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International Academy of Marketing Studies Journal, Volume 19, Number 3, 2015

THE MODERATING ROLES OF COMPANY STRUCTURE AND EXTERNAL ENVIRONMENT ON

MARKET ORIENTATION AND BUSINESS STRATEGY TYPES

Omer Gokus, Norfolk State University

ABSTRACT

Company performance is mainly determined by the strategy a company follows, and strategy is mainly determined by the market oriented culture and company structure. This link is affected by several factors. One of them is the external environment in which companies operate. Two types of external environment – market turbulence and competitive intensity- are investigated in this paper along with company structure. The purpose of this paper is twofold. First, the current research explores the moderating role of external environment and structure on the relationship between customer orientation and strategy types. Two major strategy types were used for this purpose, prospectors and defenders. In addition to customer orientation, another component of the market oriented culture; interfunctional coordination was investigated in the same manner. Second, the moderating role of external environment and company structure are examined on the relationship between companies’ strategy level and their performance. The data is collected from selected service industries which they have high level of customer interaction and high level of labor of intensity. Hierarchical multiple regression and multiple group analysis procedure are employed for the data analyses. The results are discussed at the end from both theoretical and practical perspectives.

CONCEPTUAL BACKGROUND

Over the years, marketing scholars have studied the theoretical foundations of market orientation. Although the conceptualization, the antecedents and the consequences of market orientation were the focal point of the market orientation studies (e.g., Narver and Slater 1990; Jaworski and Kohli 1993; Deshpande, Farley and Webster 1993; and Matsuno, Mentzer and Mentz 2000), the external environment has only attracted academic researchers by its moderating role of the market orientation – performance relationship (e.g., Grewal and Tansuhaj 2001; Han, Kim and Srivastava 1998; Noble, Sinha, and Kumar 2002; Slater and Narver 1995; and Im and Workman, 2004). As a result, market turbulences and competitive intensity have been considered as external environments in such studies.

Unlike strong contextual support for moderator effect, Jaworski and Kohli (1993) find no evidence of environment affecting the strength of the relationship. Kirca, Jayachandran, and Bearden’s (2005) meta-analysis study also did not support the

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moderating roles of environmental turbulence on the market orientation–performance relationship.

Instead of the moderating role of environment on the market orientation- performance relationship, current study investigates if the environmental factors and company structure moderate market orientation-strategy link. This study presumes that there is a relationship between market orientation and company strategy, because firm performance is mainly determined by implementation of a business strategy (Walker and Ruekert 1987). And implementing a firm strategy depends on how values and norms inside the organization (market oriented culture) are developed for the specified strategy (Slater and Olson 2001). HYPOTHESES DEVELOPMENT

Environment as a moderator of the relationship between dimensions of market orientation and performance for each strategy types: the role of market turbulence1

The turbulences in the market typically are generated by heterogeneity in the composition of customers and their preferences. In highly turbulent markets, the effect of customer orientation on prospectors will be stronger. The reason is that market orientation with customer emphasis is about market intelligence, which entails generation and dissemination of and responsiveness to market information (Kohli and Jaworski 1990). Prospectors proactively seek and exploit new market opportunities and often experiment with responses to changing market trends (Miles and Snow 1978). In addition, prospectors compete on new offerings and focus on value creating activities; programs emphasizing prospectors address the issues that have the greatest impact on overall customer satisfaction or matching their offerings with customers’ needs (Matsuno and Mentzer 2000). Therefore, prospectors with superior market information or a highly market oriented culture will monitor customers’ needs and preferences closely and less likely to make mistakes about their offerings. Accordingly, in order to successfully implement a prospector strategy, organizations will more likely to depend on a customer oriented culture in a highly turbulent market environment.

On the other hand, in stable markets, customers’ preferences do not change very much and organizations’ offerings are likely to require relatively little modification in those markets (Matsuno and Mentzer 2000). In such an environment, organizations will place a greater emphasis on developing low cost related activities as opposed to developing customer sensing activities such as marketing research and innovation (Dobni and Luffman 2000). Defenders emphasize such activities by employing standardized practices to routine actions and focused functional groups (Ruekert and Walker 1987).

To be successful and operate efficiently in low turbulent markets, defenders should be highly interconnected to each other. Because defenders focus on maintaining a secure position in existing product-markets. They often compete through operations or quality- based investments that offer efficiency related advantages, rarely pioneering the development of new markets or products.

