Market orientation, strategic flexibility and

business model innovation

Dong Yang
Xidian University, Xian, China
Zelong Wei
Department of Management, Xi’an Jiaotong University, Xi’an, China, and
Huibin Shi and Jie Zhao
Department of Economics and Management, Xidian University, Xian, China

Abstract
Purpose – This study aims to investigate how market orientation (MO) motivates firms to develop business model innovation and how such effects
are moderated by strategic flexibility.
Design/methodology/approach – In this study, a questionnaire-based survey was undertaken to test the proposed hypotheses. The empirical
study was conducted on a sample of 204 firms using two key informants (408 respondents) in China. The regression model is used to test the
proposed model.
Findings – This research finds that both responsive market orientation (RMO) and proactive market orientation (PMO) have a positive effect on
business model innovation. The effects of RMO and PMO on business model innovation are contingent on resource (coordination) flexibility in
different ways. More importantly, this study finds that resource flexibility enhances the positive effect of RMO and weakens the positive effect of
PMO. The study also finds that coordination flexibility enhances the positive effect of PMO.
Research limitations/implications – Future research can explore the internal mechanisms through which RMO and PMO promote business
model innovations. Although the study finds that both the MOs promote business model innovation, they may promote business model
innovation through different mediating effects. Future research can explore the role of external dynamic capabilities. This research mainly
focuses on the internal dynamic capability of focal firms. However, as a focal firm-centered boundary spanning activity system, to transform
into a new business model, firms not only need to reconfigure internal resource base, but also need to realign external collaboration
network.
Practical implications – This research also bears important managerial implications. First, firms should be aware of the positive effect of MO on
business model innovation. Firms with higher level of RMO or PMO can promote business model innovation. Second, when firms implement RMO
for business model innovation, managers should focus on resource flexibility. Where MO is responsive, marketing managers need to be concerned
with ensuring various applications of existing resource so as to understand effectively the current customers and market domain. Third, to leverage
PMO for business model innovation, firms should adopt coordination flexibility. For firms with higher level PMO, firms should try to find the new
internal coordination process for customer latent needs.
Originality/value – The conclusion extends the business model innovation research from the view of dynamic capabilities. As one of types of
dynamic capabilities, MO is also the important antecedent of business model innovation. Further, this research also discusses the role strategic
flexibility plays in business model innovation.
Keywords Market orientation, Business model innovation, Resource flexibility, Coordination flexibility
Paper type Research paper

Introduction spanning activity system designed to create and capture

value for stakeholders (Zott and Amit, 2010). In connected
Business model innovation attracts increasing research
economy, firms can create competitive advantage by
attention because extant literature underscores the locus of
business model innovation (Chesbrough, 2010; Zott and
competitive advantage has turned from focal firms,
Amit, 2008; Foss and Saebi, 2017). Business models are
bilateral partnership to the holistic business model design
not stable over time. They frequently become subject to
(Amit and Zott, 2001; Zott and Amit, 2007; Foss and
adaptation and innovation. Business model innovation
Saebi, 2017). Business model is a focal firms’ boundary-
refers to the search for a new way of doing business and
design new activity system to create and capture value for
The current issue and full text archive of this journal is available on its stakeholders (Zott and Amit, 2010). For example,
Emerald Insight at: https://www.emerald.com/insight/0885-8624.htm

Received 6 December 2018

Journal of Business & Industrial Marketing
Revised 12 June 2019
35/4 (2020) 771–784 24 October 2019
© Emerald Publishing Limited [ISSN 0885-8624] 30 November 2019
[DOI 10.1108/JBIM-12-2018-0372] Accepted 2 December 2019

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enabling with digital technology, more manufacturing firms opportunities for business model innovation. Thus, strategic
transformed from B2C business model to servitization, C2B flexibility, which reflects the capabilities to identify major
manufacturing and internet-based intelligent manufacturing changes in the environment, quickly commits resources to new
(Rabetino et al., 2018). courses of action in response to change, and acts promptly
Numerous studies have emphasized firms’ motivations to when it is time to halt or reverse such resource commitments
engage in business model innovation. Foss and Saebi (2017) (Katsuhiko and Hitt, 2004), may have a significant influence on
argued that neither the external antecedents nor the internal the relationship between MO and business model innovation.
drivers of business model innovation have been sufficiently Yet, although strategic flexibility has emerged as dynamic
regarded. Recent literature has turned to identify the capabilities (Wei et al., 2014), the function of strategic
antecedents of business model innovation from rational flexibility when realizing business model innovation has not
position, cognition, learning and dynamic capability view. been critically examined.
According to Teece (2018), the dynamic capabilities of firms How do dynamic capabilities affect business model
are one kinds of capabilities for devising and refining business innovation? Despite the increasing salient of this question,
models (Teece, 2007, 2018). Following a widely accepted researchers have mainly relied on qualitative or cases studies
logic, dynamic capabilities involve sensing, seizing and (Foss and Saebi,2017; Teece, 2018). Previous research
transforming capabilities (Teece, 2012). Likewise, studies that indicated that based on general dynamic capabilities, firms can
focus on specific aspects of dynamic capabilities, such as realize business model innovation. However, these studies few
opportunity recognition and flexibility, will illuminate aspects points, out which specific types of dynamic capabilities can
of business model innovation (Teece, 2018). affect business model. Furthermore, until now, extant
More importantly, extant literature achieved consensus literature offers few specific answers to the question on how
that business opportunities creating or recognition is the different types of dynamic capabilities jointly affect business
initial step for business model innovation (Schneider, model innovation.
2017). The needs of customers signal the opportunities to Addressing these gaps, based on business model literature
create values and are integral to business model innovation and dynamic capabilities theory, this research investigates the
(Amit and Zott, 2012, 2015). Firms need to identify the effect of RMO and PMO on business model innovation. And
consumer needs and translate these into effective value the moderating effect of strategic flexibility is also investigated.
creation. Market orientation (MO) is considered to serve as This research contributes to both dynamic capability literature
sensing capabilities, which is particularly helpful in market- and business model innovation literature in two ways. First, this
driven customer value creation as it helps firms to source, study extends the dynamic capabilities from product
track, store and disseminate market information for greater innovation to business model innovation. The dynamic
awareness of business opportunities (Day and van den capabilities-based framework of MO, strategic flexibility and
Bulte, 2002). A case in point is Haier, one of the first and business model innovation is established. This study specially
best-known market-oriented Chinese firms. It focused on probes the configurations of dynamic capabilities: MO and
customers, competitors and other stakeholders in the strategic flexibility. This research views MO as sensing dynamic
market. Based on the market intelligence collected, Haier capabilities because it aims to discover and satisfy unmet
continuously meet the demands of customers (He and Wei, customer needs (Slater and Narver, 1995; Atuahene-Gima,
2011). In 2009, Haier built a platform named Haier Open 1996; Atuahene-Gima et al., 2005). As transforming
Partnership Ecosystem (HOPE). Through the HOPE, capabilities, strategic flexibility may help firms to exploit the
Haier implemented the responsive and proactive MO. opportunities. Second, different types of dynamic capabilities
Haier recognized the expressed needs, such as using the play different roles in the processes of business model
washing machine to wash tomato, and solving air innovation. MO can facilitate the business model innovation,
conditioning disease. At the same time, Haier excavated and strategic flexibility will moderate the relationship between
the potential needs of customers, such as the designing MO and business model innovation. Therefore, to promote
magic mirror, which is an integration of mirror, artificial business model innovation, firms need to not only build sensing
technology, health monitor and leisure in the bath room. capability to identify opportunities, but also to build
The expressed and potential needs can facilitate the transforming capabilities which can leverage the specific types
business model innovation, which is manifested in the of sensing dynamic capabilities.
following areas. First, Haier created the new value
proposition of intelligence, eco-friendly and health.
Theoretic background and hypothesis
Second, Haier created new activity system including
content, structure and governance. Haier adopted the new Business model innovation
activities of software development, healthy consultancy Business model can be defined as the activity system designed
and eco-friendly standard setting. Haier has established to create and capture value by exploiting business opportunity
links with firm from different industrials, universities and (Amit and Zott, 2001; Zott and Amit, 2010, 2013).
R&D organizations across the world. Business model has three core components: value
Opportunities creating or identifying is insufficient for proposition, activity system and resource portfolios. First, value
business model innovation. During the innovation processes, proposition captures the dominant logics orchestrate the
firms must deploy resources to seize and exploit the elements of a business model (de Oliveira et al., 2018). Second,
opportunities (Teece, 2018). As transforming capabilities, activity system is designed to center on value proposition (Palo
strategic flexibility can reconfigure the resources to exploit the and Tähtinen, 2011). It consists of content, structure and

