TABLE OF CONTENT

Acknowledgements..........................................................................................................................
Abstract............................................................................................................................................
CHAPTER ONE..............................................................................................................................
1. Introduction..............................................................................................................................
1.1. Problem Statement......................................................................................................

1.2. Research Questions...................................................................................................

1.3. Research Objectives..................................................................................................

1.4. Significance of study................................................................................................

CHAPTER TWO...........................................................................................................................
2. Literature Review and Conceptual Framework......................................................................
2.1. Literature Review.....................................................................................................

2.1.1. Dependent variables Organizational Performance................................................

2.1.2. Mediating variables..................................................................................................

2.1.2.1. Innovation.................................................................................................................

2.1.2.1.1. Radical Innovation....................................................................................................

2.1.2.1.2. Incremental Innovation.............................................................................................

2.1.2.2. Market Driving Approach.........................................................................................

2.1.2.2.1. Shaping Market Structure and Shaping Market Behavior........................................

2.1.3. Independent Variable - Responsive Market Orientation...........................................

2.2. Conceptual Framework and Hypothesis...................................................................

2.2.1. Responsive Market Orientation and Organizational Performance...........................

2.2.2. Responsive Market Orientation and Radical Innovation..........................................

2.2.3. Responsive Market Orientation and Incremental Innovation...................................

2.2.4. Radical Innovation and Shaping Market Structure...................................................

2.2.5. Radical Innovation and Shaping Market Behavior...................................................

2.2.7. Incremental Innovation and Shaping Market Behavior............................................

 2.2.8. Shaping Market Structure and Organizational Performance....................................

CHAPTER THREE.......................................................................................................................
3. Methodology..........................................................................................................................
3.1. Philosophical Position of the Study..........................................................................

3.1.1. Research Approach...................................................................................................

3.2. Research Design.......................................................................................................

3.3. Research Context......................................................................................................

3.3.1. Overview of Financial Service Industry in Sri Lanka..............................................

3.3.2. Banking and Finance Sector.....................................................................................

3.3.3. Insurance Sector........................................................................................................

3.4. Population and Sampling Method............................................................................

3.5. Data Collection Method............................................................................................

3.5.1. Questionnaire Design................................................................................................

3.5.2. The Covering Letter..................................................................................................

3.5.3. Questionnaire Translation.........................................................................................

3.6. Measurements...........................................................................................................

3.6.1. Dependent Variable - Organizational performance...................................................

3.6.2. Mediating Variables..................................................................................................

3.6.2.1. Radical Innovation....................................................................................................

3.6.2.2. Incremental Innovation.............................................................................................

3.6.2.3. Shaping Market Structure.........................................................................................

3.6.2.4. Shaping Market Behavior.........................................................................................

3.6.3. Independent Variable................................................................................................

CHAPTER FOUR.........................................................................................................................
4. Data Analysis..........................................................................................................................
4.1. Response Rate...........................................................................................................

4.2. Demographic Data....................................................................................................

4.3. Background Information of the Industry..................................................................

 4.4. Measurement Model.................................................................................................

4.4.1. Confirmatory Factor Analysis for Original Model...................................................

4.4.2. Confirmatory Factor Analysis for Reproduced Model.............................................

4.5. Structural Model.......................................................................................................

4.5.1. Calculation of Cross Validated Redundancy Q2 values for Constructs....................

4.5.2. Calculation of f2 effect sizes and q2 effect size..........................................................

4.6. Hypothesis Testing....................................................................................................

4.6.1. Responsive Market Orientation................................................................................

4.6.2. Radical Innovation....................................................................................................

4.6.3. Incremental Innovation.............................................................................................

4.6.4. Shaping Market structure..........................................................................................

4.6.5. Shaping Market Behavior.........................................................................................

4.7. Summary of the Analysis..........................................................................................

CHAPTER FIVE...........................................................................................................................
5. Conclusions............................................................................................................................
5.1. Study Summary........................................................................................................

5.2. Contribution of the Study.........................................................................................

5.2.1. Contribution to Academics.......................................................................................

5.2.2. Contribution to managers.........................................................................................

5.2.3. Contribution to Policy Makers..................................................................................

5.3. Limitations and Future Research..............................................................................

Table 1: Literature Grid for the Study.........................................................................................

Figure 1: Conceptual Framework for the Study............................................................................
Table 2: Comparison of Four research Philosophies in Management Research............................
Figure 2: Four Paradigms for the Analysis of Social Theory........................................................
Table 3: Questionnaire translation methods...................................................................................
Table 4: Construct items of Organizational Performance..............................................................
Table 5: Construct items of Radical Innovation............................................................................
Table 6: Construct items of Incremental Innovation.....................................................................
Table 7: Construct items of Shaping Market Structure..................................................................
Table 8: Construct Items of Shaping Market Behavior.................................................................
Table 9: Construct items of Responsive Market Orientation.........................................................
Table 10: Survey Response Rates..................................................................................................
Table 11: Demographic data of Respondents................................................................................
Table 12: Type of Business of Responded Organizations..............................................................
Figure 3: Cross Section of Organizations Responded...................................................................
Table 13: Ownership of Responded Organizations.......................................................................
Table 14: Size of responded organizations....................................................................................
Table 15: Age of Responded Organizations..................................................................................
Table 16: Confirmatory Factor Analysis of Constructs for Original Model..................................
Table 17: Goodness of Fit Index for Original Model....................................................................
Table 18: Confirmatory Factor Analysis of Constructs for Reproduced Model............................
Table 19: Goodness of Fit Index for Reproduced Model.............................................................
Table 20: Path Coefficients, t-values, and Significance Levels of Structural Model....................
Figure 4: Structural Model Showing Path Coefficients, t-values, and R2 Values..........................
Table 21: Q2 Values for Endogenous Constructs..........................................................................
Table 22: path coefficients, f2 values, and q2 values for the model..............................................
Table 23: Summary of analysis......................................................................................................

Acknowledgements
Firstly I would like to thank with gratitude for my research supervisor Dr. Thusitha
Gunawardhana without his support this outcome would have not been a reality. His proactive
guidance made my work with him interesting and inspiring.

My heartfelt gratitude also goes to former MBA course coordinator Professor D.Atapattu, the
present course coordinator Mr. H.V.D.I. Abeywickrama, former Dean Dr. P.A.P.Samantha
Kumara, the present Dean Professor Sunethra Perera, and all academic and non academic
staff of faculty of management and finance of University of Ruhuna.

My sincere thanks also goes to managers of financial service institutions in southern province
for their support extended towards me in answering questionnaires promptly and finally my
heartfelt thanks goes to my family members for their fullest corporation in completing the
tusk.

Abstract
Purpose of this research study is to investigate the impact of responsive market orientation on
organizational performance through innovation and market driving. An empirical research
was conducted to test the hypothesized relationships based on a conceptual framework
developed through a comprehensive literature review. Through a literature support our model
consisted of responsive market orientation as a uni-dimensional construct and innovation has
two dimensions namely radical and incremental innovation and market driving with two
dimensions namely shaping market structure and shaping market behavior and organizational
performance as a uni-dimensional construct.

Research context for the study is financial services sector of Sri Lanka and the population for
the study is branch managers and executives of all banking, leasing, insurance, and other
financial service establishments registered in Sri Lanka through various parliamentary Acts.
According to central bank of Sri Lanka there are about two hundred such institutions
operating in Sri Lanka, of which a branch is situated in southern province. Measurement
model was modified after deleting thirteen items form 51 item original model and showed
acceptable reliability, convergent validity, and discriminant validity. All Structural model path
coefficients were positive and statistically significant except radical innovation and shaping
market structure relationship which is positive but statistically not significant. Results suggest
that responsive market orientation has a positive direct impact on organizational performance
and mediated impact through innovation and market driving as well. This research has
provided an academic insight in to a new research model with two mediating variable
innovation and market driving between responsive market orientation and organizational
performance. Future research with entrepreneurial orientation and market driving as
mediators is emphasized. Managerial implication of promoting market driving and innovation
in organizations and measuring impact of these strategies were emphasized.

Key wards: radical innovation, incremental innovation, shaping market structure,

shaping market behavior
 CHAPTER ONE

1. Introduction

Paradigm shift from selling concept to marketing concept has influenced cultures of todays
organizations greatly. Kotler and Keller (2012) state that in the selling concept it is assumed
that customers if left along will not buy enough of the organizations products or service.
Organizations, therefore, need to launch aggressive selling and promotion efforts in order to
be successful whereas in marketing concept the premise is to find the right product or service
for your customer by understanding the needs of the buyers. This shows that organizations
adopting selling concept try to develop product with their R&D capability and used their
selling and promotion skills to sell the product or service as much as possible. On the other
hand organizations adopting marketing concept need to be customer oriented in order to
understand their changing needs constantly to cater for these needs (Kotler and Keller, 2012).
Therefore it is obvious that customer oriented organization culture will become prerequisite
for organizations to practice marketing concept. In order to facilitate customer focused
approach in organizations there should be strategies formulated and implemented to satisfy
customers. Organization structure should also be flexible enough to facilitate the gathered
intelligence and the achievement of congruence about the interpretation of such information
(Al-Shiravi and Hajjar, 2012)

Levitt (2004) has stated that it is important for business people to understand that an industry
is a customer satisfying process rather than goods producing process. This also highlights the
importance of understanding customer needs by organizations. The other important point to
mention here is that there is a danger of adopting selling concept in an environment with fast
changing customer needs by which product or service becomes obsolete leading to failure.
Knowing competitor actions is also play an important role in maintaining competitive
advantage over competitors in value delivery process (Narver and Slater, 1990). Therefore
organizations external focus concerning customers as well as competitors has become a
critical success factor. While maintaining external focus on customers as well as competitors
organizations pursuing marketing concept has to be internally well coordinated in order to
take these external informations in to their production or servuction process. Therefore the
organizations which have embraced the marketing concept in todays business environment
has undergone several cultural changes. Main focus of all these changes has been the
customer centricity in all aspects of their business.

Researches in to market orientation by significant number of authors (Narver and Slater,

1990, Jaworski and Kholi, 1990,1993) have identified antecedents, dimensions and
consequences of it. Narver and Slater (1990) discuss market orientation by a one-dimensional
construct with three behavioral components namely customer orientation, competitor
orientation and inter functional coordination and business performance as a consequence.
Kohli and Jaworski (1990) describe the market orientation as a three-
dimensional construct that consists of (1) organization-wide generation of
market intelligence, (2) dissemination of intelligence across departments,
and (3) organization-wide responsiveness to intelligence. Jaworski and kohli
(1993) find three sets of antecedents of market orientation namely strong commitment of top
management, low inter functional conflict allowing more intelligence dissemination, and a
less formal and centralized organizational structure and two consequences namely increase
performance and increase organizational commitment of employees as key attributes of
market orientation. According to Narver et al.(2004) market driven approach contains two
major components namely responsive and proactive market orientations where responsive
market orientation concentrate on expressed needs of customer and proactive market
orientation concentrate on latent needs of customers and also called as customer leading.
However according to some other researchers (Jaworski and Kholi, 1993; Narver and Slater,
1990) market driven approach contain only responsive market orientation. In this research
responsive market orientation considered to be synonymous to market driven approach. One
of the other strategically important intangible assets that are widely discussed in marketing
literature is innovation. Some researchers (Han et al.1998;, Agarawal et al,2003) find that
innovation is an outcome of market orientation and innovation is positively related with
organizational performance. Following gaps were identified through a comprehensive
review of market orientation literature.
Extant literature present divided views of market driven and market driving approaches.
Some authors (Jaworski et al, 2000) argue that they are complementing each other and both
approaches should be adopted simultaneously by organizations in order to achieve higher
level of performance. They further argue that market driven approach take into account the
learning, understanding, and responding to stakeholder perceptions and behaviors in a given
market. Alternatively market driving approach uses radically different strategies by shaping
the market structure or behavior or both of the strategies On the other hand some others
(Schindehutte et al., 2008, Barlow and sarin, 2003) argue that they are substitutes.
They further argue when firms evolve from start up to maturity they adopt different strategic
orientations to gain sustainable competitive advantage and organizations showing high level
of innovativeness, proactiveness, and risk taking come up with radical innovations and drive
markets while organizations showing low or medium level of innovativeness, proactiveness,
and risk taking tend to be market driven oriented.

Above discussion revealed three important organizational strategies which impact

performance. They are responsive market orientation, different types of organizational
innovations, and market driving. However impact of these variables on organizational
performance has not been studied in a single study in extant literature. This opportunity
prompted me to study market driven or responsive market orientation, market driving, and
innovation in a single study to examine how they are adopted by organizations and how they
are inter related and impact organizational performance. Further marketing literature provides
inadequate empirical findings on how these two market orientation approaches are adopted
by organizations. However longitudinal study is required to check which point of view is
valid for our research context.

But cross sectional study could be used to check whether organizations adopt them
simultaneously or not. Therefore it is important to study these two approaches simultaneously
in a single study.

Significant number of researchers (Agarawal et al., 2003, Han et al., 1998) has found
innovation as a mediator between market orientation and organizational performance. Even
though innovation and market driving relationship has been predicted by some researchers
through their conceptual papers it has not been tested imperially. Carrillat et al. (2004) argued
that innovation is a central of becoming a market driving company. Schindehutte et al.(2008)
stated that innovation intensity is an antecedent to market driving. These arguments suggest
that innovation has a positive relationship with market driving. Market driving and
organizational performance relationship has been found positive by Consuegra et al.(2008) by
a study conducted in the banking sector. However there is a gap in the literature how
responsive market orientation-innovation- market driving- performance link is behaving.
Therefore it is important to study the inter relationships among these four variables.

To fill the gaps identified above I have developed a conceptual framework considering the
interrelationship among responsive market orientation, market driving, innovation, and
organizational performance to conduct an empirical study in the financial service sector of Sri
Lanka.

This chapter will first present the statement of problem based on the gaps identified through
literature review and then research questions and objectives and finally the significance of the
study will be presented. The second chapter present the review of market orientation
literature related to main concepts of this study responsive market orientation, market driving,
innovation, and organizational performance and the conceptual framework for the study. The
remaining chapters will present the methods, measurements, results, conclusions,
implications for managers in financial service institutions, and future research areas.

1.1. Problem Statement

Before presenting the statement of problem for this study, it is important to present few
research findings related to services sector. Study in a Hotel sector by Agarawal et al.(2003)
found that judgmental measures of performance which measure customer satisfaction, service
quality, and employee satisfaction is a mediator between market orientation and objective
measures of performance which measure the financial outcomes. They have also found that
innovation fully mediates the relationship between market orientation and performance which
is a two dimensional construct including judgmental and objective parts. Study conducted in
financial and insurance sector by Camarero (2007) found that market performance mediate
the relationship between market orientation and economic performance. Here market
performance includes similar dimensions of judgmental performance of Agaral et al (2003)
study except employee outcomes. Study by Hans et al (1998) in banking industry found that
innovation mediate the relationship between market orientation and objective performance.
What all these studies deduce is that (1) realizing judgmental performance is a pre requisite
for achieving economic or objective performance in service sector.(2) innovation is mediating
relationship of market orientation with both forms of performances. Above mansion studies
considered market orientation as a uni-densional construct. However Narver et al. (2004)
have put forward a theoretical argument for two forms of market orientation namely
Responsive and Proactive market orientation. These two concepts identify expressed and
latent needs of customers and their market orientation construct has two dimensions as
proactive market orientation and responsive market orientation. They have found that
proactive approach is more related to performance than responsive approach.

Going beyond this proactive market orientation approach Jaworski et al.(2000) proposed a
concept called market driving which take in to account not only latent needs of customers but
also the competitors, partners and other stake holders as well in formulating marketing
strategies. With introduction of this new approach in to market orientation necessity arises to
investigate empirically these two approaches in a single study because there are contradictory
views about how these two strategic orientations are adopted by organizations as discussed in
the previous section. Consuegra et al. (2008) has investigated the relationship of
market driving approach and market driven approach with performance of retail banking
sector and found that positive relationship with performance. Market orientation- innovation-
performance link has been empirically tested by significant number of authors.(Han et
al.,1998, Agarawal et al.,2003) and found either complete or partial mediating for different
organizational settings However how market driving approach, market driven approach, and
innovation impact performance and how these variables are interrelated have not been
sufficiently investigated.

Some researchers argue that innovation is an antecedent to market driving approach.

(Schindehutte et al.,2008, Carrillat et al.,2004) while others(Narver et al.;2004) argue that
innovation is an outcome of market driving. Literature lacks empirical findings on this
relationship. The other important unclear area in the market driving literature is whether
organization should adopt both market driving and market driven approaches simultaneously
or not. Based on the Jaworski et al.(2000) these two approaches are complementing each
other and market driven behavior contribute to the short term success of the organization
while market driving contribute to the long term success. But according to Schindehutte et al.
(2008:17),organizations cannot constantly be market driving, but there should be transition
into phases of market driven patterns, whereby they respond to customer or market needs and
improve existing offerings. However, at a stage when there is increased competition, market
driving firms re-start the innovation process to maintain their competitive advantage. This
shows that there is a gap in the literature as to how these variables are interrelated.
Therefore it is important to test the validity of some of the conceptual arguments on market
driving as well as applicability of findings of some of western studies to our settings.
Differences in culture as well as management style may impact to the relationship among
these variables to be investigated. It is important to investigate inter relationships among
responsive market orientation, market driving, innovation, and firm performance in relation
to Financial service institutions operating in Sri Lanka in order to find ways and means to
improve the performance outcomes.

With the understanding of previous researches we formulate problem statement for this as
follows, How does responsive market orientation impact on the organizational
performance through innovation and market driving.

1.2. Research Questions

1. What is the impact of responsive market orientation on organizational performance?
2. What is the impact of responsive market orientation on radical innovation?
3. What is the impact of responsive market orientation on incremental innovation?
4. What is the impact of radical innovation on shaping market structure?
5. What is the impact of radical innovation on shaping market behavior?
6. What is the impact of incremental innovation on shaping market structure?
7. What is the impact of incremental innovation on shaping market behavior?
8. What is the impact of shaping market structure on organizational performance?
9. What is the impact of shaping market behavior on organizational performance?

