Volume 12 Issue 2 Article 1 12-31-2010 The market orientation of Slovenian companies: two-group comparisons Mateja Bodlaj Iča Rojšek Follow this and additional works at: https://www.ebrjournal.net/home Recommended Citation Bodlaj, M., & Rojšek, I. (2010). The market orientation of Slovenian companies: two-group comparisons. Economic and Business Review, 12(2). https://doi.org/10.15458/2335-4216.1243 This Original Article is brought to you for free and open access by Economic and Business Review. It has been accepted for inclusion in Economic and Business Review by an authorized editor of Economic and Business Review. 89 ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 2010 | 89–108 THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP COMPARISONS MATEJA BODLAJ* IČA ROJŠEK** ABSTRACT: Th e purpose of the presented empirical study was to examine market orien- tation between groups of companies in terms of three company characteristics, i.e. main business sector, company size, and type of the market, and three environmental char- acteristics, i.e. market turbulence, technological turbulence and competitive intensity. Market orientation is analysed by distinguishing between a cultural and behavioural perspective and by distinguishing between a responsive and proactive form. Compari- sons between groups of companies are made by testing invariant latent mean structures. Th e analysis of 325 Slovenian companies reveals that the particular market orientation dimensions only diff er when diff erent levels of market and technological turbulence are considered. Key words: market-oriented culture; responsive and proactive market orientation; market information JEL classification: M31 1. INTRODUCTION Market orientation is one of the key concepts in marketing literature and has been the subject of numerous empirical studies since the 1990s. Th e main interest in the concept is the underlying assumption that market orientation with its focus on customer needs can lead to a better company performance in comparison to alternative business orienta- tions. Th e majority of empirical studies (e.g. Narver and Slater, 1990; Jaworski and Kohli, 1993; Slater and Narver, 2000; Hooley et al., 2000; Milferner et al., 2008) along with three meta-analyses (Cano et al., 2004; Kirca et al., 2005; Ellis, 2006) reveal that market ori- entation is indeed positively related to business performance. However, most companies do not embrace the concept of market orientation until they are driven to it by circum- * University of Ljubljana, Faculty of Economics, Kardeljeva ploščad 17, 1000 Ljubljana, Slovenia, E-mail: mateja.bodlaj@ef.uni-lj.si ** University of Ljubljana, Faculty of Economics, Kardeljeva ploščad 17, 1000 Ljubljana, Slovenia, E-mail: ica. rojsek@ef.uni-lj.si ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 201090 stances such as a sales decline, slow sales growth, changing buying patterns, increasing competition or poor results yielding from marketing expenditures (Kotler, 2003). Al- though market orientation is viewed as an appropriate business philosophy, companies have diffi culties implementing it (Kennedy et al., 2002). It is therefore interesting that the majority of empirical studies have focused on market orientation’s consequences rather than analysing the factors that will lead to a higher level of market orientation. Kirca et al. (2005) in their meta-analysis reported that almost 85% of the eff ects mentioned in empirical studies refer to market orientation’s consequences. Only a few empirical studies compare the level of market orientation between groups of companies given the company characteristics or characteristics of the business environment. For example, are companies operating predominantly in consumer markets more market-oriented than companies in business markets? Do characteristics of the business environment (i.e. market turbulence, technological turbulence, competitive intensity) infl uence the level of market orientation? Th e existing literature provides very limited answers to these topics. Further, existing measures of market orientation are entirely or predominantly focused on measuring market-oriented behaviour rather than market-oriented culture, although various authors defi ne market orientation as a culture (e.g. Deshpande and Webster, 1989; Narver and Slater, 1990; Deshpande et al., 1993). Moreover, the recent market ori- entation literature strongly emphasises the need to distinguish between two forms of market orientation, i.e. responsive and proactive. Virtually all empirical studies to date have solely focused on a responsive market orientation (Narver et al., 2004), while ne- glecting a proactive market orientation. Th e literature in this fi eld is limited to just a few theoretical discussions and empirical studies. Th e purpose of this paper is to fi ll this gap in the literature and to contribute to the exist- ing knowledge on market orientation by comparing the level of market orientation be- tween groups of companies given selected company characteristics (i.e. size, main busi- ness, and type of the market) and selected characteristics of the business environment (i.e. market and technological turbulence, competitive intensity). Th e paper attempts to compare existing discussions and fi ndings reported on market orientation by research- ers from Western countries with empirical fi ndings obtained with the sample of Slov- enian companies. Comparisons will be made: 1) by distinguishing between a cultural and behavioural perspective of market orientation; and 2) by distinguishing between a responsive and a proactive market orientation. An analysis on a sample of 325 Slovenian companies will be based on the use of structural equation modelling. Th e rest of the paper is organised as follows: fi rst, a brief literature review of market ori- entation is provided along with research hypotheses relating to comparisons of market orientation between groups of companies. Th e methodology is then explained, followed by the results of the study. In the last section, a discussion of the results is provided along with the contributions of the presented empirical study to the market orientation litera- ture, research limitations, and recommendations for future research. M.BODLAJ, I. ROJŠEK | THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP ... 