN

FI =

91

SF

La

t-V

alu

e

a SF

L =

sta

ndar

dize

d fa

ctor

load

ing.

b The

sca

le fo

rmat

for

each

of

thes

e m

easu

res

was

1 =

“st

rong

ly d

isag

ree”

and

5 =

“st

rong

ly a

gree

.”c I

sta

ndar

dize

d ite

ms

in t

hese

sca

les

befo

re c

reat

ing

the

scor

es t

o m

easu

re e

ach

cons

truc

t fo

r an

alys

is.

d The

sca

le fo

rmat

for

each

of

thes

e m

easu

res

was

1 =

“no

ext

ent”

and

5 =

“to

a g

reat

ext

ent.”

e The

sca

le fo

rmat

for

each

of

thes

e m

easu

res

was

1 =

“w

orse

tha

n m

ajor

com

petit

or”

and

5 =

“fa

r be

tter

than

maj

or c

ompe

titor

.”f I

dele

ted

this

item

dur

ing

the

scal

e pu

rific

atio

n pr

oces

s.N

otes

:RM

SE

A =

roo

t m

ean

squa

re e

rror

of

appr

oxim

atio

n, G

FI

= g

oodn

ess-

of-f

it in

dex,

CF

I =

com

para

tive

fit in

dex,

and

NN

FI

= n

onno

rmed

fit

inde

x.


TAB

LE

2C

orr

elat

ion

Mat

rix

and

Des

crip

tive

Sta

tist

ics

of

Mea

sure

s

Sta

nd

ard

Var

iab

les

Mea

nD

evia

tio

n1

23

45

67

89

1011

1213

1415

1.C

usto

mer

orie

ntat

ion

3.33

.94

12.

Com

petit

or o

rient

atio

n3.

05.7

900

.19*

*1

3.P

erce

ived

mar

ket

oppo

rtun

ity2.

561.

09.1

3*.2

0**

14.

Inte

rfun

ctio

nal c

oord

inat

ion

3.06

.92

.12

.36*

*.3

3**

15.

Com

pete

nce

expl

oita

tion

3.14

.80

.29*

*.2

4*.2

5**

.14*

16.

Com

pete

nce

expl

orat

ion

3.46

.80

.42*

*.2

2**

.29*

*.1

9**

.41*

*1

7.In

crem

enta

l inn

ovat

ion

perf

orm

ance

3.

41.7

2.3

8**

.34*

*.2

9**

.35*

*.3

5**

–.40

**1

8.R

adic

al in

nova

tion

perf

orm

ance

2.86

.90

.17*

.23*

*.2

2**

.38*

*–.

40**

.38*

*.3

6**

19.

Org

aniz

atio

nal s

lack

2.69

.95

.28*

*.1

0.3

1**

.11

.32*

*.3

5**

.22*

*.2

7**

110

.Env

ironm

enta

l tur

bule

nce

3.56

.96

.21*

*.3

2**

.16*

.40*

*.2

8**

.16*

*.2

6**

.19*

*.1

4*1

11.F

irm

siz

e (lo

g)1.

75.2

7.0

4.1

1–.

01–.

09–.

02.0

5–.

05.0

1–.

10–.

061

12.B

ehav

ior

cont

rol

3.33

.89

.20*

*.1

0.0

0.0

1.0

6.2

0**

–.08

.12

.10

.04

.09

113

.Out

put

cont

rol

2.68

.80

.25*

*.1

3–.

06–.

01.1

7**

.21*

*.2

0**

–.15

**.0

2.0

9.0

6.3

3**

114

.Pro

duct

dev

elop

men

t al

lianc

e2.

92.9

6–.

01–.

11**

–.09

**–.

13*

–.16

*–.

06–.

10–.

08–.

03*

–.11

.11

.01

–.10

115

.Mar

ket

laun

ch c

apab

ility

3.

481.

16–.

00.0

1.1

4*.0

5.0

4–.

05.0

5.1

6*.0

0–.

02.0

6.0

6.0

5.3

0**

1.00

Ske

wne

ss–.

33–.

17.2

6–.

15**

–.33

**–.

29**

–.11

**–.

00**

.44

–.09

–.03

.46

.05

–.01

**–.

63K

urto

sis

–.38

.49

–.77

–.21

.86

.20

–.51

–.66

.02

–.24

.79

–.21

**–.

50–.

25.1

9C

ompo

site

rel

iabi

lity

.86

.74

.89

.85

.86

.83

.70

.88

.79

.78

.76

.79

.75

.79

Ave

rage

var

ianc

e ex

trac

ted

.60

.59

.70

.59

.49

.52

.50

.72

.50

.52

N.A

..5

2.5

3.5

3.5

5

*p<

.01

.**

p<

.00

1.N

otes

:N.A

.= n

ot a

pplic

able

.


estimated moderated regression equations to test thehypotheses. I mean centered customer and competitor ori-entations, interfunctional coordination, and perceived mar-ket opportunity before creating the interaction terms (Aikenand West 1991). A Levine test for the threat of unequal vari-ances was not significant (p > .10) for any of the variablesindicating the presence of homoskedasticity. On the basis ofstudentized residuals and Cook’s D tests, I deleted five out-lier cases. Visual inspection of the plots of the histogramand normal probability plots reaffirmed the multivariatenormality of the data (Hair et al. 1998). The variance infla-tion factors in each regression model were all below two,indicating that multicollinearity was not a serious problem.An interview survey raises the potential that errors of pre-diction may not be independent of one another over thesequences of cases (Tabachnick and Fidell 1989, p. 133).However, the Durbin–Waston statistic check for noninde-pendence of errors was not significant in the regressionmodels.

Effect of Market Orientation on CompetenceExploitation and Exploration

Table 3 (Model 1) shows that the control variables explain21% of the variance in competence exploitation. Adding theindependent variables in Model 2 increased R2 by 6% (∆F =3.72, p < .05). I added the interaction terms in Model 3,which resulted in a further increase in R2 of 1% (∆F = 1.10,not significant [n.s.]). Model 3 shows that customer orienta-tion is positively related to competence exploitation (b =.13, p < .01), in support of H1a. Competitor orientation ispositively related to competence exploitation (b = .16, p <.05), in support of H2a. These relationships are not moder-ated by interfunctional coordination or by perceived marketopportunity. Thus, H3a, H4a, H5a, and H6a are not supported.Perceived market opportunity is a predictor of competenceexploitation rather than a moderator (b = .11, p < .05).Three control variables are related to competence exploita-tion: organizational slack, firm size, and environmentalturbulence.

The data in Table 3 (Model 4) show that the controlvariables explain 23% of the variance in competence explo-ration. The independent variables increase R2 by 11% (∆F =7.44, p < .001) (Model 5). The interaction variables con-tributed an additional 9% (∆F = 6.56, p < .001) to explainedvariance (Model 6). The data in Model 6 show that cus-tomer orientation is positively related to competence explo-ration (b = .26, p < .001), in support of H1b. Competitor ori-entation has a significant, positive effect on competenceexploration (b = .16, p < .001), in support of H2b. I discussthe significance of the differential strength (based on stan-dardized coefficients) of the effects of customer and com-petitor orientations on competence exploitation and explo-ration subsequently.

