International Journal of Quality & Reliability Management

The importance of customer focus for organizational performance: a study of Chinese

companies
Shaohan Cai
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Chinese companies", International Journal of Quality & Reliability Management, Vol. 26 Iss 4 pp. 369 - 379
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The importance
The importance of customer focus of customer
for organizational performance: focus
a study of Chinese companies
369
Shaohan Cai
Sprott School of Business, Carleton University, Ottawa, Canada Received 23 April 2008
Revised 14 October 2008
Accepted 20 October 2008
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Abstract
Purpose – The main objective of this paper is to empirically investigate the linkage among
organizational customer orientation, customer relationship practices, and organizational outcomes.
Design/methodology/approach – The sampling frame of the study consists of 143,000 Chinese
companies, each with revenue of more than 5 million RMB (Chinese currency). The target companies
were randomly selected from 29 Chinese provinces using the stratified probability proportional to sizes
(PPS) method. Structure equation modelling was utilized to analyze data.
Findings – It is found that organizational customer orientation affects customer relationship
practices, which subsequently influence production performance and customer satisfaction.
Production performance and customer satisfaction lead to financial performance.
Research limitations/implications – The study has some limitations that provide directions for
future research. Data were only collected from China. Therefore, the research findings might reflect
unique aspects of Chinese companies. Caution should be exercised when generalizing these research
findings to other nations. The study also focused only on manufacturing firms’ customer focus practices.
Practical implications – Companies need to promote customer orientation in their organization, in
order to successfully implement customer relationship practices. Only when they effectively utilize the
knowledge that they collect to improve production performance can they enhance customer
satisfaction and their financial outcomes.
Originality/value – The paper maintains that customer focus practices should consist of two
elements: organizational customer orientation and customer relationship practices. This offers new
directions to researchers and practitioners for improving customer focus practices.
Keywords Total quality management, Customer orientation, China, Organizational performance
Paper type Research paper

Introduction
Due to dynamic global competition during the past two decades, providing customers
with quality product and service has become increasingly important. To maintain their
competitive edge in the marketplace, many managers embrace the concept of total quality
management (TQM), which was developed in Japan and has proven to be particularly
successful in improving quality and productivity (Kaynak, 2003; Lagrosen, 2001). At the
same time, considerable academic research has been devoted to TQM. Many studies have
attempted, in particular, to identify the key constructs of TQM (e.g., Ahire et al., 1996;
Black and Porter, 1996; Flynn et al., 1994; Saraph et al., 1989). These studies describe International Journal of Quality &
various critical TQM factors, such as leadership, training, employee relationship, Reliability Management
Vol. 26 No. 4, 2009
pp. 369-379
q Emerald Group Publishing Limited
The author wishes to thank Professor Ming Xiao at the Communication University of China for 0265-671X
her help in collecting the data. DOI 10.1108/02656710910950351
 IJQRM customer focus, quality information usage, supplier quality management, process
26,4 management, and others. In the present study, we investigate the impact of one of these
critical factors, customer focus, on organizational performance.
The importance of customer focus lies in the fact that it is the starting point of any
quality initiative (Sousa, 2003). However, it has not received enough attention from
quality management researchers. Specifically, two gaps exist in prior literature. First,
370 existing studies have defined customer focus in different ways. Some researchers
define it in terms of customer relationship practices, such as organizational procedures,
systems, and practices that deal with customer needs (e.g., Flynn et al., 1994; Morrow,
1997; Powell, 1995), while others maintain that organizational customer orientation, i.e.
the strategic emphasis placed on the customer within an organization, is also an
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integral part of customer focus practices (e.g., Ahire et al., 1996; Douglas and Judge,
2001; Samson and Terziovski, 1999). In this paper, we differentiate these two types of
customer focus practices and maintain that organizational customer orientation
establishes or constitutes the basis for customer relationship practices.
Second, while a number of previous studies have investigated the influence of TQM
practices on organizational performance (Choi and Eboch, 1998; Douglas and Judge,
2001; Kaynak, 2003; Powell, 1995), little research has specifically investigated the direct
relationship between customer focus and various organizational outcomes. Prior
studies either include customer focus in an aggregate TQM scale (Douglas and Judge,
2001), or link customer focus to a single organizational performance such as financial
performance, work related outcomes, or operational performance (e.g., Morrow, 1997;
Powell, 1995; Samson and Terziovski, 1999). These studies generally do not investigate
the effects of customer focus on various organizational outcomes simultaneously.
Additionally, some studies do not link customer focus to organizational performance
(Flynn et al., 1994), and some even omit customer focus while examining TQM’s impact
on organizational performance (Kaynak, 2003).
Needless to say, customer focus is as important as many other TQM practices to
organizational performance (Dean and Bowen, 1994). Therefore, the relationships
between customer focus and various organizational outcomes, such as financial
performance, customer satisfaction, and production performance, need to be examined
simultaneously. Such testing is important, since it allows an understanding of the
mechanisms by means of which customer focus affects various organizational
outcomes. In this paper, we maintain that customer relationship practices could affect
customer satisfaction and production performance, which, in turn, enhance an
organization’s financial performance.
Therefore, this article strives to fill the aforementioned gaps by empirically
investigating the linkage among organizational customer orientation, customer
relationship practices, and organizational outcomes. In succeeding sections of this
paper, we first discuss our theoretical background and hypotheses. We then describe
research methodology and findings. We finally discuss the implications of our
findings, and point out limitations of the study as well as future research directions.

