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European Journal of Marketing

Marketing and competitive performance: an empirical study


Peter Doyle Veronica Wong

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Peter Doyle Veronica Wong, (1998),"Marketing and competitive performance: an empirical study", European Journal of
Marketing, Vol. 32 Iss 5/6 pp. 514 - 535
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European
Journal of
Marketing
32,5/6
514

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Received November 1996


Revised April 1997
June 1997

European Journal of Marketing,


Vol. 32 No. 5/6, 1998, pp. 514-535,
MCB University Press, 0309-0566

Marketing and competitive


performance: an empirical
study
Peter Doyle and Veronica Wong
University of Warwick, Coventry, UK
Introduction
In recent years there has been a renewed emphasis on international
competitiveness through the delivery of superior value to customers. This is
evidenced in the concerned reports from national government agencies (e.g.
HMSO, 1994) and the output of academic research (e.g. Day, 1990; Hunt and
Morgan 1995; Porter, 1990). The contribution of marketing to enhancing
competitiveness, however, has been largely neglected by those outside the
profession and controversial among those within it.
Economic studies of national growth performance and government
sponsored reports on the competitiveness of business have invariably
disregarded the contribution of professional marketing. Unfortunately,
marketing academics themselves have not, until recently at least, prioritised
demonstrating empirical support to the presumed link between marketorientation and business performance (see Jaworski and Kohli, 1993). So far the
evidence (Baker et al., 1994; Greenley, 1995; Hart and Diamantopoulis, 1994;
Hooley and Lynch, 1994; Narver and Slater, 1993), surveyed by Wensley (1994),
has been found contradictory and unconvincing. This vulnerability has been
exacerbated by direct challenges to the contribution of marketing. A survey by
management consultants McKinsey found that marketing departments are
often a millstone around an organisations neck (Brady and Davis, 1993). A
study by Coopers and Lybrand concluded that the marketing department is
critically ill (The Economist, 1994). Such critics have argued that marketing
impedes companies re-engineering around core value-adding processes so
increasing costs and reducing effectiveness. In particular, they argue that
marketing gears companies towards the proliferation of low value line
extensions rather than genuine world-class competitiveness.
The purpose of this research is to explore how marketing contributes within
a broader model of the determinants of international competitiveness.
Marketing does not work in isolation from the firms other capabilities and
processes. Effective marketing may be desirable but it appears to be neither a
necessary nor a sufficient condition for successful growth and profitability. A
representative sample of 132 UK and overseas strategic business units from 52
large companies was selected. A multi-informant design was used to explore:
the association between market orientation and business performance;

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how marketing interfaces with other business processes and


competences; and
the role of environmental characteristics in moderating the relationship
between market orientation and business performance.
Besides testing theory, the research findings may be useful to managers in
firms seeking to change their cultures towards a market-orientation. It suggests
which processes and capabilities are most associated with high performance.
The research instrument can also be used by managers to audit their strengths
and weaknesses by comparing their companys profile with those of other high
performing organisations. Finally, the instrument can be used to follow-up a
change programme to measure the progress in enhancing core capabilities,
processes and organisational commitment.
First, a review of the literature on the determinants of business performance
will be provided, and hypotheses on the relationship between marketing and
business performance will be discussed. Next, the data collection and
instrument development stage is described followed by a discussion of the
research results. The paper concludes with a discussion of the managerial
relevance of the findings and future research directions.
Background and hypotheses
The popular discussions of marketing have been bedevilled by a confusion
between marketing as a functional activity and marketing as an organisationwide approach. In the 1950s when marketing began to be discussed in
management literature (Borch, 1957; McKitterick, 1957), it was the former that
became predominant. A market-oriented business often became synonymous
with the power, size and extent of the activities undertaken by the marketing
department (see King, 1985). Since marketing departments normally looked
after advertising, promotion, packaging etc., these activities came to be seen as
what marketing was about.
Despite marketing academics long recognising that marketing was primarily
a philosophy of the entire business (e.g. see Drucker, 1974, p. 61), the former
view is still a cause of misdirected controversy. It is at the heart of the McKinsey
attack on marketing (Brady and Davis, 1993) which was founded on the
surprising view that advertising is the very basis of contemporary marketing.
It is also the foundation of the criticism in the famous Hayes and Abernathy
(1980) study of the USAs declining competitiveness:
Investors, scientists and engineers gave the world in recent times the laser, xerography,
instant photography and the transistor. In contrast, worshipers of the marketing concept have
bestowed upon mankind such products as new-fangled potato chips, feminine hygiene
deodorant, and the pet rock

In recent years much more emphasis has been on marketing as a total business
concept. This is defined as recognising that the key to achieving organisational
goals consists in determining the needs and wants of the target customers and
delivering the desired satisfactions more effectively and efficiently than