The product of customer orientation and interfunctionalcoordination is positively related to competence exploration(b = .10, p < .01), in support of H3b. To gain further insightinto these relationships, using the unstandardized coeffi-cients and following procedures that Aiken and West (1991)outline, I plotted the interactions and conducted simpleslope tests. The simple slope test involved splitting the

moderator (interfunctional coordination) into a high group(two standard deviations greater than the mean) and a lowgroup (two standard deviations less than the mean) andreestimating the relationship between customer orientationand competence exploration. The plot in Figure 2, Panel A,shows that when interfunctional coordination is high, thepositive relationship between customer orientation andcompetence exploration is stronger (simple slope: b = .28,t = 3.98, p < .001) than when it is low (simple slope: b =.21, t = 3.67, p < .001).

The interaction term for competitor orientation andinterfunctional coordination is positively related to compe-tence exploration (b = .12, p < .05), in support of H4b. Fig-ure 2, Panel B, shows that when interfunctional coordina-tion is greater, there is a positive link between competitororientation and competence exploration (simple slope: b =.34, t = 3.36, p < .001). There appears to be no relationshipbetween the two constructs when interfunctional coordina-tion is low (simple slope: b = .09, t = 1.10, n.s.). Interfunc-tional coordination is a pure moderator because it is unre-lated to competence exploration.

The interaction between customer orientation and per-ceived market opportunity is positively related to compe-tence exploration (b = .12, p < .001), in support of H5b. Theplots in Figure 3, Panel A, show that the positive linkbetween customer orientation and competence explorationis stronger when perceived market opportunity is high (sim-ple slope: b = .42, t = 5.73, p < .001) than when it is low(simple slope: b = .14, t = 2.29, p < .05). Similarly, theproduct of competitor orientation and perceived marketopportunity is positively related to competence exploration(b = .11, p < .01), in support of H6b. Figure 3, Panel B,shows a positive relationship between competitor orienta-tion and competence exploration when perceived marketopportunity is high (simple slope: b = .38, t = 4.06, p <.001) but no relationship when it is low (simple slope: b =.01, t = .13, n.s.). Perceived market opportunity is a quasimoderator because it also has a positive relationship withcompetence exploration (b = .10, p < .01). Three controlvariables are related to competence exploration: organiza-tional slack, behavior, and output controls.

Effects of Competence Exploitation andExploration on Innovation Performance

Table 4 presents the results for incremental and radicalinnovation performance. The addition of the independentvariables to the control variables in Model 2 increased R2

by 7% (∆F = 7.20, p < .001) over the explained variance inincremental innovation performance in Model 1. The inter-action variables increased R2 by 1% (∆F = 1.36, n.s.) inModel 3. Competence exploitation is positively related toincremental innovation performance (b = .16, p < .01), insupport of H7a. In contrast, competence exploration is nega-tively related to incremental innovation performance (b =–.14, p < .01), in support of H8a. Interfunctional coordina-tion does not moderate these relationships but rather is apredictor of incremental innovation performance (b = .15,p < .001). Thus, H9a, H10 and H12 are not supported,because none of the interaction terms is significant. Outputcontrol, a control variable, was positively related to incre-


TABLE 3Regressions Analysis of Effects of Market Orientation on Product Innovation Competence Exploitation

and Exploration

Competence Exploitation Competence Exploration

Variables Hypotheses Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Controls VariablesConstant 2.58 2.06 2.05 2.95 2.19 2.02

(4.36)*** (3.38)*** (3.29)*** (5.51)*** (4.08)*** (3.85)***Organizational slack .24 .17 .18 .30 .20 .23

(4.29)*** (2.83)*** (2.95)*** (5.74)*** (3.78)*** (4.59)***Firm size (log of number –.38 –.43 –.42 –.02 –.12 –.07

of employees) (–1.95)* (–2.30)** (–2.25)** (–.23) (–.71) (–.45)Environmental turbulence .29 .22 .23 .14 –.00 .03

(3.57)*** (2.46)** (2.58)** (1.81)† (–.01) (.48)Behavior control .02 .03 .03 .00 .04 .12

(.42) (.52) (.64) (.02) (.70) (1.85)†

Output control –.08 –.04 –.05 –.19 –.13 –.13(–1.34) (–.36) (–.71) (–3.11)*** (–2.15)* (–2.10)*

Product development .03 –.02 –.01 .03 .05 .03alliance (.52) (–.70) (–.20) (.68) (.96) (.69)

Independent VariablesCustomer orientation H1a, H1b .13 .13 .23 .26

(2.15)** (2.11)** (4.43)*** (5.02)***Competitor orientation H2a, H2b .17 .16 .12 .16

(2.18)** (1.99)* (1.66)* (2.36)***Interfunctional –.05 –.08 .02 –.02

coordination (–.79) (–1.17) (.18) (.60)Perceived market .09 .11 .08 .10

opportunity (1.88)* (2.00)* (1.87)* (2.31)**

Relevant Interaction EffectsCustomer orientation × H3a, H3b –.06 .10

interfunctional coordination (–1.03) (2.00)**Competitor orientation × H4a, H4b .08 .12

interfunctional coordination (1.21) (1.87)*Customer orientation × H5a, H5b .02 .12

perceived market opportunity (.37) (2.61)***Competitor orientation × H6a, H6b –.11 .11

perceived market opportunity (–1.44) (2.05)**

R2 .21 .27 .28 .23 .34 .43Adjusted R2 .18 .23 .23 .20 .30 .38F value 7.73*** 6.41*** 4.91*** 8.66*** 8.92*** 9.06***∆R2 .06 .01 .11 .09Partial F value 3.72* 1.10 7.44*** 6.56***Degrees of freedom 6/179 10/175 14/171 6/178 10/174 14/170†p < .10.*p < .05.**p < .01.***p < .001.Notes: I report unstandardized regression coefficients (t-values are in parentheses; I used a two-tailed test for control variables and a one-tailed

test for all hypotheses).

mental innovation performance. I replicated the analysesusing the measure of incremental innovation performanceobtained from the second survey. The results remainunchanged.

