The Effect of Market Orientation and Entrepreneurial Orientation on New Product Development with the Moderating Role of Technology

Uncertainty and Market Uncertainty

INTRODUCTION

New product development is the process by which customer needs are rewarded with new

solutions that are esteemed. Crawford & Benedetto (2004) has defined the new product

development as those steps, processes, techniques or activities which result in an innovative

product on their successful execution. New product development refers to challenging activities

that carries rewards for the organization along with high risk, because organizations invest huge

resources in these activities. It requires the new technological capabilities and expertise that may

not be currently prevailing in the organization (Zirger and Maidique, 1990). The extensive

market research conducted carefully enhances successful development of new innovative product

(Myers’ & Marquis's, 1969).

The time gone by new product development spreads over three distinct periods of time. First is

product oriented era that is absenteeism of market research, Product was not produced by

considering the needs but the needs were justified by available product (Poolton and Barclay,

1998). Organizations consider the market as legatee of their products; engineers developed a

product and put into market while ignoring customer’s needs. This is because the customer had

less information about product, and secondly there were no more competitors to target market, so

choices were limited for customers. In the second stage, firms started focus on customer needs

and new product development process was based on market research information (Booz, Allen

and Hamilton, 1968). Customer got the impotence of strategic factor (Van Kleef, 2006). At third

stage, new product development is the mixture of both approaches, now firms consider NPD as a

multifaceted process requiring both market information and entrepreneurial practices. This is

because of the technological revolutions and dynamic market environment; customers have

greater access to market and product information. Customers have several choices as the number

of competitor increased. So for successful NPD projects, organizations should realize and

conduct the pervasive market research to recognize the customer’s current and evolving needs,

and their behavior towards new product (Narver & Slater, 1990; Cervere, Molla & Sanchez,

2002; Kohli & Jaworski, 1990). Firms should proactively behave to take risky decisions for

bringing new product early in the market and leave behind the competition (Cooper, 1979).

Therefore, this study has focused on both these type of approaches, market and entrepreneurial

orientation to find their contribution in new product development.

Successful new product development has been contemplated as engine of growth for every small

and large organization either deals in consumer or industrial products. In some studies like

Schimmoeller (2010) and Tatikonda & Montoya-Weiss (2001) has assessed the new product

development, inaugurated by three components; innovation speed, developing cost and product

quality. Innovation speed usually has been quantified by speed to arrive the market. This feature

of new product development has categories the firms in three types, first mover or first to enter

the market, early entrants, and the late entrants. The speed to market exemplifies how much time

an organization spends to bring a new product in the market by successfully converting a concept

into product, this component is best justification of a corporate or a team's ability to promptly

develop and unveil a new Product in the market (Schimmoeller, 2010). Due to shorter product

life cycle firms should adopt the first mover policy for new product to maximize the profit.

A firm that is first to market enjoys the benefit of no direct competition, although it has to face

the challenge of substitute or other already existing products targeting same market needs.

Entrance of potential competitors in the market at some future time is a threat faced by first

movers. Early entrants enter the market at very initial premature stage of product life cycle,

before the sale of new product lay down, but these firms has to compete with few already

existing firms targeting the same market (Langerak, 2009). Late entrants has to face the intense

competition in the mature market, firms enter at later stage of product’s life cycle when the sales

of new product have already laid down. This strategy of first to enter the market is possible only,

when a firm has an exclusive idea to develop and launch new innovative products in the market.

First to market strategy requires a greater level of technological and market knowledge to

minimize the risk related to innovative product (Tatikonda & Montoya-Weiss, 2001).

Quality of new product has been considered by means of its overall performance in the market,

that performance usually has been assessed by its outcomes in terms of sales volume of new

product, market share and turnover of new product (Schimmoeller, 2010). Quality of the new

product provides the competitive edge by building customer trust (Zeithaml, 1988). A quality

product has a capacity to meet the desired customer’s needs (Atuahene-Gima & Ko, 2001).

Customers’ demands and preferences are changing rapidly, firms should be customer oriented to

know and fulfill these changing preferences by developing the new products (Van Kleef, 2006).

It is very hard-hitting task for firms to minimize the time required to develop and launch the

novel product, meanwhile improving product quality and cutting the cost. Firms that bring the

products early in the market have higher brand awareness, and brand equity. Firms proactively

take the prompt decisions to early develop the product and enter the market, but it has high risk

of failure, as the quality of product may reduce and secondly it require such capabilities and

resource combination not currently available in the firm. It requires time to acquire and proceed

on such capabilities. Firms that are early entrants need to be consistently acquire new

technologies and procedures to minimize the risk and enhance its competency to develop quality

product. This leads firms to have an entrepreneurial orientation.

