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Innovativeness: Its Antecedents and Impact on

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 Industrial Marketing Management 33 (2004) 429 438

Innovativeness: Its antecedents and impact on business performance

G. Tomas M. Hulta,*, Robert F. Hurleyb,1, Gary A. Knightc,2
a
Eppley Center, Eli Broad Graduate School of Management, Michigan State University, East Lansing, MI 48824-1121, USA
b
Fordham University, 113 West 60th Street, New York, NY 10023, USA
c
College of Business, Florida State University, Tallahassee, FL 32306-1110, USA
Received 30 December 2002; accepted 21 August 2003

Abstract

In this study, we address three research questions: (1) Why are some industrial firms more innovative than others? (2) What effect does
innovativeness has on business performance? (3) Does the linkage between innovativeness and business performance depend on the
environmental context? Accordingly, we draw on various theoretical perspectives to develop hypotheses that propose market orientation,
entrepreneurial orientation, and learning orientation as key antecedents to innovativeness, as well as a direct relationship between
innovativeness and business performance. A model is devised and tested that examines these relationships in general and in the context of
varying market turbulence. Findings confirm the validity of the model and afford various insights on the role of market turbulence in the
proposed relationships. Lastly, implications are offered on the antecedents and consequences of organizational innovativeness.
D 2003 Elsevier Inc. All rights reserved.

Keywords: Innovativeness; Market orientation; Learning orientation; Entrepreneurial orientation; Performance; Market turbulence

1. Introduction innovation contributes to business performance, relatively

A key component in the success of industrial firms is the
extent of their innovativeness. Innovativeness relates to the
firms capacity to engage in innovation; that is, the introduc-
tion of new processes, products, or ideas in the organization.
This capacity to innovate is among the most important
factors that impact on business performance (e.g., Burns &
Stalker, 1961; Hurley, Hult, & Tomas, 1998; Porter, 1990;
Schumpeter, 1934). It is through innovativeness that indus-
trial managers devise solutions to business problems and
challenges, which provide the basis for the survival and
success of the firm well into the future. Innovativeness is one
of the factors over which the management has considerable
control. However, studies on the factors that give rise to
innovativeness in the firm have produced mixed results
(Abratt & Lombard, 1993; Henard & Szymanski, 2001;
Poolton & Barclay, 1998). While it is generally agreed that
* Corresponding author. Tel.: +1-517-353-4336; fax: +1-517-432-1009.
E-mail addresses: hult@msu.edu (G.T.M. Hult),
hurley1@ix.netcom.com (R.F. Hurley), gknight@cob.fsu.edu
(G.A. Knight).
1
Tel.: +1-212-636-6760; fax: +1-212-765-5573.
2
Tel.: +1-850-644-1140; fax: +1-850-644-4098.
little is known about the drivers of innovativeness and how
those drivers operate via innovativeness to collectively
influence performance. Moreover, little is known about
how the drivers of innovativeness operate under varying
conditions in the firms external environment.
To address these issues, a sample of large (Fortune 500)
industrial-based firms is investigated to determine (1) the
effect of three key organizational orientations posited from
the literature on innovativeness, (2) the hypothesized effect
of innovativeness on business performance, and (3) the role
of environmental characteristics in moderating the relation-
ship among the orientations, innovativeness, and business
performance. Findings can help the management to better
understand what types of orientations should be encouraged
with a view to increasing the level of innovativeness among
industrial firms.
Based on a review of relevant literature and theoretical
conceptionalizations, we will argue that among the key
antecedents to innovativeness are the constructs of market
orientation, learning orientation, and entrepreneurial orien-
tation. Researchers have emphasized the importance of
market orientation (Jaworski & Kohli, 1993; Narver &
Slater, 1990) and learning orientation (Sinkula, 1994; Slater

0019-8501/$ see front matter D 2003 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2003.08.015
430 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438
& Narver, 1995) in developing a competitive advantage
(Day, 1994). Recently, research on competitive advantage
has highlighted the importance of entrepreneurial orienta-
tion (Lumpkin & Dess, 1996). While the positional advan-
tage of firms has been suggested to be a function of market
orientation, learning orientation, entrepreneurial orientation,
and innovativeness, no study has examined the linkages
among these constructs in an integrated manner. As such,
we do not know how these constructs interact to influence
business performance. This study intends to shed new and
important light on these constructs and the interrelationships
among them. Specifically, we devise a theory-based struc-
tural equation model that links these constructs together. We
then conduct a survey-based study of multinational firms
that market industrial goods to evaluate the validity of
linkages posited in the model.
