Paper Example on Market Orientation and Innovation

7 pages
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Sewanee University of the South
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1.1 Innovation Process in Individual Firms

Successful companies or firms, are the ones that are run by businessmen or management personnel, who constantly study the different market dynamics, and assess how they affect their businesses in terms of competitiveness and profitability levels. The management of successful companies are always incorporating new concepts that will provide them with a competitive edge over their rivals, and ultimately increase their revenues. In the twentieth century, the most successful businesses in the existing industrial sectors was the one that had been able to minimize its transaction costs, and increased its efficiency in terms of production. It worked during that period because of the steady growth of the market, and less predictability of the technological shifts were the marketing dynamics during that period. However, factors such as globalization, and technological forces led to rapid shifts in the market dynamics to the point that increasing the efficiency of production, and minimizing costs was not a unique concept in only a few firms, but had become a norm in the business world to the point that companies that did not incorporate these two concepts could not survive in the market. Therefore, in order for businesses to have a competitive advantage, and increase their revenues, they had to come up with new ideas that would help them achieve these goals.

In the 1990s, companies began adapting the market orientation concept. Various studies that have been conducted in the past such as Zhuo et al. 2005, Hult et al. 2005, and Kahn 2001, show that market orientation normally has a positive impact on a business success. The reason for this is that, market orientation is considered to be part of a business strategy in which a firm or company collects relevant company information, the information is then distributed to all the stake-holders of a firm, and they will act on the information that was generated to produce their products and services in a way that they meet the consumers needs. It therefore, provides a competitive edge on a firm in relation to its competitors. However, in the recent past, due to changes in various marketing conditions such as increased competition, and the locus of innovation seems to be shifting from an individual firm to a company network or ecosystem.

Today, the locus of competition has intensified greatly, and it has from individual company to the ecosystem level. Therefore, in order for companies to be able to thrive in this new market paradigm, there is the need to develop their capabilities in such a way that they will be able to enhance their innovation and performance levels. Therefore, in this paper, it will take the market orientation concept (that was or is used in individual firms), and expand it to the collaborative market orientation (CMO) to make it become applicable in ecosystems. It is also important to point out that, in this paper, it will explore the different definitions that were provided by various researchers such as Kohli and Jaworski (1990), Narver and Slater (1990), and Lafferty and Hult (1999) in relation to market orientation, the different perceptions that they had on this concept, and how various businesses have been able to utilize it.

1.2 Description of the Market Orientation Concept

Market orientation is a term that has generally been used to describe businesses that have been able to display the following qualities: identify the needs of their customers, level of competition, and importance of sharing information within the firm. The different departments in a firm such as sales, and technology departments will share information about how the consumers perceive the product, and the needs that it fulfills to ensure that they produce a superior product than what their competitors are producing. Different researchers such as Kohli and Jaworski (1990), Narver and Slater (1990), and Lafferty and Hult (1999) have researched marketing orientation, and have different perceptions of this concept and how businesses utilize it.

1.2.1 Definition of Market Orientation Based on Kohli and Jaworski

Kohli and Jaworski (1990) view marketing orientation as an organizational behavior or activities that are related to business. The researchers state that for a company to state that it is market-oriented, it has to conduct these three groups of activities: generation of market intelligence that is related to both the present and future needs of the customers. There is also the need for intelligence dissemination, which relates both to the vertical and horizontal dissemination of market intelligence across the firm. Finally, there is the need for responsiveness, which relates to the action taken by a firm as a result of both the generation and dissemination of intelligence.

1.2.2 Definition of Market Orientation Based on Narver and Slater

Narver and Slater (1990) take on a different approach when it comes to market orientation because they view it in-line with organizational culture. They held the notion that market orientation is a one-dimensional construct that is made up of three behavioral components: customer orientation, competitor orientation, and inter-functional coordination. However, there was criticism in relation to their approach and definition of market orientation. The reason for this is that they used culture as a means to interpret their results, while they lacked the empirical measures for company culture. Also, critics such as Lad et al. (1998) did not agree with the definition because; it did not take into consideration things like environment and the distributors relevance as stake-holders in this definition. However, they emphasize that, there is need to establish a relationship between competitive advantage and market orientation, in order for a business to be able to create superior value for its customers. The reason for this is that; through effective market orientation, businesses are able to effectively use their resources and also capabilities, and it results in a competitive advantage for organizations. In addition to that; in order for businesses to be able to sustain and maintain their competitive advantage, they need to have organizational knowledge that cannot be easily replicated by their competitors. This type of knowledge is normally achieved through market orientation process and innovation.

