Volume 8, Number 1, pp 11-20

California Journal of Operations Management 2010 CSU-POM

The Effects of Collaboration between Marketing and
Production on Internal and External Performance

Changho Kim Minho Lee
Nam Seoul University, Cheonan-si, Chungnam, Korea

Taeho Park
San Jose State University, San Jose, CA


It is very critical to establish an effective supply chain system to satisfy customers in the competitive
market. There are many factors affecting the business performance, such as cost reduction, speed of
new product development, on-time delivery, reduction in inventory, and better interface
between/among organizational functions. This research investigates the effects of collaboration in
the marketing and production interface on the business internal and external performance through an
empirical study based on the managements perception of product quality and customer satisfaction.
The study revealed that the collaboration between marketing and production units exerts an
important role in improving business performance.


I. INTRODUCTION

The dynamic changes in the global
business operations are especially emphasizing
needs for a much higher level of collaboration
between marketing and production functions to
respond to customer's demands quickly with high
satisfaction. For better value chains,
inbound/outbound logistics, production, on-time
delivery, etc. have required inter-functional
cooperation. Thus, the close relationship between
the marketing and production units is a key
requirement for improving business performance.
It is conjectured that collaboration between the
two units may result in amicable communication,
which, in turn, can enhance customer satisfaction
and business profits. However, those internal
functions in a firm usually focus on their own
goals in an attempt to maximize their own
achievements, which may hurt the other
function's goals and/or the performance of the
entire firm. Some past research alerted that the
lack of collaboration and communication
between marketing and production may create
conflicts and have a negative impact on the
performance of companies. (Swamidass et al.,
2001; OLeary-Kelly and Flores, 2002).
In the research area of marketing and
production interface, the focus has been largely
on the effects of integration of the two functions
on the new product development and business
performance through communication,
collaboration, and marketings knowledge of
manufacturing (Calantone et al., 2002; Hausman
et al., 2002; Guenzi and Troilo, 2006). The study
on the interface between marketing and
production has continued since the integration
and cooperation between them were found
important for a companys performance
improvement.
Business performance consists of various
elements: internal performance, such as
development of new products, product quality,
and on-time shipment, and external performance,
such as increased sales and market share. Kaplan
and Nortons (1996) Balanced Scorecard shows
that the external business performance, such as
sales and profits is closely related to customer
perspective indices (e.g., customer satisfaction),
and internal business process perspective indices
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(e.g., new product development). Thus, this
research attempts to investigate the effect of
marketing and production collaboration and
communication on the internal performance of
product quality and the external performance of
customer satisfaction and profits. In the
following sections, a series of hypotheses on a set
of issues are discussed and later tested using path
analysis through an empirical study.

II. BACKGROUNDS AND HYPOTHESES

2.1. Marketing-Manufacturing Collaboration
In the supply chain from raw material
suppliers to customers, a manufacturing
company's marketing and production functions
need to a close relationship (Hausman et al,
2002). Though the two units maintain separate
and independent organizations in a company,
they must function interactively and
cooperatively in order to achieve the strategic
goals of the company. However, the reality is
that the two functions tend to show some
conflicts in many respects. Shapiro (1977)
reported that the conflict under discussion might
occur during the decision making processes in
various areas, including cost-control efforts,
frequency and direction of new-product
development efforts, quality assurance efforts,
flexibility versus stability in production
scheduling, distribution policies, breadth and
volatility of the product mix, and services.
Crittenden et al. (1993), in turn, claimed that the
three major conflict areas are (1) managing
diversity (e.g., product line length/breadth,
product customization and product line changes),
(2) managing conformity (e.g., product
scheduling and capacity/facility planning), and
(3) managing dependability (e.g., delivery and
quality control).
Mukhopadhyay and Gupta (1998) also
noted that the two functions often encounter
conflicts since they focus on different goals:
marketing concentrates on maximizing profit
with their interest in competitiveness and market
change from the customers' perspective, whereas
the production unit focuses on cost savings from
the internal process perspective. OLeary-Kelly
and Flores (2002) pointed out that a close
interaction in making decisions on scheduling,
product development and planning can resolve
conflicts between marketing and production.
Guenzi and Troilo (2006) suggested that the
crucial factors in integrating marketing and
production are communication and collaboration.
The organizational integration between
marketing and production can be created when
the same vision, goal, resources and information
are shared. Therefore, the following hypotheses
are proposed:
H1: The interactive collaboration between the
two functions plays a positive role in
communication activity.
H2: The interactive collaboration between the
two functions plays a positive role in
product quality.