1 These sets of hypotheses are summarized in figure 1

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Interfunctional coordination, one of the components of market orientation, fosters greater communication, collaboration, and cohesiveness (Narver and Slater 1990; Noble, Sinha, and Kumar 2002) that are essential for implementing a defender strategy type (Narver and Slater 1990). More explicitly, in order to successfully implement a defender strategy, organizations will more likely depend on interfunctional coordination in a low turbulent market environment.

H1 The greater the extent of market turbulence, the greater the positive impact of the relationship between customer orientation and prospectors’ performance. H2 The lesser the extent of market turbulence, the greater the positive impact of the relationship between interfunctional coordination and defenders’ performance.

Environment as a moderator of the relationship between dimensions of market

orientation and performance for each strategy types: the role of competitive intensity2

In a less competitive environment, competitors do not have the capacity or resources to substantially alter the balance of power among the sellers. In such an environment, focusing on the customers’ needs and wants and seeking superior customer value is most likely to lead to success (Slater and Narver 1995). Conversely, prospectors’ success depends on the value creating and boundary spanning activities in this environment. Since only customer oriented values and norms provide prospectors to implement such activities, prospectors should highly emphasize customer orientation in less competitive environment. As a result, prospector strategy type and the level of customer orientation relationship will be stronger in less competitive environment compared to the high competitive environment.

On the other hand, defenders’ focus is internal and their goal is to reduce costs by focusing on the efficiency of the firm’s processes (Rust, Moorman and Dickson, 2002). To do this, they depend on highly interconnected functional units. In an intensely competitive environment, a high level of interfunctional coordination is required for defenders to perform activities such as aggressive pricing or promotions. Consequently, defender strategy type and the level of interfunctional coordination relationship will be stronger in highly competitive environment compared to the less competitive environment.

H3 The lesser the extent of competitive intensity, the greater the positive impact of the relationship between customer orientation and prospectors’ performance. H4 The greater the extent of competitive intensity, the greater the positive impact of the relationship between interfunctional coordination and defenders’ performance.

2 These sets of hypotheses are summarized in figure 1

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Figure 1

Moderator Effect of the relationship between dimensions of market orientation and performance for each

strategy types: Customer orientation Interfunctional Coordination

H1

H3 H2 H4 - + - +

Performance of Prospectors Performance of Defenders

Market Turbulance

Competitive Intensity

Environment as a moderator of the relationship between strategy and performance: the role of market turbulence3

The strategy literature generally posits that strategy selection is conditional on how closely an organization is aligned with its environment (Porter 1980). Since organizations may not be aligned their environment with the same level, same speed or same direction, there will be different types or different levels of strategy in the same environment. Furthermore the relationship between strategy and performance will be affected by the environment, the organization operates in.

In highly turbulent markets, composition of customers and their preferences change rapidly. If customer sets and/or their preferences in the market are unstable, there is a greater likelihood that the company’s offerings will become mismatched with customers’ needs over a period of time (Kohli and Jaworski 1990). In such environment organizations which develop capability to adapt rapid market conditions changes and capability to collect superior market information (McKee, Varadarajan and Pride (1989), will monitor customers’ needs and preferences closely and less likely to make mistakes about their offerings. Since only prospector strategy type carries such capabilities and characteristics such as competing on new offerings or focusing on value creating activities, highly prospector firms are likely to be more strongly related to performance in turbulent markets than in stable markets.

On the other hand, in stable markets, customers’ preferences do not change very much and organizations’ offerings are likely to require relatively little modification in those markets (Matsuno and Mentzer 2000). In such an environment, organizations will place a greater emphasis on developing low cost related activities for superior performance as opposed to developing customer sensing activities such as marketing 3 These sets of hypotheses are summarized in figure 2

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International Academy of Marketing Studies Journal, Volume 19, Number 3, 2015 4 These sets of hypotheses are summarized in figure 2.

research and innovation (Dobni and Luffman 2000). Since defenders emphasize efficiency through standardized practices to reach their goal of reducing costs of their offerings, firms using high degree of defender strategy are likely to be more strongly related to their performance in stable markets than in turbulent markets.

H5 The greater the extent of market turbulence, the greater impact of the relationship between the degree of prospectors and their performance. H6 The lesser the extent of market turbulence, the greater impact of the relationship between the degree of defenders and their performance.