We begin by examining how innovativeness has been
related to organizational adaptation and performance in the
context of relevant theoretical perspectives. Next, we assess
the plausibility of market orientation, learning orientation,
and entrepreneurial orientation as antecedents to innova-
tiveness and offer a collection of associated hypotheses. In
the methods section, the study sample of 181 firms is
discussed and the construct measures are evaluated. Next,
the relationships among these constructs are assessed and
discussed.
2. Background and hypotheses
Culture reflects norms, values, and beliefs that reinforce
behaviors ultimately related to business performance. When
specific orientations are embedded in organizational culture,
the intensity and consistency of resultant behaviors are
augmented across situations, groups, and persons within
the firm. A culture that supports the execution of a strategy
is difficult to copy and thus can become a sustainable
competitive advantage (Barney, 1986). The principal ques-
Fig. 1. Hypothesized model.
tion addressed in this paper is how each of key antecedents
and innovativeness are related and how they collectively
enable the organization to adapt and perform. We now
examine these factors in depth to highlight relationships
among them and their association with business perfor-
mance. The linkages proposed among the constructs inves-
tigated here are illustrated in Fig. 1.
Innovativeness is defined here as the capacity to intro-
duce of some new process, product, or idea in the organi-
zation (Damanpour, 1991; Hurley et al., 1998). An
innovation can be a new product or service, a new produc-
tion process, or a new structure or administrative system.
Certain types of innovations such as administrative innova-
tions that improve internal operations may have no direct or
immediate impact on the marketplace (Han, Kim, & Srivas-
tava, 1998). Zaltman, Duncan, and Holbek (1973) suggest
that one of the stages of the innovativeness process is
initiation. A critical part of the initiation stage is cultural
openness to the innovation (Zaltman et al., 1973, p. 64).
Openness includes whether the members of an organization
are willing to consider the adoption of an innovation or
whether they are resistant to it. Van de Ven (1986) refers to
this as the management of the organizations cultural atten-
tion in order to recognize the need for new ideas and action
within the organization.
Innovativeness is primarily distinguished from entrepre-
neurial orientation in that it does not require new market
entry (Lumpkin & Dess, 1996, p. 136). Much of the firms
innovativeness hinges on the extent to which managers
acquire and act on market intelligence. Organizations that
act are responsive to markets. Organizations without the
capacity to innovate may invest time and resources in
studying markets but are unable to translate this knowledge
into practice.
The adoption of innovation is generally intended to
contribute to the performance or effectiveness of the firm
(e.g., Damanpour, 1991). Business performance is defined
here as the achievement of organizational goals related to
 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438
profitability and growth in sales and markets share, as well
as the accomplishment of general firm strategic objectives.
The resource-based view (Wernerfelt, 1984) helps to explain
how firms derive competitive advantages by channeling
resources into the development of new products, processes,
and so forth. Innovation is a means for changing an
organization, whether as a response to changes that occur
in its internal or external environment or as a preemptive
move taken to influence an environment. Because environ-
ments evolve, firms must adopt innovations over time and
the most important innovations are those that allow the firm
to achieve some sort of competitive advantage, thereby
contributing to its performance (e.g., Damanpour, 1991;
Henard & Szymanski, 2001; Porter, 1990). This discussion
leads to our first hypothesis.
H1: The magnitude of innovativeness is positively related to
the magnitude of business performance.
While the linkage suggested by this hypothesis is gener-
ally known to be true, it is important to assess it here as a
foundation for other explanations and hypotheses that
follow.
2.1. Market orientation and innovativeness
Kohli and Jaworski (1993) define market orientation as a
set of ongoing behaviors and activities related to generation,
dissemination, and responsiveness to market intelligence. To
some degree, this position is shared by Day (1994) who
views market orientation as ongoing behaviors or processes
via market sensing and buyer linking. Han et al. (1998, p.
31) state, market orientation, as a corporate culture, char-
acterizes an organizations disposition to deliver superior
value to its customers continuously. Fritz (1996) found that
market orientation is important for corporate success. We
argue that in market-oriented organizations, behaving or
introducing a process that inhibits a market focus would feel
wrong and would most likely result in some censure; that is,
it would be counter cultural. Thus, market orientation is
an aspect of culture and is a latent construct whose indica-
tors are values, beliefs, and symbols that demonstrate a
concern for markets.
Narver and Slater (1990) emphasize that market orienta-
tion refers to a culture that places a high priority on creating
buyer value while considering other stakeholders and em-
phasizing responsiveness to market information. Days
(1994) conceptualization holds that market-oriented compa-
nies have processes for collecting market intelligence and
integrating them with strategic decision-making processes.
He suggests that market intelligence comes from outside in
processes that link with spanning processes (e.g., strategic
planning), which facilitate integration and implementation.
These constellations of behaviors, practices, and routines
form behavioral syndromes in the organization defined as
culture.
