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Journal of Professional Services Marketing

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The Influence of Top Management Team and External Environmental Characteristics on Market Orientation and Performance in Service Firms: A Test and Refinement of a Causal Model

Marsha Van Egeren PhD , Hanh Q. Trinh PhD & Stephen J. O'Connor PhD

To cite this article: Marsha Van Egeren PhD , Hanh Q. Trinh PhD & Stephen J. O'Connor PhD (1999) The Influence of Top Management Team and External Environmental Characteristics on Market Orientation and Performance in Service Firms: A Test and Refinement of a Causal Model, Journal of Professional Services Marketing, 20:1, 5-22, DOI: 10.1300/J090v20n01_02

To link to this article: https://doi.org/10.1300/J090v20n01_02

Published online: 15 Jul 2010.

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The Influence of Top Management Team and External Environmental Characteristics

on Market Orientation and Performance in Service Firms:

A Test and Refinement of a Causal Model

Marsha Van Egeren, PhD Hanh Q. Trinh, PhD

Stephen J. O’Connor, PhD

ABSTRACT. This paper explores the interactive relationships among top management team variables, external environmental characteristics, market orientation, and organizational performance. Using a sample of 289 senior managers from 67 service firms, a theoretical model derived from the marketing, organization theory, and strategy literature is tested and refined via a LISREL approach. [Article copies available for a fee from The Haworth Document Delivery Service: 1-800-342-9678. E-mail address: [email protected] <Website: http://www.haworthpressinc.com>]

Many authors have discussed the importance of the marketing con- cept as a central part of marketing principles and management for decades (Felton, 1959; Levitt, 1969; Kotler and Clark, 1987; Houston,

Marsha Van Egeren is Assistant Professor, University of Wisconsin-Green Bay, 1601 Woodsdale Drive, Suamico, WI 54173 (E-mail: [email protected]). Hanh Q. Trinh is Assistant Professor, School of Allied Health Professions, University of Wisconsin-Milwaukee, P.O. Box 413, Milwaukee, WI 53201 (E-mail: [email protected]). Stephen J. O’Connor is Associate Professor, School of Busi- ness Administration, University of Wisconsin-Milwaukee, P.O. Box 742, Milwau- kee, WI 53201-0742 (E-mail: [email protected]).

Address correspondence to Stephen O’Connor.

Journal of Professional Services Marketing, Vol. 20(1) 1999 � 1999 by The Haworth Press, Inc. All rights reserved. 5

JOURNAL OF PROFESSIONAL SERVICES MARKETING6

1986). The marketing concept is essentially a business orientation (McNamara, 1972). The term ‘‘market orientation’’ is used to refer to the implementation of the marketing concept (McCarthy and Perrault, 1984). Although the marketing concept has been all but canonized in the business literature, and that most treatises on the subject include extensive discussion of the benefits derived to all types of organiza- tions by adopting the marketing concept or by becoming market ori- ented, little has been done in terms of developing a clear definition, creating a valid measurement, or empirically testing the concept. Re- cently, however, some scientific inquiry into this area has begun (Koh- li and Jaworski, 1990; Narver and Slater, 1990). The three components of market orientation are described by Narver and Slater (1990) as:

Customer orientation–the sufficient understanding of one’s tar- get buyers to be able to create superior value for them continu- ously.

Competitor orientation–the seller understands the short-term strengths and weaknesses and long-term capabilities and strate- gies of both the key current and the key potential competitors.

Interfunctional coordination–the coordinated utilization of com- pany resources in creating superior value for target customers at any and all points in the buyer’s value chain.

PURPOSE OF THE STUDY

The purpose of this article is to explore the three components of market orientation: (1) customer orientation; (2) competitor orienta- tion; and (3) interfunctional coordination, and their relationship with other variables as suggested by marketing, organization theory, and the organizational strategy literatures. This paper develops an integra- tive model in an attempt to study the constructs (market orientation subconcepts, external environment, top management team dynamics, and organizational performance) and the interactive relationship among them. It is based on the premise that these constructs are intricately linked to one another and that these relationships are inter- active in nature. Attempts to examine the individual relationships in isolation would lead to an incomplete picture. The substantive rela- tionships are tested using a structural equations model (LISREL).

