Australian Journal of Management -- Editorial

Volume 25 Number 2 September 2000

Market Orientation

Mark Uncles,*
Guest Editor

Defining Market Orientation
IT IS NOT UNCOMMON in management research to be faced with concepts and ideas that appear to rest on commonsense and intuition, and yet at an operational level defy easy definition and use. Market orientation is a case in point. Broadly, market orientation is concerned with the processes and activities associated with creating and satisfying customers by continually assessing their needs and wants, and doing so in a way that there is a demonstrable and measurable impact on business performance.

* School of Marketing, The University of New South Wales, Sydney NSW 2052. E-mail: m.uncles@unsw.edu.au

An international panel of experts has helped with the refereeing of papers for this issue. The help, assistance and commitment that they have offered is gratefully acknowledged.

A number of features of market orientation are apparent from this broad definition:

- An understanding of customers, and potential customers, is fundamental. This requires a deep appreciation of current and changing needs and wants of consumers, something for which marketers and market researchers claim a particular expertise.

- Information gathering is a key activity for any organisation that purports to be market-oriented.

- It is an inherently managerial concept, with close attention paid to business processes and activities. There has to be some regard for recurrent processes (for instance, sustained investment in marketing communications for established brands), but the emphasis tends to be on new capital-intensive processes that enable the organisation to respond to changes in the marketplace (e.g. brand extensions and new-product development activities).

- Despite the obvious interests of marketers in market orientation, it is cross-functional in character. Any discussion of business processes inevitably, and rightly, leads down the path of organisational decision-making and organisational-learning, and a review of internal competences and capabilities-in addition to a consideration of changes in the external environment. Hence the expression 'market orientation', and not 'marketing orientation'.

- The requirement to demonstrate an impact on business performance puts a spot-light on measurement issues. It highlights that market orientation is not simply a slogan, but is intended to be used. Specifically, it should be used to appraise current processes and activities against current business performance and also focus effort for superior future performance.

Given these features, it is easy to see the conceptual appeal of market orientation. Indeed, it helps confirm our beliefs about the things we think we know as business people and the things we think appropriate to teach to business leaders of the future. From a proactive viewpoint, it focuses attention on identifying key drivers of business performance that the market-oriented manager can control, manipulate and turn to commercial advantage. Defensively, it offers the prospect of being able to show the commercial value of marketing processes and related activities.

In many respects there are strong parallels with the 'marketing concept' (Levitt 1960; McKitterick 1958). Nowadays this concept is accepted as conventional wisdom in management thinking, although strategically inept organisations are still to be found in practice - suggesting that the message has to be retold to each new generation. Market orientation shares the same emphasis on customers and markets - it also has some of the same rhetorical appeal. That said, its advocates would correctly point out that it is more broadly defined and more precisely measured. Perhaps, too, they saw that if the marketing concept was to remain relevant in the 21st century, it needed to be refreshed and reinvigorated.

In the early 1990s two operational definitions came to dominate the literature. Kohli and Jaworski described market orientation as a set of behaviours and activities in an organisation. Specifically, 'the organisation-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organisation-wide responsiveness to it' (Kohli & Jaworski 1990, p. 6). They brought these elements together in the MARKOR scale. In their alternative operational definition, Narver and Slater saw market orientation as comprising three behavioural components: customer orientation, competitor orientation, and inter-functional coordination. Furthermore, they argued it is 'organisational culture that effectively and efficiently creates behaviours' (Narver & Slater 1990, p. 21), thereby lifting discussions of market orientation to a more strategic level. These ideas were reflected in the MKTOR scale.

Closely related to both these definitions is the idea of organisations being 'market-driven'. An organisation is described as being market-driven if it pursues a customer-value-centred strategy, supported by market orientation (Deshpande, Farley & Webster 1993; Day 1999).

With these definitions in mind, several attempts were made during the 1990s to demonstrate that market-oriented business units were better able to respond to information about market forces and market conditions than less market-oriented rivals. However, being market-oriented is not easily attained. From an applied perspective, Day (1999) has drawn attention to a number of traps for the unwary, including being oblivious to the market, being compelled by the market, and seeing your business as superior to the market. As he sees it, the successful route is to steer a middle path - not being lulled by past successes into complacency about the market, but also avoiding being so anxious as to become customer compelled.

