“I am starting to get hungry,” said David.
“They have a food truck now!” said Peter.
“They do? Since when?”
“Been a few days. I was talking to the owner,” said Peter. “Apparently he heard his ‘customers’ voice’—–they had been asking for food.”
“Cool!”
“Yeah, Lorenzo runs the truck. He is a gourmet chef who does this on the side. He likes experimenting with flavors and sort of uses this as a testing ground. Last time I was here, he had Tacos with a French twist. Killer,” said Peter.
“What are we waiting for? Let’s go!”
David led the way as they both got up, looking for the food truck.
“He is out in the back, kind of tucked away behind those trees. Ah! There he is.”
* * *
The best cooks never stick with the same old recipe. Although restaurants have their greatest hits that will keep customers coming back, time after time, it’s the truly innovative chefs who look to what others are doing, travel to other places, and try to find new combinations of ingredients that will be the next big dish. If there’s one message of this chapter, it is get out of the kitchen. For innovation to truly work, every employee at an organization must simply look and search outward. Innovators focus externally as inspiration for new ideas.
We’ve got to keep our ears and eyes to the ground to innovate well. No company exists in a vacuum. All firms operate in an environment replete with competition to serve their customers. Market orientation refers to the extent to which a firm understands its customers, its markets, and its competition. In that sense, market orientation is an element of organizational culture that reflects how its employees think and act as a marketing organization. The ability to sense the market, feel out the competition, understand the customer, and provide customer service are key ingredients of a firm’s market orientation. And the ties with empathy here shouldn’t be lost. Quite simply, innovation can be about compassionate reaction as much as action.
In a famous paper, Kohli and Jaworski (1990) define market orientation as consisting of three elements: collecting, disseminating, and responding to intelligence (customers, competition, and markets). In that sense, market orientation is a philosophy and approach to business. The first step is the collection of intelligence, both formal and informal. To Kohli and Jaworski, this step is not just the sole preserve of the marketing department but of the entire organization—whether it is R&D executives coming back from conferences or senior manufacturing executives coming back from trade conferences with intelligence, and so on. Once collected, the organization needs to make this intelligence available within the organization and then respond to it. It is not just enough to collect intelligence; it must be distributed to everyone with an expectation that they can and should respond to it. Nearly all departments within a company need to know this critical dimension.
The link between market orientation and innovation is incredibly strong. Market orientation drives innovation and there are essentially three reasons why. First, understanding and being connected to the customer brings new ideas from the marketplace and other environments, helping the firm to be more innovative by identifying and converting customer needs into creative product ideas and new offerings. Second, a market-oriented firm continuously benchmarks against competitors by following, analyzing, and responding to competitors’ moves. This leads to a need for and ability to differentiate an organization from the competition by creating new offerings.
Finally, a market orientation forces employees and functional units of the firm to cooperate and collaborate to respond to market intelligence. This increased communication and integration creates a more open and receptive organizational climate that is conducive to innovation than those sticking with old habits. Employees in a market-oriented firm also tend to be incentivized for taking risks in generating creative ideas.
In fact, market orientation has also been found to be an important precursor to innovation. Let’s look at some recent examples, such as Nike. “Stuck indoors and need a sweat? We’ve got your back,” it says on Nike’s website. During the pandemic, Nike heard its customers’ needs and wants and made free training videos on YouTube and its Training Club app free. As a result, it acquired a whopping 25 million new members and saw an 83 percent increase in its digital sales. (as reported in Nike News). In essence,
NIKE’s strong results this quarter and full fiscal year demonstrate its unique competitive advantage and deep connection with consumers all over the world. FY21 was a pivotal year for NIKE as they brought their Consumer Direct Acceleration strategy to life across the marketplace. “Fueled by our momentum, we continue to invest in innovation and our digital leadership to set the foundation for NIKE’s long-term growth.” (John Donahoe, president and CEO of the company).1
During the pandemic, when shoppers started keeping away from brick-and-mortar stores, Shopify also stepped up its game by offering tools to help retailers convert their points-of-sale terminals into e-commerce stores. Both examples of innovation were driven by being closely in touch with customers. Amazon has shown the world what being focused on the customer and being market oriented in general can do to the fortunes of a company. Whatever you think of Jeff Bezos, his focus on market orientation cannot be ignored. As quoted in an interview to the Wall Street Journal, Bezos said, “The [number] 1 thing that has made us successful by far is obsessive compulsive focus on the customer.”2 Bezos believes that the only way to growth is through customer preoccupation, criticizing other companies who reverse this equation by prioritizing their competition. Phil Knight, the CEO of Nike, was also quoted in the Harvard Business Review as saying, “while technology is still important, the consumer has to lead innovation.”3
Coca-Cola is another famous company known for its market orientation. While it does an incredible amount of research on consumer tastes and preferences, including studies and development on new tastes and formulations, the company also has its ear to the ground in terms of the overall market. Its strategic acquisition of brands such as Dasani, Honest Tea, Smartwater, Simply Orange, Minute Maid, and Vitaminwater are all products oriented toward satisfying changing, health-conscious desires among consumers.
