Market orientation in the top 200 British charity organizations and its impact on their performance

George Balabanis
University of Wales, Swansea, UK

Market orientation

583

Ruth E. Stables
Leicester Business School, De Montfort University, Leicester, UK, and

Hugh C. Phillips
Leicester Business School, De Montfort University, Leicester, UK
Any debate about the validity of extending the marketing concept beyond the domain of the classical commercial organization seems to have been settled. The plethora of textbooks and articles on the topic of marketing in non-profits witnesses not only the acceptance of the validity of the extension but an elevation of the status of marketing in this sector. However, in practice many non-profit organizations seem to have equated marketing with visible communications and certain marketing techniques used to raise funds rather than an overall guiding philosophy (Lovelock and Weinberg, 1989). As Mokwa (1990, p. 49) argues, the challenge for non-profits is to expand marketing beyond public relations function and beyond communications dimensions into a coherent philosophy and methodology for effecting and integrating multipublic exchange relationships. This plea is echoed in almost every marketing textbook on non-profits but there is little empirical evidence that the sector has taken it on board. The implicit or explicit claim attached to this plea is that such an initiative would improve performance. However, mostly this claim remains empirically unsubstantiated. It emerges that the main issues are not to what degree charities have applied marketing techniques but to what degree have they adopted the marketing concept as a guiding philosophy, and how this has affected their performance. The objective of this study is to measure the degree of adoption of the marketing concept, as a management philosophy, in (the top 200 British) charities over the last five years and to assess its effects on performance. This paper initially reports the role and nature of marketing in charitable organizations and the hypotheses to be tested are formulated. The research methodology used is then described and the measurement instrument is discussed. Subsequently, the observed differences in market orientation in the last five years are considered. After examining the effects of organizational size

European Journal of Marketing, Vol. 31 No. 8, 1997, pp. 583-603. MCB University Press, 0309-0566

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and departmentalization on market orientation, the impact of market orientation on performance is analysed. Finally, the findings of the study are summarized and the limitations and directions for future research are discussed. Marketing in charities The Charity Commission (1992) provides a legal definition of a charity as an organization whose purpose is charitable by reference to case law developed by court decisions. To avoid confusion, the terms charity and non-profits are used interchangeably within this text. Mokwa (1990, p. 43) defines non-profits as organizations that have as a main purpose to organize and oversee voluntary social action directed at humanitarian problem solving. Their main role is: (1) to attract resources (e.g. funds and volunteers); (2) to establish priorities for social action programme; and (3) to allocate resources to beneficiaries (Mokwa, 1990). Exchange is at the heart of a non-profits operation. According to Kotler and Andreasen (1991), the content of exchanges between non-profits and their customers involves economic costs, sacrifices of old ideas and old patterns of behaviour and sacrifice of time and energy in return for the economic (i.e. products or services), social and psychological benefits received by the customers. Shapiro (1973) classified non-profits customers into two main groups: the donors and beneficiaries. Resources are generated from the donor market and subsequently are allocated to the beneficiary market. The values on offer to donors in exchange for their funds, time and/or energy, are mainly psychological and social and involve relief of guilt, the need of selfesteem or concern for humanity. Marketings role in this context is to create and maintain these as satisfying exchanges. The marketing concept and market orientation Kotler and Levy (1969), in their seminal article, first proposed that the marketing philosophy could be extended to non-profit organizations. Since that time, although its importance has been widely recognized, most of the empirical research in the area has focused on the application or direct transfer of specific marketing techniques to non-profits (Giunipero et al ., 1990; Riggs, 1986). Similarly, the need for non-profits to accept the principles of the marketing concept and become market oriented has been promoted extensively (Andreasen, 1982; Fine, 1990; Kotler and Andreasen, 1991; Lovelock and Weinberg, 1989; Rados, 1981). Kotler and Andreasen (1991) demarcated nonprofits that accept the marketing mind-set as a guiding philosophy and called them customer-centred. They describe (p. 43) a customer-centred organization as one that makes every effort to sense, serve and satisfy the needs and wants of its clients and publics within the constraints of its budget. As they