431
While many scholars include responsiveness to markets
as a part of market orientation (e.g., Kohli & Jaworski,
1990), it can be argued that translating market intelligence
into action is part of a larger planning and decision-making
process that affects even internally oriented changes. Indus-
trial firms with a market orientation are likely to devise and
adapt products, services, and processes that continue to meet
the needs of the evolving market. Accordingly, it is likely
that innovative processes naturally flow out of a focus on
being market oriented. Consistent with this view, Jaworski
and Kohli (1993, p. 56) have argued that a market
orientation essentially involves doing something new or
different in response to market conditions, it may be viewed
as a form of innovative behavior. Innovativeness is an
important managerial function because it has been consis-
tently linked to business performance. With the exception of
work by Han et al. (1998) and Hurley et al. (1998), extant
literature has not yet addressed the issue of how market
orientation and innovativeness operate together to affect
company performance. Arguably, a market orientation is
incomplete if practitioners do not understand the modus
operandi that gives rise to creating superior buyer value.
Slater and Narver (1994b) view innovativeness as one of the
core value-creating capabilities that drives the market ori-
entation performance relationship. In their seminal work,
Zaltman et al. (1973) propose that innovativeness is the
medium for business success in the wake of appropriate
intelligence gathering and decision making (cf. Hurley et
al.,1998). Much later, Deshpande, Farley, and Webster
(1993) speculated on a strong linkage between market
orientation and innovativeness for achieving superior busi-
ness performance outcomes. Most recently, Henard and
Szymanski (2001) highlighted empirical work that suggests
that market orientation contributes to new product success.
Accordingly, we hypothesize,
H2: The magnitude of market orientation is positively
related to the magnitude of innovativeness.
2.2. Learning orientation and innovativeness
Learning orientation has to do with the development of
new knowledge in the organization (Cohen & Sproull, 1996;
Crossan, Lane, & White, 1999). We argue that learning
orientation occurs primarily at the culture level of the firm
and is likely to be mediated by factors that impact directly
on business performance. Two different conceptualizations
of learning orientation can be set forth. Huber (1991)
defines learning orientation broadly as the development of
new knowledge or insights that have the potential to
influence behavior through its values and beliefs within
the culture of the organization. Slater and Narver (1995)
also adopt this definition. The more stringent definition of
learning orientation requires that learning results in new
behaviors (Argyris & Schon, 1978; Fiol, 1985). Sinkula
(1994) refers to this demonstration or manifestation of
432 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438
learning as augmented knowledge, recognizing that the
ability to apply knowledge implies a greater level of
learning. Clearly, however, learning and innovativeness
are separate constructs that are interrelated. In focusing on
learning orientation as a cultural construct, we adopt Hub-
ers (1991) definition emphasizing cognition to distinguish
learning orientation from innovativeness. Specifically, we
focus on the organizations commitment to learning
(Sinkula, Baker, & Noordewier, 1997, p. 309) and learning
orientation (Hult & Thomas, 1998, p.197). Slater and
Narver (1995) suggest that learning orientation is directly
related to new product success. Calantone, Cavusgil, and
Zhao (2002) also have demonstrated a linkage among
learning orientation, innovation, and performance in the
firm. These ideas lead to the next hypothesis.
H3: The magnitude of learning orientation is positively
related to the magnitude of innovativeness.
2.3. Entrepreneurial orientation and innovativeness
Entrepreneurial orientation can be regarded as entailing
aspects of new entry and especially how new entry is
undertaken (Lumpkin & Dess, 1996). Defining entrepre-
neurial orientation as the processes, practices, and decision-
making activities that lead to new entry is consistent with
Slater & Narvers (1993, 1995) conceptualization. Slater
and Narver (1995, p. 68) suggest that entrepreneurial values
enhance the creation of new businesses within the existing
business and the renewal or revival of ongoing businesses
that have become stagnant or require transformation.
Entrepreneurial orientation suggests a proclivity toward
creation of new products and ventures and a proactiveness
and competitive aggressiveness that embodies a bold
action-oriented positioning (Cooper & Dunkelberg, 1986;
Cooper, Woo & Dunkelberg, 1989). Thus, entrepreneurial
orientation is characterized by boldness and tolerance for
risk that lead to new market entry (Naman & Slevin,
1993; Lumpkin & Dess, 1996) but which may not include
a concern for market analysis or learning endeavors
(Hurley et al., 1998). Building on Lumpkin and Dess
(1996) and Naman and Slevin (1993), we distinguish
entrepreneurial orientation from market orientation, inno-
vativeness, and learning orientation in that entrepreneurial
orientation embodies strategies and actions that the firm
may undertake in order to actualize corporate orientations
and goals.
Entrepreneurial orientation has long been associated with
proactive competitive posture, management proclivity for
risky projects, and the firms need to engage in bold, wide-
ranging acts to achieve objectives (Covin & Slevin, 1989;
Miller, 1987). The manager as entrepreneur is responsible
for the initiation and design of much of the controlled
change in his organization. He continually searches for
new opportunities and problems and he initiates improve-
ment projects to deal with these (Mintzber, 1973, p. 168).
