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Example 03-1- Tsai, Yang, Firm Innovativeness and Performance

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Industrial Marketing Management 42 (2013) 1279–1294 Contents lists available at ScienceDirect Industrial Marketing Management Firm innovativeness and business performance: The joint moderating effects of market turbulence and competition Kuen-Hung Tsai a,⁎, Shu-Yi Yang a,b,1 a National Taipei University, Department of Business Administration, No. 151, University Rd., San Shia, New Taipei City 23741, Taiwan b Ming Chi University of Technology, Department of Business and Management, No. 84, Gungjuan Rd., Taishan Dist., New Taipei City 24301, Taiwan article info abstract Article history: To clarify the nature of the effect of ﬁrm innovativeness on business performance, this study draws on Received 13 December 2011 contingency theory and an interactional perspective to develop a conceptual framework to investigate how Received in revised form 6 February 2013 the interaction between market turbulence and competitive intensity moderates the relationship between Accepted 10 May 2013 ﬁrm innovativeness and business performance. This study used survey data from a sample of 154 high-tech Available online 20 June 2013 manufacturing ﬁrms in Taiwan and employed hierarchical moderated regression analysis to test the hypotheses developed. The results reveal that the effect of ﬁrm innovativeness on business performance varies across the Keywords: different conﬁgurations of market turbulence and competitive intensity. Speciﬁcally, the performance effect Firm innovativeness of ﬁrm innovativeness is most positive under high market turbulence and high competitive intensity; the Market turbulence performance effect is least positive under low market turbulence and low competitive intensity. However, Market competition the performance beneﬁts of ﬁrm innovativeness fail to materialize under low market turbulence and high Competitive intensity competitive intensity. Overall, these ﬁndings highlight that market turbulence and competition jointly inﬂuence Conﬁgurational approach the direction and strength of the performance effect of ﬁrm innovativeness. This study advances ﬁrm innova- tiveness research by identifying the conﬁgurational market conditions that augment or limit the value of ﬁrm innovativeness. © 2013 Elsevier Inc. All rights reserved. 1. Introduction Lyon, 2000; Terziovski, 2010). The absence of evidence reinforces the need for additional research into factors that may underline the incon- Research on ﬁrm innovativeness has steadily expanded since Hurley sistent ﬁndings. In other words, it is essential to determine whether the and Hult (1998) recognized this construct as one of the key antecedents relationship between ﬁrm innovativeness (FI) and business perfor- of competitive advantage and performance. Firm innovativeness refers mance (BP) depends on particular contingencies. to a ﬁrm's “openness to new ideas as an aspect of a ﬁrm's culture” (Hurley & Hult, 1998, p. 44). Firm innovativeness reﬂects a ﬁrm's Because ﬁrms operate within external environments that often willingness to adopt new ideas (Menguc & Auh, 2006; Woodside, inﬂuence their opportunities for and constraints on innovation (Tidd, 2005) that facilitate the development and launch of new products 2001) and because “successful innovations require a proactive focus (Calantone, Garcia, & Droge, 2003; Hurley & Hult, 1998). A ﬁrm's inno- on the external environment” (Droge, Calantone, & Harmancioglu, vativeness is also reﬂected in the ﬁrm's cultural values and beliefs, 2008, p. 275), environmental context may inﬂuence the effects of inno- which encourage its employees to act in innovative ways (Hult & vation on performance (Jansen, Van Den Bosch, & Volberda, 2006). Ketchen, 2001). According to the resource-based view (RBV) of the Furthermore, the seminal work of the RBV pioneer Penrose (1959) ﬁrm (Barney, 1991), ﬁrm innovativeness is a socially complex and offers several contingency arguments. According to Penrose (1959, imperfectly imitable resource that generates competitive advantage 2009), a ﬁrm uses its unique productive resources to pursue growth and better performance (Barney, 1986; Menguc & Auh, 2006). The based on potential growth opportunities in the external environment traditional view asserts that ﬁrm innovativeness enhances business that are perceived by the ﬁrm's management. Penrose (1959) also performance; however, the empirical research has not yet reached a argues that for any particular ﬁrm with specialized resources, environ- consensus on this assertion. Some studies have failed to ﬁnd a signiﬁ- mental changes “may change the signiﬁcance of resources to the ﬁrm” cant relationship between these two variables (e.g., Chandler, Keller, & (p. 79). In addition, more recent RBV perspectives increasingly empha- size the inﬂuence of the external environment on the value of a ﬁrm's ⁎ Corresponding author. Tel.: +886 2 2674 8189x66568; fax: +886 2 8671 5912. resources. The traditional RBV holds “only as long as the rules of the E-mail addresses: atmas@mail.ntpu.edu.tw (K.-H. Tsai), syyang@mail.mcut.edu.tw game in an industry remain relatively ﬁxed” (Barney, 2011). However, the industrial environment in the real world is not always stable or (S.-Y. Yang). uncompetitive. Because the value of ﬁrm resources can drastically 1 Tel.: +886 2 2908 9899x3176. change in unstable and unpredictable environments (Barney, 2011), 0019-8501/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.indmarman.2013.06.001

1280 K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 researchers must move beyond the traditional RBV to explain how of the RBV, the behaviors of both customers and competitors in a ﬁrm's ﬁrms can maintain a sustained competitive advantage (Kraaijenbrink, product market are closely related to the competitive advantage and Spender, & Groen, 2010; Miller & Shamsie, 1996). Because a ﬁrm's value creation that are generated by the ﬁrm's idiosyncratic resources unique resources determine its behavior, which is conditioned by the (Peteraf & Barney, 2003; Sirmon et al., 2007). As Sirmon et al. (2007) environmental context (Barney, Ketchen, & Wright, 2011), the value suggest, “value creation occurs when a ﬁrm exceeds its competitors' and management of the ﬁrm's resources must be evaluated in the en- ability to provide solutions to customers' needs, while maintaining or vironmental context within which the ﬁrm operates (Barney, Wright, improving its proﬁt margins” (pp. 273–274). That is, market competi- & Ketchen, 2001; Barney et al., 2011; Sirmon, Hitt, & Ireland, 2007). If tion and changes may have an important impact on the value of certain a ﬁrm has the idiosyncratic resources to gain a competitive advantage resources (Teng & Cummings, 2002). Moreover, from a strategic analy- in a relatively stable market but the market suddenly changes, then sis perspective, customers and competitors in an industry environment these resources are not likely to remain valuable and thus may no lon- can directly and vitally affect a ﬁrm's strategic choices in seeking com- ger be a source of competitive advantage (Barney et al., 2001). In such a petitive advantages (Grant, 2010); thus, these two key market players situation, the ﬁrm must modify or alter its resources in response to the (Zhou & Li, 2010) are likely to inﬂuence the effects of the ﬁrm's strate- market changes to retain its advantage (Barney, 2011; Barney et al., gic choices on performance. This strategic perspective appears to pre- 2001). Taken together, these perspectives on the RBV suggest that dict that market turbulence and competitive intensity may alter the the value of resources, such as ﬁrm innovativeness, may be affected effects of a ﬁrm's innovativeness on its business performance. In addi- by certain environmental conditions. tion, several scholars argue that customers and competitors are able to obtain a portion of the value that is created by a ﬁrm's innovation Thus, contingency and interactional perspectives may clarify the (Grant, 2010; Mizik & Jacobson, 2003). According to Grant (2010), nature of the ﬁrm innovativeness (FI)–business performance (BP) “the proﬁtability of an innovation to the innovator depends on the relationship by providing new insights into this relationship. Environ- value created by the innovation and the share of the value that the in- mental contingency theory suggests that to succeed, an organization novator is able to appropriate (p. 299).” The value that is created by an must have characteristics or engage in activities that are based on innovation is not appropriated exclusively by the innovating ﬁrm. In- the environmental conditions that it encounters (Hatch & Cunliffe, stead, that value is distributed among major players in the market, in- 2006, chap. 3). Similarly, Johns (2006) argues that scholars should cluding the innovating ﬁrm, customers, and other ﬁrms, such as pay more attention to the potential inﬂuence of context (e.g., the competitors (Grant, 2010; Mizik & Jacobson, 2003). Because customers external environment) on organizational phenomena because con- and competitors may capture some of the value of an innovation that is text generates “situational opportunities and constraints that affect introduced by the innovating ﬁrm, market turbulence and competition the occurrence and meaning of organizational behavior as well as most likely affect the performance beneﬁts of ﬁrm innovativeness. the functional relationships between variables” (p. 386). Additionally, Based on these theoretical perspectives, market turbulence and com- the interactional perspective suggests that the interaction between petitive intensity may be the market contingencies that most dramati- dispositions and situations, rather than merely dispositions or situa- cally inﬂuence the extent to which ﬁrm innovativeness improves tions, most successfully explains behavior in organizations (Pfeffer, business performance. 1997). This perspective implies that researchers should consider situ- ational factors in attempting to explain the effects of organizational Market turbulence refers to the rate of change in customer prefer- characteristics on organizational outcomes. Drawing on contingency ences in an industry (Jaworski & Kohli, 1993; Olson, Slater, & Hult, theory2 and the interactional perspective, this study proposes that ex- 2005). With very few exceptions (e.g., Hult, Hurley, & Knight, 2004), ternal environments may moderate the strength of the FI–BP rela- the majority of studies on ﬁrm innovativeness have not investigated tionship. This issue is important but remains mostly ignored in the the moderating role of market turbulence in the FI–BP relationship. previous research on ﬁrm innovativeness. To address this issue and Hult et al. (2004) report that ﬁrm innovativeness universally beneﬁts to respond to the recent call for more research on how strategic re- business performance regardless of the degree of market turbulence. sources interact with the external environment to affect ﬁrm perfor- However, this result appears to be inconclusive because this issue has mance (Crook, Ketchen, Combs, & Todd, 2008), this study employs seldom been examined in other research contexts. Thus, the potential several theoretical perspectives to assess the salient characteristics moderating inﬂuence of market turbulence on this relationship war- of the market environment as the most relevant contingencies in rants additional investigation across different settings. Competitive this research context. intensity refers to the degree of competition in an industry (Cui, Grifﬁth, & Cavusgil, 2005; Jaworski & Kohli, 1993; Li, Poppo, & Zhou, From the perspective of the RBV pioneer Penrose (1959) and the 2008). It is surprising that few studies have explored whether analysis of strategy that was proposed by Grant (2010), market turbu- competitive intensity affects the FI–BP relationship considering the lence and competitive intensity are the two most essential environ- critical inﬂuence of competitive intensity on ﬁrm characteristics mental factors in a market. According to Penrose (1959), market (O'Cass & Weerawardena, 2010), ﬁrm survival (Barnett, 1997), and conditions are “determined by the actions of competitors and by the value creation through ﬁrm capabilities (Chatain, 2010). Additionally, tastes, or at least the psychology, of consumers (1959, p. 217).” Thus, because competitive rivalry may require ﬁrms to either invest in in- Penrose's perspective on market conditions implies that competitive novation (Teng & Cummings, 2002) or conserve resources to succeed intensity and market turbulence are important market factors. Addi- (Zahra, 1993), it is necessary and beneﬁcial to understand whether tionally, the subsequent RBV literature suggests that to gain a sustained and how competitive intensity inﬂuences the impact of ﬁrm innova- competitive advantage, a ﬁrm should leverage its heterogeneous re- tiveness. In particular, given the increasing intensity of competition sources to better satisfy customer needs (Peteraf, 1993; Peteraf & in today's business environment, the lack of research regarding the Barney, 2003) and limit potential competition, such as imitative com- potential inﬂuence of competitive intensity constitutes a signiﬁcant petition (Foss & Knudsen, 2003; Peteraf, 1993). According to the logic research gap. 2 Despite the differences between the focuses of these two theories, the RBV and Furthermore, it may be inappropriate to isolate the moderating contingency theory often provide compatible and complementary explanations for roles of market turbulence and competitive intensity in assessing ﬁrms' competitive advantage and performance. Both theories seek to explain why a the performance effect of ﬁrm innovativeness. Because market ﬁrm should exploit its unique resources to develop and implement strategic choices turbulence and competitive intensity often coexist in an industry that help a ﬁrm to gain advantageous and lucrative positions in its environment. Sev- and may act together (Jaworski & Kohli, 1993), it seems necessary eral more recent conceptual (e.g., Sirmon et al., 2007) and empirical (e.g., Aragon- to simultaneously consider these moderating inﬂuences. Additionally, Correa & Sharma, 2003; Atuahene-Gima et al., 2006; Miller & Shamsie, 1996) studies Luo and Park (2001) suggest that environmental dynamism and have integrated the RBV with contingency theory to deepen theory and practice.

