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British Journal of Management, V ol.

6, 1-13 (1995)
M a r k e t O r i e n t a t i o n a n d C o m p a n y
P e r f o r m a n c e :
E m p i r i c a l E v i d e n c e F r o m U K C o m p a n i e s
SUMMARY
Gordon E. Greenley
Birmingham Business Sehool, University of Birmingham, Edgbaston, Birmingham
B15 2TT, UK
There has been little empirical investigation of a relationship between market orientation
and performance, which is assumed to exist in the strategic management and marketing
literatm-es. This limited empirical evidence is equivocal, and is dominated by only two US
studies. The overall aim of the study reported in this article was to huild on this limited
empirical evidence about a relationship, hy achieving new insights from another national
business culture, namely the UK. Unlike the US evidence, the results from this study
suggest that the influence of market orientation on performance is moderated by environ-
mental variables. They suggest that market orientation may not be advantageous in highly
turbulent markets, and in conditions of low customer power and high technological
change.
Introduction
Despite the importance of market orientation in the
strategic management and marketing literatures,
and the importance of its assumed relationship with
company performance, it has been the subject of
little empirical investigation. It was not until 1990
that Narver and Slater reported the first major em-
pirical work, which tested a scale for measuring
market orientation, and tested its association with
performance.
Market orientation has been defined by Kohli
and Jaworski (1990) as the generation and dissemi-
nation of market intelligence about customers' cur-
rent and future needs, and exogenous variables that
influence these needs. Narver and Slater (1990) de-
fine market orientation as a customer orientation
and a competitor orientation, and their interfunc-
tional co-ordination, which involves intelligence
generation and dissemination, and managerial
action. Both authorities claim that market orien-
tation is positively associated with performance, as
a result of only two US empirical studies.
The overall aim of the study reported in this
article is to build on the limited empirical evidence
CCC 1045-3172/95/010001-13
1995 by John Wiley & Sons, Ltd.
concerning an association between market orien-
tation and performance, by achieving new insights
from an empirical study in another national busi-
ness culture, namely the UK. Four sections follow
this introduction. The first addresses the back-
ground to the current UK study. The second section
explains the research methodology, which is fol-
lowed by the results in the third section. The results
are discussed in the final section.
Background to the UK study
Despite the lack of empirical work about the nature
of market orientation in general, and its impact on
performance in particular, its conceptual import-
ance is clear in both the strategic management
literature and the marketing literature (Kotier,
1991; Howard, 1983; Hunt, 1983). In the strategic
management literature market orientation is par-
ticularly advocated in corporate culture and in the
mission statement, which puts markets, customers
and competitors at the heart of the modus operandi
of the organization (Pearce and David, 1987; Jauch
Received 2 4 September 1993
Accepted (revised) 9 November 1994
G. E. Greenley
and Glueck, 1988; Abell, 1980; Webster 1988). This
means that market orientation is about a set of
attitudes, which are based on creating and enhanc-
ing value to customers as part of corporate culture
(Deshpande and Webster, 1989). Webster (1993)
has suggested that, whereas culture is the way that
'things' are done, orientation is about implemen-
tation. The implication is that the market orien-
tation aspect of corporate culture should be
pervasive throughout the company, starting with
the mission. Indeed, Gronroos (1983, 1989) has
argued for the concept of market-oriented manage-
ment throughout a company.
Achieving market orientation may not be
straightforward. Ames (1970) has warned about
merely introducing the 'trappings' of marketing
into a company (the introduction of marketing
functions), as opposed to achieving attitude changes
to ensure that the marketplace is given paramount
importance. Shapiro (1988) purports that market
orientation can only be achieved by disseminating
information about customers throughout an organ-
ization, by formulating strategies and tactics to sat-
isfy market needs interfunctionally, and by
achieving a sense of company-wide commitment to
these strategies and tactics. The ultimate orientation
is where all employees consider that marketing is
part of their job (Canning 1988).
Massiello (1988) points out that market orien-
tation is often not achieved, as the necessary atti-
tudes are not established and the necessary actions
are not taken. For example, Doyle et al. (1986)
found that Japanese companies tend to be more
market oriented than UK firms. Lichtenthal and
Wilson (1992) have suggested that market orien-
tation should be,
'a visible hand that guides the behaviour of individ-
uals each day in performing their jobs'.
