The Capabilities and Performance Advantages of Market ... · The Capabilities and Performance Advantages of Market ... supporting market capabilities. ... One of the hallmarks of

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2The Capabilities and PerformanceAdvantages of Market-Driven Firms:An Empirical Investigation

byDouglas W. Vorhies †Michael Harker §

Abstract:

Although progress has been made in understanding the development ofbusinesses competencies from a theoretical perspective, relatively few empiricalstudies have addressed the capabilities needed to become market-driven and theperformance advantages accruing to firms possessing these capabilities. One ofthe barriers faced has been in defining what is meant by the term ‘market-driven’.This study develops a multi-dimensional measure useful for assessing the degreeto which a firm is market-driven. Evidence is presented in this study thatstrategically focused market-driven business units developed higher levels ofcapabilities than their less market-driven rivals and significantly outperformedthese rival business units on four measures of organisational performance.

Keywords:MARKET-DRIVEN; MARKET ORIENTATION; CAPABILITIES.

† Department of Marketing, Illinois State University, College of Business Administration,Campus Box 5590, Normal, IL 61790.

§ Department of Marketing, University of the Sunshine Coast, Maroochydore, QLD 4558.Email: [email protected]

Australian Journal of Management, Vol. 25, No. 2, September 2000, © The Australian Graduate School of Management

AUSTRALIAN JOURNAL OF MANAGEMENT September 2000

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1. Introductionhere has been considerable interest in the management literature concerning thedevelopment of core competences in order to enhance corporate

competitiveness and performance (Wernerfelt 1984; Hamel & Prahalad 1989). The‘resource-based view of the firm’ (Wernerfelt 1984 p. 171) has seen an increasedemphasis on competing on ‘capabilities’, both tangible and intangible (Hall 1993).‘Capabilities’ have been defined as:

complex bundles of skills and collective learning, exercised through organisationalprocesses that ensure superior coordination of functional activities (Day 1994, p. 38).

Thus, a key task for the firm is to identify those capabilities that will provide a strongcompetitive advantage. The capability identification process is not a simple operationsince the capabilities need to meet a number of challenging criteria; they must berare, complex and tacit (Johnson & Scholes 1999).

Capabilities should be rare because competitors must find them difficult toemulate; they are complex because they are explained by a number of linked factorsas in the creation of superior customer value, and they are tacit because they areinextricably embedded in organisational experience and practice. (Johnson & Scholes1999). Australian firms purport to pursue customer and competitor orientation andmarket orientation has been found to be positively related to sales growth, customerservice, new product success, profitability and overall business performance(Oczkowski & Farrell 1998). Market orientation and the creation of superiorcustomer value constitute a set of capabilities that make a firm market-driven, andsuch firms often outperform less market-oriented rivals (Jaworski & Kohli 1993).Despite the recent progress in understanding the characteristics of the market-drivenfirm (Deshpande, Farley & Webster 1993), little is known about the processes thatmake an organisation market-driven.

In order to provide better insights into the processes that enable a company tobecome market-driven, two research questions were formulated to guide this study:

1. What are the set of marketing capabilities that provide a foundation for amarket-driven approach?

2. What are the performance implications for firms that develop a market-drivenapproach?

Unfortunately, there is little direct evidence in the literature to assist us to answerthese questions.

2. Research ObjectivesThe primary objectives of this paper are to:

1. establish the extent to which firms are market-driven;2. establish the set of capabilities that support a market-driven approach; and3. test the performance implications discussed in the literature: that market-driven

firms will outperform less market-driven firms.

T

Vol. 25, No. 2 Vorhies & Harker: MARKET-DRIVEN FIRMS

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This approach is accomplished in two stages. First, business units are clustered basedon their degree of market orientation. Second, the clusters are validated, as suggestedby Ketchen and Shook (1996), and the clusters are examined for evidence ofsupporting market capabilities. Third, the performance implications for the market-driven firms are tested by examining four measures of organisational effectiveness.

3. Research Background3.1 Business Strategy and Market Orientation—Defining the Market-Driven

Firm

Business strategy is concerned with setting direction and by matching internalresources and skills with a changing external environment in a way that enhances theperformance of the organisation over time (Viljoen 1994). This ‘fit’ view of strategywas espoused by Michael Porter and industrial organisation economists in the 1980’s(Porter 1980), but strategy can also be viewed as a ‘stretching’ process by whichorganisational resources and competences are leveraged to yield new opportunities,and provide competitive advantage (Hamel & Prahalad 1994). The firm, thus, achievescompetitive advantage by leveraging resources and meeting customer needs moreaccurately and effectively than the competition and in a manner which competitorsfind difficult to emulate. In general, this type of market-based competitive advantageis achieved in one of two basic ways, namely through the development ofdifferentiated goods and services or through the achievement of a cost-basedadvantage (Day & Wensley 1988).

In the case of a differentiation-based approach, competitive advantage is wonwhen the differentiated product is positioned to select customer groups who arewilling to pay a premium for the use of the good or the delivery of the service (Day1990). In most markets, however, the competition is able to copy the productoffering, thus diminishing its value. To maintain a differentiated advantage over thelong term, a company must develop skills, resources and processes that keepincreasing the value to the customer (Day 1994). Competitive advantage can also beachieved by focusing on development of the lowest cost position in the industry(Porter 1980). For this cost-based advantage to be achieved, efficiency in all aspectsof the firms operations, from production to distribution to marketing is essential. Acost leader does not necessarily charge price significantly lower than competitors,however; to maintain its cost advantage, the cost leader must invest surpluses fromhigher profit margins in improved production processes and focus its research anddevelopment on achieving more efficient production processes (Johnson & Scholes1999). Similar efficiencies must be developed and maintained in the supply chain, inmarketing, and throughout the firm.

A market orientation represents an additional strategic dimension (Slater &Narver 1998) and is a fundamental approach to understanding markets. As such, itrepresents the implementation of the marketing concept (Kohli & Jaworski 1990),and is a cultural orientation (Slater & Narver 1994; Deshpande & Webster 1989) thatfocuses the firm’s efforts on the needs of the market. A market-oriented organisationpossesses the ability to generate, disseminate, and respond to information aboutmarket forces and market conditions better than less market-oriented rivals (Kohli &Jaworski 1990; Jaworski & Kohli 1993). The market-oriented firm thus has an


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important basis for building a sustainable competitive advantage. The firm does thisby learning what buyers want, building and leveraging the resources and processesnecessary to deliver the value they desire (Narver & Slater 1990; Slater & Narver1994), and adapting those value-generating processes as market conditions change(Slater & Narver 1995). Furthermore, the market-oriented organisation looks beyondcurrent customer needs to develop future products that will tap latent needs, thusserving to strengthen the firm’s market position over time (Slater & Narver 1998). Touse these processes as the basis for competitive advantage, an organisation needs todevelop the capabilities to generate, disseminate, and respond to market intelligence(Day 1994) and the processes to act on this information (Hunt & Morgan 1995).

