The Influence of Market Orientation on Firm Performance: Company and Customer Perspectives

Abstract

Market orientation has long been at the center of marketing thought (Deshpande and Farley 1998; Kirca et al. 2005; Lusch and Laczniak 1987; Narver and Slater 1990). Although there has been extensive research reported on this topic, a review of the literature indicates that a worthwhile contribution to the discipline can be made by extending this work to include additional perspectives in assessing a firm’s market orientation and to evaluate how these viewpoints may relate to firm performance. The research presented in this paper examines market orientation from three perspectives, that of managers, salespeople and most importantly, customers. For each respondent group we evaluate the relationship between market orientation and performance using both perceived/subjective and actual/objective measures of performance. The results of this research provide a more complete understanding of how market orientation influences firm performance, and how perceptions of various constituencies may differ. The participating organization is a Fortune 500 company and an international distributor of MRO products that provided access to their 389 business units. All of these units were independent branch offices monitored for financial performance on an array of objective measures. We had a final sample of 111 branches with at least one usable survey in each of the three respondent categories (salesperson, manager, and customer). This represented a unit response rate of 72.55% for the second phase. In the third stage of the data collection, the sponsoring organization provided objective measures of performance for all business units completing our comprehensive data set. Consistent with previous research, we used multiple responses from the business units’ employees and customers to reduce individual respondent bias and reduce measurement error (Huber and Power 1985). We hypothesize that for each group of respondents (i.e., managers, salespeople, and customers), market orientation is associated with higher levels of perceived firm performance (H1a-c) and with higher levels of objective firm performance (H2a-c). We also hypothesize that higher levels of perceived firm performance are associated with higher levels of objective firm performance (H3a-c). The hypothesized linkages were statistically evaluated as a set of structural equations for each of the three respondent groups. The manager hypothesis testing results revealed a significant path between manager perceptions of market orientation and perceived performance (ß = 0.22, p.05) and between actual performance and perceived performance (ß = 0.01, p >.05) were not significant. Therefore H2a and H3a were not supported. The salesperson hypothesis testing results revealed a significant path between salesperson perceptions of market orientation and perceived performance (ß =.35, p.05) was not significant, therefore H2b was not supported for salespersons. However, unlike the results obtained for managers, a significant path between actual performance and perceived performance (ß =0.03, p .05) and subjective appraisal of firm performance (ß = 0.01, p >.05) were not statistically significant. H2c and H3c were therefore not supported. Our research indicates a significant relationship between market orientation and perceived performance as assessed by each of the three respondent groups. Managers, salespeople, and customers all indicated a positive relationship between market orientation and perceived performance. The second two conclusions offer a contrast with the approach and findings of previous research in the market orientation research stream. Our results indicate that only salespeople were able to significantly relate perceived firm performance to actual performance. Managers and customers were unable to do so. Given the sample of managers or top leaders who have often been used in previous research, our research suggests a need to investigate this relationship from varying perspectives, both within and outside the firm.