Entrepreneurship: Its relationship with market orientation and learning orientation and as antecedents to innovation and customer value

Industrial Marketing Management 40 (2011) 336–345

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Industrial Marketing Management

Entrepreneurship: Its relationship with market orientation and learning orientation and as antecedents to innovation and customer value Hanny N. Nasution a,⁎, Felix T. Mavondo a, Margaret Jekanyika Matanda b, Nelson Oly Ndubisi c a b c

Department of Marketing, Monash University, Clayton Campus, Australia Department of Marketing, Monash University, Peninsula Campus, Australia Nottingham University Business School, The University of Nottingham Malaysia Campus, Jalan Broga 43500 Semenyih, Selangor, Malaysia

a r t i c l e

i n f o

Article history: Received 1 April 2009 Received in revised form 1 December 2009 Accepted 1 February 2010 Available online 18 September 2010 Keywords: Entrepreneurship Business orientation Innovation Customer value

a b s t r a c t This paper seeks to address two main problems. First, it evaluates the direct effect of entrepreneurship and business orientations namely, learning orientation, integrated market orientation and human resource practices on innovation and customer value. Second, it examines the interaction effect of entrepreneurship and business orientations on innovation and customer value. Data were collected from small and mediumsize hotels in Indonesia and analysed using the structural equation model. The results show that entrepreneurship and human resource management were shown to be the most significant drivers of innovation and customer value. The results further suggest that interaction of entrepreneurship and integrated market orientation as well as human resource practices has significant impact on customer value and innovation respectively. Theoretical and practical implications of the study are discussed. © 2010 Elsevier Inc. All rights reserved.

1. Introduction The interrelationships among entrepreneurship, market orientation, learning orientation, innovation and its implications for business performance have been widely examined in the marketing literature (Bhunian, Menguc, & Bell, 2005; Chen, Lin, & Chang, 2009). Slater and Narver (1995) suggest that an entrepreneurial culture promotes learning orientation. The characteristics of entrepreneurship including autonomy, proactiveness, and risk taking are strongly related to knowledge attainment, and the development of new behaviours to encourage learning (Slater & Narver, 1995). From another perspective, organizational learning will lead to organizational staff adopting entrepreneurial characteristics at the individual level, which may translate into entrepreneurial climate in organizations. Similarly, market orientation with an entrepreneurial drive provides the cultural foundation for organizational learning, which enables a firm to achieve a higher level of performance and better customer value (Slater & Narver, 1995). Matsuno, Mentzer, and Ozsomer (2002) suggest that the greater the level of entrepreneurial proclivity, the greater the level of market orientation. In this sense, organizations with higher levels of market orientation tend to place more emphasis on entrepreneurship (Matsuno et al., 2002). The adoption of entrepreneurship in organizations enables

⁎ Corresponding author. E-mail addresses: [email protected] (H.N. Nasution), [email protected] (F.T. Mavondo), [email protected] (M.J. Matanda), [email protected] (N.O. Ndubisi). 0019-8501/$ – see front matter © 2010 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2010.08.002

organizations to identify the latent needs of customers and innovative ways to address their existing needs. A primary entrepreneurial activity is not only to create better products than competitors but also to lead the industry in recognising customers' evolving needs (Slater & Narver, 1995). Thus, an integrated market orientation with its focus on understanding both expressed and latent customer needs is inherently entrepreneurial (Slater & Narver, 1995). Matsuno et al. (2002) suggest that entrepreneurship facilitates organizational members' willingness and ability to commit to market learning activities, to recognise the need to reduce uncertainty and take more calculated risk. This promotes a strong market orientation. In terms of the market orientation and learning orientation linkage, Farrell (2000) suggests that once an organization becomes marketoriented, it begins to adopt and implement a learning orientation. Market orientation is a major cultural foundation of learning organizations, so the establishment of market orientation inherently implies being a learning oriented organization. Baker and Sinkula (1999) and Liu, Luo, and Shi (2002) suggest that strong learning orientation should practice a strong market orientation. Specifically, Sinkula, Baker, and Noordeweir (1997) argue that a learning orientation will directly result in an increase in market information generation and dissemination. Matsuno et al. (2002) further suggest that a higher market orientation tends to lead to higher learning-orientation. Market orientation needs to be complemented by an appropriate climate for learning (Slater & Narver, 1995). In this sense, without a strong learning orientation, market-oriented behaviours are less likely to promote a rate of improvement or organizational performance that exceeds that of competitors (Baker & Sinkula, 1999). Slater and Narver (1995) further argue that without the ability to perform applied learning, market