As one of the major pro-competitive functions in the organisation, marketinghas a major impact on how these strategies are formulated and how resources areallocated to implement these strategies (Hunt & Morgan 1995; Varadarajan & Clark1994). For the market-driven firm, creating superior customer value is the primaryobjective driving strategy formulation and implementation (Day 1993; 1994). To dothis, customer value-based differentiation strategies will drive the firm’s marketresearch efforts, its selection of target-markets, its product development processes,its market communications programs, and its delivery processes (Day 1994;Woodruff 1997).

Obviously, some firms will choose not to develop a market-orientation (Aaker1994; Day 1990; Hunt & Morgan 1995). These non-market-oriented firms willchoose to focus their attention on developing internal capabilities, such as processtechnology. These firms devote less time to understanding what customers value,choosing instead to build competitive advantage around these internal capabilities. Inmany instances the firm focuses on increasing production efficiencies, concentratingon taking advantage of the learning curve and economies of scale and focusing itsresearch and development effort around these interests. While not ignored, customerneeds analysis plays a relatively small role in product development in these firms.Instead, product development may be driven by process technology capabilities thatoften are the result of incremental process and product improvements. Unlikemarket-driven firms, where a focus on delivering superior customer value drivesmarketing decision making, marketing decisions in internally oriented firms oftenrevolve around pricing issues, such as volume discounts, as the key to increasing thefirm’s unit sales (Day 1990). Thus to be successful, these firms must develop theprocess technology to out innovate rivals (Day 1990).

3.2 Marketing Capabilities

An important aspect of this research is understanding what role marketing capabilitiesplay in attaining and maintaining competitive advantage. To do this, it is necessary tounderstand how these capabilities develop within the firm. Marketing capabilities aredeveloped via learning processes when the firm’s employees repeatedly apply theirknowledge to solving the firm’s marketing problems. In this respect, both adaptiveand generative learning processes may be used at various times (Day 1994; Slater &Narver 1995). An important aspect of developing marketing capabilities is the ways inwhich knowledge is integrated. Thus, marketing capabilities can be thought of asintegrative processes by which knowledge-based resources and tangible resourcescome together to create valuable outputs. As marketing personnel repeatedly


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undertake marketing tasks, complex patterns of coordination between people, andbetween people and other resources occurs (Grant 1991; 1996). These coordinatedpatterns of behaviour are often quite consistent, yet remain dynamic and can changeas the firm’s needs change (Grant 1991). One of the hallmarks of capabilitiesdevelopment is learning through repetition (Prahalad & Hamel 1990; Sinkula 1994).By bringing people and resources together in repeated efforts, firms develop theprocesses upon which capabilities are based. When value-adding, functional-levelcapabilities are integrated across functional lines and are deployed across multipleproduct-markets to deliver competitive advantage, then a core capability hasdeveloped (Grant 1996).

Marketing capabilities can therefore be defined as integrative processesdesigned to apply the collective knowledge, skills, and resources of the firm to themarket-related needs of the business, enabling the business to add value to its goodsand services and meet competitive demands (Day 1994). Since marketing processesare often firm specific (Day 1994), unique marketing capabilities will develop asindividuals combine their particular knowledge and skills with other intangible andtangible resources available to them. Although competing firms may focus on similarmarket needs, the idiosyncratic way in which each group of individuals within eachfirm integrates knowledge creates many unique ways of solving similar customerneeds. Therefore, firms can be expected to evolve similar, but not identical marketingcapabilities. This helps prevent these value-adding capabilities from being easilyimitated by competitors and also prevents easy substitution of one capability foranother. This also prevents these capabilities from being easily transferred betweencompetitors. As a result, these capabilities are able to form the basis for sustainablecompetitive advantage (Grant 1991; 1996).

What specific marketing capabilities would a market-driven business develop?To investigate this issue, we draw on the insights from past research and managerialinsights. To do this, this study investigates six marketing areas for evidence ofcapabilities. The first area is marketing research and is defined as the set of processesneeded to discover broad-based market information and to develop information aboutspecific customer needs, and to design marketing programs to meet these needs andmarket conditions. The second area is concerned with pricing and is defined as theprocesses needed to competitively price the firm’s products and services and monitorprices in the market. The third area is product development. If a firm is to have acapability in product development it is important to design products that can meetcustomer needs, can meet internal company goals and hurdles, and which are able tooutperform competitors’ products. The fourth capability is the management of thefirm’s channels of distribution. To have a capability in channel management,relationships with distributors must be formed and effectively managed. Promotion isanother important capability for many firms. Promotion for this study was defined asadvertising, sales promotions, and personal selling activities the firm uses tocommunicate with the market and sell the product. The last area in which firms wouldbe expected to have marketing capabilities is in the marketing management area.Marketing management capabilities are focused on customer acquisitionmanagement, the management of marketing programs, and the ability to coordinateaction among the diverse elements in the firm needed to implement a marketingprogram. This conceptualisation of the six marketing capabilities taps both an


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importance dimension and an effectiveness dimension, since a capability that is notimportant cannot serve as a basis for competitive advantage and a capability (bydefinition) must be performed effectively (Day 1994). It is also important to notethat each marketing capability area is conceptualised as existing relative tocompetitors (Grant 1991).

3.3 Performance Effects

The conceptualisation of a market-driven firm as one that has a customer-valuecentred strategy, supported by a market orientation, has been discussed by Day (1993;1994) but has not been empirically tested in any research published to date. Animportant question therefore becomes: do these market-driven firms outperformtheir less market-focused rivals? Recent theoretical research in marketing hassupported this idea as market-driven firms have consistently been predicted tooutperform their internally focused competition (Bharadwaj, Varadarajan & Fahy1993; Day 1990; 1994; Hunt & Morgan 1995). It is interesting to note that thesepredictions are largely based on the idea that market-driven organisations willdevelop knowledge, skills, resources, and ultimately capabilities, that are rare,heterogeneous, and difficult to imitate (Barney 1991; Hunt & Morgan 1995). Furtherthese capabilities will enable market-driven organisations to achieve positions ofsustainable competitive advantage, ultimately resulting in superior financialperformance (Day 1994; Day & Wensley 1988; Hunt & Morgan 1995). Furthermore,empirical evidence from the more narrow market orientation research supports apositive impact on performance (Jaworski & Kohli 1993; Narver & Slater 1990;Oczkowski & Farrell 1998).

To better understand the impact of a market-orientation on firm performance, itis necessary to first define the relevant dimensions of the organisational performanceconstruct. Organisational performance is a multidimensional construct, tappingfinancial, operational, and customer-related performance domains (Kaplan & Norton1992; 1993; 1996; Venkatraman & Ramanujam 1986). Growth reflects increases insales and is often reflected in market share gains (Kaplan & Norton 1992; 1993;1996; Venkatraman 1989). Growth in sales and market share are important to abusiness to ensure long-term viability and resource availability (Kaplan & Norton1992; 1993; 1996; Varadarajan 1983). Profitability primarily reflects currentperformance (Venkatraman 1989). Profitability is viewed by some (e.g. Hunt &Morgan 1995) as the ultimate organisational outcome and is commonly used instrategic management studies. Customer satisfaction (Day 1990; Day & Wensley1988; Kaplan & Norton 1992; 1993; 1996) represents the effectiveness of theorganisation in delivering value to its customers and is often viewed as an antecedentto profitability. Adaptability represents the ability of the firm to respond to changesin its environment (Ruekert, Walker & Roering 1985) is ultimately reflected in themarket success of an organisation’s new products and/or services (Kaplan & Norton1992; 1993; 1996; Ruekert, Walker & Roering 1985).

