The Relationship Between Marketing Orientation, Organisational Learning, and Firm Performance: Developmental Theory

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1 The Relationship Between Marketing Orientation, Organisational Learning, and Firm Performance: Developmental Theory Leanne Carter and Peter Murray, Macquarie University Abstract This paper is expected to make a theoretical contribution to the market orientation literature. The paper contends that various organisational learning practices and systems, in as much as they improve individual and organisational competencies, will be fundamental to marketing orientation in practice. Further, the paper suggests that the marketing orientation literature extends the traditional definition of marketing, and when combined with organisational learning, is infinitely more valuable as a model of organisational performance and competitive advantage. This paper extends the model proposed by Narver and Slater, suggesting that market orientation principles can only be are implemented in an environment of organisational learning (1995). This is the foundation of corporate competency. A market orientation can only exist if there is an environment of organisational learning to allow for the creation of corporate competencies. Market Orientation Academics have been attempting to establish empirical support for the marketing concept and market orientation since the 1970 s (Gray, et al., 1998). Although there is no consensus, the definitions of market orientation proposed by Kohli and Jaworski (1990), Narver and Slater (1990) and Deng and Dart (1994) are generally accepted. These definitions encompass three broad business activities: market intelligence, integration and dissemination of such intelligence across departments, and the co-ordinated design and execution of the organisation s strategic response to market opportunities. The Narver and Slater model in particular is unique as it initiates some linkages between the learning organisation and competitive advantage (1995). Market Orientation and Competitive Advantage The marketing discipline sees competition as a market-driven construct (Brownlie, 1989: 8). While marketing has developed tools for analysing the market environment, it does focus predominantly on the customers more so than competitors. With technology rising in importance in recent times, it has provided an opportunity for consideration of the supply side of competitiveness. Competitive encounters take place not only between customers, but also with resources such as staff, suppliers of raw materials and other inputs into the business as well as technologies. Accordingly, as organisations determine strategy, particularly in a global market place, they need to determine their means of competition on many dimensions including products, supply and distribution, labour and even in capital markets (Brownlie, 1989). A weakness of customer orientation, is that it regards customers as the prize in winning the marketing battle. An alternative to this is a competitor orientation as suggested by Oxenford and Moore, who regard the customer as the ultimate prize but recognise that other strategies have won them indirectly (1975). These strategies include strong distribution arrangements, capable management, strong relationships with suppliers, etc. Henderson has argued that ANZMAC 2002 Conference Proceedings 2391

2 competitiveness and competitive strategy is not only a function of analysis of the situation, but also a function of its implementation (1983). The ability of management to cope with this implementation and the organisational change that comes with it, is not addressed when analysing the competitive advantage. One could argue that the degree of competition is not the marketing technology but rather the implementation of the marketing technology via the firm s human resources. Market Orientation and Performance Many researchers have considered the relationship between market orientation and company performance. Narver and Slater (1990), Cadogan and Diamantopoulos (1995), and Antilla et al. (1995) all produced evidence of a relationship. However, Hooley, et al. has pointed out that very few firms actually develop and exploit the benefit of the concept of marketing orientation (1990). Many researchers have tested the Narver and Slater model leading to some ambivalence (1990). Researchers have used customer orientation, competitor orientation, inter-functional co-ordination and profit orientation as measures of performance. Deng and Dart tested Canadian managers and found a direct relationship between market orientation and performance (1994). Greenley who used the same measures in the UK study found that any orientation-performance relationship was also affected by the environment (1995a & b). Part of the shortcomings of the market orientation concept is its failure to provide a measure of market orientation that can be used to identify organisational shortcomings. A link is needed between market orientation and performance so organisations can measure market orientation. Organisational learning may be the key to this link. The three main priorities of a market orientation include collection of market intelligence, dissemination of this intelligence throughout the company, and responsiveness to this intelligence. Avlonitis and Gounaris found that market orientation required both attitudes and practices that are interrelated and inseparable (1999). The study found that decentralised and informal organisation structures facilitate the collection and dissemination of market information (Avlonitis and Gounaris, 1999). Informal organisations also improve the skills and responsibilities of managers as these organisations require greater numbers of more qualified managers with decision making power. In addition, bureaucratic structures and communication channels often inhibit the flow of information. A market-oriented firm is therefore more likely to be open to adapt to change to bring about significant performance improvements. However, studies by Narver and Slater (1990) and Avlonitis (1997) have shown that companies can be successful in achieving performance outcomes with either a market or production orientation, depending on the market conditions. Market Orientation as a Resource in Organisational Learning An understanding of how organisations process market information and determine appropriate behaviour in response to this information can be understood by applying organisational learning theory. Organisational learning can be considered in terms of behavioural change and knowledge transformation. Garvin proposes that a learning organisation is skilled at creating, acquiring, and transferring knowledge, and at modifying its behaviour to reflect new knowledge and insights (Garvin in Murray, 2002b). Organisational learning is the development of new knowledge or insights that can ultimately influence behaviour (Fiol and Lyles, 1985; Sinkula, 1994). It is seen as a three stage process which includes the acquisition ANZMAC 2002 Conference Proceedings 2392