Theoretical background and hypotheses

Importance of customer focus
Numerous prior studies have emphasized the importance of customer focus for TQM.
For example, Dean and Bowen (1994) argue that customer focus is the most important
 TQM principle. They suggest that the goal of satisfying customers is fundamental to The importance
TQM, and that this goal could be achieved by an organization’s attempt to design and of customer
deliver products and services that fulfil customer needs. Flynn et al. (1994) point out
that establishing and maintaining an open relationship with customers is critical to the focus
product design process since it facilitates clarification of the customers’ needs and
desires. Ahire et al. (1996) maintain that, since customer expectations are dynamic in
nature, an organization needs to assess such expectations regularly and should adjust 371
its operations accordingly. Reed et al. (1996) suggest that having a customer orientation
requires firms to be committed to the generation of market intelligence and should
devise an organization-wide response to that intelligence. As such, customer
orientation could result in market advantage. Morrow (1997) notes that maintaining
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close relationships with customers and regularly seeking feedback from them are
common TQM practices. Sila and Ebrahimpour (2002) conduct a comprehensive
review of TQM literature and report that customer focus and satisfaction receive the
widest coverage in TQM survey literature. These results also highlight the importance
of customer focus.

Organizational customer orientation and customer relationship practices

A review of previous studies indicates that many of them have addressed
customer-related TQM practices, but have referred to such practices in different
ways, for example, customer focus (Ahire et al., 1996; Samson and Terziovski, 1999),
customer focus and satisfaction (Dean and Bowen, 1994), customer orientation (Reed
et al., 1996), customer satisfaction orientation (Black and Porter, 1996), customer driven
(Douglas and Judge, 2001), and closer to customers (Powell, 1995).
Many of these studies have focused on the procedures and practices that allow
organizations to deal with customer needs and demands (customer relationship
practices). While these studies generally suggest that companies should emphasize
quality management, they usually do not specifically address the need to emphasize
customer relationship at the organizational level (organizational customer orientation).
For example, Flynn et al.’s (1994) customer relationship scale includes only three items
that measure the direct contacts between an organization and its customers. Powell
(1995) utilizes four items to measure the construct “closer to customers”. All four items
are related to practices, addressing issues such as direct personal contacts, seeking
customer input, using customer requirements as a basis for quality, and customer
involvement. No item of the TQM scale developed by this study is related to
organizational customer orientation. Morrow’s (1997) customer focus scale is purely
related to customer relationship practices, such as the frequency of interaction with
customers, employees’ understanding of customer needs, feedback received from
customers, and the relationship between employees and customers.
Nonetheless, we argue that organizational customer orientation is at least as
important as customer relationship practices. As noted by Dean and Bowen (1994),
customer-driven quality is a key strategic business issue which should be considered
an integral part of overall business strategy at the organization level. However, only a
handful of studies have included items measuring organizational customer orientation
in their scales of customer focus or TQM strategy. For example, while measuring the
TQM construct “customer driven”, Douglas and Judge (2001) addressed organizational
orientation issues such as whether or not organization is customer-focused, in addition
 IJQRM to customer relationship practices such as employees’ understanding of customers,
26,4 measurement of internal and external customer needs, and utilization of customer
requirement as a basis for quality. Black and Porter’s (1996) scale of “customer
satisfaction orientation” have emphasized the practice aspects of customer focus,
including commitment to customers through strengthening of warranties and polices,
comparison of customer satisfaction with competitors and internal indicators, and
372 benchmarking of direct competitors’ products and processes. However, they also touch
on organizational orientation by including an item that measures an organization’s
determination to improve in the area of customer satisfaction.
Nevertheless, the aforementioned studies have not explicitly differentiated
organizational customer orientation and customer relationship practices. In this
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paper, we define organizational customer orientation as the extent to which customer