Model 5 in Table 4 shows that the independent andmoderator variables increase explained variance in radicalinnovation performance by 12% (∆F = 11.82, p < .001) overthe explained variance in Model 4. The interaction termscontribute an additional 8% to explained variance (∆F =7.05, p < .001) (Model 6). Competence exploitation is neg-

atively related to radical innovation performance (b = –.14,p < .05), in support of H7b and H8b, whereas the effect ofcompetence exploration is positive (b = .14, p < .05). Theinteraction between competence exploitation and explo-ration is negatively related to radical innovation perfor-mance (b = –.17, p < .001), in support of H9b. The plot inFigure 4, Panel A, shows no relationship between compe-tence exploration and radical innovation performance whencompetence exploitation is high (simple slope: b = –.04, t =–.43, n.s.), but it shows a positive effect when competence


High interfunctional coordination Low interfunctional coordination


0

1

2

–2–2

–1

–1

0 1 2

Co

mp

eten

ce E

xplo

rati

on


0

1

2

–2–2

–1

–1

0 1 2

Co

mp

eten

ce E

xplo

rati

on


FIGURE 2Interaction of Interfunctional Coordination and Customer and Competitor Orientations on Competence

Exploration

A: Moderating Effect of Interfunctional Coordination B: Moderating Effect of Interfunctional Coordination

Co

mp

eten

ce E

xplo

rati

on


Co

mp

eten

ce E

xplo

rati

on


0

1

2

0 1 2–1–2–2

–1

0

1

2

0 1 2–1–2–2

–1

Low perceived market opportunity High perceived market opportunity

Low perceived market opportunity High perceived market opportunity

FIGURE 3Interaction of Perceived Market Opportunity and Customer and Competitor Orientations on Competence

Exploration

A: Moderating Effect of Perceived Market Opportunity B: Moderating Effect of Perceived Market Opportunity

exploitation is low (simple slope: b = .26, t = 3.63, p <.001). The plot in Figure 4, Panel B, shows the reverse rela-tionship; that is, there is a nonsignificant relationshipbetween competence exploitation and radical innovationperformance when competence exploration is low (simpleslope: b = .13, t = 1.45, n.s.) but a significant, negativeeffect when it is high (simple slope: b = –.28, t = –3.62, p <.001).

The interaction term for interfunctional coordinationand competence exploitation is positively related to radicalinnovation performance (b = .12, p < .05), in support ofH11. However, Figure 5, Panel A, suggests that at higherlevels of interfunctional coordination, competence exploita-tion has no relationship with radical innovation perfor-mance (simple slope: b = .09, t = 1.24, n.s.), but at lowerlevels, it has a negative effect (simple slope: b = –.19, t =


TABLE 4Regressions Analysis of the Effects of Product Innovation Competence Exploitation and Exploration on

Innovation Performance

Incremental Innovation Radical InnovationPerformance Performance

Variables Hypotheses Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Control VariablesConstant 1.82 1.09 .87 1.50 .31 .25

(4.61)*** (2.66)*** (2.01)* (2.87)*** (.59) (.47)Organizational slack .08 .01 .08 .23 .11 .17

(1.77)† (.23) (.16) (3.64)*** (1.73)† (2.77)**Firm size (log of number –.03 –.04 –.03 .03 .02 .05

of employees) (–.52) (–.67) (–.55) (.43) (.29) (.76)Environmental turbulence .13 .06 .07 .15 .06 .08

(1.64)† (.83) (.95) (1.62)† (.72) (1.00)Behavior control –.09 –.11 –.12 .02 .02 .02

(–1.03) (–1.17) (–1.24) (1.66)† (1.68)† (1.42)Output control .13 .11 .17 –.13 –.15 –.15

(1.77)† (1.62)† (1.77)† (–1.32) (–1.67)† (–1.78)†

Product development –.01 –.02 –.00 –.17 –.08 –.06alliance (–.17) (–.23) (–.06) (–2.21)** (–1.15) (–.95)

Market launch capability .02 .01 .00 .17 .14 .17(.66) (.21) (.02) (3.12)*** (2.70)** (3.48)**

Customer orientation .19 .14 .14 .04 .04 .03(3.78)*** (2.68)** (2.58)** (.67) (–.71) (.48)

Competitor orientation .19 .12 .12 .13 .01 .02(3.14)** (1.95)* (2.08)* (1.65)† (.15) (.29)

Perceived market –.08 –.03 –.02 –.05 –.06 –.09opportunity (–1.47) (–.57) (–.05) (–.85) (–1.03) (–1.59)

Independent VariablesCompetence exploitation H7a .11 .16 –.19 –.14

(1.62)* (2.10)** (–2.19)** (1.60)*Competence exploration H8a –.15 –.14 .25 .14

(–2.31)** (–2.08)** (2.99)*** (1.67)*Interfunctional .16 .15 .24 .25

coordination (2.86)*** (2.84)*** (3.52)*** (3.87)***

Relevant Interaction EffectsCompetence exploitation × H9a .06 –.17

competence exploration (1.20) (–2.94)***Competence exploitation × H10 .06 .12

interfunctional coordination (1.11) (1.83)*Competence exploration × H12 .06 .20

interfunctional coordination (.91) (2.24)***

R2 .27 .34 .35 .21 .33 .41Adjusted R2 .23 .30 .30 .17 .28 .36F value 7.25*** 7.76*** 6.60*** 5.16*** 7.34*** 6.60***∆R2 .07 .01 .12 .08Partial F value 7.20*** 1.36 11.82*** 7.05***Degrees of freedom 10/199 13/196 16/193 10/200 13/197 16/194†p < .10.*p < .05.**p < .01.***p < .001.Notes: I report unstandardized regression coefficients (t-values are in parentheses; I used a two-tailed test for control variables and a one-tailed

test for all hypotheses except H9a and H9b).

–2.90, p < .01). Finally, the positive link between compe-tence exploration and radical innovation performance isstronger when interfunctional coordination is high (b = .20,p < .01), in support of H13. This result is confirmed by theplots in Figure 5, Panel B, which show that competence

exploration is related to radical innovation performancewhen interfunctional coordination is high (simple slope: b =.42, t = 5.32, p < .001), but it has no effect when it is low(simple slope: b = –.02, t = –.18, n.s.). Interfunctional coor-dination serves as a quasi moderator for this outcome


0 1 2Rad

ical

Inn

ova

tio

n P

erfo

rman

ce

Competence Exploitation

–1–2

0

1

2

0 1 2Rad

ical

Inn

ova

tio

n P

erfo

rman

ce

Competence Exploration

–1–2–2

–1

0

1

2

–2

–1

High competence exploitationLow competence exploitation

High competence exploration Low competence exploration

FIGURE 4Interaction of Competence Exploitation and Competence Exploration on Radical Innovation Performance

A: Moderating Effect of Competence Exploitation B: Moderating Effect of Competence Exploration

0

1

2

0 1 2Rad

ical

Inn

ova

tio

n P

erfo

rman

ce

Competence Exploration


–1–2–2

–1

0

1

2

0 1 2Rad

ical

Inn

ova

tio

n P

erfo

rman

ce

Competence Exploitation

–1–2–2

–1


FIGURE 5Interaction of Interfunctional Coordination and Competence Exploitation and Competence Exploration on

Radical Innovation Performance

A: Moderating Effect of Interfunctional Coordination B: Moderating Effect of Interfunctional Coordination

because it is also positively related to radical innovationperformance (b = .25, p < .001). Market launch capability,organizational slack, and output control predicted radicalinnovation performance. A replication analysis that substi-tuted the measures for radical innovation performanceobtained from the second survey with those from the pri-mary survey confirmed the original findings.

