201

4
Developing a Market-Oriented Learning
Organisation
by
Mark A. Farrell
Abstract:
This study integrates the constructs of organisational change strategies, market
orientation, top management behaviour, leadership style, learning orientation
and business performance. A survey was sent to the top 2,000 organisations
within Australia, as defined by annual revenue. Data was analysed using two-
stage least squares regression (2SLS). Findings indicate that both planned and
emergent change strategies significantly influence market orientation. Results
also indicate that top management behaviour, and leadership style significantly
impact on a learning orientation. Finally, results indicate that a market
orientation is positively related to a learning orientation and that a learning
orientation has a stronger significant positive effect on business performance
than does a market orientation.
Keywords:
ORGANISATIONAL CHANGE; MARKET ORIENTATION; LEARNING ORIENTATION;
LEADERSHIP STYLE; BUSINESS PERFORMANCE.
School of Management, Charles Sturt University, Wagga Wagga, PO Box 588, NSW 2678.
Email: mfarrell@csu.edu.au
The author gratefully acknowledges comments by the reviewers and the Editor, Mark Uncles.
Australian Journal of Management, Vol. 25, No. 2, September 2000, The Australian Graduate School of Management
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1. Introduction
uring the previous decade, a steady stream of research has developed concerning
the market orientation construct. Indeed, companies have been urged to improve
the market orientation of their business (Jaworski & Kohli 1993, p. 64). However,
there is an argument emerging that being market-oriented may not be enough, and that
the ability of an organisation to learn faster than competitors may be the only source
of sustainable competitive advantage (DeGeus 1988; Dickson 1992; Slater & Narver
1995). Indeed, Lukas, Hult and Ferrell (1996, p. 233) argue that organisational
learning is considered by many scholars as a key to future organisational success.
This perspective differs from the neoclassical theory that argues that land, labour and
capital are the key ingredients of productivity. In contrast, the resource-based theory
of the firm (Hunt & Morgan 1995) argues that information and knowledge are the key
ingredients for success (Bell 1973). In short, the ability to learn is a priority for
organisations that wish to compete effectively.
Two conclusions emerge from the above discussion. Firstly, that being market-
oriented is a source of competitive advantage, and as such organisations should seek
to become market-oriented. This is echoed by Day (1994, p. 50) who argues for
broad-scale research into change programs that may enhance a market orientation.
Indeed, Sinkula, Baker and Noordewier (1997, p. 315) note that there is little work on
organisational change within a marketing context. Similarly, Narver, Slater and Tietje,
(1998, p. 242) state that given the substantial evidence suggesting a positive
relationship between market orientation and performance, the logical next question is
how a business can best create and increase a market orientation.
The second conclusion is that creating a market orientation is only a start
(Slater & Narver 1995, p. 63). Despite the benefits of being market-oriented that
were outlined earlier, there are some limitations. For example, Slater and Narver
(1995) argue that market-oriented organisations may not take enough risks,
concentrating on what Hamel and Prahalad (1994, p. 83) call the tyranny of the
served market, thus ignoring emerging markets and/or competitors (Argyris 1994;
Slater & Narver 1995). It has also been argued (Hayes & Weelwright 1984; Hamel &
Prahalad 1994) that a market orientation may result in adaptive learning only, with its
focus on the expressed needs, as opposed to latent needs of customers (Slater &
Narver 1995, p. 68). Moreover, market-oriented organisations may underestimate the
potential contributions of other learning sources that possess knowledge useful to the
organisation (Achrol 1991; Dickson 1992; Kanter 1989; Webster 1992). Finally,
market-oriented organisations may overlook the possibility of threats from non-
traditional competitors (Slater & Narver 1995), for example, the emerging threats to
banking institutions from the telecommunications industry in the form of stored
value cards. In short, a narrow construction of market orientation could lead to
learning only within traditional boundaries (Slater & Narver 1995, p. 68).
Given the limitations of the market-oriented organisation, Slater and Narver
(1995) argue that organisations should aim to become learning-oriented if they are to
compete successfully in the long run. However, given that a market orientation is the
principle cultural foundation of the learning organisation (Slater & Narver 1995),
then we argue that, once organisations are market-oriented, it is but a logical step for
them to develop into a learning organisation. Indeed, Slater and Narver (1995, p. 67)
state that a market orientation is inherently a learning orientation. Building upon this
D
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line of argument, Sinkula, Baker and Noordewier (1997, p. 316) call for research that
explores relationships between learning orientation, market orientation and
organisational performance. Finally, Slater and Narver (1995, p. 71) argue that the
development of a clear understanding of the . . . management practices that facilitate
or hinder organisational learning should be a high priority.
Given the above arguments, this paper addresses the following research
questions:
1. What types of organisational change strategies enhance a market orientation?
(Day 1994)
2. What specific management practices and behaviours facilitate a learning
orientation? (Slater & Narver 1995)
3. Does a market orientation facilitate a learning orientation and is organisational
learning associated with superior performance? (Sinkula, Baker & Noordewier
1997)
In addressing the above research questions, this paper makes the following
contributions. Firstly, we contribute to the literature by empirically testing the
relationship between market orientation and two major organisational change
strategies: planned change and emergent change. Secondly, regarding management
practices, this study empirically tests the effect of three styles of leadership
transformative, transactional and laissez-faireand their impact on a learning
orientation. The study also examines two aspects of managerial behaviour, risk
aversion, and degree of emphasis on a learning orientation to determine whether such
behaviour facilitates a learning orientation. Thirdly, the study examines the
relationship between a market and learning orientation, and the effect of a learning
orientation upon business performance.
