Inter-relationships between innovation and market orientation in SMEs

<b><i>Purpose –</i></b> This study aims to explore the nature of the interactions between two strategies, innovation and market orientation. By examining the components of these constructs the paper seeks to identify key components of market orientation that are antecedent factors of the innovation performance of the firm. <br /><br /><b><i>Design/methodology/approach – </i></b>Correlation analysis was undertaken on data from a survey of 73 manufacturing firms in the Greater Western Sydney economic development zone in Australia. The data were supplemented by information obtained from the firm's annual reports. <br /><b><i><br />Findings – </i></b>Innovation was found to be positively correlated to market orientation (customer orientation, competitor orientation and inter-functional co-ordination) and both of these constructs were found to be positively correlated to firm performance and the degree of change in the firm's competitive environment. <br /><br /><b><i>Research limitations/implications – </i></b>Possible limitations are: the low survey response rate; the nature of the sampled population; and the spread of industries involved, which could limit the generalisability of the results. The next steps will be to conduct deeper analysis into the factors that make up the subscales of the two constructs and to determine how market orientation or its associated activities interact with the innovation process. <br /><b><br />Practical implications – </b>In order to maximize a firm's financial performance, organizations should increase both their market orientation and their innovation activities as these factors operate synergistically. <br /><br /><b><i>Originality/value – </i></b>This study is arguably the first to establish the finding that the degree of change in the competitive environment and the level of market orientation are linked, and the identification of the components of market orientation that are linked to firm innovation. These findings suggest that firm innovation and firm market orientation are strategic reactions to changes in the firm's competitive environment.