Akhlaq Complet Thesis

THE IMPACT OF MARKET ORIENTATION ON

BUSINESS

PERFORMANCE OF THE DIVERSE ORGANIZATIONS IN PAKISTAN

BY IKHLAQ AHMAD

This thesis is project is submitted to faculty of business management in total fulfillment of the requirements for the degree M.B.A. (MARKETING)

The impact of Market orientation on Business performance

I dedicate this thesis to my Supervisor

BASHARAT NAEEM Head Department of Management Sciences GLOBAL INSTITUTE LAHORE, PAKISTAN Who inspires me to take on this journey.

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The impact of Market orientation on Business performance

ACKNOWLEDGEMENTS Many thanks to my advisor Mr.Basharat Naeem who supervise me to make this dissertation possible. I wish to acknowledge the contributions of my fellow students, especially those in my cohort. I also wish to thank all of my friends who have supported me along the way. Finally I owe deepest gratitude to my family for helping me to endure.

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The impact of Market orientation on Business performance

Abstract Market orientation, still a captivating concept, carries the pledge of superior business performance through the satisfaction of customers’ needs and top management commitment. In this connection the current study explores the impact of market orientation on business performance of the diverse organizations in Pakistan. The important implications for the management are also discussed.

Table of Contents Dedication

2

4

The impact of Market orientation on Business performance Acknowledgements

3

Abstract

4

Table of Contents

5

Chapter 1

Figure 1

INTRODUCTION Market Orientation

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Market Orientation in Pakistan

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Benefits of Market Orientation

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Business Performance

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Structure of the dissertation

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Structure of the dissertation

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Chapter 2

LITERATURE REVIEW

Chapter 4

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Market orientation and business performance

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The strength of the relationship between MO and business performance differs across scales.

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R-A Theory and the Market Orientation-Performance Relationship

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Performance Outcomes

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Subjective and Objective Performance Measures

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The Jaworski and Kohli model of market orientation

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Chapter 3

Figure 2

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RESEARCH METHODOLOGY

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Hypotheses

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Data Collection & Sample Plan

42

Response Weight age

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Measures and Survey Instrument

44

ESTIMATION AND RESULT ANALYSIS

48

Estimation and result analysis

49

Table 1

Correlation Matrix for Business performance and Variables (market orientation)

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Table 2

Correlation Matrix for Overall Market Orientation with Business Performance

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Future Research Directions

53

Chapter 5

CONCLUSION

56

REFERENCES

58

Appendix

68

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The impact of Market orientation on Business performance Table 3

Business performance and Market orientation

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Table 4

Business performance and Intelligence generation

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Table 5

Business performance and Intelligence dissemination

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Table 6

Business performance and MO (Response design)

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Table 7

Business performance and MO (Response Implementation)

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Table 8

Means and Standard Deviations for all Questions

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Table 9

Means and Standard Deviations for all variables

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Research Questionnaire

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Chapter 1

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The impact of Market orientation on Business performance

INTRODUCTION

Chapter 1

INTRODUCTION Market Orientation Market orientation (MO) concept, relationships between MO and business performance (BP) role is subject of thesis. Market orientation was defined by Narver and Slater (1990) as the competitive strategy that most efficiently generates the right kinds of behavior to create enhanced value for the consumer and therefore assures better long-term results for corporations. According to these authors, market orientation is based on orientation towards the customer, orientation towards competitors and inter-functional coordination. Kohli and Jaworski (1990) identify three structural components of market orientation:(1) generation and analysis of all relevant information about the market;(2) dissemination of this information among the various departments of the organization in order to coordinate and arrange strategic planning; and(3) implementation of strategic initiatives designed to satisfy the market. In reviewing this construct, Lado et al. (1998a) have provided a broader definition of market orientation, which they define as a competitive strategy that involves all functional areas and levels of the 7

The impact of Market orientation on Business performance organization and embraces the different market participants. These market participants or market forces are: the final customer; the intermediate customer (distributor); the competitors; and. environmental factors. To create and hold on to a competitive advantage, companies must analyze and act on every one of these market forces with proper coordination between their functions. As a result, in this theoretical framework, market orientation can be conceptualized as consisting of nine facets: (1) Analysis of the final customers; (2) Analysis of intermediate customers (distributors) (3) Analysis of the competitors; (4) Analysis of the market environment; (5) Strategic actions on the final customers; (6) Strategic actions on intermediate customers (distributors); (7) Strategic actions on the competitors; (8) Strategic actions on the market environment; and (9) Inter-functional coordination. That market orientation is conceptualized as consisting of nine facets should not be taken to imply that market orientation is a multidimensional concept. Lado et al. (1998a) have shown that these facets are well accounted for by a one-factor model. Therefore, these nine facets should be taken as the conceptual components of a one-dimensional construct of market orientation, and one-dimensional measure of market orientation is called for. The subject of market orientation in one form or another has had the center stage in the theory and practice of marketing since the late 1980s (Kotler, 1977; Levitt, 1960; Shaprio, 1988; Webster, 1988). Only recently, however, have researchers built a theory of the antecedents and consequences of market orientation, developed a valid measure of the construct, and tested its effect on business performance (Kohli & Jaworski, 1990; Narver & Slater, 1990). Kohli and Jaworski described and offered a theory of market orientation. They stated, “A market orientation appears to provide a unifying focus for the efforts and projects of individuals and departments within the organization, thereby leading to superior performance” (p. 13). Narver and Slater developed a measure of market orientation and tested its effect on business performance. Their measure of market orientation consists of three behavioral components–customer orientations, competitor orientation, and inter-

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The impact of Market orientation on Business performance functional coordination–all of which are critical and related to creating sustainable superior value for customers. In recent years, the number of empirical studies based on the market orientation concept has increased (Atuahene-Gima, 1995; Deng & Dart, 1994; Diamontopoulos & Hart, 1993a; Pitt, Caruana, & Berthon, 1996). Many studies have examined the links between market orientation and various correlates. Market orientation was first applied in consumer packaged-goods industries (Chandler, 1977). Later on, it broadened into other sectors such as aerospace (Reynold, 1966), health service (Zaltman & Vertinsky, 1971), fundraising (Mindak & Bybee, 1976), promotion of social objectives (Kotler & Zaltman, 1971), banking and financial services (Davies, 1974), nursing (Lewis, 1977), railways (Christoper, 1975), tourism (Greenley & Matcham, 1986) and apparel manufacturing (Socha, 1996). As early as 1965, Frame argued that many large U.S. retailers focused mainly on product, rather than on customers, and suggestions were made to correct this. Berry, Gresham, and Millikan (1990) observed that, despite significant research on the market orientation of manufacturing firms and a growing interest in the application of market orientation to business areas other than manufacturing, research on the implementation of market orientation in retailing remained limited. An extensive search of the literature showed that such research concerning retailing remains limited to the present. Research has been conducted to examine the role of the marketing departments of retailing companies (Piercy & Alexander, 1988) by comparing UK department stores’ and supermarkets’ operational marketing practices (Greenley & Shipley, 1992) and by looking into retailing organizational selling behavior (Hogarth-Scott & Parkinson, 1993). Greenley and Shipley conducted a survey of UK retailers’ attitudes towards marketing mix factors, customer services, and sources of information for marketing decision making. Piercy and Alexander (1988) found that 6% of the sample firms were “merchandising orientated,” 29% were “sales orientated,” and 65% were “marketing orientated.” Many studies have found that market orientation leads to greater customer satisfaction (Siguaw, Brown, & Widing, 1994), teamwork, and organizational commitment (Jaworski & Kohli, 1993). Literature pertaining to market orientation is primarily concerned with large firms, and relatively little research has concerned small and medium-sized businesses, though some such research does exist. Peterson (1989) and Sriram and Sapienza (1991) found that most small U.S. manufacturing businesses adopted a production orientation, and focusing on sales was the second most

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The impact of Market orientation on Business performance common orientation. Meziou (1991) found areas of strength and weakness in small-business efforts to adopt the marketing concept. These findings suggest that the marketing concept is part of the managerial philosophy of many executives, particularly those who have attended training courses on marketing. Peter Drucker’s (1954) pioneering assertion that customer satisfaction is most important to the success of the firm is essential to the modern definitions of the marketing concept (see McNamara 1972). Scholars such as Mickitrick (1957), Felton (1959), Barksdale and Darden (1971), who follow Drucker’s lead, further lay the foundation for the current conceptualization of market orientation and the “market driven” organization. Eventually, Webster (1992) establishes that the customer should drive organizational goals while the competition derives its importance to the organization from its inherent importance to the discerning customer. This view mandates that the firm should focus on the needs of its customers while keeping the competition in sight so as to stay ahead in commonly competitive markets (Day 1994; Narver et al. 2004). In addition to customer and competitor orientation, Market orientation also encompasses inter functional coordination (Narver and Slater 1990; Slater and Narver 1994). Customer orientation is conceptualized as understanding and satisfying customers’ needs and wants; competitor orientation takes into account understanding rivals’ strengths and weaknesses and how they satisfy customers; inter functional coordination may be simplistically described as utilizing organizational resources to create value (Narver and Slater 1990). Market orientation has been specifically defined in a variety of ways in the marketing literature. For example, Day (1994) pieces together previous studies conducted by Deshpande, Farley, and Webster (1993), Narver and Slater (1990), and Shapiro (1988), to consolidate the idea that market orientation is a way of understanding and satisfying customers through a combination of putting customers’ interests first, utilizing inter functional resources to create customer value, and generating and using customer and competitor information (Kohli and Jaworski 1990). Deshpandé and Farley (1996, p. 14) define market orientation as the “set of cross-functional processes and activities directed at creating and satisfying customers through continuous needs-assessment.” Narver and Slater (1990; 1998) define the marketing concept as being a value creating, long-term, and profit-minded focus combined with behaviors of customer orientation, competitor orientation, and inter functional coordination of the resources of the firm. Furthermore, they provide empirical evidence that marketing efforts have a substantial effect on profitability.