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governance. Content refers to the selection of activities, aiming to innovation. MO facilitates continuous market learning by
answer the question that what activities should be performed by customer and competitor analyses and disseminating process
a focal firm or other partners. Structure describes how the (Narver and Slater, 1990). The understanding of customer
activities are linked and their relative importance for needs enables a firm to identify customer value proposition and
the business model. Governance refers to who should perform promote business model innovation (Ramani and Kumar,
the activities and where. Third, both internal and external 2008).
resource portfolios form the base of activity system because any Advance in MO literature unpacks it as RMO and PMO.
activity is based on specific resource. RMO can help firms to understand expressed unmet needs,
Business model innovation refers to the search for new logics whereas PMO helps firms to explore latent unmet needs
of the firm and design new activity system to create and capture (Narver et al., 2004). RMO and PMO differ in the distribution
value for its stakeholders (Zott and Amit, 2010; Foss and Saebi, of attention to the set of strategic issues and answers (Hurley and
2017). Massa and Tucci (2014) conclude that business model Hult, 1998; Wei et al., 2014). First, they differ in attention
innovation may either refer to “the design of novel business distribution on customer needs. RMO attaches more attention
models for newly formed organizations” or to “the to issues such as current customers, threats and opportunities
reconfiguration of existing business models” (p. 424). In this in existing market domain (Atuahene-Gima et al., 2005; Wei
study, we explore business model innovation in the context of et al., 2014). In contrast, PMO, focusing on the future or latent
incumbent firms where the established business model is market, attaches more attention to issues such as future
undergoing renewal. Therefore, to promote business model competition and new market opportunities (Wei et al., 2014).
innovation, firms should first identify new value proposition or Second, they differ in resource distribution pattern on
design theme, and then redesign the proper activity system customer needs. RMO guides firms to modify existing business
centering on new value proposition to capture the value. The model for better serving current customers. On the contrast,
essence of redesign activity system is the adoption of new firms with PMO attempt to allocate more resources to the
activities (content), and/or new ways of linking the activities strategic activities beyond existing product-market domains to
(structure) and/or new ways of governing the activities facilitate new experiments and discoveries (Yannopoulos et al.,
(governance). 2012).

