Constituent Market Orientation
Published in
Journal of Market-Focused Management
Issue 4.2. Summer 1999, p 103-124
Brynjulf Tellefsen
Associate Professor
The Norwegian School of Management, School of Marketing
P.O. Box 4676, Sofienberg
N-0506 Oslo, NORWAY
E-mail: brynjulf.tellefsen@bi.no
Fax: +47 – 22 98 51 11
Phone: +47 – 22 98 50 00
Address all questions to the author at above address
Constituent Market Orientation
Abstract
This paper expands the scope of a market orientation from downstream markets to most of the
major constituents of the firm. In so doing this paper addresses four questions:
1) Can constituent market orientation be measured based on modifications of the theory,
concepts and measurement scales developed by Kohli and Jaworski (1990, 1993)?
2) What are the antecedents for a constituent market orientation? Are they similar across
constituents?
3) What are the consequences of constituent market orientations? Which are unique for a
constituent? Which stem from the sum of orientations towards all constituents?
4) What are the historic and situational moderators of orientations and consequences?
Key words:
Constituent Orientation
Norwegian Utilities Industry
Market Orientation
Effect of Deregulation
Organization Learning
Business Culture
Introduction
Numerous studies have been made on market orientation. Most authors focus on the
degree to which a business unit’s culture is responsive to downstream markets. Some work
has been done on upstream markets. To some extent other constituents of the firm have been
accounted for as antecedents and moderating factors.
The heavy downstream focus in market orientation studies is problematic. It may lead to
sub-optimization and unnecessarily limit the scope of marketing thought and practice. Firms
depend on a series of inter-connected markets in order to do business. Many constituencies
and stakeholders determine the market value of a firm. They are the labor markets including
employees and labor unions, the finance markets including equity owners and lenders, the
upstream markets including suppliers, the market regulators in industry associations, local and
national government, general market influence groups like the media, and downstream
markets including customers. The firm faces competition in all these markets.
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The purpose of this paper is to expand the scope of a market orientation to include the
major constituents of the firm. In so doing this paper addresses four questions:
1) Can we measure constituents market orientation based on modifications of the theory,
concepts and measurement scales developed by Kohli and Jaworski (1990, 1993)?
2) What are the antecedents for a constituent market orientation? Are they the same across
constituents?
3) What are the consequences of constituent market orientations? Which are unique for a
constituent? Which stem from the sum of orientations towards all constituents?
4) What are the historic and situational moderators of orientations and consequences?
The paper is organized as follows: The orientation concept is discussed and defined as a
behavioral double-loop learning for the firm, and for each of the major constituencies based
on existing literature. The first attempt of modeling constituent orientation in 1994 by
Tellefsen (1995) is referred in some detail. A model of the constituent market orientation
among the newly deregulated Norwegian electric utility companies is developed. The methods
used in the investigation of the Norwegian electric utilities are explained. Findings of the
survey on the constituent market orientation of the utilities are presented. Antecedents and
exogenous situational conditions affecting the degree of constituent market orientation, as
well as the consequences are investigated for each major constituent and for the combined set
of constituents. To highlight the effects of a unique industry history and situation on the
various constituent orientations, a comparison with previously published research on the
constituent market orientation of the largest corporations representing a broad cross-section of
industries in Norway are also shown. Interrelations between consequences of a constituent
orientation are investigated. The paper ends with a discussion of the findings, and their
managerial and research implications.
The Orientation Concept
Consciousness is limited. If an individual is preoccupied with something because of his
previous learning of beliefs, values, priorities, goals and habits, other parts of reality become
unattended to, invisible or incomprehensible. The same may occur at the group level to the
extent mental frames, observations and experiences are shared. Cultures and subcultures are
formed, depending on the extent and patterns of double-loop learning. Every firm therefore
develops a distinct business culture more or less homogeneous and stable over time (Allaire
and Firsirotu, 1984, Bate, 1984, Mitroff, 1975, Schein, 1985). An orientation can be seen as a
particular subculture with an identifiable set of cognitions developed around a particular
solution for a group.
There are many possible cultural states. Orientations towards Society, Power, Politics,
Ideology, Ideals, Personnel, Bureaucracy, Profits, Resources, Environment, Suppliers,
Production, Product, Sales, Competitors, Customers, and Markets have been identified and
described (Tordis Buen, 1996).
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Orientations can be described on several dimensions. In a constituent oriented
organization signals are picked from all parts of the environment, especially from the firm’s
stakeholders. Focus is on win-win, the driving force is market behavior optimization, and the
goal profitability via value creation for others. It is long-term, interactive, integrative,
harmony seeking and materialistic in nature. The main success factor is the organization’s
ability to gather, spread and react quickly and correctly to environmental signals. Reality is
subjective and a social construction, perception of man is positive, communication is
interactive, the values are instrumental, and social competency is important. A constituent
orientation implies that the organization is network oriented. Both internal and external
constituents are treated as markets. Where the need for vertically administered exchange
solutions is great, the stakeholders may think in terms of ownership control. Where
competition and flexibility of partnership choice is important, the legal and social relationship
between the parties will be much less binding.
In real life these orientations normally do not exist in their extreme state, but are mixed
with each other, forming subcultures where overlaps define the common cultural base. It is
therefore appropriate to conceptualize the constituent orientation of a firm as one of degree,
on a continuum, rather than as being either present or absent.
