Assessing the Impact of Internal Marketing Orientation on an Organization’s Performance

Abstract

In extant literature, although there are a few studies that have investigated impact of internal marketing orientation (IMO) on nonfinancial performance, most IMO studies have focused on how IMO relates to financial performance. Furthermore, even when customer-based performance (e.g., service quality, customer retention, customer satisfaction, customer loyalty) are included in the model, they are generally grouped together with other constructs such as employee competency and willingness to learn and organizational effectiveness and operationalized as an overall nonfinancial performance measure, rather than as a separate customer-based performance measure. Therefore, in order to fill this gap and to understand the impact of IMO on the firm’s customer-based performance as well as financial performance, we developed and empirically tested an integrated model of IMO by comprising not only the financial performance variable but also a customer-based performance variable (customer acquisition and retention, customer loyalty, perceived service quality, customer satisfaction, improving products and services based on customers’ comments, implementing new ideas, and developing new products and services). The inclusion of a customer-based performance variable in an IMO model is significant because a direct effect of IMO on a firm’s financial performance is rather difficult to demonstrate. This is because the impact of a firm’s IMO adoption is generally reflected in the firm’s customer-based performance through enhancing employees’ behavioral outcomes. The key objective of implementing IMO is to ensure positive employee-related outcomes, rather than to directly affect a firm’s financial performance indicators. The firm’s IMO focus enhances the employees’ customer-focused behavior which results in improved customer-based performance. Moreover, the financial consequence of customer-based performance has been recognized by both academia and practitioners in extant literature. Therefore, we argue that the impact of a firm’s IMO focus on its performance should be investigated through an indirect path comprising customer orientation, employee commitment, employee performance, and customer-based performance rather than a direct path between IMO and performance. In this study, to empirically test the integrated model, data were collected from middle to top managers from selected service industries in the UK, and the data were analyzed using partial least squares structural equation modelling (PLS-SEM). Results provide statistically significant support for the argument that IMO impacts the firm’s customer-based performance through both employee commitment and customer orientation. The study also supported a strong relationship between the firm’s customer-based performance and financial performance. As predicted, the relationship between IMO and employee commitment is partially mediated by customer orientation, whereas both employee commitment and employee performance partially mediate the relationship between customer orientation and customer performance. Employee performance also partially mediates the relationship between employee commitment and customer-based performance.