Market Orientation and Performance
The theory of market orientation presented by
Kohli and Jaworski (1990) was developed from
an extensive search of the literature, and prelimi-
nary interviews with 47 US companies. One of
their conclusions was that the greater the level of
market orientation of organizations, the higher
their performance. This conclusion is based on
the premise that,
'a market orientation appears to provide a unifying
focus for the efforts and projects of individuals and
departments within organizations, thereby leading
to superior performance' (Kohli and Jaworski
1990).
Consequently, this hypothesis was investigated in
the US by Jaworski and Kohli (1992), Narver and
Slater (1990), Slater and Narver (1994) and Ruekert
(1992). Although empirical evidence from the UK
has not been published. Hart and Diamantopoulos
(1993) investigated market orientation and per-
formance within a modified data set drawn from an
earlier UK study with different research objectives;
Wong and Saunders (1993) investigated the impact
of a range of business orientations on performance.
Although all these studies emanated from the con-
ceptual work of Kohli and Jaworski (1990), albeit
to a different extent, they utilized different research
strategies. These studies are outlined in Table 1.
Jaworski and Kohli (1992): five measures of per-
formance were adopted in the two samples of
this study; market share, return on equity, or-
ganizational commitment, esprit de corps and
overall performance. For both samples market
orientation is not associated with market share
and return on equity (ROE), but is positively
associated with organizational commitment,
esprit de corps and overall performance.
Narver and Slater (1990): a positive association
was identified between market orientation and
return on assets (ROA), although only one
measure of performance was used.
Slater and Narver (1994): market orientation is
positively associated with ROA, sales growth
and new product success as measures of
performance.
Ruekert (1992): this study was limited to only two
strategic business units (SBUs); the higher per-
forming SBU was found to have a higher level
of market orientation than the lower perform-
ing SBU.
Hart and Diamantopoulos (1993): as the data from
this study were drawn from an earlier study
with different research objectives, the measures
of market orientation do not fully correspond
with those of Kohli and Jaworski (1990). Only
weak evidence for a positive association be-
tween market orientation and performance
was found.
There is clearly some equivocality in these results,
with the strength of evidence coming from a single
business culture, namely the US. However, as there
Market Orientation and Company Performance
is evidence to support the assumed relationship
within the strategic management and marketing
hteratures, this gives the first hypothesis of the cur-
rent UK study:
HI Market orientation will be positively associ-
ated with company performance.
Environment Influences on Performance
Jaworski and Kohli (1992), Narver and Slater
(1990) and Slater and Narver (1994) also controlled
for affects from environmental variables on per-
formance, although these potential effects were not
investigated in the other studies. However, different
control variables were operationalized in these two
studies, which are listed in Table 2.
In the Jaworski and Kohli (1992) study few
effects from environment variables were identified.
Product quality is a predictor of overall perform-
ance, organizational commitment and esprit de
corps. Competitive intensity is a predictor of market
share, customer power is a predictor of ROE, and
supplier power is a predictor of market share.
Therefore, only six of a possible 30 effects were
significant. A similar situation was also found by
Slater and Narver (1994). Predictors of ROA are
relatively size, relative cost and customer power.
Table 1. Summary of empirical studies
Predictors of sales growth are ease of market entry
and competitive hostility. Predictors of new prod-
uct success are relative size and relative cost. In this
study only seven of a possible 24 effects were signifi-
cant. Consequently, environment effects on per-
formance are expected in this UK study. Based on
the variables used by Slater and Narver (1994), the
following hypotheses were established:
H2a Relative size will be positively associated with
performance.
H2b Relative cost will be negatively associated
with performance.
H2c Ease of market entry will be negatively as-
sociated with performance.
H2d Customer power will he negatively associated
with performance.
H2e Competitor hostility will be negatively associ-
ated with performance.
Moderators of the Market Orientation
Performance Association
There have been several studies that have investi-
gated the moderating influence of environment
variables on the association of several organiz-
ational variables with performance. For example,
Golden (1992) and Me Arthur and Nystrom (1991)
Study
Jaworski and
Kohli (1992)
Narver and
Slater (1990)
Slater and
Narver (1994)
Ruekert (1992)
Hart and
Diamantopoulos
(1993)
Country
US
US
us
us
UK
Sample
Sample 1:
220 companies
Sample 2:
230 companies
113SBUsinone
company
81 SBUs in one
company; 36
SBUs in another
company
5 SBUs in one
87 companies
Market
orientation/
performance
association
Positive
Positive
Positive
Positve
Positive
Weak association
Environment/
performance
association
Product quality.
competitive intensity,
supplier power.
