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Journal of Business Research 5721 (2002) 1 16

J.W. Stoelhorst*, Erik M. van Raaij

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On explaining performance differentials


Marketing and the managerial theory of the firm

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School of Technology and Management, University of Twente, PO Box 217, 7500 AE Enschede, The Netherlands

Abstract

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Efforts to develop a managerially meaningful alternative to the neoclassical theory of the firm have always been an important part of
theory development in marketing. This paper argues that the main explanandum of a managerial theory of the firm is performance
differentials between firms. Marketing shares an interest in explaining performance differentials with strategic management and
organizational economics. We show that a generic understanding of the sources of performance differentials is emerging across these three
disciplines, and we incorporate this understanding in a unifying conceptual framework that is both managerially relevant and embedded in
economic theory. We discuss market orientation literature in light of this framework, and present the prospects for developing it into an
actionable view of how marketing can contribute to the success of the firm. D 2002 Elsevier Science Inc. All rights reserved.

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1. Introduction

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Much of the history of marketing thought can be seen as


an attempt to increase the managerial relevance of economic
theory (cf. Alderson, 1957; Anderson, 1982; Hunt and
Morgan, 1995). In fact, marketing as an academic discipline
started out as a branch of applied economics concerned with
the process of getting agricultural commodities from the
farmer to the consumer (Bartels, 1965). Its foundations were
laid in the first four decades of the 20th century, with the
development and subsequent integration of the three classical schools of thought in marketing: the commodity
school, which was mainly interested in the nature of the
goods marketed; the functional school, which focused on
the functions needed to get different kinds of goods from
producer to consumer; and the institutional school, which
studied the nature of the organizations performing these
functions. These schools, which were largely descriptive,
regarded marketing as a socioeconomic process (Sheth et al.,
1988). Their combined findings formed the basis of what we
now call marketing.
The commodity functional institutional view was reevaluated during the 1940s and 1950s. In 1948, the American
Marketing Association defined marketing as the perform-

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* Corresponding author. Tel.: +31-53-489-3337; fax: +31-53-4892159.


E-mail address: j.w.stoelhorst@sms.utwente.nl (J.W. Stoelhorst).

ance of business activities directed toward, and incident to,


the flow of goods and services from producer to consumer or
user (Webster, 1992). The emphasis on business activities in
this definition signals a shift from a descriptive theory of a
macroeconomic phenomenon to a normative theory of
microeconomic behaviour. While Alderson, the leading
marketing theorist of the day, fully recognized marketings
continuing kinship with economics, he also argued that
[t]he use of the term theory in marketing pertains to
something which is less formal and more comprehensive
than economic theory in its search for relevance to actual
behavior (Alderson, 1957, p. 8). The fulfilment of the
promise that echoes in this quote is long overdue. Some
25 years after Aldersons remark, Hunt (1983) evaluated the
status of marketing theory and concluded that it was not
clear what a theory of marketing would look like. Hunt was
especially critical of the way in which marketing addressed
what he called the behaviour of sellers, or the theory of the
firm. Yet, today, marketing has more to offer in terms of a
managerially relevant theory of the firm than it did in the
early 1980s, and we may well ask if the theory envisaged by
Alderson is finally emerging.
In this paper, we explore what marketing theory has to
offer in terms of building blocks for a managerial theory of
the firm. Our approach will be somewhat different from
past attempts to evaluate theory in marketing. We are not so
much interested in assessing the status of marketing theory
in itself. Rather, we see theory development in marketing as

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2. Towards a managerial theory of the firm

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Marketing, strategy and organizational economics have a


joint heritage in the familiar neoclassical model of perfect
competition, which shows how the price mechanism
matches supply and demand. This model is based on the
following assumptions: (1) due to decreasing returns at the
margin, buyers and sellers are small in relation to the size of
the market, so each is a price taker; (2) demand within
product categories is homogeneous, so there is no room for
product differentiation; (3) resources are perfectly divisible
and mobile, so all firms have similar access to the necessary
factors of production, and market entry and exit is frictionless; (4) both buyers and sellers have perfect information
about the market; (5) buyers maximize their utility and
sellers their profit; (6) transactions are costless. A market,
which conforms to these assumptions, will, in the long run,
achieve an efficient allocation of scarce resources and thus
maximize welfare. In this sense, the theory of perfect
competition is in fact perfect. But, it is also relatively far
removed from everyday reality, and implies a theory of the

firm that has been described as . . .a theory of production


masquerading as a theory of the firm (Teece and Winter,
1984, p. 118 119). The practical implication of the neoclassical theory of the firm is that the task of management is
to adjust the quantity of output to the prevailing market
price in the short-run and the size of the productive
operation in the long run. Obviously, this is a rather limited
view of the role of management. Attempts to develop an
alternative to the neoclassical theory of the firm based on a
more realistic view of the role of the manager have thus
always been central to theory development in managerially
oriented disciplines.
To organizational economists, the main explanandum of
such an alternative theory is the coordination of economic
activity (Holmstrom and Tirole, 1989; Conner, 1991).
Addressing this explanandum leads to such questions as
why do firms exist? and why do they take on the forms
(scale and scope) that they do? These are not trivial
questions from the point of view of neoclassical economic
orthodoxy, which assumes that firms are single-product
firms (i.e., limited in scope) and that their output is small
in relation to market demand (i.e., limited in scale). Moreover, as first pointed out by Coase (1937), the theory of
perfect competition provides no explanation for the existence of firms. If the market really was perfect, then why
not coordinate all economic activity through the invisible
hand of the market, instead of also using the visible hand of
the managerial hierarchy?
In contrast to their economic colleagues, scholars in
strategic management and marketing tend to focus on the
sources of competitive advantage. When developing theories of the firm, their main explanandum is performance
differentials between firms. Neoclassical orthodoxy has
even less to say about this second explanandum of a theory
of the firm. Because it assumes that resources are completely divisible and perfectly mobile, and that economic
actors have complete information on which they act rationally, it follows that all competing firms are identical. In a
perfectly competitive market, performance differentials
between firms are by definition nonexistent: all firms earn
just enough to recover their production costs. In reality, of
course, firms do differ (cf. Nelson, 1991), and much of the
theory development in disciplines like strategic management
and marketing is aimed at understanding how differences
between firms affect their performance.
Any theory of the firm, then, must be able to explain why
firms exist and why they are different. Moreover, any
managerially useful theory of the firm must be able to
explain how differences between firms lead to performance
differentials (cf. Slater, 1997). In fact, for a theory aimed at
managers explaining performance differentials becomes the
main concern. Managers will tend to take the existence of
the firm for granted, and a managerial theory of the firm
should thus primarily address the role of managers in
contributing to the differential success of their firms.
Although managers can no doubt relate to the neoclassical