Environment as a moderator of the relationship between strategy and performance:

the role of competitive intensity4 As stated earlier, defenders’ focus is internal and their goal is to reduce costs by focusing on the efficiency of the firm’s processes (Rust, Moorman and Dickson, 2002). In an intensely competitive environment along with the lack of potential opportunities for further growth, organizations need to develop activities such as cost control, aggressive pricing or promotions. These activities can be gained successfully in defenders strategy type. As a result, level of defenders and their performance relationship will be stronger in highly competitive environment compared to the less competitive environment.

On the other hand, in a less competitive environment, competitors do not have the capacity or resources to substantially alter the balance of power among the sellers. In such an environment, focusing on the customers’ needs and wants and seeking superior customer value is most likely to lead success (Slater and Narver 1995). As prospectors’ success depends on the value creating and boundary spanning activities, implementing a prospector strategy is desirable in less competitive environment. As a result prospectors are likely to be more strongly related to performance in less competitive environment than in relatively more competitive environment.

H7 The greater the extent of competitive intensity, the greater impact of the relationship between the degree of defenders and their performance. H8 The lesser the extent of competitive intensity, the greater impact of the relationship between the degree of prospectors and their performance.

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Figure 2

Moderator Effect Environment as a moderator of the relationship between strategy and performance

Degree of Prospectors Performance of

Prospectors Degree of defenders

H5 + H 6

-

H8 Performance of

Defenders

- H7 +

Market Turbulance

Competitive Intensity

Company Structure as a moderator of the relationship between strategy and

performance

Organizational resources shape the characteristics of organizations because they are the many important structural and cultural characteristics that together constitute the way activities are organized within the business (Day 1997). Although the construct has been introduced to the literature by Pugh, Hickson, Hinnings, and Turner (1968) and Aiken and Hage (1968), it has been improved and applied to marketing concept by Ruekert, Walker, and Roering (1985). The structural characteristics of an organization pertain to how activities, routines and related decision-making authority are arranged (Pugh et al. 1968, and Aiken and Hage 1968; Ruekert, Walker, and Roering 1985).

Although the literature identifies several different structural characteristics of organization, three have been viewed as particularly important in this study: centralization regarding the concentration of decision-making authority at higher levels of the business's hierarchy; formalization, which is the degree to which standardized rules and procedures proscribe how activities are performed; and specialization, which is the extent to which activities are narrowly divided into unique elements that are performed by those with specialized knowledge. Together, these structural characteristics indicate whether activities are arranged in a bureaucratic or an organic manner (Moorman

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and Miner 1997; Jaworski and Kohli 1993; Ruekert, Walker, and Roering 1985; Pugh et al. 1968; and Aiken and Hage 1968).

For Defenders

A company following a defenders strategy type is to provide quality products or services at the lowest overall cost for superior performance. The emphasis for defenders is on efficiency through standardized practices, rather than on effectiveness that stems from flexibility. (Ruekert, Walker and Roering 1985). Therefore, implementing this strategy requires an organization to configure its activities in a routine way and with a narrow, less technically sophisticated production process (Ruekert and Walker 1987). In performing such routine activities, defenders should use highly centralized, formalized and unspecialized structures. Centralized authority structures provide control over the deployment of available resources and formalized work routines minimize errors in executing required activities (Ruekert and Walker 1987). Creating specialized structures with team workflows and developing a wide range of different activities are not likely to be efficient ways to implement this strategy (Vorhies and Morgan 2003; Olson,Slater and Hult 2005; and Conant, Mokva, and Varadarajan 1990).

H9 The greater the extent of centralization, the greater impact of the relationship between the degree of defenders and their performance. H10 The greater the extent of formalization, the greater impact of the relationship between the degree of defenders and their performance. H11 The lesser the extent of specialization, the greater impact of the relationship between the degree of defenders and their performance.

FOR PROSPECTORS

Prospector strategic types focus on entering unfamiliar new markets and attaining differentiation-based advantages (Miles and Snow 1978). Therefore, achieving required goals in implementing a prospector strategy involves performing many complex activities. Accomplishing these activities ideally requires specialized, decentralized, and informal marketing structures (Ruekert, Walker, and Roering 1985)5. In implementing prospector strategies, such organizational characteristics should be emphasized because they empower specialists to access to wide-ranging capabilities and provide them with decision-making freedom and work routine flexibility to use these capabilities to produce timely and innovative responses in their competitive industry (Vorhies and Morgan 2003).

H12 The lesser the extent of centralization, the greater impact of the relationship between the degree of prospectors and their performance.