explained, customer-centred as opposed to organization-centred non-profits rely heavily on research about their customers, define competition broadly and use all the elements of the marketing mix. Kotler and Andreasens (1991) customer-centredness is the equivalent to the implementation of the marketing concept or market orientation in non-profits. The marketing concept, the underlying platform of market orientation, was developed primarily for commercial organizations and has been the subject of a number of studies (Kohli and Jaworski, 1990; McNamara, 1972; Narver and Slater; 1990; Shapiro, 1988; Webster, 1988). Traditionally, it is defined by three guiding principles: (1) customer focus; (2) co-ordinated effort; and (3) profitability (survival or other organizational objectives in the case of non-profits). Narver and Slater (1990, p. 20), in one of the most comprehensive studies, suggested that market orientation consists of three behavioural components: customer orientation, competitor orientation and interfunctional co-ordination; and two decision criteria long-term focus and profitability. Kohli and Jaworski (1990), in an extensive review of the available definitions and interpretations of the marketing concept, revealed a number of practical and theoretical limitations. Their work resulted in the development of a more focused, activitybased and operationally useful definition of the marketing concept. Accordingly market orientation is defined as the organization-wide generation of market intelligence pertaining to current and future needs of customers, dissemination of intelligence horizontally and vertically within the organization, and organization-wide action responsiveness to market intelligence. Profitability, an element of the marketing concept, was found to be a consequence of market orientation. The analogy to profitability in non-profits according to Kotler and Andreasen (1991) is survival, generating adequate revenues to achieve long-term organizational objectives. Both definitions closely agree with that of Kotler and Andreasen (1991). However, three issues in the Kotler and Andreasen (1991) definition need further elaboration and clarification. These are: (1) the over-emphasis placed on one element of the market, customers; (2) whether budget constraints determine the whole effort; and (3) whether the explicit recognition of market orientation activities is important especially the dissemination of intelligence or interfunctional co-ordination. As Kotler and Andreasen (1991) explain (although not included explicitly in their definition), the recognition and monitoring of competition in a broader sense, as well as other publics, are important elements in their definition.

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Thus, their definition is not limited to customers as deceptively is suggested by the term customer-centredness. Drucker (1989, p. 89) also indicated that non-profits do not base their strategy on money, nor do they make it centre of their plans The non-profits start with the performance of their mission. According to this view it seems that budgetary constraints do not determine strategy and market orientation. Kotler and Andreasen (1991) qualify, as an attribute of customer-centredness, every effort aimed to sense, serve and satisfy the needs and wants of nonprofits clients and publics within budgetary limits. They do not make an explicit reference to specific activities required for an organization to be characterized as customer centred. Dissemination of intelligence and the other market-orientation qualifying activities proposed by Kohli and Jaworski (1990) and Narver and Slater (1990), although not explicitly identified, fall within the scope of the Kotler and Andreasen (1991) definition. The advantages and benefits of identifying explicitly market orientation activities are discussed by Kohli and Jaworski (1990). Kohli and Jaworskis (1990) conceptualization seems to be more appropriate in this context, as it presents certain advantages over that propounded by Narver and Slater (1990). In particular, it focuses on market rather than narrowly defined customer intelligence, emphasizes specific inter-functional co-ordination operations based on the collected intelligence and focuses on activities related to intelligence rather than its effects (see Kohli et al. , 1993). However, certain adaptations need to be made before applying it in the Kotler context. As has already been mentioned, non-profits have to create and maintain mutually satisfying exchanges between their donors and beneficiaries. However, the market for donors (resources) has received the greater attention, as competition for funds and volunteers has immediate relevance. The importance attached to this market is highlighted by the plethora of articles examining donors motivations (Broadbridge and Horner, 1994; Garner and Wagner, 1991; Griffin et al., 1993; Navarro, 1980; Radley and Kennedy,1992; Unger, 1991), their behaviour (Jones et al., 1991; Kitchen, 1992; Peltier et al., 1993; Radley et al., 1995; Warren, 1991); ways to segment them (Cermak, et al., 1994; Schlegelmilch and Tynan, 1989) and to encourage them to contribute funds or to volunteer (Abrahams and Bell, 1994; Clary et al. , 1994; Weyant, 1984). Following the mainstream and for simplicity reasons, market orientation in this study focuses mainly on the donor-market. The meaning attached to the term competition in this sector perhaps requires some further consideration. Non-profits or charity organizations tend to see other charities not as competitors but as fraternal organizations working in the same general sphere. As a consequence, following the pilot of the questionnaire, all references to competition were modified and terms like non-associated and rival were used instead. In summary, in line with Kohli and Jaworski (1990), a market orientation in non-profits would cover the following elements:

intelligence generation, which refers to the collection and evaluation of information about consumer, governmental and corporate donor needs and preferences and the factors that influence them macroenvironment, new forms of competition, etc.; intelligence dissemination, referring both to the process and extent to which information about the donors market is exchanged, vertically and horizontally and shared within the organization; and responsiveness that refers to action taken, planning, and implementation of marketing programmes towards the donor market, as a result of the generated and disseminated information. Figure 1 depicts the elements of a charitable organizations overall market orientation. Here only one branch, donor-market orientation will be examined.