Market orientation and business model innovation Strategic flexibility and business model innovation
Dynamic capability theory argues that, beyond rare, valuable, Dynamic capability theory also argues that, to transform
imperfectly imitable and non-substitutable resource base, firms new value proposition into specific activity system for new
should build dynamic capability to rebuild resource portfolios business model, firms should develop transforming
(Teece et al., 1997). Dynamic capability is divided into sensing dynamic capability to reconfigure resource portfolios.
capability, sizing capability and also transforming capability Resource forms the base for core activity in new business
(Teece, 2007). Sensing capability refers to the capability to model. To implement new business model, firms should
search, learn, filter, shape and calibrate new opportunities reconfigure existing resource portfolio (Scott et al., 2014).
(Teece, 2007; Augier and Teece, 2009). Seizing capability Strategic flexibility is a firm’s capability to identify changes
refers to the capacity to motivate resources for new opportunity in the environment, to quickly commit resources to new
exploitation (Teece, 2007; Wilden et al., 2013). Transforming courses of action in response to changes and to act
capability refers to capacity to reconfigure resources and promptly when it is time to halt or reverse such resource
structure (Teece, 2012). commitments. Extant literature suggests that strategic
To develop new business model, firms should identify new flexibility is one kind of transforming capability, which
value proposition for customer and then translate it into derives from both resource flexibility and coordination
specific activity system (Zott and Amit, 2010; Priem et al., flexibility (Liu et al., 2009; Wei et al., 2014).
2012). New value proposition often derives from organizational Resource flexibility and coordination flexibility differ in
search for unmet customers’ needs (Chesbrough, 2010). micro-foundation and the way to reconfigure resource
Therefore, to generate new value proposition, firms need a portfolios. Resource flexibility derives from the width of use of
existing resources. Therefore, resource flexibility increases the
sensing capability that helps firms to scan, search and explore
flexibility by creating more opinions of alternative resources in
customer needs for new opportunities (Teece, 2007).
existing portfolio (Sanchez, 1995; Wei et al., 2014).
MO is defined as understanding and satisfying customers
Coordination flexibility derives from the organizational process
and other relevant stakeholders (Day, 1994; Narver and Slater,
to create new resource combinations. Therefore, coordination
1990). The research can be grouped into three major
flexibility enables resource reconfiguration through breaking
perspectives:
the current structure of resource base (Sanchez, 1995; Wei
1 behavioral (Slater and Narver, 1995);
et al., 2014). In other words, resource flexibility is primarily
2 cultural (Narver et al., 2004); and
concerned with the technical features of any specific resource,
3 capability perspective (Foley and Fahy, 2009).
whereas coordination flexibility is primarily concerned with the
MO is considered to serve as such capability that helps firms to organizational capability to reconfigure diverse resources (Li
source, track, store and disseminate market information for et al., 2017). For example, in Haier, modular product and
greater awareness of business opportunities (Day and Van den process architectures have been regarded as resource flexibility.
Bulte, 2002). In this paper, the capability perspective of MO is This can help firms effectively perform a broad range of new
adopted that capabilities have the potential influence on tasks. The organizational process of Haier can be regarded as

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coordination flexibility. This can help firms effectively deploy The moderating effect of resource flexibility
resource and recombine resource in new context. Therefore, Although the RMO and PMO help firms to generate new value
according to dynamic capability theory, two types of MOs proposition, firms should reconfigure proper resource portfolio
enable focal firms to generate new value proposition, whereas to transform value proposition into specific activity system.
strategic flexibility leverages these effects by facilitating a focal Given RMO focusing more on unmet explicit needs of current
firm to reconfigure resources for new business model. Based on customer, it often guides firms to search for increment change
the above discussion, we build a theoretical model as shown in of existing value proposition. Therefore, to facilitate the new
Figure 1. value proposition, firms need to modify existing resource
combinations for existing business model. Resource flexibility
Hypotheses development facilitates this transformation by offering larger room to
redeploy existing resources in new use (Zhou and Wu, 2010;
Market orientation and business model innovation
Narver et al., 2004). With higher level in resource flexibility, the
MO aims to meet the needs of customers and create the new
scope of resource usage can be extended and firms can have
value proposition. The new value proposition is the prerequisite
slack resource for value delivery and capture (Johnson et al.,
for business model innovation. It may increase business model
2008). When resource flexibility is higher, firms can pursue
innovation. First, RMO may promote the development of new
more cost-effective ways of delivering and capturing value.
value proposition derived from learning from current
Therefore, we hypothesize that:
customers. RMO focuses largely on the domain of the firm’s
current knowledge and experience and provides an in-depth H2a. Resource flexibility strengthens the positive effect of
understanding of current customers and their expressed needs. RMO on business model innovation.
By focusing on unmet needs of current customers, firms can
generate new ideas to update or modify existing value However, resource flexibility may weaken the positive effect of
proposition. PMO on business model innovation. First, high level
Second, PMO guide firms generate a new value proposition of resource flexibility prevents firms from gaining the benefits of
derived from a deep understanding of latent customer needs. the diversity and novelty of market information associated with
PMO reflects an exploratory learning behavior involving the PMO. With PMO, firms acquire the market information that is
search for new and diverse information and knowledge that is complex, novel and ambiguous. Hence, by focusing on latent
beyond the scope of its experience (March, 1991). The market customer needs, firms are likely to create a range of market
knowledge improves the understanding of current business opportunities that lie outside their experience. Pursuing such
deficiencies and provides new business opportunities. More initiatives requires an adaptation of the resource combination
importantly, PMO often inspires redefinition of current or new way to support activities that satisfy latent and emergent
customer needs, which promotes exploratory value proposition customer needs. Second, resource flexibility emphasizes
(Wu et al., 2013). extensive use of extant resource which prohibits the
Third, MO may lead to the innovation of business model opportunities exploitation. A high level of resource flexibility
components and activities. The MO directs management’s may unwittingly lead the firm into a competency or familiarity
attention scope for gauging the potential value-added trap by which the exploitation of current customers’ needs
components and activities (Wei et al., 2014). Firms with MO excludes newer efforts (Huang et al., 2013). Hence, a high
concentrate on ongoing behaviors and activities, including resource flexibility is likely to limit the firms with PMO to
customer and competitor-intelligence generation. To meet the reduce the likelihood of new resource and novel information
needs of customers, firms need the experiment about the application for business model innovation. Therefore, we
content, structure and activities in the process of business hypothesize that:
model innovation (Sosna et al., 2010). Through the
experiment, firms can design new activity systems. Therefore, H2b. Resource flexibility weakens the positive effect of
we hypothesize that: proactive market orientation on business model
innovation.
H1a. RMO has positive effect on business model innovation.
Different from resource flexibility, coordination flexibility is
based on organizational routines for dynamic resource
configuration. Firms with high coordination flexibly are
H1b. PMO has positive effect on business model innovation. capable to build novel resource base. Coordination flexibility
weakens the positive effect of RMO because it often disrupts
Figure 1 Theoretic model ongoing activity system and reduces the consistency. High
coordination flexibility is likely to diminish the effect of
Strategic flexibility responsive MO on BMI because it engenders adverse conflicts
 Resource flexibility
 Coordination flexibility that limit knowledge sharing and integration. Because
responsive MO involves relatively familiar information about
current customers’ needs, interpreting and using familiar
information effectively requires a well-defined and narrowly
Market orientation (MO)
 Responsive market orientation Business model innovation focused resource.
 Proactive market orientation To leverage RMO for business model innovation, the need of
resource reconfiguration is incremental modification of existing