K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 1281 hostility may interactively affect a ﬁrm's strategic decisions. Similarly, This study contributes to the ﬁrm innovativeness literature by market turbulence and competitive intensity may have interactive ef- identifying the conﬁgurational market conditions that affect the rela- fects on ﬁrm innovativeness and may thus jointly moderate the FI–BP tionship between ﬁrm innovativeness and business performance. The relationship. Moreover, Lumpkin and Dess (2001) suggest that the ﬁndings of this study underscore that the performance effect of ﬁrm moderating effect of environmental hostility on the relationship be- innovativeness is not necessarily positive and varies according to tween entrepreneurial orientation and performance may be related the combined inﬂuence of market turbulence and competitive inten- to the inﬂuence of other contingencies. Similarly, the inﬂuence of sity. Accordingly, this study offers rich and useful implications for competitive intensity may be affected by other factors such as market scholars and practitioners. turbulence because ﬁrms must compete for customers. Thus, investi- gating the combined moderating inﬂuence of market turbulence and 2. Theoretical background and research hypotheses competitive intensity may deepen our knowledge of when ﬁrm inno- vativeness impacts business performance and may provide helpful Drawing on the theoretical integration of the RBV with contingen- insights to managers. No other study has examined how these two cy theory, this study proposes that the effect of ﬁrm innovativeness essential market factors jointly affect the FI–BP relationship. on business performance may depend on market conditions. Fig. 1 depicts the research framework, which highlights the moderating To ﬁll these research gaps and obtain new insights into the perfor- roles of market turbulence, competitive intensity, and the combina- mance implications of ﬁrm innovativeness, this study addresses the tion of these two market factors in the relationship between ﬁrm crucial question of how market turbulence and competitive intensity innovativeness and business performance. Fig. 1 also outlines the separately and/or jointly moderate the FI–BP relationship. The pur- hypotheses that are developed in this study. pose of this study is to investigate whether and how the performance effects of ﬁrm innovativeness depend on market turbulence, compet- 2.1. Firm innovativeness and business performance itive intensity, and/or the combination of the two market factors. Firm innovativeness is an important cultural antecedent of ﬁrm- There are four primary reasons why Taiwan is an appropriate em- level innovation. Following Hurley and Hult (1998) and more recent pirical setting for this study and a critical setting in which to extend research (e.g., Augusto & Coelho, 2009; Hult & Ketchen, 2001; Hult ﬁrm innovativeness research. First, Taiwan is ranked 13th in terms et al., 2004; Menguc & Auh, 2006; Tajeddini, Trueman, & Larsen, of global competitiveness, according to recent global reports.3 Second, 2006), this study deﬁnes ﬁrm innovativeness as a ﬁrm's openness to Taiwan has been ranked 8th in terms of goods market efﬁciency and new ideas and innovation, which is an aspect of a ﬁrm's culture 13th in terms of business sophistication by the World Economic (Augusto & Coelho, 2009; Hurley & Hult, 1998). According to this def- Forum (2012).4 Third, Taiwan has placed signiﬁcant emphasis on in- inition, ﬁrm innovativeness can be regarded as a ﬁrm's innovative novation development and ranks 6th in the world in the 2009–2013 culture, which encourages the ﬁrm's employees to develop new Innovation Index by the Economist Intelligence Unit (2009). Fourth, ideas and to identify and resolve problems in new ways (Chatman & little research on ﬁrm innovativeness has focused on newly industri- Cha, 2003). Although some researchers conceptualize ﬁrm innova- alized Asian economies such as Taiwan, where market characteristics tiveness in terms of a ﬁrm's innovation outcomes (e.g., Han, Kim, & may differ from those in the U.S. or other developed economies. Thus, Srivastava, 1998; Kirca, Jayachandran, & Bearden, 2005), this study Taiwan represents an appealing and critical setting in which to exam- suggests that innovativeness and innovation are conceptually distinct ine the applicability of previous ﬁndings regarding ﬁrm innovative- (Menguc & Auh, 2006; Tajeddini et al., 2006) because “a highly inno- ness and to engage in studies that expand on the prior relevant vative product does not automatically imply highly innovative ﬁrms” research. Within this setting, we concentrate on the high-tech sector (Garcia & Calantone, 2002, p. 117). A ﬁrm's innovativeness is an because this sector is well suited for this study. The high-tech sector important means of innovation (Menguc & Auh, 2006) because an in Taiwan is one of the most important supply centers for high-tech innovative ﬁrm encourages its employees to experiment with new products in the world; thus, this sector plays a pivotal role in the ideas and actions (Hult et al., 2004; Menguc & Auh, 2006) and to in- global economy (Chou & Yang, 2011; Einhorn et al., 2005). Further- vent new and improved products (Luk et al., 2008). Innovative ﬁrms more, given that innovation is more important in high-tech industries are capable of tapping markets for labor and capital to bring potential (Kim & Huarng, 2011; Mizik & Jacobson, 2003), exploring whether innovations to fruition (Tellis, Prabhu, & Chandy, 2009). In other and when ﬁrm innovativeness improves performance in the high- words, ﬁrm innovativeness stimulates innovative behaviors that tech sector promises to yield meaningful new insights. Additionally, may yield new products, services, or processes (Dibrell, Craig, & because this study scrutinizes the potential moderating effects of Hansen, 2011; Hurley & Hult, 1998). In particular, ﬁrm innovativeness market turbulence and competitive intensity, which are common facilitates new product development (NPD) speed and thus improves market characteristics of high-tech environments (Mohr, Sengupta, NPD program performance (Calantone et al., 2003) and new product & Slater, 2010), the high-tech sector provides a rich context in success (Droge et al., 2008), which contribute to ﬁrm performance. which to examine whether and how these two market factors inﬂu- ence the effects of ﬁrm innovativeness. In addition, because that in- Market Competitive dustry type is a factor that may contribute to variance in ﬁrm Turbulence Intensity performance, focusing exclusively on the high-tech sector can effec- tively minimize the industry effects that could otherwise confound H2 H3 the ﬁndings of our study (Kerlinger & Lee, 2000; Lu & Yang, 2004). This focus allows our study to better investigate whether and how Firm H4 market turbulence and competitive intensity interact to affect the Innovativeness Business FI–BP relationship. Performance 3 Taiwan is ranked 13th on the Global Competitiveness Index (GCI) 2012–2013 by H1 the World Economic Forum (WEF) (2012) and 7th in the World Competitiveness Score 2012 index by the International Institute for Management Development (IMD) (2012). Fig. 1. Conceptual framework of the moderation of market turbulence and competitive Taiwan is also one of the four Asian Tigers (Singapore, Hong Kong, Taiwan, and South intensity on link between ﬁrm innovativeness and business performance. Korea) according to the WEF (2012). 4 These two indicators, goods market efﬁciency and business sophistication, are in- cluded in the GCI by the World Economic Forum (2012).