A business unit or a work group will normally have a culture and orientation that
deviates more or less from that of the firm as a whole and other groups. This is partly based on
unique access to signals and experiences with specific constituents of the firm. If these unique
learning channels are not opened up to colleagues in other business units and work groups
through well functioning double-loops of learning within the firm, the formation of subcultures will be strong, and the common culture base weak.
If the commonalties in culture and orientation are great, the firm has a strong culture in
the sense that members of the firm will act in the same manner and more easily together to
signals from the central leadership group or from the surrounding markets. If the business
units and work groups have little common culture, they may each and all be closer to their
particular external markets, but have great difficulty in communicating and acting together. It
is therefore important to measure and understand constituent market orientation at the
corporate, business unit and work group levels.
An organization’s orientation will normally change slowly, and have a tendency to be
reinforced as long as results achieved are deemed satisfactory. In times of crisis, the ruling
paradigm of the organization may change quickly, and the mix of orientations change
accordingly. External forces normally generate the need for change, but the implementation of
changes is an organization-internal process.
The internal change process are programmatic or a systemic market-back learning
(Slater and Narver, 1995). In programmatic processes the leadership executes learning
activities designed to change the cultural elements of the organization. The immediate effect
can be great, especially if the significant actors are in agreement and are persistent in their
efforts. Programmatic activities happen outside the daily task-handling system. The
programmatic efforts will lose their effect if not translated into permanent changes in the way
every employee thinks and acts in their daily task. To obtain a lasting and accelerating
reinforcement process of the new orientation, the programmatic actions must be combined
with a reengineering of the internal and external architecture of the organization. The
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daily task handling system generates the feedback for continuos individual learning. The
organizational architecture determines the nature of double-loop learning.
This line of reasoning can be extended to networks of cooperating firms and business
units (Cravens and Piercy, 1995, Payne 1988). For cultural learning to take place it is
sufficient that the exchange partners have mutual commitments for value creation and a
minimum of contact. Common ownership is not a necessary condition. The long-term effects
of double-loop learning between business partners are manifested as industry cultures,
cultures of professions, customer cultures influencing business unit cultures, etc.
Market Orientation for a Constituent
Jaworski and Kohli developed and measured a behavioral model of a learning process
that leads to a higher degree of downstream market orientation (Kohli and Jaworski, 1990,
Jaworski and Kohli, 1993). Top management signals are programmatic inputs to the learning
process. They do not explicate other programmatic inputs for change. The other antecedents
are treated as internal situational factors in their model. If the leadership want to change the
double-loop learning in their organization, they have to initiate programmatic systems
reengineering to change these antecedents. The environment is only taken account of as
moderators to consequences, and not to antecedents. Business culture research indicates that
the firm’s history and changes in the environment also should be treated as antecedents to the
programmatic reorientation and the continuous learning processes. Market orientation is
defined as a three stage behavioral process that provides continuous internal and external
double-loop learning with the downstream markets.
Tellefsen expanded this model to measure the degree of market orientation and its
antecedents and consequences towards other constituencies (Tellefsen, 1995). The overall
market orientation and towards each of six constituencies was measured in 1994 using
Jaworski and Kohli's concepts, modifying their questions by referring to relevant actors in the
relationship. Respondents were the managers responsible for the five constituent relationships
plus the main labor union representative in the firm. Questions about the antecedents were
repeat measured for all the managers. 235 CEOs answered questions relating to the total
business environment. 244 marketing managers in the firm’s largest business unit answered
questions related to downstream markets. 188 purchasing managers in the firm’s largest
business unit answered questions related to upstream markets. 163 personnel manager and 179
union representative answered questions related to the firm’s leadership, organized and
unorganized employees and the labor markets. 154 PR manager answered questions related to
the media and the public. 175 lobbying manager answered questions related to the national
government. Questions identifying results specific to each constituency relationship were
added, and answered by the manager responsible for the relationship. The CEOs answered the
general business performance questions. Market orientation towards other possible
constituents was not measured.
To convert the measurement scales from the customers to other constituencies, theory of
general management, purchasing, lobbying, public relations, personnel management and labor
relations were studied and compared with marketing theory. The functional theories had
striking similarities at both the strategic, tactical, inter- and intra-organizational levels.
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Names of actors, some activities, and results sought varied, but methods and the
meaning and content of theoretical constructs were virtually identical across the functional
literature. Identical market orientation constructs could therefore be applied to all constituent
learning loops.
The 1994 investigation (Tellefsen, 1995) showed that the modified Jaworski and Kohli
measurement model was able to identify the degree of market orientation towards each of five
constituents via the managers responsible, as well as the general constituent orientation of the
CEOs and the labor union leader’s constituent orientation. Few antecedents were measured.
Those measured influenced all the seven constituent orientations in the same way. A series of
consequences specific to each of the seven constituency orientations were identified.
Due to a lack of overlap of competed questionnaires within firms, the sample did not
allow a test of the combined antecedents and consequences of market orientation held by the
leadership group of each firm. Nor did the sampling methodology allow identification of the
impact of historic and situational factors on the orientations and their consequences. In order
to correct some of these weaknesses a new sample of the newly deregulated Norwegian
utilities was investigated in 1995. For economic reasons the investigation of labor union
representatives was dropped. Most orientation questions were repeated to allow a comparison
between the two surveys.