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activity system to quickly response to customer-expressed communication, chemical and pharmaceutical, general
needs. However, the coordination flexibility is based on the equipment, internet technology and other industries) and areas
organizational routines and processes to throughout such as Shaanxi, Henan, Shandong, Guangdong and Jiangsu
reconfiguration of resource base (Sanchez, 1997). Over- Provinces. We choose the companies from the firm list provided
reconfiguration of existing resource base incurs the disturbance by the local governments. To ensure the access to the right
in consistency of activity systems and thus high cost to respondents and accurate understanding of the items, we
transform the new value proposition to activity system. conducted an onsite survey. Although onsite survey is costly and
Therefore, we hypothesize that: time-consuming, which can ensure the questionnaire response
completely and seriously (Sheng et al., 2011).
H3a. Coordination flexibility weakens the positive effect of To reduce potential common method bias, we invited two
responsive market orientation on business model managers of the same company to complete different parts of the
innovation. questionnaire. For each firm, we assigned two doctoral students to
Coordination flexibility may strengthen the effect of PMO implement survey onsite. Through communication with
because it complements the need of resource reconfiguration managers, the doctoral students arranged the meeting time. Then
derived from PMO. Value proposition derived from PMO they conducted the survey with Managers A and B separately, and
often are novel and thus set more demand on radical finally checked the questionnaire after the managers finished.
reconfiguration of resource base. Firms with high coordination In the survey, a total of 500 firms were approached and 296
flexibility develop organization processes for dynamic resource firms participated. Because of missing data, our final sample
configuration. Firms with high coordination flexibility can includes 204 firms, which represented a response rate of 35.2 per
integrate, build and reconfigure resources radically with low cent. To check non-response bias, a t-test was performed to
cost and high speed time (Sanchez, 1997). Therefore, compare the responding and non-responding firms along firm
coordination flexibility creates the context in which the firm can attributes such as firm size, age and sales. All t-statistics were
better assimilate and apply new resources to meet latent insignificant, which indicated a low possibility of non-response bias
customers’ needs (Zhou and Wu, 2010), which makes firms to (Armstrong and Overton, 1977). Among the 408 responding
create easily the value proposition for the latent needs. High managers, 64.5 per cent of them were titled as chairman of the
coordination flexibility relaxes routine inertia, which helps board, CEO, general manager, vice general manager and chief
firms to break down its organizational routine inertia for engineer, and 35.5 per cent of them were titled as R&D department
exploration of new alternatives (Zhou and Wu, 2010). manager. The managers had worked for 7.55 years on the average.
Therefore, coordination flexibility can help firms to efficiently A total of 70.5 per cent of them had received the bachelor degree or
integrate and recombine resources for the new market above. Table I represents the profile of the sample.
opportunities (Wei et al., 2014). Therefore, we hypothesize
that: Table I Profile of responding firms (N = 204)
Characteristics of responding firms (%)
H3b. Coordination flexibility strengthens the positive effect
of PMO on business model innovation. Firm age
Less than 5 years 15.34
5-10 years 34.66
Methodology 11-20 years 34.66
Sample and data collection More than 20 years 15.34
We conducted surveys of Chinese firms to test the hypotheses. Firm size
China is one of the most important emerging economies where Less than 50 employees 14.86
business model innovations are springing up. We developed 50-200 employees 36.00
questionnaire based on literatures and the interview. First, we 200-1,000 employees 34.29
were engaged in interviews with eight senior managers in Xi’an More than 1,000 employees 14.85
to collect the information on typical characteristics of
Firm sales (in RMB)
environment and managerial practices. Second, we adjusted
Less than 10mn 15.34
the items based on the interviews and relevant literatures.
10-100mn 37.71
Third, we interviewed with the previous senior managers again,
100-1,000mn 37.71
invited them to check the items and revised the items.
More than 1,000mn 9.15
We developed an exploratory study with another 12 Chinese
top managers titled as CEO, general manager and vice president. Firm ownership
First, we promised that their response would be confidential and State-owned enterprise 13.07
only applied to academic research. Second, we invited the Private-owned enterprise 69.32
managers to finish all the survey items. Third, we repeatedly Foreign-owned enterprise 13.06
communicated with the managers about the appropriateness of Collectively owned enterprise 4.55
terminologies and clarity of the items. Fourth, based on their Industry
suggestions, we finally designed the questionnaire to ensure that High-tech industry 76.7
all the items are clearly understandable. We collected data from Other industries 23.3
various industries (e.g. electrical equipment, electronic

