The contribution of market orientation to new product/service performance has been examined by a number of academics (e.g., Agarwal et al., 2003, Manzano et al., 2005 and Zhou et al., 2005). However, empirical support for this contribution is still equivocal in service sectors. For example, some academics have found support for a direct contribution (e.g., Van Egeren and O'Connor, 1998, Kumar et al., 1998 and Langerak, 2003), while others have failed to find support (e.g., Han et al., 1998, Sargeant and Mohamad, 1999 and Caruana et al., 2003). Still others have found evidence of a mediated contribution: innovation (e.g., Matear et al., 2002). That is, market oriented service firms are inclined to produce service innovation first, which in turn leads to new service performance.
While several studies have generally agreed that the market orientation–innovation–performance relationship exists (e.g., Zhou et al., 2005), the relationship between market orientation and new service performance seems far from fully explained (Zhou et al., 2009). First, researchers have suggested that customer orientation, competitor orientation and inter-functional coordination, components of market orientation, have differential implications on firm performance. For example, some researchers (e.g., Han et al., 1998, Deshpande and Farley, 1998 and Chao et al., 2007) indicate that customer orientation is perhaps the most fundamental element of market orientation to business performance, while others (e.g., Dawes, 2000, Noble et al., 2002 and Sin et al., 2005) find competitor orientation to be “detrimental to profitability.” Still others (e.g., Gray et al., 1998 and Dawes, 2000) find that the impact of inter-functional coordination on business performance has mixed results. Thus, clarifying why customer orientation, competitor orientation, and inter-functional coordination differ in their effects on new service performance would appear to be useful.
Second, products with a higher degree of innovation are approved to have higher sales and financial performance, leading to greater overall business performance (Gatignon and Xuereb, 1997 and Zhou et al., 2005). However, the very nature of services, having a number of distinguishing features when compared to goods (e.g., co-creation with customers, Vargo and Lusch, 2008), leads to a greater need to establish credibility with customers. As such, service firms could also achieve greater business performance even through less innovative services (Atuahene-Gima, 1995 and Berry et al., 2006). In this way, different types of service innovation should be studied in greater depth to see how they mediate the market orientation–innovation–performance relationship. To our knowledge, there have been few, if any, attempts to examine how different types of service innovations play this mediating role in the service context.
Finally, because one of the most notable service characteristics is direct and intense interaction between service providers and customers (Ramani and Kumar, 2008), it is assumed that research on market orientation in the context of service should be more abundant than that in the products sector. However, with notable exceptions of Han et al. (1998) and Matear et al. (2002), relatively few studies have explicitly examined this relationship in the service sector.
To fill this gap, this study uses a component-wise approach (Li and Calanton, 1998) to examine (1) the degree to which market orientation directly contributes to new service performance and (2) how three components of market orientation contribute to two types of service innovations, and in turn lead to new service performance. By doing so, this study contributes to literature in the following ways. First, this study assesses how market orientation drives service innovation, which is still an unresolved topic (Sin et al., 2005). If the examination of causal effects among the elements of market orientation and their indirect influences on new service performance can contribute to identifying empirical regularities or reconciling inconsistencies in the relationship between market orientation and performance, the level of confidence in market orientation would be advanced theoretically and empirically.
Second, this study provides new insights by dismantling market orientation and service innovation to more deeply understand the effects of underlying market orientation components on two types of service innovations, a focus that has received little empirical assessment (Tsiotsou, 2010) and that addresses Han et al. (1998). Specifically, Han et al. (1998) use a component-wise approach to examine the effects of three market orientation components on two organizational innovations, which lead to organizational performance. However, the interplay between market orientation and innovation is not yet well-understood (Han et al., 1998 and Noble et al., 2002) and this is particularly true in explaining service innovation (Tsiotsou, 2010). As indicated by Han et al. (1998, p. 41), “formulating an innovation strategy to complement the firm's market orientation strategy should provide a more coherent and comprehensive road map for organizations to follow.”
Finally, previous studies regarding market orientation and service innovation have focused mainly on a specific sector, such as banking (Han et al., 1998), retailing (Chang and Chen, 1998), hotel (Zhou et al., 2009), or insurance sectors (Lado and Maydeu-Olivares, 2001). This study covers multiple service sectors.
The remainder of this article is structured as follows. This study begins by reviewing two types of service innovations, incremental and radical service innovation, and the market orientation–innovation–performance relationship. Based on this review, research hypotheses are developed. Next, the study's sample of 235 respondents is described and the relationships among the constructs are assessed. Finally, analyses of field data and the implications of the findings are discussed.