focus is emphasized at the organization level, while customer relationship practices are
defined as the extent to which specific tools and rules are developed and utilized by the
organization to interact with its customers.
We argue that organizational customer orientation is a prerequisite for the successful
implementation of customer relationship practices. Essentially, customer orientation
emphasizes creating superior customer value (Homburg et al., 2002; Slater and Narver,
1995). In order to achieve this goal, organizations need to develop structural and
systematic processes of acquiring and evaluating market information, thereby
understanding both the expressed and latent demands of customers (Hartline et al.,
2,000; Slater and Narver, 1998). Furthermore, the information obtained should be shared
broadly throughout the organization, thus customer value would be created in a far more
coordinated and focused manner (Slater and Narver, 1995). In sum, an organization
should first create organizational orientation that emphasizes understanding what, in
effect, customers want. With such an orientation, the organization could more tangibly
develop its customer relationship practices. Thus, organizational customer orientation
should establish the basis for customer relationship practices. Therefore,
H1. Organizational customer orientation is positively related to customer
relationship practices.

Customer relationship practices and organizational performance

For purposes of the current study, we examine three types of organizational
performance: production performance, financial performance, and customer
satisfaction. We maintain that customer relationship practices will affect production
performance and customer satisfaction, which subsequently affect financial
performance. First, customer relationship practices could enhance customer
satisfaction. Specifically, such practices allow organizations to understand both the
expressed and latent needs of their customers, and create customer value by sharing
such information throughout the organization and enabling coordinated and focused
actions to serve customer needs (Slater and Narver, 1995). Furthermore, customer
relationship practices allow organizations to collect customer feedback related to their
products and services, and modify their offerings based on such feedback (Forza and
Filippini, 1998; Slater and Narver, 1998). By doing so, they could meet their customers’
needs and thus satisfy their customers. Therefore,
H2a. Customer relationship practices are positively related to customer satisfaction.
 Second, customer relationship practices could also enhance a company’s production The importance
performance by enhancing product design efficiency (Reed et al., 1996). It is argued that of customer
quality problems could be reduced by including customer requirements in the new
product and service design stage (Kaynak, 2003). By understanding customer needs, focus
companies can eliminate excess components from their products. As such, the
improved product design could allow companies to enhance their product quality,
reduce costs of defective production, and improve productivity (Reed et al., 1996). 373
Empirically, Samson and Terziovski (1999) show that customer focus practices are
positively related to various operational performance criteria, including production
performance. Therefore:
H2b. Customer relationship practices are positively related to production
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performance.
Some prior studies have linked customer relationship practices to financial
performance (e.g. Powell, 1995; Reed et al., 1996). However, a close look at their
theory indicates that customer relationship practices achieve financial benefits for
companies through two means:
(1) customer relationship practices allow companies to satisfy their customers,
thereby increasing their revenue (Slater and Narver, 1995; 1998); and
(2) such practices allow companies to enhance their production and quality
performance, which leads to enhanced financial performance (Kaynak, 2003;
Reed et al., 1996).

Therefore, we maintain that customer relationship practices enhance financial

performance by improving customer satisfaction and production performance.
Therefore:
H3a. Customer satisfaction is positively related to financial performance.
H3b. Production performance is positively related to financial performance.

Research methodology
Sampling and data collection
To test our hypotheses, we examined implementation of customer focus practices in
the context of Chinese manufacturing companies. As the largest emerging and
fastest-growing economy at this time, China provides a rich research context to test our
model of customer focus (Peng, 2003). Relevant data were collected with the help from
the China Association for Quality. The sampling frame of the study consists of 143,000
Chinese companies, each with revenue of more than 5 million RMB (Chinese currency).
The target companies were randomly selected from 29 Chinese provinces using the
stratified Probability Proportional to Sizes (PPS) method, which ensures sample
representativeness in terms of revenue, industry, and ownership. Due to budget
constraints, the number of target firms was limited to 620. In each firm, a quality
manager or senior executive in charge of quality management was selected as the key
informant. The informants were first contacted by telephone to solicit their
cooperation. After questionnaires were mailed, the respondents were repeatedly
called in order to remind them to fill and mail the questionnaires. In total, 434 firms
completed the survey, representing a response rate of 70 per cent.
 IJQRM The 434 firms in the final sample represent a full range of major industrial groups in
26,4 the manufacturing sector, including electronic and other electrical equipment and
components (12.2 percent), industrial and commercial machinery (12.5 percent),
primary metals and fabricated metal products (except machinery and equipment) (9.7
percent), chemicals and allied products (10.4 percent), food and beverage products (10.8
percent), rubber and miscellaneous plastics products (2.1 percent), apparel (2.8 percent),
374 textile (3.9 percent), paper (2.1 percent), tobacco (2.8 percent), medical products (5.5
percent) and others (25.2 percent). Among them, 19 percent of the respondent
companies possessed a work force of less than 200 employees; 16 percent, from 200 to
500; 34 percent, from 500 to 2,000, and 30 percent more than 1,000. As for ownership,
35.0 percent of the companies are state-owned, joint stock, 25.3 percent, joint venture
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22.4 percent, and collective, affiliated, or private, 18.3 percent.

