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Learning orientation and market

orientation
Relationship with innovation, human resource
practices and performance
Felix T. Mavondo
Monash University, Clayton, Australia

Learning and
market
orientation
1235
Received May 2004
Revised November 2004

Jacqueline Chimhanzi
School of Management and Business, University of Wales Aberystwyth,
Aberystwyth, UK, and

Jillian Stewart
Australian Graduate School of Entrepreneurship,
Swinburne University of Technology, Hawthorn, Australia
Abstract
Purpose The paper investigates the relationships among learning orientation (LO), market
orientation (MO), human resource practices (HRPs) and innovation and their association with
organisational performance. The aim is to show that HRPs and innovation are important mechanisms
for transmitting the benefit of LO and MO into performance outcomes.
Design/methodology/approach Building on extensive literature, a model of the relationships is
developed and empirically tested using survey data collected from 220 businesses. Data are analysed
through structural equation modelling and/or path modelling. The primary aim is to assess direct,
indirect and total effects of LO and MO on performance outcomes through HRPs and innovation
(conceptualised as administrative, process and product innovation) as mediators. The study carefully
traces the effects of each variable to distinguish between indirect effects and mediated effects.
Findings HRPs are a major mechanism for transmitting the benefits of LO and MO. In some
models this is even more important than innovation. The results also suggest that LO should be
viewed as exploration while MO is the interface between exploration and exploitation and, finally,
HRPs and innovation must be viewed as exploitation or implementation issues.
Practical implications The study suggests that marketers should include HRPs in models of LO,
MO, and innovation to enhance the explanations of these to organisational performance. This study
suggests HRPs and innovation are important mediators.
Originality/value The paper suggests that marketers need to consider the impact of HRPs on
achievement of marketing goals and organisational performance.
Keywords Learning, Market orientation, Innovation, Human resource management,
Organizational performance
Paper type Research paper

Introduction
The focus of this study lies at the interface of research streams that have, to date, been
developed along parallel trajectories, namely market orientation, learning orientation,
organisational innovation and performance. Where research examines associations
between these variables, there has been a tendency to focus on different combinations

European Journal of Marketing

Vol. 39 No. 11/12, 2005
pp. 1235-1263
q Emerald Group Publishing Limited
0309-0566
DOI 10.1108/03090560510623244

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of these four constructs rather than the interconnectedness of all of them despite the
recognition of complex linkages in these areas. An holistic approach is yet to be
adopted as research remains fragmented with clusters of studies centred around: the
market orientation-performance link (e.g., Kohli and Jaworski, 1990, Jaworski and
Kohli, 1993; Narver and Slater, 1990) market orientation in relation to learning
orientation and performance (e.g., Slater and Narver, 1995; Sinkula, 1994), the market
orientation and innovation association (e.g., Deshpande et al., 1993) the market
orientation-innovation-performance link (Han et al., 1998) and finally, market
orientation, learning orientation and innovation, (Hurley and Hult, 1998).
Indeed, some of these research streams are more developed than others. For
example, the innovation-performance link, with roots in the organisational science
literature (e.g., Zaltman et al., 1973) has received wide research attention and enjoys a
robust body of evidence endorsing a strong and positive relationship. Moreover, this
positive relationship is robust and holds constant across varied industrial contexts
(Han et al., 1998). The research focusing on the market orientation-innovation link is, in
stark contrast, weaker and poorly developed. Subsequent to their work that focused on
the performance implications of market orientation, Jaworksi and Kohli (1996, p. 129)
noted this lacuna in research stating that, there is little in the literature on the effects
of a market orientation on the metrics related to innovation. Also, it is contended that
research is yet to address how market orientation and innovation together influence
organisational performance (Han et al., 1998) whilst Hurley and Hult (1998) are of the
view that while market orientation and learning orientations both are separate
antecedents of an innovative culture, there remains a need for more investigations to
further validate the impact of both on innovation.
Thus, in addressing this limitation apparent in extant literature, this study is
integrative in approach with a focus of inquiry located at the interface of four
research streams that are interrelated. This is important and contributes to the debate
in several fundamental ways. First, it explicates the relationship between learning
orientation and market orientation. Second, we assess a holistic model incorporating
the interplay and interconnectedness of learning orientation, market orientation,
organisational innovation, performance and human resource practices. Third, we
disaggregate the innovation construct into administrative, process and product
components to allow for a clear identification of the relationships with market
orientation and learning orientation. Thus we offer an alternative conceptualisation of
the relationship and develop and test a holistic model in response to a gap in the
marketing literature.
This paper first presents the theoretical premises and conceptual framework
underlying the study. The literature review circumscribes the focal concepts of
learning orientation, market orientation, innovation, human resource practices,
operating efficiency, market effectiveness and financial performance. Thereafter, the
hypotheses positing the relationships between the constructs are presented. The
methodology adopted for empirical testing is specified leading to an account of the
analysis and results. The research findings are then interpreted and discussed in light
of extant knowledge. Finally, conclusions are drawn and their implications for
academics and business executives are presented along with avenues for future
research.

Conceptual framework
Learning orientation
The concept of organisational learning is the subject of an increasingly growing body
of literature with theoretical roots in a range of disciplines including psychology (e.g.,
Nonaka and Takeuchi, 1995; Dixon, 1994; Schein, 1993), management (e.g., Stata, 1992;
Huber, 1991; March, 1991; Senge, 1990; Levitt and March, 1988; Fiol and Lyles, 1985;
Argyris and Schon, 1978; Cyert and March, 1963) and a strategic management
perspective (e.g., Inkpen and Crossan, 1995; Miner and Haunschild, 1995; Pennings
et al., 1994; Hamel and Prahalad, 1993; Whittington and Whipp, 1992; Dickson, 1992).
Sociology and organisational theory contribute a social systems and organisational
structure perspective in addressing such issues as: why organisations do not learn as
well as they might (e.g., Coopey, 1995; Law, 1994; Hedberg, 1981), a contingency
perspective (e.g., Shrivastava, 1983) and a constructivist view (e.g., Nicolini and
Meznar, 1995; Brown and Duguid, 1991). The concept of organisational learning has
only recently had applications in marketing in contexts such as new product
development (e.g., McKee and Conant, 1992), market orientation (e.g., Baker and
Sinkula, 1999; Slater and Narver, 1995) marketing channels (e.g., Lukas, 1996) strategic
marketing (Franwick et al., 1994) and marketing management (e.g., Baker and Sinkula,
1999). This incorporation is fuelled by a recognition that learning might be the next
source of competitive advantage or the only source of competitive advantage
Dickson (1992). Similarly, Lukas (1996, p. 233) recognised that organisational learning
is considered by many scholars as a key to future organisational success.
The distinction between organisational learning and a learning organisation is one
of substance, not merely semantic. Pedler et al. (1989)) has defined a learning
organisation as one that facilitates the learning of all its members and continually
transforms itself whilst Garvin, (1993, p. 80) proposes that it is an organisation
skilled at creating, acquiring and transferring knowledge and at modifying behaviour
to reflect new knowledge and insights. On the other hand, organisational learning
refers to the development of new knowledge or insights that have the potential to
influence behaviour (Easterby-Smith, 1997; Sinkula, 1994). Thus, a learning orientation
is the manifestation of the organisations propensity to learn and adapt accordingly
while organisation learning typically is concerned with staff training and the
mechanisms of knowledge and skill acquisition. Learning orientation is, therefore, a
wider concept that embraces many aspects of adaptation and change. This distinction
is crucial, for while an organisation can invest substantially in, for example, training, it
may not necessarily be able to transform itself in keeping with changing external
realities. The following have also been presented as the key characteristics of a
learning orientation; the transfer of learning from individuals to groups, commitment
to learning, an openness to the outside world, overall commitment to knowledge,
systems for developing learning, and mechanisms for renewing the organisation.
Bennett (1998) contends that learning oriented organisations also exhibit the following;
innovative attitudes, absence of a stifling bureaucracy, effective leadership,
decentralisation and open management. But because the learning organisation has
been portrayed as possessing a large number of desirable attributes, the quintessential
nature of learning orientation is difficult to describe (Bennett, 1998, p. 9). Indeed, it is
the precise inclusiveness of learning orientation that renders the variable particularly
difficult to circumscribe/delineate. This is further compounded by the fact that the

