Environments, unobserved heterogeneity, and the effect of market orientation on outcomes for high-tech firms

TLDR: In this paper, the authors suggest that these mixed findings may result from the failure of extant research to control for unobserved heterogeneity that may mask the true relationships among market orientation, facets of the environment, and firm outcomes.

Abstract: The interaction between market orientation and facets of the environment is theoretically compelling and is hence the primary interaction studied in market orientation literature. Yet empirical literature offers mixed findings regarding these interaction effects. We suggest that these mixed findings may result from the failure of extant research to control for unobserved heterogeneity that may mask the true relationships among market orientation, facets of the environment, and firm outcomes. Such unobserved heterogeneity might arise due to presence of higher order (e.g., three-way, four-way) moderators (e.g., firm size and innovativeness). To illustrate our assertions on unobserved heterogeneity and the role of firm size and innovativeness, we present two studies that use firm performance or new product performance as the outcome variable; the studies (1) include market orientation, two facets of the environment (technological turbulence and market dynamism), and the interactions between market orientation and facets of the environment as explanatory variables, (2) employ finite mixture regression models to estimate the relationships of interest while explicitly accounting for unobserved heterogeneity in the form of latent regimes (segments), and (3) use firm size and innovativeness as concomitant profiling variables in the finite mixture model specification. The results indicate that disaggregate models (i.e., multi-regime solutions) offer the best fit in both studies. The effects across the latent regimes differ, demonstrating the possibility of an aggregation bias in empirical literature and suggesting the need for using disaggregated analyses to study important marketing phenomena. In theoretical terms, these results also suggest the possibility of developing theories that incorporate unobserved heterogeneity and perhaps higher order (e.g., three-way) interaction effects.