A Cross‐Disciplinary Examination of Firm Orientations’ Performance Outcomes: The Role of Supply Chain Flexibility

• Date: 01 December 2014
• DOI: http://doi.org/10.1111/jbl.12071
• Author: David M. Gligor
• Published date: 01 December 2014

A Cross-Disciplinary Examination of Firm Orientations’

Performance Outcomes: The Role of Supply Chain Flexibility

David M. Gligor

Massachusetts Institute of Technology (MIT), Global Supply Chain and Logistics Excellence Network

Although market orientation (MO) has long been considered an important business philosophy, the examination of MO outside the firm’s

boundaries has been rather limited. To address this, this study explores how supply chain orientation and operational flexibility (FLX)

facilitate the implementation of MO. Although the positive impact of MO on firm performance has been well established, this study highlights

that such benefits are enhanced by the development of supply chain related capabilities. Results indicate that market-oriented firms are more

likely to realize the strategic importance of managing the supply chain when operating under conditions of high environmental munificence,

dynamism, and complexity. This provides a better understanding of the complex relationship between the demand and supply sides of the firm.

This study highlights the importance of marketing theory and concepts to supply chain management scholars, and vice versa. This further

accentuates the importance of eliminating the disconnect between supply and demand-management processes, also described as the “Great

Divide”(Drucker 1973; Esper et al. 2010a,b). A number of key managerial implications are offered as well.

Keywords: supply chain flexibility; supply chain orientation; market orientation; firm performance

INTRODUCTION

Market orientation (MO) has been established as a fundamental

business concept that focuses on creating superior customer value

while pursuing profits (Slater and Narver 1994). Customer-centric

organizations, such as Amazon.com, have benefited from rewards

associated with a greater marker orientation (e.g., Narver and

Slater 1990). Jeff Bezos, founder and CEO of Amazon.com, sees

customers “as invited guests to a party, and we are the hosts. It’s

our job every day to make every important aspect of the customer

experience a little bit better”(Eikenberry 2010, 2).

Although MO has long been considered an important business

philosophy, the examination of MO outside the firm’s boundaries

has been rather limited. Research highlights the need for further

exploration of MO within the context of supply chain manage-

ment theory (Min et al. 2007). In order to address this, the cur-

rent study explores how operational flexibility (FLX) (i.e.,

capability that allows a quicker reaction to changes in supply

and demand; Merschmann and Thonemann 2011) facilitates the

implementation of MO.

Over the past three decades, markets once satisfied by stan-

dardized products have evolved into much smaller segments

requiring customized products (Malhotra and Mackelprang

2012). To illustrate, the number of potato chip varieties offered

by Frito-Lay has increased from 10 to 78 (Cavusoglu et al.

2007). The trend of product proliferation is not unique to the

food industry, and can be recognized across most industries.

For example, in the automotive industry, Volkswagen offered its

Polo brand to U.K. customers in up to 52.6 billion different

configurations (Scavarda et al. 2010). In order to meet their

customers’diverse and changing expectations, market-oriented

organizations must be able to offer a wide variety of products

using their supply chain resources. FLX has been shown to be a

sine qua non capability for altering existing products to meet

unique customer requirements and for quickly adjusting the prod-

uct mix to meet changing market demands (Vickery et al. 1999;

Chuu 2011). MO entails meeting customers’demands (Narver

and Slater 1990) therefore, it is the premise of this research that

FLX plays a key role in the implementation of MO.

Another research limitation addressed in this study pertains to

the relationship between MO and organizational performance

(PERF). The relationship between MO and PERF has been estab-

lished in prior studies (Jaworski and Kohli 1993; Slater and Nar-

ver 1994; Ben Brik et al. 2011; Chen and Hsu 2013). However,

some studies did not find evidence that MO directly impacts

PERF. For example, Min et al. (2007) fail to find support for the

direct MO-PERF relationship when controlling for supply chain

orientation (SCO) (i.e., recognition of the strategic implications

of managing the supply chain). As such, it is plausible that MO

related benefits are derived through the development of various

supply-side capabilities. Therefore, in order to provide a better

understanding of this relationship, we investigate the direct

impact of MO on PERF in the context of a nomological network

of relationships that includes additional supply chain related vari-

ables (i.e., SCO and FLX).

It has been suggested that the MO-PERF relationship suffers

from a “black box”challenge (Ellinger et al. 2008). Although a

number of studies have argued for a positive relationship between

afirm’s MO and its performance, the underlying factors for this

contention remain elusive (Ben Brik et al. 2011). MO alone is not

sufficient for a firm’s market competitiveness (e.g., Han et al.

1998). Researchers suggest that a better understanding of the rela-

tionship between MO and PERF can be found when studying MO

as a component of a bundle of other strategic initiatives (Cynthia

et al. 2004; Ben Brik et al. 2011). In order to address this recom-

mendation, the current research considers the mediating roles of

SCO and FLX in the relationship between MO and PERF.

Corresponding author:

David M. Gligor, Massachusetts Institute of Technology (MIT),

Global Supply Chain and Logistics Excellence Network, 77 Massachu-

setts Ave E40-276, Cambridge, MA 02139, USA; E-mail: gligor@

mit.edu

Journal of Business Logistics, 2014, 35(4): 281–298 doi: 10.1111/jbl.12071

© Council of Supply Chain Management Professionals

Specifically, it addresses the following research question: How do

supply chain management factors (e.g., SCO and FLX) impact the

relationship between MO and PERF? In the process, this study

builds on the Min et al. (2007) research by exploring the complex

relationship between MO and SCO across various conditions of

environmental munificence, dynamism, and complexity.