1.3. Research Objectives

1. To examine the type of relationship between responsive market orientation and
organizational performance.
 2. To examine the type of relationship between responsive market orientation and radical
innovation
3. To examine the type of relationship between responsive market orientation and
incremental innovation
4. To examine the type of relationship between radical innovation and shaping market
structure
5. To examine the type of relationship between radical innovation and shaping market
behavior
6. To examine the type of relationship between incremental innovation and shaping
market structure
7. To examine the type of relationship between incremental innovation and shaping
market behavior
8. To examine the type of relationship between shaping market structure and
organizational performance
9. To examine the type of relationship between shaping market behavior and
organizational performance

1.4. Significance of study

This study intends to find out inter relationships among responsive market orientation, market
driving, innovation, and organizational performance of financial service institutions operating
in Sri Lanka. Literature on services marketing suggests that significant number of studies has
not been conducted in services sector of Asian region to find out the relationship among these
variables. Findings of this research help academics to understand the applicability of western
models to other parts of the world and develop more generalized models. The other important
factor in this study is simultaneous investigation of market driven and market driving
approach in a single study. Because there are different views in literature about adopting these
two approaches by a firm. Jaworski et al (2000) argues that these two approaches are
complementing each other and market driven approach provides short term advantage while
market driving approach provides long term success. However they have not empirically
tested this conceptual argument. Some other group of researchers (Schindehutte et al., 2008,
Barlow and Sarin, 2003) argue that organizations will either be market driving or market
driven.
Innovation in financial service industry is conceptualized as radical and incremental forms in
this study and impact of these two dimensions of innovation on performance is going to be
investigated. However extant literature lacks empirical evidence of impacts of these two
forms of innovation on performance. in extant literature. Responsive market orientation-
innovation-market driving organizational performance link is going to be tested empirically
through this study. Some researchers (Han et al.2003) have found innovation mediating the
relationship between responsive market orientation and performance. However a research
model with market driving as a mediator between innovation and performance has not been
tested in the marketing literature. Therefore findings of this research will be of specially
interest to the researches in the field of market driving. Therefore outcomes of these
investigations provide new knowledge to the marketing literature.

Knowing any kind of changes that are taking place in an industry will be helpful in
formulating government policies for that industry in order to promote growth. Market driving
in financial service industry is operationalized through two distinct dimensions called shaping
market behavior and shaping market structure for this study. Knowing the level of Impact of
radical and incremental innovation on performance through these two dimensions of market
driving will help government policy makers to decide which behaviors of financial service
industry to promote in order to maintain a high growth levels. On the other hand managers of
these service firms are facing fierce competition due to new technological innovation
especially in the field of E-business environments and internet based technology applications.
Under these situations managers should know what blend of strategic orientations to pursue
in order to retain existing customers while attracting new customers and how to shape market
structure to get the sustainable strategic advantage.

Outcomes of this study also help managers to recognize the level of importance of adopting
two types of market orientation and innovation strategies in achieving high performance
levels. In measuring market driving behavior this study intend to measure the activities like
shaping customer preferences, alliance formation, and market sensing activities of these
institutions. Knowing which activity contribute most to performance outcomes of firms will
help managers allocate resources in right direction.
Finally the policy makers of financial service sector of Sri Lanka help these findings to guide
the sector to the right direction by designing reward systems to promote the behaviors that are
contributing most to the performance outcomes. These in turn help the sector to contribute to
economy.
 CHAPTER TWO

2. Literature Review and Conceptual Framework

This section provides a theoretical background of the concepts market orientation,

innovation, and organizational performance and the definitions of these variables suggested
by different researchers under different marketing perspectives. Here the market orientation
concept is discussed two main approaches called Responsive market orientation and the more
recent concept market driving. In addition empirical findings of researches conducted by
these authors under different settings are also discussed in this section.

2.1. Literature Review

First dependent variable organizational performance is discussed with different definitions

suggested by different authors in previous market orientation studies with their major
findings. At the end of the discussion most suitable definition selected for this study is
presented. Then the mediating variables innovation and market driving is discussed with
definitions proposed by previous researches in different organizational contexts with their
major findings and the most suitable definitions selected for these two variables is presented
at the end of each discussion. Finally the independent variable responsive market orientation
concept is discussed with the definitions proposed by various authors under different context
with their major empirical findings. At the end the discussion the most suitable definition
selected for this study is presented.

2.1.1. Dependent variables Organizational Performance

Significant numbers of authors (Cook and Heiser, 2011, Nicolas et al. 2011, Bolat and
Yilmaz, 2009) have identified organizational performance as a multidimensional construct.
Cook and Heiser (2011, p.118) define organizational performance as a combination of
operational and financial results as measured by the respondents perceived performance
relative to their competitors. The operational measures selected are commonly used to assess
operational excellence and measures a companys relative performance with its main
competitors on three competitive priorities: speed, delivery and quality. Financial
performance is measured by the companys cost and profit-related performance as compared
to their direct competitors. they have empirically found that supply chain management
practices are positively related with organizational performance.
Nicolas et al. (2011) identify three dimensions of corporate performance as organizational
performance namely (1)financial performance, which encompasses market performance like
profitability, growth and customer satisfaction (2) process performance, which refers to
quality and efficiency; and (3) internal performance, which relates to individual capabilities
like employees qualification, satisfaction and creativity. They have empirically found that
knowledge management strategies impact positively on innovation and organizational
performance directly and indirectly.

Bolat and Yilmaz(2009) identify seven performance dimensions as organizational

performance and they are organizational effectiveness, productivity, profitability , quality,
continuous improvement, quality of work life; and social responsibility. In an empirical
study they have found that outsourcing has a strong positive impact on organizational
performance.
According to Agarawal et al.(2003) organizational performance is a two dimensional
construct. One dimension is objective performance which involves market or financial based
measures of performance like capacity utilization, market share, and profitability. The other is
judgmental performance which involves customer and employee outcomes like customer
retention, loyalty customer satisfaction, employee satisfaction. They have empirically found
that judgmental measures of performance are prerequisites for objective performance in a
study conducted among hotel industry players. They have also empirically found that
innovation mediate relationship between market orientation and judgmental performance.
Some researchers have made a fundamental distinction between non financial or market
performance and financial performance outcomes of market orientation. Homburg and
PFlesser (2000, p.452) define Market performance as the effectiveness of an organization's
marketing activities and is measured by items pertaining to achieving customer satisfaction,
providing value to customers, retaining customers, and attaining the desired market share
and Financial performance as return on sales this definition indicate that the customer
outcomes of market orientation has been defined as market performance while financial
outcomes has been defined as financial performance. Their qualitative research followed by a
survey, the authors have developed scales for measuring the different layers of market-
oriented culture and analyzed relationships among the different components of market-
oriented culture and found that artifacts play a very important in determining behavior within
organizations. Results also indicate that a market-oriented culture impacts financial
performance indirectly through market performance and that this relationship was stronger in
highly dynamic markets.

Kirca et al.(2005) argued that Organizational performance consists of two major components.
One is cost-based performance measures, that gives the performance after accounting for the
costs of implementing a strategy (e.g., return on investment), and revenue-based performance
measures, that do not account for the cost of implementing a strategy (e.g., sales and market
share). They have found that correlation between market orientation and both forms of
performance measures were lower in service firms than manufacturing firms. Some
researchers have used global measures by assessing managerial perceptions of overall
business performance, mostly through comparisons of organizational performance with their
own past company performance and competitors performance (e.g., Jaworski and Kohli
1993)

Camarero(2007) have conceptualize organizational performance as two dimensional

construct consisting of market performance which is the customer outcomes and economic
performance which consist of objective performance measures like profitability, market share
etc. however in this study we select both financial and non financial organizational outcomes
proposed by some authors ( Kirca et al.(2005);,Narver and Slater, 1990;, Camarero, 2007) as
organizational performance. Short term, long term, cost based, revenue based, and overall
financial measures of performance was selected as financial performance indicators while
customer retention, market share, and customer acquisition performance was selected as non
financial performance indicators.

2.1.2. Mediating variables

2.1.2.1. Innovation

Different authors (Plessis, 2007;, Damanpour,1996;, Baregheh et al.,2009;. Jansen et al,

2006) define innovation differently in the innovation literature. These researches differentiate
innovation as technical vs. administrative, incremental vs. radical, responsive vs. proactive,
and product vs. process. Baregheh et al.(2009) define innovation as the multistage process
whereby organizations transform ideas in to new/improved products, services or processes, in
order to advance, compete and differentiate themselves successfully in their market place.
According this definition innovation process has been identified in several stages namely,
creation, generation, implementation, development, and adoption. Four types of innovation
has also been identified as product, service, process, and technical. Plessis(2007, p.21 cited in
Baregheh et al., 2009, p.1326) defines innovation as the creation of new knowledge and
ideas to facilitate new business outcomes, aimed at improving internal business processes
and structures and to create market driven products and services. Innovation encompasses
both radical and incremental innovation. According to this definition, knowledge
management value chain of a firm is playing an important role in innovation process. On the
other hand it identifies both radical and incremental form of innovation in business
processers, structures, products and services. Damanpour (1996, p.564 cited in Baregheh et
al., 2009, p.1326) define Innovation as a means of changing an organization, either as a
response to changes in the external environment or as a pre-emptive action to influence the
environment. Hence, innovation is here broadly defined to encompass a range of types,
including new product or service, new process technology, new organization structure or
administrative systems, or new plans or program pertaining to organization members.
Innovation in this case has defined more broadly and it covers both responsive and proactive
orientations of an organization. Further it has also identified technological as well as
organizational innovations in achieving competitive advantage over competitors.
 However this study uses the conceptualization of radical innovation and incremental
innovation as two distinct dimensions of innovation. The reason behind this choice come
from the conceptual argument from market driving literature suggesting that market driving
ability is more related with radical innovation than incremental innovation. In this study
innovation and market driving relationship is also going to be examined. Therefore
conceptualization of innovation as incremental and radical is more relevant for this study.

2.1.2.1.1. Radical Innovation

Jensen et al.(2006, p.5) has conceptualize innovation in two distinct categories as exploratory
and exploitative innovations. According to them Exploratory innovations are radical
innovations and are designed to meet the needs of emerging customers or markets. They offer
new designs, create new markets, and develop new channels of distribution. Exploratory
innovations require new knowledge or departure from existing knowledge. This definition
clearly indicates that there is a high possibility of radical innovations to take place in an
industry with rapidly changing technology because change in technology means new
knowledge. Further it gives the idea that radical innovations give opportunity for new
markets and new channel of distribution allowing organizations to change the market
structure. Jansen et al. (2006) find that centralization is negatively related with radical
innovation and connected is found to be an important antecedent of it. They also find that
radical innovation is more effective in dynamic market environments. Li et al.(2008) describe
radical innovation as the presence of search, variation, experimentation, flexibility, and risk
taking.

McDermott and Prajogo(2010) conceptualize incremental innovation as associated with

more breakthrough or radical departures from existing offerings. It is associated with new to
world products or services, creating new markets, and the identification of needs for
emerging customers and markets.
 2.1.2.1.2. Incremental Innovation

Jensen et al.(2006, p.5) has conceptualize innovation in two distinct categories as exploratory
and exploitative innovations. According to them exploitative innovations are incremental
innovations and are designed to meet the needs of existing customers or markets. They
broaden existing knowledge and skills, improve established designs, expand existing products
and services, and increase the efficiency of existing distribution channels. Hence, exploitative
innovations build on existing knowledge and reinforce existing skills, processes, and
structures.

According to this definition reinforcement of existing knowledge and skills in order to

improve existing products and designs are called incremental innovations. They find
incremental innovation is more beneficial to organizations financial performance in more
competitive environments and formalization is positively related with incremental innovation.
Li et al(2008) state that incremental innovations are designed to meet the needs of existing
customers by improving existing products or services or by increasing efficiency of existing
distribution channels.

McDermott and Prajogo(2010) conceptualize incremental innovation as innovations

associated with extensions to existing product and service lines. Existing knowledge is
utilized to further incrementally improve offerings to satisfy existing customers in known
markets.

Jensen et al(2006) has found that centralization is negatively related with radical innovation
while. Connectedness was found to be an important antecedent to both forms of innovation.
Further they have found that radical innovation is more effective in dynamic market
environments and Li et al.(2008) found that Proactive and responsive market orientations are
likely to develop useful radical innovations and foster better incremental innovations where
they are matched with appropriate organizational situations. Moderators like strategic mission
rigidity, strategic consensus, market opportunity appraisal, and leaning orientation were used
to analyze the different organizational situations.
In this study Jensen et al.(2006) definition of innovation is going to be used as the present
financial service industry in Sri Lanka is having a highly competitive dynamic environment
with fast changing technological platform require different approaches for different segments.

2.1.2.2. Market Driving Approach

Extant literature on market orientation has clearly identified two different types of market
orientations called Market driven and Market driving approach. However some researchers
have used the term proactive market orientation to represent market driving approach.
(Carmen and Jose;2008) There has been another third approach which is proposed by Narver
et al.(2004) and also called proactive market orientation which consider the expressed as well
as latent needs of present and future customers which also considered as an extension of
market driven approach. In contrast market driving approach take in to account the expressed
and latent needs of customers as well as all potential stakeholders like competitors, channel
members, and alliance partners (Barlow and Sarin, 2003). This shows that market driving
approach is more broadly futuristic than proactive market orientation proposed by Narver et
al.(2004). Therefore in this research Responsive market orientation which is synonymous to
market driven approach and market driving approaches are going to be used as two major
concepts.
 2.1.2.2.1. Shaping Market Structure and Shaping Market Behavior

Jaworski et al (2000, p.46) suggest that there exist two complementary approaches to market
orientation, the first, traditional approach is known as to be market driven and the new
approach, called driving the markets and define driving markets as the changes in the
composition, activities and/or behavior of the components of a given market. This
definition of market driving has identified two dimensions of it as shaping market structure
and shaping the market behavior. Authors have identified three approaches that are adopted
by organizations in shaping market structure namely (1) deconstruction approach by which
organizations eliminate players in the industry value chain or eliminate competitors in the
market through mergers, acquisitions or joint ventures or eliminate suppliers through
acquisitions (2) constructionist approach by which organization add new service suppliers or
complementors into the industry value chain. (3) functional modification approach by which
organizations mostly adopt forward or backward integration strategies. Authors further
identify four direct and four indirect shaping market behavior strategies. Four direct strategies
are namely (1) build customer constraints (2) remove customer constraints (3) build
competitor constraints (4) remove competitor constraints. Four indirect strategies are
namely(1) create new customer preferences (2) reverse existing customer preferences (3)
create new competitor preferences (4) reverse existing competitor preferences. At the end of
the discussion on this by the authors pose two questions asking when does a driving market
approach work? And how much behavior be changed? While posing these questions authors
them self proposed that startup businesses have advantage of succeeding by adopting this
approach and how much can market behavior be change depends on the industry in which the
firm is operating.

In relation to the high tech industries, Barlow and Sarin (2003, p.14) define market driving as
a firms ability to lead fundamental changes in the evolution of industry conditions by
influencing the creation process at the product, Market or industry levels and suggest that
market driving approach consist of three interrelated dimensions namely value creation,
change and leadership. Further they argue that these activities are taking place at industry,
market, and product levels. Here the product level activities include development of new
product features, enhancement of existing product performance, modifying customer needs
and preferences and behaviors. Market level activities include increasing accessibility and
expanding current market boundaries by introducing new channels etc. Industry level
activities include introduction of new business models through formation of strategic
alliances, adding new players, and eliminating current players.

According to Ghauri et al.(2008) market driving firms influence the values and behaviors of
consumers, reshape business system to increase customer values and adopt to the market and
change competitive conditions and logic. According to Elg et al.(2012) market driving firms
influence customer perceptions, restructure value chain, change competitive conditions, and
impact on the society. Based on these two conceptualizations, to influence customer values
and behaviors or perception it is required to have good intelligence generation and
dissemination system. This means that market driven behaviors seems to act as an antecedent
of market driving.

Consuegra et al. (2008, p.264 ) define driving market as As internal and external proactive
behaviors which seek to modify market structure and behavior according to latent needs,
with the main purpose being to create superior value for the customer. In these definitions
identification of customers latent needs with aim of creating superior value has become the
central focus. They have argued that Service organizations have to be market driven to keep
current business opportunities in tact as well as they should drive markets to plan for future
conditions. This conceptualization has been developed by authors for their study in retail
banking sector of Spain and found that market driving is positively related with performance
of retail banks. Further this conceptualization closely related with the Jaworski et al.(2000)
conceptualization as well. Therefore we adopt this definition of market driving for our study
as this study is conducted in a similar industry.

Vuuren and Worgotter(2013 p-118) suggest that the construct of market driving has multiple
facets that target shaping or changing the behavior of stakeholders, the market or the
industry with the goal to achieve a competitive advantage and firm performance. They
propose a conceptual model suggesting that four firm internal factors impact the market
driving ability of organizations, namely corporate entrepreneurial management,
entrepreneurial capital, strategic orientations and entrepreneurial behavior and found
empirical evidence to support that market sensing, shaping customer preferences and
alliance formation characterize the Market driving construct. Empirical findings from a study
conducted among sample of managers in the health care industry they have found that market
driving ability is positively related with firm performance and strategic orientations,
entrepreneurial behavior and entrepreneurial capital are antecedent of market driving ability.

Metear et al.(2003) has also suggest that market oriented firms has to be entrepreneurial
orientated if they are to drive markets. They further argue that entrepreneurial oriented firms
which means that proactive, innovative, and risk taking business entities with market oriented
behavior likely come up with either radical or incremental innovations and radical innovation
leads to market driving and incremental innovation leads to market driven. Based on these
findings of Narver and Slater (2000) and Metear et al.(2003) it could be argued that market
orientation and entrepreneurial orientation are two antecedent of proactive market orientation
approach. Vuuren and Worgoter(2013) has also argued that entrepreneurial behavior and
some determinants of market orientation are antecedent of market driving.

Above literature review of market driving suggest that all most all the definitions proposed by
authors (Jaworski et al.2000;, Consuegra et al.2008;, Barlow and Sarin,2003;, Vunner and
Worgotter,2013) have identified radical changes to the market behavior and market structure
is required to drive markets.

2.1.3. Independent Variable - Responsive Market Orientation

Kohli and Jaworski (1990, p. 6) define market orientation as: the organization-wide
generation of market intelligence pertaining to current and future customer needs,
dissemination of the intelligence across departments, and organization-wide responsiveness
to it. This definition has identified three key constituent of market orientation as intelligence
generation, intelligence dissemination and responsiveness and emphasized the behavioral
perspective of it. Narver and Slater(1990, p.21) define market orientation as the
organization culture that most effectively creates the necessary behaviors for the creation of
superior value for buyers and this continuous superior performance for the business this
definition identify three behavioral 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; and (3) inter-functional
coordination, which is the coordinated use of resources in creating superior value for target
customers. They have found that these three behavioral components are closely related and
hence argued it as a one-dimensional construct and also found through an exploratory study
conducted among strategic business units of a major western corporation consisting of
specialty products businesses, distribution businesses, and export businesses that business
profitability as one outcome of market orientation and Buyer power, Supplier power, Seller
concentration, Ease of entry, Market growth, Technological change, Relative size, Relative
costs has been identified as moderators of this relationship. They have suggested that it is
important to investigate the relationship between degree of market orientation and extent of
CSR behavior in future research.