2.2. Communication
The lack of consensus on inter-functional
collaboration will result in breakdowns of
communication and negatively impact business
performance (Gupta et al. 1985). Gupta et al.
(1987) asserted that conflicts and barriers result
from insufficient communication between the
two functions with respect to customers' needs in
the process of new product development. Ruekert
and Walker (1987) also found that the lack of
communication is closely associated with the
inter-functional conflicts. It is also found that
efforts for communication activity are not made
unless the inter-functional relationship is
formulated.
Mohr and Nevin (1990) showed that
communication strategy and the status of a
marketing channel affect customer satisfaction,
which impacts business performance. Crittenden
et al. (1993) claimed that various options such as
organizational restructuring, assessment system,
communication, and model-based decision
making processes can help resolve the inter-
functional conflicts. Likewise, the lack of
communication is one of the main obstacles to
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the inter-functional integration and interaction.
Thus, enhancement of communication is the
essential factor to resolve conflicts on product
quality.
Kahan and Mentzer (1994) asserted that
organizational integration between the two
functions requires recognition of the necessity of
mutual interaction and collaboration to improve
business performance. Guenzi and Troilo (2006)
also pointed that collaboration and
communication are important elements in the
integration of a marketing organization. From
these past researches, we may conclude that
collaboration and communication activities
among the members of an organization can
decrease conflicts between marketing and
production. Thus, the following hypotheses are
developed:
H3: Communication between the two functions
positively affects business performance.
H4: Communication between the two functions
positively affects customer satisfaction.
H5: Communication between the two functions
positively affects product quality.

2.3. Perceived Product Quality
Perceived product quality refers to
indirect evaluation of the brand, product image
and commercials, and can be defined as the
customers' subjective value for product quality.
Zeithaml (1988), based on his literature review,
defined perceived product quality as the overall
superiority of products and then customers'
evaluation of the superiority. Shapiro (1977)
suggested that mutual collaboration and
communication between the two functions can
resolve the conflicts, improve product quality,
and, consequently, achieve higher ROIs (Return
on Investment). Morgan and Vorhies (2001)
investigated the effects of many variables
including product quality goal, TQM (Total
Quality Management), marketing methods,
product quality, and conflicts between marketing
and production on business performance of
companies of different sizes. It was found that all
the other factors, except the conflicts,
significantly affect business performance.
Zineldin (2006) proposed 5Q's for different
dimensions: quality of object, quality of
processes, quality of infrastructure, quality of
interaction, quality of atmosphere. Well managed
5Q's can enhance customer satisfaction and
loyalty. As a consequence, marketing cost can
decrease, whereas ROIs of a company can
increase. Thus, the following hypotheses can be
proposed:
H5: Product quality positively impacts customer
satisfaction.
H6: Product quality positively impacts business
performance.

2.4. Customer Satisfaction and Business
Performance
Many studies have been carried out to
find the relationship between customer
satisfaction and business performance.
Fornell(1992) claims that higher customer
satisfaction brings higher customer loyalty, lower
sensitiveness to price, lower transaction cost and
lower failure cost. He also finds that the cost to
attract new customers can be lowered and that
consequently the better reputation of a company
can result in an improved business performance.
Edvardsson et al. (2000) finds, employing the
measured index through SCSI (Swedish
Customer Satisfaction Index), that customer
satisfaction positively affects customer loyalty,
ROIs, and business growth. The past analyses
show that customer satisfaction through
collaboration/ communication between marketing
and production and improved quality of products
and services can account for business
performance. Thus, we propose the hypothesis
presented below:
H8: Customer satisfaction with after-service
significantly impacts business performance.
The findings from the past research
described in this section can be summarized in
the model illustrated in Figure 1.

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FIGURE 1: A HYPOTHESIZED MODEL