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orientation might not have a positive effect on performance. Thus, market orientation can promote learning orientation which subsequently improves organizational performance. This study emphasises the importance of entrepreneurship in the learning orientation, integrated market orientation, human resource practices association with innovation and customer value. First, this study examines direct effects of entrepreneurship, learning orientation, integrated market orientation, human resource practices on innovation and customer value. Second, the interaction effects of entrepreneurship with learning orientation, integrated market orientation, and human resource practices on innovation and customer value are also investigated. Limited attention has been paid to direct investigation of the link between entrepreneurship and customer value nor were we able to find any studies that specifically examine the potential moderating effects of learning orientation, market orientation and human resource practices on entrepreneurship. Our study contributes to addressing these research gaps. The remainder of the article is organised as follows. Firstly, a literature review on entrepreneurship, market orientation and learning orientation provides an overview of the key issues. This is followed by hypotheses development. We then discuss the research design, data collection and measure validation procedures. Finally, the results and discussion are presented followed by the conclusion of the study and its potential implications for managers and academics. 2. Theory and hypotheses 2.1. Entrepreneurship The definitions of entrepreneurship cover a broad range of activities and processes, including innovation and creation of an organization (Gartner, 1988), creation of new visions (Timmons, 1990), exploration of opportunities (Kirzner, 1979; Stevenson & Jarillo, 1990), and risk taking (Stevenson & Jarillo, 1990). Hornaday (1992) asserts the essence of entrepreneurship is innovation which aims to create economic value that provides profits from the market (Echols & Neck, 1998). In relation to the exploitation of opportunities, entrepreneurship is most commonly associated with the direction and/or combination of productive inputs by which it shifts resources from areas of low to higher productivity (Herbig, Golden, & Dunphy, 1994). We therefore define entrepreneurship as “a process of enhancement of wealth through innovation and exploitation of opportunities, which requires the entrepreneurial characteristics of risk-taking, autonomy, and proactiveness”. Some components of entrepreneurship that are widely documented in literature are freedom and autonomy (Kuratko & Hodgetts, 2001; Stevenson & Jarillo, 1990), proactiveness and innovativeness (Pitt, Berthon, & Morris, 1997; Yeoh & Jeong, 1995), and risk taking propensity (Hornsby, Naffziger, Kuratko, & Montagno, 1993; Luchsinger & Bagby, 1987; Sathe, 1989). Other authors suggest that corporate entrepreneurship mainly includes product innovation, risk taking, proactiveness (Covin & Slevin, 1991; Miller, 1983; Zahra, 1996), business venturing, and intrapreneuring (Kuratko & Hodgetts, 2001), and organizational renewal (Sathe, 1989). Individual characteristics associated with entrepreneurship are risk-taking propensity, desire for autonomy, need for achievement, goal orientation, and internal locus of control. Risk taking refers to the willingness of management to commit significant resources to pursue opportunities in the face of uncertainty (Chang, 1998). Actually, the word ‘entrepreneur’ derives from the French words ‘entre’ (meaning between) and ‘prendre’ (meaning to take), originally used to describe people who take on the risk between buyers and sellers or who undertake a (risky) task such as starting a new venture (Bolton & Thompson, 2002). Similarly, Pitt et al. (1997) posit that risk taking involves a willingness to pursue opportunities that involve a calculated risk. Cunningham and Lischeron (1991) define risktakers as entrepreneurs who prefer to take moderate risks in situation where they have some degree of control or skill in realising a profit.

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Venkatraman (1989) points out that risk taking encompasses the extent of risk reflected in the various resource allocation decisions made, as well as the choice of products/services and markets. Autonomy refers to the extent that employees are able to make decisions concerning the effective performance of their own work (Hornsby et al., 1993). It can also be defined as “doing things without regard to what others may think” (Lee, 1997, p.95). People with a high need for autonomy generally prefer self-directed work, care less about others' opinions and rules, and prefer to make decisions alone (Lee, 1997). In a sense, the organizations need to empower employees to make decisions about their work processes and avoid criticising employees for making mistakes when being innovative. Proactiveness is defined in terms of the firm's propensity to aggressively and proactively compete with its rivals (Yeoh & Jeong, 1995). Miller (1983) views proactiveness as a facet of assertiveness, which can be viewed as a dimension of strategy making. Proactiveness is basically concerned with implementation. It usually involves considerable perseverance, adaptability and a willingness to assume some responsibility for failure (Pitt et al., 1997). Morgan and Strong (1998) describe proactiveness from an organizational perspective. Their argument is in line with several authors who describe proactiveness as one aspect of organizational behaviour. Additionally, Slater and Narver (1994) assert that proactiveness is the initiative adopted by firms to continuously search for escalating opportunities, and experiment with responses to changing marketplace conditions (Morgan & Strong, 1998; Venkatraman, 1989). Proactiveness in this study captures dimensions of seeking new opportunities, always ahead in responding to market challenges and in introducing new services. 2.2. Innovation Definitions of innovation range from interpreting it as the creation of and first successful application of a new product or process (Cumming, 1998); the creation of a new idea (McAdam, Armstrong, & Kelly, 1998; Urabe, Child, & Kagono, 1988); a form of knowledge (Chaharbaghi & Newman, 1996); and a new way of delivering quality or better value (Knox, 2002). Distinctions have been drawn among the concepts of innovation, innovativeness, and the capacity to innovate; however, there might be a certain degree of overlap between them (Damanpour, 1991). The concept of innovativeness, and capacity to innovate, is derived from two different stages of the innovation process: initiation and replication respectively (Hurley & Hult, 1998). Innovativeness is defined as the degree to which an individual or other unit of adoption is relatively earlier in adopting new ideas than any other members of the system (Avlonitis & Tzokas, 1994); and embodies the notion of openness to new ideas as an aspect of a firm's culture (Hurley & Hult, 1998). Capacity to innovate refers to the ability of an organization to adopt or implement new idea, processes, or products successfully. Organizational innovativeness refers to the level of development and implementation of new ideas, and represents a latent capability of firms, which is composed of two critical parts: technological and behavioural (Avlonitis & Tzokas, 1994). Damanpour (1991) defines organizational innovation as the adoption of an idea or behaviour new to the adopting organization, which involves all dimensions of organizational activities, such as a new product or service, a new production process technology, a new structure or administrative system, and a new plan or program within the organization. This study focuses on organizational innovation consisting of three types of innovation: product, process and administrative innovation. Product innovation is defined as new products or services introduced to meet an external user or market needs (Damanpour, 1991) or as the process of bringing new technology into use (Lukas & Ferrell, 2000). The result of this process is the introduction of new products or services that provide the most obvious means for generating revenues (Johne, 1999). This type of innovation reflects change in the end product or service offered by the organization (Cooper, 1998;

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Utterback, 1994). As such, products or services have to be updated and renewed to retain a strong market presence (Johne, 1999). Process innovation is defined as a new element which is introduced into an organization's production or service operations, such as input materials, task specifications, work and information flow mechanisms, and equipment that are used to produce a product or render a service (Damanpour, 1991). Process innovation represents changes in the way organizations produce end products or services (Cooper, 1998; Utterback, 1994). Process innovation embraces quality function and business process reengineering (Cumming, 1998), and provides the means for safeguarding and improving quality and/or saving costs (Johne, 1999). Administrative innovation deals with changes in the methods of operating a business that make more effective use of changes in organization structure, policies, work methods, and any procedures for making, financing, or marketing a product or service (Hine & Ryan, 1999). It also includes changes that affect the policies, allocation of resources, and other factors associated with the social structure of the organization (Cooper, 1998), which is indirectly related to the basic work activities of an organization (Han, Kim, & Srivasta, 1998). Hine and Ryan (1999) classify this type of innovation as non-technological innovation, which leads to changes within organizations that are not directly attributable to products or services or production methods, but to management practices and processes.