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competitors (Kotler, 1994, p. 18; see also Deshpande et al., 1993; Kohli and
Jaworski, 1990; Narver and Slater, 1993). This view of marketing as an
organisational philosophy is much more appealing today than the functional
view. For research purposes it raises two difficulties. One is operationalising
this concept how does one measure whether an organisation is marketoriented? Second, how does one disentangle marketing from the array of other
capabilities and processes needed to deliver products and services to satisfy the
customer. Marketing encourages the organisation to recognise the priority of
satisfying customers needs, but the ability to satisfy them depends on the
capabilities embedded throughout the firms supply-chain and operational
processes. It is easy to picture companies which may be extremely customeroriented but lack the operational skills, resources or capacity to meet customer
needs. The results will be frustrated customers and conflicts between
marketing and operational departments within the firm. Similarly, companies
can be seen which are clearly not customer-oriented but, because of favourable
industry structure (Porter, 1980), or inherited monopoly advantages (Kay, 1993),
achieve high levels of sales and profit performance.
Figure 1 summarises the discussion below. Based on the literature
subsequently reviewed, it is hypothesised that high performance companies
have a defined mission which includes specification of their target markets and
broad goals. Success in these markets depends on achieving a sustainable
competitive advantage which in turn is founded on customer satisfaction.
Customer satisfaction itself is built on a market-led strategy, effective systems
and processes and committed, capable and empowered staff. Finally all these
building blocks are influenced and moulded over time by the rapidly changing
and increasingly competitive international environment in which businesses
operate. Among these forces shaping companies are the learning organisation,
networks and alliances and the re-engineering of business processes.
Business performance
Figure 1 indicates that in assessing business performance a distinction needs to
be made between todays performance outcomes and strategies which drive
future performance. The latter include policies to enhance customer
satisfaction, to improve systems and processes and to build employee
motivation and commitment. These are means to achieve the ends. The ends
that managers seek are financial returns and growth performance. Both the
academic literature and the perspectives of managers normally view a business
as successful if it achieves sound financial performance and enhances its
position in the market place. Each of these can be measured in a variety of ways.
Academics favour shareholder value analysis (e.g. Rappaport, 1986) as the most
appropriate measure of financial performance, but managers still find
accounting measures of profits and return on capital employed more
measurable and immediate (e.g. Doyle, 1994, pp. 2-9). Market performance is
measured by sales growth or market share. The rationale for the centrality of
financial performance is straightforward, unless shareholders see an adequate

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Business
Performance

RESULTS

Mission

MISSION

Sustainable
Competitive
Advantage

Customer
Satisfaction

Marketing
Planning

Market-led
Strategy

Systems &
Processes

People

Changing Environment
Re-engineering
Networks & Alliances
Brand Building
Learning Organisations

..........................................................
..........................................................
..........................................................
..........................................................
..........................................................

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GOALS &
TOOLS

ORGANISATIONAL
INFRASTRUCURE

CHANGING
CONTEXT

return then the business will not be viable in its present form. The case for sales
growth and increased market share is more tenuous. Growth may increase
profitability, but its attraction for shareholders is probably less than it is for
managers and employees. Prestige and perks are correlated to the size of the
business (Handy, 1985). Also growth normally offers more security of
employment and prospects for advancement (Pascale and Athos, 1981).
Two related concerns have characterised discussions about these
performance measures (e.g. Doyle and Hooley, 1992). One is the potential for
conflict. It is, for example, quite easy to buy improved financial performance
at the expense of market share. Raising prices, cutting brand support and
reducing capital employed will normally boost return on investment, but such a
turn-around will normally lead to a creeping erosion of market position.
Managers are acutely aware of the distinction between long term and short
term performance (e.g. Kaplan and Norton, 1992). High short-term performance
can be paid for through missing long-term market opportunities. Therefore our
first hypothesis is:

Figure 1.
Marketing and
industrial
competitiveness

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H1: Successful companies will seek to balance financial and market


performance.
Financial and sales results will be positively correlated.
Goals and tools
One problem with using sales and financial results to measure current
performance is that they are a consequence of activities which took place in the
past. Future performance depends on todays efforts to sustain and create
competitive advantage (Day, 1990; Reichheld, 1996). Unless customers perceive
the firms offer as being superior in value to competitors they will not buy, or
buy at a satisfactory price. Therefore:
H2: Successful businesses will have a sustainable differential advantage in
terms of product, service or overall company reputation.
Sustaining a differential advantage requires a balance of customer and
competitive perspectives. Central to the marketing profession is the believe that
a market orientation will increase the chances of higher business performance.
Surprisingly, it is only relatively recently that an operational definition of a
market orientation has received broad agreement. This definition, as described
by Zaltman et al. (1982) and Kohli and Jaworski (1990), views a market
orientation as composed of three sets of activities:
(1) organisation-wide generation of market intelligence about current and
future customer needs;
(2) dissemination of the intelligence across departments; and
(3) organisation-wide responsiveness to it.
The main form of hypothesis tested here is:
H3: Successful businesses have a clear market orientation as indicated by
their generation and dissemination of market intelligence and their
organisational responsiveness to it.
A market orientation is a broad, organisation-wide concept. By contrast,
marketing planning is a more specific process associated with the management
of a given market or product. Whether this form of planning system contributes
to strategic decision making and improve profitability is still controversial (e.g.
Armstrong, 1982; Papadakis, 1995). But professional marketing stresses a
systematic approach to market segmentation, competitive analysis and
positioning. So the use of strategic marketing planning processes should be
expected to lead to higher performance. That is:
H4: The greater the use of strategic marketing planning, the more successful
the business will be.