1282 K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 From the resource-based view of the ﬁrm (Barney, 1991), innova- their products and services and to adjust their operations (Cui et al., tiveness is a strategic resource that can help a ﬁrm to create compet- 2005). Innovative ﬁrms are likely to develop innovative strategies to itive advantage and ensure better performance (Barney, 1986; Hurley exploit rapidly changing customer demands (Atuahene-Gima et al., & Hult, 1998; Menguc & Auh, 2006). The members of an innovative 2006) and to capture new product-market niches (Lumpkin & Dess, ﬁrm are willing to question conventional wisdom and long-held prac- 2001). Under the conditions of high market turbulence, a ﬁrm's tices, and they are receptive to emerging possibilities (Neill, McKee, & innovativeness is particularly important to satisfy the evolving Rose, 2007). Innovative ﬁrms not only exploit their current strengths needs of customers (Santos-Vijande & Alvarez-Gonzalez, 2007). Sec- but also explore new opportunities (Dibrell et al., 2011; Menguc & ond, from the perspective of sensemaking as a strategic capability, a Auh, 2006). Such ﬁrms encourage risk-taking behavior (Augusto & ﬁrm with a strong, open-minded culture will have the sensemaking Coelho, 2009), and their employees often search for novel approaches capability to develop creative and timely strategic responses to to introducing new products, services and processes (Hult et al., 2004; market changes (Neill et al., 2007). Because innovative ﬁrms are Matsuo, 2006) that will attract additional customers (Theoharakis & open-minded (Augusto & Coelho, 2009), they are more likely to de- Hooley, 2008). Furthermore, managers at innovative ﬁrms tend to velop open communication channels across departments (Calantone devise new, effective solutions to business problems. Such solutions et al., 2003), which helps them to synthesize and utilize new knowl- “provide the basis for the survival and success of the ﬁrm well into the edge to devise novel solutions to customer demands and problems future” (Hult et al., 2004, p. 429). (Hughes & Morgan, 2007). Third, from the dynamic capabilities per- spective (Teece, 2007), innovativeness enables ﬁrms to combine In sum, a ﬁrm's innovativeness helps the ﬁrm to develop innovations and reconﬁgure their intangible and tangible assets in new ways and novel approaches to problem solving in order to enhance the ﬁrm's and thereby build the dynamic capabilities that they can use to neu- competitiveness and performance. Firms with high innovativeness may tralize threats and exploit opportunities in turbulent markets. Thus, achieve better performance than ﬁrms with low innovativeness. There- as Rhee, Park, and Lee (2010) suggest, a ﬁrm's innovativeness is likely fore, this study presents the following hypothesis: to be the strategic means by which the ﬁrm effectively addresses changes in the markets it serves. When faced with a high degree of H1. Firm innovativeness has a positive relationship with business market turbulence, ﬁrms require greater innovativeness to engage performance. in innovative activities and perform well (Hult et al., 2004). 2.2. The moderating effect of market turbulence In sum, ﬁrms with high innovativeness can take better advantage of rapidly changing customer needs, devise new solutions to custom- Market turbulence reﬂects the degree of change in customer pref- er problems, and reconﬁgure their assets to address market changes erences for products in an industry (Jaworski & Kohli, 1993; Olson et successfully. Based on this logic, when market turbulence is high al., 2005), and it is a key source of environmental turbulence. Envi- rather than low, ﬁrm innovativeness may produce greater perfor- ronmental turbulence refers to the rates of change in the market mance. Therefore, this study hypothesizes the following: and/or technology within an industry5 (Jaworski & Kohli, 1993; Kim & Atuahene-Gima, 2010). This study differentiates between market- H2. Market turbulence positively moderates the relationship and technology-derived turbulence because different sources of between ﬁrm innovativeness and business performance. turbulence may pose different opportunities and threats for ﬁrms (Atuahene-Gima, Li, & De Luca, 2006; Danneels & Sethi, 2011) and 2.3. The moderating effect of competitive intensity because a broad conceptualization of environmental turbulence may mask important insights regarding managerial practices (Buganza, Competitive intensity reﬂects the degree of interﬁrm competition in Dell'Era, & Verganti, 2009). Because ﬁrms must create value for an industry (Cui et al., 2005; Jaworski & Kohli, 1993; Li et al., 2008). Like customers to make a proﬁt, the ﬁrms must ﬁrst gain a clear under- many other studies in the marketing and innovation literature (e.g., Cui standing of their customers by monitoring and analyzing the industry et al., 2005; Jaworski & Kohli, 1993; Kim & Atuahene-Gima, 2010; environment (Grant, 2010). Moreover, this study focuses on Molina-Castillo, Jimenez-Jimenez, & Munuera-Aleman, 2011), this high-tech industries in which ﬁrms tend to engage in technological study focuses on competition in the product market in an industry. developments regardless of the level of technological turbulence. Ad- Competitive intensity in an industry arises from resource constraints ditionally, high-tech ﬁrms need to closely understand their customers (Lusch & Laczniak, 1989), the existence of many competitors, and the in order to successfully commercialize their new products (Mohr et lack of opportunities for future growth (Auh & Menguc, 2005). al., 2010). Compared to technological turbulence, market turbulence Increased competitive intensity features greater rivalry among incum- may be more relevant to the strategic choices of high-tech ﬁrms. bents (Li et al., 2008), the existence of stronger competitors (Ang, Thus, this study focuses on the potential inﬂuence of market turbu- 2008), and competitor activities (Cui et al., 2005) such as imitation lence. A turbulent market features customers who constantly search (Chen, Lin, & Michel, 2010), price competition, promotion competition for new products and services, rapidly changing customer prefer- (Auh & Menguc, 2005; Cui et al., 2005), more advertising and product ences (Jaworski & Kohli, 1993), and wide-ranging customer needs offerings, and added services (Li et al., 2008). and wants (Hult et al., 2004; Santos-Vijande & Alvarez-Gonzalez, 2007). Drawing on three points of logical reasoning, we argue that com- petitive intensity may also moderate the performance effect of ﬁrm According to three theoretical perspectives, market turbulence innovativeness. First, differentiation can mitigate the threat of com- may moderate the effect of ﬁrm innovativeness on performance. petition (Lusch & Laczniak, 1989; Zahra, 1993). Highly innovative First, the law of requisite variety suggests that under changing condi- ﬁrms are likely to build differentiation advantages and to develop tions, successful ﬁrms will change to adequately respond to environ- solutions that undermine competitors' actions (Hughes & Morgan, mental changes (Hatch & Cunliffe, 2006, chap. 3). Changing customer 2007). Firms with high innovativeness are able to remain one step demands require that ﬁrms rely on creativity to continuously modify ahead of competitive imitation by continuously introducing unique products and services. Accordingly, such innovative ﬁrms are more 5 Different conceptualizations of environmental turbulence exist in the literature on capable of winning price or promotion wars (Auh & Menguc, 2005) new product development, marketing, and strategy. This study follows some studies while raising barriers to entry (Porter, 2008). Second, necessity will (e.g., Jaworski & Kohli, 1993; Kim & Atuahene-Gima, 2010) in conceptualizing environ- increase the likelihood of successful innovation attempts (Janssen, mental turbulence as the rate of changes in an industry environment, whereas other Van De Vliert, & West, 2004). When facing intense external competi- studies also consider the unpredictability of changes to be an element of environmen- tion, highly innovative ﬁrms are more willing to clarify their tal turbulence (e.g. Calantone et al., 2003; Danneels & Sethi, 2011).

K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 1283 objectives and resolve their internal conﬂicts to innovate successfully opportunities, constraints, and challenges in a market. At one extreme, in order to cope with heightened competition (Janssen et al., 2004). under the conﬁguration of high MT and high CI, ﬁrm innovativeness Third, from the perspective of information processing (Smith, should be the most beneﬁcial to business performance. If customer Grimm, Gannon, & Chen, 1991), highly innovative ﬁrms that are preferences change rapidly and competitors are quick to begin price open to new external information are in a superior position because wars or employ other competitive tactics, highly innovative ﬁrms are they can rapidly acquire and interpret a broad spectrum of competi- most likely to realize the maximum value of their innovation activities tor information and use the information to develop creative re- because they can better capitalize on changes in customer preferences sponses to problems that allow them to defeat their rivals. Intense and can offer products or services that are more differentiated than competition reinforces the need to collect and analyze competitor those of rival ﬁrms. actions during the innovation process. Thus, the challenges for ﬁrms that operate in highly competitive markets may require these ﬁrms At the opposite extreme, under the conﬁguration of low MT and to draw upon their innovativeness to outperform their rivals and low CI, the contribution of ﬁrm innovativeness to business perfor- occupy a unique market position. Heightened competition in markets mance becomes most attenuated. When customer preferences often places a premium on innovation (Sirmon et al., 2007). change little and competitor attacks seldom occur, innovative ﬁrms may improve performance but only to a lesser extent. It may be less In sum, ﬁrms with high innovativeness can better translate compet- cost effective for a ﬁrm to engage in innovation activities if market itive threats into beneﬁcial opportunities through product differentia- changes and competitive threats decrease to or remain at a minimum tion, a greater determination to innovate successfully, and creative level. Situated between these two extremes, the remaining two con- responses to competitor actions, all of which may allow these ﬁrms to ﬁgurations (i.e., high MT with low CI and low MT with high CI) may perform better in highly competitive markets than in minimally have an intermediate inﬂuence on the magnitude of the FI–BP rela- competitive markets. Therefore, this study predicts the following: tionship because to date, little research has indicated which of these two factors has a greater impact on the effectiveness of organizational H3. Competitive intensity positively moderates the relationship characteristics. However, MT may be a more inﬂuential moderator of between ﬁrm innovativeness and business performance. the impact of ﬁrm innovativeness because responding to market changes requires variance-increasing activities within the ﬁrm 2.4. The joint moderating effects of market turbulence and competitive (Benner & Tushman, 2003), whereas competition may not always jus- intensity tify innovation (Miller & Friesen, 1983; Zahra, 1993). This conjecture is also based on Henard and Szymanski's (2001) ﬁnding that meeting In addition to their independent moderating inﬂuences, market customer needs predicts new product performance better than com- turbulence and competitive intensity may jointly moderate the per- petitive responsive intensity does. Thus, this study speculates that formance effect of ﬁrm innovativeness. Because market turbulence ﬁrm innovativeness may enhance performance to a lesser extent and competitive intensity often coexist in an industry (Cui et al., under the conﬁguration of low MT and high CI than under the conﬁg- 2005; Zhou & Li, 2010) and may act concurrently (Jaworski & Kohli, uration of high MT and low CI. 1993), these two factors are likely to have interaction effects. Addi- tionally, environmental dynamism and hostility may interactively af- In sum, because of their coexistence, potential interactions, and fect a ﬁrm's strategic decisions and performance (Luo & Park, 2001) similar moderating effects, market turbulence and competitive intensi- and may thus jointly affect the effectiveness of the ﬁrm's strategic ty may jointly enhance the FI–BP relationship. That is, the greater the decisions. Similarly, market turbulence and competitive intensity market turbulence and competitive intensity together, the much stron- may interactively inﬂuence the effect of ﬁrm innovativeness on per- ger the FI–BP relationship will be. Firm innovativeness is likely to have formance; in other words, the moderating impact of each of these the strongest relationship with business performance under the two factors is likely to depend on the level of the other. In addition, combined conditions of high market turbulence and high competitive market turbulence and competitive intensity both require ﬁrms to intensity. Therefore, this study hypothesizes the following: draw upon their innovativeness to achieve better performance, as argued by Hypotheses 2 and 3. Accordingly, this study conjectures H4. Market turbulence and competitive intensity have a positive joint that market turbulence and competitive intensity together may moderating effect on the relationship between ﬁrm innovativeness and have a synergistic moderating effect on the degree to which ﬁrm business performance. innovativeness contributes to business performance. 3. Research methods More importantly, isolating the effects of each contingent factor may downplay complex forms of interaction (Meyer, Tsui, & Hinings, 1993) 3.1. Sample and data collection and may thus oversimplify the actual conditions under which ﬁrm innovativeness affects business performance. In contrast, when consid- The target sample for this study consisted of 821 Taiwanese ered together, market turbulence and competitive intensity may “yield medium-sized and large high-tech manufacturing ﬁrms6 (with 50 or a more interpretable and theoretically interesting pattern than any of more full-time employees), all of which were listed in the business the factors would show in isolation” (Rousseau & Fried, 2001, p. 4). Ac- directory of the top (in sales) 5000 ﬁrms that was published by the cordingly, drawing on the insights of the prior conﬁguration research China Credit Information Service (CCIS) in 2009. As stated in the (Dess, Newport, & Rasheed, 1993; Meyer et al., 1993), this study pro- Introduction, Taiwan's high-tech industry plays a signiﬁcant role in poses a conﬁguration approach that examines multivariate combina- the global economy and strongly emphasizes the development of tions (i.e., interactions of multiple variables) (e.g., Dess, Lumpkin, & innovation. Taiwan's high-tech industry has the top global market Covin, 1997; Wiklund & Shepherd, 2005) to determine how market tur- share for many products, including LCD screens, notebook computers, bulence (MT) and competitive intensity (CI) simultaneously inﬂuence and cable modems (Einhorn et al., 2005), because ﬁrms in this industry the FI–BP relationship. The conﬁguration approach here suggests that constantly engage in technologically sophisticated product and process the combination of MT and CI will form a set of conﬁgurations according developments. Furthermore, the majority of Taiwanese high-tech ﬁrms to the levels of the two factors and that these different conﬁgurations may have different effects on the FI–BP relationship. More speciﬁcally, 6 The high-tech industry in this study includes computers and peripherals, semicon- the strength of this relationship may vary across four different conﬁgu- ductors, optoelectronics, telecommunications, precision machinery, optics apparatus, rations (i.e., high and low levels of MT together with high and low levels and medical apparatus and equipment, all of which are included in CCIS's two-digit of CI) because these different conﬁgurations may generate different Standard Industrial Classiﬁcation (SIC) under codes 12, 13, or 16.

