Market orientation, organizational climate, compensation strategy and new product performance

Abstract

The relationship between market orientation and the firm performance has been debated for a decade. The main purpose of this study is to examine the impact of market orientation on new product performance, and to understand the role of organizational climate and compensation strategy in the relationship between the market orientation and new product performance. The study is based on information from 110 firms in China. The results supported the positive impact of market orientation on new product performance in Chinese firms. It was also found that long-term oriented compensation strategy is a moderator in the relationship between market orientation and new product program/firm performance. Individual-based compensation strategy has a moderating role in the relationship between market orientation and new product performance on the program level but not on the firm level. Compensation strategy with risk aversion moderates this relationship only on the firm level, and but not on the program level. Surprisingly, the results did not support the hypothesis that market orientation will have stronger positive impact on new product performance when organizational climate is positive rather than negative. However, organizational climate was shown to have a significant, positive and direct impact on new product performance. In the end, this attempt to explore the moderators of the market orientation--new product performance relationship has presented some implications for researchers and managers. Although the study provides some useful insights, the role of organizational climate is still not clear. Whether other dimensions of compensation strategy also play a moderating role still needs further investigation. Future studies that refine and extend this work would provide additional insights about the role of market orientation in organizational performance.