Competitive intensity
Relative cost.
technological change.
market growth
Relative cost, relative
size, ease of market
entry, competitive
hostility
Not investigated
Not investigated
Moderator
variables
None identified
None identified
Not investigated
Market turbulence
with ROI. Techno-
logical change with
new product
success. Market
growth with sales
growth
Not investigated
Competitive
hostility with sales
growth
SBU, strategic business unit; ROI, return on investment.
G. E. Greenley
Table 2. Control variables
Slater and Narver Jaworski and KohU
Relative size
Relative cost
Market growth
Ease of market entry
Customer power
Competitor concentration
Market turbulence
Competitor hostility
Technological change
Product quality
Competitive intensity
Customer power
Supplier power
Entry barriers
Substitute products
investigated moderators of the strategy-perform-
ance relationship, while Haleblian and Finkelstein
(1993) investigated moderators of the association
between chief executive officer (CEO) dominance
and performance.
Kohli and Jaworski (1990) also predicted that the
association of market orientation with performance
would be moderated by the environment. This pre-
diction is based on the assumption that companies
will adjust their level of market orientation as the
environment changes. Consequently, they tested for
moderator effects from market turbulence, com-
petitive intensity and technological turbulence, but
none were identified (Jaworski and Kohli 1992).
They concluded that the association between
market orientation and performance is robust, at
least to the extent that it is not affected by such
changes in the environment. Similarly, Hart and
Diamantopoulos (1993) searched for moderator
effects, and identified an effect from competitive
intensity when sales growth is the measure of
performance.
The potential moderating effects of market tur-
bulence, competitive hostility, technological turbu-
lence and market growth were investigated in the
Slater and Narver (1994) study. They found partial
support for moderation as follows:
market turbulence with ROA as the measure of
performance;
technological change with new product success
as the measure of performance; and
market growth with sales growth as the measure
of performance.
However, despite this result, they concluded that
there is only limited support for the proposition that
the environment affects the strength and nature of
the market orientation-performance relationship.
Given the general principle of external moderation,
and following the evidence of Slater and Narver
(1994), moderator effects are expected in the current
study. Consequently, the following hypotheses were
established:
H3a The greater the extent of market turbulence,
the greater the positive impact of market
orientation on performance.
H3h The lesser the extent of technological change,
the greater the positive impact of market
orientation on performance.
H3c The lower the rate of market growth, the
greater the positive impact of market orien-
tation on performance.
Methodology
The overall aim of the current study was to build on
the limited empirical evidence by achieving ad-
ditional insights. As the previous empirical studies
used different research strategies, there were clearly
alternatives for selecting a research strategy. That
used by Narver and Slaver (1990, 1994) was
adopted, because their instrument had been de-
veloped and refined, and had produced reliable
results. Moreover, the instrument was comprehen-
sive as it included multiple measures of market
orientation, a wide range of control and moderator
variables, and three measures of company perform-
ance. Although the work of Kohli and Jaworski
(1990 and 1992) was similar, it did not include this
comprehensive range of variables. The approach
taken by Ruekert (1992) was not adopted, as the
focus was on organizational issues. The strategy of
Hart and Diamantopoulos (1993) was not appro-
priate, because it had been modified from another
study.
Although the Narver and Slater (1990) study uti-
lized responses from managers at the SBU level, this
study targeted directors at the corporate level, and
in particular managing director/CEOs. There were
several reasons for selecting this unit of analysis, in
order to give additional insights. First, Kohli and
Jaworski (1990) and Deshpande et al. (1993) con-
cluded that top management commitment and in-
volvement are important for achieving market
orientation, while Webster (1992) claimed that re-
sponsibility for this orientation is at the corporate
level. Second, Deshpande et al. (1993) concluded
that managers are unlikely to have an understand-
Market Orientation and Company Performance
ing of their firms' overall market orientation.
However, directors should have this understanding,
as they need to balance the interests of competitors
and customers with those of other stakeholders.
Third, this balance of stakeholder interests should
be initiated in the corporate mission and culture,
which is the ultimate responsibility of the board of
directors (Webster, 1992). Fourth, Deshpande et al.
(1993) concluded that managers may be uncertain
about the type of corporate culture that may be
needed to generate a greater degree of market orien-
tation. Again this should be appreciated at the high-
est executive level (Webster, 1992).
The Variables
The independent and dependent variables used by
Narver and Slater (1990), and their approach to
operationalize these variables, were consequently
adopted.