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Measures flexibility in their firms over the past three years. Five of the
statements pertain to resource flexibility:
Business model innovation
1 A typical material handling system can handle different
We adopted the scales developed by Zott and Amit (2007) to
part types.
measure business model innovation. We asked top managers to
2 Cross-trained workers can perform a broad range of
indicate, on a 1-5 Likert scale, the extent to which ten manufacturing tasks effectively.
statements were true regarding the business model innovation 3 A typical machine can perform many types of operations.
over the past three years: 4 A typical part can use many different routes.
 Incentives offered to participants in transactions are novel. 5 We can produce a wide variety of products in our plants.
 The business model gives access to an unprecedented
variety and number of participants and/or goods. Four of the statements pertain to coordination flexibility:
 The way to generate revenues is novel. 1 The firm can redeploy the use of resource for alternative
 The way to generate revenues is novel. products.
 Created new sources of revenues. 2 The firm can reconfigure the resource chain for new
 Overall, the company’s business model is novel. products easily.
3 The firm is capable to adjust organizational processes
effectively.
Responsive and proactive market orientations 4 The firm is capable to create new combinations of
Following the work of Yannopoulos et al. (2012) and Lamore resources effectively.
et al. (2013), we asked senior managers to indicate, on a 1-5
Likert scale, the extent to which nine different statements were
true regarding MO in their firms over the past three years. Six of Control variables
the statements pertain to RMO: A variety of organizational and environmental factors such as firm
1 We constantly monitor our level of commitment and age, size, industry type, industry life cycle, competitive intensity,
orientation to serving customers’ needs. demand uncertainty and legal incompleteness are controlled for
2 Our strategy for competitive advantage is based on our the alternative explanations for business model innovation. Firm
understanding of needs. age and firm size may affect firm growth by create inertia (Hannan
3 We measure customer satisfaction systematically and and Freeman, 1984). Firm age is measured by calculating the
frequently. natural logarithm of the number of years since a firm was founded,
4 We are more customer-focused than our competitors. and firm size is measured by calculating the natural logarithm of
5 We freely communicate information about our successful the number of employees (Rothaermel and Deeds, 2004). The
study also controls industry type which could determine the
and unsuccessful customer experiences across all business
companies’ market opportunities and the frequency of business
functions.
model innovation (Ali et al., 1993; Klevornick et al., 1995).
6 Data on customer satisfaction are disseminated at all
Industry life cycle was assessed by the stage of the most key
levels in this company on a regular basis.
product in its life cycle (1 = Introduction stage, 2 = Growth stage,
Eight of the statements pertain to PMO: 3 = Maturity stage and 4 = Decline stage).
1 We continuously try to discover additional needs of our The external environmental factors, such as competitive
customers of which they are unaware. intensity, demand uncertainty and legal incompleteness, also
2 We search for opportunities in areas where customers have effect on business model innovation. Following the study
have a difficult time expressing their needs. of Wei et al. (2017), we measured competitive intensity by a
3 We extrapolate key trends to gain insight into what five-item scale:
customers will need in the future.  Competition in our industry is cutthroat.
4 We help our customers anticipate developments in their  Anything that one competitor can offer, others can match
use of our products and services. readily.
5 We incorporate solutions to unarticulated customer needs  Price competition is a hallmark of our industry.
in our products and services.  There are many “promotion wars” in our industry.
6 We brainstorm on how customers use our products and We measured demand uncertainty by a three-item scale
services. adapted from the work of Jaworski and Kohli (2003):
7 We innovate even at the risk of making our own offering 1 Customers demand is not clearly understandable.
obsolete. 2 Customer preference is difficult to predict.
8 We work with lead users of our offerings to recognize 3 Customers hold low brand loyalty.
customer’ needs months in advance of the majority of
users. We measured legal incompleteness with the scale from the
work of Wei et al. (2017):
 The laws and regulations have been incomplete.
Resource flexibility and coordination flexibility  Voids in the laws and regulations have persisted.
We adopted the scales used by the work of Sanchez (1995,  The regulations and policies have not been specific
1997), Zhou and Wu (2010) and Wei et al. (2014). We asked enough to rely on.
senior managers to indicate, on a 1-5 Likert scale, the extent to  The regulations and policies have not been specific
which nine different statements were true regarding strategic enough to guide practices.

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Assessing common method variance Analysis and results

Following the procedures recommended by Podsakoff et al. Table III presents the basic descriptive statistics and
(2003), this study undertook both ex ante and ex post correlations of the hypothesized and controlled variables. We
approaches to reduce common method variance (CMV). First, used multivariate regression analysis to test the main effects and
because collecting data from single informant is the most moderating effects (Baron and Kenny, 1986) (see Table IV).
important source of CMV, we asked two managers to complete We mean-centered all the variables included in interaction
the different parts of survey. One manager answered the scales terms to reduce the threat of multicollinearity (Aiken and West,
for business model innovation, RMO, PMO and legal 1991). The variance inflation factors in all models are below
incompleteness, whereas the other answered the scale for 2.1, which are well below the cut-off of 10.
competitive intensity, demand uncertainty, resource flexibility Table IV reports the hierarchical regression analyses results step
and coordination flexibility. by step. We ran Models 1 and 2 to examine H1 and H2. In the first
Second, to check for CMV, we applied the marker variable step, we entered the control variables, which together explain a
(MV) method (Lindell and Whitney, 2001), using a two-item significant share of the variance (Model 1: R2 = 0.139, p < 0.05).
variable known as government intervention as our MV, which In the second step, we add resource flexibility and coordination
was theoretically unrelated to at least one focal variable flexibility, which together explain a significant share of the variance
(Cronbach’s alpha = 0.757). Government intervention is (Model 2: R2 = 0.362, p < 0.001). In the third step, we add RMO
and PMO. The results indicate that both RMO and PMO have a
measured with two five-point items:
positive effect on business model innovation (Model 3: b = 0.323,
1 We often have to employ some employees or collaborate
p < 0.001; b = 0.311, p < 0.01). Therefore, H1a and H1b are
with some partners according to the requirement of
both supported.
government.
To examine the moderating effects of strategic flexibility, we ran
2 We often have to do something out of our business
Model 4. Model 4 shows that the coefficient of interaction
according to the requirement of government.
between resource flexibility and RMO is significantly positive
We used the lowest positive correlation between (Model 4: b = 0.152, p < 0.01). To gain further insight into this
government intervention and other focal variables result, we plotted the relationships in Figure 2. As shown in Figure
(r = 0.053) to adjust the correlations between variables. As 2, the effect of RMO increases faster when resource flexibility
shown in Table IV, none of the correlations between focal increases. The result indicates that resource flexibility strengthens
variables became insignificant after MV adjustment, which the positive effect of RMO on business model innovation.
indicates a reduced chance of common method bias (Lindell Therefore, H2a is supported.
and Whitney, 2001). Model 4 shows that the coefficient of interaction between
resource flexibility and PMO is significantly negative (Model 4: b
= 0.258, p < 0.001). We plotted the relationships in Figure 3. As
Reliability and validity
shown in Figure 3, the positive effect of PMO on business model
Table II summarizes the results of reliability analysis. Table II innovation increases more slowly when resource flexibility
shows that the Cronbach’s alpha and composite reliability values increases. This result indicates that resource flexibility weakens the
are all greater than the 0.7 cut-off, indicating adequate reliability positive effect of PMO. Therefore, H2b is supported. Model 4
(Nunnally, 1978). Most of factor loadings are above 0.7 and shows that the coefficient of interaction between coordination
average variance extracted (AVE) is above 0.5, which indicates a flexibility and RMO is positive, but not significant (Model 4: b =
high convergent validity (Fornell and Larcker, 1981; Segars, 1997). 0.038). Therefore, H3a is not supported.
This research also conducted confirmed factor analysis (CFA) with We will further discuss this finding in the next section. Model
the items linked to prior defined constructs to test the validity. The 4 also shows that the coefficient of interaction between
results indicate that the measuring model fit the data well (Chi- coordination flexibility and PMO is significantly positive
square/df = 16.37, RMSEA = 0.045, CFI =0.97, NFI = 0.91). (Model 4: b = 0.140, p < 0.01). The summary of regression
We checked the discriminant validity using Chi-square result of hypotheses is presented in Table V.
difference tests and AVE method. First, we performed ten pairwise We plotted the relationships in Figure 4. As shown in Figure 4,
tests with each pair of constructs. In a pairwise test, a restricted the effect of PMO increases faster when coordination flexibility
model (correlation fixed to 1) is compared with a freely estimated increases. The result indicates that coordination flexibility
model (correlated estimated freely). Significant Chi-square strengthens the positive effect of PMO on business model
difference is in support of discriminant validity (Anderson and innovation. Therefore, H3b is supported (Figures 2-5).
Gerbing, 1988). The tests indicated that the Chi-squares of
restricted models were significantly different from those of freely Discussion
estimated models, which indicated high discriminant validity. How does MO and strategic flexibility affect business model
Second, an examination of Table III reveals that the diagonal innovation? Based on dynamic capabilities theory, MO is
elements representing the square root of the average variance regarded as sensing dynamic capabilities, and strategic
extracted (SRAVE) for each construct are significantly greater flexibility is regarded as transforming capabilities. We find that
than the off-diagonal correlations. This satisfies Fornell and although RMO and PMO both have positive effects on
Larcker’s (1981) criterion for discriminant validity. Taken business model innovation, they need different resource
together, these results show that the measures in this study possess flexibility or coordination flexibility for business model
adequate reliability and validity. innovation. Especially, we find that resource flexibility enhances