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The impact of Market orientation on Business performance Market orientation as defined by Kohli and Jaworski (1990, p. 6) is "the organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization wide responsiveness to it." These researchers further describe the market orientation concept as involving generating, disseminating, and responding not only to market intelligence that is directly linked to customer needs but also to external factors that are indirectly linked to customer needs such as competition and regulation. Furthermore, they consider affects on both current and future customer needs. Based on the above conceptualizations, the marketing orientation may be interpreted as a focus on the customer and competition (Noble, Sinha, and Kumar 2002). Market Orientation in Pakistan A distinct Pakistani business culture, different from that found in the Developed economies, exists particularly in the area of service delivery and interaction with customers. To illustrate these characteristics of Pakistani business culture, attention is drawn on the findings of a round table discussion on South Asian customer management where the participants were business leaders and advisers conducted by Nolan Norton Institute (1999), the research arm of KPMG. The following comments are highlighted recorded in the published record of that discussion to reveal a business culture that places a low priority on delivering customer satisfaction: It is not only in contemporary business that this phenomenon has been noted. Historian Blainey (1996) has argued that South Asian business culture has some longstanding features that are problematic for marketing. ‘Most Pakistanis had been reared to suspect salesmanship, for it was alien to the pioneering tradition. I suspect this is one of the unfortunate legacies we inherit from earlier eras. Marketing as a skill is now vital for large sectors of Pakistan’s economy but we have not been prepared for this swing in emphases. This type of anecdotal evidence suggests that the interest in and ability to deliver customer service in Pakistani firms is not strong. Kohli and Jaworski’s work on market orientation, with its focus on the systems and processes used to gather, use and respond to market information, focuses on the organizational aspects of delivering value for customers, rather than on the individual aspects. Hence the working hypothesis to explain these perceptions are

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The impact of Market orientation on Business performance that the relationship between market orientation and performance is not as strong in Pakistani firms as in US ones. Several reasons can be advanced for this. First, Pakistan is a much smaller economy, and in many sectors concentration is extremely high (e.g. retail, brewing, glass manufacture). Market orientation may be rendered less important by market power. Second, Pakistan has historically been a less open economy than the USA, and it may be that this has protected local firms from market turbulence or competitive pressure. In either case, the need for firms to stay close to their customers is reduced. Replicating the Jaworski and Kohli study allows us to test not only the relationship between market orientation and performance, but also investigate whether the same relationships exist between the antecedents and the market orientation of the firm. In the remainder of work of Jaworski and Kohli, the model of MO proposed by Jaworski and Kohli (1993) has been discussed. Based on this model, relevant hypotheses have been discussed. The research methodology adopted has been described. The results of the study will be examined, and comparison made to the results of the Jaworski and Kohli (1993) study. Conclusion has been drawn by identifying the implications of results and suggesting areas for future research. Benefits of Market Orientation The benefits of having a market orientation are noted in numerous scholarly papers, textbooks, and speeches (Kotler, 1988; Webster, 1988). Market orientation has been theorized to be the central construct behind successful modern marketing management and strategy. Jaworski and Kohli (1993) and Narver and Slater (1990) linked high market orientation to high business performance. Many studies have identified the development of a strong market orientation as an important factor to the success of a business in firms in the U.S. and similar countries because a strong market orientation in a company will increase its ability to adapt to changing market conditions, will increase its ability to be innovative, and will generally increase the performance of the company (Atuahene-Gima, 1996; Day, 1994; Jaworski & Kohli, 1993; Kohli & Jaworski, 1990; Narver & Slater, 1990; Ruekert, 1992; Slater & Narver, 1994b). orientation, including business performance and employee attitudes (Deshpandé, Farley, & Webster, 1993; Jaworski & Kohli, 1993; Narver & Slater, 1990;

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The impact of Market orientation on Business performance Siguaw, Brown, & Widing, 1994). The last concerns the environmental moderators of the relationship between market orientation and its consequences (Narver & Slater, 1990; Slater & Narver, 1994a); however, empirical research has not supported the influence of environmental moderators (Jaworski & Kohli, 1993). Previous research has several limitations. As the unit of analysis, most studies have used strategic business units (SBUs) of a few select corporations, particularly for profit business corporations. Only one study (Jaworski & Kohli, 1993) tested the influence of antecedents on market orientation. Many researchers have indicated the need to investigate the role of additional influences on market orientation within organizations (Hambrick, 1987; Jaworski & Kohli, 1993; Siguaw, Brown, & Widing, 1994). Kohli, Jaworski, and Kumar (1993), Narver and Slater (1990) and Deshpandé, Farely and Webster (1993) have attempted to systematically develop valid measures of market orientation, but have produced limited results. Business Performance It is generally accepted that business performance is a multi-dimensional construct (Venkatraman and Ramanujam, 1987). Ruekert and Walker (1987) present a neat but comprehensive framework that assesses business performance in terms of effectiveness, efficiency and adaptability. Effectiveness refers to the success of a business’ strategies vis-àvis those of competitors in serving the chosen markets. Measures such as sales growth and market share capture the essence of this dimension. Efficiency denotes the outcome of business’ strategies in respect of the resources used in implementing them and is determined through the use of financial ratios such as return on investment. Operating efficiency is characterized by a narrow scope of activities and an emphasis on controlling costs through standardizing operating procedures (Hambrick, 1983). Adaptability refers to the extent to which the organization is successful in responding over time to changing external environmental conditions. Successful new products and/or services in response to changing customer needs and competitor offerings serve as a surrogate for adaptability. Subsequent and more recent work has validated the merits of this “balanced” approach to measuring performance (Morgan et al., 2002).

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The impact of Market orientation on Business performance In the spirit of this multidimensional approach and in keeping with the tradition in the literature (for a review see Varadarajan and Jayachandran, 1999), business performance in the context of this study is assessed in terms of marketing effectiveness and financial performance, although marketing effectiveness is defined in a broader manner to encompass new product introductions in keeping with the innovation focus of the study. Therefore, marketing effectiveness captures sales growth, gains in market share and successful product introductions. Market share is deemed a powerful performance metric as it is also a strong predictor of cash flow and profitability (Ambler and Putoni, 2003). The logic being that firms benefiting from scale effects are able to lower costs and thereby earn higher profits than those competitors with lower market shares (Jacobson, 1988). A gain in market share is perhaps an even more appropriate and accurate measure as it reflects adaptation to a changing environment. In a sense, it reflects well the firm’s ability to learn. Both in terms of definition and measurement, performance is a difficult concept. Organizational performance is central to the study of business strategy or policies (Bourgeoise & Astley, 1979; Cheng & McKinley, 1983; White & Hamermesh, 1981). Researchers frequently take the performance of organizations into account when investigating such organizational phenomena as structure, strategy, and planning; however, in the literature, researchers disagree on what creates effective performance of a firm and how to measure performance. Various researchers have focused on modeling the antecedents and consequences of market orientation and on developing a valid 48 measure of the construct to test its effect on organizational performance (Jaworski & Kohli, 1993; Kohli, Jaworski, & Kumar, 1993; Narver & Slater, 1990; Siguaw, Brown, & Widing, 1994; Slater & Narver, 1994a). STRUCTURE OF THE DISSERTATION In chapter 1, the researcher has talked about the concept of market orientation. In chapter 2, the researcher has reviewed the literature on the impact of market orientation on business performance and has also discussed previous works and studies of other authors on this particular subject. Further in chapter 3, the various models of market orientation, business performance and its implementation on diverse organization in Pakistan have been discussed by the researcher. This chapter also deals with the methodology used by the researcher to

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The impact of Market orientation on Business performance conduct the research. Chapter 4 makes a comparative analysis on the subject of thesis. Lastly, the author has summarized and concluded the research findings in chapter 5.

DISSERTATION STRUCTURE MODEL

ISSUE IDENTIFICATION OUT LINE OF THE ISSUES

STATEMENT OF AIM AND OBJECTIVE

REVIEW ON PREVIOUS LITERATURE METHODOLOGY USED

DATA ANALYSIS AND INTERPRETATION

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The impact of Market orientation on Business performance

CONCLUSION AND RECOMMENDATION

Chapter 2

MARKET ORIENTATION AND BUSINESS PERFORMANCE LITERATURE REVIEW

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The impact of Market orientation on Business performance Chapter 2

MARKET ORIENTATION AND BUSINESS PERFORMANCE LITERATURE REVIEW Market orientation and business performance Much of the work on market orientation has focused on its performance implications (e.g., Slater and Narver, 1994; Jaworski and Kohli, 1993; Ruekert, 1992; Narver and Slater, 1990). The association between market orientation and business performance is intuitively compelling; that companies with a sound understanding of, and quick response to, customer needs perform at high levels than their competitors. Nonetheless, despite the empirical rig our devoted to it, the association between market orientation and performance remains equivocal and the findings, discordant at best (Matsuno and Mentzer, 2000). Essentially, the findings fall into three main categories those are outlined below. Broadly, there are those studies that have found market orientation to be positively related to performance albeit with some fundamental variations in measurement approaches (Slater and Narver, 1994; Ruekert, 1992; Narver and Slater, 1990). While Slater and Narver (1994) established a consistent and positive relationship between an organization’s market orientation and performance, performance was conceptualized very precisely and narrowly, only in terms of return-on-assets. Another grouping of studies failed to establish a significant relationship between the two constructs (Siguaw et al., 1998;) while another set of studies reports mixed results (Greenley, 1995; Jaworski and Kohli, 1993). The Jaworski and Kohli (1993) mixed findings are attributable to a construct operationalization issue. They found a significant association between market orientation and business performance only when performance was measured perceptually rather than using objective measures. Despite such discordant findings, the interest in the relationship between market orientation and performance has remained steadfast for its apparent strategic importance (Narver and Slater, 1998). However, for this importance to be realized, it is contended that further work in the area needs to shift in focus. From these tenuous findings, it has been concluded that this “popular notion [that] a proper execution of market orientation brings about superior

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The impact of Market orientation on Business performance performance] is invalid and “this assumption increasingly is met with skepticism” (Han et al., 1998, p. 30). Consequently, Han et al. (1998), suggest the potential merits of broadening market orientation models to include the innovation construct. This would allow for an understanding of how innovation interplays with market orientation in the determination of organizational performance. Innovation, within this proposed framework would, therefore, assume a mediating role between market orientation and performance. Proponents of this approach claim that our ability to understand the utility of market orientation is limited until innovation is incorporated into market orientation-performance models. Market orientation-business performance relationship: evidence from previous studies. Previous studies on the market orientation-business performance relationship have shown a positive association between the two constructs The principal findings of Sinet al. (2003) suggest that the framework proposed earlier in USbased work does generalize to Hong Kong and Mainland China; for example, market orientation has significant and positive impact on the performance of organizations operating in Mainland China and Hong Kong. Their findings provide further support for the notion that a firm’s market orientation is related positively to business performance, irrespective of cultural context and the level of economic development. Va´zquez et al. (2002, p. 1039) concluded that the adoption of the market orientation concept by organizations has positive, significant consequences on their results. Thus, an increase Market orientation and performance in the degree of market orientation has direct, positive repercussions on the nonprofit results of the action that is undertaken. This will help meet the real needs of the organizations’ beneficiaries, and the expectations created by resource donors with their contributions. They further concluded that market orientation contributes directly and indirectly to the success of the foundation itself in the accomplishment of its mission. It’s important to note that market orientation and performance are two different concepts. The premises are that these performance measures depend on market orientation, which, in turn, depends on marketing culture. First, market share was selected because it is a customer-based measure, an indicator which is important in evaluating food and beverages organizations’ performance. Second, sales growth and profitability were utilized because of their significance in assessing organizations’ effectiveness and efficiency, respectively. Figure 1 shows the operational conceptual framework for this commentary. The framework assumes

