Entrepreneurship and Customer Value: Mediating Role of Integrated Market Orientation and Innovation Hanny N. Nasution, Felix T.

Mavondo, Monash University

Abstract Previous research on entrepreneurship, market orientation, and innovation mainly related it to business performance. This study aims to investigate the relationship between entrepreneurship and customer value. It also examines whether integrated market orientation and innovation mediate the relationship. The results indicate that entrepreneurship has a strong and positive relationship with customer value; and that integrated market orientation and innovation mediate the relationship between entrepreneurship and customer value. This study contributes to filling the gap in the literature by examining the mediating effect of integrated market orientation and innovation in the relationship between entrepreneurship and customer value in the hotel industry. Keywords: entrepreneurship, integrated market orientation, innovation, customer value, hotel industry

Introduction The rapid changes in customer needs and technology have created environments characterised by high levels of market and technology uncertainty (Atuahene-Gima and Ko, 2001). In such an environment, firms require to build a new set of imperatives, such as entrepreneurship, and market orientation in order to be successful in innovation (Slater and Narver, 1995). The results of Bhuian, Menguc, and Bell (2005) study confirm that entrepreneurship and market orientation are two key elements in organisational success. Flint et al. (2005) further suggest that the research on innovation, market orientation, and customer value is imperative for product and process improvements linked to organisational performance. Entrepreneurship, market orientation, and innovation, learning orientation, are identified as organisational capabilities that potentially contribute to creation of superior value (Hult and Ketchen, 2000). Entrepreneurship is defined as a process of enhancement of wealth through innovation and exploitation of opportunities, which requires the entrepreneurial characteristics of risk-taking propensity, autonomy, and proactiveness. It has been considered as antecedent to market orientation, which subsequently leads to business performance (Matsuno, Mentzer, and Ozsomer, 2002). It also is considered as a mediator in the relationship between market orientation and performance (Bhuian, Menguc, and Bell, 2005). Atuahene-Gima and Ko (2001) suggest that entrepreneurship and market orientation need to be integrated to drive innovation. Previous studies on entrepreneurship, market orientation, and innovation mainly related it to business performance; there is a lack of the studies that relate it to customer value. The paper aims to investigate the direct impact of entrepreneurship on customer value, and indirectly through integrated market orientation and innovation.

Hypotheses Development Entrepreneurship and Customer Value Entrepreneurship is argued as imperative for organisational survival, profitability, growth, and renewal (Zahra, 1996). External factors such as fast movement in customers needs and hyper competition have compelled organisations to develop the entrepreneurial spirit in organisations. This view is supported by some researchers such as Echols and Neck (1998) and Zahra (1996), who suggest that organisations need to employ corporate entrepreneurship in order to survive in a dynamic environment. This argument can be explained by the fact that organisations that encourage entrepreneurship are believed to be more innovative than traditional organisations. Consequently, organisations that innovate will be able to renew, and hence survive longer in a turbulent environment (Echols and Neck, 1998). In these circumstances, entrepreneurship involves the development of semi-autonomous units within the business designed to create, market, and expand innovative services, technologies, or methods (Cunningham and Lischeron, 1991). Besides external factors, some internal factors can also be considered as necessary factors to build entrepreneurship. Stevenson and Jarillo (1990) point out that the growing importance of entrepreneurship is imposed by an organisations need to have flexible structure, so as to compete successfully in turbulent environments. This implies that organisations need to build the entrepreneurial spirit of a small organisation and blend it into the culture of a larger organisation. Organisations that adopt an entrepreneurial culture may encourage organisational members to be more proactive with respect to customer needs; exercise a propensity to take risks which enables them to deliver value to customers. Therefore the following hypothesis states H1: Entrepreneurship is positively associated with customer value. The Mediating Role of Integrated Market Orientation and Innovation The results of Barret and Weinstein (1998) study indicate a positive relationship between corporate entrepreneurship, market orientation, and business performance. Specifically, Bhuian, Menguc, and Bell (2005) suggest that market orientation is most effective when the organisation maintain a moderate level of entrepreneurship. This view supports the Matsuno, Mentzer, and Ozsomer (2002) study indicating a positive and direct impact of entrepreneurial proclivity on market orientation. Conversely, Liu, Luo, and Shi (2003) put forward that higher levels of market orientation lead to more emphasis on entrepreneurship, which subsequently leads to higher levels of business performance. Athuahene-Gima and Ko (2001) suggest that entrepreneurship and market orientation can be integrated that encourages innovation in the organisations, which subsequently influences business performance. Furthermore, the empirical study on the entrepreneurship and innovation linkage shows that entrepreneurial value coupled with market-oriented culture will make a significant contribution to successful innovation (Slater, 1997). Innovation is considered a mediating variable of market orientation and organisational performance linkage (Baker and Sinkula, 1999; Han, Kim, and Srivasta, 1998). Lado and Maydeu-Olivares (2001) support the proposition that market orientation has a positive impact on innovation, which in turn will contribute to organisational performance. Salavou (2002) notes that market orientation in terms of customer responsiveness and market-driven pricing policy, and product innovation interacts in affecting business profitability. The Marinovas (2004) study indicates that market knowledge influences innovation effort. Furthermore, the results indicate that innovation effort, by itself, does not affect firm performance; however,

