Published: Mar 27, 2002 in Knowledge@Emory
The old adage, “build a better mousetrap and the world will beat a path to your door” might have made sense in much simpler times. But today, with complex factors such as competition and the Internet impacting business, running a successful company requires much more than innovation. At the core of the business dynamic remains the most important driver in a company’s growth: the response to the ever-changing demands of the customer. Case in point: Iridium. The much-ballyhooed company managed to build the first-ever worldwide mobile phone system, rolling out commercial service, with some glitches, in 1998. Considering the red-hot demand for much more limited cellular phone service, Iridium seemed destined to outpace the weaker competition.
But by 1999, Iridium had filed for Chapter 11 bankruptcy protection, one of the largest failures to date. With little customer interest, the company simply couldn’t support the hefty debt load from building its expensive $5 billion satellite system. The consumer never beat a path to Iridium’s door.
Ajay K. Kohli, professor of marketing at Goizueta, offers an explanation for that disaster. “Iridium simply didn’t focus on the customer as carefully as it might have, and it went out of business. It targeted business travelers and hoping they would use a fairly bulky and heavy phone at a fairly high price point.” Despite the cutting-edge technology and financial backing of Motorola, the failure to cater to the customer’s needs ultimately doomed Iridium. In December 2000, a group of private investors bought the company’s operating assets for a mere $25 million.
Now, Kohli notes that many of the country’s food conglomerates have accurately tapped into consumer demand as well, expanding their prepackaged food lines to include more wholesome fare. In 1999, H.J. Heinz picked up a 20% stake in natural foods purveyor Hain Celestial Group, while General Mills bought the Cascadian Farm and Muir Glen product lines in early 2000. Kraft, J.M. Smuckers, ConAgra and others in the industry are following suit, establishing product lines or buying existing companies in the natural and organic foods industry.
Kohli has tracked the strong link between market orientation and a company’s bottom line. In his award-winning research paper, “Market Orientation: Antecedents and Consequences,” he and co-author Bernard J. Jaworski, the managing director of research and development for Marketspace, illustrate how market orientation acts as the key to company performance.
This February, the pair became the first-ever recipients of the Sheth Foundation/Journal of Marketing Award, for their study. Originally published in the July 1993 issue of the Journal of Marketing, the duo’s research remains relevant today, continuing to spawn additional academic research and organizational change. The award honors an article published in the Journal of Marketing six to ten years prior, for the strongest long-term impact on the marketing field.
The authors describe market orientation as the process of generating and disseminating market intelligence in a company, and then the development and implementation of marketing strategy based on that intelligence. The paper notes that since “customer needs and expectations continually evolve over time,” companies must track and respond to “changing marketplace needs.” While setting aside resources to establish a market orientation can be costly, their findings illustrate the benefits that companies ultimately reap from this forward thinking business approach.
The data compiled came from a sampling of “member companies of the Marketing Science Institute (MSI) and the top 1000 companies (in sales revenues) listed in the Dun & Bradstreet Million Dollar Directory.” A total of 222 business units participated in the study, and data were obtained from marketing and nonmarketing managers via a mail survey using an extensive questionnaire. To cross-validate the data, the authors took a second sampling of member companies from the American Marketing Association, resulting in 230 responses.
Several “organizational factors,” say Kohli and Jaworski, including top management’s emphasis on market orientation, contribute to a company’s success in this area. The research finds, “Top management reinforcement of the importance of a market orientation is likely to encourage individuals in the organization to track changing markets, share market intelligence with others in the organization, and be responsive to market needs.”
The pair also draw a link between the willingness of management to take occasional business risks, with the trickle-down effect on lower level personnel to “propose and introduce new offerings” responding to customer needs. Other in-house matters, such as interdepartmental conflict and connectedness impact the company’s market orientation. “Interdepartmental conflict appears to reduce a market orientation, whereas connectedness appears to play a facilitative role,” says the study. Additionally, the authors were unable to establish a link between departmentalization and market orientation, suggesting that the number of departments in a business unit matter less than the “connectedness and level of conflict among departments.”
Despite prior thought on the matter, formalization, or the “existence of formal rules and regulations in an organization,” appears to be unrelated to market orientation. The existence of rules, past researchers have argued, may lend an organization to be less willing to adapt to outside forces. However, say Kohli and Jaworski, “mere emphasis on rules is less relevant than the precise nature of the rules.” Certain established procedures can actually facilitate market assessment and intelligence dissemination. The duo’s research also illustrates how “centralization,” the hierarchal decision making system whereby top managers and not lower level employees impact the decision making process, acts as a barrier to market orientation.
Surprisingly, a company’s responsiveness to customers translates into much more than the expected result of satisfied repeat customers. It also creates “esprit de corps,” or what the authors describe as “a feeling of belonging to one big organizational family dedicated to meeting and exceeding market needs and expectations.”
Another surprising finding of the research involves market turbulence (“the rate of change in the composition of customers and their preferences”), competitive intensity (degree of competition among firms in similar industries) and technological turbulence (“the rate of technological change”). The paper notes: “The findings of the study suggest that the market orientation of a business is an important determinant of its performance,” regardless of the varying degrees of these three factors. While Kohli describes this as the most unexpected finding, he also notes that the relatively small sample size used may not be powerful enough for this particular test.
Implementation of marketing efforts remain much more elusive, as employees and managers often fall back to more familiar ways of doing business. “Organizational change, however, is difficult,” says Kohli. “Perhaps the toughest part is changing the mindset.”
While information technology can facilitate some company changes, employee reward systems play into market orientation in a major way. “Organizations that reward employees on the basis of factors such as customer satisfaction, building customer relationships, and so on tend to be more market-oriented,” they say.
The arrival of the Internet has only enhanced the importance of the Kohli and Jaworski study, with the Internet enabling better connectivity among businesses and consumers. “Customers now can choose from among a greater number of competing alternatives to fulfill their requirements,” Kohli adds. “For this reason, it is perhaps even more important to be market oriented today than before the advent of the Internet.”