1284 K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 operate original equipment manufacturing (OEM) and/or original de- of four items that were adapted from prior ﬁrm-level studies (Hult et sign manufacturing (ODM) businesses; these ﬁrms manufacture and/ al., 2004; Tang et al., 2008; Zahra & Gravis, 2000): (1) return on assets; or design products for large global companies such as Apple, Dell, HP, (2) sales growth rate; (3) market share growth; and (4) overall ﬁrm and Sony (Chou & Yang, 2011; Einhorn et al., 2005). These Taiwanese performance. The respondents were asked to evaluate their ﬁrms' per- ﬁrms do not have their own product brands, and to survive and grow, formance compared to those of their principal competitors over the they must vie for global orders placed by business customers. Because past three years with regard to the four performance items. This of its key role in the global economy, emphasis on innovation, and busi- study used the self-reported performance data because we could not ness distinctiveness, Taiwan's high-tech sector serves as a suitable and access the objective performance data of the privately held ﬁrms and critical setting in which to examine whether and when ﬁrm innovative- because of the positive correlation between perceived performance ness is relevant to business performance. measures and objective performance measures (Lau & Ngo, 2001; Menguc & Auh, 2006). Firm innovativeness: This study measured ﬁrm This study used a survey questionnaire as the data collection innovativeness as a ﬁrm's overall enduring openness to new ideas instrument. The target informants included general managers, other and innovation. The scale for ﬁrm innovativeness consisted of ﬁve top-to-middle managers, and senior high-level assistants. This study items that were adapted from Hurley and Hult's (1998) study and directly mailed the questionnaires to the general manager of each tar- more recent empirical studies (Augusto & Coelho, 2009; Hult, get ﬁrm in mid-November of 2009. The cover letter that accompanied Snow, & Kandemir, 2003; Hult et al., 2004; Santos-Vijande & the questionnaire described the research objectives and asked the Alvarez-Gonzalez, 2007). Market turbulence: Focusing on customer general manager to answer the questions or to assign a qualiﬁed preferences, this study measured market turbulence as the rate of top-to-middle manager or senior high-level assistant to answer the change in customer preferences for products and services. Our scale questions on his or her behalf. Furthermore, the cover letter assured for market turbulence consisted of two items that were taken from the respondents that their responses would remain anonymous and Jaworski and Kohli (1993), and it is identical to that used by Olson et be kept strictly conﬁdential. In the ﬁrst wave of the mailings, two al. (2005). Competitive intensity: This study measured competitive undelivered questionnaires were returned due to incorrect addresses. intensity as the degree of competition in an industry. The scale for After three weeks, a follow-up letter was mailed with the ques- competitive intensity consisted of four items taken from Jaworski and tionnaire to the ﬁrms that had not yet responded. The survey Kohli (1993). data were collected from mid-November of 2009 to mid-January of 2010. When testing the hypothesized relationships, this study controlled for any possible confounding effects by including ﬁrm size, ﬁrm age, This study obtained 164 responses. After deleting 3 responses with and industry type. Firm size may affect a ﬁrm's innovative activities incomplete performance data and 7 responses that were not completed and performance because larger ﬁrms usually have more diversiﬁed by the target informants, this study used 154 valid responses for analy- resources and capabilities (Camison-Zornoza, Lapiedra-Alcami, Segarra- sis. The valid response rate of 18.76% (154/821) was comparable to Cipres, & Boronat-Navarro, 2004). Following prior studies (e.g., Tang et those of other survey-based, ﬁrm-level studies (e.g., Hult et al., 2004; al., 2008; Tsai, Chou, & Kuo, 2008), this study measured ﬁrm size by Tang, Tang, Marino, Zhang, & Li, 2008). The primary industries in the number of full-time employees on a six-point scale ranging from which the responding ﬁrms operate were the following: information “1 = 49 employees or fewer” (this score was for ﬁltering purpose) and communications (ICT) industry (i.e., computers and peripherals, to “6 = 2001 employees or more”. Firm age may affect innovative semiconductors, optoelectronics, and telecommunications, which are in behaviors because older ﬁrms cannot easily change their routines the category of CCIS's SIC code 12) (75.32%) and non-ICT industry (Damanpour & Wischnevsky, 2006). Similar to a recent ﬁrm-level (24.68%). The detailed proﬁle of the responding ﬁrms is shown in study (Chou & Yang, 2011), this study measured ﬁrm age by the number Appendix A. To test for non-response bias, this study compared the of years since the ﬁrm's establishment on a six-point scale ranging from early respondents with the late respondents, who were representative “1 = fewer than 5 years” to “6 = 35 years or more”. Industry type may of the non-respondents (Armstrong & Overton, 1977). The results of t affect the degree of perceived environmental characteristics and ﬁrm tests on each of the study's constructs revealed no signiﬁcant dif- performance. This study created one dummy variable for industry, ferences between the early respondents (those who returned the which was coded 1 if the ﬁrms operated in ICT industry or 0 if the completed questionnaires within the ﬁrst week) and the late re- ﬁrms operated in non-ICT industry. spondents (those who returned the completed questionnaires dur- ing the last two weeks). 3.2. Measures 3.3. An evaluation of common method bias This study measured the four constructs of interest using or This study used self-reported data from the same source, which raises adapting the existing scales in the literature to suit the research context. concerns of common method variance (CMV) (Podsakoff, MacKenzie, This study pre-tested the initial version of the questionnaire with a Lee, & Podsakoff, 2003). Following Podsakoff et al.'s (2003) suggestions, sample of 50 corporate managers (who were also EMBA students) to this study used two procedural remedies to control for potential CMV assess the clarity and understandability of the measures. Based on the and one statistical remedy to evaluate this problem. For the procedural managers' comments, this study reﬁned these measures and completed remedies, this study guaranteed in the cover letter that we would pre- the ﬁnal version of the questionnaire. All of the measures were serve the respondents' anonymity to reduce evaluation apprehension. seven-point Likert scales, and the respondents indicated the extent to Additionally, this study improved the scale items by deﬁning unfamiliar which they agreed with the scale items by providing scores ranging terms, avoiding vague concepts, avoiding double-barreled items, and from “1 = strongly disagree” to “7 = strongly agree” or by evaluating keeping the items simple, speciﬁc, and concise. the performance items on a scale ranging from “1 = very low” to “7 = very high”. After collecting the survey data, this study further For the statistical remedy, after the scale puriﬁcation, this study puriﬁed the measures with a conﬁrmatory factor analysis (see conducted a Harman's single-factor test using exploratory factor analysis Section 4.1). Appendix B presents the puriﬁed measures of the four with the unrotated factor solution to determine whether a single factor study constructs, which cover the individual content as follows. explained the majority of the covariance among the study constructs. The results showed that four factors were necessary to account for the Business performance: This study measured business performance variances in these constructs (eigenvalues from 4.59 to 1.09) and that as a ﬁrm's ﬁnancial, market, and global performance relative to those the ﬁrst factor explained less than 50% of the covariance among the mea- of its major competitors. The scale for business performance consisted sures (31% of 72%). Thus, CMV was not a signiﬁcant concern in this study.