market knowledge supports smaller firms to achieve better performance for their innovation effort. This study proposes that market orientation and innovation are considered as mediators in the relationship between entrepreneurship and customer value (see Figure 1). Thus the following hypotheses are postulated: H2: Integrated market orientation mediates the relationship between entrepreneurship and customer value. H3: Innovation mediates the relationship between entrepreneurship and customer value. H4: innovation mediates the relationship between integrated market orientation and customer value. Figure 1: The Conceptual Model of Entrepneurship and Customer Value
.76

Integrated Market Orientation

.44

.27

Entrepreneurship Innovation

Customer Value

.41

.46

.92

Methodology The sample for this study was hotel managers from classified hotels across Indonesia. The number of useable questionnaires was 231, which provided the final effective response rate of 29%. Cronbach alpha, exploratory and confirmatory factor analyses were used to establish the psychometric properties of the measures. Based on the values of 2/df, CFI, GFI, AGFI, RMSEA reported in Table 1, the measures were shown to have acceptable psychometric properties.
Construct ENT IMO INO Table 1: Summary Statistics of the Measurement Models Analysis Sources df 2 2 / df CFI GFI AGFI Dorabjee et al. 1998 .8860 115.366 57 2.024 .957 .924 .878 Venkatraman, 1989 Narver & Slater 1990 .9531 384.977 150 2.468 .937 .860 .812 Narver et al. 2004 Hurley & Hult 1998; .9534 203.139 84 2.418 957 .895 .850 Song & Xie 2000; Zahra 1996 Petrick 2002; .9136 160.965 44 3.658 .962 .937 .888 Sweeney & Soutar 2001 RMSEA .067 .080 .079

CV

.080

ENT: Entrepreneurship; IMO: Integrated Market Orientation; INO: Innovation; CV: Customer Value.

Results and Discussion As shown in Table 2, entrepreneurship was found to have a significant direct relationship with customer value (p<0.001). Thus Hypothesis 1 was supported. It was also found to have a significant indirect effect on customer value through integrated market orientation (p<0.001). The result leads to the acceptance of Hypothesis H2. The results are in line with the Matsuno,

Mentzer, and Ozsomer (2002) study demonstrating that entrepreneurial proclivity has a significant indirect effect on business performance through market orientation. The importance of integrated market orientation to entrepreneurship is well argued by Slater and Narver (1995) who state that a primary entrepreneurial activity is not only to create products that are better than the competitors but also to create them ahead of the recognition of the customers expressed needs and discover the customers latent needs (Slater and Narver, 1995). In this sense, an integrated market orientation with its focus on understanding both expressed and latent needs is inherently entrepreneurial (Slater and Narver, 1995). Furthermore, Matsuno, Mentzer, and Ozsomer (2002) suggest that entrepreneurship facilitates organisation members willingness and ability to commit to market learning activities, to recognise the need to reduce uncertainty, and take more calculated risk. This consequently promotes market orientation.
Table 2: Path Analysis for Mediation Model Variables Direct Effects t-value Indirect Effects t-value Total Effects t-value