91 2. LITERATURE REVIEW Market orientation is one of the alternative company orientations toward the market- place that emerged in the mid-1950s and holds that the key to achieving business goals consists of the company being more eff ective than its competitors in creating, delivering and communicating superior customer value to its chosen target markets (Kotler, 2003). Other possible business orientations that are most frequently mentioned in the litera- ture include (Kotler, 2003; Varela and Rio, 2003; Kurtz and Boone, 2006): production orientation (which concentrates on achieving high production effi ciency, low costs, and mass distribution), product orientation (which focuses on making superior products and improving them over time, while getting little or no customer input as to whether the product really meets customer needs and wants), and selling orientation (which concen- trates on aggressive/hard selling and promotion to coax the customer into buying). Un- like production, product and selling orientation, which are classifi ed as “closed” orienta- tions since companies focus on the company’s goals (Snoj and Gabrijan, 1998; Snoj et al., 2004), market orientation is classifi ed as an “open” orientation because market-oriented fi rms focus on customer needs in order to achieve profi t in profi t-oriented companies or enough funds for the operation of non-profi t organisations. Two perspectives on market orientation prevail in the literature, i.e. cultural and behav- ioural (Snoj and Gabrijan, 1998). Conceptualisations proposed by two groups of authors are the most frequently used: Narver and Slater (1990, p. 21) defi ned market orientation as “the organisational culture that most eff ectively and effi ciently creates the necessary behaviours for the creation of superior value for the buyers and, thus, continuous supe- rior performance for the business”. In contrast to Narver and Slater who defi ned market orientation as a culture, Kohli and Jaworski (1990, p. 6) defi ned market orientation as a set of activities/behaviours: “organisation-wide generation of market intelligence per- taining to current and future customer needs, dissemination of the intelligence across departments, and organisation-wide responsiveness”. In addition, some authors take more levels into consideration. According to Deshpande (1999), market orientation can be present at three levels, as a culture (the shared set of values and beliefs regarding putting customers fi rst), as a strategy (continuously creating superior value for custom- ers) and as tactics (a set of cross-functional processes and activities directed at creating and satisfying customers). Moreover, Homburg and Pfl esser (2000) propose a multi-layer model of market orientation which consists of four distinguishable but interrelated com- ponents, i.e. values, norms, artefacts and behaviour. However, in spite of the diff erent conceptualisation perspectives the existing market ori- entation scales predominantly focus on the behavioural perspective. A review of 125 empirical studies reveals that almost 95% of studies measure market orientation at the operational, i.e. behavioural level (O. Gonzalez-Benito and J. Gonzalez-Benito, 2005). To conclude, the cultural perspective of market orientation has had a stronger impact on the defi nition rather than the development of measures of market orientation (Homburg and Pfl esser, 2000). Two widely used scales which both focus on market-oriented behaviour are the MARKOR scale (Jaworski and Kohli, 1993; Kohli et al., 1993) and the MKTOR ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 201092 scale (Narver and Slater, 1990). In the literature, there is no consensus on which of these scales is better (Matsuno et al., 2005). Overall, both scales are reliable (Ellis, 2006) but cannot be simply applied in their original forms (Oczkowski and Farrell, 1998) without a careful examination of their measurement quality (Gauzente, 1999) (for more on this topic, see Bodlaj, 2009). Th e recent market orientation literature stresses the need to distinguish between two complementary forms of market orientation: responsive (market-driven) and proactive (market-driving). Jaworski et al. (2000) argue that market orientation has oft en been in- terpreted narrowly as the adaptation of product off erings to existing customer preferenc- es and/or market structure. Th e current literature has an unbalanced focus on existing customer preferences and the current market structure rather than the proactively shap- ing market. Authors distinguish between two complementary forms of market orienta- tion: “market-driven” and “driving market/market driving”. Th e market-driven form is based on understanding and reacting to the preferences and behaviours of players within a given market structure. By contrast, the driving market form implies a company’s im- pact on the market structure and/or behaviours of market players in order to improve the competitive position of the business (Jaworski et al., 2000). Th e success of market driving depends on a good understanding of the existing market, anticipating potential future developments of the market, company capabilities for changing customer prefer- ences etc. (Harris and Cai, 2002). Companies that drive the market obtain a sustainable competitive advantage by creating substantial superior value for the customer (Kumar et al., 2000). Both forms of market orientation are needed for a long-run business perform- ance (Sheth and Sisodia, 1999). Similarly, Narver et al. (2004) distinguish between a “responsive” market orientation which refers to discovering, understanding and satisfying expressed customer needs, and a “proactive” market orientation which refers to discovering, understanding and sat- isfying latent customer needs. While a responsive market orientation is generally regard- ed as being market-driven, a proactive market orientation is more compatible with the concept of market driving (Mohr and Sarin, 2009). A responsive market orientation (also referred as “customer-led”) is short-term focused: it usually only leads to adaptive learn- ing and can be successful in relatively predictable and stable environments. In dynamic environments, however, a responsive market orientation does not provide suffi cient in- centive for radical innovations and rarely leads to a competitive advantage (Slater and Narver, 1998; Kumar et al., 2000). Companies that rely solely on customers’ expressed needs create no new insights into value-adding opportunities for the customer and are thereby much more vulnerable and more sensitive to price competition because they cre- ate little or no customer dependence and foundation for customer loyalty (Narver et al., 2004). Although the two most frequently mentioned defi nitions of market orientation from the early 1990s refer to the importance of understanding present and future target customers (Narver and Slater, 1990) and gathering information about present and future customer needs (Kohli and Jaworski, 1990), past measures of market orientation (e.g. the MARKOR and MKTOR scales) were chiefl y centred on a responsive market orienta- tion (Narver et al., 2004). To date, only a few empirical studies have adopted both forms M.BODLAJ, I. ROJŠEK | THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP ... 