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Environment and strategy as antecedents

for marketing effectiveness and
organizational performance

Department of Marketing, Monash University, Wellington Road, Clayton 3168, Victoria,


This paper investigates the em beddedness of strategy into the m acro- and
m icroenvironm ents. The results suggest that strategy making is influenced and
reflects m anagerial mental m aps and that the macro- and m icroenvironments
significantly guide functional strategies (m arket orientation, m anufacturing orientation, hum an resource m anagem ent and product innovation) and organizational
perform ance. In turn, the functional strategies significantly influence marketing
effectiveness and organizational perform ance. Thus, the relationship between
environment and m arketing effectiveness is mediated by functional strategies just
as the relationship between functional strategies is m ediated by marketing
effectiveness. Marketing effectiveness is shown to contribute significantly to financial
perform ance. The model is hierarchical and demonstrates the pervasive influence of
the environment and functional strategies on financial perform ance. The model
developed and tested permits exploration of the direct and indirect effects of these
com plex hierarchical relationships. The path model suggests the data fit the
hypothesized model well and that the param eter estim ates are robust.
KEYWOR DS: Environment; strategy; marketing effectiveness; performance
The relationships between environment, organizational strategy and other functional strategies
are rarely investigated in a holistic perspective. As Stimpert and Duhaime (1997) noted,
Strategic management literature separates industry, corporate and business levels of analysis
and empirical studies tend to treat these independently, not addressing how industry context
influences diversification and how diversification might influence business level strategies (p.
560). This may lead to reductionism in modelling and prevent the full exploration of the
potentially complex relationships between them and their impact on organizational
performance. This research recognizes the embeddedness of organizational strategy into the
macro- and microenvironments in which firms operate. This contextualization of strategy
recognizes the cognitive and social embeddedness of strategists (Dutton and Dukerich, 1991)
and the cognitive embeddedness of firms strategies within their industries (Porac et al., 1995).
It also recognizes the structural embeddedness of firms strategies in interorganizational and
status networks (Podolny, 1994; Uzzi, 1996). As a result, this analysis acknowledges the
Journal of Strategic Marketing
ISSN 0965-254X print/ ISSN 1466-4488 online # 1999 Taylor & Francis Ltd



multilevel quality of strategic conduct (Baum and Dutton, 1996). A conceptual model, linking
the environment, organizational strategy, functional strategies and performance, is developed
and empirically tested.
The conceptual frame (see Fig. 1) of this paper recognizes the embeddedness of strategy
making into broader societal concerns. It recognizes that analysis has to be at several levels
and that there are complex interactions between the independent variables. The framework is
developed to allow for independent variables to impact on each other to the extent this is
theoretically justified. This conceptualization permits exploration of the direct and indirect
effects on the dependent variables. For example, the business environment might have no
direct effect on performance but its effects may be transmitted via its impact on organizational
strategy and=or functional strategies. Each level in the model is discussed below to give a
theoretical basis for the hypotheses that flow from it.

Macroenvironm ent
Virtually all introductory textbooks in marketing reserve a section for an analysis of the
macroenvironment (McCarthy, 1996; Kotler, 1997). The macroenvironment is generally
categorized into demographic, political=legal, technological and natural environments. The
basic tenet is that what happens in the broader environment has significant implications for
organizational functions. For example, McKee et al. (1989) found environmental turbulence
to have a significant impact on marketing variables. Research from institutional theorists
suggests that businesses are approval seekers and are susceptible to social influences (Zucker,
1987; Scott, 1995). As Scott (1987) observed, Organisations conform because they are
rewarded for doing so through increased legitimacy, resources and survival capabilities (p.
498). Other theorists have suggested that this conformity may lead to organizational success
(Caroll and Hannan, 1989; Baum and Oliver, 1991). The macroenvironment introduces a
degree of homogeneity in a given industry through similarities in regulatory pressures,
strategic alliances, human capital transfers, social and professional relationships and competency
blueprints (Oliver, 1997). These sources of firm homogeneity arise from the embeddedness in
social and economic relationships. Environmental variation has been shown to impact on
strategy (Hrebiniak and Joyce, 1985) and to affect organizational structure (Miles and Snow,
1978). These observations have led to the following hypotheses.
H1: Managerial perceptions of the attractiveness of the macroenvironment are associated
with a more proactive posture within the organizational strategy (H1a), are positively
associated with human resource management practices (H1b), are positively associated
with product innovation (H1c ), positively impact on marketing effectiveness (H1d) and
are positively associated with financial performancereturn on assets (H1e ).