Evaluating the Direct Effects of MarketOrientation on Innovation Performance

My model (see Figure 1) posits that competence exploita-tion and exploration fully mediate the effects of customerand competitor orientations on innovation performance. Iused Baron and Kenny’s (1986) tests of mediation to verify


this claim. With the entry of competence exploitation andexploration (see Table 4, Model 3), the effects of customerorientation (b = .19, p < .001) and competitor orientation(b = .19, p < .01) on incremental innovation performanceare reduced (but remain significant): customer orientation(b = .14, p < .01) and competitor orientation (b = .12, p <.05). This suggests partial mediation. In contrast, Table 4(Model 5) shows that with the entry of competenceexploitation and exploration, the significant effect of com-petitor orientation on radical innovation performance (b =.13, p < .10) in Model 4 becomes nonsignificant (b = .01,n.s.). This suggests full mediation. Customer orientation hasno direct effect on radical innovation performance, suggest-ing that its effect occurs entirely through its positive influ-ence on competence exploration previously reported inTable 3. Thus, the mediating proposition is partially sup-ported. Table 5 summarizes the hypotheses and empiricalconclusions of the study.

Discussion and ImplicationsMarketing scholars have paid little attention to resolving thecapability–rigidity paradox despite its immense hindranceto the effective management of product innovation, anactivity that lies at the heart of marketing’s role in enhanc-ing the firm’s competitive advantage (Day 1994). In thisstudy, I examined the role of market orientation in resolvingthis paradox. The results advance the marketing literature inseveral ways. First, the results show that both customer andcompetitor orientations guide managerial decisions to allo-cate resources to exploit existing product innovation com-petencies and to develop new ones. These findings supportpropositions in the RBV and marketing theory that becausemarket-oriented firms are sensitive to environmental cues,they are in a better position than their non-market-orientedcounterparts to uncover and overcome potential internalcompetence deficiencies (Barney and Zajac 1994; Day

TABLE 5Summary of Hypotheses and Empirical Conclusions

Expected EmpiricalHypotheses Sign Conclusions

H1: Customer orientation is positively related toa. Competence exploitation. + Supportedb. Competence exploration. + Supported

H2: Competitor orientation is positively related toa. Competence exploitation. + Supportedb. Competence exploration. + Supported

H3: The positive effect of customer orientation on competence:a. Exploitation is stronger when interfunctional coordination is high than when it is low. + Not supportedb. Exploration is stronger when interfunctional coordination is high than when it is low. + Supported

H4: The effect of competitor orientation on competence:a. Exploitation is stronger when interfunctional coordination is high than when it is low. + Not supportedb. Exploration is stronger when interfunctional coordination is high than when it is low. + Supported

H5: The positive effect of customer orientation on competence:a. Exploitation is weaker when the perceived market opportunity is high than when it is low. – Not supportedb. Exploration is stronger when the perceived market opportunity is high than when it is low. + Supported

H6: The positive effect of competitor orientation on competence:a. Exploitation is weaker when the perceived market opportunity is high than when it is low. – Not Supportedb. Exploration is stronger when the market opportunity orientation is high than when it is low. + Supported

H7: Competence exploitation isa. Positively related to incremental innovation performance. + Supportedb. Negatively related to radical innovation performance. – Supported

H8: Competence exploration isa. Negatively related to incremental innovation performance. – Supportedb. Positively related to radical innovation performance. + Supported

H9a: The interaction of competence exploration and exploitation is related to incremental innovation performance. N.A. Not supported

H9b: The interaction of competence exploration and exploitation is related to radical innovation performance. N.A. Supported

H10: The positive effect of competence exploitation on incremental innovation performance is stronger when interfunctional coordination is high than when it is low. + Not supported

H11: The negative effect of competence exploitation on radical innovation performance is weaker when interfunctional coordination is high than when it is low. + Supported

H12: The negative effect of competence exploration on incremental innovation performance is weaker when interfunctional coordination is high than when it is low. + Not supported

H13: The positive effect of competence exploration on radical innovation performance is stronger when interfunctional coordination is high than when it is low. + Supported

Notes: N.A. = not applicable.


1994; Hurley and Hult 1998; Schroeder, Bates, and Junttila2002). Instead of being plagued by the capability–rigidityparadox, it appears that market-oriented firms are able tomake judicious judgments in resources allocations for prod-uct innovation competencies based on market information.Yet expenditures for acquiring and using market knowledgeare typically considered operating costs. This study pro-vides justification for the view that such expenditures mustbe considered investments rather than operational costs ofthe firm (Srivastava, Shervani, and Fahey 1998).

Second, I find that the effects of customer and competi-tor orientations on competence exploration (unlike compe-tence exploitation) are positively moderated by interfunc-tional coordination. This implies that because competenceexploration is a highly risky and uncertain endeavor, the useof market information to inform such a process requires ahigh degree of interfunctional coordination. In contrast,because of its greater experience with existing competen-cies, a firm’s use of market information to guide resourceallocation for competence exploitation does not necessarilyrequire high interfunctional coordination efforts. A relatedfinding is that because of the uncertainties and risksinvolved in developing radical innovations, firms requiregreater interfunctional coordination in deploying both exist-ing and new competencies for this purpose. As people fromdifferent functions interact, there is likely to be reinterpreta-tion of one another’s perspectives in deploying the firm’scompetencies (Henderson and Cockburn 1994), developingnew solutions, and recombining existing competencies foruse in new product areas (Zahra and Nielson 2002). Inter-functional coordination helps explain the differential capac-ities of firms to exploit existing competencies and toexplore new ones simultaneously to develop radical innova-tions and thus escape the capability–rigidity paradox.

Third, I find that a managerial mental model that per-ceives the market environment as an opportunity rather thanas a threat has significant implications for the firm’s deci-sion to develop entirely new product innovation competen-cies. A possible explanation for this result is that with sucha mental model, managers are likely to discover compe-tence gaps that need to be overcome to benefit from theavailable market opportunities. Because customer and com-petitor orientations lead to greater understanding of thefirm’s strengths and weaknesses in relation to those of itscompetitors (Day and Wensley 1988), when perceived mar-ket opportunity is high, managers are more likely to developnew competencies than to focus entirely on exploiting exist-ing ones. Perceived market opportunity reduces the per-ceived costs of investments into new competencies (White,Varadarajan, and Dacin 2003). This is an important insightbecause scholars tend to examine the role of market orienta-tion on product innovation activities without explicitly con-sidering how the managers’ interpretations of the marketconditions affect the linkages. The role of mental modelsmay represent an underdeveloped aspect of the study ofmarket orientation and should be given attention in futurestudies.