New product development is a risky process, which comes with the high cost and ventures of

failure of new product. Different studies argued different failure rate of new product

development, on an average, failure of new products has been anticipated approximately 40% of

total number of new products launched in the market (Page, 1993). Some other researchers also

come to an agreement with this rate (Shipley, Edgett, and Forbes 1992).

New product development is a rewarding activity. In a dynamic market situation with escalating

competition and reducing product life cycle, new product development has become more crucial

practice for firms to stay alive (Wind and Mahajan, 1997; Dougherty, 1990). The results of the

several studies direct that market orientation enable a firm to raise the product performance by

providing quality products first to market. There are two process streams of developing new

product, one stream starts from mind browsing for generating an idea, technological

development, extensive engineering and R&D, the second stream inaugurated by exhaustive

market research and careful market analysis. These paths or steams goes side by side in NPD

process, the first one path is regulated by entrepreneurial oriented strategies while second one is

exalted by market orientation strategies for successfully launching a new product. Some studies

recommended that entrepreneurial orientation is opposite to market orientation (Renko, et. all.

2009).

1.1 Importance of NPD

New product development is a crucial element of every small and large organization to compete

and grow in the market. Globalization and change in technology have changed the way of doing

the business (Capon and Glazer, 1987). Product life cycle is becoming shorter and shorter, in

consequence of these instabilities every organization either MNC or a local firm is facing the

challenge of global competition, they have to provide a product superior to competitor’s product.

So the organizations are focusing more on research to bring innovation in their products. An

organization disregarding the new product development means it disregarding customers’ needs

that will result in customer dissatisfaction and the organization fail to compete, and no longer

will stay alive in market. On average, approximately 50% of corporate annual revenue comes

from products launched within the utmost recent 5 years (Page 1993).

1.2 Market orientation

The market orientation, or concept, appeared considerably in the second half of the 20 th century.

Organizations with a market orientation mark the necessities and desires of customers as a key

factor of their decisions regarding new product development. Corporation Considering a

marketing orientation means considering the customers’ needs in all business aspects (Sheppard,

2011). Market oriented organizations are more progressive as they are more capable to find and

to avail the opportunities of successfully developing and launching the new products in the

market (Ramaseshan, et al. 2002).

In the study of Narver & Slater (1990) it has been explained as a firm culture where all strategies and

activities focus on maximizing customer values. Firm’s market orientation replicates the strategic

directions adopted by a firm for creating a realistic behavior to provide superior values to

customers (Kohli & Jaworski, 1990; Ramaseshan, et al. 2002; Narver and Slater 1990). Market

orientation is not only to consider the customer’s needs, it is a broader strategy that also concern

with competitor orientation and organization’s interfunctional coordination. It talks over

numerous issues including segmentation, customer purchase behavior, customer RFM value,

market growth, and competitors (Cooper, 1983).

Customer orientation means all those activities that assimilate the firm resources to recognize,

evaluate, and reply customer needs (Narver & Slater, 1990).Customer orientation encourages the

firm to avail the opportunity of getting competitive edge in term of quality and superior

performance. The competitor orientation has been explained as the firm’s strategic directions

regarding to competitors. It includes the activities to ascertain, evaluate, and learn from

competitors’ actions in order to respond superior than competitors. Such activities empower the

firm to figure out the capabilities and weaknesses of competitors. Firms having competitor

orientation develop a product that is comparatively superior in the market.

Interfunctional coordination indicates the certain arrays of organizational structure where

different functional units integrate and participate to execute their activities and accomplish the

task (Auh & Menguc, 2005). It facilitates the communication, sharing of expertise and

knowledge among NPD functional units. Market oriented firms integrate their resources and

functional units to produce greater values for their customers (Narver and Slater 1990). Firm is

able to develop to a quality product earlier and first to bring the new product in the market

(Sethi, et.al. 2001).

Activities conducting extensive research to perceive whatever the customers desire and to

provide new products will always proceeds to long-term profitability (Gatignon and Xuereb,

1997). Corporations can change one-time buyers into repeat purchase customers, with an

eventual objective of developing several loyal customers. Market oriented firms develop

products that correspond with the needs and desires of the customers, that means customers

perceive more satisfaction from product that boost up the repeat purchases which ultimately

results in enhanced customer loyalty. These customers buy in bulk repetitively and moreover

they are less exposed to competition.