Business environm ent

The concept of the microenvironment relates to those factors in the business immediate
environment to which the organization can purposively respond to and=or influence. The
business environment is important because it may induce homogeneity among competitors.












Environment, strategy, marketing effectiveness and performance.

For example, in technology development, firms share several characteristics of the industry:
direct competitors face similar technological opportunities for innovation (Cohen and
Klepper, 1992; Klevorich et al., 1995), use a common protection mechanism for profiting
from their technological investment (Levin et al., 1987) and share innovative conditions
derived from underlying the technology. This tendency towards homogeneity is observed
from a behavioural perspective: marketing expenditure may be comparable because of
similarity in product differentiability and the stage in the product life cycle. In addition, the
concept of key success factors suggests company success is externally determined by the
industry environment leading to competitive parity. Homogeneity may be a result of
managers benchmarking their industry competitors to close competitive gaps (Bogan and
English, 1994). Most contingency literature suggests that the environment influences
organizational strategy (Porter, 1980).
However, firms have some latitude in selecting strategies (Hrebiniak and Joyce, 1985).
Strategy can influence the environment and probably both causal directions interact in an
iterative, dynamic process: strategy defines particular niches of the environment for attention
and the environment, through customer needs and competitor challenges, induces strategic
adaptation (Miller, 1988). As noted by McKee et al. (1989) . . . .[t]he payoff on a given
strategy is contingent upon the match between the adaptive content of the strategy and the
dynamics of the market (p. 22). In most traditional models in industrial organization, market



structure is posited to influence strategy directly (Porter, 1980); even in strategy=marketing

research (Buzzell et al., 1975) the same direction of causation is postulated.
H2: The attractiveness of the business environment determines effective organizational
strategies (H2a), increases the importance of market orientation (H2b), increases the
importance of human resource management practices to retain required skills (H2c ),
leads to greater investment in plant and equipment to reduce manufacturing costs
(H2d) and is positively related to financial performance (H2e).

Organiz ational strategy

Business strategy guides the selection of product markets but also serves as a constraint for
product markets (Day, 1994). Thus, strategy directly impacts on technology choice and product
development effort. Functional strategies should be based on a coherent strategy that informs
marketing and other managers of appropriate functional strategies and their implementation
(Vorhies, 1998). The level of market orientation of a business must be consistent with the
organizational strategy (Miles and Snow, 1978; McKee et al., 1989; Conant et al., 1990).
Organizational strategy has been associated with organizational performance (McDaniel and
Kolari, 1987; McKee et al., 1989; McCarthy, 1996; Kotler, 1997). While it is generally agreed
that the business environment influences performance, using similar data, others have found
that the major determinant of organizational performance is strategy (Rumelt, 1991). This has
been supported by researchers in resource-based competition (Amit and Schoemaker, 1993;
Petraf, 1993; Mahoney and Pandian, 1993; Hunt and Morgan, 1995). Chatman and Jehn
(1994) provided evidence of variability in cultures (market orientation) across industries leading
to performance differences. Gordon (1991) noted that, after deregulation of financial services,
the environment became very competitive making it necessary for firms to adopt marketoriented cultures To the extent that business strategy is an interpretation of the environmental
exigencies facing the organization, it shapes the organizational responses appropriate for these
challenges. The impact of strategy is felt through choices of distinctive competencies and the
level of investment in them.
H3: Organizational strategy determines the level of functional strategies that are
complementary and consistent with optimizing organizational outcomes. Thus,
organizational strategy is positively associated with the level of market orientation
(H3a), the quality of human resource management practices (H3b), the degree of
product innovation (H3c ) and the attention paid to manufacturing strategies (H3d).
We do not hypothesize any relationship between strategy and marketing effectiveness or
performance. This is consistent with Miles and Snow (1978), who noted that their stable
strategy types (prospectors, analysers and defenders) would not be expected to differ
significantly in performance. This is also consistent with the notion of equifinality, i.e. the
existence of equally effective multiple profiles (configurations) even if the contingencies facing
the industry are the same (Gresov and Drazin, 1997).