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part of a wider effort to resolve the problems raised by the


overly simplistic worldview of the neoclassical theory of
the firm. Both strategic management and organizational
economics share marketings interest in developing a managerially relevant alternative to neoclassical theory. We will
show that, due to their common interest in increasing the
practical relevance of economic theory, marketing, strategic
management and organizational economic theory is beginning to overlap. In fact, this paper is premised on the idea
that the development of a managerial theory of the firm is
best seen as an effort that cuts across traditional disciplinary
boundaries. It is our purpose to develop a framework to
help marketing theorists be more specific about how their
ideas on making firms more successful can contribute to
those developed in strategic management and organizational economics.
We will begin our review by briefly exploring the
common economic roots of marketing, strategic management and organizational economics, and by discussing the
characteristics of the managerially oriented theory they are
developing. We will argue that performance differentials
between firms are the main explanandum of this theory, and
will focus our subsequent review of each of the three
disciplines on how this explanandum has been addressed.
We will show how the three disciplines explanations of
performance differentials between firms complement each
other, and will argue that a general understanding of the
sources of performance differentials is emerging. We propose a unifying framework that captures this understanding,
we show where the main gaps in this understanding are, and
we discuss how marketing theory, particularly the literature
on market orientation, can help develop the framework into
an actionable theory of competitive advantage.

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marily positive theories that explain why firms exist, and


why and how they are different. We see a managerial theory
of the firm as both a positive and a normative theory. It is a
positive theory insofar as it explains performance differentials between firms. We believe that a managerial theory of
the firm is more valuable if its explanations of performance
differentials are grounded in theories that also address the
explananda of the general theory of the firm. A managerial
theory of the firm is normative insofar as it offers prescriptions for managerial action. We believe that these prescriptions are more valuable when they are grounded in a positive
theory of performance differentials. In the final analysis,
however, it is the value of these prescriptions for the practice
of management that is the true test of a managerial theory of
the firm.

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3. How organizational economics explains performance


differentials

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Table 1
Criteria for general and managerial theories of the firm

3.1. Industrial organization

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A general theory of the firm:


Explains why firms exist
Explains why and how firms are different

I/O accepts that there are performance differentials


between firms and explains these on the basis of product
differentiation and market power. The notion of product
differentiation goes back to Chamberlins theory of monopolistic competition (Chamberlin, 1933). Chamberlins
theory goes against the neoclassical assumption that demand
is homogenous and accepts that firms can partially insulate

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notion of the firm as an input combiner, they will hardly


recognize their decision-making role as being limited to
determining the desired production quantity based on a
given production function, let alone accept the doctrine that
their firms are bound to earn zero economic returns.
Managers are more likely to see their job as being about
outperforming competitors and creating shareholder value
(cf. Day and Fahey, 1988; Hunt and Morgan, 1995; Srivastava et al., 1998). A managerial theory of the firm will have
to tell them how.
Since Hunts (1983) critical evaluation of the status of
marketing theory, two streams of research in marketing have
begun to explicitly address sources of performance differentials between firms. The first of these consists of the
literature on marketing strategy (e.g., Wind and Robertson,
1983; Day, 1992; Varadarajan and Jayachandran, 1999) and
competitive advantage (Day and Wensley, 1988; Dickson,
1992, 1996; Hunt, 2000; Hunt and Morgan, 1995, 1996).
The second consists of the literature on market orientation
(e.g., Houston, 1986; Kohli and Jaworski, 1990; Narver and
Slater, 1990; Jaworski and Kohli, 1996). Both streams have
developed building blocks for a managerial theory of the
firm, but concerns about the lack of an integrative framework remain (Day, 1992; Slater, 1997; Varadarajan and
Jayachandran, 1999). These concerns relate to both the need
for a shared model among researchers within marketing
(Slater, 1997; Varadarajan and Jayachandran, 1999) and the
need for marketing theorists to be able to show how their
research contributes to the discourse on strategy and competitive advantage across disciplines (Day, 1992; Kerin,
1992; Webster, 1992; Hunt, 2000).
It is against this backdrop that the next sections will
review the building blocks for a managerial theory of the
firm developed in organizational economics, strategic management and marketing. We will be especially interested in
commonalities in, and complementarities between, the perspectives developed in marketing on the one hand, and
strategic management and organizational economics on
the other. We will evaluate the different perspectives in light
of three criteria for a managerial theory of the firm (see
Table 1). We make a distinction between positive and
normative theory, where positive theories describe, explain
and predict what actually is, and normative theories prescribe what should be (Hunt, 1976). Following from our
discussion above, we see general theories of the firm as pri-

We can distinguish between six different theories of the


firm in organizational economics (Conner, 1991; Barney
and Hesterly, 1996). Two of thesetransaction cost theory
(Williamson, 1975, 1985) and agency theory (e.g., Jensen
and Meckling, 1976; Fama, 1980)mainly explain the
coordination of economic activity. Transaction cost theory
goes to the heart of the question of why managerial
hierarchies exist as an alternative form of governance
alongside the market, while agency theory deals with the
nature of hierarchical coordination within the firm. However, neither of these theories offers explicit explanations for
performance differentials between firms. As in neoclassical
orthodoxy, they implicitly view the firm as an efficiency
seeker (Williamson, 1991), but not much is said about the
sources of differences in efficiency between firms. This is
addressed in the other four theories: industrial organization
theory (I/O), the Schumpeterian view, the Chicago school
and the resource-based view (RBV). These four schools of
thought are especially relevant because they have all had an
influence, albeit varying, on theory development in both
strategic management (e.g., Barney, 1997; Hoskisson et al.,
1999) and marketing (e.g., Slater, 1997; Hunt, 2000). Here,
we will discuss how each of the four schools explains
performance differentials between firms, the theoretical
notions underlying these explanations and their implications
for managerial action.

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A managerial theory of the firm:


Explains performance differentials between firms
Is theoretically grounded in general theories of the firm
Has implications for managerial action

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Conner (1991) sees the Chicago school (e.g., Demsetz,


1973; Stigler, 1986) primarily in terms of a reaction to the
interventionist policy prescriptions of Bain-type I/O. The
Chicago school revived the efficiency view that had been
implicit in the neoclassical theory of perfect competition. In
the Chicago view, large size and above-normal returns must
be due to efficiency differentials between firms. In what can
be seen as a revival of the belief in market over government,
the Chicago school saw firms not as output restricters, but as
seekers of production and distribution efficiencies. This
relaxes a number of assumptions in the perfect competition
model. First of all, economies of scale are accepted. If firms
make efficiency gains, they will grow. Moreover, the
Chicago view accepts the costs of information, thereby
offering an explanation for the existence of efficiency
differentials. By introducing the cost of searching information, the Chicago view introduces knowledge as an input
alongside labour and capital, thus, giving managers addi-

tional room to influence the success of their firms. However,


in the Chicago view, as in the theory of perfect competition,
there are no effective permanent obstacles to entry in an
industry. Competitive advantage, then, is at best temporary,
for while efficiency-based earnings need not be eliminated
immediately, in the long run imitative entry will drive the
firms profit to zero.
3.3. Schumpeters view