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The impact of Market orientation on Business performance that market orientation has a direct link with business performance and that the various market orientation variables have a direct link with performance indices. In the following section of this commentary, each of the findings is discussed and synthesized model of market orientation-business performance is proposed. Research into the relationship between market orientation and business performance has been a fertile area over the past decade. The research output has been substantial, and can be conceptually divided into two streams, depending on its analytical focus (Pulendran et al., 2003, p. 477). The first key research stream examines the market orientation-business performance relationship. From the outset (Pulendran et al., 2003,p. 477) “research conducted in this area has generally supported the proposition that market-orientated organizations achieve better outcomes than do less market-oriented ones”. More recently, researchers within this stream have begun to explore the boundary conditions of the market orientation-business performance relationship. Researchers have sought to examine the relationship in economic environments substantially different from the original US-based research (e.g. Eusebio et al., 2006, p. 145) and in business contexts substantially different from the original commercial setting (e.g.Falshaw et al., 2006, p. 9). In addition, researchers have sought to examine the market orientation-business performance relationship with more stringent research designs and scaling practices (e.g. Slater and Narver, 2000), and also to examine relative and interactive effects on the relationship of other organizations’ characteristics that might be considered performance enhancing, such as entrepreneurship (e.g. Jang et al., 2006,p. 195). With the market orientation-business performance relationship being central to the standard pedagogy of marketing management, this research stream clearly has fundamental value for this discipline (Pulendran et al., 2003). Whilst the market orientation-business performance relationship has justifiably attracted much attention, a second stream of research has sought to identify more clearly the characteristics that might distinguish market-oriented organizations from the norm. The initial Jaworski and Kohli (1993) study, according to Pulendran et al. (2003, p. 477), identified a number of organizational characteristics (top management emphasis, low interdepartmental conflict and high connectedness, and control systems that reward employees for customer-oriented behaviors) that may act as antecedents to a market orientation. Evidently, the demonstrable impact of market orientation on organizational performance, profitability in particular, has

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The impact of Market orientation on Business performance instigated deeper and wider research work aimed at exploring and fleshing out the issues that are likely to determine and impact its implementation (Slater and Narver, 2000; Nwankwo et al., 2004, p. 123). Strongly evident in this stream of research is the context in which the implementation of market orientation takes place. The strength of the relationship between MO and business performance differs across scales. Performance has been operationalized in many ways including market share, profitability, return on assets or on investment, change in market share or profitability, new product success, and composite measures of these variables. Such measures can be classified as objective, subjective, or combinations of the two. Subjective measures center on managers’ assessment of the performance of their business unit or firm, relative to expectations or competitors. In such cases, managers may account for competitive and environmental conditions when producing subjective measures. For example, managers may rate their firms’ profitability relative to major competitors’. Alternatively, managers may be asked to indicate how satisfied they are with their firm’s performance, e.g. sales growth. Objective measures, in contrast, assess the actual performance of the firm on absolute scales. Schlegelmilch and Ram (2000) found that MO affected perceived, but not actual ROI. Jaworski and Kohli (1993) found that MO had a positive impact on subjective performance, which is an assessment of overall performance relative to competitors’. Yet, its impact disappeared when an objective measure of performance (dollar share on the served market) was used. They argued that judgmental performance assessments might be more accurate in MO studies as subjective measures account for the particular strategies of a company. The existence of a time lag between MO and objective performance also may be important (Jaworski and Kohli, 1993; Sargeant and Mohamad, 1999). Thus, cross-sectional research, the norm in MO studies, may not capture the true strength of MO’s impact on performance. Thus, Jaworski and Kohli (1993) concluded: “Based on these considerations, the authors tend to place more confidence in the results obtained using judgmental measures of performance.”

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The impact of Market orientation on Business performance The relationship between MO and performance will be strongest when subjective measures are used, followed by combinations of objective and subjective measures, followed by objective measure of performance. R-A Theory and the Market Orientation-Performance Relationship In the current study, we apply the resource-advantage theory of competition to the relationship between market orientation and performance. This is accomplished when we view the antecedents of market orientation as resources in the context of R-A theory such that a firm with superior organizational resources of this nature may gain comparative advantage over the competition, which can drive performance and market share. Resources such as market-oriented top management, interdepartmental factors and employee characteristics (antecedents of market orientation) could produce efficiencies and effectiveness that will enable a competitive advantage based on the logic of R-A Theory. For example, Jaworski and Kohli’s (1993) study of antecedents of market orientation shows that a market orientation is hypothesized to be related to employee commitment, esprit de corps, and business performance. Employee commitment and esprit de corps may be classified as human resources under the structure of R-A theory because they add value and competitive advantage to the firm. In line with R-A theory, the market-oriented firm may gain advantage due to efficiencies associated with organizational change. The firm that struggles to become more market-oriented may experience events such as political struggles at the organizational level or learning by trial and error (Gebhardt, Carpenter, and Sherry 2006). These processes would inevitably cause the less market-oriented firm to devote valuable resources to the change process of becoming more market-oriented. Conversely, the firm that started off with a relatively higher market orientation could allocate resources to more productive uses. Business performance is classified as financial performance and provides a comparative advantage over the competition under the structure of R-A Theory. Our study attempts to provide evidence of increased business performance as a resource gained by measuring the shareholder wealth linked to levels of strategic market orientation that is rooted in top management’s emphasis on the marketing goals of the firm. Based on the above reasoning, the conceptualization of this study fits well within the context of R-A theory.

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The impact of Market orientation on Business performance

Performance Outcomes Performance outcomes in the market-orientation research stream are conceptualized in a variety of ways. For example, Kohli and Jaworski (1990) consider return on income and profits to be business performance indicator outcomes of market orientation and customer and employee responses involving satisfaction and commitment to be customer and employee consequences. In contrast, Narver and Slater (1990) used top management’s assessment of return on investment, return on assets, and return on net assets as subjective performance measures relative to competition. Subjective and Objective Performance Measures The vast majority of previous literature uses subjective measures of performance when measuring the effect of market orientation or strategy effects on performance (e.g., Pelham and Wilson 1996; Atuahene-Gima and Murray 2004; Gatignon and Xuereb 1997; Gupta and Govindarajan 1982; Matsuno and Mentzher 2000; Narver and Slater 1990; Noble and Mokwa 1999; Zou and Cavusgil 2002). Additionally, Kirca, Jayachandran, and Bearden (2005) find that the market orientation–performance relationship is stronger for subjective than for objective measures of performance. Interestingly, Jaworski and Kohli (1993) use both subjective and objective performance measures. They find market orientation related to performance when using subjective performance measures but find it unrelated when using the objective measure of market share. In an effort to find how market orientation contributes to performance, Hult, Ketchen and Slater, (2005) use managers’ perceptions of performance in their study and examine market orientation from both cultural and information processing viewpoints. However, several studies in the strategy and marketing literature have used objective performance measures. For example, Harris (2001) and Han, Kim and Srivastava (1998) published studies examining the link between market orientation and objective measures of financial performance. However, neither study’s results showed a direct linkage between market orientation and objective performance.

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The impact of Market orientation on Business performance Although managers’ perceptions of otherwise objective performance measures, can effectively indicate realized financial performance (Rust et al. 2004a), there is a superiority that exists when utilizing strictly objective measures of performance (Harris 2001; Dess and Robinson Jr. 1984). Furthermore, firms that view themselves as perceptive to customers and competition may tend to be biased and overstate their performance (Noble, Sinha, and Kumar 2002). Narver and Slater (1990, p. 27) refer to Dess and Robinson (1984), as well as Pearce, Robbins, and Robinson (1987) as examples to support their proposition that previous results show a “strong correlation between subjective assessments and their objective counterparts.” This justification is valid, although it can be argued that purely objective measures will address many of the limitations of subjective measures of performance. Bias may exist in subjective performance measures (Leonidou, Katsikeas, and Samiee 2002). In reference to the study often cited as a justification for this approach, Harris (2001) points out that Dess and Robinson (1984, p. 270) state that their study “should not be interpreted to suggest that subjective measures are convenient substitutes for objective measures of a firm's economic performance.” Furthermore, Dess and Robinson (1984) conclude that objective measures of performance are always preferable to subjective performance measures when they are available

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The impact of Market orientation on Business performance Figure 1 Jaworski and Kohli Model (1993)

ANTECEDENTS

CONSTRUCT

MODERATORS

CONSEQUENCES

EMPLOYEES * Organizational commitment * Espirit de Corps

INTERDEPARTMEN TAL DYNAMICS * Conflict * Connectedness

TOP MANAGEMENT * Emphasis * Risk Aversion

MARKET ORIENTATION

ENVIRONMENT

* Intelligence Generation * Intelligence Dissemination * Responsiveness

* Market Orientation * Technological Turbulence * Competitive Intensity

ORGANIZATIONAL SYSTEMS BUSINESS PERFORMANCE

* Formalisation * Centralization * Departmentalizations * Reward System

* Economic performance * Profitability

The Jaworski and Kohli model of market orientation The aims of Jaworski and Kohli’s[2] research are threefold, complex and overlapping. First, the authors wish to discover why some organizations are more market oriented than others. Second, an aim of the study is to analyze the relationship between market orientation and performance. Third, the authors aim to analyze the effect that the business environment has on the link between market orientation and performance. Interestingly, the article expounds a definition of market orientation which focuses on specific behaviors rather than on abstract concepts. This definition greatly facilitates the operationalization of the market orientation

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The impact of Market orientation on Business performance construct. Such an alternative conceptualization allows for a somewhat broader perspective on market orientation, in that additional forces on a market are considered to belong to the broader market orientation construct (for example, competition and technology). Following extensive research of the literature, the authors constructed an hypothesized model of market orientation developed from a set of 13 hypotheses which the study later “proves” or “disproves”. Three distinct sets of antecedents were identified and hypothesized as being related to market orientation: top management, organizational systems and interdepartmental factors. In turn, market orientation was hypothesized as being related to employee commitment and morale, as well as to overall business performance. Moreover, business performance was hypothesized as being moderated by market turbulence, competitive intensity and technological turbulence. Jaworski and Kohli’s[2] model of market orientation is shown in Figure 1. After careful sampling, the study contacted over 1,000 organizations that they questioned and analyzed. (The study used existing scales and developed scales for other constructs.) After much analysis and intensive empirical examination, the researchers identified three main interlocked conclusions. First, the extent of market orientation is related to top management emphasis and risk aversion attitudes, interdepartmental conflict, connectedness, centralization and reward system orientation. Second, market orientation is related to business performance, employees’ organizational commitment and morale (but not market share). Third, the link between market orientation and business performance appears to be robust across environmental contexts which are distinguishable by their varying degrees of market turbulence, competitive intensity and technological turbulence. Jaworski and Kohli are at the forefront of academic theory and as such are directing modern academia in their own perceived direction – that of the development of a logical, coherent and complete model of market orientation. Such a research direction has multitudinous theoretical implications and ramifications, as the above summary indicates. However, the acid test (some would argue the only valid test) of a theory is its application. In other words, “what does this theory mean for everyday managers and management?” Accordingly, I intend to examine critically the chosen article from an applied, pragmatic perspective. By focusing on the practical elements of the article, this investigation will undoubtedly skip the finer theoretical arguments; but this predominantly functional perspective will provide managers with a practical, rather than a theoretical, appraisal. In so doing the authors redefine market orientation as “information” –

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The impact of Market orientation on Business performance in short, simple building blocks of activity. Furthermore, given a threefold conceptualization of market orientation, the effects of antecedents may be examined in three (possibly interlinked) ways. Moreover, consequences may be linked to three individually identifiable elements of market orientation. Therefore, executives may plot the effects of a change in an antecedent on the level of market orientation and consequently may predict the potential influence this will have on individual, group and organizational performance. Clearly, the value in this portrayal of market orientation derives from its ability to be viewed as a continuum – a sharp U-turn from the philosophical overtones of many previous authors (e.g.[4]). This definition returns market orientation to managers in that the construct can be seen to operationalize market orientation and thus improve its accessibility. Indeed, this movement in theory restores some credence to market orientation – after some damaging post-excellence school years.