Market-driven firms are well equipped to attain high levels of performance ineach of the previously outlined areas (Day 1994). Market-driven firms excel atfinding attractive markets, determining customer needs, and developing goods andservices to meet those needs (Day 1990). By developing market information andfocusing it around strategic actions, these market-driven firms are predicted to be


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better at introducing new products to the market and will have larger numbers ofsuccessful new products than their competition (Slater & Narver 1994). This meansthat while market-driven firms may not be the most innovative firm in their industry(as measured by patents, etc.), they will excel at adapting technologies to meetcurrent and future customer needs. Thus, they often exhibit the adaptivecharacteristics of the ‘Analyser’ organisation (Miles & Snow 1978). Having built amarket-focused, customer-needs centred product development capability, these firmsare expected to stay in touch with current and potential customer needs andcompetitor moves better than more internally focused firms and, as a result, they areexpected to be more adaptable and perform better than less market-driven rivals (Day1990).

3.4 Insights from Managerial Interviews

Once the conceptual domain of the marketing capabilities constructs had beendefined, interviews with marketing managers were conducted to ascertain whether thedomain specification, discussed above, held meaning for practitioners. Two sets ofinterviews were conducted. The first set of interviews was conducted with brand andproduct managers from four consumer and five business-to-business firms. Managerswere asked to discuss how they felt marketing capabilities developed in their firmsand define how the capabilities were structured. From these interviews a perspectiveemerged that suggested that marketing capabilities were viewed as primarilyconsisting of a marketing mix-based typology consisting of product development,channels management, promotional management, and pricing managementcapabilities. These were supported by marketing research capabilities (although somefirms did not formally have marketing research departments) and by a strategicmarketing planning and management capability. When asked about the impact of thefirm’s marketing capabilities on performance, marketing managers were verysupportive of the idea that it is only when the firm’s marketing capabilities weresupportive of the firm’s strategy did the firm outperform competitors. For example,one consumer goods manager pointed out: ‘without our ability to study consumersneeds and develop interesting new products, we wouldn’t be able to differentiatesuccessfully. If we can’t differentiate our products from . . . . . .’s (name deleted) wejust won’t hit our share and ROI targets’. This was supported in the business-to-business sectors as well. For example, a marketing manager with a packagingcompany stated, ‘knowing the customer is key if you want to be successful. If wearen’t building a relationship with the customer, someone else will get in there, get toknow their needs better than we do and we’re done. We won’t be able to designcustom solutions, we won’t sell as much product, and we won’t hit our numbers’.

The second set of managerial interviews were conducted with director andsenior level managers, which were typical of the proposed respondent pool. Onceagain, these managers were asked to discuss how they felt marketing capabilitiesdeveloped in their firms and define how the capabilities were structured. As with thelower level managers, a consensus evolved that indicated that marketing capabilitieswere vital to understanding customer needs, developing the right product and gettingit into the right channels. This comment from a consumer goods company marketingdirector was typical. ‘Without the right marketing capabilities, our company justcouldn’t compete. We have to be good at understanding consumers needs. It’s the


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basis for our success! We also have to make sure we get the product into the channelin a way that supports the positioning. We’ve had some trouble there, but we’regetting better at it’. In addition, promotion, whether via an advertising or via apersonal selling approach was frequently mentioned as extremely important. Onemarketing director with a medium sized consumer goods firm summed it up well.‘We have to be good at promoting our product both to consumers and to the trade(channel of distribution). It’s a sort of push and pull strategy—you know, createdemand in the market and push to the trade. If we fall down on either, we can get hurt’.Regarding the role of marketing management and planning, the directors and seniormanagers tended to be supportive of the notion that someone must plan and executemarketing strategy. However, who handled planning and who handled implementationdiffered widely. In some firms marketing planning was very centralised withimplementation handled by the brand and product management groups. In other firmsmarket planning was highly decentralised. Frequently planning was aligned to themarket and implementation was carried out by various combinations of marketingemployees from different functional areas (advertising, sales, channel management,etc.). A marketing director with a business-to-business firm summed this situation upnicely: ‘we concentrate our planning efforts around the market. I get involved and sodo our product managers. But implementation and controlling programs areeveryone’s job. You need everyone helping you understand what’s happening andtrying to be as efficient as possible. Over time you just get better and better at doingyour job and eventually, you gain the kind of experience that makes you invaluable. Ithappens at all levels. I learn more every time I plan a program and my people getbetter at implementing it each time they do it’.

Having thus validated the basic constructs under study, attention could be turnedto planning and implementing a study to test how these important constructs worked.This is described in the next section.

4. The StudyIn order to increase the generalisability of the study discussed herein, a crosssectional, multi-industry sample of Australian manufacturing and service firms wasused. A questionnaire was developed, based on the literature and the managerialinterviews, and was sent to the top marketing executive of 400 businesses.Procedures used to develop the survey questions included a review of previously useditems (in the case of business strategy, market orientation, and performance); and aprocedure for developing the marketing capabilities questions that started with aliterature review to define the marketing capabilities constructs. Interviews anddiscussions (described above) with marketing managers to verify the constructdefinitions and to help identify critical issues impacting the relationships betweenmarketing capabilities development and the other variables of interest followed thisprocess.

4.1 Pre-Testing and Survey Design

Following the first round of managerial interviews, item development was undertaken.Two rounds of item development, pre-testing, and item analysis were used to developthe questions used to represent the marketing capabilities constructs. Finally, prior to


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the survey administration, the entire questionnaire was pre-tested on a group ofmarketing managers to check item wording and to verify the ability of the items to tapthe business strategy, market orientation, performance, and marketing capabilitydimensions of interest. Administration during this pre-test was followed by adebriefing to help define problem areas and to collect information about ways toclarify the items. Following minor changes to the survey instrument, the main datacollection effort was undertaken. In all, 87 useable responses were obtained from thefirms selected, for a 22 % response rate.

4.2 Operationalisation and Measurement of Variables

Measurement of the constructs representing business unit strategy, marketorientation, marketing capabilities, and performance was performed by asking the topmarketing executive to focus on the primary business unit within the selected firm.Top marketing manager names were obtained from public information and fromtelephone contact with the firm. Companies were contacted only after selection forthe project to help prevent a self-selection bias.

4.2.1 Business Strategy Business unit strategy was measured using a 22–itemscale developed by Dess and Davis (1984) and modified by Doty, Glick, and Huber(1993). Respondents rated their major business unit on items designed to measurethe extent to which they were developing cost-based and differentiation-basedstrategies (Porter 1980). Product-market scope (Day 1990) also was assessed toinsure that the breadth of the business unit’s market development approach wasmeasured (Doty, Glick, & Huber 1993). Seven-point Likert-type anchors were used(1 = not at all; 7 = to a great extent). Items used to represent these strategies areshown in appendix A.

