The Performance Implications of Planning, Implementation, and Evolution of Market-oriented Strategy by Top Management

Participating in the growing research stream involving the market orientation-performance relationship, this investigation explores the impact of firms’ planning, implementation, and evolution of market orientation on financial performance. A longitudinal approach is used to capture the formation and evolution of market orientation. Evidence of market orientation as depicted in top management’s stated strategy is assessed through content analysis of 150 SEC filings (S-1s and 10-Ks) of seventy-five initial public offering (IPO) firms. The sample covers companies that went public in the years 2001-2003, and the study spans a six-year period from 2001-2007. Customer and competitor orientation are independent variables tested to predict stock return. Moderator variables of firm size, top-management-team (TMT) heterogeneity, services or manufacturing industry, and industry competitive intensity are tested in a series of regression analyses. The study involves a unique combination of features in that: 1) the market orientation of top management is captured; 2) the market orientation formation and evolution is captured; 3) secondary archival data is used in the analysis; 4) objective performance measures are utilized; 5) data from multiple industries is analyzed; 6) factors that moderate the market orientation performance relationship are studied. Contributions of this study are that it: 1) builds on the work of Gebhardt, Carpenter and Sherry (2006) using longitudinal analysis to capture the dynamic nature of the market orientation; 2) establishes evidence of variation of the market orientation across time; 3) examines the division of market orientation as separate constructs of customer and competition; 4) provides insight about important moderators of the relationship; 5) moves literature towards a foundation for a more general theory of market orientation by providing some further evidence of the construct’s relation to financial performance. Results of regression analysis provide support for customer orientation leading to superior financial performance. Significant moderator variables in this relationship include manufacturing vs. service firms, top-management-team (TMT) heterogeneity, and firm size. Unexpected results are found for competitor orientation and some moderator results are not significant