Egeren, Trinh, and O’Connor 7

Figure 1 illustrates the proposed model. The model posits that the degree of market orientation (comprised of customer orientation, com- petitor orientation, and interfunctional coordination) in an organiza- tion is associated with levels of top management team (TMT) cohe- siveness, TMT heterogeneity, TMT informal communication, and levels of environmental dynamism and munificence. The model fur- ther specifies how the various components of market orientation influ- ence financial performance.

REVIEW OF LITERATURE AND HYPOTHESIS DEVELOPMENT

Strategy and the Attributes of the Top Management Team

TMT Cohesiveness. What influence does top management team (TMT) cohesiveness have on market orientation (customer orienta- tion, competitor orientation, interfunctional coordination)? This ques- tion has not been previously examined empirically. The literature of-

FIGURE 1. Theoretical Model

TMT Cohesiveness

TMT Heterogeneity

TMT Communications

Munificence

Dynamism

Customer

Orientation

Competitor

Orientation

Interfunctional

Coordination

Performance

JOURNAL OF PROFESSIONAL SERVICES MARKETING8

fers mixed explanations for these relationships. On the one hand, higher levels of TMT cohesiveness may result in higher levels of organization-wide market orientation. Group cohesiveness has been shown to be related to the quantity of interactions (Lott and Lott, 1961) and the quality of the interactions (Shaw, 1964) among group members. Members of highly cohesive groups tend to be friendly, cooperative, and well integrated (Shaw, 1981). Additionally, empirical data support the claim that high-cohesive groups are more effective than low-cohesive groups in achieving their goals (Seashore, 1954).

On the other hand, higher levels of TMT cohesiveness may result in reduced levels of market orientation. Cohesive TMTs may exert social pressure among members to conform and to concur with its ideas and decisions. Extreme cohesiveness can result in the phenomenon known as groupthink. Groupthink occurs when a group ignores important information pertaining to a problem, group outsiders are stereotyped, nonconformists are pressured to agree, censorship and a sense of unanimity are present, and information at odds with the group’s posi- tion is discounted (Brightman, 1988). Because of the divergence of theoretical possibilities related to this question, we declined to ad- vance formal a priori hypotheses regarding the extent to which TMT cohesiveness would correspond to organization-wide levels of market orientation (customer orientation, competitor orientation, interfunc- tional coordination). Rather we thought an exploratory approach to these relationships was more appropriate.

TMT Heterogeneity. Several empirical studies contend that, other things being equal, groups composed of members having diverse ex- perience and abilities outperform groups with members having similar experiences and abilities (Goldman, 1965). This stream of research argues that small group performance frequently requires diverse skills. Diverse skills are more likely to be found in a group composed of members with different educational and functional backgrounds.

H1: The higher the level of TMT heterogeneity, the higher the orga- nization’s level of market orientation (customer orientation, com- petitor orientation, interfunctional coordination).

TMT Informal Communication. Communication lies at the heart of group process. Communication affects strategic decision making by influencing the breadth of field during the intelligence generation and

Egeren, Trinh, and O’Connor 9

dissemination activities of market orientation, and by influencing the processing of information during intelligence response activities.

H2: The higher the level of informal communication exhibited by the top-management team, the higher the organization’s level of market orientation (customer orientation, competitor orienta- tion, interfunctional coordination).

Environmental Factors and Market Orientation

Previous research has studied organizational environment as a mul- ti-dimensional concept (Aldrich, 1979; Dess and Beard, 1984; Keats and Hitt, 1988; McArthur and Nystrom, 1991). Specifically, the envi- ronmental factors identified in the literature are munificence, dyna- mism, and complexity.

Munificence. Environmental munificence, as studied here, refers to environmental capacity that permits organizational growth and stabil- ity. Munificence can also facilitate the generation of slack resources (Cyert and March, 1963) which the organization can use during peri- ods of scarcity or which can be used for organizational innovation.

H3: Organizations in environments low in munificence will exhibit a higher degree of market orientation (customer orientation, com- petitor orientation, interfunctional coordination) than those or- ganizations in environments high in munificence.

