Determinants of Market Performance: The Role of Proactive and Reactive Innovation on Product and Organizational Innovation

Abstract

This study is to investigate the inconclusiveness of product innovation on market performance in the context of Indonesian furniture company association’s members (HIMKI). We refer to Resource Advantage Theory of Competition to develop an integrated model using proactive and reactive innovations as independent variables while product and organizational innovations as mediating variables. The population of this research is 227 furniture companies with the minimum revenue of over IDR 5 billion per year and remains in business for the last of five consecutive years. We use simple random sampling techniques and 143 companies were selected as respondent then analyzed using Structural Equation Modeling. The result finds that product innovations directly and indirectly effect significantly by proactive and reactive innovations on market performance. Surprisingly, organizational innovation does not effect significantly on market performance neither as its mediating variable of proactive innovation. The originality of this study is that, this integrated model proves the direct and indirect effect of proactive and reactive innovation on product innovation and market performance significantly positive. This study has successfully identified adoption level of innovation that makes organizational innovation has no effect on market performance.