A foremost gain of a market orientation is that the business is established on considering the

needs and wants of those to whom it serve (Angela Paladino, 2007). As the customers require

some sort of features in products, firm can hurriedly acquire and respond if it has a hand on the

pulse of the market. Assigning customers with topmost primacy is appreciated in a competitive

environment.

Although in numerous studies it has been attempted to conclude that market orientation boosts

new product development, but it is still undecided. Different studies asserted that market-

oriented culture of a firm is the indications of efficient marketing activities and efficient new

product development activities. When corporations have a worthy acquaintance of whatever the

customer needs and wants, they are in superior position to market the products effectively to

customers, as they know better how to deliver messages that make clear to customers how the

products align with their needs and wants. Firms are better able to launch the new product in the

market. Product takes superior position in customer mind. Firms find easy to promote product

features, how the product differ from others and how product relates to their needs and can fulfill

them in better ways. Firm can maximize advantages for customers. New product development

generates new stream of revenues for the firm, so it has been considered as a substantial factor of

firm growth and competitive advantages. The market orientation leads to develop a product that

performs comparatively better in the market, because information regarding market enables a

firm to develop a product that has characteristics acceptable in the market. Product’s features are

determined by customers who ultimately buy the products; therefore products achieve greater

level of quality and performance.

Market orientation in this study has been defined as an approach that engenders interfunctional

coordination in a firm to assess and evaluate the competitors and customers for developing an

innovative product. Market orientation narrates about behavior and attitude of firm that is

enumerated by three components as interfunctional coordination, competitor orientation and

customer orientation (Narver and Slater, 1990). Market orientation discloses the needs and wants

of customers and factors affecting that needs. Market orientation is the accomplishment of

market concept, (Kohli and Jaworski. 1990).

In some studies market orientation has been perceived in different aspect and described as, a

firm’s approach that foster such culture where firm responds adroitly to market intelligence that

are generated by it and disseminated in all concerning departments. In market orientation, firm’s

activities to develop and unveil a novel product originate from external environment and

approaches toward the internal environment. Firm try to spot out an opportunity by ascertaining

customer need and behaviors, then integrate its resources to avail that opportunity by giving

superior value to the customers. Angelo Paladino (2007) has explained the market orientation as

a firm’s strategic approach to serve the customer with innovative products that are superior in

customer’s eye by inserting an efficient culture in the firm.

Numerous studies about market orientation suggest that market research about customer’s needs

and behaviors is very crucial, especially at early stage of concept generation (Van Kleef, 2006).

In market research, information regarding to customers decision criteria and history regarding

product purchase (Ramaseshan, et.al, 2002), segmentation characteristics (Sheppard, 2011),

effective communication channel for promotion (Zheng Zhou, et.al. 2005), emerging needs of

customers, and competitors offering are assembled (Gruner and C. Homburg, 2000). This

information gives idea about characteristics that should be in new product to label it superior in

the market (Atuahene-Gima, 1996). The success of NP depends on quality and quantity of novel

ideas that ultimately depends on determinations to conduct market research.

1.2.1 Reasons Behind Discouraging Market Orientation

A problem cited with marketing orientation is the reduction in aptitude to rapidly renovate the

products with advanced technologies (Christensen's, 1997). Market orientation takes the firm

toward some erroneous believes and firms are Offering more time and resources for conducting

customer research causes less product differentiation (Bennett & Cooper, 1981; Christensen,

1997). Customers are unaware from their evolving future needs, so they are incapable to

determine the characteristics. Market orientation requires the extensive market research about

customers, competitors and market situations. This requires time to conduct and examine such

research. Therefore, it may results in delay of innovation (Miller and Swaddling, 2002). The

shorter product life cycle and dynamic market situation having intense competition require a firm

to sufficiently develop the innovative product and reduce the time to bring product to market.

One more apparent downside of market orientation is inability to explore and adopt the frequent

advancement in production processes that reduce production efficiency of firm (Christensen's,

1997). Development in production processes and equipment appears with passage of time, firm

not persistently investigating for these encroachments, finds difficulties to survive in the market

(Atuahene-Gima and Anthony Ko, 2001). Besides of these, even with a marketing orientation,

firm should go for opportunities to bring precision in production processes (Lumpkin and Dess,

1996).