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The impact of Market orientation on Business performance

Chapter 3

RESEARCH METHODOLOGY

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The impact of Market orientation on Business performance Chapter 3

RESEARCH METHODOLOGY Hypotheses The hypotheses generated from the Jaworski and Kohli framework are presented below. Underlying the research is the suggestion that if the Pakistani business culture is significantly different from that of the USA, the results that emerge from testing these hypotheses will be significantly different from the results found in the USA. As Jaworski and Kohli (1993) provide a detailed discussion of the rationale underlying these hypotheses, only a brief summary is provided here. The replication hypotheses and a list of authors who have conducted such research are presented in table 1. To foreshadow the measurement results, because factor analysis did not clearly distinguish between the acquisition, dissemination and responsiveness dimensions, hypotheses has not been made with regard to the dimensions of MO, but only MO overall. Moreover, the overall MO results are of greatest interest and the clearest to interpret. Market Orientation and Performance: H1: The greater the market orientation of an organization the higher its business performance. Several empirical studies have found a strong positive relationship between MO and performance, whether one looks at consumer products, new products, innovation or services. There is however, a small body of evidence that does not support a strong positive relationship between MO and business performance, whilst other research examines alternative forms of market orientation and their impact on performance (Oczkowski & Farrell 1998a & b). There are at least three different types of consequences of market orientation that have been identified from the market orientation literature including business performance, employees’ organizational commitment and esprit de corps, and customer satisfaction and repeat customer (Kohli and Jaworski, 1990; Jaworski and Kohli, 1993). Raju et al. (1995) purported that an increase in market orientation is expected to result in higher performance in business because it facilitates clarity of focus and vision in an organization’s strategy and generates pride in belonging to an organization that results in higher employee morale and greater organizational commitment. The further

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The impact of Market orientation on Business performance consequence is customer satisfaction that indicates repeat purchases and draws new customers to the business. Although, many studies have investigated the relationship between market orientation and economic performance (business performance), very few of them have identified the relationship between market orientation and non-economic performance (employees and customer response). Armstrong and Baron (1998) stated that defining performance is the prerequisite of measuring or managing it. Hence, Otley (1999) argued that performance might be defined in terms of doing the work, as well as in terms of the results achieved. Fitzgerald and Moon (1996) postulated that performance is a multidimensional construct, the measurement of which varies, depending on a variety of factors that comprise it. In this connection, Rogers (1994) argued that performance should be defined as the outcomes of work because they provide the strongest linkage to the strategic goals of the organization, customer satisfaction, and economic contribution. Matsuno and Mentzer (2000) suggested that performance should be viewed not only as economic performance (business performance) but also as non-economic performance (customer satisfaction, customer retention, social acceptance, corporate image, and employee satisfaction). Earlier, Jaworski and Kohli (1993) considered employees’ organizational commitment and esprit de corps as non-economic performance. Economic performance of an organization can be defined as the function of some financial indicators such as return on investment, profit, market share, sales volume, revenues, product quality, and overall financial position, while non-economic performance is the function of other outcomes of an organization rather than financial indicators such as customer satisfaction, customer loyalty, employees’ organizational commitment and esprit de corps, company image and social acceptance (Narver and Slater, 1990; Jaworski and Kohli, 1993; Matsuno and Mentzer, 2000). Economic Performance of Business: H1: The greater the market orientation of an organization the higher its business performance. A significant number of studies of market orientation have focused on the relationship between the market orientation and business performance and it has been widely assumed

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The impact of Market orientation on Business performance for many years that market orientation is linked to better company performance (Dawes, 2000). Dawes (2000) also noted that the theoretical basis for this expected link was elucidated earlier by McKitterick (1957) who highlighted that, in a competitive environment, organizations must be highly cognizant and responsive to customer needs, otherwise rivals will devise products more attuned to those needs and capture their business. Narver and Slater (1990) augmented this view, debating that strong market orientation within a business will enhance the effort to offer superior value to the buyers which will lead to an advantage over competitors and to better profitability. Okoroafo and Russow (1993) argued that sound marketing practice is an important contributor to performance in economic reform economies. Walker and Ruekert (1987) added to this by saying that organization performance can be measured on a variety of dimensions, and no single business approach can be expected to have the same effect on all dimensions. In this connection, Narver and Slater (1990) used subjective measures investigating the market orientation and performance relationship among 140 strategic business units of a major corporation’s forest product division (commodity and non-commodity business) and found a significant positive relationship between market orientation and return on investment (ROI). Hence, they proposed a potential explanation that the market orientation-performance relationship might be contingent on some industry situations in which firms operate, such as commodity versus non-commodity and/or competitive versus non-competitive. The study suggested further research for testing the relationship of market orientation to additional performance measures that may affect long-term profitability such as customer retention, new product success, and sales growth. Slater and Narver (1994a) also investigated the relationship between market orientation and return on assets, sales growth, and new product success among 107 Strategic business units (SBUs) in two corporations in USA and found a positive relationship. This study used subjective measures of performance and suggested that objective measures of performance be used for future research. Slater and Narver (2000) tested their earlier findings (Narver and Slater, 1990) of the positive relationship between market orientation and business profitability. For this purpose data were collected from 53 single-business corporations of SBUs of multi business corporations in three Western cities. Despite the relatively small sample, they

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The impact of Market orientation on Business performance conducted a stepwise regression analysis and found market orientation and business profitability positively and significantly related. This further supports their earlier findings. Pelham and Wilson (1996) also conducted a market orientation study based on Narver and Slater (1990) among 68 small firms in the USA. The study was drawn to create links between market environment, strategy, business position variables (marketing/sales effectiveness and growth/share), and profitability. The study suggested a positive and significant relationship between market orientation and sales growth/market share, product quality, and profitability. In this connection, Pelham (2000) concluded that the Pelham and Wilson’s (1996) model of performance augmented the earlier market orientation models that considered both antecedents and consequences as variables. Ngai and Ellis (1998) conducted a market orientation and business performance study in Hong Kong among 73 textiles and garment companies, based on the culturally based behavioral approach taken by Narver and Slater (1990). Their study used a multiple linear regression analysis to test the relationship between market orientation and business performance and found a positive relationship between the market orientation of respondent firms and their performance (sales growth/market share growth and long term profitability). Hence, Kotler and Armstrong (1996) argued that the positive relationship between performance and market orientation supports a long-held proposition, which states that the attainment of organizational goals is determined by satisfying the needs of customers more effectively than rivals. Ruekert (1992) conducted a market orientation study among five SBUs in one company, where he focused on a strategic perspective and found a positive relationship between market orientation and sales growth, and profitability. On the other hand, Jaworski and Kohli (1993) conducted a market orientation study on the basis of intelligence perspective developed by Kohli and Jaworski (1990) where they used two different samples containing 222 companies for the first sample and 230 companies for the second. Their study used a multiple regression analysis and identified a positive and significant relationship between market orientation and market share, return on equity (ROE), and overall performance in the presence of moderating environmental variables.

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The impact of Market orientation on Business performance At the same time, Diamantopoulos and Hart (1993) conducted a study among 87 companies in the UK and found an association between market orientation and sales growth, and profits relative to industry average. Similarly, Pitt et al. (1996) in their study among 161 UK service firms and 200 Maltese firms of various industries adapted the MARKOR (market orientation) scale developed by Kohli et al. (1993). Here, they identified a positive relationship between market orientation and return on current equity (ROCE), sales growth, and subjective impressions. Raju et al. (1995) conducted a market orientation study among 176 hospitals in the USA using the MARKOR scale developed by Kohli et al. (1993). The objective of the study was to understand clearly the relationship between market orientation and return on investment (ROI), service quality and morality. The performance factors were taken one at a time and regressed against the market orientation factors, and stepwise regression was performed using each performance factor as the dependent variable and market orientation factors as independent variables. The results indicated that market orientation has a significant effect on each of the performance dimensions. However, the study suggested that the market orientation-performance relationship in several industries should be explored in order to examine any inter-industry variances. Selnes et al. (1996) conducted a study to examine the way in which a country context affects the level of organizational antecedents that drive a market orientation including focus on top management, interdepartmental relations and organizational systems. The study also examined two other areas; level of market orientation and the strength of linkage between market orientation and its antecedents and consequences. Using a multiple-informant survey design, the study collected data from SBUs in USA and in Scandinavia (Denmark, Norway, and Sweden). The findings suggested similar results in both cultures (USA and Scandinavia) that showed a significant linkage between market orientation and its antecedents and overall performance. Caruana et al. (1998) further adapted the MARKOR scale developed by Kohli et al. (1993) in order to identify the relationship between market-oriented universities and their performance. The study used multiple regression analysis and identified a strong, statistically significant relationship between market orientation and overall performance. The study also suggested that the responsiveness dimension of market orientation

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The impact of Market orientation on Business performance appeared to be more critical to overall performance, while the collection of information and its dissemination are necessary preliminary steps and it is responsiveness to this information that provides the possibility of meeting market needs that in turn results in an improvement in overall performance. The study further argued that future research must be carried out for the development of useful measures of performance, especially in the non-business sector, where measures, such as return on capital employed (ROCE) and return on sales (ROS), are inadequate. Homburg and Pflesser (2000) in their study of market orientation adapted the MARKOR scale developed by Kohli et al. (1993) and the performance scale from Irving (1995). The study identified a significant positive effect of market-oriented behavior on market performance. In this connection they argued that a high level of market dynamism makes a market-oriented culture even more important and provides a little more depth to marketing academics’ understanding of market orientation’s performance outcomes. Baker and Sinkula (1999) in their study on market orientation also used the MARKOR scale (Kohli et al., 1993) in order to operationalize the market orientation elements. They also used Jaworski and Kohli’s (1993) two-item scale for measuring overall performance and Day’s (1999) scale item for measuring market share. Again, Baker and Sinkula (1999) used a new scale for new product success that was built on the basis of Moorman’s (1995) and Moorman and Miner’s (1997) work in the area of new product performance, timeliness, and creativity. The study by Baker and Sinkula (1999) used selfexplicated measures of performance similar to Dess and Robinson (1984). These measures were chosen because of consistent evidence that subjective and objective measures of performance are highly correlated. In order to identify the market orientation-performance relationship, they used regression analysis and found a strong significant relationship between market orientation and overall performance, market share, and new product success. Hence, the findings of Baker and Sinkula’s (1999) study are consistent with other research in this area (Narver and Slater, 1990; Jaworski and Kohli, 1993; Kohli et al., 1993). Pulendran et al. (2000), using the scales of Jaworski and Kohli (1993) checked the moderating effect of market turbulence, competitive intensity, and technological turbulence and identified the relationship between market orientation and profitability

