The Relationship between Market Orientation and Performance under Different Environmental Conditions: The Moderating Effect of the Top Management Team's Risk Taking Behavior

By Subramanian, Ram; Kumar, Kamalesh et al. | Academy of Strategic Management Journal, January 1, 2009 | Go to article overview

The Relationship between Market Orientation and Performance under Different Environmental Conditions: The Moderating Effect of the Top Management Team's Risk Taking Behavior


Subramanian, Ram, Kumar, Kamalesh, Strandholm, Karen, Academy of Strategic Management Journal


ABSTRACT

The literature on market orientation finds support for its positive relationship with organizational performance. However, it is important to know what conditions moderate this relationship. Using a sample of 166 Canadian companies (in a post-NAFTA environment), we find evidence to suggest that the risk propensity of the firm's top management team (TMT) plays a critical role in translating market orientation to improved performance. The moderating effect of the TMT's risk propensity varies across various environmental conditions such as market turbulence, competitive intensity, and technological turbulence. The implications of these findings are discussed.

INTRODUCTION

The construct of market orientation captures the interface between the organization and its external environment. Ever since the construct was operationalized in the 1990s (Narver and Slater, 1990; Kohli and Jaworski, 1990), a vast and growing body of literature has found support for a positive relationship between market orientation and organizational performance (e.g. Kirca, Jayachandran, and Bearden, 2005; Verhees and Meulenberg, 2004; Baker and Sinkula, 1999; Jaworski and Kohli, 1993; Pulendran, Speed and Widing, 2000, Matsuno, Mentzer and Ozomer, 2002; Pelham and Wilson, 1996; Kumar, Subramanian and Yauger, 1998 ; Slater and Narver, 1994b; Slater and Narver, 2000; Subramanian and Gopalakrishna , 2001). From a behavioral point-of-view, market orientation focuses on intra organizational activities that relate to the collection, dissemination, and response to external environment stimuli. However, for market orientation to have a palpable payoff, the organization has to develop norms and behaviors (i.e., the culture) that encourage decision makers to make use of the market information to strategically position the organization.

One of the main challenges facing firms pursuing a market-orientation is avoiding the "tyranny of the served market" (Hamel and Prahalad, 1991). Market intelligence may uncover important trends that indicate that the current served market is crowded, there is a trend toward commoditization of the product, and that the heightened intensity of competitive rivalry has resulted in a zero-sum fight for market share. The same market intelligence may provide a siren call to identify "blue oceans" (Kim and Mauborgne, 2004), the virgin market space that is bereft of competition. To take advantage of this opportunity, the firm's managers must be willing to take the risk of entering such uncharted markets. Risk averse managers may not be willing to do this, instead steering the organization to stay the course. Without managers who are willing to take risks, the organization may take a conservative approach and be content to satisfy the expressed needs of current customers in existing markets. Thus it has been argued that in order to successfully pursue a market orientation, it is necessary to have a management team willing to take risk (Jaworski and Kohli, 1 993 ; Pulendran, Speed, and Widing, 2000). In fact, Narver, Slater, and MacLachlan (2004) refer to this concept as "proactive" market orientation, as opposed to one that is merely responsive.

PURPOSE OF THIS STUDY

Research that has explored the relationship between the top management team's (TMT) level of risk aversion and market orientation has been equivocal (e.g. Jaworski and Kohli, 1993; Pulendran et al 2000). These mixed results may be due to the failure of these studies to include the environmental context. In other words, the importance of being wedded to the "served markets" may be more pronounced in stable markets, while dynamic market conditions may favor exploiting "blue ocean" arenas. The industry as a whole and the various niches in it are typically well-defined in stable markets. It behooves firms in these markets to concentrate on the "served markets" rather than seek uncharted territories. In dynamic contexts, on the other hand, the industry definition and its boundaries are constantly in flux, thus encouraging and necessitating firms to look for new market spaces. …

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