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concept is splintered across several fields such as psychology, sociology,

organisational theory, marketing and strategic management leading to a diverse and
often confusing set of conceptualisations (Easterby-Smith (1997). In light of the
distinction made above between learning organisations and learning orientation, it is
important, at this juncture to state that the focus of this study lies with learning
orientation, that is, the manifestation of an organisations capacity and propensity to
learn consistent with the conceptualisation advanced by Bennett (1998).
Market orientation
The marketing concept is a central tenet of marketing that holds that company success
rests on determining customers needs and wants and satisfying them more effectively
than competitors do (Kotler, 1994). In turn, market orientation relates to the
operationalisation of the marketing concept and so reflects the extent to which a firms
actions are consistent with the marketing concept (Kohli and Jaworksi, 1990).
Morgan and Strong (1997), drawing on the seminal work of scholars in the field (e.g.,
Kohli and Jaworksi, 1990; Narver and Slater, 1990) propose the following integrative
working definition that encapsulates the essence of the construct. They state that:
. . .a firm characterised as market oriented might have: developed an appreciation that
understanding present and potential customer needs is fundamental to providing superior
customer value; encouraged the systematic gathering and sharing of information regarding
present and potential customers and competitors as well as other related constituencies; and
instilled the sine qua non of an integrated, organisation-wide priority to respond to changing
customer needs and competitor activities in order to exploit opportunities and circumvent
threats (Morgan and Strong, 1997, p. 1052).

Given that the literature is characterised by two main contending conceptualisations

(Kohli and Jaworski, 1990; Narver and Slater, 1990), comparisons have inevitably been
drawn. Comparative analyses suggest that the models are similar in many respects. In
terms of content, both models share the same key components; the need for a
knowledge of customers and competitors and inter-functional co-ordination (Jaworksi
and Kohli, 1996; Deng and Dart, 1994). Finally, both models posit market orientation as
existing on a continuum, in varying degrees rather than as either-or. However, upon
closer examination the models exhibit fundamental differences. It is proposed that the
key difference between the two articulations pertains to perspective and emphasis. The
Kohli and Jaworski (1990, p. 6) definition posits an information-processing perspective
predicated on a set of three key activities; namely:
(1) organisation-wide generation of market intelligence pertaining to current and
future customer needs;
(2) dissemination of the intelligence across departments; and
(3) organisation-wide responsiveness to it.
In contrast, the Narver and Slater (1990, p. 21) definition stresses organisational culture
in stating that a market orientation is the organisational culture that most effectively
and efficiently creates the necessary behaviours for the creation of superior value for
buyers and thus, continuous superior performance for the business. The assumption
inherent in this conceptualisation is that information-processing activities are a
product of a market orientation rather than the orientation per se.

Varadarajan and Jayachandran (1999, p. 134) find both perspectives equally useful
and reconcile them stating that a market orientation is a set of tangible actions that a
firm initiates as well as the underlying culture Similarly, Jaworski and Kohli (1996),
examining differences between the two concluded that both conceptualisations have
merit. Nonetheless, within the context of examining how other constructs such as
learning orientation relate to market orientation, the literature has a bias toward the
use of the Narver and Slater (1990) conceptualisation and operationalisation. Viewing
market orientation as a culture is consistent with efforts to measure learning
orientation. It is argued that a learning orientation is fostered and developed within the
realms of such a cultural framework (Baker and Sinkula, 1999; Hurley and Hult, 1998;
Slater and Narver, 1995).
Human resource practices
A number of writers have emphasised that the ability of firms to learn faster than
competitors is crucial in todays environment (Day, 1994; Barney, 1991; Stata, 1992).
However, while some writers argue that learning occurs at an organisational level
(Moorman and Miner, 1998; Argyris and Schon, 1978), others recognise that
organisations learn through the individuals that comprise them (Dodgson, 1993; Kim,
1993). Effectively, this latter argument shifts the locus of analysis from the firm-level to
the individual-level as individuals become important agents of learning in
organisations. Herein lies the criticality of incorporating human resources theory
and practice in models of learning as certain HR policies and practices are seen as
reflections of a learning organisation (Gieskes, 2002; Sinkula, 1994; Senge, 1990;).
Human resource practices (HRPs) have been shown to be associated not only with
learning but also the process of unlearning (Gieskes, 2002; Hamel and Prahalad, 1994).
Aspects of HRP that are associated with learning include training (Biemans, 1995),
reward systems (Stathakoloulos, 1998; Jaworski and Kohli, 1993; Lawler, 1987) and
management development programmes and rotation between departments. Reward
systems, for example, can provide incentives for implementation and searching for
creative solutions to problems (Schuler and Jackson, 1987). Thus, it is argued that HRP
mediates the relationship between learning orientation and organisational
performance.
With regard to market orientation, there is evidence to suggest that HR practices
that are complementary to marketing objectives are instrumental to achieving superior
organisational outcomes (Jaworski and Kohli, 1993). Ruekert (1992) established that
there is a strong association between effective recruitment and selection practices and
the level of market orientation within an organisation. In more recent findings, Harris
and Ogbonna (2001) found that the relationship between strategic human resource
management and performance was mediated by market orientation. However, given
that market orientation is considered an aspect of organisational culture, it can be
argued that strategic human resource management mediates the relationship between
market orientation and organisational performance.
Innovation
Thompson (1965, p. 36) defined innovation as the generation, acceptance and
implementation of new ideas, processes, products or services. A classifactory scheme
yields two main types of innovation: technical and administrative but an even clearer