All these definitions have identified customer focus as the central theme of market
orientation. Jaworski and Kohlis definition of market orientation have indicated the
behavioral perspective and Narver and Slater (1990) has define the concept using cultural
perspective of it. However Avlonitis and Gounaris (1999) has argued that these two
behavioral and cultural dimensions are not opposing each other and instead they
complementing each other. Based on this argument they have stated that market orientation is
based on the combination of companys philosophy, which is grounded on the persistence to
analyze and understand the market prior to any actions; and the companys behavior to collect
intelligence about the market, disseminate it companywide and to design the companys
response on the basis of market intelligence.

Kolar (2006, p.412) define Market orientation as the extent to which customer focus is
implemented in key organizational leverages. We understand customer focus as a focus on
customer needs; providing and continuously improving perceived value, quality and
satisfaction within a long-term time horizon with a view to achieving superior market
performance and identified six dimensions of market orientation related to service
companies. They are (1) Strategy development (2) Internal integration (3) Knowledge
management (4) Organizational infrastructure (5) Customer interface (6) Organization culture

Al-Shiravi and Hajjar (2012) has developed a two dimensional construct to measure the level
of market orientation of a banking and insurance sector of a resource based economy, which
is (1) Market oriented structures and systems employed (2) Market oriented activities. Market
oriented structures and system employed scale consist of five items related to, fit between
structure and strategy, intelligence generation, intelligence dissemination, performance
appraisal system, and employee reward systems while market oriented activities scale consist
of four items related to customer satisfaction, customer service and inter functional
coordination. Authors have empirically found that both customer perspective and managerial
perspective of firms level of market orientation agreed. This conceptualization has been
develop to a resource based economy and therefore this is not going to be considered for this
research.

Ruekert, (1992, p. 228) conceptualize the market orientation in the strategic focus perspective
and define as The level of market orientation in a business unit is the degree to which the
business unit obtains and uses information from customers, develops a strategy which will
meet customer needs, and implements that strategy by being responsive to customer needs
and wants. This definition considers three important dimensions. First is obtaining and using
customer informations for strategic planning process. Second is development of strategies
that will meet the customer requirements and the third is implementing those strategies while
being responsive to customer needs and wants. The first and third dimensions in this
definition is consistent with the first and third elements intelligence generation and
responsiveness of Jaworski and Kholi (1990) definition. According to this definition level
of market orientation is a measure of how well the strategic management process take
customer information in to account in developing strategies. However for an organization to
take competitive edge over competitors in the market place they should take both customer
and competitor information into account when developing strategies. In that sense Jaworski
and Kholi (1990) definition could be considered as a better one.
Deshpande et al.(1993, p. 27) Conceptualize market orientation in the customer orientation
perspective as the set of beliefs that puts the customers interest first, while not excluding
those of all other stakeholders such as owners, managers, and employees, in order to develop
a long-term profitable enterprise and Deshpande and Farley(1998, p.226) conceptualize
market orientation in the same perspective as The set of cross functional processes and
activities directed at creating and satisfying customer through continuous need assessment.
Both of these definitions has considered customer satisfaction as the central focus of market
orientation and the first definition has looked at it from cultural side of it while second
definition has looked at it from behavioral aspects of it.

Day (1994, p 43) conceptualize market orientation in capabilities perspective define as a

market driven culture supports the value of thorough market intelligence and the necessity of
functionally coordinated action directed at gaining a competitive advantage in this
conceptualization author suggest that market orientation combined with organizational
capabilities enhances performance. Day (1994) suggest that capabilities of organizations
could be sorted in to three different categories depending on the orientation and focus of the
process. They are outside in processes, spanning processes, and inside out processes. Market
sensing, customer linking, channel bonding, and technology processes were classified as
outside in processes. Customer order fulfillment, pricing, purchasing, customer service
delivery, new product development, and strategy development were classified as spanning
processes while financial management, cost control, technology development, integrated
logistics, manufacturing/transformation processes, human resource management, and
environment health and safety were classified as inside out processes. Day(1994) further
argued that market driven organizations should have superior market sensing, customer
linking, and channel bonding capabilities to have a edge over competitors. In other words if
these three capabilities are distinctive capabilities of organizations then they have the edge
over competitors. According to his views spanning activities are important to integrate inside
out activities with outside in activities.

Foley and Fahy (2004) argued that market sensing capability act as an antecedent to market
orientation and presented a decomposed model comprising of four dimensions namely
organization systems, marketing information system, organization communication, and
learning orientation. This shows that knowledge management value chain play an important
role in creating a superior market sensing capability. Use of company website to create
customer profiles would be one example for using organization communication to improve
market sensing capability.

Deshpande and Farley(1998) has define market orientation considering customer

responsiveness as the central focus of their definition and responsive market orientation
concept in this study could be more closely going with that definition. Therefore we adopt
Deshpande and Farley (1998)s definition as definition of responsive market orientation in
this study.
Table 1: Literature Grid for the Study

Author Research Question Variable Finding

Foley and Fahy How to develop market driven IV1 = Organization system Only Conceptual framework was
(2004) organizations IV2 = learning orientation developed
IV3 = marketing information system
IV4 = Organizational communication
MV = Market orientation
DV = business Performance
Al Shiravi(2012) What constitutes market orientation DV = Market orientation This study indicates that three
in a resource-based economy IV1 = business corporate culture independent variables may influence
context? IV2 = the strategy formulated the level of the businesss market
What is the level of market IV3 = the strategy implemented. orientation through the adopted
orientation among financial services MV1 = Adopted organizational organizational structure and systems
businesses based on the identified structure and systems employed employed, and these businesses
constructs? MV2 = Market oriented activities market-oriented activities.
Do the business organizations self-
reported levels of market orientation
and their customers perceptions of
such levels agree or not?
Narver and What is the relationship between DV =Business Profitability Positive relationship between DV with
Slater(1990) market orientation and business IV1= Market orientation IV1,IV2,IV4,IV5,IV9 and Negative
profitability? IV2= Square of Market orientation relationship with
What is the relationship of business IV3= Buyer power IV3,IV6,IV7,IV8,IV10.
 profitability with eight control IV4= Supplier power
variables? IV5= Seller concentration
IV6= Ease of entry
IV7= Market growth
IV8= Technological change
IV9= Relative size
IV10 Relative costs
Consuegra et al. What is the factor structure which DV= Business performance Proactive market orientation is
(2008) determines the proactive market IV= Proactive market orientation positively related with business
orientation? performance. (Note: In this case market
What is the relationship between driving approach has been represented
proactive market orientation and by proactive market orientation by the
business performance? author.)
Narver et al.(2004) What are the determinants of DV= New product success New product success is positively
proactive market orientation? IV1= Proactive market orientation related with all three independent
What are the determinants of IV2= Responsive market orientation variables but a strong positive
responsive market orientation? IV3= Innovation orientation relationship with proactive market
What is the relationship between orientation.
new product success and both forms
of market orientation?
Han et al.(1998) How market orientation and DV= Performance Customer orientation component of
innovation impact to performance? IV1= Customer orientation market orientation impact mostly to
IV2= Competitor orientation innovativeness leading to higher
IV3= Inter functional coordination performance. No direct relationship
IV4=Administrative innovation between market orientation and
IV5= Technological innovation performance.
Argarawal et al. What is the impact of judgmental DV= Objective performance Innovation mediate the relationship
(2003) performance and innovation on the IV= Market orientation between market orientation and
relationship between market MV1= Innovation objective performance while
orientation and objective MV2= Judgmental performance innovation partially mediate the
performance? relationship between market
orientation and judgmental
performance
Carmen and What is the impact of market DV1= Social performance Innovation mediates the relationship
Jose(22008) orientation on social and economic DV2= Economic performance between both forms of performance
performance? IV= Market orientation and market orientation.
What is the role of innovation on MV= Innovation
the above relationship?
Jimenez et. al. What is the relationship between DV= Performance Market orientation and Organizational
(2008) market orientation, Organizational IV1= Organizational learning learning are antecedent to Innovation
learning, Innovation, and IV2= Market orientation Innovation completely mediates the
performance in a single model? IV3= Innovation relationship between Market
orientation and organizational learning
 with performance.
Camarero(2007) What is the impact of market DV1= Market performance Relationship orientation and service
orientation on service quality DV2= Economic performance quality orientation mediate the
orientation and relationship IV1= Market orientation relationship between market
orientation? IV2= Relationship orientation orientation and market performance.
What is the role of service quality IV3= Service quality orientation
orientation and relationship
orientation on the relationship
between market orientation and
market and economic performance?
Matear et al.(2002) What are the relationships among DV= Performance Innovation mediates the relationship
market orientation, innovation, IV1= Innovation between market orientation and
performance? IV2= Market orientation performance.
Vuuren and How market driving in DV1= Firm performance Market sensing, Alliance formation and
Worgotter(2013) organizations can be assessed? DV2= Relative competitive strength Customer preferences were found to
What are the antecedents of market IV1= Entrepreneurial behavior index determinants of market driving.
driving? IV2= Strategic orientation index
IV3= Entrepreneurial capital scale
IV4= Corporate Entrepreneurial
management index
IV5= Market sensing
IV6= Customer preferences
IV7= Alliance formation
 IV8= Market driving ability
Jaworski and Why some organizations more DV1 = Overall Performance Market orientation is related to top
Kholi(1993) market oriented than others? DV2 = Market share management emphasis on orientation,
What effect does a market DV3 = Organizational commitment risk aversion of top managers,
orientation have on employees and DV4 = Esprit de corps interdepartmental connectedness and
business performance? IV1 = Top management emphasis conflict, centralization and reward
Does the linkage between a market IV2 = Top management risk aversion system orientation.
orientation and business IV3 = Interdepartmental conflict Overall business performance and
performance depend on the IV4 = Interdepartmental connectedness employees organizational commitment
environmental context? IV5 = Formalization are outcome of market orientation.
IV6 = Centralization Market share is not positively related
IV7 = Departmentalization with market orientation.
IV8 = Reward system orientation
IV9 = Market orientation
Six environmental control variables
Camarero(2007) How market orientation integrate DV = Economic performance Relationship orientation and service
with relationship orientation and IV = Market orientation quality orientations act as mediators
service quality orientation as related MV1 = Relationship orientation between market orientation and market
drivers of the firm performance? MV2 = Service quality orientation performance relationship.
MV3 = Market performance
Li et al.(2008) Does proactive market orientation DV1 = Radical innovation Proactive and responsive market
(responsive market orientation) DV2 = Incremental innovation orientations are likely to develop useful
have positive impacts on radical IV1 = Proactive market orientation radical innovations and foster better
innovations (incremental IV2 = Responsive market orientation incremental innovations where they are
innovations)? MV1 = Strategic mission rigidity matched with appropriate
Does proactive market orientation MV2 = Strategic consensus organizational situations
(responsive market orientation) MV3 = Market opportunity appraisal
have more positive impact on MV4 = Learning orientation
radical innovations (incremental
innovations) than responsive market
orientation (proactive market
orientation)?
Does the managers market
opportunity appraisal and the firms
strategic orientation and learning
orientation would moderate the
effect of market orientation on the
firms ambidexterity.
Jensen et al.(2006) What are the organizational DV1 = Exploratory innovation Centralization is negatively related
antecedents of exploratory and DV2 = Exploitative innovation with radical innovation while
exploitative innovation? MD1 = Centralization formalization is positively related with
What is the moderating role of MD2 = Formalization incremental innovation. Connectedness
external environment on the MD3 = connectedness was found to be an important
 effectiveness of exploratory and MD4 = Environmental dynamism antecedent to both forms of innovation.
exploitative innovation? MD5 = Environmental Further they have found that radical
competitiveness innovation is more effective in
dynamic market environments and
incremental innovation is more
beneficial to organizations financial
performance in more competitive
environments
Kirca et al,(2005) What are the critical antecedents of DV = Performance Authors have that market orientation
market orientation? IV1 = Top management emphasis performance relationship is partially
What are the major outcomes of IV2 = interdepartmental connectedness mediated through customer loyalty,
market orientation? IV3 = interdepartmental conflicts innovativeness, and quality. They have
What are the mediators of market IV4 = Centralization also found that the market orientation
orientation performance IV5 = Formalization performance relationship was stronger
relationship? IV6 = Market based reward system in samples of manufacturing firms, in
IV7 = Market oriented training low power-distance and uncertainty-
IV8 = Market orientation avoidance cultures, and in studies that
MV1 = Quality use subjective measures of
MV2 = Customer Loyalty performance. The authors also have
MV3 = Customer satisfaction found that the market orientation
MV4 = Innovativeness performance relationship was stronger
MV5 = New product performance for both cost-based and revenue-based
MV6 = Organizational commitment performance measures in
 MV7 = Team spirit manufacturing firms than in service
MV8 = Customer orientation firms.
MV9 = Role conflicts
MV10 =Job satisfaction

Homburg and What kind of organizational culture DV = Financial Performance Their qualitative research followed by
Pflesser(2000) encourages and rewards Market MV = Market Performance a survey found that artifacts play a very
Orientation behaviors? IV1 = Market orientation important in determining behavior
Are there specific Customer- IV2 = Shared basic values supporting within organizations. Results also
Focused Beliefs that are articulated market orientation indicate that a market-oriented culture
in the cultural documents ... and IV3 = Norms for market orientation impacts financial performance
rituals ... of companies? IV4 = Artifacts for market orientation indirectly through market performance
How do these in turn relate to IV5 = Market oriented behaviors and that this relationship was stronger
specific Market Orientation in highly dynamic markets.
behaviors?
Medina and What is the impact three different DV = Performance Market driving was found to be strong
Rufin(2008) strategic orientations, market IV1 = Market orientation predictor of performance while
orientation, market driving, and IV2 = Market driving innovation mediate all three strategic
second generation market IV3 = Second generation market orientations.
orientation on performance of orientation
retailers? MV1 = Innovation in management
What is the role innovation on this processes
relationship? MV2 = Product innovation
 MV3 = Innovation

Bodlaj and Rojsek Are companies operating DV1 = Responsive market orientation Companies operating in a less market
(2010) predominantly in consumer markets DV2 = Proactive market orientation turbulence environment develop a
more market-oriented than IV1 = Market oriented culture significantly lower level of market-
companies in business markets? IV2 = Market information oriented culture as well as responsive
Do characteristics of the business IV3 = Market turbulence and proactive market-oriented behavior
environment (i.e. market turbulence, IV4 = Technological turbulence in comparison with companies
technological turbulence, IV5 = Competitive intensity operating in a environment with higher
competitive intensity) influence the level of market turbulence.
level of market orientation?
Kumar et al.(.) What is the impact of organizational DV = Performance Market orientation had a more positive
strategy on market orientation IV1 = Customer orientation impact on the performance of
performance relationship? IV2 = Competitor orientation organizations adopting a differentiation
IV3 = Inter functional coordination strategy than on firms adopting a cost
MV1 = Long term focus leadership strategy. In the cost leader
MV2 = Short term/profit emphasis group, the inter-functional coordination
MV3 = Cost Leadership strategy component of market orientation had a
MV4 = Differentiation strategy significantly impacted firm
performance, while in the differentiator
 group the customer orientation and
competitor orientation components of
market orientation had significant
impact on performance

Conduit and What is the nature of relationship DV = market orientation In addition to the direct effect of
Mavondo(2001) between a internal customer IV1 = Training internal customer orientation on market
orientation and a market IV2 = Management support orientation, effects of antecedents of
orientation? IV3 = Internal communication market orientation, intelligence
IV4 = Personal management dissemination, interdepartmental
IV5 = Involvement in external integration, and internal
communication communication, personnel
IV6 = Intelligence generation management, and management
IV7 = Intelligence dissemination support, are enhanced by mediating
IV8 = Organizational commitment effect of internal customer orientation.
IV9 = Interdepartmental integration
IV10 = Interdepartmental conflicts
MV = Internal customer orientation

Source: Developed by the author for this study (2013)

 2.2. Conceptual Framework and Hypothesis

Significant number of researchers (Narver and Slater, 1990;, Matear et al, 2002) find positive
relationship between market orientation and firm performance of manufacturing and service
firms. Narver and Slater (1990) find that market orientation is positively related with business
profitability of commodity products businesses and non commodity businesses. Matear et al.
(2002) by a study conducted among New Zealand service firms find that market orientation
has a positive and significant contribution to service firm performance. These studies have
considered traditional market driven approach called market orientation as independent
variable. Han et al (1998) find full mediating effect of innovation on market orientation and
performance relationship and have stated that a committed market oriented culture facilitate
organizational innovativeness which in turn become a key factor in delivering superior
corporate performance. This means that innovativeness mediate the relationship between the
responsive market orientation and performance in their study context. Some researchers argue
that Market focused strategic flexibility mediate the relationship between market orientation
and performance (Johnson et al., 2003;, Javalgi et al., 2005). However in this study model
with innovation and market driving as a mediator between responsive market orientation and
organizational performance will be tested as depicted in Figure 2.1. In this model innovation
is considered as two dimensional construct consisting of radical innovation and incremental
innovation and market driving is also considered as a two dimensional construct consisting
shaping market structure and shaping market behavior. In this model innovation was
considered as an antecedent to market driving and this relationship has not been tested
empirically in previous studies. However there are conceptual arguments to support this
relationship.
 Figure 1: Conceptual Framework for the Study

Innovation Market Driving

H1

Radical Innovation H4 Shaping Market Structure

H8
H2

H5
Organizational Performance
Responsive Market Orientation

H6

H3
H9
Incremental InnovationH7 Shaping Market Behavior

Source: Developed by the author for this study (2013)

2.2.1. Responsive Market Orientation and Organizational

Performance

As discussed in the previous section traditional market driven approach is called as

responsive market orientation. Significant number of researchers (Narver et al;, 2004, Matear
et al.;, 2003) find positive relationship of market orientation with different types of
organizational performance. Narver et al.(2004) find positive relationship between responsive
market orientation and performance in a multiple industry study including financial services
sector. Matear et al. (2002) conducted a study among New Zealand service firms and find the
empirical evidence of positive and significant impact of market orientation on market
performance. Carmen and Jose (2008) find positive and significant link between market
orientation and economic and social performance of museums. Social performance in their
research context is the employee and customer outcomes while economic performance refers
to financial outcomes. However some researchers (Han et al., 1998) do not find direct
positive relationship between market orientation and organizational performance instead they
only find mediated relationship between these two variables through some mediating
variable. Han et al.(1998) find that market orientation performance relationship is completely
mediated by innovation. This means that market orientation do not have any direct
contribution to firm performance but its contribution to innovation will enhance performance.
In this case performance has been measured as overall performance. However in this study
following hypothesis is proposed.

