ANZMAC 2000 Visionary Marketing for the 21st Century: Facing the Challenge

The Relationship Between Learning Orientation, Market Orientation And Organisational Performance
Felicity Hardley and Felix Mavondo . Department of Marketing, Monash University Abstract
This paper investigates the relationship between learning orientation, market orientation and organisational performance. The results suggest that learning orientation has a significant positive impact on customer orientation and competitor orientation. In addition, learning orientation has significant indirect (mediated) impact on organisational performance. Our results reveal that in the special circumstances in which the Australian retail pharmacy operates competitor orientation might lead to poor organisational performance since this is not an optimal way to deploy resources. Our results further suggest that a strong emphasis on customer orientation may be an effective antecedent to effective competitor orientation.

INTRODUCTION
Much of the existing literature on learning and organisational performance identify market and learning orientation as highly integrated paradigms with many theorists suggesting that a learning and market orientation are an integral part of organisational culture (Jaworski and Kohli 1993; Slater and Narver 1995; Hurley and Hult 1998). However, the ultimate goal of many studies on the effects of learning, customer and competitor orientation on organisational performance, has been to discover what businesses have to do to achieve a competitive advantage.

LEARNING AND MARKET ORIENTATION

The benefits of learning and absorptive capacity have been empirically examined by several theorists (eg. Baker and Sinkula 1999; Hamel, 1991; Mowery, Oxley and Silverman 1996) and it has been suggested that learning is the most valuable resource an organisation can have for maintaining a competitive advantage (Dickson 1996). Baker and Sinkula (1999) assert that a distinction should be made between learning orientation (which is said to affect an organisations capability to contest old assumptions about the market) and market orientation (an organisations focus on environmental events that may affect their ability to maximally satisfy customers). The important distinction to draw is that a learning orientation does not just utilise market-based knowledge in searching for new ways to increase customer satisfaction (Baker and Sinkula 1999). To assist in the explanation of knowledge as a core capability, scholars have divided knowledge into two categories, tacit and explicit (Nonaka and Takeuchi 1995). Tacit knowledge is difficult to articulate, formulate and communicate as it is knowledge that has been learned through experience (Nonaka and Takeuchi 1995). This is similar to the notion of know-how that has been examined by Kogut and Zander (1992) and Szulanski (1996), whereby know-how is sticky, difficult to codify and difficult to transfer or imitate. It is for these reasons that knowledge and the ability to learn are recognised as core capabilities or key for generating competitive advantage. These characteristics of learning indicate why it might be a sustainable source of competitive advantage and may contribute to superior performance. However, whilst it is becoming generally accepted that a learning orientation affects organisational performance, the question of how still remains unclear and is the motivation for this paper. We develop a conceptual model (Figure 1) and test it empirically. Literature reveals two generally accepted assertions namely, that learning is an important facilitator of competitive advantage, and that market orientation and learning orientation are not one and the same. Dickson (1996) believes that market information processing behaviours that are derived from a strong market orientation can be readily copied, however, the learning environment that organizes and translates the output of these behaviours into a comparative advantage cannot. Market orientation has been viewed by many theorists as having an operational focus on market information processing activities regarding customers and competitors, particularly information acquisition, information distribution, and the ability to respond to what is received (Day 1994; Deshpande, Farley, and Webster 1993; Kohli and Jaworski 1990; Narver and Slater 1990).

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The distinct organisational characteristics of learning orientation (Sinkula, Baker and Noordewier 1997) and market orientation are examined in relation to organisational performance. For the purposes of this study, we decompose market orientation into its components and examine customer and competitor orientation and their relationship to learning orientation to gain a deeper understanding. Learning orientation is viewed from the perspective that it is an organisational characteristic that reflects the value that a firm places on responding to changes in the environment and to challenging the assumptions that frame the organisations relationship with its environment (Baker and Sinkula, 1999). Organisational performance, while a multi-dimensional construct, in this study was tested only as a profitability measure. Several studies have indicated that whilst customer orientation has a positive impact on profitability (Deshpande et al 1993), competitor orientation very often has a negative impact on profitability (Armstrong and Collopy 1996; Boynton, Blake, and Uhl 1983). Thus, the decomposition of market orientation may highlight the potential conflict in the current conceptualisation of market orientation.

MARKET ORIENTATION
Kohli and Jaworski (1990: 6) propose a formal definition of market orientation. Market orientation is the organisation-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organisation-wide responsiveness to it. In defining the conceptual domain of market orientation, Narver and Slater (1990) identify three behavioural components: (1) Customer orientation, which involves understanding target buyers now and over time in order to create superior value for them; (2) Competitor orientation which involves acquiring information on existing and potential competitors, understanding the short-term strengths and weaknesses and long term capabilities of both the key current and potential competitors. (3) Inter-functional coordination, which is the coordinated utilisation of companys resources in creating superior value for target customers. Research suggests that market orientation is related to certain organisational capabilities (Day 1994), to organisational performance (Kohli and Jaworski 1993; Narver and Slater 1990, Greenley 1995), that market orientation is positively related to innovation (Slater and Narver 1995) that it is an important resource (Hunt and Morgan 1995). Figure 1: Conceptual Model and hypotheses tested
BPQ51 BPQ52 BPQ54