93 of market orientation (e.g. Narver et al., 2004; Atuahene-Gima et al., 2005; Tsai et al., 2008; Bodlaj, 2009; Milferner, 2009; Voola and O’Cass, 2010). Th ese studies clearly sug- gest that both forms of market orientation lead to diff erent consequences. For example, a proactive market orientation has a greater positive impact on innovation orientation, new-product success (Narver et al., 2004), radical innovation (Bodlaj, 2009), capacity to innovate (Milferner, 2009) and business success (Voola and O’Cass, 2010). Distinguish- ing between a responsive and proactive market orientation is therefore important for un- derstanding the role of market orientation in implementing competitive strategies and its impact on fi rm performance (Voola and O’Cass, 2010). Distinguishing between both forms can also enable a better insight into the nature of company market orientation itself. Yet, the market orientation literature provides very few comparisons of market orientations between groups of companies. However, this information may be important for marketers because it can reveal which companies are more market-oriented. Previous studies suggest that companies with a similar level of market orientation tend to used similar marketing strategies: strong market-oriented companies use segmentation, developing new products for new markets and adapting products to customers’ needs, while companies with a low market orientation mainly use less intensive and internally focused strategies such as lower prices, limited services for customers, product standardisation and limited marketing research (Dobni and Luff - man, 2000). Similarly, Hooley et al. (2000) found that companies with a higher level of market orientation follow long-term objectives of building a market position and more frequently have objectives relating to growth or market domination; they adapt their of- fer to diff erent customers’ needs; they diff erentiate their off er more on the basis of quality than price. In contrast, low market-oriented companies are more oft en focused on objec- tives related to survival and cost reduction. Th e question is whether the level of market orientation diff ers between groups of com- panies given their company characteristics (e.g. size of the company, main business sec- tor and type of the market) and the business environment. Th e few empirical fi ndings that do exist on this topic are discordant: for example, Avlonitis and Gounaris (1997) reported that a market orientation is less developed in business markets than in con- sumer markets, while Kaynak and Kara (2004) reported just the opposite and Hooley et al. (2000) found no signifi cant diff erence. Comparisons between companies of diff erent sizes also lead to mixed results: according to Hooley et al. (2000) smaller companies are somewhat more market-oriented than larger companies, while others report the op- posite (Liu, 1995) or no signifi cant diff erence (Ledwith and O’Dwyer, 2008). Further, one group of authors reports a similar level of market orientation of manufacturing and service companies (Gray et al., 2002; Deshpande and Farley, 1998; Hooley et al., 2000), whereas Cadogan et al. (2002) report a signifi cant lower level of the market orientation of export service companies in comparison to manufacturing companies. An empirical study of a sample of 628 Slovenian companies in 1996 revealed that almost half the general managers were dissatisfi ed with the level of company market orientation; limited fi nancial sources and past habits were indicated as the most important obstacles ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 201094 to accepting a market orientation (Snoj and Gabrijan, 1998). Mumel and Iršič (1998) con- cluded that Slovenian companies in 1996 did not achieve a satisfactory level of market orientation. In their empirical study in 2001 on a sample of 759 companies, Snoj et al. (2004) found the highest average level of market orientation in retail and wholesale com- panies and the lowest in construction and agriculture. However, no statistical diff erence was found in the average-level market orientation of various business sectors. It should be noted that none of the empirical studies mentioned above encompassed both a responsive and proactive market orientation. To summarise, while the discord- ant empirical fi ndings do not allow a more precise hypothesis, there is some support that companies develop diff erent levels of market orientation in line with their company characteristics. Th erefore, we propose: H1a: Manufacturing and service companies diff er in their average level of market orien- tation. H1b: Small and larger companies diff er in their average level of market orientation. H1c: Companies operating in consumer and business markets diff er in their average level of market orientation (in a cultural and behavioural perspective). Assuming that market orientation may be more important in certain environments (e.g., Day and Wensley, 1988; Kohli and Jaworski, 1990), a number of researchers have empiri- cally examined the role of the business environment in the relationship between market orientation and business performance (e.g., Jaworski and Kohli, 1993; Diamantopoulos and Hart, 1993; Slater and Narver, 1994; Appiah-Adu, 1998; Greenley and Foxall, 1998; Subramanian and Gopalakrishna, 2001; Rose and Shoham, 2002). Some of the most fre- quently examined characteristics of the business environment are market turbulence, technological turbulence, and competitive intensity (Kirca