Market Orientation. This was computed as the aver-
age score of a multi-item scale, consisting of a range
of statements about market orientation, which are
listed in Appendix 1. Each item was rated on a
seven-point Likert-type scale, where 7 represents
fully agree with the statement, and where 1 repre-
sents no agreement.
Control Variables. This range of variables is listed in
Appendix 2. Each variable was measured on a
seven-point Likert-type scale, based on extremes of
impact of each variable on the company.
Dependent Variables. Studies that have investigated
relationships of organizational variables with com-
pany performance have measured the latter in two
broad ways. First, an objective approach, using the
absolute values of performance measures, such as
profitability and sales growth (Chakravarthy, 1986;
Cronin and Page, 1988). Second a subjective ap-
proach, where respondents are asked to state their
companies' performance relative to that of their
competitors (Golden, 1992; Verhage and Waarts,
1988). Some researchers have taken both ap-
proaches and have found a strong correlation be-
tween subjective responses and objective measures
(Dess and Robinson, 1984; Robinson and Pearce,
1988; Venkatraman and Ramanujam 1986.
Jaworski and Kohli (1992) used both approaches,
but received unreliable responses to the objective
measures. Slater and Narver (1994) used subjective
measures as follows: return on investment, new prod-
uct success rate and sales growth; over the last 3
years, company performance on each of these
measures, relative to those of major competitors.
Data Collection
The questionnaire used was provided by Slater and
Narver.' As this approach had been developed and
refined in the US, a limited pilot study was com-
pleted, after which some minor changes were made
to make the questionnaire compatible with the UK
business culture. A questionnaire and a personal
letter were mailed to the managing director/CEO of
1000 companies. The sample was randomly drawn
from the Dun and Bradstreet data base of UK
companies with more than 5000 employees. A total
response of 280 was obtained, yielding a usable
response of 240 fully completed questionnaires. The
respondents were not told about the purpose of the
survey, but were told that the aim was to investigate
current business practices in the UK. The profile of
this sample is given in Table 3. The sample has
similar proportions of consumer and industrial
companies, and service and product companies.
There is a reasonable spread of companies based on
annual sales turnover. Over 60 per cent of the re-
spondents are either the chairman or the managing
' The author gratefully acknowledges tbe co-operation of
Statiley Slater
Table 3. Respondent profile
Product/service type
Consumer products
Consumer services
Industrial products
Industrial services
Annual sales turnover
Under 3m
3m to 50m
51mto100m
Over 100m
Respondents
Chairman
Managing Director/chief
executive officer
Marketing Director
Other Director
Marketing Manager
% of Sample
27
25
27
21
100
2
63
12
23
100
7
56
12
15
10
100
G. E. Greenley
Table 4. Reliability analysis of market orientation scale
Scale items Item to total
correlation
Alpha if
item deleted
Coefficient alpha for scale 0.80
Sales people share information about competitors
Objectives are driven by customer satisfaction
Rapid response to competitive market actions
Top managers regularly visit customers
Information about customers is freely communicated throughout the company
Competitive strategies are based on understanding customer needs
Business functions are integrated to serve market needs
Business strategies are driven by increasing greater value for customers
Customer satisfaction is frequently assessed
Close attention is given to after sales service
Top management regularly discuss competitors' strengths and weaknesses
Our managers understand how employees can contribute to value for customers
Customers are targeted when we have an opportunity for competitive advantage
0 . 2 8
0 . 2 9
0 . 4 3
0 . 5 8
0 . 2 8
0 . 3 6
0 . 5 6
0 . 4 6
0 . 4 4
0 . 4 6
0 . 3 7
0 . 5 0
0 . 5 4
0 . 8 0
0 . 7 9
0 . 7 8
0 . 7 7
0 . 8 0
0 . 7 9
0 . 7 7
0 . 7 8
0 . 7 8
0 . 7 8
0 . 7 9
0 . 7 7
0 . 7 7
director/CEO, while 9 0 per cent are board members.
However, there are no claims that this sample is
representative of British industry. To test for non-
respondent bias the results obtained from the later
responses were compared to those of the early re-
sponses (Armstrong and Overton, 19 77). No signifi-
cant differences were found between these two sets
of respondents.
Results
Reliability Analysis
The reliability of the scale used to measure market
orientation was appraised by using Cronbach's co-
efficient alpha (Churchill, 19 79 ; Nunnally, 19 67).
