J. of the Acad. Mark. Sci.
(2009) 37:144–160
DOI 10.1007/s11747-008-0114-0
ORIGINAL EMPIRICAL RESEARCH
The desired level of market orientation and business
unit performance
Michael Song & Mark E. Parry
Received: 23 August 2007 / Accepted: 7 August 2008 / Published online: 8 January 2009
# Academy of Marketing Science 2008
Abstract Existing studies of market orientation have
hypothesized that the strength of the market orientation/
performance relationship depends on environmental varia-
bles such as market turbulence, technological turbulence,
and competitive intensity. To date most empirical studies
have failed to confirm these hypotheses; however, these
studies (1) assumed that performance is a linear function of
the achieved level of market orientation and (2) tested
whether environmental uncertainty moderates this relation-
ship. A complementary explanation for the impact of
environmental variables on a firm’s market orientation
arises from studies of organizational behavior that link the
need for coordination and control to environmental uncer-
tainty and organizational strategy. Building on this per-
spective, the authors argue that (1) environmental
uncertainty influences the desired level of market orienta-
tion and (2) the gap between the desired and achieved
levels of market orientation influence business unit perfor-
mance. The authors test these hypotheses with data
collected from multiple respondents in 308 US firms. The
data analysis confirms that the desired level of market
orientation is a function of market turbulence, competitive
intensity, technological turbulence, and innovation strategy.
Michael Song and Mark E. Parry contributed equally to this research.
M. Song
318 Bloch School, University of Missouri—Kansas City,
5110 Cherry Street,
Kansas City, MO 64110-2499, USA
e-mail: songmi@umkc.edu
M. E. Parry (*)
321 Bloch School, University of Missouri—Kansas City,
5110 Cherry Street,
Kansas City, MO 64110-2499, USA
e-mail: parryma@umkc.edu
In addition, the desired level of market orientation
positively influences the achieved level. Finally, when the
achieved level of market orientation is less than the desired
level, business unit performance is a negative function of
the gap between the desired and achieved levels of market
orientation.
Keywords Market orientation . Marketing strategy .
Innovation strategy . Environmental moderators
In their seminal study of market orientation, Kohli and
Jaworski (1990) argued that the strength of the market
orientation–performance relationship depends on environ-
mental variables such as market turbulence, technological
turbulence, and competitive intensity. Empirical tests of
these environmental moderator hypotheses have yielded
mixed results. In a recent meta-analysis of the market
orientation literature, Kirca et al. (2005) concluded that
there was “insignificant empirical evidence” to substantiate
the hypotheses that market turbulence, competitive intensi-
ty, or technological turbulence moderate the market
orientation–performance relationship.
Importantly, prior research has examined the impact of
environmental uncertainty under the assumption of a
specific functional relationship between market orientation
and performance. In particular, existing studies (1) assume
that performance is a linear function of the achieved level
of market orientation and (2) test whether environmental
uncertainty moderates this relationship. In this paper we
examine an alternative set of linkages between environ-
mental uncertainty and market orientation. We argue that
environmental uncertainty influences managerial percep-
tions of the desired level of market orientation, which in
turn influences both the achieved level of market orienta-
tion and business unit performance. Our framework implies
J. of the Acad. Mark. Sci. (2009) 37:144–160
that managers should first assess the desired level of market
orientation, based in part on the environmental uncertainty
that surrounds their firms, and then design their organiza-
tions to achieve that desired level.
To test this reasoning, we use a two-stage data collection
process in which we first obtain perceptions of the achieved
level of market orientation from SBU managers and then
collect perceptions of the desired level of market orientation
from each SBU manager’s superior. Our analysis of these
data indicate that the desired level of market orientation has
a significant incremental impact on the achieved level of
market orientation. In addition, the gap between the desired
and achieved levels of market orientation adds significant
explanatory power to models that regress performance on
the achieved level of market orientation. We also find that
the desired level of market orientation is a positive function
of market turbulence, competitive intensity, technological
turbulence, and innovation strategy. These results support
the hypothesis that environmental uncertainty influences
performance through its impact on managerial perceptions
of the desired level of market orientation.
The desired level of market orientation
Kohli and Jaworski (1990) define market orientation as “the
organizationwide generation, dissemination, and respon-
siveness to market intelligence” (p. 3; see also Narver and
Slater 1990). A significant body of empirical work suggests
that market orientation has a positive impact on firm
performance. In their recent meta-analysis of the market
orientation literature, Kirca et al. (2005) concluded that,
“even though the implementation of market orientation may
demand resources, it generates profits over and above the
costs involved in its implementation while growing
revenues” (p. 37).
To date, scholars have focused on the achieved level of
market orientation, i.e., the set of behaviors through which
firms collect, disseminate, and respond to market informa-
tion. In contrast to this achieved level, the desired level of
market orientation can be defined as the market orientation
level that managers believe will maximize the performance
of their firm or business unit. Our focus on managerial
beliefs is consistent with research on managerial mental
models, which emphasize the importance of the ways in
which managers perceive market environments and process
market information. As Day and Nedungadi (1994, p. 31)
explain, “market environments are not unambiguous real-
ities.” Instead, constructs like markets and competitive
forces are “abstractions given meaning through processes of
selective search and attention, selective perception, and
simplification” (p. 31). These abstractions help managers
deal with overwhelming amounts of information and
145
manage environmental uncertainty, but they also reflect
cognitive biases such as the tendency to rely on information
that is easily available and consistent with existing beliefs
(DeSarbo et al. 2006).
Given the selective nature of human information
processing, managerial representations of the optimal level
of market orientation (i.e., the level that maximizes firm or
SBU performance) are incomplete. While managers may
not have formed complex models of the market orientation–
performance relationship, they do have an understanding of
their company’s current level of market orientation and the
changes needed to enhance performance. These perceptions
reflect the understanding executives have of customers and
competitors. In summary, the mental models that managers
have of the optimal level of market orientation are
incomplete, reflecting the limits of managerial experience,
attention, and processing capacity. For this reason, we focus
our discussion on the manager’s desired level of market
orientation.
A review of the market orientation literature suggests
that environmental uncertainty will influence managerial
perceptions of the desired level of market orientation (Slater
and Narver 1994; Kirca et al. 2005). For example, Kohli
and Jaworski (1990, p. 15) observed that, “under conditions
of limited competition, stable market preferences, techno-
logically turbulent industries, and booming economies, a
market orientation may not be strongly related to business
performance.” The importance of environmental variables
to the desired level of market orientation is underscored by
discussions of the impact of environmental instability on
the firm. Instability arises from unanticipated changes in
consumer preferences, competitor activities, government
regulations, or technology. Such changes increase the
importance of adaptive skills; a failure to adapt risks the
loss of current customers and a diminished capacity to
exploit new opportunities (Lusch and Luczniak 1987).
Firms that attempt to discern, anticipate, and react to such
changes face challenging information processing tasks
(Achol et al. 1983; Mintzberg 1979). To improve informa-
tion processing in uncertain environments, firms develop
specialized, differentiated departments that increase the
need for interdepartmental coordination and organization
(Lawrence and Lorsch 1969; Khandwalla 1974). Such
organizational responses tend to increase the importance
of disseminating market intelligence across functional
boundaries.
Resource dependency theory has argued that functional
interdependence rises when task uncertainty and complex-
ity increase (Pfeffer and Salancik 1978). The perceived
importance of information sharing is further enhanced by
individual difficulties in processing new information and
generating relevant action alternatives (Aaker 1984; Weitz
et al. 1986). These difficulties increase the perceived need
146 J. of the Acad. Mark. Sci. (2009) 37:144–160