33

The impact of Market orientation on Business performance arguing that superior profitability can be achieved by undertaking market-oriented activity. In this connection, they suggested further research to determine how market orientation relates to aspects of performance such as self-assessment performance measures,

quantitative

performance

measures,

job

satisfaction,

organizational

satisfaction, organizational commitment, role clarity, and self esteem measures. Based on Jaworski and Kohli’s (1993) market orientation scales, Grewal and Tansuhaj (2001) conducted a study in Thailand in which they identified the role of market orientation and strategic flexibility on building organizational capabilities for managing the economic crisis. They suggested that the adverse effect of market orientation on a firm’s performance after a crisis is moderated by demand and technological uncertainty and enhanced by competitive intensity. The study also highlighted two important arguments: first, further refinement of Kohli et al’s. (1993) MARKOR measure was needed; and second, after a crisis they found that market orientation influences are only useful for managing economic crises in environments characterized by high levels of either demand or technological uncertainty. Pelham (1997a) conducted a study in which he utilized eight of the nine measures of market orientation adapted from Narver and Slater’s (1990) market orientation instrument and one from that of Jaworski and Kohli (1993). In this study, performance measures were based on those used by Gupta and Govindarajan (1983) and Covin, Prescott, and Slevin (1990). The study tested the direct link between market orientation and profitability in a saturated model and identified an insignificant relationship between market orientation and profitability. Pelham (1997a) argued that a possible explanation for the lack of a clear relationship between market orientation and profitability is that it is a more complex relationship than tested for in previous studies. Chakravarthy (1986) found that excellent firms could not be identified by a single measure of profitability and thus, in order to explore the market orientation-performance link effectively, it is necessary to appropriately operationalise both constructs. However, Pelham (1997a) claimed that firms seeking to enhance market-oriented behaviors should see the most immediate consequences in more effective new product development, improved relative product quality, and improved customer retention. Pelham (1997a) suggested that future studies should investigate the measures and dimensions of market

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The impact of Market orientation on Business performance orientation and the relationship of market orientation and performance in large and small consumer goods manufacturing firms, service firms, and retail firms. Pelham (1997b) conducted another study on market orientation and performance among 160 small industrial manufacturing firms using market orientation measures developed by Narver and Slater (1990) and Jaworski and Kohli (1993). The study used return on equity, gross profit margin, and return on investment in order to measure the overall profitability and found a strong market-orientation performance relationship. Pelham (1997b) suggested that further studies should be undertaken to identify the market orientationperformance relationship across a quadrant for large industrial firms and among consumer goods manufacturing companies and service/retail firms. Recently, Pelham (2000) conducted another study among 160 small and medium sized manufacturing firms. The study used a market orientation scale adapted from both Narver and Slater (1990) and Jaworski and Kohli (1993). The findings of the study suggested that total market orientation was significantly correlated with marketing/sales effectiveness, growth/share and profitability. Hence, Pelham (2000) claimed that the results of this study are consistent with other market orientation studies including Pelham and Wilson’s (1995; 1996), especially for the higher associations of market orientation and performance variables relative to strategy and industry involvement. Appiah-Adu (1997) conducted a market orientation and performance study in the UK that examined whether the market orientation-performance link established in large firm studies also holds for firms in the small business sector. The possible effects of market growth, competitive industry, and market and technological turbulence on any identified relationship were investigated. Pelham’s (1993) and Pelham and Wilson’s (1996) market orientation scales were adapted for use in this study because of their applicability to small business. Regression analysis was conducted in order to identify the market orientation-performance link. Findings suggested a positive and significant impact of market orientation upon small business performance. The significant and positive impact of market orientation on new product success identified in the study is consistent with the findings of studies undertaken by Pelham and Wilson (1996) for US small business; Slater and Narver (1994a) for SBUs of large US organizations; and

35

The impact of Market orientation on Business performance Atuahene-Gima (1995). for large Australian firms. In addition, the significant and positive effect of market orientation on sales growth reported by Appiah-Adu (1997) is consistent with the findings of Slater and Narver (1994a) but inconsistent with those of Greenley (1995b) and Pelham and Wilson (1996). Further, identification of a significant and positive effect on the profitability levels (ROI) of small firms is consistent with the findings of Pelham and Wilson (1996) but inconsistent with those of Greenley (1995b). Later, Appiah-Adu and Sing (1998) conducted another study among manufacturing and service firms in the UK where they identified a customer orientation and performance relationship. They used regression analysis in order to identify the customer orientation’s relationships with new product success, sales growth, and return on investment (ROI). The study identified a positive and significant relationship between customer orientation and all the three performance measures. Thus, Appiah-Adu and Sing (1998) argued that it would be interesting to conduct further research in this area using integrated models with additional organizational variables such as firm structure, coordination, control systems, age, and management characteristics. They also suggested that utilizing such an approach would facilitate the testing of possible internal and external influences on customer orientation among organizations. Matsuno and Mentzer (2000) conducted a study in which they empirically examined the moderating role of strategy type on the relationship between market orientation and economic performance. They measured business performance using market share, relative sales growth, percentage of new product sales to total sales, and return on investment (ROI) and found that strategy type had a moderating role on the relationship between market orientation and those four performance measures. In addition, they suggested that further research on the relationship between market orientation and non economic aspects such as customer satisfaction, customer retention, social acceptance, corporate image, and employee satisfaction should be undertaken. Dawes (2000) conducted a study that examined the association between market orientation and company profitability. In this study he incorporated two methodological approaches that have generally not been used in previous research. Firstly, he used ‘lagged’ company and environmental control variables in the data analysis in order to better discern their effects on profitability and to clarify any relationship between market

36

The impact of Market orientation on Business performance orientation and performance. Secondly, he separately analyzed the individual components of market orientation and their relationships with business profitability. It was found that competitor orientation, as a component of market orientation, had the strongest association with performance. They argued that, while customer orientation is vital, competitor intelligence activities constitute a key factor in ensuring high performance. Further, it was claimed that each component of market orientation should not necessarily be assumed to have equally strong associations with profitability. Thus, the researcher suggested further research in the absence of a significant association between market information sharing and reported performance. Deshpande et al. (1993) conducted a study in Japan among public firms and their customers in various industries where they viewed market orientation as customer orientation. The study developed a customer orientation scale on the basis of personal interview and Narver and Slater’s (1990) and Kohli and Jaworski’s (1990) works. The study investigated the relationship between customer orientation and profitability, size, market share, and relative growth rate and identified a positive and significant relationship in both cases of customers’ assessments and managers’ own assessments. Sargeant and Mohammad (1999) conducted a market orientation study among 200 hotel groups in the UK in which they used the scales developed by Parasuraman et al. (1993) in order to measure market orientation and found no direct impact of market orientation on business performance in the hotel sector. It was suggested that future research needed to be carried out to determine the impact of market orientation on variables such as customer or employee satisfaction. Au and Tse (1995) conducted a market orientation study of the hotel industry in Hong Kong and New Zealand. For this purpose, they modified Kotler’s (1977) questionnaire for measuring the level of market orientation. They found no apparent relationship between market orientation and hotel performance in either country. Hence, they suggested that the size, price, market turbulence, technological turbulence, degree of competition, and the general economy all interact in a complex manner that can have an enormous impact on the relationship between market orientation and company performance and thus, much research is required in this area to delineate the complex interplay between these variables.

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The impact of Market orientation on Business performance Tse (1998) conducted a market orientation and performance study on large property companies in Hong Kong, where he used a modified version of Kotler’s (1977) questionnaire for measuring market orientation. The study identified no significant relationship between market orientation and business performance, that is no significant difference in the financial performance of companies that are market-oriented and those that are not market-oriented. Balabanis et al. (1997) conducted a study among 200 top British charity organizations in order to identify the market orientation and its impact on performance. They used the performance scales developed by Lamb and Crompton (1990) for measuring the nonprofit performance (effectiveness and efficiency) and the MARKOR scale developed by Kohli et al. (1993) for measuring market orientation. They used confirmatory factor analysis and the findings revealed that the level of present donor-market orientation has no impact on charities performance. Fritz (1996), in a study on market orientation and corporate success among 144 industrial firms in Germany stated corporate success as the degree to which the corporate goals of ‘competitiveness’, ‘customer satisfaction’, ‘securing the continuance of the firm’, and ‘long term profitability’ were achieved. Significant correlations between market orientation and three external criteria of corporate success; the relative competitive position of the firm; the economic success in terms of increased ROI and sales Volume, and a decrease in employee fluctuation were identified in the study. Thus, Fritz (1996) claimed that market orientation is the one and only significant factor in corporate success. Chang and Chen (1998) developed a conceptual model of market orientation, service quality and business profitability and empirically tested the applicability of that model for retail stock brokerage firms in Taiwan. A linear regression model was used in order to identify three relationships; market orientation and service quality relationship, service quality and performance relationship, and market orientation and performance relationship. The findings of the study suggested that market orientation has a positive and significant effect on service quality as well as on business performance, and that service quality also has a positive and significant effect on business performance. Most recently, Kumar (2006) conducted a market orientation, organizational competencies and performance study among 159 acute care hospitals where he used the