The remainder of the paper is organised as follows. In the following section we
examine the literature on creating a market orientation. This is followed by a review
of the factors that may facilitate a learning orientation. Specifically, we examine the
literature on leadership style, and top management behaviour, particularly risk
aversion and emphasis on a learning orientation. There then follows a brief review of
the literature on organisational learning, with particular reference to the relationship
between organisational learning and performance. Research hypotheses are
developed, followed by the research method, data analysis and results. The findings
are discussed along with managerial implications and directions for further research.
Figure 1 provides the conceptual framework for the study.
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Figure 1
Conceptual Framework
2. Creating a Market Orientation
In order to create a market orientation, it must be recognised that a market
orientation is not a set of processes and activities, but is a fundamental part of the
organisations culture (Narver, Slater & Tietje, 1998). Each employee must
understand that the whole purpose of the organisation is to create superior value for
customers. Narver, Slater and Tietje (1998, p. 243), make the point that if creating a
market orientation consisted of simply ordering that certain desired behaviours
occur, then we would not see such large numbers of businesses failing in this
endeavour. Thus, if a market orientation is to be developed, . . . nothing short of
implanting the appropriate culture will suffice (Narver, Slater & Tietje, 1998,
p. 243). However, an organisations culture may be resistant to change (Deshpande &
Webster, 1989; Trice & Beyer, 1993; Narver, Slater & Tietje, 1998). In creating a
market-oriented culture, the task is to have individuals accept the core value
concerning the importance of being committed to delivering superior value for
customers (Narver, Slater & Tietje, 1998).
Building upon the work by Beer, Eisenstat and Spector (1990), Narver and
Slater (1991) examined two contrasting organisational change strategies; market
back (an emergent approach which is a process of continuous learning on how to
create value) and programmatic change (a planned approach which is top down).
They found a significant positive relationship between a market back approach and
market orientation, and no significant relationship between a programmatic
Change Strategies
Planned
Emergent
Top Management
Behaviour
Risk Aversion
Emphasis
Leadership Style
Transformative
Transactional
Laissez
Market Orientation
Learning Orientation
Business Performance
Control Variables
Competitive Intensity
Technological Turbulence
Market Turbulence
Average Sales Growth
Buyer Power
Entry Barriers
Relative Cost
Relative Size
Supplier Power
H
10
H
9
H
8
H
5
H
7
H
3
H
4
H
1
H
2
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approach and a market orientation. However, the study by Narver and Slater (1991)
consisted of only 36 strategic business units in one organisation.
In developing hypotheses between organisational change strategies and a market
orientation, we refer to Kelmans (1958) theory of influence processes. Briefly,
Kelman argued that those influence tactics that are more likely to cause
internalisation of favourable attitudes concerning the request should be more
successful than those that cause behavioural compliance but are not congruent with
the targets value system. Thus, we argue that top-down or planned change strategies,
with their focus on company-wide change programs, and the behaviour of individuals
modified to fit in with the culture, are less likely to lead to internalisation of
favourable attitudes. Given this, theory would suggest that there would be resistance
from employees, which would make it more difficult for the appropriate culture to be
implanted (Narver, Slater & Tietje 1998). Conversely, an emergent or bottom-up
approach, with an emphasis on empowerment, participation and learning at all
organisational levels (Fiol & Lyles 1985), is more likely to produce psychological
ownership, or internalisation. It is the emphasis on continuous learning that drives the
transformation and the reinforcement of the culture (Narver, Slater & Tietje, 1998).
Given the above discussion and the findings by Narver and Slater (1991), we suggest
the following hypotheses:
H
1
: The higher the level of a planned approach to change management, the lower the
level of a market orientation.
H
2
: The higher the level of an emergent approach to change management, the higher
the level of a market orientation.
In the following section we examine the management practices and behaviours that
may facilitate a learning orientation.
3. Top Management Behaviour
3.1 Top Management Emphasis/Risk Aversion
It is argued that senior managers shape the direction of the organisation, and its values
(Felton 1959; Hambrick & Mason 1984; Webster 1988). Jaworski and Kohli (1993)
found that the amount of emphasis senior managers place on a market orientation
affects both the acquisition of and responsiveness to information, and that a market
orientation requires risk taking on the part of senior managers. Bennet and OBrien
(1994) argue that in learning-oriented organisations managers support staff
development, encourage risk taking, and share insights and innovations. Slater and
Narver (1995, p. 69) also argue that leaders share information readily, motivate
people to learn, and challenge their own assumptions and mental models. The
importance of leadership in shaping the values, culture and style of an organisation
has been discussed by several authors (Hambrick & Mason 1984; Webster 1988;
Senge 1990; Nonaka 1991). Essentially, leaders send signals to the wider
organisation regarding the manner in which the organisation is to operate within its
given market. Such signals provide employees with an understanding of the
environment within which they work and how they are expected to work within it.
Clearly, effective leaders are able to articulate the mission of the organisation that
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helps in creating a shared set of values. Moreover, Slater and Narver (1995, p. 69)
argue that leaders must also be able to play a major role in unlearning traditional but
detrimental practices. Indeed, Slater and Narver (1995) suggest that the ability to
lead unlearning could be the single most important role for the chief executive
officer for breaking through the learning boundary to encourage generative learning.
This suggests that reinforcement of the importance of a shared mission, shared
information and unlearning of existing practices will lead to a greater learning
orientation. In short, senior managers must both support the concept of a learning
orientation and be prepared to accept risk as a part of this learning process. Finally, it
has been argued that if an organisation places little value on learning, then little
learning is likely to occur (Norman 1985; Sackmann 1991; Sinkula, Baker and
Noordewier 1997). The above discussion leads to the following hypotheses:
H
3
: The greater the top management emphasis on a learning orientation, the greater
the learning orientation of the organisation.
H
4
: The lower the risk aversion of top management, the greater the learning
orientation of the organisation.