Measurement development
A survey instrument was developed specifically for this study. The items measuring
organizational customer orientation and customer relationship practices were
developed based on the criteria specified by the “customer and market focus”
category of Malcolm Baldrige National Quality Award (MBNQA). Additional items
were developed for measuring customer satisfaction, production performance, and
financial performance. All the measures used nine-point Likert-type scales. The
questionnaire items are presented in the Appendix.

Validation of measurement
The adequacy of the multi-item scales in capturing their constructs was assessed using
a confirmatory model. The measurement model was tested on the full dataset by using
the EQS 6.1 program (Bentler, 1995). The goodness-of-fit indices suggested an excellent
fit for the final models: Chi square with 67 degrees of freedom ¼ 267, NFI ¼ 0:94,
NNFI ¼ 0:93, CFI ¼ 0:95, IFI ¼ 0:95, and SRMR ¼ 0:04. As shown in Table I, all the
items had a large, significant loading on their designated constructs. In addition, the
composite reliability of all these constructs was larger than 0.7. Thus the reliability of

Construct Indicator Loading Composite reliability AVE

Organizational customer orientation OC1 0.67 0.82 0.61

OC2 0.83
OC3 0.93
Customer relationship practices CR1 0.87 0.87 0.68
CR2 0.88
CR3 0.88
Production performance PP1 0.91 0.76 0.61
PP2 0.84
Customer satisfaction CS1 0.79 0.81 0.69
CS2 0.91
Financial performance FP1 0.91 0.90 0.70
Table I. FP2 0.90
Standardized factor FP3 0.85
loadings, composite FP4 0.88
reliability, and AVEs for
the measurement model Note: AVE ¼ Average variance extracted
 these constructs was considered adequate (Nunnally, 1978). Moreover, to evaluate the The importance
convergent validity, we computed average variance extracted (AVE) for each of the of customer
constructs. As presented in Table I, all the AVEs exceeded the recommended minimum
level of 0.5, indicating the convergent validity of the constructs (Fornell and Larcker, focus
1981). To test discriminant validity, we took a nested model confirmatory analysis
approach. For each two constructors, we first constructed a constrained model in which
the covariance between them was fixed to unity. This model assumed that there is no 375
discriminant validity between the two constructors. Then, we constructed an
unconstrained model by freeing the covariance between the two constructors. For each
pair of factors, there existed significant difference in the chi-square between the
constrained and unconstrained models with 1 degree of freedom. This result supported
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the discriminant validity among the five constructors.

Data analysis and results

The research model was tested on the full dataset by using the EQS 6.1 program
(Bentler, 1995). The initial test yielded a moderate model fit: Chi square with 72 degrees
of freedom ¼ 544, NFI ¼ 0.90, NNFI ¼ 0.89, CFI ¼ 0.91, IFI ¼ 0.91, and SRMR ¼ 0.05.
The results of the LM tests (Bentler, 1995) recommended that one additional path, from
production performance to customer satisfaction, could be added to further improve
the model fit. It indicated that if the path were added, the overall model fit would be
significantly improved (chi-square drops by more than 50). This path appeared to be
theoretically reasonable and of great research interest. Specifically, customers could be
satisfied if manufacturer’s production performance is improved. Accordingly, the
initial structural model was revised by adding this path. The revised model was tested
again. The test results showed an excellent model fit: Chi square with 71 degrees of
freedom ¼ 262, NFI ¼ 0:95, NNFI ¼ 0:95, CFI ¼ 0:96, IFI ¼ 0:96, and SRMR ¼ 0:04.
Among our hypotheses, H1, H2a, H2b, and H3a are supported, while H3b is rejected.
The results of the analysis are presented in Figure 1.