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Table II Reliability and validity

Constructs Measurement items Standardized loadings
Competition intensity Competition in our industry is cutthroat 0.807
Alpha = 0.836 Anything which one competitor can offer, others can match readily 0.758
AVE = 0.517 Price competition is a hallmark of our industry 0.820
CR = 0.842 There are many “promotion wars” in our industry 0.735
One hears of a new competitive move almost every day 0.793
Demand uncertainty Customers demand is not clearly understandable 0.872
Alpha = 0.768 Customer preference is difficult to predict 0.864
AVE = 0.548 Customers hold low brand loyalty 0.742
CR = 0.779
Legal incompleteness The laws and regulations have been incomplete 0.733
Alpha = 0.853 Voids in the laws and regulations have persisted 0.867
AVE = 0.606 The regulations and policies have not been specific enough to rely on 0.904
CR = 0.858 The regulations and policies have not been specific enough to guide practices 0.825
Responsive market orientation (RMO) We constantly monitor our level of commitment and orientation to serving 0.762
Alpha = 0.852 customers’ needs
AVE = 0.549 Our strategy for competitive advantage is based on our understanding of needs 0.738
CR = 0.879 We measure customer satisfaction systematically and frequently 0.839
We are more customer-focused than our competitors 0.762
We freely communicate information about our successful and unsuccessful 0.699
customer experiences across all business functions
Data on customer satisfaction are disseminated at all levels in this company on 0.767
a regular basis
Proactive market orientation (PMO) We continuously try to discover additional needs of our customers which they 0.719
Alpha = 0.892 are unaware
AVE= 0.535 We search for opportunities in areas where customers have a difficult time 0.761
CR = 0.900 expressing their needs
We extrapolate key trends to gain insight into what customers will need in the 0.815
future
We help our customers anticipate developments in their use of our products 0.777
and services
We incorporate solutions to unarticulated customer needs in our products and 0.540
services
We brainstorm on how customers use our products and services 0.852
We innovate even at the risk of making our own offering obsolete 0.825
We work with lead users of our offerings to recognize customer’ needs months 0.799
in advance of the majority of users
Coordination flexibility The firm can redeploy the use of resource for alternative products 0.860
Alpha = 0.874 The firm can reconfigure the resource chain for new products easily 0.880
AVE = 0.727 The firm is capable to adjust organizational processes effectively 0.854
CR = 0.914 The firm is capable to create new combinations of resources effectively 0.815
Resource flexibility A typical material handling system can handle different part types 0.780
Alpha= 0.779 Cross-trained workers can perform a broad range of manufacturing tasks 0.635
AVE = 0.532 effectively
CR = 0.850 A typical machine can perform many types of operations 0.761
A typical part can use many different routes 0.775
We can produce a wide variety of products in our plants 0.684
Business model innovation (BMI) The business model offers new combinations of products, services and 0.788
Alpha = 0.896 information
AVE = 0.625 Incentives offered to participants in transactions are novel 0.728
CR = 0.908 The business model links participants to transactions in novel ways 0.820
The way to generate revenues is novel 0.855
The business model creates new sources of revenues 0.835
Overall, the company’s business model is novel 0.842
Note: Respondents answered these questions with reference to the previous three years

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 Table III Descriptive statistics and correlations

Mean SD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

     
1. Firmage (Ln) 2.308 0.790 N/A 0.635 0.047 0.203 0.002 0.05 0.101 0.09 0.517 0.08 0.002 0.122 0.067 0.236 0.125 0.021 0.172
2. Firm size (Ln) 5.206 1.529 0.655  N/A 0.055 0.239  0.036 0.135    0.167 0.001 0.414  0.19  0.055 0.194  0.037 0.114 0.145 0.091 0.1
3. Food and textile 0.049 0.216 0.008 0.105 N/A 0.159 0.121    0.22  0.135    0.333  0.148 0.126    0.025 0.209  0.206  0.063 0.067 0.079 0.078
Dong Yang, ZelongWei, Huibin Shi and Jie Zhao

4. Electronic communication 0.157 0.365 0.139 0.173 0.098 N/A 0.18 0.367  0.206 0.049 0.207  0.109 0.069 0.020 0.008 0.015 0.035 0.171 0.003
Strategic flexibility and business model innovation

5. Mental and metalwork 0.069 0.253 0.055 0.019 0.062 0.117    N/A 0.252  0.15 0.15 0.005 0.058 0.148 0.043 0.015 0.036 0.141    0.069 0.106
6. General and special
equipment 0.319 0.467 0.101 0.181  0.155 0.295  0.186  N/A 0.294  0.007 0.013 0.015 0.14    0.028 0.022 0.079 0.041 0.026 0.058
7. Information technology 0.098 0.298 0.043 0.105 0.075 0.142 0.089 0.225  N/A 0.129    0.067 0.044 0.06 0.125    0.133    0.017 0.054 0.029 0.040
8. Industry (high-tech) 0.779 0.416 0.138 0.054 0.263  0.099 0.089 0.059 0.175 N/A 0.032 0.049 0.063 0.051 0.062 0.032 0.075 0.036 0.082
9. Industry life cycle 2.230 0.607 0.543  0.445  0.087 0.143 0.058 0.040 0.010 0.022 N/A 0.055 0.04 0.093 0.106 0.195  0.068 0.063 0.104