3.2 Leadership Style
Besides an emphasis on a learning orientation and a willingness to accept risk, senior
managers need to adopt a style of leadership that further promotes the concept of a
learning orientation. Slater and Narver (1995, p. 69) argue that a complex
environment calls for a complex style of leadership and a transformational or
facilitative leader; that is, leaders who communicate effectively, share information,
and generally keep the workforce up to date with important information. Such leaders
encourage inquisitiveness and establish a motivating vision for the organisation
(Senge 1990). Transformative leaders also encourage individuals to break through
learning boundaries (Bass 1985), and motivate people to want to learn (Slater &
Narver 1995). There exists a wide body of literature that suggests that a
transformational leadership style is effective. For example, previous studies have
found that transformational leaders motivate group members to higher levels of
collective performance and satisfaction (Shamir, House & Arthur 1993). Research
has also found that transformational leaders provide more favourable motivational
effects on levels of group performance in terms of technological innovation (Howell
& Higgins 1990), total quality management outcomes (Sosik & Dionne 1997),
military unit performance (Yammarino & Bass, 1990), organisational unit
effectiveness (Hater & Bass 1988; Howell & Avolio 1993), team performance
(Avolio, Waldman & Einstein 1988), and idea generation (Sosik 1997), than other
leadership styles, such as transactional leadership and laissez-faire leadership.
Finally, within the marketing literature, Dubinsky, Yammarino, Jolson & Spangler
(1995) found that a transformational leadership style used by sales managers led to
sales people being more committed, satisfied and less stressed than when sales
managers used a transactional leadership style.
According to Bass and Avolio (1994) transformational leadership is seen when
leaders: (a) stimulate interest among colleagues and followers to view their work
from new perspectives; (b) generate awareness of the mission or vision of the team
and organisation; (c) develop colleagues and followers to higher levels of ability and
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potential; and (d) motivate colleagues and followers to look beyond their own
interests toward those that will benefit the group. In short, transformative leaders
create the environment, in which individuals are able to learn for themselves, and
share their learning experiences within the organisation, both inter and intra
department. In contrast, transactional leadership style occurs when the leader rewards
or disciplines the follower depending on the adequacy of the followers performance
(Bass & Avolio 1994). In brief, transactional leadership depends on contingent
reinforcement or management by exception. The third leadership style, laissez-faire
leadership, is essentially the avoidance or absence of leadership, and the most
ineffective (Bass & Avolio 1994). The above discussion leads to the following
hypotheses:
H
5
: The greater the level of transformative leadership, the greater the level of
learning orientation.
H
6
: The greater the level of transactional leadership, the lower the level of learning
orientation.
H
7
: The greater the level of laissez-faire leadership, the lower the level of learning
orientation.
In the following section, we review briefly the literature on market orientation, and
explain the relationship between a market orientation and learning orientation.
4. Market Orientation
Jaworski and Kohli (1993) argue that a market orientation is concerned with
behaviours and activities in an organisation. Narver and Slater (1990), Deshpande,
Farley and Webster (1993) adopt a cultural perspective, although in subsequent work,
Deshpande and Farley (1989) state that market orientation is not a culture but a set of
activities. Narver and Slater (1990, p. 21) define a market orientation as:
. . . the organisation culture that most effectively creates the necessary behaviours for the
creation of superior value for buyers and, thus, continuous superior performance for the
business.
Narver and Slater (1991, p. 14) also argue that the behaviour and culture of an
organisation are interlinked, an organisations behaviour is shaped by its culture, and
in turn, over time, the culture is shaped by the organisations behaviour and
performance. The dominant measures of market orientation, MARKOR, (Kohli,
Jaworski & Kumar 1993), and MKTOR (Narver & Slater 1990) are similar in that
they both focus on information gathering in order to achieve a competitive advantage.
Both are composed of three sub-constructs of equal value. In general, research
findings suggest that a market orientation leads to increased business profitability
(Narver & Slater 1990).
In line with Slater and Narver (1995) we argue that market-oriented
organisations provide the cultural framework from which a learning orientation can
develop. As Slater and Narver (1995, p. 71) state, because of its external focus,
marketing is well positioned to appreciate the benefits of market-driven learning and
be the lead advocate of the market-oriented, entrepreneurial values that constitute the
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culture of the learning organisation. Baker and Sinkula (1999) argue that market
orientation facilitates adaptive learning. Adaptive learning state Baker and Sinkula
(1999, p. 412) is capable of facilitating incremental innovation. Conversely, state
Baker and Sinkula (1999), a learning orientation is capable of facilitating
discontinuous innovation. However, add Baker and Sinkula (1999, p. 412), a learning
orientation can lead an organisation astray . . . if a strong market orientation is not
present to provide grounding. Finally, state Baker and Sinkula, market orientation is
concerned with knowledge producing behaviours, while a learning orientation is
concerned with knowledge questioning values.
In agreement with Weick and Westley (1996, p. 442) we propose that
conceptualising organisations as cultures is appropriate when examining the
constructs of market orientation and organisational learning. Thus we argue that a
market orientation is the underlying set of organisational values (Slater & Narver
1995; Narver, Slater & Tietje 1998) from which a learning orientation is developed.
That is, we argue that market-oriented firms are effective in producing knowledge,
and this culture of knowledge production, inevitably leads to knowledge-questioning
values. In short, organisations that are able to appreciate the value of timely and
relevant information (market-oriented), will also be intelligent enough to challenge
existing assumptions about the way the market operates (learning-oriented). Based on
the preceding argument, we suggest the following hypotheses:
H
8
: The higher the level of a market orientation, the higher the level of a learning
orientation.
H
9
: The higher the level of market orientation, the higher the level of business
performance.