H1: Responsive market orientation has a positive relationship with organizational

performance.

2.2.2. Responsive Market Orientation and Radical Innovation

Market orientation stimulate generation of new ideas as a response to market demands

through access to the market information because market oriented firms show behavioral
attributes like intelligence generation, intelligence dissemination, and responsiveness to it
(Jawoski and kholi, 1990) and cultural attributes like customer orientation, competitor
orientation, and inter functional coordination (Narver and Slater,!990). Generation of new
ideas tend to come up with innovations of either incremental form or radical nature. However
mateal et al.(2003) suggest that combined effect market orientation, proactiveness, and risk
taking create innovations and level of proactiveness and risk taking decide whether the
outcome is a radical innovation or a incremental innovation. However in both occasions
market orientation is a prerequisite for innovations. Significant number of researchers find
positive relationship between responsive market orientation and innovation. Carmen and Jose
(2008) find direct positive relationship between market orientation and innovation. According
to their conceptualization of innovation construct it contains technological and organizational
innovation as major dimensions. However their measures of constructs contain both radical
and incremental innovations under technological and organizational category. Kirca et al.
(2005) find that market orientation, in this context responsive market orientation, is positively
related with innovativeness. Study conducted in Hotel sector by Agarawal et al. (2003) find
that market orientation is a prerequisite for innovation. Based on the above discussion
following hypothesis is proposed

H2: Responsive market orientation has a positive relationship with radical innovation

2.2.3. Responsive Market Orientation and Incremental Innovation

Based on the discussion in section 2.2.2 significant number of authors (kirca et al, 2005,
Argarawal et al.2003) find market orientation is positively related with innovation. Analysis
of their conceptualization of innovation finds that it contains both incremental and radical
innovations components. Schindehutte et al.(2008) propose that market orientation impact the
sustaining innovations as well as disruptive innovations through organizational learning and
opportunity recognition. Here the sustaining innovations are the innovations that give
incremental improvements to existing products and service and could be considered
synonymous to incremental innovation. Based on the above discussion following hypothesis
is proposed.

H3: Responsive market orientation has a positive relationship with incremental innovation

2.2.4. Radical Innovation and Shaping Market Structure

According to the definition of radical innovation by Jansen et al.(2003) they are designed to
meet the needs of emerging customers or markets and include offering of new designs,
creation of new markets, and developing new channels of distribution. Jaworski et al.(2000)
identify development of new channels of distribution as an activity that shape the market
structure. This suggests that radical innovation is a prerequisite for shaping market structure.
Carrillat et al.(2004) state that creation of a market driving culture requires an adhocracy
culture and implementation phase requires a market type culture. However adhocracy culture
stimulates innovation by fostering risk taking and interactive learning. Based on these
arguments Carrillat et al(2004) suggest that innovation is a central part for becoming market
driving and achieving competitive advantage. However shaping market structure is one of the
two dimensions of market driving. Therefore it could be argued that radical innovations are
required to shape the market structure.
Schindehutte et al.(2008) argue that market driving firms generate better radical innovations
in products, business models or value creation networks. These radical innovations result in
shaping the market structure. Barlow and Sarin(2003) argue that most pioneering activities
like development of novel concepts or technologies are designed to drive markets and not all
market driving activities are a result of pioneering. However developments of novel concepts
or technologies are also come under innovation according to the previous literature review on
innovation. Therefore one could argue that both type of innovation, which is radical and
incremental, result in shaping market structure. However prior empirical evidence on these
relationships are not available in extant literature on market driving.
Therefore based upon the preceding discussion following hypothesis are proposed
H4: Radical innovation has a positive relationship with shaping the market structure

2.2.5. Radical Innovation and Shaping Market Behavior

According to Jaworski et al.(2000) removing customer constraints help change the customer
buying behavior. Introduction of new radically innovative e-commerce applications remove
the customer constraints of physical appearance at the service institutions in modern day
financial service industry. This suggest that radical innovation help shaping the market
behavior. Jaworski et al.(2000) also state that creating new customer preferences also comes
under shaping the market behavior activity. In present financial service sector there are
number of radically innovative services for customers. Transfer of cash from one person to
another through mobile networks offered by various banking institutions is an example of
these kinds of innovative services. Barlow and Sarin (2003) argue that product level, industry
level, and market level activities help driving market suggesting that product level activities
are not only just introduction of new attributes but also changes how customers value existing
attributes and future offerings. Activities mention above requires radically innovative
approaches or in other words radical innovations are required in shaping market behavior.

Matear et al.(2003) suggest that firms engaging in risk taking, proactive, and innovative
behaviors come up with radical innovations and tend to drive markets by shaping market
behaviors. Even though empirical findings on relationship between radical innovation and
shaping market behavior is not available in extant marketing literature we propose the
following hypothesis.

H5: Radical innovation has a positive relationship with shaping the market behavior.
 2.2.6. Incremental Innovation and Shaping Market Structure

According to Schindehutte et al. (2008:17), organizations cannot constantly be market

driving, but there should be transition into phases of market driven patterns, whereby they
respond to customer or market needs and improve existing offerings. Improvements of
existing offerings require incremental innovations. it could be further argued that each radical
innovation requires several incremental innovations to keep the advantage of shaping the
market structure obtained through radical innovations. This suggests that incremental
innovation is also required to shape the market structure. Carrilat et al.(2004) suggest that
innovativeness is an antecedent to market driving. Here the innovativeness creates both
radical and incremental innovations which help organizations shape market structure which is
one critical dimension of market driving. even though prior empirical evidence on these
relationships are not available in extant literature on market driving based upon the preceding
discussion following hypothesis are proposed
H6: Incremental innovation has a positive relationship with shaping the market structure

2.2.7. Incremental Innovation and Shaping Market Behavior

Similar to the discussion in the relationship between incremental innovation and shaping
market structure it could be argued that advantage taken by shaping market behavior through
radical innovations has to be refined through stages of several incremental innovations to
maintain the competitive advantage acquired. Vuuren and Worgotter(2013) find that the
strategic orientation which comprises innovation intensity as one dimension is positively
related with market driving. In this case authors identify both number and the significance of
innovations as innovation intensity. Here the innovation includes both radical and incremental
forms and market driving represents both shaping market structure and shaping market
behavior.
Narver et al.(2004) find that positive correlation between proactive market orientation and
innovation orientation is greater than the correlation between responsive market orientation
and innovation orientation from a study in a sample of broad spectrum of industries. However
in this study the proactive market orientation concept do not represent the exact market
driving concept and some of its determinants represent market driving concept. Carrillat et al.
(2004) state that creation of a market driving culture requires an adhocracy culture and
implementation phase requires a market type culture. However adhocracy culture stimulates
innovation by fostering risk taking and interactive learning. This suggests that incremental
innovation also stimulate shaping market behavior because it is a dimension of market
driving. Even though prior empirical evidence on these relationships are not available in
extant literature on market driving
based upon the preceding discussion following hypothesis is proposed.

H7: Incremental innovation has a positive relationship with shaping the market behavior.

2.2.8. Shaping Market Structure and Organizational Performance

Jaworski et al.(2000) argue that firms in a given industry could shape the market structure by
adopting three generic strategies namely (1) deconstruction approach (2) construction
approach (3) functional modification approach. Deconstruction approach involves
elimination of players in the industry value chain which may be wholesalers, distributors, key
influencers, or complementors. They further argue that that this could be achieved through
strategic moves like joint venture formation, partnerships building, mergers, acquisitions and
enable the firms to better deliver value to customers. Adding complementary players to the
value chain and forward and backward integration strategies are also been identified as
strategies to shape the market structure. According to the theory of strategic management
these all are growth strategies adopted by organizations and they should enhance the
performance outcomes.

Carrilat et al.(2004) suggest that market-driving organizations may achieve higher

performance levels through reshaping the structure of the market according to their own
competencies and by exploiting the competitors weaknesses. Carrilat et al.(2004) further
suggest that market driving firms do not simply match the customer value opportunities with
their current capabilities and instead they design entirely new business systems that create a
relative advantage over competitors allowing these firms to drive the customer value
opportunities to a new direction through creating innovative products and disrupting the
market structure. Here creating relative advantage over competitors will enhance the
performance in short and long run. Schindehutte et al.(2008) state that market driving firms
introduce sustaining or disruptive business models which would result in superior long term
and short term performance.

Vuuren and Worgotter(2013) propose that alliance formation is an one dimension of market
driving construct and argue that formation of strategic alliances help firms to obtain the
external resources and capabilities leading to competitive advantage and superior
performance. When this dimension is compared with Jaworski et al(2000) conceptualization
of market driving it is an activity comes under shaping market structure dimension of market
driving. this suggest that shaping market structure influence positively to organizational
performance.

H8: Shaping market structure has a positive relationship with organizational performance.

2.2.9. Shaping Market Behavior and Organizational Performance

Jaworski et al.(2000) introduce two main ways of shaping market behaviors of players of
industry. First way is to shape the behavior directly by introducing or eliminating constrains
on customers and competitors. The second way is to shape the market behavior indirectly by
creating new customer preferences or removing existing customer preferences. They further
suggest that these strategies result in improving customer value and superior business
performance. Vuuren and Worgotter (2013) suggest that changing or influencing customer
preference is one of the key attributes of market driving. This is similar one of the dimension
of shaping market behavior construct proposed by jaworski et al.(2000). Further they
empirically find that market driving which consist of three dimensions namely market
sensing, alliance formation and influencing customer preferences is positively related with
organizational performance. Consuegra et al.(2008) also find positive and significant
relationship between market driving and business performance in retail banking sector. Their
market driving construct consist of two dimensions namely driving market structure and
shaping market behavior. Here the driving market structure dimension is equivalent to the
shaping market structure proposed by Jawoski et al.(2000).

H9: Shaping market behavior has a positive relationship with organizational performance.
 CHAPTER THREE

3. Methodology
First section of this chapter first present a overview research philosophies and methodologies
that could be used in social science research process. The epistemological assumptions of
positivism, interpretivism, and realism paradigms are discussed then. At the end of the first
section the selection of research philosophy and a methodology for this study is justified. The
second section of this chapter evaluate the two major research approaches deductive and
inductive approaches of research design and justify the selection of deductive approach for
this study.

3.1. Philosophical Position of the Study

Research philosophy adopted by researcher contains important assumptions about the way in
which researcher view the world (Saunders et al., 2009). According to Krauss (2005)
epistemology which is the philosophy of knowledge is closely related to ontology and
methodology because ontology involves the philosophy of reality and epistemology speak
about how we come to know that reality while methodology identify the practices used to
acquire knowledge of it. All social research approaches consider the ontological assumption
about the nature of reality and social beings. Positivist ontology is based on the assumption
that there are objective facts about the world independently of what individuals perceive. In
contrast interpretive ontology is based on the assumption that there are subjective facts about
the world depending on what individuals perceive. Realism is another philosophy which
assumes what senses show us is the reality and the truth. Positivism and realism are two
branches of epistemology that assume scientific approaches to development of knowledge
(Saunders et al.2009). Pragmatism on the hand is a philosophy which combines the positivist
and interpretivist approaches and the term used for methodologies under this philosophy is
the mixed method research. However in this study managerial perception of their
organizational strategies and performance is used to test propositions aiming to generalize a
conceptual model developed. For this purpose positivism is the epistemological assumption
that is suitable here. To do so ontological assumption is important. Therefore positivist
ontology is the philosophy that is matched with this research.
Axiology is a branch of philosophy that studies the role of values in social research process
(Saunders et al., 2009). Heron (1996, cited in Saunders et al., 2009) argue that our values are
guiding all the human actions and therefore researchers tend to use their values as a basis for
deciding on what research to conduct and how to conduct it. Table 3.1 present a comparison
of an ontological, epistemological, axiological, and methodological assumptions of four main
research philosophies mention above.
Table 2: Comparison of Four research Philosophies in Management Research
Assumptions Positivism Realism Interpretivism Pragmatism

Ontology: External, objective Is objective. Exists Socially External, multiple,

the and independent of independently of constructed, view chosen to best
researchers social actors human thoughts subjective, may enable answering of
view of the and beliefs or change, multiple research question
nature of knowledge of their
reality or being existence (realist),
but is interpreted
through social
conditioning
(critical realist)
Epistemology: Only observable Observable Subjective Either or both
the phenomena can phenomena provide meanings and Observable
researchers provide credible credible data, facts. social phenomena and
view regarding data, facts. Focus Insufficient data phenomena. subjective
what on causality and means inaccuracies Focus upon the meanings can
constitutes law like in sensations (direct details of provide acceptable
acceptable generalizations, realism). situation, a reality knowledge
knowledge reducing Alternatively, behind these dependent upon the
phenomena to phenomena create details, subjective research question.
simplest elements sensations which Meanings Focus on practical
are open to motivating applied research,
misinterpretation actions integrating different
(critical realism). perspectives to help
Focus on interpret the data
explaining within a
context or contexts
Axiology: the Research is Research is value Research is value Values play a large
researchers undertaken in a laden; the bound, the role in interpreting
view of the role value-free way, the researcher is biased researcher is part results, the
of values in researcher is by world views, of what is being researcher adopting
research independent of the cultural experiences researched, both objective and
data and maintains and upbringing. cannot be subjective points of
an objective stance These will impact separated and so view
on the research will be subjective
 Data collection Highly structured, Methods chosen Small samples, Mixed or multiple
techniques large samples, must fit the subject in-depth method designs,
most often used measurement, matter, quantitative investigations, quantitative and
quantitative, but or qualitative qualitative qualitative
can use qualitative

Source: Saunders et al., (2009)

Saunders et al.(2009) explore the research philosophies further through the concept research
paradigm and define paradigm as a way of examining social phenomena from which
particular understandings of these phenomena can be gained and explanations attempted.
Four quadrants in the Figure 3.1: indicate the four paradigms, functionalist, interpretive,
radical humanist, and radical structuralist that are arranged to correspond to four conceptual
dimensions called radical change, regulation, subjectivist, and objectivist. Last two
dimensions are the ontological assumptions that were discussed previously and radical
change dimension approaches organizational problems by changing the status quo and the
regulation dimension approaches the organizational problems by maintaining the status quo.

Figure 2: Four Paradigms for the Analysis of Social Theory

Radical change

Radical
Humanist Functionalist

Subjectivist Objectivist

Interpretive Radical
structuralist

Regulation

Source: Saunders et al.(2009)

Methodology is the strategy that translate the ontological and epistemological principles in
the research process activities and how research is conducted and constructed (Tuli,2010;,
p-102) Positivist perspective is the theoretical basis for most quantitative research
methodologies and it uses measurable data to explain human behaviors through highly
standardized tools like questionnaires. In contrast interpretivist perspective is the theoretical
basis for most qualitative research methodologies and it uses data gathering methods that are
sensitive to context and allow participants of the study to speak freely. These methods include
focus group discussions, interviews, and naturalistic observations (Tuli,2010).
Mack (2010) argues that the scientist is the observer of an objective reality under positivism
and therefore the methodology of observation in natural science should be adopted for social
science research. They further suggest that researchers should pursue methodologies that are
consistent with philosophical assumption to which they adhere. This research attempt to
prove that some measurable variable influence some other variables in some way. Therefore
Positivist or quantitative perspective is the most suitable philosophical perspective for this
research and cross sectional descriptive empirical research using a standardized questionnaire
is adopted for the research.

3.1.1. Research Approach

There are two major approaches to research process. If the theory underpinning the research
is readily available in the research design process thouse research could use the deductive
approach in which researcher develop a theory and hypotheses and design a research strategy
to test the hypotheses. In contrast when the theory underpinning the research is not clear at
the beginning of the research process inductive research approach is more suited. Different
research philosophies require deferent approaches and Saunder et al(2009) argue that
deduction relate more to positivism and induction relate more to interpretivism though it is
somewhat misleading.
Robinson (2002 cited in Saunders et al., 2009) identified five sequential stages through which
deductive research will progress.
(1) Deducing a hypothesis from theory
(2) Express the hypothesis in operational terms which proposes a relationship between
specific measurable concepts or variables.
(3) Testing this operational hypothesis
(4) Examining the specific outcomes of inquiry which will either confirm the theory or
propose the need for modification
(5) If necessary, modify the theory in light of findings.
Most important characteristics of deduction is the collection of quantitative data, use of
controls to test the hypothesis, and structured methodology to facilitate replication (Saunders
et al., 2009)
As mention in the previous section research philosophy for this research is positivism. Based
upon this discussion deduction approach is used and further all the variables identified in this
research has been identified by previous researchers and measuring constructs are available in
the marketing literature and therefore the selection of deduction approach is justified.

3.2. Research Design

Descriptive cross sectional research study was carried out to test the formulated hypothesis.
Descriptive research describes the present status of people, attitudes and progress. On the
other hand cross sectional study means that it employs a single point of data collection for
each participant being studied. In a descriptive research it is necessary to have a clear idea of
what kind of data to collect before data collection is started (Saunders et al. 2009). In this
research a clear research model based on literature and variable measuring scales were
readily available. This study was conducted in a narrow time slot and it is a cross sectional
feature of a research. The research strategy adopted for this study is the survey and this
strategy is generally considered to be associated with deductive approach.

3.3. Research Context

Researchers (Bodlaj and Rojsek, 2010) find that Adopting market orientation in less
competitive industry with less technological turbulence is not effective. Banking, leasing, and
insurance industries in Sri Lanka at present is facing huge technologically turbulent
environment in fiercely competition. New internet based models are being introduced by
institutions in these industries to attract new customers and retain current customers. After
thirty years of civil war these services sectors facing boom as lots of development activities
are taking place all over the country. Tourism industry is growing rapidly requiring more
customer focus finance and insurance sector. According to the theory of strategic
management intangible resource are more important than tangible resources in maintaining
competitive advantage especially in the services sector. Most of the finance, leasing, and
insurance firms operating in Sri Lanka have branches in either Western province or southern
Province. Therefore this study is intended to be confined to those two provinces of Sri Lanka.
On the other hand these two provinces represent a significant portion of Sri Lankan economy
and fast growing areas are covered under these geographical limits.

3.3.1. Overview of Financial Service Industry in Sri Lanka

Liberalization of economic activities of Sri Lanka in 1977 has created a competitive

environment for financial services sector. According to the sources of central bank of Sri
Lanka there are One hundred and two financial service institutions registered under various
acts as at today. Among them 19 have been licensed under banking act No. 30 of 1988, 47
have been registered under Finance business act, No. 42 of 2011, 24 institutions have been
incorporated under the companies act No. 07 of 2007, and 22 companies registered under the
regulation of Insurance Industry Act No. 43 of Two thousand. These financial service
institutions are giving very high contribution to the economy with the changing and
advancing of information communication technology infrastructure in Sri Lanka. Innovations
in service offerings are taking place at a very high rate. Introduction of new web based
service offerings play an important role in this respect. Therefore it important to look how
these institutions have adopted these marketing strategies to cope with fast changing
technological infrastructure.