for information dissemination and coordinated responses both the achieved level of market orientation and to
(Olson et al. 1995). Taken together, these arguments business unit performance. Following Kohli and Jaworski
suggest that the need for collecting, disseminating, and (1990, p. 3), we define the achieved level of market
responding to market intelligence (and thus the desired orientation to be the “organizationwide generation, dissem-
level of market orientation) should increase when environ- ination, and response to market intelligence.” Based on the
mental uncertainty rises. Thus the level of environmental discussion in the previous section, we define the desired
uncertainty should have a direct impact on the desired level level of market orientation to be the optimal level of market
of market orientation orientation as perceived by managers.
In addition, to the extent that business performance is a
function of the gap between the desired and the actual level
Determinants of the desired level of market orientation
of market orientation, environmental uncertainty will also
have an indirect impact on business performance. A
Figure 1 links the desired level of market orientation to
number of marketing scholars have argued that firm
environmental uncertainty and to innovation strategy.
performance depends in part on the fit between the strategic
Environmental uncertainty refers to the instability and
activities needed to implement a firm’s marketing strategy
unpredictability of the external environment (Ruekert et al.
and attributes of the firm’s marketing organization (e.g.,
1985). Consistent with previous research (e.g., Kholi and
Olson et al. 1995; Vorhies and Morgan 2003).1 Similarly,
Jaworski 1990; Slater and Narver 1994), we distinguish
Gupta et al. (1986) hypothesized that a firm’s level of
among three kinds of environmental uncertainty: market
innovation success depended on the gap between the
turbulence, competitive intensity, and technological turbu-
desired and achieved levels of R&D–marketing integration.
lence. Market turbulence refers to changes in the “compo-
In the next section we draw on these research streams to
sition of customers and their preferences” (Kohli and
develop a conceptual model that identifies the antecedents
Jaworski 1990, p. 14). When market turbulence is low,
of the desired level of market orientation and its impact on
companies can rely on their existing knowledge of stable
firm performance.
customer preferences to design effective marketing strate-
gies. To the extent that the existing marketing mix fits known
customer preferences, few modifications in the marketing
Conceptual framework and research hypotheses
mix may be required over time. In contrast, when market
turbulence is high, a high level of market orientation is
Recent research on market orientation has focused on the
needed to help firms understand changes in customer
definition of the construct, the identification of antecedent
variables, and the specification of co-determinants of preferences, design appropriate segmentation strategies,
and create new marketing programs that cater to these altered
business performance (Kirca et al. 2005). The model in
preferences (Grewal and Tansuhaj 2001; Subramanian and
Fig. 1 reflects two important research streams in the market
orientation literature. One stream of research has examined Gopalakrishna 2001). Thus we hypothesize that:
the top management, interdepartmental, and organizational H1: The higher the level of market turbulence, the
system variables identified by Kohli and Jaworski (1990) higher the desired level of market orientation.
and Jaworski and Kohli (1993) as antecedent variables of
Competitive intensity refers to the ability and willing-
the achieved level of market orientation. A second, related
ness of competitors to alter marketing mix decisions in
stream of research has examined the role of industry and
order to gain competitive advantage. The need for a market
firm descriptors as co-determinants of business unit
orientation increases as competitive intensity rises (Houston
performance (e.g., Narver and Slater 1990; Slater and
1986; Noble et al. 2002). When competitive intensity is
Narver 1994).
high, the potential availability of better purchase options
In addition to incorporating these research streams, the
provides consumers with incentives to revisit and revise
model in Fig. 1 also identifies antecedents of the desired
their existing decision rules. As a result, firms have a higher
level of market orientation and links this desired level to
risk of losing existing customers, relative to situations in
which the competitive environment is stable (Lusch and
1
Studies of individual decision-making also reveal the potential Laczniak 1987; Appiah-Adu 1997). Moreover, frequent
value of distinguishing between the desired and achieved levels of a changes in the marketing mix of competitive firms increase
desired product attribute or consumption outcome. Examples include
the desired-point consumer preference model (e.g., Shocker and the potential benefit of monitoring those changes (Han et al.
Srinivasan 1974; Kamakura and Sirvastava 1986; Lee et al. 2002), 1998). Thus we hypothesize that:
the SERVQUAL model (e.g., Parasuraman et al. 1985), and a number
of job satisfaction models (for a review of this literature see Kristof H2: The higher the level of competitive intensity, the
1996). higher the desired level of market orientation.
J. of the Acad. Mark. Sci. (2009) 37:144–160 147

New Constructs
Market Environment
•Market Turbulence (H1)
•Competitive Intensity (H2)
•Technical Turbulence (H3) The Desired Level of
Market Orientation (DMO)
•Intelligence Generation
•Intelligence Distribution
Innovation Strategy •Market Responsiveness
•Prospector
•Analyzer
•Defender
•Reactor (H4)

Business Unit
GAP (H6) Performance
•UNDER a •ROI
•OVER •Relative Market Share
(H5) •Customer Retention
•Overall Performance

Jaworski and Kohli’s (1993)

Antecedents of Market-Orientation
The Achieved Level of
Top Management Market Orientation (AMO)
•Top Management Emphasis (+) •Intelligence Generation
•Top Management Risk Aversion (-) •Intelligence Distribution
•Market Responsiveness
Slater and Narver (1994)
Interdepartmental Dynamics
•Conflict (-) Control Variables
•Connectedness (+)
•Market Turbulence (-)
•Competitive Intensity (-)
Organizational Systems •Technological Turbulence (-)
•Formalization (-) •Relative Size (+)
•Centralization (-) •Relative Costs (-)
•Departmentalization (-) •Market Growth (+)
•Reward Systems (+) •Ease of Entry (-)
•Buyer Power (-)

a: UNDER = IMO – AMO when IMO > AMO and 0 otherwise. OVER = AMO – IMO when AMO > IMO and 0
otherwise.

Figure 1 The desired level of market orientation and firm performance.