LEARNING

BPQ16
COMPETITOR

BPQ11

BPQ17

CUSTOMER

BPQ12

BPQ18

BPQ14

PROFIT

GQ4A

GQ4B

GQ4C

From this brief exploration of relevant literature we advance the following hypotheses H1: Learning orientation is strongly and positively related to customer orientation H2: Learning orientation is strongly and positively related to competitor orientation H3: Customer orientation is strongly and positively related to competitor orientation H4: Customer orientation is strongly and positively related to superior performance (profit)

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H5: Competitor orientation is negatively related to organisational performance H6: The relationship between learning orientation and organisational performance is mediated by customer orientation

RESEARCH METHODOLOGY, SAMPLE AND INSTRUMENT DEVELOPMENT

Data Collection Data for the study was collected using a mail survey questionnaire. 600 4-page questionnaires were sent to retail pharmacies in Victoria (Australia). The sample was picked from the metropolitan and regional directories. An effective response rate of 25% (145) was obtained of whom 30 were regional and 115 were metropolitan retail pharmacies. The retail pharmacy industry was chosen for the study for several reasons including: the rapid changes happening in the industry due to impending deregulation, its size and importance in a rapidly evolving health system. It was also noted that the industry is dominated by highly competitive professionals who often had to co-operate in the face of a turbulent environment. Retail pharmacists compete vigorously for business but co-operate as professionals in the common field. Development of Measurement Instruments All constructs were measured on a 7 point Likert-type scale using existing measures. All measures operationalised were derived from existing scales. Customer orientation and competitor orientation were from Narver and Slater (1990), learning orientation from Sinkula, Baker and Noordewier (1997). Profit had items (previous profit, current profit and future profit). The Chronbach s were all .75 or higher. Structural modelling was used to test the measurement model and the structural part of the model using AMOS 4. Model details are given in Table 1. To make the model robust, we used item parcels (Kishton and Widaman (1994) to reduce the number of items per latent variable. For example the six items for customer orientation, they were randomly allocated to three indicators shown on the model (each has two items). This is consistent with psychometricians recommendations (Abe, Bagozzi and Sadarangani 1996, Marsh 1994).

RESULTS
Our results suggest that the model fits the data rather well ( 2(48) = 59.176, p=.129; Cmin=1.233; GFI=.939 , AGFI=.901; NFI= .909, TLI= .974, CFI=.981; RMEA=.041). The measurement model indicates that all the items loaded high on the hypothesised constructs. All items significantly differed from zero with t-values ranging from 4.1-8.6 standard errors from zero and all the t-values are significant at (p<.001). All the fit statistics (measures of fit, comparative measures) indicate a good fit (Table 1). There is support for H1 ie that learning orientation has a significant and positive influence on customer orientation (Table 1). H2, which posits that learning orientation has a significant and positive effect on competitor orientation is supported. Our results further support the notion that customer orientation is positively related to competitor orientation (H3). Our position that in a market economy, businesses must focus on the customer as the starting point is supported by customer orientation being positively related to superior performance (H4). While in the Narver and Slater (1990) conceptualisation of market orientation both customer orientation and competitor orientation are dimensions of market orientation, concern has been raised that there are situations were the relationship and effects of these might be opposite. In this case because of the special features of the retail pharmacy in Australia, competitor orientation would be a waste of resources while customer orientation would be very beneficial. Thus, H5, which posits a negative association between competitor orientation and financial performance, is supported. Our results further, suggest that the impact of learning orientation on profitability is mediated by customer orientation (H6). Our findings highlight the importance of learning as an ongoing search for effective routines for organisational growth and profitability. We suggest that managers need to invest in learning ie learning a lot and fast-if their competitive advantage is to be sustainable.

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Table 1: Summary of Model Results Items Learning Orientation Factor Loadings .883 .752 (8.607)*** .622 (7.211)***

Customer Orientation

Competitor Orientation

Profit

BPQ51 BPQ52 BPQ54 BPQ11 BPQ12 BPQ14 BPQ16 BPQ17 BPQ18 GQ4a GQ4b GQ4c

.595 .689 (6.610)*** .727 (6.813)*** .553 (6.2)*** .750 (8.2)*** .847 .952 (4.1)*** .780 (4.3)*** .574

H1: Learning orientation customer orientation H2: Learning orientation-competitor orientation H3: Customer orientation-competitor orientation H4: Customer Orientation-Profit H5: Competitor orientation-Profit H6: Learning orientation-Customer orientation-Profit ***p<.001, **p<.01, *p<.05

Regressions .542 (4.823)*** .368 (3.305)** .449 (3.646)*** .595 (2.779)** -.292 (1.982)* .142 (4.176)***

DISCUSSION AND MANAGERIAL IMPLICATIONS

Our results have managerial implication in that they suggest a learning orientation has positive association with customer orientation, competitor orientation and organisational performance. The results suggest that learning does not have a direct association with organisational performance; its effect is mediated by customer orientation. The results highlight that the current conceptualisation of market orientation may be problematic. While customer orientation and competitor orientation are components of market orientation, in this research they had opposite relationships to organisational performance. This is likely to occur, as in the case the retail pharmacy in Australia, where competition was unnecessary but customer orientation was critical. This was largely due to the regulatory environment at the time the research was done (1999). Thus, the managerial implication is that managers may need to pay differential weighing to the dimensions of market orientation in response to the specifics of their industry. The results also imply that managers should place priority to learning orientation which encompasses a broad range of activities than market orientation. Finally, these results demonstrate the superiority of using structural modeling as opposed to multiple regression. Structural modeling allows the examination of direct and mediated relationships while also testing the general fit of the model. As a result, structural modeling gives a holistic picture of all the relationships hypothesised. References
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