K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 1285 Table 1 Statistics of the measurement analysis.a Constructs Scale items Standardized factor loading (λ) t-Value Cronbach's α Composite reliability (CR) Average variance extracted Firm innovativeness FI1 0.72 9.85 0.87 0.88 0.59 FI2 0.84 12.35 Market turbulence FI3 0.88 13.39 0.76 0.76 0.62 Competitive intensity FI4 0.63 0.79 0.79 0.50 Business performance FI5 0.74 8.39 0.92 0.92 0.75 MT1 0.76 10.28 MT2 0.81 CI1 0.65 8.52 CI2 0.61 8.96 CI3 0.66 8.34 CI4 0.86 7.68 BP1 0.86 8.45 BP2 0.86 11.79 BP3 0.84 12.99 BP4 0.91 13.05 12.61 14.25 a n = 154. Fit indexes for the measurement model: χ2 [84] = 137.86, p b 0.001; χ2/df = 1.64; NFI = 0.92; NNFI = 0.96; CFI = 0.97; GFI = 0.89; IFI = 0.97; SRMR = 0.052; RMSEA = 0.065. 4. Analysis and results According to Fornell and Larcker (1981), if the AVE estimates for any two constructs are greater than the corresponding squared correlation es- 4.1. Reliability and validity timate (i.e., ρvc(η) > γ2 and ρvc(ξ) > γ2) (p. 46), the discriminant validity between the two constructs is proved. In this study, the square roots of This study ﬁrst conducted a four-factor conﬁrmatory factor analy- the AVE values for each pair of the constructs were greater than the cor- sis (CFA) with all of the items for the intended scales using the responding correlation estimate (see Table 2), showing discriminant va- maximum likelihood estimation method in LISREL 8.8, with the lidity between the constructs. Moreover, following Anderson and covariance matrix used as the input in the analysis. During the initial Gerbing's (1988) recommendations, this study assessed the discriminant construct validation procedure, this study puriﬁed the scales of the validity of the constructs with chi-square difference tests and conﬁdence four constructs by deleting the items with a standardized factor intervals for the inter-construct correlation estimates (φ). The results of loading below the .60 level. The results of the scale puriﬁcation proce- the six chi-square difference tests in the two-factor CFA models indicated dure are shown in Table 1. After purifying the scales, this study ran that for each of the six pairs of constructs, the chi-square value obtained another four-factor CFA model to assess the ﬁt of the measurement for the constrained model (correlation ﬁxed 1) was signiﬁcantly greater model and the unidimensionality of the constructs using all of the pu- than the chi-square value obtained for the unconstrained model (correla- riﬁed measures. The ﬁt indexes for this puriﬁed CFA model (see tion free) (Δχ2(1) > 3.84, p b .05) and that the lowest chi-square differ- Table 1) indicated a good ﬁt of the model to the data based on the ence value was 41.77 (Δχ2(1) = 41.77, p b .01), which exhibited the recommended criteria: X2/df value b 3 (Hekman, Bigley, Steensma, discriminant validity between any two constructs. Additionally, this & Hereford, 2009); CFI value ≧ .95, SRMR b .08, and RMSEA b .08 study calculated the conﬁdence interval (± two standard errors) around (Hair, Black, Babin, & Anderson, 2010). This study then assessed the correlation estimate (φ) between any two constructs. The results the degree of internal consistency among the items of each showed that none of the six conﬁdence intervals included 1.0, which puriﬁed scale with Cronbach's alpha reliability coefﬁcient in demonstrated that discriminant validity existed among the constructs. SPSS 21.0. The Cronbach's alpha values for the scales ranged Taken together, all of the study constructs were reasonably reliable and from .76 to .92 (see Table 1), all of which exceeded the valid. recommended .70 threshold (Hair et al., 2010). These results provided preliminary evidence that each construct had an ac- 4.2. Descriptive statistics and correlations ceptable level of reliability. This study conducted analyses of descriptive statistics, correla- Furthermore, this study assessed the dimensionality, reliability tions, and multiple regression using SPSS 21.0. Table 2 reports the and validity of the four constructs with a series of conﬁrmatory factor means, standard deviations, coefﬁcients of correlation and average analyses. Based on the puriﬁed four-factor CFA model, this study cal- variance extracted for the study constructs. As Table 2 shows, ﬁrm culated the composite reliability (CR) and average variance extracted innovativeness had a positive and signiﬁcant relation to business (AVE) estimates for each construct. Table 1 reports the results of the performance (r = .33, p b .001). The largest Pearson correlation measurement analysis. Following Fornell and Larcker (1981), this among the predictor variables occurred between market turbulence study assessed the reliability of each construct with the CR value for and competitive intensity and was .44 (p b .001), which was below the corresponding scale. The CR values for the constructs ranged the .70 threshold and suggested no need for concern over multi- from .76 to .92, all of which exceeded the desirable .60 level collinearity among the predictors (Tabachnick & Fidell, 2007). This (Bagozzi & Yi, 1988). These results indicated the reliability and con- positive correlation estimate also signiﬁed the potential interaction vergent validity of each construct. This study assessed the convergent between market turbulence and competitive intensity. Furthermore, validity of each construct with standardized factor loading (λ) and this study mean-centered the predictors before creating the interac- AVE. The λ values for all of the indicators ranged from .61 to .91 tion terms to avoid multicollinearity between the predictors and the and were all loaded onto their intended constructs at a highly interaction terms (Aiken & West, 1991). This study then used a vari- signiﬁcant level (p b .001), which indicated the unidimensionality ance inﬂation factor (VIF) to examine the effect of multicollinearity. (Anderson & Gerbing, 1988) and adequate convergent validity of The VIF values associated with the mean-centered predictors and each construct (Bagozzi, Yi, & Philips, 1991). The AVE values for the the interaction terms ranged from 1.24 to 2.08 (see Table 3), all of constructs ranged from .50 to .75, all of which were close to or which were substantially below the common cutoff threshold of 10 above the .50 threshold (Bagozzi & Yi, 1988; Fornell & Larcker, (Hair et al., 2010), showing that multicollinearity was not a problem 1981). These results signiﬁed that each construct exhibited adequate in this study. convergent validity.

1286 K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 Table 2 Descriptive statistics, correlation matrix, and reliabilities.a Variables Mean S. d. 1 2 3 4 5 6 1 Firm size 3.10 1.35 1.33 2 Firm age 3.51 0.82 0.01 1.09 0.18⁎ 3 Firm innovativeness 5.38 1.33 0.21⁎⁎ − 0.13 0.77 0.34⁎⁎⁎ 0.25⁎⁎ 0.19⁎ 1.17 0.18⁎ − 0.01 0.33⁎⁎⁎ 0.87 0.03 0.002 4 Business performance 4.34 0.16⁎ 0.22⁎⁎ 0.04 0.79 0.56⁎⁎⁎ 0.09 0.16⁎ 0.01 0.44⁎⁎⁎ 0.70 5 Market turbulence 4.76 0.05 0.92 0.76 0.79 0.87 0.92 0.76 0.79 6 Competitive intensity 4.80 0.88 Cronbach's α CR Notes: The square roots of AVE are boldfaced in the diagonal. The correlations (φ) between any two constructs (PHI in the CFA model) are in the upper-right of the diagonal. The Pearson correlations between any two constructs (unweighted mean of the items for each construct) are in the lower-left of the diagonal. a n = 154. ⁎ p b 0.05 (two-tailed test). ⁎⁎ p b 0.01 (two-tailed test). ⁎⁎⁎ p b 0.001 (two-tailed test). 4.3. The results of hypothesis testing this study ﬁrst examined the results of Hypothesis 4, the three-way interaction (the highest order term in model 4). As Table 3 shows, This study employed hierarchical moderated regression analysis the increase in R2 from model 3 to model 4 is .03, and it is statistically to test the hypotheses. This study established four regression models, signiﬁcant (ΔR2 = .03, F change = 5.49, p b .05, two-tailed test), evaluated the incremental variance explained (ΔR2), and conducted which indicates that in model 4, the addition of the three-way inter- overall and incremental F tests of statistical signiﬁcance. This study action among ﬁrm innovativeness, market turbulence, and competi- entered the control variables into the regression equation in step 1 tive intensity signiﬁcantly increased 3% of the explanation of (model 1), all three predictors in step 2 (model 2), three two-way variance in performance (the explanatory power of the model). Addi- interactions in step 3 (model 3), and the three-way interaction in tionally, model 4 in Table 3 shows that the unstandardized coefﬁcient step 4 (model 4). Model 4 includes all of the predictors, the two- for the three-way interaction effect was positive and signiﬁcant (b = way interactions, and the three-way interaction. Table 3 shows the .15, t = 2.34, p b .05, one- and two-tailed tests). These ﬁndings pro- results of the regression analyses (models 1 to 4). As models 2 to 4 vide support for Hypothesis 4. of Table 3 show, ﬁrm innovativeness had a positive and signiﬁcant main effect on business performance (all b > 0 at p b .001). This ﬁnd- To further assess the nature of the three-way interaction, this study ing supports Hypothesis 1, corresponds to the ﬁndings of some em- calculated the slopes of the simple regression equations of business pirical studies (e.g., Hult et al., 2004; Rhee et al., 2010; Theoharakis performance on ﬁrm innovativeness for each of the four conﬁgurations & Hooley, 2008), and validates Barney's (1986) conceptual argument of high and low levels of market turbulence (MT) and competitive that innovativeness can have positive economic value for ﬁrms. Next, intensity (CI) (i.e., one standard deviation above and below their this study tested the moderation hypotheses. Following previous respective means) and tested whether each simple slope was signiﬁ- studies (e.g., Hekman et al., 2009; Shalley, Gilson, & Blum, 2009), cantly different from zero (two-tailed tests) (Aiken & West, 1991). The results of the slope tests indicated that the performance effect of Table 3 Results of hierarchical moderated regression analysis (dependent variable: business performance).a Variables Model 1 Model 2 Model 3 Model 4 VIFs Constant 4.68 (2.77) 4.72 (2.31) 4.65 (2.20) 4.68 (2.30) 1.09 Controls 0.18⁎⁎ (− 0.16) (0.49) (0.31) (0.39) 1.05 − 0.01 (− 1.14) 0.15⁎ (− 1.32) 0.14⁎ (− 1.40) 0.14⁎ (− 1.38) 1.03 Firm size − 0.37 0.03 0.02 0.02 Firm age − 0.41 (4.11) − 0.43 (4.24) − 0.42 (3.43) 1.24 IND 2.80⁎ 0.44⁎⁎⁎ (− 0.58) (− 0.84) (− 0.96) 1.47 Main effects 0.05 − 0.04 (− 0.60) 0.45⁎⁎⁎ (− 0.11) 0.38⁎⁎⁎ (− 0.28) 1.43 Firm innovativeness (FI) 0.03⁎ − 0.05 − 0.06 − 0.07 Market turbulence (MT) 0.05⁎ − 0.01 (1.99) − 0.02 (2.53) 1.40 Competitive intensity (CI) 2.80⁎ 4.36⁎⁎⁎ (− 0.36) (0.07) 1.37 Two-way interactions 0.15 0.18⁎ 0.23⁎ (− 0.18) 1.78 FI × MT 0.12⁎⁎⁎ − 0.04 (1.64) 0.01 FI × CI 0.10⁎ − 0.01 (2.34) 2.08 MT × CI 5.67⁎ 0.08 Three-way interaction 0.15⁎ FI × MT × CI 3.68⁎⁎⁎ 3.97⁎⁎⁎ F 0.19 0.22 R2 0.14 0.16⁎ Adjusted R2 0.04+ 0.03⁎ ΔR2 2.13+ 5.49⁎ F change for ΔR2 IND (industry dummy): 1 = ICT industry; 0 = non-ICT-industry. Unstandardized regression coefﬁcients are reported; t-values are in parentheses. ΔR2 means the increase in R2 from the model to the previous model. a n = 154. + p b .10 (two-tailed incremental F-test for ΔR2). ⁎ p b .05 (one- and two-tailed tests for hypotheses; two-tailed test for control variables). ⁎⁎ p b .01 (two-tailed test for control variables). ⁎⁎⁎ p b .001 (one-tailed test for main effects).