Market orientation
A market orientation is considered an organizational response to consumer needs and tastes
(Narver and Slater, 1990; Ruekert, 1992). A market orientation is considered an important part



of organizational culture (Baker et al., 1994; Hunt and Morgan, 1995) and, as noted by
Deshpande and Webster (1989), . .[m]arketing orientation defines a distinct organisational
culture . . . that puts the customer in the centre of the firms thinking about strategy and
operation (p. 35). The relationship between market orientation and other variables in our
model has been supported by previous research. Market orientation has been found to be
positively related to financial performance (Narver and Slater, 1990; Jaworski and Kohli, 1993;
Slater and Narver, 1994). However, companies need to strike a balance between market
orientation and production orientation to achieve effective performance outcomes (Wong and
Suanders, 1993; Fritz, 1996). Market orientation also has an impact on salespersons customer
orientation and job satisfaction (R uekert, 1992; Jaworski and Kohli, 1993). The relationship
between market orientation and innovation has not been investigated effectively as noted by
Jaworski and Kohli (1996): . . .[t]here is little in the literature on the effects of a market
orientation on the metrics related to innovation (p. 129). There have been suggestions that, by
concentrating on customers and competitors, market orientation might create mental blinkers
and discourage frame-breaking innovation. More studies are required to clarify the situation.
Hence, on the basis of extant literature we state the following.
H4: Market orientation is significantly and positively related to human resources
management practices (H4a), product innovation (H4b), marketing effectiveness (H4c )
and financial performancereturn on assets (H4d).

Manufacturing orientation
The distinctive competence of controlling costs through routinization of operations, investing
in efficient manufacturing technology and focusing on a narrow range of activities is
consistent with our operationalization of manufacturing orientation (Miles and Snow, 1978;
Zammuto, 1988). The concepts underlying manufacturing orientation are variability and
analysability. As the analysability of a task decreases and variability increases, the task ceases to
be routine. This distinguishes day-to-day manufacturing from new product development, i.e.
one is routine while the other is risky, speculative and non-routine. R outinization of tasks
permits lowering of the average and marginal costs, enabling a firm to reduce prices or
increase profits or both (Miles and Snow, 1978; Porter, 1980) and allows more options in
competitive decision making since cost cutting innovations are particularly attractive because
their effects are more predictable. The firm has more control over costs than it does over
other aspects of production and marketing and cost-cutting innovation is less likely to be
detected and imitated immediately by competitors. However, emphasis on a manufacturing
orientation may be negatively associated with product innovation since new product
development is technically inefficient, risky and unpredictable.
H5: Manufacturing orientation is negatively related to product innovation (H5a), positively
related to marketing effectiveness (H5b) and positively related to financial performancereturn on assets (H5c ).

P roduct innovation
Innovation is reflected in new products, manufacturing processes and management techniques.
A search of the literature reveals that there are three organizational activities that characterize



high product innovativeness: an ability to perceive product market opportunities, building

marketing capabilities for responding to identified market opportunities and an ability to
pursue opportunities speedily (Oktemgil and Greenley, 1997). Product innovation is associated
with speculation and risk and is a key resource allocation decision (Dickson and Giglierano,
1986). However, without product development the company may suffer from the tyranny of
served markets (Hamel and Prahalad, 1994, p. 83). Therefore, product innovation is
important for market effectiveness and, consequently, for organizational performance.
H6: Product innovation is positively related to marketing effectiveness.