Dynamism. Another attribute of an organization’s environment is the degree of volatility or dynamism. Dynamism is the degree of change or market instability (Aldrich, 1979; Dess and Beard, 1984). Strategists argue that unpredictable discontinuities in an environment create risk and difficulty for effective strategy making and imple- mentation. Keats and Hitt (1988) argue that environmental instability creates uncertainty for top management teams.

H4: Organizations in environments high in dynamism will exhibit a higher degree of market orientation (customer orientation, com- petitor orientation, interfunctional coordination) than organiza- tions in environments low in dynamism.

Market Orientation. It has been suggested by practitioners, as well as researchers, that a market orientation facilitates clarity of focus and

JOURNAL OF PROFESSIONAL SERVICES MARKETING10

vision for an organization’s top management team. A market orienta- tion provides a unifying framework and focus for people and depart- ments, thereby creating superior value for customers and superior performance for organizations. Narver and Slater’s (1990) seminal article studied the relationships between market orientation and busi- ness profitability. They found that among the non-commodity busi- nesses there was a positive, monotonic relationship between market orientation and organizational profitability. In the commodity busi- nesses, a positive market orientation/performance relationship oc- curred only among those SBUs that were above the median in their level of market orientation.

Alternatively, although the market orientation construct has been observed to influence performance positively, the relationship of the market orientation subconcepts (customer orientation, competitor ori- entation, interfunctional coordination) to performance has not been previously examined. They may not be uniformly related to perfor- mance in a positive fashion. For example, higher levels of customer orientedness usually require increased time and financial costs, that could serve to negatively influence performance. Furthermore, this rela- tionship may depend on the organization’s particular life cycle stage. Higher competitor orientation may result in higher performance; how- ever, this relationship may depend on levels of competitive hostility in the firm’s environment. For these reasons, we declined to advance formal a priori hypotheses for this particular research question.

RESEARCH DESIGN

Analytic Methods

To demonstrate the structural relationships among TMT character- istics, environmental variables, market orientation, and organizational performance, multivariate statistical techniques are essential. The spe- cific technique used was structural equations modeling employing the statistical program known as LISREL (Mainframe-LISREL version 8.11, 1993, Scientific Software, Inc., Joreskog and Sorbom, Chicago, IL). LISREL is especially well suited to studies such as this, in that it forces the researcher to take a theoretical position in the form of a model. This theoretical model can then be assessed by applying empir-

Egeren, Trinh, and O’Connor 11

ical data. In addition, the procedure adjusts for all of the variables by taking into account their real life relationships simultaneously. For this reason, LISREL allows us to observe significant relationships that otherwise may have been suppressed or obscured. Table 1 includes each of the item measurement statements used to measure each of the constructs of interest.

Data Collection Methods

Primary sources were used via personal interviews with CEOs. These interviews were used to solicit cooperation and participation, to determine which individuals were considered part of the top manage- ment team, and to collect objective financial performance data. Sur- veys using self-report measures were left with the CEO to be filled out by the top management team and returned to the researchers in the addressed, stamped envelopes provided to them.

Target Population

The target population was comprised of top management teams of independent, stand-alone service firms in Wisconsin from the 5000, 7000, and 8000 Standard Industry Code (SIC) categories. These firms had to have at least $10,000,000 in annual sales, be for profit, and have a top management team of three or more individuals.

The overall response rate of the data collection by organization was 96% (67/70), and 78%(289/372) by individual TMT members. The sample consisted of the CEOs and those people he/she considered being the top management team. Characteristics of the individuals and the organizations who responded are displayed in Table 2.

RESULTS AND DISCUSSION

Refinement of the Model

Testing the fit of the data to our refined model by LISREL indicated a relatively good overall fit of the model to the data. The goodness-of- fit measures for this model show (1) a chi square value (X2(347df) = 690.83), (2) a goodness-of-fit index (GFI) of 0.88, (3) an adjusted

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TABLE 1. Item Measures (Indicants) for the Constructs Included in Final LIS- REL Model Following Confirmatory Factor Analysis and Respecification

MARKET ORIENTATION

1 = not at all 2 = to a very slight extent 3 = to a slight extent 4 = to a moderate extent 5 = to a considerable extent 6 = to a great extent

Customer Orientation

V1 Our business objectives are driven primarily by customer satisfaction. V2 We constantly monitor our level of commitment and orientation to serving customer needs. V3 Our strategy for competitive advantage is based on our understanding of customer needs. V4 Our business strategies are driven by our beliefs about how we can create greater value for our customers. V5 We measure customer satisfaction systematically and frequently.