These ideas point to entrepreneurial orientations antecedent
role to innovativeness. Thus,
H4: The magnitude of entrepreneurial orientation is
positively related to the magnitude of innovativeness.
2.4. The role of market turbulence
Scholars suggest that managerial choice may be severe-
ly influenced by the moderating effect of the external
business environment (Greenley & Oktemgil, 1997). Man-
agers must correctly ascertain the nature of the relevant
environment and formulate strategies accordingly. A num-
ber of researchers have argued that market turbulence
influences the relationships among firm culture, strategy,
and performance (e.g., Greenley & Foxall, 1998; Jaworski
& Kohli, 1993; Miller, 1987; Moorman & Miner, 1998;
Slater & Narver, 1994a, 1995). Langerak, Peelen, and
Commandeur (1997) suggest that successful new product
development depends on the characteristics of the compet-
itive environment in which the industrial firm operates.
However, conceptual arguments and empirical findings
relating the constructs investigated here to market turbu-
lence are absent or inconclusive.
In this study, market turbulence reflects rapidly changing
buyer preferences, wide-ranging needs and wants, ongoing
buyer entry and exit from the marketplace, and constant
emphasis on offering new products. Our earlier discussion
combined with findings from a substantial body of past
research suggests a strong linkage between various types of
innovative activities and company performance (e.g., Han et
al., 1998; Hurley et al., 1998; Miller, 1983; Miller &
Friesen, 1978; Zaltman et al., 1973). In addition, much of
this research has suggested that innovativeness is particu-
larly important when the industrial firm is faced with
substantial market turbulence and other types of environ-
mental disturbances. That is, in an environment where
product preferences are constantly changing, buyers are
continuously seeking new products, and new buyers are
entering on a regular basis, it will be important for industrial
firms to engage in innovative activities in order to achieve
superior performance. Thus, we hypothesize that,
H5: The effect of innovativeness on business performance is
greater under high market turbulence than under low market
turbulence.
In turbulent environments, Slater and Narver (1994a)
have argued that the long-term effects of having a market
orientation are cost effective and generally beneficial. Jawor-
ski and Kohli (1993) suggest that the relationship between a
market orientation and performance appears to hold across a
variety of contexts, emphasizing the role of market orienta-
tion in supporting performance regardless of the firms
external circumstances. It is not likely cost effective to vary
the level of market orientation with changing market con-
ditions, and it is doubtful that most firms will be skillful
 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438
enough to do so successfully. Therefore, we believe that the
management at industrial firms will encourage a relatively
constant level of market orientation, regardless of the state of
the firms external environment. This notion is tested in the
next hypothesis,
H6: The effect of market orientation on innovativeness will
not differ significantly despite differences in the degree of
market turbulence in the firms external environment.
Learning orientation also has been conceptualized as a
critical culture-level variable that emphasizes ongoing de-
velopment of insights and general knowledge. As with
market orientation, the top management should want to
permanently establish a learning orientation across the entire
firm in order to enjoy the various benefits that it confers.
Specifically, we anticipate that it will be important for the
industrial firm to maintain a constant level of learning
orientation, regardless of the state of the external market
environment. Consequently, we anticipate that
H7: The effect of learning orientation on innovativeness
will not differ significantly despite differences in the degree
of market turbulence in the external environment.
Entrepreneurial orientation is viewed as an incremental
process within the firm through which innovation results.
As with a market orientation and a learning orientation,
once developed, managers are likely to maintain their
entrepreneurial orientation and the linkage between this
construct and performance is likely to hold across a variety
of contexts. That is, among industrial firms that are
strongly entrepreneurial and to the extent it exists at the
culture level of the firm, it is unlikely that managers will seek
to vary the level of entrepreneurial orientation to suit
changing market conditions. These thoughts lead to our final
hypothesis:
H8: The effect of entrepreneurial orientation on innovative-
ness will not differ significantly despite differences in the
degree of market turbulence in the external environment.
3. Method
The sampling frame of 1000 firms with sales above
US$100 million per year and an identifiable marketing
manager was drawn from Dun & Bradstreet Information
Services. It is the marketing manager who typically must
establish the industrial firms market orientation (e.g.,
Narver, Slater, & Tietje, 1998). Strategic business units
(SBUs) were targeted to develop a comprehensive under-
standing of a broad range of culture and strategy elements
and their effect on performance. The marketing executives
were used as key informants in assessing all the con-
structs described above, an approach applied in numerous
studies (e.g., Gatignon & Xuereb, 1997; Moorman & Miner,
1997; Han et al., 1998) and follows Huber and Powers
433
(1985) guidelines on how to get quality data from single
informants.