5 While Ruekert, Walker, and Roering (1985) initiated specialization by adaptiveness by saying that “…greater specialization leads to greater adaptiveness, in that specialists understand problems more clearly, adapt more readily to changing conditions, and discover new ways of doing things (p.15), as explained before adaptiveness and prospectors represent the organizational learning process and conceptually similar.

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H13 The lesser the extent of formalization, the greater impact of the relationship between the degree of prospectors and their performance. H14 The greater the extent of specialization, the greater impact of the relationship between the degree of prospectors and their performance.

SAMPLE SELECTION AND DATA COLLECTION

For the purposes of the study, the sample was drawn from the service industries. Service industries generate over two-thirds of GNP and employment in developed countries and their importance is growing in developing countries (Asia Pacific Business Review, 2002). The importance of service industries is undeniable in the USA, since they account for 72 percent of GNP and 76 percent of employment (Van Egeren, O’Connor 1998). Characteristics of the service industry make the market orientation an essential construct for most service organizations. The service industry has three distinct characteristics from goods industry- intangibility, heterogeneity, and inseparability. First, most services are intangible. Because they are performance rather than objects, precise manufacturing specifications can rarely be set. Most services cannot be counted, measured, inventoried and tested. Second, services are heterogeneous. It means their performance often varies from producer to producer, from customer to customer, and from day to day. Third, production and consumption of many services are inseparable. Satisfaction occurs during the service delivery, usually in an interaction between the customer and employees (Parasuraman, Zeithaml, and Berry 1985).

For the purpose of this study, only a carefully selected set of service businesses were represented in the sampling frame. For this selection, three major criteria were used: (1) businesses should require high level of customer interaction, (2) labor of intensity should be high in the business and, (3) businesses should not be prone to any monopoly power.

Depending on those criteria, the sample covers four sets of service industries in the service sector: finance and insurance (NAICS 52), accommodation and food services (NAICS 72), transportation (NAICS 48), real estate and rental and leasing (NAICS 53). As discussed above, these business lines are characteristically similar to each other in terms of high level of customer interaction and high level of labor of intensity (Tinnila and Vepsalainen 1995; Schmenner 1993). Characteristically similar industries do not increase industry effects while they enhance the generalization of our findings. The North American Industry Classification System (NAICS) were used in the selection of those qualifying service businesses that are represented in the final sample. The companies in the sample frame were selected by using Corporate Affiliations database. 1980 companies were selected using above criteria. To increase response rate a variety of methods were used in combination. These methods are as follows: (1) Emails with a personal salutation (e.g., emails starting with "Dear Mr. Wright" rather than "Dear Manager." If no response received, a direct telephone call to the manager(2) indicating Old Dominion University’s association with the research study, (3) offering a monetary incentive (i.e., lottery), (4) offering a brief summary of research findings for each complete and usable questionnaire, and (5) providing detailed contact information to respondents. Two-hundred and seventeen managers agreed to

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participate or examine the survey package. Only one-hundred thirty five of those questionnaires were usable for this specific study. Of those businesses, seventy one were pursuing a defender strategy, sixty four were pursuing a prospector strategy.

For the strategy type scale, Conant, Mokwa, and Varadarajan’s (1990) eleven- item scale to classify firms into strategic types has originally been created for service industries. This scale has been successfully applied elsewhere (e.g., Dyer and Song 1997, Lucas 1999, DeSarbo et al. 2004). Only prospectors and defenders strategy types were extracted from the sample since they are generically different types and represents two end of the continuum. For the market orientation, Narver and Slater’s (1990) market orientation 15 item scale adapted and it is modified to reflect the study’s focus on the service industries. Surveys were added to the appendices. Results for Environmental Moderators

There are two types of analysis in literature to identify the presence of moderators between the predictor and criterion variables. The first one is multiplicative interaction term which is used in hierarchical multiple regression procedure, specifies the form of the relationship between the predictor and criterion variables. The second one is multiple group analysis and modifies the strength of the relationship between the predictor and criterion variables. Following Sharma, Durand and Gur-Arie (1981) suggestion, the both types of analysis have been used identifying the presence and type of moderator variables in this study.

In first method, moderator effects can be detected by using moderated regression analysis (Sharma, Durand and Gur-Arie 1981). The procedure requires the introduction of a multiplicative interaction term into the regression equation: Y = b0+ b1X1 + b2X2+ b3 X1X2 +. . . .bnXn+ e where X1X2 is the multiplicative interaction term; where X1 is predictor variable and where X2 is a moderator variable. A moderator effect is indicated where the regression coefficient of the interaction term (b3) is statistically significant.