III. METHODOLOGY

3.1. Sample and Data Collection
This empirical study is based on an
email questionnaire survey to test the hypotheses
presented in the previous section. The survey was
conducted to the employees who had a work
experience of more than three years in marketing
and/or production in Korea and the U.S. It was
sent to 200 Korean and 100 U. S. companies in
2007 and 2008. One hundred and eight responses
were obtained, among which 103 responses were
used for further statistical analysis. Out of the
103 responses, 80 were from Korea and 23 were
from the U.S.
Thirty-four out of 103 responses came
from companies that perform production,
marketing and sales only domestically. Eighteen
perform marketing and sales domestically though
production that is carried out both domestically
and overseas. Thirty-eight locate both production
and marketing both domestically and overseas.
Six have an overseas production function and a
domestic marketing and sales function. The
remaining seven companies have production in a
foreign country and marketing and sales both
domestically and overseas. Thirty-seven percent
of them produce parts/half-finished products, 24
percent parts/end products, and 39 percent end
products. Out of 103 respondents, 38 percent and
44 percent were in marketing and production,
respectively. The remaining had dual positions in
both marketing and production. As for their
ranks, 37 percent were assistant managers with
more than three years of work experience, 34
percent managers, 11 percent senior managers,
and 11 percent directors. The other 7 percent did
not indicate their job title. In terms of work
experience in the current job-related area, 39%,
17%, 15%, and 29% of respondents had less than
5 years, between 5 and 10 years, between 11 and
15 years, and more than 15 years, respectively.
It should be noted that the survey results
might be highly based on the perception of
respondents on questionnaire items, especially,
items related to product quality and customer
satisfaction. Since the questionnaire did not ask
them to provide any quantitative justification of
their answers to the questions nor their customers
to answer the questions for cross-checking, it
cannot be acknowledged whether their answers
were just based on their own perception, or
resided in the facts from the statistics that they
already collected from their customers.

3.2. Measures
All measures used in this research were
written both in Korean and English and reviewed
by managers in both marketing and production.
They were measured on 7-point Likert-type
scales, ranging from strongly disagree to
strongly agree. Using the preliminary scale
purification processes of item-scale correlations
and exploratory factor analysis, some items in the
questionnaire were eliminated when their factor
loading values were less than 0.5. The factor
loading estimates and t-values of all the items are
presented in Table 1.
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TABLE1: SCALE ITEMS AND CONFIRMATORY FACTOR ANALYSIS RESULTS
Construct/items
Factor
loadings
t-
values
Collaboration
Collaboration for the inter-functional goals
Mutual understanding of the goals
Understanding the culture of the other department

0.95
0.77
0.75

12.11
8.89
8.63
Communication
Regular meetings between marketing and production
Sharing information through a system
Good communication system

0.78
0.93
0.92

9.22
12.23
12.01
Product Quality
Decreased claims due to improved product quality
Better quality than other competitors
Overall good quality perceived in the industry

0.67
0.90
0.92

7.37
11.21
11.61
Customer Satisfaction
Overall satisfaction with after-sales service

1.00

Business Performance
Growth in sales

1.00

Goodness-of-Fit Statistics

2
/d.f.=1.27, p = 0.17, GFI=0.94, AGFI= 0.88, CFI=0.99, RMR=0.04
Notes: Each item is measured on a 7-point scale. All loadings are significant at 0.05 levels.

All the scales turned out showing
unidimensionality

3.3. Collaboration
Collaboration theories can be classified as
the Deutsch(1949) theory and the game theory.
The former asserts that people cooperate to
achieve the goals of a group as well as those of
individuals, and they choose to collaborate via
reasonable decision-making processes.
Communication, in turn, follows collaboration,
resulting in mutual understanding, information
sharing and finally reduces conflicts. This study
selected five items from Griffin and Hauser
(1996), Kahn (1996), Pinto et al. (1993), Song et
al. (1997) and conducted exploratory factor
analysis using data collected from the survey that
was explained in the previous section. Then, the
following two items were deleted from the
collaboration construct because their factor
loadings were less than 0.5: "Our company
rotates people between marketing/sales and
production departments for job enrichment," and
"Spatial closeness (i.e., distance) between
marketing/sales and production departments can
make collaboration easy." And three items used
for further analysis, whose brief phrases are
listed in Table 1, are "We usually give higher
priority to the work for the other department in
order for them to achieve their goals," "We know
the goals of the other department so that we
cooperate with each other," and "We understand
the culture of the other departments."

3.4. Communication
In order to measure items in
communication, we tested the arbitration
mechanism to reduce conflicts between the two
functions. Mohr and Nevin (1990) presented four
facets of communication: frequency (the amount
of communication), direction (vertical and
horizontal movement of communication within
the organizational hierarchy), modality (the
medium of communication, i.e., the method used
to transmit information), and content (message
that is transmitted). From the view of these
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dimensions influencing the effectiveness of
communication, the following three items were
designed: (i) there are regular meetings between
the two functions, (ii) the two functions share
information on products, policies and news
through a good information system including
ERP, and (iii) the two functions have established
a good communication system.

3.5. Product Quality
Product quality is one of the crucial areas
that cause conflicts between the two functions
and can be improved through their close
interactive communication (Shapiro, 1977;
Crittenden et al. 1993). Thus, this study
measured product quality as an outcome of
communication and collaboration, and we used
the items designed by Morgan and Vorhies
(2001). For product quality, the following three
items were measured: (a) the quality of our
products is better than our competitors', (b) how
good the level of our product quality in the
industry is, and (c) claims on our products have
recently been decreased.