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exposition is suggested by Pennings et al. (1994) who further disaggregates the

technical category into process innovation and product innovation. It is contended that
this distinction best captures the dichotomy within the innovation construct. The
distinction between administrative and technical innovations is important because it
relates to a more general distinction between social structure and technology (Evan,
1966). Administrative and technical innovations imply potentially different
decision-making processes (Daft, 1982), and together they represent changes
introduced in a wide range of activities in an organisation. In Pennings et al.s
(1994) typology, technical innovation can be classified into product/marketing and
process innovation, while administrative innovation remains distinct from the other
two.
Innovation is considered vital for its contribution to business performance and the
literature consistently associates it positively with performance (Han et al., 1998;
Acheson and Ferris, 1990). The salience of innovation is underlined by an observation
that innovation, in an increasingly hostile market environment, represents a means of
survival not just growth (Han et al., 1998). On the balance between the different types
of innovations, Damanpour, (1991, p. 582) notes that organisational performance may
depend more on the congruency between innovations of different types than on each
type alone. Empirically, this balanced approach to innovation and its impact on
performance was validated by Han et al. (1998). Administrative, product, and process
innovations have been shown to have strong relationships with organisational
performance (Parnaby, 1991; Bamberger et al., 1989; Livingston and Berkes, 1989;
Sanders et al., 1989). Several studies have investigated the relationship between certain
types of innovative efforts, such as R&D, and sales growth (e.g., Franko, 1989;
Lengnick-Hall, 1991); productivity growth (e.g., Chakrabarti, 1990; Chakrabarti and
Halperin, 1990) and profitability (e.g., Moreby and Reithner, 1990).
As companies respond to global competition, there is a growing recognition of the
pivotal role of technology in determining market success (Council on Competitiveness,
1991; Mitchell, 1990). Thus, the effective deployment of technological resources helps to
build a sustainable competitive advantage that enhances a companys financial
performance (Hambrick et al., 1983; Kalish and Lillien, 1986; Porter, 1985; Schroeder,
1990).
Business performance
It is generally accepted that business performance is a multi-dimensional construct
(Venkatraman and Ramanujam, 1987). Ruekert and Walker (1987) present a neat but
comprehensive framework that assesses business performance in terms of
effectiveness, efficiency and adaptability. Effectiveness refers to the success of a
business strategies vis-a`-vis those of competitors in serving the chosen markets.
Measures such as sales growth and market share capture the essence of this dimension.
Efficiency denotes the outcome of business strategies in respect of the resources used
in implementing them and is determined through the use of financial ratios such as
return on investment. Operating efficiency is characterised by a narrow scope of
activities and an emphasis on controlling costs through standardising operating
procedures (Hambrick, 1983). Adaptability refers to the extent to which the
organisation is successful in responding over time to changing external environmental
conditions. Successful new products and/or services in response to changing customer

needs and competitor offerings serve as a surrogate for adaptability. Subsequent and
more recent work has validated the merits of this balanced approach to measuring
performance (Morgan et al., 2002).
In the spirit of this multidimensional approach and in keeping with the tradition in
the literature (for a review see Varadarajan and Jayachandran, 1999), business
performance in the context of this study is assessed in terms of marketing effectiveness
and financial performance, although marketing effectiveness is defined in a broader
manner to encompass new product introductions in keeping with the innovation focus
of the study. Therefore, marketing effectiveness captures sales growth, gains in market
share and successful product introductions. Market share is deemed a powerful
performance metric as it is also a strong predictor of cash flow and profitability
(Ambler and Putoni, 2003). The logic being that firms benefiting from scale effects are
able to lower costs and thereby earn higher profits than those competitors with lower
market shares (Jacobson, 1988). A gain in market share is perhaps an even more
appropriate and accurate measure as it reflects adaptation to a changing environment.
In a sense, it reflects well the firms ability to learn.
Development of hypotheses
Learning orientation and market orientation
In the previous section an attempt was made to position learning orientation in its
broader context. The aim was to clearly demonstrate that the delineation of a learning
organisation transcends many disciplines, involves broad issues and that it is a
complex concept. Slater and Narver (1995) observe that significant overlaps exist
between learning orientation and market orientation at both behavioural and cultural
levels. A learning orientation involves questioning organisational practices and
assumptions (Sinkula et al., 1997). Such practices and assumptions could be about
markets, about operating systems, human resource practices, technology, the
environment and so forth. Similarly, a market orientation is primarily concerned
with a relentless pursuance of intelligence pertaining to customers, competitors and
internal organisational integration (Slater and Narver, 1998, 1995; Narver and Slater,
1990) or about information acquisition, information dissemination and responding to
information (Kohli and Jaworski, 1990, Jaworski and Kohli, 1993). On a cultural level,
Day (1994) contends that market orientation is highly compatible with an internal
value system that encourages functional integration in order to gain external
knowledge, anticipate and respond to changes in the external environment, innovate
and thus gain a competitive edge.
It is perhaps inevitable that comparisons have been drawn between market and
learning orientations. Bell et al. (2002, p. 79) note the commonalities: a conceptually
similar research domain, both help to explain the critical organisational capability of
market sensing, both are concerned with understanding organisation-wide phenomena
such as organisational culture and norms. Finally, both encompass relationships and
interdependencies between individuals and groups and the coordinated use of both
tangible and tacit resources. An examination of the disciplinary basis for
organisational learning suggests that learning orientation is a much broader idea
than market orientation. Learning orientation may be viewed from a psychological
perspective where it addresses issues of human development by examining
hierarchical organisations, importance of context, cognition, underlying values and

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learning styles. From a sociological perspective, organisational learning is viewed from

the point of effect of power structures and hierarchy, conflict, ideology and rhetoric
(Easterby-Smith, 1997). From a strategy viewpoint, organisational learning addresses
issues of competitiveness by focusing on organisation-environment interface, different
levels of learning, knowledge networks, importance of direct experience and
population-level learning. Learning orientation in management science addresses
issues of information processing by focusing on knowledge, memory, error correction,
information, single and double loop learning (Senge, 1990). Cultural anthropology
addresses the meaning systems by focusing attention to culture as the cause and effect
of organisational learning, beliefs and potential cultural differences in organisational
learning. Finally, production management views learning from an efficiency
perspective through emphasising the importance of productivity, learning curves,
endogenous and exogenous sources of learning.
Whilst the two constructs share some commonalities, learning orientation is
presented within the literature as an extension of market orientation encompassing a
range of qualities in addition to those of a market orientation leading to the assertion
that creating a market orientation is only a start (Slater and Narver, 1995, p. 63). This,
we believe is too narrow a conceptualisation of organisational learning. This, in our
opinion, reverses the relationship and direction of causation. Slater and Narver (1995)
argue that an organisation that is market-oriented is potentially conservative,
overlooks competition from non-traditional sources, and effectively succumbs to the
tyranny of the served market (Hamel and Prahalad 1994, p. 3). Slater and Narver
(1995) suggest that market orientation only enhances performance when it is integrated
with a learning orientation. Similarly, Bell et al. (2002, p. 71) view organisational
learning as critical to the process of developing market knowledge, as such, a driving
force of action in, and governance of, market-oriented organisations. A contrary view
is posited by Day (1994b) who contends that a market orientation can be fostered
within a climate of learning so that firms first learn to learn about markets. These
views point to the contention surrounding the debate relating to the direction of
causality between learning orientation and market orientation. However, Bell et al.
(2002, p. 81) attempt to reconcile the disparate views by stating that, both [camps] see
organisational learning and market orientation as mutually dependent. We view the
relationship between learning orientation, market orientation and innovation as lying
on a continuum of exploitation-exploration. Learning orientation is about exploration,
innovation is exploitation while market orientation is in the middle sharing the
characteristics of the two. Thus, it can be advanced that:
H1a. Learning orientation is positively associated with market orientation.
Consistent with Ruekert (1992), the relationship between learning orientation and
human resources practices suggest the following hypothesis:
H1b. Learning orientation is positively associated with human resource practices.
As noted above market orientation, being a component of organisation
culture, is strongly associated with human resource practices, hence
H1c. Market orientation mediates the relationship between learning orientation
and human resource practices.