Organisational infrastructure
Organisational infrastructure refers to the firms capability to respond to
market requirements. An articulated strategy of listening to the customer and
using customer feedback at all stages has been noted as a characteristic of top
companies by many observers (e.g. Albrecht and Zenke, 1985). Companies that
involve all employees in gathering information from customers should be in a
stronger position to achieve progress in quality (Hauser and Clausing, 1988) and
innovation (Drucker, 1985). That is:

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H5: Successful companies will exhibit a stronger focus on listening to


customers and a market-led strategy.
A market-led orientation and a customer focus create the right goals but
without an effective supply chain, the company will be unable to meet the needs
of customers for superior value. The firm, or its supply chain partners, need to
invest in world-class manufacturing, distribution and IT systems (e.g. Garvin,
1995; Womack and Jones, 1994). Systems should be in place to stimulate and
monitor performance in quality and innovation outputs (Drucker, 1985; Hamel
and Prahalad, 1994). This means:
H6: Successful companies are likely to be characterised by strong supply
chain systems and processes.
Much has been made in the literature about the importance of staff. Several
dimensions have been emphasised. These include:

the capabilities of the workforce resulting from careful selection and


training (Porter, 1990);

their motivation and commitment (Handy, 1990);

their empowerment to act quickly and decisively to meet customer


requirements; and

the ability of top management to communicate an inspiring vision


(Pascale, 1990).

These suggest:
H7: Successful businesses will be characterised by staff with high levels of
capability, motivation, empowerment and strategic intent.
Customers do not buy products, they buy brands. Brands differentiate the
companys offer and present and sustain the added values successful companies
build. This is as true for business-to-business marketing (e.g. Prozac in
pharmaceuticals, Hewlett-Packard laser jet in printers and Novex in polyethylene)
as it is for consumer marketing (e.g. Coke and Levis). Companies are increasingly
concerned with planning and building brands (e.g. Kapferer, 1992). Therefore:
H8: Successful companies will exhibit clearer and more effective branding
policies.

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International competition has brought dramatically increased pressures to cut


costs, to respond faster to customer requirements, and to enhance the efficiency
and effectiveness of business processes. Many leading companies have looked
to business re-engineering to redesign fundamentally their processes around
adding value (e.g. Hammer and Champy, 1993). This suggests:
H9: Successful companies will have considered re-engineering key business
processes to improve fundamentally their efficiency and effectiveness.
In recent years there has been a major change in both business and marketing
theories towards putting networks at the centre of competitive strategy. This
has been described as a fundamental reshaping of the field (Webster, 1992), a
general paradigm shift (Kotler, 1994; Parvatiyar et al., 1992). It views global
competition as increasingly about competing networks of firms rather than
individual businesses. Companies succeed, if they have the best network
(Kotler, 1994, p. 46). Therefore:
H10: Successful companies will have constructed an effective network of
relationships with suppliers, buyers and internal partners.
The management of change is a central concern of executives in all successful
organisations (Hamal and Prahalad, 1994). Changes in the business
environment continually erode the effectiveness of a firms strategy and
organisation. Therefore successful companies would be expected to be seeking
to evaluate thoroughly the changes taking place in their industries, focusing on
innovation and encouraging staff to challenge current strategy and procedures
(Pascale, 1990). Therefore:
H11: Managers in successful companies will place more emphasis on
understanding and responding to changes in the marketing environment.
Today, in most industries, competitors are so quick to copy that new products,
services and distribution innovations provide at most a temporary advantage.
Slater and Narver (1994) argue that the critical challenge for any business is
now to create the combination of culture and climate that maximises
organisational learning on how to create superior customer value. This ability
to learn faster than competitors may be the only source of sustainable
competitive advantage (Dickson, 1992). The hypothesis tested is then:
H12: Managers in successful companies place greater importance on
learning about customers and are proactive in searching for new
opportunities in the market.
Finally, Porter (1980), Kay (1993) and other economists have stressed the
importance of industry characteristics as a determinant of performance.
Barriers to entry, power of buyers and suppliers, the number of competitors and
the potential of substitutes affect the average returns available in an industry.
Marketers have also speculated that the environment is an intervening variable
in determining the importance of marketing. For example, Jaworski and Kohli
(1993) hypothesised that the relationship between market orientation and