5. Organisational Learning
A variety of definitions exist concerning organisational learning: the process of
improving actions through better knowledge and understanding (Fiol & Lyles 1985);
organisational learning occurs with an organisation skilled at creating, acquiring, and
transferring knowledge, and at modifying its behaviour to reflect new knowledge and
insights (Garvin 1993); an organisation that has woven a continuous and enhanced
capacity to learn, adapt and change its culture (Bennett & OBrien 1994); the capacity
or processes within an organisation to maintain or improve performance based on
experience (Nevis, DiBella & Gould 1995). Slater and Narver (1995) simply argue
that learning facilitates behaviour change that leads to improved performance. In
explaining this, Slater and Narver (1995) state that organisational learning should lead
to superior outcomes, such as superior new product success, customer retention,
superior growth, and/or profitability, through its ability to focus on understanding and
satisfying the expressed and latent needs of customers, through new products,
services and ways of doing business (Day 1994; Dickson 1992; Sinkula 1994).
Sinkula, Baker and Noordewier (1997, p. 316) argue that cultivating a learning
culture may indeed become one of the primary means to attain and maintain a
competitive advantage. Sinkula, Baker and Noordewier (1997) also argue that the
success of the learning activities should be addressed by performance measures
(Hamel & Prahalad 1994; Stata 1992). In a recent paper, Baker and Sinkula (1999)
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209
find that a learning orientation is significantly related to business performance. Based
on the above discussion, we suggest the following hypothesis:
H
10
: The higher the level of a learning orientation, the higher the level of business
performance.
In the following section we discuss the research method used in the study.
6. Research Method
6.1 Data Collection
The study involved a mail survey of the top 2,000 companies within Australia, as
defined by annual revenue, using the Dun and Bradstreet database. Large organisations
are chosen because they are more likely to have systematic intelligence gathering,
which is vital to a learning orientation. The unit of analysis is the corporation, with
the CEO/Managing Director as the key informant. The reason for selecting this unit
of analysis is as follows: (i) responsibility for top management commitment is at the
corporate level (Webster 1992); (ii) managers are not as well placed as
CEO/Managing Directors to have an understanding of the organisations overall
market and learning orientation; and (iii) the balance of stakeholder interests should
be initiated in the corporate mission and culture, which is the responsibility of
directors (Webster 1992). Greenley (1995) cites Deshpande, Farley & Webster
(1993) who argue that managers may be uncertain about the appropriate culture for a
market orientation, and the changes in attitude that would be required. However, this
would be understood at the level of CEO/Managing Director (Webster 1992). Finally,
this unit of analysis has been used successfully in a similar study (Oczkowski &
Farrell 1998).
As with Greenley (1995), a limited pilot study was undertaken to ensure that
there were no problems in completing the survey instrument. A questionnaire and a
personal letter were mailed to the CEO/Managing Director of the respective
organisations. A second mail out two weeks after the initial mail out was conducted
to improve the response rate. One hundred and thirty one questionnaires were either
returned to sender due to an incorrect address, or the person had left the company.
Seventy-three questionnaires were not completed, as it was company policy not to
complete such surveys. In total, 268 useable questionnaires were returned, resulting
in an effective net response rate of 15%.
Informants were told that the purpose of the survey was to investigate state of
the art business practices. No mention was made of either learning orientation, or any
other construct. Independent sample ttests for differences between means of the key
variables were conducted to check for non-response bias. Tests were performed
between early and late respondents. As per convention (Armstrong & Overton 1977),
it is postulated that the late respondents are relatively dis-interested respondents,
similar in nature to non-respondents. All ttests indicated an absence of significant
differences between the means at a 0.1% level of significance. Thus, the sample
appears to be relatively free from non-response bias.
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6.2 Measures
The measures chosen for this study relied on several sources. For learning
orientation, we use the measure developed by Sinkula, Baker and Noordewier (1997).
The measure of market orientation used was MKTOR (Narver & Slater 1990), given
its overall psychometric qualities (see Oczkowski & Farrell 1998). The measure of
risk aversion was adopted from Jaworski and Kohli (1993). The measure of top
management emphasis on a learning orientation was developed based on the scale by
Jaworski and Kohli (1993). Essentially, the items were reworded to focus on a
learning orientation, as opposed to a market orientation. Measures of transformative,
transactional and laissez-faire leadership were adopted from the Multifactor
Leadership Questionnaire (MLQ) scale developed by Bass and Avolio (1994). These
leadership scales have been used extensively in the leadership literature. For the
measures of planned and emergent change, new scales were developed, following
Churchills (1979) guidelines. In short, items were developed after a comprehensive
literature review. The scales were then sent to a panel of academic experts, familiar
with the literature. Modifications were made to some of the items, and the scales
were then sent to several CEOs/Managing Directors for comments. The final result
was a six-item scale for planned change, and a five-item scale for emergent change.
Scale items are reported in the appendix.
There are five dimensions of business performance relative to all other
competitors in the organisations principal served market segment over the past year:
(a) customer retention; (b) new product success; (c) sales growth; (d) return on
investment; and (e) overall performance. These five dimensions served as indicators
in a five-item summated scale named business performance. As with previous studies
(Narver & Slater 1990; Oczkowski & Farrell 1998), several variables were also
included as control variables in analysing the effect of a market and learning
orientation on performance. In brief, these variables were as follows, relative size,
relative cost, ease of entry, supplier power, buyer power, market growth, competitive
intensity, market turbulence, and technological turbulence (see Oczkowski & Farrell
1998, p. 355, for a detailed explanation). Note that the scales for leadership are
subject to copyright, and are therefore not reported.