2.3. Customer value Customer value is defined as “an interactive relativistic preference experience” (Holbrook, 1999, p. 5). Zeithaml (1988, p. 13) identifies four diverse meanings of value as: (1) low price, (2) whatever one wants in a product, (3) the quality that the consumer receives for the price paid, and (4) what the consumer gets for what they give up. The majority of past studies on perceived value have focused on the fourth definition of Zeithaml (1988), which is basically similar to the concept of value judgment proposed by Flint, Woodruff, and Gardial (1997). The interpretation of the Zeithaml (1988) definition of value is used widely as a fundamental basis for defining the concept of value. Customer value can be simply conceptualized as a comparison of weight of ‘get’ attributes to ‘give’ attributes (Lam et al., 2004). Bolton and Drew (1991) argue that defining value as a function of quality is not enough. Monroe (1990) and Gale (1994) note that quality of products or service is regarded as customers' primary benefit; however, it is argued that perceived benefit is considered as some combination of physical attributes, service attributes, technical support (Ravald & Bloemer, 1996), competence, market position, and social rewards (Petrick, 2002; Walter, Ritter, & Gumenden, 2001). On the other hand, sacrifices have been identified with various interpretations to include total costs or other broader dimensions. Further, Van der Haar, Kemp, and Omta (2001) argue that perceived sacrifice includes both tangible and intangible aspects. We define customer value as a trade-off between total perceived benefits and total perceived sacrifices (Nasution & Mavondo, 2008). In this sense, customer value is operationalized as a ratio or trade-off between total benefit received to total sacrifices (Buzzell and Gale, 1987; Lam et al., 2004). The term trade-off is proposed in order to represent Holbrook (1999) interactive view. Moreover, the term perceived is suggested to reflect the experience view, in which it is believed that value judgment is dependent upon the consumers' experience. The main antecedent of customer value is the organizational dimension as a value creating entity (Weinstein & Pohlman, 1998). In this context, customer services a business unit that creates value by identifying the expressed and latent customer needs better than competitors. A model of a customer-focused value chain developed by Walters and Lancaster (1999) illustrates the sequences of value analysis. Walters and Lancaster (1999) include human resource practices, innovation, competencies, processes and government relations as factors that influence the customer value chain.

2.4. Direct effects of entrepreneurship, learning orientation, integrated market orientation, and human resource practices 2.4.1. Entrepreneurship, innovation, and customer value Entrepreneurship, innovation and new ventures provide energy for the organization in facing turbulent environments (Herbig et al., 1994). Despite the correlation that exists between entrepreneurship and innovation, these two terms appear to have some differences. In this context, entrepreneurship is considered as a new entry, i.e. entering a new or established market with new or existing products or services (Hurley & Hult, 1998; Lumpkin & Dess, 2001; Slater & Narver, 1995). On the other hand, innovation focuses on implementation of new ideas, products or process, and might not involve entering new markets (Hurley & Hult, 1998). Prior empirical work on the entrepreneurship and innovation linkage suggests entrepreneurial value coupled with market-oriented culture can make a significant contribution to successful innovation (Slater, 1997). In relation to organizational performance, the result of Deshpande, Farley, and Webster (1993) study indicates that market and entrepreneurial-oriented culture influences organizational performance. It is suggested that the intrapreneurial culture adopted in an organization enables organizational members to be more proactive with respect to customer needs and be more willing to embrace risks in delivering value to customers (Nasution & Mavondo, 2008). The following hypotheses are advanced: H1. Entrepreneurship is positively related to innovation (a), and customer value (b). 2.4.2. Learning orientation, innovation, and customer value Sinkula et al. (1997) conceptualize and operationalize learning orientation as consisting of commitment to learning, shared vision, and open-mindedness. Baker and Sinkula (1999) describe learning orientation as one of the organizational dimensions that affects the organization's propensity to value generative and double-loop learning, and encourage its members to “think outside a box” (Baker & Sinkula, 1999). Learning orientation is also reflected by a set of knowledge-questioning values (Sinkula et al., 1997), which implies that it has a direct effect on the degree to which higher order learning occurs (Slater & Narver, 1995). According to DiBella and Nevis (1998) the main themes in learning orientation definitions are: knowledge source, content-process focus, knowledge reserve, dissemination mode, learning scope, valuechain focus, and learning focus. Despite learning orientation is analogous to organizational learning, as both link to new insight (Sinkula, 1994; Sinkula et al., 1997; Slater & Narver, 1995); learning orientation places more emphasis on cultural aspects compared to organizational learning (Sinkula et al., 1997). This study defines learning orientation as a cultural aspect that emphasises the process of improving insights, knowledge, and understanding to improve organizational performance and customer value. This definition which is adapted from Shrivastava (1983), Fiol and Lyles (1985), and Driver (2001), basically reflects the process of learning within organization, which starts from the individual level and extends to the organizational level. Indeed the starting point of many scholars on organizational learning is individual learning (Argyris & Schon, 1978; Marquardt, 1996; Ndubisi, Gupta, & Massoud, 2003). In terms of the linkage between learning orientation and innovation, Hurley and Hult (1998) develop a model that relates these two concepts identifying learning as one of innovativeness dimensions, which represent organizational cultural characteristics. This view is supported by Perez-Bustamante (1999) who suggests that innovation is essentially an outcome of the learning orientation components described as a process of acquisition, processing, storage and recovery of information. This implies that the innovation process is central to learning with outcomes varying according to the phase in which the learning activity is undertaken. This consideration supports the existence of an important relationship between innovation and learning orientation (Hurley &