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The impact of Market orientation on Business performance market orientation scale constructed and validated by Narver and Slater (1990) and which was revised, refined, expanded and modified to suit the health care industry by Kumar, Subramanian, and Yauger (1998). The findings of the study indicated that market orientation makes a significant contribution to the creation of a number of organizational competencies (market efficiency, employee education and efficiency, effective personnel policies, and operating efficiency) which in turn lead to superior performance in the areas of cost containment and success of new service. Nakata (2005) conducted a study in a US based multinational pharmaceutical company, which had 100 years of operation, has 40 international subsidiaries and is placed in the Fortune 500 companies. The study involved 32 individuals, mostly country directors, representing 22 cultures that include: ‘more and less developed Latin’, ‘more and less developed Asian’, ‘near Eastern’, ‘Germanic’, ‘Anglo’, and ‘Nordic’. On the one hand, the findings of the study suggested that greater implementation of the marketing concept is strongly associated with higher organizational performance, which is consistent with past research (Narver and Slater, 1990; Jaworski and Kohli, 1993). On the other hand, in-depth interview findings suggested that none of the respondents agreed upon the full implementation of the marketing concept, rather they argued that reaching this state was difficult. Correlation analysis was used for the study to identify the relationships among the variables. Further research was suggested which used a larger sample and broader range of multinational firms, subsidiaries, and individual respondents in order to conduct regression and other statistical techniques. Regression analysis was suggested because most of the market orientation studies that had a larger sample used regression analysis. Blankson and Omar (2006) conducted qualitative research on marketing practices among African and Caribbean small businesses operating in London. The study involved 26 small business owners and managers (20 male and 6 female) for face-to-face in-depth interviews. The findings of the study indicated that 70% of the owner managers reported an improvement in profits from the previous year although there was an indication of a market share drop. It was suggested that further quantitative research be undertaken using a large sample that might strengthen the findings of this study. Matsuno et al. (2002) investigated the structural influences of entrepreneurial proclivity and market orientation on business performance. The results of the study

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The impact of Market orientation on Business performance indicated that entrepreneurial proclivity has not only a positive and direct relationship on market orientation but also an indirect and positive effect on market orientation through the reduction of departmentalization. The results also suggest that entrepreneurial proclivity’s influence on performance is significantly positive when mediated by market orientation but insignificant when not mediated by market orientation. Although, this literature review suggests that market orientation contributes to the company’s economic business performance, none of the studies examined the market orientation-performance relationship considering the external environmental factors as antecedents of market orientation; rather they investigated the market orientation performance relationship as an effect of environmental mediating factors or just market orientation-performance relationship without considering external environmental factors. Thus, two valid questions can be raised from the above literature review: one relating to the external environmental factors and the other relating to the measurement of economic performance. Firstly, if the external factors are considered as antecedents of market orientation of an organization and not as mediating factors, can market orientation be directly related to business performance? Secondly, what indicators (items) should be used for measuring economic performance? In order to clarify the first question, it can be said that there is a gap in the literature for research that should consider the external factors as antecedents of market orientation. If the market orientation-economic performance relationship is determined by the degree of the presence or absence of mediating variables (external factors), why not consider them earlier as antecedents in order to determine the level of market orientation of a company? This inclusion of external factors as antecedents can provide a better and comprehensive picture of the market orientation of a company that may result in an even stronger and clearer relationship between market orientation and business performance. Thus, this study of market orientation investigated the direct relationship between market orientation and economic performance considering the external factors/variables as antecedents of marketing orientation along with internal antecedent variables. In order to clarify the second question, it can be said that it would be difficult to identify the economic performance of a company just by selecting two or three items. In this connection, Uncles (2000) observed that the question of using performance measures has

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The impact of Market orientation on Business performance not been resolved in the literature. Walker and Ruekert (1987) argued that no single business expects to have the same effect on every dimension. Caruana et al. (1998) argued that the return on capital employed (ROCE) and return on sales (ROS) were inadequate for measuring business performance and further work must be undertaken to develop more useful measures. Thus, it is necessary to include as many useful indicators/items as possible, but considering the length of the questionnaire and the effectiveness of the available indicators in a developing country a standard number of scale items is justifiable. Bhuian (1998), Appiah-Adu (1998b) and Akimova (2000) measured performance in developing countries using items including return on investment, profit, sales growth, market share, sales volume, revenues, product quality, and financial position. Thus, in order to measure business performance, the above items were adapted in this study. Use of these items for measuring economic performance was appropriate because this study of market orientation also explored a developing country market. In this section data collection and Sample Plan has been discussed. Survey instrument and issues related to its validity and reliability have been discussed in brief. Data Collection & Sample Plan Data were collected in a natural business setting by means of a self-administered mail questionnaire. Key respondent techniques were employed in the collection of data as the survey instrument was specialized. The identification of key respondents was based on a procedure undertaken by Robertson, Eliashberg and Rymon (1995). A Head of strategic business unit (SBU) served as the unit of analysis in this study and was requested to base the information on the SBU in which he or she worked. The questionnaire was pre tested by application to managers attending an executive development programmer on marketing strategy in a local university and on selected MBA students with relevant prior experience in another local University. Respondents were asked to identify items they found unclear or confusing, and student respondents were interviewed about their interpretation of items. As a result of the pretest, minor adjustments were made to the questionnaire. The sampling strategy differed from that of

41

The impact of Market orientation on Business performance Jaworski and Kohli. In their study, companies were identified from Marketing Science Institute (MSI) and American Marketing Association (AMA) membership rosters, and the top 1000 US companies as listed in a Dunn and Bradstreet directory. Since Pakistani professional marketing organizations cannot be directly compared with the MSI and AMA, replicating this strategy was not possible. The sampling plan sought to ensure that companies operating in FMCG industry settings were included. Organizations were selected to cover both high and low technology environments. The sample profile also showed that all Pakistani states were represented. Because Kohli and Jaworski had focused one of their data sets on larger firms, it is sought to ensure that substantially different firm demographics were not being gathered. Classified in terms of size, 40% of the respondents employed by firms with 100 employees or less, 26% employed between 100 and 400 employees and the remaining 34% had over 400 employees. Our sample therefore contained a significant proportion of larger firms of Pakistan. Also, the sample showed good diversity in terms of geographic location and firm size. The total sampling frame consisted of 150 Heads of (SBU). The overall response was 77% (115 questionnaires), but the total useable number was 106 (70%). Figure 2 Response Weight age

42

The impact of Market orientation on Business performance

Early respondents were compared with late respondents on variables such as overall performance, MO level and commitment to MO, to determine non-response bias (Armstrong & Overton 1977). No significant differences were found. Analysis of the geographic distribution of responses to the initial and follow-up mail outs also showed no significant differences. Accordingly, non-response bias was not a problem. Measures and Survey Instrument In examining the relationship between the business performance to MO, market orientation is the major dependent variable. The MO construct was measured using the (MARKOR, Narver/Slater, Deshpande 1993) – Deshpande 1998 numerous studies have confirmed positive relationships between market orientation and various performance measures. Chakravarthy (1986) found that no single measure of profitability identified excellent firms. One common feature of research into the effect of a market orientation on company performance is the incorporation of subjective measures of performance as dependent variables. The term “subjective” is used to mean that a company’s performance rating is derived using ordinal scales with anchors such as “very poor” to “very good,” or “much lower” to “much higher,” compared to competitors. These contrast with an “objective” measure that would be an actual percentage figure for sales growth or profitability. Jaworski and Koli (1996) pointed out that the reliance on subjective performance measures was a limitation of the research to date (Hartenian & Gudmundson, 2000; Olsen, 2001; Styles, 1998). Many researchers found a significant relationship between market orientation and performance (Avlonitis & Gounair, 1997; Appiah-Adu, 1998; Balakrishnan, 1996; Deng & Dart, 1994; Deshpande & Farley, 1998b; Deshpandé, Farley, & Webster, 1993; Greenly, 1995b; Jaworski & Kohli, 1993; Narver & Slater, 1990; Pelham & Wilson, 1996; Pitt, Carvara, & Berthon, 1996Slater & Narver, 1993). Appiah-Adu (1998) and Greenly (1995) that the environment moderated the relationship. Many studies have used objective performance measures (Au & Tse, 1995; Diamantopoulos & Hart, 1993b; Esslemont & Lewis, 1991; Jaworski & Kohli, 1993; 1996; Ruekert, 1992; Tse, 1998a). Jaworski and Kohli (1993; 1996) used subjective

43

The impact of Market orientation on Business performance and objective performance measures. They found positive association for subjective measure but not objective measures. Studies that used or included objective performance measures, Ruekert (1992), Diamantopoulos and Hart (1993) found a significant relationship, Esslemont and Lewis (1991) and Tse 1998a) found no relationship, and Au and Tse (1995) only a weak relationship. Dawes (1999) observed that the substantive implications of this body of research appear to depend heavily on the validity of subjective performance measures. Dawes (1999) pointed out several reasons for using subjective measures. The first is that managers may be hesitant to report actual performance if they consider it to be commercially sensitive or confidential (Dess & Robinson, 1984). Second, subjective measures may be more appropriate than objective measures for comparing profit performance in cross-industry studies. Third, because companies’ profit levels can vary considerably across industries, a subjective measure of company performance may be more appropriate than an objective measure in cases where research has not established the relationship between firm performance and other variables pertinent to business operations. Managers can take the relative performance of their industry into account when responding to subjective-measurement questions, such as “rate the profit performance of your firm relative to others in your industry” (Dawes, 1999, p. 67). A fourth reason is that a company’s profitability may vary over time due to variation in its level of investment in R&D or marketing activity, which might have longterm effects and mean that profitability or other performance measures at one point in time may not accurately reflect the underlying financial health of a company. And finally, significant numbers of studies that have examined the relationship between these two types of measures have shown a strong correlation between objective and subjective measures (Covin, Slevin, & Schultz, 1994; Dess & Robinson, 1984; Hart & Banbury, 1994; Pearce, Robbins, & Robinson, 1987; Venkatraman & Ramanujam, 1985). On the basis of the strong role that a market orientation theoretically plays in generating superior customer value, market orientation would be expected to positively affect a firm’s total profits by positively affecting both the firm’s sales growth and its return on investment. Researchers gathered both objective and subjective data on multiple aspects of performance, such as sales growth, market share, and profitability (Dess & Robinson, 1984; Hart & Banbury, 1994; Pearce, Robinns, & Robinson, 1987). They found

44

The impact of Market orientation on Business performance significant relationships between the two types of performance measures. Balabanis, Stables, and Phillips (1997) analyzed the link between past levels of market orientation and current performance, using data that they gathered at the same point in time. The authors mentioned that a shortcoming to their research was the inability of executives to accurately report or recall their organizations’ level of market orientation from five years ago. Pelham and Wilson (1996) measured current levels of market orientation and performance, along with numerous other control or moderator variables during the same period, with a time lag of one year. They found that market orientation was positively related to current profitability when they lagged other independent variables by one year, and also when they lagged the previous year’s profitability by one year. This finding provides strong evidence that a market orientation affects current performance, rather than simply being related to it. Pelham and Wilson’s study is a valuable contribution, though the focus of their study was only on small firms. Narver and Slater (1990) and Kohli and Jaworski (1990) conceptualized market orientation as a uni-dimensional construct, but one comprised of several different components. In spite of that, both of those studies used a single aggregated measure of market orientation to examine its relationship with performance, based on the assumption that each component contributed equally to the construct (Kohli & Jaworski, 1990; Narver & Slater, 1990). Greenley (1995a) described different types of market orientation, including customer focused, competitor-focused, and comprehensive market orientation. His study was conducted under the assumption that the components differed among firms. He found little difference in performance between firms utilizing the different forms of market orientation. This finding indicates that the components of market orientation do not have a highly interrelated relationship with performance; otherwise there would be greater differences between firms with a customer or competitor focus compared to a comprehensive market orientation (Dawes, 2000). Kohli and Jaworski (1990) and Jaworski and Kohli (1993) hypothesized that three industry characteristics–market turbulence, technological turbulence, and competitive intensity–moderate the market orientation/performance relationship. Empirical results have failed to support these hypotheses, leading Jaworski and Kohli to conclude that either the market

45

The impact of Market orientation on Business performance orientation/performance relationship is not robust across environments, or the statistical tests lacked sufficient power to detect the effects.