Hypotheses H1 and H2 are consistent with the work of of those outputs to the end customer” (Kohli and Jaworski
Miller (1988), who found that product innovation and 1990, p. 14). According to Jaworksi and Kohli (1993),
aggressive marketing differentiation yielded the greatest firms that:
benefits in markets characterized by high levels of
…work with nascent technologies that are undergoing
competitive intensity and market turbulence, and with the
rapid change may be able to obtain a competitive
field research of Kohli and Jaworski (1990), who concluded
advantage through technological innovation, thereby
that, in markets characterized by limited competition and
diminishing—but not eliminating—the importance of
stable market preferences, “a market orientation may not be
a market orientation. By contrast, organizations that
related strongly to business performance” (p. 15). Under
work with stable (mature) technologies are relatively
Hypotheses H1 and H2, this conclusion can be restated as
poorly positioned to leverage technology for gaining a
follows: when competition is limited and market prefer-
competitive advantage and must rely on market
ences are stable, the desired level of market orientation is
orientation to a greater extent (pp. 57–58).
relatively low.
Technological turbulence refers to changes in the “entire Thus the desired level of market orientation is potentially
process of transforming inputs to outputs and the delivery lower for firms that have the opportunity to establish a
148
competitive advantage through technological innovation. In
addition, consumer predictions of their responses to radical
innovations are often unreliable (Tauber 1974). As a result,
when technological turbulence is high, the relative impor-
tance of certain kinds of market intelligence (e.g., consumer
perceptions and preferences) will be lower than when
technological turbulence is low. These considerations
suggest the following hypothesis:
H3: The lower the level of technological turbulence,
the higher the desired level of market orientation.
The level of achieved market orientation
The market orientation literature has emphasized the
important role of senior management in nurturing a market
orientation. Conceptually this literature has distinguished
between (1) the importance senior management places on a
market orientation and (2) the communication of that
importance throughout the organization (e.g., Kohli and
Jaworski 1990; Webster 1988). Empirical work has focused
on the latter variable (for a summary see Kirca et al. 2005),
but the commitment of senior managers is an “essential
prerequisite” (Kohli and Jaworski 1990, p. 7) and logically
prior to communication of that commitment. For this reason
we distinguish between the perceived importance of a
market orientation to senior managers (as reflected in their
perceptions of the desired level of market orientation) and
the communication of those perceptions to subordinates.
Consistent with the reasoning of Kohli and Jaworski
(1990), we expect that communication of senior manage-
ment perceptions will moderate the impact of those
perceptions on the achieved level of market orientation.
Thus we hypothesize that:
H4: The achieved level of market orientation as
perceived by SBU managers is an increasing
function of the desired level of market orientation
as perceived by the SBU managers’ superiors.
H5: The relationship between the achieved level of market
orientation as perceived by SBU managers and the
desired level of market orientation as perceived by the
SBU managers’ superiors is moderated by the degree
to which senior management communicates its
perceptions to SBU managers.
Market orientation and business performance
A substantial body of empirical work supports the
proposition that a market orientation has a positive impact
on firm performance (Kirca et al. 2005). Importantly, these
studies cannot be used to argue that increases in market
orientation are always beneficial, because the underlying
J. of the Acad. Mark. Sci. (2009) 37:144–160
statistical models assume a linear relationship between the
achieved level of market orientation and performance. In
essence, linear regression models assume that the desired
level of market orientation is infinite (because more market
orientation is always better). This assumption can be tested
by specifying a linear regression model that includes one of
the following explanatory variables: (1) the square of
market orientation or (2) the gap between the desired and
achieved levels of market orientation. We will refer to the
first alternative as the quadratic model of market orientation
and the second alternative as the gap model of market
orientation. In this sub-section we develop the theoretical
rationale for the second alternative.
Linking firm or SBU performance to the gap between
the ideal and achieved levels of market orientation is
consistent with existing models that relate various perfor-
mance measures to the fit between two variables or variable
profiles. For example, Gupta et al. (1986) hypothesized that
innovation success was a function of the gap between the
desired and achieved levels of cross-functional integration.
This hypothesis has important implications for models of
market orientation, because the constructs of marketing
orientation and cross-functional integration are closely
related. Both involve the sharing of information across
functional boundaries and the development of coordinated,
cross-functional responses to that information (Gupta et al.
1986; Kohli and Jaworski 1990). A key difference is that
the Gupta et al. model focuses on one cross-functional
interface while the market orientation literature addresses
multiple interfaces.
A gap model is also consistent with studies that link firm
performance to the fit between the strategic activities
needed to implement a firm’s marketing strategy and
attributes of the firm’s marketing organization (e.g., Olson
et al. 2005; Walker and Ruekert 1987). In particular, studies
of the Miles and Snow typology have hypothesized that the
prospector, analyzer, and reactor strategies require distinct
sets of marketing activities with different implications for
organizational design (Matsuno and Mentzer 2000; McKee
et al. 1989). This reasoning led Vorhies and Morgan (2003)
to argue that, “for each set of strategic characteristics, there
exists an desired set of organizational characteristics that
yields superior performance” (p. 101). In their empirical
work the authors found that the gap between a firm’s
desired and actual set of organizational characteristics
significantly influenced marketing performance.
This research also suggests that underachieving (AMO<
DMO) may have different performance implications than
overachieving (AMO>DMO). In particular, underachieving
should affect revenue-based measures of effectiveness as
well as cost-based measures of efficiency (Vorhies and
Morgan 2003). In contrast, the impact of overachieving will
vary depending on whether a particular performance
J. of the Acad. Mark. Sci. (2009) 37:144–160
measure accounts for the costs of achieving that perfor-
mance (Matsuno and Mentzer 2000). Because we have
defined the desired level of market orientation to be the
level that maximizes profits, overachieving should reduce
measures like ROI that reflect both market performance and
costs. In contrast, over-achieving can have a positive
impact on market performance measures that do not reflect
relevant costs. For example, high levels of responsiveness
to market intelligence might lead to product line expansions
that increase relative market share and customer retention
but reduce SBU profitability. Taken together, these consid-
erations suggest the following hypotheses:
H6a: When the desired level of market orientation
exceeds the achieved level (DMO>AMO), busi-
ness unit performance is negatively related to the
gap between the desired and achieved levels of
market orientation.
H6b: When the achieved level of market orientation
exceeds the desired level (AMO>DMO), ROI is
negatively related to the gap between the
achieved and desired levels of market orientation.
H6c: When the achieved level of market orientation
exceeds the desired level (AMO>DMO, relative
market share and customer retention are posi-
tively related to the gap between the achieved
and desired levels of market orientation.
Methodology
We collected data at the SBU level for two reasons. First,
we wished to simplify the process of comparing our results
with those obtained in earlier studies (e.g., Jaworski and
Kohli 1993; Slater and Narver 1994). Second, we hypoth-
esized that SBU strategy was an antecedent variable of the
desired level of market orientation.
Field research procedure
Following the suggestions of Kohli and Jaworski (1990)
and Churchill (1979), the empirical phase of our investiga-
tion began with exploratory field research. Because no
existing literature discusses the desired level of market
orientation and its antecedents, we conducted in-depth
interviews with 28 executives from eight SBUs in six
companies. Consistent with the recommendations of Eisen-
hardt (1989) regarding theoretical sampling, we designed
our sample so that each of the Miles and Snow strategy
types was represented by two SBUs.
The interviews, which ranged from 90 minutes to 3
hours in length, followed a structured interview guide that
addressed three topics: (1) the position and responsibility of
149
each interviewee, (2) the achieved level of market orienta-
tion, and (3) the desired level of market orientation. A key
portion of the interview focused on the interviewees’
evaluation of the Jaworski and Kohli (1993) model of the
antecedents and consequences of the achieved level of
market orientation. In general, interviewee responses
confirmed the validity of the Jaworski–Kohli model.
We also asked the interviewees to define the desired
level of market orientation and to identify factors that
influence this desired level. An analysis of interviewee
responses yielded four antecedents of the desired level of
market orientation: innovation strategy (including entry
timing), competitive environment, market/customer envi-
ronments, and technology environments. These findings
were consistent with the variables that emerged from our
literature review.
Survey instrument development
In our field interviews we found that senior executives were
more concerned with their SBUs’ overall strategies and
performances, while SBU managers were more familiar
with the details of SBU operations. For this reason we
designed two surveys for each SBU: one for the SBU
manager and one for his or her superior. Based on a
literature review and our field interviews, drafts of ques-
tionnaires were constructed and pretested with executives
from the firms that participated in the field interviews.
Respondents were encouraged to evaluate the constructs
and items in the questionnaires, to suggest changes, and to
comment on related issues. After revising the question-
naires, we followed the suggestions of Churchill (1979) and
asked four researchers to classify the measurements
independently and judge the validity of the constructs and
measurement items. After a further set of revisions, the
questionnaires were again pretested with selected partic-
ipants in our field research.
Data collection
Our sample frame consisted of a random sample of 800
firms listed in Ward’s Business Directory of U.S. Private
and Public Companies. Because we had designed two
different questionnaires, responses from both informants
were necessary to get usable data for each SBU. For this
reason, we designed a multi-stage data collection procedure
that involved extensive pre-survey contact with each
organization in order to select informants and (hopefully)
increase the response rate. Following the suggestions of
Phillips (1981), our selection of respondents was guided by
two criteria: (1) the informant’s knowledgeable of the
research subject and (2) the informant’s ability and
willingness to communicate with the researcher.
150
In the first stage, we sent a one-page survey and an
introductory letter requesting participation to all of the
selected firms. We also offered a list of available research
reports to the participating firms. Each firm was asked to
select an SBU/division for participation and provide a
contact person in the SBU/division. Of the 800 firms in our
sample, 392 agreed to participate and provide the necessary
contacts. Of the remaining 408 firms, 41 declined to
participate and 341 did not respond. Twenty-six question-
naires were returned by the post office as undeliverable.
In the second stage we surveyed the 392 firms that
agreed to participate and all 341 firms that did not respond
to our pre-survey. Using priority mail, we sent a package to
each of the 733 firms containing a personalized letter and a
survey. The informant was asked to provide data on overall
performance, the SBU’s innovation strategy (the 11-item
scale developed by Conant et al.), the achieved level of
market orientation, and the antecedents of the achieved
level of market orientation. At the end of the survey the
SBU manager was asked to provide the name of his/her
boss in corporate headquarters. Consistent with the recom-
mendations of Dillman (1978), we sent two waves of
questionnaires, each followed by a reminder letter, and
received 360 usable responses.
In the third stage, a questionnaire was sent to the 360
senior executives identified by the SBU managers in the
second stage. The senior executives (who were primarily
marketing executives) provided information on SBU perfor-
mance (ROI, relative market share, and customer retention
rates), SBU innovation strategy (the self-classification
scale), the level of environmental uncertainty (competitive
intensity and market and technological turbulence), and the
desired level of market orientation. By collecting this
information from top management after the survey of SBU
managers was complete, we hoped to the increase the
likelihood of independent responses.
Our multi-stage data collection process yielded 308
usable responses, a response rate of 39% (308/800).2 The
final sample included thirteen industries (textile mill
products; apparel and other finished products made from
fabrics and similar materials; lumber and wood products,
except furniture; furniture and fixtures; printing and
publishing; chemicals; leather products; stone, clay, glass,
and concrete products; primary metal industries; fabricated
metal products, except machinery and transportation;
industrial and commercial machinery and computer equip-
ment; electronic and other electrical equipment and com-
2
Two items at the end of the instrument assessed respondents’
confidence in their ability to answer the questions. Ten individuals
reported a low level of confidence (less than 6). In each case the
corresponding senior executive survey was not completed. As a result,
the data collected from these ten managers was not included in our
analysis data set.
J. of the Acad. Mark. Sci. (2009) 37:144–160
ponents, except computer equipment; transportation
equipment; measuring, analyzing, and controlling instru-
ments, along with watches and clocks and photographic,
medical, and optical goods). The participating SBUs had
annual sales between $11 million and $750 million and had
between 100 and 12,500 employees.
Nonresponse bias We conducted randomly selected phone
calls and sent follow-up letters to a subset of the 41 firms
that declined to participate in order to assess the reasons for
their non-participation. The major reasons that emerged
were corporate policy, the absence of the SBU managers,
and reorganization. To help assess the potential impact of
nonresponse bias, we sent a one-page survey to selected
nonresponding firms in order to collect data on ROI,
relative market shares, sale growth rates, and customer
retention rates. This survey generated 37 responses.
MANOVA analyses were used to test for possible differ-
ences between nonrespondents and respondents, as well as
between early respondents and late respondents. The
relevant test statistics were insignificant (p<0.05), which
alleviated concerns about possible nonresponse bias.
Measures
Tables 1a, 1b, and 1c contain variable means, standard
deviations, and correlations. Because most measurement
items were taken from existing, well-validated scales that
are described in the literature (e.g., Jaworski and Kohli
1993; Moorman 1995; Moorman and Miner 1997; Slater
and Narver 1994), we do not repeat them here (but we
detail them in the Appendix). With a few exceptions (five
control variables used by Slater and Narver (1994) and
three measures of performance) these scales consisted of
multiple items. The few new items developed specifically
for this study were extensively pretested in the field
research. To measure the achieved level of market orienta-
tion within each business unit, we averaged together the
three sub-scales developed by Jaworski and Kohli (1993)
and Kohli et al. (1993). These sub-scales measure respon-
dent agreement with statements about their performance of
21 different activities. To measure the desired level of
market orientation, we asked respondents to indicate on an
11-point scale the optimal levels of these 21 activities. The
wording of the instructions was based on our field
interviews and questionnaire pretests indicated that
respondents clearly understood these instructions.
Because strategic orientation can also affect the desired
level of market orientation (Day and Nedungadi 1994;
Slater and Narver 1993), our analysis included three
dummy variables that measure the following distinct
strategy types identified by Miles and Snow (1978):
Table 1a Variable means, standard deviations, and correlations (n=308)

Mean SD ROI RMS CRR OPF DMO AMO UNDER OVER COMTU MKTU

ROI 3.86 2.72 1.00

Relative market share (RMS) 3.82 2.78 0.86* 1.00
Customer retention rate (RR) 3.84 2.80 0.82* 0.85* 1.00
Overall performance (OPF) 4.10 2.52 0.80* 0.85* 0.85* 1.00
Desired market orientation (DMO) 6.97 1.44 −0.02 0.02 −0.05 0.11** 1.00
Achieved MO (AMO) 5.56 1.85 0.57* 0.54* 0.54* 0.61* 0.75* 1.00
Underachieve (UNDER) 1.51 1.06 −0.89* −0.83* −0.89* −0.80* 0.00 −0.65* 1.00
Overachieve (OVER) 0.10 0.29 0.48* 0.38* 0.45* 0.40* −0.16* 0.30* −0.47* 1.00
Competitive turbulence (COMTU) 5.40 2.51 0.31* 0.30* 0.32* 0.33* 0.41* 0.58* −0.40* 0.20* 1.00
Market turbulence (MKTU) 3.91 2.06 0.01 −0.01 −0.04 −0.03 0.12** 0.11*** −0.04 −0.06 0.09** 1.00
J. of the Acad. Mark. Sci. (2009) 37:144–160