A specific type of regression analysis, hierarchical multiple regression, is employed to test the interaction term. There are two reasons for this action. First, hierarchical multiple regression produces fewer Type I and Type II errors for detecting moderator effects relative to procedures that involve the use of cut points (Frazier, Tix and Barron 2004) and second, it provides the partial F associated with the resulting change in R2 for each step to test whether or not a moderating effect exists.

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Table 1 Hierarchical Regression Results of Resressing Performance on Customer Orientation, Interfunctional

Coordination, Environmental Variables and the Interaction Terms for Prospectors and Defenders Dependent Variable

Defend. Independent Variables Step 1

Pros. Perform

.

Perform. VIF Pros VIF Def

Customer Orientation .471*** -.046 1.526 1.389 Interfunctional Coord. -.226 .446** 1.526 1.389 R Square .148 .180 R Square Change .148 .180 F Value 4.95* 4.49* Step 2 Customer Orientation .409** -.050 1.774 1.908 Interfunctional Coord. -.257 .382** 1.591 1.736 Market Turb. .122 .055 1.608 1.506 Competitive Ints. .047 .251 1.571 1.284 R Square .165 .249 R Square Change .016 .070 F Value .540 1.81

Step 3 Customer Orientation .640* -.058 7.565 1.917 Interfunctional Coord. -.279* -.814 1.647 62.416 Market Turb. .850 .396 50.996 22.583 Competitive Ints. -.417 -1.091 59.438 47.343 Customer Orientation * Market Turbulence

Int. (H1) Customer Orientation * Competitive Intensity Int. (H3) Interfunctional Coordination * Market Turbulence Int. (H2) Interfunctional Coordination *Competitive Intensity Int. (H4)

-1.033 94.914

.599 104.966 -.532 140.248 2.346 47.793

R Square .181 .289 R Square Change .017 .039 F Value .546 1.02

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In the moderated hierarchical regression analysis (Table 1) the predictor variables (customer orientation and interfunctional coordination) were entered in the first step, environmental variables (market turbulence and competitive intensity) were entered in the second step. In the last step, the interaction variables were entered. As seen in step 3, the inclusion of interaction terms to the model explains the limited amount of variance (R square change .017 for prospectors and .039 for defenders) and as non significant F value (.546 for prospectors and .1.02 for defenders) indicates that the contribution of interaction terms to the model does not make significant change. As a result, the moderation effect of environmental uncertainties on the relationship between dimensions of market orientation (customer orientation and interfunctional coordination) and business performance does not support the hypothesized moderating effects for both strategy types.

About the second type of moderation effect, the moderation effect of environmental uncertainties and company structure on the relationship between the level of strategy types and their performance has been assessed by using both moderated hierarchical regression analysis and subgroup analysis. Structural variables have entered to the model at the 3. Step (Table 2).

As seen in step 3, the inclusion of interaction terms to the model explains the significant amount of variance (R square change .106 for prospectors and .114 for defenders) and as significant F value (3.65 for prospectors and .3.57 for defenders) indicates that the contribution of interaction terms to the model makes significant change. The significant results may not be comprehended that hypothesized moderating effects are supported. The following two reasons explain this assertion in detail.

The first reason is that variance inflation factor (VIF) which is calculated for each of the regression coefficients. The VIF provides information on the extent to which nonorthogonality among independent variables inflates standard errors. The VIF ranges from 34.31 to 54.22, well above the cutoff of 10 recommended by Neter, Warresaman and Kutner (1985, p.32). This finding suggests that multicollinearity is a threat to the substantive conclusions drawn from the parameter estimates.

The second reason is about the meaning of the moderators drawn from moderated regression analysis. According to Sharma, Durand and Gur-Arie (1981) multiplicative interaction terms shown in step 3 in Table 2 may not be considered as a pure moderator, because both moderator variables and predictor variable are significantly correlated to performance.

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Table 2 Hierarchical Regression Results of Regressing Performance on Strategy Level, Environmental Variables

and the Interaction Terms for Prospectors and Defenders Independent Variables

Dependent Variables Defend.

Step 1

Prosp. Perform .

Perform .