3 of information, dissemination of information and shared interpretation (Sinkula, 1994). The learning curve or experience curve effect shows the best example of acquiring knowledge from a focus internally on the firm. Equally however, skills related to exploration, looking for information and knowledge beyond the firm, such as involvement in demonstrations and experiments is also needed (Hamel and Prahalad, 1991; March, 1991). Learning from others includes common practices such as benchmarking, networking and joint ventures. It also includes providing continuing education or training. The information gathering and dissemination skills are required to increase information exchange, which can be between individuals within a firm or extended to partnerships and alliances between firms. Shared interpretation must exist (Day, 1994). Slater and Narver concluded that although marketing orientation and organisational learning are similar in many important respects, they are not identical constructs (1995). Rather, market orientation can be regarded as a crucial indicator of the likely existence of learning organisation propensity within the organisation concerned. Market Orientation and Competencies for Improved Performance Market orientation can only achieve improved performance if it has an appropriate learning structure to support it, namely the appropriate organisational culture, climate, structures and processes (Deshpande and Webster, 1989). By fostering organisational learning, firms can learn faster than their competitors which is then another source of competitive advantage (Dickson, 1992). While a market orientation provides strong norms for learning from customers and competitors, it needs to be supported by other organisational structures and processes for higher-order learning to occur (Argyris, 1977; Senge, 1990). Slater and Narver propose that the cultural values of a market orientation are necessary, but not sufficient, for the creation of a learning organisation (1995). The term competence is referring to a combination of knowledge, technical skills and performance management skills (Dunphy, Turner and Crawford, 1997). It is a combination of individual and organisational competence. An individual s competence is often only seen as the technical ability to perform the task on the job. However, if the individual can perceive their competencies as adding value within the processes of delivering products and service to the final consumer, then a marketing orientation can be achieved for the organisation, and thus organisation s competencies are improved to improve performance of the firm. In addition, it is possible for an organisation s competence to be improved through processes to motivate managers, and management structures and systems to disseminate and develop knowledge. It is built into the culture of the organisation. In this way it can be likened to a market orientation where knowledge from the market is gathered, disseminated across the firm and responded to so that improved performance is possible. Thus, it will be important for an organisation to improve both its individual and organisational competencies in the pursuit of market orientation. Discussion A conceptual model for learning is introduced that suggests how market orientation functions within the learning theory. This is shown in Figure 1. Given the agreement that a marketing orientation leads to improved performance and competitive advantage (Kohli and Jaworski, ANZMAC 2002 Conference Proceedings 2393

4 1990; Narver and Slater, 1990), it is proposed that marketing orientation is central to these outcomes. Narver and Slater propose that behaviours encouraged by a marketing orientation affect organisational learning (1995). Sinkula considered organisational learning s influence on the way that firms process market information (1994). This model proposes that a marketing orientation cannot exist without the existence of an organisational learning environment. In this way, it extends Narver and Slater s model by assuming that a firm must have an organisational learning approach, if it is to have a market orientation. This model suggests that organisational learning practices enhance the organisation s performance and competitive advantage, over and above market driven solutions. It assumes that an organisation must have the individual and organisational capabilities, knowledge creation abilities, and environmental interpretation that will allow for a marketing orientation to exist. In this way, an organisation will be empowered to gather market intelligence, disseminate information and respond to that intelligence through shared interpretation. Gathering of market intelligence leads to learning. However, the organisation must have a learning culture for this to be achieved. Intelligence or information can be gathered from many sources including direct experience, the experience of others or organisational memory (Sinkula, 1994). Learning that results from market intelligence includes searching beyond the organisation s formal information systems. This will avoid the adaptive learning trap which will inhibit innovation and thus performance (Senge, 1990). Information dissemination or information sharing can be encouraged through removal of functional barriers that impede the flow of information from various departments thus improving the firm s ability to make rapid decisions and execute them effectively (Narver and Slater, 1995). This is an attribute of the learning organisation. Glazer contends that effective information sharing increases information value, when each piece of information can be seen in its broader context by all organisational players (1991). They in turn can then provide feedback in terms of questions, modifications or other new insights to the organisation. For this to occur, an environment of organisational learning is required. The people who work within the functional departments of an organisation are central to the model. Market orientation principles are then taken and implemented by these functional areas. This is made possible in an environment of organisational learning as the foundation of corporate competency. A market orientation can only exist if there is an environment of organisational learning to allow for the creation of corporate competencies. Figure 1 introduces a model that combines organisational learning and market orientation. Organisational learning theory and the systems and practices that follow will benefit an organisation s performance. The underlying assumptions of the theory will better inform the market orientation approach vis a vis market intelligence and gathering, in the dissemination of information and responsiveness, and in developing individual and organisational competencies. This paper has argued that the process of market orientation including its implementation is improved when one considers the link between learning and competencies, and between competencies and performance. The paper contends that firm performance will be enhanced when considered in the context of market orientation and learning. Marketing literature will need to take on the challenge offered by strategic thinkers to better inform the model of market orientation. ANZMAC 2002 Conference Proceedings 2394

5 Conclusion The marketing function has a key role to play in the creation of the learning organisation. It has an external focus that goes beyond the organisation for learning new knowledge. Information is then disseminated throughout the organisation as well as with alliances. However, others may argue that a learning organisation must first exist to ensure that market orientation can be fully exploited. Further research may consider the market conditions that lend themselves to a market orientation and how this is affected by organisational learning theory. Further research might measure the ability of learning theory to add to the market orientation model in terms of the measurement of links between market orientation and organisational performance. How do organisational learning practices enhance an organisation s performance and competitive advantage over and above market driven solutions? In addition, it may investigate whether an organisational learning environment is indeed necessary for a marketing orientation to exist. Marketing orientation literature extends the traditional definition of marketing, and when combined with organisational learning, is substantially more valuable as a model adding to competitive advantage and organisational performance. Figure 1 Organisational Learning as a Foundation for Market Orientation External Environment Individual Competencies Organisational Learning Organisational Competencies Gather market intelligence Market Orientation Improved Performance and Competitive Advantage Disseminate information Response to the intelligence Environmental Interpretation Knowledge Creation Adapted from Narver and Slater(1990), Jaworski and Kohli (1993), and Murray (2002a) ANZMAC 2002 Conference Proceedings 2395

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