The Model of Constituent Orientations for Norwegian Utilities
A revised model of a firm’s constituent orientation with antecedents and consequences
was designed for the new investigation of Norwegian utilities. It is shown in figure 1.
The constituent market orientation is defined as a one-dimensional behavioral learning
circle consisting of the gathering and dissemination of information pertaining to the
constituents’ current and future needs, and the organization’s coordinated response based on
this information. This is an extension of the Kohli and Jaworski definition of a market-back
learning circle to constituents other than the downstream market. The constituent market
orientation is measured as the sum of the leadership group’s self-reported market orientations
towards internal and external constituents of the organization. A theoretically weaker measure
of the same was also used: the CEO’s self-reported constituents market orientation. Five
partial constituent orientations are operationalized as one-dimensional learning circles
pertaining to current and future needs of customers, suppliers, employees, the media and
public, and members of the national government.
The following hypotheses were formulated based on existing theory and research:
Hypothesis 1: The total constituents market orientation and the orientation towards each of the
five constituencies have similar antecedents. The constituent orientation is higher if:
H1a: the personal background of the leadership group is varied and other-directed,
H1b: the risk tolerance in the leadership group is high,
H1c: the signals from the leaders are many, strong and consistently market oriented,
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FIGURE 1
A Model of Constituent Market Orientation
EXTERNAL ANTECEDENTS: Historic and Currently Partial Monopoly, Main Product a Commodity
INTERNAL ANTECEDENTS: (Measured through the following respondents)
Five Functional Managers
The CEO
All Six Managers
Interdepartmental conflict, connectedRisk tolerance, Reorientation
Personal backgrounds
ness and departmentalization
Senior management signals
(Variety is calculated)
Hierarchy (delegation degree)
Relative priority of constituents
CONSTITUENT MARKET ORIENTATIONS
Five Functional Managers
The CEO
Market orientation toward their own constituent measured
Market orientation towards
as gathering, disseminating, and reacting on intelligence
all constituents.
CONSTITUENT MODERATORS
Government
Lobbying competition intensity
The firm’s importance for the government
Regulation changes in the firm’s industry
Customers
Turbulence among customers
Competitive intensity among customers
Suppliers
Turbulence among suppliers
Competitive intensity among suppliers
Differentiation between suppliers
Media
Turbulence among media
Competition to get into media
Availability of media
Media knowledge in the industry
Employees
Turbulence in the employment market
Employment competitive intensity
Negotiation power of employees
Negotiation power of union
representatives
Government influence on relations
PR
Influence on 3rd parties
Information from media
Personnel
Employee loyalty
Employee compensation
Customer effect
Level of “lassies-fair”
Level of trust
Unionization percentage
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ORGANIZATION MODERATORS
The CEO
Generic strategic choice of the firm
Lobbying manager
Dependence on government decisions
Ability to influence top management
Marketing manager
Technological turbulence
Ability to influence top management
Centralization of marketing decisions
Purchasing manager
Time horizon for investments
Ability to influence top management
PR manager
Centralization of PR decisions
Ability to influence top management
Personnel manager
Turbulence among employees
Recruitment needs
Focus on retaining employees
Salary level in the industry
Centralization of personnel management
Ability to influence top management
CONSEQUENCES OF THE ORIENTATIONS
Purchasing
Lobbying
Cooperation level
Increase in lobbying
Relative purchasing costs
Influence on government
Profit margins
Labor union support
The CEO
Return on total assets
Return on equity
Relative per unit cost level
Marketing
Customer loyalty
Customer satisfaction
Market share
Marketing costs
Profit margins
H1d: the members of the firm’s value chain are given priority over other constituencies,
H1e: the internal conflict level is low,
H1f: the interdepartmental connectedness is high and the departmentalization is low, and
H1g: the degree of hierarchy is low (the degree of delegation is high).
Hypothesis 1 is based on the belief that a market-oriented firm has an organic view of
business. The organization is a life form that lives in a symbiosis with its environment. The
firm cannot be socially justified, understood nor survive unless it has positive exchanges with
every salient part of its environment. Sub-hypothesis H1a follows directly from this view. In
sub-hypothesis H1d it is assumed that the closer to the firm’s value core the focus is the more
the people in the organization learn about the most important constituents for the firm’s value
creation, which raises the overall constituent market orientation. The other sub-hypotheses are
extensions to all constituency orientations of Jaworski and Kohli's hypotheses and findings
regarding downstream market antecedents.
Hypothesis 2: The history and nature of the firm and its industry will influence the observed
constituent orientations and their antecedents. These factors may have different impacts on the
market orientation towards each of the constituencies.
Existing research strongly suggest that cultures are lasting. The specific hypotheses are a
consequence of the utility industry’s historic total monopoly and their current distribution
monopoly, and the commodity nature of their main product. The utilities have not had the
need for a downstream market orientation, and could not make money on it because of the
difficulty of developing a unique selling proposition based on value differentiation. The
current downstream market orientation is expected to be very low.