Technological turbulence (TECHTU) 4.88 2.83 0.14** 0.21* 0.21* 0.29* 0.07 0.15* −0.15* 0.05 0.07** −0.12**
Prospector (PROS) 0.30 0.46 −0.13** −0.10*** −0.07 −0.02 0.42* 0.24* 0.12** −0.09 0.04 −0.04
Analyzer (ANLZ) 0.36 0.48 −0.04 −0.10*** −0.10 −0.10*** 0.06 −0.01 0.06 −0.13 0.10** 0.05
Defender (DEFD) 0.26 0.44 0.10*** 0.12** 0.13** 0.08 −0.37* −0.18* −0.13** 0.20* 0.12** −0.03
Top management emphasis (TME) 6.39 1.92 0.34* 0.32* 0.33* 0.38* 0.30* 0.48* −0.38* 0.14 0.51* 0.16*
DMO×TME 45.39 18.24 0.26* 0.27* 0.23* 0.34* 0.71* 0.72* −0.29* 0.01 0.56* 0.19*
Top management risk aversion (RISK) 6.88 2.02 0.23* 0.25* 0.20* 0.25* 0.10*** 0.24* −0.26* 0.10 0.18* −0.02
Interdepartmental conflict (CONF) 4.20 2.36 −0.49* −0.53* −0.51* −0.51* −0.25* −0.52* 0.51* −0.21* −0.41* −0.15**
Interdepartmental connectedness (CONN) 5.96 2.19 0.25* 0.22* 0.29* 0.27* 0.25* 0.40* −0.35* 0.04 0.24* 0.10***
Formalization (FORM) 3.05 2.76 −0.22* −0.14** −0.15* −0.18* 0.02 −0.12** 0.22* −0.03 −0.16* 0.02
Centralization (CENT) 6.16 2.68 0.00 −0.08 −0.07 −0.06 0.11** 0.05 0.02 −0.18* 0.13** 0.36*
Departmentalization (DEPT) 3.65 2.39 −0.23* −0.27* −0.25* −0.22* −0.21* −0.33* 0.26* −0.15 −0.15* −0.11**
Reward system (REWARD) 5.42 2.56 0.33* 0.35* 0.38* 0.38* 0.34* 0.54* −0.43* 0.19* 0.44* −0.03
Relative size (RSIZE) 6.58 2.09 0.17* 0.20* 0.21* 0.29* 0.25* 0.37* −0.28* 0.10*** 0.35* 0.14**
Relative cost (RCOST) 5.93 2.79 0.27* 0.26* 0.23* 0.27* 0.29* 0.44* −0.34* 0.15* 0.61* 0.01
Market growth (MGRO) 5.73 3.67 0.04 0.02 −0.04 −0.04 −0.16* −0.13 0.02 0.02 −0.12** −0.01
Ease of entry (ENTRY) 4.73 3.73 −0.30* −0.19* −0.13** −0.15* −0.02 −0.17* 0.24* −0.12** −0.12** −0.09
Buyer power (BPOW) 4.81 3.41 0.02 −0.02 −0.01 −0.04 0.01 0.03 −0.05 −0.04 0.06 0.16*

UNDER=DMO−AMO if DMO>AMO and 0 otherwise. OVER= AMO−DMO when AMO>DMO and 0 otherwise.
*p=0.01; **p=0.05; ***p=0.1.
151
152 J. of the Acad. Mark. Sci. (2009) 37:144–160

Table 1b Variable means, standard deviations, and correlations (n=308)

TECHTU PROS ANAL DEFD TME TME× RISK CONF CONN FORM CENT
DMO

Technological turbulence (TECHTU) 1.00

Prospector (PROS) 0.08 1.00
Analyzer (ANLZ) −0.09 −0.48* 1.00
Defender (DEFD) −0.02 −0.39* −0.45* 1.00
Top management emphasis (TME) −0.07 −0.02 0.01 −0.03 1.00
DMO×TME −0.01 0.19* 0.04 −0.22* 0.87* 1.00
Top management risk aversion 0.12** −0.02 0.00 −0.05 0.53* 0.45* 1.00
(RISK)
Interdepartmental conflict (CONF) −0.08 −0.29* 0.08 0.20* −0.33* −0.38* −0.18* 1.00
Interdepartmental connectedness −0.17* 0.14** 0.02 −0.06 0.19* 0.25* 0.05 −0.28* 1.00
(CONN)
Formalization (FORM) 0.30* −0.01 0.03 −0.01 −0.21* −0.15** 0.09 0.20* −0.41* 1.00
Centralization (CENT) −0.43* −0.06 0.11 −0.07 0.46* 0.40* 0.13** −0.11*** 0.15* −0.29* 1.00
Departmentalization (DEPT) −0.03 −0.20* 0.06 0.17* −0.17* −0.22* −0.14** 0.22* −0.08 −0.20* −0.07
Reward system (REWARD) 0.15* 0.19* 0.03 −0.16* 0.27* 0.34* 0.07 −0.44* 0.42* −0.16* −0.07
Relative size (RSIZE) 0.04 0.04 0.00 −0.05 0.51* 0.49* 0.54* −0.26* 0.31* 0.00 0.19*
Relative cost (RCOST) 0.03 −0.07 0.04 −0.03 0.62* 0.58* 0.44* −0.36* 0.09 −0.07 0.16*
Market growth (MGRO) −0.19* −0.16* 0.01 0.13** 0.01 −0.06 −0.02 0.08 −0.02 −0.17* 0.17*
Ease of entry (ENTRY) 0.38* 0.03 −0.06 −0.01 −0.27* −0.23* −0.15* 0.26* −0.22* 0.48* −0.36*
Buyer power (BPOW) −0.29* −0.13** 0.08 −0.01 0.16* 0.14** 0.10*** 0.04 0.16* −0.36* 0.21*

*p=0.01; **p=0.05; ***p=0.1.

prospector, analyzer, or a defender. To assign an innovation
strategy to each firm, we presented the senior manager of
each respondent firm with the McDaniel and Kolari (1987)
summary of the Miles and Snow typology and asked each
senior manager to classify the innovation strategy of the
focal business unit (see also Matsuno and Mentzer 2000).
To assess the validity of this self-classification, we
presented each business unit manager with the 11 items
developed by Conant et al. (1990) to measure innovation
strategy. To convert these 11 items into a statement about
each SBU’s strategic type, we used the scoring rules
employed by Conant et al. We then confirmed that, for all
308 SBUs in our sample, the senior manager’s self-
classified innovation strategy was identical to the innova-
tion strategy implied by the business unit executive’s
responses to the 11-item scale.
We used confirmatory factor analysis (CFA) to examine
the measurement properties of our scales. Given the number
of scale items, we did not have enough observations to
perform a single CFA that included all multi-item measures.
For this reason, we performed five separate CFAs for sub-
groups of variables. After deleting problematic items, the fit
of each CFA model was acceptable. In particular, for each
CFA model, the CFI, GFI, and NFI fit statistics all exceeded
0.95. We assessed discriminant validity in two ways: (1) we
computed the analysis of the average variance extracted
(AVE) for each construct (all AVEs exceeded 0.50) and (2)
compared one-factor and two-factor CFA solutions for each
possible pair of constructs within each group of variables.
Both approaches indicated that our constructs possessed
acceptable discriminant validity, which can also help
alleviate multicollinearity problems (Grewal et al. 2004).

Table 1c Variable means, standard deviations, and correlations (n=308)

DEPT REWARD RSIZE RCOST MGRO ENTRY BPOW

Departmentalization (DEPT) 1.00

Reward system (REWARD) −0.13** 1.00
Relative size (RSIZE) −0.18* 0.30* 1.00
Relative cost (RCOST) −0.12** 0.35* 0.46* 1.00
Market growth (MGRO) −0.02 −0.24* −0.05 −0.13** 1.00
Ease of entry (ENTRY) −0.13** −0.01 −0.08 −0.16* −0.16a 1.00
Buyer power (BPOW) 0.16* −0.01 0.13** 0.12** 0.14** −0.36* 1.00

*p=0.01; **p=0.05; ***p=0.1.