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10 Competitive intensity 3.835 0.737 0.129    0.233  0.066 0.050 0.108 0.039 0.011 0.006 0.105 0.719 0.36  0.037 0.068 0.063 0.023 0.007 0.027
11. Demand uncertainty 2.663 0.810 0.051 0.001 0.029 0.118    0.087 0.080 0.110 0.007 0.015 0.394  0.740 0.168 0.249  0.17 0.058 0.058 0.049
12. Legal incompleteness 3.149 0.833 0.062 0.131    0.145 0.072 0.012 0.027 0.171 0.101 0.035 0.088 0.212  0.778 0.002 0.012 0.035 0.036 0.008
13. Resource flexibility 3.366 0.748 0.011 0.018 0.142 0.045 0.039 0.032 0.073 0.112 0.047 0.011 0.183  0.055 0.729 0.528  0.19  0.129    0.242 
14. Coordination flexibility 3.752 0.663 0.171 0.055 0.006 0.067 0.019 0.022 0.037 0.083 0.132    0.006 0.108 0.064 0.553   0.853 0.419  0.294  0.442 
15. Proactive market
orientation 3.978 0.620 0.066 0.084 0.010 0.086 0.080 0.014 0.002 0.124    0.011 0.074 0.108 0.019 0.233   0.450  0.731 0.563  0.562 
16. Responsive market
orientation 3.753 0.542 0.033 0.139 0.022 0.109 0.013 0.029 0.081 0.087 0.112 0.046 0.002 0.019 0.176 0.331  0.586  0.741 0.534 
17. Business model innovation 3.630 0.680 0.110 0.042 0.021 0.050 0.047 0.002 0.091 0.131    0.046 0.027 0.006 0.046 0.282   0.472  0.586  0.559  0.791
18. Government intervention
(mark variable) 2.480 0.883 0.016 0.058 0.005 0.090 0.072 0.003 0.082 0.005 0.075 0.092 0.100 0.129 0.073 0.040 0.004 0.053 0.133
Notes: Diagonal elements in italics are square roots of the AVE values; off-diagonal elements are the correlations of the main variables of interest to the study;     p < 0.10;  p < 0.05;   p < 0.01
Volume 35 · Number 4 · 2020 · 771–784
Journal of Business & Industrial Marketing
 Strategic flexibility and business model innovation Journal of Business & Industrial Marketing
Dong Yang, ZelongWei, Huibin Shi and Jie Zhao Volume 35 · Number 4 · 2020 · 771–784

Table IV Regression results

Dependent variable: business model innovation
Variables Model 1 Model 2 Model 3 Model 4

Firm age(Ln) 0.241 0.068 0.104 0.114
Firm size (Ln) 0.006 0.027 0.009 0.021
Food and textile 0.062 0.060 0.036 0.023
Electronic communication 0.006 0.096 0.092 0.082
Mental and metalwork 0.029 0.013 0.035 0.063
General and special equipment 0.020 0.096 0.063 0.039
Information technology 0.088 0.097 0.100 0.083
Industry (high-tech) 0.218 0.092 0.032 0.043
Industry life cycle 0.188 0.139 0.149 0.150
Competitive intensity 0.118 0.045 0.117 0.148
Demand uncertainty 0.115 0.200 0.154 0.158
Legal incompleteness 0.156 0.145 0.092 0.110
Resource flexibility 0.129 0.144 0.182
Coordination flexibility 0.468 0.207 0.175
Responsive market orientation 0.323 0.294
Proactive market orientation 0.311 0.307
Responsive market orientation 3 Resource flexibility 0.152
Proactive market orientation 3 Resource flexibility 0.258
Responsive market orientation 3 Coordination flexibility 0.038
Proactive market orientation 3 Coordination flexibility 0.140
R square 0.139 0.362 0.545 0.587
Adjusted R square 0.063 0.260 0.446 0.478
R-change 0.223 0.183 0.032
F-value 1.831 3.568 5.536 5.397
Max VIF 1.923 1.949 2.012 2.066

Notes: p < 0.1 (two-tailed test);  p < 0.05 (two-tailed test);  p < 0.01 (two-tailed test);  p < 0.001 (two-tailed test)

Figure 2 Resource flexibility-responsive market orientation Figure 3 Resource flexibility-proactive market orientation

the positive effect of RMO while weakening that of PMO.

relationship between RMO and business model
Coordination flexibility enhances the positive effect of PMO. We
innovation. Maybe we should further distinguish the
find that resource flexibility negatively moderates the relationship
potential and realized coordination flexibility. Although
between PMO and business model innovation. Resource flexibility
coordination flexibility can have potential to totally
can lead to core rigidities, which tend to maximize the full potential
of its extant resources and ignore new value of customers from reconfigure the resource base, realized coordination
PMO. Moreover, firms are more potent in controlling its extant flexibility varies with the demand of business model
resources, so the costs and risks of switching the resources to grasp innovation. Business model innovation derived from RMO
the new value would be higher. set more demand for resource reconfiguration and little
Contrary to our expectation, we do not find the negative demand for organizational reconfiguration. Therefore,
moderating effect of the coordination flexibility on the coordination flexibility may not incur the cost of
transforming.