K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 1287 ﬁrm innovativeness was the most positive and signiﬁcant under high for the two-way interaction between ﬁrm innovativeness and CI is MT and high CI (simple slope = +.93, t = 4.28, p b .001); the second negative but nonsigniﬁcant (b = −.04, t = − .36, ns). This result most positive and signiﬁcant effect occurred under high MT and low CI does not support Hypothesis 3. (simple slope = +.43, t = 1.66, p b .10); the effect was negative but insigniﬁcant occurred under low MT and high CI (simple slope = This study also conducted a robust analysis via bootstrapping to −.16, t = −.58, ns); and the least positive and signiﬁcant effect hap- validate the results of hypothesis testing (Wilcox, 2010). According pened under low MT and low CI (simple slope = +.30, t = 1.93, to Wilcox (2010), the bootstrapping method is a useful means of p b .10). This study also graphed the four preceding simple regression obtaining the robust estimates of standard errors and the conﬁdence lines following Dawson and Richter's (2006) approach. As Fig. 2 intervals of point estimates such as means and regression coefﬁ- shows, the slopes of these simple regression lines differed, which dem- cients; thus, “bootstrap conﬁdence intervals can be used to test hy- onstrated that ﬁrm innovativeness had different levels of performance potheses (p. 96).” We have reanalyzed the full moderated effects across the different conﬁgurations of MT and CI. regression model (model 4) in Table 3 using the SPSS 21.0 bootstrap estimation procedure with 1000 re-samples and the bias- Additionally, Fig. 2 shows that the positive slope of business corrected and accelerated (BCa) method to compute the standard er- performance that regressed on ﬁrm innovativeness under high MT rors and 95% conﬁdence intervals for the estimates of the regression and high CI was far greater than the positive slope under low MT coefﬁcients. The SPSS 21.0 outputs show the 95% BCa bootstrap conﬁ- and low CI. To examine whether the difference between this pair of dence intervals with a p-value for a two-tailed signiﬁcance test for the simple slopes was signiﬁcantly different from zero, this study hypothesized effects as follows: (1) The estimated main effect of ﬁrm performed a supplementary test of slope difference using Dawson innovativeness (FI) falls between .16 and .59 (b = .38, p b .01), and Richter's (2006, pp. 919–920) test formula. The results showed (2) the estimated two-way interaction between FI and MT falls be- that the simple slope under high MT and high CI was signiﬁcantly tween .02 and .52 (b = .23, p b .05), (3) the estimated two-way inter- greater than the simple slope under low MT and low CI (Δb = .63, action between FI and CI falls between −.28 and .24 (b = .01, p > .10, t = 2.24, p b .05, one- and two-tailed tests). This ﬁnding revealed ns), and (4) the estimated three-way interaction between FI, MT, and that ﬁrm innovativeness generates much higher performance when CI falls between .003 and .27 (b = .15, p b .01). Because the 95% BCa both MT and CI are high than when both MT and CI are low. bootstrap conﬁdence intervals for the estimated regression coefﬁcients for (1), (2), and (4) do not contain zero, the corresponding null hy- Finally, in line with previous studies (Hekman et al., 2009; Shalley potheses are rejected (Wilcox, 2010). Thus, this robust analysis via et al., 2009), this study did not interpret the two-way interactions bootstrapping further supports Hypotheses 1, 2, and 4. because these second-order effects depend on a variable that is not involved in the interaction if a three-way interaction is signiﬁcant 5. Discussion and implications (Aiken & West, 1991, p. 50). However, for the sake of completeness, this study examined the results for Hypotheses 2 and 3. Because the 5.1. Discussion power to detect interactions is generally low in ﬁeld studies (Bing, LeBreton, Davison, Migetz, & James, 2007; McClelland & Judd, 1993) The goal of this study was to advance the marketing literature by and because our sample size is not particularly large, we follow the identifying the joint moderating effects of market turbulence and com- suggestions of several methodologists (Aguinis & Harden, 2009; petitive intensity on the relationship between ﬁrm innovativeness and Bing et al., 2007; Sauley & Bedeian, 1989) in using a p-value of .10 business performance. The results of the simple slope analysis revealed as the highest level of signiﬁcance to increase the chances of detecting that, as expected, when market turbulence and competitive intensity interactions and the statistical power of the results. In Table 3, the in- were both high, ﬁrm innovativeness had the most positive effect on cremental F-test for the increase in R2 from model 2 (the main-effect business performance. When market turbulence and competitive in- model) to model 3 (the two-way interactions model) is signiﬁcant at tensity were both low, the performance effect of ﬁrm innovativeness p b .10 (ΔR2 = .04, F change = 2.13, p = 0.0996, two-tailed test); was the least positive. These ﬁndings show the differential effects of model 3 shows that the coefﬁcient for the two-way interaction be- ﬁrm innovativeness on business performance under the simultaneous tween ﬁrm innovativeness and MT is positive and signiﬁcant (b = inﬂuence of market turbulence and competitive intensity. Furthermore, .18, t = 1.99, p b .05, one- and two-tailed tests). These results sup- closer inspection of four simple regression lines (see Fig. 2) sheds light port Hypothesis 2. Furthermore, model 3 shows that the coefﬁcient on how the direction and strength of the FI–BP relationship depend on market turbulence and competitive intensity simultaneously. Speciﬁ- 5.5 cally, when market turbulence was low, the positive performance effect of ﬁrm innovativeness decreased with the level of competitive 5.3 intensity and was non-signiﬁcant at a high level of competitive intensi- ty. The ﬁnding that this positive relationship does not exist in the Business Performance 5.1 context of low market turbulence and high competitive intensity was surprising but plausible because stable customer preferences coupled 4.9 with radical competitor attacks (e.g., constant price reductions and promotions) are likely to neutralize the potential beneﬁts of ﬁrm inno- 4.7 vativeness. In such a scenario, ﬁrm innovativeness could be detrimen- tal to performance because the returns on innovations that are not 4.5 essential for customers cannot be sufﬁcient to justify the costs of devel- oping and implementing innovations. It appears that rapid changes in 4.3 (1) High MT, High CI (***) customer preferences reinforce the necessity of innovative ﬁrm initia- tives under highly competitive market conditions. In other words, the 4.1 (2) High MT, Low CI (+) ability of innovativeness to add value for ﬁrms that operate in highly 3.9 (3) Low MT, High CI (ns) competitive markets may depend greatly on whether the needs and desires of customers often change. Another explanation for this unex- (4) Low MT, Low CI (+) pected ﬁnding may be that, as suggested by the theory of disruptive in- novation (Christensen, 1997; Christensen & Bower, 1996; Christensen 3.7 & Raynor, 2003), highly innovative ﬁrms that devote signiﬁcant 3.5 High FI Low FI Firm Innovativeness (FI) Fig. 2. Joint moderating effects of market turbulence (MT) and competitive intensity (CI) on the link between ﬁrm innovativeness and business performance.

1288 K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 investments to high-end innovations likely overshoot in assessing lack of support that Hult et al. (2004) provide for the hypothesized what customers need or are able to use (Tidd & Bessant, 2009) and moderating role of market turbulence is a valuable empirical result thus lose their performance advantage when competitors introduce with important implications, this study proposes several explanations “simpler, more convenient, and less expensive products that appeal for this discrepancy. First, this study examined the independent mod- to new or less-demanding customers” (Christensen & Raynor, 2003, erating inﬂuence of market turbulence with the effects of competitive p. 34). This unexpected result also suggests that investing resources intensity being partialled out (see model 3 in Table 3), whereas Hult in new product development or other innovation activities might be et al. (2004) did not control for the effect of competitive intensity redundant when market turbulence is low and competitive intensity when examining the effect of market turbulence. Second, this study is high. Moreover, this ﬁnding was interesting because of its similarity targeted ﬁrms in high-tech industries in Taiwan, whereas Hult et al. to the ﬁndings of prior studies (Chandler et al., 2000; Terziovski, 2010), (2004) surveyed ﬁrms in a broad range of industries in the U.S. mar- which have revealed no relationship between an innovative culture ket. Such differences in the scope of the analyzed industries might and ﬁrm performance. In contrast, when market turbulence was high, have affected the results because some industries may not be sensi- the positive performance effect of ﬁrm innovativeness increased with tive to environmental conditions (Augusto & Coelho, 2009). Com- the level of competitive intensity and, signiﬁcantly, was greatest at a pared with other sectors, the high-tech sector appears to be more high level of competitive intensity. These ﬁndings indicate that com- susceptible to market turbulence because the successful commercial- petitive intensity may have opposite moderating effects, which became ization of high-tech innovations particularly requires an intimate un- obvious when this factor was examined in conjunction with market derstanding of customer needs (Mohr et al., 2010). Third, the turbulence. Under continuously increasing market turbulence, compet- research setting is likely another reason for the variance in the itive intensity initially weakened the performance effect of ﬁrm inno- research ﬁndings (Johns, 2006). The independent moderating effect vativeness; however, when market turbulence increased to a certain of market turbulence may be unique to Taiwan. As noted above, level, the negative moderating effect of competitive intensity turned most of Taiwan's high-tech ﬁrms do not have their own brand positive. It seems that increasing market turbulence brought about names, and these ﬁrms operate OEM/ODM (B2B) businesses in coop- the positive inﬂuence of competitive intensity on the performance ef- eration with large global companies. Compared with ﬁrms in the U.S., fect of ﬁrm innovativeness. Competition intensity alone may be insufﬁ- these high-tech ﬁrms in Taiwan appear to have a particularly strong cient to necessitate ﬁrm innovativeness because excessive competition need to please their business customers (Einhorn et al., 2005) by in- during price wars may render the introduction of innovative products novatively responding to changes in customer needs. Moreover, the unproﬁtable for ﬁrms. Although pursuing innovations may be beneﬁ- evidence that this study provided for the joint moderating effects of cial due to a differentiation advantage, intense competition produces market turbulence and competitive intensity might also be distinctive pressure on ﬁrms to improve efﬁciency and lower prices, which may to Taiwan's high-tech sector. With OEM/ODM-focused businesses, lead to tighter margins (Jansen et al., 2006). Thus, undertaking many many high-tech ﬁrms in Taiwan are unable or less likely to com- innovations may harm performance under conditions of high competi- pete for market share through brand marketing and/or mass tion (Jansen et al., 2006; Miller & Friesen, 1983) and stable customer media advertising. These ﬁrms must rely to a greater extent on preferences. However, if such competition is coupled with rapid product and process innovation to outperform domestic and changes in customer preferences, then leveraging innovativeness ap- foreign rivals to win global orders while striving to better satisfy pears to be relatively beneﬁcial for ﬁrms because the value of the dif- the evolving needs of customers. Accordingly, when combined ferentiation increases. with competitive intensity, market turbulence particularly strengthened the effect of ﬁrm innovativeness in our research set- In addition, when competitive intensity was low, the positive ting. Although the ﬁndings that are reported in this study provide performance effect of ﬁrm innovativeness increased slightly with meaningful new insights, particularly for ﬁrms operating OEM/ the level of market turbulence. In other words, ﬁrm innovativeness ODM businesses, future research could replicate our study in can improve business performance, albeit at a lower degree, when other settings to conﬁrm our ﬁndings. market turbulence and competitive intensity are both low. This ﬁnd- ing suggests that a ﬁrm with idiosyncratic resources, such as innova- In addition, the results of this study suggest that the moderating role tiveness, will be able to continue to exploit these resources to gain a of competitive intensity in the FI–BP relationship is more complex than competitive advantage if the ﬁrm's environment remains relatively expected. This study did not ﬁnd evidence of an independent moderating stable and minimally competitive (Barney, 2011). In addition to cor- effect of competitive intensity on the FI–BP relationship. One possible responding to the