Market Orientation and Organizational Performance: A New Product Paradox?

Abstract

An integrative nomological network of the effects of market orientation on organizational performance is tested. This research reconciles inconsistencies in prior research by demonstrating simultaneous direct effects of market orientation on new product success and profitability, but only indirect effects on changes in market share. The finding that market orientation’s effect on new product success was partially mediated by its influence on the priority that firms’ place on higher order learning (i.e., generative as opposed to adaptive learning or modeling) support theoretical assertions that had yet to be empirically tested. Prior research is also extended by two unexpected paradoxes relating to new product success. First, the effect of generative learning on new product success was positive when it was mediated by an increase in the priority that firms place on radical innovation. Otherwise, its effect on new product success was negative. Second, the effect of new product success on profitability was positive when it was mediated by an increase in market share. Otherwise its effect on profitability was negative. These paradoxes are believed to reflect the ability (or inability) of firms to coordinate their capabilities (market orientation is one such capability), resources and strategic priorities. Generative learning without radical innovation and new product success without an increase in market share reflect poor coordination, and as a result, impair new product success.