The Direct Effect of Market Orientation on Business Performance

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CHAPTER 2 THEORY AND LITERATURE REVIEW

Introduction

This chapter reviews theories and empirical studies that help to conceptualize and explain the relationship between market orientation and business performance. The chapter describes intelligence generation, intelligence dissemination and responsiveness as the building blocks of the notion of market orientation. The chapter further outlines the resource based view and the dynamic capability view to explain the mediation effect of marketing resources on business performance. Finally, the chapter presents how contextual factors such as market dynamism, competitive intensity, technological turbulence and government regulation moderate the relationship between market orientation and business performance.

Theoretical Framework

This section presents the theoretical foundation of market orientation. The theoretical framework draws the conceptual link between the marketing concept and market orientation and further explains the notion of market orientation drawing on the pioneer works of Kohli and Jaworski and Narver and Slater. Furthermore, the resource based view and the dynamic capability view illuminate how and why market orientation can be a source of sustainable competitive advantage.

The Marketing Concept and Market Orientation

Since its introduction in the 1950s, the marketing concept has gained popularity as a driver of marketing strategy and performance. The interchangeable use of the term marketing concept and marketing orientation, market orientation and marketing orientation, customer orientation and market orientation has led to ambiguities.
According to Kohli and Jaworski (1990) the marketing concept represents the business philosophy of the organization and market orientation represents the implementation aspect of the marketing concept. The implementation aspect of the marketing concept is embedded in the routine marketing activities which are facilitated by intelligence generation, intelligence dissemination, and responsiveness to the market. Deshpande et al., (1993) claim that market orientation and customer orientation are similar constructs which can be used interchangeably. However, Narver and Slater (1990) distinguish the two concepts proposing that market orientation is a broader concept with three dimensions of customer orientation, competitor orientation, and inter-functional coordination. Therefore, they suggest that customer orientation is only one of the dimensions of market orientation.
The other two terminologies that are often used interchangeably are market orientation and marketing orientation. Although market orientation and marketing orientation have been used synonymously in the literature, market orientation has gained popularity for two major reasons. First, marketing orientation restricts the concept only to a single marketing department unlike market orientation which is pervasive and integrative of the effort of all business functions and second, the term market orientation is less politically charged as it does not over magnify the role of marketing in the organization (Webb et al., 2000).