Competitor Orientation

V6 We give close attention to after-sales service. V7 Our sales people regularly share information within our business concerning competitor’s strategies. V8 We rapidly respond to competitive actions that threaten us. V9 Top management regularly discusses competitor’s strengths and strategies. V10 We target customers where we have an opportunity for competitive advantage.

Interfunctional Coordination

V11 Our top managers from every function regularly visit our current and prospective customers. V12 We freely communicate information about our successful and unsuccessful customer experiences across

all business functions. V13 All of our business functions (e.g., marketing/sales, manufacturing, R&D, finance/accounting, etc.) are

integrated in serving the needs of our target markets. V14 All of our managers understand how everyone in our business can contribute to creating customer value. V15 All our business functions share resources with other business functions.

TMT DYNAMICS MEASURES

1 = definitely not true 2 = not true 3 = uncertain 4 = true 5 = definitely true

TMT Cohesiveness

V18 The members of the TMG get along together very well. V19 When final decisions are reached, it is common for at least one member of the TMG to be unhappy with the

decision. V20 There is a great deal of competition between members of the TMG.

TMT Heterogeneity

V21 How many years of post-high school education have you attained, if any? (for example a Bachelor’s Degree would be 4 years and a Master’s 6 years.)

V22 In what primary area is your post-high school education (please check ONE which most closely corre- sponds to your background):

Marketing Sales Product R&D Production General Management Engineering Accounting Law Finance Other (specify)

Egeren, Trinh, and O’Connor 13

TMT Communication Informality

V23 TMG meetings tend to be very formal in nature. V24 Meetings between members of the TMG are very informal. V25 Communication between members of the TMG are always in writing. V26 Our TMG employs informal rather than formal communication channels.

EXTERNAL ENVIRONMENT MEASURES

Environmental Munificence

Please read the following statements containing pairs of extreme positions and circle the number on the scale which most accurately reflects your industry’s environment. V27 Very rapidly expanding through expansion of old markets and the emergence of new ones.

1 2 3 4 5 6 7 Very stagnant or even shrinking markets.

V28 This industry offers many attractive opportunities for future growth. Very True 1 2 3 4 5 6 7 Very Untrue

V29 In this industry, customer demand for new products/services is growing. Very True 1 2 3 4 5 6 7 Very Untrue

Environmental Dynamism

V30 Customer/client demographics have changed. Very little 1 2 3 4 5 6 7 Very much

V31 The economic, social, political, and technological aspects of our industry’s external environment is. Very stable, no change 1 2 3 4 5 6 7 Very dynamic, a great deal of change

ORGANIZATIONAL PERFORMANCE

Rate how well your business has performed relative to all other competitors in your principal served market segment over the past three years: 1. < 10% 2. 11-25% 3. 26-40% 4. 41-55% 5. 56-70% 6. 71-85% 7. 86-100% V16 Return on investment V17 Sales Growth

goodness-of-fit index (AGFI) of 0.82, and (4) a root mean square residual of 0.078. The goodness-of-fit indices (GFI and AGFI) can range between 0 and l and signify the relative amount of variance/ covariance accounted for within the model. Better models are associ- ated with larger GFI and AGFI. The root mean square residual is a measure of the average of the residual variances and covariances (Joreskog and Sorbom, 1984) and can be used to judge competing models when the same data set is used for both. Good models normal- ly have RMSR which are quite small. Further, the ratio of chi square to degrees-of-freedom is less than 2.0. Although there are no hard rules, conventional agreement recommends that ratios of chi square to de- grees-of-freedom of less than 5.0 are acceptable, and that ratios less than 2.0 are superb (Bollen, 1989). Taken together our goodness-of-fit values indicate an acceptable fit of the refined model to the data in our sample.