3.6. Customer Satisfaction
Customer satisfaction refers to the degree
to which the possession and use of a service
evoke positive feelings (Rust and Oliver, 1994).
In general, definitions of customer satisfaction
have been based on satisfaction with service. In
this study, we measured customer satisfaction
with after-service of manufacturing companies.
According to Schneider and Bowen (1985),
employees' recognition of service for customers
is closely associated with customers' actual
recognition. Thus, employee's recognition might
well speak for customers' real experience.
Adopting Oliver (1981), we used a single item to
check customer satisfaction with after-service.

3.7. Business Performance
Measurements of business performance
have been bi-fold: an objective evaluation based
on the figures of stock prices, sales, profitability
and ROIs, and a subjective measurement from
respondents' answers. This study used inter-
functional collaboration/communication, product
quality and customer satisfaction as its leading
variables for business performance. Instead of
measuring absolute financial performance, we
measured relative achievement of sales from
subjective judgment on a 7-point Likert scales.

IV. ANALYSIS AND RESULTS

4.1. Model Validation
As mentioned in the previous section, an
exploratory factor analysis is used to purify the
survey items so that items with factor loadings
less than 0.5 were deleted from the analysis. In
addition, a confirmatory factor analysis is used to
ensure dimensionality and convergent and
discriminant validity. The factor loading
estimates and t-values of each item are illustrated
in Table 1. The results of confirmatory factor
analysis demonstrate a reasonable fit. The
2
/d.f.
statistic for the model is 1.27, Goodness-of-fit
index (GFI) and adjusted goodness-of-fit index
(AGFI) are 0.94 and 0.88, respectively. Root
mean square residual (RMR) is 0.04, and
comparative fit index (CFI) is much better at
0.99. And the magnitudes of the standardized
factor loadings range from 0.67 to 0.95, and t-
values are shown to be significant. Thus, these
results provide support for convergent validity
(Anderson and Gerbing, 1988). Also, these
criteria confirm that the constructs tested in the
current study satisfied the requirement of
unidimensionality.
The following statistics demonstrate sufficient
level of the internal consistency reliability; the
Cronbach's alpha was 0.86, communication was
0.91 and the value for product quality was 0.86.
All the numbers are at least greater than 0.7 for
high reliability standard (Nunnally, 1978).
Composite scores for each measure are computed
by averaging scores across items representing

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TABLE 2: CORRELATIONS, MEANS, AND STANDARD DEVIATIONS OF
COMPOSITE MEASURES OF MODEL CONSTRUCTS
Variables Mean
Standard
Deviation
COL CM PQ CS BP
Collaboration (COL) 4.80 1.17 1.00
Communication (CM) 5.46 1.25 0.67
**
1.00
Product Quality (PQ) 5.11 1.06 0.51
**
0.49
**
1.00
Customer Satisfaction (CS) 5.18 1.11 0.37
**
0.32
**
0.59
**
1.00
Business Performance (BP) 5.40 1.06 0.37
**
0.37
**
0.36
**
0.45
**
1.00
Cronbach 0.86 0.91 0.86 - -
Notes: **p < .01 (two-tailed test).
that measure. As reported in Table 2, the
correlations among the study variables range
from 0.36 to 0.67. Taken together, all constructs
are found to be measured reliably.

4.2. Empirical Testing of the Hypothesized
Path Model
This research used the LISREL 8.30
through path analysis to test the hypotheses listed
in Section II. (Refer to Jreskog and Srbom
(1993) for LISREL 8). The results of the path
analysis in Table 3 indicate that the model
properly fit the data. Single indicators using
summated scales are calculated to estimate the
constructs in the model. The maximum
likelihood parameter estimates, t-values and fit
statistics, are shown on the model in Table 3. The
hypothesized model has an acceptable fit
(
2
/d.f.= 0.93; GFI =0.99; AGFI=0.95;
CFI=1.00; RMR=0.03), and the completely
standardized path estimates indicate significant
relationships among constructs. All modification
indices are at acceptable levels.
H1 and H2 propose that the internal
climate of collaboration will have a positive
effect on communication and product quality.
Results of path analysis support for both
hypothesis (H1: t=8.98, p<0.05; H2: t=2.98,