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themselves from competition by differentiating their offering. This view of competition is central to most of the
normative works in marketing and strategic management.
Bain-type I/O (e.g., Mason, 1939; Bain, 1951; Bain, 1954)
goes a step further and adds the notions of barriers to
competition and market power. Its view of the firm is that
it exists to restrain productive output through colluding with
other firms, or otherwise exercise monopoly power. If
successful, such behaviour will result in a higher price for
the firms products, and thus in what economists tend to
refer to as above-normal returns. The use of this term
indicates that Bain-type I/O continues to accept the neoclassical view that perfect competition is, in terms of social
welfare, perfect. But I/O does not accept that diseconomies
of scale will automatically limit the size of firms. In contrast
to the neoclassical view, therefore, it accepts firm heterogeneity, even though, by focussing on differences in size, it
usually takes a rather narrow view of how firms are
different. The central theoretical notion of Bain-type I/O is
the structure conduct performance hypothesis, which
states that industry structure determines the conduct of firms
(including their room for product differentiation), which in
turn determines their profitability. In this view of the firm,
the role of the manager is broader than in the neoclassical
firm, involving such activities as pricing and advertising, in
addition to determining the quantity of output and collusion.
However, because firm conduct is seen as being determined
by industry structure, the theory remains deterministic. In
fact, managers are not the intended target of I/O economists.
Their emphasis has historically been on the relationship
between industry concentration and profits, and their message has been aimed at government officials, who, according
to Bain-type I/O, have an important role to play in limiting
the size of firms through intervention in industries in which
firms are gaining monopoly control.

Like the Chicago perspective, Schumpeters view


(Schumpeter, 1934, 1950) can be seen as a reaction against
the antitrust policy prescriptions of Bain-type I/O. Schumpeters view of competition is that of a process driven by
innovation. This type of competition comes from the new
consumers goods, the new methods of production or
transportation, the new markets, the new forms of industrial
organization that capitalist enterprise creates. It is competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and
outputs of the existing firms but at their foundations and
their very lives. This kind of competition is as much more
effective than [price competition over existing products] as a
bombardment is in comparison with forcing a door
(Schumpeter, 1950, pp. 82 84). According to Conner
(1991, p. 127), the implicit theory of the firm is that its
purpose is to seize competitive opportunities by creating or
adopting innovations that make rivals positions obsolete.
In the proverbial process of creative destruction, the source
of performance differentials lies in new combinations, and
Schumpeter relates the size of firms to their ability to bear
the costs of innovation. Industry concentration, then, does
not necessarily impede competition, but may well be a
necessary condition for major innovation. It is interesting
to note that Schumpeters view, with its inherently dynamic
outlook on competition, gives the manager, or rather the
entrepreneur, a much more central place in explanations of
performance differentials between firms than any of the
other economic theories. In fact, there are distinctly voluntaristic overtones in his view of competition.
3.4. The RBV
Often traced back to the work of Penrose (1959), the RBV
of the firm (Lippman and Rumelt, 1982; Wernerfelt, 1984)
has become a centerpiece of conversation between scholars
in organizational economics and strategic management
(Mahoney and Pandian, 1992). The central notion in the
RBV of the firm is firm heterogeneity (Peteraf, 1993). While
the RBV shares with the neoclassical theory of perfect
competition the view of firms as input combiners, it departs
from the neoclassical view in taking differences between
firms as its starting point. Like Bain-type I/O, the RBV holds
that persistent above-normal returns are possible. However,
it does not see these returns as the result of a favourable
industry structure, but rather as a result of the firms access to

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3.2. The Chicago school

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Reviews of schools of thought in strategic management


(e.g., Mintzberg, 1990; Whittington, 1993; Hoskisson et al.,
1999) show that this is an eclectic field in which a large
number of perspectives on strategy co-exist. It has also
been noted that, over the last two decades, strategic
management has become much more grounded in theory
than its predecessor, the more applied field of business
policy (Barney, 1997; Hoskisson et al., 1999). Much of the
theory development in the discipline has recently taken the
form of conversations at the nexus of strategic management
and organizational economics (Mahoney and Pandian,
1992). Positive theories of strategy are being developed
in relation to I/O (e.g., Porter, 1981) and the RBV (e.g.,
Peteraf, 1993). In this section, we focus on the more
normative strands of research in strategy. We distinguish
four major normative schools of thought within strategic
management: the planning school, the positioning school,
the competence-based school and the process school. Two
of these schools are primarily concerned with the process
of strategy. The planning school (Ansoff, 1965; Learned
et al., 1965) is prescriptive in nature, and has laid the
foundation for the textbook approach to strategy, which
largely consists of applying a number of conceptual planning tools that revolve around the now ubiquitous SWOT
analysis. The process school (e.g., Quinn, 1980; Mintzberg
and Waters, 1985), which disagrees with this model, is
more descriptive in nature and, based on empirical studies
within firms, has pointed out that the actual process of
developing strategy is a far cry from the rational model
embraced by the design and planning schools. Because of
their emphasis on the process of strategy, these two schools
have little to say about performance differentials between
firms. Although the general idea underlying all of the
writings in strategic management seems to be the notion
of understanding what a company might do in terms of
environmental opportunity, of deciding what it can do in
terms of ability and power and of bringing these considerations together in optimal equilibrium (Andrews, 1980),
before the advent of the positioning school in the 1980s and
the competence-based school in the 1990s, it was not
entirely clear where managers should look for opportunities
and threats or strengths and weaknesses (cf. Schendel,

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4. How strategic management explains performance


differentials

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unique, or otherwise costly-to-copy resources (Lippman and


Rumelt, 1982; Dierickx and Cool, 1989; Reed and DeFillippi, 1990). Thus, it departs from the neoclassical assumption that resources are perfectly divisible and completely
mobile. Rather, it regards resources as the ultimate source of
performance differentials between firms (Rumelt, 1984;
Barney, 1986). Although it accepts that firms compete on
the basis of products (or services), in the words of Wernerfelt
(1984, p. 171) [f]or the firm, resources and products are two
sides of the same coin. According to the RBV, the managers job is to acquire, develop, combine and deploy resources
that will add value to the firms products or lower the firms
costs. Performance differentials between firms result from
the ability to develop unique resource combinations, and
these performance differentials may persist to the degree that
the resource combinations are difficult to imitate (Barney,
1991; Peteraf, 1993).
Table 2 summarizes the four schools views of the firm:
how they explain performance differentials between firms,
their main theoretical concepts, and their implications for
managerial action. Note that, while these schools remain
grounded in neoclassical thinking, they each take exception
to at least one of the assumptions of the theory of perfect
competition to explain performance differentials. I/O does
not accept that firms are always price takers, nor that there is
no room to differentiate the firms output. The Chicago view
does not accept that sellers all have the same, perfect
information about the market. Schumpeters emphasis on
the role of innovation goes against the assumption that there
is no room to differentiate the firms output. And the RBV
denies that all firms have similar access to all the necessary
factors of production. Thus, despite its unrealistic assumptions, the neoclassical model of perfect competition emerges
as a baseline model of competition that forms a useful
backdrop to understanding explanations of performance
differentials between firms. If the assumptions of the neoclassical model hold, there will be no performance differentials. If there are performance differentials, the market in
question does not conform to one or more of the assumptions. Indeed, as will become clear below, it is precisely the
ways in which the four schools of thought differ from the
neoclassical model that has provided scholars in strategic
management and marketing with building blocks for their
own, more practice-oriented, views of how firms can gain
competitive advantage.