Market orientation

587

Consumer donors Public donors Corporate donors Donors Intelligence generation

Responsiveness

Charity organization Dpt. A Dpt. D Dpt. G Dpt. B Dpt. E Dpt. H Dpt. C Dpt. F Dpt. X

Donor market orientation

Market orientation

Intelligence dissemination Intelligence generation Beneficiaries Education Youth Medicine and health Religious Animal protection International aid General welfare Figure 1. Elements of market orientation in charitable organizations Beneficiary market orientation

Responsiveness

Protection of heritage and environment

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Changes in the market orientation of the top 200 British charities The survival and organizational success of the top charities, at least, appears to become increasingly dependent on their success in the donor market. The donor market is split between the consumer, public sector and corporate sectors. According to Charities Aid Foundation (1994), charities revenue in 1993 in its largest part (56 per cent ) came from consumer donations in the form of legacies, covenants, fund-raising events and charity shops; 36 per cent came from the public sector and only 8 per cent came from corporate donations. Competition for the donors market seems to have heightened in recent years by the conjunction of a number of factors. In 1994, registered charity organizations in the UK reached 170,000 and it is estimated that this will continue to increase at a rate of 1,000 a year (Mintel, 1994). The expanding number of charitable organizations has increased competition for donations. Further pressure comes for an alleged growth of compassion fatigue. Compassion fatigue relates to the feelings developed by the public that there are too many charitable demands on their budgets. This supposed trend was the reason for the non-continuation of certain major charity events such as the ITV Telethon in 1992. The lack of growth or even decline in the disposable incomes of families during the recession in the UK further squeezed the market (disposable income growth in real terms was only 4.7 per cent between 1989 and 1993), as did governmental spending cutbacks. High profile, ad hoc, projects related to world-wide disasters, e.g. Romania, Somalia, Rwanda, Bosnia, also siphons away revenue from other UK charities with lower profile, more routine, needs. According to Charities Aid Foundation (1994), consumer donations to the top 200 charities have decreased by 2 per cent since 1989. Amid all these pressures, individual charities have had to respond in order to increase or even maintain donation income. Thus, charity organizations have increasingly recognized the importance of marketing for their survival and have imported techniques that had hitherto been in the preserve of the commercial sector. So far, there is no empirical work as to the degree to which UK charities have adopted the marketing concept, become market oriented or just adopted certain marketing techniques. Thus, the first hypothesis to be tested here is: H1: Donor-market orientation in the top 200 British charity organizations has increased in the last five years. Factors affecting market orientation in charities Kotler and Andreasen (1991) explained that it is not an easy task to indoctrinate a charity organization with a marketing philosophy. A number of factors that might accentuate this difficulty have been proposed but so far there is no empirical research to support them. In the commercial sector, Kohli et al., (1993) found that the main determinants of market orientation are: (1) the senior managements emphasis; (2) interdepartmental dynamics; and (3) organizational systems.

These factors seem to be, possibly with some adjustments, equally applicable to non-profits. Kotler and Andreasen (1991, p. 45) reported that most of non-profits lack customer orientation, as they are in their majority sales-oriented. This, it was believed, was mostly for reasons related to the management of the organizational system. In the case of British charities, Gerald (1993) highlighted the following features which may make the development of market orientation problematic: the value-based intangible nature of much of the work involved; lack of an overall performance measure; management by law is vested in trustees who might be part-timers and remote from the organization; reliance on large proportion of volunteers with special problems; high turnover of staff; division between funding arrangements and the quality and relevance of service offered. Thus, again many of the hindrances to adoption of the marketing concept appear to be related to the area of management. The study examines the impact of two particular managerial components in developing donor market orientation: (1) organizational size (Narver and Slater, 1990); and (2) departmentalization (Jaworski and Kohli, 1993). Narver and Slater (1990) initially conceptualized relative organizational size as a control factor in the relationship between business performance and market orientation. Their findings suggested that larger organizations are more reluctant to become market oriented. Thus the following hypothesis can be formulated: H2: The larger the charitable organization the lower its donor-market orientation. Kohli and Jaworski (1990) suggest that a large number of departments within an organization can act as a barrier to communication and inhibit the dissemination of intelligence. Even though their findings in 1993 did not support this hypothesis an attempt is made here to test it in another context: H3: The larger the number of departments in a charity the lower its donormarket orientation. The impact of market orientation on performance As has already been mentioned it is widely accepted (Fine, 1990; Kotler and Andreasen, 1991; Lovelock and Weinberg, 1989; Rados, 1981) that the development market orientation will improve the performance of charities. This relationship has yet to be empirically explored and tested. However, available empirical research from the commercial sector would support this supposition (Jaworski and Kohli, 1993; Narver and Slater, 1990). Put formally as a hypothesis: H4: The greater the donor-market orientation in a charitable organization the greater its performance.