Fourth, the new evidence of the differential direct andinteraction effects of competence exploitation and explo-ration on product innovation performance is particularly

poignant. Although the differential effects affirm conven-tional wisdom, the negative effect of their interaction onradical innovation performance is counterintuitive. Itimplies that competence exploration will be more valuableto the firm when it is matched with a lower level of compe-tence exploitation, and vice versa. Because too much ofboth competence exploitation and exploration may haveundesirable costs for the firm (March 1991; Nerkar 2003),this result implies that a firm at the forefront of new knowl-edge creation through exploration is more likely to succeedin developing radical innovations by recombining thisknowledge with some level of exploitation. Existing compe-tencies provide the necessary absorptive capacity to usenew competencies (Danneels 2002). Conversely, a firm thatis extremely competent in exploiting its current competen-cies will be successful with radical innovation only with alittle dose of exploration. This finding reflects the argumentthat many radical innovations are the locus of a meetingbetween a problem and its solution, even when neither theproblem nor the solution is itself new (Galunic and Rodan1998; Kogut and Zander 1992). This insight is apt in thecontext of this study in which firms may exploit existingcapabilities in new ways to solve emerging customer prob-lems (Luo 2002). Radical innovations to the Chinese marketoften result from the recombination of known technologyand market elements. The product novelty stems from theact of combination, not necessarily from the novelty of thetechnology and market solutions combined.

Finally, the differential strengths of the direct effects ofcustomer and competitor orientations on competenceexploitation and exploration are noteworthy. Competitororientation has a greater effect on competence exploitation,a key driver of incremental innovation performance, thandoes customer orientation. This suggests that comparedwith customer focus, competitor-centered practices enablefirms to marshal resources to meet more immediate threatsof competitors through competence exploitation and incre-mental innovations (Noble, Sinha, and Kuma 2002). Thus,the partial mediation of the effects of customer and com-petitor orientations on incremental innovation performanceby competence exploitation and exploration suggests thatexamining only their direct effects leads to an underestima-tion of their differential explanatory power. Furthermore,compared with competitor orientation, customer orientationhas a stronger effect on competence exploration, which isthe only means by which customer orientation is positivelylinked to radical innovation performance. Yet competenceexploration fully mediates the positive effect of competitororientation on radical innovation performance. These find-ings provide some support for Noble, Sinha, and Kumar’s(2002, p. 36) conjecture that exploration plays a strongerrole in the transition of customer and competitor orienta-tions to firm performance than does exploitation. Given thatcompetence exploration involves the acquisition of entirelynew knowledge and skills, these results suggest that it isthrough customer rather than competitor orientation thatfirms build stronger capacities for radical innovation. I con-tend that these differential effects may be the result of firmshaving greater knowledge of their future customers than oftheir future competitors. Indeed, few, if any, empirical


frameworks exist for marketing managers to identify andanalyze future competitors. Deeper insight is necessary infuture research on how firms develop competitor orienta-tions. In brief, in failing to examine the differential routesby which customer and competitor orientations affect inno-vation performance, these findings imply that previousresearch may have arrived at a premature and perhaps anoverly simplistic view of the relationships.

Theoretical ContributionsThis study contributes to marketing theory in five mainrespects: First, the study incorporates market orientationinto the RBV research stream that views firms as respond-ing to environmental conditions through existing competen-cies and the development of new ones (Barney and Zajac1994; Cockburn, Henderson, and Stern 2000). According tothe RBV, knowledge is the most important resource that afirm can control, but the challenge is how firms turn knowl-edge into internal competencies for innovation (Barney1991; Kogut and Zander 1992). By addressing the linkbetween customer and competitor orientations and productinnovation competencies, this study meets this challengeand presents a new perspective of the role of market orien-tation in product innovation; that is, market orientation cancontribute to competitive advantage insofar as it elicits andreinforces investments in existing product innovation com-petencies and simultaneously leads to the development ofnew competencies. Although marketing scholars have theo-rized about this linkage (e.g., Day 1994; Hurley and Hult1998), there has been no empirical evidence until now. Thisevidence contributes to the marketing literature by provid-ing a new theoretical mechanism by which market-orientedpractices are linked to incremental and radical innovationssimultaneously.

Second, the finding of a significant moderating role ofinterfunctional coordination resonates with research thatsuggests a dual role for organizational coordination mecha-nisms: one of transformation of knowledge into functionalcompetencies (Grant 1996) and one of integration of func-tional competencies into performance outcomes (Grant1996; Henderson and Cockburn 1994). The knowledge-sharing benefits of interfunctional coordination ensure thecollective assimilation of efforts among functional units touse market knowledge to engender competence exploration.In addition, by enhancing connectedness among functionalunits, interfunctional coordination ensures the effective useof the firm’s new product innovation competencies toengender radical innovation outcomes. These findingsunderscore the wisdom of a disaggregated view of marketorientation and suggest a more nuanced view of the differ-ent roles of interfunctional coordination than has previouslybeen provided in the extant literature.

Third, resource allocations for capability buildinginvolve a trade-off between exploitation and exploration(March 1991). In finding a significant moderating impact ofthe firm’s perceived market opportunity on the effect of cus-tomer and competitor orientations on competence explo-ration, this study reveals an important managerial factor thatmay enable firms to strike an appropriate trade-off. The

finding validates Day’s (1994) thesis about the salience ofmanagers’ mental models in using market information tobuild firm capabilities. It also emphasizes the notion thatbuilding new capabilities does not involve the mere acquisi-tion and use of market knowledge. More critically, theprocess involves the use of interpretation schema to deter-mine how the managers respond to the market situation(White, Varadarajan, and Dacin 2003). This finding throwsnew light on why different firms faced with the same objec-tive market conditions develop different product innovationcapabilities.

Fourth, this study contributes to marketing theory bybeing perhaps among the first to test empirically the propo-sition that competence exploitation and exploration havedirect and opposing relationships with incremental and rad-ical innovations performance. In particular, the negativeimpact of their interaction on radical innovation perfor-mance suggests new theoretical implications that areunavailable in the extant literature: Both exploitation andexploration require a little dose of each other to enhanceradical innovations. This study suggests that a firm mustexploit some level of its current competencies to leverageits new competencies to develop radical innovations. Thisechoes Danneels’s (2002, p. 1097) finding that “rather thantrapping the firm, current competencies may be used asleverage points to add new competencies.” The additionalnew insight that is missing in the literature but is offeredhere is that existing competencies, when coupled with somelevel of new competencies, may also enhance radical inno-vations. This new insight lends some support to the idea thateffective balancing of exploitation and exploration requiresa high–low matching rather than a high–high matching(Nerkar 2003). Further research should address the organi-zational designs and processes that could ensure appropriatelevels of interaction between competence exploitation andexploration.

Fifth, given the context of this study, the results haveimplications for the role of market orientation in the firm’sadaptation to turbulent environments. As I argued previ-ously, the significant risks and uncertainties in a transitionalenvironment indicate that firms in China must confront notonly the challenge of new competition, changing technolo-gies, and new customer preferences but also collapsingcapabilities (Li and Atuahene-Gima 2002). Exploitation ofexisting capabilities may not be adequate and may quicklybecome hazardous to competitive advantage. Systematicefforts are necessary to track the market changes and toassess the firm’s competence deficiencies to refine existingcompetencies and to develop the necessary new ones for thenew environment. By empirically linking market orientationto the simultaneous exploitation and exploration of productinnovation capabilities and outcomes in China, I demon-strate that market orientation has promise for understandinghow firms adapt to complex and turbulent environments.