These results are given in Table 4. The overall coef-
ficient alpha is 0 .80 , suggesting reliability of the
scale, which compares favourably with those
achieved in the US studies. Table 4 also gives the
value that alpha would have if each item was
removed from the scale. As all these scores are close
to the scale alpha of 0 .80 , they show that alpha
would not be increased by removing any of the
items. This further supports the reliability of the
scale.
HI and H2: Main Effects on Performance
Potential effects of market orientation on perform-
ance were investigated with multiple regression
analysis, which was used in the US studies. Three
Table 5. Results of main effects analysis: standardized regression coefficients
Independent variables ROI
t Beta
New product
success
t Beta
Sales growth
t Beta
Market orientation
Relative size
Relative cost
Market growth
Ease of market entry
Customer power
Competitor concentration
Market turbulence
Competitor hostility
Technological change
F
Adjusted R^
Multiple R
ns
3 . 2 8 0 . 2 2
- 2 . 5 9 -0.1 7: | :
ns
ns
ns
ns
ns
ns
ns
2 . 1 2 +
0 . 0 9
0 . 3 0
ns
2.77 0.1 8t
ns
ns
ns
ns
ns
ns
ns
2.3 0 . 1 6 +
2 . 1 7 +
0 . 0 9
0 . 3 0
ns
2 . 7 5 0 . 1 8
- 1 . 8 4 - 0 . 1 2
3 . 1 6 0.21:|:
ns
ns
ns
ns
ns
ns
2 . 6 5 t
0.11
0.33
* p < 0 .0 1; tp < 0 .0 5; tp < 0 0 1; p < 0 .0 0 1. ns, not significant.
Market Orientation and Company Performance
equations were built; one each with return on in-
vestment (ROI), new product success rate and sales
growth as the dependent variable, and with each
equation including all the independent variables.
All of the independent variable were entered in to
the equations at the same stage, as in the US studies.
The acceptable level of tolerance for each indepen-
dent variable was set at the 0.0001 level. No vio-
lation warnings were given, and each independent
variable entered the three equations. The results of
this analysis are given in Table 5.
The regression coefficients for market orientation
are not statistically significant in all three equations,
suggesting that there is no main effect from market
orientation on ROI, new product success rate and
sales growth. Relative size is the only variable that is
associated with all three measures of performance,
and seems to be a major predictor variable. The
inference is fairly straightforward; increases in per-
formance are achieved as companies get bigger rela-
tive to their largest competitor. For ROI the other
association simply suggests that as costs relative to
competitors decrease, ROI increases. For new prod-
uct success the other association suggests that as
technological change increases so does the rate of
new product sucxess. In the case of sales growth
there are two additional predictor variables. Rela-
tive cost implies that as costs relative to competitors
decrease, sales increase, while positive market
growth is also associated with increases in sales.
H3: Moderator Effects on the Market Orientation
and Performance Association
Although an association was not identified in the
main effects analysis, effects from moderator vari-
ables may be present, as predicted in the third hy-
pothesis. These effects can be detected by using
moderated regression analysis (Arnold 1982;
Golden, 1992; Hellevik, 1984; Sharma et ai, 1981;
Schoonhoven, 1981). The procedure requires the
introduction of a multiplicative interaction term
into the regression equation:
Y = bo + biX,+b2X2 + b3X,X2 + bX + e (1)
where XjXj is the multiplicative interaction term;
where X, is market orientation and where Xj is a
moderator variable. A moderator effect is indicated
where the regression coefficient of the interaction
term (h^) is statistically significant, in addition to the
significance of the coefficients of X, and Xj. If a
moderator effect is indicated, then further analysis
can identify any differences in the form of the re-
lationship between the predictor variable (market
orientation) and the dependent variable (perform-
ance), over the range of the moderator variable.
This can be determined from the partial derivative
of equation (1) as follows:
dY/dX, = bi + bjXj (2)
where bi and b3 are unstandardized coefficients
(Schoonhoven, 1981).
For each of the three performance measures only
one moderator variable was found to have an effect,
based on the significance of the regression coef-
ficients of the multiplicative interaction terms. The
results are given in Table 6, where only the indepen-
dent variables with significant coefficients are listed.
ROI. The results show an association between
market orientation and ROI, as a result of introduc-
ing the interaction term into the equation, in con-
trast to the main effects analysis where there was no
significant market orientation effect. This associ-
ation is moderated by market turbulence, which was
measured on a scale from 1 to 7, where the latter
represents increased diversity of the marketing op-
erations needed to serve customers. The nature of
the moderation can be determined by calculating the
partial derivative, using the unstandardized re-
gression coefficients:
dROI/dMO = 1.20 + (-0.22)MT = 0 (3)
= -1.20/-0.22 = (4)
where MO is market orientation and MT is market
turbulence. This value is an infiection point in the
moderator effect. If values of market turbulence
above 5.45 are substituted into equation (3) the
answers are negative, whereas for values below 5.45
the answers are positive. This implies that for high
levels of market turbulence market orientation is
negatively associated with ROI, while for medium
and low market turbulence market orientation is
positively associated with ROI.