6.3 Data Analysis
The scales were refined using the responses to the main survey. To confirm the
adequacy of each measure, each factor was subjected to a confirmatory factor
analysis. In general, the properties of the measures are acceptable, with the majority
of key constructs having overall acceptable fit indices (see table 1). With regard to
convergent validity, learning orientation, market orientation, top management
emphasis, emergent change, risk and technological turbulence all measures had
indices close to or above 0.50, which suggests that the variance captured by the
underlying latent construct is greater than variance due to measurement error (Fornell
& Larcker 1981). The average variance extracted of the remaining variables was as
follows: planned change, 0.42; transformational leadership, 0.37; transactional
leadership, 0.31; laissez-faire leadership, 0.23; and business performance, 0.42,
which indicates moderate support for convergent validity. With regard to discriminant
validity, we employed the test recommended by Fornell and
Table 1
Means, Standard Deviations, Correlations and Measurement Properties of the Constructs used in this Study
Constructs Correlations
Mean Standard
Deviation
V1 V2 V3 V4 V5 V6 V7 V8 V9 V10 V11 V12 V13 V14 V15 V16 V17 V18 V19
1. Learning
Orientation
4.9059 0.8860 (0.91)
2. MKTOR 5.1077 0.8998 0.639** (0.90)
3. Planned Change 4.3707 0.4516 0.314** 0.296** (0.71)
4. Emergent Change 4.4673 0.5954 0.404** 0.315** 0.310**(0.78)
5. Risk 4.1367 1.0035 0.347** 0.276** 0.133* 0.291** (0.70)
6. Top Management 4.5023 1.1475 0.619** 0.440** 0.353** 0.505**0.283** (0.85)
7. Transformational 3.1817 0.3926 0.385** 0.380** 0.256** 0.289**0.163** 0.308** (0.82)
8. Transactional 2.1390 0.3836 0.245** 0.263** 0.166** 0.123 0.106 0.311** 0.266** (0.51)
9. Laissez-Faire 0.5814 0.5349 0.227** 0.239** 0.074 0.044 0.069 0.141* 0.310** 0.097 (0.53)
10. Performance 4.8728 1.1271 0.360** 0.326** 0.161 0.344**0.221** 0.282** 0.248** 0.006 0.125 (0.75)
11. Compe Intensity 4.8992 1.2399 0.169** 0.306** 0.136* 0.123 0.171** 0.217** 0.200** 0.187**0.053 0.161* (0.78)
12. Technological
Turb.
4.8457 1.5478 0.133* 0.234** 0.084 0.096 0.061 0.165** 0.140* 0.003 0.084 0.011 0.250** (0.89)
13. Market Turb. 3.5195 1.0849 0.215** 0.164** 0.134* 0.205**0.111 0.315** 0.096 0.098 0.053 0.104 0.241** 0.392**
14. Avsagro 1.9286 15.2893 0.108 0.180 0.107 0.125 0.381 0.013 0.324 0.046 0.304 0.412 0.585* 0.357 0.622*
15. Buyer Power 4.4094 1.1886 0.180** 0.178** 0.013 0.136* 0.089 0.092 0.211** 0.009 0.245** 0.145* 0.067 0.059 0.127* 0.053
16. Entry Barriers 2.9960 1.8195 0.073 0.053 0.011 0.028 0.004 0.028 0.037 0.031 0.075 0.025 0.063 0.022 0.037 0.391 0.023
17. Relative Cost 3.8906 1.5027 0.208** 0.087 0.030 0.177**0.150* 0.061 0.008 0.084 0.034 0.058 0.018 0.002 0.063 0.595* 0.135* 0.168*
18. Relative Size 4.1271 2.3406 0.008 0.007 0.042 0.128 0.076 0.067 0.030 0.037 0.102 0.195**0.313** 0.016 0.117 0.401 0.072 0.004 0.345*
19. Supplier Power 3.9567 1.2296 0.097 0.046 0.084 0.058 0.22 0.038 0.019 0.075 0.045 0.115 0.329 0.041 0.089 0.310 0.158* 0.042 0.033 0.134*
Measurement Model Statistics
X2 90.75 68.15 0.58 2.11 1.82 14.14 103.26 65.63 4.96 12.24 4.21
Df 45 55 2 2 3 2 72 66 6 10 2
pLevel 0.000 0.001 0.74 0.34 0.17 0.000 0.009 0.081 0.083 0.031 0.121
RMSEA 0.110 0.076 0.000 0.051 0.063 0.157 0.045 0.050 0.098 0.102 0.128
GFI 0.911 0.923 0.999 0.993 0.995 0.971 0.944 0.951 0.987 0.969 0.982
AGFI 0.842 0.866 0.994 0.966 0.969 0.854 0.919 0.925 0.934 0.908 0.909
CFI 0.941 0.950 1.000 0.995 0.993 0.973 0.947 0.916 0.923 0.964 0.985
Variance Extracted 0.65 0.59 0.42 0.49 0.48 0.59 0.37 0.31 0.23 0.42 0.57
Note: Cronbach alphas in Parentheses. Single item measures do not have a corresponding alpha score.
Because there were three indicators for the constructs of Competitive Intensity and Market Turbulence, the measurement model was identified completely and fit
statistics were not computed.
** Correlation is significant at the 0.01 level (2tailed); and
V
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.

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.

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* Correlation is significant at the 0.05 level (2tailed).

Vol. 25, No. 2 Farrell: MARKET-ORIENTED LEARNING ORGANISATION
213
Larcker (1981). In this test, a construct is empirically distinct if the average variance
explained by that constructs items is greater than the constructs shared variance with
every other construct (i.e. the square root of the inter-correlation). For example,
learning orientation demonstrates discriminant validity because its average variance
extracted (0.65) is greater than the square of its correlations with MKTOR
(0.63
2
= 0.39); planned change (0.31
2
= 0.09); emergent change (0.40
2
= 0.16); risk
(34
2
= 11); and top management emphasis (0.61
2
= 0.37). Analysis of the data
provides strong evidence of discriminant validity with the average variance of all
constructs being greater than the constructs shared variance with every other
construct. Finally, with respect to reliabilities, the Cronbach alpha of almost all of the
variables exceeded the cut-off score of 0.70 recommended by Nunnally (1978). The
only exceptions to this were the measures of transactional leadership and laissez-
faire leadership, which had reliabilities of 0.51 and 0.53 respectively. However,
Nunnally (1967, p. 226) states that reliabilities of 0.50 to 0.60 are sufficient for
early stages of basic research. Given this, the overall evidence regarding construct
validity and the theoretical importance of the variables, it was decided to retain the
variables in the study.
