eThesis - School of Business electronic theses

This empirical study examines the effect of changing economic situation on the linkage between different dimensions of market orientation, innovation capability and business performance. First, a conceptual model linking these constructs was theoretically derived from market orientation and innovation literature. Then, by using PLS path modelling, I explored whether and how the business cycle (boom vs. bust) influences the role of individual market orientation dimensions and innovation capability in achieving superior business performance.

The data used in this study were based on two broad scale web-based surveys targeted to the CEOs or equivalent level upper management in Finnish companies. Data were collected as a part of StratMark project during a boom in 2008 and during a bust in 2010 (n=1,099 and n=995, respectively). Results of this study were evaluated by following two-step process: First, the reliability and validity of the conceptual model was estimated (Outer model assessment). Second, inner path model estimates were evaluated. In order to determine the confidence intervals of the path coefficients and statistical inference, bootstrapping method was applied (Inner model assessment).

The study reveals three key findings: First, the business cycle was found to moderate the way in which the different market orientation dimensions are emphasized in enhancing business performance. Second, while customer orientation and inter-functional coordination have accentuated roles in building business performance when the economy is booming, competitor orientation plays a stronger role during downturn. Third, innovation capability does not substantially enhance or weaken the impact of market orientation on business performance. However, the positive impact of innovation capability on business performance is evident.

These results suggest that in order to succeed, it is crucial to shift managerial focus from generating long term value during a boom to more short-term survival considerations during a recession. Thus, further analyses on comparing findings from more limited datasets, focusing on specific sectors or industries are needed.