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Hult, 1998), and knowledge management (Perez-Bustamante, 1999). The Hurley and Hult (1998) study further highlights that higher levels of innovativeness in the organizational culture are linked with a greater capacity for adaptation and innovation. Wu, Chiang, and Jiang (2002) suggest that higher levels of organizational learning tend to adopt participative decision-making, and improve the level of innovativeness. Learning orientation and innovation are considered as the future platform for organizational success (Wang & Ahmed, 2002) and the basis for implementing strategic change in organisations (McGuinness & Morgan, 2005). Mavondo, Chimhanzi, and Stewart (2005) provides support of the strong relationship between innovation with all aspects of innovation (i.e. process, product, and administrative). A more recent study by Chen et al. (2009) indicates that learning orientation has significant impact on innovation. With regard to the relationship between learning orientation and customer value, Wang and Ahmed (2002) suggest organizations need to implement the highest level of triple-loop learning incorporating creative quality and value innovation. Learning orientation enhances relationships with customers as it helps organizations in establishing good information processing processes and capabilities that are needed to understand customer needs (Boulding et al., 2005). Therefore, H2. Learning orientation is positively related to innovation (a), and customer value (b). 2.4.3. Integrated market orientation, innovation, and customer value The principal definition of market orientation developed by Narver and Slater (1990, p.21) defines market orientation as “the organization-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.” Narver, Slater, and MacLachlan (2004) suggest the concept of total market orientation includes both responsive and proactive market orientation. A responsive market orientation is “a business's attempt to understand and to satisfy customers' expressed needs”; while a proactive market orientation is defined as “the attempt to understand and satisfy customers' latent needs” (Narver et al., 2004, p.336). This study adopts the terminology of integrated market orientation (Nasution & Mavondo, 2008) to denote the additional dimension of latent need fulfilment. The relationship between innovation and market orientation conceptually is described as a central theme in the definition of market orientation by Kohli and Jaworski (1990); however, it is still subject to debate (Athuahene-Gima, 1995). Some scholars identify innovation as a consequence of market orientation (Deshpande et al., 1993; Han et al., 1998; Hurley & Hult, 1998; Lado & Maydeu-Olivares, 2001; Lukas & Ferrell, 2000; Sandvik & Sandvik, 2003). The results of Athuahene-Gima (1995) study support the positive impact of market orientation on innovation, in term of innovation characteristics, such as innovation-marketing fit, product advantage, and interfunctional teamwork. Han et al. (1998) also argue that market orientation facilitates organizational innovativeness. Likewise, the result of Hurley and Hult (1998) study indicates that market orientation is considered as an innovativeness culture, which is associated with a greater capacity for adoption and innovation. Lukas and Ferrell (2000) study indicates that product innovation varies with market orientation, in which customer orientation, competitor orientation, and interfunctional coordination have a significant impact on the introduction of different types of product innovation. Furthermore, Baker and Sinkula (1999) suggest that market orientation is necessary and sufficient in the creation of an optimal environment for innovation. Lado and Maydeu-Olivares (2001) study supports the view that market orientation has a positive impact on the degree of innovation. Sandvik and Sandvik (2003) provide supportive evidence that market orientation has a significant and positive impact on product innovativeness, however, only one dimension of product

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innovativeness contributes to business performance. In addition, the Mavondo et al. (2005) study also supports the market and innovation linkage. In terms of the integrated market orientation and customer value relationships, Slater and Narver (2000) suggest that a well-developed intelligence generation capability is positively related to superior customer value. Narver et al. (2004) further argue that organizations need to move beyond expressed customers needs to latent ones. In this sense, the power of a proactive market orientation is that the organization continuously discovers new opportunities for targetcustomers. The study of Nasution and Mavondo (2008) indicates that there is strong relationship between integrated market orientation and customer value. That is, having a deep understanding of customers latent needs in addition to customers' expressed needs enable organizations to deliver superior value to customers. Hence, the following hypotheses are postulated: H3. Integrated market orientation is positively related to innovation (a), customer value (b). 2.4.4. Human resource practices, innovation, and customer value The human resources of a firm are considered as the sole source of sustainable competitive advantage (Ferris et al., 1999; Snell et al., 1996) or the most adaptable asset in the organizational change. Wright et al., (2001) distinguish between a firm's human resources (i.e. the human capital pool) and human resource practices (systems that are used to manage the human capital tool). They define the human capital pool as a stock of employee capabilities and human resource practices as multiple practices rather than a single practice. Wright et al. (2001) also argue that human resource practices could not form a basis for sustainable competitive advantage since human resource practices could easily be copied by competitors. Lado and Wilson (1994) also suggest that a firm's human resource practices could provide a source of sustainable competitive advantage, and further argue that the system of human resource practices is relatively difficult to imitate. This study applies the notion of human resource practices. According to Huselid (1995) human resource practices influence employee skills through the attainment and development of a firm's human capital. Previous studies indicate that human resource practices have significant impact on organizational performance, both financial results and the market value of firms. In this sense, human resource practices impacts marketing effectiveness since the skills of employees are possibly the most important strategic asset and have significant implications for organizational performance (Mavondo et al., 2005). In relation to the human resource practice and customer value linkage, Mittal and Sheth (2001) include human resource practices in addition to non-human resource practices as antecedents to customer value. Human resource practices lead to organizational effectiveness by creating a supportive climate (Ferris, Berkson, Kaplan, Harrell-Cook, & Frink, 1998), facilitating innovation, and shaping employee behaviour and attitudes (Huselid, 1995; Whitener, 2001). Having satisfied employees has a significant impact on customer satisfaction (Rogg, Schmidt, Shull, & Schmitt, 2001), and customer value (Band, 1991; Mittal & Sheth, 2001). The most recent study of Nasution and Mavondo (2008) suggests that human resource practices contribute to customer value. Therefore, we advance the following hypotheses: H4. Human resource practices are positively related to innovation (a), customer value (b). 2.5. The interaction effects of entrepreneurship and human resource practices The relationship between entrepreneurial orientation and marketing orientation and has been tested empirically by Miles and Arnold (1991). Liu, Luo, and Shi (2003) suggest that higher levels of market