VIF Pros VIF Def

Strategy Level -.421*** -.338** 1.000 1.0 R Square .177 .114 R Square Change .177 .114 F Value 12.5*** 5.42** Step 2 Strategy Level -.429*** -.397*** 1.001 1.051 Market Turb. .195 -.076 1.441 1.140 Competitive Ints. .106 .430*** 1.442 1.128 R Square .249 .283 R Square Change .072 .168 F Value 2.68* 4.68**

Step 3 Strategy Level -.487 1.19 18.432 36.546 Market Turb. 1.875*** -.032 35.699 34.402 Competitive Ints. -1.520** 1.983*** 35.765 29.610 St. level and Mark Turb Int

-2.877** -.176 71.802 47.048 St. Level and Competitive Ints Int 2.520** -2.292** 76.809 55.086 St. level and Form

Int St. level and Cent

Int St. level and Speci

Int

- .108 - .096 .132

.09 5 .22 1 .30 3

78.65 6 79.77 6 79.10 2

64.078 70.654 71.861

R Square .355 .397 R Square Change .106 .114 F Value 3.65** 3.57**

The subgroup analysis is employed to overcome those difficulties discussed above. Although subgroup analysis cannot avoid the loss of information resulting from the artificial transformation of a continuous variable into a categorical one, partitioning the total sample into homogeneous subgroups with respect to the error variance can increase the predictive efficacy for each subgroup (Zedeck 1971). The partial correlation

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coefficient for market orientation and performance in each subgroup are reported in Table3.

Table 3 Subgroup Analysis of Moderator Effects for Turbulent Environment

Part A Partial Correlation Coefficients for Subgroups

Dependent Variable - Performance

Independent Variable

Market Turbulence (H5, H6)

Competitive Intensity (H7, H8)

LO HI LO HI prospectors -.293 -.557*** -.565*** -.387** Chow test F

value

2.10ns

5.73**

Defenders -.378* -.261 -.319 -.533** Chow test F

value

.281ns

4.72**

Table 3 correlates strategy level and performance for each subgroups of environmental

uncertainty and reports the correlation coefficients for prospectors and defenders. The mainly significant results of correlation coefficient for subgroups are not enough for the presence of moderating effect. It also needs to be tested that whether those high and low group regression coefficients are significantly different. The Chow test provides whether the full set of regression parameters differ among groups. Table 3- shows that there is no differences between high and low market turbulence for both strategy types. Both F values are not significant (2.10 for prospectors, .281 for defenders).

H8 (F value = 5.73 p < .05) is supported indicating that the changes in competitive intensity affect the relationship between prospectors’ strategy level and prospectors’ performance. And H7 is significant (F value = 4.72 p < .05) indicating that the changes in competitive intensity affect the relationship between defenders’ strategy level and defenders’ performance.

As seen, structural variables interaction are not significant for both strategy types in Table 2. Interaction of structural variables, centralization and formalization are negative; specialization is positive for prospectors. Those are predicted but none of them are significant. Interaction of structural variables, centralization and formalization and specialization are positive for defenders. The sign of formalization and centralization are as predicted but specialization is not in parallel with this study’s prediction. Again none of them are significant. These findings suggest that there is no support that structural variables moderate the strategy performance relationship for both strategy types.

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CONCLUSION

The first set of hypotheses contains the results of the influence of environmental turbulence on the relationship between dimensions of market orientation and performance. The findings suggest that there is no support for the proposition that environmental turbulence has a moderating effect on the strength of the dimensions of market orientation and performance (for both prospectors and defenders) relationship.

The results, consistent with the Kohli and Jaworski (1993) and Slater and Narver (1994), suggest that the linkage between market orientation components and performance appears to be robust across contexts characterized by market turbulence and competitive intensity. Implications of these finding to managers is rooted under the cultural concept. Establishing an organizational culture, market oriented culture in specific, requires long term dedication and expense. Adjusting market orientation to the today’s fast changing environment might not be easy and cost effective. It might be also possible that the hypothesized moderating effects exist but were not detected because of the relatively small sample size.

The second set of interaction effect is the influence of environmental turbulence on the relationship between the level of strategy types and their performance. The results reveal that the relationship between strategy level and performance does not moderated by market turbulence for defenders and prospectors.

Although market turbulence determines the prospectors’ performance, companies do not respond differently to the changes in turbulent markets (composition of customers and their preferences) on the relationship between strategy level and performance. On the other hand, relationship between prospectors’ strategy type and prospectors’ performance is moderated by competitive intense environment. In parallel with the related theory, relationship between prospectors’ strategy level and prospectors’ performance gets stronger in low intense competitive environment for prospectors. Since, in a less competitive environment, competitors do not have the capacity or resources to substantially alter the balance of power among the sellers; focusing on the customers’ needs and wants and seeking superior customer value (like prospectors do) is most likely to lead success (Slater and Narver 1994). It is implied to managers that relatively less competitive intense environment are the appropriate environment to implement prospector strategy for superior performance.