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business performance would be stronger where markets are more turbulent and
competition is more intense. These lead to two hypotheses:
H13: There will be an association between business performance and
industry characteristics.
H14: Industry characteristics will affect the relationship between a market
orientation and business performance.
Data collection
Sample
To obtain a representative set of UK companies, the sample was drawn from
The Times Top 1,000 Firms in the UK. A total of 250 companies were chosen
from among the top 1,000 by selecting every fourth listing. The initial contact
was with the CEO of each company requesting the companys participation in
the study. A total of 19 companies could not be reached because of incorrect
addresses resulting in an effective base of 231 companies. The CEOs were
requested to provide the names of the heads of up to three of the companys
SBUs. Preferably, at least one of these should be an overseas subsidiary, the rest,
domestic. A total of 68 CEOs agreed their company would participate and a
total of 174 SBU names were obtained.
The 174 SBU heads were then contacted to elicit their support. A multiinformant design was employed and each head was asked for the names of a
senior marketing/sales manager, a senior accountant/financial manager and a
senior manufacturing/operations manager within the business unit. A total of
148 SBUs agreed to complete the questionnaires implying a total of 444
respondents. The final response rate was 344 completed questionnaires from
132 SBUs. For the purpose of analysis, the responses of the informants from
each SBU were averaged to obtain an overall respondent score for each
business unit. There were two motivations for this averaging. First, as
discussed below, there were no statistically significant differences in the pattern
of responses between different functional managers. Second, management
perceptions are known to be subject to error and a number of researchers have
found that averaging across functions improves the accuracy of the data
(Dawes, 1977; Starbuck and Mezias, 1996).
Questionnaire development
Because most of the dimensions had not been explicitly tested in the available
literature, it was necessary to develop new scales for the constructs studied.
The following procedure suggested by Churchill (1979) was adopted.
First, a large pool of items for each construct was generated with the aim of
capturing the concepts behind each dimension. These items were generated
from a review of the literature on marketing and strategy over the last 20 years.
This search sought to cover not only the academic literature, but also
practitioner journals read by, and written for, managers. The aim was to reflect
in the questionnaire the concepts and language employed by executives. From

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this pool, a set was selected to cover the domain of the construct as closely as
possible. Each item was then scored on a five-point scale, ranging from 1=
strongly disagree to 5= strongly agree.
Next, 35 managers representing a range of management functions pretested
the questionnaire. They were asked to indicate any ambiguities or difficulties
with the instrument and to provide suggestions for improvement. Based on
this feedback the questionnaires were modified, some of the items were
dropped, others were changed and some items were added. The revised
instrument was then tested on six marketing academics and again their
feedback and suggestions were used for further fine-tuning. Finally, another 20
managers tested the revised questionnaire. At this stage there appeared to be no
significant ambiguities or problems with it. The final instrument consisted of
one main dependent construct business unit performance and ten
independent variables or constructs. Each construct consisted of between three
and 16 items.
After the survey had been completed the scales were further examined. The
reliability of each scale was estimated by computing its coefficient alpha
(Nunnally, 1978). The results are shown in Table I. As can be seen the Cronbach
coefficients indicate that the scales have generally good to high reliability. This
meant that it was unnecessary to eliminate any items to enhance the internal
consistency of the scales. The table also summarises the main results. The
coefficient R shows the correlation of each construct with business unit
performance. Also the mean scores of high performing and low performing
business units are shown along with the statistical significance of the
differences between these means.

Construct
Strong differential advantage***
Clear market orientation***
Strategic market planning**
Clear marketing strategy**
Good systems and processes**
Staff capabilities and commitment**
Strong brand policies**
Use of business process re-engineering**
Networking and strategic alliances
Adapt to changing environment*
Learning organisations
Character of industry
Table I.
Performance and
constructs

Notes:
*** p < 0.001
** p < 0.01
* p < 0.05

Alpha
0.74
0.79
0.69
0.75
0.73
0.85
0.78
0.66
0.68
0.71
0.64
0.60

Performance group
R
Low
High
0.51
0.36
0.29
0.33
0.31
0.39
0.35
0.28
0.20
0.30
0.21
0.19

2.9
2.8
2.8
3.0
2.8
3.0
2.9
2.8
3.0
2.9
3.1
3.1

3.5
3.2
3.2
3.3
3.2
3.4
3.3
3.3
3.2
3.3
3.2
3.3

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Analysis and results


Performance
H1 postulated that successful companies would seek balanced financial and
marketing performance. For example they would not over-emphasise shortterm financial performance at the expense of long-term market growth.
Performance was measured by four items: return on capital employed,
market share, sales growth and the managers assessment of overall
performance. Managers were asked to judge performance against companies
regarded as excellent in their sector or industry. So for example, if managers
score their company as 5 on the return on capital employed scale, they would be
judging their company as having an outstanding level of profitability for their
sector. The correlation matrix (Table II) showed that all items were positively
correlated: the highest correlation was between sales growth and overall
performance (r = 0.64) and the lowest between return on capital and sales
growth (r = 0.35). The Cronbach alpha was 0.80 suggesting excellent reliability
of the construct. To group companies according to performance, Wards (1963)
hierarchical clustering technique was employed using an error sum of squares
criteria.

