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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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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

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Acknowledgements 3
Abstract 4
Table of Contents 5
Chapter 1 INTRODUCTION 7
Market Orientation 8
Market Orientation in Pakistan 11
Benefits of Market Orientation 13
Business Performance 14
Structure of the dissertation 15
Figure 1 Structure of the dissertation 16
Chapter 2 LITERATURE REVIEW 17
Market orientation and business performance 18
The strength of the relationship between MO and business performance 21
differs across scales.
R-A Theory and the Market Orientation-Performance Relationship 22
Performance Outcomes 23
Subjective and Objective Performance Measures 23
The Jaworski and Kohli model of market orientation 25
Chapter 3 RESEARCH METHODOLOGY 28
Hypotheses 29
Data Collection & Sample Plan 42
Figure 2 Response Weight age 43
Measures and Survey Instrument 44
Chapter 4 ESTIMATION AND RESULT ANALYSIS 48
Estimation and result analysis 49
Table 1 Correlation Matrix for Business performance and 50
Variables (market orientation)
Table 2 Correlation Matrix for Overall Market Orientation with 50
Business Performance
Future Research Directions 53
Chapter 5 CONCLUSION 56
REFERENCES 58
Appendix 68

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Table 3 Business performance and Market orientation 69


Table 4 Business performance and Intelligence generation 69
Table 5 Business performance and Intelligence dissemination 70
Table 6 Business performance and MO (Response design) 70
Table 7 Business performance and MO (Response Implementation) 71
Table 8 Means and Standard Deviations for all Questions 72
Table 9 Means and Standard Deviations for all variables 73
Research Questionnaire 74

Chapter 1

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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

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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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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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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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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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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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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-à-
vis 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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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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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 STATEMENT OF AIM


ISSUES AND OBJECTIVE

REVIEW ON
PREVIOUS
LITERATURE

METHODOLOGY
USED

DATA ANALYSIS AND


INTERPRETATION

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CONCLUSION AND
RECOMMENDATION

Chapter 2

MARKET ORIENTATION AND BUSINESS PERFORMANCE


LITERATURE REVIEW

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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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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 US-
based 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 non-
profit 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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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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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 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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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.

22
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

23
The impact of Market orientation on Business performance

Figure 1
Jaworski and Kohli Model (1993)

ANTECEDENTS CONSTRUCT MODERATORS CONSEQUENCES

EMPLOYEES
INTERDEPARTMEN * Organizational commitment
TAL DYNAMICS * Espirit de Corps

* Conflict
* Connectedness

MARKET ORIENTATION ENVIRONMENT


TOP MANAGEMENT
* Intelligence Generation * Market Orientation
* Emphasis * Intelligence Dissemination * Technological Turbulence
* Risk Aversion * Responsiveness * Competitive Intensity

ORGANIZATIONAL
SYSTEMS
BUSINESS
* Formalisation PERFORMANCE
* Centralization
* Departmentalizations * Economic performance
* Reward System * 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

24
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” –

25
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.

26
The impact of Market orientation on Business performance

Chapter 3

RESEARCH METHODOLOGY

27
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

28
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

29
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

30
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.

31
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

32
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 self-
explicated 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

34
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 orientation-
performance 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.

37
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

38
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

39
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

40
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 long-
term 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
and Intelligence .047
generation
2. Business performance
and Intelligence .309(**)
dissemination
3. Business performance
and MO (Response .490(**)
design)
4. Business performance
and MO (Response .294(**)
Implementation)

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 self-
assessment. 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 Implementation), Interdepartmental Conflict (Interdepartmental
Dynamics), and Connectedness (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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66
The impact of Market orientation on Business performance

APPENDIX

67
The impact of Market orientation on Business performance

Pearson Correlations
Table 3
Business performance and Market orientation
Std.
Mean N
Deviation
Business performance 3.5396 .72094 106

Market orientation 3.3938 .23298 106

Business Market
performance orientation
Pearson Correlation 1 .203(*)
Business
Sig. (1-tailed) .018
performance
N 106 106
Pearson Correlation .203(*) 1
Market orientation Sig. (1-tailed) .018
N 106 106

* 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
MO_INT_G
performance
Pearson Correlation 1 .047
Business
Sig. (1-tailed) .315
performance
N 106 106
Pearson Correlation .047 1
intelligence
Sig. (1-tailed) .315
generation
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
3.9289 .67750 106
dissemination

Business Intelligence
performance dissemination
Pearson Correlation 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 Response design
Pearson Correlation
1 .490(**)

69
The impact of Market orientation on Business performance

Business Sig. (1-tailed)