The data was analysed using two-stage least squares multiple regression (2SLS).
This differs from full estimation indicators such as maximum likelihood (ML),
generalised least squares (GLS), and weighted least squares (WLS), in that 2SLS
requires fewer distributional assumptions (Bollen 1996). Bollen (1996, p. 109) also
makes the point that ML, GLS, and WLS incorporate information from throughout
the system in developing estimates, which may lead to specification error in one part
of the system spreading bias to other parts of the model. Conversely, 2SLS
estimators restrict bias to fewer parts of the model. 2SLS does not require
specialised software to implement it, requiring only regressions thus avoiding the
need to implement numerical (ML or GLS) optimisation algorithms (Oczkowski &
Farrell 1998). Bollen (1996) cites Kennedy (1985, p. 134) who states that Monte
Carlo studies have shown it (2SLS) to have small sample properties superior on most
criteria to all other estimators. They have also shown it (2SLS) to be quite robust.
Similarly, Hgglund (1982) found that 2SLS works better than ML methods for small
samples and that ML does not seem to outperform 2SLS in large samples. Recent
work in the market orientation literature (Oczkowski & Farrell 1998) also uses the
2SLS technique in a similar study.
In operationalising the 2SLS estimator, the researcher specifies which of the
observed indicators is to act as the scaling variable. In practice, there is little
guidance from theory. Thus, Bollen (1996, p. 117) suggests that one can regress each
item against all other items, selecting as the scale, that item that produces the highest
R
2
. This ensures that the instruments for the chosen scale are the best which can be
found given the data set (Oczkowski & Farrell 1998). In short, the 2SLS procedure
specifies a scaling variable as a regressor, the remaining items for the latent
construct enter as instruments for the regressor. Finally, multicollinearity was
determined by examining the variance inflation factors (VIF) for each of the
regression coefficients. All of the VIF scores were well below the cut-off of 10,
suggesting that multicollinearity is not a likely threat to the substantive conclusions
drawn from the parameter estimates (Neter, Wasserman & Kutner 1990).
AUSTRALIAN JOURNAL OF MANAGEMENT September 2000
214
7. Findings and Discussion
The following discussion is based on the results in tables 2, 3 and 4. The results for
H
1
indicate that there was a statistically significant relationship between a planned
approach to change management and a market orientation (b = 0.34, p < 0.01). This
contradicts the hypothesis that a planned approach to change would result in a lower
level of market orientation. For H
2
, emergent change was found to have a positive
impact on a market orientation, (b = 0.33, p < 0.01). This supports the hypothesis that
an emergent or bottom-up approach to change management is likely to produce
psychological ownership, or internalisation, thus leading to a higher level of learning
orientation.
Table 2
The Effect of Planned Change and Emergent Change on a
Market Orientation
Independent Variables Hypothesised
Relationship
Beta Value t Sig t
Planned Change 0.35 2.636 0.0089
Emergent Change + 0.34 2.645 0.0087
Note: R
2
= 0.17;
F = 25.76; and
Sig f = 0.0000.
Table 3
The Effect of Top Management Behaviour and a
Market Orientation on a Learning Orientation
Independent Variables Hypothesised Relationship Beta Value t Sig t
Market Orientation + 0.32 4.92 0.0000
Transformational Leadership + 0.20 2.82 0.0052
Transactional Leadership ns
Laissez Faire Leadership ns
Risk Aversion 0.13 2.757 0.0063
Top Management Emphasis + 0.58 8.58 0.0000
Note: R
2
= 48;
F value = 55.23; and
Signif F = 0.0000.
Results for H
3
provide strong support that a top management emphasis on a learning
orientation affects the level of a learning orientation (b = 0.58, p < 0.01). Similarly,
for H
4
, the level of risk aversion of top managers was found to significantly affect the
level of learning orientation (b = 0.13, p < 0.01). This
215
Table 4
The Effect of Market Orientation and Learning Orientation on Organisational Performance
Dependent
Variable
Learning
Orientation
Market
Orientation
Supplier
Power
Entry
Barriers
Buyer
Power
Relative
Size
Technological
Turbulence
Market
Turbulence
Competitive
Intensity
Relative
Cost
R
2
F
Statistic
Sig F
Business
Performance
0.32
(3.32)
0.22
(2.13)
ns ns ns 0.16
(2.23)
ns 0.23
(3.26)
ns ns 0.20 8.32 0.000
Note: tvalues in parentheses; and
ns = not significant.

2
1
5

A
U
S
T
R
A
L
I
A
N

J
O
U
R
N
A
L

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F

M
A
N
A
G
E
M
E
N
T
S
e
p
t
e
m
b
e
r

2
0
0
0
AUSTRALIAN JOURNAL OF MANAGEMENT September 2000
216
supports the expectation that senior managers must both support the concept of a
learning orientation, and be prepared to accept risk as part of the learning process.
With regards to management behaviour, transformative leadership was found to affect
the level of learning orientation, H
5
, (b = 0.20, p < 0.01). This further supports the
argument developed by Slater and Narver (1995) that the style of leadership is crucial
in encouraging individuals to learn, reach their full potential, and break through
learning boundaries. For H
6
and H
7
, the leadership styles of transactional and laissez-
faire did not have a statistical effect on the level of learning orientation. This is
inconsistent with theories of leadership, in which one would expect a negative
relationship with a learning orientation. For H
8
, results provide strong support that a
market orientation affects the learning orientation of an organisation (b = 0.32,
p < 0.01). This is consistent with the argument that a market orientation is the
underlying set of organisational values from which a learning orientation is developed
(Slater & Narver 1995). Finally, the results provide supporting evidence for H
9
, that a
market orientation affects performance (b = 0.22, p < 0.01), and also find support for
H
10
, that a learning orientation affects organisational performance (b = 0.32,
p < 0.01), which is consistent with the study hypotheses.