Following the completion of a pretest with eight academ-
ics and seven marketing executives and a pilot study of 36
marketing executives to assess the quality of the research
design, 1000 questionnaires were mailed in three separate
waves to the marketing executives along with preaddressed
postage-paid envelopes and a cover letter explaining the
purpose of the study and the confidentiality of responses.
This procedure resulted in the return of 181 completed,
usable questionnaires; a response rate of just over 19% after
accounting for undeliverable surveys. Two tests were used
to assess nonresponse bias. First, the extrapolation proce-
dure of Armstrong and Overton (1977) was used to compare
early and late responding firms on the mean values of study
variables in Fig. 1. Second, we compared groupings of
respondents with nonrespondents on the average size of the
organizations, sales volume, and age based on the data
provided in the Duns Market Identifiers File. Neither the
subjective Armstrong and Overton (1977) procedure nor the
objective analysis using the data in the Duns Market
Identifiers File revealed any results that would suggest a
nonresponse bias.
Following data collection, the measures were subjected
to a purification process involving a series of reliability and
validity assessments in two confirmatory factor analysis
(CFA) models (exogenous and endogenous factors) using
LISREL (Joreskog & Sorbom, 1997, 2000), with the corre-
lation matrices as input into the analyses. Because of sample
size restrictions and to allow for a direct test of the
dimensionality of the constructs, this approach was selected
instead of a single CFA model to fit the constraints of a five-
to-one ratio of sample size to parameter estimates (Bentler
& Cho, 1988). Table 1 summarizes the means, standard
deviations, average variances extracted, construct reliabil-
ities, loadings, fit indices, intercorrelations, and shared
variances for the purified measures.
All purified measures were seven-point Likert scales
anchored by strongly disagree and strongly agree. To
measure market orientation, we used the scale of Narver and
Slater (1990) that, following purification, consisted of 15
items and assessed the subfactors of competitor orientation,
customer orientation, and interfunctional coordination. In-
novativeness was quantified using the five-item scale from
Hurley et al. (1998). The scale for entrepreneurial orienta-
tion used five items adapted from Naman and Slevin (1993),
Covin and Slevin (1989), and originally devised by Khand-
walla (1977). Learning orientation was measured using four
items derived from Baker and Sinkula (1999), Hult and
Thomas (1998), and Sinkula et al. (1997). The scale for
performance assessed profitability, growth in sales, and
market share, as well as general performance and, following
purification, consisted of five items. Lastly, market turbu-
lence was measured using a five-item scale derived from
Jaworski and Kohli (1993) and based on the earlier work of
Miller (1987).
434 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438

Table 1
Summary statistics of the measurement analysis (n = 181)a
Model/variable Mean S.D. Variance Reliability Coefficients v2 df D2 RNI CFI RMSR RMSEA NCP ECVI
extracted
(%)
Exogenous 750 362 .89 .89 .89 .06 .08 388 4.98
CO 5.36 1.10 52.50 .82 .68 .78
CU 5.49 1.07 59.67 .90 .63 .82
INT 4.64 1.15 59.20 .88 .63 .87
IN 5.25 1.15 60.80 .88 .62 .86
ENT 4.43 1.27 57.40 .88 .61 .87
LO 5.64 1.02 60.50 .85 .50 .92
Endogenous 115 50 .90 .90 .90 .07 .08 65 .95
PERF 5.22 1.22 53.00 .84 .46 .90
MT 4.36 1.16 38.00 .74 .46 .80

Intercorrelations and shared variances of measures (n = 181)b

Variable 1 2 3 4 5 6 7 8
1. Competitor orientation .41 .46 .24 .24 .25 .14 .03
2. Customer orientation .64 .52 .36 .30 .32 .25 .02
3. Interfunctional coordination .68 .72 .30 .31 .31 .21 .06
4. Innovativeness .49 .60 .55 .37 .26 .22 .08
5. Entrepreneurial orientation .49 .55 .56 .61 .20 .22 .17
6. Learning orientation .50 .57 .56 .51 .45 .09 .04
7. Performance .38 .50 .46 .47 .47 .30 .01
8. Market turbulence .17 .14 .24 .28 .41 .20 .11
a
Exogenous (firm culture model) = competitor orientation (CO), customer orientation (CU), interfunctional coordination (INT), innovativeness (IN),
entrepreneurial orientation (ENT), and learning orientation (LO). Endogenous = performance (PERF) and market turbulence (MT). All coefficients were
significant at the P < .01 level.
b
The correlations are included in the lower triangle of the matrix. For the multiattribute variables, all correlations are significant at the P < .05 level except
the relationship between market turbulence and performance. Shared variances are included in the upper triangle of the matrix.