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TABLE 2. Demographic Profile of Respondents

Number Percentage

Age

20-30 9 3.1 31-40 83 28.7 41-50 128 44.3 51-60 55 19.1 60+ 14 4.8

Gender

Male 244 84.4 Female 45 15.6

Years with Present Company

0-5 57 19.7 6-10 72 24.9 11-15 49 16.9 16-20 47 16.3 21-25 31 10.7 26+ 33 11.4

Years in Present Industry

0-5 18 6.2 6-10 48 16.6 11-15 49 16.9 16-20 71 24.6 21-25 38 13.1 26-30 29 10.1 31+ 35 12.1

Years of Post-High School Education

0 31 10.7 1 8 2.8 2 37 12.8 3 2 7 4 (Bachelor’s Degree) 112 38.8 5 20 6.9 6 (Master’s Degree) 63 21.8 7 2 7 8 5 1.7 9 4 1.4 10+ 5 1.6

Primary Area of Functional Education

None 31 10.7 Marketing 32 11.1 Sales 12 4.2 R&D 0 0 Production 8 2.8 General Management 47 16.3 Engineering 41 14.2 Accounting 29 10.0 Law 10 3.5 Finance 15 5.2 Other 64 22.1

Egeren, Trinh, and O’Connor 15

Assessing the significance of parameter estimates can provide fur- ther evidence of a good model. Parameter estimates can be judged by their t-values. For each of the y-indicants (item indicators for the endogenous constructs: customer orientation, competitor orientation, interfunctional coordination, and organizational performance) and x- indicants (item indicators for the exogenous constructs: cohesiveness, communication, munificence, dynamism, and heterogeneity), LISREL provides estimates for factor loadings (lambda-y or lambda-x ma- trices), error variances (theta-epsilon or theta-delta matrices), and re- liabilities (squared multiple correlations for y- and x-variables).

Each of the item indicators associated with all nine latent constructs in the measurement model exhibited significant lambdas (analogous to factor loadings), showing that these items loaded well onto their related constructs. In the measurement model, most lambda coefficients are greater than 0.71; only five range between 0.49 to 0.64 (see Table 3).

Reviewing the t-values for all causal parameters (gamma and beta) within the model (Table 4) reveal whether these path estimates are significant or nonsignificant and whether they are positive or negative.

The LISREL output also provides a measure of the percent of variance in each endogenous latent construct accounted for by the entire structural equation model. The final model, en toto, accounted for 81% of the variance in customer orientation, 100% of the variance in competitor orientation, 100% of the variance in interfunctional coordination, and 9% of the variance in performance.

TMT Group Dynamics

TMT Cohesiveness and Market Orientation. A strong negative rela- tionship was found between TMT cohesiveness and the three subcon- cepts of market orientation. No other study has ever examined this relationship. In fact, no prior study has examined any TMT-market orientation relationship despite considerable research (Hambrick and Mason, 1984; Gupta, 1984; Michel and Hambrick, 1992; Miller and Toulouse, 1986) in organization strategy concerning TMT characteris- tics, organizational strategies, and performance.

TMT Heterogeneity and Market Orientation. The relationship be- tween TMT heterogeneity and the market orientation subconcepts (customer orientation, competitor orientation, interfunctional coor- dination) were all negative. However, the relationship between TMT heterogeneity and interfunctional coordination was nonsignificant.

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TABLE 3. Measurement Models of Top Management Team, Market Orienta- tion, and Organizational Performance

Parameter (Lambda Y) Indicator Construct

1,1 1.00* V1 Customer Orientation

2,1 0.89* V2 Customer Orientation 3,1 0.86* V3 Customer Orientation 4,1 0.89* V4 Customer Orientation 5,1 0.83* V5 Customer Orientation 6,2 1.00* V6 Competitor Orientation 7,2 0.87* V7 Competitor Orientation 8,2 0.64* V8 Competitor Orientation 9,2 0.88* V9 Competitor Orientation

10,2 0.98* V10 Competitor Orientation 11,3 0.72* V11 Interfunctional Coordination 12,3 0.88* V12 Interfunctional Coordination 13,3 0.90* V13 Interfunctional Coordination 14,3 1.00* V14 Interfunctional Coordination 15,3 0.71* V15 Interfunctional Coordination 16,4 0.58* V16 Organizational Performance 17,4 1.00* V17 Organizational Performance