3.3.2. Banking and Finance Sector

During last two decades, advancement of information and communication technology (ICT)
has given ample opportunity for financial service industry to adopt new ICT based business
models. The information super highway, the internet has provided the platform for
implementing new service packages to customers. Introduction of these internet based models
like online banking facilities, introduction of automated teller machines for cash withdrawals
and deposits, internet based payment systems, and introduction of credit card payment
systems have changed the whole industry boundaries and changed the behavior of market
structure by coming new players to the industry while some existing player leaving the sector.
With these new innovative services banks are adopting various strategies to attract and retain
customers and expand business boundaries. Under these conditions these institutions are in
need to maintain customer centricity in every aspects of their business model to get the
sustainable competitive advantage over competitors. These have given the Sri Lankan public
a greater flexibility in financial services. However, the non-banking sector has not kept pace
with such technological developments except for a few large companies.
According to a news paper article appeared in Daily news (23/4/2013) Bank of Ceylon has
been ranked among the top thousand banks by a worlds premier banking and finance
magazine The Banker. It has further reported that brand value of Bank of Ceylon has
increased from Rs. 15.19 billion to 24.15 billion during a year and 62% growth compared to
previous year and having 55% market share in trade finance becoming the market leader in
trade finance. Another recent news paper articles have indicated that Commercial bank PLC
has named best bank in Sri Lanka by a global Finance magazine for 15 consecutive years.
Publisher of global finance magazine Joseph Giarraputo in announcing the winner have
mentioned that these are the banks that are providing best in class solutions for these
distinctive markets. According to Sampath bank corporate website (www.sampath.lk), they
have won the Bank of the year award for year 2009 and 2010 awarded by the banker of
financial times London and Best banking group in Sri Lanka 2012 award by the prestigious
World finance magazine. Based on the information published by these news paper articles,
subjective and objective criteria have been used for choosing the winners. Subjective criteria
include the opinion of the equity analyst, credit ranking analysts, banking consultants and
others involved in the industry and objective criteria include the growth in assets,
profitability, strategic relationships, customer service, competitive pricing and innovative
products. Market orientation literature suggests that these criteria components include key
attributes of business performance, Responsive market orientation, Market driving, and
innovation.

3.3.3. Insurance Sector

According to Sri Lankan central bank sources the insurance sector accounts for about 3 per
cent of the total assets of the financial sector, while there are 22 insurance companies
registered by the Insurance Board of Sri Lanka (IBSL). Of these, 21 companies are currently
in operation. A total of 12 companies are composite insurers engaged in both long-term and
general insurance business, while 6 companies engage exclusively in general insurance
business and 3 companies conduct only long - term insurance business. There are 7 insurance
companies that are listed on the Colombo Stock Exchange (CSE).
The main innovative services introduced by insurance industry players in Sri Lanka during
last few years is the on the spot insurance claim settlement and formation of strategic
alliances with other related and non related institutions to gain synergies. Formation of
strategic alliances has also become a key strategy adopted by insurance firms. Examples of
innovative service offerings strategic alliances formed by insurance companies are presented
below.
Incident 1; According to official web site of Asian Alliance, Asiri hospitals and Asian
Alliance Insurance have collaborated to emerge with Asiri Alliance Medical, which offers
attractive medical insurance solutions to cover customer needs in a comprehensive manner.
Asiri Alliance Medical makes history as the first stand-alone, annually renewable medical
insurance solution to offer a multitude of health care benefits to individuals - with an
emphasis on pre & post hospitalization benefits and day care surgeries.

Incident 2; According to the information provided by the Ceylinco Insurance official web site
EZ Pay revolutionised the On the Spot claim settlement methodology further, guaranteeing
speed and safety. All customers had to do to register was fill in a simple form at any Ceylinco
VIP Branch, and they were handed a VISA ATM Debit Card from NDB Bank, where an
account was immediately created for them. In any accident, from then on, the claim would be
paid instantly, via electronic transfer to the said account, at any time of the day or night. The
funds could be accessed through the VISA Debit Card, which could also be used to pay for
goods and services. The innovation guaranteed speed in the settlement of claims, while
ensuring the safety of the customer and the VIP representative, neither of whom had to carry
around large sums of money.

Incident 3: Standard Chartered Bank and Eagle Insurance has made a bancassurance
partnership agreement to provide greater financial flexibility and control with the security of
insurance. With this strategic tie-up, Standard Chartered Bank was able to cater to all the
financial needs of their customers under one roof. They also have introduced innovative
products like InvestPlus and LifeLong for the bank customers. The products are underwritten
by Eagle Insurance, an Aviva company, and one of the leading insurance providers in the
country according to the standard chartered bank sources.

The products are designed to allow customers flexibility to select their fund options Secure,
Growth, Balanced, and Protected depending on their individual risk appetite. The product
features include life cover, accident cover, and critical illness cover and provides the ideal
blend of security and long-term savings. This particular product range from Eagle Insurance
is currently available exclusively for Standard Chartered Bank customers in Sri Lanka.
Incident 4: In announcing the partnership with national savings bank former Managing
director and CEO Sri Lanka Insurance, Mohan De Alwis, has noted that Sri Lanka
Insurance is indeed pleased to partner with National Savings Bank in this venture to offer
unique insurance solutions through the banks network. He also has added that the changing
socio economic demographics across the world have redefined the goal of insurance as not
only risk armour but also as a disciplined savings instrument.

This statement clearly shows that industry boundaries of insurance sector are changing with
the proactive behaviors of industry players. These financial institutions have been able to
harness the positive synergies of alliances.

What has been indicated by the criterias for judging these achievements some of the banking
institutions, introduction of innovative service offerings by banking and insurance firms, and
formation of strategic alliances is that these institutions are highly involved in market
sensing, shaping customer preferences, and alliance formation activities. According to the
literature on market driving these activities constitute the market driving construct.(Barlow
and Sarin,2003; Vuuren and Wogotter,2013; Jaworski et al.,2000). In addition as mention in
the previous section these institutions are showing market oriented behaviors as well.
According the resource based view of strategic management; Market orientation, Market
driving ability, and innovativeness are two important strategic resources that will provide
edge over competitors. Market oriented firms lead to high level of customer satisfaction and
hence the repeat purchase behavior will in turn provide more sales and high ROA. In this
case market oriented means both responsive market orientation and market driving behaviors.
Innovation on the other hand will lead to high new product success which allows the firms to
charge high prices. Researchers have found positive relationship between firm performance
and innovation Agarawal et al.(2003), firm performance and market orientation (Narver and
Slater, 1990; Kohli and Jaworski, 1990), market driving and performance (Consuegra et
al.,2008). However there is a gap in the literature how these three important variables are
interacted each other and how they impact market performance of service firms. It is
therefore important to study responsive market orientation and market driving in single study
since there are contradictory views in the market orientation literature about interplay
between these two approaches.
 3.4. Population and Sampling Method
Key respondent technique has been used by researchers when the survey instrument applied
for the study is a specialized one (Consuegra et al., 2008). Survey instruments used in this
study was also a specialized one and hence the Population for the study was branch managers
and executives of all banking, leasing, and insurance, other financial service establishments
registered in Sri Lanka through various parliamentary Acts. According to central bank of Sri
Lanka there are about two hundred such institutions operating in Sri Lanka, of which a
branch is situated in southern province. It was assumed that branch managers are able to
assess the firms responsive market orientation and market driving orientation, as well as their
innovation and organizational performance in subjective sense. Argarawal et al. (2003) has
suggested the necessity of obtaining perception from multiple respondents for each firm. In
line with this suggestion it was expected to obtain three responses from each firm. Simple
random sampling method was used in selecting respondents.

3.5. Data Collection Method

Two methods were adopted in administering the questionnaire in this study. One was self
administered or delivery and collection questionnaire and the other was internet administered
questionnaire. In first method hard copy of the questionnaires were personally delivered to
the respondents and personally collected. Managers of randomly selected financial service
institutions were contacted personally or through e-mail and questionnaires were delivered.
Here follow-up telephone calls were given to the responding managers to increase the
response rate. In the second method a web based questionnaire was send to the respondents
though an email message as a web link. There had been difficulties in sending web links
through e-nails to some of responding managers as some company firewalls did not allow
web link to be accessed through e-mails by their employees. Because of this reason high
percentage of questionnaires were delivered personally.

3.5.1. Questionnaire Design

The design of a questionnaire depends on how it is administered and, in particular, the
amount of contact the researcher has with the respondents. Self-administered questionnaires
are completed by the respondents and there are different methods of administering the
questionnaire to the respondents. The questionnaires that are administered electronically
using the Internet is called Internet-mediated questionnaires and the questionnaires that are
posted to respondents who return them by post after completion is called postal or mail
questionnaires. The questionnaires that are delivered by hand to each respondent and collect
later are called delivery and collection questionnaires. The methods adopted for this study
was self administered and internet mediated.
There are two major objectives in designing a questionnaire. One is to maximize the number
of respondents answering the questionnaire, in other words, to increase the response rate. The
second major objective is to obtain accurate and relevant information for the study (Leung,
2001). In order to achieve above objectives simple questions were asked from the respondent
including one information at a time. Close ended questions were used to maintain the
uniformity of answers and making the answering easy. The other important factor in
designing questionnaire is that it should be able to measure what is intended to measure. This
is called internal validity of questionnaire. To fulfill this requirement the questions were
adopted from previous researches.

3.5.2. The Covering Letter

Self administered questionnaire used in this study was accompanied by a covering letter to
inform the important things to the respondent. They are namely (1) purpose of the survey
(2) approximate time needed to complete the questionnaire (3) giving assurance to the
respondent of confidentiality and valuing the help given.

Dillmen (2007 cited in Saunders et al., 2009) stated that the massage contain in a self
administered questionnaires covering letter will affect the response rate.

3.5.3. Questionnaire Translation

Saunders et al.(2009) describe four methods of translating a questionnaire from one language
to another as shown in the table 3.2 and this study adopt direct translation method as it is
cheaper and easy. English to Sinhala sworn translator was employed for that purpose.

Table 3: Questionnaire translation methods

Direct Back-translation Parallel Mixed

translatio translation techniques
n
ch Approa

Source Source questionnaire to Source questionnaire to Back-translation

questionnaire target questionnaire to target questionnaire by undertaken by two or
to target source questionnaire; two or more more independent
questionnaire comparison of two new independent translators translators; comparison
 es Advantag Easy to Likely to discover most Leads to good wording Ensures best match
implement, problems of target questionnaire between source and
relatively target questionnaires
inexpensive
Disadva

Can lead to Requires two Cannot ensure that Costly, requires two or
many translators, one a native lexical, idiomatic and more independent
discrepancies speaker of the source experiential meanings translators. Implies that
(including language, the other a are kept in target the source

Source: Saunders et al.(2009, p-385)

ntages

3.6. Measurements

3.6.1. Dependent Variable - Organizational performance

Organizational performance for this study is define as financial and non financial measures of
performance including long term, short term, cost based, revenue based, and overall financial
measures and customer retention, market share, and customer acquisition as non financial
measures. This study follows Camarero (2007) and Hernaus et al.(2012) to measure
organizational performance and five items were taken from Camarero (2007) and seven items
were taken from Hernaus et al.(2012) and presented in table 3-3. Their cronbatchs alphas
were 0.863 and 0.85 respectively. Five point likert scale (1=Strongly Agree 5=Strongly
Disagree) will be used to measure the items.
Table 4: Construct items of Organizational Performance

Construct Dimension Item Author

Organizational OrganizationalGrowth of our market share is higher Camarero ( 2007)

performance performance than competitors
Volume of trade with some customers
(1=SD and 5 = has increased
SA) Global benefits of our company has
increased
Competitive position of our company
has improved
Cost to income ratio of our company is
significantly less than industry average
Return on assets (ROA) of the firm is Hernuas et al.
significantly higher than industry (2012)
average.
Profitability of the company increases
faster than industry average
Value added per employee is
significantly higher than industry
average
Rate of customer retention of our
company is higher than competitors
Rate of attracting new clients are
higher than competitors
Quality of our services are better than
competitors
 Response time to customer complaints
is well above the industry average

Source: Developed by the author for this study (2013)

3.6.2. Mediating Variables

3.6.2.1. Radical Innovation

This study follows Jenson et al. (2006) to measure radical innovation. Radical innovation
scale consists of 7 items and cronbatchs alpha is 0.86. Five point likert scale (5=Strongly
Agree and 1= Strongly Disagree) was used to measure the items.

Table 5: Construct items of Radical Innovation

Construct Dimension Item Author

Innovation Radical We accepts demands that go beyond Jenson et al.
Innovation existing services (2006)
We invent new services
(1=SD and We experiment with new services in
5=SA) our local market
We commercialize services that are
completely new to our unit
We frequently utilize new
opportunities in new markets
We regularly uses new distribution
channels
We regularly search for new clients in
new markets

3.6.2.2. Incremental Innovation

This study follows Jenson et al. (2006) to measure incremental innovation. Incremental
innovation scale consists of 7 items and cronbatchs alpha is 0.77. Five point likert scale (5=
Strongly Agree and 1 = Strongly Disagree) was used to measure the items.
Table 6: Construct items of Incremental Innovation

Construct Dimension Item Author

Incremental We frequently refine the provision of Jenson et al.
Innovation existing services (2006)
We regularly implement small
(1=SD and adaptations to existing services
5=SA) We introduce improved, but existing
services for our local market
We improve our provisions
efficiency of services
We increase economies of scales in
existing markets
We expands services for existing
clients
We consider lowering costs of
internal processes is an important
objective

Source: Developed by the author for this study (2013)

3.6.2.3. Shaping Market Structure

Based on the previous literature review we define market driving as proactive behaviors
aiming at radical changes to market structure and market behavior. Market driving scale
consist of two dimensions namely shaping market structure and shaping market behavior and
follow Consuegra et al. (2008) and Vuuren and Worgotter(2013) to measure them. Shaping
market structure scale consist of 8 items of which 6 items were adopted from Consuegra et al.
(2008) and 2 items were adopted from Vuuren and Worgotter(2013). Their cranbatchs alphas
were 0.89 and 0.85 respectively. Five point likert scale (5=Strongly Agree and 1= Strongly
Disagree) was used to measure the items.

Table 7: Construct items of Shaping Market Structure

Construct Dimension Item Author

Market Shaping the We substitute the traditional channels Consuegra et
driving market for direct sale through the internet. al.,2008)
We develop collaboration of other
Structure
companies offering complimentary
(1=SD and
services jointly with the main
5=SA)
services.
We carry out an offer of
complimentary benefits through the
integration into the company of other
services or through joint ventures
We promote the creation of barriers
in the financial service industry
against whichever competitor
We develop new ways of doing
business which could influence the
behaviors of competitors.
We modify the current market
strategies in order to force a change
in the actions of competitors.
We have benefited a lot from our Vuuner and
alliances to run our business Worgotter(2013)
successfully
We have a process that allows us to
evaluate benefits of alliance options
 for our firm

3.6.2.4. Shaping Market Behavior

This study follows Consuegra et al. (2008) and Vuuren and Worgotter(2013) to measure the
Shaping market behavior and the scale consist of 9 items of which 5 items were adopted
from Consuegra et al.(2008) and 4 items were adopted from Vuuren and Worgotter(2013) and
their cronbatchs alphas were 0.89 and 0.84 respectively. Five point likert scale (5=Strongly
Agree and 1= Strongly Disagree) was used to measure the items.

Table 8: Construct Items of Shaping Market Behavior

Shaping the We adapt conditions of purchase to Consuegra et

Market individual customer characteristics al.,2008)
We establish special conditions in
Behavior
order to modify the behavior of
(1=SD and
customers in the direction desired by
5=SA)
the company.
We develop new advantages for
clients in relation to existing services.
We modify the perception of clients
about the current financial service
industry.
We continuously monitor clients Vuuner and
complaints about services that our Worgoter(2013)
firm offers
We change clients preferences by
offering services that have not been
available before
We constantly deliver exceptional
services that outperform the services
delivered by competitors
We regularly inform our clients about
our developments regarding new
services, market trends etc

Source: Developed by the author for this study (2013)

 3.6.3. Independent Variable

Based on the previous literature review we define responsive market orientation as the set of
behaviors that directed at creating and satisfying customers through continuous need
assessment. Study follows Narver et al. (2004) in measuring Responsive market orientation.
This scale consists of 7 items and cronbatch alpha is 0.822. Five point likert scale
(5=Strongly Agree 1=Strongly Disagree) will be used to measure the items of the construct.

Table 9: Construct items of Responsive Market Orientation

Construct Dimension Item Author

Responsive Responsive We constantly monitor our level of Narver et al.(2004)
Market Market commitment to serving customer needs.
We freely communicate information about
Orientation Orientation
our successful customer experiences
(1=SD and
across all business functions
5=SA)
We freely communicate information about
our unsuccessful customer experiences
across all business functions
We strategize our competitive advantage
based on our understanding of customers
needs
We measure customer satisfaction
frequently.
We are more customer focused than our
competitors.
We believe this business exists primarily
to serve customers.
We disseminate Data on customer
satisfaction at all levels in this business
unit on a regular basis.

