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The Relationship Between Learning Orientation, Market Orientation AndOrganisational Performance

Felicity Hardley and Felix Mavondo . Department of Marketing, Monash University

AbstractThis paper investigates the relationship between learning orientation, market orientation and organisationalperformance. The results suggest that learning orientation has a significant positive impact on customerorientation and competitor orientation. In addition, learning orientation has significant indirect (mediated)impact on organisational performance. Our results reveal that in the special circumstances in which theAustralian retail pharmacy operates competitor orientation might lead to poor organisational performance sincethis is not an optimal way to deploy resources. Our results further suggest that a strong emphasis on customerorientation may be an effective antecedent to effective competitor orientation.

INTRODUCTION

Much of the existing literature on learning and organisational performance identify market and learningorientation as highly integrated paradigms with many theorists suggesting that a learning and market orientationare an integral part of organisational culture (Jaworski and Kohli 1993; Slater and Narver 1995; Hurley and Hult1998). However, the ultimate goal of many studies on the effects of learning, customer and competitororientation on organisational performance, has been to discover what businesses have to do to achieve acompetitive advantage.

LEARNING AND MARKET ORIENTATION

The benefits of learning and ‘absorptive capacity’ have been empirically examined by several theorists (eg.Baker and Sinkula 1999; Hamel, 1991; Mowery, Oxley and Silverman 1996) and it has been suggested thatlearning is the most valuable resource an organisation can have for maintaining a competitive advantage(Dickson 1996). Baker and Sinkula (1999) assert that a distinction should be made between learning orientation(which is said to affect an organisation’s capability to contest old assumptions about the market) and marketorientation (an organisation’s focus on environmental events that may affect their ability to maximally satisfycustomers). The important distinction to draw is that a learning orientation does not just utilise market-basedknowledge in searching for new ways to increase customer satisfaction (Baker and Sinkula 1999).

To assist in the explanation of knowledge as a core capability, scholars have divided knowledge into twocategories, tacit and explicit (Nonaka and Takeuchi 1995). Tacit knowledge is difficult to articulate, formulateand communicate as it is knowledge that has been learned through experience (Nonaka and Takeuchi 1995). Thisis similar to the notion of ‘know-how’ that has been examined by Kogut and Zander (1992) and Szulanski(1996), whereby know-how is sticky, difficult to codify and difficult to transfer or imitate. It is for these reasonsthat knowledge and the ability to learn are recognised as core capabilities or key for generating competitiveadvantage. These characteristics of learning indicate why it might be a sustainable source of competitiveadvantage and may contribute to superior performance. However, whilst it is becoming generally accepted that alearning orientation affects organisational performance, the question of how still remains unclear and is themotivation for this paper. We develop a conceptual model (Figure 1) and test it empirically.Literature reveals two generally accepted assertions namely, that learning is an important facilitator ofcompetitive advantage, and that market orientation and learning orientation are not one and the same. Dickson(1996) believes that market information processing behaviours that are derived from a strong market orientationcan be readily copied, however, the learning environment that organizes and translates the output of thesebehaviours into a comparative advantage cannot.

Market orientation has been viewed by many theorists as having an operational focus on market informationprocessing activities regarding customers and competitors, particularly information acquisition, informationdistribution, and the ability to respond to what is received (Day 1994; Deshpande, Farley, and Webster 1993;Kohli and Jaworski 1990; Narver and Slater 1990).

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The distinct organisational characteristics of learning orientation (Sinkula, Baker and Noordewier 1997) andmarket orientation are examined in relation to organisational performance. For the purposes of this study, wedecompose market orientation into its components and examine customer and competitor orientation and theirrelationship to learning orientation to gain a deeper understanding. Learning orientation is viewed from theperspective that it is an organisational characteristic that reflects the value that a firm places on responding tochanges in the environment and to challenging the assumptions that frame the organisation’s relationship with itsenvironment (Baker and Sinkula, 1999).

Organisational performance, while a multi-dimensional construct, in this study was tested only as a profitabilitymeasure. Several studies have indicated that whilst customer orientation has a positive impact on profitability(Deshpande et al 1993), competitor orientation very often has a negative impact on profitability (Armstrong andCollopy 1996; Boynton, Blake, and Uhl 1983). Thus, the decomposition of market orientation may highlight thepotential conflict in the current conceptualisation of market orientation.

MARKET ORIENTATION

Kohli and Jaworski (1990: 6) propose a formal definition of market orientation. “Market orientation is theorganisation-wide generation of market intelligence pertaining to current and future customer needs,dissemination of the intelligence across departments, and organisation-wide responsiveness to it.”

In defining the conceptual domain of market orientation, Narver and Slater (1990) identify three behaviouralcomponents: (1) Customer orientation, which involves understanding target buyers now and over time in order tocreate superior value for them; (2) Competitor orientation which involves acquiring information on existing andpotential competitors, understanding the short-term strengths and weaknesses and long term capabilities of boththe key current and potential competitors. (3) Inter-functional coordination, which is the coordinated utilisationof company’s resources in creating superior value for target customers.Research suggests that market orientation is related to certain organisational capabilities (Day 1994), toorganisational performance (Kohli and Jaworski 1993; Narver and Slater 1990, Greenley 1995), that marketorientation is positively related to innovation (Slater and Narver 1995) that it is an important resource (Hunt andMorgan 1995).

