Successful new product development (NPD) is critical for the renewal, survival, and success of organizational and economic growth (Brown and Eisenhardt, 1995, Lukas and Ferrell, 2000, Sarin and Mahajan, 2001 and Wind and Mahajan, 1997, February). Market orientation (MO) is the degree to which an organization collects information on its customers and market environment, disseminates that information across functions, and collectively responds to market information to cater to the needs of customers (Kohli & Jaworski, 1990). Although some research has recognized that a firm's MO is a key antecedent of new product performance, mixed empirical results in relevant literature have led researchers to explore the potential mediators and moderators in that relationship (e.g., Deshpande and Farley, 2004, Gotteland and Boule, 2006, Im and Workman, 2004, April and Lukas and Ferrell, 2000, etc).
Firms' reward systems are one such area for exploration. Reward systems entail the deliberate use of the pay system to guide and direct the behavior and efforts of various individuals and departments toward achieving a firm's goals (Gomez-Mejia & Balkin, 1987). Reward systems are a crucial contributor to strategy implementation (Yanadori & Marler, 2006) and to a firm's effectiveness and competitive advantage (Gomez-Mejia and Welbourne, 1988 and Shaw et al., 2001). Thus, it is not surprising that the impact of reward systems on the evaluation and control of performance has been ranked a top-tier research priority (e.g., Hauser et al., 2006 and Marketing Science Institute, 2004–2006).
Management strategy literature, but not marketing strategy literature, has documented empirical evidence of the moderating role of reward systems in the strategy-performance relationship (e.g., Allen and Kilmann, 2001, Rajagopalan, 1997 and Shaw et al., 2001). Shaw, Gupta, and Delery (2001) argue that the effectiveness of strategy implementation depends on a match between organizational systems, such as marketing, technology, and human resources management (HRM; reward systems and leadership, etc). Thus, the coupling of MO with appropriate reward systems may enhance or moderate the effect of MO on new product performance. As a result, the marketing strategy literature's neglect of the moderating role of reward systems in the MO-new product performance link may not only reduce the predictive efficacy of MO theory, but may also lead firms to misallocate resources and effort, which may in turn cause new products to fail.
This article contributes to the marketing strategy literature in two respects. First, we provide theoretical and empirical insights into the mixed results regarding the MO-new product performance relationship by investigating the potential moderating effects of reward systems, which we hope will advance extant research and provide guidance to managers on how firms can best leverage new product performance by matching reward systems with MO. Second, although it is widely acknowledged that small changes in reward systems may lead to large payoffs in NPD performance (Feldman, 1996), many firms do not achieve NPD objectives because they have adopted reward systems that are inappropriate for their strategic orientation or NPD approach (Sarin & Mahajan, 2001). Literature has documented the importance of the marketing, Research and Development (R&D), sales, and manufacturing interface (Leenders & Wierenga, 2008). The findings of this study, conducted in China, may improve the current level of marketing researchers' and managers' understanding of how an appropriate marketing-HRM interface influences NPD performance, which is the foundation of a firm's growth and success.
The goal of this study is to advance the marketing strategy literature by examining the moderating role of reward systems in order to understand the causes of mixed results obtained in research in the linkage of MO and new product performance. The results of the study enhance our understanding of the importance of integrating reward systems (an important part of the HRM function) with MO (the marketing function) into the NPD innovation process.
Based on our Chinese data, we found that the effect of MO on new product performance depends on the design of reward systems, which implies that a market-information-processing system requires other complementary resources to create competitive advantage. The significant interactions between MO and the two types of reward systems examined in this study (i.e., risk-taking and long-term rewards) on new product performance indicate that, in order to drive high new product performance, firms should match MO with a properly designed reward system. Whether different types of reward systems can change the strength of the relationship between MO and new product performance has not previously been considered in literature. Thus, the findings from this study provide critical new insight into how firms should design reward systems to successfully implement MO and achieve superior new product performance.