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orientation lead to more emphasis on entrepreneurship, which subsequently leads to higher levels of business performance. Apart from direct relationships between human resource practices and organizational performance, Ferris et al. (1998) propose a social context model that emphasises that climate and culture mediates the human resource system and organizational effectiveness linkage. The results of Aycan, Kanungo, and Sinha (1999) and Rogg et al. (2001) study indicate that there is indirect effect between human resource practices and customer satisfaction. Their findings support the social context model of the impact of human resource practices on organizational performance (e.g. Ferris et al., 1998). In the Aycan et al. (1999) study, the cultural aspect is considered as an antecedent to human resource practice, while in the Rogg et al. (2001) climate is considered as a mediating variable between human resource practice and organizational performance. In line with this view we suggest the following hypotheses: H5. The interaction of entrepreneurship and learning orientation is positively related to innovation (a), and customer value (b). H6. The interaction of entrepreneurship and integrated market orientation is positively related to innovation (a), and customer value (b). H7. The interaction of entrepreneurship and human resource practices is positively related to innovation (a), and customer value (b). 3. Research methodology 3.1. Sample The samples in this study were hotel managers. To capture the information from hotel managers, all classified hotels across Indonesia were included. A direct mail survey approach was used to get the data from hotel managers. The questionnaires were distributed to 801 hotels throughout Indonesia. The major reasons for using a direct mail survey in this study; is that, as this study covered all hotels across a broad geographic, expanse, the cost of administration was relatively low. In total, 247 out of 801 hotels responded to the research. Sixteen hotels no longer existed, had moved to a new address, and were being renovated or the address was incorrect, hence their questionnaires were returned to the researcher. Two hotels declined to participate in this research. Thus, the number of useable questionnaires was 231, which provided the final effective response rate of 29%. 3.2. Questionnaire design Quantitative research methodology was used in this study for the collection of primary data. The structured questions used in this study were formulated both from existing measurements and information from the literature review. This study carefully considered questionnaire design issues such as wording, sequence, and appearance. Since the study was conducted in Indonesia, the questionnaire was formulated in English, translated into ‘Bahasa Indonesia’, and back translated into English. There were two reasons for adopting this system; firstly, the back-translation method ensured consistency of the real meaning of each item in the original questionnaires. Secondly, since the target respondents in this study were Indonesian, it would be appropriate for the final translation to be done by an Indonesian in order to get the real meaning from each item in the questionnaire. Details of the measurement items are shown in Appendix 1. 3.3. Measures 3.3.1. Entrepreneurship The measure of entrepreneurship developed by Nasution and Mavondo (2008) was adopted in this study, which consists of three

components: autonomy (three items), risk taking (five items), and proactiveness (five items). 3.3.2. Innovation To assess innovation, this study adopted some of the innovation measures developed by Hurley and Hult (1998), Mavondo et al. (2005), Song and Xie (2000), and Zahra (1996). The innovation construct measures process innovation, product innovation and administrative innovation and has 15 items. 3.3.3. Customer value This study adopts the work of Nasution and Mavondo (2008) for the customer value measure. Three components of customer value are reputation for quality (six items), value for money (three items), and prestige (three items). Reputation for quality captures the notion of quality and reputation and to some extent emotional value. Value for money can be viewed as comparing the benefits and sacrifices and represents monetary valuation. Prestige captures the social value of associating oneself with a product or a service (hotel) and represents what the “important others” think about the respondent for patronising a given hotel. 3.3.4. Learning orientation The scale developed by Sinkula et al. (1997) was used to measure learning orientation. The scale of learning orientation is composed of three components: commitment to learning (five items), shared vision (six items), and open-mindedness (four items). 3.3.5. Integrated market orientation The integrated market orientation scale developed by Nasution and Mavondo (2008) was adopted in study. The scale includes both the reactive and proactive dimensions of market orientation consisting of the three dimensions of market orientation (Narver & Slater, 1990) and one addition dimension i.e. latent need fulfilment (Narver et al., 2004). The integrated market orientation measure has 20 items: competitor orientation (six items), interfunctional coordination (five items), customer orientation (four items), and latent need fulfilment (five items). 3.3.6. Human resource practices The development of the human resource practices scale was rooted in human resource management literature. The human resource practices scale developed in this study had ten items. The human resource practices scale included items such as the importance of having satisfied employees, and receiving effective feedback on the employees' performance. Some items of the construct were adapted from Delery and Doty (1996) and Rogg et al. (2001). 3.4. Measurement model The adequacy of the measurement model was assessed through examining construct reliabilities, the convergent validity of the measure associated with each construct, and assessing their discriminant validity. An examination of reliabilities reveals that all constructs demonstrate good reliabilities as indicated by the Cronbach Alpha and the internal consistency values are all above 0.70 (Nunnally, 1978). To establish discriminant validity across the measures, the method suggested by Fornell and Larcker (1981) was applied and the results are presented in Table 1. The results indicate that most of the constructs are distinct; except the shared value between integrated market orientation — learning orientation, entrepreneurial orientation, human resource practices, also between entrepreneurial orientation — innovation exceeding the variance extracted for the constructs. Since these constructs have been well established, the study kept these constructs (i.e. integrated market orientation, learning orientation, entrepreneurial

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Table 1 Measurement model. N = 231

α

IC

1

2

3

4

5

6

1. 2. 3. 4. 5. 6.