8. Conclusion
8.1 Managerial Implications
The purpose of this study was to undertake the following: (a) examine two types of
organisational change strategies and their effect on a market orientation; (b) test what
specific management practices and behaviours facilitate a learning orientation; and
(c) test whether a market orientation facilitates a learning orientation, and examine
whether organisational learning is associated with superior performance.
This study has found that a planned or programmatic approach to change
strategy has an impact upon the learning orientation of an organisation. Although this
contradicts the study hypothesis, it supports the proposition by Narver, Slater and
Tietje (1998) that a highly focused programmatic approach may have a marginal
positive effect on a market orientation. The proposition by Narver, Slater and Tietje
(1998, p. 248) is based on the idea that a programmatic approach may be successful if
it is strictly focused on preparing for effective experiential learning to create
superior value for customers. While the results of this study provide tentative support
for this proposition, it must be noted that the measure of planned change employed
did not examine whether the change program was focused on effective experiential
learning and creating superior value for customers. Given this, caution must be
exercised in the interpretation of this result.
The study found that organisations might also adopt an emergent approach to
organisational change if they are to become more market-oriented. This is consistent
with Kelmans (1958) theory of influence processes, and also supports the tentative
findings by Narver and Slater (1991) and the proposition by Narver, Slater and Tietje
(1998) that a market back (or emergent) approach is positively related to market
orientation. This is based on the argument that an emergent approach to change
emphasises empowerment, participation in learning at all organisational levels and is
more likely to produce psychological ownership or internalisation. Thus, managers
Vol. 25, No. 2 Farrell: MARKET-ORIENTED LEARNING ORGANISATION
217
may have to change their mental models of change management to one that also
promotes change from below, rather than from above only.
The results clearly indicate that perhaps the most important determinant of a
learning orientation is the emphasis placed on it by top managers. This supports the
argument by Sinkula, Baker and Noordewier (1997, p. 315) that creating a conducive
learning environment cannot be done without commitment from the top. In other
words, if organisations are to become learning-oriented, it is essential that top
management emphasise the importance of being learning-oriented. Indeed, Slater and
Narver (1995) state that the leader must communicate a well crafted, motivating
vision for the organisation. Furthermore, argue Sinkula, Baker and Noordewier
(1997, p. 315), such leaders have a personal high commitment to learning. They view
learning as a key ingredient in achieving competitive advantage. They motivate and
instil a learning orientation in those around them. In short, they get personally
involved in facilitating a learning organisation in their own organisations (Slater &
Narver 1995). The results did not provide evidence that a transactional or laissez-
faire style of leadership has a negative relationship with a learning orientation.
Caution should be exercised in interpreting this result. It should be pointed out that
the measures of these variables had poor psychometric properties, which may have
affected the results.
Besides emphasising the importance of a learning orientation, the results
suggest that top managers should also be prepared to take more risk in their decision
making. For example, one such risk is the ability to lead unlearning, having the
courage to challenge existing practices, to break through any learning barriers. In
short, senior managers will have to be skilled at articulating the vision by which to
shape cultures and values, communicate effectively and play a major role in the task
of unlearning detrimental but traditional practices. In sum, the challenge is for senior
managers to develop a learning orientation through the skilful use of transformative
leadership.
The study has clearly identified that if organisations are to become more
learning-oriented, they can do so if they have a market-oriented culture. The results
suggest that a market orientation facilitates a learning orientation. This study is the
first to empirically test the relationship between a market and a learning orientation,
and confirms the hypothesis that a market orientation is the underlying set of
organisational values/culture, and that learning orientation is the manifestation of
such values/culture. The findings from this study support the proposition by Slater
and Narver (1995, p. 67) that a market orientation is the principal cultural foundation
of the learning organisation, and provide strong evidence that a learning orientation is
based in a market orientation. The findings also support the proposition by Baker and
Sinkula (1999) that a market orientation provides a grounding for a learning
orientation.
Finally, the study has found that both a market orientation and a learning
orientation have a significant positive impact on the performance of an organisation.
It is worth noting that, as evidenced by the respective beta values, a learning
orientation has a stronger positive relationship with business performance, than did a
market orientation. This finding is consistent with that by Baker and Sinkula (1999)
and provides further support that being market-oriented may not be enough and that
organisations should aim to be learning-oriented if they are to compete successfully
AUSTRALIAN JOURNAL OF MANAGEMENT September 2000
218
in the long run (Slater & Narver 1995). Simply put, this finding provides further
support for the arguments that organisational learning may be the only source of
sustainable competitive advantage (DeGeus 1988; Dickson 1992; Slater & Narver
1995), and that organisational learning may be the key to future organisational
success (Lukas, Hult & Ferrell 1996).
8.2 Limitations and Future Research Directions
The first limitation concerns some of the measures used in the study. As stated
earlier, the measures for transactional leadership and laissez-faire leadership had
poor levels of reliability, 0.51, and 0.53 respectively, which is well below the cut-off
score of 0.70 recommended by Nunnally (1978). However, as was also stated earlier,
Nunnally (1967 p. 226) states that reliabilities of 0.50 to 0.60 are sufficient for early
stages of basic research. Nevertheless, these scores indicate some limitations with
respect to the overall quality of the measures, despite their extensive prior use in the
management literature.
Also, although we measured learning orientation, the cross-sectional nature of
the data does not permit us to determine whether organisations have actually learned.