Their former and partially current ability to pass on labor and upstream market
inefficiencies to the customers should lead to a low employee and supplier orientation. Their
authority and media orientation may be higher due to the relatively tight governmental
regulation and heavy involvement in the industry, and the important social position they have
as utilities. Norway has the second highest electric power production per capita in the world,
and utilities are the cornerstone enterprises in many local communities. I test these hypotheses
by comparing the survey of the utilities in 1995 with the 1994 survey of large Norwegian
firms across industries (Tellefsen, 1995).
H2a: The utilities will have a low total constituent orientation, and a low customer, employee,
and supplier orientation compared to the average of business enterprises. Their authority,
media and public orientation will be higher than the average of large Norwegian firms.
Since the deregulation is recent compared to the timing of the data collection the utilities
will be spending much time and effort on programmatic market orientation and changes in
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organizational systems and architecture as an answer to the new price competition in the
downstream markets.
H2B: The utilities will score high on antecedents relative to other large Norwegian firms.
Hypothesis 3: A higher constituent orientation produces higher returns on investments and
lower total unit costs. The effect becomes stronger with the presence of turbulence,
competition and differentiation opportunities.
The first part of the hypothesis is well supported in several reported studies on
downstream market orientation. Since the constituent orientation takes into account all
markets that influence profitability, the profitability consequence should be strong and not
modified by any environmental or situational factors other than the degree of turbulence and
competition and the opportunity to differentiate from competitors. In addition, a high degree
of environment-driven learning should lead to more efficient firms. The rationalization effect
should be separately observable. The correlation with return on equity should be weaker, due
to the extensive local and central government ownership of Norwegian utilities. Equity is
often based on historic costs and not current asset values, as the government owned utilities
do not have to show real asset values to the equity and loan markets.
Hypothesis 4: The consequences of the market orientation towards each of the constituencies
differ from each other. Each consequence has a unique partial contribution towards the total
value generating ability of the firm. Specifically:
H4a: A high downstream market orientation leads to higher customer loyalty and satisfaction,
which in turn may lead to higher market shares and profit margins and lower marketing costs.
H4b: A high upstream market orientation increases the level of support and cooperation from
suppliers, lowers the purchasing costs, and increases profit margins.
H4c: A high employee orientation leads to a more homogenous internal culture, and a higher
employee loyalty, mutual trust and motivation. This in turn leads to a lower salary level, an
easily governed organization, a higher degree of delegation, and positive customer effects.
H4d: A higher media and public orientation increases the flow of up-to-date information from
all events and constituencies that may have impact on the firm, increases the firm’s ability to
influence all of its constituencies, and improves the firm’s image among all constituencies.
H4e: A higher authorities orientation increases the intensity and the effect of the firm’s
lobbying, and increases the labor union’s support of these efforts. Regulatory decisions may
become more favorable, and market access and governmental subsidies may be improved.
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Since the value generating ability of the firm depends on the total constituent
orientation, it logically follows that each environmental link has its own unique contribution.
The specific contributions hypothesized are based on functional theory and reported field
research for each constituent relationship. In hypothesis 4a it is uncertain whether a
downstream market orientation will lead to a more dominant market position (market share),
lower the marketing costs or contribute to profits. Both the commodity characteristics of the
product as well as the distribution monopoly may prevent such an effect.
Methods
The sampling frame: The Norwegian utility industry association EnFO provided an up-to-date
list of all the 243 electric utilities in Norway with names and addresses of all key managers of
holding companies and subsidiaries. The utilities vary in ownership. The central government
owns the national main-line distribution utility and the largest power utility. Local
governments own most of the integrated medium-sized and small distribution and power
generating utilities. Local shareholders own some small local utilities. A few of the larger
power producers are privately owned and are either listed on the stock exchange or are wholly
owned subsidiaries of industry conglomerates. The preliminary data collection discovered that
some of the utilities were owned by other utilities or by corporations owning several utilities.
The sampling frame was reduced to 176 utilities. Of these 14 did not want to participate.
Data collection: EnFO and the research team sent a joint letter explaining the purpose of the
survey to all the CEOs, asking their participation and cooperation in naming the top middle
managers responsible for each of the five constituency relationships to be investigated. After
pre-testing the six questionnaires 162 sets were sent to the utilities that had responded to the
first letter and were confirmed as being organizations with strategic independence from other
utilities. With one round of reminders 567 questionnaires were returned, ranging from 84
lobbying managers to 105 marketing managers, averaging a 58% response rate. A few of these
questionnaires were not 100% completed, and could not be used for analysis. Only 26 utilities
returned all six questionnaires with complete answers.
Measures: Each of the six questionnaires contained approximately 100 questions. Multiple
questions with 7-point Likert scales were used for each main construct. The 30 questions for
each of the five partial constituent orientation constructs were identical except for the names
of the involved parties, and covered gathering, disseminating and responding to constituent
information. Questions to the CEOs were drawn from the five partial orientations, but the
other party was named constituents, stakeholders or industry participants. Antecedents,
moderators and consequences were measured through sets of questions ranging from a few up
to 18 items for some key antecedents to single items for a few moderators and results. The
questions answered by the CEO, and kept after the Factor and Cronbach Alpha analyses were
completed, are shown by construct in Appendix 1. The items and Cronbach Alpha values of
the constructs for the other five respondents can be obtained from the author in Norwegian or
in English translation.