4.2.2 Market Orientation Market orientation was measured using the scaledeveloped by Jaworski and Kohli (1993). This scale is designed to measure three sub-dimensions of the market orientation construct: generation of market intelligence,dissemination of market intelligence across departments and work groups, andresponsiveness to market intelligence. For this research, the original 32–item scalewas used. Seven-point Likert-type scale anchors were used (1 = strongly disagree;7 = strongly agree). Items used to represent market orientation are shown inappendix A.

4.2.3 Marketing Capabilities Marketing capabilities were measured using a newscale developed for this research. To develop the scale, Churchill’s recommendationsfor scale development in marketing were followed (Churchill 1979). Since marketingcapabilities are outcomes of marketing processes, respondents were asked to expresstheir beliefs regarding their business unit’s marketing processes in six distinct areas:pricing, promotions, product development, distribution channels, marketingmanagement and planning, and marketing research development. In each case,capabilities were measured with multiple items for each marketing area. To assess thebusiness unit’s marketing capabilities, a seven-point Likert-type scale was used(1 = strongly disagree; 7 = strongly agree). Items used to measure marketingcapabilities are shown in appendix A.


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4.2.4 Organisational Performance Various conceptualisation of organisationalperformance have been presented in past research. Each of the four performancedimensions, profitability, growth, adaptability, and customer satisfaction, wereoperationalised with multiple items (Venkatraman 1989). Relative performance oneach dimension was measured by asking respondents to assess their business unit’sperformance relative to that of major competitors. Seven-point Likert-type scaleswere used (1 = much better than our competition; 7 = much worse than ourcompetition). Items are shown in appendix A.

5. ResultsBefore submitting the data to the main analysis, a series of psychometric analyseswere performed to provide evidence of the validity and reliability of the variablesused in the study.

5.0.1 Business Strategy To test the psychometric properties of the businessstrategy scales, a confirmatory factor analysis (CFA) was performed. This wasfollowed by reliability analyses. Table 1 provides results of the CFA for businessstrategy. As can be seen, the CFA, demonstrating a CFI of 0.98 demonstrates a goodfit to the data. Convergent validity was confirmed as no cross loadings emerged andall t–values were larger than 1.96 (Anderson & Gerbing 1988). Evidence ofdiscriminant validity was confirmed by a series of analyses which set all possiblepairs of inter-factor covariances equal to one and tested for equality to the originalCFA (Anderson & Gerbing 1988). Reliabilities for each construct were alsocalculated. As can be seen in table 1, with the exception of a reliability of 0.61 forcost-based advantage, the business strategy and performance variables alldemonstrated adequate reliability with values in excess of 0.7 (Nunnally 1978).

5.0.2 Business Performance The psychometric properties of the performancescales were also established via confirmatory factor analysis, followed by reliabilityanalyses. Table 2 provides results for the business performance CFA. As can be seen,the CFA demonstrates adequate fit to the data. Each CFA demonstrates acceptableconvergent validity with no cross loadings and t–values larger than 1.96 (Anderson &Gerbing 1988). Acceptable discriminant validity was demonstrated for each CFAusing the procedure outlined above. Reliability analyses were also performed with allperformance constructs demonstrating adequate reliability.

5.0.3 Market Orientation Market Orientation was assessed with Jaworski andKohli’s (1993) scales. The full 32–item scale was used in the study to allow for thebroadest operationalisation of the market orientation construct possible. This isimportant as the original market orientation measure was developed in the UnitedStates and precisely how it behaves outside the US is less well known. For thisreason, psychometric testing was performed via a confirmatory factor analysis on theoriginal 32–item scale. As can be seen in table 3, the Australian context appeared tosupport a broader set of items than the US context where the scale was originallydeveloped. As can be seen in the final market orientation CFA, a relatively good fitwas achieved. (χ2 = 270.54, 227 d.f., CFI = 0.92, with 90%


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Table 1

Business Strategy Confirmatory Factor Analysis

Constructs and Items Parameter StandardisedCoefficient

t–Value

Business Strategy CFA

Differentiation α = 0.81

Provide unique products or services? λx1 1 0.71 7.08

Offer higher quality prods/svcs than your competitors? λx1 2 0.39 3.51

Offer innovative products and services? λx1 3 0.73 7.39

Offer highly differentiated products and services? λx1 4 0.88 9.48

Offer products and/or services with distinctly different features fromthose of competing products?

λx1 5 0.75 7.62

Cost Advantage α = 0.61

Be the lowest cost provider in your industry? λx2 1 0.99 13.11

Provide your customers with the lowest prices among your majorcompetitors?

λx2 2 0.57 5.68

Emphasize efficiency? λx2 3 0.22 2.07

Strive for high volume to spread costs? λx2 4 0.32 3.03

Product-Market Scope α = 0.76

Offering more products and/or services than your competitors? λx3 1 0.80 8.08

Offering a broader range of products/services than competitors? λx3 2 0.89 9.31

Offering a more limited line of products/services than competitors(RS)?

λx3 3 0.38 3.35

Serving more market segments than your competitors? λx3 4 0.67 6.50

Note: χ2 = 69.83, 63 d.f.

CFI = 0.98

Interfactor Correlations and t–Values:

Cost—Diff. (–0.20, –1.79);

Scope—Diff. (0.39, 3.57); and

Scope—Cost (0.08, 0.69)

confidence limit for the Root Mean Square Error of the Approximation (RMSEA)ranging from 0.02 to 0.07). To assess fit with the relatively small sample collected,the normal theory reweighted least squares χ2 and the comparative fit index (CFI) arerecommended (Bentler 1990). The reweighted LS χ2 demonstrated a value of 261.61with 227 d.f., p = 0.06, and CFI = 0.92. Reliabilities for the three market orientationconstructs were 0.70 for intelligence generation, 0.79 for intelligence dissemination,and 0.82 for responsiveness, which meet the values suggested by Nunally (1978).


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Table 2

Business Strategy and Performance Confirmatory Factor Analyses


t–Value

Performance CFA

Growth α = 0.91

Changes in market share λx1 1 0.94 9.50

Market share growth relative to ourcompetition

λx1 2 0.89 8.73

Growth in sales of our product and/orservices

λx1 3 0.77 7.01

Profitability α = 0.95

Business unit profitability λx2 1 0.94 9.54

Return on Investment (ROI) λx2 2 0.93 9.51

Return on Sales (ROS) λx2 3 0.91 9.10

Customer Satisfaction α = 0.78

Customer satisfaction λx3 1 0.82 7.23

Delivering value to your customers λx3 2 0.89 8.06

Adaptability α = 0.80

Number of successful new products λx4 1 0.74 6.08

Introduction of newproducts/services

λx4 2 0.77 6.43

Time to market for new products λx4 3 0.64 5.12

Note: χ2 = 55.17, 38 d.f.

