Influence of Behavioral Integration Within Top Management Teams and Board Control on Market Orientation, Innovation, and Firm Performance

Abstract

Market orientation represents a fundamental theoretical domain within the marketing literature and, arguably, one of the most important contributions of marketing thought to the business discipline (Menguc and Auh 2006). This study contributes to the extant literature by developing and testing an integrated framework of the influence of an organization’s top management teams and board of directors on market orientation and the subsequent impact on innovation and firm performance. First, extending perspectives that top management influences an organization’s market orientation (e.g., Jaworski and Kohli 1993), behavioral integration within top management teams (Hambrick 2004; Simsek et al. 2005) and control exerted by board of directors (Walters et al. 2010) are examined as antecedents of market orientation. Second, shedding further light on the relationship between market orientation and innovation (e.g., Grinstein 2008; Han et al. 1998), two types of innovation, namely exploratory innovation and exploitative innovation (Jansen et al. 2006), are investigated as outcomes of market orientation.

The proposed framework was tested using data collected from 234 executives (either CEOs or members of top management teams). Adopting the cultural perspective, market orientation is defined in terms of three dimensions – customer orientation (where employees place a customer’s satisfaction first and foremost), competitor orientation (where all existing and potential competitors are actively monitored), and inter-functional coordination (where active coordination across different organizational functions is encouraged) (Narver and Slater 1990). The findings demonstrate that both behavioral integration, which was conceptualized as a higher-order construct with three components – collaboration, joint decision making, and exchange of ideas, and control exerted by the board of directors were found to enhance market orientation. The findings also show that, in organizations with market-orientated cultures, both exploratory and exploitative innovations are likely to flourish. Yet, of the two types of innovation, only exploitative innovation was related to performance. As exploratory innovations involve higher upfront costs and risks as well as yield lagged returns, their influence on performance is perhaps likely to materialize over a longer period of time as compared to exploitative innovations. Overall, the findings demonstrate that strategic leadership and upper echelons (i.e., top management teams and board of directors) influence strategic resources (i.e., market orientation), strategic actions (i.e., exploratory and exploitative innovation), and firm performance (e.g., Geletkanycz and Hambrick 1997; Ketchen et al. 2007).