J. of the Acad. Mark. Sci. (2009) 37:144–160
To assess the possible presence of common method bias,
we used the marker variable technique (Lindell and
Whitney 2001; Malhotra et al. 2006). For each of the five
CFA groups, we estimated a CFA model that included a
common method latent factor. We then computed corrected
bivariate construct correlations using the smallest (rm1) and
second smallest (rm2) positive correlations between the
common method latent factor and the individual measure-
ment items. In both cases the correction factors were small,
and the significant uncorrected correlations remained
significant after correction for common method bias (the
one exception to this last statement involved the correlation
between RISK and CENT, which remained significant
when corrected with rm1 but became insignificant when
corrected with rm2). Based on this analysis, we concluded
that our data were not seriously affected by common
method bias.
Model estimation and results
We evaluated our research hypotheses in three steps. First,
we used ordinary least squares regression to estimate one
model linking the desired level of market orientation
(DMO) to environmental and innovation strategy variables.
Second, we estimated two models explaining the achieved
level of market orientation. Together these models address
the impact of DMO on the achieved level of market
orientation (AMO). Third, we regressed four measures of
business performance on AMO and DMO while controlling
for environmental uncertainty and attributes of market
structure.
We performed several diagnostic tests to evaluate the
appropriateness of the assumptions of normality, linearity,
and homoscedasticity. An examination of the residual plots
suggested that these assumptions were appropriate in all
four samples. An application of the Belsley et al. (1980)
test indicated no serious multicollinearity problems in the
DMO and the four performance regressions. We did find
evidence of multicollinearity in the AMO regression that
included an interaction term and in the performance
regressions that included an AMO2 term. We discuss these
two cases in greater detail below.
The desired level of market orientation
We tested the three hypotheses dealing with the antecedents
of the desired level of market orientation by regressing
DMO on the environmental variables defined above and
three dummy variables that measured three distinct strategy
types identified by Miles and Snow (1978). Table 2 reports
the results of this analysis. Model 1A, which contains no
interaction terms, has an adjusted R2 of 0.44 and the F-
153
statistic for overall model fit (40.62, df = 7, 301) is
significant at the one percent level of confidence. The
coefficients of market turbulence (0.07), competitive
intensity (0.23), and technological turbulence (0.05) are
all positive and significant at the 5% level of confidence.
These results support the first two Hypotheses but
contradict the third, which hypothesized a negative rela-
tionship between technological turbulence and DMO.
Model 1B contains the same explanatory variables as
model 1A plus two interaction terms, obtained by multi-
plying the technological turbulence dummy variable by (1)
the prospector dummy variable and (2) the analyzer dummy
variable.3 The F test for the addition of this term is
significant (F=3.59, df=2,299, p<0.05) and the coefficient
of both interaction terms are positive and significantly
different from zero. When we constrained both interaction
terms to have the same coefficient (see model 1C), the
relevant F-test was insignificant (F=0.24, df=2,299, p<
0.05). The constrained coefficient is positive (0.13) and
significant, indicating that the impact of technological
turbulence on the desired level of market orientation is
significantly greater in SBUs following a prospector or
analyzer strategy. A re-estimation of model 1C using
seemingly-unrelated regression (SUR), which accounts for
error correlations across equations, yielded similar results
(see the last column of Table 2).
The achieved level of market orientation
We used a series of regression analyses to examine the
relationship between DMO and the achieved level of
market orientation (AMO). Table 3 reports the results of
this analysis. The column labeled model 2A contains the
results obtained by regressing AMO on DMO, top
management emphasis (TME), and seven control variables
identified by Jaworski and Kohli (1993). The adjusted R2
for this model is 0.78 and the F-statistic for overall model
fit (119.10, df=9,298) is significant at the one percent level
of confidence. The coefficient of DMO is positive (0.72)
and significantly different from zero. These results support
Hypothesis 4. Importantly, the DMO coefficient is also
significantly different from one (F=50.28, df=1,298). This
result indicates that, when we look cross-sectionally at the
firms in our sample, increases in DMO are associated with
increases in the difference between DMO and AMO.
As noted above, existing research has underscored the
positive impact of senior management communicating the
importance of a market orientation throughout an organi-
zation (e.g., Jaworski and Kohli 1993). The coefficient of
TME is positive (0.21) and significant (p<0.01). This result
3
The authors thank an anonymous reviewer for suggesting this
analysis.
154 J. of the Acad. Mark. Sci. (2009) 37:144–160

Table 2 Antecedents of the desired level of market orientation (n=308)

Model 1Aa Model 1B Model 1C Model 1C-SUR

Intercept 4.00*** b (0.31) 4.41*** (0.31) 4.41*** (0.35) 4.52*** (0.35)

Market turbulence 0.07** (0.03) 0.08*** (0.03) 0.08*** (0.03) 0.08*** (0.03)
Competitive intensity 0.23*** (0.02) 0.24*** (0.02) 0.24*** (0.02) 0.24*** (0.02)
Technological turbulence 0.05** (0.02) −0.04 (0.04) −0.04 (0.04) −0.07* (0.04)
Prospector 2.13*** (0.24) 1.41*** (0.37) 1.47*** (0.35) 1.42*** (0.34)
Analyzer 1.21*** (0.24) 0.63* (0.36) 0.57* (0.34) 0.49 (0.33)
Defender 0.42* (0.25) 0.38 (0.24) 0.38 (0.24) 0.39 (0.24)
Prospector×technological turbulence 0.14** (0.05)
Analyzer×technological turbulence 0.11** (0.05)
(Prospector + analyzer)×technological turbulence 0.13*** (0.05) 0.16*** (0.05)
Overall F statistic 40.62*** 31.89*** 36.50***
Adjusted R-square 0.44 0.45 0.45
Incremental variable F testc 0.45 3.59**
a
The first three columns of coefficient estimates were obtained using OLS regression, while the last column was obtained using seemingly
unrelated regression (SUR). The SUR estimates were obtained by estimating a system of equations in which DMO, AMO, and RMS were the
dependent variables.
b
Table entries are unstandardized regression coefficient estimates and standard deviations (in parentheses). All hypotheses were evaluated using a
two-tailed test of significance.
c
The F-statistic in this row tests the hypothesis that the added variable in the model (relative to the model in the previous column) has a
coefficient of zero.
***p=0.01; **p=0.05; *p=0.1.

is consistent with the meta-analysis of Kirca et al. (2005).
Importantly, relative to the coefficient of DMO (0.72), the
coefficient of TME (0.21) is significantly smaller (F=
70.65, df=1,298). These results indicate that, while verbal
communication is important, it is not the only way in
which senior management perceptions of DMO influence
AMO.
Model 2B contains the interaction term DMO×TME,
which has an estimated coefficient of 0.05. The F test for the
addition of this term is significant (F=4.97, df=1,297, p<
0.05) and the coefficient of DMO×TME is positive (0.03)
and significantly different from zero. A re-estimation of
model 2B using SUR regression yielded similar results (see
the last column of Table 3). These results provide support
for H5, which states that TME moderates the relationship
between DMO and AMO. This support must be qualified
due to the presence of multicollinearity. An application of
the Belsley–Kuh–Welsch test indicates that the coefficient
estimates for DMO, TME, and DMO*TME are significant-
ly affected by multicollinearity (the highest variance
inflation factor is 32.97 and the highest condition index is
88.05). Given this concern, we conclude our data provide
partial support for Hypothesis H5.4
4
We did not perform a subgroup analysis because this analysis “is
performed only when there is no pure moderator effect and no
significant correlation between the hypothesized moderator and either
the predictor or criterion variables” (Slater and Narver 1994, p. 51; see
also Sharma et al. 1981). The correlation between TME and DMO is
significant (p<0.01), so subgroup analysis is not appropriate.
The market orientation–performance relationship
Hypothesis 6 states that business unit performance is a
function of the gap between AMO and DMO. Because
underachieving (AMO<DMO) may have different perfor-
mance implications than overachieving (AMO>DMO), we
defined two gap variables:
Underachieve (UNDER)=DMO−AMO when DMO>
AMO and 0 otherwise; and
Overachieve (OVER)=AMO −DMO when AMO >
DMO and 0 otherwise.
This formulation allows us to estimate what might be
termed a generalized gap model. Conventional gap models
constrain the effects of underachieving and overachieving
to be equal. This conventional gap model is a special case
of the generalized gap model estimated below, and we can
use conventional statistical tests to determine whether the
implied constraint is appropriate.
We regressed four business performance measures on
AMO, UNDER, OVER, three environmental variables, and
five control variables used by Slater and Narver (1994) in
their study of market orientation and environmental
moderators. Table 4 summarizes the series of OLS
regressions used to evaluate Hypothesis 6. Model 3A
contains the three environmental and five control variables,
while model 3B adds AMO. An incremental F-test led us to
reject the restriction of the AMO coefficient to zero. Notice
that the overall fit of this model is comparable to that of the
J. of the Acad. Mark. Sci. (2009) 37:144–160 155