In addition, the research results show that the coefficients values measuring the relationship between the level of prospectors and their performance are negative. If managers increase the level of prospectors’ strategy, their performance decreases. It indicates that prospectors should not take their characteristic activities, such as market sensing, customer preference and new opportunities, to the extreme levels. This finding suggests to managers that they should not use all their resources for the activities like market sensing, customer preference and new opportunities, because they will not have enough resources to be used internal process or efficiency related activities.

For defenders, relationship between defenders’ strategy level and defenders’ performance is not affected by the changes in turbulent market environment. This can be explained as, defenders focus on efficiency related activities and internal processes rather than changes in customer conditions or market turbulence for superior performance. On the other hand, competitive environment moderates the relationship between defenders’ strategy level and defenders’ performance. In parallel with the related theory, defenders’ center of attention is internal and their goal is to reduce costs by focusing on the efficiency of the firm’s processes

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(Rust, Moorman and Dickson, 2002). In an extremely competitive environment along with the lack of possible opportunities for further growth, organizations need to develop activities such as cost control, aggressive pricing o promotions. As a result, study findings advise to managers that the level of defenders and their performance relationship will be stronger in highly competitive environment compared to the less competitive environment.

The regression results reveal that there is a negative significant relationship between defenders’ strategy level and defenders’ performance. As discussed before, defenders depend on internal process and efficiency related activities. Certain defenders may use all their limited resources on efficiency related activities and they may find themselves using an excessive level of cost related activities. Even though those activities increase the defenders related competence, they drive out customer sensing and innovative capabilities of the organizations. As a result, defenders perform poorly since they lack of ability to execute necessary activities for customer sensing and innovation. Managers of defenders should not use all their resources for the efficiency related activities, because they will not have enough resources to be used for the activities related to customer preference and new opportunities.

Results indicate that the level of strategy and company performance relationship is not affected by organizational structure. Level of defenders and level of prospectors are strongly related to the company performance for both strategy types. It appears that the linkage between these two sets of variables is robust across organizational structural characteristics. Although the signs are in hypothesized direction, centralization, formalization and specialization are not moderating strategy level and performance relationship. The lack of moderating effect might be explained by the characteristics of sample. Data is collected from both large and small companies. Although it provides an ability to generalize the results to entire service companies, small companies’ organizational structure might have different characteristics from large companies. Developing a market-oriented culture and engaging in market oriented behaviors is a requirement for both large and small companies and it is not an activity only for large and rich companies (Pelham and Wilson 1996, and Slater and Narver 1996). But the same approach might not be applicable to organizational structure characteristics. Study Limitations and Future Research Implication

Although current study employs a standard research design used by many social studies, it has some limitations. This study uses a cross-sectional design. Cross-sectional design investigates the hypothesized relationships among the model variables at “one point in time” and gives “a static perspective” on the suggested relationships. These relationships are often dynamic in nature and subject to change over time. There is a possibility that there is a laggard effect between market orientation and performance for a strategy type. Future researches should investigate this relationship on a longitudinal base.

Finally the present study assessed the level of market orientation only from the firm’s perspective. Another word, this construct is measured by the subjective judgments of one respondent from each surveyed firm. It is common concern that measuring the level of market orientation in a company through perceptions of sellers only is likely to generate biased study results. It was argued that even using multiple respondents from each company might not reduce this bias. The one way in which market orientation can be measured more precisely is to measure it through the perceptions of customers. It is clear that this approach is much easier to apply when research involves only a single company. If there is more than one company involved, this method might not be cost and time efficient.

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APPENDICES

Appendix 1: Survey Questionnaire for Market Orientation. Dear Respondent: Please read each question carefully and answer it completely. There is no right or wrong answers to these questions (seven-point scale with 1 indicating "strongly disagree" and 7 indicating "strongly agree" as anchors). Section A: 1. To what extent does each statement listed below accurately describe your division or business unit's organizational culture? Please indicate your level of agreement or disagreement with each of the following statements.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

1. Our business objectives are driven primarily by customer satisfaction.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

2. We constantly monitor our level of commitment and orientation to serving customers’ needs.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

3. Our business strategies are driven by our belief about how we can create greater value for customers.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

4. We measure customer satisfaction systematically and frequently.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

5. We give close attention to after-sales service.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

6. Our strategy for competitive advantage is based on our understanding of customers' needs.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

7. We target customers where we have an opportunity for competitive advantage.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

8. Our salespeople regularly share information within our business concerning competitors' strategies.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

9. We rapidly respond to competitive actions that threaten us.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

10. Top management regularly discusses competitors' strengths and strategies.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

11. Our top managers from every function visit our current and prospective customers.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

12. We freely communicate information about our successful and unsuccessful customer experiences across all business functions.