CFI = 0.96

Interfactor Correlations and t–Values:

Profit.—Growth (0.76, 11.92)

Cust. Sat.—Growth (0.63, 6.57)

Cust. Sat.—Profit. (0.53, 4.89)

Adapt.—Growth (0.58, 5.24)

Adapt.—Profit. (0.61, 5.88)

Adapt.—Cust. Sat. (0.79, 9.30)

5.0.4 Marketing Capabilities Construct validity for the marketing capabilitymeasures were also assessed via confirmatory factor analysis. In this case, all sixconstructs were analysed simultaneously by loading each item on the construct it washypothesised to represent and performing the CFA. Final results for this analysis areshown in table 4. As can be seen, the small sample size appears to have impacted theχ2 value causing a significant χ2. The reweighted LS χ2 demonstrated a value of245.77 with 217 d.f., p = 0.08, with CFI = 0.94. With a reasonable fit attained for themarketing capability scales, assessment of convergent and discriminant validity wasperformed. Adequate convergent validity was demonstrated by the model shown in


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table 4, which had no cross loadings and

Table 3

Market Orientation: Confirmatory Factor Analysis


t–Value Constructs and Items Parameter StandardisedCoefficient

t–Value

Intelligence Generation α = 0.70 Responsiveness α = 0.82In this bus. unit we meet with custs. at least once a yr tofind out what prods/svcs they will need in future.

λx1 1 0.53 4.87 Principles of market segmentation drive new productdevelopment efforts in this bus. unit.

λx3 1 0.43 3.98

Individuals from our prod. dept. or group interacts directlywith custs. To learn how to serve them better.

λx1 2 0.25 1.96 For various reasons, we tend to ignore changes in ourcust's prod./svc. needs (RS).

λx3 2 0.71 7.27

We are slow to detect changes in customer preferences(RS).

λx1 3 0.65 6.24 We periodically review prod/svc devel. efforts to ensurethey are in line with cust’s want.

λx3 3 0.61 5.90

We poll end users at least once a year to assess the qualityof our products/services.

λx1 4 0.56 5.29 Our bus. plans are driven more by tech. advances than bymarket research (RS).

λx3 4 0.31 2.81

We often talk with or survey those who can influence ourend users’ purchases (e.g. retailers or distributors).

λx1 5 0.43 3.84 Several departments or groups meet periodically to planresponses to changes taking place in our businessenvironment.

λx3 5 0.58 5.57

We collect industry information through informal means. λx1 6 0.52 4.76 Our prod. lines are more a function of internal concernsor politics than real mkt. needs (RS).

λx3 6 0.62 6.02

We periodically review the likely effect of changes in ourbusiness environment (e.g. regulations) on customers).

λx1 7 0.58 5.51 If a major competitor were to launch an intensivecampaign targeted at our customers, we would implementan immediate response.

λx3 7 0.51 4.79

Intelligence Dissemination α = 0.79 Cust complaints fall on deaf ears in this bus. unit. λx3 8 0.68 6.82We have interdepartmental meetings at least once a quarterto discuss market trends and developments.

λx2 1 0.54 5.10 Even if we came up with a great marketing plan, weprobably would not be able to implement it in a timelyfashion (RS).

λx3 9 0.54 5.15

Mktg. pers. in our bus. unit spend time discussingcustomer's future needs with other functional depts.

λx2 2 0.76 7.88 We are quick to respond to significant changes in ourcompetitor's pricing structure.

λx3 5 0.55 5.29

Our business unit periodically circulates documents (e.g.reports, newsletters) that provide information on ourcustomers.

λx2 3 0.59 5.63 When we find that customers would like us to modify aprod. or svc., the depts. or groups involved makeconcerted efforts to do so.

λx3 10 0.45 4.14

When something important happens to a major cust. ormkt., the bus. unit knows about it in a short time.

λx2 4 0.77 7.93Fit Indices:

When one dept./group discovers something importantabout comp., it’s slow to alert other depts./groups (RS).

λx2 5 0.56 5.34 χ2

Normal Theory Reweighted LS χ2

Comparative Fit Index (CFI)RMSEA 90 % C. I.

270.54261.610.92

227 d.f.227 d.f.

(0.02, 0.07)

p = 0.03p = 0.06

Note: Inter-factor Correlations and t–values: Correl. t–value

Intel. Gen and Intel. Dissem. 0.94 15.66Intel. Gen and Responsiveness 0.93 16.89Intel. Dissem. and Responsiveness 0.95 20.86

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Table 4

Marketing Capabilities Confirmatory Factor Analysis

Constructs and Items Parameter Standardized Coefficient

t–Value Constructs and Items Parameter StandardizedCoefficient

t–Value

Marketing Research (MR) α = 0.85 Channels/Distribution (CD) α = 0.88Our mkting. res. abilities help us find more newcusts. than do our competitors.

λx1 1 0.77 8.11 We have better relationships with distributors thando our competitors.

λx4 1 0.86 9.23

Market research skills help us develop effectivemarketing programs.

λx1 2 0.55 5.48 Our distribution system is more efficient than ourcompetitors.

λx4 2 0.71 7.32

We use our mkting. res. info. more effectively thanour comp. uses their own marketing researchinformation.

λx1 3 0.86 9.62 We work more closely with distributors and retailersthan do our competitors.

λx4 3 0.86 9.64

Our marketing research expertise helps us developbetter marketing programs than our competition.

λx1 4 0.93 10.82 Our distribution programs are vital for marketingprogram success.

λx4 4 0.71 6.97

Pricing (P) α = 0.74 Promotional Management (PM) α = 0.82Pricing has a major impact on marketing programsuccess.

λx2 0.44 4.27 Advertising is a vital component of our promotionalprogram.

λx 5 1 0.49 5.17

Our pricing approach is more effective than ourcompetition’s.

λx2 2 0.99 13.11 Our sales promo’s (coupons, free samples, etc.) aremore effective than of our compet.

λx5 2 0.65 6.70

We know competitors’ pricing tactics better thanthey know ours.

λx2 3 0.40 3.83 Our advertising programs are more effective thanthose of our competitors.

λx5 3 0.99 13.11

Our prices are more competitive than ourcompetition’s prices.

λx2 4 0.59 5.97Marketing Management (MM) α = 0.92

Product Development (PD) α = 0.79Our abilities to segment and target-market help uscompete.

λx6 1 0.68 6.86

We do a better job of developing newproducts/services than our competition.

λx3 1 0.81 8.19 We manage our marketing programs better than ourcompetitors.

λx6 2 0.91 10.68

Our product/service development often falls short ofits goals (RS).

λx3 2 0.54 4.98 Our marketing management skills give us acompetitive edge.

λx6 3 0.90 10.34

Our product/service development gives us an edge inthe market.

λx3 3 0.80 8.07 Our ability to coordinate various departments andgroups in this business unit helps us to respond tomarket conditions faster than our competitors.

λx6 4 0.80 8.74

Our product/service development efforts are moreresponsive to customer needs than those of ourcompetition.

λx3 4 0.68 6.52 Fit Indices:χ2

Normal Theory Reweighted LS χ2

Comparative Fit Index (CFI)RMSEA 90 % C. I.

277.19245.770.94

217 d.f.217 d.f.