1.3 Entrepreneurial Orientation

Dynamic market environment epitomized by high market and technology uncertainty is the result

of changing needs and demands of customers and technological developments. Research studies

indicate that firm should practice market and entrepreneurial orientation for purpose of

successfully developing the new product in such ambiguous environment (Slater & Narver,

1995; Atuahene-Gima & Ko, 2001). Some researches argued that firms practicing only market

orientation are not sufficiently expert in developing a product unpredictable by customers, firm

should also entrepreneurial oriented to take risk of proactively visualizing opportunity of

developing new product to fulfill the evolving needs of customers (Hamel and Prahalad, 1994).

This approach carries greater risk of market failure as compare to market orientation, but return

is much more on successful innovation (Hulme, 1995).

Entrepreneurial orientation has been considered as innovation pursuing approach that trigger to

act proactively and risk captivating behavior in new product development projects (Miller, 1983;

Covin and Slevin, 1989). New product development project initiated by entrepreneurial oriented

firms, enclosed high risk because it call-for new competencies and huge investment of resources.

These new set of competencies are not already persisting so firm finds difficulty to organize

them (Burgelman, 1991). Firms conduct the experimentation and acquire new techniques,

knowledge and expertise to create such combinations of new set of resources that enhance the

successful development of new product. Therefore, some studies call the entrepreneurial

orientation as an approach that involve exploratory learning and development process to acquire

new technologies that enable firms to proactively behave and develop an innovative product for

satisfying customer’s evolving needs (Zahra and Covin, 1993).

In some studies it has been considered that entrepreneurial orientation is opposite to market

orientation and at some extent related to technological orientation. In entrepreneurial orientation,

activities originate from internal of organization and elongate to external environment, while in

market orientation activities instigate from environment outside the firm by seeking current

market opportunity and elongate to the firm internal environment (Covin, 1991; Drazin and

Schoonhoven, 1996; Zahra, 1993). Market orientation has adaptive learning technique to bring

innovation, while entrepreneurial orientation is exploratory learning to build firm dynamic

capabilities and take risk of fulfilling the emerging needs by developing innovative product,

firms first develop the product and then try to aware and realize the customer about the necessity

of that product (Lumpkin and Dess, 1996). To develop such innovations, firms focus on

enhancing firm technological capabilities by adopting new production techniques and processes.

Most of the studies have focused on the relationship between entrepreneurial orientation and firm

performance, few studies concern about its effect on new product development. This research

has considered the entrepreneurial orientation as the strategic approach to act proactively and

take high risky decisions in developing new product. It is a behavior of firm characterized by

three components; one is risk taking, second is innovativeness and third is proactiveness (Coven

and Slevin, 1991; Miller, 1989). Entrepreneurial oriented firms demonstrate higher risk activities

(Olleros, 1986). These firms are in better position to earn more benefits from market, charge the

premium of innovation and set the market and industry standards.

Risk-taking has been considered as a conspicuous element of entrepreneurial orientation, that

typically discussed about the risks an entity takes from business activities, e.g. Managers take

decisions to allocate large number of resources to highly uncertain projects with high probability

of failure (Wiklund and Shepherd, 2003; Lumpkin and Dess, 1996). Proactiveness determines the

specifications of entrepreneurial orientation to visualize impending opportunities in the market

(Li et al., 2008). It explicates the actions or steps taken in advance by the firm to better serve its

customers. Firms take some steps or actions in hope of facing some upcoming future problems,

and to come across the customer’s necessities in advance (Foxall, 1984). Proactiveness enables a

firm to ascertain and utilize the resources, to avail the opportunity, to compete and survive in

dynamic environment. The prompt changes in customer’s needs and technologies require a firm

to foresee and retort these changes. Innovativeness is another reasonable factor of entrepreneurial

orientation that relates to the expansion of novel business concepts (Renko & Brännback, 2009).

Firms that instigate to develop and sustain the entrepreneurial orientation are more able to

develop the new product and bring first to market (Miller, 1983; March 1991). These firms have

such orientation that support the risk taking activities to find the new opportunities and develop

the innovative product, therefore it is expected that entrepreneurial orientation has positive

association with new product development (Atuahene-Gima and Ko, 2001; Keh, et.al. 2006). It

has been proved by numerous studies that a firm should be market oriented for successful

development of new product. Some studies suggested that a firm should also be proactive and

competent to take risk. This study is going to consider both orientations simultaneously.