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t2.1
t2.2

Table 2
Views of the firm in the organizational economics literature

t2.3

School of
thought

Source of performance
differentials

Central theoretical
concept

Role of management

t2.4

I/O

SCP

To differentiate or restrain output

t2.5
t2.6

Chicago
Schumpeter
RBV

Differentiation and
market power
Efficiency
Innovation
Costly-to-copy resources

Information costs
Creative destruction
Firm heterogeneity

To seek efficiencies in production or distribution


To create new combinations that make rivals positions obsolete
To acquire, develop, combine and deploy valuable, rare and
inimitable resources

t2.7

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1994). In contrast to the planning and process schools, the


positioning school and competence-based school are primarily concerned with the content, as opposed to the process,
of strategy. In other words, not with how strategy is, or
should be, developed, but with the nature of successful
strategies. This also means that they address the sources of
performance differentials between firms, albeit in quite
different ways.

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The emergence of the positioning school can be largely


attributed to Porter (1980). Based on five forces that
determine industry attractiveness and three generic strategies on the basis of which companies can differentiate
themselves from competitors, he developed a view of
strategy as positioning the firm within existing industry
structures. In the view of the positioning school, strategy is
about the identification of superior positions within attractive industries, and longer-term performance differentials
are the result of the ability to protect these superior
positions by barriers to competition, such as size and
switching costs. The link between this view of strategy
and the perspective of industrial organization economics is
obvious (Porter, 1981). Basically, what Porter did was to
replace the traditional governmental audience of I/O, which
wanted to know how to increase competition, with a
managerial audience, which wanted to know how to avoid
it. By turning I/O on its head, Porter was able to use the
structure conduct performance perspective to show managers how to exploit different forms of barriers to competition and (legal) market power to create competitive
advantage. The five-force model is a practical tool for the
analysis of industry structure, while the three generic
strategies provide a checklist for possible firm conduct.
Note also the parallels between the generic strategy of
differentiation and Chamberlins view on competition, and
between the generic strategy of cost leadership and the
Chicago view. The result of Porters early work was a
somewhat deterministic view of strategy as fit. The role of
the manager was to analyze industry structures, identify
attractive industries and superior positions within them,
and take these positions by way of generic strategies. In
this view, industry structure is given, and strategy is thus
about analysis of available positions and choice of a
generic strategy.

t3.1
t3.2
t3.3

The reasoning of the positioning school is outside-in, and


despite attempts to be more specific about possible internal
sources of competitive advantage (Porter, 1985), the strategic management discipline had to await the popularity of
Prahalad and Hamels (1990) work on core competencies
before the attention given to the firms environment was
balanced by an equal interest in how the internal characteristics of firms could lead to performance differentials.
Prahalad and Hamels work, like Porters, has a clear link
to underlying economic theory, notably the RBV of the firm.
In fact, Wernerfelt, one of the founding fathers of the RBV,
credits Prahalad and Hamel with almost single-handedly
popularizing this school of thought (Wernerfelt, 1995).
Prahalad and Hamel do not primarily focus on the environment for sources of competitive advantage, but rather
direct their analysis to the valuable, difficult-to-copy knowledge within the firm which allows it to gain access to
different markets. This view of strategy has since become
known as the competence-based school (Sanchez et al.,
1996; Sanchez and Heene, 1997). It can be seen as a more
actionable version of the RBV, with more emphasis on the
sources of competitive advantage inside the firm. However,
in addition to the obvious link to the ideas of the RBV,
Hamel and Prahalads view of strategy also has a distinctly
Schumpeterian ring. Their view is of strategy as stretch
(Hamel and Prahalad, 1993). Managers should develop a
long term strategic intent (Hamel and Prahalad, 1989) and
compete for the future (Hamel and Prahalad, 1994) by
becoming rule breakers instead of rule takers. In their
1994 publication, these concepts culminate in the notion of
industry foresight as a label of vision, entrepreneurship
and innovation. In contrast to Porters view, then, that of
Hamel and Prahalad is voluntaristic and inside-out. Strategy is about changing the competitive rules of the game by
developing and exploiting core competencies.
Table 3 summarizes the main perspectives on the firm in
the strategic management literature.
The differences between the positioning and competence-based schools have fuelled a discussion on the importance of the industry versus the firm effect as an explanation
of performance differentials between firms (Schmalensee,
1985; Rumelt, 1991; McGahan and Porter, 1997; Brusch
et al., 1999). But despite the fact that Porter may originally
have put more emphasis on analyzing industry structure,

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Table 3
Views of the firm in the strategic management literature
School of thought

Source of performance differentials

Underlying theory

Role of management

Positioning

Positional advantages protected by


barriers to competition
Managerial vision and core competencies

I/O
Chicago
Schumpeter
RBV

To analyze industry structure and


choose a generic strategy
To change the rules of the game by developing
and exploiting core competencies

t3.4
Competence-based

t3.5

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4.1. The positioning school

4.2. The competence-based school

of

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5. How marketing explains performance differentials


between firms

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We now turn to the way in which marketing has explained


performance differentials between firms. Here, we can distinguish between empirical and theoretical approaches. The
PIMS project has been marketings most important empirical contribution (Phillips et al., 1983; Buzell and Gale,
1987). Based on data from 3000 business units, it established links between such positional advantages as relative
product and service quality and market share on the one
hand, and business performance on the other. Here, however, we will focus on marketings efforts at theory development. Over the years, marketing theorists have taken
inspiration from the different schools of thought in organizational economics in much the same way as scholars in
strategic management. This is especially clear in the seminal theoretical contributions of Alderson (1957, 1965), Day
and Wensley (1988), Dickson (1992, 1996) and Hunt and
Morgan (1995, 1996). In fact, there are notable commonalities between the views of these authors and the way in
which strategic management has addressed performance
differentials between firms.

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as a source of positional advantages, can be seen as doing


just that. Thus, despite the initial differences in outlook
between the positioning and competence-based schools, a
common understanding of the sources of performance
differentials between firms seems to be emerging. In fact,
the conclusion must be that the dichotomy between the
positioning view of strategy as fit and the competencebased view of strategy as stretch is a result of different
perspectives on competition. The positioning school and
competence-based school emphasize Chamberlinian and
Schumpeterian competition respectively. This explains
why the view of the positioning school is more deterministic than the rather voluntaristic views on strategy of the
competence-based school. However, the two schools are
entirely compatible in terms of their underlying theory of
the firm.