New product success rate. Table 6 also shows that an
association between market orientation and new
product success rate is identified by introducing an
interaction term into the equation. Here the moder-
ator is technological change, which was measured
on a scale from 1 to 7, where the latter represents
much change in product/service technology, and in
research and development. The nature of this mod-
eration is:
Table 6. Results of the moderated regression analysis: standardized regression coefficients
Independent variables ROI
Beta
New product
success
; Beta
G. E. Greenley
Sales growth
t Beta
Market turbulence
Market orientation
Interaction term
Relative size
Relative cost
Technological change
Market orientation
Interaction term
Relative size
Customer power
Market orientation
Interaction term
Market growth
Relative size
Relative cost
F
Adjusted Rj
Multiple R
2.04 0.94+
2.10 0.53+
-1.85 -0.95
3.36 0.22
-2.64 -0.18t
2.48 1.16+
2.34 0.61+
-2.28 -1.26+
2.82 0.18t
2.32
0.10
0.32
2.17
0.10
0.31
-1.80 -0.80*
1.32 0.21ns
1.91 0.90
3.26 0.22t
2.84 0.18
-1.66 -0.11
2.77t
0.12
0.35
*p < 0.1; tp < 0.05; tp < 0.01; p < 0.001. ns, not signifieant.
dNPR/ dMO = 1.31 H- (-0.27)TC = 0 (5) CP = 0.50/0.174 = 2.87
(8)
= -1.31/-0.27 = 4.85
(6)
where NPR is new product success rate, MO is
market orientation and TC is technological change.
When values of technological change in excess of
the inflection point of 4.85 are substituted into
equation (5) the answers are negative; when values
below 4.85 are substituted the answers are positive.
This suggests that, for medium to high levels of
technological change, market orientation is negativ-
ely associated with new product success rate, while
for lower levels of technological change market
orientation is positively associated with new prod-
uct success rate.
Sales Growth. In this equation the coefficient of the
market orientation/customer power interaction
term is significant, as is the customer power co-
efficient, although the market orientation coef-
ficient is not significant. This suggests that market
orientation has only a combined effect, with cus-
tomer power, on sales growth. The moderator vari-
able customer power is measured on a scale from 1
to 7, where the latter represents high ability on the
part of customers to be able to negotiate lower
prices. The partial derivative is:
dSG/dMO = (-0.50) H- (+0.174)CP = 0 (7)
where SG is sales growth, CP is consumer power and
MO is market orientation. When values above 2.87
on the customer power scale are substituted into
equation (7) the answers are positive, whereas for
values below 2.87 the answers are negative. This
suggests that for low customer power the influence
of market orientation on sales growth is in a nega-
tive direction, whereas for medium and high cus-
tomer power the influence of market orientation on
sales growth is positive.
Discussion
The results of this UK study build on the limited
empirical evidence. They demonstrate that market
orientation may not have a direct affect on perform-
ance in all national business cultures, as its influence
seems to be dependent on the environment. The
discussions in this section focus on testing the hypo-
theses, moderator effects, implications for organiz-
ations and limitations of the study.
Testing the Hypotheses
HI: Market Orientation and Performance. As
market orientation does not have a direct affect on
performance, the results clearly do not support HI.
Market Orientation and Company Performance
They are inconsistent with the US results of Narver
and Slater (1990, 1994), Ruekert (1992), and some
of the results of Jaworski and Kohli (1992).
However, they support the other results of Jaworski
and Kohh (1992) and the UK study (Hart and
Diamantopoulos 1993).
H2: Environmental Variables and Performance. The
results support H2a and H2b as relative size and
relative cost are predictors of performance, but
H2c, H2d and H2e are rejected. Relative size is a
positive predictor variable of all three measures of
performance, which was also found by Slater and
Narver (1994). Whereas relative cost is negatively
associated with ROI and sales growth, in the Slater
and Narver (1994) study it is negatively associated
with ROI and new product success. There are two
further differences. First, while technological
change is positively associated with new product
success, it is not a significant predictor in the Slater
and Narver (1994) study. Second, market growth is
a predictor of sales growth in this study, but not in
the Slater and Narver (1994) study. However, the
results are consistent with Slater and Narver (1994)
and Jaworski and Kohli (1992) in that a similar
proportion of main effects from the environment
were identified.