Source: Developed by the author for this study (2013)

 3.1. Data Analysis Methods
Structural equation modeling (SEM) was used in this study to assess the predictive power of
theoretical model of the research and testing of formulated hypothesis. One technique of
SEM, partial least square technique using Smart PLS version 2 is the statistical technique
used in this study.
Individual item reliability of constructs was assessed using standardized factor loadings and t-
values. Internal consistencies of the constructs were examined using the composite reliability
index. Discriminant validity indicates the extent to which a given construct is different from
other latent constructs. Fornel and Larcker(1981) has suggested to use the average variance
extracted(AVE) in evaluating discriminant validity of constructs. They have futher suggested
that a score of 0.5 for AVE is acceptable. AVE scores were used in this study to evaluate
discriminant validity of constructs. Path coefficients of the structural model with their t-
values were used to test the formulated hypotheses. Bootstrap analysis was used to obtain the
t-values of path coefficients which give the level of significance of relationships.
Blindfolding procedure of smart PLS software was used to calculate the cross validated
redundancy Q2 which is a measure predictive relevance of constructs. f2 effect size and q2
effect size values were calculated to assess the SPSS software package was also used to
check frequency statistics of demographic variables.
 CHAPTER FOUR

4. Data Analysis

4.1. Response Rate

Out of 315 questionnaires delivered 15 were delivered as a web based questionnaire and the
remaining 300 questionnaires were distributed personally. Table 4.1 shows the details of
delivered, collected, rejected, and usable questionnaires and the response rate from each
method. According to the data given in the table 4.1 response rate from web based
questionnaire was 20% indicating low figure while personally delivered and collected
response rate was high at 50.66% and overall response rate is 49% and is acceptable.
Table 10: Survey Response Rates

Data Delivered Collected Rejected Usable Response

collection Questionnaires Questionnaires Questionnaires Questionnaires rate
Method
Web 15 3 Nill 3 20.00%
based
Personally 300 155 3 152 50.66%
distributed
Total 315 158 3 155 49.21%
Source: Developed by the author for this study (2013)

4.2. Demographic Data

Table 4.2 shows the analysis of demographic data of respondents and according to the data
given in that table 94% of respondents were males and 6% were females. Forty seven percent
responding managers were having advance level plus other qualifications. Remaining 53%
were at least having bachelors degree and only 10% was having master level or above
qualification. Thirty five percent of the respondents were having experience of more than 15
years in the financial services sector while 17% were having less than 5 years of experience.
Table 11: Demographic data of Respondents

Variable Frequency Percentage

Gender
Male 145 94%
Female 10 6%
Level of Education
AL+ Other qualification 73 47%
Bachelors degree 22 14%
Bachelors degree + other Qualification 45 29%
Master Level or above 15 10%
Position Held
Administrative officer 4 3%
Branch manager 108 70%
Assistant manager 7 4%
Branch Executive 4 3%
Investment Advisor 15 10%
Credit Officer 17 11%

Years of Experience
0-5 years 26 17%
5-10 years 15 10%
10-15 years 60 38%
15 or above 54 35%
Source: Developed by the author for this study (2013)

4.3. Background Information of the Industry

Table 4.3 shows type of business of organizations responded and among 155 valid responses
26% represent licensed finance companies, 19% insurance companies, 14% authorized
primary dealers, and other 41% represent all other institutions in financial services sector.
Eighty seven percent of responded organizations were private sector ones while remaining
17% represent government sector as shown in table 4.3.1.table 4.3.2 presents the size of
organizations responded and 41% were of large category and 43% fell under medium
category and rest were small ones. Table 4.3.3 present the period in which the responded
organizations were established. According to that 25% have been established during 1960 to
1980 and 50% during 1980 and 2000 and the rest during 2000 and 2012.

Table 12: Type of Business of Responded Organizations

Type of Business Frequency Percentage

Authorized primary dealer/Unit thrust 22 14%
Licensed specialized bank 3 2%
Licensed commercial bank 18 12%
Licensed finance company 40 26%
Insurance company 30 19%
Savings bank 5 3%
Development bank 5 3%
Leasing company 25 16%
Merchant bank 2 2%
Venture capital company 5 3%
Total 155 100%
Source: Developed by the author for this study (2013)

Figure 3: Cross Section of Organizations Responded

 Cross Section of Organizations responded

Authorized Primary
Dealers/Unit Thrusts
Licensed Specialized Banks
Licensed Commercial Banks
Licensed Finance Companies
Insurance Companies

Savings Banks
Development Banks
Leasing Companies
Merchant bank
Venture Capital Companies

Source: Developed by the author for this study (2013)

Table 13: Ownership of Responded Organizations

Ownership Frequency Percentage

Government 20 13%
Private 135 87%
Source: Developed by the author for this study (2013)

Table 14: Size of responded organizations

Size Frequency Percentage

Large 64 41%
Small 67 43%
Medium 24 16%
Source: Developed by the author for this study (2013)

Table 15: Age of Responded Organizations

Established year range Frequency Percentage

From 1960 to 1980 39 25%
From 1980 to 2000 77 50%
From 2000 to 2012 39 25%
(Source: Developed by the author for this study)

4.4. Measurement Model

4.4.1. Confirmatory Factor Analysis for Original Model

A confirmatory factor analysis was carried out on the data to verify unidimensionality and
reliability of each measurement scale of variables. Smart PLS software package was used in
this study for analysis. Standardized factor loadings and t-values of each item and the
composite reliability and AVE value of each construct is presented in table 4.4.1. Original
model showed satisfactory fit. Following the guide lines of Bagozzi et al.(1991) items with
factor loadings of less than 0.6 were deleted from original model reproduced model was
analyzed for uni-dimensionality and reliability and presented in table 4.4.2.
Responsive market Orientation Construct; Original responsive market orientation model
had eight items and confirmatory factor analysis (CFA) results is shown in the table 4.4.1 and
model shows composite reliability (CR) of 0.77 and average variance extracted (AVE) of 0.36
indicating satisfactory fit. Factor loading and t-value of Item one which states that we
constantly monitor our level of commitment to serving customer needs are 0.70 and 15.80
respectively and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item two which state that we freely communicate information
about our successful customer experiences across all business functions is 0.07 and 0.57
respectively and is well below the threshold value and decided to delete it from original
construct. Factor loading and t-value of item three which state that we freely communicate
information about our unsuccessful customer experiences across all business functions is
0.03 and 0.21 and is well below the threshold value and decided to delete it from original
construct. . Factor loading and t-value of item four which state that we strategize our
competitive advantage based on our understanding of customers needs is 0.40 and 4.43
respectively and is well below the threshold value and decided to delete it from original
construct. Factor loading and t-value of item five which states that we measure customer
satisfaction frequently are 0.68 and 9.85 respectively and exceeds the threshold value of 0.6
and decided to keep it with the construct. . Factor loading and t-value of item six which states
that we are more customer focused than our competitors are 0.79 and 22.68 respectively and
exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item seven which states that we believe this business exists primarily to serve
customers are 0.68 and 8.35 respectively and exceeds the threshold value of 0.6 and decided
to keep it with the construct. Factor loading and t-value of item eight which states that we
disseminate data on customer satisfaction at all levels in this business unit on a regular basis
are 0.68 and 8.35 respectively and exceeds the threshold value of 0.6 and decided to keep it
with the construct
Radical Innovation Construct; Original radical innovation model had seven items and
confirmatory factor analysis (CFA) results is shown in the table 4.4.1 and model shows
composite reliability (CR) of 0.85 and average variance extracted (AVE) of 0.48 indicating
satisfactory fit. Factor loading and t-value of item one which states that we accepts demands
that go beyond existing services are 0.09 and 0.84 respectively and is well below the
threshold value and decided to delete it from original construct. Factor loading and t-value of
item two which states that we invent new services are 0.80 and 13.61 respectively and
exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item three which states that we experiment with new services in our local
market are 0.75 and 15.15 respectively and exceeds the threshold value of 0.6 and decided to
keep it with the construct. Factor loading and t-value of item four which states that we
commercialize services that are completely new to our unit are 0.75 and 16.42 respectively
and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item five which states that we frequently utilize new
opportunities in new markets are 0.68 and 9.35 respectively and exceeds the threshold value
of 0.6 and decided to keep it with the construct. Factor loading and t-value of item six which
states that we regularly uses new distribution channels are 0.74 and 14.25 respectively and
exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item seven which states that we regularly search for new clients in new
markets are 0.75 and 17.24 respectively and exceeds the threshold value of 0.6 and decided to
keep it with the construct.
Incremental Innovation Construct; Original incremental innovation model had seven items
and results of confirmatory factor analysis (CFA) is shown in the table 4.4.1 and model
shows composite reliability (CR) of 0.84 and average variance extracted (AVE) of 0.44
indicating satisfactory fit. Factor loading and t-value of item one which states that we
frequently refine the provision of existing services are 0.79 and 24.94 respectively and
exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item two which states that we regularly implement small adaptations to
existing services are 0.68 and 9.98 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item three which states
that we introduce improved, but existing services for our local market are 0.69 and 7.96
respectively which exceeds the threshold value of 0.6 and decided to keep it with the
construct. Factor loading and t-value of item four which states that we improve our
provisions efficiency of services are 0.83 and 19.42 respectively and exceeds the threshold
value of 0.6 and decided to keep it with the construct. Factor loading and t-value of item five
which states that we increase economies of scales in existing markets are 0.56 and 7.85
respectively and is equal to the threshold value of 0.6 and decided to keep it with the
construct. Factor loading and t-value of item six which states that we expands services for
existing clients are 0.61 and 6.45 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct.
Factor loading and t-value of item seven which states that we consider lowering costs of
internal processes is an important objective are 0.42 and 3.57 respectively and is well below
the threshold value of 0.6 and decided to delete it from original construct.
Shaping Market Behavior Construct; Original shaping market behavior model had eight
items and results of confirmatory factor analysis (CFA) is shown in the table 4.4.1 and model
shows composite reliability (CR) of 0.82 and average variance extracted (AVE) of 0.37
indicating satisfactory fit. Factor loading and t-value of item one which states that we adapt
conditions of purchase to individual customer characteristics are 0.32 and 2.17 respectively
and is well below the threshold value of 0.6 and decided to delete it from original construct.
Factor loading and t-value of item two which states that we establish special conditions in
order to modify the behavior of customers in the direction desired by the company are 0.69
and 11.93 respectively and exceeds the threshold value of 0.6 and decided to keep it with the
construct. Factor loading and t-value of item three which states that we develop new
advantages for clients in relation to existing services are 0.78 and 19.01 respectively and
exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item four which states that we modify the perception of clients
about the current financial service industry are 0.58 and 7.39 respectively and is equal to the
threshold value of 0.6 and decided to keep it with the construct. Factor loading and t-value of
item five which states that we continuously monitor clients complaints about services that
our firm offers are 0.61 and 10.05 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item six which states that
we change clients preferences by offering services that have not been available before clients
are 0.57 and 8.95 respectively and is equal to the threshold value of 0.6 and decided to keep it
with the construct. Factor loading and t-value of item seven which states that we constantly
deliver exceptional services that outperform the services delivered by competitors clients are
0.62 and 7.82 respectively and exceeds the threshold value of 0.6 and decided to keep it with
the construct. Factor loading and t-value of item eight which states that we regularly inform
our clients about our developments regarding new services, market trends, etc are 0.59 and
7.38 respectively and is equal to the threshold value of 0.6 and decided to keep it with the
construct.
Shaping market Structure Construct; Original shaping market structure model had eight
items and results of confirmatory factor analysis (CFA) is shown in the table 4.4.1 and model
shows composite reliability (CR) of 0.79 and average variance extracted (AVE) of 0.32
indicating satisfactory fit. Factor loading and t-value of item one which states that we
substitute the traditional channels for direct sale through the internet are 0.48 and 3.76
respectively and well below the threshold value of 0.6 and decided to delete it from original
construct. Factor loading and t-value of item two which states that we develop collaboration
of other companies offering complimentary services jointly with the main services are 0.63
and 5.84 respectively and exceeds the threshold value of 0.6 and decided to keep it with the
construct. Factor loading and t-value of item three which states that we carry out an offer of
complimentary benefits through the integration into the company of other services or through
joint ventures are 0.53 and 3.86 respectively and well below the threshold value of 0.6 and
decided to delete it from original construct. Factor loading and t-value of item four which
states that we promote the creation of barriers in the financial service industry against
whichever competitor are 0.54 and 5.66 respectively and well below the threshold value of
0.6 and decided to delete it from original construct. Factor loading and t-value of item five
which states that we develop new ways of doing business which could influence the behaviors
of competitors are 0.51 and 5.80 respectively and well below the threshold value of 0.6 and
decided to delete it from original construct. Factor loading and t-value of item six which
states that we modify the current market strategies in order to force a change in the actions of
competitors are 0.46 and 5.39 respectively and is well below the threshold value of 0.6 and
decided to delete it from original construct. Factor loading and t-value of item seven which
states that we have benefited a lot from our alliances to run our business successfully are 0.71
and 10.02 respectively and exceed the threshold value of 0.6 and decided to keep it with the
construct. Factor loading and t-value of item eight which states that we have a process that
allows us to evaluate benefits of alliance options for our firm are 0.62 and 6.73 respectively
and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Organizational Performance Construct; Original organizational performance model had
twelve items and results of confirmatory factor analysis (CFA) is shown in the table 4.4.1 and
model shows composite reliability (CR) of 0.92 and average variance extracted (AVE) of 0.49
indicating satisfactory fit. Factor loading and t-value of item one which states that growth of
our market share is higher than competitors are 0.80 and 20.35 respectively and exceeds the
threshold value of 0.6 and decided to keep it with the construct. Factor loading and t-value of
item two which states that volume of trade with some customers has increased are 0.46 and
4.60 respectively and well below the threshold value of 0.6 and decided to delete it from
original construct. Factor loading and t-value of item three which states that global benefits
of our company has increased are 0.67 and 8.79 respectively and exceeds the threshold value
of 0.6 and decided to keep it with the construct. Factor loading and t-value of item four which
states that competitive position of our company has improved are 0.69 and 12.15 respectively
and exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor
loading and t-value of item five which states that cost to income ratio of our company is
significantly less than industry average are 0.78 and 18.24 respectively and exceeds the
threshold value of 0.6 and decided to keep it with the construct. Factor loading and t-value of
item six which states that return on assets (ROA) of the firm is significantly higher than
industry average are 0.46 and 5.51 respectively and well below the threshold value of 0.6 and
decided to delete it from original construct. Factor loading and t-value of item seven which
states that profitability of the company increases faster than industry average are 0.73 and
13.39 respectively and exceeds the threshold value of 0.6 and decided to keep it with the
construct. Factor loading and t-value of item eight which states that value added per
employee is significantly higher than industry average are 0.81 and 21.13 respectively and
exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item nine which states that rate of customer retention of our company is higher
than competitors are 0.74 and 16.34 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item ten which states that
rate of attracting new clients are higher than competitors are 0.78 and 19.86 respectively and
exceed the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item eleven which states that quality of our services are better than
competitors are 0.73 and 12.90 respectively and exceed the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item twelve which states
that response time to customer complaints is well above the industry average are 0.60 and
19.66 respectively and is equal to the threshold value of 0.6 and decided to keep it with the
construct.
Table 16: Confirmatory Factor Analysis of Constructs for Original Model

Constructs and indicators Standardized Composite

Factor Loadings Reliability/AVE
(t Value)
Responsive Market Orientation (RMO)
We constantly monitor our level of commitment to .70(15.80)
serving customer needs.
We freely communicate information about our .07(0.57)*
successful customer experiences across all business
functions
We freely communicate information about our .03(0.21)* .77/0.36
unsuccessful customer experiences across all business
functions
We strategize our competitive advantage based on .40(4.43)*
our understanding of customers needs
We measure customer satisfaction frequently. .68(9.85)
We are more customer focused than our competitors. .79(22.68)
We believe this business exists primarily to serve .68(8.35)
customers.
We disseminate data on customer satisfaction at all .81(15.80)
levels in this business unit on a regular basis.
Radical Innovation (RADIN)
We accepts demands that go beyond existing services .09(0.84)*
We invent new services .80(13.61)
We experiment with new services in our local market .75(15.15)
We commercialize services that are completely new to .75(16.42)
our unit
We frequently utilize new opportunities in new .68(9.35)
markets .85/0.48
We regularly uses new distribution channels .74(14.25)
We regularly search for new clients in new markets .75(17.24)
Incremental Innovation (INCIN)
We frequently refine the provision of existing services .79(24.94)
We regularly implement small adaptations to existing .68(9.98)
services
We introduce improved, but existing services for our .69(7.96)
local market
.84/0.44
We improve our provisions efficiency of services .83(19.42)
We increase economies of scales in existing markets .56(7.85)
We expands services for existing clients .61(6.45)
 We consider lowering costs of internal processes is an .42(3.57)*
important objective
Shaping Market behavior (SMB)
We adapt conditions of purchase to individual .32(2.17)*
customer characteristics
We establish special conditions in order to modify the .69(11.93)
behavior of customers in the direction desired by the
.82/0.37
company.
We develop new advantages for clients in relation to .78(19.01)
existing services.
We modify the perception of clients about the current .58(7.39)
financial service industry.
We continuously monitor clients complaints about .61(10.05)
services that our firm offers
We change clients preferences by offering services .57(8.95)
that have not been available before
We constantly deliver exceptional services that .62(7.82)
outperform the services delivered by competitors
We regularly inform our clients about our .59(7.38)
developments regarding new services, market trends
etc

Shaping market Structure (SMS)

We substitute the traditional channels for direct sale .48(3.76)*
through the internet.
We develop collaboration of other companies offering .63(5.84)
.79/0.32
complimentary services jointly with the main services.
We carry out an offer of complimentary benefits .53(3.86)*
through the integration into the company of other
services or through joint ventures
We promote the creation of barriers in the financial .54(5.66)*
service industry against whichever competitor
We develop new ways of doing business which could .51(5.80)*
influence the behaviors of competitors.
We modify the current market strategies in order to .46(5.39)*
force a change in the actions of competitors.
We have benefited a lot from our alliances to run our .71(10.02)
business successfully
We have a process that allows us to evaluate benefits .62(6.73)
 of alliance options for our firm
Organizational Performance (OP)
Growth of our market share is higher than competitors .80(20.35)
Volume of trade with some customers has increased .46(4.90)*
Global benefits of our company has increased .67(8.79)
Competitive position of our company has improved .69(12.15)
Cost to income ratio of our company is significantly .78(18.24)
less than industry average
Return on assets (ROA) of the firm is significantly .46(5.51)* .92/0.49
higher than industry average.
Profitability of the company increases faster than .73(13.39)
industry average
Value added per employee is significantly higher than .81(24.13)
industry average
Rate of customer retention of our company is higher .74(16.34)
than competitors
Rate of attracting new clients are higher than .78(19.86)
competitors
Quality of our services are better than competitors .73(12.90)
Response time to customer complaints is well above .60(9.66)
the industry average

Source: Developed by the author for this study (2013)

Table 17: Goodness of Fit Index for Original Model

Source: Developed by the author for this study (2013)

