Market Orientation in Markets for Technology - Evidence from Biotechnology Ventures
University of Illinois at Chicago
December 1, 2006
PUBLICATIONS OF THE TURKU SCHOOL OF ECONOMICS SERIES, Esa Print Tampere, 2006
Firms that specialize in the creation of knowledge and new technology are an important part of many technology-intensive industries today. However, there is little guidance in the management literature on how managers should behave in the presence of markets for technology. This research contributes to this research gap through an analysis of market orientation in markets for technology. The two extraordinary features of markets for technology that make market orientation an especially relevant concept for research are (1) the science-driven nature of new product development, and (2) the demand conditions that are characterized by unmet customer needs. Given the increasing importance of markets for technology as well as market-oriented thinking in today's business world, this study is worthwhile and presents a contribution to the marketing literature as well as the technology management literature.
Biotechnology is a representative field of markets for technology, and it is also the context of the empirical study of this research. Even though small and medium-sized enterprises in biotechnology pursue a variety of strategies to commercialize their innovations, a large share of them rely on licensing out their product ideas at a point during the R&D process instead of taking innovations all the way to the end markets themselves. Typical for markets for technology, biotechnology companies often end up in simultaneous collaborative, competitive and market exchange relationships with each other. However, the driving reason behind this development is not necessarily the establishment of a long-term customer relationship but visioning and developing uses for novel technological solutions.
In the marketing domain, researchers have mainly been preoccupied with linking market knowledge and orientation to a firm's performance. Even though the results from these studies are somewhat mixed, the general trend in this line of research proves that being market oriented enhances a firm's performance. In the entrepreneurship literature, researchers have suggested that market information gaps present sources of entrepreneurial opportunities waiting to be discovered. Given the importance of market orientation, the purpose of this research is twofold: (1) to consolidate practitioners' understanding of market orientation with existing academic literature to describe market orientation in markets for technology; and (2) to assess selected performance implications of a firm's market orientation.
The focal concept of the current research, i.e. market orientation, was first defined in the marketing literature as an organization-level culture comprising values and beliefs about putting the customer first in business planning. Since then, market orientation has been studied both as a cultural phenomenon and as a set of behaviors relating to (1) organization-wide market intelligence generation through decision support systems, marketing information systems and marketing research efforts, (2) dissemination of the intelligence across functions in a firm, and (3) organization-wide responsiveness (actions) based on this intelligence. In addition to the marketing literature, this research derives ideas from a research-based view of the firm and network literature in order to describe market orientation in markets for technology.
The guiding principles behind the choice of methods for the empirical study can be described with the term pragmatism; I use mixed methods because I believe it makes the data collection and analysis more accurate and the inferences more useful. During the research process I have gone through phases of both inductive as well as deductive reasoning. This has required data that are comprehensive enough to allow induction, but also rigorous enough to allow for the testing of hypotheses and deduction. The first phase of the empirical data collection only involved qualitative data collection (interviews). In the second phase, both quantitative and qualitative data were collected simultaneously from firms to allow hypothesis testing. Some of the qualitative data was codified into quantitative form for the analysis, and some was analyzed in the original, qualitative form.
The unit of analysis in this research is the firm, and the informants are company CEOs. Preliminary case studies of six biotechnology firms in the Philadelphia area were conducted in 2003. Based on the preliminary case studies and existing literature, I constructed the main research instrument, which combines open-ended questions with a structured questionnaire. With this instrument I collected empirical data via face-to-face CEO interviews in small, young, and research-intensive biotechnology firms in the US, Sweden and Finland in 2003-2004. In each geographical area, biotechnology organizations' member listings have provided the basic directory from which the populations of interest have been identified. The firms included in the study are independent R&D-based biotechnology firms with 250 employees or less, service firms excluded. Personal, one- to two-hour structured interviews were conducted in 85 such companies in Pennsylvania (n=13), Florida (n=19), Bay Area, CA (n=27), Finland (n=19) and Sweden (n=7). The first ten interviews also served as a pilot test for the questionnaire. Face-to-face interviews increase the validity of the data collected. They are also probably the only way to reach the smallest firms, from which scarce secondary data is available. The mean size of these sample firms is 38 employees, and 81 per cent of the firms employ 50 people or less. An average firm was six years old at the time of the interview, and about half of the firms had no sales income.