Table 3 Antecedents of the achieved level of market orientation In model 3D, the AMO and AMO2 terms have been
(n= 308)
replaced with the UNDER gap variable. The impact of this
Model Model Model 2B- change in model specification on overall fit is dramatic: the
2Aa 2B SUR adjusted R2s range from 0.67 to 0.81, significantly higher
than the corresponding range (0.31 to 0.43) for model 3C.
Intercept −0.11b 1.29* 2.19***
These results indicate that the gap model (model 3D)
(0.41) (0.75) (0.73)
Desired market 0.72*** 0.50*** 0.40*** clearly dominates both the linear AMO model of prior
orientation (DMO) (0.04) (0.11) (0.10) research (model 3B) and a model that is quadratic in AMO
Top management 0.21*** −0.01 −0.06 (model 3C).
emphasis (TME) (0.04) (0.11) (0.11) Model 3E adds the over variable to model 3D. In three of
DMO×TME 0.03** 0.04*** the performance regressions (relative market share, customer
(0.02) (0.02) retention, and overall performance), this addition has no
Top management risk 0.03 0.02 0.02
impact on adjusted R2 and the incremental variable F-test is
aversion (0.03) (0.03) (0.03)
insignificant. In the ROI equation the incremental variable F-
Interdepartmental −0.15*** −0.14*** −0.16***
conflict (0.03) (0.03) (0.03) test is significantly different from zero and the Belsley–Kuh–
Interdepartmental 0.09*** 0.09*** 0.08*** Welsh test (1980) indicates that multicollinearity is not a
connectedness (0.03) (0.03) (0.03) problem (all of the variance inflation factors are less than 2).
Formalization −0.04* −0.04* −0.03 Thus the ROI column in Table 5 reports the SUR coefficients
(0.02) (0.02) (0.02) estimated from model 3E while the remaining columns
Centralization −0.12*** −0.13*** −0.13*** present the SUR coefficients estimated from model 3D.
(0.02) (0.02) (0.02)
Consistent with Hypothesis 6a, the coefficient of UNDER
Departmentalization −0.10*** −0.10*** −0.11***
(0.02) (0.02) (0.02)
is negative (ranging from −1.88 to −2.52) and significant in
Reward system 0.09*** 0.10*** 0.10*** each regression in Table 5. Contrary to Hypothesis 6b, the
orientation (0.02) (0.03) (0.02) coefficient of OVER is positive (0.81) and significant in
Overall F statistic 119.10*** 109.12*** the ROI equation, but is significantly less in magnitude
Adjusted R-square 0.78 0.78 than the coefficient of UNDER (F=139.59, df=1,297).6
Incremental variable F testc 4.97** Our results also do not support Hypothesis 6c, because the
a
The first four columns of coefficient estimates were obtained using
coefficient of OVER is not significantly different from zero
OLS regression, while the last column was obtained using seemingly in the RMS and CRR equations (see model 3E in Table 5).
unrelated regression (SUR). The SUR estimates were obtained by Importantly, in no case is the coefficient of OVER
estimating a system of equations in which DMO, AMO, and RMS statistically equal to the coefficient of UNDER. Based on
were the dependent variables.
b
Table entries are unstandardized regression coefficient estimates and
these results, we conclude that a conventional gap model
standard deviations (in parentheses). All hypotheses were evaluated (one in which the impact of underachieving and over-
using a two-tailed test of significance. achieving are equal) does not fit our data. These results must
c
The F-statistic in this row tests the hypothesis that the added variable be treated with caution, because DMO>AMO in only about
in the model (relative to the model in the previous column) has a
coefficient of zero.
13% (41/308) of our observations. For these reasons
***p=0.01; **p=0.05; *p=0.1. Hypotheses 6b and 6c merit further study in future research.

model estimated by Slater and Narver (1994), who obtained Discussion

adjusted R2s ranging from 0.31 to 0.39.5
Model 3C is identical to model 3B except for the
addition of AMO2. The addition of the squared term
significantly improves model fit, but the increase in
adjusted R2s is small (the largest increase is 0.2, which
occurs in the RMS regression). Moreover, multicollinearity
appears to be a problem in these models: both AMO and
AMO2 have variance inflation factors greater than 26.
5
The model estimated by Slater and Narver (1994; see Table 2 on p.
52) included two variables that measured the achieved level of market
orientation. These variables were based on measures developed by
Narver and Slater (1990).
We have described a model of market orientation that (1)
specifies the antecedents of the desired level of market
orientation, (2) identifies the desired level of market orienta-
tion as an antecedent of the achieved level of market
orientation, and (3) links business unit performance to the
gap between the desired and achieved levels of market
orientation. Our empirical analysis confirms the usefulness
of this conceptual framework for understanding the ante-
cedents and consequences of a business unit’s market
orientation. In particular, the data examined here support the
6
This F-test was computed using the OLS regression results.
156 J. of the Acad. Mark. Sci. (2009) 37:144–160

Table 4 Performance regression results (n=308)

Model Independent variablesb Fit statistics Dependent variablesa

ROI RMS CRR OVP

3A Control variables+environmental turbulence Overall fit F statisticc 12.93*** 11.00*** 9.89 15.65***
variables Adjusted R2 0.24 0.21 0.19 0.30
3B Control+environmental turbulence variables +AMO Overall fit F statistic 22.58*** 18.34*** 16.13*** 26.73***
Adjusted R2 0.39 0.34 0.31 0.43
Incremental variable 74.38*** 59.76*** 52.61*** 81.61***
F-testd
3C Control+environmental turbulence variables + Overall fit F statistic 21.28*** 18.54*** 15.19*** 24.13***
AMO+AMO2 Adjusted R2 0.40 0.36 0.32 0.43
Incremental variable 6.12** 11.49*** 4.87** 0.87
F-test
3D Control+environmental turbulence variables + Overall fit F statistic 142.72*** 76.75*** 136.68*** 83.42***
UNDER Adjusted R2 0.81 0.69 0.80 0.67
Incremental variable 877.79*** 465.95*** 911.01*** 364.30***
F-test
3E Control+environmental turbulence variables + Overall fit F statistic 131.61*** 68.93*** 123.31*** 64.08***
UNDER+OVER Adjusted R2 0.81 0.69 0.80 0.67
Incremental variable 6.77*** 0.28 1.39 0.43
F-test
a
ROI=Return on Investment, RMS=Relative Market Share, CRR=Customer Retention Rate, OPF=Overall Performance.
b
UNDER=DMO−AMO when DMO>AMO and 0 otherwise. OVER = AMO−DMO when AMO > DMO and 0 otherwise (recall that AMO=
Achieved Level of Market Orientation and DMO=Desired Level of Market Orientation).
c
The Overall Fit F statistic tests the hypothesis that all regression coefficients are zero.
d
This F-statistic tests the hypotheses that the coefficient of the added independent variable is zero. In Model 3B (3C), this F-statistic tests the
hypothesis that the coefficient of AMO (AMO2 ) is zero. In Model 3D (3E), this F-statistic tests the hypothesis that the coefficient of UNDER
(OVER) is zero.
***p=0.01.

following conclusions. First, the desired level of market
orientation is positively related to perceived levels of
market turbulence, competitive intensity, and technological
turbulence. These findings are consistent with the idea that
rapid or unanticipated changes in consumer preferences and
competitor activities increase the importance of collecting,
disseminating, and responding to market intelligence.
However, our findings contradict the hypothesis that
increases in technological turbulence decrease the impor-
tance of a market orientation. One possible explanation for
this result is that, when environmental turbulence is high,
additional market information provides insights that can
help managers evaluate the attractiveness of various
technological alternatives.
Second, consistent with the prescriptions of the market-
ing orientation literature, the desired level of market
orientation as perceived by senior managers is positively
related to the achieved level of market orientation as
perceived by SBU managers. Moreover, the magnitude of
this relationship depends on the degree to which senior
management emphasizes the importance of a market
orientation within the firm.
Third, the impact on performance of a change in the
achieved level of market orientation depends on the desired
level of market orientation. Our analysis indicates that,
when the achieved level of market orientation is less than
the desired level, business unit performance is negatively
related to the gap between the desired and achieved levels
of market orientation.
Managerial implications
Our results have several important managerial implications.
First, Kohli and Jaworski (1990) concluded that “a market
orientation may or may not be very desirable for a business,
depending on the nature of its supply- and demand-side
factors” (p. 15). Our results suggest that this conclusion
may be restated as follows: the desired level of market
orientation for a business depends on its environment and
its innovation strategy.
Second, Kohli and Jaworski (1990) observed that the
factors that “foster or discourage” a market orientation “are
largely controllable by managers and therefore can be
altered by them to improve the market orientation of their
organizations” (p. 15). However, the findings reported here
indicate that key determinants of the desired level of market
orientation such as competitive intensity and market
turbulence lie largely outside the control of managers
J. of the Acad. Mark. Sci. (2009) 37:144–160 157