Also, as with all cross-sectional data, care must be taken not to misinterpret
correlation as causation. Clearly the key measures of a market and learning
orientation measure the perceptions of one key informant, at a specific moment in
time. Given this, it would be revealing to determine an oragnizations current level of
these key constructs, and then track any changes with use of a longitudinal study. This
would provide us with a much clearer picture of the nature of organisational learning
and how it evolves over time.
With regard to the relationship between organisational change and a market
orientation, it would be interesting to measure the actual time it takes for
organisations to become more market-oriented. This study focused on the type of
change strategy, but did not measure either the time-scale for such changes, nor the
upheaval that may be necessary. Moreover, the organisational change literature is
replete with examples of change models that require organisations to downsize, if
they are to perform better. However, it is not clear what impact this may have on
market orientation and organisational learning, particularly organisational memory,
which may be affected negatively with a sudden loss of key personnel.
Further research may also investigate whether learning actually reduces the cost
of organisational processes. Similarly, as one reviewer pointed out, such research
may examine whether change strategies act as mediators between market
orientation/learning orientation and performance. In other words, it may be argued
that change occurs through environmental learning and adaptation, which itself may be
a function of the ability of the organisation to gather information (market orientation)
and critically question such information (learning orientation).
Finally, given the strong relationship between a top management emphasis and a
learning orientation, future research should examine the process by which top
managers are able to engender a learning orientation successfully throughout an
organisation. This would be of enormous benefit for practitioners, and may also shed
light on the nexus between market and learning orientation as keys to organisational
success.
Vol. 25, No. 2 Farrell: MARKET-ORIENTED LEARNING ORGANISATION
219
(Date of receipt of final transcript: May, 2000.
Accepted by Mark Uncles, Area Editor)
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Appendix
Measures
Market Orientation (Alpha 0.90)
1. Our business objectives are driven by customer satisfaction
2. We monitor our level of commitment and orientation to serving customers needs*
3. Our strategy for competitive advantage is based on our understanding of customer needs#
4. Our business strategies are driven by our beliefs about how we can create greater value for
customers
5. We measure customer satisfaction systematically and frequently
6. We give close attention to after-sales service
7. Our salespeople share information within our business concerning competitors strategies
8. We respond to competitive actions that threaten us
9. We target customers and customer groups where we have, or can develop, a competitive
advantage*
10. The top management team regularly discusses competitors strengths and strategies
11. Our top managers from every function visit our current and prospective customers
12. We communicate information about our successful and unsuccessful customer experiences across
all business functions*
13. All of our business functions (e.g. marketing/sales, manufacturing, R&D, finance/accounting, etc.)
are integrated in serving the needs of our target markets
14. All of our managers understand how everyone in our company can contribute to creating customer
value
Learning Orientation (Alpha 0.91)
1. Managers basically agree that our organisations ability to learn is the key to our competitive
advantage
2. The basic values of this organisation include learning as key to improvement#
3. The sense around here is that employee learning is an investment, not an expense
4. Learning in my organisation is seen as a key commodity necessary to guarantee organisational
survival
5. There is a commonality of purpose in my organisation
6. There is total agreement on our organisational vision across all levels, functions and divisions
7. All employees are committed to the goals of this organisation
8. Employees view themselves as partners in charting the direction of the organisation
9. We are not afraid to reflect critically on the shared assumptions we have made about our customers
10. Personnel in this enterprise realise that the very way they perceive the marketplace must be
continually questioned
11. We rarely collectively question our own biases about the way we interpret customer information*
Planned Change (Alpha 0.71)
1. Emanates from senior management
2. Occurs through company-wide change programs*
3. Occurs through changing individual knowledge and attitudes
4. Occurs in an unplanned fashion*@
5. Occurs through a systematic process of well-managed events#
6. Is monitored through regular progress surveys
Vol. 25, No. 2 Farrell: MARKET-ORIENTED LEARNING ORGANISATION
223
Emergent Change (Alpha 0.79)
1. Occurs through continually learning about our environment
2. Occurs by encouraging employees to understand and adapt to changing circumstances in our
environment
3. Is part of an ongoing process of adapting to our environment#
4. Is a slow process, which emerges over time*
5. Is about matching the organisations capabilities to the business environment*
Top Management Emphasis on Learning (Alpha 0.86)
1. Top managers repeatedly tell employees that this organisations survival depends on its ability to
learn
2. Top managers often tell employees to continually learn about our customers
3. Top managers often tell employees to continually learn about our competitors*
4. Top managers keep telling people that they must be effective at learning new ideas
5. According to top managers here, continually learning is the most important things our organisation
does#
Risk Aversion (Alpha 0.70)
1. Top managers in this company believe that higher financial risks are worth taking for higher
rewards*
2. Top managers in this company like to take big financial risks*
3. Top managers here encourage the development of innovative marketing strategies, knowing well
that some will fail@
4. Top managers in this organisation like to play it safe@#
5. Top managers in this organisation like to implement plans only if they are certain that they will
work@
Market Turbulence (Alpha 0.78)
1. In our kind of business, customers product preferences change quite a bit over time#
2. Our customers tend to look for new product all the time
3. We are witnessing demand for our products and services from customers who never bought them
before*
4. New customers tend to have product-related needs that are different from those of our existing
customers
5. We cater to many of the same customers that we used to in the past*
Competitive Intensity (Alpha 0.78)
1. Competition in our industry is cutthroat#
2. There are many promotion wars in our industry
3. Anything that one competitor can offer, others can match readily*
4. Price competition is the hallmark of our industry*
5. One hears of a new competitive move almost every day
6. Our competitors are relatively weak@*
Technological Turbulence (Alpha 0.89)
1. The technology in our industry is changing rapidly
2. Technological changes provide big opportunities in our industry
3. A large number of new product ideas have been made possible through technological
breakthroughs in our industry#
4. Technological developments in our industry are rather minor
Note: * = Denotes deleted item
@= Denotes reverse scored
# = Denotes scaling item