Atuahene-Gima & Ko, (2001) has described that firms that are market and entrepreneurial

oriented at same time are more successful in developing new products. They argued that market

oriented firms are unable to avail those opportunities which customers cannot prescribed while

entrepreneurial oriented firms are able to do so through adopting new techniques and proactive

approach (Rauch, et.al. 2004). The balance between market orientation and entrepreneurial

orientation activities enables an organization to minimize the risk and increase the success

chances of developing and launching the new product in the market. This reveals a business

context that requires extensive research to find out the contribution of market orientation and

entrepreneurial orientation in NPD.

1.4 Background of the Study

From the past two decades NPD has appeared as imperative strategic concern for firm’s survival

and growth as more than fifty percent of firm revenue is generated by new products developed in

recent past three years (Carr and Lopez, 2007). Previous researches suggested that a firm’s

strategies and decisions regarding customers, competitors and business operations strongly

influenced the success of new product and its outcomes, because the market oriented business

operations minimize the risk related to NPD. (Atuahene-Gima and Ko, 2001). Earlier studies

have revealed that market orientation is positively associated to new product performance

(Sundqvist, Puumalainen and Saminen, 2000; Slater and Narver 1994). The growth of a firm is

dependent on its NPD activities because it generates revenue streams and keeps that particular

firm young. Therefore the study of NPD is remarkably considered. Firms want to know about

different approaches regarding NPD success. This study is providing research on two approaches

market and entrepreneurial orientation for NPD. The study has also considered the moderating

effect of technology and market uncertainty.

1.5 Problem Statement

Firms now a day are finding very difficulties in successfully operating their business in such a

vigorous, uncertain and highly competitive environment. To survive and grow in such kind of

environment, firms have to consistently develop the new innovative products. It brings new

stream of revenues and provide the competitive edge to the firm. Market environment is highly

uncertain as technological and market changes are rapidly taking place.

There are different views regarding contribution of market and entrepreneurial orientation in new

product development. Some studies determine market orientation as firm approach that assist the

new product development while some studies does not support it and argue that market

orientation may restrict technological new innovative product. They also argue that conducting

market research may cause delay in new product development. Most of studies proved

entrepreneurial oriented firms are more able to develop successful innovative product however it

carries high risk of failure. Therefore, it is necessary to know whether firm should go for market

and entrepreneurial orientation or not in such a dynamic environment, where the market and

technological changes are consistently taking place.

The problem statement of this research is to investigate the impact of market orientation and

entrepreneurial orientation on the new product development and moderating effect of market and

technological uncertainty on the relationship of market orientation and entrepreneurial

orientation with new product development in the context of Pakistani firms.

1.6 Research Questions

This study has considered the following research questions to answer;

Q1: What is the effect of market orientation on new product development?

Q2: What is the effect of entrepreneurial orientation on new product development?

Q3: To what extent market and technology uncertainty have a moderating effect on the

relationship between market and entrepreneurial orientation with new product development?

1.7 Objective of the Study

The successful new product results in creating a new revenue stream for the organization,

enhance its market share and competitive position. Although new product development processes

carry much benefits but it is risky as well. The cost of failure of new product is unbearable

because organization has allocated vast resources for these types of projects. Organizations rely

profoundly on market research to develop a product according to customer’s needs and wants,

but relying merely on market orientation can result in missing to avail those opportunities that

customers are unable to determine. Organization should also be entrepreneurial oriented to

develop an extremely new technological product, to aware the customers with such innovative

products and go beyond the competition.

Therefore, the study of both market and entrepreneurial orientation is necessary to considered for

developing a new product. In the perspective of Pakistan, this study aims to know the extent to

which an organization is able to succeed in developing new product and realizing its outcomes, if

it is market oriented or entrepreneurial oriented. This study also aims to know whether product

technology uncertainty and process technology uncertainty have moderating impact on the

relationship of market orientation and entrepreneurial orientation with new product development.

Some studies calls market orientation has significant influence on new product development,

while some studies calls entrepreneurial orientation more influential for new product

development. This study clarifies which orientation is contributing how much in new product

development. The objectives of the study are as:

To find the contribution of market orientation and entrepreneurial orientation in the new

product development.

To know the moderating effect of technology and market uncertainty on the relationship

between market and entrepreneurial orientation with new product development.

To interpret the finding of study in the light of exiting research studies on new product

development.

To provides basic arguments for managers to evaluate the tradeoff between quality, time

and cost of new product development in order to maximize the customer values.