Table 5 The market–orientation–performance relationship: SUR from technological turbulence, decreases the resources
regressions (n=308)
available for monitoring and responding to changes in
ROI a
RMS CRR OPF customer preferences (Glazer 1991; Slater and Narver
1994). Our findings suggest that managers should recon-
Intercept 8.19*** 7.76*** 8.11*** 6.30*** sider the wisdom of allocating fewer resources to market
(0.43) (0.54) (0.44) (0.50)
intelligence when technological turbulence increases.
Underachieve −2.23*** −2.36*** −2.52*** −1.88***
(UNDER)c Fourth, we found that, the higher the desired level of
(0.08) (0.10) (0.08) (0.09) market orientation, the greater the gap between the desired
Overachieve 0.81*** and achieved levels of market orientation. Unfortunately, the
(OVER) collection of additional market information creates difficulties
(0.26) for the individuals responsible for processing new information
Market −0.00 −0.04 −0.09** −0.07* and generating relevant action alternatives (Aaker 1984;
turbulence
Weitz et al. 1986). As a result, when the desired level of
(0.03) (0.05) (0.04) (0.04)
information rises, managers must make added efforts to
Competitive −0.04 −0.01 0.03 0.05
intensity ensure that new information is disseminated across function-
(0.04) (0.05) (0.04) (0.04) al boundaries and that functional responses to new informa-
Technological 0.04 0.08** 0.05 0.15*** tion are coordinated (Olson et al. 1995).
turbulence
(0.03) (0.04) (0.03) (0.03) Data limitations and directions for future research
Relative size −0.11*** −0.05 −0.01 0.09**
(0.04) (0.05) (0.04) (0.04)
Our conclusions must be qualified in several ways. First,
Relative costs 0.02 −0.02 −0.09** −0.07*
(0.03) (0.04) (0.03) (0.04)
our results reflect the analysis of correlations among
Market growth 0.03* 0.04* −0.01 0.00 contemporaneous variables. While such an analysis is
(0.02) (0.02) (0.02) (0.02) consistent with causal relationships implied by existing
Ease of entry −0.09*** −0.03 0.04* −0.03 theory, it cannot be used to establish those causal relation-
(0.02) (0.03) (0.02) (0.03) ships. This limitation could be addressed by a longitudinal
Buyer power −0.04* −0.05* −0.00 −0.04 study (e.g., Noble et al. 2002), which we offer as an
(0.02) (0.03) (0.02) (0.03) ambitious goal for future research. In addition, our cross-
Overall F 131.61*** 76.75*** 136.68*** 71.28
sectional data do not permit us to evaluate the degree to
statistic
Adjusted R- 0.81 0.69 0.80 0.67 which environmental variables change over time. Our
square model implies that changes in environmental variables
should alter the desired level of market orientation, and this
a
ROI=Return on Investment, RMS=Relative Market Share, CRR= implication could be tested with longitudinal data.
Customer Retention Rate, OPF=Overall Performance.
b
Table entries are unstandardized regression coefficient estimates and
A second limitation involves the collection of data at the
standard deviations (in parentheses). All hypotheses were evaluated business-unit level of aggregation. We chose this level of
using a two-tailed test of significance. aggregation to permit comparisons of our results with prior
c
UNDER=DMO−AMO when DMO>AMO and 0 otherwise. OVER= studies that have examined the moderating effect of environ-
AMO−DMO when AMO>DMO and 0 otherwise (recall that AMO=
Achieved Level of Market Orientation and DMO=Desired Level of
mental variables on the market orientation–performance
Market Orientation). relationship. However, the resulting “global” measures are
***p=0.01; **p=0.05; *p=0.1. necessarily driven by respondent’s perceptions of many
activities over time with regard to a variety of products and
within the firm. Thus decisions about the appropriate level of customers. This raises the possibility that certain events may
market orientation must reflect an internal consideration of the have a disproportionate influence on the respondents’ global
firm’s innovation strategy and an external evaluation of perceptions of their business units’ market orientation. Thus
market turbulence and competitive rivalry. future research might profitably examine whether the collec-
Third, our results suggest that increases in technological tion of more disaggregate information can generate additional
turbulence increase the desired level of market orientation. insights regarding the antecedents and consequences of a
This finding has important implications for managers, who market orientation.
tend to respond to high levels of technological turbulence Third, we tested our theoretical model by analyzing data
by focusing on changes in technology and the implications collected from U.S. firms. There are reasons to believe that
of those changes for their marketing mix (Hayes and the market orientation–performance relationship may vary
Wheelwright 1984) This focus, which reflects the desire of across national boundaries. For example, the level of
executives to manage the risks and uncertainties that arise government intervention in the economy may influence
158
the desired level of market orientation by affecting
competitive intensity and technological turbulence (Qu
and Ennew 2005). Government intervention might also
influence achieved levels of market orientation by con-
straining a firm’s ability to collect and respond to market
intelligence (e.g., government restrictions on the collection
of consumer information in certain European countries).
Finally, in some markets government intervention can be
expected to influence the benefits that a firm receives from
developing a market orientation. For all of these reasons, an
analysis that examines the impact of market-specific
government intervention may shed additional light on the
antecedents and consequences of a market orientation.
A review of our findings suggests additional paths for
future research. First, Han, Kim, and Srivastava (1989)
found that organizational innovativeness (i.e., the number
of outside innovations adopted and implemented by the
banks in their study) mediates the relationship between
performance and the achieved level of market orientation.
Importantly, this study measured the achieved level of
market orientation using the Narver and Slater (1990) scale,
which does not assess organizational responsiveness to
market intelligence. In contrast, the scale used in this study
(the MARKOR scale developed by Kohli, Jaworski, and
Kumar 1993) contains a sub-scale that assesses responsive-
ness to market intelligence in a broad sense, but does not
distinguish between innovative and non-innovative
responses. Thus future research should examine the impact
of the AMO–DMO gap on organizational innovativeness.
Second, prior research has emphasized the positive impact
of senior management communicating the importance of a
market orientation throughout an organization (e.g., Jaworski
and Kohli 1993). The results reported here indicate that,
when we control for this communication, senior manage-
ment perceptions of the desired level of market orientation
still have a substantial incremental impact on the achieved
level of market orientation. The mechanisms underlying this
relationship are an important topic for future research.
Third, while existing research has hypothesized that
increases in the level of technological uncertainty decrease
the importance of a market orientation (e.g., Kohli and
Jaworski 1990), we found a positive relationship in our
empirical work. There are at least two possible explanations
for this result. First, when technological turbulence is high,
major innovations often come from outside the industries
served by the firm (Utterback and Abernathy 1975;
Christensen 1997). For this reason, high levels of techno-
logical turbulence increase the firm’s incentive to expand
the breadth of its information collection processes (Slater
and Narver 1994). Second, firms often respond to high
levels of technological uncertainty by seeking alliances
with other firms (Teece 1992; Robertson and Gatignon
1998). The increased importance of identifing and evaluat-
J. of the Acad. Mark. Sci. (2009) 37:144–160
ing potential technology partners, along with the need to
track the alliance activity of competitive firms, can also
lead to an increase in firm’s need for market information.
The relative importance of these explanations for under-
standing the positive relationship between technological
turbulence and the ideal level of market orientation is an
important topic for future research.
Fourth, a surprising result in our analysis involved
Hypotheses H6b and H6c, which predicted that achieving
more than the desired level of market orientation would
have (1) a negative impact on cost-based measures of
efficiency like ROI and (2) a positive impact on customer-
based measures of effectiveness like relative market share
and customer retention. An implicit assumption underlying
these hypotheses was that an increase in market information
processes beyond the desired level would only increase
firm costs. One possible explanation for our failure to find
support for H6B and H6C involves the potentially
favorable impact of market information on product and
marketing costs. Perhaps an increase in market orientation
enables the firm to reduce costs by accelerating its
development efforts, reducing production costs, and better
targeting its marketing efforts. This possibility should be
explored in future research.
In summary, we believe that the research presented here
makes several important contributions. We have presented a
model of market orientation that specifies the antecedents
of the desired level of market orientation and links this
desired level to both the achieved level of market
orientation and to performance. Our empirical analysis,
based on data collected from 308 US firms, provides strong
support for the hypothesized model. Our results should
have relevance for both academicians and practitioners. In
particular, we hope that our findings will be of considerable
interest and value to those executives who seek to establish
a sustainable competitive advantage through the creation
and sustenance of a market-driven organization.
References
Aaker, D. A. (1984). Strategic market management. New York: Wiley.
Achol, R. S., Reve, T., & Stern, L. W. (1983). The environment of
marketing channel dyads: A framework for comparative analysis.
Journal of Marketing, 47(4), 55–67. doi:10.2307/1251399.
Appiah-Adu, K. (1997). Market orientation and performance: Do the
findings established in large firms hold in the small business
sector? Journal of Euromarketing, 6(3), 1–26. doi:10.1300/
J037v06n03_01.
Belseley, D. A., Kuh, E., & Welsch, R. E. (1980). Regression diagnostics.
New York: Wiley.
Christensen, C. (1997). The innovator’s dilemma: When new technol-
