The influence of market orientation on innovation strategies

Purpose: The purpose of this paper is to examine the effects of market orientation on exploratory and exploitative innovation, and the moderating effects of family ownership on these relationships.

Design/methodology/approach: This study utilizes multi-group path analysis and confirmatory factor analysis in LISREL on data from 228 firms in the Australian service sector.

Findings: This study establishes that both customer and competitor innovation are positively related to exploitative and exploratory innovation. However, customer orientation does not lead to significantly stronger effects on exploitative innovation than on exploratory innovation, and competitor orientation does not lead to significantly stronger effects on exploratory innovation than on exploitative innovation. In addition, the study found that the relationship between customer orientation and exploratory innovation was stronger for family firms, while the relationships between competitor orientation and both exploratory and exploitative innovation were stronger for non-family firms.

Research limitations/implications: The cross-sectional design is one weakness of this study. In addition, as firms in the present study came from the service sector the generalizability of the findings to other sectors of the economy need to be determined.

Practical implications: These findings of this study highlight the need for managers to build a strong market orientation in order to promote innovation, and consider the effects of ownership structure on innovation strategies.

Originality/value: This study is the first to measure the relative influence of customer and competitor orientation on a firm’s use of exploitative and exploratory innovation strategies.