0.93 0.95 0.93 0.89 0.95 0.91

0.87 0.90 0.75 0.87 0.92 0.80

0.83 0.84⁎⁎⁎ 0.84⁎⁎⁎ 0.77⁎⁎⁎ 0.71⁎⁎⁎ 0.62⁎⁎⁎

0.83 0.90⁎⁎⁎ 0.91⁎⁎⁎ 0.82⁎⁎⁎ 0.71⁎⁎⁎

0.88 0.88⁎⁎⁎ 0.85⁎⁎⁎ 0.73⁎⁎⁎

0.70 0.91⁎⁎⁎ 0.71⁎⁎⁎

0.89 0.72⁎⁎⁎

0.75

Learning orientation Integrated market orientation Human resource practice Entrepreneurship Innovation Customer value

χ2 = 299.004, df = 120, P = 0.00, χ2/df = 2.49, RMR = 0.05, GFI = 0.87, AGFI = 0.81, NFI = 0.91, TLI = 0.93, CFI = 0.95, RMSEA = 0.08. IC = Internal consistency. ⁎⁎⁎ p b 0.001. The diagonal (in italics) shows the average variance extracted for each construct.

orientation, and human resource practices) as distinct constructs. In general, all measures were shown to have acceptable psychometric properties. 4. Results and discussion 4.1. Direct effects The results of Model 1 and Model 3 as shown in Table 2 indicate that independent and control variables explain 70% of the variance in innovation, and 46% of the variance in customer value. Entrepreneurship (β = 0.41, p b 0.01), integrated market orientation (β = 0.19, p b 0.01), and human resource practices are positively (β = 0.42, p b 0.01) associated with innovation providing support for H1a, H3a, and H4a. However, learning orientation is not related to innovation, thus H2a is not supported. Similarly, entrepreneurship (β = 0.19, p b 0.05), integrated market orientation (β = 0.19, p b 0.05), and human resource practices are positively (β = 0.21, p b 0.01) associated with customer value providing support for H1b, H3b, and H4b. However, learning orientation is not related to customer value, thus H2b is not supported. The positive results of the association between entrepreneurship and innovation can be explained in that the ability and willingness of the organizational members to take risk, and to become proactive, will

possibly support the organization to introduce a new product and a new way of doing things. According to Slater and Narver (1995) successful innovations occur when entrepreneurs recognise a gap between the customers' needs and what is offered and delivered in order to meet those needs (Slater & Narver, 1995). Specifically, the proactiveness of the entrepreneurship dimension promotes the identification and discovery of new market opportunities, which in turn, may increase the level of market-oriented behaviour (Matsuno et al., 2002). In this sense, entrepreneurial values support the creation of new venture (Slater & Narver, 1995), which can be achieved through the development of new products, and the creation of new methods, or the discovering of new approaches to management (Stevenson & Jarillo, 1990). The more an organization encourages managers and employees to initiate new value-adding activities the more the organization is able to deliver superior customer value. Specifically, in the hotel services, the more close interaction between the hotel staff and their customers, the greater the opportunity to enhance value to customers' experiences. Furthermore, integrated market orientation appears to be an important predictor of innovation and customer value. This finding is in line with the view of Jaworski and Kohli (1993) who suggest that market orientation is an antecedent to innovation. It also supports the findings of Han et al. (1998) who suggest that market orientation facilitates an organization's innovativeness, Athuahene-Gima (1996),

Table 2 Direct and interaction effects of entrepreneurship and business orientations on innovation and customer value. Variables

H

Control variables Firm size Competitive intensity Main variable Entrepreneurship (ENT) Learning orientation (LO) Integrated market orientation (IMO) Human resource practices (HRP) Relevant interaction effects ENT × LO ENT × IMO ENT × HRP R square Adjusted R square F ratio df ΔR square ΔF ratio Δdf

H1a,b H2a,b H3a,b H4a,b

Direct effects on innovation

Interaction effects on innovation

Direct effects on customer value

Interaction effects on customer value

M1

M2

M3

M4

0.09⁎⁎ 0.07

0.08⁎⁎ 0.06

0.16⁎⁎ 0.00

0.16⁎⁎ 0.00

0.42⁎⁎⁎ 0.05 0.18⁎ 0.42⁎⁎⁎

0.43⁎⁎⁎ 0.04 0.19⁎ 0.48⁎⁎⁎

0.15⁎ 0.05 0.16⁎ 0.24⁎⁎⁎

0.17⁎⁎ 0.02 0.21⁎⁎ 0.24⁎⁎

0.46 0.45 31.90⁎⁎⁎

− 0.08 0.16⁎ − 0.03 0.47 0.45 21.78⁎⁎⁎

H5a,b H6a,b H7a,b

Dependent variables: innovation and customer value. ⁎ p b 0.05. ⁎⁎ p b 0.01. ⁎⁎⁎ p b 0.001.