The model fits were evaluated using the DELTA2 index
(Bollen, 1989), the relative noncentrality index (RNI)
(McDonald & Marsh, 1990), and the comparative fit index
(CFI) (Joreskog & Sorbom, 1997), which have been shown to
be the most stable fit indices by Gerbing and Anderson
(1992). The root mean square residual index (RMSR), root
mean square error of approximation (RMSEA), noncentrality
parameter (NCP), and expected cross-validation index
(ECVI) are included for comparison purposes. The specific
items were evaluated based on the items error variance,
modification index, and residual covariation (Anderson &
Gerbing, 1988; Fornell & Larker, 1981; Joreskog et al., 2000).
Construct reliability was calculated using the procedures
suggested by Fornell and Larcker (1981), including exam-
ining the coefficients and their associated t values and
assessing the average variance extracted for each construct
(cf. Bagozzi & Yi, 1988; Fornell & Larker, 1981). Discrim-
inant validity was assessed in a two-step process. An initial
level of discriminant validity was established by calculating
the shared variances between each pair of constructs and
verifying that it was lower than the average variance
extracted for the individual constructs (Fornell & Larker,
1981). Using these stringent criteria, discriminant validity
was found to achieve a satisfactory level among all meas-
ures in the study (Table 1).
Since two measurement models were used to assess the
scale properties (i.e., exogenous and endogenous models),
we used a procedure recommended by Anderson (1987) and
Bagozzi and Phillips (1982) to further assess discriminant
validity between the study measures. Pairs of constructs
involving all possible scale combinations were assessed in a
series of two-factor CFA models using LISREL. Each
model was run twice, once constraining the phi (/) coeffi-
cient to unity and once freeing this parameter. A chi-square
(v2) difference test was then performed on the nested
models to assess if the v2 values were significantly lower
for the unconstrained models (Anderson & Gerbing,
1982). The critical value (Dv12>3.84) was exceeded in all
cases. The pairwise results (where U is the unconstrained
and C is the constrained estimates) range from a low
Dv12 = 38.82 for the combination of the competitor orienta-
tion/interxfunctional coordination scales (Udf = 26 = 83.67,
C | df = 27 = 122.49) to a high Dv12 = 327.71 for the combina-
tion of the learning orientation/business performance scales
(Udf = 26 = 78.09, C | df = 27 = 405.80). Based on the overall
measurement analysis, the scales used in this study were
viewed as reliable and valid.
4. Analysis and results
All hypotheses were tested via structural equations mod-
eling (SEM) using LISREL. The three dimensions of market
orientation (competitor orientation, customer orientation,
 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438
and interfunctional coordination; Narver & Slater, 1990)
were individually summated and used as indicators of the
latent market orientation construct. Despite some shortcom-
ings (cf. Oczkowski & Farrell, 1998), summated scales have
been used in numerous past studies. The individual items
were used for each of the other latent constructs in the study
(i.e., learning orientation, innovativeness, entrepreneurial
orientation, and performance).
A SEM model was developed and tested in the analyses
for each of H1 H4 and H5 H8. The first model provided in
a good fit to the data (v2 = 360.79, df = 10, D2=.94, RNI=.94,
CFI=.94, RMSR=.075, RMSEA=.19, NCP = 19.96,
ECVI = 0.27), and all hypothesized relationships except for
H5 and H6 were supported. Specifically, with regard to H1,
innovativeness is positively related to business performance
(.45, t value = 6.70, P < .01). Concerning H2, market orien-
tation is positively related to innovativeness (.29, t val-
ue = 3.73, P < .01). In support of H3, learning orientation is
positively related to innovativeness (.18, t value = 2.60,
P < .01). Moreover, entrepreneurial orientation is positively
related to innovativeness, supporting H4 (.36, t value = 5.38,
P < .01).
Next, in examining the moderating relationships posited
in H5 H8, the sample was split at the median value of
market turbulence (median = 4.40, S.D. = 1.16) into two
groups representing low (n = 86, mean = 3.39, S.D. = 0.66)
and high (n = 80, mean = 5.25, S.D. = 0.73) market turbu-
lence. A second, two-group model was estimated in LIS-
REL and resulted in a good fit to the data (v2 = 323.67,
df = 20, D2=.94, RNI=.94, CFI=.94, RMSR=.08,
RMSEA=.12, NCP = 19.59, ECVI=.44).
In evaluating the results of the model tests (Fig. 1) in the
low and high market turbulence groups, findings revealed
that the effect of innovativeness on business performance
was not significantly different ( P < .05) across the these
groups, suggesting a lack of support for H5. Moreover,
market orientation was found to be significantly related to
innovativeness in the high market turbulence group (.46, t
Fig. 2. Total (standardized) effects on business performance. All coefficients are standardized. Coefficients greater than .17 are significant at P < .05.