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and that an important part of Hamel and Prahalads message


is that the essence of strategy is to disrupt such structures,
there is considerable overlap in the way in which the two
schools explain performance differentials between firms.
A closer look at the terminology developed by the main
proponents in each of the schools underscores this point.
Porters (1991, 1996) more recent work, in which he
develops his view on the sources of competitive advantage
along what he calls the causal chain, begins to link up with
notions of the competence-based school. Porter argues that
competitive advantage is a matter of positional advantages
resulting from differential process efficiencies. This links
the Chamberlin and Chicago views of competition. But in
an interesting twist of terminology, he goes on to argue that
we must subsequently try to understand the drivers of
these efficiencies. While Porter has made it clear that he is
no admirer of the competence-based approach, and has even
accused Prahalad and Hamel of tautological reasoning
(Porter, 1991), it is hard to see how his notion of drivers
is different from the ideas on resources developed in the
competence-based school. Similarly, despite Hamel and
Prahalads (1994) emphasis on resource-based and Schumpeterian notions of developing technological core competencies into a lever of creative destruction, their concern for
customer value is entirely compatible with views, which
emphasize positional advantages in product markets as the
essence of competitive strategy.
Given their common economic origin, the two schools
have a quite similar view of the firm. In fact, the notion of
the firm as an input combiner is central to both. Fig. 1
shows how the two schools explanations of performance
differentials are related. By primarily taking their inspiration from industrial organization, and Schumpeters ideas
and the RBV, respectively, the explanations of these two
schools can be seen as a focus on opposite ends of a causal
chain. The main gap between them is the Chicago notion of
differential efficiencies in key business processes. A better
understanding of how process efficiencies help translate
unique resources into positional advantages would help
bridge this gap. Porters (1985, 1991, 1996) later work,
which puts more emphasis on business process efficiencies

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Fig. 1. How strategic management explains performance differentials.

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Aldersons (1957, 1965) so-called functionalist school of


thought has a somewhat special place in marketing. Though
not developed further since Aldersons death, it has nevertheless had a noticeable impact on the development of
marketing theory (Sheth et al., 1988). Aldersons work is
one of the few attempts to develop a general theory of
marketing, and in his assessment of the status of marketing
theory, Hunt (1983) credits Aldersons theory of the firm as
a notable exception to the neglect of firm behaviour within
the field. Alderson emphasized the process of competition
for differential advantage and the central role of innovation
in this process. Aldersons view on performance differentials can be inferred from a summary of his ideas by
Hunt et al. (1981):
Firms act as if they had a primary goal of survival.
In order to survive, firms compete with other firms in
seeking the patronage of households.
A firm can be assured of the patronage of a group
of households only when the group has reason to prefer
the output of the particular firm over the output of
competing firms. Therefore, each firm will seek some
advantage over other firms to assure the patronage of a
group of households. Such a process is called competition for differential advantage.
Competition consists of the constant struggle of firms
to develop, maintain, or increase their differential advantage
over other firms. Competition for differential advantage is
the primary force leading to innovation in marketing.
It is interesting to note that Aldersons perspective,
developed in the 1950s and early 1960s, already includes
elements from both the I/O view (differential advantage) (cf.
Priem, 1992) and Schumpeters perspective (innovation)

Day and Wensley (1988) propose a framework to clarify


the nature of competitive advantage. They separate what
they see as an inherently ambiguous concept into its
component parts: sources, positions and performance outcomes. The resulting SPP framework conceptualizes competitive advantage in terms of a causal chain that runs from
sources of advantage (superior skills, superior resources),
through positional advantages (superior customer value,
lower relative costs), to performance outcomes (satisfaction,
loyalty, market share, profitability). The authors note that
underlying this simple, sequential determinism. . . is a
complex environment fraught with uncertainty and distorted
by feedbacks, lags and structural rigidities (Day and Wensley, 1988, p. 2). Two of the feedback mechanisms are
explicitly incorporated in the SPP framework. The identification of key success factors and the relative rate of
investment in skills and resources form a feedback loop
from performance outcomes to sources of advantage (see
Fig. 2). Day and Wensley emphasize the need to design a
so-called measurement system to make the model work in
practice. This measurement system should support the
feedback loop by seeking diagnostic insights from both a
customer and competitor perspective. Day and Wensleys
model has become a benchmark for later publications in
marketing that have sought to explain performance differentials between firms (e.g., Bharadwaj et al., 1993; Hunt

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5.2. Day and Wensleys SPP framework

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(Dickson, 1992). The combination of these two views of


competition within one theoretical framework makes the
functionalist school an inherently rich perspective, and it is
therefore unfortunate that not much has been done to
develop it further since the mid-1960s.

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Fig. 2. How marketing explains performance differentials.

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Dickson (1992, 1996) argues that competitive advantage


needs to be understood in terms of competitive dynamics.
Dickson (1992) disagrees with the equilibrium view of
markets in the neoclassical model, claiming that the essential characteristic of markets is that they are in disequilibrium. In fact, marketing is the art and science of creating
change (disequilibrium) in markets in such a way that the
change benefits the firm (1996, p. 102). The basic premise
of his theory is that variation in the response rate of buyers
and sellers to changes in supply and demand creates
opportunities that can be imperfectly exploited by the
motivated, alert and hustling decision maker (1992, p. 69).
Consequently, a dynamic theory should not explain competitive positions in terms of the current level of heterogeneity in supply and demand, but in terms of rates of change
(1996). The focus should therefore be on the adaptability of
individual sellers over time.
In his 1992 publication, Dickson states that the imperfect
procedural rationality of its marketing planners is central to
the success of the firm. Procedural rationality is a cognitive
construct that encompasses goal-setting, environmental analysis and implementation. These three dimensions of procedural rationality lead to three sources of competitive
advantage: sellers who possess an insatiable self-improvement drive are more competitive, sellers with more acute
and less biased perceptions are more competitive, and sellers who can implement faster are more competitive.
Although Dickson explicitly refers to Schumpeter, his
explanation of competitive advantage more resembles the
Chicago view of competition, with its emphasis on temporary advantage, information processing and differential efficiencies in production and distribution.
In his 1996 publication, in which Dickson comments on
Hunt and Morgans resource advantage theory (RA theory)
(Hunt and Morgan, 1995, see below), the emphasis is on
the firms capability to learn to improve its competitive
processes (Dickson, 1996, p. 102). The adaptability of
individual sellers over time is now seen as a result of
higher-order learning processes. Examples of such processes
are experimentation, benchmarking, total quality management evaluation, feedback control processes such as customer satisfaction tracking and processes that reward
continuous improvement. Fig. 2 shows how the overall
explanation of firms success that emerges from Dicksons
two articles differs from Day and Wensleys. Unlike Day and
Wensleys framework, Dicksons emphasis is not on I/O- or