.000
performance
N
106 106
Pearson Correlation
.490(**) 1
Sig. (1-tailed)
Response design .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
3.5377 .66439 106
Implementation

Business Response
performance Implementation
Pearson Correlation 1 .294(**)

Business performance Sig. (1-tailed) .001

N 106 106

Pearson Correlation .294(**) 1


Response
Sig. (1-tailed) .001
Implementation
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

Std.
Questions N Mean
Deviation
1 In this business unit, we meet with customers at least once
10
a year to find out what products or services they will need 4.10 1.352
6
in future.
2 In this business unit, we do a lot of in-house market 10
3.75 1.155
research 6
3 We are fast to detect changes in our customers' product 10
3.89 .979
preference 6
4 We poll end users at least once a year to assess the quality 10
3.55 1.122
of our products and services. 6
5 We periodically review the likely effect of changes in our 10
3.96 .861
business environment on our customers. 6
6 We have interdepartmental meetings at least once a quarter 10
4.15 1.067
to discuss market trends and developments. 6
7 Marketing personnel in our business unit spend time
10
discussing customers' future needs with other functional 3.80 1.037
6
departments
8 When something important happens to a major customer or
10
market, the business unit knows about it within a short 4.02 .946
6
period.
9 Data on customer satisfaction are disseminated at all levels 10
3.74 .862
in this business unit on a regular basis 6
10 For one reason or another, we tend to ignore changes in our 10
3.37 1.036
customer's product or service needs. 6
11 We periodically review our product development efforts to 10
3.89 .959
ensure that they are in line with what customers want 6
12 Several departments get together periodically to plan a
10
response to changes taking place in our business 3.87 .957
6
environment.
13 If a major competitor launched an intensive campaign
10
targeted at our customers, we would implement a response 3.80 1.174
6
immediately
14 The activities of the different departments in this business 10
3.84 1.015
unit are well coordinated. 6
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


6
fashion.
16 When we find that customers would like us to modify a
10
product or service, the departments involved make a 3.63 .959
6
concerted effort to do so
17 Overall performance of the business unit last year was up 10
3.70 .886
to the mark. 6
18 Overall performance of the business unit relative to major 10
3.66 .904
competitors last year was significant. 6
19 The return on investment of the business unit relative to all 10
3.28 .983
competitors last year was as per targeted. 6
20 The sale of the business unit relative to all competitors last 10
3.51 1.016
year was achieved. 6
21 The overall performance of the business unit last year, in 10
3.55 .917
comparison with what was expected, was met 6
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. # Market orientation (intelligence generation)
1. In this business unit, we meet with customers at least once a 1 2 3 4 5
year to find out what products or services they will need in
future.
2. In this business unit, we do a lot of in-house market research 1 2 3 4 5
3. We are fast to detect changes in our customers’ product
1 2 3 4 5
preference
4. We poll end users at least once a year to assess the quality of
1 2 3 4 5
our products and services.
5. We periodically review the likely effect of changes in our
1 2 3 4 5
business environment on our customers.
MO (Intelligence dissemination)
6. We have interdepartmental meetings at least once a quarter
1 2 3 4 5
to discuss market trends and developments.
7. Marketing personnel in our business unit spend time
discussing customers’ future needs with other functional 1 2 3 4 5
departments
8. When something important happens to a major customer or
market, the business unit knows about it within a short 1 2 3 4 5
period.
9. Data on customer satisfaction are disseminated at all levels
1 2 3 4 5
in this business unit on a regular basis
MO (Response design)
10. For one reason or another, we tend to ignore changes in our
1 2 3 4 5
customers’ product or service needs (R)

73
The impact of Market orientation on Business performance

11. We periodically review our product development efforts to


1 2 3 4 5
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 1 2 3 4 5
environment.
13. If a major competitor launched an intensive campaign
targeted at our customers, we would implement a response 1 2 3 4 5
immediately
MO (Response Implementation)
14. The activities of the different departments in this business
1 2 3 4 5
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 1 2 3 4 5
fashion (R)
16. When we find that customers would like us to modify a
product or service, the departments involved make a 1 2 3 4 5
concerted effort to do so
Business Performance
17. Overall performance of the business unit last year was up to
1 2 3 4 5
the mark
18. Overall performance of the business unit relative to major
1 2 3 4 5
competitors last year was significant
19. The return on investment of the business unit relative to all
1 2 3 4 5
competitors last year was as per targeted
20. The sale of the business unit relative to all competitors last
year was achieved 1 2 3 4 5
21. The overall performance of the business unit last year, in
1 2 3 4 5
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