 4.4.2. Confirmatory Factor Analysis for Reproduced Model

A confirmatory factor analysis was carried out on the reproduced model to verify
unidimensionality and reliability of each measurement scale of variables. Smart PLS software
package was used in this study for analysis. Standardized factor loadings and t-values of each
item and the composite reliability and AVE value of each construct of reproduced model is
presented in table 4.4.2. Reproduced model was obtained after deleting the items with low
factor loadings from original model following the guide lines of Bagozzi et al.(1991) that
specify the threshold value of standardized factor loadings of items. Total of thirteen items
representing three items from responsive market orientation construct, one item from radical
innovation construct, one item from incremental innovation model, one item from shaping
market behavior, five items from shaping market structure, and two items from organization
performance were deleted from original model to improve the reliability of model.
Convergent validity of reproduced scales was assessed using Goodness of fit index (GFI) and
the calculation of GFI was presented in table 4.4.3 and was equal to.0.46. Discriminant
validity of scales were assessed using procedure suggested by Fornel and Larcker(1981) and
presented in table 4.4.4 and show diagonal values are higher than their row and column
values indicating good fit .
Responsive market Orientation Construct; CFA was performed on the reproduced model
after deleting three items which were less reliable from original responsive market orientation
model. The results of the confirmatory factor analysis with standardized factor loadings, t-
vales of each item and composite reliability (CR) and average variance extracted (AVE) of
each construct is shown in the table 4.4.2 and model shows composite reliability (CR) of 0.86
and average variance extracted (AVE) of 0.55 indicating improved fit of measurement model
of responsive market orientation. Factor loading and t-value of Item one which states that we
constantly monitor our level of commitment to serving customer needs are 0.70 and 18.88
respectively and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item two which states that we measure customer satisfaction
frequently are 0.64 and 9.00 respectively and exceeds the threshold value of 0.6 and decided
to keep it with the construct. . Factor loading and t-value of item three which states that we
are more customer focused than our competitors are 0.79 and 22.3 respectively and exceeds
the threshold value of 0.6 and decided to keep it with the construct. Factor loading and t-
value of item four which states that we believe this business exists primarily to serve
customers are 0.70 and 8.97 respectively and exceeds the threshold value of 0.6 and decided
to keep it with the construct. Factor loading and t-value of item five which states that we
disseminate data on customer satisfaction at all levels in this business unit on a regular basis
are 0.85 and 23.90 respectively and exceeds the threshold value of 0.6 and decided to keep it
with the construct
Radical Innovation Construct; CFA was performed on the reproduced model after deleting
one item which was less reliable from original radical innovation model. The results of the
confirmatory factor analysis with standardized factor loadings, t-vales of each item and
composite reliability (CR) and average variance extracted (AVE) of each construct is shown
in the table 4.4.2 and shows composite reliability (CR) of 0.88 and average variance extracted
(AVE) of 0.56 indicating improved fit of measurement model of radical innovation. Factor
loading and t-value of item one which states that we invent new services are 0.79 and 11.61
respectively and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item two which states that we experiment with new services in
our local market are 0.76 and 15.80 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item three which states
that we commercialize services that are completely new to our unit are 0.75 and 15.10
respectively and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item four which states that we frequently utilize new
opportunities in new markets are 0.68 and 8.34 respectively and exceeds the threshold value
of 0.6 and decided to keep it with the construct. Factor loading and t-value of item five which
states that we regularly uses new distribution channels are 0.74 and 14.78 respectively and
exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item six which states that we regularly search for new clients in new markets
are 0.76 and 19.30 respectively and exceeds the threshold value of 0.6 and decided to keep it
with the construct.
Incremental Innovation Construct; CFA was performed on the reproduced model after
deleting one item which was less reliable from original incremental innovation model. The
results of the confirmatory factor analysis with standardized factor loadings, t-vales of each
item and composite reliability (CR) and average variance extracted (AVE) of each construct
is shown in the table 4.4.2 and shows composite reliability (CR) of 0.85 and average variance
extracted (AVE) of 0.49 indicating improved fit of measurement model of radical innovation.
Factor loading and t-value of item one which states that we frequently refine the provision of
existing services are 0.79 and 22.80 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item two which states that
we regularly implement small adaptations to existing services are 0.69 and 10.28 respectively
and exceeds the threshold value of 0.6 and decided to keep it with the construct. Factor
loading and t-value of item three which states that we introduce improved, but existing
services for our local market are 0.69 and 9.05 respectively which exceeds the threshold
value of 0.6 and decided to keep it with the construct. Factor loading and t-value of item four
which states that we improve our provisions efficiency of services are 0.84 and 20.46
respectively and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item five which states that we increase economies of scales in
existing markets are 0.58 and 8.36 respectively and is equal to the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item six which states that
we expands services for existing clients are 0.59 and 5.46 respectively and is equal to the
threshold value of 0.6 and decided to keep it with the construct.
Shaping Market Behavior Construct; CFA was performed on the reproduced model after
deleting one item which was less reliable from original shaping market behavior model. The
results of the confirmatory factor analysis with standardized factor loadings, t-vales of each
item and composite reliability (CR) and average variance extracted (AVE) of each construct
is shown in the table 4.4.2 and shows composite reliability (CR) of 0.83 and average variance
extracted (AVE) of 0.41 indicating improved fit of measurement model of shaping market
behavior. Factor loading and t-value of item one which states that we establish special
conditions in order to modify the behavior of customers in the direction desired by the
company are 0.69 and 11.80 respectively and exceeds the threshold value of 0.6 and decided
to keep it with the construct. Factor loading and t-value of item two which states that we
develop new advantages for clients in relation to existing services are 0.80 and 20.41
respectively and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item three which states that we modify the perception of clients
about the current financial service industry are 0.56 and 7.06 respectively and is equal to the
threshold value of 0.6 and decided to keep it with the construct. Factor loading and t-value of
item four which states that we continuously monitor clients complaints about services that
our firm offers are 0.60 and 9.87 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item five which states that
we change clients preferences by offering services that have not been available before clients
are 0.57 and 8.11 respectively and is equal to the threshold value of 0.6 and decided to keep it
with the construct. Factor loading and t-value of item six which states that we constantly
deliver exceptional services that outperform the services delivered by competitors clients are
0.64 and 8.12 respectively and exceeds the threshold value of 0.6 and decided to keep it with
the construct. Factor loading and t-value of item seven which states that we regularly inform
our clients about our developments regarding new services, market trends, etc are 0.61 and
7.38 respectively and exceed the threshold value of 0.6 and decided to keep it with the
construct.
Shaping market Structure Construct; CFA was performed on the reproduced model after
deleting five items which were less reliable from original shaping market structure model.
The results of the confirmatory factor analysis with standardized factor loadings, t-vales of
each item and composite reliability (CR) and average variance extracted (AVE) of each
construct is shown in the table 4.4.2 and shows composite reliability (CR) of 0.75 and
average variance extracted (AVE) of 0.50 indicating improved fit of measurement model of
shaping market structure. Factor loading and t-value of item one which states that we develop
collaboration of other companies offering complimentary services jointly with the main
services are 0.70 and 7.13 respectively and exceeds the threshold value of 0.6 and decided to
keep it with the construct. Factor loading and t-value of item two which states that we have
benefited a lot from our alliances to run our business successfully are 0.73 and 8.68
respectively and exceed the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item three which states that we have a process that allows us to
evaluate benefits of alliance options for our firm are 0.70 and 7.79 respectively and exceeds
the threshold value of 0.6 and decided to keep it with the construct.
Organizational Performance Construct; CFA was performed on the reproduced model
after deleting two items which were less reliable from original organizational performance
model. The results of the confirmatory factor analysis with standardized factor loadings, t-
vales of each item and composite reliability (CR) and average variance extracted (AVE) of
each construct is shown in the table 4.4.2 and shows composite reliability (CR) of 0.92 and
average variance extracted (AVE) of 0.55 indicating improved fit of measurement model of
organizational performance. Factor loading and t-value of item one which states that growth
of our market share is higher than competitors are 0.79 and 20.31 respectively and exceeds
the threshold value of 0.6 and decided to keep it with the construct. Factor loading and t-
value of item two which states that global benefits of our company has increased are 0.65 and
8.60 respectively and exceeds the threshold value of 0.6 and decided to keep it with the
construct. Factor loading and t-value of item three which states that competitive position of
our company has improved are 0.69 and 12.05 respectively and exceeds the threshold value
of 0.6 and decided to keep it with the construct. Factor loading and t-value of item four which
states that cost to income ratio of our company is significantly less than industry average are
0.78 and 18.96 respectively and exceeds the threshold value of 0.6 and decided to keep it
with the construct. Factor loading and t-value of item five which states that profitability of the
company increases faster than industry average are 0.73 and 13.27 respectively and exceeds
the threshold value of 0.6 and decided to keep it with the construct. Factor loading and t-
value of item six which states that value added per employee is significantly higher than
industry average are 0.83 and 27.11 respectively and exceeds the threshold value of 0.6 and
decided to keep it with the construct. Factor loading and t-value of item seven which states
that rate of customer retention of our company is higher than competitors are 0.76 and 16.84
respectively and exceeds the threshold value of 0.6 and decided to keep it with the construct.
Factor loading and t-value of item eight which states that rate of attracting new clients are
higher than competitors are 0.79 and 23.49 respectively and exceed the threshold value of 0.6
and decided to keep it with the construct. Factor loading and t-value of item nine which states
that quality of our services are better than competitors are 0.74 and 12.03 respectively and
exceed the threshold value of 0.6 and decided to keep it with the construct. Factor loading
and t-value of item ten which states that response time to customer complaints is well above
the industry average are 0.61 and 9.66 respectively and exceed the threshold value of 0.6 and
decided to keep it with the construct.
Table 18: Confirmatory Factor Analysis of Constructs for Reproduced Model

Constructs and indicators Standardized Composite

Factor Loadings Reliability/AVE
(t Value)
Responsive Market Orientation

We constantly monitor our level of commitment to .70(18.88)

serving customer needs.
We measure customer satisfaction frequently. .64(9.00)
We are more customer focused than our competitors. .79(22.3)
We believe this business exists primarily to serve .70(8.97) .86/0.55
customers.
We disseminate data on customer satisfaction at all .85(23.90)
levels in this business unit on a regular basis.
Radical Innovation

We invent new services .79(11.61)

We experiment with new services in our local market .76(15.80)
We commercialize services that are completely new to .75(15.10)
 our unit
We frequently utilize new opportunities in new .68(8.34)
markets
We regularly uses new distribution channels .74(14.78) .88/0.56
We regularly search for new clients in new markets .76(19.30)
Incremental Innovation
We frequently refine the provision of existing services .79(22.80)
We regularly implement small adaptations to existing .69(10.28)
services
We introduce improved, but existing services for our .69(9.05)
local market
.85/0.49
We improve our provisions efficiency of services .84(20.46)
We increase economies of scales in existing markets .58(8.36)
We expands services for existing clients .59(5.46)
Shaping Market behavior
We establish special conditions in order to modify the .69(11.80)
behavior of customers in the direction desired by the
company.
We develop new advantages for clients in relation to .80(20.41)
.83/0.41
existing services.
We modify the perception of clients about the current .56(7.06)
financial service industry.
We continuously monitor clients complaints about .60(9.87)
services that our firm offers
We change clients preferences by offering services .57(8.11)
that have not been available before
We constantly deliver exceptional services that .64(8.12)
outperform the services delivered by competitors
We regularly inform our clients about our .61(7.72)
developments regarding new services, market trends
etc
Shaping market Structure
We develop collaboration of other companies offering .70(7.13)
complimentary services jointly with the main services.
We have benefited a lot from our alliances to run our .73(8.68)
.75/0.5
business successfully
We have a process that allows us to evaluate benefits .70(7.79)
of alliance options for our firm
Organizational Performance
Growth of our market share is higher than competitors .79(20.31)

Global benefits of our company has increased .65(8.60)

 Competitive position of our company has improved .69(12.05)
Cost to income ratio of our company is significantly .78(18.96)
less than industry average
.92/0.55
Profitability of the company increases faster than .73(13.27)
industry average
Value added per employee is significantly higher than .83(27.11)
industry average
Rate of customer retention of our company is higher .76(16.84)
than competitors
Rate of attracting new clients are higher than .79(23.49)
competitors
Quality of our services are better than competitors .74(12.03)
Response time to customer complaints is well above .61(9.88)
the industry average
Source: Developed by the author for this study (2013)

Table 19: Goodness of Fit Index for Reproduced Model

Source: Developed by the author for this study (2013)

4.5. Structural Model

Path coefficients and R2 values of the structural model was obtained by running the PLS-PM
algorithm of smart-PLS software and t-values of path coefficients were obtained by running
the bootstrapping procedure of the same software and the results of the analysis is presented
in table 4.5 and shows that eight out of nine individual relationships of the model are
statistically significant indicating strong support for our model. Responsive market
orientation seems to have positive significant impact on organizational performance ( =
0.37; t=7.04) ,strong positive significant impact on radical innovation ( = 0.64; t = 8.98) ,
and very strong significant impact on incremental innovation ( = 0.74, t = 13.12).Radical
innovation show a positive significant impact on shaping market behavior ( = 0.304; t =
2.52) and positive non significant impact on shaping market structure ( = 0.132; t = 1.50).
Incremental innovation seems to have strong significant impact on both shaping market
behavior ( = 0.42; t = 3.77) and shaping market structure ( = 0.48, t = 6.10). Shaping
market behavior has a positive significant impact on organizational performance ( = 0.35; t
= 6.00) and Shaping market structure has a positive significant impact on organizational
performance ( = 0.35; t = 5.81).
R2 values which measure predictiveness for all endogenous constructs are positive as shown
in the figure 4.5. Cross validated redundancy Q2 values which measure the predictive
relevance for all endogenous variables were calculated using blindfolding procedure of smart
PLS software and the values shown in table 4.5.1 indicate that they all are also positive.
Table 4.5.2 shows the path coefficients, f 2 values, and q2 values for the structural model.
Analysis shows that among three predictor variables of organizational performance,
responsive market orientation gives the strongest prediction with a large effect size (f 2 = 0.33)
and shaping market behavior and shaping market structure gives still a strong prediction with
close to a large effect size (f2 = 0.26 and f2 = 0.30 respectively). Two predictor variables of
shaping market behavior, radical innovation and incremental innovation gives small to
moderate prediction with effect sizes (f2 = 0.07 and f2 = 0.12 respectively). However among
two predictor variables of shaping market structure, radical innovation gives very weak
prediction with an effect size (f2 = 0.01) while incremental innovation gives moderate
prediction with effect sizes (f2 = 0.154). on the other hand q2 effect size of all exogenous
variables show a moderate predictive relevance with a small to medium q2 effect size ranging
from q2= 0.06 to 0.11.
 Table 20: Path Coefficients, t-values, and Significance Levels of Structural Model

Path Path T=value Significanc

coefficien e level
t
Responsive MO Radical Innovation 0.64 8.98 ***
Responsive MO Incremental innovation 0.74 13.12 ***
Responsive MO Organizational performance 0.368 7.04 ***
Radical Innovation Shaping Market Behavior 0.304 2.52 *
Radical Innovation Shaping Market Structure 0.132 1.50 P=0.15
Incremental innovation Shaping Market 0.415 3.77 ***
Behavior
Incremental innovation Shaping Market 0.48 6.10 ***
Structure
Shaping Market Behavior Organizational 0.35 6.00 ***
performance
Shaping Market Structure Organizational 0.35 5.81 ***
performance
Notes: *** p < 0:001, ** p < 0:01, * p < 0:05; (based on t (499)/, two-tailed test)
(Source: Developed by the author for this study)

Innovation Market Driving 0.368

(7.04)

0,132
Radical Innovation (1.5) Shaping Market Structure
R2=0.407 R2=0.343
0.35
0.64 (5.81)
(8.98)

0.304
(2.5) Organizational Performance
Responsive Market Orientation
R2=0.732
R2=0.000

0.48
(6.1)

0.74
0.35
Figure 4: Structural
(13.12) ModelInnovation
Incremental Showing Path Coefficients,
Shaping Markett-values, and R2 Values
Behavior (6.00)
R2=0.542 R2=0.455

0.42(3.8)
(Source: Developed by the author for this study)

4.5.1. Calculation of Cross Validated Redundancy Q2 values for

Constructs
Blindfolding procedure of the smart PLS software has a facility to calculate two types of Q 2
values. One is cross validated communality Q2 and the other is cross validated redundancy Q2
value. However cross validated redundancy Q2 values for exogenous variables of the model
was used to assess the predictive relevance because this approach take in to account path
model estimates of structural model as well as measurement model. According to the table
4.5.1 cross validated redundancy Q2 values for all endogenous constructs in the model are
having values above zero indicating that the exogenous constructs have predictive relevance
for the all endogenous construct of the model.
Table 21: Q2 Values for Endogenous Constructs

Construct Q2 Value
Incremental Innovation 0.2315
Organizational Performance 0.3870
Radical Innovation 0.2170
Shaping Market Behavior 0.1818
Shaping Market Structure 0.1643
(Source: Developed by the author for this study)

4.5.2. Calculation of f2 effect sizes and q2 effect size

The f2 effect size is a measure of the impact of a predictor variable on a dependent variable. f 2
effect size measures the changes in R2 value when a predictor construct is omitted from the
model. Cohen (1988) has proposed guide lines for assessing f 2 values as follows. f2 value of
0.02 as small, 0.15 as medium, and 0.35 or above as large.
Following equation was used to calculate f2 effect size
f2 = (R2included - R2 Excluded)/ R2included
Similarly q2 effect size is a measure of the impact of a predictor variable on a dependent
variable. q2 effect size measures the changes in Q2 value when a predictor construct is omitted
from the model.
Following equation was used to calculate q2 effect size
q2 = (Q2included - Q2 Excluded)/ Q2included

Table 22: path coefficients, f2 values, and q2 values for the model

Shaping Shaping Organization

Market Market al
behavior structure Performance
path f2 q2 path f2 q2 path f2 q2
Responsive Market .368 .33 .07
Orientation
Radical Innovation .304 .07 .04 .132 .01 .09
Incremental Innovation .415 .12 .08 .48 .154 .11
Shaping Market behavior .35 .26 .06
Shaping Market .35 .30 .08
structure
Source: Developed by the author for this study (2013)
 4.6. Hypothesis Testing

Path coefficients, t-values, and significance levels of structural model calculated using
structural equation modeling technique through smart PLS software is presented in table 4.5
and these figures are used to test the hypothesis. Goodness of fit index of the structural model
is 0.46 and the calculation of it is presented in the table 4.4.3. This figure is considered as
reasonably acceptable value. Cross validated redundancy Q2 values given in the table 4.5.1 is
higher than zero indicating that the exogenous constructs have predictive relevance for the all
endogenous construct of the model.

4.6.1. Responsive Market Orientation

Hypothesis H1 states that responsive market orientation has a positive relationship with
organizational performance. According to the data given in the table 4.5 this hypothesis is
fully supported ( = 0.368, t = 7.04). This shows that there is a positive significant
relationship between responsive market orientation and organizational performance at 0.1%
significant level. Hypothesis H2 states that responsive market orientation has a positive
relationship with radical innovation. According to the data given in the table 4.5 this
hypothesis is fully supported ( = 0.64, t = 8.98). This shows that there is a positive
significant relationship between responsive market orientation and radical innovation at 0.1%
significant level. Hypothesis H3 states that responsive market orientation has a positive
relationship with incremental innovation. According to the data given in the table 4.5 this
hypothesis is fully supported ( = 0.74, t = 13.12). This shows that there is a positive
significant relationship between responsive market orientation and incremental innovation at
0.1% significant level.