Learning orientation and organisational innovation

Hamel and Prahalad (1994) posit that just being a learning organisation, that is,
concern only with knowledge acquisition is not sufficient. Equally important is the
ability to respond and adapt. Ideally, the learning process should translate into
managerial competencies that permit the firm to more effectively meet customer needs
(Chaston et al., 1998) and indeed, confer an advantage to the firm.
Organisations can only adapt as fast as they can learn. Consequently, given that
learning is primarily concerned with the continuous fine-tuning of organisational
issues and knowledge utilization in a changing competitive climate (Morgan and
Strong, 1997), there are compelling views that an effective learning orientation is
associated with innovation. Indeed, Hurley and Hult (1998) found evidence to suggest
that higher levels of innovativeness are associated with cultures emphasising learning
and development. Given our argument that learning is about exploration and
innovation is about exploitation of opportunities and market orientation is a mediator,
we advance the following hypothesis:
H1d. The relationship between learning orientation and (i) product innovation,
(ii) process innovation and (iii) administrative innovation is mediated by
market orientation.
The learning orientation-performance link
Efforts to associate a learning orientation with performance generally indicate that
organisations with high levels of learning orientation generally outperform their rivals,
particularly in turbulent and intensely competitive environments (Dickson, 1992;
DeGeus, 1988). According to Day (1994) and Sinkula (1994) a learning orientation
implies that a firm is focused on its customers and because it focuses on
understanding and effectively satisfying their expressed and latent needs through new
products, services and ways of doing business . . . this should lead directly to superior
outcomes such as greater new product success, superior customer retention, higher
customer-defined quality and ultimately, superior growth and/or profitability (Slater
and Narver, 1995, p. 66). Sinkula et al. (1997, p. 316) have contributed to the debate in
stating that cultivating a learning culture may indeed become one of the primary
means to attain and maintain a competitive advantage whilst Baker and Sinkula
(1994) found evidence to support a positive relationship between a learning orientation
and business performance. Moreover, there is evidence to link learning orientation to
operating efficiency. The basic tenet of the learning/experience curve approach is that
with the accumulation of experience, the costs of production decrease. Thus, on this
basis it can be deduced that learning can lead to enhanced performance by lowering the
costs of production (Porter, 1980, 1985). There are therefore sufficient grounds to
hypothesise that:
H1e. The relationship between learning orientation and (i) marketing effectiveness,
(ii) operating efficiency and (iii) financial performance is mediated by human
resource practices.
Market orientation and innovation
We argue that firms manifest their market orientation via the success of new
innovations. Jaworksi and Kohli (1996) and Varadarajan and Jayachandran (1999) view

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market orientation as a prerequisite to the formulation of effective competitive

response and innovation. A firms innovativeness represents the degree to which the
firm generates new, timely and creative product/service introductions, using the
accumulated knowledge of customers, competitors and technologies (Deshpande et al.,
1993). Thus, innovations can be seen to be an effective gauge of the capability of a firm
to gather intelligence and then respond to that information. This can be demonstrated
by launching new products/services that best meet or anticipate customers needs and
wants. In similar vein, Hurley and Hult (1998) argue that a market and learning
oriented culture . . . promotes a receptivity to new ideas and innovation is part of an
organisations culture. Indeed, it is reasonable to conceive that innovation mediates
the market orientation-performance link as it is presented as one of the core-value
creating capabilities (Slater and Narver, 1994) that drives the market
orientation-performance relationship (Han et al., 1998). Specifically, the work of
Atuahene-Gima (1996) demonstrates that it is the proficiency in new product
development activities that is responsible for the conversion of market orientation into
superior performance. Atuahene-Gima (1996) found support for a positive association
between market orientation and a firms innovativeness. Similarly, Gatignon and
Xuereb (1997) posit that market oriented firms achieve superior organisational
performance because these firms are able to develop and commercialise or bring to
market new products more effectively.
While the link between market orientation and innovation is an important one, it is
characterised by a limited number of studies and would benefit from further
corroborating evidence. Han et al. (1998, p. 30) observed that a significant void exists
in current models of market orientation because none of the frameworks incorporate
constructs related to innovation and one of the implications drawn by Hurley and Hult
(1998) from their study was that research on market orientation and performance may
benefit from reframing existing models to incorporate innovation more directly. The
Han et al. (1998) and Hurley and Hult (1998) studies represent important advances
within the literature by incorporating the constructs of learning and innovation to the
market orientation in an holistic approach. Consequently, the conclusions and
implications of their works have stimulated debate and set direction for further work in
the field. Thus, from the evidence presented, it is postulated that:
H2a. Market orientation is positively associated with product innovation.
H2b. Market orientation is positively associated with administrative innovation.
Market orientation and performance
Much of the work on market orientation has focused on its performance implications
(e.g., Slater and Narver, 1994; Jaworski and Kohli, 1993; Ruekert, 1992; Narver and
Slater, 1990). The association between market orientation and business performance is
intuitively compelling; that companies with a sound understanding of, and quick
response to, customer needs perform at high levels than their competitors. Nonetheless,
despite the empirical rigour devoted to it, the association between market orientation
and performance remains equivocal and the findings, discordant at best (Matsuno and
Mentzer, 2000). Essentially, the findings fall into three main categories that are outlined
below.