ogies cause great firms to fail. Boston: Harvard Business School
Press.
J. of the Acad. Mark. Sci. (2009) 37:144–160
Churchill, G. A., Jr. (1979). A paradigm for developing better
measures of marketing constructs. JMR, Journal of Marketing
Research, 16(February), 64–73. doi:10.2307/3150876.
Conant, J. S., Mokwa, M. P., & Rajan Varadarajan, P. (1990).
Strategic types, distinctive marketing competencies and organi-
zational performance: A multiple measures-based study. Strate-
gic Management Journal, 11(5), 365–383. doi:10.1002/
smj.4250110504.
Day, G. S., & Nedungadi, P. (1994). Managerial representations of
competitive advantage. Journal of Marketing, 58(April), 31–44.
doi:10.2307/1252267.
Day, G. S., & Wensley, R. (1988). Assessing advantage: A framework
for diagnosing competitive superiority. Journal of Marketing, 52
(April), 1–20.
DeSarbo, W. S., Grewal, R., & Wind, J. (2006). Who competes with
whom? A demand-based perspective for identifying and repre-
senting asymmetric competition. Strategic Management Journal,
27(1), 101–129. doi:10.1002/smj.505.
Dickson, P. R. (1996). The static and dynamic mechanics of
competition: A comment on Hunt and Morgan’s competitive
advantage theory. Journal of Marketing, 60(October), 102–106.
doi:10.2307/1251904.
Dickson, P. R., & Ginter, J. L. (1988). Market segmentation, product
differentiation and marketing strategy. Journal of Marketing, 52
(January), 1–10.
Dillman, D. A. (1978). Mail and telephone surveys: The total design
method. New York: Wiley.
Eisenhardt, K. M. (1989). Building theories from case study research.
Academy of Management Review, 14(4), 532–550. doi:10.2307/
258557.
Glazer, R. (1991). Marketing in an information-intensive environment:
Strategic implications of knowledge as an asset. Journal of
Marketing, 55(4), 1–19. doi:10.2307/1251953.
Grewal, R., Cote, J. A., & Hans, B. (2004). Multicollinearity and
measurement error in structural equation models: Implications for
theory testing. Marketing Science, 23(4), 519–529. doi:10.1287/
mksc.1040.0070.
Grewal, R., & Tansuhaj, P. (2001). Building organizational capabil-
ities for managing economic crisis: The role of market orientation
and strategic flexibility. Journal of Marketing, 65(2), 67–80.
doi:10.1509/jmkg.65.2.67.18259.
Gupta, A. K., Raj, S. P., & Wilemon, D. (1986). A model for studying
R&D–marketing interface in the product innovation process.
Journal of Marketing, 50(2), 7–17. doi:10.2307/1251596.
Han, J. K., Kim, N., & Srivastava, R. K. (1998). Market orientation
and organizational performance: Is innovation a missing link?
Journal of Marketing, 62(4), 30–45. doi:10.2307/1252285.
Hayes, R. H., & Wheelwright, S. C. (1984). Restoring our competitive
edge: Competing through manufacturing. New York, NY: Wiley.
Houston, F. S. (1986). The marketing concept(:) What it is and what it
is not. Journal of Marketing, 51(October), 31–44.
Jaworski, B. J., & Kohli, A. K. (1993). Market orientation:
Antecedents and consequences. Journal of Marketing, 57(July),
53–70. doi:10.2307/1251854.
Kamakura, W. A., & Srivastava, R. K. (1986). An desired-point
probabilistic choice model for heterogeneous preferences. Mar-
keting Science, 5(3), 199–218.
Khandwalla, P. N. (1974). The Design of Organizations. New York:
Harcourt Brace Jovanovich.
Kirca, A. H., Jayachandran, S., & Bearden, W. O. (2005). Market
orientation: a meta-analytic review and assessment of its
antecedents and impact on performance. Journal of Marketing,
69(April), 24–41. doi:10.1509/jmkg.69.2.24.60761.
Kohli, A. K., & Jaworski, B. J. (1990). Market orientation: The
construct, research propositions, and managerial implications.
Journal of Marketing, 54(April), 1–18. doi:10.2307/1251866.
159
Kohli, A. K., Jaworski, B. J., & Kumar, A. (1993). MARKOR: a
measure of market orientation. JMR, Journal of Marketing
Research, 30(November), 467–477. doi:10.2307/3172691.
Kristof, A. L. (1996). Person–organization fit: An integrative review
of its conceptualizations, measurement, and implications. Per-
sonnel Psychology, 49(1), 1–49. doi:10.1111/j.1744-6570.1996.
tb01790.x.
Lawrence, P. R., & Lorsch, J. W. (1969). Organization and
environment: Managing differentiation and integration. Home-
wood, IL: Richard D. Irwin.
Lee, J. K. H., Sudhir, K., & Steckel, J. H. (2002). A multiple desired
point model: Capturing multiple preference effects from within
an desired point framework. JMR, Journal of Marketing
Research, 39(1), 73–86. doi:10.1509/jmkr.39.1.73.18931.
Lindell, M. K., & Whitney, D. J. (2001). Accounting for common
method variance in cross-sectional research designs. The Journal
of Applied Psychology, 86(1), 114–121. doi:10.1037/0021-
9010.86.1.114.
Lusch, R. F., & Laczniak, G. R. (1987). The evolving marketing
concept, competitive intensity and organizational performance.
Journal of the Academy of Marketing Science, 15(Fall), 1–11.
doi:10.1007/BF02722166.
Malhotra, N. K., Kim, S. S., & Patil, A. (2006). Common method
variance in is research: A comparison of alternative approaches
and a reanalysis of past research. Management Science, 52(12),
1865–1883. doi:10.1287/mnsc.1060.0597.
Matsuno, K., & Mentzer, J. T. (2000). The effects of strategy type on
the market orientation–performance relationship. Journal of
Marketing, 64(4), 1–16. doi:10.1509/jmkg.64.4.1.18078.
McDaniel, S. W., & Kolari, J. W. (1987). Marketing strategy
implications of the Miles and Snow strategic typology. Journal
of Marketing, 51(4), 19–30. doi:10.2307/1251245.
McKee, D. O., Varadarajan, P. R., & Pride, W. M. (1989). Strategic
adaptability and firm performance: A market-contingent perspec-
tive. Journal of Marketing, 53(3), 15–35. doi:10.2307/1251340.
Miles, R. E., & Snow, C. E. (1978). Organizational strategy,
structure, and process. New York: McGraw-Hill 1978.
Miller, D. (1988). Relating Porter’s business strategies to environment
and structure: Analysis and performance implications. Academy
of Management Journal, 31(2), 280–308. doi:10.2307/256549.
Mintzberg, H. (1979). The structuring of organizations. Englewood
Cliffs, NJ: Prentice-Hall 1979.
Moorman, C. (1995). Organizational market information processes:
Cultural antecedents and new product outcomes. JMR, Journal of
Marketing Research, 32(August), 318–335. doi:10.2307/3151984.
Moorman, C., & Miner, A. S. (1997). The impact of organizational
memory in new product performance and creativity. JMR,
Journal of Marketing Research, 34(February), 91–106.
Narver, J. C., & Slater, S. F. (1990). The effect of a market orientation
on business profitability. Journal of Marketing, 54(October), 20–
35. doi:0.2307/1251757.
Noble, C. H., Sinha, R. K., & Kumar, A. (2002). Market orientation
and alternative strategic orientations: A longitudinal assessment
of performance implications. Journal of Marketing, 66(4), 25–39.
doi:10.1509/jmkg.66.4.25.18513.
Olson, E. M., Slater, S. F., Thomas, G., & Hult, M. (2005). The
performance implications of fit among business strategy, market-
ing organization structure, and strategic behavior. Journal of
Marketing, 69(3), 49–65. doi:10.1509/jmkg.69.3.49.66362.
Olson, E. M., Walker, O. C., Jr., & Ruekert, R. W. (1995). Organizing
for effective new product development: The moderating role of
product innovativeness. Journal of Marketing, 59(January), 48–
62. doi:10.2307/1252014.
Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A conceptual
model of service quality and its implications for future research.
Journal of Marketing, 49(4), 41–50. doi:10.2307/1251430.
160
Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations:
A resource dependence perspective. New York: Harper and Row.
Phillips, L. W. (1981). Assessing measurement error in key informant
reports: A methodological note on organizational analysis in
marketing. JMR, Journal of Marketing Research, 18(November),
395–415. doi:10.2307/3151333.
Qu, R., & Ennew, C. T. (2005). Developing a market orientation in a
transitional economy: The role of government regulation and
ownership structure. Journal of Public Policy & Marketing, 24
(1), 82–89. doi:10.1509/jppm.24.1.82.63900.
Robertson, T. S., & Gatignon, H. (1998). Technology development
mode: A transaction cost conceptualization. Strategic Manage-
ment Journal, 19(6), 515–531. doi:10.1002/(SICI)1097-0266
(199806)19:6<515::AID-SMJ960>3.0.CO;2-F.
Ruekert, R. W., Walker, O. C., Jr., & Roering, K. J. (1985). The
organization of marketing activities: A contingency theory of
structure and performance. Journal of Marketing, 49(Winter),
13–25. doi:10.2307/1251172.
Sharma, S., Durand, R. M., & O Gur-Arie, O. (1981). Identification
and analysis of moderator variables. JMR, Journal of Marketing
Research, 18(August), 291–300. doi:10.2307/3150970.
Shocker, A. D., & Srinivasan, V. (1974). A consumer-based
methodology for the identification of new product ideas.
Management Science, 20(6), 921–937.
Slater, S. F., & Narver, J. C. (1993). Product–market strategy and
performance: An analysis of the miles and snow strategy types.
European Journal of Marketing, 27(10), 33–51. doi:10.1108/
03090569310045870.
Slater, S. F., & Narver, J. C. (1994). Does competitive environment
moderate the market orientation–performance relationship? Jour-
nal of Marketing, 58(January), 46–55.
J. of the Acad. Mark. Sci. (2009) 37:144–160
Subramanian, R., & Gopalakrishna, P. (2001). The market
orientation–performance relationship in the context of a
developing economy: An empirical analysis. Journal of
Business Research, 53(1), 1–13. doi:10.1016/S0148-2963(99)
00109-5.
Tauber, E. M. (1974). How market research discourages major
innovation. Business Horizons, 22(3), 22–26. doi:10.1016/0007-
6813(74)90070-6.
Teece, D. J. (1992). Competition, cooperation and innovation. Journal of
Economic Behavior & Organization, 18(1), 1–25. doi:10.1016/
0167-2681(92)90050-L.
Utterback, J. M., & Abernathy, W. J. (1975). A dynamic model of
process and product innovation. Omega: The International
Journal of Management Science, 3(6), 639–656. doi:10.1016/
0305-0483(75)90068-7.
Vorhies, D. W., & Morgan, N. A. (2003). A configuration theory
assessment of marketing organization fit with business
strategy and its relationship with marketing performances.
Journal of Marketing, 67(1), 100–115. doi:10.1509/jmkg.67.
1100.18588.
Walker, O. C., Jr., & Ruekert, R. W. (1987). Marketing’s role in the
implementation of business strategies: A critical review and
conceptual framework. Journal of Marketing, 51(3), 15–33.
doi:10.2307/1251645.
Webster, F. E., Jr. (1988). The rediscovery of the marketing concept.
Business Horizons, 31(May–June), 29–39. doi:10.1016/0007-
6813(88)90006-7.
Weitz, B. A., Sujan, H., & Sujan, M. (1986). Knowledge,
motivation, and adaptive behavior: A framework for improv-
ing selling effectiveness. Journal of Marketing, 50(October),
17–29.