Entrepreneurship is associated with: Customer value .921 9.401*** Cmin=32.964,df=13,Cmin/df=2.536, GFI=.961, AGFI=.977, NFI=.966, TLI=.979, CFI=.999, RMSEA= .079. Entrepreneurship is associated with: Integrated Market orientation .756 19.385*** .756 19.385*** Innovation .411 6.044*** .335 6.700*** .746 12.744*** Customer value .549 11.934*** .549 11.935*** Integrated MO is associated with: Innovation .443 6.328*** .443 6.328*** Customer value .271 3.430*** .204 4.435*** .475 7.865*** Innovation is associated with: Customer value .461 6.493*** .461 6.493*** Cmin=1.052,df=1,Cmin/df=1.052, GFI=.998, AGFI=.977, NFI=.998, TLI=.999, CFI=.999, RMSEA= .015.
* = p < 0.05, ** = p < 0.01, *** = p < 0.001

Entrepreneurship was also found to have a significant indirect effect on customer value through innovation (p<0.001). Thus Hypothesis 3 was supported. These finding can be explained in that the development of entrepreneurial culture in organisations that supports the organisations member to take calculated risk, and to become proactive, may continuously facilitate organisations to introduce innovative ways to provide superior customer value. Specifically, entrepreneurial culture may support organisations to deliver services of the highest quality, offer value for money, and provide a prestigious image, through the implementation of product, process, and administrative innovations. Furthermore, integrated market orientation has significant indirect effect on customer value through innovation (p<0.001). Thus, the findings support Hypothesis 4. In this sense, a market-oriented culture is necessary to develop and maintain the core capabilities that continuously create superior value to customers (Slater and Narver, 1994). That is, in order to deliver superior value to customers, organisations need to have a deep understanding of customers expressed and latent needs. The results provide further support to the Han, Kim, Srivasta (1998) study which suggests that market orientation facilitates an organisations innovativeness, which subsequently, positively influences organisational performance. In this sense, market orientation makes a significant contribution to superior performance when innovations are accounted for. The importance of the role of innovation in the relationship between market orientation and organisational performance is that market-oriented organisations are better at identifying customers

expressed and latent needs that allows them to create and deliver superior value to customers. Therefore, market-oriented organisations should be able to innovate in a way that provides superior value to customers. Agarwal et al. (2003) further suggest that a market-oriented culture is necessary to build and maintain the core capabilities that continuously create customer value. The explanation of these findings is that, as discussed previously, customer value can be considered to be organisational objectives; hence, it can be argued that being a proactively market-oriented organisation may facilitate organisations to deliver value to customers through the implementation of product, process, and administrative innovation. This view is parallel to what is suggested by Han, Kim, Srivasta (1998) that market orientation facilitates both technical and administrative innovations, which subsequently supports corporate performance. In this sense, organisations that place the interests of customers as their highest priority, will continuously find innovative ways to provide superior customer value. As such, a focus on total customer satisfaction encourages continuous innovation. In other words, superior organisational performance is derived from a commitment to total customer satisfaction which can be brought about by having continuous innovation (Han, Kim, Srivasta, 1998). In conclusion, innovations, as vital components of business performance, ensure organisation-wide attention for successful implementation of innovation. This requires a committed market-oriented corporate culture that may possibly facilitate organisational innovativeness. To an increasing degree, this is becoming a key factor in delivering superior corporate performance (Han, Kim, Srivasta, 1998).

Implications and Contributions The results indicate that entrepreneurship is an imperative for business to deliver value to customers. The conclusion drawn from these results is that in order to deliver superior value to customers, in terms of providing service of the highest quality, offering value for money, and providing other psychological values, organisations need to develop entrepreneurship and integrated market-orientation that drive innovation. Managers need to encourage their employees to take calculated risk, and to be more proactive in grasping market opportunities. Managers are also encouraged to understand their customers expressed and latent needs as a precondition to investing in those capabilities that can deliver superior value to customers. This is because having an entrepreneurial culture and committed integrated market-oriented will promote introduction of new product/services, and continuously finding new ways of doing things to deliver value to customers. This study makes several contributions to the literature. This study offers the conceptual model of the linkage between entrepreneurship, market orientation, innovation and customer value. This study suggests that relating entrepreneurship, market orientation, and innovation to customer value is more important, because customer value has become a significant source of competitive advantage, which may lead to business performance. Moreover, this study makes a methodological contribution by empirically testing and validating the conceptualisation and operationalisation of integrated market orientation and entrepreneurship and establishing adequate psychometric properties of these factors. Other researchers might want to test these measures under other environments to further give confidence in these findings. In addition, it is suggested that further research be conducted in the relationship between entrepreneurial and customer value in different sectors such as in the manufacturing industry.

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