Parameter (Lambda X) Indicator Construct

1,1 0.89* V18 TMT Cohesiveness 2,1 1.00* V19 TMTCohesiveness 3,1 0.95* V20 TMT Cohesiveness 4,2 0.49* V21 TMT Heterogeneity 5,2 1.00* V22 TMT Heterogeneity

6,3 1.00* V23 TMT Communications 7,3 0.71* V24 TMT Communications 8,3 0.81* V25 TMT Communications 9,3 0.51* V26 TMT Communications

10,4 0.67* V27 Munificence 11,4 0.51* V28 Munificence 12,4 1.00* V29 Munificence 13,5 0.81* V30 Dynamism 14,5 1.00* V31 Dynamism

*Significant at 0.05 or lower level

These results were at odds with what had been hypothesized. As stated earlier, it is difficult to suggest a clear explanation for this. Maybe heterogeneous TMTs, while enjoying a richer base of information, do not have a unified voice strongly advocating for greater customer or competitor orientation.

TMT Communication and Market Orientation. As hypothesized, a strong positive relationship was found between TMT informal com-

Egeren, Trinh, and O’Connor 17

TABLE 4. Parameter Estimates and T-Values (in Parentheses) for Causal Paths of the Refined Structural Model

GAMMA Interfunctional

Customer Orient. Competitor Orient. Coordination

TMT Cohesiveness �0.87 �0.78 �1.04 (�2.25) (�2.50) (�2.73)

TMT Heterogeneity �0.16 �0.13 �0.03 (�3.22) (�2.91) (�0.68)

TMT Communications 4.15 3.39 4.03 (3.53) (3.67) (3.48)

Env. Munificence �0.35 �0.28 �0.38 (�3.04) (�2.94) (�3.43)

Env. Dynamism 0.84 0.47 1.00 (2.11) (1.50) (2.49)

BETA

Organizational Performance

Customer Orientation �0.59 (�2.57)

Competitor Orientation �0.04 (�0.09)

Interfunctional Coordination 0.86 (2.71)

munication and customer orientation, competitor orientation, and in- terfunctional coordination. These relationships were significant and in the same positive direction as found in small, nonbusiness group re- search (Shaw, 1981).

External Environmental Antecedents

Dynamism and Market Orientation. This study found uniformly positive relationships between degree of environmental dynamism and customer orientation, competitor orientation, and interfunctional coor- dination; however, the relationship between dynamism and customer orientation was nonsignificant. Past research (Duncan, 1972; Keats

JOURNAL OF PROFESSIONAL SERVICES MARKETING18

and Hitt, 1988) has indicated that the environment creates opportuni- ties and threats for organizations. It influences organizational pro- cesses and decision-making. It creates uncertainty for managers, which in turn affects the information processing needs within the TMT. The TMT must cope with this uncertainty by identifying oppor- tunities, recognizing problems, and by implementing adaptations. Miles and Snow (1978) found that managers in more dynamic envi- ronments tended to be more proactive and innovative. Since a strong market orientation involves higher degrees of market intelligence gathering, dissemination and implementation, it should be no surprise to see a high degree of market orientation arising from an environment high in dynamism.

Munificence and Market Orientation. Also, this study found a strong positive relationship between low environmental munificence and the three market orientation subconcepts. According to Dess and Beard (1984), Hambrick (1983), and Porter (1980), in environments low in munificence, competition increases. Stronger competition in- creases the choices available to consumers. Organizations must re- spond to customers’ changing preferences to ensure that their prod- ucts/services are chosen over competing alternatives. It is therefore reasonable to expect organizations to respond to low munificence by developing a higher degree of market orientation.

Market Orientation and Performance

In this study, three independent constructs (customer orientation, competitor orientation, interfunctional coordination) represented the broader market orientation construct in our model.

Customer Orientation and Performance. This relationship was ob- served to be significant and negative. A customer orientation usually requires greater financial, employee, and time resources that could serve to negatively impact financial performance. If we had used other nonfinancial measures of performance such as market share, customer retention, service quality, customer satisfaction, etc., perhaps a differ- ent relationship would likely be observed.