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Analytical techniques: Factor analysis was used to confirm which construct each question
belonged to. In a few cases one or two items were moved to other constructs than originally
intended. A few items did not have sufficient partial correlation with any of the constructs,
and were removed from further analysis. A few less central antecedents, moderators and
consequences ended up with different names and content than originally hypothesized.
Constructs expected to be one-dimensional were checked out via Factor analysis. Cronbach
Alpha analysis was used to test the reliability of the constructs. A few items that reduced
construct reliability were removed.
Ordinary Least Square multiple regression and multiple correlation analysis was used to
test the relationships between the constructs. Presence of co-linearity was investigated
throughout.
Differences in mean values of antecedents and orientations between the 1994 sample of
large Norwegian firms and the 1995 sample of utilities were t-tested.
In 26 of the utilities all six of the managers had completed all of the questions, allowing
an exploratory investigation of the antecedents and consequences of the firm’s leadership
group constituent orientation. Otherwise the 92 CEOs’ answers were used to investigate the
antecedents and consequences of a firm’s total constituent market orientation. Interrelations
between consequence constructs associated with specific constituencies and between the
return on assets and other consequences were investigated using simple correlation analysis
for each pair of consequences.
Findings
Factor analysis showed that all six constituent orientation constructs are one-dimensional.
This confirms and extends the hypothesis put forward by Kohli and Jaworski. The reliability
of the six measurements is high with Cronbach Alphas ranging from .87 for the CEOs’
orientation to .94 for the PR managers’ orientation. Factor analysis was used to find onedimensional antecedents, moderators and consequences where possible in order to reduce the
number of predictor and dependent variables in the regression analyses, and reduce the colinearity problem. Multi-item variables were checked for reliability using Cronbach Alpha
analysis. If the reliability was too low, the single item variables were used in the regression
analysis rather than the multi-item variables found in the factor analysis. As expected, the
antecedents were all multi-item variables, and virtually identical in composition between the
five functional managers, and with the CEO where he had answered the same set of questions.
Virtually identical one-dimensional multi-item moderators were found for the CEO and the
five functional managers regarding constituent turbulence and competitive intensity. Other
moderators and consequences of a market orientation varied in composition and content
between the six managers. Several single-item variables turned up.
The findings in the regression analysis supported Hypothesis 1. The antecedents for
overall constituent market orientation and the orientation towards each constituency are
similar but not identical. Many, strong and consistently market oriented leadership signals, a
high risk tolerance in the leadership group, a low internal conflict level, a high interdepartmental connectedness and a low degree of hierarchy correlated positively with both the
total and the five partial constituent market orientations measured. A varied and other-directed
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TABLE 1. Multiple Regression Result
_______________________________________________________________________
Dependent Variable: Constituent Orientation
Variable
Interdepartmental harmony
measured via PR manager
Use of EnFO measured
via lobbying manager
Goals of authority relations
measured via lobbying mgr.
Top manager signals measured
via Purchasing manager
Interdepartmental conflict measured
via Personnel manager
R2
Adjusted R2
Fdf:19= 11.63 P= .0000
Overall model:
Raw
Coefficient
.40
Standardized
Coefficient
.70
P-value
.0000
-.23
-.34
.0075
-.23
-.36
.0077
.21
.27
.0477
.14
.22
.0723
.72
.68
personal background of the top leadership group influenced positively all the constituent
market orientations, but the background of the CEO failed to have any effect. A low
departmentalization led to a higher constituent market orientation except in the case of the
employee orientation where there was no effect. Giving priority to the constituents in the
firm’s value chain led to a higher total constituent market orientation, but did not influence
any of the five partial constituent orientations.
In the 26 utilities with complete observations for the CEO and all the five top
functional managers a composite measure of the firm’s total constituent orientation was
constructed as the sum of six orientations. All antecedents measured in the firm were
regressed against this composite orientation index. The results are shown in Table 1.
Interdepartmental harmony and connectedness had the highest impact. It was measured
for all of the five top functional managers, and each showed a high correlation with the
orientation variable. Due to co-linearity between the harmony measurements, only one
measure could be used in the regression. The PR manager reported harmony had the highest
predictive power, and was kept as a predictor variable. I found the same co-linearity between
the five measurements of constituent relation goals, top manager signals and interdepartmental
conflict. In each case the strongest predictor from the group of predictor variables was kept in
the regression. The high co-linearity within predictor variable groups indicates a high interrater reliability of the measurements of antecedents. In the lobbying area one question
measured the degree of indirect versus direct contact with a constituent. The use of EnFO
rather than direct Government lobbying had a negative impact on the total constituent
orientation. It is interesting to note that only the goals of the authority relations had a negative
correlation with the composite orientation measurement. Goals for all other constituency
relations had positive, but weaker correlations with the orientation measurement.
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The findings supported Hypothesis 2. The commodity characteristic of their main
product electric energy, and the historic monopoly and the current partial monopoly of the
utilities did significantly influence the mean constituent orientation level compared to
identical measures of firms belonging to a representative cross-section of Norwegian
industries. The utilities had on average a significantly lower general constituent orientation.
The downstream market orientation gap was particularly wide. The upstream market
orientation gap was the second biggest and slightly larger than the overall constituent
orientation gap. The employee market orientation gap was also negative and significant, but
not very large. The authorities and the public and media market orientations were identical in
the utilities and the rest of large Norwegian firms. The latter finding is somewhat surprising
given the important local society role of the utilities. The only average authority orientation in
this heavily regulated industry is due to the behavior of the publicly owned utilities, which
prefer to leave the lobbying to their very strong industry association EnFO.
