Internal Marketing, Innovation and Performance in Business Services Firms: The Role of Organizational Unlearning

Abstract

Organizational unlearning and internal marketing have been recently postulated as key determinants for firm's innovation activity. Internal marketing is also deemed a valuable instrument to overcome organizational resistance to change and favor unlearning processes. Accordingly, this research seeks to contribute to the scarce empirical evidence on these relationships by analyzing the influence of organizational unlearning and internal marketing on innovation as well as the mediatory effect of organizational unlearning in the internal marketing-innovation link. The study also assesses the influence ofinnovation on firms' customer-related and organizational performance. The conceptual model is tested using structural equation modeling on a sample of knowledge intensive business services (KIBS). These firms represent one of the fastest growing areas of the European service economy in terms of employment generation and trade value. Results reveal that a higher level of organizational unlearning will improve the firm's ability to innovate. It is also confirmed that the implementation of internal marketing has a positive effect on organizational unlearning although the direct effect of internal market on innovation is not substantiated. The study supports that the continuing development of innovation is especially important for KIBS' competitiveness since innovation has a positive and direct effect on customer-related outcomes which ultimately improve business performance.IntroductionSince the eighties, the literature increasingly recognizes the importance of developing new products and services for achieving a sustained competitive advantage (Booz et al., 1982; Cooper, 1984; Maidique and Zirger, 1985; Takeuchi and Nonaka, 1986). Brown and Eisenhardt (1995, p. 344) observe that the development of new products and services is among the essential processes for success, survival, and renewal of organizations, particularly for firms in either fast-paced or competitive markets. Embracing the importance ofinnovation enables firms to offer a greater variety of differentiated products, achieve an increased market share (Van Auken et al., 2008) and improve their financial performance (Zahra et al., 2000). Innovation is also essential in economic conditions of uncertainty and crisis to guarantee the firm's long term survival (Funk, 2006). Hence one of the key challenges for business managers nowadays is to create firms in which innovation becomes a consistent and systematic process (Hamel, 2002).However, many innovation projects fail (Cozijnsen et al., 2000). Failure may be the result of numerous factors (Nash et al., 2001), but recent research suggests that success rates could improve if firms incorporated organizational unlearning into the management of their innovation processes (Becker, 2008, 2010). Organizational unlearning is a process by which organizational pre-established beliefs and prevailing mental models are called into question (Becker, 2005); allowing obsolete knowledge to be discarded and thus improving the skills of employees to adapt and deal with change (Le Pine et al, 2000). The literature identifies the lack of an organization-wide commitment to organizational unlearning as a clear competitive weakness of many firms (Akgiin et al., 2006, 2007; Hedberg, 1981), while the ability to unlearn is an increasingly important factor to compete successfully in dynamic and complex markets by means of a continuous development of innovations (Becker, 2008). Although prior research stresses the relevance of organizational unlearning to foster the development of innovations within a firm by promoting faster and more decisive responses to market changes (Assink, 2006; Buchen, 1999; Sinkula, 2002; Tidd et al., 2001), there is practically no empirical evidence in this regard.The literature also shows that firms can also become more competitive and innovative when they are market oriented (Jimenez et al., 2008; O'Cass and Ngo, 2007; Theoharakis and Hooley, 2008). …

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