traditional RBV logic, this ﬁnding appears to resem- explanation for this unexpected ﬁnding is the source of competition. ble the so-called “hidden champions” (Simon, 2009) phenomenon, in Miller and Friesen (1983) proposed that the positive or negative effect which certain ﬁrms are able to innovate to gain and sustain compet- of environmental hostility on the relationship between innovation and itive advantages in markets that are characterized by relatively low ﬁrm success partly depends on the nature of competition threats. Similar- turbulence and competition because such ﬁrms individually special- ly, competitive intensity may have a positive or negative moderating ize in one or few narrow market areas for a speciﬁc technology. In effect on the FI–BP relationship depending on the type of competition. contrast, when competitive intensity was high, the performance ef- Effective competitive responses may differ greatly based on the type of fect of ﬁrm innovativeness increased considerably with the level of competition that dominates in the market: price-related versus non- market turbulence, and the effect was the most positive at a high price-related competition (Porter, 2008; Zahra & Bogner, 2000). When level of market turbulence. These ﬁndings are noteworthy because price-based competition is high, customers may pay less attention to dif- the previous ﬁrm innovativeness research on the moderating effect ferences in product features among competing products (Porter, 2008); of market turbulence is quite limited and has not investigated how thus, the markets do not reward innovative products. However, when this effect depends upon competitive intensity (e.g., Hult et al., non-price-related competition (e.g., product features or image) prevails, 2004). Overall, it appears that market turbulence and competitive in- the situation is reversed (Zahra & Bogner, 2000). In this study, competi- tensity jointly interact with ﬁrm innovativeness to inﬂuence the level tive intensity includes product imitation, price wars, and sales promo- of business performance; in other words, the individual moderating tions, which may increase or decrease the importance of a ﬁrm's effects of either market turbulence or competitive intensity will in- innovative ideas and actions. For example, when facing rapid imitation deed depend on the level of the other. by rivals, ﬁrms must continuously innovate their products and services to outperform their rivals. However, constant price wars may encourage This study also revealed that market turbulence has an indepen- customers to focus on price attractiveness while ignoring product features dent, positive moderating effect on the FI–BP relationship. This ﬁnd- (Porter, 2008) and to demand product functionality and efﬁciency (Zahra ing contrasts with that of Hult et al.'s (2004) study. Although the

K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 1289 & Bogner, 2000). In such a scenario, ﬁrms may need to quickly ﬁght back intensity depends on the level of market turbulence. As discussed in the same way rather than introduce innovative products (Kim & above, when market turbulence is relatively low, competitive intensity Atuahene-Gima, 2010; Molina-Castillo et al., 2011). Thus, competitive in- weakens the effect of ﬁrm innovativeness; in contrast, when market tensity may strengthen or weaken the beneﬁts of ﬁrm innovativeness turbulence is high, competitive intensity strengthens the effect of such that the positive moderating effect is offset by the negative moderat- ﬁrm innovativeness. These ﬁndings suggest that market turbulence re- ing effect, thereby masking the moderating role of competitive intensity. inforces the need for innovativeness among ﬁrms that experience high Another possible explanation could be the duration of intense competi- levels of competition. That is, rapid changes in customer preferences tion. Firm innovativeness might not have a signiﬁcant inﬂuence on busi- justify the use of innovation activities rather than cost efﬁciency as a ness performance during short periods of ﬁerce competition, but it strategy to effectively address tough competitive threats. These ﬁnd- might help ﬁrms to improve their performance by pursuing exploratory ings might also shed some light on the inﬂuence of competition on innovations during long periods of intense competition (Jansen et al., the relationship between innovation and performance (e.g., Jansen et 2006). Finally, the moderating effect of competitive intensity may depend al., 2006; Miller & Friesen, 1983). Moreover, the results of this study on the level of market turbulence given the signiﬁcant three-way interac- might imply that market turbulence is a more inﬂuential moderator tion that has been identiﬁed here. of the FI–BP relationship than competitive intensity, although this study did not hypothesize this result. 5.2. Theoretical implications Fourth, this study advances existing knowledge regarding the in- This study has important implications for research on ﬁrm innova- ﬂuence of market turbulence on the impact of ﬁrm innovativeness. tiveness and market context. Unlike previous research, this study This study extends the work of Hult et al. (2004) by revealing that identiﬁes the conﬁgurational market conditions that inﬂuence the di- market turbulence positively moderates the performance effect of rection and strength of the effects of ﬁrm innovativeness on business ﬁrm innovativeness and that the strength of this moderating effect performance. First, this study highlights the special value of ﬁrm is further enhanced by competitive intensity. These ﬁndings suggest innovativeness under the joint inﬂuence of market turbulence and that the increase in the value of ﬁrm innovativeness that occurs due competitive intensity. The results show that when combined, market to market turbulence will be limited unless strong competition is turbulence and competitive intensity synergistically enhance the posi- also present. These ﬁndings also suggest that considering the inﬂu- tive effect of ﬁrm innovativeness on performance. The performance ence of competitive intensity might help to clarify the moderating effect of ﬁrm innovativeness becomes increasingly positive as market role of market turbulence in the FI–BP relationship. turbulence and competitive intensity concurrently increase; the highest level of business performance occurs when ﬁrm innovativeness, market Finally, the results of this study show that the coexistence of mar- turbulence, and competitive intensity are all high. That is, ﬁrm innova- ket turbulence and competitive intensity generates different forms of tiveness plays a crucial role in helping ﬁrms to thrive within a highly interactions that differently affect the impact of ﬁrm innovativeness turbulent and highly competitive market environment. These ﬁndings on performance. These ﬁndings could serve as supporting evidence might lend support to the contingent RBV held by several scholars that market turbulence and competitive intensity work in tandem (e.g., Aragon-Correa & Sharma, 2003; Atuahene-Gima et al., 2006; Mill- (Jaworski & Kohli, 1993) and interactively affect a ﬁrm's strategic er & Shamsie, 1996), who suggest that the value of a ﬁrm's unique decisions and performance (Luo & Park, 2001). Moreover, given that resources may be contingent on relevant environmental conditions. changes in the level of market turbulence have different effects on Similarly, these ﬁndings might also serve as supporting evidence for the moderating impact of competitive intensity, the study's ﬁndings the dynamic capabilities perspective (Teece, 2007; Teece, Pisano, & propose that the potential interactions among speciﬁc dimensions Shuen, 1997), which emphasizes that a ﬁrm should adapt its resources of the market environment could be studied to explore the inﬂuence and capabilities to match the requirements of the business environment of these interactions on the effectiveness of organizational factors. to gain a competitive advantage. A ﬁrm's innovativeness can help the Thus, this study demonstrates that differentiating environmental ﬁrm create renew the relevance of the ﬁrm's unique assets, and thus, factors and investigating their joint effects with a conﬁgurational ap- the importance of innovativeness is ampliﬁed in markets of rapid proach may be particularly useful for yielding important theoretical changes and intense competition. and managerial insights. Second, this study further reveals that the performance effect of 5.3. Managerial implications ﬁrm innovativeness varies across the different conﬁgurations of mar- ket turbulence and competitive intensity. Contrary to traditional The results of this study have signiﬁcant practical implications for wisdom, the effect of ﬁrm innovativeness is not always positive. managers. First, our results suggest that ﬁrm innovativeness is critical Although ﬁrm innovativeness contributes substantially to performance for ﬁrms that seek to enhance business performance in highly turbu- under conditions of high market turbulence and high competitive in- lent and highly competitive markets. This ﬁnding is consistent with tensity, ﬁrm innovativeness is not an advantage under conditions of the suggestion of Hutt and Speh (2010) that a ﬁrm must continually in- low market turbulence and high competitive intensity. Essentially, novate to ensure that its products are aligned with rapidly changing market turbulence and competitive intensity jointly constitute the markets with intensely competitive landscapes. To ensure that their boundary conditions and limits of the value of ﬁrm innovativeness. ﬁrms prosper under such difﬁcult market conditions, managers should Based on the perspective of strategic ﬁt (Grant, 2010; Zajac, Kraatz, & nurture a culture of high innovativeness that “encourages, supports, Bresser, 2000), the levels of ﬁrm innovativeness should ﬁt with the and rewards breakthrough thinking and that resists the inertial forces speciﬁc market conditions that are formed by market turbulence and that stymie innovation” (Mohr et al., 2010). Managers should encour- competition if performance is to improve. age employees to develop and implement creative ideas that meet the ﬁrm's strategic objectives (Chatman & Cha, 2003) through Third, the ﬁndings of this study suggest that ﬁrm innovativeness is exploiting opportunities and neutralizing threats in the markets. Addi- more effective when adapting to market turbulence than when coping tionally, managers should remain intimately involved in new product with competitive intensity. The value of ﬁrm innovativeness is en- development processes, provide support for innovative efforts, develop hanced by market turbulence but not by competitive intensity when new knowledge, and offer compensation for innovation (Mohr et al., these two market factors are examined separately. Furthermore, the 2010). Moreover, this important ﬁnding might be particularly evident value of ﬁrm innovativeness is further augmented by the combination in the context of Taiwan's high-tech sector in which many high-tech (interplay) of market turbulence and competitive intensity. That is, the ﬁrms operate OEM/ODM businesses (as stated above). For example, importance of ﬁrm innovativeness for performance under competitive Catcher Technology is a B2B Taiwanese ﬁrm that manufactures various

1290 K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 types of casings that are used in 3C products (consumer electronics, exploit the opportunities that are created by these conditions (Sirmon communications, and computer products) for global business cus- et al., 2007) in order to achieve superior performance. As noted by tomers such as Apple Inc. Although Catcher Technology faces high tur- Simon (1996), “only if internal competencies and external opportuni- bulence and high competition in the market segments that the ﬁrm ties are matched is success likely” (p. 136). serves, the ﬁrm has long attained superior performance through its “commitment to continuous improvement and innovation.”7 Third, managers would be wise to focus more on customer prefer- In addition, client-speciﬁc knowledge enables suppliers to tailor their ences in parallel with competitor actions in evaluating innovation products and services to a buyer's particular needs (Chatain, 2010) activities. Disregarding either customer intelligence or competitor and to generate novel ideas early in the innovation process intelligence will lessen the effectiveness of a ﬁrm's innovativeness. Be- (Noordhoff, Kyriakopoulos, Moorman, Pauwels, & Dellaert, 2011). cause pursuing innovation may be costly and risky, managers should Firms should maintain close relationships with business customers ensure that their ﬁrms' innovative efforts meet the requirements of and often interact with highly inﬂuential lead users in order to have ac- complex market conditions. From a strategic standpoint, this impor- cess to market information and knowledge that can stimulate innova- tant task requires managers to effectively scan and monitor their tion (Foss, Laursen, & Pedersen, 2011; Hutt & Speh, 2010; Mohr et al., external environments (Garg, Walters, & Priem, 2003; Sirmon et al., 2010) and increase the ﬁrms' chances for successful innovation. 