(0.04, .08)

p = 0.004p = 0.08

Note: Inter-factor Correlations and t–values: P—MR (0.40, 4.22) CD—P (0.29, 2.83) PM—PD (0.29, 2.59) MM—PD (0.41, 3.86)PD—MR (0.53, 5.65) CD—PD (0.27, 2.35) PM—CD (0.47, 5.29) MM—CD (0.50, 5.49)PD—P (0.46, 4.84) PM—MR (0.44, 4.75) MM—MR (0.71, 11.03) MM—PM (0.47, 5.34)CD—MR (0.33, 3.12) PM—P (0.27, 2.64) MM—P (0.40, 4.23)

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demonstrated t–values in excess of 1.96 (Anderson & Gerbing 1988). Discriminantvalidity was determined by setting all pairs of inter-factor covariances equal to one, ina pair wise manner, and testing for discriminant validity with a series of chi-squaredifference tests (Anderson & Gerbing 1988). In all, six models were tested (one foreach inter-factor covariance). All inter-factor parameters tested significantly lessthan one, therefore supporting the discriminant validity of the model. Reliabilitieswere calculated with each of the six marketing capability constructs demonstratingreliabilities in excess of 0.7 (Nunnally 1978).

Finally, to ensure that the market orientation and marketing capabilitiesconstructs were distinct, we tested the discriminant validity of the market orientationand marketing capabilities constructs by testing a four factor CFA which used thethree market orientation constructs and one of the six marketing capabilitiesconstructs. Six sets of model tests were conducted, one for each of the marketingcapabilities constructs. Adequate convergent validity was demonstrated in each of thesix original marketing capability—market orientation models which showed noevidence of cross loadings and demonstrated t–values in excess of 1.96 for each itemloading (Anderson & Gerbing 1988). Discriminant validity was determined by settingup three models in which the interfactor covariance parameter representing the: (1)marketing capability to intelligence generation; (2) marketing capability tointelligence dissemination; and (3) marketing capability to responsiveness parameterequal to one (once again this was performed in a pair wise manner) and testing eachof the three models against the original model for discriminant validity with a chi-square difference test (Anderson & Gerbing 1988). In total, eighteen models weretested, three for each of the marketing capability constructs. In all cases discriminantvalidity was supported between the marketing capability construct and the threemarket orientation constructs.

5.1 Cluster Procedure

To assess whether market-driven organisations existed among the firms studied, adata analysis procedure was required that would group the business units studiedbased on their similarity along the market orientation dimensions. An efficient andfrequently used approach for forming groups of like organisations is cluster analysis(Ketchen & Shook 1996). Ward’s method of hierarchical cluster analysis was usedfor this purpose as it effectively minimizes intra-cluster differences and maximizesinter-cluster differences among the variables used for clustering (Zahra & Covin1993). Variables used in the cluster analysis were the market orientation factorsrepresenting intelligence generation, dissemination, and organisationalresponsiveness to market information.

5.2 Business Strategy, Market Orientation and Marketing CapabilitiesDifferences

Ward’s cluster technique provided clear evidence of two groups of organisations witha lack of any intermediate group(s). The two-cluster solution was selected based oninspection of an icicle plot, which clearly showed two groups of organisations (Hair,Anderson, Tatham & Black 1995). The first cluster contained 43 firms, while thesecond cluster contained 44. Attempts to form three and four cluster solutions werenot successful. Both the three and four cluster solutions exhibited one or two firm


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clusters, indicating a poor solution. To investigate the sources of the differencesdriving the clustering, a two-group multivariate analysis of variance (MANOVA),which is equivalent to Hotelling’s T2 analysis, was performed on the business strategyand market orientation variables. Table 5 presents the results of this analysis. Toinvestigate the data for multivariate differences, the hypothesis of no groupdifference was tested. Wilks’ lambda for the two-group MANOVA was 0.39,(F = 20.92, 6 & 80 d.f., p < 0.0001), indicating there were significant groupdifferences. Having demonstrated overall significant group differences, univariate t–tests were conducted on each of the variables to define the source of the differencesin the firms. To ensure that the differences were not due to size, a t–test on firm size,as measured by number of employees, was utilised and demonstrated no statisticallysignificant difference in size (t = 0.22).

Table 5

MANOVA Results, Cluster Means and Comparisons: Strategy andMarket Orientation

Variable Cluster 1Market-Driven

(N=43)

Cluster 2Non-Market-Driven

(N=44)

t–Value Comparison

Differentiation 5.90 5.42 2.41 1 > 2

Cost Advantage 4.62 4.34 1.11 N.S.

Product-Market Scope 4.70 4.36 1.32 N.S.

Intelligence Generation 5.92 4.86 6.66 1 > 2

Intelligence Dissemination 6.10 5.01 5.74 1 > 2

Responsiveness 5.96 4.62 10.66 1 > 2

MANOVA Test Results Value F, d.f. P–Value

Wilks’ Lambda 0.39 20.92, 6, 80 0.0001

5.3 Cluster Results

5.3.1 Cluster 1 The business units in cluster 1 clearly demonstrated much higherdifferentiation levels than the business units in the second cluster. In addition, thesebusiness units exhibited much higher levels of gathering, disseminating, andresponding to market information. This group of business units did not appear to havea particular cost advantage over the business units in cluster 2. Based on their highdifferentiation and market orientation scores, these business units were labelled‘Market-Driven’ (Day 1994).

5.3.2 Cluster 2 As a group, the business units in cluster 2 demonstratedsignificantly lower levels of each construct as compared with cluster 1, with theexception of the cost advantage and scope dimensions which were not significantlydifferent across the two groups. Inspection of the MANOVA results for cluster 2demonstrates a group of business units that exhibited lower levels of differentiationand did not focus on gathering, disseminating, and responding to market information.Interestingly, these business units did not develop cost advantages, nor were they


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focused on broader market strategies. Since these firms demonstrated lower relativemarket orientation ratings and a lack of clear strategic focus, these business unitswere labelled ‘Non-Market-Driven’.

5.4 Validating the Cluster Solution

To validate the two-cluster solution (Ketchen & Shook 1996), a second MANOVAanalysis was performed. This analysis used the two-group solution shown in table 4and tested for group differences on two dimensions related to, but not a part of, thebusiness strategy or market orientation scales that were used to cluster the firms. Thetwo dimensions used to validate the cluster solution were: (1) degree of relationshipfocus; and (2) degree of customer focus. These constructs were designed specificallyfor validating the cluster solution and had not been previously psychometricallytested. Psychometric testing was performed via maximum likelihood exploratoryfactor analysis and reliability analysis. Results from these analyses are shown intable 6. Clear evidence of the predicted two-factor solution emerged from theanalysis with factor 1 demonstrating the degree of relationship focus, and factor 2 thedegree of customer focus. Reliabilities for both constructs were good, withrelationship focus producing an alpha of 0.87 and customer focus demonstrating analpha of 0.86.