5.4. Hunt and Morgans RA theory

The aim of Hunt and Morgans (1995, 1996) RA theory


of competition is to offer an alternative to the received
wisdom of the neoclassical model of perfect competition.
The main explananda of the original version of RA theory
are the macroeconomic phenomenon of abundance and the
microeconomic phenomenon of firm diversity (Hunt and
Morgan, 1995). Hunt (2000) has subsequently developed
the theory to also address some other macroeconomic
phenomena, e.g., productivity, economic growth and the
wealth of nations. While the primary objective of RA theory
is not to explain performance differentials between firms, at
the heart of the theory is a model of competition in which
performance differentials between firms are explained in
terms of a comparative advantage in resources.
This model views competition in a way that combines
elements of Day and Wensleys SPP framework with Dicksons dynamic disequilibrium paradigm. Day and Wensleys
views underlie a view of competition as the constant struggle among firms for a comparative advantage in resources
that will yield a marketplace position of competitive advantage, and thereby superior financial performance (Hunt and
Morgan, 1995, p. 8). Dicksons perspective resonates in
the statements that disequilibrium is the norm and once
a firms comparative advantage in resources enables it to
achieve superior performance through a position of competitive advantage in some market segment or segments,
competitors attempt to neutralize and/or leapfrog the
advantaged firm through acquisition, imitation, substitution
or major innovation (Hunt and Morgan, 1995, p. 8).
The resulting causal framework is similar to the one
proposed by Day and Wensley (see Fig. 2), albeit with a
view of resources that reflects developments in the RBV
since Day and Wensleys publication. While Day and
Wensley (1988, pp. 2 3) categorized the sources of advantage into skills (the distinctive capabilities of personnel)
and resources (the more tangible requirements for advantage), Hunt and Morgan include financial, physical, legal,
human, organizational, informational and relational resources as possible sources of competitive advantage (Hunt and
Morgan, 1995). Moreover, as a result of the discussion with
Dickson (1996), the later version of the model puts more
emphasis on learning (Hunt and Morgan, 1996). Firms are
seen as learning through competition as a result of feedback
from relative financial performance signalling relative

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5.3. Dicksons dynamic disequilibrium paradigm

RBV-inspired notions. This is clear from his comments that


the fundamental construct is not comparative advantage in
product value and cost but is higher order learning, and that
it is a firms higher order learning processes that create and
sustain its comparative and realized competitive advantages
(1996, p. 104). These comments, combined with his view of
competition in the 1992 paper, lead to the conclusion that
Dicksons explanation of the success of firms is based on a
dynamic version of the Chicago view.

of

and Morgan, 1995, 1996), and can be seen as an anticipation


of the resource-based and competence-based frameworks
developed in the strategic management literature during the
1990s. It develops a similar explanation of performance
differentials between firms, but without characterizing
resources in terms of market characteristics or giving much
attention to organizational processes within the firm.

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Table 4
Views of the firm in the marketing literature

t4.3

Perspective
Alderson (1957, 1965)

t4.4
Day and Wensley (1988)

t4.5
t4.6
Dickson (1992)

t4.10

6. A unifying framework to account for performance


differentials between firms

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866

The commonalities in marketings and strategic managements explanations of performance differentials between
firms (see Figs. 1 and 2) show that the two disciplines have
common roots in economic theory. Based on this heritage, a
common understanding of the sources of performance
differentials seems to be emerging across the two disciplines. Fig. 3 captures this understanding. It is a view of the
firm that sees innovation as the source of the specific set of
resources at the firms disposal. Such resources are turned
into product and service offerings in a variety of business
processes. The firms position in product markets determines its relative performance. Firms compete to outperform each other. Innovation is driven by this competition
and underwritten by learning processes.
We propose Fig. 3 as a unifying framework for performance differentials between firms. This is a conceptual model,
which reflects the common economic heritage of the different schools of thought in marketing and strategic management. The model shows how these schools have taken
inspiration from the different theories developed in organizational economics, where their explanations of performance differentials overlap, and how they differ in their
respective emphases along the causal chain of possible
sources of competitive advantage. The model suggests that
there are five possible sources of performance differentials
between firms: Positional advantages in product markets,
differential efficiencies in business processes, unique or

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t4.2

t4.7
t4.8
t4.9

are not so much theories of the firm, but theories of


competition that have implications for how we should look
at the firm. While competitive advantage is explained in
terms of the inner workings of the firm in a more realistic
way than in the neoclassical theory of perfect competition,
these theories do not go into much detail with respect to the
specific actions that managers can take to make their firms
perform better.

ed

market position, which in turn signals relative resources


(Hunt and Morgan, 1996, p. 108). In the causal chain,
learning is modelled as a feedback mechanism represented
by the arrow running back from financial performance and
market position to resources (see Fig. 2).
While RA theory offers a general view of competition
that purports to explain a whole array of macro-and microeconomic phenomena, the way in which it explains performance differentials between firms is not fundamentally
different from the work by Day and Wensley and Dickson.
The added value of RA theory as an explanation of
performance differentials between firms (as opposed to a
theory to explain abundance and firm diversity) is that it
updates and extends Day and Wensleys views and grounds
them in economic thinking by explicating the foundational
premises of the theory of competition underlying the SPP
framework. Like Day and Wensleys model, and despite
Hunts (2000) claim that it incorporates the competence
view of the firm, RA theory does not give much explicit
attention to matters of internal organization. As Hunt and
Morgan (1996, p. 108) observe about their theory, it should
be seen as a positive theory that has normative implications; it is not a normative theory that is grounded in
positive assumptions.
Table 4 summarizes the main perspectives on the firm in
the marketing literature.
Fig. 2 shows how marketings explanations of the sources of competitive advantage relate to the causal chain that
is emerging in the strategic management literature. Note that
none of the models covers the whole chain. The most
notable gap in the models is the relative lack of attention
given to business processes. While the authors touch on a
number of business processes in the explication of their
models, differential efficiencies in business processes is not
separated out as a source of performance differentials.
Dickson (1992) comes closest with his emphasis on the
need for an implementation capability, but this part of his
theory of competition does not receive any further attention
in the later elaboration of his views (Dickson, 1996). We
may conclude that, much like the neoclassical model, these

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J.W. Stoelhorst, E.M. van Raaij / Journal of Business Research 5721 (2002) 116

Pr
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10

Dickson (1996)
Hunt and Morgan (1995)

Source of performance
differentials

Underlying
theory

Role of management

Differential advantage
Innovation
Superior skills and resources
Superior customer value
Lower relative cost
Self-improvement drive
Perceptual acuteness
Implementation speed
Higher-order learning capability
Financial, physical, legal, human,
organizational, informational,
relational resources

I/O
Schumpeter
RBV
I/O

To seek some advantage over other firms


to assure the patronage of a group of households
To seek diagnostic insights (from both a
customer and a competitor perspective)

Chicago
Schumpeter

To create disequilibrium in markets in such a way


as to benefit the firm

RBV

To learn to improve the competitive process


To recognize, understand, create, select and
modify strategies

ARTICLE IN PRESS

Fig. 3. A unifying framework for performance differentials between firms.