Hum an resources m anag em ent

Human resource practices have significant implications for marketing effectiveness since the
skills of the employees are possibly the most important strategic asset of any organization.
Some human resource practices encourage learning (Sinkula, 1994). Presumably, learning
facilitates behaviour change and leads to improved performance (Sinkula, 1994). Effective
human resource practices must also facilitate unlearning (Hamel and Prahalad, 1994),
particularly if previous behaviour is in conflict with the new demands of the environment.
Dess and Origer (1987) found that high-performance firms in dynamic and complex markets
strive for consensus to ensure effective strategy implementation. Successful organizations tend
to have supportive management skills that stimulate creativity and improve organizational
H7: Human resources management practices have a positive impact on product innovation
(H7a), marketing effectiveness (H7b) and financial performancereturn on assets (H7c ).

Marketing effectiveness
A growing body of research has identified organizational capabilities as key components in a
firms ability to achieve a competitive advantage (Prahalad and Hamel, 1990; Day, 1994). A
firms capability is developed when its employees repeatedly apply their knowledge and skills
to transform marketing input into output (Vorhies, 1998). We have noted in the discussion
above that the development of these capabilities is influenced by the business environment
and the strategy adopted by the organization. Marketing effectiveness is conceptualized as a
measure of how effectively marketing capabilities are used. Hence, developing marketing
capabilities creates conditions for achieving strategic objectives (Day, 1994). In this research
marketing effectiveness is conceptualized as the effectiveness of implementation. In this
research we operationalize marketing effectiveness as achieving intermediate organizational
objectives that may positively impact on financial performance. Several measures were used to
capture the idea of marketing effectiveness. These include sales growth, changes in market
share and the number of successful new products introduced in the previous 3 years. The
measures were objective measures since all the data were collected from a single industry. The
measures used were averaged over a 3-year period.
The final variable in the model is return on assets. This is a financial measure that takes
into account the different sizes of the organizations in the sample. Again this was an objective
measure averaged over the previous 3-year period. We hypothesize that marketing
effectiveness has a significant and positive impact on financial performance.



H8: Marketing effectiveness has a positive impact on financial performancereturn on


S am ple and data colle ction

The sample for this study was drawn from a population of food manufacturing businesses in
Zimbabwe. The food manufacturing sector contributes to approximately 25% of the gross
domestic product and, because of its importance to the economy, there are many influences
acting on it. Food is necessary for the well-being of society and is a highly political issue. At the
time the research was carried out, the Zimbabwean Government had launched an International
Monetary Fund-supported structural adjustment programme. The deregulation of the food
industry, which started in 1987, picked up momentum and was completed by 1994. At the time
the data were collected some companies were operating with minimum government
interference, others were in transition following deregulation and a third group was still
regulated (particularly those in politically sensitive basic foods). In such an environment, business
decisions reflect or are influenced by political, social, economic and technological factors.
Evidently, this has implications for strategy choice and on how strategies are implemented.
Of the 220 food manufacturing businesses in the principal industrial areas of Harare,
Bulawayo, Gweru and Mutare, 25 could not be reached and 19 refused to participate,
resulting in an effective sample size of 176. This is effectively an 80% response rate. The
researcher personally visited the food companies to solicit their participation in the project. A
principal informant was identified and given the questionnaire to complete. The researcher
then returned to the firms to collect the completed questionnaires.

Measures and analysis

All the variables of interest were measured through multiple items so that scalar measures
could be developed. The measures were computed as the average score on the items. The
reliability of the scales and their intercorrelations are shown in Table 1. All the scales were
developed from existing measures. Strategy was operationalized like the Miles and Snow
(1978) strategy types following a similar approach to McKee et al. (1989) and Conant et al.
(1990). The scale implies movement from the most reactive to the most proactive strategic
postures. Hypotheses relating to strategy imply the more proactive the strategic posture the
stronger the association with functional strategies and organizational performance.
Data analysis was performed using path modelling in AMOS 3.61 using data in SPSS 8.0.
This procedure allows for simultaneous exploration of direct and indirect (mediated)
relationships and the incorporation of hierarchical structures. All the hypothesized relationships
were modelled as direct relationships between the variables. Variables impacted upon by other
variables include an error term to measure the variance not explained by the antecedent
Goodness of fit measures (v 2(16) 20:816, p 0:186, GFI 0:977, AGFI 0:920,
R MSEA 0:031, NFI 0:965, TLI 0:966 and CFI 0:989) suggested that the data fit

Figures on the diagonal are Cronbachs a s.

p , 0:05,
p , 0:01.