Market Orientation in an International Context
The path-breaking studies of market orientation largely concerned themselves with US organisations. This work has continued and is well represented in papers published in the Journal of Market-Focused Management and, for instance, in a recent special issue of the Journal of the Academy of Marketing Science (e.g. Jaworski, Kohli & Sahay 2000; Slater & Narver 2000). Nevertheless, from quite an early stage there was interest in the question of applicability across different countries and the development of related concepts by those working with non-US organisations (e.g. Doyle & Wong 1998). An excellent summary is provided by Dawes in this issue - he cites 36 studies over the period 1990-1999, 30 of which found a direct positive association between market orientation and performance. In the majority of these cases the association was evident regardless of the geographical focus of the study - although, as Dawes notes, a few exceptions have been reported.

During the late 1990s several studies were completed in Australia. An important paper in this context was Oczkowski and Farrell's (1998) study based on questionnaires sent to managing directors and CEOs of Australia's top publicly listed and privately owned companies. This demonstrated that in Australia market orientation is positively related to sales growth, customer service, new product success, profitability and overall business performance. Another empirical study undertaken in collaboration with the Australian Marketing Institute (AMI) drew broadly similar conclusions (Styles & Uncles 1998), although in this instance many of the companies were of a small-to-medium size, and respondents tended to be marketing managers rather than CEOs.

This special issue of the Australian Journal of Management can be seen as a progress report on the state of market orientation research in Australia. An underlying question is whether there is a distinctive regional angle on the subject. For instance, it could be argued that there is a distinct Australian business culture, particularly in the area of service delivery and interaction with customers. Pulendran, Speed and Widing, in this issue, quote evidence of a business culture that places a low priority on delivering customer satisfaction, despite a reputation for excellence in individual levels of customer service. However, these researchers' results convey a more encouraging picture - an image of companies such as Qantas, Coles Myer, Bankers Trust and Pacific Dunlop showing clear signs of recognising the significance of market orientation. Overall, it appears the Australian results are not markedly different from those for the US. As with many aspects of marketing and management, the regional economy exhibits some distinct features, but perhaps not enough to force us to re-write all the rules (Uncles 1998).

Research Opportunities and Challenges
The literature on market orientation is not without its critics. At the broadest of levels, there are unresolved conceptual questions and limitations:

- Does the pursuit of market orientation give rise to sustainable competitive advantage (as claimed by many researchers), or simply a competitive advantage? Indeed, does it have more to do with competitive survival, than necessarily securing an advantage? Perhaps, in a market economy, a customer focus is simply a necessary condition for doing business.

- Arguably, market-oriented organisations may not take enough risks. In their pursuit of information gathering about the served market they may come to ignore emergent markets and under-estimate threats from non-traditional competitors.

- An underlying assumption is that market-driven organisations will develop knowledge, skills, resources, and ultimately capabilities, that are rare, heterogeneous, and difficult to imitate (see Vorhies & Harker in this issue). But is this wishing thinking? Does it depend on the ability of individuals and organisations to learn from the past and visit possible futures - is it this set of skills which truly sets apart the industry leaders?

Measurement issues continue to be hotly debated, even after ten years of research. Indeed, given that the main definitions of market orientation rely so heavily on the development of scales, questions of scale development, validity, reliability and uni-dimensionality have proven to be of central importance. In particular:

- There is no universally agreed operational definition. While the popular MARKOR and MKTOR scales are related, they are not equivalent, nor are they interchangeable. Each scale tends to have its adherents, many of whom appear reluctant to accept the claims of users of other scales.

- Nor is there agreement on which business processes and activities to focus. For instance, recently a strong claim has been made to focus on relationship marketing as well as the processes and activities that have become the mainstay of this research area (e.g. Steinman, Deshpande & Farley 2000), but as yet this viewpoint is not fully accepted.

- The question of which performance measures to use has not been resolved, and perhaps it cannot be resolved in a definitive way. Yet performance is regarded as the key dependent variable. It is the fact of superior performance that justifies the focus on markets and customers, behaviours and processes.

- Invariably perceived profitability is reported, but there are likely to be many other influences on this measure and in survey-based fieldwork it is hard, if not impossible, to control for these other factors.