Return on capital

Return

Market share
Sales growth
Overall performance

Share

0.36
0.35
0.63

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Growth

0.51
0.57

0.64

Notes:
Alpha 0.801. All coefficients p < 0.001

Table II.
Correlations among
performance variables

Two clusters provided an efficient solution. The first cluster with 60


observations consisted of low performers. The second cluster was high
performers with 72 observations. As Table III indicates there were highly
significant differences in return on capital, market shares, growth and overall
performance between these two groups. The high performers scored

Cluster

No.

Return on
capital*

Low performers
High performers

60
72

2.15
3.75

Notes:
Alpha 0.782. * p < 0.001

Performance measures
Market
Sales
share*
growth*
2.50
3.89

2.55
4.01

Overall
performance*
2.18
4.03

Table III.
Characteristics of low
and high performers

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consistently better with performance ranging from an average of 55 per cent


superiority in market share, to 74 per cent in return on capital. These results
show strong support for H1. High performers achieved balanced performance
in both financial and sales results.
Differential advantage
Not surprisingly, the independent variables were frequently correlated. All were
measuring various attributes of competitiveness. Rather than show complex
factor and multiple discriminant analyses which only partially dealt with this
multicollinearity and added greatly to the difficulty of interpreting the results,
a simpler approach is adopted. The results show the mean differences between
the two performance clusters and simple analysis of variance tests the
significance of these differences.
Table IV shows that higher performers had considerably greater ratings for
possessing a strong differential advantage. Interestingly, the most significant
differences between high and low performers were not on individual products
and service differences, but on the overall reputation of the business. As Hamel
and Prahalad (1994) stressed, product and service innovation carry only
temporary advantage. The skill is to have the company recognised as the longterm partner to do business with. There is a high correlation (r = 0.512) between
possessing a differential advantage and performance and all the items are
statistically significant. The results strongly support H2 that successful
businesses have a differential advantage in terms of products, services and
overall company reputation.
Market orientation
Market orientation is measured by nine items corresponding to Kohli
and Jaworskis (1990) categorisation of generating market intelligence,
disseminating it across departments, and organisation-wide responsiveness to
it. As Table V shows the association between performance and market

Variables
Business unit has strong DA***
DA lies in firms products**
DA lies in firms service*
DA lies in firms general reputation***
Total score***
Notes:
Alpha 0.741; r = 0.512
Table IV.
Differential advantage

*** p < 0.001


** p < 0.01
* p < 0.05

Performance group
Low
High
3.0
2.7
2.8
3.2
2.9

3.5
3.2
3.2
4.0
3.5

Variables

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Do a lot of market research


Driven by market segmentation**
Disseminate customer satisfaction data
Customer satisfaction influences pay
Cross-functional teams*
Marketing staff work well with others**
We respond quickly
Customer focus permeates all areas*
Marketing focuses on real not trivial innovation**
Total score***

Performance group
Low
High
2.6
2.6
2.7
2.2
3.0
2.7
3.5
3.0
3.0
2.8

3.1
3.2
2.8
2.5
3.4
3.2
3.9
3.4
3.4
3.2

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Notes:
Alpha 0.793; r = 0.361
*** p < 0.001
** p < 0.01
* p < 0.05

Table V.
Performance and
market orientation

orientation was again highly significant. High performers did score higher on
all three sets of items concerning generation, dissemination and responsiveness,
although some of these items were not significant. In particular, it is striking to
note that few companies benchmarked customer satisfaction and used it to
provide incentives for management. There is no significant difference in the
collection and use of customer satisfaction measures between high and low
performers. Given the importance marketing experts (e.g. Goldzimer, 1989)
attach to carefully monitoring the customer satisfaction ratings, these results
are disappointing, if today still not surprising.
Strategic marketing planning (Table VI) was also employed more widely
in high performing companies. The two most significant items were in
staff training, where low performers did little formal training in marketing
planning, and in fast responsiveness to competitor actions, where high

Variables
Clear segmentation and positioning
Applies competitor analysis
Staff trained in planning*
Fast response to competitor actions*
Total score**
Notes:
Alpha 0.692; r = 0.29
** p < 0.01
* p < 0.05