The results of this research show that the understanding of market orientation in markets for technology cannot be solely based on the marketing literature. Market knowledge is a strategic resource for small, young firms in these markets, and its development should be analyzed in the light of the market orientation literature and a resource-based view of the firm, as well as network theories. Also, depending on the industry context, the contents of market intelligence are likely to vary. Hence the use of uniform scales for the measurement of market orientation across industries is not advisable.
The research results show that, sometimes, market knowledge exchange is "just" a by-product of business relationships that are established for other kinds of purposes. Technology partners (like universities and R&D partners) as well as licensors of technological innovations provide small biotechnology firms with customer and competitor knowledge. In addition, entrepreneurs' personal industry friends are also a source of market intelligence in many firms. Organizations positioned close to end customers in the industry value chain (licensors, marketing partners) are more important sources of market knowledge for the study firms than organizations upstream in the value chain.
Based on the logic of absorptive capacity, there should be a link between a firm's internal market orientation and the amount of market knowledge channeled to the firm from various industry stakeholders (environment). However, such a link was not found in this study. Future research should attempt to operationalize market knowledge from the external environment based on firm-specific ties; depending on the firm, the kinds of organizations that contribute to market knowledge generation vary. A more specific measurement of market intelligence generation from stakeholders could be more directly linked to a firm's internal market orientation. Also, if market knowledge from partners has an impact on organizational outcome variables, the mechanisms of that impact are more complex than the linear ones predicted in the hypotheses.
Market orientation in markets for technology has a strong proactive flavor; companies need to anticipate their future customers' needs and the development of the markets in general. The MARKOR-based market orientation measurement of this study includes proactive items, and, probably because of this, the measurement of market orientation was found to positively correlate with the measurement of entrepreneurial orientation. In the analyses of predictors of a firm's performance, market orientation was analyzed together with entrepreneurial orientation, which measures firm's innovativeness, proactiveness and risk-taking. Technological capability predictors were also contrasted with the effects of market orientation in the analyses.
Overall, a firm's behavioral market orientation has a positive impact on its sales levels (marginally significant), as well as the managers' perceptions of the performance of their firms. Market orientation also has a positive effect on the amount of capital invested in a firm. However, this effect is not as large as that of technological capability (measured as the number of patents and R&D investment). Furthermore, market orientation has no relationship with innovativeness, whereas a firm's technological capability - especially the number of patents - has a positive effect on innovativeness. This is probably due to the nature of innovations in biotechnology; the kinds of product innovations developed by the R&D-based firms are truly disruptive in nature. In this environment, market orientation may contribute positively to commercialization (sales) but not to actual product innovativeness.
Surprisingly, entrepreneurial orientation is not related to innovativeness, capital invested in the firm, or sales. In an environment where all firms are innovative, proactive and prone to risk taking by definition, additional entrepreneurial posture does not bring extra benefits - at least in the short term. Even though entrepreneurial orientation is not related to product innovativeness, it has a positive relationship to the R&D intensity of the firm. Thus it may be an indicator of long-term commitments to innovativeness.
Finally, the US-based firms seem to differ from the Northern European firms in some respects. For example, location is a significant predictor of capital invested as well as managers' assessments of their firm's performance; American managers tend to rate their firm's performance in a more positive light.
The results of the study are reflected in light of the current understanding of the market orientation concept. The results welcome the recent developments in the marketing domain that have tried to incorporate proactive dimensions in the measurement of market orientation; the form of market orientation is, indeed, related to the industry context as well as the strategy choices of a firm. More specifically, the more traditional market orientation conceptualization seems to reflect the peculiarities of Kirznerian opportunity recognition (entrepreneurship), reactive strategies that focus on exploitation of current capabilities, single firm focus and development of incremental innovations. Market orientation in markets for technology also has to account for Schumpeterian market disruptions (entrepreneurship), proactive and explorative strategies and establishing the locus of this orientation within a network of actors, as well as the development of radical, new-to-the-world innovations (new product development). Even though there is a need for these kinds of refinements to the market orientation concept in markets for technology, the good news for the marketing domain from this study is that even in such a science- and technology-driven field as modern biotechnology, firms do exhibit market-oriented behaviors and these behaviors do have certain implications for performance.
Number of Pages in PDF File: 324
Keywords: entrepreneurship, market orientation, markets for technology, biotechnology
JEL Classification: M13, O32working papers series
Date posted: February 20, 2009 ; Last revised: March 28, 2013
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