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Data collection and findings The questionnaire was developed and refined in a pilot study conducted in the form of personal interviews with a sample of five charities. From this a mail questionnaire was developed and sent to the top 200 British charities, members of the Charities Aid Foundation. A follow-up was sent after four weeks to nonrespondents. Response rate reached 29 per cent, 58 organizations, which is typical for studies of this kind. The data collection was based on participant recollection method (Schwenk, 1985), the most commonly used methodology for this type of study. Measuring performance in charities In charities the issue of performance measurement remains unresolved. McGill and Wooten (1975) pointed out that non-profits are characterized by goal ambiguity and performance is evaluated by effort and formative criteria which are difficult to measure. In general, two criteria are used to measure non-profits performance: effectiveness and efficiency (Lamb and Crompton, 1990). Effectiveness measures the end results and the impact of marketing on customers. Efficiency characterizes the relationship between input and output, reflecting the amount of effort expended, or waste involved (Lamb and Crompton, 1990, p. 174). As Kotler and Andreasen (1990, p. 26) have admitted, the measurement problem in non-profits is exaggerated by public accountability pressures. However, these pressures force management too often to seek what is measurable rather than what is important (p. 26). They suggested that it is better to evaluate non-profits on the degree to which they have achieved their organizational objectives. In line with this, in this research two judgemental measures of charities performance are used: (1) the level non-profits have achieved in their short-term (annual) objectives; and (2) the degree to which they have achieved their long-term (five years) objectives. For both, a ten-point balanced (5 to +5) semantic differential scale was used. A minus sign indicates the achievement of less than planned, a plus sign is used to indicate the achievement of more than was planned and zero point indicates the achievement of exactly what was planned. The most common measure of efficiency in charities is the expenses to donor contribution ratio. This ratio was measured for both the 1989 and 1994 periods. The difference score between these periods was used as an indicator of any efficiency gains or losses during this period. As it is difficult to get information on revenue generation, only the amount of volunteers attracted by charities in 1989 and 1994 was measured. The increase or decrease in the amount of volunteers was calculated (difference score) and used as another indicator of

their performance changes during this period. Callen et al. (1994) found that money donations are positively related to volunteering and the efficiency of the organization. They also found that the more efficient the charity, the more money donations it is able to raise. Thus, this index might be seen as a reasonable indication of the general performance of a particular charity. Measurement of market orientation in charities The measure used was the reduced 20-item MARKOR scale adapted to the donors market condition (see Tables I-III). This scale has already been checked for validity and reliability (Kohli et al., 1993). Donor market orientation was measured in two points of time: (1994) and five years before (1989). All 20 items in the adapted donors market orientation scale were subjected to an internal validity analysis. Individual items were examined for correlation to total scores for each related individual variable, i.e. G1, G2, G3, G4, G5, G6 to intelligence generation (summation of intelligence generation scores on items G1 to G6). The same procedure was conducted for other variables. The objective of this procedure was to establish that each item contributed to the same subscale and to establish the homogeneity and internal consistency of the subscales. Item-to-total correlation coefficients were quite high and so all the items in the scale were kept. Additionally, the alpha if item-deleted column on all the runs indicated that alpha would not be increased if any of the scale or sub-scale items were dropped. Furthermore, an analysis of the correlation matrices revealed high correlation coefficients and so again no item was dropped. The recommended measure of internal consistency of a set of items is provided by Cronbachs coefficient alpha. According to Churchill (1979, p. 68) it absolutely should be the first measure to assess the quality of the instrument. Reliability analysis (Cronbachs alpha) was run for intelligence generation, intelligence dissemination and responsiveness and for the whole scale. The coefficients alpha over the two periods (1989 and 1994) were 0.7680 and 0.7826 (in 1994) for intelligence generation; 0.7689 and 0.7131 (in 1994) for intelligence dissemination; 0.7863 and 0.7274 (in 1994) for responsiveness and 0.8859 and 0.8899 for the whole scale. While the three subscales (intelligence generation, intelligence dissemination and responsiveness) measure three separate and distinct aspects of market orientation as shown in item-to-total-correlation, it was found that they are positively correlated. The correlation (at a = 0.0001) between the generation and dissemination sub-scales was 0.85 (0.68 in 1989); between dissemination and responsiveness 0.88 (0.66 in 1989); and between responsiveness and generation 0.60 (0.61 in 1989). Additionally, the correlations between the overall market orientation and the generation, dissemination and responsiveness were 0.85 (0.86 in 1989), 0.88 (0.88 in 1989), 0.88 (0.88 in 1989) respectively. The strong correlation among the three elements of market orientation in both periods indicates that they are