Managerial Implications

Studies indicate that market-based assets, such as marketorientation, play an important role in creating and sustain-ing shareholder value and should play an equally significantrole in investment decisions (Srivastava, Shervani, and


Fahey 1998). By showing that market orientation affectsproduct innovation competencies, this study reinforces thisperspective and provides further empirical evidence withwhich marketing managers can buttress the argument thatmarketing expenditures may be better viewed as capitalinvestments rather than as operational costs. Therefore, theresults suggest an important role for marketing managers inplanning and executing the firm’s resource allocation deci-sions about product innovation. To exercise this role, mar-keting managers can use the results reported here to makethe case for increased interface with finance to ensure (1)that resource allocation decisions take into account thefirm’s needs for new product innovation competencies and(2) that such decisions are appropriately guided by thefirm’s knowledge of current and emerging marketconditions.

Traditionally, resource allocation in product innovationhas been largely guided by the level of sales (e.g., R&D aspercentage of sales) and competitors’ expenditures and/orbased on innovation typologies, such as process and productinnovations. This study suggests an additional criterion:competence exploitation and exploration to prioritizeresource allocation in product innovation. The ten-itemmeasure for competence exploitation and exploration usedin this study could be a useful starting point for marketingmanagers in developing such a decision-making yardstick.In addition, the results suggest that marketing managersshould be sensitive to the need for knowledge sharing andintegration among functional units within the firm. This isbecause the mere allocation of a scarce resource to compe-tence exploitation and exploration is unlikely to yield radi-cal innovations without effective coordination among cross-functional units to translate this competence into effectiveoutcomes.

This study suggests that to ensure the effective alloca-tion of resources for new competencies, marketing man-agers should work to prevent threat-rigidity tendencieswhen interpreting the market situation in the firm. Whenmarketing managers successfully persuade other functionalunits about the potential opportunities that market condi-tions offer, the firm is likely to consider its current innova-tion capabilities critically and devote resources to the explo-ration of new ones. In doing so, marketing managers wouldbe helping prevent competence exploitation from crowdingout competence exploration in their firms. Therefore, reduc-ing threat-rigidity tendencies in the interpretation of marketinformation should be an important task for marketing man-agers. This could be achieved by marketing’s advocacy forfunctional diversity, reward systems that encourage risk tak-ing, and interdependencies among functions in the acquisi-tion and use of market information.

Finally, findings suggest that because marketing man-agers have the ability to balance the potential tensionbetween competence exploitation and exploration, they arelikely to experience greater success in their efforts toenhance the firm’s product innovation. As the results indi-cate, managers may need to combine high competenceexploration with low competence exploitation (and viceversa) to develop radical innovations. This requires carefulattention to the use of ambidextrous structures that separate

exploration and exploitative activities (O’Reilly and Tush-man 2004). As an example, FirstDirect and SKF set upautonomous new business units to develop new competen-cies for new markets, but they left the exploitation of exist-ing competencies to existing business units (Abell 1999).

Limitations and Directions for Further Research

This study has several limitations. First, the measure formarket orientation neither captures all its different compo-nents nor covers all the various stakeholders (e.g., suppli-ers) that are likely to be the focus of a firm’s informationcollection efforts (Matsuno and Mentzer 2000). I measuredinnovation competence and performance across three years.However, the question remains whether market orientationmay be causally an antecedent to competence and perfor-mance across multiple years. Thus, a second limitation ofthe study is that causal relationships cannot be inferred inthe results reported. Further research might adopt a longitu-dinal design to tease out these linkages more clearly. Third,I used data from a sample of firms from a single industry.Although this offered several advantages for this study, itlimits the generalizability of the results. Finally, I controlledonly for a limited set of the potential antecedents of productinnovation competencies and outcomes because of datalimitations.

In addition to alleviating these limitations, there areother fertile avenues for further research. First, although Ifocused on product innovation competencies, the theory Ideveloped herein can conceivably apply to several otherorganizational competencies that Day (1994) describes asspanning and inside-out capabilities. Further researchshould examine the potential effects of market orientationon these other capabilities. Second, I show that market ori-entation may have relatively stronger effects on competenceexploration and on radical innovations. This echoesAtuahene-Gima’s (1995, p. 279) argument that “in contrastwith incremental innovations, firms need greater degree ofmarket orientation not only to cope with the high level ofuncertainties associated with developing radical innovationsbut also in establishing and educating the market.” Yet somescholars argue that market orientation may lead to compe-tency traps that stifle competence exploration and radicalinnovations. To date, however, the literature lacks clarity onthe nature and types of these traps and the effect that marketorientation has on them. The linkage between market orien-tation and competency traps requires empirical scrutiny infurther research to advance the understanding of productinnovation.

Third, this study suggests a synergistic perspective ofinterfunctional coordination by considering both the directand the moderating effects of this integrative mechanism.Further research should adopt this perspective in studyingother formal (e.g., cross-functional teams) and informal(e.g., social networking) integrative mechanisms to ensure abetter understanding of the outcomes of customer and com-petitor orientations. Although it is useful for sharing ideasand gathering interpretations, interfunctional coordinationmay also carry costs. However, there is little research thatconsiders costs and drawbacks of interfunctional coordina-


tion. Research is necessary on the conditions that moderatethe effect of this integrative mechanism on product innova-tion competencies and their outcomes. Fourth, the results ofthis study point to the importance of the mental models incapability building and underscore the need for furtherresearch to examine the factors that affect the interpretationof a market situation as an opportunity or as a threat.

Finally, although the capability–rigidity paradox is typi-cally conceptualized with respect to product innovation, itoccurs in any marketing activity in which the choicebetween exploitation and exploration is an issue (see Kyri-akopoulos and Moorman 2004). This raises several researchquestions that may be the focus of further research: Whatfactors influence the allocation of resources betweenexploitation and exploratory marketing strategies? To whatextent do firms differentiate between exploration andexploitation in their relationships with customers and otherfirms, and what are the performance effects of such rela-tionships? Under what conditions are exploratory andexploitative innovations and marketing strategies related?and How do firms maintain a balance between exploitativeand exploratory marketing strategies? Research on theseand other related questions could provide a better under-standing of marketing’s role not only in sustaining thefirm’s current competitive advantage but also, and perhaps

more important, in building its sources of future competi-tive advantage.

ConclusionTaken together, the results of this study suggest that marketorientation can prevent a firm from being operationally effi-cient but strategically inefficient by enhancing both productinnovation competence exploitation and exploration. Mar-ket orientation appears to be a key mechanism by whichfirms can reap the benefits of their innovation capabilitieswithout incurring the costs associated with potential rigidi-ties. In my view, this more nuanced assessment of marketorientation is only one of the benefits, both for theory build-ing and practice, of an inquiry into how firms generate andexploit product innovation competencies. Given the Chi-nese context of the study, I believe that this study provides asignificant clarification of the role of market orientation infirms’ adaptation in turbulent environments through productinnovation. However, this line of inquiry is still in itsinfancy. The complexity of the research questions that thisarticle raises is only comparable to the magnitude of theexpected returns from the advancement of the knowledge ofmarketing’s role in the firm.