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7. Market orientation and the unifying framework

964

Marketing scholarship has always consisted of a mix of


positive and normative theories (Hunt, 1976). The models
discussed in Section 5 are positive theories with normative
implications, but over the years marketing has also
developed a more normative view of the firm, which is
the fruit of what Sheth et al. (1988) have called the
managerial school of thought in marketing. This school
developed the classic notions of the marketing concept and
the marketing mix, and has become the cornerstone of the
textbook approach to marketing. Together, the marketing
concept and marketing mix form the basis of the normative
theory of performance differentials implicit in marketing
textbooks. In its most basic form, this theory can be paraphrased as follows: the success of the firm depends on its
ability to develop and produce products that meet customer
needs (the marketing concept), and to design its marketing
programmes so that these products are favourably perceived
by customers (the marketing mix).

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bought (Teece and Pisano, 1998, p. 194). Recent contributions have looked in more detail at organizationally based
sources of competitive advantage like knowledge (Kogut
and Zander, 1992; Grant, 1996), organizational capabilities
(Leonard-Barton, 1992) and dynamic capabilities (Teece
and Pisano, 1998; Eisenhardt and Martin, 2000). This
literature is developing a more actionable view of the firm
in terms of what it knows, what it does and how it adapts.
As we will argue below, this view of the firm is not unlike
the one developed in the literature on market orientation.
In addition to organizing the ideas of different schools of
thought in organizational economics, strategic management
and marketing, the unifying framework can also play a
valuable role in organizing the fruits of different types of
scholarship within marketing. A particularly important role
would be to help bridge the gap between positive theories
and managerially oriented contributions. The framework is
best seen as a conceptual model that is grounded in positive
theories and has normative implications. But much remains
to be done before we understand which actions managers
must take to make the model work for their firm. The
remainder of the paper is concerned with the way in which
the unifying framework helps organize managerially oriented scholarship within marketing.

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otherwise costly-to-copy resources, innovative capabilities


and a superior learning capability.
The value of this framework is that it helps organize the
many perspectives on the firms success that have been
developed in marketing, strategic management and organizational economics. We argued that a managerial theory of
the firm should explain performance differentials between
firms, be grounded in more general theories of the firm, and
have implications for managerial action. The unifying
framework meets these criteria. As such, we believe that it
can serve as a stepping stone to the development of a
managerial theory of the firm. It can also help marketing
scholars explicate how their work contributes to the theoretical concerns they share with such disciplines as strategic
management and organizational economics.
The main hurdle to the development of a managerial
theory of the firm along the lines of Fig. 3 is to open up the
neoclassical black box of the firm and unravel the nature of
organizationally based resources. We will refer to this as the
organizational problem. As already noted, marketing theories
which explain performance differentials between firms do not
give much explicit attention to the role of business process
efficiencies as a potential source of competitive advantage.
The need to open up the black box of the firm is also a central
theme in the strategy literature, and has been extensively
discussed in recent contributions to the resource-based and
competence-based theories of the firm. The focus of the more
formal contributions to the RBV (e.g., Barney, 1991; Peteraf,
1993) has been on the notion of market imperfections (Foss
et al., 1995). In this sense, Wernerfelts (1984, p. 171) point
that for the firm resources and products are two sides of the
same coin can be taken quite literally: in I/O-inspired
contributions, competitive advantage is the result of product
market imperfections, while in RBV-inspired papers, competitive advantage is seen as resulting from input market
imperfections (Barney, 1986). There is a notable similarity
in the reasoning behind such notions as entry and mobility
barriers (Caves and Porter, 1977) on the one hand, and
resource barriers (Wernerfelt, 1984) and isolating mechanisms (Rumelt, 1984) on the other (cf. Mahoney and
Pandian, 1992). This reasoning leads to explanations of
performance differentials in terms of market characteristics.
By staying close to economic orthodoxy, such views of
competitive advantage share a blind spot for sources of
competitive advantage residing within the firm. They neglect resources that must be built because they cannot be

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markets (Day, 1994a, b) is the essence of market orientation.


Hunt and Morgan seem to suggest that knowledge about
markets is central to market orientation, saying that market
orientation is (1) the systematic gathering of information on
customers and competitors, both present and potential, (2) the
systematic analysis of the information for the purpose of
developing market knowledge, and (3) the systematic use of
such knowledge to guide strategy recognition, understanding,
creation, selection, implementation and modification (Hunt
and Morgan, 1995, p. 11). Slater and Narver explicitly link
market orientation to customer value and learning when they
define it in terms of a learning culture that places the highest
priority on the profitable creation and maintenance of superior customer value while considering the interests of other
key stakeholders (Slater and Narver, 1995, p. 67).
While, initially, these different views of market orientation may seem to confuse the issue, they make sense if we
regard market orientation as a potential source of competitive advantage in light of the unifying framework. Basically, the ways in which different authors have addressed
market orientation only differ in the emphasis they put on
the different parts of the chain. Fig. 4 shows how the
framework helps organize the different perspectives. According to this figure, the market-oriented firm can be seen as a
firm which has knowledge about its markets (an intangible
resource), is able to turn this knowledge into customer value
and can adapt to changes in its markets (a higher-order
learning capability). Underlying this is the firms ability to
process market information.
This view of market orientation is at odds with the notion
that the concept itself can be separated from, for example,
information processing, market knowledge and learning
(Jaworski and Kohli, 1996). In fact, unless it is expressed
in terms of information processing, learning, knowledge and

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Originally developed in the early 1960s, this view of the


firm has been redeveloped in the contemporary literature
on market orientation (e.g., Houston, 1986; Kohli and
Jaworski, 1990; Narver and Slater, 1990; Jaworski and
Kohli, 1996). Over the last 10 years, market orientation has
become the most widely discussed concept in the marketing literature in relation to performance differentials
between firms (e.g., Narver and Slater, 1990; Jaworski
and Kohli, 1993; Pelham and Wilson, 1996). However, as
Hunt and Lambe (2000, p. 28) have recently noted, the
literature on market orientation lacks an underlying theory
that could provide an explanatory mechanism for the
positive relationship between market orientation and business performance.
Market orientation has been discussed in relation to a host
of other concepts (e.g., Jaworski and Kohli, 1996; Slater,
1997), including market information processing (e.g., Sinkula, 1994; Moorman, 1995; Slater and Narver, 2000),
market knowledge (e.g., Menon and Varadarajan, 1992;
Slater and Narver, 2000), superior customer value (e.g., Slater
and Narver, 1994; Woodruff, 1997), business processes (e.g.,
Day, 1994a; Srivastava et al., 1999) and learning (e.g.,
Sinkula, 1994; Hurley and Hult, 1998). Most of these
discussions seem to be premised on the idea that a market
orientation is something that can somehow be separated from
these other concepts. However, Kohli and Jaworskis definition of market orientation as 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
(Kohli and Jaworski, 1990, p. 6) seems to at least contain
elements of information processing and the organization of
business processes. Similarly, Day has argued that the way
the firm organizes its business processes and learns about

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Fig. 4. Different perspectives on market orientation in light of the unifying framework.