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1989 Mean/ standard deviation

1994 Mean/ standard deviation

t-value

Degrees 2 tail of significance freedom level

Table I. Changes in the extent to which the top 200 British charities generate intelligence from their donormarket

G1. We meet our donors at least once a year to find out what causes (programmes or human services) they will be interested to support in the future 0.53/1.33 0.04/1.45 4.61 54 0.000 G2. We are slow to detect changes in our donors preferences (on causes or human services they wish to support) (r) 0.26/1.24 0.89/0.96 3.98 57 0.000 G3. In this organization we do a lot of in-house market research on donor needs 0.66/1.19 0.34/1.13 6.74 57 0.000 G4. We poll our donors at least once a year to assess the quality of our services 1.14/1.05 0.38/1.27 3.66 55 0.001 G5. We are slow to detect fundamental shifts in the charity sector (e.g. technology, regulation, etc.) (r) 0.25/1.15 0.60/1.31 5.27 56 0.000 G6. We periodically review the likely effect of changes in our operating environment (e.g. regulations, economy, etc.) on donors 0.02/1.10 0.93/1.11 7.13 52 0.000 Intelligence generation (G1 + G2 + G3 + G4 + G5 + G6) 2.45/4.82 1.90/5.11 7.42 50 0.00 Notes: Intelligence generation refers to the collection and evaluation of information about consumer, governmental and corporate donor needs and preferences as well as the factors that influence them Adapted from Kohli et al. (1993) MARKOR scale (r) = reverse coded item Scale: strongly disagree (2), disagree (1), neutral (0), agree (1), strongly agree (2)

converging to a common construct, market orientation, supporting the convergent validity of the scale. Convergent validity is also evidenced by the high Cronbach alphas (0.8859 and 0.8899 respectively) reached in the whole (combined) market orientation scales for the two periods.

1989 Mean/ standard deviation

1994 Mean/ standard deviation

t-value

Degrees 2 tail of significance freedom level

Market orientation

D1. We have inter-departmental meetings at least once a quarter to discuss trends and developments in the donors market 0.63/1.37 0.21/1.51 6.72 54 0.000 D2. People performing the marketing function (or the equivalent) in our organization spend time discussing donors future needs with other functional departments 0.31/1.14 0.60/1.28 5.43 55 0.000 D3. When something important happens to a major donor, the whole organization knows about it within a short period 0.04/1.24 0.32/1.31 4.88 52 0.000 D4. Data on donor satisfaction are disseminated at all levels in the organization on a regular basis 0.75/1.07 0.39/1.17 3.13 52 0.003 D5. When one department finds out something important about other non-associated charity organizations working in the same area, it is slow to inform other departments (r) 0.07/1.14 0.42/1.12 4.20 54 0.000 Intelligence dissemination (D1 + D2 + D3 + D4 + D5) 1.98/4.19 1.07/4.37 7.86 52 0.000 Notes: Intelligence dissemination refers both to the process and extent to which information about the donors market is exchanged, vertically and horizontally, and shared within the organization Adapted from Kohli et al. (1993) MARKOR scale (r) = reverse coded item Scale: strongly disagree (2), disagree (1), neutral (0), agree (1), strongly agree (2)

593

Table II. Changes in the extent to which the top 200 British charities disseminate the intelligence generated from their donormarket

Changes in market orientation As can be seen in Table IV, donor-market orientation arithmetic means score for 1989 was 2.67; (with a standard deviation 12.46) and 9.70 ( standard deviation 13.1) for 1994, out of a possible range 40 to 40. The means (and standard deviations) for:

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1989 Mean/ standard deviation

1994 Mean/ standard deviation

Degrees 2 tail of significance t-value freedom level

Table III. Changes in the extent to which the top 200 British charities respond to the intelligence generated from their donor market