Utilities scored on the average significantly higher on all antecedents to the constituent
orientations compared to other large Norwegian firms. At the time of the investigation the
newly deregulated utilities seem to pursue what Slater and Narver define as programmatic
market orientation, and are in the process of implementing a better systemic market-back
learning without having caught up with firms with a more competitive history.
Hypothesis 3 was mainly supported by the findings. The total constituent orientation as
measured by the CEOs’ responses and both of the organization-internal moderators of generic
strategy chosen had significant predictive power on return on equity and total assets as well as
total unit costs. The correlation with return on assets was significantly stronger than with the
other two consequences. Avoiding the generic strategic position of “stuck-in-the-middle”
strengthened the effect of the orientation on the consequences, as both a differentiation and a
cost strategy had positive effects on all three economic outcomes. Surprisingly, external
factors had no moderating effect on the consequences when using the CEO self-reported
degree of a constituent market orientation.
In 26 utilities with complete responses the total constituent orientation was measured as
the sum of the five partial and the CEOs’ orientations. Multiple regression was run against
return on total assets using the composite orientation measurement and a wide range of
moderators as predictor variables. The results are shown in Table 2.
Most notably, the internal moderators disappeared from the regression, while the
external moderators of turbulence and competitive intensity entered. There was a high degree
of co-linearity between the turbulence moderators. Only the turbulence in the lobbying
environment was kept as the strongest moderator from the group. The lobbying environment
was particularly turbulent for some of the utilities in the aftermath of the deregulation. In
general, the higher the external turbulence, the greater the correlation between the orientation
and the return on assets is. The co-linearity in the reported competitive intensity in the
constituency markets was not very high, except between media and the up- and downstream
markets. The media competition was kept as it had the strongest partial correlation with
returns on assets.
With moderators from the constituencies not directly involved in the primary value
chain, the correlation between the composite market orientation and return on assets was
significant and negative. If the up- and downstream competition and turbulence levels are
used in
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TABLE 2. Multiple Regression Results
__________________________________________________________________________
Dependent variable: Return on Total Assets
Variable
Turbulence in the lobbying
environment
The union representative
a competitor or a partner
Sum of constituent orientations
Competition in the media market
Competition in the lobbying
Environment
R2
Adjusted R2
Fdf:19= 12.46 P= .0000
Overall model:
Raw
Standardized
Coefficient Coefficient
.97
.58
P-value
.000
.51
.50
.000
-.14
.24
.29
-.63
.24
.24
.000
.054
.077
.75
.69
the regression instead, and the media, lobbying and union representative competition are
removed, the composite constituent orientation has a weak but significant positive partial
correlation with returns on total assets. This instability may be due to the low sample size in
this part of the analysis. It can also be seen as an indication that turbulence in constituencies
not close to the value core forces a constituent orientation that is not productive in terms of
current returns on assets. It may well be that the utilities that were the most disrupted by the
deregulation have the most problems with current returns.
The findings supported the main expectation in Hypothesis 4, but not all the subhypotheses. The consequences of the market orientation for each of the constituencies differ
from each other. Each consequence has a unique partial contribution towards the total value
generating ability of the firm. This was confirmed through a paired correlation analysis
between return on assets and other consequences where most correlations were significant and
positive. In addition several other significant correlations between constituent-specific
consequence were found:
The PR manager reported result on public image was strongly and positively correlated
with the marketing managers reported customer satisfaction and the utility’s ability to respond
quickly to competitive moves.
Marketing manager reported relation building intent among customers is positively
correlated with the personnel manager reported employee salary differentiation.
Marketing manager reported ability of sales personnel to discuss customer signals with
other employees is positively correlated with personnel manager reported low employee
turnover and high job satisfaction.
The findings also gave support to most of the partial consequence hypotheses shown
below. Market turbulence and competitive intensity are significant moderators on the
consequences of all partial constituent market orientations as well as for consequences of the
overall constituent orientation. However, the effect of the internal moderators of generic
strategic
115
choice could not be tested due to the composition of the sample and the fact that only the CEO
answered these questions for the utility.
H4a: A high downstream market orientation leads to significantly higher customer loyalty and
satisfaction and ability to respond quickly to competitive moves, but not to lower marketing
costs, higher market shares or profit margins. The lack of economic and market power
consequences are probably due to the commodity character of their main product.
H4b: A high supplier market orientation significantly increases the level of support and
cooperation from suppliers, lowers the purchasing costs, and increases profit margins.
H4c: A high employee orientation leads to significantly less presence of sub-cultures, higher
employee loyalty, mutual trust and motivation, a lower compensation level, a more easily
governed organization, a higher degree of delegation, and positive downstream market effects.
It also produces a more proactive culture.
H4d: A higher media and publics orientation significantly improves the flow of up-to-date
information from all events and constituencies that may have impact on the firm, the firm’s
ability to influence all its constituencies, and the firm’s image among all constituencies. In
addition it was found that a higher media market orientation has beneficial effects in the
downstream markets.