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Theoretical contributions Figure 4 Coordination flexibility-responsive market orientation

This research contributes to dynamic capability stream of business
model literature in two ways. First, we link business model
innovation and dynamic capability theory by investigating the
alignments of different types of dynamic capabilities to promote
business model innovation. Dynamic capability stream mainly
agrees that sensing, seizing and transforming dynamic capabilities
are needed to achieve business model innovation (Mezger, 2014;
Battistella et al., 2017; Teece, 2018). Different from the previous
marketing research of MO and product or process innovation, this
research extends the business model literature by identifying two
types of MOs as antecedents of business model innovation.
Although extant literature achieved consensus that sensing the
existence of unmet customer needs is often the initial step for
business model innovation (Teece, 2018), extant literature does
not investigate the specific antecedents that promote business
model innovation by sensing customer needs. This research finds
that both RMO and PMO have positive effects. The findings show Figure 5 Coordination flexibility-proactive market orientation
that sensing the explicit or latent customer needs can help firms to
develop new value proposition and then promote business model
innovation. This supports the view of Chesbrough (2010) that
MO can overcome the cognitive constraints to realize business
model innovation.
Second, this paper tests the joint effects of different types of
dynamic capabilities on promoting business model innovation. We
find that although RMO and PMO as sensing dynamic capabilities
have positive effects of business model innovations, they need
different types of transforming dynamic capabilities. Resource
flexibility can leverage RMO, whereas coordination flexibly can
leverage PMO to promote business model innovation. RMO often
promotes business mode innovation by identifying opportunities
to incrementally change business model to meet the explicit need
of current customer. In this case, firms often prefer to increase the
internal consistency of existing business model for quick response
to sense the unmet customer needs. Enabled with new generation
to explicit customer needs. Therefore, resource flexibility enables
of digital technology, an increasing number of firms are searching
firms to updating existing resource base quickly with low cost. On
new opportunities to create new business model. We find that
the contrast, PMO often promotes business model innovation by
RMO and PMO have significantly positive effects on business
identifying novel value proposition for unmet latent needs. In this
model innovation. As sensing dynamic capability, two MOs can
case, to deliver novel value proposition, firms often need to wholly
promote business model innovation by identifying new ways to do
reconfigure rather than incrementally modifying existing resource
business. The unmet need of customers guides firms to generate
base. Resource flexibility may lead firms to search in existing
new solution and value proposition, which guides firms develop
resource base and thus incur competence trap. Coordination
new business model in dynamic environment. Therefore, our
flexibility can enable firms search distantly for new resources and
findings indicate that to promote business model innovation, firms
radically reconfigure existing resource base for new business
should develop MO to reposition the way to serve or lead
model.
customer.
Second, firms should build proper transforming dynamic
Managerial implications capabilities to leverage two types of MOs for business model
This research also bears important managerial implications. First, innovation. We find that two types of MOs need different kind of
to promote business model innovation, firms should invest in MO transforming capabilities for promoting business model
Table V Results of hypotheses
Hypotheses Results
H1a: RMO has positive effect on business model innovation Supported
H1b: PMO has positive effect on business model innovation Supported
H2a: Resource flexibility strengthens the positive effect of RMO on business model innovation Supported
H2b: Resource flexibility weakens the positive effect of PMO on business model innovation Supported
H3a: Coordination flexibility weakens the positive effect of RMO on business model innovation Not supported
H3b: Coordination flexibility strengthens the positive effect of PMO on business model innovation Supported

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 Strategic flexibility and business model innovation Journal of Business & Industrial Marketing
Dong Yang, ZelongWei, Huibin Shi and Jie Zhao Volume 35 · Number 4 · 2020 · 771–784

innovation. To leverage RMO, firms should invest more on of Product Innovation Management, Vol. 22 No. 6,
resource flexibility. On the contrast, to leverage PMO for business pp. 464-482.
model innovation, firms should invest more in coordination Augier, M. and Teece, D.J. (2009), “Dynamic capabilities and
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About the authors

Further reading
Dong Yang received his Ph.D. from the Xi’an Jiaotong
Bennett, R.C. and Cooper, R.G. (1981), “The misuse of marketing: University. He is an Associate Professor at the School of
an american tragedy”, Business Horizons, Vol. 24 No. 6, pp. 51-61. Economic and Management, Xidian University. His
Chesbrough, H. (2006), Open Business Models: How to Thrive in current research interest includes innovation and
the New Innovation Landscape, Harvard Business School knowledge management. His research work has been
Press, MA. published in the Journal of Operational Management and
Kohli, A.K. and Jaworski, B.J. (1990), “Market R&D Management.
orientation: the construct, research propositions, and
managerial implications”, Journal of Marketing, Vol. 54 Zelong Wei received his Ph.D. from Xi’an Jiaotong University.
No. 2, pp. 1-18. He is currently a Professor of management in the School of
Levinthal, D.A. and March, J.G. (1993), “The myopia of Management, Xi’an Jiaotong University. His research interests
learning”, Strategic Management Journal, Vol. 14 No. S2, include strategy, innovation and entrepreneurship in emerging
pp. 95-112. economy. His research work has been published in a range of
Rabetino, R., Kohtamäki, M. and Gebauer, H. (2017), journals including R&D Management, Journal of Management
“Strategy map of servitization”, International Journal of Studies, International Journal of Production Economics, Journal of
Production Economics, Vol. 192, pp. 144-156. business ethics and Journal of Organizational Change Management.
Ramirez, F.J., Parra-Requena, G., Ruiz-Ortega, M.J. and Zelong Wei is the corresponding author and can be contacted
Garcia-Villaverde, P.M. (2018), “From external information at: [email protected]
to marketing innovation: the mediating role of product and Huibin Shi received his PhD from Xi’an Jiaotong University.
organizational innovation”, Journal of Business & Industrial He is an Assistant Professor at the School of Economic and
Marketing, Vol. 33 No. 5, pp. 693-705. Management, Xidian University. His current research
Sabatier, V., Craig-Kennard, A. and Mangematin, V. (2012), interests include technological innovation and marketing
“When technological discontinuities and disruptive business orientation.
models challenge dominant industry logics: insights from the Jie Zhao received her Ph.D. from Xi’an Jiaotong University.
drugs industry”, Technological Forecasting and Social Change, She is an Assistant Professor at the School of Economic and
Vol. 79 No. 5, pp. 949-962. Management, Xidian University. Her current research
Schilke, O. (2014), “On the contingent value of dynamic interests include management innovation and marketing
capabilities for competitive advantage: the nonlinear orientation. Her research work has been published in the IEEE
moderating effect of environmental dynamism”, Transactions on Engineering Management and Journal of
Strategic Management Journal, Vol. 35 No. 2, Engineering and Technology Management.
pp. 179-203.

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