R1. It takes us a long time to decide how to respond to other non-associated charity organizations changes in the inducements offered to donors (r) 0.19/1.05 0.25/1.05 4.12 53 0.000 R2. For one reason or another we tend to ignore changes in our donor needs (r) 0.27/1.08 1.00/0.87 5.00 54 0.000 R3. We periodically review our new services (programmes) development efforts to ensure that they are in line with what the donors want 0.02/0.99 0.76/0.86 6.24 52 0.000 R4. Several departments get together periodically to plan a response to changes taking place in our operating environment 0.09/1.08 0.79/1.06 5.45 54 0.000 R5. If another (major) nonassociated charity organization was to launch an intense campaign targeted at our donors, we would implement a response immediately 0.09/1.00 0.31/0.98 4.36 53 0.000 R6. The activities of the different departments in this organization are well co-ordinated 0.21/1.20 0.48/1.13 5.98 52 0.000 R7. Donors grievances or complaints fall on deaf ears (r) 1.13/0.92 1.54/0.69 4.90 54 0.000 R8. Even if we came up with a great marketing plan, we probably would not be able to implement it in a timely fashion (r) 0.18/1.11 0.70/1.22 3.72 54 0.000 R9. When we find out that donors would like us to modify the service offering, the departments involved make concerted effort to do so 0.42/1.01 0.87/0.95 4.26 52 0.000 Responsiveness (R1 + R2 + R3 + R4 + R6 + R7 + R8 + R9) 1.57/5.77 6.58/5.03 7.49 46 0.000 Notes: Responsiveness refers to the collection and evaluation of information about consumer, governmental and corporate donor needs and preferences as well as the factors that influence them (r) = reverse coded item Scale: strongly disagree (2), disagree (1), neutral (0), agree (1), strongly agree (2)

1989 Mean/ standard deviation

1994 Mean/ standard deviation

t-value

Degrees 2 tail of significance freedom level

Market orientation

Intelligence generation 2.45/4.82 1.90/5.11 7.42 50 0.000 Intelligence dissemination 1.98/4.19 1.07/4.37 7.86 52 0.000 Responsiveness 1.57/5.77 6.58/5.03 7.49 46 0.000 Overall donor market orientation (Intelligence generation + intelligence dissemination + responsiveness) 2.67/12.46 9.70/13.1 8.07 44 0.000 Notes: Donor-market orientation is the organization-wide generation of market intelligence pertaining to current and future needs of donors, dissemination of intelligence horizontally and vertically within the organization and organization-wide action responsiveness to generated intelligence Adapted from Kohli et al. (1993) MARKOR scale (r) = reverse coded item Scale: strongly disagree (2), disagree (1), neutral (0), agree (1), strongly agree (2)

595

Table IV. Changes in the overall donor market orientation of the top 200 British charities

(1) intelligence generation were 2.45 (std dev: 4.82) in 1989 and 1.90 (std dev: 5.11) in 1994 (out of a possible range 12 to 12) (Table I); (2) intelligence dissemination 1.98 (std dev: 4.19) in 1989 and 1.07 (std dev: 4.37) in 1993 (out of a possible range 10 to 10) (Table II); and (3) responsiveness 1.57 (std dev: 5.77) in 1989 and 6.58 (std dev: 5.03) in 1994 (out of a possible range 18 to 18) (Table III). If the reported means are compared with the upper point in the possible range (40 for the whole scale), market orientation in British charities is still relatively low. Paired samples t-test identified a statistically significant (a = 0.05) increase in donor-market orientation between 1989 and 1994 (see Table IV). There were significant differences not only for the overall scale and its components but also for all the items. Thus, these findings appear to support the first hypothesis H1, that is that the market orientation in the top 200 British charity organizations has increased in the last five years. As can be seen in Tables I-III and IV (standard deviation), there is a high variance in the measures of market orientation. A correlation analysis between the focus of charities in different activities and market orientation was undertaken. Focus of charities was measured by the proportion of their income spent (in 1994) on the following types of activities (as determined by the Charities Aid Foundation, 1994): education; arts;

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youth; religious; protection of heritage and environment; animal protection; international aid; general welfare; and medicine and health. Correlation analysis failed to identify any significant associations between focus on different activities and donor-market orientation or any of its components. The difference scores (reflecting the changes between 1989 and 1994) for each component and whole donor-market orientation scale were calculated and subsequently were correlated against charities focus on different activities. This analysis revealed only one statistically significant ( a = 0.05) positive association, this being between focus in animal protection activities and changes in intelligence generation in the last five years The impact of size and departmentalization on market orientation The number of departments (departmentalization) within the organization and the organizations size (independent variables) were regressed against market orientation and its components (dependent variables). The standardized regression coefficients (beta), significance level and the coefficient of determination (R2) are displayed in Table V. Organizational size was measured by the number of full-time employees as charities are labour intensive organizations. The independent variables were not inter-correlated and as the variance inflation factor confirmed there were no problems of multi-colinearity when entered in the regression equation. As can be seen in Table V, both variables have, as was expected, a negative impact on donor-market orientation and its components. Standardized regression coefficients (beta) show that organizational size was more important than departmentalization.
Independent variable Organizations Number of size departments Significance Significance Beta level Beta level 0.428 0.340 0.359 0.392 0.002 0.023 0.008 0.003 0.318 ns 0.345 0.426 0.021 0.018 0.001