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Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

13. All of our business functions (marketing/sales, manufacturing, R&D, finance/accounting, etc.) are integrated in serving the needs of our target markets.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

14. All of our managers understand how everyone in our business can contribute to creating customer value.

Strongly Disagree 1

2

3

4

5

6

Srongly Agree 7

15. We share resources with other business units.

Appendix 2: Survey Questions for Strategy Types. For the following eleven questions, please choose one of the three response options listed for each question that define your division or business unit best.

1. In comparison to other organizations, the services which we provide to our customers are best characterized as: {Choose one} ( ) Services which are more innovative, continually changing and broader in nature throughout the organization and marketplace. ( ) Services which are well focused, relatively stable and consistently defined throughout the organization and marketplace. ( ) Services which are fairly stable in certain units/departments and markets while innovative in other units/departments and markets.

2. In contrast to other organizations, my business unit has an image in the marketplace as which: {Choose one} ( ) Has a reputation for being innovative and creative. ( ) Offers fewer, selective services which are high in quality. ( ) Adopts new ideas and innovations, but only after careful analysis.

3. The amount of time my organization spends on monitoring changes and trends in the marketplace can best be described as: ( ) Lengthy: We are continuously monitoring the marketplace. ( ) Minimal: We really don't spend much time monitoring the marketplace. ( ) Average: We spend a reasonable amount of time monitoring the market-place.

4. In comparison to other organizations, the increase or losses in demand which we have experienced are due most probably to: {Choose one} ( ) Our practice of aggressively entering into new markets with new types of service offerings and programs. ( ) Our practice of concentrating on more fully developing those markets which we currently serve. ( ) Our practice of assertively penetrating more deeply into markets we currently serve, while adopting new services only after a very careful review of their potential.

5. One of the most important goals in this organization, in comparison to other organizations, is our dedication and commitment to: {Choose one} ( ) Insure that the people, resources and equipment required to develop new services and new markets are available and accessible. ( ) Keep costs under control. ( ) Analyze our costs and revenues carefully, to keep costs under control and to selectively generate new services or enter new markets.

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6. In contrast to other organizations, the competencies (skills) which our managerial employees possess can best be characterized as: {Choose one} ( ) Broad and entrepreneurial: their skills are diverse, flexible, and enable change to be created. ( ) Specialized: their skills are concentrated into one, or a few, specific areas. ( ) Analytical: their skills enable them to both identify trends and then develop new service offerings or markets.

7. The one thing that protects my organization from other companies is that we: {Choose one} ( ) Are able to consistently develop new services and new markets. ( ) Are able to do a limited number of things exceptionally well. ( ) Are able to carefully analyze emerging trends and adopt only those which have proven potential.

8. More so than many other organizations, our management staff tends to concentrate on: {Choose one} ( ) Developing new services and expanding into new markets or market segments. ( ) Maintaining a secure financial position through cost and quality control measures. ( ) Analyzing opportunities in the marketplace and selecting only those opportunities with proven potential, while protecting a secure financial position.

9. In contrast to many other organizations, my organization prepares for the future by: {Choose one} ( ) Identifying trends and opportunities in the marketplace which can result in the creation of service offerings or programs which are new to the industry or which reach new markets. ( ) Identifying those problems which, if solved, will maintain and then improve our current service offerings and market position. ( ) Identifying those trends in the industry which other companies have proven possess long-term potential while also solving problems related to our current service offerings and our current customers' needs.

10. In comparison to other organizations, the structure of my organization is: {Choose one} ( ) Service or market oriented (i.e. customer service have marketing or accounting responsibilities). ( ) Functional in nature (i.e. organized by department-marketing, accounting, personnel, etc.) ( ) Primarily functional (departmental) in nature; however, a service or market oriented structure does exist in newer or larger service offering areas.

11. Unlike many other organizations, the procedures my organization uses to evaluate our performance are best described as: {Choose one} ( ) Decentralized and participatory encouraging many organizational members to be involved. ( ) Highly centralized and primarily the responsibility of senior management. ( ) Centralized in more established service areas and more participatory in newer service areas.

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