46

The impact of Market orientation on Business performance

Chapter 4

ESTIMATION AND RESULT ANALYSIS

47

The impact of Market orientation on Business performance Chapter 4

ESTIMATION AND RESULT ANALYSIS In the conceptual framework of market orientation it is proposed firstly that the market orientation of the diverse companies in Pakistan is determined by a set of internal and external factors, and secondly that market orientation affects a set of dependent variables for economic performance of business. More specifically, in the proposed framework, market orientation is identified as having two different roles. Firstly, it works as a dependent variable, and secondly it becomes an independent variable affecting both economic and non-economic performance of business. In order to test hypotheses, identification of the internal and external variables that better determine the market orientation components and overall market orientation of the diverse companies in Pakistan was required. This study utilized correlation analysis for two purposes, firstly to examine the presence of multicollinearity, and secondly to explore the relationships between the variables. Rowntree (1981) provided a guideline that interpreted the strength of the relationships between the variables. He indicated that, when the correlation coefficient (r) ranges from .00 to .20, the relationship is very weak and negligible; when the correlation coefficient ranges from .20 to .40, the relationship is weak and low; when the correlation coefficient ranges from .40 to .70, the relationship is moderate; when the correlation coefficient ranges from .70 to .90, the relationship is strong, high and marked; and finally, when the correlation coefficient ranges from .90 to 1.0, the relationship is very strong and very high. As noted earlier in the chapter, in order to check the presence of multicollinearity, this study applied the ceiling of .80 for the correlation coefficient as suggested by Berry and Feldman (1985) and Hair et al. (1995). In this study the bivariate Pearson product-moment correlation test was applied. The test was subject to a one tailed test of statistical significance at two different levels: highly significant (p < 0.01) and significant (p < 0.05).

48

The impact of Market orientation on Business performance Table 1 Correlation Matrix for Business performance and Variables (market orientation) VARIABLES

Pearson Correlation

1. Business performance 2. 3. 4.

.047

and Intelligence generation Business performance and Intelligence dissemination Business performance and MO (Response design) Business performance and MO (Response Implementation)

.309(**)

.490(**)

.294(**)

Table 2 Correlation Matrix for Overall Market Orientation with Business Performance VARIABLE

1

2

Business performance (1)

---

.203(*)

Overall market orientation (2)

---

Table shows the correlation between business performance and components of market orientation (customer emphasis, intelligence/information generation, intelligence dissemination or inter functional coordination, and intelligence responsiveness or taking action. An analysis of the correlation matrix indicated that the market orientation of the diverse companies in Pakistan was found to be significant and positively correlated to business performance. Market orientation was found to be significant and positively correlated to the business performance (r =

.203(*),

p < .01). This indicated that the

business performance (economic performance) was a positive function of the market orientation of the diverse companies in Pakistan. Many researchers found a significant relationship between market orientation and performance (Avlonitis & Gounair, 1997; Appiah-Adu, 1998; Balakrishnan, 1996; Deng & Dart, 1994; Deshpande & Farley,

49

The impact of Market orientation on Business performance 1998b; Deshpandé, Farley, & Webster, 1993; Greenly, 1995b; Jaworski & Kohli, 1993; Narver & Slater, 1990; Pelham & Wilson, 1996; Pitt, Carvara, & Berthon, 1996Slater & Narver, 1993). Appiah-Adu (1998) and Greenly (1995) that the environment moderated the relationship.On the basis of the strong role that a market orientation theoretically plays in generating superior customer value, market orientation would be expected to positively affect a firm’s total profits by positively affecting both the firm’s sales growth and its return on investment. Researchers gathered both objective and subjective data on multiple aspects of performance, such as sales growth, market share, and profitability (Dess & Robinson, 1984; Hart & Banbury, 1994; Pearce, Robinns, & Robinson, 1987). They found significant relationships between the two types of performance measures. Intelligence generation Kohli and Jaworski (1990) and Jaworski and Kohli(1993) suggested that market intelligence relates to observing customer needs and preferences and that it also involves an analysis of how the needs and preferences might be affected by such factors as government regulation, technology, competitors, and other environmental forces. Market-intelligence generation refers to the collection and assessment of both customer needs/preferences and the forces (task and macro environments) that influence the development and refinement of those needs. Importantly, multiple departments should engage in this activity because each has a unique market lens (Kohli & Jaworski). Researchers have described market-intelligence generation as including four distinct notions: (a) gathering, monitoring, and analyzing information pertaining to the current and future needs of customers; (b) monitoring and analyzing exogenous factors outside the industry that influence the current and future needs of customers (e.g., government regulations, technology, the general economy, and other environmental forces); (c) monitoring and analyzing competitive actions that influence the current and future needs of customers; and (d) gathering and monitoring market intelligence through both formal and informal means (Day & Wensley, 1983;Houston, 1986; Kohli & Jaworski, 1990). Egeren and O’Connor (1998) proposed that, although market development relates to consumer needs and preferences, it includes an analysis of how external factors might affect technological changes, competitive actions, government regulations, and other environmental forces. Market-intelligence generation includes environmental scanning activities (Kohli & Jaworski, 1990).

50

The impact of Market orientation on Business performance Intelligence generation was positively correlated with business performance (r =

.047)

of

the diverse companies in Pakistan. This suggested that emphasis placed by the intelligence generation on market-oriented activities encourage business performance of the diverse companies in Pakistan. Intelligence dissemination refers to the process and extent of market-information exchange within a given organization. Attention should be balanced between both horizontal (interdepartmental) and vertical transmission of marketplace information because the dissemination’s focal point is the entire strategic business unit (SBU). The dissemination of intelligence occurs both formally and informally (Kohli & Jaworski, 1990). Jaworski and Kohli (1990) and Kohli and Jaworski (1990) maintained that intelligence dissemination extends beyond collecting information about customer needs and preferences to include information about an organization’s entire task environment. They also suggested that intelligence dissemination relates to the communication and transfer of intelligence information to all departments and individuals within an organization through both formal and informal channels. Jaworski and Kohli (1993) and Slater and Narver (1994a) indicated that market-intelligence dissemination has two distinct aspects. The first aspect is sharing both existing and anticipated information throughout the organization (i.e., ensuring vertical and horizontal flows of information within and between departments) concerning the current and future customer needs, exogenous factors, and competition. The second aspect is ensuring effective use of disseminated information by encouraging all departments and personnel to share information concerning current and future customer needs, exogenous factors, and competitors. Intelligence dissemination was found to be significant and positively correlated with business performance (r =

.309(**),

p < 0.01 of the diverse companies in

Pakistan. This suggested that emphasis placed by the Intelligence dissemination on market-oriented activities encourages employees to better business performance of the diverse companies in Pakistan. The above analysis suggested that Intelligence dissemination; MO (Response design), MO (Response Implementation), were found to be significantly correlated with business performance. The above correlation analysis confirmed the market orientation of the diverse manufacturing companies in Pakistan was either a positive or a negative function

51

The impact of Market orientation on Business performance of different variables. The statistical assumptions tested in this chapter have confirmed the use of parametric techniques for data analysis in this study. The correlation analysis in this chapter had not only shown correlations between the variables but has also supported the use of parametric techniques, as multicollinearity was not a problem in this study. Future Research Directions Several areas are available for future research: The MARKOR scale in the Jaworski and Kohli study needs additional work to improve reliability and validity in varied contexts. Although cross sectional study was conducted, the dynamism of the constructs might have been captured more precisely using a longitudinal approach. Cross sectional studies do not reflect the uninterrupted transformations that may affect the interplay between constructs. For example, a lack of market-oriented activity may lead top management to emphasis the need for market-oriented activity which in turn, contributes to a higher level of MO. Much additional study of performance effects is needed. Despite a vast body of research on performance, the impact of market-oriented activity on a broader spectrum of performance measures is yet to be explored. In that process, research is needed to determine how MO relates to aspects of performance such as self assessment performance

measures,

quantitative

performance

measures,

job

satisfaction,

organizational commitment, role clarity, self esteem and the many other components measuring an organization’s overall performance. The findings from the field work suggest that only an internal perspective is insufficient when considering the issues of developing a market orientation in a Developing economy like Pakistan. In particular, two factors which are outside the control of management emerged as significant influences on the development of market orientation. One of these factors is genuinely external – government regulation and the other, ownership structure is at least partly external, being a product of the types of ownership structures that government will permit. Among the internal factors and in addition to more conventional managerial influences, the availability of resources, including both financial and human resources seems to be the most significant barrier inhibiting the development of a market

52

The impact of Market orientation on Business performance orientation. The following provides a detailed discussion of these findings with an explicit focus on those antecedents to market orientation which have not previously been discussed in empirical work. That is to say, the internal antecedents of market orientation are not reconsidered which have been discussed elsewhere; rather additional drivers of market orientation are in focus which may be of particular relevance in a Developing economy like Pakistan. This may be another area for researchers working on MO in Pakistan Unlike many developed countries which have in place and extensive network of laws or regulations safeguarding product quality, safety and protecting consumers’ interests, many aspects of modern commercial life in Pakistan, are not yet adequately regulated. The Findings suggest that when such a legal vacuum exists, firms may take advantage of the situation by adopting opportunistic and short-term approaches to business. Under such circumstances, there is little recognition of the need to become market oriented through investments in gathering information about customers. On the other hand, when government regulations are perceived as strict and tough in dealing with practices which infringe upon the consumers’ interests, companies face a much clearer incentive to adopt more market-oriented activities such as customers intelligence gathering and product innovation. Future research might examine the notion of a commitment to MO. Does a commitment to MO trigger market-oriented activity specially in developing economies like Pakistan? Just as important is the reverse situation, does the programmatic implementation of market-oriented activity create a positive attitude towards being market-oriented? The causal nature of relationships between all constructs should be investigated, so that the directionality of the relationships can be better understood. Also, additional studies might examine more fully a complete set of antecedents that influence the MO of the firm. The relative importance and appropriate mix of factors engendering market-oriented activity could be determined to allow for prescriptive models of MO. The evaluation an organization’s MO should come from its customers rather than the company alone. A possibility for future research is to compare self-reports with customer reports on MO to test whether either is significantly related to business performance. Deshpande, Farley and Webster (1993) recommend the institutionalization of customer

53

The impact of Market orientation on Business performance evaluations as part of a regular tracking mechanism. This allows for a more accurate determination of the actual level of MO and prevents biases associated with selfassessment. Examining these and other issues would contribute significantly to the current body of evidence. Finally, MO has been discussed by researchers as a solitary dimension; a guaranteed formula for enhanced performance. However, adopting such a long term and narrow view of it can place limits on the enhancement of academic knowledge. Future research could attempt to break the norm of current research by identifying alternative market based practices that might be viable sources of competitive advantage in the future.