Performance group
Low
High
3.1
2.8
2.7
2.6
2.8

3.4
3.2
3.1
3.0
3.2
Table VI.
The use of strategic
marketing planning

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performers were again superior. For both market orientation and strategic
marketing planning, the relevant hypotheses, H3 and H4, appear to have strong
support.
Organisational infrastructure
The companys organisational infrastructure provides the means for adding
superior value to customers. The strategy concept (Figure 1) develops the marketorientation dimension further: how effectively are management tuned-in to
customers needs? In high-performing companies there are more likely to be direct
meetings between customers and the manufacturing and design teams, a stronger
quality focus and an emphasis on building long-term partnerships (Table VII).
There is no statistical difference in the amount of meetings with customers, but in
low-performing companies, these meetings seem to be controlled within the
marketing department rather than spread across the business.
High performers invested significantly more in technology and high
productivity equipment. They provided staff with the tools to achieve high
quality and efficiency. Much has been written in recent years about the
importance of supply chain management in creating competitive advantage
(e.g. Porter, 1985). Interestingly, both sets of companies regard their

Variables

Table VII.
Organisational
infrastructure:
strategy, systems,
staff

Strategy
Meet customers regularly
Manufacture and design meet customers*
Everyone focused on customers
Total quality focus*
Life-time relationships*
Systems
Invest in technology and productivity*
Staff have tools for top quality*
Integrated supply-chain system
Staff
Invest in recruitment and training*
Top management has inspirational vision*
Encourage risk-taking*
Performance recognised and rewarded**
Decisive management
No bureaucracy, wide empowerment
Employees expect long-term employment
Pervasive team spirit
Total score**
Notes:
Alpha 0.878; r = 0.42
** p < 0.01
* p < 0.05

Performance group
Low
High

3.2
2.7
3.1
2.9
3.1

3.3
3.1
3.2
3.3
3.5

2.8
2.8
2.9

3.3
3.3
2.9

3.1
3.0
2.9
2.7
3.2
3.0
3.3
3.1
2.9

3.5
3.4
3.4
3.2
3.5
3.3
3.4
3.4
3.4

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performance at supply chain management as weak, and there is no difference in


the means between them.
Policies and attitudes towards staff are also marked in the expected direction
(Table VII). Higher performing companies appear to invest more in recruitment
and training, have top management which provides an inspirational vision and
encourages risk taking. It is interesting to note that in high performers staff do
not expect lifetime employment with the company. This reflects the new
realism: in todays highly competitive, rapidly changing markets no companies
can guarantee employment. Hence the importance of other motivators such as
training, recognition and inspirational leadership.

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527

The changing context


The importance of branding is increasingly recognised in both customer and
business-to-business marketing. Table VIII indicates that the core brand values
of a company are much better understood and communicated in high
performing units. Even high performers, however, believe that improvements
could be made in how these values are communicated in the presentation of their
products and services. There are also significant differences in views between
headquarters and local subsidiaries on how the brands should be communicated.
Re-engineering is another concept which has been at the forefront of
management. As hypothesized (H9) this appears to have made more progress in
high-performing companies. The latter feel more assured that they are fast,
responsive and low cost units (Table VIII).
Looking at internal networking, both high and low performers exhibited high
levels of inter-departmental conflict and poor communication between

Variables
Brandinga
Core brand values understood***
Brand values coherently expressed
HQ and SBU agree on brand presentation
Total score**
Re-engineeringb
Used organisational re-engineering*
Organisation is lean and mean*
Fast, responsive and low-cost unit**
Total score**
Notes:
a Alpha 0.778; r = 0.35
b Alpha 0.660; r = 0.28
*** p < 0.001
** p < 0.01
* p < 0.05

Performance group
Low
High

3.0
2.9
2.8
2.9

3.7
3.2
3.1
3.3

2.9
2.9
2.5
2.8

3.3
3.4
3.1
3.3

Table VIII.
Performance,
branding and
re-engineering

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marketing and other departments (Table IX). In terms of external strategic


alliances there was little difference between the groups. None of the differences in
networking were statistically significant, suggesting that there is no statistical
support for H10, that high performing companies have constructed more
effective networks of relationships with suppliers, buyers and internal partners.
Successful companies tended to rate more highly on environmental
awareness. They were more conscious of the need to evaluate changes in
technology and the structure of their industries and to encourage staff to
challenge past strategies and procedures. Statistically the only significant item
was in performance at innovation. High performers rated better at new product
development and innovation in service and distribution channel development
(Table IX).
H12 postulated that successful companies would place greater emphasis
on learning about customers and their problems. Staff were expected to be more
proactive in searching for new market opportunities and more comprehensive
training programmes were expected to be in place. However, the results showed
that there were no statistical differences between high and low performers in
attitudes towards learning.
Table X examines the association between industry characteristics and
performance. The most significant variable was market growth. Businesses in