Table 6

Cluster Validation Variables—Maximum Likelihood ExploratoryFactor Analysis

Variables Factor 1Relationship Focus

Factor 2Customer Focus

How well has your org. performed in the following areas:

Developing relationships to meet our customer’s needs 0.92 –0.15

Influencing repeat purchases 0.80 0.10

Developing a close relationship with our customers 0.76 0.08

Developing brand loyalty among our customers 0.57 0.06

Meeting the needs of our loyal customers 0.51 0.32

Reacting to changes in the marketplace 0.04 0.88

Reacting to competitor moves –0.11 0.84

Reacting to customer needs 0.07 0.78

Adapting current offerings to customer needs 0.31 0.50

Developing new goods or svcs. to meet cust. needs 0.12 0.49

Cronbach Alpha 0.87 0.86

Having tested the basic measurement properties of the cluster validation variables,results from the MANOVA were examined. Overall group differences were supported(Wilks’ lambda = 0.66, F = 21.28, with 2 and 84 d.f., p < 0.0001), and differenceswere found between the two groups for both validation variables used in the analysis(table 7). As expected, the firms in cluster 1 demonstrated significantly higher


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degrees of customer focus and relationship focus than the firms in cluster 2. Basedon the results of the cluster analysis and validation, the firms in cluster 1 wereconfirmed as market-driven firms, while the firms in cluster 2 were identified asbeing significantly less market-driven.

Table 7

Cluster Validation—MANOVA Results


(N=43)


(N=44)


Relationship Focus 5.95 4.97 5.53 1 > 2

Customer Focus 5.52 4.50 5.61 1 > 2


Wilks’ Lambda 0.66 21.28, 2, 84 0.0001

5.5 Marketing Capabilities Differences

To investigate potential differences between the business units in the two groups andto provide validation of the market-driven nature of firms in cluster 1, a MANOVAwas performed using the marketing capabilities measures as the dependent variables.Results from this analysis are presented in table 8. As can be seen, there was asignificant difference between the overall marketing capabilities dimensions of thebusiness units in the two clusters (Wilks’ λ = 0.59, F = 9.43, 6, & 80 d.f.p < 0.0001). To investigate sources of the differences, univariate t–tests wereperformed on the two groups. In this analysis, the market-driven business units incluster 1 demonstrated significantly higher levels of all six marketing capabilityconstructs. It is especially interesting to note that two of the largest differences werefor market research capabilities and marketing management/planning capabilities,which are crucial to the success of market-driven businesses (Day 1993; 1994; Hunt& Morgan 1995; Jaworski & Kohli 1993).

5.6 Organisational Performance Differences

The final analysis investigated the hypothesized performance differences between thetwo groups. Table 9 presents the results of the fourth, two-group MANOVA. Onceagain, an overall difference between the two groups was found (Wilks’ λ = 0.81,F = 4.67, 4, & 82 d.f., p = 0.0019). To further investigate the differences, univariatet–tests were calculated for each of the four performance variables. As can be seen intable 9, the market-driven business units significantly outperformed the less market-driven business units across the four performance dimensions. This was especiallytrue in the adaptability, profitability, and customer satisfaction areas where the meandifferences were the largest.


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Table 8

MANOVA Results, Cluster Means and Comparisons: MarketingCapabilities




Market Research Capabilities 5.23 4.06 5.55 1 > 2

Pricing Capabilities 4.73 4.06 3.24 1 > 2

Product Development Capabilities 5.00 4.28 3.37 1 > 2

Channels/Distribution Capabilities 5.13 4.26 3.51 1 > 2

Promotion Capabilities 4.81 4.06 3.30 1 > 2

Marketing Management/Planning Capabilities 5.52 4.18 6.80 1 > 2


Wilks’ Lambda 0.59 9.43, 6, 80 0.0001

Table 9

MANOVA Results, Performance Differences By Cluster




Growth 5.26 4.79 2.18 1 > 2

Profitability 5.43 4.70 3.13 1 > 2

Customer Satisfaction 5.59 5.01 3.08 1 > 2

Adaptability 4.90 4.14 3.92 1 > 2


Wilks’ Lambda 0.81 4.67, 4, 82 0.0019

6. Implications from the StudyThe foregoing study of Australian businesses was designed to accomplish three mainobjectives. The first objective was to determine the degree to which firms could becharacterized as market-driven by studying their market orientation. This objectivewas accomplished by measuring the 87 firms in this study with regards to theirmarket intelligence generation, dissemination and responsiveness (Jaworski & Kohli1993) and further examining their degree of differentiation, cost-leadership, andscope for evidence that the market orientation was indeed supportive of the firm’sstrategic direction. To analyse the extent to which this strategically focused marketorientation characterized the 87 firms in this study, a clustering technique thatgrouped firms based on their market orientation and then analysed for evidence ofsupporting business unit strategy differences was used. As predicted, a group of firmsrated highly in market orientation and differentiation emerged from the analysis,therefore demonstrating the viability of the technique for defining the market-drivenfirms in this study. The clusters were then validated by measuring their relationship to


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two specifically designed validation variables, customer focus and relationship focus(Ketchen & Shook 1996). As was demonstrated in the analysis, market-driven firmsdemonstrated much higher levels of customer focus and relationship focus,therefore, validating the clustering results.

The second objective of this study was to explore the set of marketingcapabilities that a strategically focused market-driven firm would develop to helpimplement this strategic orientation (Day 1993; 1994). Six marketing capabilitieswere suggested by the literature and were confirmed via managerial interviews. Thesecapabilities consisted of six areas: marketing research, product development, pricing,distribution, promotion, and marketing management. The group of 43 market-drivenfirms found in this study demonstrated higher levels of all six marketing capabilities.These findings support Day’s (1993; 1994) theoretical work in marketing capabilitiesby demonstrating positive associations between the variables used to define market-driven behaviour, and the six marketing capabilities demonstrated by these firms. It isimportant to note that the 44 less market-driven firms in this study consistentlydemonstrated lower levels across all six marketing capability dimensions.

The final objective of this study was to provide empirical support for the ideathat strategically focused market-driven firms would outperform their competitors(Hunt & Morgan 1995). As the results of this study demonstrated, the 43 market-driven firms outperformed the 44 less market-driven firms across adaptability,customer satisfaction, growth, and profitability dimensions. This finding supports thetheoretical work in marketing regarding the capabilities of market-driven firms (Day1993; 1994; Day & Wensley 1988) and extends the empirical findings of the marketorientation researchers (e.g. Kohli, Jaworski & Kumar 1993; Narver & Slater 1990)beyond simple measures of performance. Thus, by meeting the three main objectivesoutlined above, this study provides insights regarding the importance of developing astrategically focused market-driven approach and provides insights into the internalprocesses, which contribute to achieving a business orientation.

7. Limitations and Directions for Future ResearchThe major limitations in our study result from the trade-offs required in research ofthis type. First, the cross-sectional data collected in the study and are unable toempirically evaluate causality in the relationships examined or to examine thesustainability dimension of competitive advantage. We need to know what managersdo, but importantly also, how they do it. Future researchers could complement ourfindings by utilizing longitudinal research designs and providing understanding of theprocesses involved in becoming market-driven. Second, by focusing specifically onan extensive examination of market orientation and the marketing capabilities thatdevelop under this orientation, we were unable to control for differences betweenfirms in the level and quality (e.g. brand image) of resource inputs, and the level ofother types of organisational capabilities (e.g. R&D) that may impact performance.Clearly, a better understanding of the interrelationships among these variables iscritical for future research.