Dependent variables Market orientation Intelligence generation Intelligence dissemination Responsiveness

R2 0.299 0.122 0.262 0.355

N 42 45 47 43

Table V. The impact of size and departmentalization on market orientation

Organizational size was found to affect negatively all three elements of donormarket orientation, whereas departmentalization was found to affect only intelligence dissemination and responsiveness. In the case of responsiveness, departmentalization had a more important effect than size. It would seem that a larger number of departments makes it more difficult to respond to changes in donors markets. However, the low coefficients of determination show that these variables can only explain a small portion of variance in the levels of donor-market orientation. It seems that additional explanatory factors need to be added in the equation. The impact of market orientation on performance As the performance of charities is difficult to assess, for the reasons stated earlier, two judgemental measures of performance were used achievement of short-term objectives and achievement of long-term objectives 1989-1994. The two judgemental measures were significantly (a = 0.001) inter-correlated (coefficient = 0.63). Other measures of performance used were the number of volunteers and the expenses to donor contribution ratio. The changes, difference scores, in the period 1989 to 1994 were also used as another measure of performance. No statistically significant (a = 0.05) associations were identified between these measures and the judgemental scales. As past and present donor-market orientation are strongly inter-correlated (see t-test in Tables I-IV), to avoid multi-collinearity, they were entered and run into separate regression equations. As can be seen in Table VI, regression analysis failed to identify any significant relationships between present (1994) donor-market orientation and any of the dimensions used to measure charities performance. However, a key finding was that the level of past donor-market orientation affects the achievement of both short-term and long-term organizational objectives. Thus, there would appear to be a lag effect between market orientation and the performance in charities. Jaworski and Kohli (1993) speculated that such a lag effect might exist. The current research provides support for their belief. Following Narver and Slaters (1990) proposed model, organizational size, as a moderating variable, was regressed separately and in conjunction with donormarket orientation against the performance measures. The results indicated that size does not affect or mediate (partial correlation) the relationship between market orientation and any of the performance indices. Discussion and limitations of the study This study set out primarily to evaluate: (1) whether the donor-market orientation of charities has increased in recent years;

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Dependent variable performance Present donor-market orientation (1994) Achievement of long-term objectives (1989-1994) Achievement of short-term (annual, 1994) objectives Number of volunteers in 1994 Changes in the number of volunteers between 1989 and 1994 Expenses to donor contribution ratio (1994) Changes in expenses to donor contribution ratio between 1989 and 1994 Past donor-market orientation (1989) Achievement of long-term objectives (1989-1994) Achievement of short-term (annual, 1994) objectives Number of volunteers in 1994 Changes in the number of volunteers between 1989 and 1994 Expenses to donor contribution ratio (1994) Changes in expenses to donor contribution ratio between 1989 and 1994 Note: ns = non-significant

Independent variable Standard regression Significance coefficient (beta) level

R2

ns ns ns ns ns

ns ns ns ns ns

ns ns ns ns ns

43 43 41 41 39

ns

ns

ns

37

0.442 0.373 ns ns ns

0.02 0.03 ns ns ns

0.19 0.14 ns ns ns

43 43 41 41 39

Table VI. The impact of donormarket orientation on charities performance

ns

ns

ns

37

(2) the extent to which organizational size and departmentalization inhibit the development of a donor-market orientation; and (3) most importantly, the impact of donor-market orientation on charities performance and their ability to fulfil their short- and long-term objectives. The results suggest that although the level of donor-market orientation is still comparatively low, it has significantly increased for all types of charities in the last five years. It seems that charities have been constrained by recent developments in their operating environment increased number of charities,