0.70 0.69 87.16⁎⁎⁎ 6

− 0.12 − 0.05 0.23⁎⁎ 0.71 0.70 49.36⁎⁎⁎ 9 0.01 37.80 3

6

9 0.01 10.12 3

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who argues that market-oriented organizations tend to be more innovative, and Agarwal et al. (2003) who support the view that less market-oriented organization are less likely to consider innovation. The results of this study provide further support to the Sandvik and Sandvik (2003) suggestion that market orientation has a significant and positive impact on product innovativeness. Specifically, this finding supports the work of Narver et al. (2004) who propose that proactive market orientation adds significantly to the explanation of new-product success. Integrated market orientation is considered, one of the elements of an innovative culture which is associated with a greater capacity for adoption of innovation. As a cultural capability, integrated market orientation is necessary and sufficient to create an optimal environment for innovation. Innovation is considered a vital component of organizational performance; hence, a strong marketoriented culture is needed to facilitate organizational innovativeness (Han et al., 1998). According to Baker and Sinkula (1999) the source of innovation lies in the expressed needs of customers and, hence may impact on market-oriented behaviours. In addition, latent need fulfilment, which is intended to discover customers' latent needs, may encourage organizations to introduce a new product in the market place. An integrated market orientation, including responsive and proactive market orientation, should be the foundation for the implementation of innovation (Narver et al., 2004). Specifically, a proactive market orientation which focuses on the fulfilment of customers' latent needs leads to the development of innovative product and services. In relation to customer value, the study is in line with the Han et al. (1998) study which suggests that market orientation facilitates an organization's innovativeness, which subsequently, positively influences organizational performance. In this sense, market orientation makes a significant contribution to superior performance when innovations are accounted for. The importance of the role of innovation in the relationship between market orientation and organizational performance is that market-oriented organizations are better at identifying customers' expressed and latent needs and trying to create and deliver superior value to customers. Therefore, market-oriented organizations should be able to innovate in a way that provides superior value to customers. Agarwal et al. (2003) further suggest that a market-oriented culture is necessary to build and maintain the core capabilities that continuously create customer value. In terms of the human resource practices, innovation, and customer value linkages can be explained in that human resource practises are critical to the development of innovativeness in organization as well as the delivery of customer value especially in the service sector. Human resource practices play specific role in selecting and maintaining high quality employees, and also providing appropriate skills, behaviours and attitudes (Mavondo et al., 2005). Since humans are the most adaptable resource available to a business, they are required to consistently learn and acquire more relevant skills needed to meet customer needs and hence contribute to creation of customer value. This finding is in line with the view of Mittal and Sheth (2001) who suggest that human resource practices are considered one of the important factors in facilitating organizations to deliver superior value to customers. Mavondo et al. (2005) further suggest that organization has a foundation for superior performance when it possesses skills or resources which facilitate superior value to customers. 4.2. Interaction effects of entrepreneurship and learning orientation, integrated market orientation, and human resource practices on innovation and customer value Interaction is invoked when there is an assumed moderator (Aiken & West, 1991; Baron & Kenny, 1986). Since research on market orientation, learning orientation and human resource practices suggest that there is a strong relationship between each and customer value and

innovation, the research question shifts to inquiring whether entrepreneurship is a potential moderator of these relationships. The question we seek to address is whether different levels of entrepreneurship affect the relationships between market orientation, learning orientation and human resource practice with innovation and customer value. Table 2 further presents the coefficient estimates for the main and interaction effects of entrepreneurship and learning orientation, integrated market orientation, and human resource practices on innovation and customer value. Model 1 and Model 3 are the base models which include control and main variables. Model 2 and Model 4 include control, main and interaction variables. The results as shown in Model 2 and Model 4 indicate that the interaction of entrepreneurship and human resource practices is positively related to innovation; yet it is not related to customer value. These results lead to the acceptance of H7a, and the rejection of H7b. The results further indicate that the interaction of entrepreneurship and integrated market orientation is positively related to customer value leading to the acceptance of H6b. Moreover, none of other interactions among variables are related to both innovation and customer value; this leads to the rejection of H5a, H5b, and H6a. Further investigation of the impact of entrepreneurship on innovation at different levels of human resource practices indicate that when human resource practices are considered effective, entrepreneurship contributes more to innovation (β = 0.94, p b 0.001) compared to when human resource practices are considered less effective (β = 0.51, p b 0.001). This suggests that the effectiveness of entrepreneurship is moderated by human resource practices. Thus, to optimise the benefits of entrepreneurship on innovation, organizations must have effective human resource practices. 5. Limitation and implications 5.1. Limitation and further research In this study several specific limitations are acknowledged. First, cross-sectional designs were applied in this study. The disadvantage of such a design is that the nature of causality is difficult to infer (Bollen, 1989), and the changes in behaviour of respondents is more difficult to examine (Malhotra 2002). However, through effective use of extant literature, hypothesised relationships could still be tested. Second, a back-translation of the questionnaire was undertaken since for most of the respondents English is not their first language. There is always the possibility that meanings can be lost. However, given the consistency of the findings to extant literature this does not appear to be a problem. The third limitation is that the respondents came from potentially different samples. It can be assumed that five star hotels and one star hotels are different. Given the relatively small sub-samples, no attempt was made to analyse the data for different hotel classifications. Perhaps with a larger sample this is an issue for further research. 5.2. Conclusion and implications This study aims to investigate the direct and interaction effects of entrepreneurship and business orientations to innovation and customer value. Entrepreneurship and human resource management were shown to be the most significant drivers of innovation and customer value. The results further suggest that including interaction variables in the base model has improved the relationships among entrepreneurship, learning orientation, integrated market orientation, human resource practices and innovation as well as customer value. This is indicated by the greater values of the coefficient estimates of each main variable. Specifically, interactions of entrepreneurship and integrated market orientation as well as entrepreneurship and human resource practices have significant impact on customer value and innovation respectively.

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This study has a number of implications for managers and academics. First, an entrepreneurial culture is positively related to innovation and customer value. These relationships remain strong after controlling for market orientation, learning orientation and human resource practices. Second, the most important predictor of innovation and customer value is human resource practices. This is consistent with research emerging from internal marketing. The way employees are treated and empowered is strongly related to how they are willing to provide superior customer value and to engage with innovative approaches to serving the customer. As would be expected market orientation is positively related to innovation and customer value. This is consistent with the vast literature on market orientation. This study further shows that the benefits of entrepreneurship are greatest, when human resource practices are effective or when market orientation is high. This result has not been shown before but has important implications. Thus, we were able to show that market orientation and human resource practices are moderators of the relationship between entrepreneurship and customer values and innovation respectively. This implies that entrepreneurship thrives where human resource practices and market orientation are seen as effective.