Broadly, there are those studies that have found market orientation to be positively
related to performance albeit with some fundamental variations in measurement
approaches (Slater and Narver, 1994; Ruekert, 1992; Narver and Slater, 1990). While
Slater and Narver (1994) established a consistent and positive relationship between an
organisations market orientation and performance, performance was conceptualised
very precisely and narrowly, only in terms of return-on-assets.
Another grouping of studies failed to establish a significant relationship between
the two constructs (Siguaw et al., 1998;) while another set of studies reports mixed
results (Greenley, 1995; Jaworski and Kohli, 1993). The Jaworski and Kohli (1993)
mixed findings are attributable to a construct operationalisation issue. They found a
significant association between market orientation and business performance only
when performance was measured perceptually rather than using objective measures.
Despite such discordant findings, the interest in the relationship between market
orientation and performance has remained steadfast for its apparent strategic
importance (Narver and Slater, 1998). However, for this importance to be realised, it is
contended that further work in the area needs to shift in focus. From these tenuous
findings, it has been concluded that this popular notion [that] a proper execution of
market orientation brings about superior performance] is invalid and this assumption
increasingly is met with skepticism (Han et al., 1998, p. 30). Consequently, Han et al.
(1998), suggest the potential merits of broadening market orientation models to include
the innovation construct. This would allow for an understanding of how innovation
interplays with market orientation in the determination of organisational performance.
Innovation, within this proposed framework would, therefore, assume a mediating role
between market orientation and performance. Proponents of this approach claim that
our ability to understand the utility of market orientation is limited until innovation is
incorporated into market orientation-performance models. It is therefore advanced
that:
H2c. Market orientation is positively associated with marketing effectiveness.
H2d. The relationship between market orientation and (i) operating efficiency,
(ii) marketing effectiveness and (iii) financial performance is mediated by
human resource practices.
Human resource practices and performance
The HR literature has been characterised by controversies surrounding the issue of
whether HR practices do indeed positively impact on organisational performance. It is
only recently that Ulrich (1997, p. 306) claimed, evidence now exists to show that
investment in HR practices impacts business results, both financial results and the
market value of firms. It is claimed that the linkage is robust and theoretically
justifiable. The rationale stems from viewing human resources from the
resource-based perspective. This perspective suggests that because the firms
human resources are a unique combination of skills that are difficult to duplicate or
substitute and may be causally ambiguous, they can constitute a source of sustainable
competitive advantage (Pfeffer, 1999; Wright et al., 1994; Barney, 1991). This view has
parallels within the strategic marketing literature as Day (1994) and Day and Wensley
(1988) propose that an organisation has a foundation for superior performance when it
possesses skills or resources that provide superior value to customers The role played

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by HR practices is clear and undisputed; through the attraction, selection and retention
of high quality employees, providing appropriate skills, behaviours and attitudes, an
organisations strategies at both business and functional levels can be effectively
executed. It can be argued that under conditions of rapid change human resources
become even more important since they form the basis for organisational adaptation
and are potentially the most flexible and agile resource available to the firm. We
further argue that human resources embed organisational culture and organisational
learning and the means by which organisations are enabled to innovate. Accordingly,
we hypothesise the following:
H3a. Human resource practices are associated with marketing effectiveness.
H3b. Human resource practices are associated with operating efficiency.
H3c. Human resource practices are associated with financial performance.
H3d. The relationship between human resource practices and financial
performance is mediated by marketing effectiveness.
Product innovation and performance
Product innovation involves the introduction of new products or services, including
new applications of the existing product, or diffusion of the product to new sets of
customers. Japanese companies successfully incorporate quality in product
decision-making processes (Kogure and Akao, 1983) and obtain a significant
competitive advantage (Ebrahimpour and Johnson, 1993; Deming, 1986; Garvin, 1984,
1986). In marketing, quality generates customer loyalty (Zeithaml, 1988), and permits
product differentiation (Shetty, 1987) and positioning advantages (Jacobson and Aaker,
1985; Day and Wensley, 1988). Several authors (Jacobson and Aaker, 1985; Deming,
1986) have identified links between product quality considerations and overall
organisational performance.
Innovation is reflected in new products, manufacturing processes and management
techniques. A search of literature reveals that there are three organisational activities
that characterise high levels of product innovation: ability to perceive product-market
opportunities, building marketing capabilities for responding to identified market
opportunities, and an ability to speedily pursue opportunities (Oktemgil and Greenley,
1997). Product innovation is associated with speculation and risk and is a key resource
allocation decision. However, without product development the company may suffer
from the tyranny of served markets (Hamel and Prahalad, 1994, p. 83). It is also noted
that product innovation can lead to easier manufacturing, in addition, product
innovation is important for effective marketing and consequently for financial
performance. Accordingly:
H4a. Product innovation is associated with marketing effectiveness.
H4b. Product innovation is associated with operating efficiency.
Process innovation and performance
Process innovations are those that affect the production process in all its ramifications,
including the transformation from raw material to end product and all the support
activities associated with this process. Several authors have examined advantages

associated with the various dimensions of process innovation (Clarke et al., 1989; Buffa,
1985), product improvement, increased turnover of inventories, and shortened delivery
cycles (Meredith, 1987; Skinner, 1985). Although the various dimensions of process
innovation improve competitive position (Blois, 1988; Halperin, 1990; Lefebvre and
Lefebvre, 1993; Meredith, 1987) few studies have specifically focussed on the synergies
that could arise from an integrated examination of administrative, product and process
innovation as suggested by Schroeder (1990) and Miller (1988). This leads to the
following proposition:
H5a. Process innovation is associated with operating efficiency.
H5b. Process innovation is associated with financial performance.
Administrative innovation and performance
Administrative innovations according to Pennings (1991) are those that involve
administrative components and their relationships to the social system of an
organisation. Administrative innovation includes social structure or design, rules,
procedures, reward and information systems, and communication authority structures
that govern the relationships among members. Administrative innovation has been
shown to relate to work redesign and work systems (Acheson and Ferris, 1990;
McCalman and Buchanan, 1990), skills enhancement (Behar, 1991), management
systems (Damanpour, 1987; Tomer, 1990), change in incentives (Thomas, 1987), total
quality control (Blauw and During, 1990) and just-in-time (Cartaya and Medina, 1989).
These dimensions of innovation also appear to have a great impact on work
productivity and overall performance of the organisations. It is postulated that:
H6. Administrative innovation is associated with operating efficiency.
H7. Innovation mediates the relationship between market orientation and (i)
operating efficiency, (ii) marketing effectiveness and (iii) financial
performance.
Hypotheses concerning performance dimensions
The management science literature presents an innovation/operating efficiency
dichotomy akin to Miles and Snows, (1978) strategy types, prospector and defender.
Operating efficiency refers to competing on the basis efficient utilisation of existing
resources in direct contrast to innovation where the primary competitive emphasis is
prospecting and exploiting new opportunities. Operating efficiency is characterised by
a narrow scope of activities and an emphasis on controlling costs and standardisation
of procedures (Hambrick, 1983). The innovation/operating efficiency dichotomy has
also been described along the lines of exploratory and exploitative modes, respectively
(Levinthal and March, 1993). An exploratory mode involves search, variation,
risk-taking, flexibility, experimentation, discovery and innovation (March, 1991, p. 71)
whilst an exploitative mode is seen as involving refinement, choice, production,
efficiency, selection, implementation and execution (March, 1991, p. 71). The process
of routinisation and repetition promotes efficiencies (Levitt and March, 1988; Day and
Montgomery, 1983). These, in turn, lead to higher profits (Porter, 1980).
The relationship between market effectiveness and operating efficiency is expected
to be positive. The logic being that successful marketing can lead to gaining market

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share. This would permit the business to gain economies of scale and economies of
scope. This can significantly improve operational efficiency leading to superior
performance. However we note that effective marketing can have a direct impact on
financial performance. Establishing such a relationship is consistent with the call for
explicitly modelling marketings contribution to financial performance (Sheth and
Sisodia, 2002). We advance the following hypotheses:
H8. Operational efficiency is associated with financial performance.
H9a. Marketing effectiveness is associated with operating efficiency
H9b. Marketing effectiveness is associated with financial performance.
Conceptual framework
The hypothesised relationships discussed thus far are diagrammatically depicted in
the conceptual shown as Figure 1. To reiterate, the variables representing
organisational culture (learning and market orientation) are posited to have direct
association with innovation and human resource practices. On the other hand,
innovation and human resource practices are posited to influence organisational
performance. It is hypothesised that the relationship between organisational culture
and performance is mediated by human resource practices and innovation. It is further