2007) through formal approaches such as market research (Anthony et al., 2008) and competitor analysis and/or through informal ap- Second, this study informs managers that the value of ﬁrm innova- proaches such as the use of gatekeepers (Frishammar & Horte, tiveness differs across conﬁgurational market conditions and fails to 2005). If ﬁrms that seek innovation do not correctly anticipate and in- materialize under low turbulence and high competition. To effectively terpret evolving trends with regard to both customer needs and com- allocate and utilize ﬁrm resources, managers should align their ﬁrm's petitor actions, the ﬁrms will likely innovate in the wrong directions level of innovativeness with the speciﬁc market conditions that con- and/or at inappropriate levels. Thus, their performance may decline front their ﬁrms. In a highly turbulent market with ﬁerce competition, under difﬁcult economic conditions. a ﬁrm must be highly innovative if the ﬁrm wants to translate market threats into advantageous opportunities. For example, ﬁrms should 5.4. Limitations and directions for future research often invest signiﬁcant resources in new product development (NPD) and/or in the process and management of the innovation activities This study has some limitations that identify opportunities for fu- that are required under high market turbulence and high competition. ture research. First, this study could not repeatedly collect ﬁrm-level In contrast, in a stable market with low competition, a ﬁrm need not data because of our promise to protect the anonymity of the respon- be very innovative because the impact of ﬁrm innovativeness on perfor- dents. As a result, this study adopted a cross-sectional design that mance is considerably lower. In such a scenario, ﬁrms should slow or limited our ability to make causal inferences about the FI–BP relation- curtail some of their investments in new product development and/or ship. Future research that uses performance data collected with one other innovation activities. It may be more cost effective to creatively or more years of lag behind the innovativeness data would enhance exploit the full potential of existing offerings and operations through our certainty regarding the implied causal relationship between FI slight or modest improvements. Moreover, managers should be aware and BP (if the results support this causal relationship). Alternatively, that ﬁrm innovativeness has no impact on business performance in a future research might obtain more robust ﬁndings by using panel stable but highly competitive market. In this context, the differentiation data based on responses from repeatedly surveyed top managers advantage of innovativeness as a means of coping with ﬁerce competi- (e.g., Kumar, Jones, Venkatesan, & Leone, 2011) regarding their ﬁrm's tion dissipates because of the existence of stable customer preferences. innovativeness and business performance over a period of time. During such periods, ﬁrms must avoid overshooting their products in ways that cause product features to outstrip customer needs Second, the use of self-reported data by single key informants may (Anthony, 2009; Anthony, Johnson, Sinﬁeld, & Altman, 2008; have limited our inferences regarding the observed relationships due Christensen & Raynor, 2003; Tidd & Bessant, 2009); overshooting to common method variance (CMV). However, according to Chan makes customers unwilling to pay a premium for improved products (2008), self-reported data are not inherently ﬂawed and concerns and services, and it encourages customers to switch to lower-end solu- regarding CMV may be exaggerated, especially given the complex tions (Anthony et al., 2008). Managers should pay more attention to nature of the interaction effects (Shalley et al., 2009) in our analyses. costs (Molina-Castillo et al., 2011) and conserving ﬁrm resources (Kim Additionally, Siemsen, Roth, and Oliveira (2010) provide support for & Atuahene-Gima, 2010; Miller & Friesen, 1983), or they should develop Evans's (1985) ﬁnding that interaction effects cannot be created by superior production routines that emphasize product quality rather CMV. Siemsen et al. (2010) emphasize that despite the inﬂuence of than risking ﬁrm resources on unpredictable and costly innovations. Es- CMV, signiﬁcant interaction effects should be taken as strong evidence sentially, ﬁrms may need to be oriented toward cost efﬁciency to pro- that an interaction effect exists. In addition, this study utilized proce- vide adequate low-cost offerings that appeal to value-conscious dural and statistical remedies to reduce CMV concerns. Thus, CMV customers and ﬁght off competitor attacks (Anthony, 2009). Alterna- problems are not sufﬁciently serious to inﬂuence the ﬁndings of this tively, ﬁrms can promote the sale of products and services through ef- study. Nevertheless, future research could survey publicly listed ﬁrms fective marketing communication tools such as detailed direct and use their objective performance data to minimize CMV concerns. mailings and personal selling, especially among their business cus- tomers (Mohr et al., 2010). In a business-to-business setting, managers Third, the speciﬁc nature of the study's sample limits the extent to should motivate sales forces to frequently interact with business cus- which the results may be generalized. Because this study surveyed tomers through sales visits to detect signs of overshooting early medium-sized and large manufacturing ﬁrms in Taiwan's high-tech (Anthony et al., 2008). In short, managers should adjust their ﬁrms' industries, the results may be unique to Taiwan and may not be levels of innovativeness to adapt to varying market conditions and to generalizable to small ﬁrms, non-high-tech ﬁrms, or service ﬁrms or to other countries or economies. Future research could constructively du- 7 According to two senior high- tech industry analysts who we interviewed after plicate our study to examine whether our ﬁndings hold across different obtaining our ﬁndings, Catcher Technology (http://www.catcher.com.tw/prof_home. samples and/or settings. Despite the limitations on the generalizability html) continues to innovate products and services and thus has long achieved high of our results, the narrow focus of this research on Taiwan's high-tech proﬁt margins and steady growth in the markets that it serves. In these markets, cus- sector may assist in mitigating the potential confounding effects caused tomers change their needs rapidly because of the short product lifecycle of 3C products by industrial characteristics (Lu & Yang, 2004) and thus improve the in- and the presence of strong competitors. Catcher Technology is currently the largest ternal validity of our ﬁndings regarding the relationships among the magnesium die casting company in the 3C industry. study variables (Kerlinger & Lee, 2000). Our focus on this speciﬁc setting “makes our models more accurate and our interpretation of results more

K.-H. Tsai, S.-Y. Yang / Industrial Marketing Management 42 (2013) 1279–1294 1291 robust” (Rousseau & Fried, 2001, p. 2) and may thus contribute to our competitive intensity. The performance effect of ﬁrm innovative- meaningful new ﬁndings. The ﬁndings of this study provide important ness becomes increasingly positive as market turbulence and com- new implications for scholars and managers, particularly those in petitive intensity simultaneously increase. Under conditions of newly industrialized economies. high market turbulence and high competitive intensity, ﬁrm inno- vativeness maximizes business performance. Conversely, the posi- Finally, because market turbulence in this study was only one di- tive effect of ﬁrm innovativeness on performance is limited when mension of environmental turbulence, the ﬁndings may not be gener- market turbulence and competitive intensity are both low. Nota- alizable to other facets of turbulence that are not examined here. bly, the value of ﬁrm innovativeness fails to materialize under con- Furthermore, the ﬁndings presented in this study do not reﬂect the ditions of low market turbulence and high competitive intensity. inﬂuence of overall environmental turbulence in tandem with com- Overall, this study provides empirical evidence for the contingent petitive intensity. Calantone et al.'s (2003) conceptualization of over- effects of ﬁrm innovativeness on business performance, at least all environmental turbulence includes market turbulence and in Taiwan's high-tech sector. Thus, particularly for high-tech technological turbulence, and their measure captures the coexistence ﬁrms, managers should nurture the appropriate level of innova- of market and technological turbulence by creating an interaction tiveness to enhance their ﬁrms' performance by considering the (cross-product term) for these two factors. However, in examining complex market conditions. the distinct effects of market turbulence, this study cannot adopt this measure of global turbulence; instead, this study has been This study advances the ﬁrm innovativeness research by illu- obliged to use the current measure of market turbulence, which limits minating the conﬁgurational market conditions that determine our knowledge of the inﬂuence of overall environmental turbulence. the value of ﬁrm innovativeness for business performance and Future empirical research focusing on overall environmental turbu- the limits of that value. This research also provides insights on lence might employ Calantone et al.'s (2003) measure of environ- how market turbulence and competitive intensity interact to in- mental turbulence to ensure a closer connection between the data ﬂuence the effectiveness of ﬁrm innovativeness. Furthermore, and the theory and to broaden the research implications. the ﬁndings of this study underscore the importance of matching the level of ﬁrm innovativeness with the speciﬁc conﬁguration of This study also suggests several promising avenues for future re- market turbulence and competitive intensity to produce better search. First, future research across different management disciplines business performance. Finally, this study demonstrates that an might fruitfully examine the combined moderating inﬂuence of mar- environmental conﬁguration approach can be useful to re- ket turbulence and competitive intensity. Because market turbulence searchers who study organizational phenomena in complex mar- and competitive intensity are often recognized as signiﬁcant factors ket environments. that separately affect new product development and strategic management, future research in these ﬁelds could yield valuable and Acknowledgments intriguing insights by examining whether and how these two impor- tant market factors jointly inﬂuence the relationships of interest. Sec- The authors sincerely thank Professor Peter LaPlaca (Editor) and the ond, researchers could extend this study with conﬁgurations within three anonymous reviewers for their constructive comments and in- multiple domains. According to Dess et al. (1993), conﬁguration re- sightful suggestions. search within a single domain (e.g., the environmental conﬁgurations in this study) has the advantage of parsimony and can explain how Appendix A. Proﬁle of the responding ﬁrms variables interrelate to form meaningful wholes, whereas conﬁgura- tion research within multiple domains may provide “more compre- Firm characteristics Frequency Percentage hensive and accurate depictions of organizational reality” (p. 778). Because other organizational factors, such as learning orientation, in- Industry type 116 75.32% ﬂuence ﬁrm innovativeness (Hult et al., 2004; Mohr et al., 2010; ICT industrya 38 24.68% Rhee et al., 2010), future research could examine whether and how Non-ICT industryb conﬁgurations of other organizational and environmental factors af- 102 66.23% fect the impact of ﬁrm innovativeness on business performance. Ownership 52 33.77% Third, this study did not address the underlying mechanisms through Publicly traded which ﬁrm innovativeness impacts business performance (i.e., the Privately held 72 46.75% possible mediator variables). To our knowledge, little empirical re- 39 25.33% search has investigated this important but ignored issue. Future re- Firm size (number of full-time employees) 15 search may provide useful insights into management practices by 50–200 12 9.74% exploring why and how other organizational factors, such as cross- 201–500 16 7.79% functional coordination, may serve as the pathways that mediate the 501–1,000 10.39% link between ﬁrm innovativeness and business performance. Finally, 1001–2000 40 given the critical inﬂuence of interﬁrm competition on ﬁrm behavior ≧ 2001 35 25.97% and ﬁrm success, future research could reexamine the moderating 48 22.73% role of competitive intensity in the FI–BP relationship by considering Firm age (years since establishment) 31 31.17% different sources of competition, such as the scarcity of resources in b 10 154 20.13% an environment (Castrogiovanni, 1991). Alternatively, researchers 10–15 could investigate whether the moderating inﬂuence of competitive in- 15–25 100% tensity depends on any additional factors, such as the state of a ﬁrm's ≧ 25 resources (Miller & Friesen, 1983) or the stage of a ﬁrm's industry life cycle (Zahra & Bogner, 2000). Total 5.5. Conclusions a. ICT industries: computers and peripherals, semiconductors, optoelectronics, and telecommunications. Our ﬁndings from a sample of Taiwan's high-tech ﬁrms reveal b. Non-ICT industries: optical materials, precision instruments, medical equipment, that the effect of ﬁrm innovativeness on business performance dif- pharmaceutical and biotechnology. fers across the different conﬁgurations of market turbulence and

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