reduction in disposable incomes, etc. to become more market oriented. However, a key finding of the research is that there is a lag factor between the level of market orientation and its effect on the performance of the charities. Barriers to market orientation It was found that larger organizations were more reluctant or able to become market oriented. Size was found to inhibit all three components of market orientation. The number of departments, as suggested by Jaworski and Kohli (1993), appears to inhibit the circulation of information between departments, making the organization less responsive. One of the favourite themes in almost every textbook is that market orientation in non-profits is inhibited by ideological or attitudinal barriers posed by management (Mokwa, 1990). An attitudinal scale that measures managements ideological, cognitive and affective opposition (or resistance) to marketing needs to be developed and incorporated in the regression equation. It is also suggested that control over non-profits and decision making are diffused and shared by a large number of internal and external publics which make organization-wide co-ordination, communication and responsiveness problematic, inhibiting market orientation (Mokwa, 1990). A future research design should examine how the locus, and different types (and mechanisms), of control affect donor market orientation. A typology of decision-making processes (diffused, concentrated, etc.) in charities needs to be developed to capture these effects on donor-market orientation. Donor-market orientation and performance The results revealed that the level of present donor-market orientation has no impact on charities performance. It is past market orientation that affects charities performance. The identification of a lag effect between market orientation and performance is probably the most important finding. It seems that efforts to develop a donor-market orientation take some time to yield rewards. In this case, the identified lag is a five-year period, but a more elaborate study is needed to identify its exact size and dimensions. The identified lag effect was related only to the judgemental measures, in particular the ability of charities to achieve their short- and long-term objectives respectively. No relationship was identified between donor-market orientation, present or past, and any of the other performance variables. Contrary to expectations, market orientation was found not to affect the number of volunteers attracted which is one of the main resources provided by the donor market. However, one should remember that volunteers are attracted into the organizations not on an infinite basis but to cover specific organizational needs. A future research design should control for the need for volunteers constraints (upper limit) when examining the impact of market orientation. An improved scale would measure whether charity organizations are able to attract the number and quality of volunteers needed in a specified period.

Market orientation

599

European Journal of Marketing 31,8 600

Efficiency measures like expenses to donor contribution seem to be related more to organizational systems and management related factors (Callen and Falk, 1993). Even though donors put pressures on charities (directly or indirectly) for better usage of their contributions, it seems that charities efficiency is strongly mediated by organizational and management-related factors. It is the development of the appropriate organizational and management system as a result of donor-market orientation (or donor demands) that will increase efficiency and not donor-market orientation itself. Another potential interference to the results is that the level of charities dependence on donations (to the donor market) varies from charity to charity and should be taken into account. In addition, some charities tend to depend on a very small number of donors and others focus on specific categories of them (e.g. government, corporate) which also affects the level of the market orientation. It seems that the level of reliance on donations, donor-market size and composition of donations may be able to explain some of the observed variance in the equation. Methodological and conceptual limitations and suggestions for improvement The small sample size of this study precludes the use of more sophisticated statistical techniques (e.g. confirmatory factor analysis, simplex, etc.) which would allow to: provide more evidence on the validity of the scale; probe on the order effects between the components of donor market orientation; and identify the possible existence of non-linear relationships. Future studies can increase the respondents base by including smaller charities as well. Donor-market orientation was defined as the degree to which charities generate, circulate (internally) and act on information about their donors needs or preferences and the factors that influence them. The main focus was on donors and rival charities. An extension of the concept should incorporate additional dimensions of market orientation towards beneficiaries and other publics (stakeholders) that affect their charities operation (e.g. media, government, etc.). Literature (Kotler and Andreasen, 1991) advocates that charities should balance the needs and preferences of the above exchange parties. Thus, it is necessary that a future scale, besides the new dimensions, measures the importance weights (or priority) attached to each group. A variation in the extent to which charities generate and circulate intelligence about each (exchange) group, and differentiation in the levels of responsiveness towards different groups would help to test the balanced approach hypothesis. Current research on market orientation is confined to the extent (magnitude) to which an organization is involved in certain (qualifying) activities without examining their quality. It seems that the market orientation concept can be

enhanced by incorporating some qualitative dimensions. Future research should examine: the way collected information is read; the interpretative ability of organizations (ability to interpret market signals accurately); and the quality dimensions of charities response at both planning and implementation level. The work of Thomas et al. (1993) may provide some insights towards this direction. Finally, most studies in this area (including this one) rely exclusively on the participant recollection method. This method has a number of limitations (see Schwenk, 1985) which result from the cognitive shortcomings of the key informants and it may be necessary to use alternative sources to a greater extent (e.g. company reports, archival data, etc.). This need for a diversified use of multiple sources and informants has also been recognized by Jaworski and Kohli (1993), who urged the use of what they called unobtrusive measures. Overall, the study has achieved its objectives and provided a better understanding on the implementation of the marketing concept in the UK charity sector. The findings have empirically supported, to a great extent, hypotheses and ideas promoted by the mainstream literature. Most importantly, the study has raised a number of issues which will help to improve market orientation conceptualization and research in the area of non-profits.
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603