Figure 1.
Conceptual model

hypothesised that among the performance measures, market effectiveness and

operating efficiency significantly influence financial performance.
Research methodology
Sample
Data for this study came from businesses in the Australian high-tech, professional
services and hospitality industries. The sample was considered representative of
medium size companies. Data was collected through a structured questionnaire mailed
to potential respondents. The sampling frame was obtained from the Dunn and
Bradstreet database. The response rate was 35 per cent after the second wave of
mailing out. A total of 227 useable responses were obtained. The principal informant
method was used and the CEOs were identified as the key informants. This was
considered the most appropriate approach as CEOs are best positioned to have the
broadest knowledge of the issues under investigation. To check for non-response bias a
comparison was made between respondents from the first half of the first mail out and
those from the second half from the second mailout and also between respondents from
the first and second mailout. Both comparisons yielded no significant differences. To
further validate the representativeness of the sample ten questions from the original
questionnaire were administered to non-respondents over the telephone. This analysis
revealed no significant differences. We were able to establish, through randomly
phoning and identifying non-respondents, that the main reasons for not responding
were company policy (35 per cent), too busy at the time (30 per cent); did not receive the
questionnaire (25 per cent); other reasons (10 per cent).
Development of measurement instruments
To the extent possible, existing scales were used. This is important so as to allow for
cumulative knowledge development and also to allow findings to be explained within
the context of extant literature and empiricism. The instrument for learning orientation
was adopted from the 16-item scale of Baker and Sinkula (1999). Market orientation
was measured on the basis of the work of Narver and Slater (1990). Innovation was
conceptualised as consisting of three dimensions, namely: product innovation, process
innovation and administrative innovation. Each dimension was measured using at
least four items. This was designed to accurately investigate which aspects of
innovation are associated with market orientation and learning orientation. This was
considered the appropriate level of abstraction especially given the possibility that
innovation could be a formative as opposed to a reflective measure. The human
resource practices scale was derived from the scale used by Narver and Slater (1990).
This measure essentially captures the degree of organicity of the human resource
practices of the organisation. Marketing effectiveness was conceptualised as the ability
of the organisation to meet short-term goals that might positively impact financial
performance such as increasing market share, increasing sales, improving gross
margins, successful new product introduction (Mavondo, 1999, 2000; Venkatraman
and Ramanujam, 1987). It is contended that achieving these results should assist in
achieving superior financial performance (Vorhies et al. 1999). Table I gives the
reliabilities and correlations of the constructs.

Learning and
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orientation
1249

0.8232
0.475 * * *
0.593 * * *
0.602 * * *
0.282 * * *
0.288 * * *
0.356 * * *
0.326 * * *
0.120
0.8424
0.437 * * *
0.534 * * *
0.387 * * *
0.392 * * *
0.411 * * *
0.364 * * *
0.239 * * *

0.8805
0.435 * * *
0.220 * * *
0.283 * * *
0.630 * * *
0.709 * * *
0.302 * * *

0.8243
0.401 * * *
0.329 * * *
0.295 * * *
0.318 * * *
0.126

Notes: Diagonal entries are reliabilities; *p , 0.05; * *p , 0.01; * * *p , 0.001

Learning orientation
Market orientation
Human resource practices
Admin. innovation
Process innovation
Product innovation
Marketing effectiveness
Operating efficiency
Financial performance

Table I.
Correlations, reliabilities
of constructs

1.
2.
3.
4.
5.
6.
7.
8.
9.

0.8414
0.565 * * *
0.175 * *
0.226 * * *
2 0.012

0.9435
0.226 * * *
0.201 * *
0.049

0.8076
0.563 * * *
0.563 * * *

0.9163
0.41 * * *

0.758

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1250

Results
The results of the hypothesised relationships are presented in Table II. The first
column restates the hypotheses. The second column indicates the hypothesised
direction of the relationship. Measures for direct, indirect and total effects are
standardised regression coefficients. The final column indicates whether the
hypothesis was supported or not. Finally the fit measures from the structural
equation model are presented at the bottom of Table II.
Hypotheses relating to learning orientation
Our results clearly indicate that there is a strong relationship between learning
orientation and market orientation (H1a). This is consistent with our assertion that
learning orientation subsumes the concept of market orientation and that market
orientation is in the same nomological net as learning orientation but emphasizes a
special type of learning and behaviour. We argue that without a culture of learning,
market orientation is unlikely to be sustained. Learning orientation is strongly
associated with human resource practices ( p , 0.001) (see Table II). Surprisingly, most
models ignore the importance of human resource practices yet this is central to
implementation of both learning and market orientations. A culture of learning
demands certain configurations to optimise the human resource practices hence H1b is
supported. Learning orientation is also strongly associated with all the aspects of
innovation (process, product and administrative). All the direct effects are significant
and all the indirect effects through market orientation are significant. The significance
of all the indirect effects demonstrated that market orientation is an intervening factor
in the relationship between organisation learning and innovation. Hence support is
provided for H1c-H1d. The relationship between learning orientation and operating
efficiency was negative ( p , 0.01). This is, perhaps, a demonstration of the short-term
tension between exploration and exploitation. Learning can be expensive and
disruptive of operating routines, however, this is more than compensated for by the
highly significant indirect effects through market orientation and human resource
practices ( p , 0.0001). This results in total effects of organisational learning being
significant ( p , 0.001). This finding lends support to our contention that market
orientation lies midway on the exploration-exploitation continuum. We hypothesised
that a learning orientation is indirectly related to marketing effectiveness. This was
supported ( p , 0.001) as was the association with financial performance ( p , 0.001).
Hypotheses relating to market orientation
The relationship between market orientation and aspects of innovation was supported;
process innovation ( p , 0.001); product innovation ( p , 0.001) and administrative
innovation ( p , 0.001). Examining the direct effects shows that market orientation is
the more proximate and stronger predictor of innovation than learning orientation.
This is consistent with our conceptualisation of market orientation as lying at the
middle of the exploration-exploitation continuum with learning orientation at the
exploration extreme and innovation at the exploitation extreme. As might be
speculated, learning orientation has a stronger effect on administrative innovation that
market orientation. This demonstrates the importance of disaggregating innovation
since it allows us to pinpoint the true nature of the relationships. The indirect effects
clearly show that innovation and human resource practices are mediating variables in

Learning and
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1251

Table II.
Testing hypothesized
relationships
0.475
0.498
0.132
0.463
0.010
20.186