435
value = 4.11, P < .01) but not in the low market turbulence
group (.11, t value = 1.02), implying a lack of support for
H6. On the other hand, the effect of learning orientation on
innovativeness did not significantly differ across the two
groups (.21, t value = 2.08, P < .05 for the high turbulence
group and .20, t value = 2.13, P < .05 for the low turbulence
group), supporting H7. Moreover, entrepreneurial orienta-
tion had a significant effect on innovativeness in both the
high turbulence (.20, t value = 2.11, P < .05) and low turbu-
lence groups (.50, t value = 5.31, P < .01), suggesting sup-
port for H8.
Lastly, to provide further understanding of the relation-
ships among the constructs, in Fig. 2 we report on the total
(standardized) effects of all the antecedent constructs on
business performance. The strongest overall drivers of per-
formance, as portrayed here, are market orientation, entre-
preneurial orientation, and innovativeness. This implies that
innovativeness partially mediates the relationship between
market orientation and performance and between entrepre-
neurial orientation and performance. On the other hand, the
direct effect of learning orientation on performance in Fig. 2
is insignificant, suggesting that learning orientation must be
mediated by some other construct, such as innovativeness, in
order to have an effect on business performance.
5. Discussion and implications
Our study addresses the impact of innovativeness on
performance and key antecedents to innovativeness in a
comprehensive, empirically verified model. We thereby fill
a significant gap in understanding innovativeness, the nature
of relationships between innovativeness and key variables
that drive it, and the effect of innovativeness on organiza-
tional performance. We also provide an analysis of the
influence of low versus high market turbulence on the
constructs included in the main model. The results provide
an initial benchmark of organizational culture and strategy
436 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438
attributes apparent in conjunction with certain contingencies
in an organizations operating environment. Several contri-
butions to various research streams are noteworthy. First,
our findings highlight the importance of a more integrated
and compositional approach to the study of the effect of
innovativeness and antecedent orientations on business
performance. This approach may be more fruitful and
realistic than previous approaches of examining bivariate
relationships between each of the constructs separately.
Next, empirical findings confirm innovativeness as an
important determinant of business performance, regardless
of the market turbulence in which the firm operates. This
implies that innovative activities are generally important to
the success of the industrial firm. Accordingly, managers are
advised to improve the innovativeness of their businesses in
their efforts to attain superior business performance. That is,
irrespective of the level of market turbulence facing the
firm, the management should seek to be innovative and
maintain a continuous state of innovativeness. These results,
however, should be interpreted within the scope of this
study and the measures used.
As a further contribution, the results imply that innova-
tiveness at least partially mediates the respective relation-
ships among market orientation, learning orientation,
entrepreneurial orientation, and business performance. In-
deed, the findings indicated in Fig. 2 suggest that learning
orientation has no significant direct effect on performance.
In general, the effectiveness of market, learning, and entre-
preneurial orientations appears to operate at least partially
via the medium of innovativeness. These findings further
underscore the role of innovativeness in organizational
performance. Moreover, to the extent innovativeness is
enhanced through the presence of the antecedent orienta-
tions highlighted here, firms should be able to create ever
superior products, an outcome like to increase market shares
and other performance outcomes, particularly when com-
pared to producers with less developed innovative practices.
Innovativeness is also likely to be useful for allowing the
firm to preempt competitors with new or improved products,
diversify product lines, and generally expand the firms
scope of activities. All of these outcomes can help contrib-
ute to achieving sustainable competitive advantage.
In general, evidence from this study underscores the
importance of managerial emphasis on the creation of an
internal business environment conducive to innovative ac-
tivities. Specifically, market orientation was found to have a
significant and positive effect on innovativeness. In the
direct effects model (Fig. 2), market orientation appears to
be the most important overall determinant of business
performance. Moreover, market orientation appears to
strongly influence innovativeness under high market turbu-
lence but not under low market turbulence. While we have
argued that market orientation is enduring and rooted in the
firms basic culture, the finding suggests that there may be
occasions when managers do attempt to adjust the construct
in light of evolving environmental conditions. That is,
having a market orientation appears to be critical during
times of high market turbulence when events, such as rapidly
changing buyer preferences, wide-ranging needs and wants,
ongoing buyer entry and exit from the marketplace, and
constant emphasis on offering new products, oblige the
management to draw on organizational resources in order
to sustain innovativeness. Under high market turbulence,
managers might well leverage their customer and competitor
orientations, as well as the interfunctional coordination
aspects of market orientation, in order to support the devel-
opment of new processes, products, or ideas in the organi-
zation. Given that market orientation helps managers to be
more connected to the business environment, such an orien-
tation appears to play a role for allowing the industrial firm to
devise innovative solutions to business problems. Having a
market orientation may be more important when market
composition and preferences are changing rapidly because
such conditions may force the firm to modify its products
and services more often than when it operates in a stable
market.