Appendix 1. The measurement instruments

Construct

Items

Please indicate to what extent your organization undertakes the following practices. Seven-point Likert scale running 1(“not at all”) to 7 (“to a very great extent”). Learning orientation Commitment to • Our organization's ability to learn is considered as a key learning competitive advantage • Our organization values learning as a key to improvement • Our organization believes that employee learning is an investment, not an expense • Learning in our organization is seen as a key to guarantee organizational survival • The collective wisdom in our organization is that once we stop learning, we endanger our future Shared vision • In our organization all employees are aware of what we want to achieve • In our organization all employees commit to the organizational goals • There is a total agreement on our organizational vision across all functions • Employees view themselves as partners in charting the direction of the organization • Management believes in sharing its vision for the organization with all employees • Management has a well-defined vision for the organization Open• We reflect critically on the shared assumptions we have about the mindedness way we do business • Our organization places a high value on open-mindedness • Employees are encouraged to contribute original ideas that may increase organizational success • Original ideas are highly valued in this organization Integrated market orientation Competitor • We regularly analyse our competitors' marketing programs orientation • We regularly share information within our organization concerning competitors' strategies • We rapidly respond to competitors' actions that threaten us • Top management regularly discusses competitors' strategies • We target customers where we have an opportunity for competitive advantage • We frequently collect information on our competitors to help direct our marketing plans Interfunctional • We coordinate goals and objectives across all functions coordination • All functions are integrated in serving the needs of our target market • Market information is shared with all functions

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Appendix 1 (continued) Construct

Items

Please indicate to what extent your organization undertakes the following practices. Seven-point Likert scale running 1(“not at all”) to 7 (“to a very great extent”). Integrated market orientation Interfunctional • Management understands how everyone in this organization can contribute to create customer value coordination • We share resources with other divisions Customer • The organization constantly monitors the level of employee orientation commitment to serving customers' needs • Our strategies are driven by the need to create customer value • We believe that understanding customers need gives us a competitive advantage • The objectives of our organization are driven by the need to achieve high customer satisfaction Latent need • We seek to anticipate future customer needs fulfilment • We continuously seek to uncover new customers needs • We develop solutions to unexpressed customers needs • We seek to understand what customers might need in the future • We use a number of techniques to discover currently unexpressed customer needs Human resource practices Job related • Our organization seeks to match employees to specific job requirements • We treat our employees as the most valuable resources within our organization • Extensive training programs are provided for individuals in our organization • Our organization emphasises the importance of having satisfied employees • Employees in this organization are provided with clear career paths • Job security is almost guaranteed to employees in our organization • The organization seeks to maintain high level of employee motivation Reward related • In our organization employees receive benefits linked to their performance • Employees are given bonuses for outstanding performance • All employees receive effective feedback on their performance Entrepreneurship Autonomy

Risk taking

Proactiveness

Innovation Process innovation

Product innovation

• Employees are encouraged to take responsibility for their work • Employees are supposed to get the job done with minimum supervision • Employees are encouraged to prioritise their work • In this organization uncertainty is treated as a challenge • Employees are encouraged to venture into unexplored territories • Management accept that certain suggestions may fail when implemented • Our organization emphasises opportunity for success rather than chances for failure • In this organization new venture failure is viewed as a learning experience • We constantly seek new opportunities related to the present operations • We are usually the first to introduce new services in the industry • We are constantly on the look out for business that can be acquired • We constantly seek opportunities to improve our business performance • We are always ahead of our competitors in responding to market challenges

• We constantly benchmark our operating systems to world class standards • Work practices are constantly updated to increase productivity • We constantly use technology to enhance service quality • Our organization invests heavily in developing new operating systems • We continuously train our people in emerging industry technologies • Our organization has introduced many new services to the market (continued on next page)

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Appendix 1 (continued) Construct

Items

Please indicate to what extent your organization undertakes the following practices. Seven-point Likert scale running 1(“not at all”) to 7 (“to a very great extent”). Innovation Product innovation

Administrative innovation

• Our organization has introduced many modifications to the existing services • Our organization constantly seeks find new services • Our organization has introduced more new services than our competitors • The new services we introduced have caused significant changes in the industry • We constantly introduce new ways of managing our business • Our organization invests in updating administrative procedures • Management constantly seeks new ways to improve administrative systems • Our organization empowers employees to take initiatives • Our competitors use our administrative systems as a benchmark

Please indicate the extent to which you agree or disagree with each of the statements. Seven-point Likert scale running 1(“strongly disagree”) to 7 (“strongly agree”). Customer value Reputation for quality

Value for money Prestige

• • • • • • • • • • • •

Our hotel delivers services of the highest quality The quality of our service is consistently high Our customers consider our services very reliable Our hotel is considered a “top quality hotel” Our customers genuinely enjoy staying at this hotel Our staff treat customers with great respect Our hotel rates are considered reasonable Our hotel offers value for money Our reservation system is considered convenient Staying in our hotel is considered prestigious Staying in our hotel is considered a status symbol Staying in our hotel fits customers' social status

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Nasution is an academic staff in the Department of Marketing at Monash University. Her research interests mainly include entrepreneurship, organizational capabilities, customer value, sales management, and tourism/hospitality marketing. Her works have been published in the European Journal of Marketing, and International Journal of Hospitality Management, Monash Business Review and a number of conference proceedings. Felix T. Mavondo is Professor of Marketing in the Monash University. His research and teaching interests include marketing strategy, resource and capabilities, psychometrics, and marketing research. He has published in such journals as Journal of Business Research, Decision Science, European Journal of Marketing, Journal of Advertising, and Journal of Travel Research. Felix is on the editorial board of several marketing journals. Margaret Jekanyika Matanda is in The Department of Marketing at Monash University. Her research interests include marketing strategy, international marketing, entrepreneurship, and business branding and supply chain management. She has published in journals such as Industrial Marketing Management, Journal of Enterprise Information Management, International Business Review and Romanian Marketing Review, Journal of Chain and Network Science and International Journal of Entrepreneurship and Innovation Management. Nelson Oly Ndubisi is Professor of Entrepreneurship at Nottingham University Business School, Malaysia. His research and teaching interests include entrepreneurship and innovation, small business marketing, relationship marketing, b2b, and marketing research. His research has either been published or is forthcoming in such journals as Industrial Marketing Management, Journal of Business Research, Journal of Business & Entrepreneurship, Journal of Business to Business Marketing, Marketing Research, and Journal of Global Information Technology Management. Nelson is the convener of the global conference on SME & Entrepreneurship and sits on the editorial board of several management and marketing journals.