Figure 1: Conceptual Model and hypotheses tested

From this brief exploration of relevant literature we advance the following hypothesesH1: Learning orientation is strongly and positively related to customer orientationH2: Learning orientation is strongly and positively related to competitor orientationH3: Customer orientation is strongly and positively related to competitor orientationH4: Customer orientation is strongly and positively related to superior performance (profit)

LEARNING

BPQ51 BPQ52 BPQ54

COMPETITOR

BPQ18

BPQ17

BPQ16

CUSTOMER

BPQ11

BPQ12

BPQ14

PROFIT

GQ4CGQ4BGQ4A

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H5: Competitor orientation is negatively related to organisational performanceH6: The relationship between learning orientation and organisational performance is mediated by customerorientation

RESEARCH METHODOLOGY, SAMPLE AND INSTRUMENT DEVELOPMENT

Data Collection

Data for the study was collected using a mail survey questionnaire. 600 4-page questionnaires were sent to retailpharmacies in Victoria (Australia). The sample was picked from the metropolitan and regional directories. Aneffective response rate of 25% (145) was obtained of whom 30 were regional and 115 were metropolitan retailpharmacies. The retail pharmacy industry was chosen for the study for several reasons including: the rapidchanges happening in the industry due to impending deregulation, its size and importance in a rapidly evolvinghealth system. It was also noted that the industry is dominated by highly competitive professionals who oftenhad to co-operate in the face of a turbulent environment. Retail pharmacists compete vigorously for business butco-operate as professionals in the common field.

Development of Measurement Instruments

All constructs were measured on a 7 point Likert-type scale using existing measures. All measuresoperationalised were derived from existing scales. Customer orientation and competitor orientation were fromNarver and Slater (1990), learning orientation from Sinkula, Baker and Noordewier (1997). Profit had items(previous profit, current profit and future profit). The Chronbach α’s were all .75 or higher. Structural modellingwas used to test the measurement model and the structural part of the model using AMOS 4. Model details aregiven in Table 1. To make the model robust, we used “item parcels” (Kishton and Widaman (1994) to reduce thenumber of items per latent variable. For example the six items for customer orientation, they were randomlyallocated to three indicators shown on the model (each has two items). This is consistent with psychometricians’recommendations (Abe, Bagozzi and Sadarangani 1996, Marsh 1994).

RESULTS

Our results suggest that the model fits the data rather well (χ 2(48) = 59.176, p=.129; Cmin=1.233; GFI=.939 ,AGFI=.901; NFI= .909, TLI= .974, CFI=.981; RMEA=.041). The measurement model indicates that all theitems loaded high on the hypothesised constructs. All items significantly differed from zero with t-valuesranging from 4.1-8.6 standard errors from zero and all the t-values are significant at (p<.001). All the fitstatistics (measures of fit, comparative measures) indicate a good fit (Table 1).

There is support for H1 ie that learning orientation has a significant and positive influence on customerorientation (Table 1). H2, which posits that learning orientation has a significant and positive effect oncompetitor orientation’ is supported. Our results further support the notion that customer orientation is positivelyrelated to competitor orientation (H3). Our position that in a market economy, businesses must focus on thecustomer as the starting point is supported by customer orientation being positively related to superiorperformance (H4). While in the Narver and Slater (1990) conceptualisation of market orientation both customerorientation and competitor orientation are dimensions of market orientation, concern has been raised that thereare situations were the relationship and effects of these might be opposite. In this case because of the specialfeatures of the retail pharmacy in Australia, competitor orientation would be a waste of resources while customerorientation would be very beneficial. Thus, H5, which posits a negative association between competitororientation and financial performance, is supported. Our results further, suggest that the impact of learningorientation on profitability is mediated by customer orientation (H6). Our findings highlight the importance oflearning as an ongoing search for effective routines for organisational growth and profitability. We suggest thatmanagers need to invest in learning ie learning a lot and fast-if their competitive advantage is to be sustainable.

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Table 1: Summary of Model ResultsItems Learning Orientation Customer Orientation Competitor

OrientationProfit

Factor LoadingsBPQ51 .883BPQ52 .752 (8.607)***BPQ54 .622 (7.211)***BPQ11 .595BPQ12 .689 (6.610)***BPQ14 .727 (6.813)***BPQ16 .553 (6.2)***BPQ17 .750 (8.2)***BPQ18 .847GQ4a .952 (4.1)***GQ4b .780 (4.3)***GQ4c .574

Regressions γH1: Learning orientation –customerorientation

.542 (4.823)***

H2: Learning orientation-competitororientation

.368 (3.305)**

H3: Customer orientation-competitororientation

.449 (3.646)***

H4: Customer Orientation-Profit .595 (2.779)**H5: Competitor orientation-Profit -.292 (1.982)*H6: Learning orientation-Customerorientation-Profit

.142 (4.176)***

***p<.001, **p<.01, *p<.05

DISCUSSION AND MANAGERIAL IMPLICATIONS

Our results have managerial implication in that they suggest a learning orientation has positive association withcustomer orientation, competitor orientation and organisational performance. The results suggest that learningdoes not have a direct association with organisational performance; its effect is mediated by customerorientation. The results highlight that the current conceptualisation of market orientation may be problematic.While customer orientation and competitor orientation are components of market orientation, in this researchthey had opposite relationships to organisational performance. This is likely to occur, as in the case the retailpharmacy in Australia, where competition was unnecessary but customer orientation was critical. This waslargely due to the regulatory environment at the time the research was done (1999). Thus, the managerialimplication is that managers may need to pay differential weighing to the dimensions of market orientation inresponse to the specifics of their industry. The results also imply that managers should place priority to learningorientation which encompasses a broad range of activities than market orientation.

Finally, these results demonstrate the superiority of using structural modeling as opposed to multiple regression.Structural modeling allows the examination of direct and mediated relationships while also testing the general fitof the model. As a result, structural modeling gives a holistic picture of all the relationships hypothesised.

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