REFERENCESAbell, Derek F. (1993), Managing With Dual Strategies: Master-

ing the Present, Preempting the Future. New York: The FreePress.

——— (1999), “Competing Today While Preparing for Tomor-row,” Sloan Management Review, 40 (3), 73–81.

Aiken, Leona S. and Stephen G. West (1991), Multiple Regres-sion: Testing and Interpreting Interactions. Newbury Park, CA:Sage Publications.

Amit, R. and Paul H. Schoemaker (1993), “Strategic Assets andOrganizational Rent,” Strategic Management Journal, 14 (Jan-uary), 33–46.

Atuahene-Gima, Kwaku (1995), “An Exploratory Analysis of theImpact of Market Orientation on New Product Performance: AContingency Approach,” Journal of Product Innovation Man-agement, 12 (September), 275–93.

——— (1996), “Market Orientation and Innovation,” Journal ofBusiness Research, 35 (February), 93–104.

——— and Anthony Ko (2001), “An Empirical Investigation ofthe Effect of Market Orientation and Entrepreneurship Orienta-tion Alignment on Product Innovation,” Organization Science,12 (1), 54–74.

——— and Haiyang Li (2002), “When Does Trust Matter?Antecedents and Contingent Effects of Supervisee Trust onPerformance in Selling New Products in China and the UnitedStates,” Journal of Marketing, 66 (July), 61–81.

Bagozzi, Richard R., Youjae Yi, and Lynn W. Phillips (1991),“Assessing Construct Validity in Organizational Research,”Administrative Science Quarterly, 36 (September), 421–58.

Baker, William and James M. Sinkula (1999), “The SynergisticEffect of Market Orientation and Learning Orientation onOrganizational Performance,” Journal of the Academy of Mar-keting Science, 27 (Fall), 411–27.

Barnett, William P., Henrich R. Greve, and Douglas Y. Park(1994), “An Evolutionary Model of Organizational Perfor-

mance,” Strategic Management Journal, 15 (Winter SpecialIssue), 11–28.

Barney, Jay B. (1991), “Firm Resources and Sustained Competi-tive Advantage,” Journal of Management, 17 (1), 99–120.

——— and Edward Zajac (1994), “Competitive OrganizationalBehavior: Toward an Organizationally-Based Theory of Com-petitive Advantage,” Strategic Management Journal, 15 (Win-ter Special Issue), 5–9.

Baron, Rueben M. and David A. Kenny (1986), “The Moderator-Mediator Variable Distinction in Social PsychologicalResearch: Conceptual and Statistical Considerations,” Journalof Personality and Social Psychology, 51 (6), 1173–82.

BusinessWeek (2003a), “Can HP’s Printer Biz Keep PrintingMoney? A Growing Market and HP’s Relentless InnovationShould Fend Off Rivals Old and New,” (July 14), 68–70.

——— (2003b), “Dupont Tries to Unclog a Pipeline: Can It MoveNew Products Out of the Lab Faster?” (January 27), 103–104.

Cardinal, Laura B. (2001), “Technological Innovation in the Phar-maceutical Industry: The Use of Organizational Control inManaging Research and Development,” Organization Science,12 (1), 19–36.

Chandy, Rajesh K., Jaideep C. Prabhu, and Kersi D. Antia (2003),“What Will the Future Bring? Dominance, Technology Expec-tations, and Radical Innovation,” Journal of Marketing, 67(July), 1–18.

——— and Gerard J. Tellis (1998), “Organizing for Radical Prod-uct Innovation: The Overlooked Role of Willingness to Canni-balize,” Journal of Marketing Research, 35 (November),474–87.

——— and ——— (2000), “The Incumbent’s Curse? Incum-bency, Size, and Radical Product Innovation,” Journal of Mar-keting, 64 (July), 1–17.

Christensen, Clayton M. and Joseph L. Bower (1996), “CustomerPower, Strategic Investment and the Failure of Leading Firms,”Strategic Management Journal, 17 (March), 197–218.


Cockburn, Iain M., Rebecca M. Henderson, and Scott Stern(2000), “Untangling the Origins of Competitive Advantage,”Strategic Management Journal, 21 (October–November Spe-cial Issue), 1123–45.

Colbert, Barry A. (2004), “The Complex Resource-Based View:Implications for Theory and Practice of Strategic HumanResource Management,” Academy of Management Review, 29(3), 341–58.

Danneels, Erwin (2002), “The Dynamics of Product Innovationand Firm Competencies,” Strategic Management Journal, 23(December), 1095–1121.

Day, George S. (1994), “The Capabilities of Market-Driven Orga-nizations,” Journal of Marketing, 58 (October), 37–52.

——— and Robin Wensley (1988), “Assessing Advantage: AFramework for Diagnosing Competitive Superiority,” Journalof Marketing, 52 (April), 1–20.

Dougherty, Deborah (1992), “A Practice-Centered Model of Orga-nizational Renewal Through Product Innovation,” StrategicManagement Journal, 13 (Spring), 77–92.

Dutton, Jane and Susan Jackson (1987), “Categorizing StrategicIssues: Links to Organizational Action,” Academy of Manage-ment Review, 12 (January), 76–90.

Galunic, D. Charles and Simon Rodan (1998), “Resource Recom-binations in the Firm: Knowledge Structures and the Potentialfor Schumpeterian Innovation,” Strategic ManagementJournal, 19 (December), 1193–1201.

Gatignon, Hubert and Jean-March Xuereb (1997), “Strategic Ori-entation of the Firm and New Product Performance,” Journalof Marketing Research, 34 (February), 77– 90.

Grant, Robert M. (1996), “Prospering in Dynamically-Competitive Environments: Organizational Capability andKnowledge Integration,” Organization Science, 7 (July),375–87.

Grewal, Rajdeep and Patriya Tansuhaj (2001), “Building Organi-zational Capabilities for Managing Economic Crisis: The Roleof Market Orientation and Strategic Flexibility,” Journal ofMarketing, 65 (April), 67–80.

Hair, Joseph F., Rolph E. Anderson, Ronald L. Tatham, andWilliam C. Black (1998), Multivariate Data Analysis, 5th ed.Upper Saddle River, NJ: Prentice Hall.

Han, Jin K., Namwoon Kim, and Rajendra K. Srivastava (1998),“Market and Organizational Performance: Is Innovation theMissing Link,” Journal of Marketing, 62 (October), 30–45.

Henderson, Rebecca and Iain Cockburn (1994), “Measuring Com-petence? Exploring Firm Effects in Pharmaceutical Research,”Strategic Management Journal, 15 (Winter Special Issue),63–84.

Hitt, Michael A., Robert E. Hoskisson, Richard A. Johnson, andDouglas D. Moesel (1996), “The Market for Corporate Controland Firm Innovation,” Academy of Management Journal, 33(October), 1084–1119.

Huff, James O., Anne S. Huff, and Howard Thomas (1992),“Strategic Renewal and the Interaction of Cumulative Stressand Inertia,” Strategic Management Journal, 13 (Special IssueSummer), 55–75.