H4e: A higher authority orientation significantly increases the intensity and the effect of the
firm’s lobbying, and the labor unions’ support of these efforts. It also lowers the conflict level
with the government. However, the correlation with the regulatory decision outcomes was
negative, and correlations with market access and governmental subsidies were insignificant.
When analyzing the consequences separately for privately owned utilities the correlations with
regulatory decision outcomes, and especially increased market access through grants of
concession rights, became positive.
Discussion
Major findings
A market orientation exists in an organization towards a series of internal and external
constituencies. The market orientations can be defined and measured through identical onedimensional concepts with scales that can be directly compared and be combined to one
common organizational double-loop learning scale.
All measured general and partial constituent market orientations are influenced by
external historic and situational factors. These factors influence all the firms in the utility
industry in the same direction. The impact on each firm is moderated by organization-internal
factors. Internal antecedents explain variations in constituent market orientations within the
utility industry. Virtually identical antecedents of internal situation,
116
programmatic learning, organizational systems and architecture influence the overall and each
of the partial constituent market orientations.
All partial constituent orientations contribute in unique and interactive ways to the
overall economic performance of the firm via consequences unique to each constituent. The
correlation between the overall constituent market orientation and return on assets is strong
and positive.
The intensity of competition, the intensity of market change, and the opportunity to
convert market knowledge to differentiation, (develop a unique selling proposition)
consistently and strongly moderate the antecedents and consequences of a market orientation.
This suggest that a market-driven knowledge management is particularly important and
beneficial when conditions are changing in markets where the competition is based on unique
value-added.
Managerial implications
Even though the business culture of all the utilities is negatively influenced by the lack of
competition in the industry, there is considerable variation in the degree of market orientation
between utilities. The leaders can significantly improve profitability by raising the overall
constituent market orientation.
The payoff from an increased constituent market orientation depends on the presence of
market turbulence, competitive intensity and the ability to differentiate from competitors in
each of the constituent markets. This suggests that the utilities should not primarily increase
their market orientation downstream.
The distribution utilities have a local monopoly, and do not benefit from increased
learning about their customers, but can benefit from learning more about macroeconomic
changes that influence the total market demand and supply and the commodity price.
However, distribution utilities can enter new profitable business by using their network for
carrying other services than supplying electric power. Since they would essentially
differentiate the commodity product electricity by packaging it with a range of new services a
downstream market orientation may become important if they expand their business domain.
The power utilities find it very difficult to differentiate their product downstream in
ways customers are permanently willing to pay for. To some extent they have succeeded in
differentiating through close cooperation with very large customers, but not with small
customers. The historic combining of distribution and power generating in one utility will
probably be outlawed in Scandinavia in the near future, taking away the differentiation
opportunities based on the distribution network. The power utilities have, on the other hand
many opportunities to differentiate themselves in ways meaningful to all the other
constituencies. They should do so, and coordinate and intensify their market-driven learning
and marketing effort towards the labor market, the finance market, the upstream markets, the
government, the media and the public. There is a lot to be gained, as the average degree of
market orientation is particularly low in the industry because of its monopoly history.
The leadership of the utility can materially increase the degree of constituent market
orientation towards all constituents using the same set of values, goals, leadership style and
reengineering of the firm’s task handling architecture and systems. They should do so, and
make sure the process is combined with a strategic reorientation and a clear choice of
117
generic strategy that applies equally to all constituencies of the firm. The harmonization of
key values in the firm is important for reducing the conflict level. Often conflicts start as
moral ones, and are transmitted to task-related and personal conflicts. Conflicts cannot
permanently be solved at any of these three levels without reducing the moral belief conflict,
either through value based management, or by removing employees that have unacceptable
morals.
A common value based platform for all internal and external communication will be
essential for succeeding with the cultural change management outlined above. The utility will
have many employees doing part-time marketing towards the various constituencies. The job
of the professional full-time marketing people should become one of coordinating the total
corporate communication, and otherwise educate and coach all the part-time marketers within
the firm. It becomes the job of every employee to contribute to the monitoring of changes in
the environment, and to communicate this information to colleagues.
The market-driven development of competency within the firm will increase if the
organization reduces its use and size of hierarchy and increases the horizontal cooperation and
coordination between activities along value chains within the firm and with the value chains
of its constituencies. To do so the control system of the utility has to be built bottom-up
starting with logistics, production and exchange activities. Self-control of delegated decision
making authority becomes the most important. Second-most important will be insight into
horizontal activities, i.e. a collegial control. This will provide to the individual insight into
integration issues, which lessens the need for middle management, and secure double-loop
learning across functions, professions, business units and departments. It is a top management
responsibility to make sure such a control network is developed, but everybody must provide
input and use the control system. The control information must be seen as an opportunity for
learning, not as a system for administering rewards and penalties. Team organization with
rotating membership of key constituents is particularly well suited for achieving the above.
Research implications
Market orientation must be studied in the future as a managed cultural change process that
involves multiple-loop market-driven learning from all markets within and surrounding the
firm. The marketing concept applies to all areas of exchange, not just the downstream market.
This is important for understanding the effectiveness of marketing activities and the area of
applying marketing. The unit of investigation is primarily the firm. The unit of investigation
becomes complex when dealing with the orientation towards a single constituent.