0.271
0.329
0.321
0.200
0.167

0.556
0.668
20.229
0.003
20.005
0.106
20.124
0.196
0.279
0.185
0.573

3.481 * *
3.631 * * *
3.164 * *
8.220 * * *

1.975 *
22.28 *

0.108
0.535

9.865 * * *
10.269 * * *
22.79 * *

0.076

0.112
0.222
0.134

3.917 * * *
4.969 * * *
5.679 * * *
3.371 * *
2.791 * *

0.055
21.047

0.095
0.160
0.152
0.263
0.522
.410
0.160

2.237 *
7.266 * * *

2.486 *

2.476 *
3.054 * *
2.603 * *

2.709 * *
3.597 * * *
4.549 * * *
4.968 * * *
7.311 * * *
7.892 * * *
3.363 * *

Indirect effects
SRC T-values

8.115 * * *
8.394 * * *
1.902 *
7.952 * * *
1.453
22.92 * *

Direct effects
SRC
T-values

0.182
0.624

0.2798

0.223

0.106
0.96

0.003
20.056

0.557
0.773
0.306

0.342
0.336
0.321
0.200
0.279
0.222
0.134

0.475
0.593
0.279
0.602
0.262
0.335
0.410
0.160

4.014 * * *
7.489 * * *

4.014 * * *

3.110 * *

1.975
21.668 *

0.055
21.076

7.875 * * *
12.98 * * *
4.330 * * *

3.363 * *
4.335 * * *
4.335 * * *
2.664 * *
3.564 * * *
3.054 * *
2.603 * *

5.758 * * *
9.649 * * *
4.151 * * *
8.449 * * *
4.968 * * *
3.780 * * *
7.892 * * *
3.363 * *

Total effects
SRC
T-values

Yes
Yes

Yes

Yes

Yes
No

No
No

Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes

Support (Yes/No)

Notes: x2 (14) 13.586; p 0.481; GFI 0.987, AGFI 0.957, RMSEA 0.001; NFI 0.984, TLI 1.000, CFI 1.000; *p , 0.05; * *p , 0.01; * * *p , 0.001

H1. Learning orientation is positively associated with:

H1a. Market orientation
H1b. Human resource practices
H1c. Product innovation
H1d. Administrative innovation
H1e. Process innovation
H1e. Operating efficiency
H1f. Marketing effectiveness
H1g. Financial performance
H2. Market orientation is associated with:
H2a. Process innovation
H2b. Product innovation
H2c. Administrative innovation
H2d. Human resource practices
H2e. Market effectiveness
H2f: Operating efficiency
H2g. Financial performance
H3. Human resource practices are associated with:
H3a. Marketing effectiveness
H3b. Operation effectiveness
H3c. Financial performance
H4. Product innovation is associated with:
H4a. Marketing effectiveness
H4b. Operating efficiency
H5. Process innovation is associated with:
H5a. Operation effectiveness
H5b. Financial performance
H6. Administrative innovation is associated with
operating efficiency
H7. Operational efficiency is associated with financial
performance
H8. Market effectiveness is associated with:
H8a. Operating efficiency
H8b. Financial performance

/2

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Hypothesis

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the relationship between market orientation and operating efficiency ( p , 0.01);

marketing effectiveness ( p , 0.01) and financial performance ( p , 0.01). Thus, the
results for market orientation show significant positive relationships with innovation,
human resource practices, marketing effectiveness and financial performance.
Hypotheses relating to HRPs
The results suggest there is a strong direct relationship between HRPs and marketing
effectiveness ( p , 0.001), operating efficiency ( p , 0.001) and an indirect relationship
with financial performance (p , 0.001). The direct relationships were negative and
significant. This suggests that managers may not immediately associate HRPs with
financial performance although they may clearly see the association with marketing
effectiveness and operating efficiency. The results further suggest that HRPs may be a
better predictor of performance dimensions than innovation. These results are
intuitively appealing because they recognise the importance of human resource
management. Humans have become the most important resource in rapidly changing
environments, they may be the most adaptable and flexible in coping with the
exigencies of the business environment.
Hypotheses related to innovation
Contrary to expectations, product innovation was not related to any performance
metrics. Several reasons may give rise to these findings. First, the respondents were
predominantly mature industries where procedures and products have become highly
standardised (hotels) or traditional manufacturing. In such industries product
innovation may not be critical for success. Second, product innovation is risky. Many
companies do not invest in product innovation preferring instead to copy, modify or
just adopt new product ideas that appear successful on the market. Process innovation,
on the other hand, was positively and significantly related to financial performance
while administrative innovation was positively associated with operating efficiency.
As would be expected, marketing effectiveness, defined here in terms of the
achievement of intermediate objectives such as market share, customer satisfaction
and sales growth is strongly associated with financial performance.
Hypotheses involving mediation
Because of the complexity of the model, as a result of several potentially mediating
factors, Table III examines the mediation hypotheses. Two alternative approaches can
be used to disaggregate the indirect effects. One could use the formula suggested by
Sakar et al. in JAMS, Volume 4, 2002[1] or alternatively one could run several
simplified models that specifically allow measurement of the appropriate mediation
route. Both approaches were used and found to lead to similar conclusions.
All the hypotheses suggesting market orientation mediates the relationships
between learning orientation and HRPs (H1c), product innovation (H1d(i)), process
innovation (H1d(ii)), administrative innovation (H1d(iii)) and marketing effectiveness
(H1d(iv)) were supported (see Table II). The hypotheses positing HRPs as mediating
the relationship between learning orientation and marketing effectiveness (H1e(i)),
operating efficiency (H1e(ii)) and financial performance (H1e(iii)) were all supported.
This highlights the significance of incorporating HRPs in models of learning and
market orientation and suggest HRPs are as important as innovation. Results in

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Table III.
Testing hypotheses
involving mediation

Hypothesis
H1c: LO MO Human resource practices
H1d (i): LO MO Product innovation
H1d (ii): LO MO Process innovation
H1d (iii): LO MO Administrative innovation
H1d (iv): LO MO Marketing effectiveness
H1e (i): LO HRP Marketing effectiveness
H1e(ii): LO HRP Operating efficiency
H1e(iii). LO HRP Financial performance
H2d (i): MO HRP Marketing effectiveness
H2d (ii): MO HRP Operating efficiency
H2d (iii): MO HRP Financial performance
H2e (i): MO Innovation Marketing effectiveness
H2e (ii): MO Innovation Operating efficiency
H2e (ii). MO Innovation Financial performance

Coefficient

SE

T-value

Support

0.095
0.186
0.184
0.152
0.195
0.374
0.421
179
0.275
0.310
0.132
0.189
0.200
0.062

0.035
0.048
0.048
0.033
0.054
0.049
0.053
0.040
0.055
0.057
0.035
0.059
0.060
0.049

2.707 * *
3.875 * * *
3.873 * * *
4.537 * * *
3.571 * * *
7.510 * * *
7.943 * * *
4.419 * * *
5.018 * * *
5.467 * * *
3.697 * * *
3.182 * *
3.317 * *5
1.260

