Effects of market orientation on business performance : Environmental moderators, effectiveness and efficiency mediators and the role of firm capabilities

Abstract

Market orientation, centered at the very heart of marketing management literature, is argued to influence a firm’s performance, and this relationship has received considerable research attention. It is, however, argued here that to hypothesize and empirically test the direct effect of market orientation on business performance is an inadequate simplification of a very complex causal relationship. Two arguments evident in the literature are adopted in this study: (1) the proposed moderating role of environmental factors, and (2) the proposed mediating role of effectiveness and operational efficiency, forming the basis for the two research models developed in this study. Additionally, the concept of firms’ capabilities for market oriented innovation is brought into the discussion, and an exploratory approach is applied for the investigation of how and to what extent market orientation engages with such capabilities in producing performance outcomes. The findings support the moderating effects of environmental factors, and indicate that this proposition should be further developed by including other environmental factors to the analyses. Further, the results strongly indicate that market orientation affects business performance through routes of intermediate factors, and thus has a stronger impact than studies of direct performance effects have been able to identify. As for the role of firm capabilities, it is evident that they do indeed engage with market orientation in producing organizational results. Firm capabilities were found both to moderate profitability outcomes of market orientation and to mediate effects of market orientation on effectiveness. Theoretical and managerial implications are discussed, and limitations and a framework for future research are presented.