- Virtually all studies rely on self-assessed business performance, rather than more formal assessments (e.g. little use is made of formal financial, operational and customer-related performance measures). Moreover, these self-assessments are expressed on rating scales (5-, 7- or 9-point), rather than standard business measures (dollars, volume sales, etc.). Even if it is agreed that perceptions are everything, the question remains: whose perceptions are relevant - the perceptions of managers, competitors or customers?

- Conventionally, performance is represented as the dependent variable, but it is reasonable to suppose that performance itself provides a climate for market orientation either to flourish or be undermined. Success breeds success. Performance, be it in terms of profitability or customer service, can be liberating, it may allow senior management to be more open and receptive, to allow risk-taking, and to encourage a free exchange of information and ideas. Under such circumstances the prising apart of cause and effect is immensely difficult and even may not be very helpful.

- Some studies have revealed poor discriminant validity among components of the market-orientation scales. This then limits any examination of the role and impact of individual constituent elements, and yet it maybe these elements that are of greatest diagnostic interest to management.

- More controversially, perhaps the search for uni-dimensional and internally consistent components within the market-orientation scales is misplaced (Rossiter 2000). Should we not expect components of market orientation to be multi-faceted and interdependent and interconnected?

There are also a number of broader empirical difficulties with this line of research:

- Different studies work with different units of analysis, making cross-study comparisons difficult. In general there is a preference for using strategic business units (SBUs) as the unit of analysis, but divisions and company-level studies are also reported in the literature. Even within a single organisation, SBUs will be varied - organisations are not concrete and singular (although this is implicitly how some researchers see market-oriented organisations).

- Moreover, is performance to be measured at the SBU level too? If so, is perceived profitability the most meaningful and diagnostic measure of performance at that level?

- A selection bias is to be expected in most studies, with better performing organisations (or SBUs or managers) more likely to respond to the type of survey used in these studies.

- Researchers disagree whether to direct questions at senior staff (because of their 'helicopter vision') or at lower-level product managers (because they are closer to customers) (contrast Farrell with Vorhies & Harker in this issue). Having multiple respondents would lessen this problem, but that might create other difficulties such as how to represent (let alone reconcile) conflicting viewpoints from different managers.

- Typically, these key respondents fill out self-completion mail questionnaires, whereas the required data might be more readily and reliably obtained from in-depth personal interviews.

- More fundamentally, the emphasis given to process suggests the need for methods that directly explore the dynamics and interconnectedness of market orientation. For instance, feedback and hysteresis effects are to be expected. But, as Dawes points out in this issue, those working in the area have yet to face up to the problem. They continue to rely on cross-sectional studies, while acknowledging longitudinal studies are required. These studies could take the form of organisational panels, or be observational in character (e.g. using 'fly on the wall' techniques). Either way, market-orientation researchers have hardly begun to explore these options.

Most researchers working in the area would point out that market-orientation research is hardly alone in facing these types of problems. Therefore, while this is a long list of 'problems', perhaps it would be fairer to describe them as 'challenges'. Considerable effort is being made to respond to these challenges and the outlook for making further progress is good. This issue of the Australian Management Journal is a contribution to the process.

Summary of the Papers
Pulendran, Speed and Widing set out to replicate the Jaworski and Kohli (1993) conceptual model of market orientation within the Australian business environment. In doing so they consider the outcomes and antecedents of a market orientation. They find market orientation has a significant positive effect on business performance, with market turbulence having a moderating role. Several factors are shown to affect market-oriented activity. These antecedents include the positive impact of top management emphasis on market orientation, the inhibiting effect of inter-departmental conflict, and the presence of a reward system that is focused on customer satisfaction and encourages employees to be responsive to market needs. There is also some support for the idea that if organisations act in a consistent and concerted manner towards their customers, they will be significantly more market-oriented (this is the notion of 'interdepartmental connectedness'). The authors observe a clear convergence in the pattern of results from Australia with the earlier US study by Jaworski and Kohli.

Vorhies and Harker pose two questions: what are the market capabilities that provide a foundation for a 'market-driven' approach, and what are the performance implications for firms that develop this approach? Six marketing areas are investigated for evidence of capabilities - market research, pricing, product development, channels of distribution, promotion, and marketing management. Interviews with managers demonstrate that these capabilities held meaning for practitioners, and statistical analyses show that market-driven business units hold higher levels of these capabilities. The authors are also able to show that market-driven business units outperform their rivals on four measures of organisational performance, namely growth, profitability, customer satisfaction and adaptability. While Vorhies and Harker take a broader perspective than Pulendran, Speed and Widing, they both find general support for the Jaworski and Kohli (1993) scale in the Australian business context.