- 0.102

Measure correlations and reliabilities

Business environment
Market orientation
Human resources management
Manufacturing orientation
Product innovation
Marketing effectiveness
Financial performance (return on assets)






- 0.007






Summary of results



H1 : Macroenvironment influences
H1a : Organizational strategy
H1b : Human resources management
H1c : Product innovation
H1d : Marketing effectiveness
H1e : Return on assets
H2 : Business environment influences
H2a : Organizational strategy
H2b : Market orientation
H2c : Human resources management
H2d : Manufacturing orientation
H2e : Return on assets
H3 : Organizational strategy influences
H3a : Market orientation
H3b : Human resources management
H3c : Product innovation
H3d : Manufacturing orientation
H4 : Market orientation influences
H4a : Human resources management
H4b : Product innovation
H4c : Marketing effectiveness
H4d : Return on assets
H5 : Manufacturing orientation impacts
H5a : Negatively related to product
H5b : Positively related to marketing
H5c : Positively related to return on
H6 : Product innovation relationship
H6a : Marketing effectiveness
H7 : Human resource management
H7a : Product innovation
H7b : Marketing effectiveness
H7c : Return on assets












- 0.11

- 1.510





- 0.06

- 1.144


- 0.17

- 2.791











- 0.33

- 4.904





H8 : Marketing effectiveness influences

H8 : Financial performance (return on




the model rather well. All measures of goodness of fit suggested that the model is acceptable.
All the paths hypothesized were retained in the model even when they were not significant.
The final results are shown in Table 2.

Macroenvironm ent
These results suggest that the macroenvironment influences strategy to a less extent than the
business environment. However, the important deduction is that companies make their
strategy choice subject to the constraints and opportunities presented by the macroenvironment. Thus, organizational strategies are interpretations of the challenges and opportunities
presented by the broader environment. Strategy represents the mental maps of senior
management and their choices reflect and are influenced by the institutional environment.
Businesses seek social capital (Oliver, 1991), i.e. credibility and legitimacy. These are
important because they influence their capacity to attract and retain resources, customers and
exchange partners. Thus, when companies formulate their strategies they take into account
institutional rules and norms and seek to cultivate linkages with important constituents
(Abrahamson and Fombrun, 1992). However, strategists may be constrained in their choices
by cognitive sunk costs (DiMaggio and Powell, 1991) and this is likely to occur if social
arrangements or shared expectations become entrenched and provide security, reduce
information costs or enhance coordination. The macroenvironment has a significant influence
on marketing effectiveness and financial performance and this is consistent with our
expectations. Conformity to social expectations contributes to organizational success (Carroll
and Hannan, 1989).

Business environm ent

The business environment directly influences strategy, as we hypothesized. Thus, strategy
choice is constrained and reflects the business environment at conditions and how managers
interpret them. This guides the choice of functional strategies that might be appropriate for
optimizing organizational outcomes. This finding is also consistent with the structure
conduct performance paradigm. Again the results support the hypothesized relationship
between market structure and performance (Porter, 1980; Schmalensee, 1985). We also note
that the business environment has significant direct effects on market orientation (Kohli and
Jaworski, 1990; Slater and Narver, 1994; Greenley, 1995). All the hypothesized relationships
are supported. The effect of the business environment is to induce homogeneity due to
similarities in cognitive sunk costs, path- dependent resources, government regulations,
competitor stasis, human capital transfers and competency blueprints (Oliver, 1996).

Business strategy
We have argued that business strategy is a result of evaluating both the macro- and
microenvironments. This evaluation leads to an interpretation of how to succeed under the
constraints and opportunities presented by the environment. We have further argued that this
leads to choices at a functional level of how to respond to challenges and opportunities. Thus,
contrary to Park and Mason (1990), we view the development of distinctive competencies as
contingent upon strategy choice. Thus, we hypothesized that organizational strategy has a



pervasive influence on functional strategies. All the hypotheses relating organizational strategy
to functional strategies were strongly supported except human resources management. The
lack of support for human resources management was not surprising since, as we noted
earlier, labour conditions and wage rates in Zimbabwe were still regulated by the
government, thereby limiting the strategic importance of human resources management.