As Covid has ravaged economies and put many organizations out of business, or just led to significant challenges, some have used their market orientation to innovate. One simple example is how some restaurants have responded to Covid. Katz is a famous Deli based out of New York City. It is featured in many a Hollywood film, documentaries, and food shows. In a practice that could never have been envisioned even a decade ago, Katz is now offering shipping of their signature meats, breads, cheeses, and condiments to every part of the United States! The company’s intelligence has told Katz that not only is there a demand for its food across the country, but also that a lot of people are leaving NYC but feel nostalgic and miss the flavors and smells of the city—hence the digital operation now makes perfect sense. In sensing the new market orientations afoot, Katz has become truly innovative during a period of incredible hardship.
What about in other countries? Does a market orientation work the same way across the world? In Columbia, companies have traditionally only focused on rationalization, cost cutting, and quality. Wilches, Valencia, and Jimenez set out to study the relationship between market orientation and innovation in the country.4 They conducted an extensive survey among directors with a global vision as part of their responsibilities in 77 Colombian companies. As hypothesized, they found convincing evidence for a market orientation to predict innovation (in this case, product innovation). In another study in Australia, the renowned expert on marketing orientation, Kwaku Atuahene-Gima investigated 275 companies (158 manufacturing, 117 services) and found market orientation also strongly drives innovation in that society.
There are countless other examples of how companies tuned in to their customers, markets, and competitors to translate insights into innovation. A strong market orientation facilitates innovation by providing a culture that enhances creativity, risk taking, and an ability to identify novel opportunities.
The message is clear—be tuned in! Market orientation can be enforced through a formal programmatic commitment to a process-driven approach of collecting, disseminating, and responding to market intelligence. It can be nurtured as a pervasive aspect of the company’s culture through statements, onboarding, and more, but is best when aligned with on-the-ground, ongoing commitments that embed the orientation among all employees within. However expressed, no innovation is possible without a market orientation.
* * *
“You know something you said made me think,” said David as they walked back to their table, having placed their orders.
“What?”
“He heard the customers’ voice.”
“Oh yeah. Everyone has to, no matter what industry,” said Peter.
“Oh, come on! Don’t say ‘my dad never believed in that’! That’s just basic business wisdom man.”
Peter was starting to feel as if David had got into a state of mind where he was just apportioning blame, not taking responsibility.
“Yes and no,” said David.
“Meaning. . . ?”
“It’s the difference between lip service and a deliberate, intentional approach toward what you call market orientation,” said David.
“Dude. Sorry to say, but it’s easy to say, ‘Dad screwed up.’”
“I know. I should have changed things.”
“It’s never too late; it’s not like you are shutting down,” said Peter. “I think I might have something that could help you.”
Key Takeaways
• Understanding and being connected to the customer brings new ideas to the marketplace, helping a firm be more innovative by identifying and converting needs into creative product ideas and new offerings.
• Continuously benchmarking against competitors by following, analyzing, and responding to their moves leads to an ability to differentiate oneself by creating new offerings and innovating.
• A market orientation forces employees and functional units of the firm to cooperate and collaborate to respond to market intelligence.
• Trend-based intelligence, mapping emerging or better competitor products, can lead to new products more cost effectively than developing from scratch.
• Be tuned in to customer, competitors, and markets, both formally and informally.
1 “Nike, Inc. Reports Fiscal 2021 Fourth Quarter and Full Year Results,” Nike News, June 24, 2021. https://news.nike.com/news/nike-inc-reports-fiscal-2021-fourth-quarter-and-full-year-results.
2 L. Stevens. September 14, 2018. “Leadership and Life Lessons from Amazon’s Jeff Bezos,” The Wall Street Journal. www.wsj.com/articles/leadership-and-life-lessons-from-jeff-bezos-1536938179.
3 G.E. Willigan. July–August 1992. “High-Performance Marketing: An Interview With Nike’s Phil Knight,” Harvard Business Review. https://hbr.org/1992/07/high-performance-marketing-an-interview-with-nikes-phil-knight.
4 A.C. Ocampo Wilches, J.C. Naranjo Valencia, and D.J. Jiménez. June 01, 2016. “Market Orientation and Innovation: Do Structure and Environment Moderate This Relationship?” Revista ESPACIOS 39, no. 42. www.revistaespacios.com/a18v39n42/a18v39n42p09.pdf.