4.6.2. Radical Innovation

Hypothesis H4 states that radical innovation has a positive relationship with shaping the
market structure. According to the data given in the table 4.5 this hypothesis is partially
supported ( = 0.132, t = 1.50). This shows that there is a positive and insignificant
relationship between radical innovation and shaping the market structure only significant at
15% level. Hypothesis H5 states that radical innovation has a positive relationship with
shaping the market behavior. According to the data given in the table 4.5 this hypothesis is
fully supported ( = 0.304, t = 2.52). This shows that there is a positive significant
relationship between radical innovation and shaping market behavior at 5% significant level.
 4.6.3. Incremental Innovation
Hypothesis H6 states that incremental innovation has a positive relationship with shaping the
market structure. According to the data given in the table 4.5 this hypothesis is fully
supported ( = 0.48, t = 6.10). This shows that there is a positive significant relationship
between incremental innovation and shaping market structure at 0.1% significant level.
Hypothesis H7 states that incremental innovation has a positive relationship with shaping the
market behavior. According to the data given in the table 4.5 this hypothesis is fully
supported ( = 0.415, t = 3.77). This shows that there is a positive significant relationship
between incremental innovation and shaping market behavior at 0.1% significant level.

4.6.4. Shaping Market structure

Hypothesis H8 states that shaping market structure has a positive relationship with
organizational performance. According to the data given in the table 4.5 this hypothesis is
fully supported ( = 0.35, t = 5.81). This shows that there is a positive significant relationship
between shaping market structure and organizational performance at 0.1% significant level.

4.6.5. Shaping Market Behavior

Hypothesis H9 states that shaping market behavior has a positive relationship with
organizational performance. According to the data given in the table 4.5 this hypothesis is
fully supported ( = 0.35, t = 6.00). This shows that there is a positive significant relationship
between shaping market behavior and organizational performance at 0.1% significant level.
 4.7. Summary of the Analysis

There were nine research objectives formulated in the section 1.3 of this report and based on
these objectives nine hypotheses were formulated in section 2.2 of this report and table 4.7
present the summary of the analysis. According to the table 4.7 eight out of nine hypotheses
were fully supported and the H4 which predict the positive relationship of radical innovation
with shaping market behavior was only partially supported.

Table 23: Summary of analysis

Hypothesis Results
H1: Responsive market orientation has a positive Supported
relationship with organizational performance.
H2: Responsive market orientation has a positive Supported
relationship with radical innovation
H3: Responsive market orientation has a positive Supported
relationship with incremental innovation
H4: Radical innovation has a positive relationship Partially Supported
with shaping the market structure
H5: Radical innovation has a positive relationship Supported
with shaping the market behavior.
H6: Incremental innovation has a positive Supported
relationship with shaping the market structure
H7: Incremental innovation has a positive Supported
relationship with shaping the market behavior.
H8: Shaping market structure has a positive Supported
relationship with organizational performance.
H9: Shaping market behavior has a positive Supported
relationship with organizational performance.
(Source: Developed by the author for this study)
 CHAPTER FIVE

5. Conclusions

First section of this chapter present the summary of study including research objectives,
development of conceptual framework, formulation of hypothesis, methodology, analysis and
results and findings with supporting literature. Next section discusses the contribution of the
study in relation to academics, practicing managers, and policy makers. Final section
discusses the limitations and future research implications.

5.1. Study Summary

The purpose of this study was to examine the interrelationships among responsive market
orientation, innovation which comprised of two dimensions called radical and incremental
innovations, market driving which comprised of two dimensions called shaping market
structure and shaping market behavior, and organizational performance. For this purpose a
conceptual framework depicted in figure 2.1 was developed in line with the current debate of
market orientation researchers. Extant literature on market orientation has divided opinions
about how market driven and market driving approaches are adopted by organizations.
Market driven approach selected for this study is called as responsive market orientation.
Some researchers (Jaworski et al., 2000) argue that they are complementing each other. Some
other researchers (Schindehutte et al., 2008) argue that they are substitutes. The other
important gap found in the literature is lack of empirical evidence of how innovation and
market driving is related. To fill these gaps responsive market orientation - innovation -
market driving organizational performance link was tested empirically in this study.

A comprehensive literature review was carried out to find the theoretical background of the
concepts and the definitions of variables suggested by different authors. First dependent
variable organizational performance was identified in both financial and non financial
organizational outcomes proposed by some authors ( Kirca et al.(2005);,Narver and Slater,
1990;, Camarero, 2007) Then the mediating variable innovation was conceptualized in two
dimensions as radical and incremental innovations following Jansen et al(2006) and market
driving was conceptualized as shaping market structure and shaping market behavior
following Jaworski et al.(2000). Independent variable responsive market orientation was
conceptualized based on the definition suggested by Deshpande et al. (1998).
Based on the conceptual framework nine hypothesis were formulated. The first hypothesis
was formulated predicting positive relationship between responsive market orientation and
organizational performance. The second and third hypotheses predicted positive relationship
between responsive market orientation and radical and incremental innovation. The fourth,
fifth, sixth, and seventh hypotheses predicted positive relationship among two dimensions of
innovation and two dimensions of market driving.
Research context for the study was Sri Lankan financial services sector and a survey study
was conducted following the positivist deductive approach. A questionnaire was developed
and administered among managers and executives of financial service institutions situated in
southern province of Sri Lanka. Two methods were adopted in administering the
questionnaire. One was a personally administered questionnaire and the other was an internet
administered one. Smart PLS and SPSS statistical software packages were used to analyze the
data. The overall response rate was 49% and is satisfactory. 6.45% of the respondents were
females while 93.55% were males. 73% of respondents were having advance level plus other
qualifications and only 9.68% were having master or above qualification. 25% of respondents
represent licensed finance companies while 19% and 16% of respondents represent insurance
companies and leasing companies respectively.

Confirmatory factor analysis (CFA) was carried out using smart PLS software to check item
reliability and internal consistency of the measurement model. Study on original model
showed that out of eight items representing responsive market orientation model three were
having factor loadings less than 0.6 and deleted from the model to improve validity of
construct. Similarly one item out of seven items of radical innovation construct, one item out
of seven items of incremental innovation, one item out of eight items of shaping market
behavior construct, five items out of eight items of shaping market structure construct, and
two items out of twelve items of organizational performance construct was deleted to
improve the validity of construct. In the reproduced model with above deletions all the
constructs showed composite reliability values above 0.75 and AVE value between 0.41 and
0.56 indicating acceptable internal consistency of constructs. Goodness of fit index (GFI) was
0.46 indicating further evidence of satisfactory fit of measurement model. Discriminant
validity of construct also showed satisfactory results.
Path coefficients, t-values and significant levels of structural model of the study is given in
table 4.5 and indicated that responsive market orientation has a positive and significant
relationship with organizational performance supporting H1. This finding is agreed with
some of the previous findings. Narver et al.(2004) has found similar results in a multiple
industry study. Positive and significant relationship was found between responsive market
orientation and radical and incremental innovations supporting H2 and H3. This finding is
agreed with previous findings of matear et al.(2003) who found positive and significant
relationship between market orientation and innovation. Out of the four hypotheses (H4, H5,
H6, and H7) formulated among two dimensions of innovation and two dimensions of market
driving H4 which predicted positive relationship between radical innovation and shaping
market structure was partially supported. Other three hypotheses H5, H6, and H7 were fully
supported. Even though there is no empirical support for these findings they are agreed with
the conceptual arguments of Schindehutte et al. (2008). A relationship between two
dimensions of market driving, shaping market structure and shaping market behavior, and
organizational performance was predicted by H8 and H9 and these hypotheses were fully
supported. These findings were agreed with the finding of Consuegra et al. (2008).

5.2. Contribution of the Study

5.2.1. Contribution to Academics

Findings of this study are relevant for academics in several ways. This study shows
significant direct positive effect of responsive market orientation on organizational
performance as well as mediated impact through sub dimensions of innovation and sub
dimensions of market driving. Results also suggest that both responsive market orientation
and market driving effecting organizational performance and they are complementing each
other because in addition to the direct relationship of responsive market orientation with
organizational performance it has mediated relationship through innovation and market
driving supporting the arguments of Jaworski et al.(2000). This empirical finding is new to
the market orientation literature and will help academics to conduct more research in this
area. Carrillat et al.(2004) suggested that innovation is a central part of becoming a market
driving company. Findings of this study supported this conceptual argument. Matear et al.
(2003) has put forward a conceptual argument stating that firms engaging in risk taking,
proactive, and innovative behaviors come with radical innovations and tend drive markets.
Findings of this study support this argument also.
A research model with market driving as a mediator between innovation and organizational
performance has not been tested empirically in extant marketing literature. Findings of this
study suggest that market driving is mediating innovation and organizational performance.

5.2.2. Contribution to managers

Finding of this study are relevant for managers in several way. Findings suggest that
improving customer responsiveness help organizations to achieve higher performance as well
as to stimulate radical and incremental innovations in the organization. Positive impact of
radical and incremental innovations on shaping market structure and shaping market behavior
suggest that innovation in organizations are prerequisites for market driving. Responsive
market orientation and market driving have found to be complementing each other suggesting
that managers should promote both responsive market orientation as well as market driving
behaviors in organizations to achieve higher level of organizational performance. Two
dimensions of market driving shaping market structure and shaping market behavior found
positively impacting organizational performance suggesting that activities come under
shaping market structure like formation of strategic alliances, adding new players, and
eliminating existing players to improve the competitive position of the industry and activities
come under shaping market behavior like building customer constraints, removing customer
constrains, creating new competitor preferences, and reversing existing competitor
preferences are important in achieving higher level of organizational performance. To
monitor the impact investments in promoting radical and incremental innovations as well as
initiatives in shaping market structure and shaping market behavior Service firms should
consider inclusion of key performance indicators in these areas.

5.2.3. Contribution to Policy Makers

According to the findings of the research two dimensions of innovation, radical innovation
and incremental innovation, is positively related with two dimensions of market driving,
shaping market structure and shaping market behavior. This means that promoting innovation
in financial service firms help improve market driving ability. Market driving in turn
improves the organizational performance. Formulation of financial service sector policies in
order to take place innovation would benefit individual firms as well as national economy as
a whole. Market driving has to be implemented through set of strategies and relaxing the
government policies relating strategic actions of shaping market structure and shaping market
behavior would help financial service sector to drive markets improving the level of
organizational performance.

5.3. Limitations and Future Research

Branch managers or executives at branch level were the key respondents in this study.
However the other important stake holders like customers as well as competitors of these
financial service institutions could have viewed differently from what managers viewed. A
research with other stake holders as respondents would be an interesting area for a future
research. Matear et al.(2003) suggest that firms engaging in risk taking, proactive, and
innovative behaviors come up with radical innovations and tend to drive markets. However
proactive, innovative, and risk taking behaviors come under entrepreneurial orientation
according the literature. But this research considered only innovation which is an outcome of
entrepreneurial orientation as an antecedent to market driving sub variables shaping market
structure and shaping market behavior. Therefore it is important to consider more broad
strategic orientation, entrepreneurial orientation as an antecedent to market driving in future
studies.

Subjective assessment of organizational performance was used as measure of performance in

this study. However objective performance could have been a better measure of performance.
This research investigated the managerial perception about responsive market orientation,
innovation, market driving, and organizational performance of their organizations. It is
widely accepted that when respondents know the purpose of investigation they will respond
to the questions more favorably than actual. This limitation was exited in the research.
However this could have been avoided by informing respondents the purpose of research
differently in line with the guide lines suggested by Narver et al. (2004). However that was
not done due to ethical reasons.
Apendix 1

Impact of Responsive Market Orientation on Organizational Performance

through Innovation and Market Driving

Dear Participant

I, L.C.A.Pushpakumara, a master student of faculty of management and finance of University of

Ruhuna, Matara, Sri Lanka, am conducting a survey of financial service institutions in Southern and
Western provinces of Sri Lanka to investigate marketing policies of financial service institutions.

Please do not include your name and answer all questions as honestly as possible. It is unnecessary to
search for information in order to answer the questionnaire. Your experience is very important for
decision makers in Sri Lanka to strengthen the financial services sector.

There is no compensation for completion of this survey and all information given in this questionnaire
will be treated strictly confidentially. This research will be presented only in an aggregated form and
cannot be traced back to any specific firm.

Please return fully completed questionnaire at your earliest.

Thank you in advance for taking time to assist me in my educational endeavors.

With any questions, please contact the following persons;

Sincerely

L.C.A.Pushpakumara Dr. Thusitha Gunawardana

Master Student, Senior Lecturer, Research Supervisor
Faculty of Management and Finance, Faculty of Management and Finance,
University of Ruhuna, University of Ruhuna,
Matara- Sri lanka. Matara- Sri lanka.
TP: 071 4238648 (Mobile), TP: 0718577625 (Mobile)
041 5677847 (Residence)
E-mail: lcapush@yahoo.com E-mail: tslw2013@gmail.com
Appendix 2

Research Questionnaire on Impact of Responsive Market Orientation

on Organizational Performance through Innovation and Market Driving

PART ONE: Characteristic of the Organization

Q01. Name of your Institution:

Q02. Type of the business: Please, cross (X) in one box that is applicable.

Authorized primary dealer/Unit thrust Savings bank

Licensed specialized bank Development bank
Licensed commercial bank Leasing company
Licensed finance company Merchant bank
Insurance company Venture capital company
Other (please specify)

Q03.Nature of ownership: Please, cross (X) in one box that is applicable.

Government owned Private owned

Q04.Achievement in the business field: Please, cross (X) in one box that is applicable.

Number of global awards won with in last three years

Number of local awards won within last three years

Q05. In which year was your firm established?

Q06. How many people were employed in your organization in 2012? ..

Full-time employees
Part-time employees

PART TWO:
In answering questions in this questionnaire please answer by a check
mark () in the appropriate column

Strongly Disagree

Disagree

Disagree Neither agree Nor

Agree

Strongly Agree
Q07. Please indicate extent of your agreement about how well the
statements describe the actual responsiveness of your company.

We constantly monitor our level of commitment to serving customer needs. 1 2 3 4 5

We freely communicate information about our successful customer 1 2 3 4 5

experiences across all business functions
We freely communicate information about our unsuccessful customer 1 2 3 4 5
experiences across all business functions
We strategize our competitive advantage based on our understanding of 1 2 3 4 5
customers needs
We measure customer satisfaction frequently. 1 2 3 4 5

We are more customer focused than our competitors. 1 2 3 4 5

We believe this business exists primarily to serve customers. 1 2 3 4 5

We disseminate data on customer satisfaction at all levels in this business 1 2 3 4 5

unit on a regular basis.
Strongly Disagree

Disagree

Disagree Neither agree Nor

Agree

Strongly Agree
Q08. Please indicate extent of your agreement about how well the
statements describe the actual innovations of your company

We accepts demands that go beyond existing services 1 2 3 4 5

We invent new services 1 2 3 4 5
We experiment with new services in our local market 1 2 3 4 5
We commercialize services that are completely new to our unit 1 2 3 4 5
We frequently utilize new opportunities in new markets 1 2 3 4 5
We regularly uses new distribution channels 1 2 3 4 5
We regularly search for new clients in new markets 1 2 3 4 5
We frequently refine the provision of existing services 1 2 3 4 5
We regularly implement small adaptations to existing services 1 2 3 4 5
We introduce improved, but existing services for our local market 1 2 3 4 5
We improve our provisions efficiency of services 1 2 3 4 5
We increase economies of scales in existing markets 1 2 3 4 5
We expands services for existing clients 1 2 3 4 5
We consider lowering costs of internal processes is an important objective 1 2 3 4 5

Strongly Disagree

Disagree

Disagree Neither agree Nor

Agree

Strongly Agree
Q09. Please indicate extent of your agreement about how well the
statements describe the actual market driving of your company.

We substitute the traditional channels for direct sale through the internet. 1 2 3 4 5
We develop collaboration of other companies offering complimentary 1 2 3 4 5
services jointly with the main services.
We carry out an offer of complimentary benefits through the integration 1 2 3 4 5
into the company of other services or through joint ventures
We promote the creation of barriers in the financial service industry against 1 2 3 4 5
whichever competitor
We develop new ways of doing business which could influence the 1 2 3 4 5
behaviors of competitors.
We modify the current market strategies in order to force a change in the 1 2 3 4 5
actions of competitors.
We have benefited a lot from our alliances to run our business successfully 1 2 3 4 5
We have a process that allows us to evaluate benefits of alliance options for 1 2 3 4 5
our firm
We adapt conditions of purchase to individual customer characteristics 1 2 3 4 5
We establish special conditions in order to modify the behavior of 1 2 3 4 5
customers in the direction desired by the company.
We develop new advantages for clients in relation to existing services. 1 2 3 4 5
We modify the perception of clients about the current financial service 1 2 3 4 5
industry.
We continuously monitor clients complaints about services that our firm 1 2 3 4 5
offers
We change clients preferences by offering services that have not been 1 2 3 4 5
available before
We constantly deliver exceptional services that outperform the services 1 2 3 4 5
delivered by competitors
We regularly inform our clients about our developments regarding new 1 2 3 4 5
services, market trends etc

Strongly Disagree

Disagree

Disagree Neither agree Nor

Agree

Strongly Agree
Q10. Please indicate extent of your agreement about how well the
statements describe the actual organizational performance of your
company.

Growth of our market share is higher than competitors 1 2 3 4 5

Volume of trade with some customers has increased 1 2 3 4 5
Global benefits of our company has increased 1 2 3 4 5
Competitive position of our company has improved 1 2 3 4 5
Cost to income ratio of our company is significantly less than industry 1 2 3 4 5
average
Return on assets (ROA) of the firm is significantly higher than industry 1 2 3 4 5
average.
Profitability of the company increases faster than industry average 1 2 3 4 5
Value added per employee is significantly higher than industry average 1 2 3 4 5
Rate of customer retention of our company is higher than competitors 1 2 3 4 5
Rate of attracting new clients are higher than competitors 1 2 3 4 5
Quality of our services are better than competitors 1 2 3 4 5
Response time to customer complaints is well above the industry average 1 2 3 4 5

Q11. Relative size of your company compared with other companies of the same sector.

One of the largest 7 6 5 4 3 2 1 One of the

Smallest

PART THREE: Characteristics of Responding Manager

Q12. Gender: Female Male

Q13. Level of Education

 AL + other qualifications Bachelors Degree

Bachelors Degree + Other qualifications Master level or above

Q14. Current Position Held:

Q15. Number of years of experience in the financial service sector:

Please hand over the fully completed questionnaire to the

bearer or post it with the self addressed stamped envelope provided to
reach me before 30th December 2013.
Thank you again for your kind corporation.