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8. Conclusions and Managerial ImplicationsFrom a management perspective, an important implication of our research is thatmarket-driven firms should develop their marketing programs with an eye towarddeveloping marketing capabilities that support the firm’s strategy. Firms that do thisshould be able to outperform their less market-oriented rivals, as did the firmsdocumented in this study. To support their ability to implement such a market-oriented approach, continued investment in market research, pricing, productdevelopment, promotions, channels and market planning and marketing managementcapabilities is indicated as important. Firms should place particular emphasis on thecollection and analysis of market information and the careful development andmanagement of strategic marketing plans.

(Date of receipt of final transcript: January, 2000.Accepted by Mark Uncles, Area Editor)

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Appendix A

Scale Items

Construct Items

Business Strategy:

Differentiation To what extent is the strategy of your business to:Provide unique products or services?Offer higher quality products and/or services than your competitors?Offer innovative products and services?Offer highly differentiated products and services?Offer products and/or services with distinctly different features from those ofcompeting products?

Cost Leadership To what extent is the strategy of your business to:Be the lowest cost provider in your industry?Provide your customers with the lowest prices among your major competitors?Emphasise efficiency?Strive for high volume to spread costs?

Product-Market Scope Compared to your competitors, to what extent does your business strategy call for:Offering more products and/or services than your competitors?Offering a broader range of products/services than competitors?Offering a more limited line of products/services than competitors (RS)?Serving more market segments than your competitors?

Market Orientation:

Intelligence Generation Please indicate how much you agree or disagree with the following statements:In this business unit we meet with customers at least once a year to find out whatproducts/services they will need in the future.Individuals from our production department or group interact directly with customersto learn how to serve them better.We are slow to detect changes in customer preferences (RS).We survey end users at least once a year to assess the quality of ourproducts/services.We often talk with or survey those who can influence our end users’ purchases (e.g.retailers or distributors).We collect industry information through informal means.We periodically review the likely effect of changes in our business environment (e.g.regulations) on customers.

IntelligenceDissemination

Please indicate how much you agree or disagree with the following statements:We have interdepartmental meetings at least once a quarter to discuss market trendsand developments.Marketing personnel in our business unit spend time discussing customers’ futureneeds with other functional departments.Our business unit periodically circulates documents (e.g. reports, newsletters) thatprovide information on our customers.When something important happens to a major customer or market, the whole businessunit knows about it in a short time.When one department or group discovers something important about competitors, it isslow to alert other departments or groups (RS).


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Construct Items

Responsiveness Please indicate how much you agree or disagree with the following statements:Principles of market segmentation drive new product development efforts in thisbusiness unit.For various reasons, we tend to ignore changes in our customer's product/serviceneeds.We periodically review our product/service development efforts to ensure that they arein line with what customers want.Our business plans are driven more by technological advances than by market research(RS).Several departments or groups meet periodically to plan responses to changes takingplace in our business environment.Our product lines are more a function of internal concerns or internal politics than realmarket needs (RS).If a major competitor were to launch an intensive campaign targeted at our customers,we would implement an immediate response.Customer complaints fall on deaf ears in this business unit.Even if we came up with a great marketing. plan, we probably would not be able toimplement it in a timely fashion (RS).We are quick to respond to significant changes in our competitor's pricing structure.When we find that customers would like us to modify a product or service, thedepartments or groups involved make concerted efforts to do so.

Marketing Capabilities: Please indicate how much you agree or disagree with the following statementsconcerning your business unit’s marketing capabilities.

Market Research Our marketing research ability help us find more new customers than do ourcompetitors.Market research skills help us develop effective marketing programs.We use our marketing research information more effectively than our competition usestheir own marketing research information.Our marketing research expertise helps us develop better marketing programs than ourcompetition.

Pricing Pricing has a major impact on marketing program success.Our pricing approach is more effective than our competition’s.We know competitors’ pricing tactics better than they know ours.Our prices are more competitive than our competition's prices.

Product Development We do a better job of developing new products/services than our competition.Our product/service development often falls short of its goals (RS).Our product/service development gives us an edge in the market.Our product/service development efforts are more responsive to customer needs thanthose of our competition.

Channels We have better relationships with distributors than do our competitors.Our distribution system is more efficient than our competitors.We work more closely with distributors and retailers than do our competitors.Our distribution programs are vital for marketing program success.

Promotion Advertising is a vital component of our promotional program.Our sales promotions (coupons, free samples, etc.) are more effective than those of ourcompetition.Our advertising programs are more effective than those of our competitors.

Market Management Our abilities to segment and target-market help us compete.We manage our marketing programs better than our competitors.Our marketing management skills give us a competitive edge.Our ability to coordinate various departments and groups in this business unit helpsus to respond to market conditions faster than our competitors.


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Construct Items

OrganisationalEffectiveness:

Please evaluate the performance of your major line of business over the past yearrelative to your major competitors.

Growth Changes in market share.Market share growth relative to our competition.Growth in sales of our product and/or services.

Profitability Business unit profitability.Return on Investment (ROI).Return on Sales (ROS).

Customer Satisfaction Customer satisfaction.Delivering value to your customers.

Adaptability Number of successful new products.Introduction of new products/services.Time to market for new products.


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Appendix B

Correlations

Variables 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

1 Differentiation 1.00 –0.12 0.34 0.12 0.24 0.22 0.20 0.05 0.22 0.22 0.35 0.27 0.22 0.33 0.25 0.31 0.07

2 CostAdvantage

– 1.00 0.24 0.27 0.20 0.14 0.05 0.44 0.10 0.02 –0.04 0.03 0.08 0.11 0.02 0.05 –0.10

3 Scope – 1.00 0.25 0.21 0.24 0.25 0.06 0.33 0.31 0.43 0.32 0.15 0.30 0.26 0.34 –0.04

4 Intel. Gen. – 1.00 0.66 0.67 0.48 0.36 0.49 0.40 0.27 0.51 0.35 0.36 0.37 0.41 –0.02

5 Intel. Diss. – 1.00 0.75 0.49 0.32 0.40 0.39 0.35 0.52 0.30 0.39 0.35 0.42 –0.08

6 Responsiveness

– 1.00 0.59 0.40 0.46 0.36 0.47 0.69 0.28 0.30 0.38 0.48 –0.03

7 Market Res. – 1.00 0.26 0.50 0.29 0.47 0.67 0.31 0.33 0.31 0.39 0.06

8 Pricing – 1.00 0.31 0.28 0.29 0.25 0.18 0.28 0.12 0.33 –0.03

9 Product Devel. – 1.00 0.28 0.49 0.44 0.34 0.41 0.55 0.60 –0.05

10 Distribution – 1.00 0.51 0.44 0.32 0.43 0.29 0.39 0.05

11 Promo. Mgmt. – 1.00 0.50 0.26 0.41 0.28 0.49 –0.04

12 Mktg. Mgmt. – 1.00 0.30 0.44 0.35 0.47 0.08

13 Growth – 1.00 0.62 0.55 0.33 –0.10

14 Profit – 1.00 0.46 0.43 0.06

15 Customer Sat. – 1.00 0.58 –0.15

16 Adapt – 1.00 –0.06

17 Size – 1.00

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