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(Day, 1994a), and product development, supply chain management and customer relationship management (Srivastava
et al., 1999). While the marketing literature thus certainly
provides pointers for managerial action, fulfilling the promise of the market orientation concept as a managerially
meaningful view of the firm would call for answers to
questions like:
 Which business processes lead to market knowledge

Pr
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and how do these processes need to be designed and


managed?
 Which business processes translate market knowledge
into differential customer value and how do these
processes need to be designed and managed?
 Which business processes lead to market learning and
how do they need to be designed and managed?
 Which market information is needed to manage these
different business processes and how should it be
generated and processed?

ed

value generation, the notion of a market-oriented firm is


rather empty. In Fig. 4, market orientation emerges as a
multidimensional construct that cannot be seen in isolation
from its constituent elements. We would argue that the way
in which these elements combine into a source of performance differentials between firms is essential to unravelling
the explanatory mechanism for the relationship between
market orientation and business performance that Hunt
and Lambe (2000) found lacking.
Fig. 4 also suggests how the literature on market orientation could contribute to the managerial theory of the
firm. We have seen that there is a particular need to further
develop our understanding of internal business processes as
a source of competitive advantage. The market orientation
literature can add an important element to the positive
theories of competitive advantage by more specifically addressing how business processes translate relative resource
advantages into positional advantages in product markets.
Note that there is an interesting link between the Chicago
perspective of costly information as a source of differential
process efficiencies between firms, and the emphasis on
processing market information in the market orientation
literature. An appropriate angle for marketing scholars could
therefore be to focus on the role of information in managing
the firms business processes. We would argue that the
contemporary market orientation literature, with its
emphasis on the ability to act upon market intelligence,
has the potential to develop such an information-based
account of competitive advantage.
However, much needs to be done to make the theory
actionable. The normative implications of the market orientation literature in its current form have limited value for
the daily practice of management. So far, the message has
been that a firm needs to be interfunctionally coordinated
(Narver and Slater, 1990) and responsive to market information (Kohli and Jaworski, 1990). Our view is that, based on
the way in which the unifying framework helps organize the
different elements of market orientation, market information
can only lead to a positional advantage in product markets if
this information leads to knowledge about markets that
allows the firm to generate differential customer value (cf.
Slater and Narver, 1994; Slater, 1997; Woodruff, 1997). We
propose that the notion of interfunctional coordination can
be specified as developing faster, better or more costeffective value generation processes, and that being responsive would mean the development of a higher-order learning
capability to adapt these processes.
Following the logic of Fig. 4, there is an obvious need to
be much more specific about which type of information
needs to be generated and processed, as well as about the
type of business processes in which it should be used.
Suggestions in the literature with respect to the former
include customer value, satisfaction measurements and
competitor benchmarking (Day and Wensley, 1988; Dickson, 1996). Suggestions with respect to the latter include
market sensing, customer linking and channel bonding

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8. Conclusion

1125

We have looked at the development of a managerial


theory of the firm as a joint concern of scholars in organizational economics, strategic management and marketing.
We have argued that performance differentials between
firms are the main explanandum of such a theory, and have
shown that a common understanding of the sources of
performance differentials is emerging across the three disciplines. Our review suggests that a managerial theory of the
firm should be seen as a multilayered theory. The baseline
model of the firm is the neoclassical view. Despite its
unrealistic assumptions, the neoclassical model of competition is the most widely understood model of the relationship
between firms and markets. It has therefore served as a
reference point for scholarship in organizational economics,
where different schools of thought have developed theories
of the firm that relax some of the assumptions of the
neoclassical model. These theories were developed to explain why firms exist, and how and why they are different,
rather than to explain performance differentials between
them. However, these same theories have inspired theorists
in strategic management and marketing to develop theories
of competitive advantage that do primarily focus on explaining performance differentials between firms. Orthodox neoclassical thinking thus underlies more enlightened theories
in organizational economics, which in turn underwrite
scholarship in strategic management and marketing. Moreover, there are two more or less separate layers of theory
development in both marketing and strategic management.
The first is a layer of positive theories at the nexus of
strategic management, marketing and organizational economics. The second is a layer of normative theories at the
nexus of strategic management, marketing and the daily
concerns of managerial practice. Reflecting these different

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9. Uncited reference

Acknowledgments

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The authors thank the reviewers and editors of this


special issue for their valuable comments on an earlier
version of this paper.

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Porter, 1996

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layers of theory development, our view of a managerial


theory of the firm is a theory whose ultimate test is the value
of its prescriptions for the practice of management, but
whose normative implications are grounded in underlying
positive theory.
Our main purpose has been to organize the main strands
of scholarship on the theory of the firm in marketing in
relation to the main schools of thought in strategic management and organizational economics. This has resulted in a
unifying framework that explains performance differentials
between firms in terms of positional advantages in product
markets, business process efficiencies, unique or otherwise
costly-to-copy resources, innovative capabilities and a
superior ability to learn. The main hurdle to the further
development of a managerial theory of the firm along the
lines of this framework is to unravel the nature of organizationally based sources of performance differentials. Recent
contributions to the resource-based and competence-based
views of the firm have begun to address this problem (e.g.,
Leonard-Barton, 1992; Grant, 1996; Teece et al., 1997).
Given its long history as a managerially oriented discipline,
and its renewed emphasis on internal organization as a result
of the wave of publications on market orientation, marketing
is well placed to contribute to the theories on organizational
sources of competitive advantage now being developed in
the strategy literature. Addressing the nature of organizationally based sources of performance differentials calls for
a better understanding of which business processes affect
the firms ability to generate differential customer value, and
how these processes should be designed and managed to
sustain competitive advantage.
In our view, the promise of marketing theorys contribution to a managerial theory of the firm requires a two-step
integration. First, an integration of the different strands of
research, both positive and normative, within marketing.
Second, an integration of marketing theories with those on
strategic management and organizational economics. Marketing can contribute to the more formal, positive theories of
the firm developed at the nexus of strategic management
and organizational economics if it is able to explicate how
its theories relate to underlying economic thinking. Marketing can contribute to the normative, managerially oriented
theories of strategy by developing a better understanding of
which managerial actions can contribute to developing and
exploiting the different sources of performance differentials
discussed in the positive theories of the firm. The combination of these two possible contributions leads to the conclusion that marketings main contribution to a managerial
theory of the firm could well be the development of a
normative approach to management grounded in positive
theories. To accomplish this, it is important that the positive
and normative strands of research in marketing build on a
shared model of the firm. Herein may lie the main contribution of the unifying framework proposed in this paper. It
will have served its purpose if it can help marketing scholars
develop an actionable theory of the success of firms.

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