H3: Effects of Moderator Variables. The results
support H3a and H3b, as market turbulence and
technological change exhibit moderator effects,
although for market turbulence the effect is in the
opposite direction to that predicted (see next sec-
tion). H3c is rejected, as market growth is not a
moderator. However, these moderator effects are
restricted to ROI and new product success rate
respectively. These results are not consistent with
the Jaworski and Kohli (1992) results, where mod-
erator effects were not identified. These moderator
effects are partly consistent with those identified by
Slater and Narver (1994). They too found that for
ROI and new product success the moderators are
market turbulence and technological change re-
spectively, although for sales growth the moderator
in their study is market growth and not customer
power.
Moderator Effects
ROL The result that market orientation and ROI
are positively associated only at levels below 5.45 on
the market turbulence scale seems to be counter
intuitive, although it is consistent with Slater and
Narver (1994). However, an explanation is
suggested. At high levels of turbulence the changing
customer needs require major changes in marketing
operations if growth in performance is to be
achieved. Presumably the costs involved in chang-
ing marketing operations become disproportion-
ately high, relative to sales revenue, at high levels of
market turbulence, and market conditions are such
that sales revenue cannot be increased, resulting in a
decline in profits. Therefore, in highly turbulent
markets it may be preferable to impose a consistent
approach to marketing operations, rather than re-
sponding erratically to market change, f
New Product Success. The results that market orien-
tation and new product success are positively associ-
ated, at levels below 4.85 on the technological
change scale, also seems to be counter intuitive, as
changes to technology should progressively increase
customer benefits. This result is also consistent with
Slater and Narver (1994). Again there is a possible
explanation. There seems to be a turning point
where, beyond a certain level of technological inno-
vation, additional customer benefits from tech-
nology cannot be achieved. Therefore, improving
market orientation by introducing such a level of
technological change, in an attempt to achieve cus-
tomer benefits, is ineffective in improving new prod-
uct success. In technologically turbulent
environments existing customer preferences may
not be a guide to new product success, as it may be
necessary to be ahead of the customers. '
Sales Growth. A positive infiuence of market orien-
tation on performance is indicated above 2.87 on the
customer power scale. This suggests the explanation
that, from quite low levels of customer power, firms
are triggered into improving their market orien-
tation in order to address the power that customers
have over them, in order to achieve sales growth.
For low customer power it seems that they are able
to achieve their sales objectives without increasing
market orientation, presumably because the bal-
ance of power lies with the company.
Implications for Organizations
Trading Conditions. As market orientation is seem-
ingly not advantageous in certain market con-
' The author is indebted to one of the anonymous referees
for observations on these issues.
10 G. E. Greenley
ditions, the results do not support the proposition
that market orientation has over-riding importance
in all trading conditions, as concluded by Slater and
Narver (1990,1994) and Kohh and Jaworski (1990,
1992). However, they are consistent with the earlier
thinking of Miles and Snow (1978), which was that
market orientation may be uneconomic in some
market environments. Therefore, it may be that
changing managerial attitudes to incorporate
market orientation into corporate culture (Canning,
1988; Masiello 1988; Shapiro, 1988) is only appro-
priate to companies participating in certain types of
environments. Moreover, following the advice that
companies should strive to become more market
oriented, as advocated by writers such as Day (1990)
and Day and Wensley (1988), may be counter-
productive for some companies.
Lagged Relationship. It may be that there is a lagged
relationship between market orientation and per-
formance, which was not identified in this cross-
sectional study. For example, although high market
turbulence may lead to disproportionately high
costs relative to sales, and hence a reduction in ROI,
this may be in the short term. Major changes in
customer needs that are permanent will require
major modifications to marketing operations, if sat-
isfaction of customer needs is to be sustained.
However, when the costs of these modifications are
spread over the long term, it is likely that profits can
be increased. Indeed, an increased level of market
orientation should ensure the effectiveness of new
marketing operations, which should lead to higher
performance in the long term.