1.2.3 Market Orientation as Defined by Lafferty and Hult

Lafferty and Hult (2001) pointed out that for marketing orientation to be achieved, the following four characteristics that are independent of approach have to be achieved: customer orientation, the importance of intelligence dissemination, inter-functional coordination of market activities, and responsiveness to various market activities should be undertaken in various appropriate actions.

1.3 Factors that Led to the Shift of Innovation from Individual Companies to Corporate Networks

Looking at the different definitions that have been used above, they focus on information generation, distribution, and then acting on that information within an individual company. They point out that in order for a company to be able to grow, it had to continuously collect information in regards to customer needs, and the production capabilities of their competitors. Companies also have to put mechanisms in place so that they will be able to act on the information that they have gathered in order to produce a superior product that the customers need, and their competitors cannot produce. Therefore, in order for the market orientation concept to be successful, an individual firm needs to be able to identify, disseminate, and strategically respond to the information that it has collected.

In order for this concept to work, individual firms needed to be able to retain control of research (whereby they will confidentially be able to generate and disseminate information) and the development process (copyrighting products so that they retain sole ownership of the firm). However, in the 21st century due to globalization, and technological advancements, companies are realizing that the knowledge that is needed to compete has become increasingly diverse, and industrial borders are beginning to overlap. For instance, in 2007, Safaricom, a subsidiary of Vodafone (a Telkom company) introduced mobile money transfer, M-PESA to its customers in Kenya, and it increased their customer base and revenue collection to the point that, this is one of the most successful companies in Sub-Saharan Africa. Through information gathering, dissemination and responsiveness, it was able to identify the needs of customers, and the challenges that they have in terms of transferring money (there were little bank branches or ATMS in the rural parts of the country), and took advantage of the situation. The business has been able to successfully transcend industrial borders. Initially, it was only providing communication services, but it now offers mobile money transfer services.

Globalization and technological advancement have therefore made knowledge to be an important economic resource that complements other factors of production such as material, capital, and labor. An important point to note is that, there are various sources of knowledge, and therefore, there is the need for companies or firms to develop mechanisms whereby they will be able to generate only reliable information, manage it, and respond to it in a manner that they will be regarded as being innovative. This has led organizations to adapt to a more collaborative from an individualistic approach. A collaborative approach to market orientation and innovation will assist companies to effectively be able to generate, disseminate, and respond to information.

1.3.1Definition of Innovation

Kim and Mauborgne (2005) state that in order for businesses to be in a position whereby they can survive in a highly competitive market, they must be able to take advantage of their innovative capabilities. Crossan and Apaydin (2010) define innovation as the ability of an organization to develop new methods of production, and to be able to establish new management systems. Skerlavaj et al. (2010) point out that the innovation process can be divided into two: it can be considered to be a technical process whereby; it involves the creation or modification of various products and services; or it can be administrative- changing the business processes. Hurley and Hult (1998) state that innovation is focused on a firms culture and its ability to accept and work on new ideas. This means that an organizations business model is built in such a way that it is able to adopt or implement new ideas, or products in a successful manner.

1.3.2 Open Innovation

Businesses or firms today realize that they cannot continue to rely on the principles of random collisions and interactions in order to come up with new business opportunities, which will make them more profitable. In the 19th and 20th centuries, businesses relied on various factors of production such capital, material availability, and labor to determine their profitability levels. Therefore, if a business had a higher capital base, then it was naturally expected to have a higher profitability level. The market at that time encouraged or allowed businesses to thrive in closed models. In this case, when referring to closed models, it focuses on the innovative aspects of businesses. In most cases, businesses did not share ideas, they controlled their research and development process. In addition to that, in situations whereby individual businesses were able to come up with new product and service innovations, they maintained the sole ownership and control of these products through the use o...

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