et al., 2005). Market turbu- lence refers to changes in the composition of customers and their preferences (Kohli and Jaworski, 1990; Jaworski and Kohli, 1993), whereas technological turbulence is the considered rate of technological change (Jaworski and Kohli, 1993; Tsai et al., 2008). Competitive intensity refers to the degree of competition in an industry (Kohli and Ja- worski, 1990). However, only a few empirical studies have examined whether companies operating in diff erent environments diff er in the levels of market orientation. For example, Hooley et al. (2003) found that service companies operating in rapidly changing markets are more market-oriented. On the contrary, Lukas (1999) found that strategic business units oper- ating in a business environment characterised by larger market changes are less market- oriented. Th e latter fi nding counters Kotler’s observation that most companies do not embrace the concept of market orientation until they are driven to it by circumstances such as a sales decline, slow growth, changing buying patterns, increasing competition and increasing marketing expenditures (Kotler, 2003). Companies should consider en- vironmental characteristics in their choice, development and implementation strategy (Gonzalez-Benito et al., 2009). Th erefore, diff erences should be expected across environ- ments (Gonzalez-Benito et al., 2009). Companies operating in more turbulent markets M.BODLAJ, I. ROJŠEK | THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP ... 95 are likely to have a greater need to be more market-oriented in order to satisfactorily cater for customer’s changing preferences (Jaworski and Kohli, 1993). Further, compa- nies that work with nascent technologies that are undergoing rapid change may be able to obtain a competitive advantage through technological innovation, thereby diminish- ing the importance of a market orientation. By contrast, companies working with stable (mature) technologies are in a relatively poor position to leverage technology so as to gain a competitive advantage and must rely on a market orientation to a greater extent (Jaworski and Kohli, 1993). Finally, in conditions of high competition customers have many alternatives to satisfy their needs and wants and, as a result, a less market-oriented company is likely to lose customers relative to its competitors. Conversely, in the ab- sence of competition a company may perform well even if it is not very market-oriented (Kohli and Jaworski, 1990; Jaworski and Kohli, 1993). To summarise, it is expected that an environment characterised by rapidly changing consumer preferences, slowly chang- ing technology and a higher degree of competitive intensity forces companies to develop a higher level of market orientation. In line with this discussion, we propose: H2a: Companies operating in an environment with a higher level of market turbulence develop a higher level of market orientation. H2b: Companies operating in an environment with a lower level of technological changes develop a higher level of market orientation. H2c: Companies operating in an environment with a higher level of competitive intensity develop a higher level of market orientation (in a cultural and behavioural perspec- tive). 3. METHODOLOGY Th e target population for our empirical study consisted of Slovenian companies in man- ufacturing and selected services industries (wholesale and retail trade, transport, storage and communications, and fi nancial intermediation) with at least 10 employees. Compa- nies with less than 10 employees were excluded because some items in the questionnaire are less relevant for these companies (e.g. co-ordinated work of all employees) and be- cause the expected response rate of companies with at least 10 employees is higher (Jurše et al., 2007). A list of fi rms provided by the Agency of the Republic of Slovenia for Public Legal Records and Related Services (AJPES) was used as a basis for collecting the email addresses of general managers and marketing managers. A mailing list compiled by a call centre at Slovenian’s Chamber of Commerce and Industry was used as a sampling frame. Each manager received an email explaining the general purpose of the study and the link to the Internet survey. Two follow-up emails were sent to non-respondents. Th e survey was conducted in the period from January to March 2008. Aft er accounting for undeliverable mails, usable questionnaires from 441 companies were received, constitut- ing a 16 percent response rate. A subsample of 325 companies (73.7% of the companies participating in the survey) which had introduced a product, process, marketing and organisational innovation during the period 2005-2007 was retained for this study. Th e decision to focus only on companies which had introduced innovations in the selected ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 201096 period is relevant because the literature oft en stresses the importance of innovations for business performance (e.g. Deshpande and Farley, 2004; Fagerberg, 2005). Th e sample of 325 companies consisted of 54% of manufacturing and 46% of service organisations. 51% of the companies in the sample were classifi ed as small (10-49 employees), 32% of them were medium (50-249 employees), while 17% were large (more than 250 employees). 56% of the companies operated predominantly in consumer markets and 44% of them op- erated in business markets. Of all respondents, 54% were general managers, 30% were marketing managers and the rest mainly held other leading positions in the company. An early versus late respondent analysis provided no evidence of non-response bias. In keeping with standard approaches to the development of measurement scales, a large set of potential question items was developed. Th e questionnaire contained 14 items in order to measure organisational culture (including market-oriented culture) and 20 items in order to measure responsive and proactive market-oriented behaviour on a seven-point Likert scale (1= strongly disagree to 7=strongly agree). Th e items were devel- oped based on the literature review of theoretical discussions and existing measures of organisational culture and market orientation (e.g. Deshpande and Farley, 1999; Narver and Slater, 1990; Kohli et al., 1993; Homburg and Pfl esser, 2000; Kotler, 2003; Narver et al., 2004), along with fi ndings from eight in-depth interviews