Our results also indicate that learning orientation has a
significant antecedent effect on innovativeness. According-
ly, firms may leverage the advantages associated with a
learning orientation to strengthen their innovative capabili-
ties. Findings generally suggest that when members of an
organization acquire knowledge via the learning process,
that organization acquires the ability to be innovative. The
finding is consistent with the work of Cohen and Levinthal
(1990), which indicates that the absorptive capacity of the
firm is linked to the absorptive capacity of the people in the
firm. More remarkably, as portrayed in the direct effects
model (Fig. 2), the direct effect of learning orientation in the
presence of the other antecedents investigated here is
insignificant. This implies that while innovativeness is an
important direct driver of performance, it also appears to be
a necessary mediator of the link between learning orienta-
tion and performance. That is, without a strong innovative
capability, learning orientation may provide little or no
value to achieving the performance objectives of the indus-
trial firm. Innovativeness supported by a market orientation
and a learning orientation in particular is likely to be more
effective, generating additional competitive advantages be-
cause of the benefits that these antecedent constructs pro-
vide. That is, firms that are market and learning oriented will
tend to be more in touch with buyers and understand their
markets better, advantages that in turn should translate into
innovative activities that give rise to superior products,
processes, and administrative approaches.
In our explication, we have conceptualized entrepreneur-
ial orientation in terms of proactive and risky acts that
organizations undertake to exploit opportunities. In past
research, entrepreneurial orientation has been viewed as
important for achieving superior performance under high
market turbulence (e.g., Lumpkin & Dess, 1996). While our
findings do not contradict this view, they do suggest that
entrepreneurial orientation plays a key role in the develop-
 G.T.M. Hult et al. / Industrial Marketing Management 33 (2004) 429438
ment and maintenance of innovativeness, regardless of the
level of market turbulence. The results suggest that entre-
preneurial orientation is positively related to innovativeness
in the overall analysis and that the effect of entrepreneurial
orientation on innovativeness is relatively invariant with
different levels of market turbulence. This underscores that
entrepreneurial orientation is likely to be an embedded
culture-level construct.
Overall, the findings imply that entrepreneurial orienta-
tion is an important driver of firm innovativeness. To the
extent that innovativeness is critical for organizational suc-
cess, entrepreneurship appears to be an important orientation
for managers to foster. While market orientation and learning
orientation may help managers to devise superior products,
processes, and ideas, it is likely that entrepreneurial orienta-
tion provides the stimulus for driving such activities. This is
because entrepreneurial orientation embodies the qualities of
proactiveness, aggressiveness, and initiative that can propel
managers into action on various innovation projects. Ac-
cordingly, entrepreneurial orientation might be regarded as
the spark that ignites the firm into innovative action.
In conclusion, our findings point to several critical
factors in the business performance of industrial firms. In
the aggregate, little is known about the interrelationships
among the integrative elements of market orientation, learn-
ing orientation, and entrepreneurial orientation, their effect
on innovativeness, and the subsequent effect of innovative-
ness on business performance. Yet, the evidence introduced
here implies that such interrelationships serve to provide
sustained advantage to organizations and are therefore
important to understand. Innovativeness, in particular,
appears to be a key mediator in the web of relationships
among the constructs. Looking to the future, the turbulence
that characterizes many industries is likely to continue.
Under such conditions, organizations are advised to invest
in developed their market, learning, and entrepreneurial
orientations. Additionally, the management should plan
and implement innovative activities within the framework
of these antecedent constructs. A central message from the
evidence provided is that possession of a strong learning
orientation in the absence of organizational innovativeness
is likely to be substantially less effective for allowing the
firm to achieve its performance goals.
If innovativeness is important for organizational perfor-
mance, the task for the management is to design and
implement an organizational culture that embodies market,
learning, and entrepreneurial orientations. Decisions regard-
ing the basic culture of the firm are typically taken at the
highest levels. On the other hand, decisions regarding
innovativeness tend to be taken at more strategic levels
within divisions involved with marketing and operations, as
well as research and development. Accordingly, to enhance
business performance, it is imperative that an organizational
structure be devised in which these often discrete areas be
integrated within a coordinated framework to ensure that
innovative activities reap the benefits that market orienta-
437
tion, learning orientation, and entrepreneurial orientation
can afford. We hope that our findings lead to improved
managerial practices and future research that delves more
deeply into these constructs and their interrelationships in a
variety of settings among industrial firms.
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G. Tomas M. Hult is the Director of the Center for International Business
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(Issue 4, 2002), and global supply chain management (Issue 1, 2004).
Robert F. Hurley is an Associate Professor of Marketing in the Graduate
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Gary A. Knight is an Associate Professor of Marketing and International
Business in the College of Business at Florida State University.