Hurley, Robert F. and G. Tomas M. Hult (1998), “Innovation,Market Orientation, and Organizational Learning: An Integra-tion and Empirical Examination,” Journal of Marketing, 62(July), 42–54.

Jaworski, Bernard J. and Ajay K. Kohli (1993), “Market Orienta-tion: Antecedents and Consequences,” Journal of Marketing,57 (July), 53–70.

Kogut, Bruce and Udo Zander (1992), “Knowledge of the Firm,Combinative Capabilities and the Replication of Technology,”Organization Science, 3 (August), 383–97.

Kohli, Ajay K. and Bernard J. Jaworski (1990), “Market Orienta-tion: The Construct, Research Propositions, and ManagerialImplications,” Journal of Marketing, 54 (April), 1–18.

Kyriakopoulos, Kyriakos and Christine Moorman (2004), “Trade-off in Marketing Exploitation and Exploration Strategies: TheOverlooked Role of Market Orientation,” International Journalof Research in Marketing, 21 (September), 219–40.

Leonard-Barton, Dorothy (1992), “Core Capabilities and CoreRigidities: A Paradox in Managing New Product Develop-ment,” Strategic Management Journal, 13 (Summer), 111–25.

Levinthal, Daniel A. and James G. March (1993), “The Myopia ofLearning,” Strategic Management Journal, 14 (February),95–112.

——— and Jennifer Myatt (1994), “Co-evolution of Capabilitiesand Industry: The Evolution of Mutual Fund Processing,”Strategic Management Journal, 15 (Winter Special Issue),45–62.

Li, Haiyang and Kwaku Atuahene-Gima (2001), “Product Innova-tion Strategy and Performance of New Technology Ventures inChina,” Academy of Management Journal, 44 (6), 1123–34.

——— and ——— (2002), “Adoption of Agency Business Activ-ity, Product Innovation, and Performance in Chinese Technol-ogy Ventures,” Strategic Management Journal, 23 (June),469–90.

Lukas, Bryan A. and O.C. Ferrell (2000), “The Effect of MarketOrientation on Product Innovation,” Journal of the Academy ofMarketing Science, 28 (2), 239–47.

Luo, Yadong (2002), “Capability Exploitation and Building in aForeign Market: Implications for Multinational Enterprises,”Organization Science, 13 (1), 48–63.

——— and Seung Ho Park (2001), “Strategic Alignment and Per-formance of Market-Seeking MNCS in China,” Strategic Man-agement Journal, 22 (February), 141–55.

March, James G. (1991), “Exploration and Exploitation in Organi-zational Learning,” Organization Science, 2 (February), 71–87.

Matsuno, Ken and John T. Mentzer (2000), “The Effects of Strat-egy Type on the Market Orientation–Performance Relation-ship,” Journal of Marketing, 64 (October), 1–16.

Narver, John C. and Stanley F. Slater (1990), “The Effect of aMarket Orientation on Business Performance,” Journal of Mar-keting, 54 (October), 20–35.

Nerkar, Atul (2003), “Old Is Gold? The Value of Temporal Explo-ration in the Creation of New Knowledge,” Management Sci-ence, 49 (February), 211–29.

Noble, Charles H., Rajiv K. Sinha, and Ajith Kumar (2002), “Mar-ket Orientation and Alternative Strategic Orientations: A Lon-gitudinal Assessment of Performance Implications,” Journal ofMarketing, 66 (October), 25–39.

Olson, Eric M., Orville C. Walker Jr., and Robert W. Ruekert(1995), “Organizing for Effective New Product Development:The Moderating Role of Product Innovativeness,” Journal ofMarketing, 59 (January), 48–62.

O’Reilly, Charles, III, and Michael L. Tushman (2004), “TheAmbidextrous Organization,” Harvard Business Review, 82(April), 74–81.

Penrose, Edith T. (1959), The Theory of the Growth of the Firm.New York: John Wiley & Sons.

Reed, Richard and Robert J. DeFillippi (1990), “Causal Ambigu-ity, Barriers to Imitation, and Sustainable Competitive Advan-tage,” Academy of Management Review, 15 (1), 88–102.

Rindfleisch, Aric and Christine Moorman (2001), “The Acquisi-tion and Utilization of Information in New Product Alliances:A Strength-of-Ties Perspective,” Journal of Marketing, 65(April), 1–18.

Schroeder, Roger G., Kimberly A. Bates, and Mikko A. Junttila(2002), “A Resource-Based View of Manufacturing Strategyand the Relationship to Manufacturing Performance,” StrategicManagement Journal, 23 (2), 105–117.

Slater, Stanley F. and Kwaku Atuahene-Gima (2004), “ConductingSurvey Research in Strategic Management,” in ResearchMethodology in Strategy and Management, Vol. 1, David J.


Ketchen Jr. and Don D. Bergh, eds. Amsterdam: Elsevier/JAIPress, 227–50.

——— and John C. Narver (1995), “Market Orientation and theLearning Organization,” Journal of Marketing, 59 (July),63–74.

Sorescu, Alina B., Rajesh K. Chandy, and Jaideep C. Prabhu(2003), “Sources and Financial Consequences of Radical Inno-vation: Insights from Pharmaceuticals,” Journal of Marketing,67 (October), 82–102.

Srivastava, Rajendra K., Tasadduq A. Shervani, and Liam Fahey(1998), “Market-Based Assets and Shareholder Value: AFramework for Analysis,” Journal of Marketing, 62 (January),2–18.

Szulanski, Gabriel (1996), “Exploring Internal Stickiness: Impedi-ments to the Transfer of Best Practices Within the Firm,”Strategic Management Journal, 17 (Winter Special Issue),27–44.

Tabachnick, Barbara G. and Linda S. Fidell (1989), Using Multi-variate Statistics. New York: HarperCollins.

Thomas, James B., Shawn M. Clark, and Dennis A. Gioia (1993),“Strategic Sensemaking and Organizational Performance:Linkages Among Scanning, Interpretation, Action and Out-comes,” Academy of Management Journal, 36 (April), 239–70.

Tushman, Michael L. and Richard R. Nelson (1990), “Introduc-tion: Technology, Organizations and Innovation,” Administra-tive Science Quarterly, 35 (March), 1–8.

White, J. Chris, P. Rajan Varadarajan, and Peter A. Dacin (2003),“Market Situation Interpretation and Response: The Role ofCognitive Style, Organizational Culture, and Information Use,”Journal of Marketing, 67 (July), 63–79.

Williamson, Peter J. (1999), “Strategy as Options on the Future,”Sloan Management Review, 40 (3), 117–26.

Zahra, Shaker A., R. Duane Ireland, and Michael A. Hitt (2000),“International Expansion by New Venture Firms: InternalDiversity, Mode of Entry, Technological Learning, and Perfor-mance,” Academy of Management Journal, 43 (5), 925–50.

——— and Anders P. Nielson (2002), “Sources of Capabilities,Integration and Technology Commercialization,” StrategicManagement Journal, 23 (5), 377–98.

atuahene gima1

Documents

Transcript of atuahene gima1