with managers. A market-oriented culture was defi ned as a shared set of values and beliefs which put the customer fi rst (Deshpande, 1999; Deshpande and Farley, 1999). Creating a superior value for the customer is therefore one of the most important values of a market-oriented culture (e.g. Narver and Slater, 1990; Narver et al., 1998; Kotler, 2003). Following the recent market orientation literature, a responsive market orientation refers to satisfy- ing expressed customer needs, while a proactive market orientation refers to satisfying latent customer needs (Narver at al., 2004). Since past empirical studies predominant- ly measure a responsive market orientation (Jaworski et al., 2000; Narver et al., 2004), items to measure a responsive market orientation were derived from the widely used MARKOR scale (Kohli et al., 1993) and MKTOR scale (Narver and Slater, 1990). Items measuring a proactive market orientation were adopted from Narver et al. (2004). In ad- dition, fi ndings from in-depth interviews with Slovenian managers were also considered in both scales. Market turbulence, technological turbulence, and competitive intensity were measured based on the widely used scales developed by Jaworski and Kohli (1993). Th e respondents were asked to indicate their degree of agreement on a seven-point Lik- ert scale (1=strongly disagree to 7=strongly agree). Before conducting a survey, a pilot research has been conducted on the sample of 9 academics and 12 managers as inter- viewees. In addition, the face validity of the market orientation scale was tested with two academics and four managers. 4. RESULTS First, the measurement model of market orientation components was tested. In addition to two components of market-oriented behaviour (responsive and proactive market ori- M.BODLAJ, I. ROJŠEK | THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP ... 97 entations), both exploratory and confi rmatory factory analysis result in one additional component, i.e. market information. A confi rmatory factor analysis using the AMOS 16.0 soft ware reveals that all latent variables exhibit indices superior to the reference val- ues of the composite reliability index (ρc) and the variance extracted (ρv) (see Table 1), in- dicating convergent validity. Th e literature recommends values of 0.6 or higher for com- posite reliability (ρc) and values of 0.5 or higher for the variance extracted (ρv) (Hair et al., 2005). For each pair of constructs, the chi-square diff erence between the constrained (i.e. the correlation between two constructs was set to 1) and unconstrained model was statistically signifi cant (Δχ2>3.84), confi rming the discriminant validity of our con- structs. In addition, the usual fi t indices are better than the commonly accepted thresh- olds (CFI=0.978; the literature recommends values of 0.95 or higher; RMSEA=0.046; the literature recommends values below 0.08; Hair, 2005). TABLE 1: Measurement items of market orientation retained for the analysis – Confi rma- tory Factor Analysis (CFA) Items SFL* Market-oriented culture (Cronbach’s α = 0.77; ρc = 0.78; ρv = 0.54) Continuously creating superior customer value relative to competitors is one of the most important values of our company. 0.74 We constantly consider how to be diff erent and better than competitors. 0.73 We believe than only working in a co-ordinated way leads to the better satisfaction of customer needs relative to our competitors. 0.73 Market information (Cronbach’s α = 0.83; ρc = 0.83; ρv = 0.71) We timely recognise changes in the needs, wants and/or buying behaviour of existing and potential customers. 0.87 We know the customers of our products well. 0.81 Responsive market orientation (Cronbach’s α = 0.85; ρc = 0.85; ρv = 0.53) We respond quickly to changed customer needs, wants and/or buying behaviour. 0.81 Business functions work in a co-ordinated way so as to satisfy the needs of our target markets. 0.77 We adapt the marketing mix (products, prices, distribution, communication) to selected target markets. 0.71 We respond quickly to competitors’ activities. 0.69 In the case of customer dissatisfaction or complaints we take corrective steps as fast as possible. 0.64 Proactive market orientation – PRO (Cronbach’s α = 0.85; ρc = 0.85; ρv = 0.54) We examine problems customers may have with existing products in the market in order to off er a new or better solution to satisfy a need. 0.79 We examine which needs and wants customers may have in the future. 0.77 We try to recognise needs and wants which existing and potential customers are unaware of or which they do not want to disclose. 0.77 We work closely with lead customers who recognise their needs months or years before the majority of potential customers recognise them. 0.68 We develop new products that will satisfy still unexpressed customer needs. 0.65 *SFL: Standardised Factor Loadings Model fi t: χ2=134.9; df=80; GFI=0.948; NFI=0.949; TLI=0.972; CFI=0.978; RMSEA=0.046 ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 201098 Similarly, a confi rmatory factor analysis was conducted for items measuring the business environment. All three constructs, i.e. market turbulence, technological turbulence, and competitive intensity, exhibit convergent validity (values of ρc and ρv exceed the reference values; see Table 2) and discriminant validity. TABLE 2: Measurement items for the business environment retained for the analysis – Confi rmatory Factor Analysis (CFA) Items SFL Market turbulence (Cronbach’s α = 0.85; ρc = 0.86; ρv = 0.61) Customer needs and wants are changing fast. 0.88 Customers tend to look for new products all the time. 0.86 Customer buying behaviour is changing fast. 0.79 The structure of our customers is changing fast. 0.55 Technological turbulence (Cronbach’s α = 0.85; ρc = 0.85; ρv = 0.66) Technological changes provide big opportunities in our industry. 0.85 The technology in our industry is changing rapidly. 0.84 A large number of new product ideas have been made possible through technological breakthroughs in our industry. 0.74 Competitive intensity (Cronbach’s α = 0.75; ρc = 0.75; ρv = 0.50) Customers perceive only small (or no) changes among competitive products/services. 0.76 Anything that one competitor can off er, others can match fast. 0.74 Companies compete predominantly with prices. 