54

The impact of Market orientation on Business performance

Chapter 5 CONCLUSION

55

The impact of Market orientation on Business performance CONCLUSION Throughout this study, attention has been concentrated on the impact of market orientation on business performance of the diverse organizations in Pakistan More specifically, we have analyzed the relationship among the component of market orientation and business performance. After a rigorous process of refinement to obtain valid measurement instruments, these scales were used to test the different hypotheses concerning the possible causal relationships that might exist between them. The results have made it possible to draw various conclusions. Firstly, with regard to market orientation and business performance, it was observed that the development of a strong market orientation as an important factor to the high business performance of the diverse organization in Pakistan. Because a strong market orientation in a company will increase its ability to adapt to changing market conditions, will increase its ability to be innovative, and will generally increase the performance of the company. Secondly, with regard to all components of market orientation those were found to be significant Intelligence generation, Intelligence dissemination, MO (Response design), MO

(Response

Dynamics),

and

Implementation),

Interdepartmental

Connectedness

(Interdepartmental

Conflict

(Interdepartmental

Dynamics),

Formalization.

Centralization, Top Management (Emphasis) and Top Management (Risk Aversion) were all either significantly or marginally significantly related to business performance. Overall, conclusions are clear; for researchers and commentators, it is concluded that the business environment and consumer behavior that allows firms to claim superior rewards from customers through market orientation in Developed countries is also in place in Pakistan. For Pakistani managers, a strong message is there; that given the evidence in this research and previous articles, developing a market orientation is likely to enhance business performance.

56

The impact of Market orientation on Business performance

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57

The impact of Market orientation on Business performance

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The impact of Market orientation on Business performance

APPENDIX

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The impact of Market orientation on Business performance Pearson Correlations Table 3 Business performance and Market orientation Mean

Std. Deviation

N

Business performance

3.5396

.72094

106

Market orientation

3.3938

.23298

106

Pearson Correlation Business performance

Business performance 1

Market orientation .203(*)

Sig. (1-tailed)

.018

N

106

106

Pearson Correlation

.203(*)

1

Sig. (1-tailed)

.018

N

106

Market orientation

106

* Correlation is significant at the 0.05 level (1-tailed). Market orientation was found to be significant and positively correlated to the business performance (r = .203(*), p < .01). This indicated that the business performance (economic performance) was a positive function of the market orientation of the diverse companies in Pakistan. Table 4 Business performance and Intelligence generation Mean

Std. Deviation

N

Business performance

3.5396

.72094

106

intelligence generation

3.8491

.70200

106

Business performance

MO_INT_G

1

.047

Pearson Correlation Business performance

intelligence generation

Sig. (1-tailed)

.315

N

106

106

Pearson Correlation

.047

1

Sig. (1-tailed)

.315

N

106

106

Intelligence generation was positively correlated with business performance (r = .047) of the diverse companies in Pakistan. This suggested that emphasis placed by the 68

The impact of Market orientation on Business performance intelligence generation on market-oriented activities encourage business performance of the diverse companies in Pakistan. Table 5 Business performance and Intelligence dissemination Mean

Std. Deviation

N

Business performance

3.5396

.72094

106

Intelligence dissemination

3.9289

.67750

106

Pearson Correlation

Business performance

Intelligence dissemination

1

.309(**)

Sig. (1-tailed)

.001

N

106

106

Pearson Correlation

.309(**)

1

Sig. (1-tailed)

.001

N

106

106

** Correlation is significant at the 0.01 level (1-tailed). Intelligence dissemination was found to be significant and positively correlated with business performance (r =

.309(**),

p < 0.01 of the diverse companies in Pakistan. This

suggested that emphasis placed by the Intelligence dissemination on market-oriented activities encourages employees to better business performance of the diverse companies in Pakistan. Table 6 Business performance and MO (Response design) Mean

Std. Deviation

N

Business performance

3.5396

.72094

106

Response design

3.7311

.66252

106

Business performance Pearson Correlation

Response design 1

69

.490(**)

The impact of Market orientation on Business performance Business performance

Sig. (1-tailed)

.000

N Pearson Correlation Response design

106

106

.490(**)

1

Sig. (1-tailed)

.000

N

106

106

** Correlation is significant at the 0.01 level (1-tailed). Response design was found to be significant and positively correlated with business performance (r = .490(**), p < 0.01 of the diverse companies in Pakistan. Table 7 Business performance and MO (Response Implementation)

Mean

Std. Deviation

N

Business performance

3.5396

.72094

106

Response Implementation

3.5377

.66439

106

Pearson Correlation Business performance

Response Implementation

Business performance

Response Implementation

1

.294(**)

Sig. (1-tailed)

.001

N

106

106

Pearson Correlation

.294(**)

1

Sig. (1-tailed)

.001

N

106

106

** Correlation is significant at the 0.01 level (1-tailed). Response Implementation was found to be significant and positively correlated with business performance (r =.294(**), p < 0.01 of the diverse companies in Pakistan. Table 8 Means and Standard Deviations for all Questions

70

The impact of Market orientation on Business performance Questions

N

Mean

Std. Deviation

1 In this business unit, we meet with customers at least once a year to find out what products or services they will need in future.

10 6

4.10

1.352

2 In this business unit, we do a lot of in-house market research

10 6

3.75

1.155

3 We are fast to detect changes in our customers' product preference

10 6

3.89

.979

4 We poll end users at least once a year to assess the quality of our products and services.

10 6

3.55

1.122

5 We periodically review the likely effect of changes in our business environment on our customers.

10 6

3.96

.861

6 We have interdepartmental meetings at least once a quarter to discuss market trends and developments.

10 6

4.15

1.067

7 Marketing personnel in our business unit spend time discussing customers' future needs with other functional departments

10 6

3.80

1.037

8 When something important happens to a major customer or market, the business unit knows about it within a short period.

10 6

4.02

.946

9 Data on customer satisfaction are disseminated at all levels in this business unit on a regular basis

10 6

3.74

.862

10 For one reason or another, we tend to ignore changes in our customer's product or service needs.

10 6

3.37

1.036

11 We periodically review our product development efforts to ensure that they are in line with what customers want

10 6

3.89

.959

12 Several departments get together periodically to plan a response to changes taking place in our business environment.

10 6

3.87

.957

13 If a major competitor launched an intensive campaign targeted at our customers, we would implement a response immediately

10 6

3.80

1.174

14 The activities of the different departments in this business unit are well coordinated.

10 6

3.84

1.015

15 Even if we came up with a great marketing plan, we

10

3.14

1.158

71

The impact of Market orientation on Business performance probably would not be able to implement it in a timely fashion.

6

16 When we find that customers would like us to modify a product or service, the departments involved make a concerted effort to do so

10 6

3.63

.959

17 Overall performance of the business unit last year was up to the mark.

10 6

3.70

.886

18 Overall performance of the business unit relative to major competitors last year was significant.

10 6

3.66

.904

19 The return on investment of the business unit relative to all competitors last year was as per targeted.

10 6

3.28

.983

20 The sale of the business unit relative to all competitors last year was achieved.

10 6

3.51

1.016

21 The overall performance of the business unit last year, in comparison with what was expected, was met

10 6

3.55

.917

Valid N (list wise)

10 6 Table 9 Means and Standard Deviations for all variables

Variable

N

Mean

Std. Deviation

Intelligence generation

106

3.8491

.70200

Intelligence dissemination

106

3.9289

.67750

MO (Response design)

106

3.7311

.66252

MO (Response Implementation)

106

3.5377

.66439

Business performance

106

3.5396

.72094

Market orientation

106

3.3938

.23298

Valid N (list wise)

106

Research Questionnaire

72

The impact of Market orientation on Business performance The objectives of this research, as stated in Chapter 1, are to determine the impact of the components of market orientation on business performance, to fulfill these objectives, several research questions are addressed as follows. Using the past year as a reference, think about the manner in which your business unit / organization conducted its business practices in relation to the statements below. Please consider your actual perception of the practices for your SBU / organization, not what you would like them to be. Please describe them as they actually exist. Please remember: an honest assessment will provide the most accurate and helpful information for the research project. Please read each question carefully and then respond to each of the statements by marking the appropriate box with (√). It is important that you answer ALL questions. Part 1. Please encircle your answer (1 – 5) in the relevant box. 1=Strongly Disagree 2=Disagree 3=Neither Agree Nor Disagree 4=Agree 5=Strongly Agree Sr. # 1.

2. 3. 4. 5.

Market orientation (intelligence generation)

In this business unit, we meet with customers at least once a year to find out what products or services they will need in future. In this business unit, we do a lot of in-house market research We are fast to detect changes in our customers’ product preference We poll end users at least once a year to assess the quality of our products and services. We periodically review the likely effect of changes in our business environment on our customers.

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

MO (Intelligence dissemination) 6. 7.

8.

9.

We have interdepartmental meetings at least once a quarter to discuss market trends and developments. Marketing personnel in our business unit spend time discussing customers’ future needs with other functional departments When something important happens to a major customer or market, the business unit knows about it within a short period. Data on customer satisfaction are disseminated at all levels in this business unit on a regular basis MO (Response design)

10.

For one reason or another, we tend to ignore changes in our customers’ product or service needs (R)

73

The impact of Market orientation on Business performance 11.

We periodically review our product development efforts to ensure that they are in line with what customers want 12. Several departments get together periodically to plan a response to changes taking place in our business environment. 13. If a major competitor launched an intensive campaign targeted at our customers, we would implement a response immediately

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

MO (Response Implementation) 14.

The activities of the different departments in this business unit are well coordinated 15. Even if we came up with a great marketing plan, we probably would not be able to implement it in a timely fashion (R) 16. When we find that customers would like us to modify a product or service, the departments involved make a concerted effort to do so Business Performance 17.

Overall performance of the business unit last year was up to the mark 18. Overall performance of the business unit relative to major competitors last year was significant 19. The return on investment of the business unit relative to all competitors last year was as per targeted 20. The sale of the business unit relative to all competitors last year was achieved 21.

The overall performance of the business unit last year, in comparison with what was expected, was met

Part 4: Number of employees in the organization: Industry of your commercial activity: How many years of operation? Name of the organization: Name of Business Unit: Your position in the organization: Number of years you have been with this organization: Your Gender: ______________

74

The impact of Market orientation on Business performance

Your Highest Education Level: ______________

In addition to the research objectives and questions, this study is guided by two underlying propositions. The first underlying proposition is that relationships exist among the market orientation and business performance. The second is that there are certain relationships among business performance and the components of market orientation.

75