Planning a Market Orientation Strategy. Enhancing
a company's market orientation is likely to be a
difficult strategy to plan, given that the environment
seemingly conditions the effectiveness of a market
orientation, and that these effects are unlikely to be
constant with time. Indeed, a recession is an obvious
phenomenon to distort such effects. Moreover,
market orientation seems to have a different impact
on alternative measures of performance for differ-
ent environment conditions. The implication is that
the planned strategy may need to include trade-off
decisions when planning the magnitude of perform-
ance in the corporate objectives. A difficult part of
planning a market orientation strategy is assessing
the starting level and the level that should be aspired
to. Despite the work of Slater and Narver (1990,
1994) and Kohh and Jaworski (1990, 1992), their
market orientation scales have been designed for
academic research, and are likely to be of limited
benefit to companies.
Given the possibility of lagged effects between
market orientation and performance, it may be that
a market orientation strategy should be planned as a
long-term investment, similar to that of capital in-
vestment. However, there are two likely problems
with this approach. First, enhancing market orien-
tation requires expenditure on intangible assets,
which may be seen as less important than tangible
assets. Second, the commercial pressures attached
to achieving short-term profits may over-shadow
attention to long-term profits, and in many
companies activities for enhancing market orien-
tation are seen as being short term in nature (Doyle
etal. 1988).
Other Influences on Performance. Of all the vari-
ables that impinge on an organization, there are
obviously many with the potential for influencing
performance. In this study the value of R^ is quite
low in the regression equations. Although the values
are higher in the US studies, they still suggest that
much of the variance in these dependent variables is
explained by other variables. Recent studies in the
strategic management literature, for example, have
identified several predictors of company perform-
ance. For example, strategy-environment coalign-
ment (McArthur and Nystrom, 1991 ; Venkatraman
and Prescott, 1990), organizational/managerial
issues (Grinyer et al., 1988), strategy/structure fit
(Hamilton and Shergill, 1992) and innovation
(Nicholson et al., 1990).
Limitations of the Study
As already mentioned, this was a cross-sectional
study and it may be that there is a lagged effect in
some of the relationships. Moreover, as the data
were collected during a recession in the UK, some of
the relationships may have been distorted, while
some of the views and opinions of some respondents
may be different to those that they have in more
normal trading conditions. Another possible lim-
itation is the use of subjective measures of perform-
ance. Although previous studies identified a strong
correlation between subjective and objective
measures (Dess and Robinson, 1984; Robinson and
Pearce, 1988; Venkatraman and Ramanujam 1986),
there is still the likelihood that some of the sub-
jective responses may not reflect actual levels of
Market Orientation and Company Performance
11
performance. Finally, there may be limitations in
the research instrument. Although it was refined in
the earlier studies. Slater and Narver (1994) do not,
of course, claim any level of proficiency beyond
their measures of validity and reliability.
Appendix 1. Market Orientation Scale
The following statements make up the market orien-
tation sale:
Sales people share information about com-
petitors
Objectives are driven by customer satisfaction
Rapid response to competitive actions
Top managers regularly visit customers
Information about customers is freely communi-
cated throughout the company
Competitive strategies are based on understand-
ing customer needs
Business functions are integrated to serve market
needs
Business strategies arc driven by increasing
greater value for customers
Customer satisfaction is frequently assessed
Close attention is given to after sales service
Top management regularly discuss competitors'
strengths and weaknesses
Our managers understand how employees can
contribute to value for customers
Customers are targeted when we have an oppor-
tunity for competitive advantage
Appendix 2. Range of Control Variables
Market turbulence. The extent to which customer
needs have changed and the extent to which market-
ing operations have changed as a consequence
(Miller, 1987). It may also be a moderator variable.
Market growth. A measure of the average annual
rate of growth of market size over the last 3 years
(Kohli and Jaworski, 1990). May also be a moder-
ator variable.
Customer power. Measured as the ability of cus-
tomers to obtain prices from their suppliers that are
lower than those that the suppliers wish to charge
(Narver and Slater, 1990).
Competitor concentration. An assessment of the
degree of monopolistic power within the market-
place (Houston, 1986; Porter, 1985).
Relative size. Company size, measured as sales
volume relative to the largest competitor (Buzzell
and Gale, 1987).
Relative cost. A measure of per unit operating costs,
compared to those of the largest competitor (Porter,
1980).
Ease of market entry. The possibility of new market
entrants earning satisfactory profits in the short
term (Scherer, 1980).
Competitor hostility. Changes in competitor hos-
tility and the extent to which their marketing oper-
ations have changed (Narver and Slater, 1990).
Technological change. The magnitude of change in
technology associated with products/services, and
with research and development (Bennett and
Cooper, 1981). It may also be a moderator
variable.
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