0.62 Model fi t: χ2 = 80.7; df = 32; GFI = 0.953; NFI = 0.944; TLI = 0.951; CFI = 0.965; RMSEA = 0.069 For the 325 companies in the sample, the mean scores of market-oriented culture (CULT) and all three market-oriented behavioural components, i.e. market informa- tion (INFO), responsive market orientation (RESP) and proactive market orientation (PRO) are above the scale midpoint, with the highest mean score of market-oriented culture, followed by market information (mean=5.41; SD=1.02), responsive market ori- entation (mean=5.36, SD=1.00) and proactive market orientation (mean=5.06, SD=1.09). Th e mean score of market-oriented culture is signifi cantly higher than the mean scores of all three components of market-oriented behaviour. Th is fi nding suggests that market orientation is more present as a culture and to a smaller extent as behaviour. In addi- tion, the mean score of proactive market orientation is signifi cantly lower than the mean scores of market information and responsive market orientation. Th e mean scores of all three environmental characteristics are above the scale midpoint, with signifi cantly the highest mean score for competitive intensity. Table 3 shows the descriptive statistics for the variables under review. M.BODLAJ, I. ROJŠEK | THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP ... 99 TABLE 3: Means and Standard Deviations (SD) – Total sample (n=325) Variables Number of items Mean SD 95% Confi dence Interval for Mean Market-oriented culture 3 5.83 1.06 5.72 – 5.95 Market information 2 5.41 1.02 5.30 – 5.52 Responsive market orientation 5 5.36 1.00 5.25 – 5.47 Proactive market orientation 5 5.06 1.09 4.94 – 5.18 Market turbulence 4 4.29 1.29 4.15 – 4.43 Technological turbulence 3 4.12 1.45 3.96 – 4.28 Competitive intensity 3 4.81 1.33 4.66 – 4.95 Notes: All entries are measures on a seven-point scale. Number of items remaining aft er purifi cation Comparisons of market orientation dimensions across groups of companies were made by testing for invariant latent mean structures. Companies were divided into two groups given their main business (manufacturing vs. service), size of the company (small vs. medium and large companies) and main type of the market (companies operating in consumer vs. business markets). Given the environmental characteristics, companies were split into two groups (low vs. high turbulence/competitive intensity) based on the median value. Following Byrne (2001) and Hair et al. (2005), a two-group analysis involved the following steps: 1) separately applying CFA to the same measure- ment model in each group; 2) testing factor structure equivalence by applying CFA in each group simultaneously; and 3) testing the equivalence of factor loadings, fac- tor covariance and error variance. According to Hair et al. (2005), valid comparisons between groups can be made if partial metric invariance is supported, i.e. at least two items per factor can be constrained to be equal without signifi cantly worsening the model fi t. In our case, metric invariance was supported for all two-groups under study which allows us to test for latent mean diff erence across groups following Byrne (2001). Table 4 provides results of comparisons of market orientation dimensions across com- panies given the company characteristics and the business environment. In the struc- tural equation model, only one set of means is provided representing the diff erence between group means (Hair et al., 2005). Th e results are therefore interpreted in a relative sense: the positive standardised mean in Table 4 indicates a higher level market orientation dimension in group 1, while the negative standardised mean indicates a lower level market orientation dimension in group 1 compared to group 2. Th e diff er- ence is signifi cant if |t| > 1.96. ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 2010100 TABLE 4: Results of the two-group analysis Groups of companies Model fi t CULT INFO RESP PRO CFI RMSEA Meana t* Mean t Mean t Mean t a 1. Manufacturing 0.97 0.038 –0.14 –1.06 0.13 1.21 0.06 0.48 0.04 0.28 2. Service b 1. Small 0.96 0.042 –0.06 –0.44 –0.09 –0.82 0.14 1.07 0.08 0.65 2. Medium and large c 1. Consumer market 0.97 0.035 0.05 0.39 –0.20 –1.86 –0.14 –1.07 –0.19 –1.15 2. Business market d 1. Low market turbulence 0.96 0.044 –0.52 –3.95 –0.14 –1.21 –0.42 –3.15 –0.38 –3.03 2. High market turbulence e 1. Low technological turbulence 0.97 0.036 –0.25 –1.87 –0.14 –1.27 –0.49 –3.58 –0.46 –3.70 2. High technological turbulence f 1. Low competitive intensity 0.97 0.038 0.02 0.16 0.15 1.35 0.25 1.79 0.21 1.65 2. High competitive intensity Notes: a Mean = standardised mean * Signifi cant at p < 0.05, if |t| > 1.96. As evident from Table 4, the average levels of market-oriented culture and all three be- havioural dimensions of market orientation are not statistically diff erent between groups of companies given their main business, size and type of the market. Hypotheses H1a, H1b and H1c are therefore not supported. By contrast, the average levels of some market orientation dimensions signifi cantly diff er given the level of market and technological turbulence. More specifi cally, companies operating in a business environment with low- er market turbulence have a signifi cantly lower level of market-oriented culture as well as a responsive and proactive market orientation in comparison to companies operating in a business environment characterised by a higher level of market turbulence. Since signifi cant diff erences exist for all market orientation dimensions except for market in- formation, hypothesis H2a is supported. Further, companies operating in a business environment with a lower level of techno- logical turbulence have a signifi cantly lower level of responsive and proactive market orientation than companies operating in a business environment with a higher level of technological turbulence. Th is fi nding counters our hypothesis H2b which postulates that a higher level of market orientation may be expected in the context of lower techno- logical turbulence. Further, no signifi cant diff erences exist for market-oriented culture and market information. Hypothesis H2b is therefore not supported. With regards to competitive intensity in the business environment, contrary to our ex- pectations the two-group analyses reveal no signifi cant mean diff erences for any dimen- sion of market orientation. Hypothesis H2c is therefore not supported. M.BODLAJ, I. ROJŠEK | THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP ... 