Competitor Orientation and Performance. This relationship was nonsignificant. Because we examined dozens of firms representing three SIC categories, not all firms were experiencing the same levels of competitive hostility. By controlling for hostility, we believe this relationship would most likely be seen as positive and significant.

Egeren, Trinh, and O’Connor 19

Interfunctional Coordination and Performance. A strong positive relationship was observed between interfunctional coordination and performance. This means that service firms that design and coordinate their organizational structure to offer consistently high value to their customers will experience higher performance. Table 5 includes a summary of the hypothesis testing.

TABLE 5. Summary of Hypothesis Testing

Hypothesized Research Relationship Finding

RQ1A TMT Cohesiveness to

Customer Orientation NHB � Competitor Orientation NH � Coordination NH �

H1 TMT Heterogeneity to

Customer Orientation + �, contradicted Competitor Orientation + �, contradicted Coordination + �, contradicted

H2 TMT Informal Communication to

Customer Orientation + +, supported Competitor Orientation + +, supported Coordination + +, supported

H3 Environmental Munificence to

Customer Orientation � �, supported Competitor Orientation � �, supported Coordination � �, supported

H4 Environmental Dynamism to

Customer Orientation + +, supported Competitor Orientation + +, not supported Coordination + +, supported

RQ2 Customer Orientation to

Org. Performance NH �, significant

RQ3 Competitor Orientation to

Org. Performance NH �, not significant

RQ4 Interfunctional Coordination to

Org. Performance NH +, significant

ARQ = Research Question BNH = Not Hypothesized/Competing Hypotheses

JOURNAL OF PROFESSIONAL SERVICES MARKETING20

Managerial Implications

This research shows that TMT cohesiveness has a significant, nega- tive effect on each of the market orientation subconcepts. As TMTs become more cohesive they may tend to exhibit characteristics of the phenomenon known as groupthink (Janis, 1982). This may result in social pressure on members to conform and concur with its ideas and decisions. Furthermore, the group may begin to ignore important in- formation relating to a problem or situation–such as the need to be- come customer and competitor oriented, and to provide value to its customers.

We also found that TMT heterogeneity exhibits a significant, nega- tive relationship with customer orientation and competitive orienta- tion. Its relationship with interfunctional coordination is nonsignifi- cant. These results did not support what we had originally hypothesized. In fact, these findings present a conundrum. Janis’ (1982) research suggested that homogeneous groups (which according to our model are more likely to be market oriented) tend to be more cohesive (which according to our model are less likely to be market oriented) and more likely to exhibit groupthink.

As to environmental ramifications for management practitioners, this study adds support to the intuitive claims of academicians that environments high in dynamism and low in munificence engender higher degrees of market orientation. Those organizations that are in ‘‘tune’’ with their environments and recognize themselves as being in dynamic or low munificence environments would be well advised to invest in becoming more market oriented. However, to interpret this as suggesting that an organization should move its degree of market orientation up or down to match changing environments would be erroneous, as creating a market orientation is time and resource con- suming. As environments change, the subconcepts of market orienta- tion (customer orientation, competitor orientation, interfunctional coordination) may each need to be adjusted. In some situations, the organization may need to become less customer oriented and more competitor oriented, and vice versa.

SUMMARY

The research described in this article develops and tests a theoreti- cal model that examines a variety of research questions and hypothe-

Egeren, Trinh, and O’Connor 21

ses regarding how top management team dynamics and external envi- ronmental characteristics influence the components of market orientation (customer orientation, competitor orientation, and inter- functional coordination), and how these, in turn, impact organizational performance.

Using data from a sample of 289 senior managers from 67 service firms representing the 5000, 7000, and 8000 SIC categories, our over- all model was refined and observed to adequately fit the data from the sample. Each of the eighteen causal linkages within the model repre- sented a research question or hypothesis. By assessing each of these linkages for sign and significance we were able to test our hypotheses and provide answers to our research questions. Of the twelve path- ways for which we generated formal hypotheses, eight were supported (significant), one was not supported (nonsignificant), but exhibited the correct sign, and three were contradicted (significant, but opposite sign).

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