Market orientation
It has been argued that market orientation is an important component of organizational
culture (Deshpande and Webster, 1989; Narver and Slater, 1990). We hypothesized that, if
this is so, then market orientation will be strongly related to business strategy since senior
managers are unlikely to embark on a strategy that is inconsistent with their values and
perceptions. The relationship between product innovation and market orientation is
controversial as noted above, but we hypothesized a positive relationship. All these
hypotheses are supported by the results.
Market orientation is positively related to marketing effectiveness. Our model specifically
recognizes that market orientation is not the implementation of the marketing concept (Hunt
and Morgan, 1995) but marketing effectiveness can be conceived as implementation. Our
results suggest that being market oriented improves marketing effectiveness. However, the
relationship between market orientation and financial performance was not significant and, in
fact, was negative. The only explanation that seems to accord with this finding is that most
managers in Zimbabwe did not associate market orientation with financial performance. As
noted elsewhere in the paper, under regulatory conditions managers are likely to treat
marketing as a slack resource, particularly if demand exceeds supply (a common characteristic
of developing economies). The significant influence of market orientation on market
effectiveness, product innovation and human resource practices suggests the effect of market
orientation on financial performance is mediated by functional strategies.

Manufacturing orientation
We hypothesized that there is a negative relationship between manufacturing orientation and
product innovation. As noted above, product innovation is risky and speculative and not
consistent with operational efficiency, which demands the routinization of operations to allow
for effective control and predictability. This hypothesis is supported. The results further
support that manufacturing orientation is positively related to marketing effectiveness but not
financial performance. These results suggest that effective manufacturing was pursued,
particularly since achieving low costs is the only feasible strategy under conditions where
prices are regulated by the government.

Hum an resources m anag em ent

We hypothesized a positive relationship with marketing effectiveness. This hypothesis must be
rejected. Labour was still regulated, relatively cheap and in excess supply as evidenced by high
levels of unemployment. Hence, most managers in Zimbabwe did not see human resources
management as a source of competitive advantage but viewed labour simply as a necessary



cost. However, human resource practices had a significant and positive association with
financial performance
This paper attempts to link concepts across disciplines and draws on various discipline-specific
models to develop an integrated model of the determinants of marketing effectiveness and
financial performance. The research seeks to embed strategy into the broader institutional
environment so that a clearer picture emerges as to the pressures and challenges facing
managers in choosing organizational strategies and functional strategies. The paper recognizes
the multiple levels at which decisions are made and that decisions at one level have a
significant impact on the next level and that some decisions have to be implemented
concurrently. The integrated model performs well and fits the data. This highlights the need
for cross-disciplinary approaches to understanding the complex dynamics of strategy choice
and marketing effectiveness and organizational performance.

Manag erial im plications

These research findings suggest that the sources of marketing effectiveness may lie outside the
traditional marketing domain. Trends in the macroenvironment may significantly negate the
marketing effectiveness of a well-laid-out plan. A strong market orientation greatly aids
marketing effectiveness as would be expected. Human resource practices are a critical
implementation tool if the organization is to realize superior organizational outcomes.
Introducing new products is important for marketing effectiveness since new products may
appeal to new market segments or stimulate increased sales from existing customers.
Achieving low comparative costs contributes to effective marketing by delivering superior
value to customers. These results suggest that there are no strategies that are inherently easy to

Lim itations
This research was not fine-tuned in that the level of abstraction leads to a high level of
aggregation, particularly for complex concepts such as the macro- and microenvironments.
Many items were aggregated to produce these two variables. As noted in Fig. 1, less
aggregation could help determine the specific elements of the environment that impact on
business strategy and functional strategies. Secondly, the sample size is rather small. However,
given the high response rate and that this sample accounts for more than 75% of food
manufacturers in Zimbabwe, the results can be considered adequately representative. In
addition, the high reliability of the measures significantly aids in interpretation of the results.
The findings can be considered robust.
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