This study makes several contributions. First, results show that

market-oriented firms recognize the strategic implications of

managing their supply chains (i.e., SCO) and consequently

develop the level of FLX needed to respond to their customers’

unique requirements. Thus, an important contribution of this

study is the introduction of new avenues (i.e., the SCO-FLX

path) through which MO impacts PERF. In essence, this article

makes a key contribution by establishing the role of supply chain

elements in implementing MO within firms and reaping MO

related benefits. Although the positive impact of MO on firm

performance has been well established, this study highlights that

such benefits are enhanced by the development of supply chain

related capabilities. Second, results indicate that market-oriented

firms are more likely to realize the strategic importance of man-

aging the supply chain when operating under conditions of high

environmental munificence, dynamism, and complexity. This

provides a better understanding of the complex relationship

between the demand and supply sides of the firm. Third, the cur-

rent study uses archival data to provide additional evidence that

MO has a direct and positive impact on the firm’sfinancial per-

formance even when controlling for supply-side related elements.

This suggests that MO-derived benefits are not contingent exclu-

sively upon supply-side related factors, but rather enhanced by

them. Fourth, by exploring the relationship between MO, SCO,

and FLX, this study expands the domains of supply chain man-

agement and marketing by integrating an important marketing

concept with supply chain management theory. The findings

accentuate the role of MO as a central business philosophy that

guides the development of structures and process critical to meet-

ing customers’diverse expectations and achieving superior finan-

cial performance. As such, this cross-disciplinary study

highlights the importance of marketing theory and concepts to

supply chain management scholars, and vice versa. This further

accentuates the importance of eliminating the disconnect between

supply- and demand-management processes, also described as

the “Great Divide”(Drucker 1973; Esper et al. 2010a,b). A num-

ber of key managerial implications are offered as well.

The remainder of the article is organized as follows. After pro-

viding background information on the theory and constructs of

interest, hypotheses and the model of interest are developed.

Next, the method for testing the proposed hypotheses is

described followed by implications of the findings and sugges-

tions for future research.

THEORETICAL BACKGROUND

Resource-based view theory

Resource-based view (RBV) proposes that firms that are able to

accumulate resources and capabilities that are rare, valuable, non-

substitutable, and difficult to imitate, will achieve a competitive

advantage over competing firms (Rumelt 1984; Wernerfelt 1984;

Barney 1991). According to RBV, firms seek to identify resources

that will most likely make them more competitive in the market,

and then employ these resources to exploit their value (Sirmon

et al. 2007). Resources and capabilities are oftentimes used inter-

changeably within RBV research, and, collectively refer to the tan-

gible and intangible assets firms use to develop and implement

their strategies (Ray et al. 2004). However, a distinction can be

made. Resources are more accurately described as “stocks of avail-

able factors that are owned or controlled by the firm,”whereas

capabilities “refer to a firm’s capacity to deploy resources, usually

in combination, using organizational processes, to effect the

desired end”(Amit and Schoemaker 1993, 35).

The possession of resources or capabilities alone is not suffi-

cient to create superior firm performance. Resources and capabili-

ties must also be effectively managed and exploited (Lippman

and Rumelt 2003; Zott 2003; Sirmon et al. 2007; Fawcett et al.

2012). Combinations of resources and capabilities are more likely

to explain higher performance in firms than resources used in iso-

lation (Newbert 2007). Coalescing resources and capabilities that

are dependent on each other through causal relationships can cre-

ate value for the firm above and beyond the value created by indi-

vidual resources and capabilities (Dierickx and Cool 1989; Black

and Boal 1994; Newbert 2008). Strategic management and supply

chain management research has referred to firm orientations as

resources and FLX as a capability (Vickery et al. 1999; Gunasek-

aran et al. 2004; Ketchen et al. 2007). Capabilities are typically

developed over time through complex interactions among the

firm’s resources and help deploy resources to achieve a desired

objective (Amit and Schoemaker 1993). This would suggest that

MO and SCO can lead to the development of FLX for better

deploying the firm’s MO and SCO and generating a competitive

advantage for the focal firm. Therefore, consistent with RBV, we

consider the combination of firm orientations (e.g., MO and

SCO) and FLX as a source of superior firm performance.

Firm orientations

An orientation is an underlying consciousness or latent philoso-

phy that directs the nature and scope of a firm’s internal and

external activities (Borch 1957; Peterson 1989; Kotler 1997).

Strategic orientations direct and influence the activities of a firm

and generate behaviors intended to ensure its viability and per-

formance (Gatignon and Xuereb 1997; Hakala 2011). They

address the long-term positioning of a firm in the competitive

environment and the resource allocation priority of the firm (Lau

2011). Different strategic orientations involve distinctive invest-

ments in physical, human, and financial resources (Wiklund and

Shepherd 2003). A number of research articles suggest that a sin-

gle orientation is inadequate and balancing several orientations

enables firms to perform better (Baker and Sinkula 1999; Atuah-

ene-Gima and Ko 2001; Grinstein 2008; Hakala 2011). The two

firm orientations of interest to this research are MO and SCO.

Next, these two concepts are formally introduced and defined.

Market orientation

The concept of MO plays a central role in marketing manage-

ment and strategy. It focuses on creating superior customer value

while pursuing profits (Slater and Narver 1994). Different

282 D. M. Gligor