Conceptualization of Market Orientation

Market orientation has attracted a great deal of research attention since the works of Kohli and Jaworski (1990) and Narver and Slater (1990). The majority of the studies on market orientation follow either the behavioral approach propounded by Kohli and Jaworski (1990) or the cultural approach advocated by Narver and Slater (1990). According to Kohli and Jaworski (1990), market oriented organizations are actively engaged in intelligence generation, intelligence dissemination, and responsiveness to market intelligence. Narver and Slater (1990), on the other hand posited that a market oriented organization focuses on customer orientation, competitor orientation, and interfunctional coordination.
Market orientation is defined as “organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization wide responsiveness to it” (Jaworski and Kohli, 1993, p.53). They claimed that a business organization’s market orientation is a function of three interrelated components: (1) intelligence generation, (2) intelligence dissemination, and (3) intelligence responsiveness.
Inherent to intelligence generation is market research meant to identify actual and potential needs and preferences of customers and analysis of the major environmental factors that influence the underlying customers’ needs and preferences. Intelligence dissemination requires communication of the information generated to all internal departments to establish a shared view on customers’ expectations. Intelligence responsiveness is the acid test to measure the extent to which a company is market oriented or otherwise. Intelligence responsiveness constitutes all the critical marketing decisions related to market targeting, new service development, designing delivery channels, and marketing communication efforts.
Although Narver and Slater (1990) defined market orientation from cultural perspective, the dimensions they identified are behavior oriented. They postulated that market orientation consists of three interrelated elements: (1) customer orientation – understanding customers in the channel to create superior value; (2) competitor orientation – understanding the limitations and resource capabilities of competitors and (3) inter-functional coordination – the concerted effort of all departments and individuals to create superior value to customers.
The definition of market orientation provided by Kohli and Jaworski (1990) and Narver and Slater (1990) are complementary. The customer orientation and competitor orientation aspects of market orientation (Narver and Slater’s, 1990) are captured by the intelligence generation component of Kohli and Jaworski’s (1990) definition. Intelligence generation involves organizational activities meant to gather accurate and relevant market information related to customers and competitors (Jaworski and Kohli, 1993).
The positive effect of market orientation on organization performance has been well accounted in the literature. Empirical evidences on researches conducted globally over the last three decades reveal that there is a positive relationship between market orientation and business performance (Kohli and Jaworski, 1990; Narver and Slater, 1990; and Matsuno and Mentzer, 2000). In their meta-analysis review of studies conducted over two decades, Cano et al. (2004) reported that market orientation augments a positive effect on business performance consistently worldwide. They further postulated that regional integration, technological advances and globalization contribute to the positive relationship between market orientation and business performance across countries. Besides, Hunt and Morgan (1995) and Menguc and Auh (2006) argued that market orientation is a rare, inimitable, valuable, and non-substitutable resource which is a source of competitive advantage for better and improved organizational performance.
Theodosiou et al., (2012) challenge the view that market orientation is a source of sustainable competitive advantage as it emphasizes on identifying and responding to expressed needs rather than latent needs. These authors question the sustainability of product-market strategies which respond to customers’ revealed preferences at the cost of introducing new products through innovation driven research and development strategies. Kumar et al. (2011) also revealed their concern on the sustainability of market orientation as a source of competitive advantage once competitors adopt and implement market orientation. They further challenged the positive relationship between market orientation and firm performance in an industry where most firms are market oriented since market orientation may become a cost driver rather than a source of competitive advantage. They claim that under such circumstances market orientation inclines to be failure preventer rather than a source of competitive advantage. These limitations lead to the need for integrating the literature in market orientation with the resource based view and dynamic capability view.
Market orientation as an organization wide philosophy indicates the outlook of the management toward the market with a view that implementation of the marketing concept is the key for success in the market. From behavioral perspective, market orientation emphasized on the vitality of information processing and decision making with the customer as the focal point of the whole process. Effective implementation of market orientation, however, requires possession, development, or acquisition of marketing resources which comprised of marketing assets, marketing capabilities, or marketing related knowledge.
The resource-based view (RBV) and the dynamic capability view (DCV) are the theoretical foundations that explain how marketing resources mediate the market orientation – performance relationships. Hooley et al. (1998) shed light on the theoretical nexus between market orientation and the resource based view. They claim that while market orientation focuses on external market considerations, the RBV addresses internal organizational resources and capabilities in conceiving and implementing strategies to enhance firm performance. Hooley et al. (1998) proposed the need to integrate the market orientation and RBV streams as the building blocks for strategy formulation and execution to enhance firm performance. They claim that resources can advance firm performance on sustainable basis if they are integrated with distinctive and dynamic capabilities.
Finally, Luo et al. (2005) reflected their observation on the limited attention given by marketing scholars in applying the resource based theory as a frame of reference to advance marketing theory and practice. Srivastava et al. (2001) shared the same view and argue that the marketing literature is not robust enough to apply the RBV. These authors investigated why little attention has been paid to the role that marketing can play as a source of sustainable competitive advantage (SCA) in conceiving and implementing strategies to enhance business performance. This study, therefore, attempted to integrate marketing and the RBV and DCV approaches testing the mediated effect of marketing resources on the market orientation – business performance relationship.

Declaration 
Dedication
Acknowledgement 
Abbreviations 
Abstract 
CHAPTER 1 INTRODUCTION AND BACKGROUND 
1.1 Introduction
1.2 Background of the Banking Sector in Ethiopia
1.3 Statement of the Problem
1.4 Research Questions
1.5 Aim and Objectives of the Study
1.6 Justification of the Study
1.7 Significance of the Study
1.8 Delimitations
1.9 Scope of the Study
1.10 Operational Definition of Terms
1.11 Organization of the Thesis
1.12 Summary of the Chapter
CHAPTER 2 THEORY AND LITERATURE REVIEW 
2.1 Introduction
2.2 Theoretical Framework
2.3 Literature Review
2.4 Conceptual Framework and Hypotheses
CHAPTER 3 RESEARCH DESIGN AND METHODOLOGY 
3.1 Introduction
3.2 Research Approach
3.3 Population and Sampling Method
3.4 Data Collection Method
3.5 Measurement Instrument
3.6 Reliability of the Measurement Scales
3.7 Measurement Validity
3.8 Data Analysis Techniques
3.9 Summary of the Chapter
CHAPTER 4 DATA ANALYSIS AND RESEARCH FINDINGS 
4.1 Introduction
4.2 Data Screening
4.3 Confirmatory Factor Analysis
4.4 Mediation Analysis
4.5 Moderation Analysis
4.6 Comparing Public and Private Banks Level of Market Orientation, Marketing Resources and Business Performance
4.7 Summary of the Chapter
CHAPTER 5 DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
5.2 Model Adequacy
5.3 Market Orientation
5.4 Business Performance
5.5 The Direct Effect of Market Orientation on Business Performance
5.6 Marketing Resources
5.7 The Mediation Effect of Marketing Resources on the Market Orientation – Business Performance Relationship
5.8 The Moderation Effect
5.9 Variations across Public and Private Banks in Terms of their Market Orientation, Marketing Resources and Business Performance
5.10 Conclusion
5.12 Direction for Further Studies
References
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MARKET ORIENTATION AND BUSINESS PERFORMANCE: AN EMPIRICAL STUDY OF THE BANKING SECTOR IN ETHIOPIA

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