101 5. DISCUSSION AND IMPLICATIONS Overall, the study reveals that market orientation in Slovenian companies is more de- veloped as a business philosophy that is not fully implemented through market-oriented behaviour. Th is is evidenced by the signifi cantly higher mean score for market-oriented culture in comparison to the mean scores of the market-oriented behavioural dimen- sions. Th is implies there is a gap between what companies declare as important and their actual business practices. Further, the proactive form of market-oriented behaviour is signifi cantly less developed than the responsive form, implying that companies are bet- ter at quickly responding to changes in expressed customer preferences and relatively worse at recognising and satisfying latent customer needs. Th is holds important implica- tions for Slovenian managers since previous studies reveal that being responsive only is not suffi cient to gain a competitive advantage. Th e question of how to develop a higher level of market orientation will be discussed later in this section. Th e main purpose of this study was to analyse market orientation between groups of companies. To summarise, the fi ndings suggest that Slovenian companies do not signifi - cantly diff er in their market orientation given their main business, size and type of the market. By contrast, some statistically signifi cant diff erences exist when characteristics of the business environment are considered. More specifi cally, companies operating in a business environment characterised by less market turbulence develop a signifi cantly lower level of market-oriented culture as well as responsive and proactive market-ori- ented behaviour in comparison with companies operating in a business environment characterised by a higher level of market turbulence. Th is is in line with our expecta- tion because the importance of focusing on customer needs and wants for the long-run business performance increases with rapidly changing customer preferences and buy- ing behaviour. To remain competitive in such an environment companies are forced to constantly increase their market orientation. In addition, our study reveals statistically signifi cant diff erences in market orientation considering the level of technological tur- bulence. More specifi cally, companies operating in an environment with a lower level of technological turbulence develop a signifi cantly lower level of responsive and proactive market-oriented behaviour. While diff erences across companies were expected, it should be noted that a lower level of market orientation had been expected within the group of companies operating in the context of high technological turbulence. According to Jaworski and Kohli (1993), rapid technological changes provide alternative avenues for gaining a competitive advantage, thereby diminishing – but not eliminating – the im- portance of a market orientation. Th is implies that an environment with a higher level of technological turbulence encourages companies to develop a market orientation to a lesser degree than an environment with relatively stable technology. Jaworski and Koh- li’s (1993) understanding of competitive advantage is consistent with the resource-based view of the fi rm (RBV) which sees companies as unique collections of assets and capa- bilities that enable them to outperform their competitors. A holistic view of competi- tive advantage, however, requires that companies apply certain assets and capabilities to deliver products and services that allow them a positional advantage (Rao and Steckel, 1998). In other words, a superior technology does not necessarily provide a competitive ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 2010102 advantage unless it leads to a positional advantage (through the provision of either a low- cost or diff erentiated product) which, in turn, generates desired outcomes for the com- pany (e.g. profi t, market share, customer satisfaction and loyalty etc.). Solely emphasising technology as an asset or capability can lead to a misguided opinion that customers will favour products with brand-new innovative features and engineers can design excep- tional products with no customer input. Th erefore, the results of our study are reasonable when they suggest that rapid technological changes provide new possibilities for creating a superior value for the customer when supported by a higher level of market orientation. Another interesting fi nding is that the level of technological turbulence only impacts the level of market-oriented behaviour, whereas the level of market turbulence also impacts the level of market-oriented culture. Th is suggests that rapid market changes encourage companies to not only be more responsive and proactive in satisfying expressed and la- tent customer needs but also to increase company awareness of the importance of focus- ing on customers (as a business philosophy). If customer needs and wants are changing rapidly, companies are more aware of the importance of constantly creating and deliver- ing superior value to the customer. By contrast, competitive intensity has no statistically signifi cant impact on the level of market orientation. Th is fi nding is contrary to our hypothesis. It would be logical to expect more market-oriented companies operating in a business environment with stronger competition since a higher level of market orientation can enable their long- term survival. On the contrary, when the competitive intensity is lower it would be logical to expect that companies could “get along” even at a lower level of market orien- tation. A possible explanation of why our study did not confi rm this hypothesis could be that the majority of managers in the study assess their business environment as com- petitive or highly competitive (for 68.9% of companies in the study, the average score for competitive intensity is higher than 4 on a 7-point scale). Th erefore, a statistically signifi cant diff erence might have appeared had the sample been more heterogeneous given the managers’ perceptions of competitive intensity. Another explanation could be that managers operating in a business environment with a higher level of competitive intensity are more critical in their assessment of the company’s culture and activities since they have more options to compare them with the