TABLE 3: RESULTS OF MODEL TEST: DIRECT AND INDIRECT EFFECTS
Path
Direct effect Indirect effect
Coefficient t-value Coefficient t-value
CollaborationCommunication (H1) 0.71 8.98
CollaborationProduct Quality (H2) 0.30 2.98 0.16 2.32
CommunicationBusiness Performance (H3) 0.20 2.43 0.07 1.87
CommunicationCustomer Satisfaction (H4) 0.03 0.35 0.14 2.24
CommunicationProduct Quality (H5) 0.23 2.40
Product QualityCustomer Satisfaction (H6) 0.61 6.29
Product QualityBusiness Performance (H7) 0.04 0.30 0.21 2.97
Customer SatisfactionBusiness Performance
(H8)
0.34 3.37
CollaborationCustomer Satisfaction 0.30 4.22
CollaborationBusiness Performance 0.26 4.13
Goodness-of-fit statistics:
2
/d.f.= 0.93, p = 0.39
GFI=0.99, AGFI= 0.95, CFI=1.00, RMR=0.03

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p<0.05). H3, H4, and H5 postulate that
communication exerts an influence on business
performance, customer satisfaction, and product
quality, respectively. H3 is supported by the path
analysis results(t=2.43, p<0.05). H5 is also
supported (t=2.40, p<0.05). These two
hypotheses show that communication positively
affects business performance and production
quality. However, H4 is not supported (t=0.35,
p<0.05), which shows that there is no significant
relationship between the inter-functional
communication and customer satisfaction. Also
the results of the path analysis support H6
(t=6.29, p<0.05), but not H7 (t=0.30, p<0.05). H8
is also supported (t=3.37, p<0.05), showing that
customer satisfaction positively impacts business
performance.
Our empirical findings suggest several
managerial implications:
1. Collaboration between marketing and
production influences product quality, which
is also indirectly associated with customer
satisfaction. Therefore, management should
establish a climate of cooperation as well as
an appropriate system to foster the close
relationship between the two departments.
They should also strengthen education and
training to enhance communication abilities.
Biemans and Brencic (2007) emphasized the
importance of general communication and
support of marketing/sales departments. The
PR department in an organization should
make every effort to encourage, control, and
manage smooth communication among
different functions.
2. Managers should endeavor to maintain high
customer satisfaction as well as product
quality in order to improve business
performance through communication and
collaboration between marketing and
production.
3. It has also been found that enhanced
communication results in higher customer
satisfaction and business profitability. The
results of this study are consistent with those
found by Crittenden et al. (1993), Kahan and
Mentzer (1994), and Mohr and Nevin (1990).
4. Many past researches have showed that
communication can help reduce inter-
functional conflicts, which results in
improved product quality and business
performance. However, this research finds
that communication does not have a direct
influence on customer satisfaction. This
finding is consistent with those by Fornell
(1992) and Zineldin (2006). In the
manufacturing industry, communication can
yield higher customer satisfaction only when
product quality is improved via enhanced
communication. This implies that
management must keep in mind that even
with smooth communications they must
manage product quality indices as well as
customer satisfaction indices.

V. CONCLUSIONS

Much research has been conducted on
the relationship among service quality, customer
satisfaction and business profitability in the
service industry. However, little research has
been carried out on the effect of collaboration
and communication between marketing and
production in the manufacturing industry on
product quality, customer satisfaction and
business performance. In addition, the past
research on marketing and production interface
(Shapiro, 1977; Crittenden et al., 1993) even in
the manufacturing industry described areas of
conflicts between the two departments and
proposed communication and restructuring as a
mechanism to reduce conflicts in decision-
making processes. Other studies (Calantone et
al., 2002; Swink et al, 2007) focus on the effect
of the inter-functional integration on new product
development. However, this research combined
these with different perspectives from the past
research. This research has explored a marketing
and production interface from analyzing the
relationship among those variables together
through an empirical study.
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Data was collected from Korean and
U.S. companies to investigate the issues
associated with the two functional interfaces.
Eight hypotheses were proposed and tested using
path analysis. The results of the analysis show a
satisfactory fit of the proposed model. It is
confirmed that collaboration and communication
have a positive impact on product quality, which
is an internal performance, and customer
satisfaction and business profitability, which are
external performances.
It should be noted that although our
contribution might lie in the attempt to integrate
and combine different perspectives of the past
research, this research had some limitations.
First, our results were based on a low response
rate, resulting in a small number of responses.
Thus, future research studies must make vigorous
efforts to improve the response rate for a more
robust statistical analysis. Secondly, we could not
measure customer satisfaction and product
quality from customers directly. Therefore, it
seems necessary that another survey be directly
conducted to customers to collect customer
satisfaction for after-sales service.

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