The paper by Dawes is a natural extension of the previous two. First, it is argued that each component of market orientation may not have equally strong associations with profitability. In an empirical study of South Australian companies, this is found to be the case - a 'competitor orientation' emerges as the component with strongest associations with performance, rather than customer analysis, customer responsiveness and market information sharing. It should be noted that Dawes works with a mixture of existing scales, in contrast to the earlier papers that limit themselves to a single existing scale. Second, use is made of lagged company and environmental control variables in the analysis, as a means to better understand the relationship between market orientation and performance. These variables refer to features such as relative size, barriers to entry and market growth. As discussed above, the market orientation literature has been heavily criticised for its reliance on cross-sectional data. Of the 36 previous studies listed by Dawes, all but one used cross-sectional survey designs and most of these were mail surveys rather than personal interviews. The current study - together with Pelham and Wilson's (1996) paper - offer refreshing insights into what might be learnt by adopting a longitudinal approach. Dawes also employs a mix of personal interviews with multiple respondents from each firm, as well as traditional mail surveys. There is still a long way to go - as Dawes points out: 'while lagged control variables were used which increased the explanatory power of the model, the association between the components of market orientation and performance was still analysed cross-sectionally'.

In his contribution to this special issue, Farrell suggests that being market-oriented may not be enough - or, at least, it is only the start of a much deeper process. Specifically, he argues that having a 'learning orientation' will have greater effect on business performance than simply being market-oriented. Farrell is not alone in stressing the significance of organisational learning and one way or another all the papers in this issue make the point, but his analysis is the most forceful. Empirical evidence from Australia's top 2,000 organisations is used to address three questions: (1) What types of organisational change strategies enhance a market orientation? It turns out that both planned change and emergent change are significantly related to market orientation; (2) What specific management practices and behaviours facilitate a learning organisation? Results show that senior managers must both support the concept of a learning organisation, and be prepared to accept increased levels of risk as part of the learning process. Furthermore, transformative leadership affects the degree to which the organisation is able to learn - in contrast to transactional and laissez-faire leadership styles. In practical terms this means: promoting change from below, rather than exclusively from above; having top management create a conducive learning environment; and also taking a lead in 'unlearning' traditional practices and removing potential learning barriers; (3) Does a market orientation facilitate a learning orientation and is organisational learning associated with superior performance? The answer appears to be a conclusive 'yes'. Farrell veers much more to the Narver and Slater view of marketing orientation than the other authors represented here. Echoing Narver, Slater and Tietje (1998), he states that 'a market orientation is not a set of processes and activities, but is a fundamental part of the organisation's culture'. He also argues that the psychometric properties may be preferable, building on an earlier set of results (Oczkowski & Farrell 1998).

The measurement theme is taken up again in the final paper by Mavondo and Farrell. The goal of this paper is to advance a procedure for testing the validity, reliability and generalisability of different models of market orientation. Essentially, the issue is that of 'measure equivalence', and the procedure rests on 'invariance testing'. Two models, or conceptualisations, are tested - Narver and Slater (1990) and Kohli, Jaworski and Kumar (1993), corresponding to the popular MKTOR and MARKOR scales. These are considered for managers in business markets and those in consumer markets, two qualitatively distinct populations. The Narver and Slater model proves to be more robust. While the empirical basis of the study is limited, the authors recommend that researchers undertaking cross-cultural, cross-country, cross-group or cross-industry comparisons of market orientation should favour the Narver and Slater approach. It is apparent that this recommendation contrasts with the cross-country equivalence of the different models used in the paper by Pulendran, Speed and Widing. Perhaps more systematic studies of the generalisability issue are needed before a definitive recommendation can be made. A meta-analytic approach would be a natural way to proceed.

Conclusion
In this special issue of the Australian Journal of Management an overview of the state of research on market orientation in Australia is presented. The cumulative effect of the empirical studies is impressive and represents an intensive effort by Australian researchers to gain a better understanding of the key issues. New conceptual developments are being advanced, particularly with respect to the learning organisation. Also, while many methodological challenges remain, progress is being shown in the development of longitudinal approaches and the comparison of different models of market orientation across various industrial sectors and countries.

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