competitors. However, our fi nding is in line with Snoj and Gabrijan’s (1998) observation that companies oft en act as “closed” even when the environment becomes extremely competitive. According to those authors, the most important reason for this lies in the company inertia, i.e. its inability to adapt to the changes in the environment or to co-create them (Snoj and Gabrijan, 1998). To conclude, the results of our study suggest that companies adapt their level of (at least of some dimensions of) market orientation to the level of market and technological tur- bulence and they do not develop a higher level of market orientation if they are not forced or encouraged to by external factors. Th is fi nding is in line with Kotler’s (2003) previ- ously mentioned observation. On the other hand, the role of competitive intensity as a driver of a higher level of market orientation remains unclear and warrants further investigation. M.BODLAJ, I. ROJŠEK | THE MARKET ORIENTATION OF SLOVENIAN COMPANIES: TWO-GROUP ... 103 According to the literature, market orientation can be a source of comparative advantage only if it is rare; if all competitors accept a market orientation and implement it equally well, no company can gain a comparative advantage (Hunt and Morgan, 1995). Compa- nies should therefore strive to be more market-oriented than their competitors, regard- less of the level of environmental turbulence. Th e question is how to raise the level of market orientation. Kirca et al. (2005) in their meta-analysis revealed interdepartmental connectedness, top management’s emphasis on market orientation and market-based reward systems as the most important antecedents of market orientation. In practice, a market-oriented philosophy and behaviour should be accepted by all employees, not only marketers and top management. However, top management has the greatest power and responsibility for developing a market orientation. Although a market orientation requires the commitment of resources (Kohli and Jaworski, 1990), it is more expensive for the company if it is not market-oriented (e.g. due to customer complaints, expen- sive customer services or product features not appreciated by the customers) (Harris and Piercy, 1997). Following Narver et al. (1998), companies can take two approaches to creating a market orientation: a programmatic approach which includes training pro- grammes and organisational changes in order to instil the preferred norms, and a “mar- ket-back” approach which includes learning on the basis of everyday eff orts for creating and sustaining superior value for the customer. Th e greatest eff ect can be obtained when the programmatic approach creates a basis for experiential learning. One reason com- panies fail to create a market orientation is that they emphasise abstract learning about a market orientation (i.e. the fi rst approach), while neglecting the experiences (Narver et al., 1998). Given the fi ndings of our study, it is important that Slovenian companies raise the level of their market-oriented behaviour. To achieve this, they are advised to timely recognise changes in the needs, wants and buying behaviour of their existing and potential customers in order to enhance knowledge about their customers. A higher level of responsive market orientation can be developed by more quickly responding to changed customer needs and wants, the better co-ordinated work of all employees when satisfying customer needs, eff ective adaptation of the marketing mix to selected target markets, taking corrective steps in the case of customer complaints as soon as possible and by more quickly responding to competitors’ activities. However, responsive market- orientated behaviour can and will ultimately be imitated successfully so companies must increase their level of proactive market orientation in order to create and maintain a sus- tainable competitive advantage (Narver et al., 2004). A higher level of proactive market orientation can be developed by examining problems customers may have with existing off ers in order to fi nd new and better ways of satisfying customers needs, by examining which needs and wants customers may have in the future, recognising needs and wants which customers are unaware of or which they do not want to disclose, working closely with lead customers who recognise their needs months or years before the majority of potential customers recognise them and by developing new products that will satisfy hitherto unexpressed customer needs. To conclude, developing a higher level of mar- ket orientation is a continuous process (Gebhardt et al., 2006) which requires time and sometimes even radical changes within the company (even a change of top management, a new type of leadership, employee training concerning the benefi ts of a market orienta- tion etc.) (Snoj and Gabrijan, 1998). ECONOMIC AND BUSINESS REVIEW | VOL. 12 | No. 2 | 2010104 Th e study contributes to the existing knowledge of market orientation in several ways: it is one of the few empirical studies to report comparisons between groups of companies. Moreover, it is the fi rst study to compare market orientation by distinguishing between a cultural and behavioural perspective of market orientation and by distinguishing be- tween a responsive and proactive market orientation. Further, our study includes various comparisons given the company and environmental characteristics. No previous empiri- cal study reports that many comparisons across groups of companies. Th e comparisons of market orientation across groups of companies were made by testing for invariant latent mean structures. A review of the structural equation modelling literature reveals a dearth of studies involving multigroup comparisons of latent mean structures (Byrne, 2001). Th is study also has several limitations. First, it is a cross-sectional study. In the next step of research, a longitudinal approach would be useful to tap into the dynamics of developing a market orientation. Second, the response rate in the survey is relatively low (i.e., 16%). However, a low response rate has been expected due to the chosen form of Internet survey and the length of the questionnaire. Th ird, the understanding of how to properly measure a responsive and proactive market orientation is still developing. Further testing of measures is thus essential. 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