Variables
Networksa
Between marketing and other departments
Interdepartmental conflict
Easy and open communication
External strategic alliances
Alliances for innovation and new products
Total score
Learningb
Learning about customers
Proactive search for new opportunities
Training in innovation and customer service
Total score
Changing environmentc
Evaluate technological and industry dangers
Performs well at innovation*
Staff encouraged to challenge strategy
Total score

Table IX.
Networking and the
changing environment

Notes:
a Alpha 0.677; r = 0.20
b Alpha 0.64; r = 0.10
c Alpha 0.706; r = 0.30
* p < 0.05

Performance group
Low
High

2.6
2.7
3.8
3.2
3.0
3.0

2.9
2.9
4.0
3.3
3.2
3.2

3.4
3.0
2.5

3.4
3.3
2.6

3.2
2.7
2.8
2.9

3.5
3.2
3.1
3.3

Variables
Rapid growth markets*
Sharp changes in customer requirements
Highly priced sensitive customers
Extremely fierce competition**
High rate of industry technology change*
New customer with different needs*

Performance group
Low
High
2.1
3.5
3.5
3.9
3.0
2.7

2.6
3.6
3.4
4.0
3.3
3.0

Market orientation
0.09
0.16
0.07
0.24**
0.19*
0.19*

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Notes:
Alpha 0.60
** p < 0.01
* p < 0.05

high growth markets on average grew faster and achieved a higher return on
capital than those in mature markets. In other areas however, there were no
statistically significant differences. High and low performers were similar in
facing rapidly changing customer requirements, high price sensitivity and
fierce competition.
The final column of Table X shows the correlation between the market
orientation score and market characteristics. These show that companies in
markets characterised by extremely fierce competition, high rates of
technological change and new customers entering the market with different
needs from current accounts, are more likely to be market oriented. These
findings supported H14 and also are consistent with the findings of Narver and
Slater (1993), Houston (1986) and Bennett and Cooper (1981) and not with those
of Jaworski and Kohli (1993).
By contrast a market orientation appears to be less prevalent in high growth
markets (r = 0.09, p > 0.05). In these favourable situations, demand is so strong
that the need to adapt to customer needs may be less necessary than when
markets mature and become more competitive. Overall while a market
orientation is strongly associated with market share (r = 0.27, p < 0.01), sales
growth (r = 0.39, p < 0.001) and overall performance (r = 0.38, p < 0.001), it
is weakly and not significantly associated with return on capital employed
(r = 0.14, p > 0.05). The factors which a high market orientation are most
associated with are proactively searching for new opportunities in the market
(r = 0.61, p < 0.001) and good communications between marketing and nonmarketing departments (r = 0.60, p < 0.001).
A high market orientation is also correlated with strong branding policies
(r = 0.59, p < 0.001) and the business possessing a recognised differential
advantage in the market (r = 0.51, p < 0.001). As others have found, a market
orientation is encouraged by top managers inspiring staff with a vision of
commitment to customers and world-class performance (r = 0.57, p < 0.001).
Finally, a market orientation is associated with creating a strong team-spirit in
all ranks of the business (r = 0.57, p < 0.001). This is a finding also made in

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Table X.
Performance and
market characteristics

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530

Jaworski and Kohlis (1993) study in which they suggest that the ability of a
market orientation to provide meaning and commitment to staff could be its
most important contribution.
Discussion and conclusions
Variation within samples
The respondents were drawn from SBUs in the UK, USA, Africa, the Far
East and Australia. They were also from different industrial sectors. Half
the respondents were marketing/sales staff, half were from non-marketing
functions. To explore for systematic differences, separate analyses
were performed for the major groups. Overall the differences were very
modest. UK businesses performed on average less well than those from
overseas in profitability, market share, growth and overall results. Comparing
businesses in the product sector from services there were no important
statistical differences in performance or independent variables. Functionally,
marketing managers tended to rate their businesses more positively
on marketing strategy and planning than non-marketing managers but
these differences were not significant. Overall there were no statistically
significant differences in the responses between marketing and non-marketing
respondents. These findings are consistent with the results from previous
multi-informant studies (e.g. Silk and Kalwani, 1982). Averaging respondents
across business units therefore offered the opportunity to increase the
potential accuracy of the responses (see Dawes, 1967; Starbuck and Mezias,
1996) without losing important information. These findings are consistent
with the results from previous multi-informant studies (e.g. Silk and Kalwani,
1982).
Drivers of performance
The best performing companies scored significantly higher on both financial
and marketing measures of success. Overall high performers scored nearly
twice as highly on the success criteria (p < 0.001). This finding suggests
that these companies were pursuing robust strategies. For example, there
is no evidence that they were trading-off future market performance for
short-term financial results, as western companies are so often accused (e.g.
Doyle et al., 1992). The 72 high performers were as strikingly superior in terms
of market share and sales growth as they were in terms of higher returns on
capital.
The most important driver of this performance was possessing a differential
advantage (r = 0.51, p < 0.001). Companies did well when customers wanted to
do business with them. High performers were preferred suppliers and this led to
much higher sales growth (r = 0.47, p < 0.001) and a superior return on capital
(r = 0.26, p < 0.001). The low performers rated themselves poorly they
recognised that they lacked unique product offerings, service advantages or a
superior general reputation in the market place.

