Proactive or responsive market orientation for stronger service innovation capability : the moderating roles of contractual and relational governance

Purpose: Based on the business-to-business context in the service industry, this study aims to address two balancing problems that a supplier firm may face in an integrated framework: the trade-off between the two-dimensional market orientations (MO) (i.e. proactive and responsive MO) and the trade-off between two categories of governance mechanisms (i.e. contractual governance [CG] and relational governance [RG]). In doing so, the contingent effects of the governance mechanisms on the relationships between two-dimensional MO and service innovation capability (SIC) are empirically examined and tested. Design/methodology/approach: A dyadic questionnaire survey of 168 services outsourcing firms’ project managers and strategy managers was used to collect data, which was then used to test the hypotheses by conducting hierarchical regression analysis. Findings: It was observed that CG weakens the positive relationship between proactive MO (PMO) and SIC, while the positive impact of responsive MO (RMO) on SIC is strengthened. By contrast, RG plays an inverted U-shaped moderating role in the positive relationship between PMO and SIC. Nevertheless, the hypothesis that RG has an inverted U-shaped moderating effect on the effectiveness of RMO is not supported. Originality/value: Drawing on transaction cost economics and relational exchange theory, this study contributes to the existing literature on MO by revealing how CG and RG differentially shape the value of PMO and RMO.