Efforts should be made to develop a generalized market exchange theory. A merging of
marketing-, purchasing-, public relations-, lobbying-, personnel management- and financing
theory should be both possible and beneficial in the understanding of both market orientation
and how the firm manages and develops its constituent relationships, value creation and multimarket competition.
The constituent market orientation process is complex. It involves all employees and
key representatives from all constituencies. In corporations operating with several business
118
units it involves all of them as synergy is a result of concrete activity links between value
chains and networks.
Since the process is dynamic, involving both top-led programmatic learning and systems
reengineering and market-back learning from the daily task-handling, dynamic research
techniques should be used. In many cases the investigation of dynamic links have been
difficult and prone to misinterpretation since a cross-sectional survey technique was employed
in this study. The model currently identifies poorly endogenous and exogenous variables. The
survey material indicates that consequences are antecedents to each other. The consequences
should be antecedents to antecedents, moderators and the market orientation in the next time
period. In several case studies of the dynamics of the early phases of the programmatic change
process I have consistently found very large gaps between the market orientation level selfreported by top leaders, middle management, the front line, and the external constituents of
that firm. The gaps are reduced as the market-back learning improves. For highly marketoriented firms it does not matter where the measurement is done within the firm or its main
constituents.
The constituent orientations as defined in this paper are just as applicable to
governmental and other non-profit organizations. Market orientation assumes a minimum
degree of freedom of choice for the parties. It does not require the existence of pure
competition and unrestricted choice. Future investigations should include such organizations.
Finally, a small technical note on the research presented in this paper. The sample was
not large enough to use confirmatory factor analysis to test thoroughly the validity of the many
new or modified measurement scales.
APPENDIX A
Translated questions
The questions for the other constituents are available from the author in Norwegian and
English organized by concept the items belong to.
For each concept the Cronbach Alpha is shown.
Antecedents to the CEO’s constituents orientation
.77 Priority of constituents:
Own employees
Our union representatives
Our owners and their board members
Politicians and bureaucrats who influence our industry.
Media and the general public
Customers
Suppliers
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.64 Risk propensity
I tell my employees that our survival depends on them being able to change with the
market trends.
I assume a free electricity market will be established in the Nordic countries.
I must allow for possible higher prices in a Nordic market.
.79 CEO signals
I signal and inform about every step of our reorientation process
I show the way and set the example for what I want in the change process.
I communicate believable positive expectations for the change process
I create a vision of how I want the organization to function in the future
I meet changes with a positive attitude
.59 Information channels for reorientation signals
We inform about the reorientation process via the personnel management
We inform about the reorientation process via the union representatives
We inform about the reorientation process via our industry association
We inform about the reorientation process via our PR manager
We inform openly about the reorientation process via media
.76 Information content in the reorientation signals
Our senior managers personally exemplify what we want out of our reorientation process.
Our firm signals trustworthy and positive expectations for the changes
Our firm creates a vision of how we want our future organization to function.
In our firm changes are met with positive attitudes.
Our firm reacts immediately to changes among our constituents.
.80 Marketing goals
Sales growth is an important yardstick in our utility company.
Changes in the number of customers are an important yardstick in our utility company.
Changes in our market share are an important yardstick in our utility company.
.69 Long-term goals
Rentability of total assets is an important yardstick in our utility company.
120
Our utility is engaged in developing a sound economic and environmental utilization of
the energy resources.
Our utility continuously works for an economically safe and rational energy supply.
.87 The CEO’s Constituents Orientation
.75 Gathering information
The executives are oriented about what happen within our constituencies.
We regularly and systematically measure stakeholders' satisfaction with the cooperation
with us.
We have meetings with all of our stakeholders at least annually to map their concerns.
We collect industry information through informal social meetings with friends in the
industry and business partners.
We regularly check to what extent we stay ahead of stakeholder needs.
We are current with anything else occurring in our industry.
.77 Spreading information internally
Our salespeople regularly report on competitors' strategies.
We have meetings across the departments at least quarterly to discuss results and
developments within the stakeholder groups.
Several departments meet regularly to discuss how to respond to our business
environment.
.78 Acting on the information
We react quickly to changes in one or more of our constituencies.
We require all managers to weight the fulfillment of their specific responsibilities against
their contribution to the firm’s total results.
We react immediately to changes in any of our stakeholder groups.
We encourage our stakeholders to give us their ideas for improvements and change in our
relationship.
The activities of our departments are well coordinated
Moderators to the consequences of the CEO’s constituents orientation
Low-cost strategy
121
Cronbach alpha: 0.59
Measured as the factor 1 score of “Evaluate the importance of the following elements in your
firm’s competitive strategy” (1= unimportant, 7= very important)
Improve capacity utilization
Modernize the production processes
Frequent and detailed control reports
Improve access to input factors.
Differentiation strategy
Cronbach alpha: 0.79
Measured as the factor 1 score of “Evaluate the importance of the following elements in your
firm’s competitive strategy” (1= unimportant, 7= very important)
Market segmentation
Offer a broad product portfolio
Conduct market investigations
Promote the brand name(s)
Offer differentiated products
Consequences as seen by the CEO.
Financial results
Cronbach alpha: 0.73
Our return on assets compared to our competitors is... (7 point scale from much lower to
much higher)
Our total costs per unit compared to our competitors are..(7 point scale from much lower
to much higher)
Our return on equity compared to our competitors is... (7 point scale from much lower to
much higher)
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