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A market orientation is the route to building customer preference. Not


surprisingly, a market orientation was the second most important driver of
performance (r = 0.36, p < 0.001). In high performing companies marketing was
seen as a total business philosophy rather than an activity undertaken by the
marketing department. In contrast to the low performers, the marketing staff
worked effectively with other functional areas within the business, aiming at
producing real value-adding results rather than trivial differences in packaging
or advertising.
High performers were also more likely to employ strategic marketing
planning and to train staff in marketing. Branding values were also better
understood in the high performing companies (r = 0.35, p < 0.01). Higher
performers, whether they were in industrial or consumer markets, appeared to
appreciate that clearly expressed brand values were effective means of
differentiating themselves and adding value.
The importance of well-trained and committed staff is well recognised. Highperforming companies invested significantly more in training and the careful
recruitment of staff. In the better companies, risk taking was encouraged and
high performance among staff more clearly recognised. Employees in these
companies also felt that top management communicated an inspirational vision
of where the business was heading.
However, several variables that were expected to be associated with
performance turned out not to be. Few companies, whether high or low
performers, appeared to collect and measure information on customer
satisfaction systematically. Few benchmarked themselves against competitors
or used customer satisfaction measures as criteria in staff bonuses or evaluation
procedures. This suggests that even in high-performing companies, highquality marketing still has some way to go. Also few companies felt that they
had made enough progress in supply chain management or in the creation of
strong networks, alliances and partnerships.
Marketing and competitiveness
Clearly there is a strong correlation between marketing and business
performance. Companies with a strong market orientation are more likely to be
high performers. Marketing strategy and marketing planning are also highly
correlated with performance. The strongest marketing predictors are a focus on
creating sustainable competitive advantage, good cross-departmental
relationships, and an emphasis on the real value-added innovation rather than
trivial differentiation.
But the results confirm that marketing alone cannot guarantee success. The
findings show that unless a company invests in good systems and the
technology to deliver high productivity, outstanding performance is difficult
to achieve. Nor is it true that market-oriented companies always invest in
good systems in our sample the correlation is only 0.19 (p > 0.01). In
these cases a strong market orientation may be important to produce good
results.

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Another caveat is that high performance can be contingent on industry


conditions. Our results show that it is harder to achieve high performance in
mature markets. High growth markets make it easier for managers to achieve
growth and profitability. No doubt this is why companies in fiercely competitive
markets, with high rates of technological change, feel a need to look to
marketing to give them an edge.
Managerial implications
For management this study suggests that the long-term performance of the
business depends most crucially on its ability to create a differential advantage.
A market orientation is strongly associated with the ability to create such an
advantage. Market-led companies are able to collect information about
customer needs, disseminate it through the business and generate an effective
response. But marketing is not a quick panacea for success or sufficient of itself.
The business also needs to invest in the technology and operations systems
needed to perform effectively. It also needs to focus on investing in the skills of
staff and engaging their commitment. Managers must also recognise that
performance depends on the characteristics of the industry. Some industries are
tougher.
Managers can use the instrument developed here for benchmarking
purposes. They can compare their ratings with those of other businesses
within the group, or indeed competitors, if such data can be obtained. They can
also monitor their progress over time by utilising the instrument periodically.
This type of audit should enable managers to obtain a clear picture of the
strengths and weaknesses of the business and its readiness to compete
internationally.
Limitations and further research
The study has a number of limitations. First, a postal survey cannot provide the
richness of information obtainable from personal interviewing techniques.
There is an inevitable trade-off between depth and breadth in this type of
research. Another potential problem is response biases created by CEOs nonrandomly choosing SBUs. Finally, the use of managers perceptions as data
creates familiar problems of accuracy and causality (for a survey of these issues
see Starbuck and Mezias, 1996). Efforts were made to guard against such biases
by averaging across respondents, careful questionnaire design and collecting
data from a large sample of respondents, but it would be too optimistic to expect
that all such errors have been eliminated.
The study could be improved by having even larger samples. This would
permit further analyses across segments and geographical areas. Other
variables could also be included, such as the characteristics of employees. It
would be instructive, too, to extend the study over time and assess whether the
predicted robustness of high performers is, in fact, correct.

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