Extended Stakeholder Orientation: Influence on Innovation and Firm Performance

Abstract

Stakeholder theory and market orientation both provide valuable insights to researchers and managers alike on fundamentals related to sustainable competitive advantage (Grinstein 2008a; Grinstein and Goldman 2011; Kirca et al. 2005; Laplume et al. 2008). Market orientation, where orientation is defined collectively as the culture, policies, organization and management practices within a firm (Ferrell et al. 2010), views customers and competitors as core stakeholders (Narver and Slater 1990), while stakeholder theory suggests a broader focus to include two more groups as core stakeholders: employees and shareholders. Scholars suggest that a broader stakeholder focus can enhance our understanding of the drivers necessary for sustainable firm performance (Maignan et al. 2011; Matsuno et al. 2000). Extended stakeholder orientation (XSO) is conceptualized here as an integrative approach that responds to calls to investigate market orientation and stakeholder theory (Ferrell et al. 2010; Narver and Slater 1990). The second order XSO construct is composed of orientations to core or ‘essential’ stakeholders – customers, competitors, employees and shareholders (Greenley et al. 2005; Yau et al. 2007). XSO includes embedded proactive considerations for each stakeholder in accord with suggestions by Narver et al. (2004). Additionally, amid market and technological turbulence virtually dictating the need for innovation (Christensen et al. 1998), this study also develops an innovation orientation scale to investigate the relationship of stakeholder orientation to innovation orientation. We conducted two pilot studies (n = 400) for an exploratory factor analysis which yielded scales for responsive and proactive customer, competitor, employee and shareholder orientations. A separate sample (n = 360) was obtained from across the USA in diversified industries with public and private companies ranging from small to large corporations to conduct a confirmatory factor analysis. Results were encouraging based on CB-SEM analysis. Model fit parameters were within guidelines and results significant at the p < .001 level (Hair et al. 2010). We found XSO is positively correlated to firm performance with 60 % variance explained. XSO is also positively correlated to innovation orientation which acts as a partial mediator to firm performance. In summary this empirical study shows extended stakeholder orientation is key to firm performance and innovation. The implication for management practice is that proactive considerations and a balanced approach to core stakeholders should be integral to the firm. For researchers the study provides a baseline to further investigate salience of stakeholders and interactive effects among them. Moreover, alternative analytical methods such as PLS-SEM may provide additional insights since CB-SEM overall model fit requirements may tend to result in elimination of otherwise important content (Binz et al. 2014).