Conclusion
In this paper, we maintain that customer focus practices consist of two elements:
organizational customer orientation and customer relationship practices. Our research

Figure 1.
Research model
 IJQRM finding indicates that organizational customer orientation affects customer
26,4 relationship practices, which subsequently influence production performance and
customer satisfaction. Production performance and customer satisfaction lead to
financial outcomes.
Our findings show that customer relationship practices are greatly affected by
organizational customer orientation. Notably, to effectively implement customer
376 relationship practices, an organization needs to have a well established customer
management system, and employees should be devoted to the implementation of such
a system. An organizational-level customer orientation could help achieve these goals
by motivating top managers to commit resources to the customer management system,
and by motivating employees to actively seek customer feedback and disseminate
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customer knowledge within the organization.

Interestingly, customer relationship practices appear to have relatively weak effects
on customer satisfaction (path coefficient ¼ 0:14), than on production performance
(path coefficient ¼ 0:78). In addition, our analysis shows that production performance
has strong effects on customer satisfaction (path coefficient ¼ 0:88). As such, the path
from customer relationship practices to production performance, and to customer
satisfaction, explains more variance of customer satisfaction than the direct path from
customer relationship practices to customer satisfaction. This result indicates that,
while customers could be satisfied by the presence of a well-established customer
management system and by the fact that the company is actively seeking their
feedback, they are more concerned with the company’s production performance. If
customer relationship practices cannot result in improved production performance,
such practices are not able to enhance customer satisfaction substantially.
Another interesting finding of this research is that production performance is not
directly related to financial outcomes. Rather, production performance affects financial
outcomes by enhancing customer satisfaction. This finding highlights the need for
companies to align their production performance with customer needs. If a company’s
product quality and productivity do not result in customer satisfaction, even excellent
production performance may not enhance its financial outcomes. Customer’s
satisfaction, therefore, is the ultimate determinant of a company’s financial
performance.
For quality management executives, our study suggests a critical path from
organizational customer orientation to customer relationship practices, to production
performance and customer satisfaction, and to financial performance. As such,
companies need to promote customer orientation in their organization, in order to
successfully implement customer relationship practices. Importantly, they should not
expect that their performance could be greatly improved by simply implementing such
practices. Only when they effectively utilize the knowledge that they collect to improve
production performance, they can enhance customer satisfaction and their financial
outcomes.
Our study has some limitations that, in turn, provide directions for future research.
First, we collected our data from China. Therefore, the research findings of this study
might reflect, to some degree, unique aspects of Chinese companies. Caution should be
exercised when generalizing these research findings to other nations. Future research
needs to test the proposed model of this study in a different country setting. Second,
our study focused only on manufacturing firms’ customer focus practices. Future
 research may need to explore the research issues addressed in this study in the context The importance
of service companies. Finally, there is a need to conduct a longitudinal study on our of customer
research model. Specifically, it is important for future research to determine the long
term effects of customer focus on different organizational outcomes. focus

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Appendix. The questionnaire items

Organizational customer orientation (strongly agree/strongly disagree)
OC1 Our company emphasizes the importance of customer orientation.
OC2 We make every effort to understand our target customers.
OC3 We take our customers’ opinions and suggestions seriously.

Customer relationship practices(strongly agree/strongly disagree)

CR1 We study our customers’ requirement and disseminate our customer knowledge in a
timely manner.
CR2 We have a well-established communication channel that allows our customers to seek
help, obtain information, and make complaints.
CR3 We have an effective customer management system which resolves customer
complaints in a timely manner.

Production performance (strongly agree/strongly disagree)

PP1 We are able to continuously improve our product quality.
PP2 We are able to continuously improve our productivity.

Customer satisfaction (strongly agree/strongly disagree)

CS1 Customers are satisfied with our product/service.
CS2 Customer evaluation of our performance has been improving.
 Financial performance (significantly better than competitors/significantly weak than competitors) The importance
FP1 Increase of sales revenue. of customer
FP2 Increase of market share. focus
FP3 Return on investment (ROI).
FP4 Increase of return on sale (ROS). 379

About the author

Shaohan Cai is a PhD, Operations Management, New Mexico State University. He is an
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associate professor in Operations Management at Carleton University, Canada. He has

published articles dealing with electronic communication, supply chain management, and
quality management in journals such as Journal of Operations Management, Journal of
Business Research, Information & Management, and Journal of Supply Chain Management.
Shaohan Cai can be contacted at: acai@sprott.carleton.ca

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