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No

Table II show that the relationship between market orientation and organisational
performance is mediated by HRPs. This is supported by the significance of the
mediated relationships for market effectiveness (H2d(i)), operating efficiency (H2d(ii)),
and financial performance (H2d(iii)).
Previous findings that innovation mediates the relationship between market
orientation and marketing effectiveness (H2e(i)), operating efficiency (H2e(ii)) are also
supported. However for financial performance (H2e(iii)) this is not supported. This
finding seems to lend support to the notion that innovation may be risky and costly
and the benefits of innovation may not be directly related to financial performance in
the short term.
These tests of mediated relationship are the direct tests of the hypotheses. They
help to disentangle the multiple contributions of several paths that result in indirect
effects. Indirect effects reflect a sum total of several paths especially if there are several
mediating factors. This makes it difficult to directly associate indirect effects with
specific variables.
Discussion
The use of path modeling allows one to explore complex relationships by taking into
account both direct and indirect effects. In this respect it is superior to ordinary least
square regression which would grossly under-estimate the impact of organisational
learning on innovation, human resource practices and organisational performance. The
findings of this study suggest that conceptualizing the relationships among
organisational learning, market orientation and innovation as lying on an
exploration-exploitation continuum helps to clarify several issues. First, it allows for
testing the relationship between learning orientation and market orientation. This is
important because extant literature is either mute or ambiguous with most studies
noting that the two concepts are different, related or complementary (Hurley and Hult,
1998; Slater and Narver, 1995). Second, this conceptualisation allows one to specifically
model market orientation as a mediator in the organisation learning-innovation
relationships. This is particularly relevant in marketing studies as it emphasizes that
pure exploration (organisational learning), while desirable, must be complemented by

appropriate market behaviour (market orientation) to lead to innovative products,

processes and management approaches. Thus, market orientation is seen as a special
type of both exploration and exploitation. This is evident from considering customer
and competitor orientation and as exploration dimensions while inter-functional
coordination (Narver and Slater, 1990) or responsiveness (Jaworski and Kohli, 1993) are
the exploitation dimensions. Third, organisational performance can be seen as a result
of a combination of exploration and exploitation allowing one to model the relationship
between market orientation and performance as moderated by innovation.
The association between market orientation and innovation accords with the
previous findings (Baker and Sinkula, 1999; Hurley and Hult, 1998; Atuahene-Gima,
1996). Indeed, the establishment of the relationship between market orientation and
innovation in this study is one more empirical finding that addresses one of the
controversies in the literature. The results clearly indicate that market orientation has a
positive effect on all three types of innovation: product, process and administrative.
The relationship between market orientation and HRM is consistent with the findings
reported by Ruekert (1992). The association between market orientation and
organizational performance supports a host of findings such as those found by Narver
and Slater (1990) and Jaworski and Kohli (1993) but is more consistent with
Atuahene-Gima (1996).
Human resource practices were found to be strongly associated with marketing
effectiveness, operational effectiveness and organisational performance. This finding
is consistent with recent work emanating from the human resource management
literature (Harris and Ogbonna, 2001; Huselid, 1995). These results clearly indicate that
HRPs are critical to implementation and that HRPs mediate the relationship between
market and learning orientation and financial performance. These results suggest we
should put people back into [models of] organizational learning (Hult et al., 2002).
The associations between operating efficiency and marketing effectiveness with
financial performance are as hypothesised. However, our results suggest that market
effectiveness is more important than operating efficiency as a determinant of financial
performance. This could arise when marketing effectiveness results in the attainment
of a large market share that allows costs to be spread over a larger production volume
hence reducing unit cost of production through experience effects and economies of
scale and scope.
Conclusion
This study hypothesises that learning orientation involves much broader issues than
market orientation and that learning orientation partly subsumes market orientation.
This conceptualisation is at odds with Slater and Narver (1995) but is consistent with
Hurley and Hult (1998) and Baker and Sinkula (1999) although this is not explicitly
stated in both cases. We justify our conceptualisation of the two constructs by
simultaneously recognising their domain overlap and their distinction. The two
constructs are distinct but complementary in that learning orientation by emphasising
exploration allows organisations to question the way business is done, question the
assumptions that underpin business practices and prevents market orientation from
being reactive. On the other hand, market orientation is a hybrid construct sharing
elements of exploration but emphasising exploitation of market opportunities. It is thus
partly an element of organisation culture and partly action orientated (behaviour).

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Thus, market orientation is at once a set of norms and values and simultaneously a set
of behaviours and activities. On similar lines, we conceptualise innovation as largely
exploitation (conversion of knowledge into products, processes or managerial
practices).
While the relationship between market orientation and organisational performance
has been extensively researched, the relationship between market orientation and
aspects of innovation is less researched. Our findings suggest that a market orientation
is an important antecedent to product innovation, process innovation and
administrative innovation. This finding is important in the ongoing debate of the
relationship between market orientation and innovation. The positive relationship
between market orientation and process innovation suggests that there may not be
conflict between a market orientation and process engineering.
The relationship between human resource practices and operating efficiency and
marketing effectiveness and its significant association with financial performance
draws attention to an important issue. Marketers must consider incorporating human
resource practices in models of learning orientation and market orientation as this
provides a holistic presentation and adds realism to such models. Such models would
recognise the centrality of human resource practices in achieving organisational
performance. Finally, we traced all the mediated relationships to clearly establish that
market orientation, HRPs and innovation are important mediators of the relationship
between learning orientation and market orientation and financial performance.
Note
1. Indirect effects that include three variables (X1 ! X2 ! X3) can be tested as follows: a and
b are the path coefficients for the direct effects of X1 ! X2 and X2 ! X3, respectively SEa
and SEb are the standard errors. The product ab represents the indirect effect of X1 on X3.
The standard error for the indirect effect is given as follows SEab sqrt ((b 2SE2a a 2SE2b
SE2a SE2b).
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Further reading
Conduit, J. and Mavondo, F.T. (2001), How critical is internal customer orientation to market
orientation?, Journal of Business Research, Vol. 51 No. 1, pp. 11-24.
Farrell, M.A. and Farrell, M. (1999), Antecedents and consequences of a learning orientation,
Marketing Bulletin, Vol. 10, pp. 38-51.
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marketing relationships, Industrial Marketing Management, Vol. 26 No. 2, pp. 163-75.
Grant, R. (1991), The resource-based theory of competitive advantage: implications for strategy
formulation, California Management Review, Spring, pp. 114-35.
Harris, L.C. (2000), The organisational barriers to developing market orientation, European
Journal of Marketing, Vol. 34 Nos 5/6, pp. 598-624.
Morgan, N.A. (1995), A contingency-based investigation of quality strategy from a strategic
marketing perspective, PhD thesis, Cardiff Business School, Cardiff.
Roberts, K. (1995), The proof of HR is in the profits, People Management, Vol. 9, February,
pp. 42-3.
Ruyter, K. and Moorman, L. (2001), Antecedents of commitment and trust in customer-supplier
relationships in high technology markets, Industrial Marketing Management, Vol. 30
No. 3, pp. 271-86.
Thompson, J.D. (1967), Organisations in Action, McGraw-Hill, New York, NY.
Truss, C. (2001), Complexities and controversies in linking HRM with organisational outcomes,
Journal of Management Studies, Vol. 38 No. 3, pp. 1121-49.
Ulrich, D. (1991), Using human resources for competitive advantage, in Kilman, R. and Kilman, I.
(Eds), Making Organisations Competitive, Jossey-Bass, San Francisco, CA.

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